10-Q
Popular, Inc. (BPOP)
View as plain text
1
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, 2023
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number:
001-34084
POPULAR, INC.
(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,
72,127,733
shares outstanding as of August 7, 2023.
2
POPULAR INC
INDEX
Part I – Financial Information
Page
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition
at June 30, 2023 and
December 31, 2022
6
Unaudited Consolidated Statements of Operations for
the quarters
and six months ended June 30, 2023 and 2022
7
Unaudited Consolidated Statements of Comprehensive
Income (Loss) for the
quarters and six months ended June 30, 2023 and
2022
8
Unaudited Consolidated Statements of Changes in
Stockholders’ Equity for the
quarters and six months ended June 30, 2023 and
2022
9
Unaudited Consolidated Statements of Cash Flows for
the six months
ended June 30, 2023 and 2022
11
Notes to Unaudited Consolidated Financial Statements
13
Item 2. Management’s Discussion and Analysis of Financial
Condition and
Results of Operations
127
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
174
Item 4. Controls and Procedures
174
Part II – Other Information
Item 1. Legal Proceedings
174
Item 1A. Risk Factors
174
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
174
Item 3. Defaults Upon Senior Securities
175
Item 4. Mine Safety Disclosures
175
Item 5. Other Information
175
Item 6. Exhibits
175
Signatures
177
3
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;
●
adverse
economic conditions,
including high
levels
of
and
ongoing increases
in
inflation
rates,
that
adversely
affect
housing prices, the job market, consumer confidence
and spending habits which may affect in turn, among
other things,
our level of non-performing assets, charge-offs and provision
expense;
●
changes in interest rates and market liquidity,
which may reduce interest margins, impact funding sources, reduce loan
originations, affect
our ability
to originate
and distribute
financial products
in the
primary and
secondary markets
and
impact the value of our investment portfolio and
our ability to return capital to our shareholders;
●
changes
to
regulatory
capital,
liquidity
and
resolution-related
requirements
applicable
to
financial
institutions
in
response to recent developments affecting the banking sector;
●
the
impact
of
bank
failures
or
adverse
developments
at
other
banks
and
related
negative
media
coverage
of
the
banking industry in general on investor and depositor
sentiment regarding the stability and liquidity of
banks;
●
the impact of the current fiscal and economic challenges of Puerto Rico and the
measures taken and to be taken by the
Puerto
Rico
Government
and
the
Federally-appointed
oversight
board
on
the
economy,
our
customers
and
our
business;
●
the impact of the pending debt
restructuring proceedings under Title III of the
Puerto Rico Oversight, Management and
Economic
Stability
Act
(“PROMESA”)
and
of
other
actions
taken
or
to
be
taken
to
address
Puerto
Rico’s
fiscal
challenges on the value of our portfolio of Puerto Rico
government securities and loans to governmental entities and of
our
commercial,
mortgage
and
consumer
loan
portfolios
where
private
borrowers
could
be
directly
affected
by
governmental action;
●
the
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;
●
unforeseen
or
catastrophic
events,
including
extreme
weather
events,
including
hurricanes,
other
natural
disasters,
man-made disasters,
acts of
violence or
war or
pandemics, epidemics
and other
health-related crises,
including any
4
resurgence of COVID-19, or the fear of any
such event occurring, any of which could cause adverse consequences for
our business, including, but not limited to, disruptions
in our operations;
●
our
ability
to
achieve
the
expected
benefits
from
our
transformation
initiative,
including
our
ability
to
achieve
our
targeted sustainable return on tangible common equity
of 14% by the end of 2025;
●
risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc.
to
service certain
of Banco
Popular de
Puerto Rico’s
key channels,
as well
as the
entry into
amended and
restated
commercial
agreements
(the
“Evertec
Business
Acquisition
Transaction”),
including
Popular’s
ability
to
successfully
transition and integrate the assets
acquired as part of the
Evertec Business Acquisition 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 Evertec Business
Acquisition Transaction or
that are not
subject to indemnification or
reimbursement by Evertec, Inc.;
and business and
other risks arising from the extension of Popular’s
current commercial agreements with Evertec,
Inc.;
●
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 or special 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;
●
the
relative strength
or
weakness
of
the
consumer and
commercial credit
sectors
and
of
the
real
estate markets
in
Puerto Rico and the other markets in which our
borrowers are located;
●
the performance of the stock and bond markets;
●
competition in the financial services industry;
●
possible legislative, tax or regulatory changes;
●
a failure
in or
breach of
our operational
or security
systems or
infrastructure or
those of
Evertec, Inc.,
our provider
of
core financial
transaction processing and
information technology services,
or of
third parties
providing services
to us,
including
as
a
result
of
cyberattacks, e-fraud,
denial-of-services and
computer intrusion,
that
might result
in,
among
other
things,
loss
or
breach
of
customer
data,
disruption
of
services,
reputational
damage
or
additional
costs
to
Popular;
●
changes in market rates and prices which may
adversely impact the value of financial assets
and liabilities;
●
potential judgments,
claims, damages,
penalties, fines,
enforcement actions
and
reputational damage
resulting from
pending
or
future
litigation
and
regulatory
or
government
investigations
or
actions,
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 branches
or business units or otherwise change our
business mix; and
●
management’s ability to identify and manage these and
other risks.
5
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,
2022 (the “2022
Form 10-K”), as
well as “Part
II,
Item 1A”
of our
Quarterly Reports
on Form
10-Q for
a discussion
of such
factors and
certain risks
and uncertainties
to which
the
Corporation is subject.
All forward-looking
statements included
in this
Form 10-Q
are based
upon information
available to
Popular as
of the
date of
this
Form 10-Q, and other than as
required by law, including the
requirements of applicable securities laws, we assume no
obligation to
update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date
of such statements.
6
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(UNAUDITED)
[UNAUDITED]
June 30,
December 31,
(In thousands, except share information)
2023
2022
Assets:
Cash and due from banks
$
476,642
$
469,501
Money market investments:
Time deposits with other banks
8,593,476
5,614,595
Total money market investments
8,593,476
5,614,595
Trading account debt securities, at fair value:
Other trading account debt securities
29,160
27,723
Debt securities available-for-sale, at fair
value:
Pledged securities with creditors’ right to repledge
104,564
129,203
Other debt securities available-for-sale
17,137,653
17,675,171
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
26,543
26,496
Other debt securities held-to-maturity
8,384,023
8,498,870
Debt securities held-to-maturity (fair
value 2023 - $
8,274,950
; 2022 - $
8,440,196
)
8,410,566
8,525,366
Less – Allowance for credit losses
6,145
6,911
Debt securities held-to-maturity, net
8,404,421
8,518,455
Equity securities (realizable value 2023 -
$
193,239
; 2022 - $
196,665
)
192,373
195,854
Loans held-for-sale, at fair value
55,421
5,381
Loans held-in-portfolio
33,354,999
32,372,925
Less – Unearned income
324,077
295,156
Allowance for credit losses
700,200
720,302
Total loans held-in-portfolio, net
32,330,722
31,357,467
Premises and equipment, net
523,927
498,711
Other real estate
86,216
89,126
Accrued income receivable
239,998
240,195
Mortgage servicing rights, at fair value
121,249
128,350
Other assets
1,703,662
1,847,813
Goodwill
827,428
827,428
Other intangible assets
11,354
12,944
Total assets
$
70,838,266
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,316,552
$
15,960,557
Interest bearing
48,688,266
45,266,670
Total deposits
64,004,818
61,227,227
Assets sold under agreements to repurchase
123,205
148,609
Other short-term borrowings
-
365,000
Notes payable
1,304,049
886,710
Other liabilities
841,185
916,946
Total liabilities
66,273,257
63,544,492
Commitments and contingencies (Refer
to Note 21)
Stockholders’ equity:
Preferred stock,
30,000,000
shares authorized;
885,726
shares issued and outstanding (2022 -
885,726
)
22,143
22,143
Common stock, $
0.01
par value;
170,000,000
shares authorized;
104,712,430
shares issued (2022 -
104,657,522
) and
72,103,969
shares outstanding (2022 -
71,853,720
)
1,047
1,047
Surplus
4,795,581
4,790,993
Retained earnings
4,093,284
3,834,348
Treasury stock - at cost,
32,608,461
shares (2022 -
32,803,802
)
(2,018,611)
(2,030,178)
Accumulated other comprehensive loss, net
of tax
(2,328,435)
(2,524,928)
Total stockholders’ equity
4,565,009
4,093,425
Total liabilities and stockholders’ equity
$
70,838,266
$
67,637,917
The accompanying notes are an integral part of
these Consolidated Financial Statements.
7
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Quarters ended June 30,
Six months ended June 30,
(In thousands, except per share information)
2023
2022
2023
2022
Interest income:
Loans
$
570,120
$
446,245
$
1,111,330
$
873,036
Money market investments
100,775
23,742
166,499
30,206
Investment securities
123,112
101,774
255,200
198,240
Total interest income
794,007
571,761
1,533,029
1,101,482
Interest expense:
Deposits
243,488
27,827
436,703
52,610
Short-term borrowings
1,624
248
4,509
328
Long-term debt
17,227
9,824
28,493
20,370
Total interest expense
262,339
37,899
469,705
73,308
Net interest income
531,668
533,862
1,063,324
1,028,174
Provision for credit losses (benefit)
37,192
9,362
84,829
(6,138)
Net interest income after provision for credit losses
(benefit)
494,476
524,500
978,495
1,034,312
Non-interest income:
Service charges on deposit accounts
37,781
41,809
72,459
82,522
Other service fees
94,265
81,451
184,341
158,585
Mortgage banking activities (Refer to Note 10)
2,316
13,575
9,716
26,440
Net gain (loss), including impairment on equity securities
1,384
(4,109)
2,484
(6,203)
Net gain (loss) on trading account debt securities
35
51
413
(672)
Adjustments
to indemnity reserves on loans sold
(456)
170
156
(575)
Other operating income
25,146
24,464
52,863
52,006
Total non-interest income
160,471
157,411
322,432
312,103
Operating expenses:
Personnel costs
191,468
168,788
390,228
335,784
Net occupancy expenses
27,165
26,214
53,204
50,937
Equipment expenses
9,561
8,674
17,973
17,063
Other taxes
16,409
15,780
32,700
31,495
Professional fees
50,132
38,430
83,563
75,222
Technology and software expenses
72,354
74,761
140,913
145,296
Processing and transactional services
36,801
31,037
70,710
61,990
Communications
4,175
3,497
8,263
7,170
Business promotion
25,083
21,353
43,954
36,436
FDIC deposit insurance
6,803
6,463
15,668
13,835
Other real estate owned (OREO) income
(3,314)
(7,806)
(5,008)
(10,519)
Other operating expenses
22,852
18,292
47,213
42,222
Amortization of intangibles
795
795
1,590
1,686
Total operating expenses
460,284
406,278
900,971
808,617
Income before income tax
194,663
275,633
399,956
537,798
Income tax expense
43,503
64,212
89,817
114,691
Net Income
$
151,160
$
211,421
$
310,139
$
423,107
Net Income Applicable to Common Stock
$
150,807
$
211,068
$
309,433
$
422,401
Net Income per Common Share – Basic
$
2.10
$
2.77
$
4.32
$
5.46
Net Income per Common Share – Diluted
$
2.10
$
2.77
$
4.32
$
5.46
The accompanying notes are an integral part of
these Consolidated Financial Statements.
8
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Quarters ended,
Six months ended,
June 30,
June 30,
(In thousands)
2023
2022
2023
2022
Net income
$
151,160
$
211,421
$
310,139
$
423,107
Other comprehensive (loss) income before
tax:
Foreign currency translation adjustment
6,001
5,998
756
3,140
Adjustment of pension and postretirement
benefit plans
-
-
-
2,030
Amortization of net losses of pension and
postretirement benefit plans
4,813
3,911
9,626
7,822
Unrealized holding (losses) gains on debt securities
arising during the period
(77,851)
(620,597)
135,467
(1,839,620)
Amortization of unrealized losses of debt
securities transfer from available-for-
sale to held-to-maturity
42,903
-
84,943
-
Unrealized net (losses) gains on cash flow
hedges
-
(377)
(30)
3,511
Reclassification adjustment for net gains included
in net income
-
(880)
(41)
(1,579)
Other comprehensive (loss) income before
tax
(24,134)
(611,945)
230,721
(1,824,696)
Income tax (expense) benefit
(2,476)
56,167
(34,228)
196,749
Total other comprehensive (loss) income, net of tax
(26,610)
(555,778)
196,493
(1,627,947)
Comprehensive income (loss), net of tax
$
124,550
$
(344,357)
$
506,632
$
(1,204,840)
Tax effect allocated to each component of other comprehensive
income (loss):
Quarters ended
Six months ended,
June 30,
June 30,
(In thousands)
2023
2022
2023
2022
Adjustment of pension and postretirement
benefit plans
$
-
$
-
$
-
$
(761)
Amortization of net losses of pension and
postretirement benefit plans
(1,805)
(1,467)
(3,610)
(2,934)
Unrealized holding (losses) gains on debt securities
arising during the period
7,910
57,177
(13,656)
200,370
Amortization of unrealized losses of debt
securities transfer from available-for-
sale to held-to-maturity
(8,581)
-
(16,988)
-
Unrealized net (losses) gains on cash flow
hedges
-
45
11
(704)
Reclassification adjustment for net gains included
in net income
-
412
15
778
Income tax (expense) benefit
$
(2,476)
$
56,167
$
(34,228)
$
196,749
The accompanying notes are an integral part
of the Consolidated Financial Statements.
9
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
other
Common
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
loss
Total
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
Balance at March 31, 2023
$
1,047
$
22,143
$
4,792,619
$
3,982,140
$
(2,025,399)
$
(2,301,825)
$
4,470,725
Net income
151,160
151,160
Issuance of stock
1,550
1,550
Dividends declared:
Common stock
[1]
(39,663)
(39,663)
Preferred stock
(353)
(353)
Common stock purchases
(1,271)
(1,271)
Stock based compensation
1,412
8,059
9,471
Other comprehensive loss, net of tax
(26,610)
(26,610)
Balance at June 30, 2023
$
1,047
$
22,143
$
4,795,581
$
4,093,284
$
(2,018,611)
$
(2,328,435)
$
4,565,009
[1]
Dividends declared per common share during the quarter
ended June 30, 2023 - $
0.55
(2022 - $
0.55
).
10
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
other
Common
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
(loss) income
Total
Balance at December 31, 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
[2]
(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
Balance at December 31, 2022
$
1,047
$
22,143
$
4,790,993
$
3,834,348
$
(2,030,178)
$
(2,524,928)
$
4,093,425
Cumulative effect of accounting change
28,752
28,752
Net income
310,139
310,139
Issuance of stock
3,117
3,117
Dividends declared:
Common stock
[1]
(79,249)
(79,249)
Preferred stock
(706)
(706)
Common stock purchases
(4,241)
(4,241)
Stock based compensation
1,471
15,808
17,279
Other comprehensive income, net of tax
196,493
196,493
Balance at June 30, 2023
$
1,047
$
22,143
$
4,795,581
$
4,093,284
$
(2,018,611)
$
(2,328,435)
$
4,565,009
[1]
Dividends declared per common share during the six months
ended June 30, 2023 - $
1.10
(2022 - $
1.10
).
[2]
During the six months 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 18 for additional information.
For the period ended
June 30,
June 30,
Disclosure of changes in number of shares:
2023
2022
Preferred Stock:
Balance at beginning and end of period
885,726
885,726
Common Stock – Issued:
Balance at beginning of period
104,657,522
104,579,334
Issuance of stock
54,908
34,774
Balance at end of period
104,712,430
104,614,108
Treasury stock
(32,608,461)
(28,037,711)
Common Stock – Outstanding
72,103,969
76,576,397
The accompanying notes are an integral part of these Consolidated
Financial Statements.
11
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
(In thousands)
2023
2022
Cash flows from operating activities:
Net income
$
310,139
$
423,107
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses (benefit)
84,829
(6,138)
Amortization of intangibles
1,590
1,686
Depreciation and amortization of premises and equipment
27,957
27,354
Net accretion of discounts and amortization of premiums and
deferred fees
1,568
39,614
Interest capitalized on loans subject to the temporary payment
moratorium or loss mitigation alternatives
(5,275)
(6,210)
Share-based compensation
13,331
13,175
Fair value adjustments on mortgage servicing rights
8,342
(3,275)
Adjustments to indemnity reserves on loans sold
(156)
575
Earnings from investments under the equity method, net
of dividends or distributions
(6,540)
(12,616)
Deferred income tax (benefit) expense
(1,007)
37,322
(Gain) loss on:
Disposition of premises and equipment and other productive
assets
(5,643)
(2,970)
Sale of loans, including valuation adjustments on loans
held-for-sale and mortgage banking activities
(202)
1,498
Sale of foreclosed assets, including write-downs
(11,674)
(18,694)
Acquisitions of loans held-for-sale
(6,153)
(103,192)
Proceeds from sale of loans held-for-sale
24,808
36,073
Net originations on loans held-for-sale
(45,005)
(158,691)
Net decrease (increase) in:
Trading debt securities
17,484
273,265
Equity securities
(7,962)
2,257
Accrued income receivable
138
(13,702)
Other assets
17,306
10,157
Net increase (decrease) in:
Interest payable
16,815
(212)
Pension and other postretirement benefits obligation
7,983
(1,411)
Other liabilities
(91,321)
(47,640)
Total adjustments
41,213
68,225
Net cash provided by operating activities
351,352
491,332
Cash flows from investing activities:
Net (increase) decrease in money market investments
(2,979,482)
7,850,071
Purchases of investment securities:
Available-for-sale
(7,257,079)
(8,819,124)
Held-to-maturity
(6,037)
(1,588,283)
Equity
(15,999)
(5,500)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
Available-for-sale
8,067,613
5,619,609
Held-to-maturity
204,587
5,491
Proceeds from sale of investment securities:
Equity
27,442
17,350
Net disbursements on loans
(776,383)
(893,126)
Proceeds from sale of loans
40,759
43,353
Acquisition of loan portfolios
(322,512)
(288,589)
Return of capital from equity method investments
249
-
Acquisition of premises and equipment
(85,341)
(39,695)
Proceeds from sale of:
Premises and equipment and other productive assets
3,200
1,975
Foreclosed assets
57,226
54,997
Net cash (used in) provided by investing activities
(3,041,757)
1,958,529
12
Cash flows from financing activities:
Net increase (decrease) in:
Deposits
2,754,305
(1,668,448)
Assets sold under agreements to repurchase
(25,405)
(20,678)
Other short-term borrowings
(365,000)
(75,000)
Payments of notes payable
(21,000)
(101,000)
Principal payments of finance leases
(2,645)
(1,592)
Proceeds from issuance of notes payable
437,631
-
Proceeds from issuance of common stock
3,117
2,735
Dividends paid
(79,816)
(78,718)
Net payments for repurchase of common stock
(364)
(400,704)
Payments related to tax withholding for share-based compensation
(3,877)
(5,591)
Net cash provided by (used in) financing activities
2,696,946
(2,348,996)
Net increase in cash and due from banks, and restricted
cash
6,541
100,865
Cash and due from banks, and restricted cash at beginning
of period
476,159
434,512
Cash and due from banks, and restricted cash at the end of
the period
$
482,700
$
535,377
The accompanying notes are an integral part of these Consolidated
Financial Statements.
13
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 -
Summary of significant accounting policies
19
Note 5 -
Restrictions on cash and due from banks and
certain securities
20
Note 6 -
Debt securities available-for-sale
21
Note 7 -
Debt securities held-to-maturity
24
Note 8 -
Loans
28
Note 9 -
Allowance for credit losses – loans held-in-
portfolio
37
Note 10 -
Mortgage banking activities
72
Note 11 -
Transfers of financial assets and mortgage
servicing assets
73
Note 12 -
Other real estate owned
77
Note 13 -
Other assets
78
Note 14 -
Goodwill and other intangible assets
79
Note 15 -
Deposits
81
Note 16 -
Borrowings
82
Note 17 -
Other liabilities
84
Note 18 -
Stockholders’ equity
85
Note 19 -
Other comprehensive loss
86
Note 20 -
Guarantees
88
Note 21 -
Commitments and contingencies
90
Note 22-
Non-consolidated variable interest entities
95
Note 23 -
Related party transactions
97
Note 24 -
Fair value measurement
99
Note 25 -
Fair value of financial instruments
106
Note 26 -
Net income per common share
109
Note 27 -
Revenue from contracts with customers
110
Note 28 -
Leases
112
Note 29 -
Pension and postretirement benefits
114
Note 30 -
Stock-based compensation
115
Note 31 -
Income taxes
118
Note 32 -
Supplemental disclosure on the consolidated
statements of cash flows
122
Note 33 -
Segment reporting
123
14
Note 1 – Nature of Operations
Nature of Operations
Popular,
Inc. (the
“Corporation” or
“Popular”) is
a diversified,
publicly-owned financial
holding company
subject to
the supervision
and
regulation
of
the
Board
of
Governors
of
the
Federal
Reserve
System.
The
Corporation
has
operations
in
Puerto
Rico,
the
mainland United
States (“U.S.”)
and the
U.S. and
British Virgin
Islands. In
Puerto Rico,
the Corporation
provides retail,
mortgage,
and
commercial
banking
services,
through
its
principal
banking
subsidiary,
Banco
Popular
de
Puerto
Rico
(“BPPR”),
as
well
as
investment
banking,
broker-dealer,
auto
and
equipment
leasing
and
financing,
and
insurance
services
through
specialized
subsidiaries. In
the U.S.
mainland, the
Corporation provides
retail, mortgage,
commercial banking
services, as
well as
equipment
leasing
and
financing,
through
its
New
York-chartered
banking
subsidiary,
Popular
Bank
(“PB”
or
“Popular
U.S.”),
which
has
branches located in New York, New Jersey, and Florida.
15
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,
2022 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, 2022, included
in the 2022 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.
The Corporation embarked on a
broad-based multi-year, technological and
business process transformation during the second
half
of 2022. The needs and expectations of
the Corporation’s clients, as well as
the competitive landscape, have evolved, requiring the
Corporation to
make
important
investments
in
its
technological infrastructure
and
adopt
more
agile
practices.
The
Corporation’s
technology and business transformation will be
a significant priority for the Corporation over the next
three years and beyond.
As
part
of
this
transformation,
the
Corporation
aims
to
expand
its
digital
capabilities,
modernize
our
technology
platform,
and
implement agile and
efficient business
processes across the
entire Corporation. To
facilitate the transparency
of the
progress with
the transformation initiative and to better portray the level of technology
related expenses categorized by the nature of the expense,
effective
in the
fourth quarter
of
2022,
the
Corporation has
separated technology,
professional fees
and
transactional and
items
processing related expenses as standalone expense categories in the
accompanying Consolidated Statement of Operations. There
were no
changes to
the total
operating expenses
presented.
Prior periods
amount in
the Consolidated
Financial Statements
and
related disclosures have been reclassified to conform
to the current presentation.
The following table provides the detail of
the reclassifications for each respective quarter:
Quarter ended
Six months ended
30-Jun-22
30-Jun-22
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
25,088
$
(16,414)
$
8,674
48,567
(31,504)
17,063
Professional fees
114,872
(76,442)
38,430
223,369
(148,147)
75,222
Technology and
software expenses
-
74,761
74,761
-
145,296
145,296
Processing and transactional services
-
31,037
31,037
-
61,990
61,990
Communications
5,993
(2,496)
3,497
12,140
(4,970)
7,170
Other operating expenses
28,738
(10,446)
18,292
64,887
(22,665)
42,222
Net effect on operating expenses
$
174,691
$
-
$
174,691
$
348,963
$
-
$
348,963
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.
16
Note 3 - New accounting pronouncements
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2022-05,
Financial Services -
Insurance (Topic 944)
Transition for Sold
Contracts
The
FASB
issued
ASU
2022-05
in
December 2022, which
allows an insurance
entity to make an
accounting policy election
of
applying
the
Long-Duration
Contracts
(LDTI) transition guidance
on a transaction-
by-transaction
basis
if
the
contracts
have
been
derecognized
because
of
a
sale
or
disposal
and
the
insurance
entity
has
no
significant
continuing
involvement
with
the
derecognized contract.
January 1, 2023
The
Corporation
was
not
impacted
by
the
adoption
of
ASU
2022-05
during
the
first
quarter
of
2023
since
it
does
not
hold
Long-Duration
Contracts
(LDTI).
FASB ASU 2022-04,
Liabilities—Supplier
Finance Programs
(Subtopic 405-50)
Disclosure of Supplier
Finance Program
Obligations
The
FASB
issued
ASU
2022-04
in
September 2022, which requires to disclose
information
about
the
use
of
supplier
finance
programs
in
connection
with
the
purchase of goods and services.
January 1, 2023
The
Corporation
was
not
impacted
by
the
adoption
of
ASU
2022-04
during
the
first
quarter
of
2023
since
it
does
not use supplier finance programs.
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
creditors
to
apply
the
loan
refinancing
and
restructuring
guidance
to
determine whether
a modification
results in
a new
loan or
a continuation
of an
existing
loan.
In
addition,
the
ASU
enhances
the
disclosure
requirements
for
certain
loan
refinancing
and
restructurings
by
creditors
when
a
borrower
is
experiencing
financial
difficulty
and
enhances
the
vintage
disclosure
by
requiring
the
disclosure
of
current-period
gross
write-offs
by
year
of
origination for financing
receivables and net
investments
in leases.
January 1, 2023
The Corporation adopted ASU
2022-02
during
the
first
quarter
of
2023.
The
adoption
of
this
standard
resulted
in
enhanced disclosure for
loans modified
to
borrowers
with
financial
difficulties
and
the
disclosure
of
period
gross
charge
offs
by
vintage
year.
The
Corporation
anticipates
that
there
will
be
loans
subject
to
disclosure
under
the
new
standard
that
did
not
qualify
under
the
prior
guidance
given
the
removal of
the concession
requirement
for
such
disclosures.
The
amended
guidance eliminated
the requirement to
measure
the
effect
of
the
concession
from
a loan
modification, for
which the
Corporation
used
a
discounted
cash
flow
(“DCF”)
model.
The
impact
of
discontinuing the use of the DCF model
to
measure
the
concession
resulted in
a
release
of
the
allowance
for
credit
losses
("ACL")
of
$
46
million,
mainly
related
to
mortgage
loans
for
which
modifications
mostly
included
a
reduction
in
contractual
interest
rates
and
given
the
extended
maturity
term
of
these
loans,
this
resulted
in
an
increase
in
the
ACL
in
the
period
of
modification. For
the
transition
method
related
to
the
recognition
and
measurement of TDRs, the Corporation
has
elected
to
apply
the
modified
retrospective approach for the
adoption
of
this
standard.
Accordingly,
this
presented
an
adjustment
increase
of
$
29
million,
net
of
tax
effect,
to
the
beginning balance
of retained
earnings
on January 1, 2023.
17
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2022-01,
Derivatives and Hedging
(Topic 815) – Fair Value
Hedging—Portfolio Layer
Method
The
FASB
issued
ASU
2022-01
in
March
2022,
which
amends
ASC
Topic
815
by
allowing
non
prepayable
financial
assets
also
to
be
included
in
a
closed
portfolio
hedged
using
the
portfolio
layer
method.
This
amendment permits
an entity
to
apply
fair
value
hedging to
a
stated
amount
of
a
closed
portfolio
of
prepayable
and
non-
prepayable
financial
assets
without
considering
prepayment
risk
or
credit
risk
when measuring those assets.
January 1, 2023
The
Corporation
was
not
impacted
by
the adoption of ASU 2022-01 during the
first
quarter
of
2023
since
it
does
not
hold
derivatives
designated
as
fair
value hedges.
FASB ASU 2021-08,
Business Combinations
(Topic 805) – Accounting
for Contract Assets and
Contract Liabilities from
Contracts with Customers
The FASB
issued ASU
2021-08 in
October
2021,
which
amends
ASC
Topic
805
by
requiring
contract
assets
and
contract
liabilities arising
from revenue
contract with
customers
to
be
recognized
in
accordance
with ASC
Topic
606 on
the acquisition date
instead of fair value.
January 1, 2023
The
Corporation
was
not
impacted
by
the adoption of ASU 2021-08 during the
first
quarter
of
2023,
however,
it
will
consider
this
guidance
for
revenue
contracts with customers recognized as
part
of
business
combinations
entered
into on or after the effective date.
FASB ASU 2023-03,
Presentation of Financial
Statements (Topic 205),
Income Statement—
Reporting Comprehensive
Income (Topic 220),
Distinguishing Liabilities
from Equity (Topic 480),
Equity (505), and
Compensation—Stock
Compensation (Topic 718)
The
FASB
issued
Accounting
Standards
Update (“ASU”) 2023-03 in
July 2023 which
amends
or
supersedes
various
SEC
paragraphs
within
the
Codification
to
conform
to
past
SEC
announcements
and
guidance
which
updated
SAB
Topics
5.T,
14, and 6.B.
July 2023
The
Corporation
was
not
impacted
by
the
adoption
of
this
ASU
since
it
codifies previous guidance.
FASB ASU 2023-04,
Liabilities (Topic 405)
The
FASB
issued
Accounting
Standards
Update
(“ASU”)
2023-04
in
August
2023
which amends SEC
paragraphs within ASC
Topic
405
to
clarify
the
accounting
and
disclosure
for
obligations
to
safeguard
Crypto-Assets
an
entity
holds
for
its
platform users.
August 2024
The
Corporation
was
not
impacted
by
the
adoption of
this
ASU
since
it
does
not
hold
Crypto-Assets
for
its
platform
users.
18
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2023-02,
Investments—Equity
Method and Joint
Ventures (Topic 323) -
Accounting for
Investments in Tax Credit
Structures Using the
Proportional Amortization
Method
The
FASB
issued
ASU
2023-02
in
March
2023,
which
amend
topic
ASC
323
by
permitting
the
election
to
apply
the
proportional amortization method to account
for
tax
equity
investments
that
generate
income
tax
credits
through
investment
in
low-income-housing
tax
credit
(LIHTC)
structures
and
other
tax
credit
programs
if
certain
conditions
are
met.
The
ASU
also
eliminates
the
application
of
the
subtopic
323-740
to
LIHTC
investment
not
accounted
for
using
the
proportional
amortization
method
and
instead
requires
the use of other guidance.
January 1, 2024
The Corporation
is currently
evaluating
the
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
FASB ASU 2023-01,
Leases (Topic 842),
Lessors – Common
Control Arrangements
The
FASB
issued
ASU
2023-01
in
March
2023,
which
amends
ASC
Topic
842
and
requires
to
amortize
leasehold
improvements
associated
with
common
control
leases
over
the
useful
life
of
the
leasehold
improvements
to
the
common
control group as long
as the lessee controls
the
use
of
the
underlying assets
through a
lease.
In
addition,
the
ASU
requires
companies
to
account
for
leasehold
improvements
associated
with
common
control leases as a transfer between entities
under
common
control
through
an
adjustments
to
equity
if,
and
when,
the
lessee
no
longer
controls
the
use
of
the
underlying asset.
January 1, 2024
Prior
to
adoption
of
this
ASU,
the
Corporation will
consider the
impact of
this
guidance
to
determine
the
amortization
period
for
and
accounting
treatment
of
leasehold
improvements
associated
with
common
control
leases.
For other recently issued Accounting Standards
Updates not yet effective, refer to Note 3
to the Consolidated Financial Statements
included in the 2022 Form 10-K.
19
Note 4 – Summary of significant accounting
policies
The
accounting
and
financial
reporting
policies
of
Popular,
Inc.
and
its
subsidiaries
(the
“Corporation”) conform
with
accounting
principles generally accepted
in the
United States of
America and with
prevailing practices within
the financial services
industry. A
description of the significant accounting and
financial reporting policies can be found on Note 2
to the 2022 Form 10-K.
In connection with the implementation of the Accounting Standards Update (“ASU”) 2022-02, the Corporation has modified its policy
related to
loan modifications.
As discussed
in Note
3, the
new accounting
guidance eliminates
the recognition
and measurement
principle of
TDRs.
The Corporation
has
also made
changes to
certain of
its
accounting policies
related to
its
loans portfolio
and
allowance for credit losses in connection with
this accounting standards update.
A
modification is
subject to
disclosure under
the new
ASU when
the Corporation
separately concludes
that both
of the
following
conditions exist:
1) the
debtor is experiencing
financial difficulties 2)
the modification constitutes
a reduction
in the
interest rate
on
the loan, a payment extension, a forgiveness of principal, or a more-than-insignificant payment delay. Determination that a borrower
is experiencing
financial difficulties
involves a
degree of
judgment. The identification
of loan
modifications to
debtors with financial
difficulties is critical in the determination of the adequacy
of the ACL.
The
ASU
also
eliminates
the
requirement to
use
a
DCF
approach
to
estimated
credit
losses
for
modified
loans
with
borrowers
experiencing financial difficulties. The
entity can apply
a methodology similar to
the one used for
loans that were not
modified. The
Corporation applied a modified retrospective transition method for the implementation of ASU 2022-02 which
resulted in a reduction
of approximately $
46
million, $
29
million net of tax, in the reserve which was recorded as an
adjustment to the beginning balance of
retained earnings.
A loan
modified with
financial difficulties
is typically
in non-accrual
status at
the time
of the
modification. These
loans continue
in
non-accrual status until the borrower has demonstrated a willingness
and ability to make the restructured loan payments (at
least six
months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and
management has concluded that it is probable
that the borrower would not be in payment
default in the foreseeable future.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
qualitative
information
on
loan
modifications
and
the
Corporation’s determination of the ACL.
Refer below for changes in accounting policies due
to the adoption of the new ASU and other
policy adoptions:
Loans
Effective on January 1, 2023,
newly originated mortgage loans held-for-sale are stated at fair
value, with changes recorded through
earnings.
Previously held-for-sale
were carried
at
the lower
of
its cost
or market
value. Fair
value is
generally determined
in the
aggregate and
is measured
based on
current market
prices for
similar loans,
outstanding investor
commitments, prices
of recent
sales
or
discounted
cash
flow
analyses
which
utilize
inputs
and
assumptions
which
are
believed
to
be
consistent
with
market
participants’ views.
Derivative instruments
Effective on
January 1,
2023, the
Corporation discontinued
the hedge
accounting treatment
of certain
forward contracts
for which
the
changes
in
fair
value
were
recorded,
net
of
taxes,
in
accumulated
other
comprehensive
income/(loss)
and
subsequently
reclassified to net
income (loss) in
the same
period that the
hedged transaction impacted
earnings. As a
result of this
change, the
changes in the fair
value of these forward contracts
are being recorded through net
income (loss). The Corporation utilizes
forward
contracts to hedge the
sale of mortgage-backed securities with
duration terms over one month.
Interest rate forwards are contracts
for the delayed delivery of securities, which the seller agrees to deliver on a specified future
date at a specified price or yield. These
forward contracts are hedging a forecasted transaction
and thus qualify for cash flow hedge accounting.
Based
on
the
election
to
apply
fair
value
accounting
for
its
mortgage
loans
held
for
sale,
effective
on
January
1,
2023,
the
Corporation discontinued
the
hedge accounting
since
the
changes
in
the
fair
value
of
the
loans
is
expected
to
be
offset
by
the
changes in the fair value of the forward
contract, both of which are now recorded through
net income (loss).
20
Note 5 - Restrictions on cash and due from
banks and certain securities
BPPR is
required by
regulatory agencies
to maintain
average reserve
balances with
the Federal
Reserve Bank
of New
York
(the
“Fed”) or
other banks. Those
required average reserve
balances amounted to
$
2.7
billion at June
30, 2023 (December
31, 2022
-
$
2.8
billion). Cash
and due
from banks,
as well
as other
highly liquid
securities, are
used to
cover the
required average
reserve
balances.
At June
30, 2023,
the Corporation
held $
64
million in
restricted assets
in the
form of
funds deposited
in money
market accounts,
debt
securities
available
for
sale
and
equity
securities
(December
31,
2022
-
$
80
million).
The
restricted
assets
held
in
debt
securities available for sale and equity securities consist primarily of assets
held for the Corporation’s non-qualified retirement plans
and fund deposits guaranteeing possible liens or encumbrances
over the title of insured properties.
21
Note 6 – Debt securities available-for-sale
The following tables present
the amortized cost, gross
unrealized gains and losses,
approximate fair value, weighted average
yield
and contractual maturities of debt securities available-for-sale
at June 30, 2023 and December 31, 2022.
At June 30, 2023
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
5,923,108
$
738
$
64,897
$
5,858,949
3.17
%
After 1 to 5 years
5,164,568
-
325,078
4,839,490
1.34
After 5 to 10 years
308,191
-
38,648
269,543
1.63
Total U.S. Treasury
securities
11,395,867
738
428,623
10,967,982
2.30
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
21,581
-
1,416
20,165
1.53
After 5 to 10 years
22,328
-
1,871
20,457
1.96
After 10 years
118,716
21
11,307
107,430
2.57
Total collateralized
mortgage obligations - federal agencies
162,625
21
14,594
148,052
2.35
Mortgage-backed securities
Within 1 year
2,049
-
48
2,001
3.39
After 1 to 5 years
74,177
7
4,006
70,178
2.36
After 5 to 10 years
818,545
27
61,887
756,685
2.20
After 10 years
6,420,939
606
1,125,259
5,296,286
1.63
Total mortgage-backed
securities
7,315,710
640
1,191,200
6,125,150
1.70
Other
After 1 to 5 years
1,034
-
1
1,033
3.99
Total other
1,034
-
1
1,033
3.99
Total debt securities
available-for-sale
[1]
$
18,875,236
$
1,399
$
1,634,418
$
17,242,217
2.07
%
[1]
Includes $
12.9
billion pledged to secure government and trust
deposits, assets sold under agreements to repurchase, credit
facilities and loan
servicing agreements that the secured parties are not permitted
to sell or repledge the collateral, of which $
11.9
billion serve as collateral for
public funds.
The Corporation had unpledged Available
for Sale securities with a fair value of
$
4.2
billion that could be used to increase its
borrowing facilities.
22
At December 31, 2022
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
4,576,127
$
506
$
47,156
$
4,529,477
2.42
%
After 1 to 5 years
6,793,739
-
410,858
6,382,881
1.35
After 5 to 10 years
308,854
-
40,264
268,590
1.63
Total U.S. Treasury
securities
11,678,720
506
498,278
11,180,948
1.78
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
3,914
-
213
3,701
1.77
After 5 to 10 years
47,979
-
3,428
44,551
1.73
After 10 years
127,639
24
10,719
116,944
2.53
Total collateralized
mortgage obligations - federal agencies
179,532
24
14,360
165,196
2.30
Mortgage-backed securities
After 1 to 5 years
74,328
11
3,428
70,911
2.33
After 5 to 10 years
866,757
43
58,997
807,803
2.16
After 10 years
6,762,150
932
1,184,626
5,578,456
1.61
Total mortgage-backed
securities
7,703,235
986
1,247,051
6,457,170
1.68
Other
After 1 to 5 years
1,062
-
2
1,060
3.98
Total other
1,062
-
2
1,060
3.98
Total debt securities
available-for-sale
[1]
$
19,562,549
$
1,516
$
1,759,691
$
17,804,374
1.75
%
[1]
Includes $
11.3
billion pledged to secure government and trust deposits,
assets sold under agreements to repurchase, credit facilities
and loan
servicing agreements that the secured parties are not permitted
to sell or repledge the collateral, of which $
10.3
billion serve as collateral for
public funds. The Corporation had unpledged Available
for Sale securities with a fair value of
$
6.4
billion that could be used to increase its
borrowing facilities.
The weighted
average yield
on debt
securities available-for-sale
is based
on amortized
cost; therefore,
it
does not
give
effect to
changes in fair value.
Securities
not
due
on
a
single
contractual
maturity
date,
such
as
mortgage-backed
securities
and
collateralized
mortgage
obligations,
are
classified
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.
There were
no
debt securities available-for-sale sold during the six
months ended June 30, 2023 and 2022.
23
The
following
tables
present
the
Corporation’s
fair
value
and
gross
unrealized
losses
of
debt
securities
available-for-sale,
aggregated by investment category and length of
time that individual securities have been in a continuous
unrealized loss position at
June 30, 2023 and December 31, 2022.
At June 30, 2023
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
490,744
$
11,327
$
7,622,733
$
417,296
$
8,113,477
$
428,623
Collateralized mortgage obligations - federal agencies
37,683
2,204
107,840
12,390
145,523
14,594
Mortgage-backed securities
171,299
10,042
5,916,052
1,181,158
6,087,351
1,191,200
Other
33
1
-
-
33
1
Total debt securities
available-for-sale in an unrealized loss position
$
699,759
$
23,574
$
13,646,625
$
1,610,844
$
14,346,384
$
1,634,418
At December 31, 2022
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
6,027,786
$
288,582
$
3,244,572
$
209,696
$
9,272,358
$
498,278
Collateralized mortgage obligations - federal agencies
139,845
10,655
22,661
3,705
162,506
14,360
Mortgage-backed securities
1,740,214
138,071
4,662,195
1,108,980
6,402,409
1,247,051
Other
60
2
-
-
60
2
Total debt securities
available-for-sale in an unrealized loss position
$
7,907,905
$
437,310
$
7,929,428
$
1,322,381
$
15,837,333
$
1,759,691
As of
June 30, 2023,
the portfolio of
available-for-sale debt securities
reflects gross unrealized
losses of $
1.6
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
on the 2022
Form 10-K,
these securities carry
an explicit
or implicit
guarantee
from
the
U.S.
Government,
are
highly
rated
by
major
rating
agencies,
and
have
a
long
history
of
no
credit
losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
these securities has been established.
In October 2022, the
Corporation transferred U.S. Treasury securities
with a fair value
of $
6.5
billion (par value of
$
7.4
billion) from
its available-for-sale portfolio to its held-to-maturity portfolio.
Management changed its intent, given its ability to hold these securities
to maturity
due to
the Corporation’s
liquidity position
and its
intention to
reduce the
impact on
accumulated other
comprehensive
income (loss) (“AOCI”) and
tangible capital of further
increases in interest rates.
The securities were reclassified
at fair value at
the
time of the transfer. At the date of the transfer,
these securities had pre-tax unrealized losses of $
873
million recorded in AOCI. This
fair value
discount is
being accreted
to
interest income
and the
unrealized loss
remaining in
AOCI is
being amortized,
offsetting
each other through the remaining life of the securities.
There were no realized gains or losses recorded
as a result of this transfer.
24
Note 7 –Debt securities held-to-maturity
The following
tables present
the amortized
cost, allowance
for credit
losses, gross
unrealized gains
and losses,
approximate fair
value,
weighted average
yield
and contractual
maturities of
debt securities
held-to-maturity at
June 30,
2023
and
December 31,
2022.
At June 30, 2023
Allowance
Carrying
Value
Gross
Gross
Weighted
Amortized
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
average
(In thousands)
cost
Value
Losses
Allowance
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
598,603
$
598,603
$
-
$
598,603
$
-
$
8,926
$
589,677
2.55
%
After 1 to 5 years
7,056,531
6,471,438
-
6,471,438
-
106,735
6,364,703
1.42
After 5 to 10 years
1,427,865
1,266,528
-
1,266,528
-
14,050
1,252,478
1.50
Total U.S. Treasury
securities
9,082,999
8,336,569
-
8,336,569
-
129,711
8,206,858
1.51
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,730
4,730
12
4,718
12
5
4,725
6.14
After 1 to 5 years
20,282
20,282
195
20,087
95
156
20,026
3.74
After 5 to 10 years
1,025
1,025
33
992
33
-
1,025
5.80
After 10 years
40,434
40,434
5,905
34,529
3,172
2,801
34,900
1.41
Total obligations of
Puerto Rico, States and
political subdivisions
66,471
66,471
6,145
60,326
3,312
2,962
60,676
2.53
Collateralized mortgage obligations - federal
agencies
Within 1 year
16
16
-
16
-
-
16
6.44
After 10 years
1,550
1,550
-
1,550
-
110
1,440
2.87
Total collateralized
mortgage obligations -
federal agencies
1,566
1,566
-
1,566
-
110
1,456
2.91
Securities in wholly owned statutory business
trusts
After 10 years
5,960
5,960
-
5,960
-
-
5,960
6.33
Total securities
in wholly owned statutory
business trusts
5,960
5,960
-
5,960
-
-
5,960
6.33
Total debt securities
held-to-maturity [2]
$
9,156,996
$
8,410,566
$
6,145
$
8,404,421
$
3,312
$
132,783
$
8,274,950
1.52
%
[1]
Book value includes $
746
million of net unrealized loss which remains in Accumulated
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
portfolio to the held-to-maturity securities portfolio as
discussed in Note 6.
[2]
Includes $
7.4
billion pledged to secure public and trust deposits that
the secured parties are not permitted to sell or
repledge the collateral.
The
Corporation had unpledged held-to-maturities securities with
a fair value of
$
934
million that could be used to increase
its borrowing facilities.
25
At December 31, 2022
Allowance
Carrying
Value
Gross
Gross
Weighted
Amortized
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
average
(In thousands)
cost
Value
Losses
Allowance
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
499,034
$
499,034
$
-
$
499,034
$
-
$
6,203
$
492,831
2.83
%
After 1 to 5 years
6,147,568
5,640,767
-
5,640,767
-
59,806
5,580,961
1.49
After 5 to 10 years
2,638,238
2,313,666
-
2,313,666
-
14,857
2,298,809
1.41
Total U.S. Treasury
securities
9,284,840
8,453,467
-
8,453,467
-
80,866
8,372,601
1.54
Obligations of Puerto Rico, States and
political subdivisions
`
Within 1 year
4,530
4,530
8
4,522
5
-
4,527
6.08
%
After 1 to 5 years
19,105
19,105
234
18,871
150
82
18,939
4.24
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
41,261
41,261
6,635
34,626
4,729
2,229
37,126
1.40
Total obligations of
Puerto Rico, States and
political subdivisions
65,921
65,921
6,911
59,010
4,918
2,311
61,617
2.61
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
19
19
-
19
-
-
19
6.44
Total collateralized
mortgage obligations -
federal agencies
19
19
-
19
-
-
19
6.44
Securities in wholly owned statutory business
trusts
After 10 years
5,959
5,959
-
5,959
-
-
5,959
6.33
Total securities
in wholly owned statutory
business trusts
5,959
5,959
-
5,959
-
-
5,959
6.33
Total debt securities
held-to-maturity [2]
$
9,356,739
$
8,525,366
$
6,911
$
8,518,455
$
4,918
$
83,177
$
8,440,196
1.55
%
[1]
Book value includes $
831
million of net unrealized loss which remains in Accumulated
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
portfolio to the held-to-maturity securities portfolio as
discussed in Note 6.
[2]
Includes $
6.9
billion pledged to secure public and trust deposits that
the secured parties are not permitted to sell or repledge
the collateral. The
Corporation had unpledged held-to-maturities securities with
a fair value of
$
1.5
billion that could be used to increase its borrowing
facilities.
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 on the 2022 Form
10-K, U.S. Treasury securities carry
an explicit
guarantee
from
the
U.S.
Government
are
highly
rated
by
major
rating
agencies,
and
have
a
long
history
of
no
credit
losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
these securities has been established.
At June
30, 2023
and December 31,
2022, the “Obligations
of Puerto
Rico, States and
political subdivisions” classified
as held-to-
maturity,
includes
securities
issued by
municipalities
of
Puerto
Rico
that
are
generally
not
rated
by
a
credit
rating
agency.
This
includes $
22
million of general and special obligation bonds issued by three municipalities of Puerto Rico, that
are payable primarily
from
certain
property
taxes
imposed
by
the
issuing
municipality
(December
31,
2022
-
$
25
million).
In
the
case
of
general
obligations, they
also benefit
from a
pledge of
the full
faith, credit
and unlimited
taxing power
of the
issuing municipality,
which is
required by law to levy property taxes in an amount sufficient for the payment of
debt service on such general obligation bonds. The
Corporation performs periodic credit quality
reviews of these securities and internally
assigns standardized credit risk ratings based
on its evaluation. The
Corporation considers these ratings in
its estimate to develop the
allowance for credit losses
associated with
these
securities.
For
the
definitions
of
the
obligor
risk
ratings,
refer
to
the
Credit
Quality
section
of
Note
9
to
the
Consolidated
Financial Statements.
The
following
presents
the
amortized
cost
basis
of
securities
held
by
the
Corporation
issued
by
municipalities
of
Puerto
Rico
aggregated by the internally assigned standardized
credit risk rating:
26
At June 30, 2023
At December 31, 2022
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
2,905
$
13,735
Pass
18,655
10,925
Total
$
21,560
$
24,660
At June 30, 2023, the portfolio of “Obligations of Puerto Rico, States
and political subdivisions” also includes $
40
million in securities
issued
by
the
Puerto
Rico
Housing Finance
Authority
(“HFA”),
a
government
instrumentality,
for
which the
underlying source
of
payment
is
second
mortgage
loans
in
Puerto
Rico
residential
properties
(not
the
government),
but
for
which
HFA,
provides
a
guarantee in
the event
of default
and upon
the satisfaction
of certain
other conditions
(December 31,
2022 -
$
42
million). These
securities
are
not
rated
by
a
credit
rating
agency.
The
Corporation assesses
the
credit
risk
associated
with
these
securities
by
evaluating
the
refreshed
FICO
scores
of
a
representative
sample
of
the
underlying
borrowers.
At
June
30,
2023,
the
average
refreshed
FICO score
for the
representative sample,
comprised of
66
%
of
the
nominal value
of the
securities, used
for the
loss
estimate was
of
709
(compared to
65
%
and
707
,
respectively,
at December
31, 2022).
The
loss estimates
for this
portfolio was
based on the methodology established under CECL
for similar loan obligations. The Corporation does not
consider the government
guarantee when estimating the credit losses associated
with this portfolio.
A
further
deterioration
of
the
Puerto
Rico
economy
or
of
the
fiscal
health
of
the
Government
of
Puerto
Rico
and/or
its
instrumentalities (including if any of
the issuing municipalities become subject to
a debt restructuring proceeding under PROMESA)
could further affect the value of these securities, resulting in losses
to the Corporation.
Refer to
Note 21
to the
Consolidated Financial
Statements
for additional
information on
the Corporation’s
exposure to
the Puerto
Rico Government.
At June 30, 2023, the
portfolio of “Obligations of Puerto Rico, States
and political subdivisions” also includes $
5
million in securities
issued by
the HFA
for which
the underlying
source of
payment is
U.S. Treasury
securities. The
Corporation applies
a
zero
-credit
loss assumption for these securities, and no ACL has been established for these securities given that U.S. Treasury securities carry
an explicit
guarantee from
the U.S.
Government, are
highly rated
by
major rating
agencies, and
have a
long history
of no
credit
losses. Refer to Note 2 to the Consolidated Financial
Statements in the 2022 Form 10-K for further
details.
Delinquency status
At June 30, 2023 and December 31, 2022, there were
no
securities held-to-maturity in past due or non-performing
status.
Allowance for credit losses on debt securities held-to-maturity
The following table provides the
activity in the allowance for
credit losses related to debt securities
held-to-maturity by security type
at June 30, 2023 and June 30, 2022:
27
For the quarters ended June 30,
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,792
$
7,844
Provision for credit losses (benefit)
(647)
(349)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,145
$
7,495
For the six months ended June 30,
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,911
$
8,096
Provision for credit losses (benefit)
(766)
(601)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,145
$
7,495
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 $
5.9
million for bonds issued by
the Puerto Rico HFA,
which are secured by
second mortgage loans on
Puerto Rico residential properties (compared to
$
0.3
million and $
6.6
million, respectively, at
December
31, 2022).
28
Note 8 – Loans
For a
summary of
the accounting policies
related to loans,
interest recognition and
allowance for credit
losses refer
to Note
2 –
to
the Consolidated Financial Statements included
in the 2022 Form 10-K.
During the quarter
and six months ended
June 30, 2023, the
Corporation recorded purchases (including repurchases)
of mortgage
loans amounting
to $
96
million and $
172
million, respectively,
including $
0.3
million and
$
0.6
million in
PCD loans,
and consumer
loans of $
45
million and $
72
million, respectively. During the quarter and six months ended June 30, 2023, the Corporation recorded
purchases of $
38
million and $
83
million, respectively, in commercial loans.
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.
The
Corporation
performed
whole-loan
sales
involving
approximately
$
17
million
and
$
27
million
of
residential
mortgage
loans
during the
quarter and
six months
ended June
30, 2023,
respectively (June
30, 2022
- $
14
million and
$
33
million, respectively).
During
the
quarter
and
six
months
ended
June
30,
2023,
the
Corporation performed
sales
of
commercial
loans,
including
loan
participations amounting
to
$
34
million
and
$
36
million, respectively
(for the
quarter and
six-months ended
June 30,
2022 -
$
43
million, respectively).
Also,
the
Corporation
securitized
approximately
$
1
million
of
mortgage
loans
into
Government
National
Mortgage
Association
(“GNMA”) mortgage-backed securities during
the six months
ended June 30,
2023 (for the
quarter and six
months ended June
30,
2022
-
$
77
million
and
$
155
million,
respectively).
Furthermore, the
Corporation securitized
approximately
$
13
million
and
$
23
million of mortgage
loans into Federal
National Mortgage Association (“FNMA”)
mortgage-backed securities during the
quarter and
six months ended June
30, 2023, respectively (June 30,
2022 - $
38
million and $
95
million, respectively). Also, the Corporation
did
no
t securitize any mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the
six months ended June 30, 2023 (June 30,
2022 - $
1
million and $
9
million for the quarter and six months ended, respectively).
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, 2023 and December 31, 2022.
29
June 30, 2023
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
3,778
$
179
$
184
$
4,141
$
292,736
$
296,877
$
184
$
-
Commercial real estate:
Non-owner occupied
177
512
22,942
23,631
2,882,616
2,906,247
22,942
-
Owner occupied
1,241
700
35,832
37,773
1,390,285
1,428,058
35,832
-
Commercial and industrial
2,597
728
32,846
36,171
4,002,652
4,038,823
29,758
3,088
Construction
-
970
9,284
10,254
163,481
173,735
9,284
-
Mortgage
221,187
88,955
449,930
760,072
5,408,216
6,168,288
194,219
255,711
Leasing
13,160
3,811
4,743
21,714
1,639,809
1,661,523
4,743
-
Consumer:
Credit cards
9,506
6,311
14,185
30,002
1,027,370
1,057,372
-
14,185
Home equity lines of credit
-
-
-
-
2,570
2,570
-
-
Personal
14,865
11,660
17,438
43,963
1,642,003
1,685,966
17,438
-
Auto
75,879
18,422
36,204
130,505
3,435,028
3,565,533
36,204
-
Other
512
274
1,901
2,687
132,605
135,292
1,735
166
Total
$
342,902
$
132,522
$
625,489
$
1,100,913
$
22,019,371
$
23,120,284
$
352,339
$
273,150
June 30, 2023
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
3,137
$
-
$
418
$
3,555
$
2,031,067
$
2,034,622
$
418
$
-
Commercial real estate:
Non-owner occupied
632
-
119
751
1,837,258
1,838,009
119
-
Owner occupied
1,806
-
5,095
6,901
1,606,439
1,613,340
5,095
-
Commercial and industrial
2,464
1,738
6,155
10,357
2,201,967
2,212,324
5,978
177
Construction
-
-
-
-
646,168
646,168
-
-
Mortgage
1,101
5,435
14,577
21,113
1,259,677
1,280,790
14,577
-
Consumer:
Credit cards
-
-
-
-
17
17
-
-
Home equity lines of
credit
464
49
4,252
4,765
61,105
65,870
4,252
-
Personal
2,766
1,725
2,726
7,217
203,411
210,628
2,726
-
Other
-
154
-
154
8,716
8,870
-
-
Total
$
12,370
$
9,101
$
33,342
$
54,813
$
9,855,825
$
9,910,638
$
33,165
$
177
30
June 30, 2023
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2] [3]
loans
loans
Commercial multi-family
$
6,915
$
179
$
602
$
7,696
$
2,323,803
$
2,331,499
$
602
$
-
Commercial real estate:
Non-owner occupied
809
512
23,061
24,382
4,719,874
4,744,256
23,061
-
Owner occupied
3,047
700
40,927
44,674
2,996,724
3,041,398
40,927
-
Commercial and industrial
5,061
2,466
39,001
46,528
6,204,619
6,251,147
35,736
3,265
Construction
-
970
9,284
10,254
809,649
819,903
9,284
-
Mortgage
[1]
222,288
94,390
464,507
781,185
6,667,893
7,449,078
208,796
255,711
Leasing
13,160
3,811
4,743
21,714
1,639,809
1,661,523
4,743
-
Consumer:
Credit cards
9,506
6,311
14,185
30,002
1,027,387
1,057,389
-
14,185
Home equity lines of credit
464
49
4,252
4,765
63,675
68,440
4,252
-
Personal
17,631
13,385
20,164
51,180
1,845,414
1,896,594
20,164
-
Auto
75,879
18,422
36,204
130,505
3,435,028
3,565,533
36,204
-
Other
512
428
1,901
2,841
141,321
144,162
1,735
166
Total
$
355,272
$
141,623
$
658,831
$
1,155,726
$
31,875,196
$
33,030,922
$
385,504
$
273,327
[1]
It is the Corporation’s policy to report delinquent residential
mortgage loans insured by Federal Housing Administration
(“FHA”) or guaranteed by
the U.S. Department of Veterans Affairs
(“VA”) as accruing loans past
due 90 days or more as opposed to non-performing
since the principal
repayment is insured.
These balances include $
133
million of residential mortgage loans insured by
FHA or guaranteed by the VA that
are no
longer accruing interest as of June 30, 2023. Furthermore,
the Corporation has approximately $
39
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 $
324
million in unearned income and exclude $
55
million in loans held-for-sale.
[3]
Includes $
11
.0 billion pledged to secure credit facilities and public
funds that the secured parties are not permitted to sell or
repledge the collateral,
of which $
6.1
billion were pledged at the Federal Home Loan Bank
("FHLB") as collateral for borrowings and $
4.9
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings. The Corporation
had an available borrowing facility with the FHLB
and the discount window of
Federal Reserve Bank of New York
of $
3.4
billion and $
3.1
billion, respectively, as of June
30, 2023.
31
December 31, 2022
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
425
$
-
$
242
$
667
$
280,706
$
281,373
$
242
$
-
Commercial real estate:
Non-owner occupied
941
428
23,662
25,031
2,732,296
2,757,327
23,662
-
Owner occupied
729
245
23,990
24,964
1,563,092
1,588,056
23,990
-
Commercial and industrial
3,036
941
35,777
39,754
3,756,754
3,796,508
34,277
1,500
Construction
-
-
-
-
147,041
147,041
-
-
Mortgage
222,926
91,881
579,993
894,800
5,215,479
6,110,279
242,391
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,766
1,041,831
-
11,910
Home equity lines of credit
-
-
-
-
2,954
2,954
-
-
Personal
13,232
8,752
18,082
40,066
1,545,621
1,585,687
18,082
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,682
13,256
124,324
137,580
12,446
236
Total
$
329,733
$
130,189
$
753,257
$
1,213,179
$
21,333,726
$
22,546,905
$
402,009
$
351,248
December 31, 2022
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
2,177
$
-
$
-
$
2,177
$
2,038,163
$
2,040,340
$
-
$
-
Commercial real estate:
Non-owner occupied
484
-
1,454
1,938
1,740,405
1,742,343
1,454
-
Owner occupied
-
-
5,095
5,095
1,485,398
1,490,493
5,095
-
Commercial and industrial
12,960
2,205
4,685
19,850
2,022,842
2,042,692
4,319
366
Construction
-
-
-
-
610,943
610,943
-
-
Mortgage
16,131
5,834
20,488
42,453
1,244,739
1,287,192
20,488
-
Consumer:
Credit cards
-
-
-
-
39
39
-
-
Home equity lines of credit
413
161
4,110
4,684
64,278
68,962
4,110
-
Personal
1,808
1,467
1,958
5,233
232,659
237,892
1,958
-
Other
-
-
8
8
9,960
9,968
8
-
Total
$
33,973
$
9,667
$
37,798
$
81,438
$
9,449,426
$
9,530,864
$
37,432
$
366
32
December 31, 2022
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2]
[3]
loans
loans
Commercial multi-family
$
2,602
$
-
$
242
$
2,844
$
2,318,869
$
2,321,713
$
242
$
-
Commercial real estate:
Non-owner occupied
1,425
428
25,116
26,969
4,472,701
4,499,670
25,116
-
Owner occupied
729
245
29,085
30,059
3,048,490
3,078,549
29,085
-
Commercial and industrial
15,996
3,146
40,462
59,604
5,779,596
5,839,200
38,596
1,866
Construction
-
-
-
-
757,984
757,984
-
-
Mortgage
[1]
239,057
97,715
600,481
937,253
6,460,218
7,397,471
262,879
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,805
1,041,870
-
11,910
Home equity lines of credit
413
161
4,110
4,684
67,232
71,916
4,110
-
Personal
15,040
10,219
20,040
45,299
1,778,280
1,823,579
20,040
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,690
13,264
134,284
147,548
12,454
236
Total
$
363,706
$
139,856
$
791,055
$
1,294,617
$
30,783,152
$
32,077,769
$
439,441
$
351,614
[1]
It is the Corporation’s policy to report delinquent residential
mortgage loans insured by FHA or guaranteed
by the VA as accruing loans
past due
90 days or more as opposed to non-performing since
the principal repayment is insured.
These balances also include $
190
million of residential
mortgage loans insured by FHA or guaranteed by the VA
that are no longer accruing interest as of December
31, 2022. Furthermore, the
Corporation has approximately $
42
million in reverse mortgage loans which are guaranteed
by FHA, but which are currently not accruing interest.
Due to the guaranteed nature of the loans, it is the Corporation’s
policy to exclude these balances from non-performing assets.
[2]
Loans held-in-portfolio are net of $
295
million in unearned income and exclude $
5
million in loans held-for-sale.
[3]
Includes $
7.4
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or
repledge the collateral,
of which $
4.8
billion were pledged at the Federal Home Loan Bank
(FHLB) as collateral for borrowings and $
2.6
billion at the Federal Reserve
Bank (FRB) for discount window borrowings. The Corporation
had an available borrowing facility with the FHLB and
the discount window of
Federal Reserve Bank of New York
of $
2.1
billion and $
1.4
billion, respectively, as of December
31, 2022.
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, 2023,
mortgage loans
held-in-portfolio include
$
2.0
billion (December
31, 2022
- $
2.0
billion) of
loans insured
by the
FHA, or guaranteed by the VA of which $
0.3
billion (December 31, 2022 - $
0.3
billion) are 90 days or more past due. The portfolio of
guaranteed loans includes $
133
million of residential mortgage
loans in Puerto Rico
that are no longer
accruing interest as of
June
30, 2023
(December 31, 2022
- $
190
million). The Corporation
has approximately $
39
million in
reverse mortgage loans
in Puerto
Rico
which
are
guaranteed
by
FHA,
but
which
are
currently
not
accruing
interest
at
June
30,
2023
(December
31,
2022
-
$
42
million).
Loans with a
delinquency status of 90
days past due
as of June
30, 2023 include
$
7
million in loans
previously pooled into
GNMA
securities
(December
31,
2022
-
$
14
million).
Under
the
GNMA
program,
issuers
such
as
BPPR
have
the
option
but
not
the
obligation to repurchase loans
that are 90
days or more
past due. For
accounting purposes, these loans
subject to the
repurchase
option
are
required to
be
reflected on
the
financial statements
of BPPR
with
an
offsetting
liability.
Loans
in
our
serviced
GNMA
portfolio benefit
from payment
forbearance programs
but continue
to reflect
the contractual
delinquency until
the borrower
repays
deferred payments or completes a payment deferral
modification or other borrower assistance alternative.
The following tables present the amortized cost basis
of non-accrual loans as of June 30, 2023 and
December 31, 2022 by class of
loans:
33
June 30, 2023
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
184
$
-
$
418
$
-
$
602
Commercial real estate non-owner occupied
18,924
4,018
-
119
18,924
4,137
Commercial real estate owner occupied
24,420
11,412
5,095
-
29,515
11,412
Commercial and industrial
16,304
13,454
-
5,978
16,304
19,432
Construction
-
9,284
-
-
-
9,284
Mortgage
103,821
90,398
503
14,074
104,324
104,472
Leasing
221
4,522
-
-
221
4,522
Consumer:
HELOCs
-
-
-
4,252
-
4,252
Personal
4,768
12,670
-
2,726
4,768
15,396
Auto
1,293
34,911
-
-
1,293
34,911
Other
263
1,472
-
-
263
1,472
Total
$
170,014
$
182,325
$
5,598
$
27,567
$
175,612
$
209,892
December 31, 2022
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
242
$
-
$
-
$
-
$
242
Commercial real estate non-owner occupied
15,639
8,023
1,454
-
17,093
8,023
Commercial real estate owner occupied
9,070
14,920
5,095
-
14,165
14,920
Commercial and industrial
20,227
14,050
-
4,319
20,227
18,369
Mortgage
119,027
123,364
71
20,417
119,098
143,781
Leasing
458
5,483
-
-
458
5,483
Consumer:
HELOCs
-
-
-
4,110
-
4,110
Personal
4,623
13,459
-
1,958
4,623
15,417
Auto
1,177
39,801
-
-
1,177
39,801
Other
263
12,183
-
8
263
12,191
Total
$
170,484
$
231,525
$
6,620
$
30,812
$
177,104
$
262,337
Loans in
non-accrual status with
no allowance
at June
30, 2023 include
$
176
million in
collateral dependent loans
(December 31,
2022 -
$
177
million). The
Corporation recognized $
4
million in
interest income
on non-accrual
loans during
the six
months ended
June 30, 2023 (June 30, 2022 - $
3
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,
2023 and December 31, 2022:
34
June 30, 2023
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,303
$
-
$
-
$
-
$
-
$
1,303
Commercial real estate:
Non-owner occupied
178,349
-
-
-
-
178,349
Owner occupied
31,318
-
-
-
-
31,318
Commercial and industrial
1,094
-
20
7,524
18,792
27,430
Construction
14,706
-
-
-
-
14,706
Mortgage
109,215
-
-
-
-
109,215
Leasing
-
1,028
-
-
-
1,028
Consumer:
Personal
5,043
-
-
-
-
5,043
Auto
-
10,672
-
-
-
10,672
Other
-
-
-
-
312
312
Total BPPR
$
341,028
$
11,700
$
20
$
7,524
$
19,104
$
379,376
Popular U.S.
Commercial real estate:
Owner occupied
$
5,095
$
-
$
-
$
-
$
-
$
5,095
Commercial and industrial
-
-
-
-
3,628
3,628
Construction
4,700
-
-
-
-
4,700
Mortgage
913
-
-
-
-
913
Total Popular U.S.
$
10,708
$
-
$
-
$
-
$
3,628
$
14,336
Popular, Inc.
Commercial multi-family
$
1,303
$
-
$
-
$
-
$
-
$
1,303
Commercial real estate:
Non-owner occupied
178,349
-
-
-
-
178,349
Owner occupied
36,413
-
-
-
-
36,413
Commercial and industrial
1,094
-
20
7,524
22,420
31,058
Construction
19,406
-
-
-
-
19,406
Mortgage
110,128
-
-
-
-
110,128
Leasing
-
1,028
-
-
-
1,028
Consumer:
Personal
5,043
-
-
-
-
5,043
Auto
-
10,672
-
-
-
10,672
Other
-
-
-
-
312
312
Total Popular,
Inc.
$
351,736
$
11,700
$
20
$
7,524
$
22,732
$
393,712
35
December 31, 2022
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
202,980
-
-
-
-
202,980
Owner occupied
18,234
-
-
-
-
18,234
Commercial and industrial
1,345
-
32
9,853
20,985
32,215
Mortgage
128,069
-
-
-
-
128,069
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total BPPR
$
357,338
$
10,576
$
32
$
9,853
$
21,248
$
399,047
Popular U.S.
Commercial real estate:
Non-owner occupied
$
1,454
$
-
$
-
$
-
$
-
$
1,454
Owner occupied
5,095
-
-
-
-
5,095
Commercial and industrial
-
-
136
-
-
136
Mortgage
1,104
-
-
-
-
1,104
Total Popular U.S.
$
7,653
$
-
$
136
$
-
$
-
$
7,789
Popular, Inc.
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
204,434
-
-
-
-
204,434
Owner occupied
23,329
-
-
-
-
23,329
Commercial and industrial
1,345
-
168
9,853
20,985
32,351
Mortgage
129,173
-
-
-
-
129,173
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total Popular,
Inc.
$
364,991
$
10,576
$
168
$
9,853
$
21,248
$
406,836
36
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
the quarter and six months ended June 30, 2023 and
2022, 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, 2023
For the six months
ended June 30, 2023
Purchase price of loans at acquisition
$
277
$
532
Allowance for credit losses at acquisition
10
78
Non-credit discount / (premium) at acquisition
-
9
Par value of acquired loans at acquisition
$
287
$
619
(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
37
Note 9 – Allowance for credit losses – loans
held-in-portfolio
The
Corporation follows
the current
expected credit
loss
(“CECL”) model,
to
establish and
evaluate the
adequacy of
the ACL
to
provide for
expected losses
in the
loan portfolio.
This model
establishes a forward-looking
methodology that
reflects the
expected
credit losses over the lives of financial assets, starting when such
assets are first acquired or originated. In addition, CECL provides
that the initial ACL on 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.
The
Corporation’s
modeling framework includes competing
risk models that
generate lifetime default and
prepayment estimates as well
as other loan
level techniques to estimate loss severity.
These models combine credit risk factors, which include the
impact of loan modifications,
with macroeconomic expectations to derive the
lifetime expected loss.
At June
30, 2023,
the Corporation
estimated the
ACL by
weighting the
outputs of
optimistic, baseline,
and pessimistic
scenarios.
Among the
three scenarios used
to estimate
the ACL, the
baseline is
assigned the highest
probability,
followed by the
pessimistic
scenario given the
uncertainties in the
economic outlook and
downside risk. The
weightings applied are subject
to evaluation on
a
quarterly basis
as part
of the
ACL’s
governance process. During
the second
quarter 2023,
due to
positive trends, the
Corporation
lowered the
probability weights assigned
to the
pessimistic scenario and
increased the probability
weight assigned to
the baseline
scenario,
prompting
a
reserve
release
of
$
5.8
million.
The
baseline
scenario
continues
to
be
assigned
the
highest
probability,
followed by the
pessimistic scenario, and
then the
optimistic scenario.
The Corporation evaluates,
at least on
an annual basis,
the
assumptions tied to the CECL accounting framework. These include the reasonable and supportable period as well as the reversion
window.
The
2023
annualized
GDP
growth
in
the
baseline
scenario
stands
at
1.5%
and
1.6%
for
Puerto
Rico
and
the
United
States,
respectively, compared to 2.1% and 1.3%
in the previous quarter. The 2023 forecasted average unemployment rate for
Puerto Rico
improved to
6.3% from
6.9% in
the previous
forecast, while
in the
United States
unemployment levels
remained stable
at
3.6%,
compared to 3.5% 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, 2023 and 2022.
38
For the quarter ended June 30, 2023
BPPR
Provision for
Allowance for
Net Write
down
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balances
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
4,756
$
30
$
-
$
-
$
1
$
-
$
4,787
Commercial real estate non-owner occupied
53,894
(98)
-
(609)
179
-
53,366
Commercial real estate owner occupied
46,009
(4,437)
-
(76)
405
-
41,901
Commercial and industrial
77,042
3,164
-
(1,061)
2,492
-
81,637
Total Commercial
181,701
(1,341)
-
(1,746)
3,077
-
181,691
Construction
3,072
6,482
-
-
-
-
9,554
Mortgage
89,077
(9,572)
10
(297)
3,681
-
82,899
Leasing
20,990
(5,470)
-
(2,540)
947
-
13,927
Consumer
Credit Cards
67,953
10,558
-
(8,457)
1,955
(601)
71,408
HELOCs
100
(29)
-
(35)
60
-
96
Personal
88,408
20,279
-
(16,601)
3,960
-
96,046
Auto
130,829
5,909
-
(8,099)
5,608
-
134,247
Other
4,877
1,563
-
(354)
154
-
6,240
Total Consumer
292,167
38,280
-
(33,546)
11,737
(601)
308,037
Total - Loans
$
587,007
$
28,379
$
10
$
(38,129)
$
19,442
$
(601)
$
596,108
Allowance for credit losses - unfunded commitments:
Commercial
$
4,900
$
388
$
-
$
-
$
-
$
-
$
5,288
Construction
1,946
1,164
-
-
-
-
3,110
Ending balance - unfunded commitments [1]
$
6,846
$
1,552
$
-
$
-
$
-
$
-
$
8,398
[
1
]
[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 quarter ended June 30, 2023
Popular U.S.
Provision for
Beginning
credit losses -
Ending
(In thousands)
Balance
(benefits)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
20,610
$
781
$
-
$
1
$
21,392
Commercial real estate non-owner occupied
17,956
328
-
66
18,350
Commercial real estate owner occupied
8,488
1,174
(177)
21
9,506
Commercial and industrial
15,224
4,524
(2,081)
347
18,014
Total Commercial
62,278
6,807
(2,258)
435
67,262
Construction
1,258
520
-
-
1,778
Mortgage
15,400
(2,315)
-
109
13,194
Consumer
Credit Cards
-
-
-
-
-
HELOCs
1,853
55
(52)
218
2,074
Personal
21,321
2,169
(4,287)
579
19,782
Other
3
46
(47)
-
2
Total Consumer
23,177
2,270
(4,386)
797
21,858
Total - Loans
$
102,113
$
7,282
$
(6,644)
$
1,341
$
104,092
Allowance for credit losses - unfunded commitments:
Commercial
$
1,229
$
119
$
-
$
-
$
1,348
Construction
1,278
519
-
-
1,797
Consumer
62
(12)
-
-
50
Ending balance - unfunded commitments [1]
$
2,569
$
626
$
-
$
-
$
3,195
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
40
For the quarter ended June 30, 2023
Popular Inc.
Provision for
Allowance
for
Net Write
Down
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
25,366
$
811
$
-
$
-
$
2
$
-
$
26,179
Commercial real estate non-owner occupied
71,850
230
-
(609)
245
-
71,716
Commercial real estate owner occupied
54,497
(3,263)
-
(253)
426
-
51,407
Commercial and industrial
92,266
7,688
-
(3,142)
2,839
-
99,651
Total Commercial
243,979
5,466
-
(4,004)
3,512
-
248,953
Construction
4,330
7,002
-
-
-
-
11,332
Mortgage
104,477
(11,887)
10
(297)
3,790
-
96,093
Leasing
20,990
(5,470)
-
(2,540)
947
-
13,927
Consumer
Credit Cards
67,953
10,558
-
(8,457)
1,955
(601)
71,408
HELOCs
1,953
26
-
(87)
278
-
2,170
Personal
109,729
22,448
-
(20,888)
4,539
-
115,828
Auto
130,829
5,909
-
(8,099)
5,608
-
134,247
Other
4,880
1,609
-
(401)
154
-
6,242
Total Consumer
315,344
40,550
-
(37,932)
12,534
(601)
329,895
Total - Loans
$
689,120
$
35,661
$
10
$
(44,773)
$
20,783
$
(601)
$
700,200
Allowance for credit losses - unfunded commitments:
Commercial
$
6,129
$
507
$
-
$
-
$
-
$
-
$
6,636
Construction
3,224
1,683
-
-
-
-
4,907
Consumer
62
(12)
-
-
-
-
50
Ending balance - unfunded commitments [1]
$
9,415
$
2,178
$
-
$
-
$
-
$
-
$
11,593
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
41
For the six months ended June 30, 2023
BPPR
Impact of
Provision for
Allowance for
Net write
down
Beginning
Adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-off
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
5,210
$
-
$
(424)
$
-
$
-
$
1
$
-
$
4,787
Commercial real estate non-owner occupied
52,475
-
1,186
-
(609)
314
-
53,366
Commercial real estate owner occupied
48,393
(1,161)
(7,167)
-
(79)
1,915
-
41,901
Commercial and industrial
68,217
(552)
12,983
-
(2,668)
3,657
-
81,637
Total Commercial
174,295
(1,713)
6,578
-
(3,356)
5,887
-
181,691
Construction
2,978
-
6,576
-
-
-
-
9,554
Mortgage
117,344
(33,556)
(8,305)
78
(1,143)
8,481
-
82,899
Leasing
20,618
(35)
(4,736)
-
(3,957)
2,037
-
13,927
Consumer
Credit Cards
58,670
-
26,128
-
(17,133)
4,344
(601)
71,408
HELOCs
103
-
(68)
-
(68)
129
-
96
Personal
96,369
(7,020)
31,383
-
(30,181)
5,495
-
96,046
Auto
129,735
(21)
14,228
-
(20,217)
10,522
-
134,247
Other
15,433
-
1,798
-
(11,361)
370
-
6,240
Total Consumer
300,310
(7,041)
73,469
-
(78,960)
20,860
(601)
308,037
Total - Loans
$
615,545
$
(42,345)
$
73,582
$
78
$
(87,416)
$
37,265
$
(601)
$
596,108
Allowance for credit losses - unfunded commitments:
Commercial
$
4,336
$
-
$
952
$
-
$
-
$
-
$
-
$
5,288
Construction
2,022
-
1,088
-
-
-
-
3,110
Ending balance - unfunded commitments [1]
$
6,358
$
-
$
2,040
$
-
$
-
$
-
$
-
$
8,398
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
42
For the six months ended June 30, 2023
Popular U.S.
Impact of
Provision for
Beginning
Adopting
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefits)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
21,101
$
-
$
288
$
-
$
3
$
21,392
Commercial real estate non-owner occupied
19,065
-
(2,633)
-
1,918
18,350
Commercial real estate owner occupied
8,688
-
950
(177)
45
9,506
Commercial and industrial
12,227
-
7,052
(2,580)
1,315
18,014
Total Commercial
61,081
-
5,657
(2,757)
3,281
67,262
Construction
1,268
-
510
-
-
1,778
Mortgage
17,910
(2,098)
(2,741)
-
123
13,194
Consumer
Credit Cards
-
-
1
(1)
-
-
HELOCs
2,439
-
(657)
(195)
487
2,074
Personal
22,057
(1,140)
6,360
(8,457)
962
19,782
Other
2
-
95
(100)
5
2
Total Consumer
24,498
(1,140)
5,799
(8,753)
1,454
21,858
Total - Loans
$
104,757
$
(3,238)
$
9,225
$
(11,510)
$
4,858
$
104,092
Allowance for credit losses - unfunded commitments:
Commercial
$
1,175
$
-
$
173
$
-
$
-
$
1,348
Construction
1,184
-
613
-
-
1,797
Consumer
88
-
(38)
-
-
50
Ending balance - unfunded commitments [1]
$
2,447
$
-
$
748
$
-
$
-
$
3,195
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
43
For the six months ended June 30, 2023
Popular Inc.
Impact
Provision for
Allowance
for
Net write
down
Beginning
of adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
26,311
$
-
$
(136)
$
-
$
-
$
4
$
-
$
26,179
Commercial real estate non-owner occupied
71,540
-
(1,447)
-
(609)
2,232
-
71,716
Commercial real estate owner occupied
57,081
(1,161)
(6,217)
-
(256)
1,960
-
51,407
Commercial and industrial
80,444
(552)
20,035
-
(5,248)
4,972
-
99,651
Total Commercial
235,376
(1,713)
12,235
-
(6,113)
9,168
-
248,953
Construction
4,246
-
7,086
-
-
-
-
11,332
Mortgage
135,254
(35,654)
(11,046)
78
(1,143)
8,604
-
96,093
Leasing
20,618
(35)
(4,736)
-
(3,957)
2,037
-
13,927
Consumer
Credit Cards
58,670
-
26,129
-
(17,134)
4,344
(601)
71,408
HELOCs
2,542
-
(725)
-
(263)
616
-
2,170
Personal
118,426
(8,160)
37,743
-
(38,638)
6,457
-
115,828
Auto
129,735
(21)
14,228
-
(20,217)
10,522
-
134,247
Other
15,435
-
1,893
-
(11,461)
375
-
6,242
Total Consumer
324,808
(8,181)
79,268
-
(87,713)
22,314
(601)
329,895
Total - Loans
$
720,302
$
(45,583)
$
82,807
$
78
$
(98,926)
$
42,123
$
(601)
$
700,200
Allowance for credit losses - unfunded commitments:
Commercial
$
5,511
$
-
$
1,125
$
-
$
-
$
-
$
-
$
6,636
Construction
3,206
-
1,701
-
-
-
-
4,907
Consumer
88
-
(38)
-
-
-
-
50
Ending balance - unfunded commitments [1]
$
8,805
$
-
$
2,788
$
-
$
-
$
-
$
-
$
11,593
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
44
For the quarter ended June 30, 2022
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,435
$
87
$
-
$
-
$
-
$
3,522
Commercial real estate non-owner occupied
51,639
(1,909)
-
(30)
693
50,393
Commercial real estate owner occupied
47,027
1,622
-
(835)
1,658
49,472
Commercial and industrial
43,370
4,864
-
(457)
2,383
50,160
Total Commercial
145,471
4,664
-
(1,322)
4,734
153,547
Construction
2,414
265
-
-
395
3,074
Mortgage
131,362
(5,953)
170
(1,367)
5,818
130,030
Leasing
18,398
1,306
-
(1,496)
829
19,037
Consumer
Credit Cards
43,782
5,634
-
(6,418)
2,341
45,339
HELOCs
86
(69)
-
(74)
147
90
Personal
67,554
13,601
-
(8,248)
1,892
74,799
Auto
152,330
(12,716)
-
(6,650)
4,258
137,222
Other
15,214
2,396
-
(389)
218
17,439
Total Consumer
278,966
8,846
-
(21,779)
8,856
274,889
Total - Loans
$
576,611
$
9,128
$
170
$
(25,964)
$
20,632
$
580,577
Allowance for credit losses - unfunded commitments:
Commercial
$
1,647
$
385
$
-
$
-
$
-
$
2,032
Construction
1,924
(390)
-
-
-
1,534
Ending balance - unfunded commitments [1]
$
3,571
$
(5)
$
-
$
-
$
-
$
3,566
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
45
For the quarter ended June 30, 2022
Popular U.S.
Provision for
Beginning
credit losses
Ending
(In thousands)
Balance
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
22,655
$
(2,089)
$
-
$
5
$
20,571
Commercial real estate non-owner occupied
15,398
(1,128)
-
14
14,284
Commercial real estate owner occupied
10,001
(1,035)
-
110
9,076
Commercial and industrial
11,118
1,300
(397)
131
12,152
Total Commercial
59,172
(2,952)
(397)
260
56,083
Construction
4,125
(290)
-
4
3,839
Mortgage
17,844
494
(68)
5
18,275
Consumer
Credit Cards
-
(1)
-
1
-
HELOCs
3,625
(642)
(42)
514
3,455
Personal
16,411
4,087
(1,239)
261
19,520
Other
4
37
(47)
7
1
Total Consumer
20,040
3,481
(1,328)
783
22,976
Total - Loans
$
101,181
$
733
$
(1,793)
$
1,052
$
101,173
Allowance for credit losses - unfunded commitments:
Commercial
$
1,318
$
(1)
$
-
$
-
$
1,317
Construction
2,135
(174)
-
-
1,961
Consumer
30
30
-
-
60
Ending balance - unfunded commitments [1]
$
3,483
$
(145)
$
-
$
-
$
3,338
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
46
For the quarter ended June 30, 2022
Popular Inc.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
26,090
$
(2,002)
$
-
$
-
$
5
$
24,093
Commercial real estate non-owner occupied
67,037
(3,037)
-
(30)
707
64,677
Commercial real estate owner occupied
57,028
587
-
(835)
1,768
58,548
Commercial and industrial
54,488
6,164
-
(854)
2,514
62,312
Total Commercial
204,643
1,712
-
(1,719)
4,994
209,630
Construction
6,539
(25)
-
-
399
6,913
Mortgage
149,206
(5,459)
170
(1,435)
5,823
148,305
Leasing
18,398
1,306
-
(1,496)
829
19,037
Consumer
Credit Cards
43,782
5,633
-
(6,418)
2,342
45,339
HELOCs
3,711
(711)
-
(116)
661
3,545
Personal
83,965
17,688
-
(9,487)
2,153
94,319
Auto
152,330
(12,716)
-
(6,650)
4,258
137,222
Other
15,218
2,433
-
(436)
225
17,440
Total Consumer
299,006
12,327
-
(23,107)
9,639
297,865
Total - Loans
$
677,792
$
9,861
$
170
$
(27,757)
$
21,684
$
681,750
Allowance for credit losses - unfunded commitments:
Commercial
$
2,965
$
384
$
-
$
-
$
-
$
3,349
Construction
4,059
(564)
-
-
-
3,495
Consumer
30
30
-
-
-
60
Ending balance - unfunded commitments [1]
$
7,054
$
(150)
$
-
$
-
$
-
$
6,904
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial
Condition.
47
For the six months ended June 30, 2022
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,050
$
472
$
-
$
-
$
-
$
3,522
Commercial real estate non-owner occupied
45,211
4,335
-
(30)
877
50,393
Commercial real estate owner occupied
54,176
(8,469)
-
(953)
4,718
49,472
Commercial and industrial
49,491
(2,361)
-
(866)
3,896
50,160
Total Commercial
151,928
(6,023)
-
(1,849)
9,491
153,547
Construction
1,641
622
-
-
811
3,074
Mortgage
138,286
(16,481)
782
(2,688)
10,131
130,030
Leasing
17,578
1,692
-
(1,903)
1,670
19,037
Consumer
Credit Cards
43,499
9,335
-
(12,101)
4,606
45,339
HELOCs
98
(85)
-
(164)
241
90
Personal
71,022
15,214
-
(15,106)
3,669
74,799
Auto
154,498
(10,023)
-
(15,528)
8,275
137,222
Other
15,612
2,216
-
(945)
556
17,439
Total Consumer
284,729
16,657
-
(43,844)
17,347
274,889
Total - Loans
$
594,162
$
(3,533)
$
782
$
(50,284)
$
39,450
$
580,577
Allowance for credit losses - unfunded commitments:
Commercial
$
1,751
$
281
$
-
$
-
$
-
$
2,032
Construction
2,388
(854)
-
-
-
1,534
Ending balance - unfunded commitments [1]
$
4,139
$
(573)
$
-
$
-
$
-
$
3,566
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
48
For the six months ended June 30, 2022
Popular U.S.
Provision for
Beginning
credit losses
Ending
(In thousands)
Balance
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
25,418
$
(4,859)
$
-
$
12
$
20,571
Commercial real estate non-owner occupied
22,246
(7,979)
-
17
14,284
Commercial real estate owner occupied
6,053
2,801
-
222
9,076
Commercial and industrial
10,160
1,753
(524)
763
12,152
Total Commercial
63,877
(8,284)
(524)
1,014
56,083
Construction
4,722
(2,015)
-
1,132
3,839
Mortgage
16,192
2,126
(68)
25
18,275
Consumer
Credit Cards
-
(10)
-
10
-
HELOCs
3,708
(1,634)
(52)
1,433
3,455
Personal
12,700
8,703
(2,457)
574
19,520
Other
5
103
(124)
17
1
Total Consumer
16,413
7,162
(2,633)
2,034
22,976
Total - Loans
$
101,204
$
(1,011)
$
(3,225)
$
4,205
$
101,173
Allowance for credit losses - unfunded commitments:
Commercial
$
1,384
$
(67)
$
-
$
-
$
1,317
Construction
2,337
(376)
-
-
1,961
Consumer
37
23
-
-
60
Ending balance - unfunded commitments [1]
$
3,758
$
(420)
$
-
$
-
$
3,338
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
49
For the six months ended June 30, 2022
Popular Inc.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
28,468
$
(4,387)
$
-
$
-
$
12
$
24,093
Commercial real estate non-owner occupied
67,457
(3,644)
-
(30)
894
64,677
Commercial real estate owner occupied
60,229
(5,668)
-
(953)
4,940
58,548
Commercial and industrial
59,651
(608)
-
(1,390)
4,659
62,312
Total Commercial
215,805
(14,307)
-
(2,373)
10,505
209,630
Construction
6,363
(1,393)
-
-
1,943
6,913
Mortgage
154,478
(14,355)
782
(2,756)
10,156
148,305
Leasing
17,578
1,692
-
(1,903)
1,670
19,037
Consumer
Credit Cards
43,499
9,325
-
(12,101)
4,616
45,339
HELOCs
3,806
(1,719)
-
(216)
1,674
3,545
Personal
83,722
23,917
-
(17,563)
4,243
94,319
Auto
154,498
(10,023)
-
(15,528)
8,275
137,222
Other
15,617
2,319
-
(1,069)
573
17,440
Total Consumer
301,142
23,819
-
(46,477)
19,381
297,865
Total - Loans
$
695,366
$
(4,544)
$
782
$
(53,509)
$
43,655
$
681,750
Allowance for credit losses - unfunded commitments:
Commercial
$
3,135
$
214
$
-
$
-
$
-
$
3,349
Construction
4,725
(1,230)
-
-
-
3,495
Consumer
37
23
-
-
-
60
Ending balance - unfunded commitments [1]
$
7,897
$
(993)
$
-
$
-
$
-
$
6,904
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
Modifications
A
modification
constitutes
a
change
in
loan
terms
in
the
form
of
principal
forgiveness,
an
interest
rate
reduction,
other
than-
insignificant payment delay, term extension or combination of the above made
to a borrower experiencing financial difficulty.
The amount
of outstanding
commitments to
lend additional
funds to
debtors owing
receivables whose
terms have
been modified
during the period ended at June 30, 2023 amounted
to $
5
million related to the commercial loan portfolio.
The following tables show the amortized cost basis of the loans modified to borrowers experiencing financial difficulties at the end of
the reporting period
disaggregated by class
of financing receivable
and type
of concession granted
for the
quarter and six
months
ended June
30,2023. Loans
modified to
borrowers under
financial difficulties
that were
fully paid
down, charged-off
or foreclosed
upon by period end are not reported.
50
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the quarter ended June 30,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Consumer:
Credit cards
$
222
0.02
%
$
-
-
%
$
222
0.02
%
Personal
196
0.01
%
3
-
%
199
0.01
%
Total
$
418
-
%
$
3
-
%
$
421
-
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
24,978
0.86
%
$
-
-
%
$
24,978
0.53
%
CRE owner occupied
1,434
0.10
%
15,715
0.97
%
17,149
0.56
%
Commercial and industrial
21,610
0.54
%
-
-
%
21,610
0.35
%
Construction
5,422
3.12
%
-
-
%
5,422
0.66
%
Mortgage
10,694
0.17
%
2,676
0.21
%
13,370
0.18
%
Consumer:
Personal
48
-
%
113
0.05
%
161
0.01
%
Auto
38
-
%
-
-
%
38
-
%
Total
$
64,224
0.28
%
$
18,504
0.19
%
$
82,728
0.25
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
748
0.05
%
$
-
-
%
$
748
0.02
%
Mortgage
137
-
%
-
-
%
137
-
%
Total
$
885
-
%
$
-
-
%
$
885
-
%
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Commercial and industrial
$
58
-
%
$
-
-
%
$
58
-
%
Mortgage
11,372
0.18
%
81
0.01
%
11,453
0.15
%
Consumer:
Personal
489
0.03
%
-
-
%
489
0.03
%
Total
$
11,919
0.05
%
$
81
-
%
$
12,000
0.04
%
Combination -
Other-Than-Insignificant Payment Delays and Interest Rate
Reduction
Puerto Rico
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at June
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Commercial and industrial
$
78
0.00%
$
-
-
$
78
0.00%
Consumer:
Credit cards
190
0.02%
-
-
190
0.02%
Total
$
268
0.00%
$
-
-
$
268
0.00%
51
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the six months ended June 30,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Mortgage
$
226
-
%
$
-
-
%
$
226
-
%
Consumer:
Credit cards
427
0.04
%
-
-
%
427
0.04
%
Personal
313
0.02
%
3
-
%
316
0.02
%
Other
3
-
%
-
-
%
3
-
%
Total
$
969
-
%
$
3
-
%
$
972
-
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
24,978
0.86
%
$
-
-
%
$
24,978
0.53
%
CRE owner occupied
3,159
0.22
%
15,715
0.97
%
18,874
0.62
%
Commercial and industrial
25,069
0.62
%
-
-
%
25,069
0.40
%
Construction
5,422
3.12
%
4,700
0.73
%
10,122
1.23
%
Mortgage
25,100
0.41
%
4,515
0.35
%
29,615
0.40
%
Consumer:
Personal
74
-
%
165
0.08
%
239
0.01
%
Auto
38
-
%
-
-
%
38
-
%
Total
$
83,840
0.36
%
$
25,095
0.25
%
$
108,935
0.33
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
1,743
0.06
%
$
-
-
%
$
1,743
0.04
%
CRE owner occupied
13,812
0.97
%
13,650
0.85
%
27,462
0.90
%
Commercial and industrial
1,395
0.03
%
822
0.04
%
2,217
0.04
%
Mortgage
137
-
%
-
-
%
137
-
%
Total
$
17,087
0.07
%
$
14,472
0.15
%
$
31,559
0.10
%
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
101
0.01
%
$
-
-
%
$
101
0.01
%
Commercial and industrial
58
-
%
-
-
%
58
-
%
Mortgage
21,805
0.35
%
408
0.03
%
22,213
0.30
%
Consumer:
Personal
907
0.05
%
-
-
%
907
0.05
%
Auto
28
-
%
-
-
%
28
-
%
Total
$
22,899
0.10
%
$
408
-
%
$
23,307
0.07
%
Combination - Other-Than-Insignificant Payment Delays
and Interest Rate Reduction
Puerto Rico
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at June
30,2023
% of total class of
Financing
Receivable
Commercial and industrial
$
78
0.00%
$
-
-
$
78
0.00%
Consumer:
Credit cards
445
0.04%
-
-
445
0.04%
Total
$
523
0.00%
$
-
-
$
523
0.00%
52
The following table describes the financial effect of the
modifications made to borrowers experiencing
financial difficulties:
For the quarter ended June 30, 2023
Interest rate reduction
Loan Type
Financial Effect
Commercial and industrial
Reduced weighted-average contractual interest rate from
21.7
% to
8
.0%.
Mortgage
Reduced weighted-average contractual interest rate from
5.6
% to
4.1
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
17.6
% to
4.7
%.
Personal
Reduced weighted-average contractual interest rate from
20.3
% to
10.7
%.
Term extension
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
10
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
1
year to the life of loans.
Commercial and industrial
Added a weighted-average of
1
year to the life of loans.
Construction
Added a weighted-average of
6
months to the life of loans.
Mortgage
Added a weighted-average of
12
years to the life of loans.
Consumer:
Personal
Added a weighted-average of
6
years to the life of loans.
Auto
Added a weighted-average of
3
years to the life of loans.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Owner occupied
Added a weighted-average of
24
months to the life of loans.
Commercial and industrial
Added a weighted-average of
24
months to the life of loans.
Mortgage
Added a weighted-average of
40
months to the life of loans.
Consumer:
Credit cards
Added a weighted-average of
24
months to the life of loans.
53
For the six months ended June 30, 2023
Interest rate reduction
Loan Type
Financial Effect
CRE Owner occupied
Reduced weighted-average contractual interest rate from
6
.0% to
5.3
%.
Commercial and industrial
Reduced weighted-average contractual interest rate from
21.7
% to
8
.0%.
Mortgage
Reduced weighted-average contractual interest rate from
5.7
% to
4.2
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
17.6
% to
4.6
%.
Personal
Reduced weighted-average contractual interest rate from
18.9
% to
10.3
%.
Auto
Reduced weighted-average contractual interest rate from
12.64
% to
12.62
%.
Other
Reduced weighted-average contractual interest rate from
18
.0% to
0
%.
Term extension
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
10
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
1
year to the life of loans.
Commercial and industrial
Added a weighted-average of
1
year to the life of loans.
Construction
Added a weighted-average of
6
months to the life of loans.
Mortgage
Added a weighted-average of
11
years to the life of loans.
Consumer:
Personal
Added a weighted-average of
6
years to the life of loans.
Auto
Added a weighted-average of
3
years to the life of loans.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
12
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
8
months to the life of loans.
Commercial and industrial
Added a weighted-average of
9
months to the life of loans.
Mortgage
Added a weighted-average of
40
months to the life of loans.
Consumer:
Credit cards
Added a weighted-average of
24
months to the life of loans.
54
The following
table presents,
by class, the
performance of loans
that have
been modified
in the
last six
months at
June 30,
2023.
The
past
due
90
days
or
more
categories includes
all
loans modified
classified
as
non-accruing
at
the
time
of
the
modification.
These loans will continue in non-accrual status, and presented as past
due 90 days or more, until the borrower has
demonstrated a
willingness and ability to
make the restructured loan
payments (at least six
months of sustained
performance after the modification
or one year
for loans providing
for quarterly or
semi-annual payments) and
management has concluded that
it is probable
that the
borrower would not be in payment default in the
foreseeable future.
BPPR
For the period ended June 30, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
428
$
428
$
26,293
$
26,721
$
-
$
428
CRE Owner occupied
-
-
2,338
2,338
14,752
17,090
-
2,338
Commercial and industrial
-
-
872
872
25,728
26,600
114
758
Construction
-
-
-
-
5,422
5,422
-
-
Mortgage
3,158
1,611
16,213
20,982
26,286
47,268
1,047
15,166
Consumer:
Credit cards
36
50
91
177
695
872
51
40
Personal
30
-
331
361
933
1,294
8
323
Auto
-
-
12
12
54
66
-
12
Other
-
-
-
-
3
3
-
-
Total
$
3,224
$
1,661
$
20,285
$
25,170
$
100,166
$
125,336
$
1,220
$
19,065
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
is defined as a restructured loan becoming 90 days past
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
as of period end is inclusive of all partial paydowns
and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
Popular U.S.
For the period ended June 30, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Owner occupied
$
-
$
-
$
-
$
-
$
29,365
$
29,365
$
-
$
-
Commercial and industrial
-
-
-
-
822
822
-
-
Construction
-
-
-
-
4,700
4,700
-
-
Mortgage
-
-
340
340
4,583
4,923
104
236
Consumer:
Personal
-
-
132
132
36
168
-
132
Total
$
-
$
-
$
472
$
472
$
39,506
$
39,978
$
104
$
368
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
is defined as a restructured loan becoming 90 days past
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
as of period end is inclusive of all partial paydowns
and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
55
Popular Inc.
For the period ended June 30, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
428
$
428
$
26,293
$
26,721
$
-
$
428
CRE Owner occupied
-
-
2,338
2,338
44,117
46,455
-
2,338
Commercial and industrial
-
-
872
872
26,550
27,422
114
758
Construction
-
-
-
-
10,122
10,122
-
-
Mortgage
3,158
1,611
16,553
21,322
30,869
52,191
1,151
15,402
Consumer:
Credit cards
36
50
91
177
695
872
51
40
Personal
30
-
463
493
969
1,462
8
455
Auto
-
-
12
12
54
66
-
12
Other
-
-
-
-
3
3
-
-
Total
$
3,224
$
1,661
$
20,757
$
25,642
$
139,672
$
165,314
$
1,324
$
19,433
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments.
Payment default is defined as a restructured loan becoming
90 days past due after being modified, foreclosed
or
charged-off, whichever occurs first. The recorded inve
stment as of period end is inclusive of all partial
paydowns and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
The
activity
of
modified
loans
to
borrowers
under
financial
difficulties
that
were
subject
to
payment
default
and
that
had
been
modified during the quarter and six months ended June 30, 2023 was considered immaterial for the Corporation. Payment default is
defined as a restructured loan becoming 90 days
past due after being modified, foreclosed or
charged-off, whichever occurs first.
Legacy TDR Modifications
A modification of
a loan, prior
to ASU 2022-02,
constituted a troubled
debt restructuring (TDR)
when a borrower
was experiencing
financial difficulty
and the
modification constituted
a concession.
For a
summary of
the legacy
accounting policy
related to
TDRs,
refer to the Summary of Significant Accounting Policies
included in Note 2 to the 2022 Form 10-K.
The outstanding
balance of
loans classified
as TDRs
amounted to
$
1.6
billion at
December 31,
- The
amount of
outstanding
commitments to
lend additional
funds to
debtors owing
loans whose
terms have
been modified
in TDRs
amounted to
$
12
million
related to the commercial loan portfolio at December 31,
2022.
The following table presents
the outstanding balance of
loans classified as TDRs
according to their accruing
status and the related
allowance at December 31, 2022.
56
December 31, 2022
(In thousands)
Accruing
Non-Accruing
Total
Related
Allowance
Loans held-in-portfolio:
Commercial
$
269,784
$
54,641
$
324,425
$
18,451
Mortgage
[1]
1,169,976
86,790
1,256,766
58,819
Leasing
1,154
24
1,178
43
Consumer
54,395
7,883
62,278
13,577
Loans held-in-portfolio
$
1,495,309
$
149,338
$
1,644,647
$
90,890
[1] At December 31, 2022, accruing mortgage loan TDRs include
$
725
million guaranteed by U.S. sponsored entities
at BPPR.
The following
table presents
the loan
count by
type of
modification for
those loans
modified in
a TDR
during the
quarter and
six
months ended June 30, 2022. Loans modified as
TDRs for the U.S. operations are considered insignificant
to the Corporation.
Popular Inc.
For the quarter ended June 30, 2022
For the six month 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
The following table presents, by class, quantitative
information related to loans modified as TDRs
during the quarter and six months
ended June 30, 2022.
Popular, Inc.
For the quarter ended June 30, 2022
(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)
57
Popular, Inc.
For the six months ended June 30, 2022
(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
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
The following table presents, by
class, TDRs that were subject to
payment default and that had been modified
as a TDR during the
twelve months preceding the default date.
Payment default is defined as a restructured loan becoming 90 days past due after being
modified,
foreclosed
or
charged-off,
whichever
occurs
first.
The
recorded
investment
as
of
period
end
is
inclusive
of
all
partial
paydowns
and
charge-offs
since
the
modification
date.
Loans
modified
as
a
TDR
that
were
fully
paid
down,
charged-off
or
foreclosed upon by period end are not reported.
Popular Inc.
Defaulted during the quarter ended
June 30, 2022
Defaulted during the
six month ended
June 30, 2022
(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
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,
2023 and December 31, 2022 and the gross write-offs
recorded by vintage
year.
For
the
definitions
of
the
obligor
risk
ratings,
refer
to
the
Credit
Quality
section
of
Note
9
to
the
Consolidated
Financial
Statements included in the 2022 Form 10-K:
58
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
6,839
$
-
$
-
$
-
$
18,329
$
4,920
$
-
$
-
$
30,088
Special Mention
-
-
-
-
-
2,618
-
-
2,618
Substandard
-
-
-
-
-
3,195
100
-
3,295
Pass
31,280
140,323
22,693
20,657
15,816
29,842
265
-
260,876
Total commercial
multi-family
$
38,119
$
140,323
$
22,693
$
20,657
$
34,145
$
40,575
$
365
$
-
$
296,877
Commercial real estate non-owner occupied
Watch
$
1,335
$
342
$
13,818
$
13,088
$
14,996
$
63,639
$
-
$
-
$
107,218
Special Mention
-
-
25,284
19,630
66,341
52,629
5,000
-
168,884
Substandard
-
8,668
-
2,766
18,850
20,489
-
-
50,773
Pass
94,895
883,308
562,467
365,497
44,006
618,247
10,952
-
2,579,372
Total commercial
real estate non-
owner occupied
$
96,230
$
892,318
$
601,569
$
400,981
$
144,193
$
755,004
$
15,952
$
-
$
2,906,247
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
-
$
-
$
-
$
609
Commercial real estate owner occupied
Watch
$
1,012
$
11,183
$
4,421
$
8,709
$
3,819
$
60,864
$
700
$
-
$
90,708
Special Mention
-
8
2,374
143,133
1,022
60,226
12,515
-
219,278
Substandard
291
16,779
5,981
336
722
76,684
-
-
100,793
Doubtful
-
-
-
-
-
261
-
-
261
Pass
34,603
204,357
259,769
57,215
28,867
421,641
10,566
-
1,017,018
Total commercial
real estate owner
occupied
$
35,906
$
232,327
$
272,545
$
209,393
$
34,430
$
619,676
$
23,781
$
-
$
1,428,058
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
1
$
78
$
-
$
-
$
79
Commercial and industrial
Watch
$
5,610
$
20,130
$
5,289
$
2,142
$
18,099
$
74,579
$
74,645
$
-
$
200,494
Special Mention
11
1,497
3,599
21,181
973
49,242
5,138
-
81,641
Substandard
5,424
1,580
3,250
1,807
2,739
37,241
38,818
-
90,859
Doubtful
-
-
-
-
10
34
-
-
44
Loss
-
-
-
-
-
-
277
-
277
Pass
398,231
748,053
545,018
263,829
141,273
294,775
1,274,329
-
3,665,508
Total commercial
and industrial
$
409,276
$
771,260
$
557,156
$
288,959
$
163,094
$
455,871
$
1,393,207
$
-
$
4,038,823
Year-to-Date gross
write-offs
$
383
$
184
$
131
$
33
$
223
$
239
$
1,475
$
-
$
2,668
Construction
Watch
$
-
$
27,279
$
5,980
$
-
$
-
$
-
$
18,267
$
-
$
51,526
Substandard
-
9,284
-
5,422
-
-
$
-
-
14,706
Pass
8,330
22,165
31,224
11,901
2,090
1,065
30,728
-
107,503
Total construction
$
8,330
$
58,728
$
37,204
$
17,323
$
2,090
$
1,065
$
48,995
$
-
$
173,735
Mortgage
Substandard
$
-
$
162
$
515
$
286
$
3,455
$
77,336
$
-
$
-
$
81,754
Pass
303,008
450,007
438,249
276,647
195,802
4,422,821
-
-
6,086,534
Total mortgage
$
303,008
$
450,169
$
438,764
$
276,933
$
199,257
$
4,500,157
$
-
$
-
$
6,168,288
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,143
$
-
$
-
$
1,143
59
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Leasing
Substandard
$
-
$
1,189
$
1,156
$
520
$
1,259
$
588
$
-
$
-
$
4,712
Loss
-
-
-
-
-
32
-
-
32
Pass
355,425
561,334
370,204
200,199
115,159
54,458
-
-
1,656,779
Total leasing
$
355,425
$
562,523
$
371,360
$
200,719
$
116,418
$
55,078
$
-
$
-
$
1,661,523
Year-to-Date gross
write-offs
$
156
$
1,536
$
1,448
$
301
$
155
$
361
$
-
$
-
$
3,957
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
14,185
$
-
$
14,185
Pass
-
-
-
-
-
-
1,043,187
-
1,043,187
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,057,372
$
-
$
1,057,372
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
17,133
$
-
$
17,133
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,570
$
-
$
2,570
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,570
$
-
$
2,570
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
68
$
-
$
68
Personal
Substandard
$
383
$
3,742
$
2,072
$
646
$
1,165
$
8,775
$
-
$
1,013
$
17,796
Loss
-
104
59
-
13
11
-
-
187
Pass
472,830
642,613
242,527
77,428
84,933
123,190
-
24,462
1,667,983
Total Personal
$
473,213
$
646,459
$
244,658
$
78,074
$
86,111
$
131,976
$
-
$
25,475
$
1,685,966
Year-to-Date gross
write-offs
$
149
$
12,908
$
9,517
$
2,500
$
2,768
$
1,642
$
-
$
697
$
30,181
Auto
Substandard
$
770
$
10,424
$
10,352
$
8,593
$
7,168
$
4,380
$
-
$
-
$
41,687
Loss
8
65
10
61
-
7
-
-
151
Pass
614,420
1,029,517
832,770
494,710
339,804
212,474
-
-
3,523,695
Total Auto
$
615,198
$
1,040,006
$
843,132
$
503,364
$
346,972
$
216,861
$
-
$
-
$
3,565,533
Year-to-Date gross
write-offs
$
697
$
9,990
$
5,443
$
2,579
$
1,508
$
-
$
-
$
-
$
20,217
Other consumer
Substandard
$
-
$
28
$
137
$
86
$
17
$
1,232
$
166
$
-
$
1,666
Loss
-
-
-
-
-
263
-
-
263
Pass
16,502
26,939
15,884
6,279
3,873
4,529
59,357
-
133,363
Total Other
consumer
$
16,502
$
26,967
$
16,021
$
6,365
$
3,890
$
6,024
$
59,523
$
-
$
135,292
Year-to-Date gross
write-offs
$
1
$
56
$
50
$
71
$
19
$
11,164
$
-
$
-
$
11,361
Total BPPR
$
2,351,207
$
4,821,080
$
3,405,102
$
2,002,768
$
1,130,600
$
6,782,287
$
2,601,765
$
25,475
$
23,120,284
60
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
-
$
745
$
-
$
3,695
$
51,341
$
42,148
$
-
$
-
$
97,929
Special Mention
-
-
-
1,185
-
22,285
-
-
23,470
Substandard
-
-
-
-
14,820
10,592
-
-
25,412
Pass
63,962
520,293
372,904
235,238
217,494
474,679
3,241
-
1,887,811
Total commercial
multi-family
$
63,962
$
521,038
$
372,904
$
240,118
$
283,655
$
549,704
$
3,241
$
-
$
2,034,622
Commercial real estate non-owner occupied
Watch
$
-
$
5,467
$
4,255
$
1,234
$
11,061
$
63,432
$
-
$
-
$
85,449
Special Mention
-
-
-
-
1,340
69,137
-
-
70,477
Substandard
-
-
-
2,127
1,734
3,264
-
-
7,125
Pass
90,429
544,996
207,021
252,596
116,970
455,832
7,114
-
1,674,958
Total commercial
real estate non-
owner occupied
$
90,429
$
550,463
$
211,276
$
255,957
$
131,105
$
591,665
$
7,114
$
-
$
1,838,009
Commercial real estate owner occupied
Watch
$
-
$
-
$
-
$
1,184
$
-
$
55,703
$
-
$
-
$
56,887
Special Mention
-
-
-
3,835
6,153
115
-
-
10,103
Substandard
-
-
-
-
7,324
45,574
-
-
52,898
Pass
165,915
361,119
415,527
113,287
76,725
352,328
8,551
-
1,493,452
Total commercial
real estate owner
occupied
$
165,915
$
361,119
$
415,527
$
118,306
$
90,202
$
453,720
$
8,551
$
-
$
1,613,340
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
177
$
-
$
-
$
177
Commercial and industrial
Watch
$
5,028
$
11,286
$
2,301
$
1,337
$
1,847
$
8,507
$
3,838
$
-
$
34,144
Special Mention
-
1,084
1,168
165
200
71
2
-
2,690
Substandard
-
290
85
60
4,005
2,433
1,659
-
8,532
Loss
-
-
-
79
-
-
-
-
79
Pass
68,321
256,186
377,475
333,243
182,283
508,569
440,802
-
2,166,879
Total commercial
and industrial
$
73,349
$
268,846
$
381,029
$
334,884
$
188,335
$
519,580
$
446,301
$
-
$
2,212,324
Year-to-Date gross
write-offs
$
247
$
221
$
1,995
$
14
$
78
$
-
$
25
$
-
$
2,580
Construction
Watch
$
-
$
-
$
8,207
$
-
$
6,839
$
3,000
$
-
$
-
$
18,046
Special Mention
-
-
-
-
-
34,080
-
-
34,080
Substandard
-
-
4,463
2,605
-
10,049
-
-
17,117
Pass
94,452
249,342
143,526
32,486
56,330
789
-
-
576,925
Total construction
$
94,452
$
249,342
$
156,196
$
35,091
$
63,169
$
47,918
$
-
$
-
$
646,168
Mortgage
Substandard
$
-
$
-
$
1,232
$
857
$
2,727
$
9,761
$
-
$
-
$
14,577
Pass
40,680
227,836
294,594
240,455
180,760
281,888
-
-
1,266,213
Total mortgage
$
40,680
$
227,836
$
295,826
$
241,312
$
183,487
$
291,649
$
-
$
-
$
1,280,790
61
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
17
$
-
$
17
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
17
$
-
$
17
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,006
$
19
$
1,087
$
3,112
Loss
-
-
-
-
-
99
-
1,040
1,139
Pass
-
-
-
-
-
8,191
40,714
12,714
61,619
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,296
$
40,733
$
14,841
$
65,870
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
195
$
-
$
-
$
195
Personal
Substandard
$
140
$
1,327
$
293
$
70
$
185
$
220
$
-
$
-
$
2,235
Loss
-
24
-
-
-
467
-
-
491
Pass
31,181
128,737
33,918
4,696
7,507
1,863
-
-
207,902
Total Personal
$
31,321
$
130,088
$
34,211
$
4,766
$
7,692
$
2,550
$
-
$
-
$
210,628
Year-to-Date gross
write-offs
$
-
$
5,246
$
2,143
$
385
$
562
$
121
$
-
$
-
$
8,457
Other consumer
Pass
20
-
-
-
-
-
8,850
-
8,870
Total Other
consumer
$
20
$
-
$
-
$
-
$
-
$
-
$
8,850
$
-
$
8,870
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
100
$
-
$
100
Total Popular U.S.
$
560,128
$
2,308,732
$
1,866,969
$
1,230,434
$
947,645
$
2,467,082
$
514,807
$
14,841
$
9,910,638
62
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
6,839
$
745
$
-
$
3,695
$
69,670
$
47,068
$
-
$
-
$
128,017
Special Mention
-
-
-
1,185
-
24,903
-
-
26,088
Substandard
-
-
-
-
14,820
13,787
100
-
28,707
Pass
95,242
660,616
395,597
255,895
233,310
504,521
3,506
-
2,148,687
Total commercial
multi-family
$
102,081
$
661,361
$
395,597
$
260,775
$
317,800
$
590,279
$
3,606
$
-
$
2,331,499
Commercial real estate non-owner occupied
Watch
$
1,335
$
5,809
$
18,073
$
14,322
$
26,057
$
127,071
$
-
$
-
$
192,667
Special Mention
-
-
25,284
19,630
67,681
121,766
5,000
-
239,361
Substandard
-
8,668
-
4,893
20,584
23,753
-
-
57,898
Pass
185,324
1,428,304
769,488
618,093
160,976
1,074,079
18,066
-
4,254,330
Total commercial
real estate non-
owner occupied
$
186,659
$
1,442,781
$
812,845
$
656,938
$
275,298
$
1,346,669
$
23,066
$
-
$
4,744,256
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
-
$
-
$
-
$
609
Commercial real estate owner occupied
Watch
$
1,012
$
11,183
$
4,421
$
9,893
$
3,819
$
116,567
$
700
$
-
$
147,595
Special Mention
-
8
2,374
146,968
7,175
60,341
12,515
-
229,381
Substandard
291
16,779
5,981
336
8,046
122,258
-
-
153,691
Doubtful
-
-
-
-
-
261
-
-
261
Pass
200,518
565,476
675,296
170,502
105,592
773,969
19,117
-
2,510,470
Total commercial
real estate owner
occupied
$
201,821
$
593,446
$
688,072
$
327,699
$
124,632
$
1,073,396
$
32,332
$
-
$
3,041,398
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
1
$
255
$
-
$
-
$
256
Commercial and industrial
Watch
$
10,638
$
31,416
$
7,590
$
3,479
$
19,946
$
83,086
$
78,483
$
-
$
234,638
Special Mention
11
2,581
4,767
21,346
1,173
49,313
5,140
-
84,331
Substandard
5,424
1,870
3,335
1,867
6,744
39,674
40,477
-
99,391
Doubtful
-
-
-
-
10
34
-
-
44
Loss
-
-
-
79
-
-
277
-
356
Pass
466,552
1,004,239
922,493
597,072
323,556
803,344
1,715,131
-
5,832,387
Total commercial
and industrial
$
482,625
$
1,040,106
$
938,185
$
623,843
$
351,429
$
975,451
$
1,839,508
$
-
$
6,251,147
Year-to-Date gross
write-offs
$
630
$
405
$
2,126
$
47
$
301
$
239
$
1,500
$
-
$
5,248
63
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
-
$
27,279
$
14,187
$
-
$
6,839
$
3,000
$
18,267
$
-
$
69,572
Special Mention
-
-
-
-
-
34,080
-
-
34,080
Substandard
-
9,284
4,463
8,027
-
10,049
-
-
31,823
Pass
102,782
271,507
174,750
44,387
58,420
1,854
30,728
-
684,428
Total construction
$
102,782
$
308,070
$
193,400
$
52,414
$
65,259
$
48,983
$
48,995
$
-
$
819,903
Mortgage
Substandard
$
-
$
162
$
1,747
$
1,143
$
6,182
$
87,097
$
-
$
-
$
96,331
Pass
343,688
677,843
732,843
517,102
376,562
4,704,709
-
-
7,352,747
Total mortgage
$
343,688
$
678,005
$
734,590
$
518,245
$
382,744
$
4,791,806
$
-
$
-
$
7,449,078
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,143
$
-
$
-
$
1,143
Leasing
Substandard
$
-
$
1,189
$
1,156
$
520
$
1,259
$
588
$
-
$
-
$
4,712
Loss
-
-
-
-
-
32
-
-
32
Pass
355,425
561,334
370,204
200,199
115,159
54,458
-
-
1,656,779
Total leasing
$
355,425
$
562,523
$
371,360
$
200,719
$
116,418
$
55,078
$
-
$
-
$
1,661,523
Year-to-Date gross
write-offs
$
156
$
1,536
$
1,448
$
301
$
155
$
361
$
-
$
-
$
3,957
64
June 30, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
14,185
$
-
$
14,185
Pass
-
-
-
-
-
-
1,043,204
-
1,043,204
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,057,389
$
-
$
1,057,389
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
17,134
$
-
$
17,134
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,006
$
19
$
1,087
$
3,112
Loss
-
-
-
-
-
99
-
1,040
1,139
Pass
-
-
-
-
-
8,191
43,284
12,714
64,189
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,296
$
43,303
$
14,841
$
68,440
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
195
$
68
$
-
$
263
Personal
Substandard
$
523
$
5,069
$
2,365
$
716
$
1,350
$
8,995
$
-
$
1,013
$
20,031
Loss
-
128
59
-
13
478
-
-
678
Pass
504,011
771,350
276,445
82,124
92,440
125,053
-
24,462
1,875,885
Total Personal
$
504,534
$
776,547
$
278,869
$
82,840
$
93,803
$
134,526
$
-
$
25,475
$
1,896,594
Year-to-Date gross
write-offs
$
149
$
18,154
$
11,660
$
2,885
$
3,330
$
1,763
$
-
$
697
$
38,638
Auto
Substandard
$
770
$
10,424
$
10,352
$
8,593
$
7,168
$
4,380
$
-
$
-
$
41,687
Loss
8
65
10
61
-
7
-
-
151
Pass
614,420
1,029,517
832,770
494,710
339,804
212,474
-
-
3,523,695
Total Auto
$
615,198
$
1,040,006
$
843,132
$
503,364
$
346,972
$
216,861
$
-
$
-
$
3,565,533
Year-to-Date gross
write-offs
$
697
$
9,990
$
5,443
$
2,579
$
1,508
$
-
$
-
$
-
$
20,217
Other consumer
Substandard
$
-
$
28
$
137
$
86
$
17
$
1,232
$
166
$
-
$
1,666
Loss
-
-
-
-
-
263
-
-
263
Pass
16,522
26,939
15,884
6,279
3,873
4,529
68,207
-
142,233
Total Other
consumer
$
16,522
$
26,967
$
16,021
$
6,365
$
3,890
$
6,024
$
68,373
$
-
$
144,162
Year-to-Date gross
write-offs
$
1
$
56
$
50
$
71
$
19
$
11,164
$
100
$
-
$
11,461
Total Popular Inc.
$
2,911,335
$
7,129,812
$
5,272,071
$
3,233,202
$
2,078,245
$
9,249,369
$
3,116,572
$
40,316
$
33,030,922
65
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
-
$
-
$
-
$
18,508
$
-
$
4,687
$
-
$
-
$
23,195
Special Mention
-
-
-
-
-
2,692
-
-
2,692
Substandard
-
-
-
-
-
3,326
100
-
3,426
Pass
137,411
22,850
20,821
16,145
24,640
30,193
-
-
252,060
Total commercial
multi-family
$
137,411
$
22,850
$
20,821
$
34,653
$
24,640
$
40,898
$
100
$
-
$
281,373
Commercial real estate non-owner occupied
Watch
$
173
$
36,228
$
14,045
$
14,942
$
7,777
$
99,269
$
-
$
-
$
172,434
Special Mention
-
4,361
19,970
7,517
-
25,540
-
-
57,388
Substandard
8,933
-
3,209
19,004
25,490
21,064
-
-
77,700
Pass
855,839
585,690
294,086
94,056
35,105
568,893
16,136
-
2,449,805
Total commercial
real estate non-
owner occupied
$
864,945
$
626,279
$
331,310
$
135,519
$
68,372
$
714,766
$
16,136
$
-
$
2,757,327
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
9,447
$
4,275
$
31,649
$
71,568
$
-
$
-
$
124,506
Special Mention
10
284
1,684
6,578
1,076
61,460
-
-
71,092
Substandard
16,205
6,177
802
800
770
84,205
-
-
108,959
Doubtful
-
-
-
-
-
505
-
-
505
Pass
227,404
258,473
274,333
30,691
68,029
407,322
16,742
-
1,282,994
Total commercial
real estate owner
occupied
$
245,915
$
270,205
$
286,266
$
42,344
$
101,524
$
625,060
$
16,742
$
-
$
1,588,056
Commercial and industrial
Watch
$
32,376
$
2,185
$
15,493
$
18,829
$
15,483
$
51,602
$
56,508
$
-
$
192,476
Special Mention
2,537
2,479
5,770
1,139
6,767
46,040
6,283
-
71,015
Substandard
789
1,276
1,600
3,138
11,536
40,636
46,226
-
105,201
Doubtful
-
-
29
-
75
75
-
-
179
Loss
-
-
-
-
-
-
144
-
144
Pass
793,662
684,647
211,013
177,265
65,197
292,173
1,203,536
-
3,427,493
Total commercial
and industrial
$
829,364
$
690,587
$
233,905
$
200,371
$
99,058
$
430,526
$
1,312,697
$
-
$
3,796,508
Construction
Watch
$
35,446
$
3,116
$
98
$
-
$
-
$
-
$
141
$
-
$
38,801
Substandard
-
-
9,629
-
-
-
-
-
9,629
Pass
13,044
34,387
15,961
2,262
-
-
32,957
-
98,611
Total construction
$
48,490
$
37,503
$
25,688
$
2,262
$
-
$
-
$
33,098
$
-
$
147,041
Mortgage
Substandard
$
-
$
574
$
687
$
3,926
$
4,227
$
93,959
$
-
$
-
$
103,373
Pass
449,286
451,027
285,026
204,170
237,007
4,380,390
-
-
6,006,906
Total mortgage
$
449,286
$
451,601
$
285,713
$
208,096
$
241,234
$
4,474,349
$
-
$
-
$
6,110,279
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
66
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
BPPR
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,921
-
1,029,921
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,831
$
-
$
1,041,831
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,954
$
-
$
2,954
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,954
$
-
$
2,954
Personal
Substandard
$
1,330
$
2,001
$
764
$
1,774
$
503
$
10,831
$
-
$
1,285
$
18,488
Loss
-
-
53
20
31
10
-
1
115
Pass
841,564
320,809
103,337
117,568
46,555
109,543
-
27,708
1,567,084
Total Personal
$
842,894
$
322,810
$
104,154
$
119,362
$
47,089
$
120,384
$
-
$
28,994
$
1,585,687
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,902
$
-
$
12,380
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
60,238
-
124,897
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
71,140
$
-
$
137,580
Total BPPR
$
5,284,550
$
3,842,437
$
2,132,518
$
1,331,262
$
920,786
$
6,511,660
$
2,494,698
$
28,994
$
22,546,905
67
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
85,579
$
9,633
$
52,835
$
-
$
-
$
155,932
Special Mention
-
-
1,198
-
14,491
8,372
-
-
24,061
Substandard
-
-
-
9,305
7,373
2,941
-
-
19,619
Pass
503,010
399,397
238,903
210,295
138,723
347,615
2,785
-
1,840,728
Total commercial
multi-family
$
503,760
$
400,314
$
246,319
$
305,179
$
170,220
$
411,763
$
2,785
$
-
$
2,040,340
Commercial real estate non-owner occupied
Watch
$
-
$
2,167
$
13,622
$
3,355
$
26,931
$
29,849
$
-
$
-
$
75,924
Special Mention
-
-
-
1,353
-
75,269
-
-
76,622
Substandard
-
2,864
2,149
3,220
1,429
4,722
-
-
14,384
Pass
552,258
209,338
211,449
109,781
100,065
383,409
9,113
-
1,575,413
Total commercial
real estate non-
owner occupied
$
552,258
$
214,369
$
227,220
$
117,709
$
128,425
$
493,249
$
9,113
$
-
$
1,742,343
Commercial real estate owner occupied
Watch
$
-
$
-
$
1,197
$
1,079
$
6,095
$
55,005
$
-
$
-
$
63,376
Special Mention
-
-
3,886
-
-
901
-
-
4,787
Substandard
-
-
-
7,403
11,165
33,586
-
-
52,154
Pass
363,655
422,959
114,988
82,971
119,565
258,881
7,157
-
1,370,176
Total commercial
real estate owner
occupied
$
363,655
$
422,959
$
120,071
$
91,453
$
136,825
$
348,373
$
7,157
$
-
$
1,490,493
Commercial and industrial
Watch
$
12,328
$
2,218
$
2,022
$
2,049
$
8,438
$
532
$
4,291
$
-
$
31,878
Special Mention
1,262
1,130
314
244
60
-
3
-
3,013
Substandard
260
935
74
4,278
315
1,829
1,408
-
9,099
Loss
292
525
1
75
192
3
-
-
1,088
Pass
185,318
341,855
368,398
202,301
171,528
376,045
352,169
-
1,997,614
Total commercial
and industrial
$
199,460
$
346,663
$
370,809
$
208,947
$
180,533
$
378,409
$
357,871
$
-
$
2,042,692
Construction
Watch
$
-
$
12,085
$
-
$
6,979
$
18,310
$
34,126
$
-
$
-
$
71,500
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
1,423
-
6,540
2,095
-
-
10,058
Pass
164,272
146,062
91,486
93,118
10,863
23,581
-
-
529,382
Total construction
$
164,272
$
158,150
$
92,909
$
100,097
$
35,713
$
59,802
$
-
$
-
$
610,943
Mortgage
Substandard
$
-
$
2,009
$
3,478
$
4,048
$
1,156
$
9,798
$
-
$
-
$
20,489
Pass
236,595
303,204
243,468
183,846
58,026
241,564
-
-
1,266,703
Total mortgage
$
236,595
$
305,213
$
246,946
$
187,894
$
59,182
$
251,362
$
-
$
-
$
1,287,192
68
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
41,724
13,959
64,852
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
41,744
$
15,899
$
68,962
Personal
Substandard
$
621
$
454
$
149
$
238
$
70
$
6
$
-
$
-
$
1,538
Loss
-
-
-
-
-
421
-
-
421
Pass
165,153
46,320
7,339
13,443
2,021
1,657
-
-
235,933
Total Personal
$
165,774
$
46,774
$
7,488
$
13,681
$
2,091
$
2,084
$
-
$
-
$
237,892
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
8
$
-
$
8
Pass
-
-
-
-
-
-
9,960
-
9,960
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
9,968
$
-
$
9,968
Total Popular U.S.
$
2,185,774
$
1,894,442
$
1,311,762
$
1,024,960
$
712,989
$
1,956,361
$
428,677
$
15,899
$
9,530,864
69
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
104,087
$
9,633
$
57,522
$
-
$
-
$
179,127
Special Mention
-
-
1,198
-
14,491
11,064
-
-
26,753
Substandard
-
-
-
9,305
7,373
6,267
100
-
23,045
Pass
640,421
422,247
259,724
226,440
163,363
377,808
2,785
-
2,092,788
Total commercial
multi-family
$
641,171
$
423,164
$
267,140
$
339,832
$
194,860
$
452,661
$
2,885
$
-
$
2,321,713
Commercial real estate non-owner occupied
Watch
$
173
$
38,395
$
27,667
$
18,297
$
34,708
$
129,118
$
-
$
-
$
248,358
Special Mention
-
4,361
19,970
8,870
-
100,809
-
-
134,010
Substandard
8,933
2,864
5,358
22,224
26,919
25,786
-
-
92,084
Pass
1,408,097
795,028
505,535
203,837
135,170
952,302
25,249
-
4,025,218
Total commercial
real estate non-
owner occupied
$
1,417,203
$
840,648
$
558,530
$
253,228
$
196,797
$
1,208,015
$
25,249
$
-
$
4,499,670
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
10,644
$
5,354
$
37,744
$
126,573
$
-
$
-
$
187,882
Special Mention
10
284
5,570
6,578
1,076
62,361
-
-
75,879
Substandard
16,205
6,177
802
8,203
11,935
117,791
-
-
161,113
Doubtful
-
-
-
-
-
505
-
-
505
Pass
591,059
681,432
389,321
113,662
187,594
666,203
23,899
-
2,653,170
Total commercial
real estate owner
occupied
$
609,570
$
693,164
$
406,337
$
133,797
$
238,349
$
973,433
$
23,899
$
-
$
3,078,549
Commercial and industrial
Watch
$
44,704
$
4,403
$
17,515
$
20,878
$
23,921
$
52,134
$
60,799
$
-
$
224,354
Special Mention
3,799
3,609
6,084
1,383
6,827
46,040
6,286
-
74,028
Substandard
1,049
2,211
1,674
7,416
11,851
42,465
47,634
-
114,300
Doubtful
-
-
29
-
75
75
-
-
179
Loss
292
525
1
75
192
3
144
-
1,232
Pass
978,980
1,026,502
579,411
379,566
236,725
668,218
1,555,705
-
5,425,107
Total commercial
and industrial
$
1,028,824
$
1,037,250
$
604,714
$
409,318
$
279,591
$
808,935
$
1,670,568
$
-
$
5,839,200
70
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
35,446
$
15,201
$
98
$
6,979
$
18,310
$
34,126
$
141
$
-
$
110,301
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
11,052
-
6,540
2,095
-
-
19,687
Pass
177,316
180,449
107,447
95,380
10,863
23,581
32,957
-
627,993
Total construction
$
212,762
$
195,653
$
118,597
$
102,359
$
35,713
$
59,802
$
33,098
$
-
$
757,984
Mortgage
Substandard
$
-
$
2,583
$
4,165
$
7,974
$
5,383
$
103,757
$
-
$
-
$
123,862
Pass
685,881
754,231
528,494
388,016
295,033
4,621,954
-
-
7,273,609
Total mortgage
$
685,881
$
756,814
$
532,659
$
395,990
$
300,416
$
4,725,711
$
-
$
-
$
7,397,471
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
71
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,960
-
1,029,960
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,870
$
-
$
1,041,870
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
44,678
13,959
67,806
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
44,698
$
15,899
$
71,916
Personal
Substandard
$
1,951
$
2,455
$
913
$
2,012
$
573
$
10,837
$
-
$
1,285
$
20,026
Loss
-
-
53
20
31
431
-
1
536
Pass
1,006,717
367,129
110,676
131,011
48,576
111,200
-
27,708
1,803,017
Total Personal
$
1,008,668
$
369,584
$
111,642
$
133,043
$
49,180
$
122,468
$
-
$
28,994
$
1,823,579
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,910
$
-
$
12,388
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
70,198
-
134,857
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
81,108
$
-
$
147,548
Total Popular Inc.
$
7,470,324
$
5,736,879
$
3,444,280
$
2,356,222
$
1,633,775
$
8,468,021
$
2,923,375
$
44,893
$
32,077,769
72
Note 10 – Mortgage banking activities
Income
from
mortgage
banking
activities
includes
mortgage
servicing
fees
earned
in
connection
with
administering
residential
mortgage
loans
and
valuation
adjustments
on
mortgage
servicing
rights.
It
also
includes
gain
on
sales
and
securitizations
of
residential mortgage
loans, losses
on repurchased
loans, including
interest advances,
and trading
gains and
losses on
derivative
contracts
used
to
hedge
the
Corporation’s
securitization
activities.
In
addition,
fair
value
valuation
adjustments
to
residential
mortgage loans held for sale, if any, are recorded as part of the mortgage
banking activities.
The following table presents the components of mortgage
banking activities:
Quarters ended June 30,
Six months ended June 30,
(In thousands)
2023
2022
2023
2022
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
8,369
$
9,186
$
17,058
$
18,509
Mortgage servicing rights fair value adjustments
(6,216)
2,257
(7,592)
3,345
Total mortgage
servicing fees, net of fair value adjustments
2,153
11,443
9,466
21,854
Net (loss) gain on sale of loans, including valuation on
loans held-for-sale
(61)
36
202
(1,498)
Trading account profit (loss):
Unrealized gains (loss) on outstanding derivative positions
246
(2)
115
-
Realized gains on closed derivative positions
111
2,430
167
6,565
Total trading account
profit
357
2,428
282
6,565
Losses on repurchased loans, including interest advances
(133)
(332)
(234)
(481)
Total mortgage
banking activities
$
2,316
$
13,575
$
9,716
$
26,440
[1]
Effective on January 1, 2023, loans held-for-sale
are stated at fair value. Prior to such date, loans held-for-sale
were stated at lower-of-cost-or-
market.
73
Note 11 – Transfers of financial assets and mortgage servicing assets
The
Corporation
typically
transfers
conforming
residential
mortgage
loans
in
conjunction
with
GNMA,
FNMA
and
FHLMC
securitization transactions
whereby the
loans are
exchanged for
cash or
securities and
servicing rights.
As seller,
the Corporation
has made
certain representations
and warranties
with respect
to the
originally transferred
loans and,
in the
past,
has sold
certain
loans
with
credit
recourse
to
a
government-sponsored
entity,
namely
FNMA.
Refer
to
Note
20
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,
2023 and
2022
because they did not contain any credit recourse
arrangements.
The
following tables
present the
initial fair
value of
the
assets obtained
as
proceeds from
residential mortgage
loans securitized
during the quarters and six months ended June 30,
2023 and 2022:
Proceeds Obtained During the Quarter Ended June 30, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - FNMA
$
-
$
13,393
$
-
$
13,393
Total trading account
debt securities
$
-
$
13,393
$
-
$
13,393
Mortgage servicing rights
$
-
$
-
$
366
$
366
Total
$
-
$
13,393
$
366
$
13,759
Proceeds Obtained During the Six months Ended June
30, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
1,067
$
-
$
1,067
Mortgage-backed securities - FNMA
-
23,292
-
23,292
Total trading account
debt securities
$
-
$
24,359
$
-
$
24,359
Mortgage servicing rights
$
-
$
-
$
644
$
644
Total
$
-
$
24,359
$
644
$
25,003
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
74
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
During the six
months ended June
30, 2023, the
Corporation retained servicing
rights on whole
loan sales involving
approximately
$
27
million in principal balance outstanding (June 30, 2022 - $
33
million), with net realized gains of approximately $
0.5
million (June
30, 2022 - gains of
$
0.4
million). All loan sales performed during the six
months ended June 30, 2023 and 2022
were without credit
recourse agreements.
The Corporation recognizes as assets the rights to service loans for others,
whether these rights are purchased or result from asset
transfers such as sales and securitizations. These mortgage
servicing rights (“MSRs”) are measured at
fair value.
The
Corporation
uses
a
discounted
cash
flow
model
to
estimate
the
fair
value
of
MSRs.
The
discounted
cash
flow
model
incorporates
assumptions
that
market
participants
would
use
in
estimating
future
net
servicing
income,
including
estimates
of
prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late
fees, among other considerations. Prepayment speeds are
adjusted for the loans’ characteristics and portfolio behavior.
The following table
presents the changes
in MSRs measured
using the fair
value method for
the six months
ended June 30,
2023
and 2022.
Residential MSRs
(In thousands)
June 30, 2023
June 30, 2022
Fair value at beginning of period
$
128,350
$
121,570
Additions
1,240
5,032
Changes due to payments on loans
[1]
(5,288)
(5,877)
Reduction due to loan repurchases
(338)
(463)
Changes in fair value due to changes in valuation model inputs
or assumptions
(1,446)
9,571
Other
(1,269)
44
Fair value at end of period
[2]
$
121,249
$
129,877
[1] Represents changes due to collection / realization
of expected cash flows over time.
[2] At June 30, 2023, PB had MSRs amounting to $
1.9
million (June 30, 2022 - $
2.0
million).
During the
quarter ended June
30,2023, the Corporation
terminated a servicing
agreement,
in which
it acted
as sub-servicer for
a
third
party,
for
a
portfolio
with
an
unpaid
principal
balance
of
approximately
$
260
million
and
a
related
MSR
fair
value
of
approximately $
2
million.
The transaction did not result in a material
effect on the financial results of the Corporation.
Residential mortgage loans serviced for others were $
10.4
billion at June 30, 2023 (December 31, 2022
-$
11.1
billion).
Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the
changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows.
The banking
subsidiaries receive servicing
fees based
on a
percentage of the
outstanding loan balance.
These servicing fees
are
credited to income
when they are collected.
At June 30,
2023, those weighted average
mortgage servicing fees were
0.31
% (June
75
30, 2022 -
0.31
%). Under these servicing agreements, the banking
subsidiaries do not generally earn significant prepayment
penalty
fees on the underlying loans serviced.
The section
below includes
information on
assumptions used
in the
valuation model
of the
MSRs, originated
and purchased.
Key
economic assumptions used
in measuring the
servicing rights derived
from loans securitized
or sold by
the Corporation during
the
quarters and six months ended June 30, 2023 and
2022 were as follows:
Quarters ended
Six months ended
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
BPPR
PB
BPPR
PB
BPPR
PB
BPPR
PB
Prepayment speed
7.4
%
7.1
%
4.7
%
7.8
%
7.0
%
7.2
%
5.0
%
8.9
%
Weighted average life (in years)
9.7
8.1
10.2
8.0
9.1
8.0
9.8
7.4
Discount rate (annual rate)
9.5
%
10.5
%
10.5
%
9.5
%
9.5
%
10.5
%
10.4
%
9.8
%
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)
2023
2022
2023
2022
Fair value of servicing rights
$
39,504
$
41,548
$
81,745
$
86,802
Weighted average life (in years)
6.9
6.8
6.9
6.9
Weighted average prepayment speed (annual
rate)
5.8
%
5.9
%
6.9
%
7.0
%
Impact on fair value of 10% adverse change
$
(698)
$
(730)
$
(1,518)
$
(1,602)
Impact on fair value of 20% adverse change
$
(1,369)
$
(1,433)
$
(2,979)
$
(3,143)
Weighted average discount rate (annual rate)
11.3
%
11.2
%
10.9
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,355)
$
(1,485)
$
(2,947)
$
(3,256)
Impact on fair value of 20% adverse change
$
(2,625)
$
(2,876)
$
(5,711)
$
(6,304)
76
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,
2023,
the
Corporation
serviced
$
0.6
billion
in
residential
mortgage
loans
with
credit
recourse
to
the
Corporation
(December 31, 2022 - $
0.6
billion). Also refer to Note 20 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,
2023, the
Corporation had
recorded $
7
million in
mortgage loans
on its
Consolidated Statements
of Financial
Condition
related
to
this
buy-back
option
program
(December
31,
2022
-
$
14
million).
Loans
in
our
serviced
GNMA
portfolio
benefit from
payment forbearance programs
but continue to
reflect the contractual
delinquency until the
borrower repays deferred
payments or
completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service
the
loans
that
continue
to
be
collateral
in
a
GNMA
guaranteed
mortgage-backed
security,
the
MSR
is
recognized
by
the
Corporation.
During the six months ended June 30, 2023, the Corporation repurchased approximately $
24
million (June 30, 2022 - $
35
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.
77
Note 12 – 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, 2023 and 2022.
For the quarter ended June 30, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,388
$
79,333
$
91,721
Write-downs in value
(45)
(269)
(314)
Additions
244
21,155
21,399
Sales
(785)
(25,822)
(26,607)
Other adjustments
17
-
17
Ending balance
$
11,819
$
74,397
$
86,216
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 six months ended June 30, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,500
$
76,626
$
89,126
Write-downs in value
(239)
(1,020)
(1,259)
Additions
1,267
39,830
41,097
Sales
(1,726)
(40,921)
(42,647)
Other adjustments
17
(118)
(101)
Ending balance
$
11,819
$
74,397
$
86,216
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
78
Note 13 − Other assets
The caption of other assets in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
June 30, 2023
December 31, 2022
Net deferred tax assets (net of valuation allowance)
$
904,601
$
953,676
Investments under the equity method
227,358
210,001
Prepaid taxes
55,000
39,405
Other prepaid expenses
38,928
33,384
Capitalized software costs
78,766
81,862
Derivative assets
24,221
19,229
Trades receivable from brokers and counterparties
6,412
35,099
Receivables from investments maturities
-
125,000
Principal, interest and escrow servicing advances
52,848
41,916
Guaranteed mortgage loan claims receivable
58,784
59,659
Operating ROU assets (Note 28)
120,117
125,573
Finance ROU assets (Note 28)
18,989
18,884
Others
117,638
104,125
Total other assets
$
1,703,662
$
1,847,813
The Corporation regularly incurs in
capitalizable costs associated with software development or
licensing which are recorded within
the Other Assets line item in the accompanying Consolidated Statements of Financial Condition.
In addition, the Corporation incurs
costs
associated
with
hosting
arrangements
that
are
service
contracts
that
are
also
recorded
within
Other
Assets.
The
hosting
arrangements can
include capitalizable
implementation costs
that are
amortized during
the term
of the
hosting arrangement.
The
following
table
summarizes
the
composition
of
acquired
or
developed
software
costs
as
well
as
costs
related
to
hosting
arrangements:
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
June 30, 2023
Software development costs
$
67,200
$
21,826
$
45,374
Software license costs
39,553
17,607
21,946
Cloud computing arrangements
21,039
9,593
11,446
Total Capitalized
software costs [1] [2]
$
127,792
$
49,026
$
78,766
December 31, 2022
Software development costs
$
63,609
$
16,803
$
46,806
Software license costs
37,165
14,164
23,001
Cloud computing arrangements
20,745
8,690
12,055
Total Capitalized
software costs [1] [2]
$
121,519
$
39,657
$
81,862
[1]
Software intangible assets are presented as part of Other
Assets in the Consolidated Statements of Financial Condition.
[2]
The tables above excludes assets which have been fully
amortized.
Total
amortization expense for
all capitalized software
and hosting arrangement
cost, reflected as
part of
technology and software
expenses in the consolidated statement of operations,
is as follows:
Quarters ended June 30,
Six
months ended June 30,
(In thousands)
2023
2022
2023
2022
Software development and license costs
$
16,151
$
13,013
$
31,142
$
24,768
Cloud computing arrangements
778
1,069
1,762
2,027
Total amortization
expense
$
16,929
$
14,082
$
32,904
$
26,795
79
Note 14 – 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, 2023 and 2022.
The following tables present the gross amount of
goodwill and accumulated impairment losses by
reportable segments:
June 30, 2023
Balance at
Balance at
June 30,
Accumulated
June 30,
2023
impairment
2023
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
Inc.
$
1,004,640
$
177,212
$
827,428
December 31, 2022
Balance at
Balance at
December 31,
Accumulated
December 31,
2022
impairment
2022
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
Inc.
$
1,004,640
$
177,212
$
827,428
Other Intangible Assets
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, 2023
Core deposits
$
12,810
$
10,675
$
2,135
Other customer relationships
14,286
5,827
8,459
Total other intangible
assets
$
27,096
$
16,502
$
10,594
December 31, 2022
Core deposits
$
12,810
$
10,034
$
2,776
Other customer relationships
14,286
4,878
9,408
Total other intangible
assets
$
27,096
$
14,912
$
12,184
During the quarter ended June 30, 2023, the Corporation recognized
$
0.8
million in amortization expense related to other intangible
assets
with
definite
useful
lives
(June
30,
2022
-
$
0.8
million).
During
the
six
months
ended
June
30,
2023,
the
Corporation
recognized $
1.6
million in amortization related to other intangible
assets with definite useful lives (June
30, 2022 - $
1.7
million).
The following
table presents
the estimated
amortization of
the intangible
assets with
definite useful
lives for
each of
the following
periods:
80
(In thousands)
Remaining 2023
$
1,589
Year 2024
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Later years
1,918
81
Note 15 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
June 30, 2023
December 31, 2022
Savings accounts
$
15,222,346
$
14,746,329
NOW, money market and other interest
bearing demand deposits
25,464,069
23,738,940
Total savings, NOW,
money market and other interest bearing demand
deposits
40,686,415
38,485,269
Certificates of deposit:
Under $250,000
4,990,563
4,235,651
$250,000 and over
3,011,288
2,545,750
Total certificates
of deposit
8,001,851
6,781,401
Total interest bearing
deposits
$
48,688,266
$
45,266,670
Non- interest bearing deposits
$
15,316,552
$
15,960,557
Total deposits
$
64,004,818
$
61,227,227
A summary of certificates of deposits by maturity at
June 30, 2023 follows:
(In thousands)
2023
$
3,274,343
2024
2,208,468
2025
926,324
2026
651,739
2027
428,792
2028 and thereafter
512,185
Total certificates of
deposit
$
8,001,851
At June 30, 2023, the Corporation had brokered
deposits amounting to $
1.5
billion (December 31, 2022 - $
1.1
billion).
The aggregate amount
of overdrafts in
demand deposit accounts that
were reclassified to
loans was $
6.3
million at June
30, 2023
(December 31, 2022 - $
6.3
million).
At
June
30,
2023,
Puerto
Rico
public sector
deposits
amounted to
$
18.5
billion.
Puerto
Rico
public sector
deposits
are
interest
bearing
accounts.
Public
deposit
balances
are
difficult
to
predict.
For
example,
the
receipt
by
the
Puerto
Rico
Government
of
hurricane recovery related Federal assistance and seasonal
tax collections could increase public deposit balances at BPPR.
On the
other hand,
the amount and
timing of
reductions in balances
are likely to
be impacted by,
for example, the
speed at
which federal
assistance is
distributed,
the financial
condition, liquidity
and cash
management practices
of the
Puerto Rico
Government and
its
instrumentalities
and
the
implementation
of
fiscal
and
debt
adjustment
plans
approved
pursuant
to
PROMESA
or
other
actions
mandated
by
the
Fiscal
Oversight
and
Management
Board
for
Puerto
Rico
(the
“Oversight
Board”).
Generally,
these
deposits
require
that
the
bank
pledge
high
credit
quality
securities
as
collateral, therefore,
liquidity
risk
arising from
public
sector
deposit
outflows are lower.
82
Note 16 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
to $
123
million at June 30, 2023 and $
149
million at December 31, 2022.
The Corporation’s
repurchase transactions are
overcollateralized with the
securities detailed in
the table
below.
The Corporation’s
repurchase
agreements
have
a
right
of
set-off
with
the
respective
counterparty
under
the
supplemental
terms
of
the
master
repurchase agreements.
In an
event of
default,
each party
has a
right of
set-off
against the
other party
for amounts
owed in
the
related
agreement
and
any
other
amount
or
obligation
owed
in
respect
of
any
other
agreement
or
transaction
between
them.
Pursuant to the
Corporation’s accounting policy,
the repurchase agreements
are not offset
with other repurchase
agreements held
with the same counterparty.
The following table
presents information related to
the Corporation’s repurchase
transactions accounted for as
secured borrowings
that are collateralized with
debt securities available-for-sale, debt securities
held-to-maturity, other assets
held-for-trading purposes
or which have been obtained under agreements to resell.
It is the Corporation’s policy to maintain effective control over assets
sold
under agreements
to repurchase;
accordingly,
such securities
continue to
be carried
on the
Consolidated Statements
of Financial
Condition.
Repurchase agreements accounted for as secured borrowings
June 30, 2023
December 31, 2022
Repurchase
Repurchase
(In thousands)
liability
liability
U.S. Treasury securities
Within 30 days
$
13,000
$
410
After 30 to 90 days
21,933
30,739
After 90 days
13,254
17,521
Total U.S. Treasury
securities
48,187
48,670
Mortgage-backed securities
Within 30 days
73,958
98,984
After 30 to 90 days
795
791
Total mortgage-backed
securities
74,753
99,775
Collateralized mortgage obligations
Within 30 days
265
164
Total collateralized
mortgage obligations
265
164
Total
$
123,205
$
148,609
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, 2023,
compared to $
365
million in FHLB Advances at December
31, 2022.
83
Notes Payable
The following table presents the composition of notes
payable at June 30, 2023 and December
31, 2022.
(In thousands)
June 30, 2023
December 31, 2022
Advances with the FHLB with maturities ranging from
2023
through
2029
paying interest at
monthly
fixed rates ranging from
0.39
% to
4.17
%
$
412,632
$
389,282
Unsecured senior debt securities with maturities ranging
from
2023
to
2028
paying interest
semiannually
at fixed rates ranging from
6.125
% to
7.25
%, net of debt issuance costs of $
6,915
[1]
693,085
299,109
Junior subordinated deferrable interest debentures (related to
trust preferred securities) maturing on
2034
with fixed interest rates ranging from
6.125
% to
6.564
%, net of debt issuance costs of $
301
198,332
198,319
Total notes payable
$
1,304,049
$
886,710
Note: Refer to the 2022 Form 10-K for rates information
at December 31, 2022.
[1] On March 13, 2023, the Corporation issued $
400
million aggregate principal amount of
7.25
% Senior Notes due
2028
(the “2028 Notes”) in an
underwritten public offering. On July 14, 2023,
the Corporation announced that it will use a portion
of the net proceeds of the 2028 Notes offering
to
redeem, on August 14, 2023, the outstanding $
300
million aggregate principal amount of its
6.125
% Senior Notes due September
2023
. The
redemption price will be equal to
100
% of the principal amount plus accrued and unpaid interest
through the redemption date.
A breakdown of borrowings by contractual maturities
at June 30, 2023 is included in the
table below.
Assets sold under
(In thousands)
agreements to
repurchase
Notes payable
Total
2023
$
118,600
$
322,004
$
440,604
2024
4,605
91,943
96,548
2025
-
139,920
139,920
2026
-
74,500
74,500
Later years
-
675,682
675,682
Total borrowings
$
123,205
$
1,304,049
$
1,427,254
At June 30, 2023 and
December 31, 2022, the Corporation had FHLB borrowing facilities whereby the
Corporation could borrow up
to $
4.1
billion and
$
3.3
billion, respectively,
of which
$
0.4
billion and
$
0.8
billion, respectively,
were used.
In addition,
at June
30,
2023 and
December 31,
2022, the
Corporation had
placed $
0.3
billion and
$
0.4
billion, respectively,
of the
available FHLB
credit
facility as collateral for
municipal letters of credit
to secure deposits. The
FHLB borrowing facilities are
collateralized with securities
and loans held-in-portfolio, and do not have restrictive
covenants or callable features.
Also, at June
30, 2023, the
Corporation has a
borrowing facility at
the discount window
of the
Federal Reserve Bank
of New York
amounting to
$
3.1
billion (December
31, 2022
- $
1.4
billion), which
remained unused
at June
30, 2023
and December
31, 2022.
The facility is a collateralized source of credit that
is highly reliable even under difficult market conditions.
84
Note 17 − Other liabilities
The caption of other liabilities in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
June 30, 2023
December 31, 2022
Accrued expenses
$
252,736
$
337,284
Accrued interest payable
56,103
39,288
Accounts payable
102,337
76,456
Dividends payable
39,664
39,525
Trades payable
1,022
9,461
Liability for GNMA loans sold with an option to repurchase
7,108
14,271
Reserves for loan indemnifications
6,808
7,520
Reserve for operational losses
28,678
39,266
Operating lease liabilities (Note 28)
131,437
137,290
Finance lease liabilities (Note 28)
24,091
24,737
Pension benefit obligation
6,797
8,290
Postretirement benefit obligation
118,186
118,336
Others
66,218
65,222
Total other liabilities
$
841,185
$
916,946
85
Note 18 – Stockholders’ equity
As of June 30, 2023, stockholders’ equity totaled $
4.6
billion. During the six months ended June 30, 2023, the Corporation declared
cash dividends of $
1.10
(2022 - $
1.10
) per common share amounting to
$
79.2
million (2022 - $
84.2
million). The quarterly dividend
declared to stockholders of record as of the close
of business on
June 1, 2023
was paid on
July 3, 2023
.
Accelerated share repurchase transaction (“ASR”)
On
March
1,
2022,
the
Corporation announced
that
on
February 28,
2022
it
entered
into
a
$
400
million
ASR
transactions
with
respect to
its common
stock, which
was accounted
for as
a treasury
transaction. As
a result
of the
receipt of
the initial
3,483,942
shares,
the
Corporation
recognized
in
stockholders’
equity
approximately
$
320
million
in
treasury
stock
and
$
80
million
as
a
reduction of capital surplus.
The Corporation completed the
transaction on July
12, 2022 and received
1,582,922
additional shares
of
common stock
and
recognized $
120
million in
treasury stock
with a
corresponding increase
in its
capital surplus.
In
total, the
Corporation repurchased a total of
5,066,864
shares at an average purchased price of $
78.9443
under the ASR.
86
Note 19 – Other comprehensive loss
The
following
table
presents
changes
in
accumulated
other
comprehensive
loss
by
component
for
the
quarters
and
six
months
ended June 30, 2023 and 2022.
Changes in Accumulated Other Comprehensive Loss
by Component [1]
Quarters ended
Six
months ended
June 30,
June 30,
(In thousands)
2023
2022
2023
2022
Foreign currency translation
Beginning Balance
$
(61,980)
$
(70,165)
$
(56,735)
$
(67,307)
Other comprehensive income
6,001
5,998
756
3,140
Net change
6,001
5,998
756
3,140
Ending balance
$
(55,979)
$
(64,167)
$
(55,979)
$
(64,167)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(141,327)
$
(155,281)
$
(144,335)
$
(158,994)
Other comprehensive income before reclassifications
-
-
-
1,269
Amounts reclassified from accumulated other
comprehensive loss for amortization of net losses
3,008
2,444
6,016
4,888
Net change
3,008
2,444
6,016
6,157
Ending balance
$
(138,319)
$
(152,837)
$
(138,319)
$
(152,837)
Unrealized net holding (losses)
gains on debt securities
Beginning Balance
$
(2,098,518)
$
(1,171,950)
$
(2,323,903)
$
(96,120)
Other comprehensive (loss) income
(69,941)
(563,420)
121,811
(1,639,250)
Amounts reclassified from accumulated other
comprehensive loss for amortization of net unrealized
losses of debt securities transferred from available-for-
sale to held-to-maturity
34,322
-
67,955
-
Net change
(35,619)
(563,420)
189,766
(1,639,250)
Ending balance
$
(2,134,137)
$
(1,735,370)
$
(2,134,137)
$
(1,735,370)
Unrealized net losses on cash
flow hedges
Beginning Balance
$
-
$
158
$
45
$
(2,648)
Other comprehensive (loss) income before
reclassifications
-
(332)
(19)
2,807
Amounts reclassified from accumulated other
comprehensive income (loss)
-
(468)
(26)
(801)
Net change
-
(800)
(45)
2,006
Ending balance
$
-
$
(642)
$
-
$
(642)
Total
$
(2,328,435)
$
(1,953,016)
$
(2,328,435)
$
(1,953,016)
[1]
All amounts presented are net of tax.
87
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, 2023 and
2022.
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
2023
2022
2023
2022
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(4,813)
$
(3,911)
$
(9,626)
$
(7,822)
Total before tax
(4,813)
(3,911)
(9,626)
(7,822)
Income tax benefit
1,805
1,467
3,610
2,934
Total net of tax
$
(3,008)
$
(2,444)
$
(6,016)
$
(4,888)
Unrealized net holding losses on debt securities
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Interest income from investment securities
$
(42,903)
$
-
$
(84,943)
$
-
Total before tax
(42,903)
-
(84,943)
-
Income tax expense
8,581
-
16,988
-
Total net of tax
$
(34,322)
$
-
$
(67,955)
$
-
Unrealized net gains (losses) on cash flow hedges
Forward contracts
Mortgage banking activities
$
-
$
1,099
$
41
$
2,077
Interest rate swaps
Other operating income
-
(219)
-
(498)
Total before tax
-
880
41
1,579
Income tax benefit
-
(412)
(15)
(778)
Total net of tax
$
-
$
468
$
26
$
801
Total reclassification
adjustments, net of tax
$
(37,330)
$
(1,976)
$
(73,945)
$
(4,087)
88
Note 20 – Guarantees
At
June
30,
2023,
the
Corporation recorded
a
liability
of
$
0.3
million
(December
31,
2022
-
$
0.3
million),
which
represents
the
unamortized balance of the obligations
undertaken in issuing the
guarantees under the standby letters of
credit. 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, 2023,
the
Corporation serviced
$
0.6
billion
(December 31,
2022 -
$
0.6
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,
2023,
the
Corporation repurchased
approximately $
0.6
million and
$
1.4
million, respectively,
of unpaid
principal balance
in mortgage
loans
subject to the credit recourse provisions (June 30, 2022
-
$
2
million and $
5
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,
2023, the
Corporation’s liability
established to
cover
the
estimated credit
loss exposure
related to
loans sold or serviced with credit recourse amounted
to $
6
million (December 31, 2022 - $
7
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, 2023 and 2022.
Quarters ended June 30,
Six months ended June 30,
(In thousands)
2023
2022
2023
2022
Balance as of beginning of period
$
5,864
$
10,335
$
6,897
$
11,800
Provision (benefit) for recourse liability
478
(395)
(176)
(349)
Net charge-offs
(119)
(845)
(498)
(2,356)
Balance as of end of period
$
6,223
$
9,095
$
6,223
$
9,095
From time
to
time, the
Corporation sells
loans and
agrees to
indemnify the
purchaser for
credit
losses or
any
breach of
certain
representations and warranties
made in
connection with
the sale.
The loan
repurchase activity under
these indemnity
agreements
for the
quarter and six
months ended June
30, 2023
as well
as the liability
for estimated losses
at period end
was not
considered
material for the Corporation..
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,
2023, the
Corporation serviced
$
10.4
billion in
mortgage loans
for third-parties,
including the
loans serviced
with credit
recourse (December
31, 2022
- $
11.1
billion). The
Corporation generally
recovers funds
advanced pursuant
to these
arrangements from
the mortgage
owner, from
liquidation proceeds when the
mortgage loan is foreclosed
or, in
the case of
FHA/VA loans,
under the applicable FHA
and
VA
insurance
and
guarantees
programs.
However,
in
the
meantime,
the
Corporation
must
absorb
the
cost
of
the
funds
it
advances
during
the
time
the
advance
is
outstanding.
The
Corporation
must
also
bear
the
costs
of
attempting
to
collect
on
delinquent and defaulted mortgage loans. In
addition, if a defaulted loan
is not cured, the mortgage
loan would be canceled as
part
of the foreclosure proceedings and the Corporation would
not receive any future servicing income with respect
to that loan. At June
30,
2023,
the
outstanding
balance
of
funds
advanced
by
the
Corporation under
such
mortgage
loan
servicing
agreements
was
approximately
$
53
million
(December
31,
2022
-
$
42
million).
To
the
extent
the
mortgage
loans
underlying
the
Corporation’s
servicing portfolio experience
increased delinquencies, the Corporation
would be required
to dedicate additional
cash resources to
comply with its obligation to advance funds as well
as incur additional administrative costs related
to increases in collection efforts.
Popular,
Inc. Holding
Company (“PIHC”) fully
and unconditionally guarantees
certain borrowing
obligations issued by
certain of
its
100
% owned consolidated subsidiaries amounting to
$
94
million at June 30, 2023
and December 31, 2022. In
addition, at June 30,
89
2023 and December 31,
2022, PIHC fully and
unconditionally guaranteed on a subordinated
basis $
193
million of capital securities
(trust
preferred
securities)
issued
by
wholly-owned
issuing
trust
entities
to
the
extent
set
forth
in
the
applicable
guarantee
agreement. Refer
to Note
18 to
the Consolidated
Financial Statements
in the
2022 Form
10-K for
further information
on the
trust
preferred securities.
90
Note 21 – 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, 2023
December 31, 2022
Commitments to extend credit:
Credit card lines
$
6,008,516
$
5,853,990
Commercial and construction lines of credit
4,381,533
4,425,825
Other consumer unused credit commitments
249,211
250,271
Commercial letters of credit
2,256
3,351
Standby letters of credit
29,404
27,868
Commitments to originate or fund mortgage loans
43,593
45,170
At June
30, 2023
and December
31, 2022,
the Corporation
maintained a
reserve of
approximately $
11.6
million and
$
8.8
million,
respectively, for potential losses associated with unfunded loan commitments
related to commercial
and construction lines of credit.
Other commitments
At June
30, 2023
and December 31,
2022, the
Corporation also
maintained other
non-credit commitments for
approximately $
4.8
million, primarily for the acquisition of other investments.
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition
are dependent
upon the
general trends
of the
Puerto Rico
economy and,
in particular,
the residential
and commercial
real estate
markets. The concentration
of the Corporation’s
operations in Puerto Rico
exposes it to
greater risk than other
banking companies
with a wider geographic base. Its
asset and revenue composition by geographical area
is presented in Note 33
to the Consolidated
Financial Statements.
Puerto
Rico
has
faced
significant
fiscal
and
economic
challenges
for
over
a
decade.
In
response
to
such
challenges,
the
U.S.
Congress enacted the
Puerto Rico Oversight
Management and Economic Stability
Act (“PROMESA”) in
2016, which, among
other
things,
established
the
Oversight
Board
and
a
framework
for
the
restructuring
of
the
debts
of
the
Commonwealth,
its
instrumentalities and
municipalities.
The
Commonwealth and
several
of
its
instrumentalities have
commenced
debt
restructuring
proceedings under
PROMESA. As
of the
date of
this report,
while municipalities
have been
designated as
covered entities
under
PROMESA,
no
municipality
has
commenced,
or
has
been
authorized
by
the
Oversight
Board
to
commence,
any
such
debt
restructuring proceeding under PROMESA.
At
June
30,
2023,
the
Corporation’s
direct
exposure
to
the
Puerto
Rico
government
and
its
instrumentalities
and
municipalities
totaled $
380
million, of which
$
351
million were outstanding
($
374
million and $
327
million at December
31, 2022). Of
the amount
outstanding,
$
325
million
consists
of
loans
and
$
26
million
are
securities
($
302
million
and
$
25
million
at
December 31,
2022).
Substantially all
of the
amount outstanding
at June
30, 2023
and December
31, 2022
were obligations
from various
Puerto Rico
municipalities. In most cases, these were “general obligations” of a municipality, to which
the applicable municipality has pledged its
good
faith,
credit
and
unlimited taxing
power,
or
“special
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged other revenues. At June 30, 2023,
74
% of the Corporation’s exposure to municipal loans and
securities was concentrated in
the
municipalities
of
San
Juan,
Guaynabo,
Carolina
and
Caguas.
In
July
2023,
the
Corporation
received
scheduled
principal
payments amounting to $
34
million from various obligations from Puerto
Rico municipalities.
91
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, 2023:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
10
$
-
$
10
$
10
After 5 to 10 years
1
-
1
1
After 10 years
30
-
30
30
Total Central
Government
41
-
41
41
Municipalities
Within 1 year
4,730
13,089
17,819
42,819
After 1 to 5 years
20,282
115,804
136,086
140,086
After 5 to 10 years
1,025
146,681
147,706
147,706
After 10 years
-
49,831
49,831
49,831
Total Municipalities
26,037
325,405
351,442
380,442
Total Direct Government
Exposure
$
26,078
$
325,405
$
351,483
$
380,483
In addition,
at June
30, 2023,
the Corporation had
$
240
million in
loans insured
or securities issued
by Puerto
Rico governmental
entities but for
which the principal
source of
repayment is non-governmental
($
251
million at December
31, 2022). These
included
$
199
million
in
residential
mortgage
loans
insured
by
the
Puerto
Rico
Housing
Finance
Authority
(“HFA”),
a
governmental
instrumentality
that
has
been
designated
as
a
covered
entity
under
PROMESA
(December
31,
2022
-
$
209
million).
These
mortgage loans
are secured
by first
mortgages on
Puerto Rico
residential properties
and the
HFA
insurance covers
losses in
the
event of
a borrower default
and upon
the satisfaction
of certain
other conditions. The
Corporation also had
at June
30, 2023,
$
40
million in
bonds issued by
HFA which
are secured by
second mortgage loans
on Puerto Rico
residential properties, and
for which
HFA also provides
insurance to cover losses in the
event of a borrower default and
upon the satisfaction of certain other
conditions
(December 31,
2022 -
$
42
million). In
the event
that the
mortgage loans
insured by
HFA
and held
by the
Corporation directly
or
those serving
as collateral
for the
HFA
bonds default
and the
collateral is
insufficient to
satisfy the
outstanding balance
of these
loans,
HFA’s
ability
to
honor
its
insurance
will
depend, among
other factors,
on
the
financial
condition
of
HFA
at
the
time
such
obligations
become
due
and
payable. The
Corporation does
not consider
the
government guarantee
when
estimating the
credit
losses
associated
with
this
portfolio.
Although
the
Governor
is
currently
authorized
by
local
legislation
to
impose
a
temporary
moratorium on the financial obligations of the HFA, a moratorium on
such obligations has not been imposed as of
the date hereof.
BPPR’s
commercial loan
portfolio also
includes loans
to
private borrowers
who
are service
providers, lessors,
suppliers or
have
other relationships with the government. These
borrowers could be negatively affected by
the Commonwealth’s fiscal crisis and
the
ongoing
Title
III
proceedings
under
PROMESA.
Similarly,
BPPR’s
mortgage
and
consumer
loan
portfolios
include
loans
to
government
employees
and
retirees,
which
could
also
be
negatively
affected
by
fiscal
measures
such
as
employee
layoffs
or
furloughs or reductions in pension benefits.
In
addition, $
1.6
billion of
residential mortgages,
$
12
million of
Small Business
Administration (“SBA”)
loans under
the Paycheck
Protection Program (“PPP”) and
$
71
million commercial loans were
insured or guaranteed
by the U.S.
Government or its agencies
at June 30,
2023 (compared to $
1.6
billion, $
38
million and $
72
million, respectively,
at December 31, 2022).
The Corporation also
had U.S. Treasury
and obligations from the
U.S. Government, its
agencies or government sponsored
entities within the
portfolio of
available-for-sale and held-to-maturity securities as described
in Note 6 and 7 to the Consolidated Financial
Statements.
At June 30, 2023, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $
28
million
in direct
exposure to
USVI government entities
(December 31, 2022
- $
28
million). The
USVI has
been experiencing a
number of
fiscal and economic challenges
that could adversely
affect the ability
of its public
corporations and instrumentalities to
service their
outstanding debt obligations.
At June 30, 2023, the
Corporation has operations in the British
Virgin Islands (“BVI”), which
was negatively affected by the
COVID-
19 pandemic, particularly as a
reduction in the tourism activity
which accounts for a significant
portion of its economy.
Although the
92
Corporation has
no significant
exposure to
a single
borrower in
the BVI,
it has
a loan
portfolio amounting
to approximately
$
207
million comprised of various retail and commercial
clients, compared to a loan portfolio of $
214
million at December 31, 2022.
Legal Proceedings
The
nature
of
Popular’s
business
ordinarily
generates
claims,
litigation,
investigations,
and
legal
and
administrative
cases
and
proceedings
(collectively,
“Legal Proceedings”).
When the
Corporation determines
that
it
has
meritorious
defenses to
the
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment, it
is in the best
interest of the Corporation and
its stockholders to do so.
On at least a
quarterly basis, Popular assesses its liabilities and contingencies relating
to outstanding Legal Proceedings utilizing the most current
information
available.
For
matters
where
it
is
probable
that
the
Corporation
will
incur
a
material
loss
and
the
amount
can
be
reasonably estimated,
the Corporation
establishes an
accrual for
the loss.
Once established,
the accrual
is adjusted
on at
least a
quarterly
basis
to
reflect
any
relevant
developments,
as
appropriate.
For
matters
where
a
material
loss
is
not
probable,
or
the
amount of the loss cannot be reasonably estimated,
no accrual is established.
In certain cases,
exposure to loss
exists in
excess of any
accrual to the
extent such loss
is reasonably possible,
but not
probable.
Management believes and
estimates that the
range of reasonably
possible losses (with
respect to those
matters where such
limits
may be determined, in excess of amounts accrued)
for current Legal Proceedings ranged from $
0
to approximately $
20.1
million as
of June
30, 2023.
In certain
cases, management cannot
reasonably estimate the
possible loss
at this
time. Any
estimate involves
significant
judgment,
given
the
varying
stages
of
the
Legal
Proceedings
(including
the
fact
that
many
of
them
are
currently
in
preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet
to be
determined, the
numerous unresolved issues
in many
of the
Legal Proceedings,
and the
inherent uncertainty
of the
various
potential
outcomes
of
such
Legal
Proceedings.
Accordingly,
management’s
estimate
will
change
from
time-to-time,
and
actual
losses may be more or less than the current estimate.
While the
outcome of
Legal Proceedings
is inherently
uncertain, based
on information
currently available,
advice of
counsel, and
available
insurance
coverage,
management
believes
that
the
amount
it
has
already
accrued
is
adequate
and
any
incremental
liability arising from
the Legal Proceedings
in matters in
which a loss
amount can be
reasonably estimated will not
have a material
adverse effect
on the Corporation’s
consolidated financial position.
However, in
the event
of unexpected future
developments, it is
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
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.
On March 13, 2023, the U.S. Court of Appeals for the First Circuit entered judgment affirming the
trial court’s
93
order dismissing
the complaint.
On
March 23,
2023, Plaintiffs
filed
a
Petition for
Rehearing and/or
Rehearing
en
Banc
,
which is
pending resolution.
Insufficient Funds and Overdraft Fees Class Actions
Popular
was
named
as
a
defendant on
a
putative class
action
complaint captioned
Golden
v.
Popular,
Inc.
filed
in
March
2020
before
the
U.S.
District
Court
for
the
Southern
District
of
New
York,
seeking
damages,
restitution
and
injunctive
relief.
Plaintiff
alleged breach
of contract,
violation
of
the covenant
of
good faith
and
fair
dealing, unjust
enrichment and
violation
of
New York
consumer
protection law
due
to
Popular’s purported
practice of
charging
overdraft fees
(“OD
Fees”) on
transactions that,
under
plaintiffs’ theory,
do not
overdraw the
account. Plaintiff
described Popular’s purported
practice of
charging OD
Fees as
“Authorize
Positive,
Purportedly
Settle
Negative”
(“APPSN”)
transactions
and
alleged
that
Popular
assesses
OD
Fees
over
authorized
transactions
for
which
sufficient
funds
are
held
for
settlement.
In
August
2020,
Popular
filed
a
Motion
to
Dismiss
on
several
grounds,
including
failure
to
state
a
claim
against
Popular,
Inc.
and
improper
venue.
In
October
2020,
Plaintiff
filed
a
Notice
of
Voluntary
Dismissal
before
the
U.S.
District
Court
for
the
Southern
District
of
New
York
and,
simultaneously,
filed
an
identical
complaint in the U.S. District Court for the
District of the Virgin Islands against Popular,
Inc., Popular Bank and BPPR. In November
2020, Plaintiff
filed a
Notice of
Voluntary
Dismissal against
Popular, Inc.
and Popular
Bank following
a Motion
to Dismiss
filed on
behalf of
such entities, which
argued failure to
state a claim
and lack of
minimum contacts of
such parties with
the U.S.V.I.
district
court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to
Dismiss in January 2021.
In
October
2021,
the
District
Court,
notwithstanding that
BPPR’s
Motion
to
Dismiss
remained
pending
resolution,
held
an
initial
scheduling
conference
and,
thereafter,
issued
a
trial
management
order
where
it
scheduled
the
deadline
for
all
discovery
for
November
2022,
and
several
other
trial-related
deadlines
for
June
2023.
During
a
mediation
hearing held
in
October
2022,
the
parties
reached a
settlement in
principle on
a class-wide
basis subject
to
final
court
approval. In
January 2023,
the
parties filed
before the Court a
motion for preliminary approval
of the settlement agreement
and, on March 31,
2023, the Court issued
an order
granting preliminary approval of the settlement agreement.
The final approval hearing is scheduled for September 8,
2023.
On January
31, 2022,
Popular was
also named
as a
defendant on a
putative class
action complaint captioned
Lipsett v.
Popular,
Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District
of New York, seeking damages, restitution and
injunctive relief. Similar to the claims set forth in the
aforementioned Golden complaint, Plaintiff alleges breach of contract, including
violations of the covenant of good faith and
fair dealing, as a result of Popular’s purported practice of
charging OD Fees for APPSN
transactions.
The complaint further alleged that
Popular assesses OD Fees
over authorized transactions for
which sufficient funds
are held for settlement. Popular waived service of process
and filed a Motion to Compel Arbitration. In response to Popular’s
motion,
Plaintiff filed a Notice of Voluntary Dismissal in April 2022.
On May
13, 2022,
Plaintiff in
the Lipsett
complaint filed
a new
complaint captioned
Lipsett v.
Banco Popular
North America
d/b/a
Popular Community Bank
with the same
allegations of his
previous complaint against
Popular. In
June 2022, after
serving Plaintiff
with a written notice of election to arbitrate the claims asserted in the complaint which went unanswered, Popular Bank (“PB”) filed a
Pre-Motion Conference motion related to a new Motion to Compel Arbitration. After Plaintiff responded to the Pre-Motion
conference
motion, the Court allowed PB
to file its Motion
to Compel Arbitration, which it
did in September 2022. Plaintiff
opposed such motion
in October 2022, and PB filed its reply in November
2022.
On December 9, 2022, the
Court issued a Decision and
Order denying PB’s Motion to
Compel Arbitration. On December 20, 2022,
PB filed a Notice of
Appeal with the United States
Court of Appeals for the Second
Circuit. PB filed its appeal brief
on April 5, 2023
and Plaintiff
filed his opposition
brief on July
5, 2023. PB
filed its
reply brief on
July 26,
2023.
The matter is
now fully briefed
and
pending resolution.
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 experienced
following 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,
2023,
was
named
as
a
respondent
(among
other
broker-dealers)
in
6
pending
arbitration
94
proceedings with
initial claimed
amounts of
approximately $
5.88
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
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. Adverse
results in the arbitration proceedings described above
could have a material adverse effect on Popular.
95
Note 22 – 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, 2023
.
These special purpose entities
are deemed
to be
VIEs since
they lack
equity investments
at risk.
The Corporation’s
continuing involvement in
these guaranteed
loan securitizations includes owning certain beneficial interests
in the form of securities as
well as the servicing rights
retained. The
Corporation is
not required to
provide additional financial
support to
any of
the variable
interest entities
to which
it has
transferred
the
financial
assets.
The
mortgage-backed
securities,
to
the
extent
retained,
are
classified
in
the
Corporation’s
Consolidated
Statements
of
Financial
Condition
as
available-for-sale
or
trading
securities.
The
Corporation
concluded
that,
essentially,
these
entities (FNMA
and GNMA)
control the
design of
their respective
VIEs, dictate
the quality
and nature
of the
collateral, require
the
underlying insurance, set
the servicing standards
via the servicing
guides and can
change them at
will, and can
remove a primary
servicer with cause,
and without cause
in the
case of
FNMA. Moreover,
through their guarantee
obligations, agencies (FNMA
and
GNMA) have the obligation to absorb losses that
could be potentially significant to the VIE.
The
Corporation
holds
variable
interests
in
these
VIEs
in
the
form
of
agency
mortgage-backed
securities
and
collateralized
mortgage obligations, including those securities originated by the Corporation and those acquired from
third parties. Additionally, the
Corporation holds agency mortgage-backed securities
and agency collateralized mortgage obligations
issued by third party
VIEs in
which
it
has
no
other
form
of
continuing
involvement. Refer
to
Note
24
to
the
Consolidated
Financial
Statements
for
additional
information on the
debt securities outstanding at
June 30, 2023
and December 31,
2022, which are
classified as available-for-sale
and
trading
securities
in
the
Corporation’s
Consolidated
Statements
of
Financial
Condition.
In
addition,
the
Corporation
holds
variable
interests
in
the
form
of
servicing
fees,
since
it
retains
the
right
to
service
the
transferred
loans
in
those
government-
sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs
that were transferred to those SPEs by a third-party.
The following
table presents
the carrying
amount and
classification of
the assets
related to
the Corporation’s
variable interests
in
non-consolidated VIEs
and the
maximum exposure
to loss
as a
result of
the Corporation’s
involvement as
servicer of
GNMA and
FNMA loans at June 30, 2023 and December 31,
2022.
96
(In thousands)
June 30, 2023
December 31, 2022
Assets
Servicing assets:
Mortgage servicing rights
$
95,714
$
99,614
Total servicing
assets
$
95,714
$
99,614
Other assets:
Servicing advances
$
6,103
$
6,157
Total other assets
$
6,103
$
6,157
Total assets
$
101,817
$
105,771
Maximum exposure to loss
$
101,817
$
105,771
The size of
the non-consolidated VIEs,
in which the
Corporation has a
variable interest in
the form
of servicing fees,
measured as
the total unpaid principal balance of the loans, amounted
to $
7.5
billion at June 30, 2023 (December 31, 2022 -
$
7.7
billion).
The Corporation
determined that
the maximum
exposure to
loss includes
the fair
value of
the MSRs
and the
assumption that
the
servicing advances at June 30, 2023 and December 31, 2022, will not be recovered. The agency debt securities are not included as
part of the maximum exposure to loss since they
are guaranteed by the related agencies.
ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the
primary beneficiary of any of the VIEs it is
involved with. The conclusion on the assessment of these non-consolidated VIEs has not
changed
since
their
initial
evaluation.
The
Corporation
concluded
that
it
is
still
not
the
primary
beneficiary
of
these
VIEs,
and
therefore, these VIEs are not required to be consolidated
in the Corporation’s financial statements at June 30, 2023.
97
Note 23 – 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
Until
August
15,
2022,
the
Corporation
had
an
investment
in
Evertec,
Inc.
(“Evertec”)
which
provides
various
processing
and
information
technology services
to
the
Corporation and
its
subsidiaries
and
gave
BPPR
access to
the
ATH
network owned
and
operated
by
Evertec.
This
investment
was
accounted
for
under
the
equity
method.
The
Corporation
recorded
$
1.2
million
in
dividends from its investment in Evertec during
the six months ended June 30, 2022.
On July
1, 2022,
BPPR completed
the acquisition
of certain
assets from
Evertec Group,
LLC (“Evertec
Group”) to
service certain
BPPR
channels.
In
connection
with
this
transaction,
BPPR
also
entered
into
amended
and
restated
service
agreements
with
Evertec Group
pursuant to
which Evertec
Group continues
to
provide various
information technology
and transaction
processing
services to Popular,
BPPR and their
respective subsidiaries. As
part of the
transaction, BPPR and
Evertec entered into
a revenue
sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. On August 15, 2022, the Corporation
completed the sale of its
remaining shares of common stock of Evertec.
As a result, the Corporation discontinued accounting for
its
proportionate share
of Evertec’s
income (loss)
and changes
in stockholder’s
equity under
the equity
method of
accounting in
the
third quarter of 2022.
The following
table presents
the Corporation’s
proportionate share
of Evertec’s
income (loss)
and changes
in stockholders’
equity
for the quarter and six months ended June 30,
2022.
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
The following table presents
the impact of transactions and
service payments between the Corporation and Evertec
(as an affiliate)
and their impact on the results
of operations for the quarter and six months
ended June 30, 2022. Items that represent
expenses to
the Corporation are presented with parenthesis.
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)
Centro Financiero BHD, S.A.
At June 30, 2023, the Corporation had
a
15.84
% equity interest in Centro Financiero BHD,
S.A. (“BHD”), one of the largest banking
and financial
services groups
in the
Dominican Republic.
During the
six months
ended June
30, 2023,
the Corporation
recorded
$
32.3
million in
equity pickup
from
its investment
in BHD
(June 30,
2022 -
$
20.5
million),
which had
a carrying
amount of
$
218
million at June 30, 2023 (December 31, 2022 - $
199.8
million). The Corporation received $
14.1
million in cash dividend distributions
98
and $
2.1
million in
stock dividends
during the
six months
ended June
30, 2023
from its
investment in
BHD (June
30, 2022
- $
16
million cash dividends).
Investment Companies
The Corporation,
through its subsidiary Popular
Asset Management LLC (“PAM”),
provides advisory services to several
investment
companies registered
under the
Investment Company
Act of
1940 in
exchange for
a fee.
The Corporation,
through its
subsidiary
BPPR, also
provides transfer
agency services to
these investment companies.
These fees
are calculated
at an
annual rate
of the
average net
assets of the
investment company,
as defined in
each agreement. Due
to its
advisory role, the
Corporation considers
these investment companies as related parties.
For the six months ended June 30, 2023 administrative fees charged
to these investment companies amounted to $
1.1
million (June
30, 2022 -
1.3
million) and waived fees amounted to $
0.4
million (June 30, 2022 - $
0.5
million), for a net fee of $
0.7
million (June 30,
2022 - $
0.8
million).
99
Note 24 – 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 2022 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, 2023 and December
31, 2022:
100
At June 30, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities
$
2,854,502
$
8,113,480
$
-
$
-
$
10,967,982
Collateralized mortgage obligations - federal
agencies
-
148,052
-
-
148,052
Mortgage-backed securities
-
6,124,495
655
-
6,125,150
Other
-
33
1,000
-
1,033
Total debt securities
available-for-sale
$
2,854,502
$
14,386,060
$
1,655
$
-
$
17,242,217
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
13,338
$
-
$
-
$
-
$
13,338
Obligations of Puerto Rico, States and political
subdivisions
-
61
-
-
61
Collateralized mortgage obligations
-
42
56
-
98
Mortgage-backed securities
-
15,184
163
-
15,347
Other
-
-
191
-
191
Total trading account
debt securities, excluding
derivatives
$
13,338
$
15,287
$
410
$
-
$
29,035
Equity securities
$
-
$
35,541
$
-
$
303
$
35,844
Mortgage servicing rights
-
-
121,249
-
121,249
Loans held-for-sale
-
9,509
-
-
9,509
Derivatives
-
24,346
-
-
24,346
Total assets measured
at fair value on a
recurring basis
$
2,867,840
$
14,470,743
$
123,314
$
303
$
17,462,200
Liabilities
Derivatives
$
-
$
(21,575)
$
-
$
-
$
(21,575)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(21,575)
$
-
$
-
$
(21,575)
101
At December 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities
$
1,908,589
$
9,272,359
$
-
$
-
$
11,180,948
Collateralized mortgage obligations - federal
agencies
-
165,196
-
-
165,196
Mortgage-backed securities
-
6,456,459
711
-
6,457,170
Other
-
60
1,000
-
1,060
Total debt securities
available-for-sale
$
1,908,589
$
15,894,074
$
1,711
$
-
$
17,804,374
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
13,069
$
-
$
-
$
-
$
13,069
Obligations of Puerto Rico, States and political
subdivisions
-
64
-
-
64
Collateralized mortgage obligations
-
47
113
-
160
Mortgage-backed securities
-
14,008
215
-
14,223
Other
-
-
207
-
207
Total trading account
debt securities, excluding
derivatives
$
13,069
$
14,119
$
535
$
-
$
27,723
Equity securities
$
-
$
29,302
$
-
$
330
$
29,632
Mortgage servicing rights
-
-
128,350
-
128,350
Derivatives
-
19,229
-
-
19,229
Total assets measured
at fair value on a
recurring basis
$
1,921,658
$
15,956,724
$
130,596
$
330
$
18,009,308
Liabilities
Derivatives
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Beginning in the first quarter
of 2023, the Corporation has elected the
fair value option for BPPR mortgage loans
held for sale. This
election better aligns with the
management of the portfolio from
a business perspective. As of
December 31, 2022, the Corporation
had not elected the fair value option for any
of the loans in the held for sale portfolio.
Loans held-for-sale measured at fair value
Loans held-for-sale measured at fair value were priced
based on secondary market prices. These loans
are classified as Level 2.
The
following
table summarizes
the difference
between the
aggregate fair
value
and the
aggregate unpaid
principal
balance
for
mortgage loans held for sale measured at fair value
as of June 30,2023.
(In thousands)
June 30, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
9,509
$
9,648
$
(139)
No
loans held for sell were 90 or more days past
due or on nonaccrual status as of June 30,2023.
During the quarter and six months ended
June 30,2023, the Corporation recognized an unrealized loss
of $
197
thousand and $
128
thousand, respectively,
for changes in
the fair value
of mortgage loans held
for sale for
which we elected the
fair value option, that
was
offset
by
the
changes
in
the
fair
value
of
the
related
hedging
instrument,
both
of
which
are
recorded
within
the
mortgage
banking activities line item of the accompanying
Statement of Operations.
102
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,
2023
and
2022
and
excludes
nonrecurring
fair
value
measurements of assets no longer outstanding as of
the reporting date.
Six months ended June 30, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
18,923
$
18,923
$
(7,092)
Other real estate owned
[2]
-
-
2,815
2,815
(656)
Other foreclosed assets
[2]
-
-
41
41
(9)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
21,779
$
21,779
$
(7,757)
[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, 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.
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, 2023 and 2022.
Quarter ended June 30, 2023
MBS
Other
CMOs
MBS
Other
classified
securities
classified
classified
securities
as debt
classified as
as trading
as trading
classified
securities
debt securities
account
account
as trading
Mortgage
available-
available-
debt
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at March 31, 2023
$
655
$
1,000
$
88
$
188
$
199
$
127,475
$
129,605
Gains (losses) included in earnings
-
-
-
-
(8)
(6,217)
(6,225)
Additions
-
-
4
-
-
739
743
Sales
-
-
-
-
-
(1,269)
(1,269)
Settlements
-
-
(36)
(25)
-
521
460
Balance at June 30, 2023
$
655
$
1,000
$
56
$
163
$
191
$
121,249
$
123,314
Changes in unrealized gains (losses) included
in earnings relating to assets still held at June
30, 2023
$
-
$
-
$
-
$
-
$
9
$
(2,732)
$
(2,723)
103
Six months ended June 30, 2023
MBS
Other
MBS
Other
classified
securities
CMOs
classified
securities
as debt
classified as
classified
as trading
classified
securities
debt securities
as trading
account
as trading
Mortgage
available-
available-
account debt
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at January 1, 2023
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(2)
(16)
(7,593)
(7,611)
Gains (losses) included in OCI
(6)
-
-
-
-
-
(6)
Additions
-
-
4
-
-
1,240
1,244
Sales
-
-
-
-
-
(1,269)
(1,269)
Settlements
(50)
-
(61)
(50)
-
521
360
Balance at June 30, 2023
$
655
$
1,000
$
56
163
$
191
$
121,249
$
123,314
Changes in unrealized gains (losses) included
in earnings relating to assets still held at June
30, 2023
$
-
$
-
$
-
$
(1)
$
18
$
(1,447)
$
(1,430)
Quarter ended June 30, 2022
MBS
Other
Other
classified
securities
CMOs
securities
as debt
classified as
classified
classified
securities
debt securities
as trading
as trading
Mortgage
available-
available-
account 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
$
-
$
-
Six months ended June 30, 2022
MBS
Other
Other
classified
securities
CMOs
securities
as debt
classified as
classified
classified
securities
debt securities
as trading
as trading
Mortgage
available-
available-
account debt
account debt
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
$
-
$
-
104
Gains and losses (realized and
unrealized) included in earnings for the quarters
and six months ended June 30,
2023 and 2022 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, 2023
Six months ended June 30, 2023
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
$
(6,217)
$
(2,732)
$
(7,593)
$
(1,447)
Trading account profit (loss)
(8)
9
(18)
17
Total
$
(6,225)
$
(2,723)
$
(7,611)
$
(1,430)
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
105
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, 2023 and 2022.
Fair value at
June 30,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
56
Discounted cash flow model
Weighted average life
0.2
years (
0.2
-
0.4
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
7.9
% (
7.7
% -
25
%)
Other - trading
$
191
Discounted cash flow model
Weighted average life
2.5
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
18,854
[2]
External appraisal
Haircut applied on
external appraisals
12.0
% (
5.0
% -
20.0
%)
[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.
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.
106
Note 25 – 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,
2023 and
December
31, 2022, as applicable. In different interest rate environments,
fair value estimates can differ significantly, especially for certain fixed
rate
financial
instruments.
In
addition,
the
fair
values
presented
do
not
attempt
to
estimate
the
value
of
the
Corporation’s
fee
generating businesses
and anticipated
future business
activities, that
is, they
do not
represent the
Corporation’s value
as a
going
concern. There have been
no changes in the
Corporation’s valuation methodologies and inputs
used to estimate the
fair values for
each class of financial assets and liabilities not measured
at fair value.
The following tables present the
carrying amount and estimated fair
values of financial instruments with their
corresponding level in
the fair
value hierarchy.
The aggregate
fair value
amounts of
the financial
instruments disclosed
do not
represent management’s
estimate of the underlying value of the Corporation.
107
June 30, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
476,642
$
476,642
$
-
$
-
$
-
$
476,642
Money market investments
8,593,476
8,587,418
6,058
-
-
8,593,476
Trading account debt securities, excluding
derivatives
[1]
29,035
13,338
15,287
410
-
29,035
Debt securities available-for-sale
[1]
17,242,217
2,854,502
14,386,060
1,655
-
17,242,217
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,336,569
$
-
$
8,206,858
$
-
$
-
$
8,206,858
Obligations of Puerto Rico, States and political
subdivisions
60,326
-
-
60,676
-
60,676
Collateralized mortgage obligation-federal agency
1,566
-
1,440
16
-
1,456
Securities in wholly owned statutory business trusts
5,960
-
5,960
-
-
5,960
Total debt securities
held-to-maturity
$
8,404,421
$
-
$
8,214,258
$
60,692
$
-
$
8,274,950
Equity securities:
FHLB stock
$
50,357
$
-
$
50,357
$
-
$
-
$
50,357
FRB stock
100,267
-
100,267
-
-
100,267
Other investments
41,749
-
35,541
6,771
303
42,615
Total equity securities
$
192,373
$
-
$
186,165
$
6,771
$
303
$
193,239
Loans held-for-sale
$
55,421
$
-
$
55,421
$
-
$
-
$
55,421
Loans held-in-portfolio
32,330,722
-
-
30,758,440
-
30,758,440
Mortgage servicing rights
121,249
-
-
121,249
-
121,249
Derivatives
24,346
-
24,346
-
-
24,346
June 30, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
56,002,966
$
-
$
56,002,966
$
-
$
-
$
56,002,966
Time deposits
8,001,852
-
7,655,442
-
-
7,655,442
Total deposits
$
64,004,818
$
-
$
63,658,408
$
-
$
-
$
63,658,408
Assets sold under agreements to repurchase
$
123,205
$
-
$
123,185
$
-
$
-
$
123,185
Notes payable:
FHLB advances
$
412,632
$
-
$
388,283
$
-
$
-
$
388,283
Unsecured senior debt securities
693,085
-
696,103
-
-
696,103
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,332
-
169,879
-
-
169,879
Total notes payable
$
1,304,049
$
-
$
1,254,265
$
-
$
-
$
1,254,265
Derivatives
$
21,575
$
-
$
21,575
$
-
$
-
$
21,575
[1]
Refer to Note 24 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
108
December 31, 2022
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
469,501
$
469,501
$
-
$
-
$
-
$
469,501
Money market investments
5,614,595
5,607,937
6,658
-
-
5,614,595
Trading account debt securities, excluding
derivatives
[1]
27,723
13,069
14,119
535
-
27,723
Debt securities available-for-sale
[1]
17,804,374
1,908,589
15,894,074
1,711
-
17,804,374
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,453,467
$
-
$
8,372,601
$
-
$
-
$
8,372,601
Obligations of Puerto Rico, States and political
subdivisions
59,010
-
-
61,617
-
61,617
Collateralized mortgage
obligation-federal agency
19
-
-
19
-
19
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
held-to-maturity
$
8,518,455
$
-
$
8,378,560
$
61,636
$
-
$
8,440,196
Equity securities:
FHLB stock
$
65,861
$
-
$
65,861
$
-
$
-
$
65,861
FRB stock
96,206
-
96,206
-
-
96,206
Other investments
33,787
-
29,302
4,966
330
34,598
Total equity securities
$
195,854
$
-
$
191,369
$
4,966
$
330
$
196,665
Loans held-for-sale
$
5,381
$
-
$
-
$
5,404
$
-
$
5,404
Loans held-in-portfolio
31,357,467
-
-
29,366,365
-
29,366,365
Mortgage servicing rights
128,350
-
-
128,350
-
128,350
Derivatives
19,229
-
19,229
-
-
19,229
December 31, 2022
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
54,445,825
$
-
$
54,445,825
$
-
$
-
$
54,445,825
Time deposits
6,781,402
-
6,464,943
-
-
6,464,943
Total deposits
$
61,227,227
$
-
$
60,910,768
$
-
$
-
$
60,910,768
Assets sold under agreements to repurchase
$
148,609
$
-
$
148,566
$
-
$
-
$
148,566
Other short-term borrowings
[2]
365,000
-
365,000
-
-
365,000
Notes payable:
FHLB advances
$
389,282
$
-
$
361,951
$
-
$
-
$
361,951
Unsecured senior debt securities
299,109
-
300,027
-
-
300,027
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,319
-
173,938
-
-
173,938
Total notes payable
$
886,710
$
-
$
835,916
$
-
$
-
$
835,916
Derivatives
$
17,000
$
-
$
17,000
$
-
$
-
$
17,000
[1]
Refer to Note 24 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
[2]
Refer to Note 16 to the Consolidated Financial Statements
for the composition of other short-term borrowings.
The notional
amount of
commitments to
extend credit
at June
30, 2023
and December
31, 2022
is $
10.6
billion and
$
10.5
billion,
respectively,
and represents the
unused portion of
credit facilities
granted to customers.
The notional amount
of letters of
credit at
June 30,
2023 and
December 31,
2022 is
$
32
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.
109
Note 26 – 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, 2023 and 2022:
Quarters ended June 30,
Six
months ended June 30,
(In thousands, except per share information)
2023
2022
2023
2022
Net income
$
151,160
$
211,421
$
310,139
$
423,107
Preferred stock dividends
(353)
(353)
(706)
(706)
Net income applicable to common stock
$
150,807
$
211,068
$
309,433
$
422,401
Average common shares outstanding
71,690,396
76,171,784
71,616,498
77,301,469
Average potential dilutive common shares
18,807
115,099
47,805
124,805
Average common shares outstanding - assuming dilution
71,709,203
76,286,883
71,664,303
77,426,274
Basic EPS
$
2.10
$
2.77
$
4.32
$
5.46
Diluted EPS
$
2.10
$
2.77
$
4.32
$
5.46
For the quarters
and six months ended June 30, 2023 and 2022, 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, 2022. For a discussion of the
calculation under the treasury stock method, refer
to Note 31 of the Consolidated
Financial Statements included in the 2022 Form 10-K.
110
Note 27 – 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, 2023 and
2022
.
Quarter ended June 30,
Six
months ended June 30,
(In thousands)
2023
2023
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
35,253
$
2,528
$
67,405
$
5,054
Other service fees:
Debit card fees
13,377
223
26,325
441
Insurance fees, excluding reinsurance
12,152
1,288
22,950
2,595
Credit card fees, excluding late fees and membership
fees
38,392
336
74,566
915
Sale and administration of investment products
6,076
-
12,634
-
Trust fees
6,868
-
12,764
-
Total revenue from
contracts with customers [1]
$
112,118
$
4,375
$
216,644
$
9,005
[1]
The amounts include intersegment transactions of $
2.2
million and $
3.8
million, respectively, for the
quarter and six months ended June 30, 2023.
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.
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.
111
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.
112
Note 28 – Leases
The
Corporation enters
in
the
ordinary course
of
business
into
operating and
finance
leases
for
land,
buildings
and
equipment.
These contracts generally do
not include purchase options
or residual value guarantees.
The remaining lease terms
of
0.1
to
31.5
years
considers options
to
extend the
leases for
up
to
20
years. The
Corporation identifies
leases when
it
has
both the
right to
obtain substantially all of the economic benefits from
the use of the asset and the right to direct
the use of the asset.
The Corporation
recognizes right-of-use
assets (“ROU
assets”) and
lease liabilities
related to
operating and
finance leases
in its
Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 13
and
Note
17
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, 2023
(In thousands)
Remaining
2023
2024
2025
2026
2027
Later
Years
Total Lease
Payments
Less:
Imputed
Interest
Total
Operating Leases
$
15,095
$
29,153
$
26,326
$
17,935
$
12,709
$
48,893
$
150,111
$
(18,674)
$
131,437
Finance Leases
3,192
3,991
4,084
3,839
2,468
9,346
26,920
(2,829)
24,091
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)
2023
2022
2023
2022
Finance lease cost:
Amortization of ROU assets
$
1,071
$
686
$
1,895
$
1,445
Interest on lease liabilities
234
279
530
587
Operating lease cost
7,800
7,660
15,654
15,287
Short-term lease cost
148
113
221
168
Variable lease cost
45
30
101
53
Sublease income
(17)
(10)
(26)
(19)
Total lease cost
[1]
$
9,281
$
8,758
$
18,375
$
17,521
[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.
113
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)
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
15,480
$
15,005
Operating cash flows from finance leases
530
587
Financing cash flows from finance leases
2,645
1,592
ROU assets obtained in exchange for new lease obligations:
Operating leases
$
1,623
$
1,806
Finance leases
1,796
556
Weighted-average remaining lease term:
Operating leases
7.4
years
7.5
years
Finance leases
8.0
years
8.5
years
Weighted-average discount rate:
Operating leases
3.1
%
2.8
%
Finance leases
3.9
%
4.3
%
As of June 30, 2023,
the Corporation has additional operating leases contracts that
have not yet commenced with an
undiscounted
contract amount of $
4.1
million, which will have lease terms ranging
from
10
to
20
years.
114
Note 29 – 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
Quarter ended June 30,
Quarter ended June 30,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
Service cost
$
-
$
-
$
48
$
121
Other operating expenses:
Interest cost
7,887
4,800
1,520
983
Expected return on plan assets
(8,591)
(8,847)
-
-
Amortization of prior service cost/(credit)
-
-
-
-
Amortization of net loss
5,366
3,911
(553)
-
Total net periodic
pension cost
$
4,662
$
(136)
$
1,015
$
1,104
Pension Plans
OPEB Plan
Six months ended June 30,
Six months ended June 30,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
Service cost
$
-
$
-
$
95
$
242
Other operating expenses:
Interest cost
15,774
9,600
3,041
1,966
Expected return on plan assets
(17,183)
(17,694)
-
-
Amortization prior service cost/(credit)
-
-
-
-
Amortization of net loss
10,732
7,822
(1,106)
-
Total net periodic
pension cost
$
9,323
$
(272)
$
2,030
$
2,208
The
Corporation
paid
the
following
contributions
to
the
plans
for
the
six
months
ended
June
30,
2023
and
expects
to
pay
the
following contributions for the year ending December
31, 2023.
For the six months ended
For the year ending
(In thousands)
June 30, 2023
December 31, 2023
Pension Plans
$
114
$
228
OPEB Plan
$
3,258
$
5,924
115
Note 30 - 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
the
Absolute
Return
on
Average
Tangible
Common
Equity (“ROATCE”)
goal.
The
TSR
metric is
considered to
be
a market
condition under
ASC
718.
For
equity settled
awards based
on a
market condition,
the fair
value is
determined as
of the
grant date
and is
not subsequently
revised based
on
actual
performance.
The
ROATCE
metric
is
considered
to
be
a
performance
condition
under
ASC
718.
The
fair
value
is
determined based on the probability of achieving the ROATCE goal as of each reporting period.
The TSR and ROATCE metrics are
equally
weighted and
work independently.
The number of shares that will ultimately vest ranges from 50% to a 150% of target
based on both market (TSR) and performance (ROATCE) conditions. The performance shares vest at the end of the three-year
performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60
years of age and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance
cycle.
The
following
table
summarizes
the
restricted
stock
and
performance
shares
activity
under
the
Incentive
Plan
for
members
of
management.
116
(Not in thousands)
Shares
Weighted-Average
Grant Date Fair
Value
Non-vested at December 31, 2021
321,883
$
47.98
Granted
194,791
84.29
Performance Shares Quantity Adjustment
6,947
78.02
Vested
(240,033)
66.11
Forfeited
(1,625)
78.86
Non-vested at December 31, 2022
281,963
$
56.50
Granted
258,018
67.04
Performance Shares Quantity Adjustment
11,499
75.96
Vested
(223,471)
66.77
Forfeited
(15,371)
55.82
Non-vested at June 30, 2023
312,638
$
58.20
During
the
quarter
ended
June
30,
2023,
130,815
shares
of
restricted
stock
(June
30,
2022
–
83,462
)
were
awarded
to
management under the Incentive
Plan. During the
quarters ended June 30,
2023 and 2022,
no
performance shares were awarded
to management
under the
Incentive Plan.
For the
six months
ended June
30, 2023,
200,303
shares of
restricted stock
(June 30,
2022 –
136,046
) and
57,715
performance shares (June 30, 2022 -
56,857
) were awarded to management under the
Incentive Plan.
During the quarter ended June 30, 2023, the Corporation recognized
$
3.3
million of restricted stock expense related to management
incentive awards, with a tax benefit of $
0.8
million (June 30, 2022 - $
2.9
million, with a tax benefit of $
0.7
million). For the six months
ended June 30, 2023, the Corporation recognized $
7.7
million of restricted stock expense related to management incentive awards,
with a tax benefit of
$
1.1
million (June 30, 2022 - $
7.5
million, with a tax benefit of
$
1.2
million). For the six months ended June
30,
2023, the fair market value
of the restricted stock and
performance shares vested was $
10.6
million at grant date
and $
13.4
million
at vesting date. This
differential triggers a windfall
of $
1.0
million that was recorded
as a reduction on
income tax expense.
During
the quarter ended June 30, 2023 the Corporation recognized
$
(0.1)
million of performance shares benefit, with a tax expense
of $
(4)
thousand due to
performance shares target
adjustment (June 30,
2022 - $
0.3
million, with a
tax benefit of
$
12
thousand).
For the
six months ended June 30, 2023, the Corporation recognized $
3.5
million of performance shares expense, with a tax benefit of $
0.1
million (June 30,
2022 -
$
4.0
million, with a
tax benefit
of $
0.3
million).
The total
unrecognized compensation cost
related to non-
vested
restricted stock
awards
and performance
shares to
members of
management at
June
30, 2023
was
$
15.8
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)
RSUs / Unrestricted
stock
Weighted-Average
Grant Date Fair
Value per Unit
Non-vested at December 31, 2021
$
-
$
-
Granted
25,321
77.48
Vested
(25,321)
77.48
Forfeited
-
-
Non-vested at December 31, 2022
$
-
$
-
Granted
36,328
54.78
Vested
(36,328)
54.78
Forfeited
-
-
Non-vested at June 30, 2023
$
-
$
-
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,
unrestricted stock or
RSUs
at each Directors election.
If RSUs are
elected, the Directors may
defer the delivery
of
117
the shares
of common
stock underlying
the RSUs
award until
their retirement.
To
the extent
that cash
dividends are
paid on
the
Corporation’s outstanding common stock, the
Directors
will receive an additional number
of RSUs that reflect
a reinvested dividend
equivalent.
For 2023
and 2022,
Directors elected
RSUs and
unrestricted stock.
During the
quarter ended
June 30,
2023,
32,999
RSUs and
2,300
unrestricted stocks
were granted
to the
Directors (June
30, 2022
-
23,022
RSUs) and
the Corporation
recognized expense
related
to
these
shares
of
$
1.9
million
with
a
tax
benefit
of
$
0.4
million
(June
30,
2022
-
$
1.8
million
with
a
tax
benefit
of
$
0.3
million).
For
the
six
months
ended
June
30,
2023,
the
Corporation
granted
34,028
RSUs
and
2,300
unrestricted
stocks
to
the
Directors (June 30, 2022 -
23,552
RSUs) and the Corporation recognized $
2.0
million of expense related to these shares, with a tax
benefit of $
0.4
million, (June 30,
2022 - $
1.8
million, with a
tax benefit of
$
0.3
million). The fair
value at vesting
date of the
shares
vested during the six months ended June 30, 2023
for the Directors was $
2.0
million.
118
Note 31 – 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, 2023
June 30, 2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
$
72,998
38
%
$
103,362
38
%
Net benefit of tax exempt interest income
(27,316)
(14)
(34,397)
(12)
Effect of income subject to preferential tax rate
278
-
(3,097)
(1)
Deferred tax asset valuation allowance
994
1
2,047
-
Difference in tax rates due to multiple jurisdictions
(3,869)
(2)
(6,817)
(3)
State and local taxes
3,037
2
3,566
1
Others
(2,619)
(2)
(452)
-
Income tax expense
$
43,503
22
%
$
64,212
23
%
Six months ended
June 30, 2023
June 30, 2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
$
149,983
38
%
$
201,674
38
%
Net benefit of tax exempt interest income
(49,218)
(12)
(77,266)
(15)
Deferred tax asset valuation allowance
(3,572)
(1)
5,938
1
Difference in tax rates due to multiple jurisdictions
(9,039)
(2)
(13,310)
(3)
Effect of income subject to preferential tax rate
(576)
-
(7,042)
(1)
State and local taxes
6,392
2
7,231
1
Others
(4,153)
(1)
(2,534)
-
Income tax expense
$
89,817
22
%
$
114,691
21
%
For the quarter
and six months
ended June 30,
2023, the Corporation recorded
an income tax
expense of $
43.5
million and $
89.8
million, respectively,
compared to $
64.2
million and
$
114.7
million for
the respective
periods of
- The decrease
in income
tax
expense
was due
in essence
to a
lower pre-tax
income, partially
offset
by
lower exempt
income for
the
quarter and
six
months
ended June 30, 2023.
The following table presents a breakdown of the
significant components of the Corporation’s deferred tax assets
and liabilities.
119
June 30, 2023
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
261
$
6,934
$
7,195
Net operating loss and other carryforward available
122,293
649,973
772,266
Postretirement and pension benefits
46,920
-
46,920
Allowance for credit losses
238,377
30,595
268,972
Depreciation
6,033
6,345
12,378
FDIC-assisted transaction
152,665
-
152,665
Lease liability
29,241
21,058
50,299
Unrealized net loss on investment securities
235,339
22,720
258,059
Difference in outside basis from pass-through entities
32,234
-
32,234
Mortgage Servicing Rights
14,700
-
14,700
Other temporary differences
30,222
9,070
39,292
Total gross deferred
tax assets
908,285
746,695
1,654,980
Deferred tax liabilities:
Intangibles
83,032
56,209
139,241
Right of use assets
26,856
18,283
45,139
Deferred loan origination fees/cost
2,096
2,478
4,574
Loans acquired
20,914
-
20,914
Other temporary differences
6,522
422
6,944
Total gross deferred
tax liabilities
139,420
77,392
216,812
Valuation allowance
138,825
398,360
537,185
Net deferred tax asset
$
630,040
$
270,943
$
900,983
December 31, 2022
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
121,742
661,144
782,886
Postretirement and pension benefits
47,122
-
47,122
Allowance for credit losses
250,615
32,688
283,303
Depreciation
5,972
6,309
12,281
FDIC-assisted transaction
152,665
-
152,665
Lease liability
28,290
23,521
51,811
Unrealized net loss on investment securities
265,955
23,913
289,868
Difference in outside basis from pass-through entities
40,602
-
40,602
Mortgage Servicing Rights
13,711
-
13,711
Other temporary differences
17,122
7,815
24,937
Total gross deferred
tax assets
944,057
758,171
1,702,228
Deferred tax liabilities:
Intangibles
81,174
54,623
135,797
Right of use assets
26,015
20,262
46,277
Deferred loan origination fees/cost
1,076
2,961
4,037
Loans acquired
23,353
-
23,353
Other temporary differences
1,531
-
1,531
Total gross deferred
tax liabilities
133,149
77,846
210,995
Valuation allowance
137,863
402,333
540,196
Net deferred tax asset
$
673,045
$
277,992
$
951,037
120
The
net
deferred
tax
asset
shown
in
the
table
above
at
June
30,
2023
is
reflected
in
the
consolidated
statements
of
financial
condition as $
0.9
billion in net deferred tax assets in the
“Other assets” caption (December 31, 2022 - $
1.0
billion) and $
3.6
million in
deferred
tax
liabilities
in
the
“Other
liabilities”
caption
(December 31,
2022
-
$
2.6
million),
reflecting
the
aggregate
deferred
tax
assets
or
liabilities
of
individual
tax-paying subsidiaries
of
the
Corporation
in
their
respective tax
jurisdiction, Puerto
Rico
or
the
United States.
At
June
30,
2023
the
net
deferred
tax
asset
of
the
U.S.
operations
amounted
to
$
669
million
with
a
valuation
allowance
of
approximately $
398
million, for
a net
deferred tax
asset after
valuation allowance
of approximately
$
271
million. The
Corporation
evaluates
the
realization
of
the
deferred tax
asset
on
a
quarterly
basis
by
taxing
jurisdiction. The
U.S.
operation has
sustained
profitability for
last three
calendar years
and for
the quarter
ended June
30, 2023.
These financial
results demonstrated
financial
stability for the U.S. operations.
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, 2023,
after weighting
all
positive and
negative
evidence, the Corporation concluded that it is more likely than not that approximately $
271
million of the deferred tax asset from the
U.S.
operations,
comprised
mainly
of
net
operating
losses,
will
be
realized.
The
Corporation
based
this
determination
on
its
estimated earnings available to realize the deferred tax asset for the remaining carryforward period, together with the historical level
of book
income adjusted
by permanent
differences. Management
will continue
to monitor
and review
the U.S.
operation’s results,
the pre-tax earnings
forecast, any new
tax initiative, and
other factors, including
net income versus
forecast, targeted loan
growth,
net interest income margin, changes in
deposits costs, allowance for credit losses, charge offs,
NPLs inflows and NPA
balances, to
assess the future realization of the deferred
tax asset.
At June 30, 2023, the Corporation’s net deferred tax assets
related to its Puerto Rico operations amounted
to $
630
million.
The Corporation’s Puerto Rico Banking operation is not in a cumulative loss position and has sustained profitability for the last three
calendar years and for the quarter ended June 30, 2023. 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 last three calendar years and for the quarter
ended June 30, 2023. Management expects these losses
will be a trend
in future years. This objectively verifiable
negative evidence is considered by management strong
negative evidence
that will suggest that income in future years
will be insufficient to support the realization of
all deferred tax assets. After weighting of
all positive
and negative evidence
management concluded, as
of the
reporting date, that
it is
more likely than
not that the
Holding
Company will not be
able to realize any
portion of the deferred tax
assets. Accordingly, the
Corporation has maintained a valuation
allowance on the deferred tax asset of $
139
million as of June 30, 2023.
The reconciliation of unrecognized tax benefits, excluding
interest, was as follows:
(In millions)
2023
2022
Balance at January 1
$
2.5
$
3.5
Balance at March 31
$
2.5
$
3.5
Balance at June 30
$
2.5
$
3.5
At June
30, 2023,
the total
amount of
accrued interest
recognized in the
statement of
financial condition
amounted to
$
2.7
million
(December 31,
2022 -
$
2.6
million). The
total interest
expense recognized
at June
30, 2023
was $
53
thousand, (June
30, 2022–
$
165
thousand).
Management
determined that
at
June
30,
2023
and
December
31,
2022
there
was
no
need
to
accrue
for
the
payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while
the penalties, if any, are reported in other operating expenses in the
consolidated statements of operations.
121
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 $
4.4
million at June 30, 2023 (December 31, 2022 - $
4.3
million).
The amount of
unrecognized tax benefits
may increase or
decrease in the
future for various
reasons including adding amounts
for
current
tax
year
positions,
expiration
of
open
income
tax
returns
due
to
the
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 anticipates a
reduction in the
total amount of
unrecognized tax benefits within
the next 12
months amounting to $
1.5
million.
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,
2023,
the
following
years
remain
subject
to
examination
in
the
U.S.
Federal jurisdiction: 2019 and thereafter; and in
the Puerto Rico jurisdiction, 2018 and thereafter.
122
Note 32 – 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, 2023 and June 30, 2022
are listed in the following table:
(In thousands)
June 30, 2023
June 30, 2022
Non-cash activities:
Loans transferred to other real estate
$
35,133
$
37,434
Loans transferred to other property
34,497
25,836
Total loans transferred
to foreclosed assets
69,630
63,270
Loans transferred to other assets
6,363
4,183
Financed sales of other real estate assets
5,075
4,282
Financed sales of other foreclosed assets
25,409
20,466
Total financed sales
of foreclosed assets
30,484
24,748
Financed sale of premises and equipment
35,492
19,745
Transfers from premises and equipment to
long-lived assets held-for-sale
-
440
Transfers from loans held-in-portfolio to
loans held-for-sale
49,361
9,199
Transfers from loans held-for-sale to loans
held-in-portfolio
2,150
5,773
Loans securitized into investment securities
[1]
24,359
258,998
Trades receivable from brokers and counterparties
6,460
44,474
Trades payable to brokers and counterparties
1,022
10,313
Receivables from investments maturities
124,708
-
Recognition of mortgage servicing rights on securitizations
or asset transfers
1,240
5,032
Loans booked under the GNMA buy-back option
1,165
5,544
Capitalization of lease right of use asset
10,006
4,510
[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, 2023
June 30, 2022
Cash and due from banks
$
450,125
$
476,768
Restricted cash and due from banks
26,517
51,822
Restricted cash in money market investments
6,058
6,787
Total cash and due
from banks, and restricted cash
[2]
$
482,700
$
535,377
[2]
Refer to Note 5 - Restrictions on cash and due from banks
and certain securities for nature of restrictions.
123
Note 33 – Segment reporting
The
Corporation’s
corporate
structure
consists
of
two
reportable
segments
–
Banco Popular de Puerto Rico and Popular U.S.
Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess
where to allocate resources.
The segments were
determined based on the
organizational structure, which focuses
primarily on the
markets the segments serve, as well as on the products
and services offered by the segments.
Banco Popular de Puerto Rico:
The Banco Popular de
Puerto Rico reportable segment
includes commercial, consumer and retail
banking operations conducted at
BPPR, including
U.S. based
activities conducted
through its
New York
Branch. It
also includes
the lending
operations of
Popular
Auto
and
Popular
Mortgage.
Other
financial
services
within
the
BPPR
segment
include
the
trust
service
units
of
BPPR,
asset
management services of Popular Asset
Management, the brokerage and investment
banking operations of Popular Securities,
and
the insurance agency and reinsurance businesses
of Popular Insurance, Popular Risk Services, Popular
Life Re, and Popular Re.
Popular U.S.:
Popular U.S. reportable segment
consists of the
banking operations of Popular
Bank (PB), Popular Insurance
Agency, U.S.A.,
and
PEF.
PB
operates through
a retail
branch network
in the
U.S. mainland
under the
name of
Popular,
and equipment
leasing and
financing services through PEF.
Popular Insurance Agency,
U.S.A. offers investment and insurance
services across the PB
branch
network.
The Corporate group
consists primarily of
the holding companies
Popular, Inc.,
Popular North America,
Popular International Bank
and certain of
the Corporation’s
investments accounted for
under the equity
method, including Evertec,
until August 15,
2022, and
Centro Financiero BHD, León.
The
accounting
policies
of
the
individual
operating
segments
are
the
same
as
those
of
the
Corporation.
Transactions
between
reportable segments are primarily conducted at market rates, resulting
in profits that are eliminated for reporting consolidated results
of operations.
The tables that follow present the results of operations
and total assets by reportable segments:
124
2023
For the quarter ended June 30, 2023
Banco Popular
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
453,075
$
87,502
$
-
Provision for credit losses
29,345
7,907
-
Non-interest income
143,804
5,887
(134)
Amortization of intangibles
485
310
-
Depreciation expense
11,875
1,885
-
Other operating expenses
386,069
61,151
(134)
Income tax expense
37,303
6,850
-
Net income
$
131,802
$
15,286
$
-
Segment assets
$
58,392,177
$
12,549,742
$
(442,125)
For the quarter ended June 30, 2023
Reportable
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
Inc.
Net interest income (expense)
$
540,577
$
(8,909)
$
-
$
531,668
Provision for credit losses (benefit)
37,252
(60)
-
37,192
Non-interest income
149,557
13,012
(2,098)
160,471
Amortization of intangibles
795
-
-
795
Depreciation expense
13,760
355
-
14,115
Other operating expenses
447,086
(556)
(1,156)
445,374
Income tax expense (benefit)
44,153
(289)
(361)
43,503
Net income
$
147,088
$
4,653
$
(581)
$
151,160
Segment assets
$
70,499,794
$
5,844,554
$
(5,506,082)
$
70,838,266
For the six months ended June 30, 2023
Banco Popular
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
902,895
$
177,588
$
1
Provision for credit losses
75,053
9,972
-
Non-interest income
291,275
12,271
(270)
Amortization of intangibles
969
621
-
Depreciation expense
23,544
3,699
-
Other operating expenses
749,784
124,468
(270)
Income tax expense
80,135
10,826
-
Net income
$
264,685
$
40,273
$
1
Segment assets
$
58,392,177
$
12,549,742
$
(442,125)
For the six months ended June 30, 2023
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,080,484
$
(17,160)
$
-
$
1,063,324
Provision for credit losses (benefit)
85,025
(196)
-
84,829
Non-interest income
303,276
22,726
(3,570)
322,432
Amortization of intangibles
1,590
-
-
1,590
Depreciation expense
27,243
714
-
27,957
Other operating expenses
873,982
(326)
(2,232)
871,424
Income tax expense (benefit)
90,961
(610)
(534)
89,817
Net income
$
304,959
$
5,984
$
(804)
$
310,139
Segment assets
$
70,499,794
$
5,844,554
$
(5,506,082)
$
70,838,266
125
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
126
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 co-branded
credit
cards
offerings
and commercial
lending activities.
BPPR’s
commercial
lending activities in
the U.S., through
its New York
Branch, include periodic
loan participations with
PB. During the
quarter and six
months ended, BPPR participated in
loans originated by PB totaling
$
3
million and $
23
million, respectively (2022 -
$
93
million and
$
93
million,
respectively).
At
June
30,
2023,
total
assets
for
the
BPPR
segment
related
to
its
operations
in
the
United
States
amounted
to
$
1.4
billion
(December
31,
2022
-
$
1.2
billion).
During
the
six
months
ended
June
30,
2023,
the
BPPR
segment
generated
approximately
$
55.5
million
(2022
-
$
26.1
million)
in
revenues from
its
operations
in
the
United
States,
including
net
interest
income,
service
charges
on
deposit
accounts
and
other
service
fees.
In
the
Virgin
Islands,
the
BPPR
segment
offers
banking
products, including
loans
and
deposits. The
BPPR
segment
generated $
22.7
million
in
revenues during
the
six
months
ended June 30, 2023 (2022 - $
22.3
million) from its operations in the U.S. and
British Virgin Islands.
Geographic Information
Quarter ended
Six months ended
(In thousands)
June 30, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Revenues:
[1]
Puerto Rico
$
536,075
$
560,635
$
1,083,978
$
1,088,308
United States
132,720
111,369
257,765
214,543
Other
23,344
19,269
44,013
37,426
Total consolidated
revenues
$
692,139
$
691,273
$
1,385,756
$
1,340,277
[1]
Total revenues include
net interest income, service charges on deposit accounts,
other service fees, mortgage banking activities, net
gain (loss),
including impairment on equity securities, net gain (loss) on
trading account debt securities, adjustments to indemnity
reserves on loans sold, and
other operating income.
Selected Balance Sheet Information:
(In thousands)
June 30, 2023
December 31, 2022
Puerto Rico
Total assets
$
55,719,290
$
53,541,427
Loans
21,323,370
20,884,442
Deposits
53,166,029
51,138,790
United States
Total assets
$
13,907,471
$
12,718,775
Loans
11,215,440
10,643,964
Deposits
9,069,798
8,182,702
Other
Total assets
$
1,211,505
$
1,377,715
Loans
547,533
554,744
Deposits
[1]
1,768,991
1,905,735
[1]
Represents deposits from BPPR operations located in the
U.S. and British Virgin Islands.
127
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
and
commercial banking
services, as
well as
equipment leasing
and
financing, through
its
New
York-chartered
banking
subsidiary,
Popular
Bank
(“PB”
or
“Popular U.S.”),
which
has
branches
located
in
New
York,
New
Jersey
and
Florida.
Note
33
to
the
Consolidated
Financial
Statements
presents
information
about
the
Corporation’s
business
segments.
SIGNIFICANT EVENTS
Redemption of Senior Notes
On March
13, 2023,
the Corporation
issued $400
million aggregate
principal amount
of 7.25%
Senior Notes
due 2028
(the “2028
Notes”) in an underwritten public offering. On July 14, 2023, the Corporation announced that it will use a
portion of the net proceeds
of the
2028 Notes
offering to
redeem, on
August 14,
2023, the
outstanding $300 million
aggregate principal amount
of its
6.125%
Senior Notes
due September
- The
redemption price
will be
equal to
100% of
the principal
amount plus
accrued and
unpaid
interest through the redemption date.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters ended
June 30, 2023 and 2022.
128
Table 1 - Financial Highlights
Financial Condition Highlights
Ending balances at
Average for the six months ended
(In thousands)
June 30,
2023
December 31,
2022
Variance
June 30,
2023
June 30,
2022
Variance
Money market investments
$
8,593,476
$
5,614,595
$
2,978,881
$
6,799,452
$
13,128,977
$
(6,329,525)
Investment securities
25,874,316
26,553,317
(679,001)
27,343,940
28,174,976
(831,036)
Loans
33,086,343
32,083,150
1,003,193
32,367,113
29,574,964
2,792,149
Earning assets
67,554,135
64,251,062
3,303,073
66,510,505
70,878,917
(4,368,412)
Total assets
70,838,266
67,637,917
3,200,349
69,519,264
73,961,645
(4,442,381)
Deposits
64,004,818
61,227,227
2,777,591
61,669,930
66,071,560
(4,401,630)
Borrowings
1,427,254
1,400,319
26,935
1,284,454
1,048,084
236,370
Total liabilities
66,273,257
63,544,492
2,728,765
63,806,260
68,056,588
(4,250,328)
Stockholders’ equity
4,565,009
4,093,425
471,584
5,713,004
5,905,057
(192,053)
Note: 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)
2023
2022
Variance
2023
2022
Variance
Net interest income
$
531,668
$
533,862
$
(2,194)
$
1,063,324
$
1,028,174
$
35,150
Provision for credit losses (benefit)
37,192
9,362
27,830
84,829
(6,138)
90,967
Non-interest income
160,471
157,411
3,060
322,432
312,103
10,329
Operating expenses
460,284
406,278
54,006
900,971
808,617
92,354
Income before income tax
194,663
275,633
(80,970)
399,956
537,798
(137,842)
Income tax expense
43,503
64,212
(20,709)
89,817
114,691
(24,874)
Net income
$
151,160
$
211,421
$
(60,261)
$
310,139
$
423,107
$
(112,968)
Net income applicable to common stock
$
150,807
$
211,068
$
(60,261)
$
309,433
$
422,401
$
(112,968)
Net income per common share – basic
$
2.10
$
2.77
$
(0.67)
$
4.32
$
5.46
$
(1.14)
Net income per common share – diluted
$
2.10
$
2.77
$
(0.67)
$
4.32
$
5.46
$
(1.14)
Dividends declared per common share
$
0.55
$
0.55
$
―
$
1.10
$
1.10
$
―
Quarters ended June 30,
Six months ended June 30,
Selected Statistical Information
2023
2022
2023
2022
Common Stock Data
End market price
$
60.52
76.93
$
60.52
76.93
Book value per common share at period end
63.00
55.78
63.00
55.78
Profitability Ratios
Return on assets
0.85
%
1.17
%
0.89
%
1.15
%
Return on common equity
9.26
14.58
9.63
14.48
Net interest spread
2.50
3.00
2.59
2.84
Net interest spread (taxable equivalent) - Non-GAAP
2.65
3.36
2.78
3.16
Net interest margin
3.14
3.09
3.18
2.92
Net interest margin (taxable equivalent) - Non-GAAP
3.29
3.45
3.37
3.24
Capitalization Ratios
Average equity to average assets
8.24
%
8.06
%
8.22
%
7.98
%
Common equity Tier 1 capital
16.87
16.39
16.87
16.39
Tier I capital
16.93
16.46
16.93
16.46
Total capital
18.74
18.29
18.74
18.29
Tier 1 leverage
8.40
7.56
8.40
7.56
129
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 interest related
to these
assets,
the
interest
has
been
converted
to
a
taxable
equivalent
basis,
using
the
applicable
statutory
income
tax
rates
for
each
period.
According to the
Puerto Rico tax
law, a
portion of interest
cost, based on
an equal proportion
of tax-exempt assets to
total assets,
and an
allocation of
general and
administrative expenses
should be
attributed to
exempt income,
reducing the
benefit of
the tax
exempt income, and as such
the disallowance of such
deduction is considered in the
taxable equivalent computation. The effective
yield, on
a taxable
equivalent basis, will
vary depending on
the level
of these expenses
that are
attributed to the
available exempt
income.
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
ended
June
30,
2023
as
compared
with
the
same
period
in
2022,
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, 2023
●
For the
quarter ended
June 30,
2023,
the Corporation
recorded net
income of
$ 151.2
million, compared
to net
income of
$
211.4
million for
the same
quarter of
the
previous year.
Net interest
margin for
the
second
quarter of
2023
was 3.14%,
an
increase of 5 basis
points when compared to 3.09%
for the same quarter of
the previous year,
mainly due to higher
yield from
money
market
investments
and
loans,
which
was
partially
offset
by
higher
deposits
costs,
principally
from
the
Puerto
Rico
public sector.
On a
taxable equivalent
basis, the
net interest
margin was
3.29%, compared to
3.45% for the
same quarter
of
the previous year. For the quarter ended June 30,
2023, the Corporation recorded a provision for credit losses of $37.2 million,
compared to
$9.4 million
for the
same quarter
of the
previous year.
The higher
provision for
2023 is
attributed to
higher loan
volumes,
migrations
in
credit
scores
and
changes
in
economic
variables
related
to
consumer
loan
portfolios.
Non-interest
income was
$160.5 million
for the
quarter,
an increase
of $3.1
million when
compared to
the quarter
ended June
30, 2022,
mainly
due
to
higher
other
service
fees,
driven
by
higher
credit
card
activities
and
the
income
from
the
revenue
sharing
agreement
with
Evertec,
Inc,
and
net
gains
in
equity
securities,
partially
offset
by
lower
income
from
mortgage
banking
activities
mainly
due
to
the
fair
value
adjustments
of
MSRs
and
lower
service
charges
on
deposit
accounts.
Operating
expenses were higher by $54.0 million principally
due to higher personnel costs and professional
fees.
●
Total
assets at June
30, 2023 amounted to
$70.8 billion, compared to
$67.6 billion, at
December 31, 2022.
The increase was
mainly due to
higher money market
investments,
driven by the
increase in deposits,
and loan growth,
partially offset by
lower
debt securities available-for-sale, as the
Corporation has maintained higher balances in
Fed Funds reserves due to
the recent
banking sector turmoil.
●
Total
deposits at
June 30,
2023 increased
by $2.8
billion when
compared to
deposits at
December 31,
2022, mainly
due to
higher Puerto Rico public sector deposits by $3.3
billion.
●
Stockholders’ equity totaled $4.6 billion at June 30, 2023, an increase of $471.6
million when compared to December 31, 2022,
principally due
to net
income for
the six-months
ended June
30, 2023
of $310.1
million, the
after-tax impact
of the
favorable
variance
in
net
unrealized
losses
in
the
portfolio
of
available-for-sale
securities
of
$121.8
million,
the
amortization
of
the
unrealized losses
from securities
previously reclassified
to held-to-maturity
of $68.0
million, and
the positive
impact of
$28.8
million from the adoption
of a new accounting standard
on January 1, 2023, partially
offset by dividends declared for
the year-
to-date period.
●
At June 30,
2023, the Corporation’s tangible book
value per common share
was $51.37, an increase of
$6.40 from December
130
31, 2022 due mainly to the increase in Stockholders’
equity during the period.
●
Capital ratios
continued to
be strong.
As of
June 30,
2023, the
Corporation’s common
equity tier
1 capital
ratio was
16.87%,
the tier 1 leverage ratio was 8.40%, and the
total capital ratio was 18.74%. Refer to Table 9 for capital ratios.
Refer to
the Operating
Results Analysis
and Financial
Condition Analysis
within this
MD&A for
additional discussion
of significant
quarterly variances and items impacting the financial performance
of the Corporation.
As a financial services company,
the Corporation’s earnings are significantly affected
by general business and economic conditions
in the
markets which
we serve.
Lending and
deposit activities
and fee
income generation
are influenced
by the
level of
business
spending and
investment, consumer
income, spending
and savings,
capital market
activities, competition,
customer preferences,
interest rate conditions and prevailing market rates
on competing products.
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 2022 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 2022 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.
131
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 the 2022 Form
10-K. Also, refer to
Note 2
to
the Consolidated
Financial Statements
included in
the 2022
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.
OPERATING RESULTS ANALYSIS
NET INTEREST INCOME
Net interest
income for
the quarter
ended June
30, 2023
was $531.7
million, compared
to
$533.9 million
in the
same quarter
of
2022,
a
decrease of
$2.2 million.
Net
interest income
on
a
taxable equivalent
basis for
the second
quarter of
2023
was
$558.4
million
compared to
$595.5 million
in the
second
quarter of
- The
decrease in
the taxable
equivalent net
interest income
is
related
to
a
higher
disallowed
interest
expense
in
the
Puerto
Rico
tax
computation.
The
latter
results
from
the
increase
in
the
Corporation’s interest
expense that
is attributable
to the
tax-exempt income.
A significant
driver to
the increased
interest expense
has been the cost of Puerto Rico government deposits, which are indexed to market rates, has increased by 3.46% when compared
with the same quarter of 2022.
Net interest margin for the quarter was 3.14% compared to 3.09%
in the second quarter of 2022 or an increase of
5 basis points. On
a taxable equivalent basis, net
interest margin for the second
quarter of 2023 was 3.29%, compared
to 3.45% for the
same quarter
the prior year. The main variances in net interest income on a taxable
equivalent basis were:
Negative variances:
●
Higher interest
expense on
deposits by
$215.7 million
due to
the increase
in interest
rates that
has resulted
in a
higher
cost in most deposit categories in
both Banco Popular de Puerto Rico (“BPPR”)
and Popular Bank (“PB” or “Popular U.S.
Operations”); but particularly from Puerto Rico
government deposits for BPPR.
The higher costs have been offset
in part
by lower volume
of average interest-bearing
deposits by $1.6
billion mainly related
to a
decrease in commercial
savings
accounts.
Partially offset by:
●
Higher interest income
from money market,
investment, and trading securities
by $61.8 million
driven mainly by
a higher
yield of
money market investments,
which reflects an
increase of
432 basis points
related to the
increase in
the Federal
funds rate, partially offset by a lower average volume of $4.1 billion and a lower benefit from exempt investment securities
related to a higher disallowed interest expense in the Puerto Rico
tax computation, stemming from the increase in the cost
of deposits.
●
Higher
interest
income
from
loans
by
$125.4
million
resulting
from
an
increase
in
average
loans
by
$2.8
billion reflecting increases
in both PB and
BPPR and across most
major lending segments. Loan
origination
in a
higher interest
rate environment
and the
repricing of
adjustable-rate loans
resulted in a
higher yield
on
loans by 101 basis points. The categories with the highest impact were commercial loans with an increase of
$80.9 million
in interest
income, or
136 basis
points, and
consumer loans
which increased
$26.4 million
in
interest income, or 188 basis points.
132
Net interest income for the BPPR segment amounted to $453.1
million for the second quarter of 2023, compared to $447.8 million
in
the second quarter of 2022. Net interest margin increased to 3.21%
compared to 3.02% in the second quarter of 2022. The increase
in net interest income of $5.3 million was driven by a higher yield on
earning assets related to a higher interest rate environment and
a higher
volume of
loans, partially
offset by
the increase
in the
cost of
deposits, mainly
from the
P.R.
public sector
deposits. The
cost of interest-bearing deposits increased 176 basis points to 1.95% from 0.19% in the same quarter of 2022. Total deposit cost for
the quarter increased by 130 basis points, from
0.14% in the second quarter of 2022 to 1.44%.
Net interest income for PB was $87.5 million
for the quarter ended June 30, 2023, compared
to $93.4 million during the second
quarter of 2022, a decrease of $5.9 million.
Net interest margin decreased 75 basis
points when compared to the second quarter
of
2022 to 3.01%. The decrease in net interest
margin was mostly driven by a higher
cost of deposits, partially offset by the increase in
loan volume and yield of loans due to origination
of loans in a higher interest rate environment
and the repricing of adjustable-rate
loans. The cost of interest-bearing deposits was
3.02% compared to 0.54%, or an increase of
248 basis points, while total deposit
cost was 2.55%
compared to 0.42% in the second quarter
of 2022.
133
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
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
7,851
$
11,513
$
(3,662)
5.15
%
0.83
%
4.32
%
Money market investments
$
100,776
$
23,742
$
77,034
$
86,849
$
(9,815)
27,362
27,748
(386)
2.00
2.18
(0.18)
Investment securities [1]
136,408
150,890
(14,482)
(12,105)
(2,377)
32
65
(33)
4.65
6.66
(2.01)
Trading securities
370
1,089
(719)
(266)
(453)
Total money market,
investment and trading
35,245
39,326
(4,081)
2.70
1.79
0.91
securities
237,554
175,721
61,833
74,478
(12,645)
Loans:
16,237
14,227
2,010
6.52
5.16
1.36
Commercial
263,934
183,042
80,892
52,659
28,233
737
781
(44)
8.95
5.71
3.24
Construction
16,442
11,116
5,326
5,997
(671)
1,632
1,445
187
6.30
5.91
0.39
Leasing
25,711
21,352
4,359
1,473
2,886
7,409
7,294
115
5.47
5.33
0.14
Mortgage
101,304
97,137
4,167
2,621
1,546
3,075
2,654
421
13.21
11.33
1.88
Consumer
101,295
74,932
26,363
13,174
13,189
3,593
3,499
94
8.31
8.04
0.27
Auto
74,467
70,145
4,322
2,414
1,908
32,683
29,900
2,783
7.15
6.14
1.01
Total loans
583,153
457,724
125,429
78,338
47,091
$
67,928
$
69,226
$
(1,298)
4.84
%
3.67
%
1.17
%
Total earning assets
$
820,707
$
633,445
$
187,262
$
152,816
$
34,446
Interest bearing deposits:
$
24,230
$
24,897
$
(667)
2.91
%
0.13
%
2.78
%
NOW and money market [2]
$
175,640
$
8,301
$
167,339
$
168,466
$
(1,127)
14,763
16,363
(1,600)
0.66
0.17
0.49
Savings
24,446
6,901
17,545
19,301
(1,756)
7,715
7,044
671
2.26
0.72
1.54
Time deposits
43,402
12,625
30,777
25,715
5,062
46,708
48,304
(1,596)
2.09
0.23
1.86
Total interest bearing
deposits
243,488
27,827
215,661
213,482
2,179
15,480
16,254
(774)
Non-interest bearing demand
deposits
62,188
64,558
(2,370)
1.57
0.17
1.40
Total deposits
243,488
27,827
215,661
213,482
2,179
125
126
(1)
5.19
0.79
4.40
Short-term borrowings
1,624
248
1,376
1,420
(44)
Other medium and
1,299
917
382
5.33
4.30
1.03
long-term debt
17,227
9,824
7,403
513
6,890
Total interest bearing
48,132
49,347
(1,215)
2.19
0.31
1.88
liabilities (excluding demand
deposits)
262,339
37,899
224,440
215,415
9,025
4,316
3,625
691
Other sources of funds
$
67,928
$
69,226
$
(1,298)
1.55
%
0.22
%
1.33
%
Total source of funds
262,339
37,899
224,440
215,415
9,025
Net interest margin/
3.29
%
3.45
%
(0.16)
%
income on a taxable
equivalent basis (Non-
GAAP)
558,368
595,546
(37,178)
$
(62,599)
$
25,421
2.65
%
3.36
%
(0.71)
%
Net interest spread
Net interest spread
26,700
61,684
(34,984)
Net interest margin/ income
3.14
%
3.09
%
0.05
%
non-taxable equivalent basis
(GAAP)
$
531,668
$
533,862
$
(2,194)
Note: The changes that are not due solely to volume or
rate are allocated to volume and rate based on the
proportion of the change in each category.
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities transferred from
available-for-sale to held-to-maturity.
[2] Includes interest bearing demand deposits corresponding
to certain government entities in Puerto Rico.
134
Net interest income for
the six-months ended June 30,
2023 was $1.1 billion,
or $35.2 million higher than
the same period in
2022.
Taxable equivalent net interest income was $1.1 billion, a decrease of $14.9 million when compared to the same period in 2022. Net
interest margin
was 3.18%,
an increase
of 26
basis points
when compared
to 2.92%
in 2022.
The increase
in net
interest margin
was mainly
driven by a
higher yield on
earning assets due
to a
higher interest rate
environment. Net interest
margin, on
a taxable
equivalent basis, for the six-months ended June
30, 2023, was 3.37%, an increase of
13 basis points when compared to the 3.24%
for the same period of 2022. The drivers of
the variances in net interest income for the
six-months are:
Negative variances:
●
Higher interest
expense from
deposits by
$384.1 million
mainly due
to higher
yield by
127 basis
points related
to a
higher
interest rate environment.
Partially offset by:
●
Higher interest
income from
investment securities,
trading
and money
market investments
by
$142.0 resulting
from
higher
yield of the portfolio by 111
basis points mainly driven by money market investments, which reflects an average yield increase
of 448
basis points, related
to the
interest rate environment,
partially offset by
lower volume by
$6.4 billion linked
to a
lower
volume of
deposits on
both Puerto Rico
Government deposits and
commercial savings
deposits. In the
first quarter
of 2022
Puerto
Rico
Government
deposits
decreased
as
a
result
of
the
payments
made
by
Puerto
Rico
pursuant
to
the
Plan
of
Adjustment
for
Puerto
Rico
under
Title
III
of
the
Puerto
Rico
Oversight,
Management,
and
Economic
Stability
Act
(“PROMESA”).
●
Higher interest income from commercial loans by
$154.2 million due to higher yield by
130 basis points and higher volume of
$2.0 billion.
●
Higher interest
income from
consumer loans
by $52.0
million mostly
due to
a higher
average volume of
personal loans
and
credit cards.
●
Higher interest income from construction loans by $10.7
million due to higher yield by 310 basis points.
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, 2023, amounted to $12.8 million, compared to $28.9
million
in
the
same
period
of
2022.
The
decrease
of
$16.1
million
is
mainly
related
to
lower
amortized
fees
resulting
from
the
forgiveness of PPP loans, lower amortization of premium
on auto loans purchased and resulting
from the cancellation of PCD loans.
135
Table 3 – Analysis of Levels & Yields
on a Taxable Equivalent Basis
from Continuing Operations (Non-GAAP)
Year ended June 30,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
6,800
$
13,129
$
(6,329)
4.94
%
0.46
%
4.48
%
Money market investments
$
166,500
$
30,206
$
136,294
$
157,542
$
(21,248)
28,108
28,107
1
2.11
2.06
0.05
Investment securities [1]
295,322
288,241
7,081
8,948
(1,867)
31
68
(37)
4.56
6.27
(1.71)
Trading securities
708
2,107
(1,399)
(470)
(929)
Total money market,
investment and trading
34,939
41,304
(6,365)
2.67
1.56
1.11
securities
462,530
320,554
141,976
166,020
(24,044)
Loans:
16,000
13,986
2,014
6.42
5.12
1.30
Commercial
509,403
355,171
154,232
98,409
55,823
734
754
(20)
8.68
5.58
3.10
Construction
31,598
20,874
10,724
11,283
(559)
1,610
1,419
191
6.21
5.93
0.28
Leasing
49,993
42,071
7,922
2,051
5,871
7,398
7,341
57
5.46
5.28
0.18
Mortgage
202,076
193,905
8,171
6,637
1,534
3,049
2,595
454
13.03
11.27
1.76
Consumer
197,010
144,994
52,016
24,268
27,748
3,576
3,480
96
8.23
8.08
0.15
Auto
145,874
139,397
6,477
2,574
3,903
32,367
29,575
2,792
7.06
6.10
0.96
Total loans
1,135,954
896,412
239,542
145,222
94,320
$
67,306
$
70,879
$
(3,573)
4.78
%
3.45
%
1.33
%
Total earning assets
$
1,598,484
$
1,216,966
$
381,518
$
311,242
$
70,276
Interest bearing deposits:
$
23,774
$
26,584
$
(2,810)
2.72
%
0.12
%
2.60
%
NOW and money market [2]
$
320,610
$
15,624
$
304,986
$
307,891
$
(2,905)
14,895
16,398
(1,503)
0.57
0.17
0.40
Savings
41,889
13,464
28,425
31,595
(3,170)
7,409
6,891
518
2.02
0.69
1.33
Time deposits
74,204
23,522
50,682
42,149
8,533
46,078
49,873
(3,795)
1.91
0.21
1.70
Total interest bearing
deposits
436,703
52,610
384,093
381,635
2,458
15,592
16,198
(606)
Non-interest bearing demand
deposits
61,670
66,071
(4,401)
1.43
0.16
1.27
Total deposits
436,703
52,610
384,093
381,635
2,458
186
109
77
4.89
0.61
4.28
Short-term borrowings
4,509
328
4,181
3,797
384
Other medium and
1,124
965
159
5.10
4.25
0.85
long-term debt
28,493
20,370
8,123
4,895
3,228
Total interest bearing
47,388
50,947
(3,559)
2.00
0.29
1.71
liabilities (excluding demand
deposits)
469,705
73,308
396,397
390,327
6,070
4,326
3,734
592
Other sources of funds
$
67,306
$
70,879
$
(3,573)
1.41
%
0.21
%
1.20
%
Total source of funds
469,705
73,308
396,397
390,327
6,070
3.37
%
3.24
%
0.13
%
Net interest margin/ income
on a taxable equivalent basis
(Non-GAAP)
1,128,779
1,143,658
(14,879)
$
(79,085)
$
64,206
2.78
%
3.16
%
(0.38)
%
Net interest spread
Taxable equivalent
adjustment
65,455
115,484
(50,029)
3.18
%
2.92
%
0.26
%
Net interest margin/ income
non-taxable equivalent basis
(GAAP)
$
1,063,324
$
1,028,174
$
35,150
Note: The changes that are not due solely to volume or
rate are allocated to volume and rate based on the
proportion of the change in each category.
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities transferred
from available-for-sale to held-to-maturity.
136
Provision for Credit Losses - Loans Held-in-Portfolio
and Unfunded Commitments
For the quarter ended June 30, 2023,
the Corporation recorded an expense of $37.8
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, 2023
was $35.7 million, compared to
a provision expense of $9.9
million for the quarter ended
June 30, 2022. The
provision expense
was mainly
driven by
specific reserves
for collateral
dependent U.S.
commercial and
P.R.
construction loans,
changes
in
macroeconomic
scenarios,
higher
loan
volumes
and
migration
of
P.R.
consumer
credit
scores,
partially
offset
by
changes in the assignments of
probability weights to macroeconomic scenarios and
reduction in qualitative reserves. The
provision
related
to
unfunded
commitments
for
the
second
quarter
of
2023
was
$2.2
million,
compared
to
the
reserve
release
related
to
unfunded commitments of $0.2 million for the same
period of 2022.
For the quarter ended
June 30, 2023, the
Corporation recorded a provision for
credit loss of $28.4
million for loans-held-in-portfolio
for the
BPPR segment,
compared to
a provision
expense of
$9.1 million
for the
quarter ended
June 30,
- The
Popular U.S.
segment recorded
a provision
of $7.3
million for
the quarter
ended June
30, 2023,
compared to
a provision
of $0.7
million for
the
same quarter in 2022.
For the six-months ended June 30,2023, the Corporation recorded a provision for credit loss of $85.6 million for its reserve for credit
losses related to loans
held-in-portfolio and unfunded commitments.
The provision expense related to
the loans-held-in-portfolio for
the six-months
ended June
30,2023 was
$82.8 million,
compared to
the reserve
release of
$4.5 million
for the
six-months ended
June
30,2022.
The
higher
provision
in
2023
is
attributable
to
higher
loan
volumes,
migrations
in
credit
scores
and
changes
in
economic variables
related to
consumer loan
portfolios. The
provision for
unfunded commitments
for the
six-months ended
June
30,2023 reflected an expense of $2.8 million,
compared to a provision benefit of $1.0 million
for the same period of 2022.
The
provision for
credit
losses for
the BPPR
segment
was an
expense of
$73.6 million
for the
six-months ended
June 30,2023,
compared
to
a
benefit
of
$3.5
million
for
the
six-months
ended
June
30,2022.
The
Popular
U.S.
segment
recorded
a
provision
expense of $9.2
million for the
six-months ended June
30,2023, compared to a
benefit of $1.0
million for the
same period in
2022.
The
provision
for
the
six-months
ended
June
30,2022
incorporated
updated
macroeconomic
scenarios
for
Puerto
Rico
and
the
United States.
At June
30, 2023,
the total
allowance for
credit losses
for loans
held-in-portfolio amounted to
$700.2 million,
compared to
$720.3
million as of December 31, 2022.
The ratio of the allowance
for credit losses to loans held-in-portfolio was
2.12% at June 30, 2023,
compared
to
2.25%
at
December 31,
2022.
During
the
first
quarter,
the
Corporation adopted
ASU
2022-02
which
resulted
in
a
reduction of approximately $46 million, $29 million net of tax, in the reserve related to
TDR which was recorded as an adjustment to
the beginning balance of retained earnings.
As discussed in Note 9 to
the Consolidated Financial Statements, within the process
to
estimate its
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. During
the second
quarter of
2023, the
Corporation
further increased the probability weight assigned to the baseline scenario resulting in a decrease in the ACL of $5.8 million. Refer to
Note 9
to the
Consolidated Financial Statements,
for additional information
on the
Corporation’s methodology to
estimate its
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
At June
30, 2023,
the total
allowance for
credit losses
for this
portfolio amounted
to
$6.1
million, compared
to
$6.9 million
as of
December 31, 2022. Refer to Note 7
to Consolidated Financial Statements
for additional information on the ACL for this portfolio.
137
Non-Interest Income
Non-interest
income
amounted to
$160.5
million
for the
quarter ended
June
30,
2023, compared
to
$157.4
million
for the
same
quarter of the previous year. The main factors that contributed to the variance
in non-interest income were:
●
higher
other
service
fees
by
$12.8 million,
principally
at
the
BPPR
segment,
due
to
higher credit
card
fees
by
$4.5
million
mainly in
interchange income
resulting from
higher transactional
volumes,
higher merchant
acquiring fees
from the
revenue
sharing agreement with Evertec, Inc.
by $4.0 million and higher insurance fees by
$2.6 million; and
●
a
favorable variance
in
the fair
value adjustments
of
equity securities
of
$5.5 million,
primarily related
to
securities
held
for
benefit plans which have an offsetting effect in personnel
costs;
partially offset by:
●
lower income from mortgage
banking activities by $11.3
million due to an
unfavorable variance of $8.5 million
in the fair value
adjustments
of
mortgage
servicing
rights,
including
the
impact
of
the
portfolio
runoff,
and
lower
realized
gains
on
closed
derivatives by
$2.3 million
due to
lower securitization
activity as
the Corporation
determined to
retain its
FHA/VA-guaranteed
mortgage loan originations as held-for-investment
in the third quarter of 2022; and
●
lower service charges
on deposit accounts by
$4.0 million mainly
due to lower
returned ACH fees due
to the change in
policy
of eliminating insufficient funds and modifying overdraft fees
implemented in the third quarter of 2022.
Non-interest income amounted to
$322.4 million for
the six months ended
June 30, 2023,
compared to $312.1 million
for the same
period of the previous year. The main factors that contributed to the
variance in non-interest income were:
●
higher other
service fees
by $25.8
million, principally
at the
BPPR segment,
due to
higher credit
card fees
by $11.3
million
mainly in
interchange income
resulting from
higher transactional
volumes, higher
merchant acquiring
fees from
the revenue
sharing agreement with
Evertec,
Inc.
by $7.5 million,
higher debit card fees
by $2.1 million
and higher insurance fees
by $2.3
million; and
●
a
favorable variance
in
the fair
value adjustments
of
equity securities
of
$8.7 million,
primarily related
to
securities
held
for
benefit plans which have an offsetting effect in personnel
costs;
partially offset by:
●
lower income from mortgage banking activities by $16.7 million due to an unfavorable variance of $10.9 million in the fair value
adjustments
of
mortgage
servicing
rights,
including
the
impact
of
the
portfolio
runoff,
and
lower
realized
gains
on
closed
derivatives by $6.4 million; and
●
lower service charges
on deposit accounts
by $10.1 million
mainly due to
lower returned ACH
fees by $7.9
million due to
the
change in policy of eliminating insufficient funds and
modifying overdraft fees implemented in the third
quarter of 2022.
138
Operating Expenses
Operating expenses amounted to $460.3 million for the
quarter ended June 30, 2023, an
increase of $54.0 million, when compared
with the same quarter of 2022. The variance
in operating expenses was driven primarily by:
●
higher personnel costs
by $22.7 million
mainly due
to higher
salaries by
$23.1 million as
a result
of merit
and market related
increases, minimum
salary increases
during the
first quarter
of 2023
and higher
headcount,
an increase
in health
insurance
costs by $3.9 million, and higher
payroll taxes and other compensation expenses by $7.2 million;
partially offset by a decrease
in incentive compensation and profit-sharing accrual by $11.4 million;
●
higher
professional
fees
by
$11.7
million
mainly
due
to
higher
advisory
services
related
to
corporate
initiatives
focused
on
regulatory,
compliance,
cyber
security
efforts
and
transformation
related
projects
to
expand
the
Corporation’s
digital
capabilities and modernize its technology platform;
●
higher processing and
transactional services expenses by
$5.8 million mainly
due to broad
based retail customers'
debit card
replacement costs incurred during the second quarter
of 2023 of $3.5
million;
●
higher business
promotion expenses
by $3.7
million mainly
due to
higher customer
rewards
programs
expense in
our credit
card business;
●
higher
other
operating
expenses
by
$4.6
million
mainly
due
to
higher
pension
plan
cost
as
a
result
of
annual
changes
in
actuarial assumptions; and
●
lower other
real estate
owned (OREO)
benefit by
$4.5 million
mainly due
to lower
gain on
sale of
mortgage and
commercial
properties.
Operating
expenses
amounted
to
$901.0
million
for
the
six
months
ended
June
30,
2023,
an
increase
of
$92.4
million
when
compared with the same period of 2022, driven primarily
by:
●
higher personnel costs
by $54.4 million
mainly due
to higher
salaries by
$49.8 million as
a result
of merit
and market related
increases, minimum
salary increases
during the
first quarter
of 2023
and higher
headcount, an
increase in
health insurance
costs
by
$6.5
million,
and
higher
payroll
taxes
and
other
compensation
expenses
by
$14.1
million;
partially
offset
by
a
decrease in incentive compensation and profit-sharing
accrual by $15.8 million;
●
higher
professional
fees
by
$8.3
million
mainly
due
to
higher
advisory
services
related
to
corporate
initiatives
focused
on
regulatory,
compliance,
cyber
security
efforts
and
transformation
related
projects
to
expand
the
Corporation’s
digital
capabilities and modernize its technology platform;
●
higher processing and
transactional services expenses by
$8.7 million mainly
due to broad
based retail customers'
debit card
replacement costs
incurred during the
second quarter
of 2023
of $3.4
million, higher
credit and
debit card processing
related
fees by $4.7 million mainly due to higher
volume of transactions;
●
higher business
promotion expenses
by $7.5
million mainly
due to
higher customer
rewards
programs
expense in
our credit
card business by $5.0 million;
●
higher
other
operating
expenses by
$5.0
million
mainly
due
to
higher pension
plan
cost
by
$9.6
million
due
to
changes
in
actuarial assumptions;
partially offset by $4.4 million of lower sundry
losses; and
●
lower other
real estate
owned (OREO)
benefit by
$5.5 million
mainly due
to lower
gain on
sale of
mortgage and
commercial
properties; partially offset by higher claim reimbursement.
The Corporation embarked on a
broad-based multi-year, technological and
business process transformation during the second
half
of 2022. As part of this transformation, we
aim to expand our digital capabilities, modernize our technology platform, and
implement
agile
and
efficient
business
processes
across
the
entire
Corporation.
To
facilitate
the
transparency
of
the
progress
with
the
139
transformation initiative
and to
better portray
the level
of technology
related expenses
categorized by
the nature
of the
expense,
effective
in the
fourth quarter
of
2022,
the
Corporation has
separated technology,
professional fees
and
transactional and
items
processing related expenses
as standalone expense categories
in the accompanying
Consolidated statement of
operations. There
were
no
changes
to
the
total
operating
expenses
presented.
Prior
periods
amount
in
the
financial
statements
and
related
disclosures have been reclassified to conform to
the current presentation.
Table 4 - Operating Expenses
Quarters ended June 30,
Six months ended June 30,
(In thousands)
2023
2022
Variance
2023
2022
Variance
Personnel costs:
Salaries
$
124,901
$
101,847
$
23,054
$
250,294
$
200,520
$
49,774
Commissions, incentives and other bonuses
27,193
38,589
(11,396)
58,355
74,110
(15,755)
Pension, postretirement and medical insurance
17,508
13,730
3,778
32,886
26,513
6,373
Other personnel costs, including payroll taxes
21,866
14,622
7,244
48,693
34,641
14,052
Total personnel
costs
191,468
168,788
22,680
390,228
335,784
54,444
Net occupancy expenses
27,165
26,214
951
53,204
50,937
2,267
Equipment expenses
9,561
8,674
887
17,973
17,063
910
Other taxes
16,409
15,780
629
32,700
31,495
1,205
Professional fees
50,132
38,430
11,702
83,563
75,222
8,341
Technology and
software expenses
72,354
74,761
(2,407)
140,913
145,296
(4,383)
Processing and transactional services:
Credit and debit cards
11,584
10,173
1,411
24,134
21,645
2,489
Other processing and transactional services
25,217
20,864
4,353
46,576
40,345
6,231
Total processing
and transactional services
36,801
31,037
5,764
70,710
61,990
8,720
Communications
4,175
3,497
678
8,263
7,170
1,093
Business promotion:
Rewards and customer loyalty programs
16,626
13,929
2,697
28,974
23,950
5,024
Other business promotion
8,457
7,424
1,033
14,980
12,486
2,494
Total business
promotion
25,083
21,353
3,730
43,954
36,436
7,518
FDIC deposit insurance
6,803
6,463
340
15,668
13,835
1,833
Other real estate owned (OREO) income
(3,314)
(7,806)
4,492
(5,008)
(10,519)
5,511
Other operating expenses:
Operational losses
4,280
4,061
219
11,080
15,886
(4,806)
All other
18,572
14,231
4,341
36,133
26,336
9,797
Total other operating
expenses
22,852
18,292
4,560
47,213
42,222
4,991
Amortization of intangibles
795
795
-
1,590
1,686
(96)
Total operating
expenses
$
460,284
$
406,278
$
54,006
$
900,971
$
808,617
$
92,354
140
Table 5 - Operating Expenses
Reclassification
Quarter ended
Six months ended
30-Jun-22
30-Jun-22
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
25,088
$
(16,414)
$
8,674
$
48,567
$
(31,504)
$
17,063
Professional fees
114,872
(76,442)
38,430
223,369
(148,147)
75,222
Technology and
software expenses
-
74,761
74,761
-
145,296
145,296
Processing and transactional services
-
31,037
31,037
-
61,990
61,990
Communications
5,993
(2,496)
3,497
12,140
(4,970)
7,170
Other operating expenses
28,738
(10,446)
18,292
64,887
$
(22,665)
$
42,222
Net effect on other operating expenses
$
174,691
$
-
$
174,691
$
348,963
$
-
$
348,963
Income Taxes
For the quarter
and six months
ended June 30,
2023, the corporation recorded
an income tax
expense of $43.5 and
$89.8 million,
respectively, with an
effective tax rate (ETR) of
22.4%, and $22.5%,
respectively, compared to
income tax expense of $64.2 million
and $114.7 million
with an effective tax rate of
23.3% and 21.3% for the quarter
and six months ended June 30, 2022,
respectively.
The decrease in income tax expense for the quarter
and six months period ended June 30, 2023,
reflects the impact of lower pre-tax
income.
At June 30, 2023, the Corporation had a net deferred tax asset amounting to $0.9 billion, net of a valuation allowance of $0.5 billion.
The net deferred tax asset related to the U.S.
operations was $0.3 billion, net of
a valuation allowance of $0.4 billion.
Refer to
Note 31
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.
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 33
to the Consolidated Financial Statements.
The Corporate group reported a net income of $4.7 million for the quarter
ended June 30, 2023, compared with a net income of $4.8
million for the same quarter of the previous year. For the six months ended June 30, 2023, the Corporate group reported net income
of $6.0 million, compared to a net income of $11.1 million for the same period of the previous year. The decrease in net income was
attributed to the equity pickup of $15.0 million for
the six months ended June 30,2022 from the investment in Evertec, Inc
that is not
reflected in 2023 as the Corporation sold its entire
ownership stake in Evertec in August 2022.
Highlights on the earnings results for the reportable
segments are discussed below:
Banco Popular de Puerto Rico
The Banco
Popular de
Puerto Rico
reportable segment’s
net income
amounted to
$131.8 million
for the
quarter ended
June 30,
2023, compared
with net
income of
$179.6 million
for the
same quarter
of
the previous
year.
The factors
that contributed
to the
variance in the financial results included the following:
●
Higher net interest income by $5.3 million mainly
due to:
●
higher
interest
income
from
money
market
and
investment
securities
by
$89.4
million
mainly
due
to
higher
yields driven by the increase in interest rates,
141
●
higher interest income from loans by $87.8 million mainly
due to higher average balances from commercial and
consumer loans, mainly from credit cards and personal
loans,
partially offset by
●
higher interest
expense on
deposits by
$171.7 million
mainly due
to higher
costs on
the market-linked
Puerto
Rico
government
deposits,
and
the
higher interest
rate
environment’s
impact on
the cost
of
NOW accounts,
time deposits, and savings deposits.
The
net
interest
margin
for
the
quarter
ended
June
30,
2023
was
3.21%
compared
to
3.02%
for
the
same
quarter
in
the
previous year. The
increase in net interest margin is
driven by higher yields from investments securities
and loans, particularly
commercial and consumer loans, due to the increase
in rates;
partially offset by higher cost of deposits.
●
A provision
for loan
losses expense
of $29.3
million, compared
to a
provision expense
of $8.8
million in
quarter ended
June 30, 2022, or an unfavorable variance of $20.5 million mainly driven
by specific reserves for collateral dependent P.R.
construction loans, changes in macroeconomic scenarios and higher loan volumes and migration
of P.R.
consumer credit
scores, partially offset by changes in the assignments of probability weights to macroeconomic scenarios and reduction in
qualitative reserves;
●
Non-interest income was lower by $0.6 million mainly due
to:
●
lower income
from mortgage banking
activities by $11.0
million mainly due
to an
unfavorable variance of
$9.0
million in
the fair
value adjustment
of mortgage
service rights
and lower
gains
of $2.1
million from
derivative
positions
due
to
lower
securitization
activity
as
the
Corporation
determined to
retain
its
FHA/VA-guaranteed
mortgage loan originations as held-for-investment
in the third quarter 2022.
●
lower service charges on
deposit accounts by $3.7
million, mainly due to
lower ACH fees due
to the change in
policy of eliminating insufficient fund fees and modifying
overdraft fees implemented in the third quarter
of 2022,
partially offset by
●
Higher
other
service
fees
by
$11.6
million
mainly
due
to
higher credit
card
fees
by
$4.5
million
as
result
of
higher
interchange
transactional
volumes,
and
higher
merchant
acquiring
fees
from
the
revenue
sharing
agreement with Evertec Inc. by $4.0 million.
●
Higher operating expenses by $48.3 million mostly due
to:
●
higher personnel costs by $15.2 million driven by higher salaries due to minimum and other salary adjustments,
and increase in headcount;
●
higher
business
promotions
by
$3.6
million
due
to
higher
customer
rewards
expense
related
to
higher
transactional volumes;
●
lower net recoveries from OREO by
$4.6 million mainly due to lower average
gain per unit partially offset
by an
increase in units sold;
●
higher
other
operating
expenses
by
$10.1
million
due
to
$4.4
million
of
higher
pension
expense
based
on
actuarial assumptions and
higher charges allocated
from the
Corporate segment group
by $7.4 million,
mainly
from higher personnel costs and higher consulting
fees, including those related to the transformation
initiative;
●
higher professional fees of $10.9 million mainly due to
costs associated with several ongoing initiatives focused
on regulatory, compliance and cyber security efforts as well the Corporations transformation
initiative;
142
●
higher
processing
and
transactional
services
by
$5.8
million
mainly
due
to
higher
credit
and
debit
card
processing
expense
as
result
of
higher
transactional
volumes,
reflecting
an
increase
in
customer
purchase
activity;
partially offset by
●
lower technology
and software
expenses by
$3.1
million
in
part due
to
expense savings
associated with
the
acquired services from Evertec during the year 2022.
●
Lower income tax expense by $16.3 million is mainly
due lower income before tax.
For the
six months
ended June
30,2023, the
BPPR segment
recorded net
income of
$264.7 million
compared to
a net
income of
$358.2 million for the
same period of the
previous year. The
results for the six
months ended June 30,2022
reflect a release of
the
reserve
for
credit
losses
of
$4.9 million,
reflective of
the
credit
metrics
and
macroeconomic outlook,
at
the
time, compared
to
a
provision expense of $75.1 million for the
six months-period ended June 30,2023. The other factors
that contributed to the variance
in the financial results included the following:
●
Higher net interest income by $39.9 million mainly
due to:
●
higher
interest
income
from
money market
and
investment securities
by
$181.9 million
mainly
due
to
higher
yields
from
money market
investments,
U.S.
Treasury
securities and
mortgage
backed
securities due
to
the
increase in rates,
●
higher interest income from loans by $165.7 million mainly due to
higher average balance from commercial and
consumer loans;
partially offset by
●
higher interest
expense on
deposits by
$307.2 million
mainly due
to higher
costs on
the market-linked
Puerto
Rico
government
deposits, and
the
higher
interest
rate
environment’s
impact on
the cost
of
NOW accounts,
time deposits, and savings deposits.
The net
interest margin
for the
six months
ended June
30,2023 was
3.22% compared
to 2.84%
for the
same quarter
in the
previous year. The increase in net interest margin is driven by earning
assets mix; partially offset by higher cost of deposits.
●
An unfavorable variance
of $80.0 million
on the provision
for loan losses,
due to the
reserve release in
2022, which was
driven by changes in the credit metrics and the
macroeconomic outlook, at the time;
●
Non-interest income was higher by $10.9 million mainly
due to:
●
Higher other
service fees
by $24.3
million mainly
due to
higher credit card
fees by
$11.1
million as
a result
of
higher interchange transactional volumes and higher merchant
acquiring fees by $2.1 million;
●
Higher other
operating income
by $8.7
million mostly
due to
an insurance
policy reimbursement
gain of
$7.0
million during first quarter 2023;
partially offset by
●
lower income from mortgage banking
activities by $16.3 million mainly
due to an unfavorable variance
of $11.9
million in
the fair
value adjustment
of mortgage
service rights
and lower
gains
of $6.3
million from
derivative
positions
due
to
lower
securitization
activity
as
the
Corporation
determined to
retain
its
FHA/VA-guaranteed
mortgage loan originations as held-for-investment
in the third quarter of 2022.
143
●
lower service
charges on
deposit accounts
by $9.6
million principally due
to lower
returned ACH
fees by
$7.9
million due to the change in policy of eliminating insufficient fund
fees and modifying overdraft fees implemented
in the third quarter of 2022.
●
Higher operating expenses by $77.1 million mostly due
to:
●
higher
personnel
costs
by
$36.7
million
driven
by
minimum
and
other
salary
adjustments,
and
increase
in
headcount;
●
higher professional fees
by $10.0 million
mainly due
to costs
associated with initiatives
focused on
regulatory,
compliance and cyber security efforts as well as the transformation
initiative;
●
higher
business
promotions
by
$6.8
million
due
to
higher
customer
rewards
expense
related
to
higher
transactional volumes;
●
higher other operating
expenses by $10.5
million due to
higher charges allocated from
the Corporate segment
group by $10.6
million, mainly from
higher personnel costs
and advisory services
related to the
transformation
initiative;
●
higher
processing
and
transactional
services
by
$8.8
million
mainly
due
to
higher
credit
and
debit
card
processing
expense
as
result
of
higher
transactional
volumes,
reflecting
an
increase
in
customer
purchase
activity;
partially offset by
●
lower technology
and software
expenses by
$6.1 million
due
in part
to savings
associated with
the acquired
services from Evertec during 2022.
●
Lower income tax expense by $12.8 million is mainly
due lower income before tax.
Popular U.S.
For the quarter ended June 30, 2023, the reportable segment of Popular U.S. reported a net income of $15.3 million, compared with
a net income
of $28.1 million for
the same quarter of
the previous year.
The factors that contributed
to the variance
in the financial
results included the following:
●
Lower
net interest income by $5.9 million due to:
●
higher interest
expense on
deposits by
$54.1 million
mainly
due
to
higher interest
rates
and
higher average
balance of time deposits gathered through its direct
online channel,
partially offset by
●
higher interest
income from
loans by
$36.1 million,
mainly from
growth in
the commercial
portfolio as
well as
higher yields due to increase in rates;
and
●
higher interest income
from money market
and investment securities
by $13.1 million
due to
higher yields due
to the increase in market rates.
144
The net
interest margin for
the quarter
ended June
30, 2023
was 3.01%
compared to
3.76% for
the same
quarter in
the previous
year.
●
An unfavorable variance of $7.3 million
on the provision for loan losses
and unfunded commitments reflecting a provision
of $7.9
million for
the second
quarter of
2023, compared
to a
provision expense
of $0.6
million recorded
in the
quarter
ended June 30,2022,
mainly due to higher loan volumes and changes
in macroeconomic scenarios;
●
Higher operating expenses by $5.4 million mostly
due to:
●
higher personnel costs by $1.2 million due to salary revisions
and increase in headcount;
●
higher other
operating expenses
by $2.2
million due
to higher
charges allocated
from the
Corporate segment
group by $1.8 million mainly from higher personnel costs
and higher consulting fees.
●
Lower income tax expense by $4.8 million is related
to a lower income before tax.
For the six months ended June 30, 2023, the reportable segment of Popular
U.S. recorded a net income of $40.3 million, compared
with a
net income
of $55.1
million for
the same
period of
the previous
year.
The results
for the
six months
ended June
30,2022
reflect a
release of
the reserve
for credit
losses of
$1.4 million,
reflective of
the credit
metrics and
macroeconomic outlook
at that
time, compared to
a provision expense
of $10.0 million
for the six
months ended June
30,2023 reflecting updated
macroeconomic
scenarios and loan growth. The other factors
that contributed to the variance in the financial results
included the following:
●
Lowest net interest income by $2.4 million due
to:
●
higher interest expense on
deposits by $91.6 million
mainly due to higher
rates and higher
average balance of
time deposits gathered through this direct online
channel;
partially offset by
●
higher interest
income from
loans by
$72.6 million,
mainly from
growth in
the commercial
portfolio as
well as
higher yields due to increase in rates;
and
●
higher income
from money
market and
investment securities
by $19.4
million due
to higher
yields and
higher
average balance;
The net interest margin for
the six months ended June
30,2023 was 3.17% compared to
3.66% for the same period
in the previous
year.
●
An
unfavorable variance
of
$11.4
million on
the provision
for loan
losses
and unfunded
commitments,
reflective of
the
provision
expense
during
the
year
2023
versus
the
release
of
the
reserve
for
credit
losses
in
the
previous
year,
as
discussed above;
●
Higher operating expenses by $14.9 million mostly due
to:
●
higher personnel costs by $5.7 million due to salary adjustments
and increase in headcount;
●
higher other
operating expenses
by $5.4
million due
to higher
charges allocated
from the
Corporate segment
group by $3.0 million, mainly from higher personnel
costs.
●
Lower income tax expense by $12.5 million due
to a lower income before tax.
145
FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s
total assets
were $70.8
billion at
June 30,
2023, compared to
$67.6 billion
at December
31, 2022.
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 increased by
approximately $3.0 billion at June
30, 2023, compared to December
31, 2022, mainly due
to
the
increase
deposits.
Debt
securities
available-for-sale
decreased
$562.2
million
reflecting
repayment,
maturities,
and
a
decrease in
the unrealized
loss of
$125.2 million.
Debt securities
held-to-maturity decreased
by $114.8
million at
June 30,
2023,
reflecting maturities of U.S. Treasury
securities, and the amortization of $84.9
million of the discount related to
securities previously
reclassified
from
the
available-for-sale
to
HTM,
which
have
an
offsetting
unrealized
loss
included
within
other
comprehensive
income
that
is
also
being
accreted,
resulting in
a
neutral
effect
to
earnings.
Refer to
Note
6
and
to
Note
7
to
the
Consolidated
Financial
Statements
for
additional
information
with
respect
to
the
Corporation’s
debt
securities
available-for-sale
and
held-to-
maturity.
Loans
Refer to Table
6 for a
breakdown of the Corporation’s
loan portfolio. Also, refer
to Note 8 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
approximately
$1.0
billion
to
$33.0
billion
at
June
30,
2023,
mainly
due
to
an
increase
in
commercial loans at both BPPR and U.S. as well
as consumer and lease financing at BPPR.
Table 6 - Loans Ending Balances
(In thousands)
June 30, 2023
December 31, 2022
Variance
Loans held-in-portfolio:
Commercial
$
16,368,300
$
15,739,132
$
629,168
Construction
819,903
757,984
61,919
Leasing
1,661,523
1,585,739
75,784
Mortgage
7,449,078
7,397,471
51,607
Auto
3,565,533
3,512,530
53,003
Consumer
3,166,585
3,084,913
81,672
Total loans held-in
-portfolio
$
33,030,922
$
32,077,769
$
953,153
Loans held-for-sale:
Mortgage
$
9,509
$
5,381
$
4,128
Consumer
45,912
-
45,912
Total loans held-for-sale
$
55,421
$
5,381
$
50,040
Total loans
$
33,086,343
$
32,083,150
$
1,003,193
146
Other assets
Other assets
amounted to
$1.7 billion
at June
30, 2023,
compared to
$1.8 billion
at December
31, 2022.
Refer to
Note 13
to the
Consolidated Financial
Statements for
a breakdown
of the
principal categories
that comprise
the caption
of “Other
Assets” in
the
Consolidated Statements of Financial Condition at
June 30, 2023 and December 31, 2022.
Liabilities
The
Corporation’s
total
liabilities
were
$66.3
billion
at
June
30,
2023,
an
increase
of
$2.7
billion,
compared
to
$63.5
billion
at
December 31, 2022, mainly due to an increase in
deposits as discussed below.
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
at June 30, 2023 and December 31, 2022
is included in Table 7.
Table 7 - Financing to Total
Assets
June 30,
December 31,
% increase (decrease)
% of total assets
(In millions)
2023
2022
from 2022 to 2023
2023
2022
Non-interest bearing deposits
$
15,317
$
15,960
(4.0)
%
21.6
%
23.6
%
Interest-bearing core deposits
44,195
41,600
6.2
62.4
61.5
Other interest-bearing deposits
4,493
3,667
22.5
6.3
5.4
Repurchase agreements
123
149
(17.4)
0.2
0.2
Other short-term borrowings
-
365
N.M.
-
0.5
Notes payable
1,304
887
47.0
1.8
1.3
Other liabilities
841
917
(8.3)
1.2
1.4
Stockholders’ equity
4,565
4,093
11.5
6.5
6.1
Deposits
The Corporation’s
deposits totaled
$64.0 billion
at June
30, 2023,
compared to
$61.2 billion
at December
31, 2022.
The deposits
increase of $2.8
billion was mainly in
public sector and commercial accounts
at BPPR coupled with
an increase in time
deposits at
PB
gathered
through
its
direct
channel,
partially
offset
by
a
decrease
in
non-interest
bearing
demand
deposit
accounts
at
both
BPPR and
PB. At
June 30,
2023, Puerto
Rico public
sector deposits
amounted to
$18.5 billion.
The rate
at which
public deposit
balances
may
change
is
uncertain
and
difficult
to
predict.
The
receipt
by
the
Puerto
Rico
Government
of
additional
hurricane
recovery related Federal assistance and seasonal tax collections, could increase
public deposit balances at BPPR in the near
term.
The amount and timing of any reduction is likely
to be impacted by, for example, the speed at which federal assistance
is distributed,
the financial
condition, liquidity
and cash
management practices
of the
Puerto Rico
Government and
its instrumentalities
and the
implementation
of
fiscal
and
debt
adjustment
plans
approved
pursuant
to
PROMESA
or
other
actions
mandated
by
the
Fiscal
Oversight and Management Board for Puerto Rico (the
“Oversight Board”).
As of June 30, 2023, approximately 29% of the Corporation’s deposits are
public fund deposits from the Government of Puerto Rico,
municipalities
and
government
instrumentalities
and
corporations.
These
deposits
are
indexed
to
short-term
market
rates
and
fluctuate
in
cost
with
changes
in
those
rates
with
a
one-quarter
lag,
in
accordance
with
contractual
terms.
As
a
result,
these
deposits’ costs
have generally
lagged variable
asset repricing.
Generally,
these deposits
require that
the bank
pledge high
credit
quality securities
as collateral; therefore,
liquidity risks
arising from public
sector deposit
outflows are lower.
Refer to the
Liquidity
section in this MD&A for additional information
on the Corporation’s funding sources.
Refer to Table 8 for a breakdown of the Corporation’s deposits at June 30, 2023 and December
31, 2022.
147
Table 8 - Deposits Ending Balances
(In thousands)
June 30, 2023
December 31, 2022
Variance
Demand deposits
[1]
$
27,690,840
$
26,382,605
$
1,308,235
Savings, NOW and money market deposits (non-brokered)
27,539,343
27,265,156
274,187
Savings, NOW and money market deposits (brokered)
772,783
798,064
(25,281)
Time deposits (non-brokered)
7,231,840
6,442,886
788,954
Time deposits (brokered CDs)
770,012
338,516
431,496
Total deposits
$
64,004,818
$
61,227,227
$
2,777,591
[1] Includes interest and non-interest bearing demand deposits.
At June 30, 2023, non-interest bearing deposits were
$15.3 billion (December 31,
2022-$16.0 billion)
Borrowings
The Corporation’s borrowings totaled $1.4 billion at June 30, 2023 compared to $1.4 billion at December 31, 2022. Refer to Note 16
to the Consolidated Financial Statements for detailed information
on the Corporation’s borrowings. Also, refer to the Liquidity section
in this MD&A for additional information on the Corporation’s
funding sources.
Stockholders’ Equity
Stockholders’ equity
totaled $4.6
billion at
June 30,
2023, an
increase of
$472.0 million
when compared
to
December 31,
2022,
principally due to net income for the six-months ended
June 30, 2023 of $310.1 million, the after-tax
impact of the favorable variance
in net
unrealized losses
in the
portfolio of
available-for-sale securities
of $121.8
million, the
amortization of
the unrealized
losses
from securities
previously reclassified to
HTM as
described above of
$68.0 million,
and the
positive impact from
the adoption
of a
new accounting
standard during the
year of
$28.8 million,
partially offset
by dividends
declared for the
six- month
period.
Refer to
the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information
on the composition of stockholders’ equity.
148
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,
2023, 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
9,
which include
common equity
tier 1,
Tier
1 capital,
total capital
and leverage
capital as of June 30, 2023 and December
31, 2022.
Table 9 - Capital Adequacy
Data
(Dollars in thousands)
June 30, 2023
December 31, 2022
Common equity tier 1 capital:
Common stockholders equity - GAAP basis
$
4,542,866
$
4,071,282
CECL transitional amount
[1]
84,751
127,127
AOCI related adjustments due to opt-out election
2,272,456
2,468,193
Goodwill, net of associated deferred tax liability (DTL)
(688,413)
(691,560)
Intangible assets, net of associated DTLs
(11,354)
(12,944)
Deferred tax assets and other deductions
(316,041)
(322,412)
Common equity tier 1 capital
$
5,884,265
$
5,639,686
Additional tier 1 capital:
Preferred stock
22,143
22,143
Additional tier 1 capital
$
22,143
$
22,143
Tier 1 capital
$
5,906,408
$
5,661,829
Tier 2 capital:
Trust preferred securities subject to phase in as
tier 2
192,674
192,674
Other inclusions (deductions), net
437,571
431,144
Tier 2 capital
$
630,245
$
623,818
Total risk-based capital
$
6,536,653
$
6,285,647
Minimum total capital requirement to be well capitalized
$
3,488,918
$
3,441,589
Excess total capital over minimum well capitalized
$
3,047,735
$
2,844,058
Total risk-weighted
assets
$
34,889,184
$
34,415,889
Total assets for leverage
ratio
$
70,294,476
$
70,287,610
Risk-based capital ratios:
Common equity tier 1 capital
16.87
%
16.39
%
Tier 1 capital
16.93
16.45
Total capital
18.74
18.26
Tier 1 leverage
8.40
8.06
[1] The CECL transitional amount includes the impact
of Popular's adoption of the new CECL accounting standard
on January 1, 2020.
149
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,
2023,
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,
2023,
the
Corporation had phased-in 50% 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,
2023, the
Corporation has $12 million in PPP loans and no
loans were pledge as collateral for PPPL Facilities.
The increase in the common equity Tier
I capital ratio, Tier I
capital ratio, and total capital ratio as
of June 30, 2023 as compared to
December 31, 2022 was mainly to the six months period
earnings.
The increase in leverage capital ratio was also mainly due to
the
period earnings.
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
10 provides
a reconciliation of
total stockholders’ equity
to tangible common
equity and total
assets to tangible
assets
as of
June 30, 2023, and December 31, 2022.
150
Table 10 - Reconciliation
of Tangible Common Equity
and Tangible Assets
(In thousands, except share or per share information)
June 30, 2023
December 31, 2022
Total stockholders’
equity
$
4,565,009
$
4,093,425
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(11,354)
(12,944)
Total tangible common
equity
$
3,704,084
$
3,230,910
Total assets
$
70,838,266
$
67,637,917
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(11,354)
(12,944)
Total tangible assets
$
69,999,484
$
66,797,545
Tangible common
equity to tangible assets
5.29
%
4.84
%
Common shares outstanding at end of period
72,103,969
71,853,720
Tangible book value
per common share
$
51.37
$
44.97
Quarterly average
Total stockholders’
equity [1]
$
6,553,488
$
6,161,634
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(827,427)
(827,427)
Less: Other intangibles
(11,875)
(13,440)
Total tangible common
equity
$
5,692,043
$
5,298,624
Return on average tangible common equity
10.63
%
19.23
%
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities
transferred from available-for-sale to held-to-maturity.
151
RISK MANAGEMENT
Market / Interest Rate Risk
The financial results and capital levels of the
Corporation are constantly exposed to market, interest
rate and liquidity risks.
Market risk
refers to the
risk of a
reduction in the
Corporation’s capital due
to changes in
the market valuation
of its assets
and/or
liabilities.
Most of the assets
subject to market valuation risk
are debt securities classified as
available-for-sale. Refer to Notes 6
and 7 to the
Consolidated Financial
Statements for
further information
on the
debt
securities available-for-sale
and
held-to-maturity portfolios.
Debt securities
classified as
available-for-sale amounted
to $17.2
billion as
of June
30, 2023.
Other assets
subject to
market risk
include loans held-for-sale, which amounted to $55 million, mortgage servicing rights (“MSRs”) which amounted to $121 million, and
securities classified as “trading”, which amounted
to $29 million, as of June 30, 2023.
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject
to various categories of interest rate risk,
including repricing, basis, yield curve and
option risks.
In managing
interest rate
risk, management may
alter the
mix of
floating and
fixed rate
assets and
liabilities, change
pricing
schedules,
adjust
maturities
through
sales
and
purchases
of
investment
securities,
and
enter
into
derivative
contracts,
among other alternatives.
Interest
rate
risk
management
is
an
active
process
that
encompasses
monitoring
loan
and
deposit
flows
complemented
by
investment and funding
activities. Effective management of
interest rate risk begins
with understanding the dynamic
characteristics
of assets and
liabilities and determining the
appropriate rate risk position
given line of
business forecasts, management objectives,
market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value
of Equity
(“EVE”). The
three methodologies
complement each
other and
are used
jointly in
the evaluation
of the
Corporation’s IRR. NII
simulation modeling is
prepared for a
five-year period, which
in conjunction with
the EVE analysis,
provides
management a better view of long-term IRR.
Net interest
income simulation analysis
performed by legal
entity and on
a consolidated basis
is a
tool used
by the
Corporation in
estimating the
potential change
in net
interest income
resulting from
hypothetical changes
in interest
rates. Sensitivity
analysis is
calculated using a simulation model which incorporates
actual balance sheet figures detailed by maturity
and interest yields or costs.
Management assesses
interest rate
risk by
comparing various
NII simulations
under different
interest rate
scenarios that
differ in
direction of interest
rate changes, the
degree of change
and the projected
shape of the
yield curve. For
example, the types
of rate
scenarios processed during the
quarter include flat
rates, implied forwards, and
parallel and non-parallel rate
shocks. Management
also performs analyses to isolate and measure basis
and prepayment risk exposures.
The asset
and liability
management group
performs validation
procedures on
various assumptions
used as
part of
the simulation
analyses as well as validations
of results on a
monthly basis. In addition, the
model and processes used to
assess IRR are subject
to independent validations according to the guidelines
established in the Model Governance and
Validation policy.
The Corporation processes NII
simulations under interest rate
scenarios in which the
yield curve is assumed
to rise and
decline by
the same
magnitude (parallel
shifts). The
rate scenarios
considered in
these market
risk simulations
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
Corporation is also subject to
basis risk in the
repricing of its assets and
liabilities, including the basis related
to using different rate
indexes for
the repricing
of assets and
liabilities, as
well as
the effect
of pricing
lags which
may be
contractual or
due to
historical
differences
in
the
timing
of
management
responses
to
changes
in
the
rate
environment.
By
their
nature,
these
forward-looking
computations are only
estimates and may
be different from
what may actually
occur in the
future. The following
table presents the
results of the simulations at June 30,
2023 and December 31, 2022, assuming a static
balance sheet and parallel changes over flat
spot rates over a one-year time horizon:
152
Table 11
- Net Interest Income Sensitivity (One Year
Projection)
June 30, 2023
December 31, 2022
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+400 basis points
$
37,928
1.76
%
$
(38,548)
(1.75)
%
+200 basis points
19,989
0.93
(18,078)
(0.82)
+100 basis points
10,831
0.50
(7,787)
(0.35)
-100 basis points
58,902
2.74
41,763
1.90
-200 basis points
85,974
4.00
78,381
3.56
As
of
June
30, 2023,
NII simulations
show the
Corporation has
a relatively
neutral sensitivity
position as
compared
to
a
slightly
liability sensitive position as of December 31, 2022. The primary reasons for the variation in sensitivity are changes in balance sheet
composition driven by an increase in
overnight Fed Funds on the asset
side and higher in Puerto
Rico public sector deposits which
are indexed
to market
rates. These
results suggest
that changes
in the
Corporation’s net
interest income
are driven
primarily by
portfolio management strategies,
variations in
balance sheet mix
and changes in
liability costs,
primarily Puerto Rico
public sector
deposits that represented $18.5 billion or 29% of deposits as of June 30, 2023. In declining rate scenarios net interest income would
increase as
the decline
in the
cost
of these
deposits generates
a greater
benefit than
the changes
in asset
yields. In
rising rate
scenarios
Popular’s
sensitivity
profile
is
also
impacted
by
its
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
now increases
in sync
with market
rates and
therefore reduce the benefit banks typically have in rising
rate environments.
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, 2023,
the Corporation held
trading securities
with a
fair value
of $29
million, representing approximately
0.04% of the
Corporation’s total
assets,
compared with
$28 million
and 0.04%,
respectively,
at December
31, 2022.
As shown
in Table
12, the
trading portfolio
consists principally
of mortgage-backed
securities and
U.S. Treasuries,
which at
June 30,
2023 were
investment
grade securities.
153
Table 12 - Trading
Portfolio
June 30, 2023
December 31, 2022
(Dollars in thousands)
Amount
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
$
15,347
5.70
%
$
14,223
5.79
%
U.S. Treasury securities
13,338
4.61
13,069
3.26
Collateralized mortgage obligations
98
5.38
160
5.51
Puerto Rico government obligations
61
0.43
64
0.45
Interest-only strips
191
12.00
207
12.00
Other (includes related trading derivatives)
125
4.76
-
-
Total
$
29,160
5.23
%
$
27,723
4.63
%
[1] Not on a taxable equivalent basis.
The Corporation’s trading activities are
limited by internal policies. For each
of the two subsidiaries, the
market risk assumed under
trading
activities
is
measured
by
the
5-day
net
value-at-risk
(“VAR”),
with
a
confidence
level
of
99%.
The
VAR
measures
the
maximum estimated loss that may occur over a
5-day holding period, given a 99% probability.
The
Corporation’s
trading
portfolio
had
a
5-day
VAR
of
approximately
$0.3
million
for
the
last
week
in
June
2023.
There
are
numerous assumptions
and estimates
associated with
VAR
modeling, and
actual results
could differ
from these
assumptions and
estimates. Backtesting is
performed to compare
actual results
against maximum estimated
losses, in order
to evaluate
model and
assumptions accuracy.
In the opinion of management, the size and composition
of the trading portfolio does not represent
a significant source of market risk
for the Corporation.
Liquidity
The objective
of effective
liquidity management
is to
ensure that
the Corporation
has sufficient
liquidity to
meet all
of its
financial
obligations, finance
expected future
growth,
fund
planned capital
distributions and
maintain a
reasonable safety
margin for
cash
needs under
both normal
and stressed market
conditions. The Board
of Directors
is responsible
for establishing the
Corporation’s
tolerance for liquidity risk,
including approving relevant risk limits and
policies. The Board of
Directors has delegated the monitoring
of
these risks
to
the Board’s
Risk Management
Committee and
the Asset/Liability
Management Committee.
The management
of
liquidity
risk,
on
a
long-term
and
day-to-day
basis,
is
the
responsibility
of
the
Corporate
Treasury
Division.
The
Corporation’s
Corporate
Treasurer
is
responsible
for
implementing
the
policies
and
procedures
approved
by
the
Board
of
Directors
and
for
monitoring
the
Corporation’s
liquidity
position
on
an
ongoing
basis.
Also,
the
Corporate
Treasury
Division coordinates
corporate
wide
liquidity
management
strategies
and
activities
with
the
reportable
segments,
oversees
policy
breaches
and
manages
the
escalation process.
The
Financial and
Operational Risk
Management Division
is
responsible for
the independent
monitoring and
reporting of adherence with established policies.
An
institution’s liquidity
may be
pressured if,
for example,
it experiences
a sudden
and unexpected
substantial cash
outflow due
deposit
outflows,
whether due
to a
loss of
confidence by
depositors, or
other reasons
exogenous events
such as
the COVID-19
pandemic,
a downgrading
of its
credit rating,
or some
other event
that causes
counterparties to
avoid exposure
to the
institution.
Factors that the Corporation does not control, such as the
economic outlook, adverse ratings of its principal markets, perceptions of
the financial services industry and regulatory changes,
could also affect its ability to obtain funding.
The Corporation
has adopted
policies and
limits to
monitor the
Corporation’s liquidity
position and
that of
its banking
subsidiaries.
Additionally, contingency funding
plans are used to
model various stress events
of different magnitudes and
affecting different time
horizons that assist
management in evaluating
the size of
the liquidity buffers
needed if those
stress events
occur. However,
such
models
may
not
predict
accurately
how
the
market
and
customers
might
react
to
every
event,
and
are
dependent
on
many
assumptions.
154
Deposits, including
customer deposits,
brokered deposits
and public
funds deposits,
continue to
be the
most significant
source of
funds for
the Corporation,
funding
90% of
the Corporation’s
total assets
at June
30, 2023
and 91%
at December
31, 2022.
The
ratio of
total ending loans
to deposits
was
52% at June
30, 2023
and December 31,
2022.
In addition to
traditional deposits, the
Corporation maintains borrowing
arrangements, which amounted
to approximately $1.4
billion in outstanding
balances at June
30,
2023 (December 31, 2022 -
$1.4 billion). A detailed description of
the Corporation’s borrowings, including their
terms, is included in
Note
16
to
the
Consolidated
Financial
Statements.
Also,
the
Consolidated
Statements
of
Cash
Flows
in
the
accompanying
Consolidated Financial Statements provide information
on the Corporation’s cash inflows and outflows.
The
following
sections
provide
further
information
on
the
Corporation’s
major
funding
activities
and
needs,
as
well
as
the
risks
involved in these activities.
Banking Subsidiaries
Primary
sources of
funding
for the
Corporation’s
banking subsidiaries
(BPPR and
PB
or,
collectively,
“the banking
subsidiaries”)
include
retail,
commercial
and
public
sector
deposits,
brokered
deposits,
unpledged
investment
securities,
mortgage
loan
securitization and, to a lesser extent, loan sales. In
addition, the Corporation maintains borrowing facilities with the FHLB and at the
discount window
of the
Federal Reserve
Bank of
New York
(the “FRB”)
and has
a considerable
amount of
collateral pledged
that
can be used to raise funds under these facilities.
During
the
second
quarter
of
2023
the
Corporation
had
no
material
incremental
use
of
its
available
liquidity
sources.
At
June
30,2023,
the
Corporation’s
available
liquidity
increased
to
$20.1
billion
from
$17.0
billion
on
December
31,
2022.
The
liquidity
sources of the Corporation at June 30,2023 are
presented in Table 13:
155
Table 13 - Liquidity Sources
30-Jun-23
31-Dec-22
(Dollars in thousands)
BPPR
Popular U.S.
Total
BPPR
Popular U.S.
Total
Unpledged securities and unused funding
sources:
Money market (excess funds at the
Federal Reserve Bank)
$
7,664,753
$
922,564
$
8,587,317
$
5,240,100
$
367,966
$
5,608,066
Unpledged securities
4,743,373
259,038
5,002,411
7,494,189
326,599
7,820,788
FHLB borrowing capacity
2,044,073
1,376,597
3,420,670
1,389,579
722,005
2,111,584
Discount window of the Federal Reserve
Bank borrowing capacity
1,438,473
1,688,795
3,127,268
1,090,308
329,385
1,419,693
Total available liquidity
$
15,890,672
$
4,246,994
$
20,137,666
$
15,214,176
$
1,745,955
$
16,960,131
Refer
to
Note
16
to
the
Consolidated
Financial
Statements
for
additional
information
of
the
Corporation’s
borrowing
facilities
available through its banking subsidiaries.
The principal
uses of
funds for
the banking
subsidiaries include
loan originations,
investment portfolio
purchases, loan
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
banking subsidiaries assume liquidity
risk related to collateral
posting requirements for certain
activities mainly
in
connection
with
contractual
commitments,
recourse
provisions,
servicing
advances,
derivatives
and
credit
card
licensing
agreements.
The banking
subsidiaries maintain
sufficient funding
capacity to
address large
increases in
funding requirements
such as
deposit
outflows.
The
Corporation has
established
liquidity
guidelines
that
require
the
banking
subsidiaries
to
have
sufficient
liquidity
to
cover all short-term borrowings and a portion of deposits.
The Corporation’s ability to compete
successfully in the marketplace for
deposits, excluding brokered deposits, depends on various
factors, including pricing, service, convenience
and financial stability as
reflected by operating results and
financial condition, credit
ratings (by
nationally recognized credit
rating agencies), customer
confidence, and
importantly,
FDIC deposit
insurance coverage.
Deposits at all of the Corporation’s banking subsidiaries are federally insured
(subject to FDIC limits) and this is expected to mitigate
the potential effect of the aforementioned risks.
Deposits are
a key
source of
funding. Refer
to Table
8 for
a breakdown
of deposits
by major
types. Core
deposits are
generated
from a large base of consumer,
corporate and public sector customers. Core deposits include certificate of
deposit under $250,000,
all
interest-bearing
transactional
deposit
accounts,
non-interest
bearing
deposits,
and
savings
deposits.
Core
deposits
exclude
brokered deposits and certificate of
deposits over $250,000.
Core deposits,
excluding P.R.
public funds that are
fully collateralized,
have
historically
provided
the
Corporation with
a
sizable
source
of
relatively stable
and
low-cost funds.
P.R.
public funds,
while
linked to
market interest
rates, provide
a stable
source of
funding with
an attractive
earnings spread.
Core deposits
totaled $59.5
billion, or
93% of
total deposits,
at June
30, 2023,
compared with
$57.6 billion,
or 94%
of total
deposits, at
December 31,
2022.
Core deposits financed 88% of the Corporation’s earning
assets at June 30, 2023, compared with 90%
at December 31, 2022.
The distribution by maturity of certificates of deposits with denominations of $250,000 and over at
June 30, 2023 is presented in the
table that follows:
Table 14 - Distribution by
Maturity of Certificate of Deposits of $250,000 and Over
(In thousands)
3 months or less
$
1,977,877
Over 3 to 12 months
672,916
Over 1 year to 3 years
202,715
Over 3 years
157,780
Total
$
3,011,288
156
The
Corporation
had
$1.5
billion
in
brokered
deposits
at
June
30,
2023,
which
financed
approximately
2%
of
its
total
assets
(December 31, 2022 -
$1.1 billion and 2%,
respectively).
In the event that
any of the Corporation’s
banking subsidiaries’ regulatory
capital
ratios fall
below those
required by
a well-capitalized
institution or
are subject
to capital
restrictions by
the regulators,
that
banking subsidiary faces
the risk of
not being able
to raise or
maintain brokered deposits
and faces limitations
on the rate
paid on
deposits, which
may hinder
the Corporation’s
ability to
effectively compete
in its
retail markets
and could
affect its
deposit raising
efforts.
Deposits from the public
sector represent
an important source of funds
for the Corporation. As
of June 30, 2023, total
public sector
deposits were $18.5 billion,
compared to $15.8 billion at December 31, 2022. Generally, these deposits require that the bank pledge
high credit quality securities as collateral;
therefore, liquidity risks arising from public sector deposit outflows are lower given that the
bank receives its
collateral in return.
This, now unpledged,
collateral can either
be financed via
repurchase agreements or
sold for
cash.
However,
there
are
some
timing
differences
between
the time
the
deposit
outflow occurs
and
when the
bank receives
its
collateral. Additionally,
the Corporation mainly
utilizes fixed-rate U.S.
Treasury debt
securities as collateral.
While these securities
have limited credit risk, they are subject to market
value risk based on changes in the interest rate environment.
When interest rates
increase, the value of this collateral decreases and could result in the Corporation having to provide additional collateral to cover the
same
amount
of
deposit
liabilities.
This
additional
collateral
could
reduce
unpledged
securities
otherwise
available
as
liquidity
sources to the Corporation.
At June 30, 2023,
management believes that the banking subsidiaries
had sufficient current and projected
liquidity sources to meet
their
anticipated
cash
flow
obligations,
as
well
as
special
needs
and
off-balance
sheet
commitments,
in
the
ordinary
course
of
business and have sufficient
liquidity resources to address a
stress event. Although the
banking subsidiaries have historically been
able to replace
maturing deposits and advances,
no assurance can
be given that
they would be
able to replace
those funds in
the
future if the
Corporation’s financial condition
or general market
conditions were to
deteriorate. The Corporation’s
financial flexibility
will
be
severely constrained
if
the
banking subsidiaries
are
unable to
maintain access
to
funding
or
if
adequate financing
is
not
available to accommodate future financing needs at acceptable interest rates. The
banking subsidiaries also are required to deposit
cash or qualifying securities to meet margin requirements on repurchase
agreements and other collateralized borrowing facilities. To
the extent that
the value of securities
previously pledged as collateral
declines because of market
changes, the Corporation will
be
required to
deposit additional cash
or securities to
meet its
margin requirements, thereby
adversely affecting its
liquidity. Finally,
if
management
is
required
to
rely
more
heavily
on
more
expensive
funding
sources
to
meet
its
future
growth,
revenues
may
not
increase proportionately to cover costs. In this
case, profitability would be adversely affected.
The Corporation
monitors uninsured
deposits under
applicable FDIC
regulations.
Additionally,
the Corporation
monitors accounts
with balances over $250,000.
While the Corporation has a
diverse deposit base from retail, commercial,
corporate and government
clients,
as
well
as
wholesale funding
sources such
as
brokered deposits,
it
considers
balance
in
excess
of
$250,000 to
have a
higher
potential
liquidity
risk.
Table
15
reflects
the
aggregate
balance
in
deposit
accounts
in
excess
of
$250,000,
including
collateralized public funds and deposits outside of the
U.S. and its territories.
Collateralized public funds, as presented in Table
15,
represent public
deposit balances from
governmental entities in
the U.S.
and its
territories, including Puerto
Rico and the
U.S.V.I.,
that are
collateralized based
on such
jurisdictions’ applicable collateral
requirements. On
June 30,2023,
deposits with
balances in
excess
of
$250,000,
excluding
foreign
deposits
(mainly
deposits
in
the
British
Virgin
Islands)
intercompany
deposits
and
collateralized
public
funds,
were
$11.4
billion
or
21%
at
BPPR
and
$2.3
billion
or
24%
at
Popular
U.S.,
compared
to
available
liquidity sources of $ 15.9 billion at BPPR and
$ 4.2 billion at Popular U.S.
157
Table 15 - Deposits
30-Jun-23
Popular, Inc.
(Dollars in thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
24,393,322
44
%
$
6,454,716
64
%
$
30,848,038
48
%
Transactional deposits balances over
$250,000
9,263,514
17
%
2,068,584
21
%
11,332,098
18
%
Time deposits balances over $250,000
2,089,714
4
%
276,822
3
%
2,366,536
4
%
Uninsured foreign deposits
457,218
1
%
-
-
%
457,218
1
%
Collateralized public funds
18,716,276
34
%
284,652
3
%
19,000,928
30
%
Intercompany deposits
157,213
-
%
932,834
9
%
-
-
%
Total deposits
$
55,077,257
100
%
$
10,017,608
100
%
$
64,004,818
100
%
[1] Includes the first $250,000 in balances of transactional
and time deposit accounts with balances in excess
of $250,000.
31-Dec-22
Popular, Inc.
(Dollars in thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits
Deposits balances under $250,000 [1]
$
24,505,697
46
%
$
5,231,417
60
%
$
29,737,114
49
%
Transactional deposits balances over
$250,000
9,957,877
19
%
2,674,841
31
%
12,632,718
21
%
Time deposits balances over $250,000
1,920,455
4
%
167,067
2
%
2,087,522
3
%
Uninsured foreign deposits
425,855
1
%
-
-
%
425,855
1
%
Collateralized public funds
16,233,342
31
%
110,676
1
%
16,344,018
27
%
Intercompany deposits
135,172
-
%
482,167
6
%
-
-
%
Total deposits
$
53,178,398
100
%
$
8,666,168
100
%
$
61,227,227
100
%
[1] Includes the first $250,000 in balances of transactional
and time deposit accounts with balances in excess
of $250,000.
Bank Holding Companies
The principal
sources of
funding for
the BHCs,
which are
Popular,
Inc.
(holding company
only) and
PNA, include
cash on
hand,
investment
securities,
dividends
received from
banking
and
non-banking subsidiaries,
asset sales,
credit
facilities
available from
affiliate banking subsidiaries and proceeds from potential securities offerings.
Dividends from banking and non-banking subsidiaries
are subject to various regulatory limits
and authorization requirements that are further described
below and that may limit the
ability
of those subsidiaries to act as a source of
funding to the BHCs.
The
principal
use
of
these
funds
includes
the
repayment
of
debt,
and
interest
payments
to
holders
of
senior
debt
and
junior
subordinated
deferrable
interest
(related
to
trust
preferred
securities),
the
payment
of
dividends
to
common
stockholders,
repurchases of the Corporation’s securities and capitalizing its
banking subsidiaries.
The outstanding balance
of notes payable
at the
BHCs amounted to
$891 million at
June 30,
2023 and $497
million at December
31, 2022.
The contractual maturities of the BHCs notes payable
at June 30, 2023 are presented in Table 16.
158
Table 16
- Distribution of BHC's Notes Payable by Contractual
Maturity
Year
(In thousands)
2023
$
299,743
Later years
591,674
Total
$
891,417
The Corporation’s 6.125% unsecured senior debt securities mature in September of 2023. As of June 30, 2023, the BHCs had cash
and money
markets investments
totaling $657
million and
borrowing potential
of $211
million from
its secured
facility with
BPPR.
The BHCs’
liquidity position continues to be adequate with sufficient cash
on hand, investments and other sources of liquidity which
are expected to be enough to meet all interest payments and
dividend obligations during the foreseeable future. On
March 13, 2023,
the Corporation
issued $400
million aggregate
principal amount
of 7.25%
Senior Notes
due 2028
(the “Notes”)
in an
underwritten
public offering. The Corporation will use a portion of the
net proceeds of the 2028 Notes offering to redeem,
on August 14, 2023 the
outstanding
$300
million
aggregate
principal
amount
of
its
outstanding
6.125%
Senior
Notes
due
September
2023.
For
the
remainder of
year 2023,
debt service
at
the BHCs
is approximately
$24 million,
including $2
million from
the 6.125%
unsecured
senior
debt
which
will
be
redeemed on
August
14,
- Additionally,
the
Corporation’s
latest
quarterly dividend
was
$0.55
per
share or approximately $40 million per quarter.
The BHCs have in
the past borrowed in the
corporate debt market primarily to finance
their non-banking subsidiaries and refinance
debt obligations. These
sources of funding
are more costly
due to the
fact that two
out of the
three principal credit
rating agencies
rate the Corporation below “investment grade”, which
affects the Corporation’s cost and
ability to raise funds in
the capital markets.
Factors that the Corporation
does not control, such
as the economic outlook,
interest rate volatility,
inflation, disruptions in the
debt
market, among others,
could also affect
its ability to
obtain funding. The
Corporation has an
automatic shelf registration
statement
filed and effective
with the Securities and Exchange
Commission, which permits the Corporation
to issue an
unspecified amount of
debt or equity securities.
Non-Banking Subsidiaries
The
principal
sources
of
funding
for
the
non-banking
subsidiaries
include
internally
generated
cash
flows
from
operations,
loan
sales, repurchase agreements, capital
injections and borrowed funds
from their direct
parent companies or the
holding companies.
The principal uses of funds for the non-banking
subsidiaries include repayment of maturing debt,
operational expenses and payment
of dividends to the
BHCs. The liquidity needs
of the non-banking subsidiaries
are minimal since most
of them are
funded internally
from
operating cash
flows
or from
intercompany borrowings
or capital
contributions from
their holding
companies. During
the six
months ended June 30, 2023, Popular, Inc. made capital contributions of $1.3 million to its wholly owned subsidiary,
Popular Impact
Fund.
Dividends
During
the
six
months
ended June
30,
2023,
the
Corporation declared
cash
dividends of
$1.10
per
common
share
outstanding
($79.2 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, 2023, the BHCs received dividends amounting to $100 million from BPPR, $50 million from PNA and
$4
million from
its non-banking subsidiaries.
In addition,
during the
six months ended
June 30,
2023, Popular International
Bank Inc.,
wholly
owned
subsidiary
of
Popular,
Inc.,
received
$14.1
million
in
cash
dividends
and
$2.1
million
in
stock
dividends
from
its
investment in BHD. Dividends from BPPR constitute
Popular, Inc.’s primary source of liquidity.
Other Funding Sources and Capital
In
addition to
cash
reserves held
at
the
FRB
that
totaled $
8.6
billion at
June
30,2023,
the
debt securities
portfolio provides
an
additional
source
of
liquidity,
which
may
be
realized
through
either
securities
sales,
collateralized
borrowings
or
repurchase
agreements.
The
Corporation’s
debt
securities
portfolio
consists
primarily
of
liquid
U.S.
government
debt
securities,
U.S.
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 $ 5.0 billion
at June 30, 2023 and $ 7.8 billion at December
31, 2022. A substantial portion of
these
debt
securities
could
be
used
to
raise
financing
in
the
U.S.
money
markets
or
from
secured
lending
sources,
subject
to
changes in their fair market value and customary adjustments
(haircuts).
159
Additional liquidity may
be provided through
loan maturities, prepayments
and sales. The
loan portfolio can
also be used
to obtain
funding in the capital markets. In particular,
mortgage loans and some types of consumer loans, have
secondary markets which the
Corporation could use.
Off-Balance Sheet arrangements and other commitments
In the ordinary course
of business, the Corporation
engages in financial transactions that
are not recorded on
the balance sheet or
may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a
provider of
financial services,
the Corporation
routinely enters
into commitments
with off-balance
sheet risk
to meet
the financial
needs of
its customers. These
commitments may include
loan commitments and
standby letters of
credit. These commitments
are
subject
to
the
same
credit
policies
and
approval
process
used
for
on-balance
sheet
instruments.
These
instruments
involve,
to
varying degrees, elements
of credit and
interest rate risk
in excess of
the amount recognized
in the statement
of financial position.
Refer to
Note 21
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
28
to
the
Consolidated Financial Statements for information on operating leases and
to Note 20 to the
Consolidated Financial Statements for
a
detailed
discussion
related
to
the
Corporation’s
obligations
under
credit
recourse
and
representation
and
warranties
arrangements.
The Corporation monitors its cash requirements, including
its contractual obligations and debt commitments.
FDIC Special Assessments
On
May
11,
2023,
the
Federal
Deposit
Insurance
Corporation
(“FDIC”)
released
a
proposed
rule
that
would
impose
special
assessments
to
recover
the
losses
to
the
deposit
insurance
fund
(“DIF”)
resulting
from
the
FDIC’s
use,
in
March
2023,
of
the
systemic risk exception to the least-cost resolution test under
the Federal Deposit Insurance Act in connection with the receiverships
of Silicon Valley Bank and Signature Bank.
The
FDIC
stated
that
it
currently
estimates
those
assessed
losses
to
total
$15.8
billion
and
that
the
amount
of
the
special
assessments would be adjusted as the loss
estimate changes. Under the proposed rule, the assessment base would
be an insured
depository institution’s (“IDI”)
estimated uninsured deposits, as
reported in the
IDI’s December 31,
2022 Call Report,
excluding the
first
$5
billion
in
estimated
uninsured
deposits.
For
a
holding
company
that
has
more
than
one
IDI
subsidiary,
such
as
the
Corporation, the $5 billion exclusion would be
allocated among the company’s IDI subsidiaries
in proportion to each IDI’s
estimated
uninsured deposits. The special assessments would be collected at
an annual rate of approximately 12.5 basis points per year (3.13
basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024 (with
the
first
assessment
payment
due
by
June
28,
2024).
Under
the
proposed
rule,
the
estimated
loss
pursuant
to
the
systemic
risk
determination
would be
periodically adjusted,
and
the
FDIC
would retain
the
ability to
cease
collection
early,
extend the
special
assessment collection period and impose
a final shortfall special assessment
on a one-time basis. In
their December 31, 2022
Call
Reports, BPPR and PB reported estimated uninsured deposits of approximately $28.1 billion and $3.5 billion, respectively.
Although
the proposal could be changed, the assessments, as proposed, would
be recorded as an expense in the period in which this
change
is enacted.
Such expense
would significantly affect
noninterest expense and
the results
of operations for
the quarter
in which
it is
recognized. If the
final rule is
adopted as proposed,
the special assessment
for the
Corporation is estimated
at approximately $66
million. The actual assessment may vary as a result
of the final rule, including any changes to the calculation
methodology.
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
160
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,
2023
and
December
31,
2022,
and
the
results
of
their
operations
for
the
period
ended
June
30,
2023
and
June
30,
2022.
Investments in and
equity in the
earnings from the
other subsidiaries and
affiliates that are
not members of
the obligor group
have
been excluded.
The
summarized
financial
information
of
the
obligor
group
is
presented
on
a
combined
basis
with
intercompany
balances
and
transactions
between
entities
in
the
obligor
group
eliminated.
The
obligor
group's
amounts
due
from,
amounts
due
to
and
transactions with
subsidiaries and
affiliates
have been
presented in
separate line
items, if
they are
material.
In
addition, related
parties transactions are presented separately.
161
Table 17 - Summarized Statement
of Condition
(In thousands)
June 30, 2023
December 31, 2022
Assets
Cash and money market investments
$
657,413
$
203,083
Investment securities
28,662
24,815
Accounts receivables from obligor subsidiaries
16
-
Accounts receivables from non-obligor subsidiaries
22,106
16,853
Other loans (net of allowance for credit losses of $155 (2022
- $370))
27,427
27,826
Investment in equity method investees
5,271
5,350
Other assets
52,863
45,278
Total assets
$
793,758
$
323,205
Liabilities and Stockholders' deficit
Accounts payable to obligor subsidiaries
16
-
Accounts payable to non-obligor subsidiaries
$
5,454
$
3,709
Notes payable
891,416
497,428
Other liabilities
114,236
112,847
Stockholders' deficit
(217,364)
(290,779)
Total liabilities and
stockholders' deficit
$
793,758
$
323,205
Table 18 - Summarized Statement
of Operations
For the quarters ended
(In thousands)
June 30, 2023
June 30, 2022
Income:
Dividends from non-obligor subsidiaries
$
104,000
$
454,000
Interest income from non-obligor subsidiaries and affiliates
6,950
399
(Losses) earnings from investments in equity method investees
(78)
14,995
Other operating income (expense)
2,585
(2,669)
Total income
$
113,457
$
466,725
Expenses:
Services provided by non-obligor subsidiaries and affiliates
(net of
reimbursement by subsidiaries for services provided by parent
of
$112,210 (2022 - $98,651))
$
10,898
$
8,003
Other operating expenses
13,358
7,738
Total expenses
$
24,256
$
15,741
Net income
$
89,201
$
450,984
During the six months ended June 30,
2022, the obligor group recorded $1.2 million of
dividend distributions from its direct
equity method investees.
Risks to Liquidity
Total lines of credit outstanding, or available borrowing capacity under lines of credit are not necessarily
a measure of the total credit
available
on
a
continuing
basis.
Some
of
these
lines
could
be
subject
to
collateral
requirements,
changes
to
the
value
of
the
162
collateral, standards of
creditworthiness, leverage ratios
and other regulatory
requirements, among other factors.
Derivatives, such
as
those
embedded
in
long-term
repurchase
transactions
or
interest
rate
swaps,
and
off-balance
sheet
exposures,
such
as
recourse, performance bonds
or credit card
arrangements, are subject
to collateral requirements.
As their fair
value increases, the
collateral requirements may increase, thereby reducing
the balance of unpledged securities.
The importance of
the Puerto Rico
market for the
Corporation is an
additional risk factor
that could affect
its financing activities.
In
the case
of a
deterioration in economic
and fiscal conditions
in Puerto Rico,
the credit quality
of the
Corporation could be
affected
and result
in higher
credit costs.
Refer to
the Geographic
and Government
Risk section
of this
MD&A for
some highlights
on the
current status of the Puerto Rico economy and the ongoing
fiscal crisis.
Factors that the Corporation does not control, such as the economic
outlook and credit ratings of its principal markets and regulatory
changes,
could also
affect
its
ability to
obtain funding.
In
order to
prepare for
the
possibility of
such scenario,
management
has
adopted
contingency
plans
for
raising
financing
under
stress
scenarios
when
important
sources
of
funds
that
are
usually
fully
available
are
temporarily
unavailable. These
plans call
for
using
alternate
funding
mechanisms,
such
as
the
pledging
of
certain
asset classes
and accessing
secured credit
lines and
loan facilities
put in
place with
the FHLB
and the
FRB. The
Corporation is
subject to
positive tangible
capital
requirements to
utilize secured
loan facilities
with the
FHLB that
could
result in
a limitation
of
borrowing amounts or maturity terms, even if the Corporation
exceeds well-capitalized regulatory capital levels.
The credit
ratings of
Popular’s debt
obligations are
a relevant
factor for
liquidity because
they impact
the Corporation’s
ability to
borrow
in
the
capital
markets,
its
cost
and
access
to
funding
sources.
Credit
ratings
are
based
on
the
financial
strength,
credit
quality and
concentrations in
the loan
portfolio, the
level and
volatility of
earnings, capital
adequacy,
the quality
of management,
geographic concentration
in Puerto
Rico, the
liquidity of
the balance
sheet, the
availability of
a significant
base of
core retail
and
commercial deposits, and the Corporation’s ability to access
a broad array of wholesale funding sources,
among other factors.
Furthermore,
various
statutory
provisions
limit
the
amount
of
dividends
an
insured
depository
institution
may
pay
to
its
holding
company without
regulatory approval. A
member bank must
obtain the
approval of
the Federal
Reserve Board
for any
dividend, if
the total
of all
dividends declared
by the
member bank
during the
calendar year
would exceed
the total
of its
net income
for that
year,
combined with
its retained
net income
for the
preceding two
years, after
considering those
years’ dividend
activity,
less any
required transfers
to surplus
or to
a fund
for the
retirement of
any preferred
stock.
During
the six
months ended
June 30,
2023,
BPPR
declared
cash
dividends
of
$100
million.
At
June
30,
2023,
BPPR
can
declare
a
dividend
of
approximately
$335
million
without prior approval of the
Federal Reserve Board due to
its retained income, declared dividend activity and
transfers to statutory
reserves over the measurement period. In addition, a member bank may not declare or pay a dividend in an amount greater than its
undivided
profits
as
reported
in
its
Report
of
Condition
and
Income,
unless
the
member
bank
has
received
the
approval
of
the
Federal
Reserve
Board.
A
member
bank
also
may
not
permit
any
portion
of
its
permanent
capital
to
be
withdrawn
unless
the
withdrawal
has
been
approved
by
the
Federal
Reserve
Board.
Pursuant
to
these
requirements,
PB
may
not
declare
or
pay
a
dividend without
the prior
approval of
the Federal
Reserve Board
and the
NYSDFS. The
ability of
a bank
subsidiary to
up-stream
dividends to its BHC could
thus be impacted by
its financial performance and capital, including
tangible and regulatory capital, thus
potentially limiting
the amount
of cash
moving up
to the
BHCs from
the banking
subsidiaries. This
could, in
turn, affect
the BHCs
ability to declare dividends on its outstanding common and preferred stock, repurchase its securities or meet its debt obligations, for
example.
The Corporation’s banking subsidiaries have historically not
used unsecured capital market borrowings to finance
its operations, and
therefore are less sensitive to the level and
changes in the Corporation’s overall credit ratings.
Obligations Subject to Rating Triggers or Collateral Requirements
The
Corporation’s
banking
subsidiaries
currently
do
not
issue
unsecured
senior
debt,
as
these
banking
subsidiaries
are
funded
primarily with
deposits and
secured borrowings.
The banking
subsidiaries had
$7.8 million
in deposits
at June
30, 2023
that are
subject to rating triggers.
In addition,
certain mortgage servicing
and custodial agreements
that BPPR
has with
third parties
include rating covenants.
In the
event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for
escrow
deposits
and/or
increase
collateral
levels
securing
the
recourse
obligations.
Also,
as
discussed
in
Note
20
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 $26.2 million at June 30, 2023. The Corporation could be required to
post additional collateral under the agreements.
163
Management expects that it would be able to
meet additional collateral requirements if and when needed. The requirements to post
collateral under certain agreements or
the loss of escrow deposits
could reduce the Corporation’s liquidity
resources and impact its
operating results.
Credit Risk
Geographic and Government Risk
The Corporation is exposed to geographic and government risk.
The Corporation’s assets and revenue composition by geographical
area and by business segment reporting are presented
in Note 33 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A
significant portion
of
our financial
activities and
credit
exposure is
concentrated in
the
Commonwealth of
Puerto Rico
(“Puerto
Rico”), which has faced severe economic and fiscal
challenges in the past and may face additional
challenges in the future.
Economic Performance.
Puerto
Rico’s
economy suffered
a
severe and
prolonged recession
from
2007
to
2017,
with real
gross national
product (“GNP”)
contracting approximately 15%
during this period.
In 2017, Hurricane
María caused significant
damage and destruction
across the
island, resulting in further economic contraction. Puerto Rico’s
economy has been gradually recovering since 2018, in
part aided by
the large amount
of federal disaster
relief and recovery
assistance funds injected
into the Puerto
Rico economy in
connection with
Hurricane María
and other
recent natural
disasters. This
growth was
interrupted by
the economic
shock caused
by the
COVID-19
pandemic in 2020, but has since resumed, in part
aided by additional federal assistance from
pandemic-related stimulus measures.
The
latest
Puerto
Rico
Economic Activity
Index,
published
by
the
Economic
Development Bank
for
Puerto
Rico
(the
“Economic
Activity
Index”),
reflected
a
3.0%
year-over-year
increase
and
a
0.4%
month-over-month
increase
in
June
2023.
The
Economic
Activity Index is a coincident indicator of ongoing economic activity but not a direct measurement of real GNP. In February 2023, the
Puerto Rico
Planning Board
revised its
real GNP
forecast for
the current
fiscal year
(July 2022-June
2023) from
1.7% growth
to
0.7% growth, citing an anticipated deacceleration in the
global economy.
While the
Puerto Rico
economy has
not directly
tracked the
United States
economy in
recent years,
many of
the external
factors
that impact
the Puerto
Rico economy
are affected
by the
policies and performance
of the
United States
economy.
These external
factors include
the level
of interest
rates and
the rate
of inflation.
Inflation in
the United
States, as
measured by the
United States
Consumer Price Index
(published by the
U.S. Bureau of
Labor Statistics), increased
3.0% during the
12-month period ended
June
2023.
Inflation in Puerto Rico,
as measured by the
Puerto Rico Consumer Price
Index (published by the
Department of Labor and
Human Resources of
Puerto Rico), increased
2.3%
during the 12-month
period ended June
- The rate
of inflation has
slowed
down in
recent months,
following a
mid-2022 peak,
as the
Federal Reserve
has implemented
a series
of benchmark
interest rate
increases. The speed and scope of the inflation slowdown
will inform if and how much interest rates will
continue to increase, as well
how these changes will impact the United States
and Puerto Rico economies.
Fiscal Challenges.
As the
Puerto Rico
economy contracted, the
government’s public
debt rose
rapidly,
in part
from borrowing to
cover deficits
to pay
debt service,
pension benefits and
other government expenditures.
By 2016,
the Puerto
Rico government had
over $120
billion in
combined debt and unfunded pension liabilities, had
lost access to the capital markets, and was in
the midst of a fiscal crisis.
Puerto
Rico’s
escalating fiscal
and economic
challenges
and imminent
widespread defaults
in
its
public debt
prompted the
U.S.
Congress to
enact the
Puerto Rico
Oversight, Management,
and Economic
Stability Act
(“PROMESA”) in
June 2016.
PROMESA
created the “Oversight Board” with ample powers over Puerto Rico’s fiscal and economic affairs and those of its public corporations,
instrumentalities and municipalities (collectively,
“PR Government Entities”). Pursuant
to PROMESA, the
Oversight Board will be
in
place
until
market
access
is
restored
and
balanced
budgets
are
produced
for
at
least
four
consecutive
years.
PROMESA
also
established two
mechanisms for
the restructuring
of the
obligations of
PR Government
Entities: (a)
Title III,
which provides
an in-
164
court process that incorporates many of the
powers and provisions of the U.S. Bankruptcy Code
and permits adjustment of a broad
range of obligations, and
(b) Title VI,
which provides for a
largely out-of-court process through which
modifications to financial debt
can be accepted by a supermajority of creditors
and bind holdouts.
Since 2017, Puerto Rico and several
of its instrumentalities have availed themselves
of the debt restructuring mechanisms of Titles
III and VI of PROMESA. The Puerto Rico government emerged from Title III of PROMESA in March 2022. Several instrumentalities,
including Government
Development Bank for
Puerto Rico,
the Puerto
Rico Sales
Tax
Financing Corporation, and
the Puerto
Rico
Highways
and
Transportation
Authority,
have
also
completed
debt
restructurings
under
Titles
III
or
VI
of
PROMESA.
While
the
majority
of
the
debt
has
already
been
restructured,
some
PR
Government
Entities
still
face
significant
fiscal
challenges.
For
example, the
Puerto Rico
Electric Power
Authority is
still in
the process
of restructuring
its debts
under Title
III of
PROMESA and
other PR Government
Entities, such as
the Puerto Rico
Industrial Development Company,
have defaulted on
their bonds but
have
not commenced debt restructuring proceedings under
PROMESA.
Municipalities.
Puerto Rico’s fiscal and economic challenges have
also adversely impacted its municipalities. Budgetary subsidies to municipalities
have
gradually
declined
in
recent
years
and
are
scheduled
to
be
ultimately
eliminated
by
fiscal
year
2025
as
part
of
the
fiscal
measures
required
by
the
Oversight
Board.
According
to
the
latest
Puerto
Rico
fiscal
plan
certified
by
the
Oversight
Board,
municipalities
have
made
little
to
no
progress
towards
implementing
the
fiscal
discipline
required
to
reduce
reliance
on
these
budgetary appropriations and this
lack of fiscal
management may threaten the
ability of certain
municipalities to provide
necessary
services, such as health, sanitation, public safety
and emergency services to their residents, forcing them
to prioritize expenditures.
Municipalities
are
subject
to
PROMESA
and,
at
the
Oversight
Board’s
request,
are
required
to
submit
fiscal
plans
and
annual
budgets
to
the
Oversight
Board
for
its
review
and
approval.
They
are
also
required to
seek
Oversight
Board
approval
to
issue,
guarantee
or
modify
their
debts
and
to
enter
into
contracts
with an
aggregate
value
of
$10
million
or
more.
With
the
Oversight
Board’s approval, municipalities are also eligible to avail themselves of the debt restructuring processes provided by PROMESA. To
date, however, no municipality has been subject to any such debt
restructuring process.
Exposure of the Corporation
The credit
quality of BPPR’s
loan portfolio
reflects, among other
things, the
general economic conditions
in Puerto
Rico and
other
adverse conditions affecting Puerto
Rico consumers and businesses.
Deterioration in the Puerto
Rico economy has resulted
in the
past, and could
result in the future,
in higher delinquencies, greater
charge-offs and increased losses,
which could materially affect
our financial condition and results of operations.
At June
30, 2023,
the Corporation’s
direct exposure
to
PR Government
Entities totaled
$380 million,
of
which $351
million were
outstanding, compared
to
$374 million
at
December 31,
2022, of
which $327
million
were outstanding.
A
deterioration in
Puerto
Rico’s fiscal and
economic situation could adversely
affect the value
of our Puerto
Rico government obligations, resulting
in losses
to
us.
Of
the
amount
outstanding,
$325
million
consists
of
loans
and
$26
million
are
securities
($302
million
and
$25
million,
respectively,
at December
31, 2022).
All of
the Corporation’s
direct exposure
outstanding at
June 30,
2023 were
obligations from
various
Puerto
Rico
municipalities.
In
most
cases,
these
were
“general
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged its
good
faith, credit
and unlimited
taxing power,
or
“special obligations”
of
a municipality,
to
which the
applicable municipality has pledged basic property
tax or sales tax
revenues. At June 30, 2023,
74% of the Corporation’s exposure
to
municipal
loans
and
securities
was
concentrated
in
the
municipalities
of
San
Juan,
Guaynabo,
Carolina
and
Caguas.
For
additional discussion of the Corporation’s direct exposure to the Puerto
Rico government and its instrumentalities and municipalities,
refer to Note 21 – Commitments and Contingencies
to the Consolidated Financial Statements.
In addition,
at June
30, 2023,
the Corporation had
$240 million
in loans
insured or
securities issued by
Puerto Rico
governmental
entities, but for
which the principal source
of repayment is
non-governmental ($251 million at December 31, 2022).
These included
$199 million in
residential mortgage loans insured
by the Puerto
Rico Housing Finance Authority
(“HFA”), a
PR Government Entity
(December 31, 2022 - $209 million). These mortgage loans are secured by first mortgages on Puerto
Rico residential properties and
the
HFA
insurance
covers
losses
in
the
event
of
a
borrower
default
and
upon
the
satisfaction
of
certain
other
conditions.
The
Corporation also had at June 30, 2023, $40 million in bonds issued by HFA which are secured by second mortgage loans on Puerto
Rico residential properties, and for which
HFA also provides insurance
to cover losses in the
event of a borrower default,
and upon
the satisfaction of certain
other conditions (December 31, 2022
- $42 million). In
the event that the
mortgage loans insured by
HFA
and
held
by
the
Corporation directly
or
those
serving
as
collateral for
the
HFA
bonds
default and
the
collateral
is
insufficient
to
satisfy the outstanding balance of these loans, HFA’s
ability to honor its insurance will depend, among other factors, on the financial
165
condition
of
HFA
at
the
time
such
obligations
become
due
and
payable.
The
Corporation
does
not
consider
the
government
guarantee when estimating the credit losses associated
with this portfolio.
BPPR’s
commercial loan
portfolio also
includes loans
to
private borrowers
who
are service
providers, lessors,
suppliers or
have
other relationships with the government. These borrowers could be negatively
affected by a deterioration in the fiscal and
economic
situation
of
PR
Government
Entities.
Similarly,
BPPR’s
mortgage
and
consumer
loan
portfolios
include
loans
to
government
employees
and
retirees,
which
could
also
be
negatively
affected
by
fiscal
measures,
such
as
employee
layoffs
or
furloughs
or
reductions in pension benefits, if the fiscal and economic
situation deteriorates.
As of June
30, 2023, BPPR had
$18.5 billion in deposits from
the Puerto Rico government, its
instrumentalities, and municipalities.
The
rate
at
which
public
deposit
balances
may
decline is
uncertain and
difficult
to
predict.
The
amount
and
timing
of
any
such
reduction is
likely to
be impacted
by,
for example,
the speed
at which
federal assistance
is distributed
and the
financial condition,
liquidity and cash management practices of such entities,
as well as on the ability of BPPR to maintain
these customer relationships.
The
Corporation may
also have
direct
exposure with
regards to
avoidance and
other causes
of
action initiated
by the
Oversight
Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 21
to the Consolidated Financial Statements.
United States Virgin Islands
The
Corporation
has
operations
in
the
United
States
Virgin
Islands
(the
“USVI”)
and
has
credit
exposure
to
USVI
government
entities.
The USVI has
been experiencing a
number of fiscal
and economic challenges,
which could adversely
affect the
ability of its
public
corporations and instrumentalities to service their outstanding
debt obligations. PROMESA does not apply to the USVI
and, as such,
there
is
currently
no
federal
legislation
permitting
the
restructuring
of
the
debts
of
the
USVI
and
its
public
corporations
and
instrumentalities.
To
the extent that
the fiscal condition
of the USVI
continues to deteriorate, the
U.S. Congress or the
Government of the
USVI may
enact legislation allowing for the restructuring of the
financial obligations of USVI government entities or imposing a
stay on creditor
remedies, including by making PROMESA applicable
to the USVI.
At June
30, 2023,
the Corporation
had approximately
$28 million
in direct
exposure to
USVI government
entities (December
31,
2022 - $28 million).
British Virgin Islands
The
Corporation has
operations
in
the
British Virgin
Islands
(“BVI”),
which
was
negatively
affected by
the
COVID-19
pandemic,
particularly as
a reduction
in the
tourism activity
which accounts
for a
significant portion
of its
economy.
Although the
Corporation
has no
significant exposure
to a
single borrower
in the
BVI, at
June 30,
2023, it
has a
loan portfolio
amounting to
approximately
$207 million comprised of various retail and commercial
clients, compared to a loan portfolio of $214 million
at December 31, 2022.
U.S. Government
As further detailed in Notes
6 and 7 to the
Consolidated Financial Statements, a substantial portion of the
Corporation’s investment
securities
represented exposure
to
the
U.S.
Government in
the
form
of
U.S. Government
sponsored entities,
as
well
as
agency
mortgage-backed and U.S. Treasury securities. In addition, $1.6 billion
of residential mortgages, $12 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $71 million
commercial loans were insured or guaranteed by
the U.S. Government or its
agencies at June 30, 2023 (compared to $1.6
billion, $38 million and $72 million, respectively, at December 31, 2022).
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 21.
During the second
quarter of
2023, the Corporation
continued to show
favorable credit quality
trends with
low levels of
NCOs and
decreasing NPLs.
We continue
to closely
monitor changes
in the
macroeconomic environment
and borrower
performance, given
166
inflationary
pressures and
geopolitical
risks.
However,
management believes
that
the
improvement over
recent years
in
the
risk
profile of the Corporation’s loan portfolios positions
Popular to operate successfully under the current environment.
Total
NPAs
decreased
by
$57
million
when
compared
with
December
31,
2022.
Total
non-performing
loans
held-in-portfolio
(“NPLs”)
decreased
by
$54
million
from
December
31,
2022.
BPPR’s
NPLs
decreased
by
$50
million,
mainly
driven
by
lower
mortgage and
consumer NPLs
by $48
million and
$16 million,
respectively,
in part
offset
by higher
construction and
commercial
NPLs by
$9 million
and $7
million, respectively.
The consumer
NPLs decrease
was mostly
driven by
a $11
million line
of credit
charge-off on a single relationship, while the construction and commercial NPLs increase
was driven by a $9 million and $14 million
loan
relationship,
respectively.
Popular
U.S.
NPLs
decreased
by
$4
million
from
December
31,
2022,
mainly
driven
by
lower
mortgage NPLs. On June
30, 2023, the ratio
of NPLs to total
loans held-in-portfolio was 1.2% compared
to 1.4%, at December
31,
- Other real estate owned loans (“OREOs”) decreased by $3 million. On June 30, 2023, NPLs secured by real estate amounted
to
$272
million
in
the
Puerto
Rico
operations
and
$27
million
in
Popular
U.S,
compared
with
$303
million
and
$33
million,
respectively, at December 31, 2022.
The Corporation’s
commercial loan
portfolio secured
by real
estate (“CRE”)
amounted to
$10.1 billion
at June
30, 2023,
of which
$3.0 billion was secured
with owner occupied properties, compared
with $9.9 billion and
$3.1 billion, respectively,
at December 31,
- Office space
leasing exposure in
our non-owner occupied
CRE portfolio is
limited, representing only
1.8% or $600
million of
our total loan portfolio.
The exposure is mainly comprised of low- to mid- rise properties with average
loan size of $2.0 million and is
well diversified across tenant type.
CRE NPLs amounted to $65 million at June 30,
2023, compared with $54 million at December
31, 2022. The CRE NPL ratios for the
BPPR
and
Popular
U.S.
segments
were
1.27%
and
0.10%,
respectively,
at
June
30,
2023,
compared
with
1.04%
and
0.12%,
respectively, at December 31, 2022.
In
addition to
the NPLs
included in
Table
21, at
June 30,
2023, there
were $350
million
of performing
loans, mostly
commercial
loans, which in management’s opinion, are currently subject to potential future classification as non-performing (December 31, 2022
- $374 million).
For
the
period
ended
June
30,
2023,
total
inflows
of
NPLs
held-in-portfolio,
excluding
consumer
loans,
remained
flat,
when
compared to the inflows for the same period in 2022. Inflows of NPLs held-in-portfolio at the BPPR segment increased slightly by $2
million, compared to the same period in 2022. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $2 million
from the same period in 2022.
167
Table 19 - Non-Performing
Assets
June 30, 2023
December 31, 2022
(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
$
88,716
$
11,610
$
100,326
0.6
%
$
82,171
$
10,868
$
93,039
0.6
%
Construction
9,284
-
9,284
1.1
-
-
-
-
Leasing
4,743
-
4,743
0.3
5,941
-
5,941
0.4
Mortgage
194,219
14,577
208,796
2.8
242,391
20,488
262,879
3.6
Auto
36,204
-
36,204
1.0
40,978
-
40,978
1.2
Consumer
19,173
6,978
26,151
0.8
30,528
6,076
36,604
1.2
Total non-performing
loans held-in-
portfolio
352,339
33,165
385,504
1.2
%
402,009
37,432
439,441
1.4
%
Other real estate owned (“OREO”)
85,924
292
86,216
88,773
353
89,126
Total non-performing
assets
[1]
$
438,263
$
33,457
$
471,720
$
490,782
$
37,785
$
528,567
Accruing loans past due 90 days or
more
[2]
$
273,150
$
177
$
273,327
$
351,248
$
366
$
351,614
Ratios:
Non-performing assets to total
assets
0.77
%
0.24
%
0.67
%
0.89
%
0.30
%
0.78
%
Non-performing loans held-in-
portfolio to loans held-in-portfolio
1.52
0.33
1.17
1.78
0.39
1.37
Allowance for credit losses to loans
held-in-portfolio
2.58
1.05
2.12
2.73
1.10
2.25
Allowance for credit losses to non-
performing loans, excluding held-for-
sale
169.19
313.86
181.63
153.12
279.86
163.91
[1] There were no non-performing loans held-for-sale
as of June 30, 2023 and December 31, 2022.
[2] It is
the Corporation’s
policy to report
delinquent residential
mortgage loans
insured by FHA
or guaranteed by
the VA
as accruing loans
past due
90 days or more as opposed to non-performing
since the principal repayment is insured.
These balances include $133 million of
residential mortgage
loans
insured
by
FHA
or
guaranteed
by
the
VA
that
are
no
longer
accruing
interest
as
of
June
30,
2023
(December
31,
2022
-
$190
million).
Furthermore, the
Corporation has
approximately
$39 million
in reverse
mortgage loans
which are
guaranteed
by FHA,
but which
are currently
not
accruing interest.
Due
to
the guaranteed
nature
of the
loans, it
is the
Corporation’s
policy
to exclude
these balances
from
non-performing
assets
(December 31, 2022 - $42 million).
168
Table 20 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the quarter ended June 30, 2023
For the six months ended June 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
315,027
$
25,767
$
340,794
$
324,562
$
31,356
$
355,918
Plus:
New non-performing loans
40,005
9,088
49,093
90,618
17,619
108,237
Advances on existing non-performing loans
-
78
78
-
143
143
Less:
Non-performing loans transferred to OREO
(9,247)
-
(9,247)
(20,120)
(58)
(20,178)
Non-performing loans charged-off
(324)
(2,175)
(2,499)
(1,500)
(2,391)
(3,891)
Loans returned to accrual status / loan collections
(53,242)
(6,571)
(59,813)
(101,341)
(20,482)
(121,823)
Ending balance NPLs
$
292,219
$
26,187
$
318,406
$
292,219
$
26,187
$
318,406
Table 21 - 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 22 - Activity in Non
-Performing Commercial Loans Held-in-Portfolio
For the quarter ended June 30, 2023
For the six months ended June 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
90,952
$
11,048
$
102,000
$
82,171
$
10,868
$
93,039
Plus:
New non-performing loans
3,203
4,631
7,834
19,797
10,350
30,147
Advances on existing non-performing loans
-
2
2
-
28
28
Less:
Non-performing loans transferred to OREO
(21)
-
(21)
(308)
-
(308)
Non-performing loans charged-off
(595)
(2,175)
(2,770)
(1,268)
(2,391)
(3,659)
Loans returned to accrual status / loan
collections
(4,823)
(1,896)
(6,719)
(11,676)
(7,245)
(18,921)
Ending balance NPLs
$
88,716
$
11,610
$
100,326
$
88,716
$
11,610
$
100,326
169
Table 23 - 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
Table 24 - Activity in Non
-Performing Construction Loans Held-in-Portfolio
For the quarter ended June 30, 2023
For the six months ended June 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
-
$
-
$
-
$
-
$
-
$
-
Plus:
New non-performing loans
9,284
-
9,284
9,284
-
9,284
Ending balance NPLs
$
9,284
$
-
$
9,284
$
9,284
$
-
$
9,284
Table 25 - 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
$
-
$
-
$
-
$
-
$
-
$
-
170
Table 26 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended June 30, 2023
For the six months ended
June 30, 2023
(Dollars in thousands)
BPPR
Popular
U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
224,075
$
14,719
$
238,794
$
242,391
$
20,488
$
262,879
Plus:
New non-performing loans
27,518
4,457
31,975
61,537
7,269
68,806
Advances on existing non-performing loans
-
76
76
-
115
115
Less:
Non-performing loans transferred to OREO
(9,226)
-
(9,226)
(19,812)
(58)
(19,870)
Non-performing loans charged-off
271
-
271
(232)
-
(232)
Loans returned to accrual status / loan
collections
(48,419)
(4,675)
(53,094)
(89,665)
(13,237)
(102,902)
Ending balance NPLs
$
194,219
$
14,577
$
208,796
$
194,219
$
14,577
$
208,796
Table 27 - 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
171
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 on June 30, 2023 and December 31, 2022,
are presented below.
Table 28 - Loan Delinquencies
(Dollars in thousands)
June 30, 2023
December 31, 2022
Loans delinquent
30 days or more
Total loans
Total delinquencies
as
a percentage of total
loans
Loans delinquent
30 days or more
Total loans
Total delinquencies
as
a percentage of total
loans
Commercial
$
123,280
$
16,368,300
0.75
%
$
119,476
$
15,739,132
0.76
%
Construction
10,254
819,903
1.25
-
757,984
-
Leasing
21,714
1,661,523
1.31
21,487
1,585,739
1.36
Mortgage
[1]
781,185
7,449,078
10.49
937,253
7,397,471
12.67
Consumer
219,293
6,732,118
3.26
216,401
6,597,443
3.28
Loans held-for-sale
-
55,421
-
-
5,381
-
Total
$
1,155,726
$
33,086,343
3.49
%
$
1,294,617
$
32,083,150
4.04
%
[1]
Loans delinquent 30 days or more includes $0.4 billion
of residential mortgage loans insured by FHA or guaranteed
by the VA as of June
30,
2023 (December 31, 2022 - $0.5 billion). Refer to Note
8 to the Consolidated Financial Statements for additional
information of guaranteed loans.
Allowance for Credit Losses Loans Held-in-Portfolio
The Corporation adopted the new CECL accounting standard effective on January 1,
- The allowance for credit losses (“ACL”),
represents management’s estimate
of expected credit
losses through the
remaining contractual life
of the
different loan
segments,
impacted by expected
prepayments. The ACL
is maintained at
a sufficient
level to provide
for estimated credit
losses on collateral
dependent
loans
as
well
as
loans
modified
to
borrowers
with
financial
difficulty,
including
legacy
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 evaluates, at
least
on an
annual basis, the
assumptions tied to
the CECL
accounting framework, including
the reasonable and
supportable period as
well as the reversion window.
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.
Given that any one
economic outlook is inherently uncertain, the
Corporation leverages multiple scenarios to estimate
its ACL. The
baseline scenario continues to be assigned the highest
probability, followed by the
pessimistic scenario.
During the second quarter
2023, due to positive trends, the Corporation lowered the probability weights assigned to the pessimistic scenario and increased the
probability weight assigned to the baseline scenario, prompting a reserve release of $5.8 million. The baseline scenario continues to
be assigned the highest probability, followed by the pessimistic scenario,
and then the optimistic scenario.
The
2023
annualized
GDP
growth
in
the
baseline
scenario
stands
at
1.5%
and
1.6%
for
Puerto
Rico
and
the
United
States,
respectively, compared to 2.1% and 1.3%
in the previous quarter. The 2023 forecasted average unemployment rate for
Puerto Rico
improved to
6.3% from
6.9% in
the previous
forecast, while
in the
United States
unemployment levels
remained stable
at
3.6%,
compared to 3.5% in the previous forecast.
172
At
June
30,
2023,
the
allowance
for
credit
losses
amounted
to
$700
million,
a
decrease
of
$20
million,
when
compared
with
December 31, 2022.
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 in
March 2022, which eliminates the
accounting guidance for troubled debt
restructures (“TDRs”) and the requirement
to measure the
effect
of
the
concession from
a
loan
modification, for
which
the
Corporation used
a
discounted cash
flow
(“DCF”)
method.
This
impact
resulted
in
a
release
in
the
ACL
of
approximately
$46
million
presented
as
an
adjustment
to
the
beginning
balance
of
retained earnings, net of tax effect.
Excluding ASU 2022-02 impact, the ACL for BPPR increased by $23 million,
when compared to December 31, 2022, while the ACL
for
Popular
U.S
increased
by
$3
million
from
December 31,
2022.
These
increases
were
mostly
driven
by
specific
reserves
for
collateral dependent U.S. commercial and P.R.
construction loans, changes in macroeconomic scenarios,
higher loan volumes and
migration of
P.R.
consumer credit
scores, partially
offset by
changes in
the assignments
of probability
weights to
macroeconomic
scenarios, as previously mentioned, and reductions in qualitative reserves. The Corporation’s ratio of the allowance for credit losses
to loans held-in-portfolio was
2.12% on June
30, 2023, compared to
2.25% on December
31, 2022.
The ratio of
the allowance for
credit losses to NPLs held-in-portfolio stood at 181.6%,
compared to 163.9% on December 31, 2022.
The provision for credit losses for the period ended June
30, 2023, amounted to an expense of $36 million, compared
to an expense
of
$10
million
for
the
period
ended
June
30,
2022,
as
the
prior
period
included
reductions
in
reserves
due
to
post-pandemic
improvements in
the macroeconomic
outlook and
lower NCOs.
The provision
expense related to
the loans-held-in-portfolio for
the
six-month period
ended June
30,2023 was
$82.8 million,
compared to
the reserve
release of
$4.5 million
for the
six-month period
ended
June
30,2022.
Refer
to
Note
9
–
Allowance
for
credit
losses
–
loans
held-in-portfolio
to
the
Consolidated
Financial
Statements, and to the Provision for Credit Losses
section of this MD&A for additional information.
Table 29 - Allowance for Credit
Losses - Loan Portfolios
June 30, 2023
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
248,953
$
11,332
$
96,093
$
13,927
$
329,895
$
700,200
Total loans held-in
-portfolio
16,368,300
819,903
7,449,078
1,661,523
6,732,118
33,030,922
ACL to loans held-in-portfolio
1.52
%
1.38
%
1.29
%
0.84
%
4.90
%
2.12
%
Total non-performing
loans held-in-portfolio
$
100,326
$
9,284
$
208,796
$
4,743
$
62,355
$
385,504
ACL to non-performing loans held-in-portfolio
248.14
%
122.06
46.02
%
293.63
%
N.M.
%
181.63
%
N.M. - Not meaningful.
Table 30 - Allowance for Credit
Losses - Loan Portfolios
December 31, 2022
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
235,376
$
4,246
$
135,254
$
20,618
$
324,808
$
720,302
Total loans held-in
-portfolio
15,739,132
757,984
7,397,471
1,585,739
6,597,443
32,077,769
ACL to loans held-in-portfolio
1.50
%
0.56
%
1.83
%
1.30
%
4.92
%
2.25
%
Total non-performing
loans held-in-portfolio
$
93,039
$
-
$
262,879
$
5,941
$
77,582
$
439,441
ACL to non-performing loans held-in-portfolio
252.99
%
N.M.
51.45
%
347.05
%
418.66
%
163.91
%
N.M. - Not meaningful.
173
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, 2023 and
2022.
Table 31 - Annualized Net Charge
-offs (Recoveries) to Average Loans
Held-in-Portfolio
Quarters ended
June 30, 2023
June 30, 2022
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
(0.06)
%
0.10
%
0.01
%
(0.18)
%
0.01
%
(0.09)
%
Construction
―
―
―
(1.06)
―
(0.20)
Mortgage
(0.22)
(0.03)
(0.19)
(0.29)
0.02
(0.24)
Leasing
0.39
―
0.39
0.18
―
0.18
Consumer
1.37
4.87
1.52
0.88
0.72
0.88
Total annualized
net charge-offs
(recoveries) to average loans held-in-
portfolio
0.33
%
0.22
%
0.29
%
0.10
%
0.03
%
0.08
%
Six months ended
June 30, 2023
June 30, 2022
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
(0.06)
%
(0.01)
%
(0.04)
%
(0.20)
%
(0.02)
%
(0.12)
%
Construction
―
―
―
(1.29)
(0.36)
(0.52)
Mortgage
(0.24)
(0.02)
(0.20)
(0.24)
0.01
(0.20)
Leasing
0.24
―
0.24
0.03
―
0.03
Consumer
1.84
4.84
1.97
0.91
0.43
0.89
Total annualized
net charge-offs
(recoveries) to average loans held-in-
portfolio
0.44
%
0.14
%
0.35
%
0.10
%
(0.02)
%
0.07
%
NCOs for the quarter ended June 30, 2023 amounted to $24 million,
increasing by $18 million when compared to the same period in
2022.
The
BPPR
segment
increased
by
$13
million
mainly
driven
by
higher
consumer
NCOs
by
$9
million,
reflective
of
post-
pandemic normalization. The PB segment NCOs increased
by $5 million, mainly driven by higher
consumer NCOs by $3 million.
NCOs for
the six
months ended
June 30,
2023 amounted
to
$57 million,
increasing by
$47 million
when compared
to
the same
period in 2022. The BPPR segment
increased by $39 million mainly driven by
higher consumer NCOs by $32 million, mostly
driven
by an $11
million line of credit charge-off
on a single relationship.
The PB segment NCOs increased by
$8 million, mainly driven by
higher consumer NCOs by $7 million.
Loan Modifications
For the
period ended June
30, 2023,
modified loans
to borrowers
with financial
difficulty amounted
to $165
million, of
which $145
million
are in
accruing status.
The BPPR
segment’s modifications
to
borrowers with
financial difficulty
amounted to
$125 million,
mainly
comprised
of
commercial
and
mortgage
loans
of
$70
million
and
$47
million,
respectively.
A
total
of
$31
million
of
the
mortgage modifications were related to
government guaranteed loans. The Popular
U.S. segment’s modifications to borrowers
with
financial difficulty amounted to $40 million, of which $30
million were commercial loans.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
information
on
modifications
made
to
borrowers
experiencing financial difficulties.
174
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 2022 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 Securities Exchange Act of 1934 (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,
2023 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 21,
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 2022 Form
10-K. These factors could materially adversely affect our business, financial condition, liquidity,
results of
operations and
capital position,
and could
cause our
actual results
to
differ
materially from
our historical
results or
the
results contemplated
by the
forward-looking statements
contained in
this report.
Also refer
to the
discussion in
“Part I
- Item
2 –
Management’s Discussion
and Analysis
of Financial
Condition and
Results of
Operations” in
this report
for additional
information
that may supplement or update the discussion
of risk factors below and in our 2022 Form
10-K.
There have been no material changes to the risk
factors previously disclosed under Item 1A of the
Corporation’s 2022 Form 10-K.
The risks described
in our 2022 Form
10-K and in
this report are not
the only risks
facing us. Additional risks
and uncertainties not
currently
known
to
us
or
that
we
currently
deem
to
be
immaterial
also
may
materially
adversely
affect
our
business,
financial
condition, liquidity, results of operations and capital position.
Item 2.
Unregistered Sales of Equity Securities and
Use of Proceeds
175
The Corporation did not have any unregistered
sales of equity securities during the quarter ended
June 30, 2023.
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, 2023:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid per
Share
Total Number of
Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of
Shares that May Yet be
Purchased Under the Plans or
Programs
April 1 - April 30
-
$
-
-
$-
May 1 - May 31
21,402
58.99
-
-
June 1 - June 30
6
59.85
-
-
Total
21,408
$
58.99
-
-
[1] Includes
21,402
and 6
shares of
the Corporation’s
common
stock acquired
by the
Corporation
during May
2023
and June
2023,
respectively,
in
connection
with the
satisfaction
of tax
withholding
obligations
on vested
awards of
restricted
stock
or restricted
stock
units
granted to
directors
and
certain employees under the Corporation’s Omnibus Incentive
Plan. The acquired shares of common stock were added
back to treasury stock.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans or Other Preplanned Trading Arrangements
Certain
of
our
officers
or
directors have
made
elections to
participate in
,
and are
participating in,
our dividend
reinvestment and
purchase plan, the Company
stock fund associated with
our 401(k) plans and/or
the Company stock fund
associated with our non-
qualified
deferred
compensation plans
and
have
shares
withheld
to
cover
withholding
taxes
upon
the
vesting
of
equity
awards,
which may be designed to satisfy
the affirmative defense conditions of Rule
10b5-1 under the Exchange Act or
may constitute non-
Rule 10b5–1
trading arrangements
(as defined in Item 408(c) of Regulation
S-K).
176
Item 6.
Exhibits
Exhibit Index
Exhibit No
Exhibit Description
22.1
Report on Form 10-K for the year ended December 31, 2022.)
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
32.2
- INS
XBRL Instance Document – the instance document does not
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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
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Inline XBRL Taxonomy Extension Label Linkbase Document
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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, 2023,
formatted in Inline XBRL (included within the Exhibit
101 attachments)
(1)
(1)
Included herewith
Popular, Inc. has not filed as exhibits certain instruments defining
the rights of holders of debt of Popular, Inc. not
exceeding 10% of the total assets of Popular, Inc. and its consolidated
subsidiaries. Popular, Inc. hereby agrees to
furnish upon request to the Commission a copy of
each instrument defining the rights of holders
of senior and
subordinated debt of Popular, Inc., or of any of its consolidated
subsidiaries.
177
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, 2023
By: /s/ Carlos J. Vázquez
Carlos J. Vázquez
Executive Vice President &
Chief Financial Officer
Date: August 9, 2023
By: /s/ Jorge J. García
Jorge J. García
Senior Vice President & Corporate Comptroller
EX-31.1
1
CERTIFICATION
EXHIBIT 31.1
I, Ignacio Alvarez, certify that:
- I have reviewed this report on Form 10-Q of Popular,
Inc.;
- Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under
which such statements were
made, not misleading with respect to the period covered by this report;
- Based on my knowledge, the financial statements, and other financial
information included in this report, fairly
present in all material respects the financial condition, results of operations and
cash flows of the registrant as of,
and for, the periods presented in this report;
- The
registrant's other
certifying officer
and I
are responsible
for establishing
and maintaining
disclosure controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a)
Designed such
disclosure controls
and procedures,
or caused such
disclosure controls
and procedures
to be
designed under
our supervision,
to ensure
that material
information
relating to
the registrant,
including its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period in which this report is being prepared;
b)
Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting to
be designed under
our supervision,
to provide reasonable
assurance regarding
the reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally accepted accounting principles;
c)
Evaluated
the
effectiveness
of
the
registrant's
disclosure
controls
and
procedures
and
presented
in
this
report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
Disclosed in this report
any change in the
registrant’s
internal control over financial
reporting that occurred
during
the
registrant’s
most
recent
fiscal
quarter
(the
registrant’s
fourth
fiscal
quarter
in
the
case
of
an
annual
report)
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant’s
internal control over financial reporting; and
5.
The
registrant's
other
certifying
officer
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant's
auditors
and
the
audit
committee
of
the
registrant's
board
of
directors (or persons performing the equivalent functions):
a)
All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial reporting which
are reasonably likely to
adversely affect the
registrant’s
ability to record, process,
summarize and report financial information; and
b)
Any fraud,
whether or
not material,
that involves
management or
other employees
who have
a significant
role in the registrant's internal controls over financial reporting.
Date:
August 9, 2023
By: /s/ Ignacio Alvarez
Ignacio Alvarez
Chief Executive Officer
EX-31.2
1
CERTIFICATION
EXHIBIT 31.2
I, Carlos J. Vázquez, certify that:
- I have reviewed this report on Form 10-Q of Popular,
Inc.;
- Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not
misleading with respect to the period covered by this report;
- Based on my knowledge, the financial statements, and other financial
information included in this report, fairly
present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and
for, the periods presented in this report;
- The
registrant's other
certifying officer
and I are
responsible for
establishing and
maintaining disclosure
controls and
procedures (as defined
in Exchange Act Rules
13a-15(e) and 15d-15(e))
and internal control over
financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant,
including
its
consolidated subsidiaries,
is made known
to us by
others within those
entities, particularly
during the period
in
which this report is being prepared;
b)
Designed such
internal control over
financial reporting, or
caused such internal
control over financial
reporting
to
be
designed
under
our
supervision,
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted accounting principles;
c)
Evaluated
the
effectiveness
of
the
registrant's
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the effectiveness
of
the disclosure
controls
and procedures,
as of
the
end of
the period
covered by this report based on such evaluation; and
d)
Disclosed
in
this
report
any
change
in
the
registrant’s
internal
control
over
financial
reporting
that
occurred
during the
registrant’s
most recent
fiscal quarter
(the registrant’s
fourth fiscal
quarter in
the case
of an
annual
report) that
has materially
affected, or
is reasonably
likely to
materially affect,
the registrant’s
internal control
over financial reporting; and
5. The
registrant's other
certifying officer
and I
have disclosed,
based on
our most
recent evaluation
of internal
control
over
financial
reporting,
to
the
registrant's
auditors
and
the
audit
committee
of
the
registrant's
board
of
directors
(or
persons performing the equivalent functions):
a)
All significant deficiencies and
material weaknesses in the design
or operation of internal control
over financial
reporting which
are reasonably
likely to
adversely affect
the registrant’s
ability to
record, process,
summarize
and report financial information; and
b)
Any fraud,
whether or
not material,
that involves
management or
other employees
who have
a significant
role
in the registrant's internal controls over financial reporting.
Date:
August 9, 2023
By: /s/ Carlos J. Vázquez
Carlos J. Vázquez
Chief Financial Officer
EX-32.1
1
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. Section 1350
Pursuant
to
18
U.S.C.
Section
1350,
the
undersigned
officer
of
Popular,
Inc.
(the
"Company"),
hereby
certifies that the Company's
Report on Form 10-Q
for the quarter ended
June 30, 2023 (the
"Report") fully complies
with the
requirements of
Section 13(a)
or 15(d),
as applicable,
of the
Securities Exchange
Act of
1934 and
that the
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations of the Company.
Dated:August 9, 2023
By:
/s/ Ignacio Alvarez
Name: Ignacio Alvarez
Title: Chief Executive Officer
A signed original of this written statement has been provided to the Company
and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
EX-32.2
1
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. Section 1350
Pursuant
to
18
U.S.C.
Section
1350,
the
undersigned
officer
of
Popular,
Inc.
(the
"Company"),
hereby
certifies that the Company's
Report on Form 10-Q
for the quarter ended
June 30, 2023 (the
"Report") fully complies
with the
requirements of
Section 13(a)
or 15(d),
as applicable,
of the
Securities Exchange
Act of
1934 and
that the
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations of the Company.
Dated:August 9, 2023
By:
/s/ Carlos Vázquez
Name: Carlos J. Vázquez
Title: Chief Financial Officer
A signed original of this written statement has been provided to the Company
and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff
upon request.