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UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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Form |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||
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For the quarterly period ended |
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or |
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Commission File Number: |
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(Exact name of registrant as specified in its charter) | ||||
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(State or other jurisdiction of Incorporation or |
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(IRS Employer Identification Number) | ||
organization) |
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(Address of principal executive offices) |
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(Zip code) | ||
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(Registrant’s telephone number, including area code) | ||||
NOT APPLICABLE | ||||
(Former name, former address and former fiscal year, if changed since last report) | ||||
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Securities registered pursuant to Section 12(b) of the Act: | ||||
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
The | ||||
The | ||||
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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. | ||||
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[X] |
[ ] No |
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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). | ||||
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[X] |
[ ] No |
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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: | ||||
[X] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
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Smaller reporting company |
Emerging growth company |
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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). | ||||
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[ ] Yes |
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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, | ||||
1
POPULAR INC |
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INDEX |
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Part I – Financial Information |
Page |
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Item 1. Financial Statements |
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Unaudited Consolidated Statements of Financial Condition at June 30, 2022 and |
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December 31, 2021 |
6 |
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Unaudited Consolidated Statements of Operations for the quarters |
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and six months ended June 30, 2022 and 2021 |
7 |
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Unaudited Consolidated Statements of Comprehensive Loss for the |
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quarters and six months ended June 30, 2022 and 2021 |
8 |
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Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the |
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quarters and six months ended June 30, 2022 and 2021 |
9 |
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Unaudited Consolidated Statements of Cash Flows for the six months |
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ended June 30, 2022 and 2021 |
11 |
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Notes to Unaudited Consolidated Financial Statements |
13 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and |
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Results of Operations |
117 |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
162 |
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Item 4. Controls and Procedures |
162 |
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Part II – Other Information |
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Item 1. Legal Proceedings |
162 |
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Item 1A. Risk Factors |
162 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
169 |
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Item 3. Defaults Upon Senior Securities |
169 |
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Item 4. Mine Safety Disclosures |
169 |
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Item 5. Other Information |
169 |
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Item 6. Exhibits |
170 |
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Signatures |
171 |
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2
Forward-Looking Information
This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements about Popular Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) business, financial condition, results of operations, plans, objectives and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements.
Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:
the rate of growth or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated;
the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business;
the impact of the debt restructuring under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action;
the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure of such funds, as well as the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities;
the scope and duration of the COVID-19 pandemic (including the appearance of new strains of the virus), actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on us, our customers, service providers and third parties;
risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc. to service certain of Banco Popular de Puerto Rico’s key channels, as well as the entry into amended and restated commercial agreements and the sale or conversion into non-voting of Popular’s ownership stake in Evertec (the “Transaction”), including: the receipt of any regulatory approvals necessary to effect the contemplated return to stockholders of net gains resulting from a sale of Evertec, Inc. shares; Popular’s ability to successfully transition and integrate the assets acquired as part of the Transaction, as well as related operations, employees and third party contractors; unexpected costs, including, without limitation, costs due to exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Transaction or that are not subject to indemnification or reimbursement by Evertec, Inc.; operational risks that may affect Popular and other risks arising from the acquisition of the acquired assets, including the transition and integration thereof, or by adverse effects on relationships with customers, employees and service providers; and business and other risks arising from the extension of Popular’s current commercial agreements with Evertec, Inc., as well as the sale or conversion of Evertec, Inc. shares owned by Popular;
changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets;
3
the fiscal and monetary policies of the federal government and its agencies;
changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;
additional Federal Deposit Insurance Corporation (“FDIC”) assessments;
regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;
unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters, acts of violence or war or the emergence of pandemics, epidemics and other health-related crises, which could cause a disruption in our operations or other adverse consequences for our business;
the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;
the performance of the stock and bond markets;
competition in the financial services industry;
possible legislative, tax or regulatory changes; and
a failure in or breach of our operational or security systems or infrastructure or those of Evertec, Inc., our provider of core financial transaction processing and information technology services, or of other third parties providing services to us, including as a result of cyberattacks, e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.
Other possible events or factors that could cause our results or performance to differ materially from those expressed in these forward-looking statements include the following:
negative economic conditions that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense;
changes in market rates and prices which may adversely impact the value of financial assets and liabilities;
potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory or government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;
changes in accounting standards, rules and interpretations;
our ability to grow our core businesses;
decisions to downsize, sell or close units or otherwise change our business mix; and
management’s ability to identify and manage these and other risks.
Moreover, the outcome of legal and regulatory proceedings, as discussed in “Part II, Item 1. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, as well as “Part II, Item 1A” of our Quarterly Reports on Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.
4
All forward-looking statements included in this Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
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June 30, |
December 31, | ||
(In thousands, except share information) |
2022 |
2021 | |||||
Assets: |
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Cash and due from banks |
$ |
$ |
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Money market investments: |
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Time deposits with other banks |
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Total money market investments |
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Trading account debt securities, at fair value: |
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Other trading account debt securities |
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Debt securities available-for-sale, at fair value: |
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Pledged securities with creditors’ right to repledge |
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Other debt securities available-for-sale |
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Debt securities held-to-maturity, at amortized cost (fair value 2022 - $ |
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Less – Allowance for credit losses |
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Debt securities held-to-maturity, net |
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Equity securities (realizable value 2022 - $ |
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Loans held-for-sale, at lower of cost or fair value |
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Loans held-in-portfolio |
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Less – Unearned income |
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Allowance for credit losses |
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Total loans held-in-portfolio, net |
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Premises and equipment, net |
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Other real estate |
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Accrued income receivable |
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Mortgage servicing rights, at fair value |
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Other assets |
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Goodwill |
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Other intangible assets |
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Total assets |
$ |
$ |
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Liabilities and Stockholders’ Equity |
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Liabilities: |
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Deposits: |
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Non-interest bearing |
$ |
$ |
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Interest bearing |
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Total deposits |
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Assets sold under agreements to repurchase |
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Other short-term borrowings |
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Notes payable |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Refer to Note 20) |
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Stockholders’ equity: |
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Preferred stock, |
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Common stock, $ |
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Surplus |
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Retained earnings |
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Treasury stock - at cost, |
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( |
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( | |||
Accumulated other comprehensive loss, net of tax |
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( |
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( | |||
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
$ |
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The accompanying notes are an integral part of these Consolidated Financial Statements. | |||||||
6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Quarters ended June 30, |
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Six months ended June 30, | ||||||||
(In thousands, except per share information) |
2022 |
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2021 |
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2022 |
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2021 | ||||||
Interest income: |
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Loans |
$ |
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$ |
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$ |
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$ |
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Money market investments |
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Investment securities |
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Total interest income |
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Interest expense: |
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Deposits |
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Short-term borrowings |
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Long-term debt |
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Total interest expense |
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Net interest income |
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Provision for credit losses (benefit) |
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( |
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( |
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( | |||
Net interest income after provision for credit losses (benefit) |
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Non-interest income: |
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Service charges on deposit accounts |
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Other service fees |
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Mortgage banking activities (Refer to Note 9) |
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Net (loss) gain, including impairment on equity securities |
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( |
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( |
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Net gain (loss) on trading account debt securities |
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( |
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( |
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( | |||
Net loss on sale of loans, including valuation adjustments on loans held-for-sale |
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( |
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( | ||||
Adjustments (expense) to indemnity reserves on loans sold |
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( |
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Other operating income |
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Total non-interest income |
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Operating expenses: |
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Personnel costs |
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Net occupancy expenses |
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Equipment expenses |
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Other taxes |
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Professional fees |
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Communications |
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Business promotion |
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FDIC deposit insurance |
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Other real estate owned (OREO) income |
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( |
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( |
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( |
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( | ||
Other operating expenses |
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Amortization of intangibles |
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Total operating expenses |
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Income before income tax |
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Income tax expense |
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Net Income |
$ |
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$ |
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$ |
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$ |
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Net Income Applicable to Common Stock |
$ |
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$ |
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$ |
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$ |
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Net Income per Common Share – Basic |
$ |
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$ |
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$ |
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$ |
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Net Income per Common Share – Diluted |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
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7
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
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Quarters ended, |
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Six months ended, | ||||||||
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June 30, |
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June 30, | ||||||||
(In thousands) |
2022 |
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2021 |
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2022 |
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2021 | |||||
Net income |
$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income before tax: |
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Foreign currency translation adjustment |
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Adjustment of pension and postretirement benefit plans |
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Amortization of net losses of pension and postretirement benefit plans |
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Unrealized holding (losses) gains on debt securities arising during the period |
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( |
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( |
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( | ||
Unrealized net (losses) gains on cash flow hedges |
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( |
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( |
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Reclassification adjustment for net (gains) losses included in net income |
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( |
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( |
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Other comprehensive (loss) income before tax |
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( |
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( |
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( | ||
Income tax benefit (expense) |
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( |
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Total other comprehensive (loss) income, net of tax |
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( |
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( |
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( | ||
Comprehensive (loss) income, net of tax |
$ |
( |
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$ |
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$ |
( |
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$ |
|||
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Tax effect allocated to each component of other comprehensive (loss) income: | ||||||||||||
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Quarters ended |
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Six months ended, | ||||||||
|
|
June 30, |
|
June 30, | ||||||||
(In thousands) |
2022 |
|
2021 |
|
2022 |
|
2021 | |||||
Adjustment of pension and postretirement benefit plans |
$ |
|
$ |
|
$ |
( |
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$ |
||||
Amortization of net losses of pension and postretirement benefit plans |
|
( |
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|
( |
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|
( |
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|
( | |
Unrealized holding (losses) gains on debt securities arising during the period |
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( |
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||||
Unrealized net (losses) gains on cash flow hedges |
|
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( |
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( | |||
|
Reclassification adjustment for net (gains) losses included in net income |
|
|
|
|
|
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|
||||
Income tax benefit (expense) |
$ |
|
$ |
( |
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$ |
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$ |
||||
The accompanying notes are an integral part of the Consolidated Financial Statements. |
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|
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| ||||||
8
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
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Accumulated |
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| ||
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other |
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Common |
Preferred |
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Retained |
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Treasury |
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comprehensive |
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| |||||
(In thousands) |
stock |
stock |
Surplus |
earnings |
|
stock |
|
(loss) income |
|
Total | |||||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
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$ |
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Net income |
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Issuance of stock |
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Dividends declared: |
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|
Common stock[1] |
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( |
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( | |
|
Preferred stock |
|
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|
|
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|
|
( |
|
|
|
|
|
|
|
|
( | |
Common stock purchases[2] |
|
|
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( |
|
|
|
|
( |
|
|
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|
|
( | ||
Stock based compensation |
|
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|
|
|
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|
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|
|||||
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at June 30, 2021 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
Net income |
|
|
|
|
|
|
|
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|
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|
|
|
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|
||||
Issuance of stock |
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|
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|
||||
Dividends declared: |
|
|
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|
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|
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|
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| ||
|
Common stock[1] |
|
|
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|
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( |
|
|
|
|
|
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( | |
|
Preferred stock |
|
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|
|
|
|
|
( |
|
|
|
|
|
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|
|
( | |
Common stock purchases |
|
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|
|
|
|
|
|
|
|
( |
|
|
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|
|
( | ||
Stock based compensation |
|
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|
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|
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|
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|
|||||
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
|
|
( | ||
Balance at June 30, 2022 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
[1] |
|||||||||||||||||||
[2] |
During the quarter ended June 30, 2021, the Corporation entered into a $ | ||||||||||||||||||
9
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
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Accumulated |
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| ||
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|
|
other |
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|
| |||
|
|
|
Common |
Preferred |
|
|
Retained |
|
Treasury |
|
comprehensive |
|
|
| |||||
(In thousands) |
stock |
stock |
Surplus |
earnings |
|
stock |
|
income (loss) |
|
Total | |||||||||
Balance at December 31, 2020 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
|
$ |
||||||||
Net income |
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|
||||
Issuance of stock |
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|
||||
Dividends declared: |
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|
|
|
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|
|
|
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|
| ||
|
Common stock[1] |
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( |
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|
|
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( | |
|
Preferred stock |
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( |
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( | |
Common stock purchases[2] |
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( |
|
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|
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( |
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|
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|
( | ||
Stock based compensation |
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|
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|
|||||
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
|
|
( | ||
Balance at June 30, 2021 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
Balance at December 31, 2021 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
Net income |
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|
||||
Issuance of stock |
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|
||||
Dividends declared: |
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|
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|
|
|
|
|
| ||
|
Common stock[1] |
|
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|
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( |
|
|
|
|
|
|
|
|
( | |
|
Preferred stock |
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|
|
|
|
|
|
( |
|
|
|
|
|
|
|
|
( | |
Common stock purchases[3] |
|
|
|
|
|
( |
|
|
|
|
( |
|
|
|
|
|
( | ||
Stock based compensation |
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|
|
|
|
|
|
|
|
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|
|||||
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
|
|
( | ||
Balance at June 30, 2022 |
$ |
$ |
$ |
$ |
|
$ |
( |
|
$ |
( |
|
$ |
|||||||
[1] |
|||||||||||||||||||
[2] |
|||||||||||||||||||
[3] |
|||||||||||||||||||
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For the period ended | |||
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|
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|
|
|
|
|
|
June 30, |
|
|
June 30, | ||||
Disclosure of changes in number of shares: |
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 | ||||
Preferred Stock: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Balance at beginning and end of period |
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|
|
|
|
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|
|||
Common Stock – Issued: |
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|
|
|
|
|
|
|
|
|
|
|
| ||
|
Balance at beginning of period |
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|
|
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|
|||
|
Issuance of stock |
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|
|||
|
Balance at end of period |
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|
|||
|
Treasury stock |
|
|
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|
|
|
|
|
|
|
|
|
|
( |
|
|
( | |
Common Stock – Outstanding |
|
|
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|
|
|
|
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|
|
|
|
|
|
||||
|
|
|
| ||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements. | |||||||||||||||||||
10
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, | ||||||
(In thousands) |
|
2022 |
|
|
2021 | ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
$ |
|
$ |
||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Provision for credit losses (benefit) |
|
( |
|
|
( | |
|
Amortization of intangibles |
|
|
|
|||
|
Depreciation and amortization of premises and equipment |
|
|
|
|||
|
Net accretion of discounts and amortization of premiums and deferred fees |
|
|
|
( | ||
|
Interest capitalized on loans subject to the temporary payment moratorium or loss mitigation alternatives |
|
( |
|
|
( | |
|
Share-based compensation |
|
|
|
|||
|
Impairment losses on right-of-use and long-lived assets |
|
|
|
|||
|
Fair value adjustments on mortgage servicing rights |
|
( |
|
|
||
|
Adjustments to indemnity reserves on loans sold |
|
|
|
( | ||
|
Earnings from investments under the equity method, net of dividends or distributions |
|
( |
|
|
( | |
|
Deferred income tax expense |
|
|
|
|||
|
(Gain) loss on: |
|
|
|
|
| |
|
|
Disposition of premises and equipment and other productive assets |
|
( |
|
|
( |
|
|
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities |
|
|
|
( | |
|
|
Sale of foreclosed assets, including write-downs |
|
( |
|
|
( |
|
Acquisitions of loans held-for-sale |
|
( |
|
|
( | |
|
Proceeds from sale of loans held-for-sale |
|
|
|
|||
|
Net originations on loans held-for-sale |
|
( |
|
|
( | |
|
Net decrease (increase) in: |
|
|
|
|
| |
|
|
Trading debt securities |
|
|
|
||
|
|
Equity securities |
|
|
|
( | |
|
|
Accrued income receivable |
|
( |
|
|
|
|
|
Other assets |
|
|
|
( | |
|
Net (decrease) increase in: |
|
|
|
|
| |
|
|
Interest payable |
|
( |
|
|
( |
|
|
Pension and other postretirement benefits obligation |
|
( |
|
|
( |
|
|
Other liabilities |
|
( |
|
|
|
Total adjustments |
|
|
|
( | |||
Net cash provided by operating activities |
|
|
|
||||
Cash flows from investing activities: |
|
|
|
|
| ||
|
Net decrease (increase) in money market investments |
|
|
|
( | ||
|
Purchases of investment securities: |
|
|
|
|
| |
|
|
Available-for-sale |
|
( |
|
|
( |
|
|
Held-to-maturity |
|
( |
|
|
|
|
|
Equity |
|
( |
|
|
( |
|
Proceeds from calls, paydowns, maturities and redemptions of investment securities: |
|
|
|
|
| |
|
|
Available-for-sale |
|
|
|
||
|
|
Held-to-maturity |
|
|
|
||
|
Proceeds from sale of investment securities: |
|
|
|
|
| |
|
|
Equity |
|
|
|
||
|
Net (disbursements) repayments on loans |
|
( |
|
|
||
|
Proceeds from sale of loans |
|
|
|
|||
|
Acquisition of loan portfolios |
|
( |
|
|
( | |
|
Payments to acquire other intangible assets |
|
|
|
( | ||
|
Return of capital from equity method investments |
|
|
|
|||
|
Acquisition of premises and equipment |
|
( |
|
|
( | |
|
Proceeds from sale of: |
|
|
|
|
| |
|
|
Premises and equipment and other productive assets |
|
|
|
||
|
|
Foreclosed assets |
|
|
|
||
Net cash provided by (used in) investing activities |
|
|
|
( | |||
11
Cash flows from financing activities: |
|
|
|
|
| ||
|
Net (decrease) increase in: |
|
|
|
|
| |
|
|
Deposits |
|
( |
|
|
|
|
|
Assets sold under agreements to repurchase |
|
( |
|
|
( |
|
|
Other short-term borrowings |
|
( |
|
|
|
|
Payments of notes payable |
|
( |
|
|
( | |
|
Principal payments of finance leases |
|
( |
|
|
( | |
|
Proceeds from issuance of common stock |
|
|
|
|||
|
Dividends paid |
|
( |
|
|
( | |
|
Payments for repurchase of common stock |
|
( |
|
|
( | |
|
Payments related to tax withholding for share-based compensation |
|
( |
|
|
( | |
Net cash (used in) provided by financing activities |
|
( |
|
|
|||
Net increase in cash and due from banks, and restricted cash |
|
|
|
||||
Cash and due from banks, and restricted cash at beginning of period |
|
|
|
||||
Cash and due from banks, and restricted cash at the end of the period |
$ |
|
$ |
||||
The accompanying notes are an integral part of these Consolidated Financial Statements. | |||||||
12
Notes to Consolidated Financial
Statements (Unaudited)
Note 1 - |
Nature of operations |
14 | |
Note 2 - |
Basis of presentation |
15 | |
Note 3 - |
New accounting pronouncements |
16 | |
Note 4 - |
Restrictions on cash and due from banks and certain securities |
18 | |
Note 5 - |
Debt securities available-for-sale |
19 | |
Note 6 - |
Debt securities held-to-maturity |
22 | |
Note 7 - |
Loans |
25 | |
Note 8 - |
Allowance for credit losses – loans held-in-portfolio |
34 | |
Note 9 - |
Mortgage banking activities |
58 | |
Note 10 - |
Transfers of financial assets and mortgage servicing assets |
59 | |
Note 11 - |
Other real estate owned |
63 | |
Note 12 - |
Other assets |
64 | |
Note 13 - |
Goodwill and other intangible assets |
65 | |
Note 14 - |
Deposits |
67 | |
Note 15 - |
Borrowings |
68 | |
Note 16 - |
Other liabilities |
70 | |
Note 17 - |
Stockholders’ equity |
71 | |
Note 18 - |
Other comprehensive loss |
72 | |
Note 19 - |
Guarantees |
74 | |
Note 20 - |
Commitments and contingencies |
76 | |
Note 21- |
Non-consolidated variable interest entities |
83 | |
Note 22 - |
Related party transactions |
85 | |
Note 23 - |
Fair value measurement |
88 | |
Note 24 - |
Fair value of financial instruments |
95 | |
Note 25 - |
Net income per common share |
98 | |
Note 26 - |
Revenue from contracts with customers |
99 | |
Note 27 - |
Leases |
101 | |
Note 28 - |
Pension and postretirement benefits |
103 | |
Note 29 - |
Stock-based compensation |
104 | |
Note 30 - |
Income taxes |
107 | |
Note 31 - |
Supplemental disclosure on the consolidated statements of cash flows |
111 | |
Note 32 - |
Segment reporting |
112 | |
Note 33 - |
Subsequent events |
116 | |
|
|
| |
|
|
| |
|
|
| |
13
14
Note 2 – Basis of Presentation
Basis of Presentation
The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition data at December 31, 2021 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.
Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2021, included in the Corporation’s 2021 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
15
|
|
|
|
|
|
|
|
|
Recently Adopted Accounting Standards Updates | ||||
|
|
|
|
|
|
|
|
|
Standard |
|
Description |
Date of adoption |
Effect on the financial statements |
|
|
FASB ASU 2021-05, Leases (Topic 842), Lessors – Certain Leases with Variable Lease Payments |
|
The FASB issued ASU 2021-05 in July 2021, which amends ASC Topic 842 so that lessors can classify as operating leases those leases with variable lease payments that, prior to these amendments, would have been classified as a sales-type or direct financing lease and at inception a loss would have been recognized. |
January 1, 2022 |
The Corporation was not impacted by the adoption of ASU 2021-05 during the first quarter of 2022 since it does not hold direct financing leases with variable lease payments. |
|
|
FASB ASU 2021-04, Earnings per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) |
|
The FASB issued ASU 2021-04 in May 2021, which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity. |
January 1, 2022 |
The Corporation was not impacted by the adoption of ASU 2021-04 during the first quarter of 2022 since it does not hold freestanding equity-classified written call options under the scope of this guidance. |
|
|
FASB ASU 2020-06, Debt – Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity |
|
The FASB issued ASU 2020-06 in August 2020 which, among other things, simplifies the accounting for convertible instruments and contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. |
January 1, 2022 |
The Corporation adopted ASU 2020-06 during the first quarter of 2022. There was no material impact upon the adoption in the analysis of the accelerated share repurchase transaction discussed in Note 17, which was classified as an equity instrument and the related potential shares were considered in its dilutive earnings per share calculation. |
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
Accounting Standards Updates Not Yet Adopted | ||||
|
|
|
|
|
|
|
Standard |
|
Description |
Date of adoption |
Effect on the financial statements |
|
FASB ASU 2022-03, Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction |
|
The FASB issued ASU 2022-03 in June 2022, which clarifies that a contractual restriction that prohibits the sale of an equity security is not considered part of the unit of account of the equity security, therefore, is not considered in measuring its fair value. The ASU also provides enhanced disclosures for equity securities subject to a contractual sale restriction. |
January 1, 2024 |
The Corporation is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and presentation and disclosures. |
|
FASB ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures |
|
The FASB issued ASU 2022-02 in March 2022, which eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 Receivables—Troubled Debt Restructurings by Creditors and requires to apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. In addition, the ASU enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty and enhances the vintage disclosure by requiring to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. |
January 1, 2023 |
The Corporation is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and presentation and disclosures. |
|
FASB ASU 2022-01, Derivatives and Hedging (Topic 815) – Fair Value Hedging—Portfolio Layer Method |
|
The FASB issued ASU 2022-01 in March 2022, which amends ASC Topic 815 by allowing non prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. This amendment permits an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable and non-prepayable financial assets without considering prepayment risk or credit risk when measuring those assets. |
January 1, 2023 |
The Corporation is currently evaluating the impact of this amendment on its consolidated financial statements. |
|
|
|
|
|
|
|
For other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2021 Form 10-K. | ||||
17
Note 4 - Restrictions on cash and due from banks and certain securities
BPPR is required by regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $
At June 30, 2022, the Corporation held $
18
|
|
At June 30, 2022 |
| ||||||||
|
|
|
|
Gross |
Gross |
|
|
Weighted |
| ||
|
|
Amortized |
unrealized |
unrealized |
Fair |
average |
| ||||
(In thousands) |
cost |
gains |
losses |
value |
yield |
| |||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
$ |
$ |
$ |
$ |
% | |||||
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
Total U.S. Treasury securities |
|
|
|
|
| ||||||
Obligations of U.S. Government sponsored entities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
| |||||
Total obligations of U.S. Government sponsored entities |
|
|
|
|
| ||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
|
After 10 years |
|
|
|
|
| |||||
Total collateralized mortgage obligations - federal agencies |
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
| |||||
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
|
After 10 years |
|
|
|
|
| |||||
Total mortgage-backed securities |
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
| |||||
Total other |
|
|
|
|
| ||||||
Total debt securities available-for-sale[1] |
$ |
$ |
$ |
$ |
% | ||||||
[1] |
Includes $ | ||||||||||
19
|
|
At December 31, 2021 |
| ||||||||
|
|
|
|
Gross |
Gross |
|
|
Weighted |
| ||
|
|
Amortized |
unrealized |
unrealized |
Fair |
average |
| ||||
(In thousands) |
cost |
gains |
losses |
value |
yield |
| |||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
$ |
$ |
$ |
$ |
% | |||||
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
Total U.S. Treasury securities |
|
|
|
|
| ||||||
Obligations of U.S. Government sponsored entities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
| |||||
Total obligations of U.S. Government sponsored entities |
|
|
|
|
| ||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
|
After 10 years |
|
|
|
|
| |||||
Total collateralized mortgage obligations - federal agencies |
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
| |||||
|
After 1 to 5 years |
|
|
|
|
| |||||
|
After 5 to 10 years |
|
|
|
|
| |||||
|
After 10 years |
|
|
|
|
| |||||
Total mortgage-backed securities |
|
|
|
|
| ||||||
Other |
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
| |||||
Total other |
|
|
|
|
| ||||||
Total debt securities available-for-sale[1] |
$ |
$ |
$ |
$ |
% | ||||||
[1] |
Includes $ | ||||||||||
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.
20
|
|
At June 30, 2022 | |||||||||||
|
Less than 12 months |
12 months or more |
Total | ||||||||||
|
|
|
|
Gross |
|
|
Gross |
|
|
Gross | |||
|
|
Fair |
unrealized |
Fair |
unrealized |
Fair |
unrealized | ||||||
(In thousands) |
value |
losses |
value |
losses |
value |
losses | |||||||
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|||||||
Mortgage-backed securities |
|
|
|
|
|
|
|||||||
Total debt securities available-for-sale in an unrealized loss position |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
|
|
At December 31, 2021 | |||||||||||
|
Less than 12 months |
12 months or more |
Total | ||||||||||
|
|
|
|
Gross |
|
|
Gross |
|
|
Gross | |||
|
|
Fair |
unrealized |
Fair |
unrealized |
Fair |
unrealized | ||||||
(In thousands) |
value |
losses |
value |
losses |
value |
losses | |||||||
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|||||||
Mortgage-backed securities |
|
|
|
|
|
|
|||||||
Total debt securities available-for-sale in an unrealized loss position |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
21
|
|
At June 30, 2022 |
| ||||||||||||
|
|
|
|
|
Allowance |
|
|
Gross |
Gross |
|
|
Weighted |
| ||
|
|
Amortized |
|
for Credit |
|
Net of |
unrealized |
unrealized |
Fair |
average |
| ||||
(In thousands) |
cost |
|
Losses |
|
Allowance |
gains |
losses |
value |
yield |
| |||||
U.S. Treasury securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
$ |
$ |
$ |
$ |
$ |
$ |
% | |||||||
|
After 1 to 5 years |
|
|
|
|
|
|
| |||||||
Total U.S. Treasury securities |
|
|
|
|
|
|
| ||||||||
Obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
|
|
| |||||||
|
After 1 to 5 years |
|
|
|
|
|
|
| |||||||
|
After 5 to 10 years |
|
|
|
|
|
|
| |||||||
|
After 10 years |
|
|
|
|
|
|
| |||||||
Total obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|
| ||||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
|
|
| |||||||
Total collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
| ||||||||
Securities in wholly owned statutory business trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
After 10 years |
|
|
|
|
|
|
| |||||||
Total securities in wholly owned statutory business trusts |
|
|
|
|
|
|
| ||||||||
Total debt securities held-to-maturity |
$ |
$ |
$ |
$ |
$ |
$ |
% | ||||||||
|
|
At December 31, 2021 |
| ||||||||||||
|
|
|
|
|
Allowance |
|
|
Gross |
Gross |
|
|
Weighted |
| ||
|
|
Amortized |
|
for Credit |
|
Net of |
unrealized |
unrealized |
Fair |
average |
| ||||
(In thousands) |
cost |
|
Losses |
|
Allowance |
gains |
losses |
value |
yield |
| |||||
Obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Within 1 year |
$ |
$ |
$ |
$ |
$ |
$ |
% | |||||||
|
After 1 to 5 years |
|
|
|
|
|
|
| |||||||
|
After 5 to 10 years |
|
|
|
|
|
|
| |||||||
|
After 10 years |
|
|
|
|
|
|
| |||||||
Total obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|
| ||||||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
|
|
|
|
|
|
| |||||||
Total collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|
| ||||||||
Securities in wholly owned statutory business trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
After 10 years |
|
|
|
|
|
|
| |||||||
Total securities in wholly owned statutory business trusts |
|
|
|
|
|
|
| ||||||||
Total debt securities held-to-maturity |
$ |
$ |
$ |
$ |
$ |
$ |
% | ||||||||
Credit Quality Indicators
The following describes the credit quality indicators by major security type that the Corporation considers in its’ estimate to develop the allowance for credit losses for investment securities held-to-maturity.
As discussed in Note 2 to the Consolidated Financial Statements included in Form 10-K for the year ended December 31, 2021, U.S. Treasury securities carry an explicit guarantee from the U.S. Government are highly rated by major rating agencies, and have a
22
long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established.
At June 30, 2022 and December 31, 2021, the “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity, includes securities issued by municipalities of Puerto Rico that are generally not rated by a credit rating agency. This includes $
The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico aggregated by the internally assigned standardized credit risk rating:
|
|
|
|
|
|
|
|
At June 30, 2022 |
At December 31, 2021 | ||
(In thousands) |
Securities issued by Puerto Rico municipalities | ||||
Watch |
$ |
$ |
|||
Pass |
|
|
|||
Total |
$ |
$ |
|||
At June 30, 2022, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $
A further deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation.
Refer to Note 20 to the Consolidated Financial Statements for additional information on the Corporation’s exposure to the Puerto Rico Government.
Delinquency status
At June 30, 2022 and December 31, 2021, there were
Allowance for credit losses on debt securities held-to-maturity
The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type at June 30, 2022 and June 30, 2021:
23
|
|
|
|
|
|
|
|
For the quarters ended June 30, | |||
|
|
|
2022 |
|
2021 |
(In thousands) |
Obligations of Puerto Rico, States and political subdivisions | ||||
Allowance for credit losses: |
|
|
|
| |
Beginning balance |
|
$ |
$ |
||
Provision for credit losses (benefit) |
|
|
( |
|
|
Securities charged-off |
|
|
|
||
Recoveries |
|
|
|
||
Ending balance |
$ |
$ |
|||
|
|
|
|
|
|
|
|
For the six months ended June 30, | |||
|
|
|
2022 |
|
2021 |
(In thousands) |
|
Obligations of Puerto Rico, States and political subdivisions | |||
Allowance for credit losses: |
|
|
|
| |
Beginning balance |
|
$ |
$ |
||
Provision for credit losses (benefit) |
|
|
( |
|
( |
Securities charged-off |
|
|
|
||
Recoveries |
|
|
|
||
Ending balance |
$ |
$ |
|||
|
|
|
|
|
|
24
For a summary of the accounting policies related to loans, interest recognition and allowance for credit losses refer to Note 2 - Summary of significant accounting policies of the 2021 Form 10-K.
During the quarter and six months ended June 30, 2022, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $
During the quarter and six months ended June 30, 2021, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $
The Corporation performed whole-loan sales involving approximately $
Also, the Corporation securitized approximately $
Delinquency status
The following tables present the amortized cost basis of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that are accruing interest but are past due 90 days or more at June 30, 2022 and December 31, 2021.
25
June 30, 2022 | ||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
Past due |
|
|
|
|
|
|
|
Past due 90 days or more | |||||||||||||
|
|
30-59 |
|
60-89 |
|
90 days |
Total |
|
|
|
|
|
|
Non-accrual |
|
|
Accruing | |||||||
(In thousands) |
days |
|
days |
|
or more |
past due |
|
Current |
|
Loans HIP |
|
|
loans |
|
loans | |||||||||
Commercial multi-family |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
June 30, 2022 | |||||||||||||||||||||||||
Popular U.S. | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due |
|
|
|
|
|
|
|
Past due 90 days or more | ||||||||||||||
|
|
30-59 |
|
60-89 |
|
90 days |
|
Total |
|
|
|
|
|
|
Non-accrual |
|
|
Accruing | |||||||
(In thousands) |
days |
|
days |
|
or more |
|
past due |
|
Current |
|
Loans HIP |
|
|
loans |
|
loans | |||||||||
Commercial multi-family |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
26
June 30, 2022 |
| ||||||||||||||||||||||||
Popular, Inc. |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
Past due |
|
|
|
|
|
|
|
Past due 90 days or more |
| |||||||||||||
|
|
30-59 |
|
60-89 |
|
90 days |
Total |
|
|
|
|
|
Non-accrual |
|
|
Accruing |
| ||||||||
(In thousands) |
days |
|
days |
|
or more |
past due |
|
Current |
|
Loans HIP[2] [3] |
|
|
loans |
|
loans |
| |||||||||
Commercial multi-family |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
| |||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortgage[1] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
| |||||||||
[1] |
It is the Corporation’s policy to report delinquent residential mortgage loans insured by Federal Housing Administration (“FHA”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”) as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $ |
[2] |
Loans held-in-portfolio are net of $ |
[3] |
Includes $ |
27
December 31, 2021 |
| ||||||||||||||||||||||||
Puerto Rico |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
Past due |
|
|
|
|
|
|
Past due 90 days or more |
| ||||||||||||||
|
|
|
30-59 |
|
|
60-89 |
|
|
90 days |
|
Total |
|
|
|
|
|
|
Non-accrual |
|
|
Accruing |
| |||
(In thousands) |
|
days |
|
|
days |
|
|
or more |
|
past due |
Current |
|
Loans HIP |
|
|
loans |
|
loans |
| ||||||
Commercial multi-family |
$ |
|
$ |
|
$ |
|
$ |
$ |
|
$ |
|
|
$ |
|
$ |
| |||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total |
$ |
|
$ |
|
$ |
|
$ |
$ |
|
$ |
|
|
$ |
|
$ |
| |||||||||
December 31, 2021 | ||||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due |
|
|
|
|
|
|
|
|
Past due 90 days or more | |||||||||||||
|
|
|
|
30-59 |
|
|
60-89 |
|
|
90 days |
|
|
Total |
|
|
|
|
|
|
|
Non-accrual |
|
|
Accruing | ||
(In thousands) |
|
|
days |
|
|
days |
|
|
or more |
|
|
past due |
|
|
Current |
|
|
Loans HIP |
|
|
loans |
|
loans | |||
Commercial multi-family |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
28
December 31, 2021 | ||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
Past due |
|
|
|
|
|
|
|
Past due 90 days or more | |||||||||||||
|
|
|
30-59 |
|
|
60-89 |
|
|
90 days |
|
Total |
|
|
|
|
|
|
Non-accrual |
|
|
Accruing | |||
(In thousands) |
|
days |
|
|
days |
|
|
or more |
|
past due |
|
Current |
|
Loans HIP[2] [3] |
|
|
loans |
|
loans | |||||
Commercial multi-family |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Mortgage[1] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit cards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Home equity lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
|
|
$ |
|
$ |
|||||||||
[1] |
It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $ |
[2] |
Loans held-in-portfolio are net of $ |
[3] |
Includes $ |
Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the FHA or guaranteed by VA when 15 months delinquent as to principal or interest, since the principal repayment on these loans is insured.
At June 30, 2022, mortgage loans held-in-portfolio include $
Loans with a delinquency status of 90 days past due as of June 30, 2022 include $
29
June 30, 2022 | ||||||||||||||
|
Puerto Rico |
|
Popular U.S. |
|
Popular, Inc. | |||||||||
(In thousands) |
Non-accrual with no allowance |
Non-accrual with allowance |
|
Non-accrual with no allowance |
Non-accrual with allowance |
|
Non-accrual with no allowance |
Non-accrual with allowance | ||||||
Commercial multi-family |
$ |
$ |
|
$ |
$ |
|
$ |
$ |
||||||
Commercial real estate non-owner occupied |
|
|
|
|
|
|
|
|
||||||
Commercial real estate owner occupied |
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
||||||
Mortgage |
|
|
|
|
|
|
|
|
||||||
Leasing |
|
|
|
|
|
|
|
|
||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs |
|
|
|
|
|
|
|
|
||||||
Personal |
|
|
|
|
|
|
|
|
||||||
Auto |
|
|
|
|
|
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
||||||
Total |
$ |
$ |
|
$ |
$ |
|
$ |
$ |
||||||
December 31, 2021 | ||||||||||||||
|
Puerto Rico |
|
Popular U.S. |
|
Popular, Inc. | |||||||||
(In thousands) |
Non-accrual with no allowance |
Non-accrual with allowance |
|
Non-accrual with no allowance |
Non-accrual with allowance |
|
Non-accrual with no allowance |
Non-accrual with allowance | ||||||
Commercial multi-family |
$ |
$ |
|
$ |
$ |
|
$ |
$ |
||||||
Commercial real estate non-owner occupied |
|
|
|
|
|
|
|
|
||||||
Commercial real estate owner occupied |
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|
|
||||||
Construction |
|
|
|
|
|
|
|
|
||||||
Mortgage |
|
|
|
|
|
|
|
|
||||||
Leasing |
|
|
|
|
|
|
|
|
||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs |
|
|
|
|
|
|
|
|
||||||
Personal |
|
|
|
|
|
|
|
|
||||||
Auto |
|
|
|
|
|
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
||||||
Total |
$ |
$ |
|
$ |
$ |
|
$ |
$ |
||||||
Loans in non-accrual status with no allowance at June 30, 2022 include $
The Corporation has designated loans classified as collateral dependent for which the ACL is measured based on the fair value of the collateral less cost to sell, when foreclosure is probable or when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower.
The following tables present the amortized cost basis of collateral-dependent loans, for which the ACL was measured based on the fair value of the collateral less cost to sell, by class of loans and type of collateral as of June 30, 2022 and December 31, 2021:
30
|
|
June 30, 2022 | |||||||||||
(In thousands) |
|
Real Estate |
|
Auto |
|
Equipment |
|
Accounts Receivables |
|
Other |
|
Total | |
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
||||||
|
Owner occupied |
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|||||||
Mortgage |
|
|
|
|
|
|
|||||||
Leasing |
|
|
|
|
|
|
|||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Personal |
|
|
|
|
|
|
||||||
|
Auto |
|
|
|
|
|
|
||||||
|
Other |
|
|
|
|
|
|
||||||
Total Puerto Rico |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
| |
Mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Total Popular U.S. |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
||||||
|
Owner occupied |
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|||||||
Mortgage |
|
|
|
|
|
|
|||||||
Leasing |
|
|
|
|
|
|
|||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Personal |
|
|
|
|
|
|
||||||
|
Auto |
|
|
|
|
|
|
||||||
|
Other |
|
|
|
|
|
|
||||||
Total Popular, Inc. |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
31
|
|
December 31, 2021 | |||||||||||
(In thousands) |
|
Real Estate |
|
Auto |
|
Equipment |
|
Accounts Receivables |
|
Other |
|
Total | |
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
||||||
|
Owner occupied |
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|||||||
Mortgage |
|
|
|
|
|
|
|||||||
Leasing |
|
|
|
|
|
|
|||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Personal |
|
|
|
|
|
|
||||||
|
Auto |
|
|
|
|
|
|
||||||
Total Puerto Rico |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
| |
Mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Total Popular U.S. |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
| |
Commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-owner occupied |
|
|
|
|
|
|
||||||
|
Owner occupied |
|
|
|
|
|
|
||||||
Commercial and industrial |
|
|
|
|
|
|
|||||||
Mortgage |
|
|
|
|
|
|
|||||||
Leasing |
|
|
|
|
|
|
|||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Personal |
|
|
|
|
|
|
||||||
|
Auto |
|
|
|
|
|
|
||||||
Total Popular, Inc. |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
32
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during the quarter and six months ended June 30, 2022 and 2021, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:
|
|
|
|
|
(In thousands) |
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 |
Purchase price of loans at acquisition |
$ |
$ |
||
Allowance for credit losses at acquisition |
|
|
||
Non-credit discount / (premium) at acquisition |
|
|
||
Par value of acquired loans at acquisition |
$ |
$ |
|
|
|
|
|
(In thousands) |
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 |
Purchase price of loans at acquisition |
$ |
$ |
||
Allowance for credit losses at acquisition |
|
|
||
Non-credit discount / (premium) at acquisition |
|
|
||
Par value of acquired loans at acquisition |
$ |
$ |
33
The Corporation follows the current expected credit loss (“CECL”) model, to establish and evaluate the adequacy of the allowance for credit losses (“ACL”) to provide for expected losses in the loan portfolio. This model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired or originated. In addition, CECL provides that the initial ACL on purchased credit deteriorated (“PCD”) financial assets be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. The provision for credit losses recorded in current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ACL.
At June 30, 2022, the Corporation estimated the ACL by weighting the outputs of optimistic, baseline, and pessimistic scenarios. Among the three scenarios used to estimate the ACL, the baseline is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. The weightings applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The current baseline forecast continues to show a favorable economic scenario. Annualized 2022 GDP growth of 2.8% is expected for both Puerto Rico and the United States, compared to 3.5% and 3.7%, respectively, in the previous quarter. Changes in assumptions related to fiscal stimulus, higher energy prices and tighter financial market conditions contributed to the reduction. The 2022 average unemployment rate is forecasted at 6.9% and 3.5% for Puerto Rico and the United States, respectively, improving from 7.3% and 3.6%, respectively, in the previous forecast.
The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters and six months ended June 30, 2022 and 2021.
34
For the quarter ended June 30, 2022 | ||||||||||||||||||
Puerto Rico | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Leasing |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
|
|
|
|
( |
|
|
|
|
|
|
|||||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( |
|
|
( | |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
|
|
( |
|
|
|
|
|
|
|
|
( | ||||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||||
For the quarter ended June 30, 2022 | ||||||||||||||||
Popular U.S. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
|
Consumer |
|
Total | ||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
|
|
||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( | ||
|
Recoveries |
|
|
|
|
|
|
|
|
|
||||||
Ending balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
|
|
( | |||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||
35
For the quarter ended June 30, 2022 | ||||||||||||||||||
Popular, Inc. | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
Leasing |
|
Consumer |
|
Total | ||||||||
Allowance for credit losses - loans: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
||||||||
|
Provision for credit losses (benefit) |
|
|
|
( |
|
|
( |
|
|
|
|
|
|||||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|||||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
( |
|
|
( |
|
|
( | ||
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
||||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
||||||||
|
Provision for credit losses (benefit) |
|
|
|
( |
|
|
|
|
|
|
|
( | |||||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
$ |
|
$ |
|
$ |
||||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||||
For the six months ended June 30, 2022 | ||||||||||||||||||
Puerto Rico | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Leasing |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
|
|
( |
|
|
|
|
|
|
( | |||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( |
|
|
( | |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
|
|
( |
|
|
|
|
|
|
|
|
( | ||||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||||
36
For the six months ended June 30, 2022 | ||||||||||||||||
Popular U.S. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
|
|
( | |||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( | ||
|
Recoveries |
|
|
|
|
|
|
|
|
|
||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
|
|
( | |||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||
For the six months ended June 30, 2022 | |||||||||||||||||||
Popular, Inc. | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Leasing |
|
Consumer |
|
Total | ||||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
||||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
( |
|
|
|
|
|
|
( | |||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( |
|
|
( | ||
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
||||||||
Allowance for credit losses - unfunded commitments: | |||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
||||||||
|
Provision for credit losses (benefit) |
|
|
|
( |
|
|
|
|
|
|
|
|
( | |||||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
||||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | ||||||||||||||||||
37
For the quarter ended June 30, 2021 | ||||||||||||||||||
Puerto Rico | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Leasing |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
|
|
( |
|
|
|
|
|
|
( | |||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Charge-offs |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( |
|
|
( | |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses |
|
( |
|
|
|
|
|
|
|
|
|
|
|||||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||||
For the quarter ended June 30, 2021 | ||||||||||||||||
Popular U.S. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: | ||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
|
|
|
|
( |
|
|
( |
|
|
||||
|
Charge-offs |
|
( |
|
|
( |
|
|
|
|
( |
|
|
( | ||
|
Recoveries |
|
|
|
|
|
|
|
|
|
||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses |
|
|
|
( |
|
|
|
|
( |
|
|
( | |||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statement of Financial Condition. | |||||||||||||||
For the quarter ended June 30, 2021 | ||||||||||||||
Popular, Inc. | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
Construction |
Mortgage |
Leasing |
Consumer |
Total | ||||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
( | ||||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|||||||
|
Charge-offs |
|
( |
|
( |
|
( |
|
( |
|
( |
|
( | |
|
Recoveries |
|
|
|
|
|
|
|||||||
Ending balance |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
|
Provision for credit losses |
|
( |
|
|
|
|
( |
|
|||||
Ending balance - unfunded commitments [1] |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||
38
For the six months ended June 30, 2021 | ||||||||||||||||||
Puerto Rico | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Leasing |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
|
|
( |
|
|
|
|
|
|
( | |||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Charge-offs |
|
( |
|
|
( |
|
|
( |
|
|
( |
|
|
( |
|
|
( |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
|
|
|
|
( | |||
Ending balance - unfunded commitments [1] |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||||||
For the six months ended June 30, 2021 | ||||||||||||||||
Popular U.S. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
|
Construction |
|
Mortgage |
|
Consumer |
|
Total | |||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
|
|
( |
|
|
( |
|
|
( | ||
|
Charge-offs |
|
( |
|
|
( |
|
|
( |
|
|
( |
|
|
( | |
|
Recoveries |
|
|
|
|
|
|
|
|
|
||||||
Ending balance - loans |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||||
Beginning balance |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
|
( |
|
|
( | ||
Ending balance - unfunded commitments [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 six months ended June 30, 2021 | ||||||||||||||
Popular, Inc. | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Commercial |
Construction |
Mortgage |
Leasing |
Consumer |
Total | ||||||||
Allowance for credit losses - loans: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Beginning balance |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
|
Provision for credit losses (benefit) |
|
( |
|
|
( |
|
|
|
( | ||||
|
Initial allowance for credit losses - PCD Loans |
|
|
|
|
|
|
|||||||
|
Charge-offs |
|
( |
|
( |
|
( |
|
( |
|
( |
|
( | |
|
Recoveries |
|
|
|
|
|
|
|||||||
Ending balance - loans |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
Allowance for credit losses - unfunded commitments: | ||||||||||||||
Beginning balance |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
|
Provision for credit losses (benefit) |
|
( |
|
( |
|
|
|
( |
|
( | |||
Ending balance - unfunded commitments [1] |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||
[1] |
Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. | |||||||||||||
Modifications
A modification of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to TDRs, refer to the Summary of Significant Accounting Policies included in Note 2 to the 2021 Form 10-K.
The outstanding balance of loans classified as TDRs amounted to $
The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at June 30, 2022 and December 31, 2021.
|
June 30, 2022 |
|
|
December 31, 2021 | ||||||||||||||
(In thousands) |
|
Accruing |
|
Non-Accruing |
|
Total |
|
Related Allowance |
|
|
|
Accruing |
|
Non-Accruing |
|
Total |
|
Related Allowance |
Loans held-in-portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commercial |
$ |
$ |
$ |
$ |
|
|
$ |
$ |
$ |
$ |
||||||||
Mortgage[1] |
|
|
|
|
|
|
|
|
|
|
||||||||
Leasing |
|
|
|
|
|
|
|
|
|
|
||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
||||||||
Loans held-in-portfolio |
$ |
$ |
$ |
$ |
|
|
$ |
$ |
$ |
$ |
||||||||
[1] At June 30, 2022, accruing mortgage loan TDRs include $ | ||||||||||||||||||
40
|
Popular, Inc. | ||||||||
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 | ||||||
|
Reduction in interest rate |
Extension of maturity date |
Combination of reduction in interest rate and extension of maturity date |
Other |
|
Reduction in interest rate |
Extension of maturity date |
Combination of reduction in interest rate and extension of maturity date |
Other |
Commercial real estate non-owner occupied |
|
||||||||
Commercial real estate owner occupied |
|
||||||||
Commercial and industrial |
|
||||||||
Mortgage |
|
||||||||
Leasing |
|
||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
Credit cards |
|
||||||||
Personal |
|
||||||||
Auto |
|
||||||||
Total |
|
||||||||
|
Popular, Inc. | ||||||||
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 | ||||||
|
Reduction in interest rate |
Extension of maturity date |
Combination of reduction in interest rate and extension of maturity date |
Other |
|
Reduction in interest rate |
Extension of maturity date |
Combination of reduction in interest rate and extension of maturity date |
Other |
Commercial multi-family |
|
||||||||
Commercial real estate non-owner occupied |
|
||||||||
Commercial real estate owner occupied |
|
||||||||
Commercial and industrial |
|
||||||||
Mortgage |
|
||||||||
Leasing |
|
||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
Credit cards |
|
||||||||
HELOCs |
|
||||||||
Personal |
|
||||||||
Auto |
|
||||||||
Other |
|
||||||||
Total |
|
||||||||
Popular, Inc. | |||||||
For the quarter ended June 30, 2022 | |||||||
(Dollars in thousands) |
Loan count |
Pre-modification outstanding recorded investment |
Post-modification outstanding recorded investment |
Increase (decrease) in the allowance for loan losses as a result of modification | |||
Commercial real estate non-owner occupied |
$ |
$ |
$ |
||||
Commercial real estate owner occupied |
|
|
|
( | |||
Commercial and industrial |
|
|
|
||||
Mortgage |
|
|
|
||||
Leasing |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
Personal |
|
|
|
||||
Total |
$ |
$ |
$ |
( | |||
41
Popular, Inc. | |||||||
For the quarter ended June 30, 2021 | |||||||
(Dollars in thousands) |
Loan count |
Pre-modification outstanding recorded investment |
Post-modification outstanding recorded investment |
Increase (decrease) in the allowance for loan losses as a result of modification | |||
Commercial multi-family |
$ |
$ |
$ |
||||
Commercial real estate owner occupied |
|
|
|
||||
Commercial and industrial |
|
|
|
||||
Mortgage |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
HELOCs |
|
|
|
||||
Personal |
|
|
|
||||
Auto |
|
|
|
||||
Other |
|
|
|
||||
Total |
$ |
$ |
$ |
||||
Popular, Inc. | |||||||
For the six months ended June 30, 2022 | |||||||
(Dollars in thousands) |
Loan count |
Pre-modification outstanding recorded investment |
Post-modification outstanding recorded investment |
Increase (decrease) in the allowance for credit losses as a result of modification | |||
Commercial real estate non-owner occupied |
$ |
$ |
$ |
||||
Commercial real estate owner occupied |
|
|
|
( | |||
Commercial and industrial |
|
|
|
||||
Mortgage |
|
|
|
||||
Leasing |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
Personal |
|
|
|
||||
Auto |
|
|
|
||||
Total |
$ |
$ |
$ |
||||
Popular, Inc. | |||||||
For the six months ended June 30, 2021 | |||||||
(Dollars in thousands) |
Loan count |
Pre-modification outstanding recorded investment |
Post-modification outstanding recorded investment |
Increase (decrease) in the allowance for credit losses as a result of modification | |||
Commercial multi-family |
$ |
$ |
$ |
||||
Commercial real estate non-owner occupied |
|
|
|
||||
Commercial real estate owner occupied |
|
|
|
||||
Commercial and industrial |
|
|
|
||||
Mortgage |
|
|
|
||||
Leasing |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
HELOCs |
|
|
|
||||
Personal |
|
|
|
||||
Auto |
|
|
|
||||
Other |
|
|
|
||||
Total |
$ |
$ |
$ |
||||
42
Popular, Inc. | |||||||
|
Defaulted during the quarter ended |
|
Defaulted during the six months ended | ||||
(Dollars in thousands) |
Loan count |
|
Recorded investment as of first default date |
|
Loan count |
|
Recorded investment as of first default date |
Commercial and industrial |
$ |
|
$ |
||||
Mortgage |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
Personal |
|
|
|
||||
Total |
$ |
|
$ |
||||
Popular, Inc. | |||||||
|
Defaulted during the quarter ended |
|
Defaulted during the six months ended | ||||
(Dollars in thousands) |
Loan count |
|
Recorded investment as of first default date |
|
Loan count |
|
Recorded investment as of first default date |
Commercial real estate non-owner occupied |
$ |
|
$ |
||||
Commercial real estate owner occupied |
|
|
|
||||
Commercial and industrial |
|
|
|
||||
Mortgage |
|
|
|
||||
Consumer: |
|
|
|
|
|
|
|
Credit cards |
|
|
|
||||
Personal |
|
|
|
||||
Total |
$ |
|
$ |
||||
Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the ACL may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.
Credit Quality
The risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower. The risk rating analysis process is performed at least once a year or more frequently if events or conditions change which may deteriorate the credit quality. In the case of consumer and mortgage loans, these loans are classified considering their delinquency status at the end of the reporting period.
The following tables present the amortized cost basis, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at June 30, 2022 and December 31, 2021 by vintage year. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2021.
43
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total leasing |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
44
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Auto |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Puerto Rico |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
45
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
46
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Pass |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Popular U.S. |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
47
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
48
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total leasing |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
49
June 30, 2022 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Auto |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Popular Inc. |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
50
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total leasing |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
51
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Auto |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Puerto Rico |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
52
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
53
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Popular U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Pass |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Pass |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Popular U.S. |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
54
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
Commercial multi-family | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial multi-family |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate non-owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate non-owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate owner occupied | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial real estate owner occupied |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial | |||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Doubtful |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Total commercial and industrial |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||
55
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction | ||||||||||||||||||||
|
|
|
Watch |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Special Mention |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Substandard |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total construction |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total mortgage |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing | ||||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total leasing |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
56
December 31, 2021 | |||||||||||||||||||||
|
|
|
|
Term Loans |
|
Revolving Loans Amortized Cost Basis |
|
Revolving Loans Converted to Term Loans Amortized Cost Basis |
|
| |||||||||||
|
|
|
|
Amortized Cost Basis by Origination Year |
|
|
|
| |||||||||||||
(In thousands) |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
2017 |
|
Prior Years |
|
|
|
Total | |||||
Popular, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Consumer: | ||||||||||||||||||||
|
|
Credit cards | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total credit cards |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELOCs | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total HELOCs |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Personal |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Auto |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consumer | |||||||||||||||||||
|
|
|
Substandard |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
|
|
|
Loss |
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Pass |
|
|
|
|
|
|
|
|
|
|||||||||
|
Total Other consumer |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||||
Total Popular Inc. |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||
57
Note 9 – Mortgage banking activities
Income from mortgage banking activities includes mortgage servicing fees earned in connection with administering residential mortgage loans and valuation adjustments on mortgage servicing rights. It also includes gain on sales and securitizations of residential mortgage loans, losses on repurchased loans, including interest advances, and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition, lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.
The following table presents the components of mortgage banking activities:
|
|
Quarters ended June 30, |
Six months ended June 30, | ||||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 | |
Mortgage servicing fees, net of fair value adjustments: |
|
|
|
|
|
|
|
| |
|
Mortgage servicing fees |
$ |
$ |
$ |
$ |
||||
|
Mortgage servicing rights fair value adjustments |
|
|
( |
|
|
( | ||
Total mortgage servicing fees, net of fair value adjustments |
|
|
|
|
|||||
Net gain (loss) on sale of loans, including valuation on loans held-for-sale |
|
|
|
( |
|
||||
Trading account profit (loss): |
|
|
|
|
|
|
|
| |
|
Unrealized losses on outstanding derivative positions |
|
( |
|
|
|
|||
|
Realized gains (losses) on closed derivative positions |
|
|
( |
|
|
|||
Total trading account profit (loss) |
|
|
( |
|
|
||||
Losses on repurchased loans, including interest advances |
|
( |
|
( |
|
( |
|
( | |
Total mortgage banking activities |
$ |
$ |
$ |
$ |
|||||
58
The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 19 to the Consolidated Financial Statements for a description of such arrangements.
The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and six months ended June 30, 2022 and 2021:
|
|
Proceeds Obtained During the Quarter Ended June 30, 2022 | ||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Initial Fair Value | ||||
Assets |
|
|
|
|
|
|
|
|
Trading account debt securities: |
|
|
|
|
|
|
|
|
Mortgage-backed securities - GNMA |
$ |
$ |
$ |
$ |
||||
Mortgage-backed securities - FNMA |
|
|
|
|
||||
Mortgage-backed securities - FHLMC |
|
|
|
|
||||
Total trading account debt securities |
$ |
$ |
$ |
$ |
||||
Mortgage servicing rights |
$ |
$ |
$ |
$ |
||||
Total |
$ |
$ |
$ |
$ |
||||
|
|
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 |
$ |
$ |
$ |
$ |
||||
Mortgage-backed securities - FNMA |
|
|
|
|
||||
Mortgage-backed securities - FHLMC |
|
|
|
|
||||
Total trading account debt securities |
$ |
$ |
$ |
$ |
||||
Mortgage servicing rights |
$ |
$ |
$ |
$ |
||||
Total |
$ |
$ |
$ |
$ |
||||
|
|
Proceeds Obtained During the Quarter Ended June 30, 2021 | ||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Initial Fair Value | ||||
Assets |
|
|
|
|
|
|
|
|
Trading account debt securities: |
|
|
|
|
|
|
|
|
Mortgage-backed securities - GNMA |
$ |
$ |
$ |
$ |
||||
Mortgage-backed securities - FNMA |
|
|
|
|
||||
Mortgage-backed securities - FHLMC |
|
|
|
|
||||
Total trading account debt securities |
$ |
$ |
$ |
$ |
||||
Mortgage servicing rights |
$ |
$ |
$ |
$ |
||||
Total |
$ |
$ |
$ |
$ |
||||
59
|
|
Proceeds Obtained During the Six Months Ended June 30, 2021 | ||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Initial Fair Value | ||||
Assets |
|
|
|
|
|
|
|
|
Trading account debt securities: |
|
|
|
|
|
|
|
|
Mortgage-backed securities - GNMA |
$ |
$ |
$ |
$ |
||||
Mortgage-backed securities - FNMA |
|
|
|
|
||||
Mortgage-backed securities - FHLMC |
|
|
|
|
||||
Total trading account debt securities |
$ |
$ |
$ |
$ |
||||
Mortgage servicing rights |
$ |
$ |
$ |
$ |
||||
Total |
$ |
$ |
$ |
$ |
||||
During the six months ended June 30, 2022, the Corporation retained servicing rights on whole loan sales involving approximately $
The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value.
The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior.
The following table presents the changes in MSRs measured using the fair value method for the six months ended June 30, 2022 and 2021.
60
Residential MSRs | ||||
(In thousands) |
June 30, 2022 |
June 30, 2021 | ||
Fair value at beginning of period |
$ |
$ |
||
Additions |
|
|
||
Changes due to payments on loans [1] |
|
( |
|
( |
Reduction due to loan repurchases |
|
( |
|
( |
Changes in fair value due to changes in valuation model inputs or assumptions |
|
|
||
Other |
|
|
||
Fair value at end of period [2] |
$ |
$ |
||
[1] Represents changes due to collection / realization of expected cash flows over time. | ||||
[2] At June 30, 2022, PB had MSRs amounting to $ | ||||
Residential mortgage loans serviced for others were $
Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At June 30, 2022, those weighted average mortgage servicing fees were
The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters and six months ended June 30, 2022 and 2021 were as follows:
|
Quarters ended |
|
|
Six Months ended | |||||||||||||||
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
June 30, 2021 | ||||||||||
|
BPPR |
|
PB |
|
|
BPPR |
|
PB |
|
|
BPPR |
|
PB |
|
|
BPPR |
|
PB |
|
Prepayment speed |
% |
% |
|
% |
% |
|
% |
% |
|
% |
% | ||||||||
Weighted average life (in years) |
|
|
|
|
|
|
|
|
|
|
| ||||||||
Discount rate (annual rate) |
% |
% |
|
% |
% |
|
% |
% |
|
% |
% | ||||||||
|
|
Originated MSRs |
Purchased MSRs | ||||||||||
|
|
June 30, |
December 31, |
June 30, |
December 31, | ||||||||
(In thousands) |
2022 |
2021 |
2022 |
2021 | |||||||||
Fair value of servicing rights |
$ |
|
$ |
|
$ |
|
$ |
| |||||
Weighted average life (in years) |
|
|
|
|
|
|
|
| |||||
Weighted average prepayment speed (annual rate) |
|
% |
|
% |
|
% |
|
% | |||||
|
Impact on fair value of 10% adverse change |
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
|
Impact on fair value of 20% adverse change |
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
Weighted average discount rate (annual rate) |
|
% |
|
% |
|
% |
|
% | |||||
|
Impact on fair value of 10% adverse change |
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
|
Impact on fair value of 20% adverse change |
$ |
( |
|
$ |
( |
|
$ |
( |
|
$ |
( |
|
61
At June 30, 2022, the Corporation serviced $
Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At June 30, 2022, the Corporation had recorded $
During the six months ended June 30, 2022, the Corporation repurchased approximately $
62
|
|
For the quarter ended June 30, 2022 | ||||
|
|
OREO |
|
OREO |
|
|
(In thousands) |
|
Commercial/Construction |
|
Mortgage |
|
Total |
Balance at beginning of period |
$ |
$ |
$ |
|||
Write-downs in value |
|
( |
|
( |
|
( |
Additions |
|
|
|
|||
Sales |
|
( |
|
( |
|
( |
Other adjustments |
|
|
( |
|
( | |
Ending balance |
$ |
$ |
$ |
|||
|
|
For the quarter ended June 30, 2021 | ||||
|
|
OREO |
|
OREO |
|
|
(In thousands) |
|
Commercial/Construction |
|
Mortgage |
|
Total |
Balance at beginning of period |
$ |
$ |
$ |
|||
Write-downs in value |
|
( |
|
( |
|
( |
Additions |
|
|
|
|||
Sales |
|
( |
|
( |
|
( |
Other adjustments |
|
|
( |
|
( | |
Ending balance |
$ |
$ |
$ |
|||
|
|
For the six months ended June 30, 2022 | ||||
|
|
OREO |
|
OREO |
|
|
(In thousands) |
|
Commercial/Construction |
|
Mortgage |
|
Total |
Balance at beginning of period |
$ |
$ |
$ |
|||
Write-downs in value |
|
( |
|
( |
|
( |
Additions |
|
|
|
|||
Sales |
|
( |
|
( |
|
( |
Other adjustments |
|
|
( |
|
( | |
Ending balance |
$ |
$ |
$ |
|||
|
|
For the six months ended June 30, 2021 | ||||
|
|
OREO |
|
OREO |
|
|
(In thousands) |
|
Commercial/Construction |
|
Mortgage |
|
Total |
Balance at beginning of period |
$ |
$ |
$ |
|||
Write-downs in value |
|
( |
|
( |
|
( |
Additions |
|
|
|
|||
Sales |
|
( |
|
( |
|
( |
Other adjustments |
|
|
( |
|
( | |
Ending balance |
$ |
$ |
$ |
|||
63
Note 12 − Other assets
The caption of other assets in the consolidated statements of financial condition consists of the following major categories:
(In thousands) |
June 30, 2022 |
December 31, 2021 | ||
Net deferred tax assets (net of valuation allowance) |
$ |
$ |
||
Investments under the equity method |
|
|
||
Prepaid taxes |
|
|
||
Other prepaid expenses |
|
|
||
Derivative assets |
|
|
||
Trades receivable from brokers and counterparties |
|
|
||
Principal, interest and escrow servicing advances |
|
|
||
Guaranteed mortgage loan claims receivable |
|
|
||
|
|
|||
|
|
|||
Others |
|
|
||
Total other assets |
$ |
$ |
||
64
Goodwill
There were
The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments:
|
|
|
|
|
|
|
June 30, 2022 | ||||||
|
Balance at |
|
|
Balance at | ||
|
June 30, |
Accumulated |
June 30, | |||
|
2022 |
impairment |
2022 | |||
(In thousands) |
(gross amounts) |
losses |
(net amounts) | |||
Banco Popular de Puerto Rico |
$ |
$ |
$ |
|||
Popular U.S. |
|
|
|
|||
Total Popular, Inc. |
$ |
$ |
$ |
|||
December 31, 2021 | ||||||
|
Balance at |
|
|
Balance at | ||
|
December 31, |
Accumulated |
December 31, | |||
|
2021 |
impairment |
2021 | |||
(In thousands) |
(gross amounts) |
losses |
(net amounts) | |||
Banco Popular de Puerto Rico |
$ |
$ |
$ |
|||
Popular U.S. |
|
|
|
|||
Total Popular, Inc. |
$ |
$ |
$ |
|||
Other Intangible Assets
At June 30, 2022 and December 31, 2021, the Corporation had $
The following table reflects the components of other intangible assets subject to amortization:
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying | |
(In thousands) |
|
Amount |
|
Amortization |
|
Value | |
June 30, 2022 |
|
|
|
|
|
| |
|
Core deposits |
$ |
$ |
$ |
|||
|
Other customer relationships |
|
|
|
|||
Total other intangible assets |
$ |
$ |
$ |
||||
December 31, 2021 |
|
|
|
|
|
| |
|
Core deposits |
$ |
$ |
$ |
|||
|
Other customer relationships |
|
|
|
|||
Total other intangible assets |
$ |
$ |
$ |
||||
During the quarter ended June 30, 2022, the Corporation recognized $
The following table presents the estimated amortization of the intangible assets with definite useful lives for each of the following periods:
65
(In thousands) |
|
|
Remaining 2022 |
$ |
|
Year 2023 |
|
|
Year 2024 |
|
|
Year 2025 |
|
|
Year 2026 |
|
|
Later years |
|
66
Note 14 – Deposits
Total interest bearing deposits as of the end of the periods presented consisted of:
(In thousands) |
June 30, 2022 |
December 31, 2021 | |||
Savings accounts |
$ |
$ |
|||
NOW, money market and other interest bearing demand deposits |
|
|
|||
Total savings, NOW, money market and other interest bearing demand deposits |
|
|
|||
Certificates of deposit: |
|
|
|
| |
|
Under $250,000 |
|
|
||
|
$250,000 and over |
|
|
||
Total certificates of deposit |
|
|
|||
Total interest bearing deposits |
$ |
$ |
|||
(In thousands) |
|
|
2022 |
$ |
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 and thereafter |
|
|
Total certificates of deposit |
$ |
At June 30, 2022, the Corporation had brokered deposits amounting to $
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $
At June 30, 2022, public sector deposits amounted to $
67
Note 15 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted to $
The Corporation’s repurchase transactions are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them. Pursuant to the Corporation’s accounting policy, the repurchase agreements are not offset with other repurchase agreements held with the same counterparty.
The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with debt securities available-for-sale, other assets held-for-trading purposes or which have been obtained under agreements to resell. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the Consolidated Statements of Financial Condition.
|
|
June 30, 2022 |
December 31, 2021 | |||
|
|
|
Repurchase |
|
Repurchase |
|
(In thousands) |
|
liability |
|
liability |
| |
U.S. Treasury securities |
|
|
|
|
| |
|
Within 30 days |
$ |
$ |
| ||
|
After 30 to 90 days |
|
|
| ||
|
After 90 days |
|
|
| ||
Total U.S. Treasury securities |
|
|
| |||
Mortgage-backed securities |
|
|
|
|
| |
|
Within 30 days |
|
|
| ||
|
After 30 to 90 days |
|
|
| ||
|
After 90 days |
|
|
| ||
Total mortgage-backed securities |
|
|
| |||
Collateralized mortgage obligations |
|
|
|
|
| |
|
Within 30 days |
|
|
| ||
Total collateralized mortgage obligations |
|
|
| |||
Total |
$ |
$ |
| |||
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
68
Notes Payable
The following table presents the composition of notes payable at June 30, 2022 and December 31, 2021.
(In thousands) |
June 30, 2022 |
|
December 31, 2021 | ||
Advances with the FHLB with maturities ranging from |
$ |
|
$ |
||
Unsecured senior debt securities maturing on |
|
|
|
||
Junior subordinated deferrable interest debentures (related to trust preferred securities) maturing on |
|
|
|
||
Total notes payable |
$ |
|
$ |
||
Note: Refer to the Corporation's 2021 Form 10-K for rates information at December 31, 2021. | |||||
|
|
Assets sold under |
|
|
| |
(In thousands) |
|
agreements to repurchase |
|
Notes payable |
Total | |
2022 |
$ |
$ |
$ |
|||
2023 |
|
|
|
|||
2024 |
|
|
|
|||
2025 |
|
|
|
|||
2026 |
|
|
|
|||
Later years |
|
|
|
|||
Total borrowings |
$ |
$ |
$ |
|||
At June 30, 2022 and December 31, 2021, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $
Also, at June 30, 2022, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $
69
Note 16 − Other liabilities
The caption of other liabilities in the consolidated statements of financial condition consists of the following major categories:
(In thousands) |
June 30, 2022 |
December 31, 2021 | ||
Accrued expenses |
$ |
$ |
||
Accrued interest payable |
|
|
||
Accounts payable |
|
|
||
Dividends payable |
|
|
||
Trades payable |
|
|
||
Liability for GNMA loans sold with an option to repurchase |
|
|
||
Reserves for loan indemnifications |
|
|
||
Reserve for operational losses |
|
|
||
|
|
|||
|
|
|||
Pension benefit obligation |
|
|
||
Postretirement benefit obligation |
|
|
||
Others |
|
|
||
Total other liabilities |
$ |
$ |
||
70
As of June 30, 2022, stockholder’s equity totaled $
Accelerated share repurchase transaction (“ASR”)
On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate of $
On May 3, 2021, the Corporation entered into a $
71
Note 18 – Other comprehensive loss
The following table presents changes in accumulated other comprehensive loss by component for the quarters and six months ended June 30, 2022 and 2021.
|
|
Changes in Accumulated Other Comprehensive Loss by Component [1] | |||||||||
|
|
|
|
Quarters ended |
Six months ended | ||||||
|
|
|
June 30, |
June 30, | |||||||
(In thousands) |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 | ||
Foreign currency translation |
Beginning Balance |
$ |
( |
$ |
( |
$ |
( |
$ |
( | ||
|
|
Other comprehensive income |
|
|
|
|
|||||
|
|
Net change |
|
|
|
|
|||||
|
|
Ending balance |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
Adjustment of pension and postretirement benefit plans |
Beginning Balance |
$ |
( |
$ |
( |
$ |
( |
$ |
( | ||
|
|
Other comprehensive income before reclassifications |
|
|
|
|
|||||
|
|
Amounts reclassified from accumulated other comprehensive loss for amortization of net losses |
|
|
|
|
|||||
|
|
Net change |
|
|
|
|
|||||
|
|
Ending balance |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
Unrealized net holding (losses) gains on debt securities |
Beginning Balance |
$ |
( |
$ |
$ |
( |
$ |
||||
|
|
Other comprehensive (loss) income |
|
( |
|
|
( |
|
( | ||
|
|
Net change |
|
( |
|
|
( |
|
( | ||
|
|
Ending balance |
$ |
( |
$ |
$ |
( |
$ |
|||
Unrealized net losses on cash flow hedges |
Beginning Balance |
$ |
$ |
( |
$ |
( |
$ |
( | |||
|
|
Other comprehensive (loss) income before reclassifications |
|
( |
|
( |
|
|
|||
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
( |
|
|
( |
|
|||
|
|
Net change |
|
( |
|
|
|
||||
|
|
Ending balance |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
|
|
Total |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
[1] |
All amounts presented are net of tax. |
|
|
|
|
|
|
|
| ||
72
|
|
Reclassifications Out of Accumulated Other Comprehensive Loss | |||||||||
|
|
|
|
Quarters ended |
Six Months ended | ||||||
|
|
Affected Line Item in the |
June 30, |
June 30, | |||||||
(In thousands) |
Consolidated Statements of Operations |
|
2022 |
|
2021 |
|
2022 |
|
2021 | ||
Adjustment of pension and postretirement benefit plans |
|
|
|
|
|
|
|
|
| ||
|
Amortization of net losses |
Other operating expenses |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
|
|
Total before tax |
|
( |
|
( |
|
( |
|
( | |
|
|
Income tax benefit |
|
|
|
|
|||||
|
|
Total net of tax |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
Unrealized net losses on cash flow hedges |
|
|
|
|
|
|
|
|
| ||
|
Forward contracts |
Mortgage banking activities |
$ |
$ |
$ |
$ |
|||||
|
Interest rate swaps |
Other operating income |
|
( |
|
( |
|
( |
|
( | |
|
|
Total before tax |
|
|
( |
|
|
( | |||
|
|
Income tax benefit |
|
( |
|
( |
|
( |
|
( | |
|
|
Total net of tax |
$ |
$ |
( |
$ |
$ |
( | |||
|
|
Total reclassification adjustments, net of tax |
$ |
( |
$ |
( |
$ |
( |
$ |
( | |
73
At June 30, 2022, the Corporation recorded a liability of $
From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. At June 30, 2022, the Corporation serviced $
The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters and six months ended June 30, 2022 and 2021.
|
Quarters ended June 30, |
|
|
Six months ended June 30, |
|
| |||||||||
(In thousands) |
2022 |
|
|
2021 |
|
|
2022 |
|
2021 |
|
| ||||
Balance as of beginning of period |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
| ||||
Provision (benefit) for recourse liability |
|
( |
|
|
|
( |
|
|
|
( |
|
|
( |
|
|
Net charge-offs |
|
( |
|
|
|
( |
|
|
|
( |
|
|
( |
|
|
Balance as of end of period |
$ |
|
|
$ |
|
|
$ |
|
$ |
|
| ||||
When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the six months ended June 30, 2022, the Corporation purchased $
From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. At June 30, 2022, the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR amounted to $
Servicing agreements relating to the mortgage-backed securities programs of FNMA, FHLMC and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At June 30, 2022, the Corporation serviced $
74
30, 2022, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $
Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its
75
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.
(In thousands) |
June 30, 2022 |
December 31, 2021 | |||
Commitments to extend credit: |
|
|
|
| |
|
Credit card lines |
$ |
$ |
||
|
Commercial and construction lines of credit |
|
|
||
|
Other consumer unused credit commitments |
|
|
||
Commercial letters of credit |
|
|
|||
Standby letters of credit |
|
|
|||
Commitments to originate or fund mortgage loans |
|
|
|||
At June 30, 2022 and December 31, 2021, the Corporation maintained a reserve of approximately $
Other commitments
At June 30, 2022, and December 31, 2021, the Corporation also maintained other non-credit commitments for approximately $
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 32 to the Consolidated Financial Statements.
Puerto Rico has faced significant fiscal and economic challenges for over a decade. In response to such challenges, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA.
At June 30, 2022, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $
76
(In thousands) |
|
Investment Portfolio |
|
Loans |
|
Total Outstanding |
|
Total Exposure | |
Central Government |
|
|
|
|
|
|
|
| |
|
After 1 to 5 years |
$ |
$ |
$ |
$ |
||||
|
After 5 to 10 years |
|
|
|
|
||||
|
After 10 years |
|
|
|
|
||||
Total Central Government |
|
|
|
|
|||||
Municipalities |
|
|
|
|
|
|
|
| |
|
Within 1 year |
|
|
|
|
||||
|
After 1 to 5 years |
|
|
|
|
||||
|
After 5 to 10 years |
|
|
|
|
||||
|
After 10 years |
|
|
|
|
||||
Total Municipalities |
|
|
|
|
|||||
Total Direct Government Exposure |
$ |
$ |
$ |
$ |
|||||
In addition, at June 30, 2022, the Corporation had $
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, $
At June 30, 2022, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $
At June 30, 2022, the Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, it has a loan portfolio amounting to
77
approximately $
Legal Proceedings
The nature of Popular’s business ordinarily generates claims, litigation, investigations, and legal and administrative cases and proceedings (collectively, “Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of the Corporation and its stockholders to do so. On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the most current information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis to reflect any relevant developments, as appropriate. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established.
In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the range of reasonably possible losses (with respect to those matters where such limits may be determined, in excess of amounts accrued) for current Legal Proceedings ranged from $
While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, management believes that the amount it has already accrued is adequate and any incremental liability arising from the Legal Proceedings in matters in which a loss amount can be reasonably estimated will not have a material adverse effect on the Corporation’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters in a reporting period, if unfavorable, could have a material adverse effect on the Corporation’s consolidated financial position for that period.
Set forth below is a description of the Corporation’s significant Legal Proceedings.
BANCO POPULAR DE PUERTO RICO
Hazard Insurance Commission-Related Litigation
Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a class action complaint captioned Pérez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint originally sought damages and preliminary and permanent injunctive relief on behalf of the class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $
78
In April 2019, the Court amended the class definition to limit it to individual homeowners whose residential units were subject to a mortgage from BPPR who, in turn, obtained risk insurance policies with Antilles Insurance or MAPFRE Insurance through Popular Insurance from 2002 to 2015, and who did not make insurance claims against said policies during their effective term. The Court approved in September 2020 the notice to the class, which is yet to be published.
In May 2021, the Popular Defendants filed a motion for summary judgment with respect to plaintiffs’ unjust enrichment theory of liability, reserving the right to file an additional motion for summary judgment regarding damages should the court deny the Popular Defendant’s pending motion to exclude an economic expert recently designated by Plaintiffs. Also, in May 2021, Popular, Inc. and BPPR also filed a separate motion for summary judgment alleging that, even taking as true and correct Plaintiffs’ theory of liability, Popular, Inc. and BPPR are not liable to Plaintiffs since they do not receive and are legally prohibited from receiving insurance commissions. In September 2021, the Court held an oral hearing to discuss the pending motions for summary judgment. At such hearing, Plaintiffs notified they did not object the dismissal of the action with prejudice as to Popular, Inc. and BPPR, leaving Popular Insurance, LLC as the sole remaining defendant in the case.
In December 2021, Popular Insurance filed a petition of certiorari to the Puerto Rico Court of Appeals, seeking review from the denial of the motion for summary judgment, and on February 28, 2022, the Court of Appeals entered a judgment reversing the lower court’s decision, after concluding it was unable to review de novo the denial of the motion for summary judgment since such decision failed to comply with the summary judgment standard. The Court of Appeals remanded the case to the lower court with instructions to enter a summary judgment that identifies the material contested issues of facts that prevents the lower court from granting Popular’s summary judgment motion.
On May 9, 2022, the trial court issued an amended resolution denying for a second time Popular Insurance’s Motion for Summary Judgment. On June 14, 2022, Popular Insurance filed a petition of Certiorari to the Puerto Rico Court of Appeals, seeking review from the denial of the Motion for Summary Judgment. Plaintiffs filed their response brief on July 28, 2022. The petition of Certiorari is now fully briefed and pending resolution.
Mortgage-Related Litigation
BPPR was named a defendant in a putative class action captioned Yiries Josef Saad Maura v. Banco Popular, et al. on behalf of residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs contend that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel, all in violation of the Truth In Lending Act (“TILA”), the Real Estate Settlement Procedures Act (“RESPA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and other consumer-protection laws and regulations. Plaintiffs did not include a specific amount of damages in their complaint. After waiving service of process, BPPR filed a motion to dismiss the complaint (as did most co-defendants, separately). BPPR further filed a motion to oppose class certification, which the Court granted in September 2018. In April 2019, the Court entered an Opinion and Order granting BPPR’s and several other defendants’ motions to dismiss with prejudice. Plaintiffs filed a Motion for Reconsideration in April 2019, which Popular timely opposed. In September 2019, the Court issued an Amended Opinion and Order dismissing plaintiffs’ claims against all defendants, denying the reconsideration requests and other pending motions, and issuing final judgment. In October 2019, plaintiffs filed a Motion for Reconsideration of the Court’s Amended Opinion and Order, which was denied in December 2019. In January 2020, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. Plaintiffs filed their appeal brief in July 2020, Appellees filed their brief in September 2020, and Appellants filed their reply brief in January 2021. The appeal is now fully briefed and pending resolution.
Insufficient Funds and Overdraft Fees Class Actions
In February 2020, BPPR was served with a putative class action complaint captioned Soto-Melendez v. Banco Popular de Puerto Rico, filed before the United States District Court for the District of Puerto Rico. The complaint alleges breach of contract, breach of the covenant of good faith and fair dealing and unjust enrichment due to BPPR’s purported practice of (a) assessing more than one insufficient funds fee (“NSF Fees”) on the same ACH “item” or transaction and (b) charging both NSF Fees and overdraft fees (“OD Fees”) on the same ACH item or transaction, and is filed on behalf of all persons who during the applicable statute of limitations period were charged NSF Fees and/or OD Fees pursuant to these purported practices. In April 2020, BPPR filed a motion to
79
dismiss the case. In April 2021, the Court issued an order granting in part and denying in part BPPR’s motion to dismiss; the unjust enrichment claim was dismissed, whereas the breach of contract and covenant of good faith and fair dealing claims survived the motion.
In March 2022, BPPR was also named as a defendant on a putative class action complaint captioned Orama-Caraballo v. Banco Popular, filed before the U.S. District Court for the District of Puerto Rico by the same Plaintiffs’ attorneys of the Soto-Melendez complaint. Similar to the claims set forth in the Soto-Melendez complaint, Plaintiffs allege breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment due to the bank’s purported practice of (a) assessing more than one NSF Fee on the same “item” and (b) charging both NSF Fees and OD Fees on the same “item” but included allegations with respect to “checks” in addition to ACH payments.
During a mediation hearing held on April 5, 2022, the parties in both the Soto Melendez and Orama-Caraballo complaints reached a settlement in principle on a class-wide basis subject to final court approval. On April 28, 2022, the parties filed before the Court a notice of settlement and a request to stay the proceedings in both cases while Plaintiffs submit a motion for the preliminary approval of the class action settlement. The parties expect to submit the settlement agreement for the Court's approval during August 2022.
Popular was also named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff alleges breach of contract, violation of the covenant of good faith and fair dealing, unjust enrichment and violation of New York consumer protection law due to Popular’s purported practice of charging OD Fees on transactions that, under plaintiffs’ theory, do not overdraw the account. Plaintiff described Popular’s purported practice of charging OD Fees as “Authorize Positive, Purportedly Settle Negative” (“APPSN”) transactions and alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. In August 2020, Popular filed a Motion to Dismiss on several grounds, including failure to state a claim against Popular, Inc. and improper venue. In October 2020, Plaintiff filed a Notice of Voluntary Dismissal before the U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for the District of the Virgin Islands against Popular, Inc., Popular Bank and BPPR. In November 2020, Plaintiff filed a Notice of Voluntary Dismissal against Popular, Inc. and Popular Bank following a Motion to Dismiss filed on behalf of such entities, which argued failure to state a claim and lack of minimum contacts of such parties with the U.S.V.I. district court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to Dismiss in January 2021.
In October 2021, the District Court, notwithstanding that BPPR’s Motion to Dismiss remains pending resolution, held an initial scheduling conference and, thereafter, issued a trial management order where it scheduled the deadline for all discovery for November 1, 2022, the deadline for the filing of a joint pre-trial brief for June 1, 2023, and the trial for June 20 to June 30, 2023. During a status hearing held on June 7, 2022, the District Court entered an amended scheduling order extending the discovery deadline to March 31, 2023 and granting plaintiffs until April 14, 2023 to file a motion for class certification.
On January 31, 2022, Popular was also named as a defendant on a putative class action complaint captioned Lipsett v. Popular, Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Similar to the claims set forth in the aforementioned Golden complaint, Plaintiff alleges breach of contract, including violations of the covenant of good faith and fair dealing, as a result of Popular’s purported practice of charging OD Fees for APPSN transactions. The complaint further alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. Popular waived service of process and filed a Motion to Compel Arbitration on April 4, 2022. In response to Popular’s motion, Plaintiff filed a Notice of Voluntary Dismissal on April 27, 2022.
On May 13, 2022, Plaintiff in the Lipsett complaint filed a new complaint captioned Lipsett v. Banco Popular North America d/b/a Popular Community Bank with the same allegations of his previous complaint against Popular. On June 10, 2022, after serving Plaintiff with a written notice of election to arbitrate the claims asserted in the complaint which went unanswered, Popular Bank filed a Pre-Motion Conference motion related to a new Motion to Compel Arbitration. The Court has yet to rule on the motion.
POPULAR BANK
Employment-Related Litigation
In July 2019, Popular Bank (“PB”) was served in a putative class complaint in which it was named as a defendant along with five (
80
Supreme Court of the State of New York (the “AB Action”). The complaint, filed by five (
In June 2021, the Court in the AB Action entered a judgment dismissing all claims except those regarding the principal plaintiff Aileen Betances against PB for retaliation, and Betances’ claim against three (
On March 25, 2022, Plaintiffs in both the AB Action and the DR Action perfected their appeals seeking to reverse both partial judgments. Popular has until August 10, 2022 to file a reply brief as to both appeals.
POPULAR SECURITIES
Puerto Rico Bonds and Closed-End Investment Funds
The volatility in prices and declines in value that Puerto Rico municipal bonds and closed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and, as of June 30, 2022, was named as a respondent (among other broker-dealers) in
On October 28, 2021, a panel in an arbitration proceeding with claimed damages arising from trading losses of approximately $
81
demand no less than $
Cyber Incident Related Litigation
BPPR was named defendant in a putative class action complaint filed before the U.S. District Court for the District of Puerto Rico, captioned Rosa E. Rivera Marrero v. Banco Popular de Puerto Rico. Plaintiff contends BPPR failed to properly secure and safeguard the class members’ personally identifiable information (“PII”) which was purportedly exposed through a data breach experienced by a BPPR’s vendor in June 2021. Such data breach, which as alleged involved BPPR’s files, occurred via the exploitation of an alleged vulnerability in Accellion FTA, a legacy software product developed by Accellion, Inc used by BPPR’s vendor. Plaintiff further alleges that, during the data breach, an unauthorized actor removed one or more documents that contained PII of the plaintiff and purported class members. Plaintiff demands injunctive relief requesting, among other things, BPPR to protect all data collected through the course of its business in accordance with all applicable regulations, industry standards and federal, state or local laws, as well as an award for damages, attorneys’ fees, costs and litigation expenses. BPPR was served with process on May 27, 2022 and, on August 1, 2022, filed a Motion to Dismiss, which is yet to be fully briefed.
PROMESA Title III Proceedings
In 2017, the Oversight Board engaged the law firm of Kobre Kim to carry out an independent investigation on behalf of the Oversight Board regarding, among other things, the causes of the Puerto Rico financial crisis. Popular, Inc., BPPR and Popular Securities (collectively, the “Popular Companies”) were served by, and cooperated with, the Oversight Board in connection with requests for the preservation and voluntary production of certain documents and witnesses with respect to Kobre Kim’s independent investigation.
On August 20, 2018, Kobre Kim issued its Final Report, which contained various references to the Popular Companies, including an allegation that Popular Securities participated as an underwriter in the Commonwealth’s 2014 issuance of government obligation bonds notwithstanding having allegedly advised against it. The report noted that such allegation could give rise to an unjust enrichment claim against the Corporation and could also serve as a basis to equitably subordinate claims filed by the Corporation in the Title III proceeding to other third-party claims.
After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the applicable two-year statute of limitations for the filing of such claims pursuant to the U.S. Bankruptcy Code, the SCC, along with the Commonwealth’s Unsecured Creditors’ Committee (“UCC”), filed various avoidance, fraudulent transfer and other claims against third parties, including government vendors and financial institutions and other professionals involved in bond issuances then being challenged as invalid by the SCC and the UCC. The Popular Companies, the SCC and the UCC entered into a tolling agreement with respect to potential claims the SCC and the UCC, on behalf of the Commonwealth or other Title III debtors, may assert against the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result of any role of the Popular Companies in the offering of the aforementioned challenged bond issuances. On January 12, 2022, the SCC, the UCC and the Popular Companies executed a settlement agreement as to potential claims related to the avoidance and recovery of payments and/or transfers made to the Popular Companies. Potential claims being pursued by the SCC and the UCC, including claims tolled under existing tolling agreements, were transferred to a newly-created Puerto Rico Avoidance Action Trust as part of the approval of the Commonwealth of Puerto Rico’s Plan of Adjustment. The tolling agreement as to potential claims that may be asserted against the Popular Companies by the Puerto Rico Avoidance Action Trust as a result of any role of the Popular Companies in the offering of certain challenged bond issuances remains in effect.
82
The Corporation is involved with
Also, the Corporation is involved with various special purpose entities mainly in guaranteed mortgage securitization transactions, including GNMA and FNMA. The Corporation has also engaged in securitization transactions with FHLMC, but considers its exposure in the form of servicing fees and servicing advances not to be significant at June 30, 2022. These special purpose entities are deemed to be VIEs since they lack equity investments at risk. The Corporation’s continuing involvement in these guaranteed loan securitizations includes owning certain beneficial interests in the form of securities as well as the servicing rights retained. The Corporation is not required to provide additional financial support to any of the variable interest entities to which it has transferred the financial assets. The mortgage-backed securities, to the extent retained, are classified in the Corporation’s Consolidated Statements of Financial Condition as available-for-sale or trading securities. The Corporation concluded that, essentially, these entities (FNMA and GNMA) control the design of their respective VIEs, dictate the quality and nature of the collateral, require the underlying insurance, set the servicing standards via the servicing guides and can change them at will, and can remove a primary servicer with cause, and without cause in the case of FNMA. Moreover, through their guarantee obligations, agencies (FNMA and GNMA) have the obligation to absorb losses that could be potentially significant to the VIE.
The Corporation holds variable interests in these VIEs in the form of agency mortgage-backed securities and collateralized mortgage obligations, including those securities originated by the Corporation and those acquired from third parties. Additionally, the Corporation holds agency mortgage-backed securities and agency collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 23 to the Consolidated Financial Statements for additional information on the debt securities outstanding at June 30, 2022 and December 31, 2021, which are classified as available-for-sale and trading securities in the Corporation’s Consolidated Statements of Financial Condition. In addition, the Corporation holds variable interests in the form of servicing fees, since it retains the right to service the transferred loans in those government-sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party.
The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at June 30, 2022 and December 31, 2021.
83
(In thousands) |
June 30, 2022 |
December 31, 2021 | |||
Assets |
|
|
|
| |
Servicing assets: |
|
|
|
| |
|
Mortgage servicing rights |
$ |
$ |
||
Total servicing assets |
$ |
$ |
|||
Other assets: |
|
|
|
| |
|
Servicing advances |
$ |
$ |
||
Total other assets |
$ |
$ |
|||
Total assets |
$ |
$ |
|||
Maximum exposure to loss |
$ |
$ |
|||
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 $
The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at June 30, 2022 and December 31, 2021, will not be recovered. The agency debt securities are not included as part of the maximum exposure to loss since they are guaranteed by the related agencies.
84
The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.
EVERTEC
The Corporation has an investment in Evertec, Inc. (“Evertec”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by Evertec. As of June 30, 2022, the Corporation held
As discussed in Note 33, Subsequent Events, on July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.
As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.
Under the amended service agreements, the Evertec Group will no longer have exclusive rights to provide certain of Popular’s technology services. The amended service agreements includes discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.
As consideration for the transaction, BPPR delivered to Evertec Group
As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately
The Corporation recorded $
(In thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
Equity investment in Evertec |
$ |
|
$ |
||
|
|
|
|
|
|
85
(In thousands) |
June 30, 2022 |
December 31, 2021 | ||
Accounts receivable (Other assets) |
$ |
$ |
||
Deposits |
|
( |
|
( |
Accounts payable (Other liabilities) |
|
( |
|
( |
Net total |
$ |
( |
$ |
( |
|
|
Quarter ended |
|
|
Six Months ended |
(In thousands) |
|
June 30, 2022 |
|
|
June 30, 2022 |
Share of income from the investment in Evertec |
$ |
|
$ |
||
Share of other changes in Evertec's stockholders' equity |
|
|
|
||
Share of Evertec's changes in equity recognized in income |
$ |
|
$ |
|
|
Quarter ended |
|
|
Six Months ended |
(In thousands) |
|
June 30, 2021 |
|
|
June 30, 2021 |
Share of income from the investment in Evertec |
$ |
|
$ |
||
Share of other changes in Evertec's stockholders' equity |
|
|
|
||
Share of Evertec's changes in equity recognized in income |
$ |
|
$ |
86
|
|
Quarter ended |
Six Months ended |
| |||
(In thousands) |
June 30, 2022 |
June 30, 2022 |
Category | ||||
Interest expense on deposits |
|
$ |
( |
|
$ |
( |
Interest expense |
ATH and credit cards interchange income from services to Evertec |
|
|
|
|
Other service fees | ||
Rental income charged to Evertec |
|
|
|
|
Net occupancy | ||
Processing fees on services provided by Evertec |
|
|
( |
|
|
( |
Professional fees |
Other services provided to Evertec |
|
|
|
|
Other operating expenses | ||
Total |
|
$ |
( |
|
$ |
( |
|
|
|
Quarter ended |
Six Months ended |
| |||
(In thousands) |
|
June 30, 2021 |
June 30, 2021 |
Category | |||
Interest expense on deposits |
|
$ |
( |
|
$ |
( |
Interest expense |
ATH and credit cards interchange income from services to Evertec |
|
|
|
|
Other service fees | ||
Rental income charged to Evertec |
|
|
|
|
Net occupancy | ||
Processing fees on services provided by Evertec |
|
|
( |
|
|
( |
Professional fees |
Other services provided to Evertec |
|
|
|
|
Other operating expenses | ||
Total |
|
$ |
( |
|
$ |
( |
|
Centro Financiero BHD León
At June 30, 2022, the Corporation had a
Investment Companies
The Corporation, through its subsidiary Popular Asset Management LLC (“PAM”), provides advisory services to several investment companies registered under the Investment Company Act of 1940 in exchange for a fee. The Corporation, through its subsidiary BPPR, also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.
For the six months ended June 30, 2022 administrative fees charged to these investment companies amounted to $
87
The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2021 Form 10-K.
The estimated fair value may be subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in calculating fair value could significantly affect the results.
Fair Value on a Recurring and Nonrecurring Basis
The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021:
88
At June 30, 2022 | ||||||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Measured at NAV |
Total | |||||
RECURRING FAIR VALUE MEASUREMENTS |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
|||||
Obligations of U.S. Government sponsored entities |
|
|
|
|
|
|||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|||||
Mortgage-backed securities |
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|||||
Total debt securities available-for-sale |
$ |
$ |
$ |
$ |
$ |
|||||
Trading account debt securities, excluding derivatives: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
|||||
Obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|||||
Collateralized mortgage obligations |
|
|
|
|
|
|||||
Mortgage-backed securities |
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|||||
Total trading account debt securities, excluding derivatives |
$ |
$ |
$ |
$ |
$ |
|||||
Equity securities |
$ |
$ |
$ |
$ |
$ |
|||||
Mortgage servicing rights |
|
|
|
|
|
|||||
Derivatives |
|
|
|
|
|
|||||
Total assets measured at fair value on a recurring basis |
$ |
$ |
$ |
$ |
$ |
|||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
Derivatives |
$ |
$ |
( |
$ |
$ |
$ |
( | |||
Contingent consideration |
|
|
|
( |
|
|
( | |||
Total liabilities measured at fair value on a recurring basis |
$ |
$ |
( |
$ |
( |
$ |
$ |
( | ||
89
At December 31, 2021 | ||||||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
|
Measured at NAV |
Total | ||||
RECURRING FAIR VALUE MEASUREMENTS | ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
Debt securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
|||||
Obligations of U.S. Government sponsored entities |
|
|
|
|
|
|||||
Collateralized mortgage obligations - federal agencies |
|
|
|
|
|
|||||
Mortgage-backed securities |
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|||||
Total debt securities available-for-sale |
$ |
$ |
$ |
$ |
$ |
|||||
Trading account debt securities, excluding derivatives: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
|||||
Obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|||||
Collateralized mortgage obligations |
|
|
|
|
|
|||||
Mortgage-backed securities |
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|||||
Total trading account debt securities, excluding derivatives |
$ |
$ |
$ |
$ |
$ |
|||||
Equity securities |
$ |
$ |
$ |
$ |
$ |
|||||
Mortgage servicing rights |
|
|
|
|
|
|||||
Derivatives |
|
|
|
|
|
|||||
Total assets measured at fair value on a recurring basis |
$ |
$ |
$ |
$ |
$ |
|||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
Derivatives |
$ |
$ |
( |
$ |
$ |
$ |
( | |||
Contingent consideration |
|
|
|
( |
|
|
( | |||
Total liabilities measured at fair value on a recurring basis |
$ |
$ |
( |
$ |
( |
$ |
$ |
( | ||
90
Six months ended June 30, 2022 | ||||||||||
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
|
| ||||
NONRECURRING FAIR VALUE MEASUREMENTS |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Write-downs |
Loans[1] |
$ |
$ |
$ |
$ |
$ |
( | ||||
Other real estate owned[2] |
|
|
|
|
|
( | ||||
Total assets measured at fair value on a nonrecurring basis |
$ |
$ |
$ |
$ |
$ |
( | ||||
[1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount. | ||||||||||
[2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. | ||||||||||
Six months ended June 30, 2021 | ||||||||||
|
|
|
|
|
|
|
|
|
| |
(In thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
|
| ||||
NONRECURRING FAIR VALUE MEASUREMENTS |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Write-downs |
Loans[1] |
$ |
$ |
$ |
$ |
$ |
( | ||||
Loans held-for-sale[2] |
|
|
|
|
|
( | ||||
Other real estate owned[3] |
|
|
|
|
|
( | ||||
Long-lived assets held-for-sale[4] |
|
|
|
|
|
( | ||||
Total assets measured at fair value on a nonrecurring basis |
$ |
$ |
$ |
$ |
$ |
( | ||||
[1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount. | ||||||||||
[2] Relates to a quarterly valuation on loans held-for-sale. Costs to sell are excluded from the reported fair value amount. | ||||||||||
[3] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. | ||||||||||
[4] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value. | ||||||||||
|
Quarter ended June 30, 2022 | ||||||||||||||||
|
|
MBS |
Other |
CMOs |
Other |
|
|
|
|
|
|
|
| ||||
|
|
classified |
securities |
classified |
securities |
|
|
|
|
|
|
|
| ||||
|
|
as debt |
classified as |
as trading |
classified |
|
|
|
|
|
|
|
| ||||
|
|
securities |
debt securities |
account |
as trading |
Mortgage |
|
|
|
| |||||||
|
|
available- |
available- |
debt |
account debt |
servicing |
Total |
Contingent |
Total | ||||||||
(In thousands) |
for-sale |
for-sale |
securities |
securities |
rights |
assets |
consideration |
liabilities | |||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
Gains (losses) included in earnings |
|
|
|
|
( |
|
|
|
|
||||||||
Gains (losses) included in OCI |
|
|
|
|
|
|
|
|
|||||||||
Additions |
|
|
|
|
|
|
|
|
|||||||||
Settlements |
|
( |
|
|
( |
|
|
|
( |
|
|
||||||
Balance at June 30, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2022 |
$ |
$ |
$ |
( |
$ |
$ |
$ |
$ |
$ |
||||||||
91
|
Six months ended June 30, 2022 | |||||||||||||||||
|
|
MBS |
Other |
|
|
Other |
|
|
|
|
|
|
|
|
| |||
|
|
classified |
securities |
CMOs |
securities |
|
|
|
|
|
|
|
|
| ||||
|
|
as investment |
classified as |
classified |
classified |
|
|
|
|
|
|
|
|
| ||||
|
|
securities |
debt securities |
as trading |
as trading |
Mortgage |
|
|
|
|
| |||||||
|
|
available- |
available- |
account |
account |
servicing |
Total |
Contingent |
|
Total | ||||||||
(In thousands) |
for-sale |
for-sale |
securities |
securities |
rights |
assets |
consideration |
|
liabilities | |||||||||
Balance at January 1, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|
$ |
|||||||||
Gains (losses) included in earnings |
|
|
|
( |
|
( |
|
|
|
|
|
|||||||
Gains (losses) included in OCI |
|
|
|
|
|
|
|
|
|
|||||||||
Additions |
|
|
|
|
|
|
|
|
|
|||||||||
Settlements |
|
( |
|
|
( |
|
|
|
( |
|
|
|
||||||
Balance at June 30, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
|
$ |
|||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2022 |
$ |
$ |
$ |
( |
$ |
$ |
$ |
$ |
|
$ |
||||||||
|
Quarter ended June 30, 2021 | ||||||||||
|
|
MBS |
|
|
Other |
|
|
|
| ||
|
|
classified |
CMOs |
securities |
|
|
|
| |||
|
|
as investment |
classified |
classified |
|
|
|
| |||
|
|
securities |
as trading |
as trading |
Mortgage |
| |||||
|
|
available- |
account |
account |
servicing |
Total | |||||
(In thousands) |
for-sale |
securities |
securities |
rights |
assets | ||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
$ |
$ |
||||||
Gains (losses) included in earnings |
|
|
|
( |
|
( |
|
( | |||
Gains (losses) included in OCI |
|
|
|
|
|
||||||
Additions |
|
|
|
|
|
||||||
Settlements |
|
|
( |
|
|
|
( | ||||
Balance at June 30, 2021 |
$ |
$ |
$ |
$ |
$ |
||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2021 |
$ |
$ |
$ |
$ |
( |
$ |
( | ||||
|
Six months ended June 30, 2021 | ||||||||||
|
|
MBS |
|
|
Other |
|
|
|
| ||
|
|
classified |
CMOs |
securities |
|
|
|
| |||
|
|
as investment |
classified |
classified |
|
|
|
| |||
|
|
securities |
as trading |
as trading |
Mortgage |
| |||||
|
|
available- |
account |
account |
servicing |
Total | |||||
(In thousands) |
for-sale |
securities |
securities |
rights |
assets | ||||||
Balance at January 1, 2021 |
$ |
$ |
$ |
$ |
$ |
||||||
Gains (losses) included in earnings |
|
|
|
( |
|
( |
|
( | |||
Gains (losses) included in OCI |
|
( |
|
|
|
|
( | ||||
Additions |
|
|
|
|
|
||||||
Settlements |
|
( |
|
( |
|
|
|
( | |||
Balance at June 30, 2021 |
$ |
$ |
$ |
$ |
$ |
||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2021 |
$ |
$ |
$ |
$ |
$ |
||||||
|
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 |
$ |
$ |
$ |
$ |
||||
Trading account profit (loss) |
|
( |
|
|
( |
|
||
Total |
$ |
$ |
$ |
$ |
||||
92
|
Quarter ended June 30, 2021 |
Six months ended June 30, 2021 | ||||||
|
|
|
Changes in unrealized |
|
|
Changes in unrealized | ||
|
Total gains |
gains (losses) relating to |
Total gains |
gains (losses) relating to | ||||
|
(losses) included |
assets still held at |
(losses) included |
assets still held at | ||||
(In thousands) |
in earnings |
reporting date |
in earnings |
reporting date | ||||
Mortgage banking activities |
$ |
( |
$ |
( |
$ |
( |
$ |
|
Trading account profit (loss) |
|
( |
|
|
( |
|
||
Total |
$ |
( |
$ |
( |
$ |
( |
$ |
|
|
|
|
Fair value at |
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
| ||
(In thousands) |
|
2022 |
|
|
Valuation technique |
Unobservable inputs |
Weighted average (range) [1] | ||
CMO's - trading |
$ |
|
|
Discounted cash flow model |
Weighted average life |
| |||
|
|
|
|
|
|
|
Yield |
| |
|
|
|
|
|
|
|
Prepayment speed |
| |
Other - trading |
$ |
|
|
Discounted cash flow model |
Weighted average life |
| |||
|
|
|
|
|
|
|
Yield |
| |
|
|
|
|
|
|
|
Prepayment speed |
| |
Contingent consideration |
$ |
( |
|
|
Probability weighted |
|
|
| |
|
|
|
|
|
|
discounted cash flows |
Discount rate |
| |
Loans held-in-portfolio |
$ |
|
[2] |
External appraisal |
Haircut applied on |
|
| ||
|
|
|
|
|
|
|
external appraisals |
| |
Other real estate owned |
$ |
|
[3] |
External appraisal |
Haircut applied on |
|
| ||
|
|
|
|
|
|
|
external appraisals |
| |
[1] |
Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value. | ||||||||
[2] |
Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table. | ||||||||
[3] |
Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table. | ||||||||
|
|
|
Fair value at |
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
| ||
(In thousands) |
|
2021 |
|
|
Valuation technique |
Unobservable inputs |
Weighted average (range) [1] | ||
CMO's - trading |
$ |
|
|
Discounted cash flow model |
Weighted average life |
| |||
|
|
|
|
|
|
|
Yield |
| |
|
|
|
|
|
|
|
Prepayment speed |
| |
Other - trading |
$ |
|
|
Discounted cash flow model |
Weighted average life |
| |||
|
|
|
|
|
|
|
Yield |
| |
|
|
|
|
|
|
|
Prepayment speed |
| |
Mortgage servicing rights |
$ |
|
|
Discounted cash flow model |
Prepayment speed |
| |||
|
|
|
|
|
|
|
Weighted average life |
| |
|
|
|
|
|
|
|
Discount rate |
| |
Loans held-in-portfolio |
$ |
|
[2] |
External appraisal |
Haircut applied on |
|
| ||
|
|
|
|
|
|
|
external appraisals |
| |
Other real estate owned |
$ |
|
[3] |
External appraisal |
Haircut applied on |
|
| ||
|
|
|
|
|
|
|
external appraisals |
| |
[1] |
Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value. | ||||||||
[2] |
Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table. | ||||||||
[3] |
Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table. | ||||||||
Effective the fourth quarter 2021, the mortgage servicing rights fair value was provided by a third-party valuation specialist. Refer to Note 10 to the Consolidated Financial Statements for additional information on MSRs.
93
94
The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.
The fair values reflected herein have been determined based on the prevailing rate environment at June 30, 2022 and December 31, 2021, as applicable. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments. In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation’s value as a going concern. There have been no changes in the Corporation’s valuation methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value.
The following tables present the carrying amount and estimated fair values of financial instruments with their corresponding level in the fair value hierarchy. The aggregate fair value amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.
95
|
|
June 30, 2022 | |||||||||||
|
Carrying |
|
|
|
|
Measured |
| ||||||
(In thousands) |
amount |
Level 1 |
Level 2 |
Level 3 |
|
at NAV |
Fair value | ||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and due from banks |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Money market investments |
|
|
|
|
|
|
|||||||
Trading account debt securities, excluding derivatives[1] |
|
|
|
|
|
|
|||||||
Debt securities available-for-sale[1] |
|
|
|
|
|
|
|||||||
Debt securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
U.S. Treasury securities |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
|
|
|
|
||||||
|
Collateralized mortgage obligation-federal agency |
|
|
|
|
|
|
||||||
|
Securities in wholly owned statutory business trusts |
|
|
|
|
|
|
||||||
Total debt securities held-to-maturity |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
FHLB stock |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
FRB stock |
|
|
|
|
|
|
||||||
|
Other investments |
|
|
|
|
|
|
||||||
Total equity securities |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Loans held-for-sale |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Loans held-in-portfolio |
|
|
|
|
|
|
|||||||
Mortgage servicing rights |
|
|
|
|
|
|
|||||||
Derivatives |
|
|
|
|
|
|
|||||||
|
|
June 30, 2022 | |||||||||||
|
Carrying |
|
|
|
|
Measured |
| ||||||
(In thousands) |
amount |
Level 1 |
Level 2 |
Level 3 |
|
at NAV |
Fair value | ||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Demand deposits |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Time deposits |
|
|
|
|
|
|
||||||
Total deposits |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Assets sold under agreements to repurchase |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Notes payable: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
FHLB advances |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Unsecured senior debt securities |
|
|
|
|
|
|
||||||
|
Junior subordinated deferrable interest debentures (related to trust preferred securities) |
|
|
|
|
|
|
||||||
Total notes payable |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Derivatives |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Contingent consideration |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
[1] |
Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. | ||||||||||||
96
|
|
December 31, 2021 | |||||||||||
|
Carrying |
|
|
|
|
Measured |
| ||||||
(In thousands) |
amount |
Level 1 |
Level 2 |
Level 3 |
|
at NAV |
Fair value | ||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and due from banks |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Money market investments |
|
|
|
|
|
|
|||||||
Trading account debt securities, excluding derivatives[1] |
|
|
|
|
|
|
|||||||
Debt securities available-for-sale[1] |
|
|
|
|
|
|
|||||||
Debt securities held-to-maturity: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Obligations of Puerto Rico, States and political subdivisions |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Collateralized mortgage obligation-federal agency |
|
|
|
|
|
|
||||||
|
Securities in wholly owned statutory business trusts |
|
|
|
|
|
|
||||||
Total debt securities held-to-maturity |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
FHLB stock |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
FRB stock |
|
|
|
|
|
|
||||||
|
Other investments |
|
|
|
|
|
|
||||||
Total equity securities |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Loans held-for-sale |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Loans held-in-portfolio |
|
|
|
|
|
|
|||||||
Mortgage servicing rights |
|
|
|
|
|
|
|||||||
Derivatives |
|
|
|
|
|
|
|||||||
|
|
December 31, 2021 | |||||||||||
|
Carrying |
|
|
|
|
Measured |
|
| |||||
(In thousands) |
amount |
Level 1 |
Level 2 |
Level 3 |
|
at NAV |
|
Fair value | |||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Demand deposits |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Time deposits |
|
|
|
|
|
|
||||||
Total deposits |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Assets sold under agreements to repurchase |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Other short-term borrowings[2] |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Notes payable: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
FHLB advances |
$ |
$ |
$ |
$ |
$ |
$ |
||||||
|
Unsecured senior debt securities |
|
|
|
|
|
|
||||||
|
Junior subordinated deferrable interest debentures (related to trust preferred securities) |
|
|
|
|
|
|
||||||
Total notes payable |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Derivatives |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
Contingent consideration |
$ |
$ |
$ |
$ |
$ |
$ |
|||||||
[1] |
Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. | ||||||||||||
[2] |
Refer to Note 15 to the Consolidated Financial Statements for the composition of other short-term borrowings. | ||||||||||||
97
|
|
Quarters ended June 30, |
Six months ended June 30, | ||||||
(In thousands, except per share information) |
2022 |
2021 |
2022 |
2021 | |||||
Net income |
$ |
$ |
$ |
$ |
|||||
Preferred stock dividends |
|
( |
|
( |
|
( |
|
( | |
Net income applicable to common stock |
$ |
$ |
$ |
$ |
|||||
Average common shares outstanding |
|
|
|
|
|||||
Average potential dilutive common shares |
|
|
|
|
|||||
Average common shares outstanding - assuming dilution |
|
|
|
|
|||||
Basic EPS |
$ |
$ |
$ |
$ |
|||||
Diluted EPS |
$ |
$ |
$ |
$ |
|||||
As disclosed in Note 17 to the Consolidated Financial Statements, during the six-month period ended June 30, 2022, the Corporation entered into a $
For the quarters and six months ended June 30, 2022 and 2021, the Corporation calculated the impact of potential dilutive common shares under the treasury stock method, consistent with the method used for the preparation of the financial statements for the year ended December 31, 2021. For a discussion of the calculation under the treasury stock method, refer to Note 31 of the Consolidated Financial Statements included in the 2021 Form 10-K.
98
|
|
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 |
$ |
$ |
|
$ |
$ |
|||||
Other service fees: |
|
|
|
|
|
|
|
|
| |
|
Debit card fees |
|
|
|
|
|
||||
|
Insurance fees, excluding reinsurance |
|
|
|
|
|
||||
|
Credit card fees, excluding late fees and membership fees |
|
|
|
|
|
||||
|
Sale and administration of investment products |
|
|
|
|
|
||||
|
Trust fees |
|
|
|
|
|
||||
Total revenue from contracts with customers [1] |
$ |
$ |
|
$ |
$ |
|||||
[1] |
The amounts include intersegment transactions of $ | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended June 30, |
|
Six months ended June 30, | ||||||
(In thousands) |
2021 |
|
|
2021 | ||||||
|
|
|
BPPR |
|
Popular U.S. |
|
|
BPPR |
|
Popular U.S. |
Service charges on deposit accounts |
$ |
$ |
|
$ |
$ |
|||||
Other service fees: |
|
|
|
|
|
|
|
|
| |
|
Debit card fees |
|
|
|
|
|
||||
|
Insurance fees, excluding reinsurance |
|
|
|
|
|
||||
|
Credit card fees, excluding late fees and membership fees |
|
|
|
|
|
||||
|
Sale and administration of investment products |
|
|
|
|
|
||||
|
Trust fees |
|
|
|
|
|
||||
Total revenue from contracts with customers [1] |
$ |
$ |
|
$ |
$ |
|||||
[1] |
The amounts include intersegment transactions of $ | |||||||||
Following is a description of the nature and timing of revenue streams from contracts with customers:
Service charges on deposit accounts
Service charges on deposit accounts are earned on retail and commercial deposit activities and include, but are not limited to, nonsufficient fund fees, overdraft fees and checks stop payment fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. The Corporation is acting as principal in these transactions.
99
Debit card fees
Debit card fees include, but are not limited to, interchange fees, surcharging income and foreign transaction fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. Interchange fees are recognized upon settlement of the debit card payment transactions. The Corporation is acting as principal in these transactions.
Insurance fees
Insurance fees include, but are not limited to, commissions and contingent commissions. Commissions and fees are recognized when related policies are effective since the Corporation does not have an enforceable right to payment for services completed to date. An allowance is created for expected adjustments to commissions earned related to policy cancellations. Contingent commissions are recorded on an accrual basis when the amount to be received is notified by the insurance company. The Corporation is acting as an agent since it arranges for the sale of the policies and receives commissions if, and when, it achieves the sale.
Credit card fees
Credit card fees include, but are not limited to, interchange fees, additional card fees, cash advance fees, balance transfer fees, foreign transaction fees, and returned payments fees. Credit card fees are recognized at a point in time, upon the occurrence of an activity or an event. Interchange fees are recognized upon settlement of the credit card payment transactions. The Corporation is acting as principal in these transactions.
Sale and administration of investment products
Fees from the sale and administration of investment products include, but are not limited to, commission income from the sale of investment products, asset management fees, underwriting fees, and mutual fund fees.
Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products.
Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the manager’s influence. As advisor, the broker-dealer subsidiary is acting as principal.
Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal.
Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent.
Trust fees
Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset manager, it has the obligation to provide the specified service to the customer and has the ultimate discretion in establishing the fee paid by the customer for the specified services.
100
Note 27 – Leases
The Corporation enters in the ordinary course of business into operating and finance leases for land, buildings and equipment. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms of
The Corporation recognizes right-of-use assets (“ROU assets”) and lease liabilities related to operating and finance leases in its Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 12 and Note 16 to the Consolidated Financial Statements, respectively, for information on the balances of these lease assets and liabilities.
The Corporation uses the incremental borrowing rate for purposes of discounting lease payments for operating and finance leases, since it does not have enough information to determine the rates implicit in the leases. The discount rates are based on fixed-rate and fully amortizing borrowing facilities of its banking subsidiaries that are collateralized. For leases held by non-banking subsidiaries, a credit spread is added to this rate based on financing transactions with a similar credit risk profile.
June 30, 2022 | ||||||||||||||||||
(In thousands) |
|
Remaining 2022 |
|
2023 |
|
2024 |
|
2025 |
|
2026 |
|
Later Years |
|
Total Lease Payments |
|
Less: Imputed Interest |
|
Total |
Operating Leases |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
( |
$ |
||||||||
Finance Leases |
|
|
|
|
|
|
|
|
( |
|
||||||||
|
|
|
Quarters ended June 30, |
Six months ended June 30, | ||||||
(In thousands) |
2022 |
2021 |
2022 |
2021 | ||||||
Finance lease cost: |
|
|
|
|
|
|
|
| ||
|
Amortization of ROU assets |
$ |
$ |
$ |
$ |
|||||
|
Interest on lease liabilities |
|
|
|
|
|||||
Operating lease cost |
|
|
|
|
||||||
Short-term lease cost |
|
|
|
|
||||||
Variable lease cost |
|
|
|
|
||||||
Sublease income |
|
( |
|
( |
|
( |
|
( | ||
Total lease cost[1] |
$ |
$ |
$ |
$ |
||||||
[1] |
Total lease cost is recognized as part of net occupancy expense, except for the net gain recognized from sale and leaseback transactions which was included as part of other operating income. | |||||||||
101
|
|
|
|
Six months ended June 30, | ||||
(Dollars in thousands) |
|
2022 |
|
2021 | ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
|
Operating cash flows from operating leases[1] |
$ |
$ |
|||||
|
Operating cash flows from finance leases |
|
|
|||||
|
Financing cash flows from finance leases[1] |
|
|
|||||
ROU assets obtained in exchange for new lease obligations: |
|
|
|
| ||||
|
Operating leases |
$ |
$ |
|||||
|
Finance leases |
|
|
|||||
Weighted-average remaining lease term: |
|
|
|
|
|
| ||
|
Operating leases |
|
years |
|
years | |||
|
Finance leases |
|
years |
|
years | |||
Weighted-average discount rate: |
|
|
|
|
|
| ||
|
Operating leases |
|
% |
|
% | |||
|
Finance leases |
|
% |
|
% | |||
[1] |
During the quarter ended March 31, 2021, the Corporation made base lease termination payments amounting to $ | |||||||
102
The Corporation has a non-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries (the “Pension Plans”). The accrual of benefits under the Pension Plans is frozen to all participants. The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries (the “OPEB Plan”).
The components of net periodic cost for the Pension Plans and the OPEB Plan for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
OPEB Plan | ||||
|
|
Quarters ended June 30, |
|
Quarters ended June 30, | ||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Personnel Cost: |
|
|
|
|
|
|
|
|
Service cost |
$ |
$ |
$ |
$ |
||||
Other operating expenses: |
|
|
|
|
|
|
|
|
Interest cost |
|
|
|
|
||||
Expected return on plan assets |
|
( |
|
( |
|
|
||
Amortization of prior service cost/(credit) |
|
|
|
|
||||
Amortization of net loss |
|
|
|
|
||||
Total net periodic pension cost |
$ |
( |
$ |
( |
$ |
$ |
||
|
|
Pension Plans |
|
OPEB Plan | ||||
|
|
Six months ended June 30, |
|
Six months ended June 30, | ||||
(In thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Personnel Cost: |
|
|
|
|
|
|
|
|
Service cost |
$ |
$ |
$ |
$ |
||||
Other operating expenses: |
|
|
|
|
|
|
|
|
Interest cost |
|
|
|
|
||||
Expected return on plan assets |
|
( |
|
( |
|
|
||
Amortization prior service cost/(credit) |
|
|
|
|
||||
Amortization of net loss |
|
|
|
|
||||
Total net periodic pension cost |
$ |
( |
$ |
( |
$ |
$ |
||
|
For the six months ended |
For the year ending | ||
(In thousands) |
June 30, 2022 |
December 31, 2022 | ||
Pension Plans |
$ |
$ |
||
OPEB Plan |
$ |
$ |
||
103
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.
The performance share awards granted under the Incentive Plan consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and, depending on the date of the grant, the Absolute Return on Average Assets (“ROA”) goal or the Absolute Return on Average Tangible common Equity (“ROATCE”) goal. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The ROA and ROATCE metrics are considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the ROA or ROATCE goal as of each reporting period. The TSR and ROA or ROATCE metrics are equally weighted and work independently.
The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.
104
(Not in thousands) |
Shares |
|
Weighted-Average Grant Date Fair Value |
Non-vested at December 31, 2020 |
$ |
||
Granted |
|
||
Performance Shares Quantity Adjustment |
|
||
Vested |
( |
|
|
Forfeited |
( |
|
|
Non-vested at December 31, 2021 |
$ |
||
Granted |
|
||
Performance Shares Quantity Adjustment |
|
||
Vested |
( |
|
|
Forfeited |
( |
|
|
Non-vested at June 30, 2022 |
$ |
During the quarter ended June 30, 2022,
During the quarter ended June 30, 2022, the Corporation recognized $
The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:
(Not in thousands) |
|
Restricted Stock units |
|
Weighted-Average Grant Date Fair Value per Unit |
Non-vested at December 31, 2020 |
$ |
$ |
||
Granted |
|
|
||
Vested |
|
( |
|
|
Forfeited |
|
|
||
Non-vested at December 31, 2021 |
$ |
$ |
||
Granted |
|
|
||
Vested |
|
( |
|
|
Forfeited |
|
|
||
Non-vested at June 30, 2022 |
$ |
$ |
The equity awards granted to members of the Board of Directors of Popular, Inc. (the “Directors”) will vest and become non-forfeitable on the grant date of such award. Effective in May 2019, all equity awards granted to the Directors may be paid in either restricted stock or RSUs at each Directors election. If RSUs are elected, the Directors may defer the delivery of the shares of
105
common stock underlying the RSUs award until their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stock, the Directors will receive an additional number of RSUs that reflect a reinvested dividend equivalent.
For 2022, 2021 and 2020, all Directors elected RSUs. During the quarter ended June 30, 2022,
106
|
|
|
Quarters ended |
| ||||||
|
|
|
June 30, 2022 |
|
|
|
June 30, 2021 |
| ||
(In thousands) |
|
Amount |
% of pre-tax income |
|
|
|
Amount |
% of pre-tax income |
| |
Computed income tax expense at statutory rates |
$ |
% |
|
$ |
% | |||||
Net benefit of tax exempt interest income |
|
( |
( |
|
|
|
( |
( |
| |
Deferred tax asset valuation allowance |
|
|
|
|
| |||||
Difference in tax rates due to multiple jurisdictions |
|
( |
( |
|
|
|
( |
( |
| |
Effect of income subject to preferential tax rate |
|
( |
( |
|
|
|
( |
( |
| |
Adjustment due to estimate on the annual effective rate |
|
|
|
|
( |
| ||||
State and local taxes |
|
|
|
|
| |||||
Others |
|
( |
|
|
|
( |
| |||
Income tax expense |
$ |
% |
|
$ |
% | |||||
|
|
|
Six months ended |
| ||||||
|
|
|
June 30, 2022 |
|
|
|
June 30, 2021 |
| ||
(In thousands) |
|
Amount |
% of pre-tax income |
|
|
|
Amount |
% of pre-tax income |
| |
Computed income tax expense at statutory rates |
$ |
% |
|
$ |
% | |||||
Net benefit of tax exempt interest income |
|
( |
( |
|
|
|
( |
( |
| |
Deferred tax asset valuation allowance |
|
|
|
|
| |||||
Difference in tax rates due to multiple jurisdictions |
|
( |
( |
|
|
|
( |
( |
| |
Effect of income subject to preferential tax rate |
|
( |
( |
|
|
|
( |
( |
| |
Adjustment due to estimate on the annual effective rate |
|
|
|
|
( |
( |
| |||
State and local taxes |
|
|
|
|
| |||||
Others |
|
( |
|
|
|
( |
| |||
Income tax expense |
$ |
% |
|
$ |
% | |||||
For the quarter and six months ended June 30, 2022, the Corporation recorded an income tax expense of $
The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.
107
|
|
|
June 30, 2022 | ||||
(In thousands) |
|
PR |
|
US |
|
Total | |
Deferred tax assets: |
|
|
|
|
|
| |
Tax credits available for carryforward |
$ |
$ |
$ |
||||
Net operating loss and other carryforward available |
|
|
|
||||
Postretirement and pension benefits |
|
|
|
||||
Deferred loan origination fees/cost |
|
|
|
||||
Allowance for credit losses |
|
|
|
||||
Accelerated depreciation |
|
|
|
||||
FDIC-assisted transaction |
|
|
|
||||
Intercompany deferred gains |
|
|
|
||||
Lease liability |
|
|
|
||||
Unrealized net gain on trading and available-for-sale securities |
|
|
|
||||
Difference in outside basis from pass-through entities |
|
|
|
||||
Other temporary differences |
|
|
|
||||
|
Total gross deferred tax assets |
|
|
|
|||
Deferred tax liabilities: |
|
|
|
|
|
| |
Indefinite-lived intangibles |
|
|
|
||||
Right of use assets |
|
|
|
||||
Deferred loan origination fees/cost |
|
|
|
||||
Other temporary differences |
|
|
|
||||
|
Total gross deferred tax liabilities |
|
|
|
|||
Valuation allowance |
|
|
|
||||
Net deferred tax asset |
$ |
$ |
$ |
||||
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 | ||||
(In thousands) |
|
PR |
|
US |
|
Total | |
Deferred tax assets: |
|
|
|
|
|
| |
Tax credits available for carryforward |
$ |
$ |
$ |
||||
Net operating loss and other carryforward available |
|
|
|
||||
Postretirement and pension benefits |
|
|
|
||||
Deferred loan origination fees/cost |
|
|
|
||||
Allowance for credit losses |
|
|
|
||||
Deferred gains |
|
|
|
||||
Accelerated depreciation |
|
|
|
||||
FDIC-assisted transaction |
|
|
|
||||
Lease liability |
|
|
|
||||
Difference in outside basis from pass-through entities |
|
|
|
||||
Other temporary differences |
|
|
|
||||
|
Total gross deferred tax assets |
|
|
|
|||
Deferred tax liabilities: |
|
|
|
|
|
| |
Indefinite-lived intangibles |
|
|
|
||||
Unrealized net gain (loss) on trading and available-for-sale securities |
|
|
|
||||
Right of use assets |
|
|
|
||||
Deferred loan origination fees/cost |
|
|
|
||||
Other temporary differences |
|
|
|
||||
|
Total gross deferred tax liabilities |
|
|
|
|||
Valuation allowance |
|
|
|
||||
Net deferred tax asset |
$ |
$ |
$ |
||||
108
The net deferred tax asset shown in the table above at June 30, 2022 is reflected in the consolidated statements of financial condition as $
At June 30, 2022 the net deferred tax asset of the U.S. operations amounted to $
At June 30, 2022, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $
The Corporation’s Puerto Rico Banking operation is not in a cumulative loss position and has sustained profitability for the three year period ended June 30, 2022. This is considered a strong piece of objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized.
The Holding Company operation is in a cumulative loss position, taking into account taxable income exclusive of reversing temporary differences, for the three years period ending June 30, 2022. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax assets. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax asset of $
The reconciliation of unrecognized tax benefits, excluding interest, was as follows:
(In millions) |
|
2022 |
|
|
2021 |
Balance at January 1 |
$ |
|
$ |
||
Balance at March 31 |
$ |
|
$ |
||
Balance at June 30 |
$ |
|
$ |
109
At June 30, 2022, the total amount of accrued interest recognized in the statement of financial condition approximated $
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 $
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.
The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At June 30, 2022, the following years remain subject to examination in the U.S. Federal jurisdiction: 2018 and thereafter; and in the Puerto Rico jurisdiction, 2017 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $
110
|
|
|
|
|
|
(In thousands) |
|
June 30, 2022 |
|
June 30, 2021 | |
Non-cash activities: |
|
|
|
| |
Loans transferred to other real estate |
$ |
$ |
|||
Loans transferred to other property |
|
|
|||
Total loans transferred to foreclosed assets |
|
|
|||
Loans transferred to other assets |
|
|
|||
Financed sales of other real estate assets |
|
|
|||
Financed sales of other foreclosed assets |
|
|
|||
Total financed sales of foreclosed assets |
|
|
|||
Financed sale of premises and equipment |
|
|
|||
Transfers from premises and equipment to long-lived assets held-for-sale |
|
|
|||
Transfers from loans held-in-portfolio to loans held-for-sale |
|
|
|||
Transfers from loans held-for-sale to loans held-in-portfolio |
|
|
|||
Loans securitized into investment securities[1] |
|
|
|||
Trades receivable from brokers and counterparties |
|
|
|||
Trades payable to brokers and counterparties |
|
|
|||
Receivables from investments maturities |
|
|
|||
Recognition of mortgage servicing rights on securitizations or asset transfers |
|
|
|||
Loans booked under the GNMA buy-back option |
|
|
|||
Capitalization of lease right of use asset |
|
|
|||
[1] |
Includes loans securitized into trading securities and subsequently sold before quarter end. |
|
|
|
|
|
|
| |||
(In thousands) |
June 30, 2022 |
June 30, 2021 | |||
Cash and due from banks |
$ |
$ |
|||
Restricted cash and due from banks |
|
|
|||
Restricted cash in money market investments |
|
|
|||
Total cash and due from banks, and restricted cash[2] |
$ |
$ |
|||
[2] |
Refer to Note 4 - Restrictions on cash and due from banks and certain securities for nature of restrictions. | ||||
111
Note 32 – Segment reporting
The Corporation’s corporate structure consists of
Banco Popular de Puerto Rico:
The Banco Popular de Puerto Rico reportable segment includes commercial, consumer and retail banking operations conducted at BPPR. It also includes the lending operations of Popular Auto and Popular Mortgage. Other financial services within the BPPR segment include the trust service units of BPPR, asset management services of Popular Asset Management, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Risk Services, Popular Life Re, and Popular Re.
Popular U.S.:
Popular U.S. reportable segment consists of the banking operations of Popular Bank (PB), Popular Insurance Agency, U.S.A., and Popular Equipment Finance (PEF). PB operates through a retail branch network in the U.S. mainland under the name of Popular, and equipment leasing and financing services through PEF. Popular Insurance Agency, U.S.A. offers investment and insurance services across the PB branch network.
The Corporate group consists primarily of the holding companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including Evertec and Centro Financiero BHD, León.
The accounting policies of the individual operating segments are the same as those of the Corporation. Transactions between reportable segments are primarily conducted at market rates, resulting in profits that are eliminated for reporting consolidated results of operations.
The tables that follow present the results of operations and total assets by reportable segments:
112
2022 | ||||||||
For the quarter ended June 30, 2022 | ||||||||
|
|
|
|
Banco Popular |
|
|
|
Intersegment |
(In thousands) |
|
|
|
de Puerto Rico |
|
Popular U.S. |
|
Eliminations |
Net interest income |
|
|
$ |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
|
|
|
|
|||
Non-interest income |
|
|
|
|
|
( | ||
Amortization of intangibles |
|
|
|
|
|
|||
Depreciation expense |
|
|
|
|
|
|||
Other operating expenses |
|
|
|
|
|
( | ||
Income tax expense |
|
|
|
|
|
|||
Net income |
|
|
$ |
$ |
$ |
|||
Segment assets |
|
|
$ |
$ |
$ |
( | ||
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2022 | ||||||||
|
|
Reportable |
|
|
|
|
|
|
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Total Popular, Inc. |
Net interest income (expense) |
$ |
$ |
( |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
|
( |
|
|
|||
Non-interest income |
|
|
|
( |
|
|||
Amortization of intangibles |
|
|
|
|
||||
Depreciation expense |
|
|
|
|
||||
Other operating expenses |
|
|
( |
|
( |
|
||
Income tax expense (benefit) |
|
|
( |
|
( |
|
||
Net income |
$ |
$ |
$ |
( |
$ |
|||
Segment assets |
$ |
$ |
$ |
( |
$ |
|||
For the six months ended June 30, 2022 | ||||||||
|
|
|
|
Banco Popular |
|
|
|
Intersegment |
(In thousands) |
|
|
|
de Puerto Rico |
|
Popular U.S. |
|
Eliminations |
Net interest income |
|
|
$ |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
|
|
( |
|
( |
|
|
Non-interest income |
|
|
|
|
|
( | ||
Amortization of intangibles |
|
|
|
|
|
|||
Depreciation expense |
|
|
|
|
|
|||
Other operating expenses |
|
|
|
|
|
( | ||
Income tax expense |
|
|
|
|
|
|||
Net income |
|
|
$ |
$ |
$ |
|||
Segment assets |
|
|
$ |
$ |
$ |
( | ||
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2022 | ||||||||
|
|
Reportable |
|
|
|
|
|
Total |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Popular, Inc. |
Net interest income (expense) |
$ |
$ |
( |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
( |
|
|
|
( | ||
Non-interest income |
|
|
|
( |
|
|||
Amortization of intangibles |
|
|
|
|
||||
Depreciation expense |
|
|
|
|
||||
Other operating expenses |
|
|
( |
|
( |
|
||
Income tax expense (benefit) |
|
|
( |
|
( |
|
||
Net income |
$ |
$ |
$ |
( |
$ |
|||
Segment assets |
$ |
$ |
$ |
( |
$ |
|||
113
2021 | ||||||||
For the quarter ended June 30, 2021 | ||||||||
|
|
|
|
Banco Popular |
|
|
|
Intersegment |
(In thousands) |
|
|
|
de Puerto Rico |
|
Popular U.S. |
|
Eliminations |
Net interest income |
|
|
$ |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
|
|
( |
|
|
||
Non-interest income |
|
|
|
|
|
( | ||
Amortization of intangibles |
|
|
|
|
|
|||
Depreciation expense |
|
|
|
|
|
|||
Other operating expenses |
|
|
|
|
|
( | ||
Income tax expense |
|
|
|
|
|
|||
Net income |
|
|
$ |
$ |
$ |
|||
Segment assets |
|
|
$ |
$ |
$ |
( | ||
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2021 | ||||||||
|
|
Reportable |
|
|
|
|
|
|
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Total Popular, Inc. |
Net interest income (expense) |
$ |
$ |
( |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
( |
|
|
|
( | ||
Non-interest income |
|
|
|
( |
|
|||
Amortization of intangibles |
|
|
|
|
||||
Depreciation expense |
|
|
|
|
||||
Other operating expenses |
|
|
( |
|
( |
|
||
Income tax expense (benefit) |
|
|
( |
|
( |
|
||
Net income |
$ |
$ |
$ |
( |
$ |
|||
Segment assets |
$ |
$ |
$ |
( |
$ |
|||
For the six months ended June 30, 2021 | ||||||||
|
|
|
|
Banco Popular |
|
|
|
Intersegment |
(In thousands) |
|
|
|
de Puerto Rico |
|
Popular U.S. |
|
Eliminations |
Net interest income |
|
|
$ |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
|
|
( |
|
( |
|
|
Non-interest income |
|
|
|
|
|
( | ||
Amortization of intangibles |
|
|
|
|
|
|||
Depreciation expense |
|
|
|
|
|
|||
Other operating expenses |
|
|
|
|
|
( | ||
Income tax expense |
|
|
|
|
|
|||
Net income |
|
|
$ |
$ |
$ |
|||
Segment assets |
|
|
$ |
$ |
$ |
( | ||
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2021 | ||||||||
|
|
Reportable |
|
|
|
|
|
Total |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Popular, Inc. |
Net interest income (expense) |
$ |
$ |
( |
$ |
$ |
|||
Provision for credit losses (benefit) |
|
( |
|
|
|
( | ||
Non-interest income |
|
|
|
( |
|
|||
Amortization of intangibles |
|
|
|
|
||||
Depreciation expense |
|
|
|
|
||||
Other operating expenses |
|
|
( |
|
( |
|
||
Income tax expense (benefit) |
|
|
( |
|
( |
|
||
Net income |
$ |
$ |
$ |
( |
$ |
|||
Segment assets |
$ |
$ |
$ |
( |
$ |
|||
114
Geographic Information
The following information presents selected financial information based on the geographic location where the Corporation conducts its business. The banking operations of BPPR are primarily based in Puerto Rico, where it has the largest retail banking franchise. BPPR also conducts banking operations in the U.S. Virgin Islands, the British Virgin Islands and New York. BPPR’s banking operations in the United States include E-loan, an online platform used to offer personal loans, co-branded credit cards offerings, an online deposit gathering platform and commercial lending activities. In the Virgin Islands, the BPPR segment offers banking products, including loans and deposits. During the six months period ended June 30, 2022, the BPPR segment generated approximately $
Geographic Information |
|
|
|
| |||||
|
|
|
Quarter ended |
|
Six months ended | ||||
(In thousands) |
|
June 30, 2022 |
|
June 30, 2021 |
|
June 30, 2022 |
|
June 30, 2021 | |
Revenues:[1] |
|
|
|
|
|
|
|
| |
Puerto Rico |
$ |
$ |
$ |
$ |
|||||
United States |
|
|
|
|
|||||
Other |
|
|
|
|
|||||
Total consolidated revenues |
$ |
$ |
$ |
$ |
|||||
[1] |
Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net (loss) gain, including impairment on equity securities, net gain (loss) on trading account debt securities, net loss on sale of loans, including valuation adjustment on loans held-for-sale, adjustments (expense) to indemnity reserves on loans sold, and other operating income. | ||||||||
Selected Balance Sheet Information: | |||||
(In thousands) |
|
June 30, 2022 |
|
December 31, 2021 | |
Puerto Rico |
|
|
|
| |
|
Total assets |
$ |
$ |
||
|
Loans |
|
|
||
|
Deposits |
|
|
||
United States |
|
|
|
| |
|
Total assets |
$ |
$ |
||
|
Loans |
|
|
||
|
Deposits |
|
|
||
Other |
|
|
|
| |
|
Total assets |
$ |
$ |
||
|
Loans |
|
|
||
|
Deposits[1] |
|
|
||
[1] |
Represents deposits from BPPR operations located in the U.S. and British Virgin Islands. | ||||
115
Note 33 ─ Subsequent events
Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec
On July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.
As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.
Under the amended service agreements, the Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. The amended service agreements includes discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.
As consideration for the transaction, BPPR delivered to Evertec Group
As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately
Completion of Accelerated Share Repurchase Transaction
On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate of $
116
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report includes management’s discussion and analysis (“MDA”) of the consolidated financial position and financial performance of Popular, Inc. (the “Corporation” or “Popular”). All accompanying tables, financial statements and notes included elsewhere in this report should be considered an integral part of this analysis.
The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States (“U.S.”) mainland and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the U.S. mainland, the Corporation provides retail, mortgage, equipment leasing and financing, and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB”), which has branches located in New York, New Jersey and Florida and its subsidiaries. Note 32 to the Consolidated Financial Statements presents information about the Corporation’s business segments.
The Corporation has several investments which it accounts for under the equity method. As of June 30, 2022, the Corporation had a 16.33% interest in Evertec, Inc. (“Evertec”), whose operating subsidiaries provide transaction processing services throughout the Caribbean and Latin America, and service many of the Corporation’s systems infrastructure and transaction processing businesses. On July 1, 2022, the Corporation’s ownership stake in Evertec was reduced to 10.6%, as further discussed below. During the quarter ended June 30, 2022, the Corporation recorded $6.9 million in earnings from its investment in Evertec, which had a carrying amount of $125 million as of the end of the quarter.
Also, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the six months ended June 30, 2022, the Corporation recorded $14.5 million in earnings from its investment in BHD León, which had a carrying amount of $184.8 million, as of the end of the quarter.
SIGNIFICANT EVENTS
Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec
On July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.
As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.
Under the amended service agreements, Popular will have greater optionality to develop and enhance technology platforms and more flexibility to select service vendors, as Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. This is expected to improve Popular’s ability to meet its customer needs in a timely manner. In addition, the amended service agreements are projected to reduce service costs as a result of discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR also strengthened its relationship with Evertec in the payments business, including through the incorporation of a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.
As consideration for the transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169 million (based on Evertec’s stock price on June 30, 2022 of $36.88), resulting in an after-tax gain of approximately $112 million.
117
In terms of capital, the transaction results in a negative impact of approximately $44 million in Popular’s tangible book value as a result of the net effect of the after-tax gain of the Evertec shares used as consideration for the transaction (approximately $112 million), minus approximately $145 million in goodwill and other intangible assets recognized by the Corporation in connection with the transaction and the accounting impact of the renegotiation of the Master Servicing Agreement with Evertec.
As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately 16.3% to approximately 10.6% at the closing of the transaction. In connection with the transaction, Popular has agreed to further reduce its voting interest in Evertec to no more than 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock within 90 days of the closing of the transaction. Popular expects to sell down its stake in Evertec to no more than 4.5%, subject to market conditions, and intends to return to Popular shareholders, via common stock repurchases, any after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.
Completion of Accelerated Share Repurchase
On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $400 million of Popular’s common stock. Under the terms of the accelerated share repurchase agreement (the “ASR Agreement”), on March 2, 2022 the Corporation made an initial payment of $400 million and received an initial delivery of 3,483,942 shares of Popular’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in stockholders’ equity approximately $320 million in treasury stock and $80 million as a reduction in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation received an additional 1,582,922 shares of Popular common stock and recognized approximately $120 million as treasury stock with a corresponding increase in its capital surplus account. The Corporation repurchased a total of 5,066,864 shares at an average purchase price of $78.9443 under the ASR Agreement. Refer to Note 17 – Stockholders’ Equity for further information on the ASR transaction.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters and six months-periods ended June 30, 2022 and 2021.
118
Net interest income on a taxable equivalent basis – Non-GAAP Financial Measure
The Corporation’s interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, certain obligations of the Commonwealth of Puerto Rico and/or its agencies and municipalities and assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by Puerto Rico tax law. Thereunder, the exempt interest can be deducted up to the amount of taxable income.
Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources. Net interest income on a taxable equivalent basis is presented with its different components in Tables 2 and 3, along with the reconciliation to net interest income (GAAP), for the quarter and six month-period ended June 30, 2022 as compared with the same period in 2021, segregated by major categories of interest earning assets and interest-bearing liabilities.
Non-GAAP financial measures used by the Corporation may not be comparable to similarly named Non-GAAP financial measures used by other companies.
Financial highlights for the quarter ended June 30, 2022
For the quarter ended June 30, 2022, the Corporation recorded net income of $ 211.4 million, compared to net income of $ 218.1 million for the same quarter of the previous year. Net interest margin for the second quarter of 2022 was 3.09%, an increase of 18 basis points when compared to 2.91% for the same quarter of the previous year, mainly due to higher volume of loans, higher interest rate environment, and the change in mix of the money markets and investment portfolio. On a taxable equivalent basis, the net interest margin was of 3.45%, compared to 3.22% for the same quarter of the previous year. The Corporation recorded a provision for credit losses of $9.4 million, compared to a benefit of $17.0 million for the same quarter of the previous year. The higher provision for 2022 is attributed to the macroeconomic outlook and portfolio growth. Non-interest income was $157.4 million for the quarter, an increase of $2.9 million when compared to the quarter ended June 30, 2021 mainly due to higher credit card fees and mortgage banking activities. Operating expenses were higher by $38.1 million principally due to higher personnel costs and professional fees.
Total assets at June 30, 2022 amounted to $71.5 billion, compared to $75.1 billion, at December 31, 2021. The decrease was mainly due to lower money market investments, due to a decrease in deposits, partially offset by higher debt securities available-for-sale and held-to-maturity and loan growth.
Total deposits at June 30, 2022 decreased by $1.7 billion when compared to deposits at December 31, 2021, mainly due to lower Puerto Rico public sector deposits by $3.3 billion, partially offset by growth in other deposits sectors.
Total stockholders' equity decreased by $1.7 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.6 billion due to a decline in fair value of fixed-rate debt securities as a result of the rising interest rate environment, the impact of the $400 million ASR and declared quarterly common stock dividends, partially offset by the net income of $423.1 million for the six months ended June 30, 2022.
At June 30, 2022, the Corporation’s tangible book value per common share was $46.18.
Capital ratios continued to be strong. As of June 30, 2022, the Corporation’s common equity tier 1 capital ratio was 16.39%, the tier 1 leverage ratio was 7.56%, and the total capital ratio was 18.29%. Refer to Table 8 for capital ratios.
Refer to the Operating Results Analysis and Financial Condition Analysis within this MDA for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.
As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business
119
spending and investment, consumer income, spending and savings, capital market activities, competition, customer preferences, interest rate conditions and prevailing market rates on competing products.
The Corporation operates in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations. Also, competition with other financial institutions could adversely affect its profitability.
The Corporation continuously monitors general business and economic conditions, industry-related indicators and trends, competition, interest rate volatility, credit quality indicators, loan and deposit demand, operational and systems efficiencies, revenue enhancements and changes in the regulation of financial services companies.
The description of the Corporation’s business contained in Item 1 of the Corporation’s 2021 Form 10-K, while not all inclusive, discusses additional information about the business of the Corporation. Readers should also refer to “Part I - Item 1A” of the 2021 Form 10-K and “Part II - Item 1A” of this Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider.
The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol BPOP.
120
Table 1 - Financial Highlights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Highlights |
|
|
|
|
|
| ||||||||||||
|
|
Ending balances at |
|
|
Average for the six months ended | |||||||||||||
(In thousands) |
|
June 30, 2022 |
December 31, 2021 |
|
|
Variance |
|
|
June 30, 2022 |
|
June 30, 2021 |
|
Variance |
| ||||
Money market investments |
$ |
9,687,356 |
|
$ |
17,536,719 |
|
$ |
(7,849,363) |
|
$ |
13,128,977 |
|
$ |
14,003,612 |
|
$ |
(874,635) |
|
Investment securities |
|
28,138,453 |
|
|
25,267,418 |
|
|
2,871,035 |
|
|
28,174,976 |
|
|
21,954,354 |
|
|
6,220,622 |
|
Loans |
|
30,399,482 |
|
|
29,299,725 |
|
|
1,099,757 |
|
|
29,574,964 |
|
|
29,234,350 |
|
|
340,614 |
|
Earning assets |
|
68,225,291 |
|
|
72,103,862 |
|
|
(3,878,571) |
|
|
70,878,917 |
|
|
65,192,316 |
|
|
5,686,601 |
|
Total assets |
|
71,501,931 |
|
|
75,097,899 |
|
|
(3,595,968) |
|
|
73,961,645 |
|
|
68,237,652 |
|
|
5,723,993 |
|
Deposits |
|
65,327,664 |
|
|
67,005,088 |
|
|
(1,677,424) |
|
|
66,071,560 |
|
|
60,116,322 |
|
|
5,955,238 |
|
Borrowings |
|
959,135 |
|
|
1,155,166 |
|
|
(196,031) |
|
|
1,048,084 |
|
|
1,329,988 |
|
|
(281,904) |
|
Stockholders’ equity |
|
4,293,349 |
|
|
5,969,397 |
|
|
(1,676,048) |
|
|
5,905,057 |
|
|
5,688,471 |
|
|
216,586 |
|
[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale. |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating Highlights |
Quarters ended June 30, |
|
Six months ended June 30, |
| ||||||||||||||
(In thousands, except per share information) |
|
2022 |
|
|
2021 |
|
|
Variance |
|
|
2022 |
|
|
2021 |
|
|
Variance |
|
Net interest income |
$ |
533,862 |
|
$ |
487,802 |
|
$ |
46,060 |
|
$ |
1,028,174 |
|
$ |
966,914 |
|
$ |
61,260 |
|
Provision for credit losses (benefit) |
|
9,362 |
|
|
(17,015) |
|
|
26,377 |
|
|
(6,138) |
|
|
(99,241) |
|
|
93,103 |
|
Non-interest income |
|
157,411 |
|
|
154,540 |
|
|
2,871 |
|
|
312,103 |
|
|
308,193 |
|
|
3,910 |
|
Operating expenses |
|
406,278 |
|
|
368,185 |
|
|
38,093 |
|
|
808,617 |
|
|
743,713 |
|
|
64,904 |
|
Income before income tax |
|
275,633 |
|
|
291,172 |
|
|
(15,539) |
|
|
537,798 |
|
|
630,635 |
|
|
(92,837) |
|
Income tax expense |
|
64,212 |
|
|
73,093 |
|
|
(8,881) |
|
|
114,691 |
|
|
149,924 |
|
|
(35,233) |
|
Net income |
$ |
211,421 |
|
$ |
218,079 |
|
$ |
(6,658) |
|
$ |
423,107 |
|
$ |
480,711 |
|
$ |
(57,604) |
|
Net income applicable to common stock |
$ |
211,068 |
|
$ |
217,726 |
|
$ |
(6,658) |
|
$ |
422,401 |
|
$ |
480,005 |
|
$ |
(57,604) |
|
Net income per common share – basic |
$ |
2.77 |
|
$ |
2.67 |
|
$ |
0.10 |
|
$ |
5.46 |
|
$ |
5.80 |
|
$ |
(0.34) |
|
Net income per common share – diluted |
$ |
2.77 |
|
$ |
2.66 |
|
$ |
0.11 |
|
$ |
5.46 |
|
$ |
5.79 |
|
$ |
(0.33) |
|
Dividends declared per common share |
$ |
0.55 |
|
$ |
0.45 |
|
$ |
0.10 |
|
$ |
1.10 |
|
$ |
0.85 |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended June 30, |
|
|
|
Six months ended June 30, | |||||||||
Selected Statistical Information |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
2022 |
|
|
2021 |
|
Common Stock Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End market price |
|
|
|
$ |
76.93 |
|
|
75.05 |
|
|
|
|
$ |
76.93 |
|
|
75.05 |
|
Book value per common share at period end |
|
|
55.78 |
|
|
71.82 |
|
|
|
|
|
55.78 |
|
|
71.82 |
| ||
Profitability Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
|
|
|
1.17 |
% |
1.24 |
% |
|
|
|
1.15 |
% |
1.42 |
% | |||
Return on common equity |
|
|
|
|
14.58 |
|
|
15.43 |
|
|
|
|
|
14.48 |
|
|
17.08 |
|
Net interest spread |
|
|
3.00 |
|
|
2.82 |
|
|
|
|
|
2.84 |
|
|
2.89 |
| ||
Net interest spread (taxable equivalent) - Non-GAAP |
|
|
3.36 |
|
|
3.13 |
|
|
|
|
|
3.16 |
|
|
3.21 |
| ||
Net interest margin |
|
|
3.09 |
|
|
2.91 |
|
|
|
|
|
2.92 |
|
|
2.99 |
| ||
Net interest margin (taxable equivalent) - Non-GAAP |
|
|
3.45 |
|
|
3.22 |
|
|
|
|
|
3.24 |
|
|
3.31 |
| ||
Capitalization Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets |
|
|
|
|
8.06 |
% |
8.08 |
% |
|
|
|
7.98 |
% |
8.34 |
% | |||
Common equity Tier 1 capital |
|
|
|
|
16.39 |
|
|
16.55 |
|
|
|
|
|
16.39 |
|
|
16.55 |
|
Tier I capital |
|
|
|
|
16.46 |
|
|
16.62 |
|
|
|
|
|
16.46 |
|
|
16.62 |
|
Total capital |
|
|
|
|
18.29 |
|
|
19.09 |
|
|
|
|
|
18.29 |
|
|
19.09 |
|
Tier 1 leverage |
|
|
|
|
7.56 |
|
|
7.34 |
|
|
|
|
|
7.56 |
|
|
7.34 |
|
121
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The accounting and reporting policies followed by the Corporation and its subsidiaries conform to generally accepted accounting principles in the United States of America and general practices within the financial services industry. Various elements of the Corporation’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates.
Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Credit Losses; (iii) Loans Acquired with Deteriorated Credit Quality; (iv) Income Taxes; (v) Goodwill and Other Intangible Assets; and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MDA included in Popular, Inc.’s 2021 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2021 Form 10-K for a summary of the Corporation’s significant accounting policies and to Note 3 to the Consolidated Financial Statements included in this Form 10-Q for information on recently adopted accounting standard updates.
122
OPERATING RESULTS ANALYSIS
NET INTEREST INCOME
Net interest income for the second quarter of 2022 was $533.9 million, an increase of $46.1 million when compared to $487.8 million for the same quarter of 2021. Taxable equivalent net interest income was $595.5 million for the second quarter of 2022 compared to $541.2 million in the second quarter of 2021, an increase of $54.3 million.
Net interest margin for the second quarter of 2022 was 3.09%, an increase of 18 basis points when compared to 2.91% for the same quarter of the previous year. The increase in the net interest margin is mainly due to a higher volume of loans, a higher interest rate environment, and the change in mix of the money markets and investment portfolios. The net interest margin, on a taxable equivalent basis, for the second quarter of 2022 was 3.45%, an increase of 23 basis points when compared to 3.22% for the same quarter of 2021. The detailed variances of the increase in net interest income are described below:
Positive variances:
Higher interest income from money market, investment, and trading securities by $38.2 million due to a higher volume by $1.2 billion and higher yield by 35 basis points related to a higher interest rate environment and the investment in longer term securities. The interest rate received on excess reserves at the Federal Reserve increased by 72 basis points when compared to the same quarter in 2021;
Higher interest income from commercial loans by $6.2 million due to a higher average volume by $688 million, partially offset by lower yield by eight basis points mainly driven by lower income from loans under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) by $8.8 million;
The auto and lease financing portfolios interest income increased by $2.4 million due to higher average volume by $402.0 million, partially offset by lower yield due to a high volume of originations in a prolonged low interest rate environment. Also impacting the yield on this portfolio is a lower amortization of the portfolio purchased in 2018; and
Higher interest income from consumer loans by $6.2 million due to higher average volume by $223.0 million.
Partially offset by:
Lower interest expense on medium and long-term debt due to the redemption, on the fourth quarter of 2021, of all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities ($186.7 million).
Prepayment penalties, late fees collected and the amortization of premiums on purchased loans are included as part of the loan yield. Interest income related to these items for the quarters ended June 30, 2022 and 2021 amounted to $12.6 million and $31.1 million, respectively. The decrease of $18.5 million is mainly related to lower amortized fees resulting from the forgiveness of PPP loans of $4.7 million compared to $10.9 million in the second quarter of 2021, lower amortization recorded from the prepayment of previously purchased credit deteriorated loans and lower amortization on the fair value discount of the auto portfolios acquired in previous years.
123
|
Table 2 - Analysis of Levels Yields on a Taxable Equivalent Basis (Non-GAAP) | ||||||||||||||||||||||||
|
Quarter ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance | |||||||
|
Average Volume |
|
Average Yields / Costs |
|
|
|
Interest |
|
Attributable to | ||||||||||||||||
|
2022 |
|
2021 |
Variance |
|
2022 |
|
2021 |
|
Variance |
|
|
|
|
|
2022 |
|
2021 |
|
Variance |
|
Rate |
|
Volume | |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
(In thousands) | |||||||||||||
$ |
11,513 |
$ |
15,540 |
$ |
(4,027) |
|
0.83 |
% |
0.11 |
% |
0.72 |
% |
|
Money market investments |
$ |
23,742 |
$ |
4,275 |
$ |
19,467 |
$ |
20,851 |
$ |
(1,384) | |
|
27,748 |
|
22,509 |
|
5,239 |
|
2.18 |
|
2.35 |
|
(0.17) |
|
|
Investment securities [1] |
|
150,890 |
|
132,105 |
|
18,785 |
|
(8,222) |
|
27,007 | |
|
65 |
|
87 |
|
(22) |
|
6.66 |
|
5.22 |
|
1.44 |
|
|
Trading securities |
|
1,089 |
|
1,134 |
|
(45) |
|
272 |
|
(317) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market, |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment and trading |
|
|
|
|
|
|
|
|
|
|
|
39,326 |
|
38,136 |
|
1,190 |
|
1.79 |
|
1.44 |
|
0.35 |
|
|
|
securities |
|
175,721 |
|
137,514 |
|
38,207 |
|
12,901 |
|
25,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
| |
|
14,227 |
|
13,539 |
|
688 |
|
5.16 |
|
5.24 |
|
(0.08) |
|
|
|
Commercial |
|
183,042 |
|
176,857 |
|
6,185 |
|
(2,698) |
|
8,883 |
|
781 |
|
858 |
|
(77) |
|
5.71 |
|
5.43 |
|
0.28 |
|
|
|
Construction |
|
11,116 |
|
11,603 |
|
(487) |
|
575 |
|
(1,062) |
|
1,445 |
|
1,262 |
|
183 |
|
5.91 |
|
6.01 |
|
(0.10) |
|
|
|
Leasing |
|
21,352 |
|
18,964 |
|
2,388 |
|
(313) |
|
2,701 |
|
7,294 |
|
7,765 |
|
(471) |
|
5.33 |
|
5.12 |
|
0.21 |
|
|
|
Mortgage |
|
97,137 |
|
99,364 |
|
(2,227) |
|
3,945 |
|
(6,172) |
|
2,654 |
|
2,431 |
|
223 |
|
11.33 |
|
11.47 |
|
(0.14) |
|
|
|
Consumer |
|
74,932 |
|
68,746 |
|
6,186 |
|
(369) |
|
6,555 |
|
3,499 |
|
3,280 |
|
219 |
|
8.04 |
|
8.58 |
|
(0.54) |
|
|
|
Auto |
|
70,145 |
|
70,137 |
|
8 |
|
(4,538) |
|
4,546 |
|
29,900 |
|
29,135 |
|
765 |
|
6.14 |
|
6.13 |
|
0.01 |
|
|
Total loans |
|
457,724 |
|
445,671 |
|
12,053 |
|
(3,398) |
|
15,451 | |
$ |
69,226 |
$ |
67,271 |
$ |
1,955 |
|
3.67 |
% |
3.47 |
% |
0.20 |
% |
|
Total earning assets |
$ |
633,445 |
$ |
583,185 |
$ |
50,260 |
$ |
9,503 |
$ |
40,757 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
| |
$ |
24,897 |
$ |
25,102 |
$ |
(205) |
|
0.13 |
% |
0.13 |
% |
- |
% |
|
|
NOW and money market [2] |
$ |
8,301 |
$ |
7,972 |
$ |
329 |
$ |
470 |
$ |
(141) |
|
16,363 |
|
15,384 |
|
979 |
|
0.17 |
|
0.18 |
|
(0.01) |
|
|
|
Savings |
|
6,901 |
|
6,916 |
|
(15) |
|
(555) |
|
540 |
|
7,044 |
|
7,104 |
|
(60) |
|
0.72 |
|
0.74 |
|
(0.02) |
|
|
|
Time deposits |
|
12,625 |
|
13,172 |
|
(547) |
|
(210) |
|
(337) |
|
48,304 |
|
47,590 |
|
714 |
|
0.23 |
|
0.24 |
|
(0.01) |
|
|
Total interest bearing deposits |
|
27,827 |
|
28,060 |
|
(233) |
|
(295) |
|
62 | |
|
126 |
|
91 |
|
35 |
|
0.79 |
|
0.27 |
|
0.52 |
|
|
Short-term borrowings |
|
248 |
|
62 |
|
186 |
|
90 |
|
96 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other medium and |
|
|
|
|
|
|
|
|
|
| |
|
917 |
|
1,224 |
|
(307) |
|
4.30 |
|
4.53 |
|
(0.23) |
|
|
|
long-term debt |
|
9,824 |
|
13,837 |
|
(4,013) |
|
(652) |
|
(3,361) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing |
|
|
|
|
|
|
|
|
|
| |
|
49,347 |
|
48,905 |
|
442 |
|
0.31 |
|
0.34 |
|
(0.03) |
|
|
|
liabilities |
|
37,899 |
|
41,959 |
|
(4,060) |
|
(857) |
|
(3,203) |
|
16,254 |
|
14,920 |
|
1,334 |
|
|
|
|
|
|
|
|
Demand deposits |
|
|
|
|
|
|
|
|
|
| |
|
3,625 |
|
3,446 |
|
179 |
|
|
|
|
|
|
|
|
Other sources of funds |
|
|
|
|
|
|
|
|
|
| |
$ |
69,226 |
$ |
67,271 |
$ |
1,955 |
|
0.22 |
% |
0.25 |
% |
(0.03) |
% |
|
Total source of funds |
|
37,899 |
|
41,959 |
|
(4,060) |
|
(857) |
|
(3,203) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin/ |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
3.45 |
% |
3.22 |
% |
0.23 |
% |
|
|
income on a taxable equivalent basis (Non-GAAP) |
|
595,546 |
|
541,226 |
|
54,320 |
$ |
10,360 |
$ |
43,960 | |
|
|
|
|
|
|
|
3.36 |
% |
3.13 |
% |
0.23 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment |
|
61,684 |
|
53,424 |
|
8,260 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin/ income |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
3.09 |
% |
2.91 |
% |
0.18 |
% |
|
|
non-taxable equivalent basis (GAAP) |
$ |
533,862 |
$ |
487,802 |
$ |
46,060 |
|
|
|
|
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category. | |||||||||||||||||||||||||
[1] Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale. | |||||||||||||||||||||||||
[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico. | |||||||||||||||||||||||||
124
Net interest income for the six-month period ended June 30, 2022 was $1.0 billion, or $61.3 million higher than the same period in 2021. Taxable equivalent net interest income was $1.1 billion for the six months ended June 30, 2022, or $71.0 million higher than the same period in 2021. Net interest margin was 2.92%, a decrease of seven basis points when compared to 2.99% in 2021. The decrease in net interest margin is mainly driven by a higher volume of money market and investment securities, and a decrease in loan yields driven by lower PPP income when compared to the same period in 2021. Net interest margin, on a taxable equivalent basis, for the six-months ended June 30, 2022, was 3.24%, a decrease of seven basis points when compared to the 3.31% for the same period of 2021. The drivers of the variances in net interest income for the six-month period are:
Positive variances:
Higher interest income from money market, investment, and trading securities by $53.6 million due to a higher volume by $5.3 billion mainly due to purchases of U.S. Treasury securities. This increase results from a higher volume of deposits of $6.0 billion as a result of Covid-19 U.S. Government stimulus and other aid. The yield of the portfolio increased seven basis points due to a higher volume of investment securities and higher interest rate received on excess reserves at the Federal Reserve by 35 basis points, driven by recent increases in the Federal Funds rate;
Higher interest income from the auto and lease financing portfolios due to the increase in volume of $418.3 million, partially offset by lower yield driven by a lower amortization of the discount of previously acquired portfolios and the origination of loans in a prolonged low interest rate environment;
Higher interest income from consumer loans mostly due to a higher average volume of personal loans and credit cards;
Lower interest expense on deposits due to lower cost by five basis points, partially offset by a higher volume of interest-bearing deposits by $3.9 billion; and
Lower interest expense on medium and long-term debt due to the redemption, on the fourth quarter of 2021, of all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities ($186.7 million);
Negative variances:
Lower interest income from mortgage loans by $3.9 million driven by lower average volume mainly related to portfolio run-off.
Prepayment penalties, late fees collected and the amortization of premiums on purchased loans are included as part of the loan yield. Interest income related to these items for the six-months ended June 30, 2022, amounted to $28.9 million, compared to $64.8 million in the same period of 2021. The decrease in loan fee income was driven by PPP loan fees, which amounted to $14.7 million for the six-month period ended June 30, 2022 versus $30.9 million in the six-month period ended June 30, 2021 and lower amortization recorded from the prepayment of previously purchased credit deteriorated loans and lower amortization on the fair value discount of the auto portfolios acquired in previous years.
125
Table 3 – Analysis of Levels Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP) |
| ||||||||||||||||||||||||
Six months ended June 30, | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance | |||||||
Average Volume |
|
Average Yields / Costs |
|
|
|
Interest |
|
Attributable to | |||||||||||||||||
|
2022 |
|
2021 |
Variance |
|
2022 |
|
2021 |
|
Variance |
|
|
|
|
|
2022 |
|
2021 |
|
Variance |
|
Rate |
|
Volume | |
|
(In millions) |
|
|
|
|
|
|
|
|
|
|
(In thousands) | |||||||||||||
$ |
13,129 |
$ |
14,004 |
$ |
(875) |
|
0.46 |
% |
0.11 |
% |
0.35 |
% |
|
Money market investments |
$ |
30,206 |
$ |
7,386 |
$ |
22,820 |
$ |
23,310 |
$ |
(490) | |
|
28,107 |
|
21,868 |
|
6,239 |
|
2.06 |
|
2.37 |
|
(0.31) |
|
|
Investment securities [1] |
|
288,241 |
|
257,411 |
|
30,830 |
|
(28,585) |
|
59,415 | |
|
68 |
|
86 |
|
(18) |
|
6.27 |
|
5.10 |
|
1.17 |
|
|
Trading securities |
|
2,107 |
|
2,167 |
|
(60) |
|
447 |
|
(507) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total money market, |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment and trading |
|
|
|
|
|
|
|
|
|
|
|
41,304 |
|
35,958 |
|
5,346 |
|
1.56 |
|
1.49 |
|
0.07 |
|
|
|
securities |
|
320,554 |
|
266,964 |
|
53,590 |
|
(4,828) |
|
58,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
| |
|
13,986 |
|
13,582 |
|
404 |
|
5.12 |
|
5.30 |
|
(0.18) |
|
|
|
Commercial |
|
355,171 |
|
355,922 |
|
(751) |
|
(11,235) |
|
10,484 |
|
754 |
|
884 |
|
(130) |
|
5.58 |
|
5.38 |
|
0.20 |
|
|
|
Construction |
|
20,874 |
|
23,504 |
|
(2,630) |
|
946 |
|
(3,576) |
|
1,419 |
|
1,239 |
|
180 |
|
5.93 |
|
6.02 |
|
(0.09) |
|
|
|
Leasing |
|
42,071 |
|
37,318 |
|
4,753 |
|
(587) |
|
5,340 |
|
7,341 |
|
7,816 |
|
(475) |
|
5.28 |
|
5.06 |
|
0.22 |
|
|
|
Mortgage |
|
193,905 |
|
197,792 |
|
(3,887) |
|
8,459 |
|
(12,346) |
|
2,595 |
|
2,472 |
|
123 |
|
11.27 |
|
11.35 |
|
(0.08) |
|
|
|
Consumer |
|
144,994 |
|
139,147 |
|
5,847 |
|
(1,719) |
|
7,566 |
|
3,480 |
|
3,241 |
|
239 |
|
8.08 |
|
8.63 |
|
(0.55) |
|
|
|
Auto |
|
139,397 |
|
138,289 |
|
1,108 |
|
(8,752) |
|
9,860 |
|
29,575 |
|
29,234 |
|
341 |
|
6.10 |
|
6.15 |
|
(0.05) |
|
|
Total loans |
|
896,412 |
|
891,972 |
|
4,440 |
|
(12,888) |
|
17,328 | |
$ |
70,879 |
$ |
65,192 |
$ |
5,687 |
|
3.45 |
% |
3.58 |
% |
(0.13) |
% |
|
Total earning assets |
$ |
1,216,966 |
$ |
1,158,936 |
$ |
58,030 |
$ |
(17,716) |
$ |
75,746 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
| |
$ |
26,584 |
$ |
23,895 |
$ |
2,689 |
|
0.12 |
% |
0.14 |
% |
(0.02) |
% |
|
|
NOW and money market [2] |
$ |
15,624 |
$ |
16,234 |
$ |
(610) |
$ |
(2,168) |
$ |
1,558 |
|
16,398 |
|
14,876 |
|
1,522 |
|
0.17 |
|
0.19 |
|
(0.02) |
|
|
|
Savings |
|
13,464 |
|
13,935 |
|
(471) |
|
(2,173) |
|
1,702 |
|
6,891 |
|
7,184 |
|
(293) |
|
0.69 |
|
0.79 |
|
(0.10) |
|
|
|
Time deposits |
|
23,522 |
|
28,092 |
|
(4,570) |
|
(2,700) |
|
(1,870) |
|
49,873 |
|
45,955 |
|
3,918 |
|
0.21 |
|
0.26 |
|
(0.05) |
|
|
Total interest bearing deposits |
|
52,610 |
|
58,261 |
|
(5,651) |
|
(7,041) |
|
1,390 | |
|
109 |
|
95 |
|
14 |
|
0.61 |
|
0.44 |
|
0.17 |
|
|
Short-term borrowings |
|
328 |
|
205 |
|
123 |
|
45 |
|
78 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other medium and |
|
|
|
|
|
|
|
|
|
| |
|
965 |
|
1,235 |
|
(270) |
|
4.25 |
|
4.53 |
|
(0.28) |
|
|
|
long-term debt |
|
20,370 |
|
27,832 |
|
(7,462) |
|
8 |
|
(7,470) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing |
|
|
|
|
|
|
|
|
|
| |
|
50,947 |
|
47,285 |
|
3,662 |
|
0.29 |
|
0.37 |
|
(0.08) |
|
|
|
liabilities |
|
73,308 |
|
86,298 |
|
(12,990) |
|
(6,988) |
|
(6,002) |
|
16,198 |
|
14,161 |
|
2,037 |
|
|
|
|
|
|
|
|
Demand deposits |
|
|
|
|
|
|
|
|
|
| |
|
3,734 |
|
3,746 |
|
(12) |
|
|
|
|
|
|
|
|
Other sources of funds |
|
|
|
|
|
|
|
|
|
| |
$ |
70,879 |
$ |
65,192 |
$ |
5,687 |
|
0.21 |
% |
0.27 |
% |
(0.06) |
% |
|
Total source of funds |
|
73,308 |
|
86,298 |
|
(12,990) |
|
(6,988) |
|
(6,002) | |
|
|
|
|
|
|
3.24 |
% |
3.31 |
% |
(0.07) |
% |
|
Net interest margin/ income on a taxable equivalent basis (Non-GAAP) |
|
1,143,658 |
|
1,072,638 |
|
71,020 |
$ |
(10,728) |
$ |
81,748 | ||
|
|
|
|
|
|
|
3.16 |
% |
3.21 |
% |
(0.05) |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment |
|
115,484 |
|
105,724 |
|
9,760 |
|
|
|
| |||||
|
|
|
|
|
|
|
2.92 |
% |
2.99 |
% |
(0.07) |
% |
|
Net interest margin/ income non-taxable equivalent basis (GAAP) |
$ |
1,028,174 |
$ |
966,914 |
$ |
61,260 |
|
|
|
| |
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category. | |||||||||||||||||||||||||
[1] Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale. | |||||||||||||||||||||||||
[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico. | |||||||||||||||||||||||||
126
Provision for Credit Losses - Loans Held-in-Portfolio and Unfunded Commitments
For the quarter ended June 30, 2022, the Corporation recorded an expense of $9.7 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The provision for credit loss related to the loans-held-in-portfolio for the quarter ended June 30, 2022 was $9.9 million, compared to a reserve release of $17.5 million for the quarter ended June 30, 2021. The provision expense was mainly driven by higher loan volumes and changes in the macroeconomic scenarios. The reserve release related to unfunded commitments for the second quarter of 2022 was $0.2 million, compared to the provision for unfunded commitments of $0.4 million for the same period of 2021.
For the quarter ended June 30, 2022, the Corporation recorded a provision for credit loss of $9.1 million for loans-held-in-portfolio for the BPPR segment, compared to a reserve release of $22.5 million for the quarter ended June 30, 2021. The Popular U.S. segment recorded a provision of $.7 million for the quarter ended June 30, 2022, compared to a provision of $5.0 million for the same quarter in 2021.
For the six-month period ended June 30, 2022, the Corporation recorded a release of $5.5 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The reserve release related to the loans-held-in-portfolio for the six-month period ended June 30, 2022 was $4.5 million, compared to the reserve release of $93.3 million for the six-month period ended June 30, 2021. The higher reserve release in 2021 reflected the improvements in the macroeconomic environment and outlook, at the time, and the related release of reserves accumulated during early stages of the covid pandemic. The provision for unfunded commitments for the six-month period of 2022 reflected a benefit of $1.0 million, compared to a provision benefit of $5.9 million for the same period of 2021.
The provision for credit losses for the BPPR segment was a benefit of $3.5 million for the six-month period ended June 30, 2022, compared to a benefit of $62.5 million for the six-month period ended June 30, 2021. The Popular U.S. segment recorded a reserve release of $1 million for the six-month period ended June 30, 2022, compared to a benefit of $30.8 million for the same period in 2021.
At June 30, 2022, the total allowance for credit losses for loans held-in-portfolio amounted to $681.8 million, compared to $695.4 million as of December 31, 2021. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.24% at June 30, 2022, compared to 2.38% at December 31, 2021. As discussed in Note 8 to the Consolidated Financial Statements, within the process to estimate its allowance for credit losses (“ACL”), the Corporation applies probability weightings to the outcomes of simulations using Moody’s Analytics’ Baseline, S3 (pessimistic) and S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. Refer to Note 8 to the Consolidated Financial Statements, for additional information on the Corporation’s methodology to estimate its allowance for credit losses (“ACL”). Refer to the Credit Risk section of this MDA for a detailed analysis of net charge-offs, non-performing assets, the allowance for credit losses and selected loan losses statistics.
Provision for Credit Losses – Investment Securities
The Corporation’s provision for credit losses related to its investment securities held-to-maturity is related to the portfolio of obligations from the Government of Puerto Rico, states and political subdivisions. For the quarter and six-month period ended June 30, 2022, the provision for credit losses was $0.3 million benefit and $0.6 million benefit, respectively, compared to a $0.1 million provision expense and a $0.1 million provision benefit, respectively, for the quarter and six-month period ended June 30, 2021. At June 30, 2022, the total allowance for credit losses for this portfolio amounted to $7.5 million, compared to $8.1 million as of December 31, 2021. Refer to Note 6 to Consolidated Financial Statements for additional information on the ACL for this portfolio.
127
Non-Interest Income
Non-interest income amounted to $157.4 million for the quarter ended June 30, 2022, compared to $154.5 million for the same quarter of the previous year. The increase in non-interest income by $2.9 million was primarily driven by:
higher other service fees by $5.1 million, principally at the BPPR segment, due to higher credit and debit card fees by $5.8 million mainly in interchange income resulting from higher transactional volumes; and
higher income from mortgage banking activities by $6.1 million mainly due to a positive variance of $8.5 million in the fair value adjustments on mortgage servicing rights (“MSRs”); and higher realized gains on closed derivative positions by $3.3 million; partially offset by lower gain on sale of mortgage loans and securitization activity by $5.2 million;
partially offset by:
an unfavorable variance in net (loss) gain on equity securities of $5.7 million mainly related to securities held for deferred benefit plans, which have an offsetting positive variance in personnel costs; and
lower other operating income by $3.0 million due to lower earnings from the portfolio of equity method investments.
Non-interest income amounted to $312.1 million for the six months ended June 30, 2022, compared to $308.2 million for the same period of the previous year. Non-interest income increased by $3.9 million primarily driven by:
higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees at BPPR; and
higher other service fees by $11.6 million, principally at the BPPR segment, due to higher credit card fees mainly in interchange income resulting from higher volume of transactions;
partially offset by
higher losses on equity securities by $8.2 million due mainly to securities held for deferred benefit plans, which have an offsetting positive variance in personnel costs; and
lower other operating income by $1.8 million principally due to lower net earnings from the combined portfolio of investments under the equity method and lower gains from the sale of long-lived assets.
128
Operating Expenses
Operating expenses amounted to $406.3 million for the quarter ended June 30, 2022, an increase of $38.1 million when compared with the same quarter of 2021, driven primarily by:
higher personnel cost by $14.6 million mainly due to higher salaries as a result of salary adjustments; higher incentive compensation and higher profit-sharing expense, which is tied to the Corporation’s financial performance;
higher professional fees by $13.7 million due to higher programming, processing and other technology services by $6.2 million mainly due to higher volume of transactions and higher advisory expense by $6.1 million related to higher increased customer activity and corporate initiatives related to compliance, fraud and cyber security among others; and
higher business promotions by $4.8 million due to higher customer reward program expense in our credit card business by $4.0 million.
Operating expenses amounted to $808.6 million for the six months ended June 30, 2022, an increase of $64.9 million when compared with the same period of 2021, driven primarily by:
higher personnel cost by $22.1 million mainly due to higher salaries as a result of salary adjustments;
higher equipment expense by $4.2 million due to higher software amortization expense;
higher other operating taxes by $4.3 million due to higher property taxes;
higher professional fees by $22.3 million due to higher programming, processing and other technology services by $9.2 million mainly due to higher volume of transactions and higher advisory expense by $12.6 million related to higher increased customer activity and corporate initiatives related to compliance, fraud and cyber security among others;
higher business promotions by $7.4 million due to higher customer reward program expense in our credit card business; and
higher other operating expenses by $5.1 million due to lower gain on sale of foreclosed auto units and higher pension plan cost due to annual changes in actuarial assumptions; partially offset by lower write-down of foreclosed auto units.
129
Table 4 - Operating Expenses |
|
|
|
|
|
|
|
|
|
| |||
|
Quarters ended June 30, |
|
Six months ended June 30, | ||||||||||
(In thousands) |
2022 |
2021 |
Variance |
|
2022 |
|
2021 |
|
Variance | ||||
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Salaries |
$ |
101,847 |
$ |
90,294 |
$ |
11,553 |
$ |
200,520 |
$ |
179,629 |
$ |
20,891 |
|
Commissions, incentives and other bonuses |
|
29,787 |
|
26,374 |
|
3,413 |
|
61,126 |
|
59,592 |
|
1,534 |
|
Pension, postretirement and medical insurance |
|
13,730 |
|
13,289 |
|
441 |
|
26,513 |
|
24,213 |
|
2,300 |
|
Other personnel costs, including payroll taxes |
|
23,424 |
|
24,247 |
|
(823) |
|
47,625 |
|
50,249 |
|
(2,624) |
|
Total personnel costs |
|
168,788 |
|
154,204 |
|
14,584 |
|
335,784 |
|
313,683 |
|
22,101 |
Net occupancy expenses |
|
26,214 |
|
24,562 |
|
1,652 |
|
50,937 |
|
50,575 |
|
362 | |
Equipment expenses |
|
25,088 |
|
22,805 |
|
2,283 |
|
48,567 |
|
44,380 |
|
4,187 | |
Other taxes |
|
15,780 |
|
13,205 |
|
2,575 |
|
31,495 |
|
27,164 |
|
4,331 | |
Professional fees: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Collections, appraisals and other credit related fees |
|
2,802 |
|
3,486 |
|
(684) |
|
5,028 |
|
6,806 |
|
(1,778) |
|
Programming, processing and other technology services |
|
73,305 |
|
67,152 |
|
6,153 |
|
142,679 |
|
133,518 |
|
9,161 |
|
Legal fees, excluding collections |
|
3,091 |
|
2,367 |
|
724 |
|
7,045 |
|
4,732 |
|
2,313 |
|
Other professional fees |
|
35,674 |
|
28,148 |
|
7,526 |
|
68,617 |
|
56,045 |
|
12,572 |
|
Total professional fees |
|
114,872 |
|
101,153 |
|
13,719 |
|
223,369 |
|
201,101 |
|
22,268 |
Communications |
|
5,993 |
|
6,005 |
|
(12) |
|
12,140 |
|
12,838 |
|
(698) | |
Business promotion |
|
21,353 |
|
16,511 |
|
4,842 |
|
36,436 |
|
29,032 |
|
7,404 | |
FDIC deposit insurance |
|
6,463 |
|
5,742 |
|
721 |
|
13,835 |
|
11,710 |
|
2,125 | |
Other real estate owned (OREO) income |
|
(7,806) |
|
(4,299) |
|
(3,507) |
|
(10,519) |
|
(8,832) |
|
(1,687) | |
Other operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Credit and debit card processing, volume and interchange and other expenses |
|
11,375 |
|
10,917 |
|
458 |
|
23,884 |
|
23,371 |
|
513 |
|
Operational losses |
|
4,061 |
|
6,528 |
|
(2,467) |
|
15,886 |
|
14,424 |
|
1,462 |
|
All other |
|
13,302 |
|
9,597 |
|
3,705 |
|
25,117 |
|
21,961 |
|
3,156 |
|
Total other operating expenses |
|
28,738 |
|
27,042 |
|
1,696 |
|
64,887 |
|
59,756 |
|
5,131 |
Amortization of intangibles |
|
795 |
|
1,255 |
|
(460) |
|
1,686 |
|
2,306 |
|
(620) | |
Total operating expenses |
$ |
406,278 |
$ |
368,185 |
$ |
38,093 |
$ |
808,617 |
$ |
743,713 |
$ |
64,904 | |
Income Taxes
For the quarter and six months ended June 30, 2022, the Corporation recorded an income tax expense of $64.2 million and $114.7 million with an effective tax rate (“ETR”) of 23% and 21%, respectively, compared to $73.1 million and $149.9 million with an ETR of 25% and 24% for the respective periods of 2021. The decrease in income tax expense was primarily due to lower pre-tax income and higher tax exempt income for the quarter and six months ended June 30, 2022.
At June 30, 2022, the Corporation had a net deferred tax asset amounting to $0.8 billion, net of a valuation allowance of $0.6 billion. The net deferred tax asset related to the U.S. operations was $0.2 billion, net of a valuation allowance of $0.4 billion.
Refer to Note 30 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on the income tax expense and deferred tax asset balances.
130
REPORTABLE SEGMENT RESULTS
The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. A Corporate group has been defined to support the reportable segments.
For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 32 to the Consolidated Financial Statements.
The Corporate group reported a net income of $4.8 million for the quarter ended June 30, 2022, compared with a net income of $6.6 million for the same quarter of the previous year. The decrease in net income was mainly attributed to higher salaries and higher professional services expense, offset by lower interest expense related to the redemption in the fourth quarter of 2021 of $186.7 million in Trust Preferred Securities issued by Popular Capital Trust I. For the six months ended June 30, 2022 the Corporate group reported net income of $11.1 million, compared to a net income of $8.9 million for the same period of the previous year. The increase in net income was due to lower interest expense from the redemption of the above mentioned Trust Preferred Securities, and higher earnings from equity method investments.
Highlights on the earnings results for the reportable segments are discussed below:
Banco Popular de Puerto Rico
The Banco Popular de Puerto Rico reportable segment’s net income amounted to $179.6 million for the quarter ended June 30, 2022, compared with net income of $193.3 million for the same quarter of the previous year. The results for the second quarter of 2021 reflect a release of the reserve for credit losses of $22.0 million, reflective of the credit metrics and macroeconomic outlook. The factors that contributed to the variance in the financial results included the following:
Higher net interest income by $28.6 million mainly due to:
higher interest income from money market and investment securities by $30.2 million due to higher average balances of U.S. Treasury securities and higher yields from money market investments due to balances maintained at the Federal Reserve;
partially offset by
lower interest income from loans by $1.0 million mainly from commercial loans due to lower fees from PPP loans and lower income from mortgage loans due to lower average balances, partially offset by higher income from consumer loans and leases due to loan growth; and
higher interest expense on deposits by $0.6 million mainly due to higher costs, mainly from time deposits.
The net interest margin for the quarter ended June 30, 2022 was 3.02% compared to 2.91% for the same quarter in the previous year. The increase in net interest margin is driven by earnings assets mix and the higher rates for money market investments held at the Federal Reserve.
A provision for loan losses expense of $8.8 million, compared to a reserve release of $22.0 million in the second quarter of 2021, or an unfavorable variance of $30.8 million;
Non-interest income was higher by $8.3 million mainly due to:
Higher other service fees by $5.7 million mainly due to higher credit card fees as a result of higher interchange transactional volumes; and
Higher income from mortgage banking activities by $6.2 million due to a favorable variance in the fair value adjustment for MSRs and higher realized gains on closed derivative positions; partially offset by lower gain on sale of mortgage loans and securitization activity;
131
partially offset by
lower other operating income by $2.6 million mostly due to lower earnings from the portfolio of equity method investments.
Higher operating expenses by $29.8 million mostly due to:
higher personnel costs by $12.8 million driven by higher salaries and benefits due to salary adjustments; higher incentive compensation and higher profit sharing expense;
higher other taxes by $2.3 million, mainly from personal property taxes;
higher professional fees by $4.5 million due mainly to processing and technology fees;
higher business promotions by $4.3 million due to credit cards rewards expense as a result of higher transactional volumes; and
higher other operating expenses by $6.2 million due to higher charges allocated from the Corporate segment, mainly advisory services;
partially offset by
higher net recoveries from OREO by $3.3 million due mainly to higher gains on sale of commercial and residential properties and lower write-downs.
Lower income tax expense by $10.0 million mainly due to lower income before tax.
For the six months ended June 30, 2022, the BPPR segment recorded net income of $358.2 million compared to a net income of $405.5 million for the same period of the previous year. The results for the six months ended June 30, 2021 reflect a release of the reserve for credit losses of $67.4 million, reflective of the credit metrics and macroeconomic outlook, at the time, compared to a release of $4.9 million for the six months-period ended June 30, 2022. The other factors that contributed to the variance in the financial results included the following:
Higher net interest income by $33.4 million mainly due to:
higher interest income from money market and investment securities by $45.9 million due to higher average balances of U.S. Treasury securities and higher yields from money market investments due to balances maintained at the Federal Reserve; and
lower interest expense on deposits by $1.5 million mainly due to lower costs, offset by higher average balances;
partially offset by
lower interest income from loans by $14.0 million mainly from commercial loans due to lower fees and average balances from PPP loans and lower income from mortgage loans due to lower average balances, partially offset by higher income from consumer loans and leases due to loan growth; and
The net interest margin for the six months ended June 30, 2022 was 2.84% compared to 3.00% for the same quarter in the previous year. The decrease in net interest margin is driven by earnings assets mix.
An unfavorable variance of $62.5 million on the provision for loan losses, due to the reserve release in 2021, as discussed above;
132
Non-interest income was higher by $9.1 million mainly due to:
Higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees;
Higher other service fees by $12.4 million mainly due to higher credit card fees as a result of higher interchange transactional volumes;
partially offset by
lower other operating income by $4.3 million mostly due to lower earnings from the portfolio of equity method investments.
Higher operating expenses by $56.9 million mostly due to:
Higher personnel costs by $19.9 million driven by higher salaries and benefits due to salary adjustments;
Higher other taxes by $4.3 million due mainly to property taxes;
Higher professional fees by $4.3 million mainly due to higher programming, processing and other technology services; and
Higher business promotion by $6.9 million due to higher customer rewards expense related to higher transactional volumes; and
Higher other expenses by $19.0 million to due to higher charges allocated from the Corporate segment, mainly advisory services.
Lower income tax expense by $29.5 million due to lower income before tax.
Popular U.S.
For the quarter ended June 30, 2022, the reportable segment of Popular U.S. reported a net income of $28.1 million, compared with a net income of $18.7 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:
Higher net interest income by $14.7 million due to:
higher interest income from loans by $13.6 million, mainly from growth in the commercial and personal loans portfolio;
lower interest expense on borrowings by $0.7 million due to lower average balance and lower rates; and
lower interest expense on deposits by $0.5 million mainly due to lower interest rates.
The net interest margin for the quarter ended June 30, 2022 was 3.76% compared to 3.33% for the same quarter in the previous year. The increase in net interest margin was driven by earnings assets mix, including the growth in the loan portfolio.
A favorable variance of $4.3 million on the provision for loan losses and unfunded commitments, reflective of credit metrics and the macroeconomic outlook;
133
Higher operating expenses by $7.7 million due to
higher personnel costs by $3.0 million due to salary adjustments;
higher professional fees by $2.1 million due to higher mortgage servicing fees and lower deferred costs related to mortgage originations; and
higher other expenses by $1.7 million due to higher charges allocated from the Corporate segment, mainly advisory services.
Higher income tax expense by $1.5 million due mainly to a higher income before tax.
For the six months ended June 30, 2022 the PB segment recorded net income of $55.1 million, compared to a net income of $66.5 million for the same period of the previous year. The results for the six months ended June 30, 2021 reflect a release of the reserve for credit losses of $31.9 million, reflective of the credit metrics and macroeconomic outlook, compared to a release of $1.4 million for the six months ended June 30, 2022. The other factors that contributed to the variance in the financial results included the following:
Higher net interest income by $22.0 million due to:
higher interest income from loans by $18.9 million, mainly from growth in the commercial and personal loans portfolio;
lower interest expense on deposits by $3.6 million due to lower rates;
partially offset by
lower income from money market and investment securities by $1.4 million mainly due to lower average balances, offset by higher interest rates.
The net interest margin for the six months ended June 30, 2022 was 3.66% compared to 3.35% for the same period in the previous year. The increase in net interest margin is driven by earnings assets mix, including the growth in the loan portfolio.
An unfavorable variance of $30.4 million on the provision for loan losses and unfunded commitments, due to the reserve release in 2021, as discussed above;
Higher operating expenses by $7.9 million due to:
higher personnel costs by $4.0 million due to salary adjustments;
higher professional fees by $1.7 million lower deferred costs related to mortgage originations and higher technology service fees; and
higher other expenses by $2.2 million due to higher charges allocated from the Corporate segment, mainly advisory services.
Lower income tax expense by $4.9 million due mainly to a lower income before tax.
134
FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total assets were $71.5 billion at June 30, 2022, compared to $75.1 billion at December 31, 2021. Refer to the Consolidated Statements of Financial Condition included in this report for additional information.
Money market investments and debt securities available-for-sale
Money market investments decreased by $7.8 billion mainly due to lower Puerto Rico public sector deposits and the deployment of liquidity to purchase investment securities and loan originations. Debt securities available-for-sale and held-to-maturity increased by $1.3 billion and $1.6 billion, respectively at June 30, 2022, due to purchases of U.S. Treasury securities. Refer to Note 5 to the Consolidated Financial Statements for additional information with respect to the Corporation’s debt securities available-for-sale.
Loans
Refer to Table 5 for a breakdown of the Corporation’s loan portfolio. Also, refer to Note 7 in the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.
Loans held-in-portfolio increased by $1.1 billion to $30.4 billion at June 30, 2022, mainly due to an increase in commercial and consumer loans at both BPPR and PB.
Table 5 - Loans Ending Balances |
|
|
|
| ||
(In thousands) |
|
June 30, 2022 |
|
December 31, 2021 |
|
Variance |
Loans held-in-portfolio: |
|
|
|
|
|
|
Commercial |
$ |
14,545,301 |
$ |
13,732,701 |
$ |
812,600 |
Construction |
|
790,920 |
|
716,220 |
|
74,700 |
Leasing |
|
1,480,222 |
|
1,381,319 |
|
98,903 |
Mortgage |
|
7,261,955 |
|
7,427,196 |
|
(165,241) |
Auto |
|
3,489,976 |
|
3,412,187 |
|
77,789 |
Consumer |
|
2,802,562 |
|
2,570,934 |
|
231,628 |
Total loans held-in-portfolio |
$ |
30,370,936 |
$ |
29,240,557 |
$ |
1,130,379 |
Loans held-for-sale: |
|
|
|
|
|
|
Mortgage |
$ |
28,546 |
$ |
59,168 |
$ |
(30,622) |
Total loans held-for-sale |
$ |
28,546 |
$ |
59,168 |
$ |
(30,622) |
Total loans |
$ |
30,399,482 |
$ |
29,299,725 |
$ |
1,099,757 |
135
Other assets
Other assets amounted to $1.8 billion at June 30, 2022, compared to $1.6 billion at December 31, 2021. Refer to Note 12 to the Consolidated Financial Statements for a breakdown of the principal categories that comprise the caption of “Other Assets” in the Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021.
Liabilities
The Corporation’s total liabilities were $67.2 billion at June 30, 2022, a decrease of $1.9 billion, compared to $69.1 billion at December 31, 2021, mainly due to lower deposits as discussed below.
Deposits and Borrowings
The composition of the Corporation’s financing to total assets at June 30, 2022 and December 31, 2021 is included in Table 6.
Table 6 - Financing to Total Assets |
|
|
|
|
|
| ||||
|
June 30, |
December 31, |
% increase (decrease) |
|
% of total assets | |||||
(In millions) |
|
2022 |
|
2021 |
from 2021 to 2022 |
|
2022 |
|
2021 |
|
Non-interest bearing deposits |
$ |
16,663 |
$ |
15,684 |
6.2 |
% |
23.3 |
% |
20.9 |
% |
Interest-bearing core deposits |
|
44,768 |
|
47,954 |
(6.6) |
|
62.6 |
|
63.9 |
|
Other interest-bearing deposits |
|
3,897 |
|
3,367 |
15.7 |
|
5.5 |
|
4.5 |
|
Repurchase agreements |
|
71 |
|
92 |
(22.8) |
|
0.1 |
|
0.1 |
|
Other short-term borrowings |
|
- |
|
75 |
N.M. |
|
- |
|
0.1 |
|
Notes payable |
|
888 |
|
989 |
(10.2) |
|
1.2 |
|
1.3 |
|
Other liabilities |
|
922 |
|
968 |
(4.8) |
|
1.3 |
|
1.3 |
|
Stockholders’ equity |
|
4,293 |
|
5,969 |
(28.1) |
|
6.0 |
|
7.9 |
|
Deposits
The Corporation’s deposits totaled $65.3 billion at June 30, 2022, compared to $67.0 billion at December 31, 2021. The deposits decrease of $1.7 billion was mainly due to lower Puerto Rico public sector deposits by $3.3 billion at BPPR, partially offset by growth in other deposits sectors. At June 30, 2022, Puerto Rico public sector deposits amounted to $17.1 billion. The receipt by the Puerto Rico Government of additional COVID-19 pandemic and hurricane recovery related Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. However, the rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation of fiscal and debt adjustment plans approved pursuant to PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”).
Refer to Table 7 for a breakdown of the Corporation’s deposits at June 30, 2022 and December 31, 2021.
136
Table 7 - Deposits Ending Balances | ||||||||
(In thousands) |
June 30, 2022 |
|
December 31, 2021 |
|
Variance | |||
Demand deposits [1] |
$ |
27,798,243 |
|
$ |
25,889,732 |
|
$ |
1,908,511 |
Savings, NOW and money market deposits (non-brokered) |
|
29,672,655 |
|
|
33,674,134 |
|
|
(4,001,479) |
Savings, NOW and money market deposits (brokered) |
|
761,244 |
|
|
729,073 |
|
|
32,171 |
Time deposits (non-brokered) |
|
6,896,786 |
|
|
6,685,938 |
|
|
210,848 |
Time deposits (brokered CDs) |
|
198,736 |
|
|
26,211 |
|
|
172,525 |
Total deposits |
$ |
65,327,664 |
|
$ |
67,005,088 |
|
$ |
(1,677,424) |
[1] Includes interest and non-interest bearing demand deposits. | ||||||||
Borrowings
The Corporation’s borrowings totaled $1.0 billion at June 30, 2022 compared to $1.2 billion at December 31, 2021. Refer to Note 15 to the Consolidated Financial Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MDA for additional information on the Corporation’s funding sources.
Stockholders’ Equity
Stockholders’ equity totaled $4.3 billion at June 30, 2022, a decrease of $1.7 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.6 billion due to a decline in fair value of fixed-rate debt securities as a result of the rising interest rate environment, the impact of the $400 million ASR and declared quarterly common stock dividends, partially offset by the net income of $423.1 million for the six months ended June 30, 2022. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.
137
REGULATORY CAPITAL
The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of June 30, 2022, the Corporation’s, BPPR’s and PB’s capital ratios continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.
The risk-based capital ratios presented in Table 8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of June 30, 2022 and December 31, 2021.
Table 8 - Capital Adequacy Data |
|
|
|
|
|
| |
|
|
|
|
|
|
| |
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 |
| |
Common equity tier 1 capital: |
|
|
|
|
|
| |
|
Common stockholders equity - GAAP basis |
$ |
4,271,206 |
|
$ |
5,947,254 |
|
|
CECL transitional amount [1] |
|
127,127 |
|
|
169,502 |
|
|
AOCI related adjustments due to opt-out election |
|
1,888,849 |
|
|
257,762 |
|
|
Goodwill, net of associated deferred tax liability (DTL) |
|
(588,752) |
|
|
(591,703) |
|
|
Intangible assets, net of associated DTLs |
|
(14,533) |
|
|
(16,219) |
|
|
Deferred tax assets and other deductions |
|
(270,588) |
|
|
(290,565) |
|
Common equity tier 1 capital |
$ |
5,413,309 |
|
$ |
5,476,031 |
| |
Additional tier 1 capital: |
|
|
|
|
|
| |
|
Preferred stock |
|
22,143 |
|
|
22,143 |
|
Additional tier 1 capital |
$ |
22,143 |
|
$ |
22,143 |
| |
Tier 1 capital |
$ |
5,435,452 |
|
$ |
5,498,174 |
| |
Tier 2 capital: |
|
|
|
|
|
| |
|
Trust preferred securities subject to phase in as tier 2 |
|
192,674 |
|
|
192,674 |
|
|
Other inclusions (deductions), net |
|
413,540 |
|
|
393,257 |
|
Tier 2 capital |
$ |
606,214 |
|
$ |
585,931 |
| |
Total risk-based capital |
$ |
6,041,666 |
|
$ |
6,084,105 |
| |
Minimum total capital requirement to be well capitalized |
$ |
3,302,848 |
|
$ |
3,144,122 |
| |
Excess total capital over minimum well capitalized |
$ |
2,738,818 |
|
$ |
2,939,983 |
| |
Total risk-weighted assets |
$ |
33,028,484 |
|
$ |
31,441,224 |
| |
Total assets for leverage ratio |
$ |
71,850,332 |
|
$ |
74,238,367 |
| |
Risk-based capital ratios: |
|
|
|
|
|
| |
|
Common equity tier 1 capital |
|
16.39 |
% |
|
17.42 |
% |
|
Tier 1 capital |
|
16.46 |
|
|
17.49 |
|
|
Total capital |
|
18.29 |
|
|
19.35 |
|
|
Tier 1 leverage |
|
7.56 |
|
|
7.41 |
|
[1] The CECL transitional amount includes the impact of Popular's adoption of the new CECL accounting standard on January 1, 2020. | |||||||
138
The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of June 30, 2022, the Corporation, BPPR and PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.
Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the Corporation elected to use the five-year transition period option as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay. As of June 30, 2022, the Corporation had phased-in 25% of the cumulative CECL deferral with the remaining impact to be recognized over the remainder of the three-year transition period.
On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of June 30, 2022, the Corporation has $89 million in PPP loans and no loans were pledge as collateral for PPPL Facilities.
The decrease in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of June 30, 2022 as compared to December 31, 2021 was mainly attributed to the accelerated share repurchase agreement to repurchase an aggregate of $400 million of Popular’s common stock, and an increase in risk-weighted assets driven by the growth in the commercial loans portfolio, partially offset by the six month period earnings. The increase in leverage capital ratio was mainly due to the decrease in average total assets, which mostly did not have a significant impact on the risk-weighted assets.
139
Non-GAAP financial measures
The tangible common equity, tangible common equity ratio, tangible assets and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders' equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.
Table 9 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of June 30, 2022, and December 31, 2021.
Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets |
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
(In thousands, except share or per share information) |
|
|
June 30, 2022 |
|
|
|
December 31, 2021 |
|
Total stockholders’ equity |
|
$ |
4,293,349 |
|
|
$ |
5,969,397 |
|
Less: Preferred stock |
|
|
(22,143) |
|
|
|
(22,143) |
|
Less: Goodwill |
|
|
(720,293) |
|
|
|
(720,293) |
|
Less: Other intangibles |
|
|
(14,533) |
|
|
|
(16,219) |
|
Total tangible common equity |
|
$ |
3,536,380 |
|
|
$ |
5,210,742 |
|
Total assets |
|
$ |
71,501,931 |
|
|
$ |
75,097,899 |
|
Less: Goodwill |
|
|
(720,293) |
|
|
|
(720,293) |
|
Less: Other intangibles |
|
|
(14,533) |
|
|
|
(16,219) |
|
Total tangible assets |
|
$ |
70,767,105 |
|
|
$ |
74,361,387 |
|
Tangible common equity to tangible assets |
|
|
5.00 |
% |
|
|
7.01 |
% |
Common shares outstanding at end of period |
|
|
76,576,397 |
|
|
|
79,851,169 |
|
Tangible book value per common share |
|
$ |
46.18 |
|
|
$ |
65.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly average |
| ||||
Total stockholders’ equity [1] |
|
$ |
5,827,666 |
|
|
$ |
5,961,214 |
|
Less: Preferred Stock |
|
|
(22,143) |
|
|
|
(22,143) |
|
Less: Goodwill |
|
|
(720,292) |
|
|
|
(706,184) |
|
Less: Other intangibles |
|
|
(15,043) |
|
|
|
(19,889) |
|
Total tangible common equity |
|
$ |
5,070,188 |
|
|
$ |
5,212,998 |
|
Return on average tangible common equity |
|
|
16.70 |
% |
|
|
15.66 |
% |
[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale. | ||||||||
140
RISK MANAGEMENT
Market / Interest Rate Risk
The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks.
Market risk refers to the risk of a reduction in the Corporation’s capital due to changes in the market valuation of its assets and/or liabilities.
Most of the assets subject to market valuation risk are debt securities classified as available-for-sale. Refer to Notes 5 and 6 to the Consolidated Financial Statements for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $26.3 billion as of June 30, 2022. Other assets subject to market risk include loans held-for-sale, which amounted to $29 million, mortgage servicing rights (“MSRs”) which amounted to $130 million and securities classified as “trading”, which amounted to $32 million, as of June 30, 2022.
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. In managing interest rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest Income (“NII”) simulation modeling, static gap analysis, and Economic Value of Equity (“EVE”). The three methodologies complement each other and are used jointly in the evaluation of the Corporation’s IRR. NII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides management a better view of long-term IRR.
Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs.
Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat rates, implied forwards, and parallel and non-parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.
The asset and liability management group performs validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy.
The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same magnitude (parallel shifts). The rate scenarios considered in these market risk simulations reflect instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. Additionally, the Company is also subject to basis risk in the repricing of its assets and liabilities, including the basis related to using different rate indexes for the repricing of assets and liabilities, as well as the effect of pricing lags which may be contractual or due to historical differences in the timing of management responses to changes in the rate environment. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at June 30, 2022 and December 31, 2021, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:
141
Table 10 - Net Interest Income Sensitivity (One Year Projection) | ||||||||
|
June 30, 2022 |
|
|
December 31, 2021 | ||||
(Dollars in thousands) |
|
Amount Change |
Percent Change |
|
|
Amount Change |
Percent Change |
|
Change in interest rate |
|
|
|
|
|
|
|
|
+400 basis points |
$ |
29,304 |
1.31 |
% |
$ |
257,223 |
13.21 |
% |
+200 basis points |
|
15,465 |
0.69 |
|
|
197,354 |
10.14 |
|
+100 basis points |
|
8,908 |
0.40 |
|
|
166,920 |
8.57 |
|
-100 basis points |
|
(99,097) |
(4.44) |
|
|
(78,408) |
(4.03) |
|
-200 basis points |
|
(228,558) |
(10.23) |
|
|
(120,661) |
(6.20) |
|
As of June 30, 2022, NII simulations show the Corporation maintains an asset sensitive position, meaning that changes in net interest income are primarily driven by changes in asset yields. In declining rate scenarios net interest income would fall, as changes in asset yields would decline faster and by a higher magnitude than liability costs. In rising rate scenarios asset sensitive banks usually benefit from faster changes in asset yields relative to deposit costs. However, in the case of Popular, its sensitivity profile is impacted by a large proportion of Puerto Rico public sector deposits which are indexed to market rates. As short-term rates have risen the cost of these deposits is now expected to increase in sync with market rates and therefore reduce the benefit in rising rate environments. As of June 30, 2022, Popular has an asymmetric sensitivity profile meaning that the rate of change in NII in declining rate scenarios is larger than it is in the rising rate scenarios. The sensitivity to rising rates is near neutral this quarter compared to a substantially asset sensitive position as of December 31, 2021. The primary reasons for the reduction in sensitivity are i) the realization of much of the expected benefit in net interest income given the higher interest rates observed during the first half of 2022 ii) a decrease in cash balances (which reprice instantaneously) via the deployment into longer term investments and loans and iii) the market indexed nature of Puerto Rico public sector deposits which represented $17.1 billion or 26% of deposits as of June 30, 2022.
The Corporation’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a third-party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed securities and collateralized mortgage obligations since prepayments could shorten (or lower prepayments could extend) the weighted average life of these portfolios.
Trading
The Corporation engages in trading activities in the ordinary course of business at its subsidiaries, BPPR and Popular Securities. Popular Securities’ trading activities consist primarily of market-making activities to meet expected customers’ needs related to its retail brokerage business, and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR’s trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as “trading” and hedging the related market risk with “TBA” (to-be-announced) market transactions. The objective is to derive spread income from the portfolio and not to benefit from short-term market movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline.
At June 30, 2022, the Corporation held trading securities with a fair value of $32 million, representing approximately 0.05% of the Corporation’s total assets, compared with $30 million and 0.04%, respectively, at December 31, 2021. As shown in Table 11, the trading portfolio consists principally of mortgage-backed securities and U.S. Treasuries, which at June 30, 2022 were investment grade securities. As of June 30, 2022 and December 31, 2021, the trading portfolio also included $0.1 million in Puerto Rico government obligations. Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized net trading account gain of $51 thousand and a net trading account loss of $47 thousand, respectively, for the quarters ended June 30, 2022 and June 30, 2021.
142
Table 11 - Trading Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
| ||||
(Dollars in thousands) |
|
Amount |
|
Weighted Average Yield[1] |
|
|
Amount |
|
Weighted Average Yield[1] |
|
Mortgage-backed securities |
$ |
14,904 |
|
5.80 |
% |
$ |
22,559 |
|
5.12 |
% |
U.S. Treasury securities |
|
16,873 |
|
1.20 |
|
|
6,530 |
|
0.03 |
|
Collateralized mortgage obligations |
|
203 |
|
5.57 |
|
|
257 |
|
5.61 |
|
Puerto Rico government obligations |
|
73 |
|
0.47 |
|
|
85 |
|
0.47 |
|
Interest-only strips |
|
264 |
|
12.00 |
|
|
280 |
|
12.00 |
|
Total |
$ |
32,317 |
|
3.44 |
% |
$ |
29,711 |
|
4.06 |
% |
[1] Not on a taxable equivalent basis. |
|
|
|
|
|
|
|
|
|
|
The Corporation’s trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability.
The Corporation’s trading portfolio had a 5-day VAR of approximately $0.3 million for the last week in June 2022. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.
In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation.
Liquidity
The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth, fund planned capital distributions and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board of Directors is responsible for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board of Directors has delegated the monitoring of these risks to the Board’s Risk Management Committee and the Asset/Liability Management Committee. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation’s Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board of Directors and for monitoring the Corporation’s liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies.
An institution’s liquidity may be pressured if, for example, it experiences a sudden and unexpected substantial cash outflow due to exogenous events such as the current COVID-19 pandemic, its credit rating is downgraded, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.
Liquidity is managed by the Corporation at the level of the holding companies that own the banking and non-banking subsidiaries. It is also managed at the level of the banking and non-banking subsidiaries. As further explained below, a principal source of liquidity for the bank holding companies (the “BHCs”) are dividends received from banking and non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation’s liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.
Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 91% of the Corporation’s total assets at June 30, 2022 and 89% at December 31, 2021. The
143
ratio of total ending loans to deposits was 47% at June 30, 2022, compared to 44% at December 31, 2021. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.0 billion in outstanding balances at June 30, 2022 (December 31, 2021 - $1.2 billion). A detailed description of the Corporation’s borrowings, including their terms, is included in Note 15 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.
On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $400 million of Popular’s common stock, refer to Note 17 to the Consolidated Financial Statements for additional information.
The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities.
Banking Subsidiaries
Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and PB or, collectively, “the banking subsidiaries”) include retail, commercial and public sector deposits, brokered deposits, unpledged investment securities, mortgage loan securitization and, to a lesser extent, loan sales. In addition, the Corporation maintains borrowing facilities with the FHLB and at the discount window of the Federal Reserve Bank of New York (the “FRB”) and has a considerable amount of collateral pledged that can be used to raise funds under these facilities.
Refer to Note 15 to the Consolidated Financial Statements, for additional information of the Corporation’s borrowing facilities available through its banking subsidiaries.
The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational expenses. Also, the banking subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with contractual commitments, recourse provisions, servicing advances, derivatives, credit card licensing agreements and support to several mutual funds administered by BPPR.
The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.
The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation’s banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.
Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 7 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $250,000, excluding brokered deposits with denominations under $250,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $61.4 billion, or 94% of total deposits, at June 30, 2022, compared with $63.6 billion, or 95% of total deposits, at December 31, 2021. Core deposits financed 90% of the Corporation’s earning assets at June 30, 2022, compared with 88% at December 31, 2021.
The distribution by maturity of certificates of deposits with denominations of $250,000 and over at June 30, 2022 is presented in the table that follows:
144
Table 12 - Distribution by Maturity of Certificate of Deposits of $250,000 and Over |
|
|
|
(In thousands) |
|
|
|
3 months or less |
|
$ |
2,349,710 |
Over 3 to 12 months |
|
|
230,766 |
Over 1 year to 3 years |
|
|
231,066 |
Over 3 years |
|
|
140,369 |
Total |
|
$ |
2,951,911 |
The Corporation had $1.0 billion in brokered deposits at June 30, 2022, which financed approximately 1% of its total assets (December 31, 2021 - $0.8 billion and 1%, respectively). In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts.
Deposits from the public sector represent an important source of funds for the Corporation. As of June 30, 2022, total public sector deposits were $17.1 billion, compared to $20.3 billion at December 31, 2021. Generally, these deposits require that the bank pledge high credit quality securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower given that the bank receives its collateral in return. This, now unpledged, collateral can either be financed via repurchase agreements or sold for cash. However, there are some timing differences between the time the deposit outflow occurs and when the bank receives its collateral.
At June 30, 2022, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if the banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.
Bank Holding Companies
The principal sources of funding for the BHCs, which are Popular, Inc. (holding company only) and PNA, include cash on hand, investment securities, dividends received from banking and non-banking subsidiaries, asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings. Dividends from banking and non-banking subsidiaries are subject to various regulatory limits and authorization requirements that are further described below and that may limit the ability of those subsidiaries to act as a source of funding to the BHCs.
The principal use of these funds includes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities), the payment of dividends to common stockholders and capitalizing its banking subsidiaries.
The BHCs have in the past borrowed in the money markets and in the corporate debt market primarily to finance their non-banking subsidiaries; however, the cash needs of the Corporation’s non-banking subsidiaries other than to repay indebtedness and interest are now minimal. These sources of funding are more costly due to the fact that two out of the three principal credit rating agencies rate the Corporation below “investment grade”, which affects the Corporation’s cost and ability to raise funds in the capital markets. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.
145
The outstanding balance of notes payable at the BHCs amounted to $497 million at June 30, 2022 and $496 million at December 31, 2021.
The contractual maturities of the BHCs notes payable at June 30, 2022 are presented in Table 13.
Table 13 - Distribution of BHC's Notes Payable by Contractual Maturity |
|
|
Year |
|
(In thousands) |
2023 |
$ |
298,475 |
Later years |
|
198,306 |
Total |
$ |
496,781 |
Annual debt service at the BHCs is approximately $32 million, and the Corporation’s latest quarterly dividend was $0.55 per share. The BHCs liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all BHCs obligations during the foreseeable future. As of June 30, 2022, the BHCs had cash and money markets investments totaling $264 million, borrowing potential of $193 million from its secured facility with BPPR. In addition to these liquidity sources, the stake in Evertec had a market value of $430 million as of June 30, 2022 and it represents an additional source of contingent liquidity. On July 1, 2022, the Corporation exchanged a portion of these shares as part of a transaction in which it acquired certain critical channels from Evertec and renegotiated several service agreements with Evertec, as discussed in Note 33 to the Consolidated Financial Statements.
Non-Banking Subsidiaries
The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. During the period ended June 30, 2022, Popular, Inc. made capital contributions to its wholly owned subsidiaries of $25 million to Popular Re, Inc. and $10 million to Popular Securities.
Dividends
During the six months ended June 30, 2022, the Corporation declared cash dividends of $1.10 per common share outstanding ($84.2 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $0.7 million. During the six months ended June 30, 2022, the BHC’s received dividends amounting to $450 million from BPPR, $54 million from PNA $4 million in dividends from its non-banking subsidiaries and $1 million in dividends from Evertec. In addition, during the six months ended June 30, 2022, Popular International Bank Inc., wholly owned subsidiary of Popular, Inc., received $16 million in dividends from its investment in BHD. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity.
Other Funding Sources and Capital
The debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s debt securities portfolio consists primarily of liquid U.S. government debt securities, U.S. government sponsored agency debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged debt securities amounted to $7.2 billion at June 30, 2022 and $3.0 billion at December 31, 2021. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources.
Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.
146
Off-Balance Sheet arrangements and other commitments
In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Refer to Note 20 to the Consolidated Financial Statements for information on the Corporation’s commitments to extent credit and other non-credit commitments.
Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives, operating leases and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 27 to the Consolidated Financial Statements for information on operating leases and to Note 19 to the Consolidated Financial Statements for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.
The Corporation monitors its cash requirements, including its contractual obligations and debt commitments. As discussed above, liquidity is managed by the Corporation in order to meet its short- and long-term cash obligations. Note 15 to the Consolidated Financial Statements has information on the Corporation’s borrowings by maturity, which amounted to $1.0 billion at June 30, 2022 (December 31, 2021 - $1.2 billion).
Financial information of guarantor and issuers of registered guaranteed securities
The Corporation (not including any of its subsidiaries, “PIHC”) is the parent holding company of Popular North America “PNA” and has other subsidiaries through which it conducts its financial services operations. PNA is an operating, 100% subsidiary of Popular, Inc. Holding Company (“PIHC”) and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and PB, including PB’s wholly-owned subsidiaries Popular Equipment Finance, LLC, Popular Insurance Agency, U.S.A., and E-LOAN, Inc.
PNA has issued junior subordinated debentures guaranteed by PIHC (together with PNA, the “obligor group”) purchased by statutory trusts established by the Corporation. These debentures were purchased by the statutory trust using the proceeds from trust preferred securities issued to the public (referred to as “capital securities”), together with the proceeds of the related issuances of common securities of the trusts.
PIHC fully and unconditionally guarantees the junior subordinated debentures issued by PNA. PIHC’s obligation to make a guarantee payment may be satisfied by direct payment of the required amounts to the holders of the applicable capital securities or by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions by the applicable trust except to the extent such trust has funds available for such payments. If PIHC does not make interest payments on the debentures held by such trust, such trust will not pay distributions on the applicable capital securities and will not have funds available for such payments. PIHC’s guarantee of PNA’s junior subordinated debentures is unsecured and ranks subordinate and junior in right of payment to all the PIHC’s other liabilities in the same manner as the applicable debentures as set forth in the applicable indentures; and equally with all other guarantees that the PIHC issues. The guarantee constitutes a guarantee of payment and not of collection, which means that the guaranteed party may sue the guarantor to enforce its rights under the respective guarantee without suing any other person or entity.
The principal sources of funding for PIHC and PNA have included dividends received from their banking and non-banking subsidiaries, asset sales and proceeds from the issuance of debt and equity. As further described below, in the Risk to Liquidity section, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval.
The following summarized financial information presents the financial position of the obligor group, on a combined basis at June 30, 2022 and December 31, 2021, and the results of their operations for the period ended June 30, 2022 and June 30, 2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded.
147
The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group's amounts due from, amounts due to and transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately.
Table 14 - Summarized Statement of Condition |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
June 30, 2022 |
|
December 31, 2021 |
Assets |
|
|
|
|
Cash and money market investments |
$ |
264,234 |
$ |
291,540 |
Investment securities |
|
24,967 |
|
25,691 |
Accounts receivables from non-obligor subsidiaries |
|
21,471 |
|
17,634 |
Other loans (net of allowance for credit losses of $260 (2021 - $96)) |
|
28,532 |
|
29,349 |
Investment in equity method investees |
|
129,986 |
|
114,955 |
Other assets |
|
46,284 |
|
42,251 |
Total assets |
$ |
515,474 |
$ |
521,420 |
Liabilities and Stockholders' deficit |
|
|
|
|
Accounts payable to non-obligor subsidiaries |
$ |
4,140 |
$ |
6,481 |
Accounts payable to affiliates and related parties |
|
1,209 |
|
1,254 |
Notes payable |
|
496,781 |
|
496,134 |
Other liabilities |
|
95,329 |
|
97,172 |
Stockholders' deficit |
|
(81,985) |
|
(79,621) |
Total liabilities and stockholders' deficit |
$ |
515,474 |
$ |
521,420 |
|
|
|
|
|
Table 15 - Summarized Statement of Operations |
|
|
|
|
|
|
|
|
|
|
|
For the six months ended | ||
(In thousands) |
|
June 30, 2022 |
|
June 30, 2021 |
Income: |
|
|
|
|
Dividends from non-obligor subsidiaries |
$ |
454,000 |
$ |
579,000 |
Interest income from non-obligor subsidiaries and affiliates |
|
399 |
|
442 |
Earnings from investments in equity method investees |
|
14,995 |
|
14,669 |
Other operating (expense) income |
|
(2,669) |
|
2,578 |
Total income |
$ |
466,725 |
$ |
596,689 |
Expenses: |
|
|
|
|
Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of $98,651 (2021 - $81,940)) |
$ |
8,003 |
$ |
6,514 |
Other operating expenses |
|
7,738 |
|
14,529 |
Total expenses |
$ |
15,741 |
$ |
21,043 |
Net income (loss) |
$ |
450,984 |
$ |
575,646 |
|
|
|
|
|
During the six months ended June 30, 2022, the Obligor group recorded $1.2 million of dividend distributions from its direct equity method investees. During the six months ended June 30, 2021, the Obligor group recorded $1.7 million of distributions from its direct equity method investees, of which $1.2 million were related to dividend distributions. | ||||
148
Risks to Liquidity
Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.
The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. Refer to the Geographic and Government Risk section of this MDA for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.
Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB.
The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation’s ability to access a broad array of wholesale funding sources, among other factors.
Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, after considering those years’ dividend activity, less any required transfers to surplus or to a fund for the retirement of any preferred stock. During the six months ended June 30, 2022, BPPR declared cash dividends of $450 million. At June 30, 2022, BPPR would have needed to obtain prior approval of the Federal Reserve Board before declaring a dividend due to its declared dividend activity and transfers to statutory reserves over the latest three years. In addition, a member bank may not declare or pay a dividend in an amount greater than its undivided profits as reported in its Report of Condition and Income, unless the member bank has received the approval of the Federal Reserve Board. A member bank also may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve Board. Pursuant to these requirements, PB may not declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary to up-stream dividends to its BHC could thus be impacted by its financial performance, thus potentially limiting the amount of cash moving up to the BHCs from the banking subsidiaries. This could, in turn, affect the BHCs ability to declare dividends on its outstanding common and preferred stock, for example.
The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings.
Obligations Subject to Rating Triggers or Collateral Requirements
The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits at June 30, 2022 that are subject to rating triggers.
In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 19 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $34 million at June 30, 2022. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post
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collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.
Credit Risk
Geographic and Government Risk
The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 32 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which faces severe economic and fiscal challenges.
COVID-19 Pandemic
On December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since spread globally to other countries and jurisdictions, including the mainland United States and Puerto Rico. In March 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic significantly disrupted and negatively impacted the global economy, disrupted global supply chains, created significant volatility in financial markets, and increased unemployment levels worldwide, including in the markets in which we do business.
The COVID-19 pandemic and the restrictions imposed to curb the spread of the disease have had and may continue to have a material adverse effect on economic activity worldwide, including in Puerto Rico. The extent to which the COVID-19 pandemic will continue to adversely affect economic activity will depend on future developments, which are highly uncertain and difficult to predict, including the scope and duration of the pandemic (including the appearance of new strains of the virus), the restrictions imposed by governmental authorities and other third parties in response to the same, the pace of global vaccination efforts, and the amount of federal and local assistance offered to offset the impact of the pandemic. Pursuant to the 2022 Fiscal Plan (as defined below), economic stimulus measures have more than offset the estimated income loss due to reduced economic activity in Puerto Rico and are estimated to have caused a temporary increase in personal income on a net basis. However, there can be no assurance that these measures will be sufficient to offset the pandemic’s economic impact in the medium- and long-term.
Economic Performance
The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006 and its gross national product (“GNP”) contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019 due to the influx of federal funds and private insurance payments to repair damage caused by Hurricanes Irma and María. However, the Planning Board estimates that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19 pandemic and the measures taken by the government in response to the same. The Planning Board projected that the negative effects of COVID-19 would continue through fiscal year 2021, resulting in a contraction in real GNP of approximately -2%, followed by 0.8% and 1.7% GNP growth in fiscal years 2022 and 2023, respectively.
Certain information regarding current economic activity is available in the form of the Economic Development Bank for Puerto Rico (“EDB”) Economic Activity Index (the “EDB Economic Activity Index”), a coincident indicator of ongoing economic activity. The latest EDB Economic Activity Index, which is an indicator of general economic activity and not a direct measurement of real GNP, reflected a 3.3% increase in May 2022, compared to May 2021. From July 2021 to May 2022, the EDB Economic Activity Index reflected a 4.7% increase compared to the same period in fiscal year 2021. The Puerto Rico Consumer Price Index, published by the Department of Labor and Human Resources of Puerto Rico, increased to 130.2 in June 2022, a 7.2% increase to the corresponding figure in June 2021. Over the same period, the United States Consumer Price Index, published by the U.S. Bureau
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of Labor Statistics, increased by 9.1%, the largest year-over-year increase since 1981. Increasing inflation or prolonged periods of high inflation may adversely affect our business and results of operations.
Fiscal Challenges
The Commonwealth’s central government and many of its instrumentalities, public corporations and municipalities continue to face significant fiscal challenges, which have been primarily the result of economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations, and lack of access to the capital markets, among other factors. As a result, the Commonwealth and certain of its instrumentalities defaulted on their debt obligations. The escalating fiscal and economic crisis and imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in June 2016. As further discussed below under “Pending Title III Proceedings,” the Commonwealth and several of its instrumentalities recently emerged from a bankruptcy-like process under PROMESA.
PROMESA
PROMESA, among other things, created a seven-member federally-appointed oversight board (the “Oversight Board”) with ample powers over the fiscal and economic affairs of the Commonwealth, its public corporations, instrumentalities and municipalities and established two mechanisms for the restructuring of the obligations of such entities. Pursuant to PROMESA, the Oversight Board will remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years.
In October 2016, the Oversight Board designated the Commonwealth and all of its public corporations and instrumentalities (except its municipalities) as “covered entities” under PROMESA. In May 2019, the Oversight Board also designated all of the Commonwealth’s municipalities as covered entities. At the Oversight Board’s request, covered entities are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. Finally, covered entities are potentially eligible to avail themselves of the debt restructuring processes provided by PROMESA. For additional discussion of risk factors related to the Puerto Rico fiscal challenges, see “Part I – Item 1A – Risk Factors” in the Corporation’s Form 10-K.
Fiscal Plans
Commonwealth Fiscal Plan. The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated January 27, 2022 (the “2022 Fiscal Plan”).
Pursuant to the 2022 Fiscal Plan, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. The 2022 Fiscal Plan’s economic projections incorporate adjustments for these short-term income effects for purposes of estimating tax receipts. For example, the 2022 Fiscal Plan estimates that, for fiscal years 2022 and 2023, real GNP will grow 2.6% and 0.9%, respectively, but projects that growth adjusted for income effects for such years will be approximately 5.2% and 0.6%, respectively.
The 2022 Fiscal Plan incorporates the debt service costs of the Commonwealth’s restructured debt pursuant to the Plan of Adjustment (as defined and further explained below), and projects an unrestricted surplus after debt service averaging $1 billion annually between fiscal years 2022 to 2031. This surplus is projected to decline over time as federal disaster relief funding slows, nominal GNP growth declines, revenues decline, and healthcare expenditures rise. The 2022 Fiscal Plan estimates that fiscal measures could drive approximately $6.3 billion in savings and extra revenue over fiscal years 2022 through 2026 and that structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $33 billion).
The 2022 Fiscal Plan provides for the gradual reduction and the ultimate elimination of Commonwealth budgetary subsidies to municipalities, which constitute a material portion of the operating revenues of some municipalities. From fiscal year 2017 to fiscal year 2020, Commonwealth appropriations to municipalities have decreased by approximately 64% (from approximately $370 million in fiscal year 2017 to approximately $132 million in fiscal year 2020). In response to the COVID-19 crisis, reductions in appropriations to municipalities were paused in fiscal year 2021. Municipalities also received extraordinary appropriations and other
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funds from federally-funded programs during fiscal year 2022, which has helped temporarily offset the impact of the reduced Commonwealth support. However, the 2022 Fiscal Plan contemplates additional reductions in appropriations to municipalities each fiscal year, before eventually phasing out all appropriations in fiscal year 2025. Further, while the Commonwealth had enacted legislation in 2019 suspending the municipality’s obligations to contribute to the Commonwealth’s health plan and pay-as-you go retirement system, such legislation was challenged by the Oversight Board and eventually declared null by the Title III court in April 2020. As a result, municipalities are required to cover their own employees’ healthcare costs and retirement benefits and had to reimburse the Commonwealth for such costs corresponding to the period during which the law was in effect. Finally, the 2022 Fiscal Plan notes that municipalities have made little or no progress towards implementing fiscal discipline required to reduce reliance on Commonwealth appropriations and that this lack of fiscal management threatens the ability of municipalities to provide necessary services, such as health, sanitation, public safety, and emergency services to their residents, forcing them to prioritize expenditures.
Other Fiscal Plans. Pursuant to PROMESA, the Oversight Board has also requested and certified fiscal plans for several public corporations and instrumentalities. The certified fiscal plan for the Puerto Rico Electric Power Authority (“PREPA”), Puerto Rico’s electric power utility, contemplated the transformation of Puerto Rico’s electric system through, among other things, the establishment of a public-private partnership with respect to PREPA’s transmission and distribution system (the “TD System”), and calls for significant structural reforms at PREPA. The procurement process for the establishment of a public-private partnership with respect to the TD System was completed in June 2020. The selected proponent, LUMA Energy LLC (“LUMA”), and PREPA entered into a 15-year agreement whereby, since June 1, 2021, LUMA is responsible for operating, maintaining and modernizing the TD System.
On May 20, 2022, the Oversight Board certified the latest version of the fiscal plan (the “CRIM Fiscal Plan”) for the Municipal Revenue Collection Center (“CRIM”), the government entity responsible for collecting property taxes and distributing them among the municipalities. The CRIM Fiscal Plan outlines a series of measures centered around improving the competitiveness of Puerto Rico’s property tax regime and the enhancement of property tax collections, including identifying and appraising new properties as well as improvements to existing properties, and implementing operational and technological initiatives.
Title III Proceedings
On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board subsequently filed analogous petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”), the Puerto Rico Highways and Transportation Authority (“HTA”), PREPA and the Puerto Rico Public Buildings Authority (“PBA”). On February 12, 2019, the government completed a restructuring of COFINA’s debts pursuant to a plan of adjustment confirmed by the U.S. District Court.
On November 3, 2021, the Oversight Board filed the Eighth Amended Title III Joint Plan of Adjustment for the Commonwealth, ERS and PBA (the “Plan of Adjustment”). On March 15, 2022 (the “Effective Date”), the Plan of Adjustment became effective. As of the Effective Date, the Plan of Adjustment reduced the Commonwealth’s debt obligations from approximately $34.3 billion of prepetition debt to approximately $7.4 billion in new general obligation bonds and approximately $8.7 billion in new contingent value instruments. This also resulted in a reduction of the Commonwealth’s maximum annual debt service by approximately 73%.
There are still ongoing debt restructuring processes under Title III of PROMESA for the Commonwealth’s highways and electric power authorities (HTA and PREPA).
Exposure of the Corporation
The credit quality of BPPR’s loan portfolio reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. While PROMESA provided a process to address the Commonwealth’s fiscal challenges, the complexity and uncertainty of the PROMESA Title III proceedings for the Commonwealth and various of its instrumentalities and the adjustment measures required by the fiscal plans still present significant economic risks. Furthermore, if global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s fiscal and economic challenges, including by controlling the COVID-19 pandemic and consummating an orderly restructuring of the Commonwealth’s debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict.
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At June 30, 2022, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $396 million of which $353 million were outstanding, compared to $367 million at December 31, 2021, of which $349 million were outstanding. A deterioration in the Commonwealth’s fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $326 million consists of loans and $27million are securities ($319 million and $30 million, respectively, at December 31, 2021). All of the Corporation’s direct exposure outstanding at June 30, 2022 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At June 30, 2022, 73% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. For additional discussion of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 20 – Commitments and Contingencies.
In addition, at June 30, 2022, the Corporation had $262 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($275 million at December 31, 2021). These included $220 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2021 - $232 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had, at June 30, 2022, $42 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default, and upon the satisfaction of certain other conditions (December 31, 2021 - $43 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof.
BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the fiscal and economic measures taken by the Commonwealth government. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits.
As of June 30, 2022, BPPR had $17.1 billion in deposits from the Commonwealth, its instrumentalities, and municipalities. The rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed and the financial condition, liquidity and cash management practices of such entities, as well as on the ability of BPPR to maintain these customer relationships.
The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 20 of the Consolidated Financial Statements.
United States Virgin Islands
The Corporation has operations in the United States Virgin Islands (the “USVI”) and has credit exposure to USVI government entities.
The USVI has been experiencing a number of fiscal and economic challenges, which have been and might be further exacerbated as a result of the effects of the COVID-19 pandemic, and which could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.
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To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.
At June 30, 2022, the Corporation had approximately $29 million in direct exposure to USVI government entities (December 31, 2021 - $70 million). The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations.
British Virgin Islands
The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, at June 30, 2022 it has a loan portfolio amounting to approximately $217 million comprised of various retail and commercial clients, compared to a loan portfolio of $221 million at December 31, 2021.
U.S. Government
As further detailed in Notes 5 and 6 to the Consolidated Financial Statements, a substantial portion of the Corporation’s investment securities represented exposure to the U.S. Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $1.5 billion of residential mortgages, $89 million of SBA loans under the Paycheck Protection Program (“PPP”) and $69 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at June 30, 2022 (compared to $1.6 billion, $353 million and $67 million, respectively, at December 31, 2021).
Non-Performing Assets
Non-performing assets (“NPAs”) include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 16.
During the second quarter of 2022, the Corporation continued to exhibit strong credit quality trends and low credit costs with low level of NCOs and decreasing NPLs. We continue to closely monitor changes in the macroeconomic environment and on borrower performance, given potential economic headwinds, rising interest rates and geopolitical uncertainty. However, management believes that the improvement over the last few years in the risk profile of the Corporation’s loan portfolios positions Popular to operate successfully under the current challenging environment.
Total NPAs decreased by $63 million at June 30, 2022 when compared with December 31, 2021. Total non-performing loans held-in-portfolio (“NPLs”) decreased by $70 million at June 30, 2022 from December 31, 2021. BPPR’s NPLs decreased by $69 million at June 30, 2022, mainly driven by lower mortgage NPLs by $49 million, due to the combined effects of collection efforts, increased foreclosure activity and the on-going low levels of early delinquency compared with pre-pandemic trends, coupled with a $24 million decrease in the commercial NPLs. Popular U.S. NPLs remained essentially flat at $33 million from December 31, 2021. At June 30, 2022, the ratio of NPLs to total loans held-in-portfolio was 1.6% compared to 1.9% in the December 31, 2021. Other real estate owned loans (“OREOs”) increased by $7 million at June 30, 2022, mainly due to the end of the COVID-19 related foreclosure moratorium period.
At June 30, 2022, NPLs secured by real estate amounted to $353 million in the Puerto Rico operations and $28 million in Popular U.S. These figures were $428 million and $31 million, respectively, at December 31, 2021.
The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $9.1 billion at June 31, 2022, of which $2.9 billion was secured with owner occupied properties, compared with $8.4 billion and $1.8 billion, respectively, at December 31, 2021. During the first quarter of 2022, the Corporation reclassified $0.9 billion of loans from the Commercial Real Estate (“CRE”) Non-Owner-Occupied category to the CRE Owner-Occupied category. The selected loans are primarily to skilled and assisted living nursing homes where the majority of the revenues, which are the basis for the repayment of the loans, are generated from medical and related operational activities. These loans meet the type of business and source requirements as defined in the regulatory guidance allowing this classification. CRE NPLs amounted to $55 million at June 30, 2022, compared with $77 million at December
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31, 2021. The CRE NPL ratios for the BPPR and Popular U.S. segments were 1.23% and 0.04%, respectively, at June 30, 2022, compared with 1.95% and 0.04%, respectively, at December 31, 2021.
In addition to the NPLs included in Table 16, at June 30, 2022, there were $382 million of performing loans, mainly commercial loans, which in management’s opinion, were currently subject to potential future classification as non-performing (December 31, 2021 - $214 million).
For the quarter ended June 30, 2022, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $46 million, when compared to the inflows for the same period in 2021. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $45 million compared to the same period in 2021, driven by lower commercial and mortgage inflows by $38 million and $7 million, respectively. Inflows of NPLs held-in-portfolio at the Popular U.S. segment remained essentially flat from the same period in 2021.
Table 16 - Non-Performing Assets | ||||||||||||||||||
|
June 30, 2022 |
|
|
December 31, 2021 |
| |||||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
As a % of loans HIP by category |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
As a % of loans HIP by category |
|
Commercial |
$ |
96,493 |
$ |
7,446 |
$ |
103,939 |
|
0.7 |
% |
$ |
120,047 |
$ |
5,532 |
$ |
125,579 |
|
0.9 |
% |
Construction |
|
- |
|
- |
|
- |
|
- |
|
|
485 |
|
- |
|
485 |
|
0.1 |
|
Leasing |
|
4,665 |
|
- |
|
4,665 |
|
0.3 |
|
|
3,102 |
|
- |
|
3,102 |
|
0.2 |
|
Mortgage |
|
284,670 |
|
20,192 |
|
304,862 |
|
4.2 |
|
|
333,887 |
|
21,969 |
|
355,856 |
|
4.8 |
|
Auto |
|
28,045 |
|
- |
|
28,045 |
|
0.8 |
|
|
23,085 |
|
- |
|
23,085 |
|
0.7 |
|
Consumer |
|
30,958 |
|
5,455 |
|
36,413 |
|
1.3 |
|
|
33,683 |
|
6,087 |
|
39,770 |
|
1.5 |
|
Total non-performing loans held-in-portfolio |
|
444,831 |
|
33,093 |
|
477,924 |
|
1.6 |
% |
|
514,289 |
|
33,588 |
|
547,877 |
|
1.9 |
% |
Other real estate owned (“OREO”) |
|
90,593 |
|
1,544 |
|
92,137 |
|
|
|
|
83,618 |
|
1,459 |
|
85,077 |
|
|
|
Total non-performing assets[1] |
$ |
535,424 |
$ |
34,637 |
$ |
570,061 |
|
|
|
$ |
597,907 |
$ |
35,047 |
$ |
632,954 |
|
|
|
Accruing loans past due 90 days or more[2] |
$ |
406,722 |
$ |
576 |
$ |
407,298 |
|
|
|
$ |
480,649 |
$ |
118 |
$ |
480,767 |
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to total assets |
|
0.89 |
% |
0.30 |
% |
0.80 |
% |
|
|
|
0.93 |
% |
0.32 |
% |
0.84 |
% |
|
|
Non-performing loans held-in-portfolio to loans held-in-portfolio |
|
2.07 |
|
0.37 |
|
1.57 |
|
|
|
|
2.46 |
|
0.40 |
|
1.87 |
|
|
|
Allowance for credit losses to loans held-in-portfolio |
|
2.70 |
|
1.14 |
|
2.24 |
|
|
|
|
2.85 |
|
1.21 |
|
2.38 |
|
|
|
Allowance for credit losses to non-performing loans, excluding held-for-sale |
|
130.52 |
|
305.72 |
|
142.65 |
|
|
|
|
115.53 |
|
301.31 |
|
126.92 |
|
|
|
HIP = “held-in-portfolio” | ||||||||||||||||||
[1] There were no non-performing loans held-for-sale as of June 30, 2022 and December 31, 2021. | ||||||||||||||||||
[2] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $11 million at June 30, 2022, related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below (December 31, 2021 - $13 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to repurchases option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. These balances include $237 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2022 (December 31, 2021 - $304 million). Furthermore, the Corporation has approximately $43 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2021 - $50 million). | ||||||||||||||||||
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Table 17 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 | |||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
Popular, Inc. |
|
BPPR |
|
Popular U.S. |
Popular, Inc. | |||
Beginning balance |
$ |
424,342 |
$ |
27,229 |
$ |
451,571 |
$ |
454,419 |
$ |
27,501 |
$ |
481,920 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
38,331 |
|
11,118 |
|
49,449 |
|
82,651 |
|
18,917 |
|
101,568 |
|
Advances on existing non-performing loans |
|
- |
|
111 |
|
111 |
|
- |
|
2,750 |
|
2,750 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(11,541) |
|
- |
|
(11,541) |
|
(24,937) |
|
(85) |
|
(25,022) |
|
Non-performing loans charged-off |
|
(1,246) |
|
(216) |
|
(1,462) |
|
(1,969) |
|
(289) |
|
(2,258) |
|
Loans returned to accrual status / loan collections |
|
(68,723) |
|
(10,604) |
|
(79,327) |
|
(129,001) |
|
(21,156) |
|
(150,157) |
Ending balance NPLs |
$ |
381,163 |
$ |
27,638 |
$ |
408,801 |
$ |
381,163 |
$ |
27,638 |
$ |
408,801 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 18 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 | |||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
Popular, Inc. |
|
BPPR |
|
Popular U.S. |
Popular, Inc. | |||
Beginning balance |
$ |
606,521 |
$ |
24,223 |
$ |
630,744 |
$ |
639,932 |
$ |
28,412 |
$ |
668,344 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
83,089 |
|
12,344 |
|
95,433 |
|
149,210 |
|
30,501 |
|
179,711 |
|
Advances on existing non-performing loans |
|
- |
|
12 |
|
12 |
|
- |
|
23 |
|
23 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(10,603) |
|
- |
|
(10,603) |
|
(15,254) |
|
- |
|
(15,254) |
|
Non-performing loans charged-off |
|
(5,812) |
|
(1,147) |
|
(6,959) |
|
(23,545) |
|
(1,500) |
|
(25,045) |
|
Loans returned to accrual status / loan collections |
|
(69,962) |
|
(7,247) |
|
(77,209) |
|
(147,110) |
|
(27,478) |
|
(174,588) |
|
Loans transferred to held-for-sale |
|
- |
|
(7,000) |
|
(7,000) |
|
- |
|
(8,773) |
|
(8,773) |
Ending balance NPLs |
$ |
603,233 |
$ |
21,185 |
$ |
624,418 |
$ |
603,233 |
$ |
21,185 |
$ |
624,418 | |
Table 19 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
117,782 |
$ |
5,403 |
$ |
123,185 |
|
$ |
120,047 |
$ |
5,532 |
$ |
125,579 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
1,666 |
|
7,325 |
|
8,991 |
|
|
7,793 |
|
10,324 |
|
18,117 |
|
Advances on existing non-performing loans |
|
- |
|
1 |
|
1 |
|
|
- |
|
2,506 |
|
2,506 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(914) |
|
- |
|
(914) |
|
|
(3,966) |
|
- |
|
(3,966) |
|
Non-performing loans charged-off |
|
(951) |
|
(89) |
|
(1,040) |
|
|
(1,207) |
|
(162) |
|
(1,369) |
|
Loans returned to accrual status / loan collections |
|
(21,090) |
|
(5,194) |
|
(26,284) |
|
|
(26,174) |
|
(10,754) |
|
(36,928) |
Ending balance NPLs |
$ |
96,493 |
$ |
7,446 |
$ |
103,939 |
|
$ |
96,493 |
$ |
7,446 |
$ |
103,939 | |
156
Table 20 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
200,863 |
$ |
1,907 |
$ |
202,770 |
|
$ |
204,092 |
$ |
5,988 |
$ |
210,080 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
39,657 |
|
7,570 |
|
47,227 |
|
|
47,381 |
|
9,263 |
|
56,644 |
|
Advances on existing non-performing loans |
|
- |
|
1 |
|
1 |
|
|
- |
|
7 |
|
7 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(2,346) |
|
- |
|
(2,346) |
|
|
(6,196) |
|
- |
|
(6,196) |
|
Non-performing loans charged-off |
|
(1,515) |
|
(624) |
|
(2,139) |
|
|
(3,906) |
|
(976) |
|
(4,882) |
|
Loans returned to accrual status / loan collections |
|
(18,956) |
|
(992) |
|
(19,948) |
|
|
(23,668) |
|
(4,647) |
|
(28,315) |
|
Loans transferred to held-for-sale |
|
- |
|
- |
|
- |
|
|
- |
|
(1,773) |
|
(1,773) |
Ending balance NPLs |
$ |
217,703 |
$ |
7,862 |
$ |
225,565 |
|
$ |
217,703 |
$ |
7,862 |
$ |
225,565 | |
Table 21 - Activity in Non-Performing Construction Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
- |
$ |
- |
$ |
- |
|
$ |
485 |
$ |
- |
$ |
485 | |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Loans returned to accrual status / loan collections |
|
- |
|
- |
|
- |
|
|
(485) |
|
- |
|
(485) |
Ending balance NPLs |
$ |
- |
$ |
- |
$ |
- |
|
$ |
- |
$ |
- |
$ |
- | |
Table 22 - Activity in Non-Performing Construction Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
14,877 |
$ |
7,523 |
$ |
22,400 |
|
$ |
21,497 |
$ |
7,560 |
$ |
29,057 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
- |
|
- |
|
- |
|
|
- |
|
12,141 |
|
12,141 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans charged-off |
|
- |
|
(523) |
|
(523) |
|
|
(6,620) |
|
(523) |
|
(7,143) |
|
Loans returned to accrual status / loan collections |
|
- |
|
- |
|
- |
|
|
- |
|
(12,178) |
|
(12,178) |
|
Loans transferred to held-for-sale |
|
- |
|
(7,000) |
|
(7,000) |
|
|
- |
|
(7,000) |
|
(7,000) |
Ending balance NPLs |
$ |
14,877 |
$ |
- |
$ |
14,877 |
|
$ |
14,877 |
$ |
- |
$ |
14,877 | |
157
Table 23 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2022 |
|
For the six months ended June 30, 2022 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
306,560 |
$ |
21,826 |
$ |
328,386 |
|
$ |
333,887 |
$ |
21,969 |
$ |
355,856 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
36,665 |
|
3,793 |
|
40,458 |
|
|
74,858 |
|
8,593 |
|
83,451 |
|
Advances on existing non-performing loans |
|
- |
|
110 |
|
110 |
|
|
- |
|
244 |
|
244 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(10,627) |
|
- |
|
(10,627) |
|
|
(20,971) |
|
(85) |
|
(21,056) |
|
Non-performing loans charged-off |
|
(295) |
|
(127) |
|
(422) |
|
|
(762) |
|
(127) |
|
(889) |
|
Loans returned to accrual status / loan collections |
|
(47,633) |
|
(5,410) |
|
(53,043) |
|
|
(102,342) |
|
(10,402) |
|
(112,744) |
Ending balance NPLs |
$ |
284,670 |
$ |
20,192 |
$ |
304,862 |
|
$ |
284,670 |
$ |
20,192 |
$ |
304,862 | |
Table 24 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended June 30, 2021 |
|
For the six months ended June 30, 2021 | ||||||||||
(Dollars in thousands) |
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. |
|
|
BPPR |
|
Popular U.S. |
|
Popular, Inc. | |
Beginning balance |
$ |
390,781 |
$ |
14,793 |
$ |
405,574 |
|
$ |
414,343 |
$ |
14,864 |
$ |
429,207 | |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
New non-performing loans |
|
43,432 |
|
4,774 |
|
48,206 |
|
|
101,829 |
|
9,097 |
|
110,926 |
|
Advances on existing non-performing loans |
|
- |
|
11 |
|
11 |
|
|
- |
|
16 |
|
16 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-performing loans transferred to OREO |
|
(8,257) |
|
- |
|
(8,257) |
|
|
(9,058) |
|
- |
|
(9,058) |
|
Non-performing loans charged-off |
|
(4,297) |
|
- |
|
(4,297) |
|
|
(13,019) |
|
(1) |
|
(13,020) |
|
Loans returned to accrual status / loan collections |
|
(51,006) |
|
(6,255) |
|
(57,261) |
|
|
(123,442) |
|
(10,653) |
|
(134,095) |
Ending balance NPLs |
$ |
370,653 |
$ |
13,323 |
$ |
383,976 |
|
$ |
370,653 |
$ |
13,323 |
$ |
383,976 | |
158
Loan Delinquencies
Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more, as a percentage of their related portfolio category at June 30, 2022 and December 31, 2021, are presented below.
Table 25 - Loan Delinquencies | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
June 30, 2022 |
|
|
December 31, 2021 | ||||||||||
|
Loans delinquent 30 days or more |
Total loans |
Total delinquencies as a percentage of total loans |
Loans delinquent 30 days or more |
Total loans |
Total delinquencies as a percentage of total loans | |||||||||
Commercial |
$ |
132,271 |
$ |
14,545,301 |
|
0.91 |
% |
$ |
161,251 |
$ |
13,732,701 |
|
1.17 |
% | |
Construction |
|
7,498 |
|
790,920 |
|
0.95 |
|
|
485 |
|
716,220 |
|
0.07 |
| |
Leasing |
|
16,799 |
|
1,480,222 |
|
1.13 |
|
|
14,379 |
|
1,381,319 |
|
1.04 |
| |
Mortgage [1] |
|
1,001,478 |
|
7,261,955 |
|
13.79 |
|
|
1,141,082 |
|
7,427,196 |
|
15.36 |
| |
Consumer |
|
173,074 |
|
6,292,538 |
|
2.75 |
|
|
173,896 |
|
5,983,121 |
|
2.91 |
| |
Loans held-for-sale |
|
- |
|
28,546 |
|
- |
|
|
- |
|
59,168 |
|
- |
| |
Total |
$ |
1,331,120 |
$ |
30,399,482 |
|
4.38 |
% |
$ |
1,491,093 |
$ |
29,299,725 |
|
5.09 |
% | |
[1] Loans delinquent 30 days or more includes $0.6 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of June 30, 2022 (December 31, 2021 - $0.6 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans. | |||||||||||||||
Allowance for Credit Losses Loans Held-in-Portfolio
The Corporation adopted the new CECL accounting standard effective on January 1, 2020. The allowance for credit losses (“ACL”), represents management’s estimate of expected credit losses through the remaining contractual life of the different loan segments, impacted by expected prepayments. The ACL is maintained at a sufficient level to provide for estimated credit losses on collateral dependent loans as well as troubled debt restructurings separately from the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the ACL on a quarterly basis. In this evaluation, management considers current conditions, macroeconomic economic expectations through a reasonable and supportable period, historical loss experience, portfolio composition by loan type and risk characteristics, results of periodic credit reviews of individual loans, and regulatory requirements, amongst other factors.
The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries, or markets. Other factors that can affect management’s estimates are recalibration of statistical models used to calculate lifetime expected losses, changes in underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the financial condition of individual borrowers, in economic conditions, and in the condition of the various markets in which collateral may be sold, may also affect the required level of the allowance for credit losses. Consequently, the business financial condition, liquidity, capital, and results of operations could also be affected.
At June 30, 2022, the allowance for credit losses amounted to $682 million, a decrease of $14 million, when compared with December 31, 2021. The ACL incorporated updated macroeconomic scenarios for Puerto Rico and the United States. Given that any one economic outlook is inherently uncertain, the Corporation uses multiple scenarios to estimate its ACL. The baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario.
The current baseline forecast continues to show a favorable economic scenario. 2022 annualized GDP growth of 2.8% is expected for both Puerto Rico and the United States, compared to 3.5% and 3.7%, respectively, in the previous quarter. Changes in assumptions related to fiscal stimulus, higher energy prices and tighter financial market conditions contributed to the reduction. The 2022 average unemployment rate is forecasted at 6.9% and 3.5% for Puerto Rico and the United States, respectively, improving from 7.3% and 3.6%, respectively, in the previous forecast. Puerto Rico’s unemployment rate forecast benefits from the Bureau of Labor Statistics (“BLS”) revisions that show a stronger than expected labor market.
159
The ACL for BPPR decreased by $14 million to $581 million at June 30, 2022, when compared to December 31, 2021. The ACL for Popular U.S. remained flat at $101 million at June 30, 2022, when compared to December 31, 2021. The decrease in BPPR’s ACL was mainly driven by reductions in qualitative reserves due to substantial improvements in employment levels in Puerto Rico. This contributed to a lower commercial, mortgage and consumer loans ACL. The decrease in qualitative reserves was partially offset by the impact of higher loan volumes and changes in the macroeconomic scenario.
The provision for credit losses for the quarter ended June 30, 2022, amounted to $9.9 million, compared to a net benefit of $17.5 million in the same period in the prior year. The increase was prompted by higher NCOs, as the prior period was a recovery of $1.3 million, compared to $6.1 million in the second quarter of 2022, coupled with the ACL releases explained above. Refer to Note 8 – Allowance for credit losses – loans held-in-portfolio, and to the Provision for Credit Losses section of this MDA for additional information.
Table 26 - Allowance for Credit Losses - Loan Portfolios |
| |||||||||||||||||
June 30, 2022 | ||||||||||||||||||
(Dollars in thousands) |
Commercial |
Construction |
|
Mortgage |
Leasing |
Consumer |
Total |
| ||||||||||
Total ACL |
$ |
209,630 |
|
$ |
6,913 |
|
$ |
148,305 |
|
$ |
19,037 |
|
$ |
297,865 |
|
$ |
681,750 |
|
Total loans held-in-portfolio |
|
14,545,301 |
|
|
790,920 |
|
|
7,261,955 |
|
|
1,480,222 |
|
|
6,292,538 |
|
|
30,370,936 |
|
ACL to loans held-in-portfolio |
|
1.44 |
% |
|
0.87 |
% |
|
2.04 |
% |
|
1.29 |
% |
|
4.73 |
% |
|
2.24 |
% |
Total non-performing loans held-in-portfolio |
$ |
103,939 |
|
$ |
- |
|
$ |
304,862 |
|
$ |
4,665 |
|
$ |
64,458 |
|
$ |
477,924 |
|
ACL to non-performing loans held-in-portfolio |
|
201.69 |
% |
|
N.M. |
|
|
48.65 |
% |
|
408.08 |
% |
|
462.11 |
% |
|
142.65 |
% |
N.M. - Not meaningful. | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 27 - Allowance for Credit Losses - Loan Portfolios |
| |||||||||||||||||
December 31, 2021 | ||||||||||||||||||
(Dollars in thousands) |
Commercial |
Construction |
|
Mortgage |
Leasing |
Consumer |
Total |
| ||||||||||
Total ACL |
$ |
215,805 |
|
$ |
6,363 |
|
$ |
154,478 |
|
$ |
17,578 |
|
$ |
301,142 |
|
$ |
695,366 |
|
Total loans held-in-portfolio |
|
13,732,701 |
|
|
716,220 |
|
|
7,427,196 |
|
|
1,381,319 |
|
|
5,983,121 |
|
|
29,240,557 |
|
ACL to loans held-in-portfolio |
|
1.57 |
% |
|
0.89 |
% |
|
2.08 |
% |
|
1.27 |
% |
|
5.03 |
% |
|
2.38 |
% |
Total non-performing loans held-in-portfolio |
$ |
125,579 |
|
$ |
485 |
|
$ |
355,856 |
|
$ |
3,102 |
|
$ |
62,855 |
|
$ |
547,877 |
|
ACL to non-performing loans held-in-portfolio |
|
171.85 |
% |
|
N.M. |
|
|
43.41 |
% |
|
566.67 |
% |
|
479.11 |
% |
|
126.92 |
% |
N.M. - Not meaningful. | ||||||||||||||||||
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Annualized net charge-offs (recoveries)
The following tables present annualized net charge-offs (recoveries) to average loans held-in-portfolio (“HIP”) by loan category for the quarters and six months ended June 30, 2022 and 2021.
Table 28 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended | |||||||||||
|
|
June 30, 2022 |
|
June 30, 2021 | |||||||||
|
|
BPPR |
|
Popular U.S. |
|
Popular Inc. |
|
BPPR |
|
Popular U.S. |
|
Popular Inc. |
|
Commercial |
|
(0.18) |
% |
0.01 |
% |
(0.09) |
% |
(0.51) |
% |
(0.03) |
% |
(0.30) |
% |
Construction |
|
(1.06) |
|
― |
|
(0.20) |
|
(1.41) |
|
0.05 |
|
(0.18) |
|
Mortgage |
|
(0.29) |
|
0.02 |
|
(0.24) |
|
0.06 |
|
(0.15) |
|
0.03 |
|
Leasing |
|
0.18 |
|
― |
|
0.18 |
|
0.12 |
|
― |
|
0.12 |
|
Consumer |
|
0.88 |
|
0.72 |
|
0.88 |
|
0.55 |
|
1.57 |
|
0.59 |
|
Total annualized net charge-offs (recoveries) to average loans held-in-portfolio |
|
0.10 |
% |
0.03 |
% |
0.08 |
% |
(0.03) |
% |
0.01 |
% |
(0.02) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended | |||||||||||
|
|
June 30, 2022 |
|
June 30, 2021 | |||||||||
|
|
BPPR |
|
Popular U.S. |
|
Popular Inc. |
|
BPPR |
|
Popular U.S. |
|
Popular Inc. |
|
Commercial |
|
(0.20) |
% |
(0.02) |
% |
(0.12) |
% |
(0.29) |
% |
(0.01) |
% |
(0.17) |
% |
Construction |
|
(1.29) |
|
(0.36) |
|
(0.52) |
|
7.32 |
|
0.03 |
|
1.25 |
|
Mortgage |
|
(0.24) |
|
0.01 |
|
(0.20) |
|
0.28 |
|
(0.09) |
|
0.23 |
|
Leasing |
|
0.03 |
|
― |
|
0.03 |
|
0.08 |
|
― |
|
0.08 |
|
Consumer |
|
0.91 |
|
0.43 |
|
0.89 |
|
0.52 |
|
1.99 |
|
0.58 |
|
Total annualized net charge-offs (recoveries) to average loans held-in-portfolio |
|
0.10 |
% |
(0.02) |
% |
0.07 |
% |
0.17 |
% |
0.04 |
% |
0.14 |
% |
NCOs for the quarter ended June 30, 2022 amounted to $6.1 million, an unfavorable variance by $7.4 million when compared to the same period in 2021. The BPPR segment increased by $6.8 million mainly driven by higher commercial and consumer NCOs by $6.5 million and $5.4 million, respectively, in part offset by a decrease of $5.4 million in the mortgage NCOs. The commercial NCOs reflects an unfavorable variance of $6.5 million, as the prior period was a net recovery of $9.9 million. The consumer NCOs increase was mainly related to post-pandemic normalization, as NCOs continue at historical low levels. The PB segment NCOs remained essentially flat. The low level of NCOs was due to the effect of a favorable economic environment and continued borrower performance, as reflected in the ongoing low level of delinquencies and NPLs when compared to pre-pandemic trends.
Troubled Debt Restructurings
The Corporation’s troubled debt restructurings (“TDRs”) loans amounted to $1.6 billion at June 30, 2022, decreasing by $8 million, from December 31, 2021. A total of $724 million of these TDRs are related to guaranteed loans, which are in accruing status. TDRs in the BPPR segment amounted to $1.6 billion, a decrease of $8 million, mainly related to decreases of $7 million and $3 million in the consumer and mortgage TDRs, respectively. The Popular U.S. segment TDRs remained flat at $15 million from December 31, 2021. TDRs in accruing status increased by $17 million from December 31, 2021, while non-accruing TDRs decreased by $25 million, mostly related to mortgage TDRs.
Refer to Note 8 to the Consolidated Financial Statements for additional information on modifications considered TDRs, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.
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ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS
Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 2021 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures.
Internal Control Over Financial Reporting
There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
For a discussion of Legal Proceedings, see Note 20, Commitments and Contingencies, to the Consolidated Financial Statements.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under “Part I- Item 1A- Risk Factors” in our 2021 Form10-K and under “Part II–Item1A- Risk Factors” of any subsequent Quarterly Report on Form10-Q.These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I- Item 2– Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of the risk factors below and in our 2021 Form10-K and any subsequent Quarterly Reports on Form10-Q. The risks described in our 2021 Form 10-K and in our Quarterly Reports on Form 10-Q are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position. There have been no material changes to the risk factors previously disclosed under “Part I- Item 1- A- Risk Factors” in our 2021 Form 10-K, except for the risks included below which supplement the risk factors described in our 2021 Form 10-K.
Risk Factors
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Complying with economic and trade sanctions programs and anti-money laundering laws and regulations can increase our operational and compliance costs and risks. If we, and our subsidiaries, affiliates or third-party service providers, are found to have failed to comply with applicable economic and trade sanctions programs and anti-money laundering laws and regulations, we could be exposed to fines, sanctions and penalties, and other regulatory actions, as well as governmental investigations.
As a federally regulated financial institution, we must comply with regulations and economic and trade sanctions and embargo programs administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury, as well as anti-money laundering laws and regulations, including those under the Bank Secrecy Act.
Economic and trade sanctions regulations and programs administered by OFAC prohibit U.S.-based entities from entering into or facilitating unlicensed transactions with, for the benefit of, or in some cases involving the property and property interests of, persons, governments or countries designated by the U.S. government under one or more sanctions regimes, and also prohibit transactions that provide a benefit that is received in a country designated under one or more sanctions regimes. We are also subject to a variety of reporting and other requirements under the Bank Secrecy Act, including the requirement to file suspicious activity and currency transaction reports, that are designed to assist in the detection and prevention of money laundering, terrorist financing and other criminal activities. In addition, as a financial institution we are required to, among other things, identify our customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or altogether prohibit certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning our customers and their transactions. Failure by the Corporation, its subsidiaries, affiliates or third-party service providers to comply with these laws and regulations could have serious legal and reputational consequences for the Corporation, including the possibility of regulatory enforcement or other legal action, including significant civil and criminal penalties. We can also incur higher costs and face greater compliance risks in structuring and operating our businesses to comply with these requirements. The markets in which we operate heighten these costs and risks.
We have established risk-based policies and procedures designed to assist us and our personnel in complying with these applicable laws and regulations. With respect to OFAC regulations and economic and trade sanction programs, these policies and procedures employ software to screen transactions for evidence of sanctioned-country and person’s involvement. Consistent with a risk-based approach and the difficulties in identifying and where applicable, blocking and rejecting transactions of our customers or our customers’ customers that may involve a sanctioned person, government or country, there can be no assurance that our policies and procedures will prevent us from violating applicable laws and regulations in transactions in which we engage, and such violations could adversely affect our reputation, business, financial condition and results of operations.
From time to time we have identified and voluntarily self-disclosed to OFAC transactions that were not timely identified, blocked or rejected by our policies, controls and procedures for screening transactions that might violate the regulations and economic and trade sanctions programs administered by OFAC. For example, during the second quarter of 2022, BPPR entered into a settlement agreement with OFAC with respect to certain transactions processed on behalf of two employees of the Government of Venezuela, in apparent violation of U.S. sanctions against Venezuela. Popular agreed to pay approximately $256,000 to settle the apparent violations, which had been self-disclosed to OFAC. There can be no assurances that any failure to comply with U.S. sanctions and embargoes, or with anti-money laundering laws and regulations, will not result in material fines, sanctions or other penalties being imposed on us.
Furthermore, if the policies, controls, and procedures of one of the Corporation’s third-party service providers do not prevent it from violating applicable laws and regulations in transactions in which it engages, such violations could adversely affect its ability to provide services to us, and, in the case of Evertec, could adversely affect the value of our investment in Evertec.
We are subject to a variety of cybersecurity risks that, if realized, may have an adverse effect on our business and results of operations. These cybersecurity risks have been heightened by the increase on our employees’ remote work capabilities, the use of digital channels by our customers as a result of the COVID-19 pandemic and growing economic and geo-political risks.
Information security risks for large financial institutions such as Popular have increased significantly in recent years in part because of the proliferation of new technologies, such as Internet and mobile banking to conduct instant financial transactions anywhere globally, growing geo-political threats, such as the ongoing Russian conflict in Ukraine, and the increased sophistication and
163
activities of organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to transmit and store sensitive data. We employ a layered defensive approach that employs people, processes and technology to manage and maintain cybersecurity controls through a variety of preventative and detective tools that monitor, block, and provide alerts regarding suspicious activity and identify suspected advanced persistent threats. Notwithstanding our defensive measures and the significant resources we devote to protect the security of our systems, there is no assurance that all of our security measures will be effective at all times, especially as the threats from cyber-attacks is continuous and severe. The risk of a security breach due to a cyber attack could increase in the future as we continue to expand our mobile banking and other internet-based product offerings, Popular’s use of the cloud for system development and hosting and internal use of internet-based products and applications.
We continue to detect and identify attacks that are becoming more sophisticated and increasing in volume, as well as attackers that respond rapidly to changes in defensive countermeasures. The most significant cyber-attack risks that we may face are e-fraud, denial-of-service (DDoS), ransomware, computer intrusion and the exploitation of software zero-day vulnerabilities that might result in disruption of services and in the exposure or loss of customer or proprietary data. Loss from e-fraud occurs when cybercriminals compromise our systems or the systems of our customers and extract funds from customer’s credit cards or bank accounts, including through brute force, password spraying and credential stuffing attacks directed at gaining unauthorized access to individual accounts. Denial-of-service attacks intentionally disrupt the ability of legitimate users, including customers and employees, to access networks, websites and online resources. Computer intrusion attempts either direct or through email, text or voice messages, including using brand impersonation (regularly referred to as phishing, vishing and smishing), might result in the compromise of sensitive customer data, such as account numbers, credit cards and social security numbers, and could present significant reputational, legal and regulatory costs to Popular if successful.
We have been the target of phishing, smishing and vishing attacks in the past, targeting both our customers and employees through brand, email, text and voicemail impersonation, that have compromised the email accounts of certain of our customers and employees or have resulted in our customer’s being deceived into revealing their information to attackers. We continually monitor and address those vulnerabilities and continue to enhance our security measures to detect and prevent such incidents, while enhancing employee and customer trainings and awareness campaigns. There can be no assurances, however, that there will not be further compromises of sensitive customer information in the future. Our customer-facing platforms are also routinely attacked by threat actors aiming to gain unauthorized access to our clients’ accounts. Popular has recently implemented certain defensive measures in response to brute force attacks on one of our platforms and, while our investigation of these brute force attacks remains ongoing, we have to date not experienced material losses in connection with these attacks. Cyber-security risks have also been recently exacerbated by the discovery of zero-day vulnerabilities in widely distributed third party software, such as the vulnerability identified in December 2021 in the Apache log4j, which could affect Popular’s or any of its service provider’s systems.
The increased use of remote access and third-party video conferencing solutions during the COVID-19 pandemic, to enable work-from-home arrangements for employees and facilitating the use of digital channels by our customers, has increased our exposure to cyber attacks. In addition, a third party could misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by Popular’s customers or employees. Recent events, including the Russian conflict in Ukraine, have also illustrated increased geo-political factors and the risks related to supply-chain compromises and de-stabilizing activities linked to nation-state sponsored activity as an increasing trend to monitor actively. Risks and exposures related to cyber security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, including the rise in the use of cyber-attacks as geopolitical weapons, as well as the expanding use of digital channels for banking, such as mobile banking and other technology-based products and services used by us and our customers. Although we are regularly targeted by unauthorized threat-actor activity, we have not, to date, experienced any material losses as a result of any cyber-attacks.
A successful compromise or circumvention of the security of our systems could have serious negative consequences for us, including significant disruption of our operations and those of our clients, customers and counterparties, misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or damage to computers or systems used by us or by our clients, customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on us. For example, if personal, non-public, confidential or proprietary information in our possession were to be mishandled, misused or stolen, we could suffer significant
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regulatory consequences, reputational damage and financial loss. The extent of a particular cyber attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed. While such an investigation is ongoing, Popular may not necessarily know the full extent of the harm caused by the cyber attack, and that damage may continue to spread. These factors may inhibit our ability to provide rapid, full and reliable information about the cyber attack to our clients, customers, counterparties and regulators, as well as the public. Furthermore, it may not be clear how best to contain and remediate the potential harm caused by the cyber attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the impact of the incident and thereby the costs and consequences of a cyber attack. For a discussion of the guidance that federal banking regulators have released regarding cybersecurity and cyber risk management standards, see “Regulation and Supervision” in Part I, Item 1 — Business, included in the Form 10-K for the year ended December 31, 2021. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.
We also rely on third parties for the performance of a significant portion of our information technology functions and the provision of information security, technology and business process services. As a result, a successful compromise or circumvention of the security of the systems of these third-party service providers could have serious negative consequences for us, including misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or other negative implications identified above with respect to a cyber-attack on our systems, which could have a material adverse effect on us. The most important of these third-party service providers for us is Evertec, and certain risks particular to Evertec are discussed under “Risks Relating to our Relationship with Evertec”. During 2021, we determined that, as a result of the widely reported breach of Accellion, Inc.’s File Transfer Appliance tool, which was being used at the time of such breach by a U.S.-based third-party advisory services vendor of Popular, personal information of certain Popular customers was compromised. As a result, Popular notified, as required or otherwise deemed appropriate, customers identified as affected by the incident. Although we are not aware of fraudulent activity in connection with this incident, Popular’s networks and systems were not impacted, and our third-party service provider agreed to cover external remediation costs associated with the incident. A compromise of the personal information of our customers maintained by third party vendors could result in significant regulatory consequences, reputational damage and financial loss to us. The success of our business depends in part on the continuing ability of these (and other) third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively monitor or mitigate fourth-party risk, in particular as it relates to the use of common suppliers or vendors by the third parties that perform functions and services for us.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate and remediate any information security vulnerabilities or incidents. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones, including risks associated with supply chain compromises and the software development lifecycle of the systems used by us and our service providers. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues. In addition, addressing certain information security vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. Moreover, our ability to timely mitigate vulnerabilities and manage such risks, given the rise in number of required patches and third-party software “zero-day vulnerabilities”, may impact our day-to-day operations, the availability of our systems and delay the deployment of technology enhancements and innovation.
If Popular’s operational systems, or those of external parties on which Popular’s businesses depend, are unable to meet the requirements of our businesses and operations or bank regulatory standards, or if they fail or have other significant shortcomings, Popular could be materially and adversely affected.
We are dependent on Evertec for certain of our core financial transaction processing and information technology and security services, which exposes us to a number of operational risks that could have a material adverse effect on us.
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In connection with the sale of a 51% ownership interest in Evertec in the third quarter of 2010, we entered into a long-term Amended and Restated Master Services Agreement (the “Original MSA”) with Evertec, pursuant to which we agreed to receive from Evertec, on an exclusive basis, certain core banking and financial transaction processing and information technology and security services.
As previously disclosed in our Current Report on Form 8-K filed with the SEC on July 1, 2022, on July 1, 2022 (the “Evertec Closing”) we closed the transactions contemplated by the Asset Purchase Agreement dated February 24, 2022 by and among Evertec, Evertec Group, LLC, BPPR and Popular, pursuant to which we purchased from Evertec certain information technology and related assets used by Evertec to service certain of BPPR’s key channels (the “Acquired Assets”) and assumed certain liabilities relating thereto (the “Evertec Transaction”). On the Evertec Closing, the parties to the Evertec Transaction also amended and restated certain commercial agreements, including the Original MSA (the “Second AR MSA”), pursuant to which Evertec will continue to provide various necessary financial transaction processing, security and technology services to Popular, BPPR and their respective subsidiaries, which services were previously provided under the Original MSA. The term of the Second AR MSA will expire on September 30, 2028, a three-year extension of the term of the Original MSA. We also amended and restated the agreement pursuant to which BPPR sponsors Evertec as an independent sales organization with respect to certain credit card associations, which contains certain exclusivity and non-solicitation restrictions with respect to merchant services (the “ISO Agreement”), as well as the agreement pursuant to which BPPR has committed to support the ATH brand and network (the “ATH Agreement”). Although the Evertec Transaction narrowed the scope of services which we are dependent on Evertec to obtain and released us from exclusivity restrictions that limited our ability to engage other third-party providers of financial technology services, we continue to be dependent on Evertec for the provision of essential services to our business, including our core banking business, and there can be no assurances that the quality of the services will be appropriate or that Evertec will be able to continue to provide us with the necessary financial transaction processing, security and technology services. As a result, our relationship with Evertec exposes us to operational, cybersecurity and business risks that could have a material adverse effect on us.
As a result of our agreements with Evertec, we are particularly exposed to the operational risks of Evertec, including those relating to a breakdown or failure of Evertec’s systems or internal controls environment, including as a result of security breaches or attacks, employee error or malfeasance, system breakdowns, vulnerabilities, obsolescence or otherwise. Over the term of the Original MSA, we experienced various interruptions and delays in key services provided by Evertec, as well as cyber breaches, as a result of system breakdowns, misconfigurations and instances of application obsolescence, which has led in the past to exposure of BPPR customer information. There can be no assurances that there will not be further compromises of sensitive customer information in the future because of the aforementioned causes. The continuance or increase in service delays or interruptions, vulnerabilities in Evertec’s information systems, or cyberattacks to, or breaches to the confidentiality of the information that resides in such systems, could harm our business by disrupting our delivery of services, expose us to regulatory, legal and compliance risk and damage our reputation, which could have a material adverse impact on our financial condition and results of operations. Evertec’s inability to timely address evolving cybersecurity threats may further exacerbate these risks. For further information regarding our cybersecurity risks, refer to the “We are subject to a variety of cybersecurity risks that, if realized, could adversely affect how we conduct our business” risk factor. Our ability to recover from Evertec for breach of the Second AR MSA, including the failure to meet the service levels or comply with other obligations regarding information security provided for therein, may not fully compensate us for the damages we may suffer as a result of such breach.
Popular faces significant and increasing competition in the rapidly evolving financial services industry. Considering our continued dependence on Evertec, if Evertec is unable to meet constant technological changes and react quickly to meet new industry standards, we may be unable to enhance our current services and introduce new products and services in a timely and cost-effective manner, placing us at a competitive disadvantage and significantly affecting our business, financial condition and results of operations.
We operate in a highly competitive environment in which we must evolve and adapt to the significant changes as a result of technological advances. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. We compete on the basis of the quality and variety of products and services offered, innovation, price, ease of use, reputation and transaction execution. To compete effectively, we need to constantly enhance and modify our products and services and introduce new products and services to attract and retain clients or to match products and services offered by our competitors, including technology companies and other nonbank firms that are engaged in providing similar products and services. Although the Evertec Transaction eliminated certain provisions of the Original MSA that required us to use Evertec exclusively to develop and implement new or enhanced products and services, and
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is expected to improve Popular’s ability to manage and control the development of the customer channels supported by the Acquired Assets, Popular expects that it will continue to depend on Evertec’s technology services to operate and control current products and services and to implement future products and services, making our success dependent on Evertec’s ability to timely complete and introduce these enhancements and new products and services in a cost-effective manner. Our ability to enhance our customer channels is also dependent on Evertec timely delivering core application programming interfaces (the “Core APIs”) that meet BPPR’s requirements, which Evertec has committed to develop under the Second AR MSA. The Core APIs are necessary for BPPR to connect future enhancements to the Acquired Assets to existing Evertec core applications.
Some of our competitors rely on financial services technology and outsourcing companies that are much larger than Evertec, serve a greater number of clients than Evertec, and may have better technological capabilities and product offerings than Evertec. Furthermore, financial services technology companies typically make capital investments to develop and modify their product and service offerings to facilitate their customers’ compliance with the extensive and evolving regulatory and industry requirements, and in most cases such costs are borne by the technology provider. Because of our contractual relationship with Evertec, and because Popular is the sole customer of certain of Evertec’s services and products, we have in the past borne the full cost of such developments and modifications and may be required to do so in the future, subject to the terms of the Second AR MSA.
Moreover, the terms, speed, scalability and functionality of certain of Evertec’s technology services are not competitive when compared to offerings from its competitors. Evertec’s failure to sufficiently invest in and upscale its technology and services infrastructure to meet the rapidly changing technology demands of our industry may result in us being unable to meet customer expectations and attract or retain customers. Any such impact could, in turn, reduce Popular’s revenues, place us in a competitive disadvantage and significantly affect our business, financial condition and results of operations. While the closing of the Evertec Transaction narrowed the scope of services which we are dependent on Evertec to obtain and released us from exclusivity restrictions that limited our ability to engage other third-party providers of financial technology services, it also resulted in extensions of certain existing commercial agreements with Evertec and, as a result, have prolonged the duration of our exposure to the risks presented by Evertec’s technological capabilities and its failures to enhance its products and services and otherwise meet evolving demands.
The transition to new financial services technology providers, and the replacement of services currently provided to us by Evertec, will be lengthy and complex.
Switching from one vendor of core bank processing and related technology and security services to a new vendor is a complex process that carries business and financial risks. The implementation cycle for such a transition can be lengthy and require significant financial and management resources from us. Such a transition can also expose us, and our clients, to increased costs (including conversion costs), business disruption, as well as operational and cybersecurity risks. Upon the transition of all or a portion of existing services provided by Evertec to a new financial services technology provider, either (i) at the end of the term of the Second AR MSA and related agreements or (ii) earlier upon the termination of any service for convenience under the Second AR MSA, these transition risks could result in an adverse effect on our business, financial condition and results of operations. Although Evertec has agreed to provide certain transition assistance to us in connection with the termination of the Second AR MSA, we are ultimately dependent on their ability to provide those services in a responsive and competent manner. Furthermore, we may require transition assistance from Evertec beyond the term of the Second AR MSA, delaying and lengthening any transition process away from Evertec while increasing related costs.
Under the Second AR MSA, we are able to terminate services for convenience with 180 day prior notice. We expect to exercise during the term of the Second AR MSA the right to terminate certain services for convenience and to transition such services to other service providers prior to the expiration of the Second AR MSA, subject to complying with the revenue minimums contemplated in the Second AR MSA and certain other conditions. In practice, in order to switch to a new provider for a particular service, we will have to commence procuring and working on a transition process for such service significantly in advance of its termination and, in any case, much earlier than the automatic renewal notice date or the expiration date of the Second AR MSA, and such process may extend beyond the current term of the Second AR MSA. Furthermore, if we were unsuccessful or decided not to complete the transition after expending significant funds and management resources, it could also result in an adverse effect on our business, financial condition and results of operations.
The value of our remaining ownership interest in Evertec could be adversely affected if our relationship with Evertec were to deteriorate materially. The Evertec Transaction also resulted in a material reduction in the value of our ownership
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interest in Evertec, eliminated our rights to nominate directors to Evertec’s board of directors and will result in the elimination of the income we report from this investment.
Prior to the closing of the Evertec Transaction, we held a 16.19% ownership interest in Evertec. We continue to have a 10.6% ownership interest in Evertec and account for this investment under the equity method. As a result, we include our investment in Evertec in other assets and our proportionate share of income or loss is included in other operating income in our consolidated statements of operations. For 2021, our share of Evertec’s changes in equity recognized in income was $26 million. The carrying value of our investment in Evertec was, as of December 31, 2021, approximately $110 million. Meanwhile, the services Evertec delivers to us represent a significant portion of Evertec’s revenues (approximately 41% for 2021), even after giving effect to the Evertec Transaction. As a result, if we were not to renew the Second AR MSA and our other current agreements with Evertec, or otherwise terminate them before the end of their terms, Evertec’s financial position and results of operations could be materially adversely affected and the value of our remaining ownership interest in Evertec may be materially reduced. Furthermore, revenue from Evertec’s merchant acquiring business, which constitutes approximately 24% of Evertec’s revenues, depends, in part, on Evertec’s alliance with BPPR. If such relationship were to suffer, or be terminated, Evertec’s business may be adversely affected.
Future sales of our Evertec common stock, or the perception that these sales could occur, could also adversely affect the market price of Evertec common stock and thus the value we may be able to realize on the sale of our remaining holdings. In particular, in connection with the Evertec Transaction, we have entered into a Registration Rights and Sell-Down Agreement at the closing of the Evertec Transaction, pursuant to which we are required to use commercially reasonable efforts to sell to third parties a sufficient number of our shares of Evertec common stock so as to reduce our ownership of shares of Evertec common stock to no more than 4.99% of the total number of shares of Evertec common stock outstanding on or before September 29, 2022. In addition, the Registration Rights and Sell-Down Agreement provides that any shares of Evertec common stock we own in excess of 4.5% at the end of such ninety-day period will be converted into shares of Evertec non-voting preferred stock that convert back into common stock when transferred in a widespread public distribution or in certain other qualifying transfers.
The market price of Evertec common stock—and thus, the value we may be able to realize on the sale of our remaining holdings—could be negatively affected by the perception that further sales by us could occur as contemplated by the Registration Rights and Sell-Down Agreement, among other factors. Furthermore, the termination at the closing of the Evertec Transaction of the existing Stockholder Agreement between Popular and Evertec, which resulted in the elimination of Popular’s rights to nominate two directors to Evertec’s board of directors, among other rights, and Popular’s commitment under the Registration Rights and Sell-Down Agreement to reduce, within ninety days of the closing of the Evertec Transaction, its ownership of shares of Evertec common stock to no more than 4.99% of the total number of shares of Evertec common stock outstanding, is expected to eliminate Popular’s earnings from its equity investment in Evertec and subject the valuation of any remaining stake in Evertec to mark-to-market accounting and consequent exposure to market risk.
We are subject to additional risks relating to the Evertec Transaction.
There are numerous additional risks and uncertainties associated with the Evertec Transaction, including:
unforeseen events, including the COVID-19 pandemic, may materially diminish the expected benefits of the Evertec Transaction;
we will be required to devote significant attention and resources to post closing implementation efforts, which will involve a significant degree of technological complexity and reliance on Evertec and other third parties, including with respect to the set-up of developer tools required to manage the Acquired Assets;
we may be unable to retain the employees and third-party contractors hired or engaged by us in connection with the Evertec Transaction and who are necessary to operate and integrate the Acquired Assets;
we may be subject to incremental operational and security risks arising from the transfer of the Acquired Assets to BPPR, including those risks arising from, among other things, the activities required to execute network segmentation, the possibility of misconfiguration of access or security services during the transition period and during the implementation of new processes or security controls, the possibility of mismanagement of security services during the transition phase, and the need to develop a robust internal control framework;
the anticipated benefits of the Evertec Transaction could be limited if Evertec fails to deliver to BPPR, in a timely manner and in a manner that meets BPPR’s requirements, the Core APIs that Evertec has committed to develop in order for BPPR to connect future enhancements to the Acquired Assets to existing Evertec core applications;
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we may be exposed to heightened business risks as a result of the extension until 2035 of BPPR’s exclusivity with Evertec in connection with its merchant acquiring business, as well as the extension until 2030 of BPPR’s commitment with respect to the ATH Network, in light of the pace of technology changes and competition in the payments industry;
Evertec’s strategy and investments after the closing of the Evertec Transaction may be refocused away from Popular towards other strategic initiatives;
and
we may not be able to execute the contemplated sell down of Evertec shares or otherwise receive any required regulatory approvals to effect a return to shareholders, via common stock repurchases, of any after-tax gains resulting from such sale.
Any of the foregoing risks and uncertainties could have a material adverse effect on our earnings, cash flows, financial condition, and/or stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Corporation did not have any unregistered sales of equity securities during the quarter ended June 30, 2022.
Issuer Purchases of Equity Securities
The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended June 30, 2022:
Issuer Purchases of Equity Securities | |||||
Not in thousands |
|
|
|
| |
Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2) | |
April 1 - April 30 |
- |
$ |
- |
- |
$100,000,000 |
May 1 - May 31 |
17,042 |
|
79.62 |
- |
100,000,000 |
June 1 - June 30 |
- |
|
- |
- |
100,000,000 |
Total |
17,042 |
$ |
79.62 |
- |
$100,000,000 |
(1) Includes 17,042 shares of the Corporation’s common stock acquired by the Corporation in connection with the satisfaction of tax withholding obligations on vested awards of restricted stock or restricted stock units granted to directors and certain employees under the Corporation’s Omnibus Incentive Plan. The acquired shares of common stock were added back to treasury stock. | |||||
(2) As part of its capital plan, in January 2022, the Corporation announced plans to repurchase $500 million in shares. On February 28, 2022, the Corporation entered into an accelerated share repurchase transaction of $400 million with respect to its common stock, which was completed on July 12, 2022. $100 million remains available for repurchase pursuant to the capital plan. Refer to Note 17 to the Consolidated Financial Statements for additional information. | |||||
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit Index
Exhibit No |
Exhibit Description |
10.1 |
|
22.1 |
|
31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) |
32.1 |
|
32.2 |
|
101. INS |
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline Document. |
101.SCH |
Inline Taxonomy Extension Schema Document(1) |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document(1) |
101.DEF |
Inline XBRL Taxonomy Extension Definitions Linkbase Document(1) |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document(1) |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document(1) |
104
|
The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments)(1)
|
(1) Included herewith
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SIGNATURES | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | |
| |
|
POPULAR, INC. |
|
(Registrant) |
|
|
Date: August 9, 2022 |
By: /s/ Carlos J. Vázquez |
|
Carlos J. Vázquez |
|
Executive Vice President |
|
Chief Financial Officer |
|
|
Date: August 9, 2022 |
By: /s/ Jorge J. García |
|
Jorge J. García |
|
Senior Vice President Corporate Comptroller |
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