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POPULAR, INC. - Annual Report: 2022 (Form 10-K)

Form 10-K
 
 
 
 
 
bpop-20221231p1i2 bpop-20221231p1i1 bpop-20221231p1i2 bpop-20221231p1i0 bpop-20221231p1i0
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
[X]
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR
 
15(d) OF THE SECURITIES EXCHANGE ACT
 
OF 1934
For the Fiscal Year Ended
December 31, 2022
Or
[ ]
 
Transition report pursuant to Section 13 or 15(d) of the Securities
 
Exchange Act of 1934
Commission File Number:
 
001-34084
POPULAR, INC.
Incorporated in the Commonwealth of
Puerto Rico
IRS Employer Identification No.
66-0667416
Principal Executive Offices
209 Muñoz Rivera Avenue
Hato Rey
,
Puerto Rico
00918
Telephone Number: (
787
)
765-9800
 
Securities registered pursuant to Section 12(b)
 
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock ($0.01 par value)
BPOP
The
Nasdaq Global Select Stock Market
6.125% Cumulative Monthly Income Trust Preferred
Securities
BPOPM
The
Nasdaq Global Select Stock Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
 
OF THE ACT:
 
None
Indicate by check mark if the registrant is a well-known
 
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
 
X No
 
.
Indicate by check mark if the registrant is not required
 
to file reports pursuant to Section 13 or Section
 
15(d) of the Act. Yes
 
No
 
X.
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.
Yes
 
X No
 
.
 
Indicate by check mark whether the registrant has
 
submitted electronically every Interactive Data File required
 
to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter)
 
during the preceding 12 months (or for such
 
shorter period that the registrant was
required to submit such files).
Yes
 
X No
 
.
Indicate by check mark whether the registrant is a
 
large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
 
company”
and “emerging growth company” in Rule 12b-2
 
of the Exchange Act.
Large accelerated filer
 
[X]
Accelerated filer [
 
]
Non-accelerated filer [
 
]
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant
 
has elected not to use the extended
 
transition period for
complying with any new or revised financial accounting
 
standards provided pursuant to Section 13(a)
 
of the Exchange Act.
 
Indicate by check mark whether the registrant has filed a report on
 
and attestation to its management’s assessment of the effectiveness of
its internal
 
control over
 
financial reporting
 
under Section
 
404(b) of
 
the Sarbanes-Oxley Act
 
(15 U.S.C.
 
7262(b)) by
 
the registered
 
public
accounting firm that prepared or issued its audit
 
report. [
X
]
If securities are registered
 
pursuant to Section 12(b)
 
of the Act, indicate
 
by check mark whether
 
the financial statements of
 
the registrant
included in the filing reflect the correction of an
 
error to previously issued financial statements.
 
Indicate
 
by
 
check
 
mark
 
whether any
 
of
 
those
 
error
 
corrections
 
are
 
restatements
 
that
 
required
 
a
 
recovery
 
analysis
 
of
 
incentive-based
compensation received by any of the registrant’s executive
 
officers during the relevant recovery period pursuant to
 
§240.10D-1(b).
 
Indicate by check mark whether the registrant is a
 
shell company (as defined in Rule 12b-2 of the
 
Act). Yes
 
No
X
 
As of June 30, 2022, the aggregate market
 
value of the Common Stock held by non-affiliates of
 
Popular, Inc. was approximately $
5.8
billion based upon the reported closing price of $76.93
 
on the Nasdaq Global Select Market on that
 
date.
 
As of February 24, 2023, there were
71,867,263
 
shares of Popular, Inc.’s Common Stock outstanding.
 
 
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Popular,
 
Inc.’s definitive proxy
 
statement relating to the
 
2023 Annual Meeting
 
of Stockholders of Popular,
 
Inc. (the “Proxy
Statement”) are incorporated herein by reference in response to Items 10 through
 
14 of Part III. The Proxy Statement will be
 
filed with
the Securities and Exchange Commission (the “SEC”)
 
on or about March 29, 2023.
 
3
Forward-Looking Statements
This
 
Form
 
10-K contains
 
“forward-looking statements”
 
within the
 
meaning
 
of
 
the
 
U.S. Private
 
Securities Litigation
 
Reform Act
 
of
1995,
 
including,
 
without
 
limitation,
 
statements
 
about
 
Popular,
 
Inc.’s
 
(the
 
“Corporation,”
 
“Popular,”
 
“we,”
 
“us,”
 
“our”)
 
business,
financial condition, results
 
of operations, plans,
 
objectives and future
 
performance. These statements
 
are not
 
guarantees of future
performance,
 
are
 
based
 
on
 
management’s
 
current
 
expectations
 
and,
 
by
 
their
 
nature,
 
involve
 
risks,
 
uncertainties,
 
estimates
 
and
assumptions. Potential
 
factors, some
 
of which
 
are beyond
 
the Corporation’s
 
control, could
 
cause actual
 
results to
 
differ materially
from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect
of competitive and
 
economic factors, and our
 
reaction to those factors,
 
the adequacy of
 
the allowance for loan
 
losses, delinquency
trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity,
 
and the effect
of legal and regulatory proceedings and new accounting
 
standards on the Corporation’s financial condition and
 
results of operations.
All statements
 
contained herein
 
that are
 
not clearly
 
historical in
 
nature are
 
forward-looking, and
 
the words
 
“anticipate,” “believe,”
“continues,” “expect,”
 
“estimate,” “intend,”
 
“project” and
 
similar expressions
 
and future
 
or conditional
 
verbs such
 
as “will,”
 
“would,”
“should,” “could,” “might,” “can,” “may” or similar
 
expressions are generally intended to identify
 
forward-looking statements.
Various factors, some of which
 
are beyond Popular’s control, could cause actual results to differ materially from those expressed in,
or implied by, such forward-looking statements. Factors that might cause such a
 
difference include, but are not limited to:
 
the
 
rate
 
of
 
growth
 
or
 
decline
 
in
 
the
 
economy
 
and
 
employment
 
levels,
 
as
 
well
 
as
 
general
 
business
 
and
 
economic
conditions
 
in
 
the
 
geographic
 
areas
 
we
 
serve
 
and,
 
in
 
particular,
 
in
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
(the
“Commonwealth” or “Puerto Rico”), where a significant
 
portion of our business is concentrated
 
adverse
 
economic conditions,
 
including high
 
levels
 
of
 
and
 
ongoing increases
 
in
 
inflation
 
rates,
 
that
 
adversely
 
affect
housing prices, the job market, consumer confidence
 
and spending habits which may affect in turn, among
 
other things,
our level of non-performing assets, charge-offs and provision
 
expense;
 
changes in interest rates and market liquidity,
 
which may reduce interest margins, impact funding sources, reduce loan
originations,
 
affect our
 
ability to
 
originate and
 
distribute financial
 
products in
 
the primary
 
and secondary
 
markets and
impact the value of our investment portfolio and
 
our ability to return capital to our shareholders;
 
the impact of the current fiscal and economic challenges of Puerto Rico and
 
the measures taken and to be taken by the
Puerto
 
Rico
 
Government
 
and
 
the
 
Federally-appointed
 
oversight
 
board
 
on
 
the
 
economy,
 
our
 
customers
 
and
 
our
business;
 
the impact of the pending debt
 
restructuring proceedings under Title III of the
 
Puerto Rico Oversight, Management and
Economic
 
Stability
 
Act
 
(“PROMESA”)
 
and
 
of
 
other
 
actions
 
taken
 
or
 
to
 
be
 
taken
 
to
 
address
 
Puerto
 
Rico’s
 
fiscal
challenges on the value of our portfolio of Puerto Rico
 
government securities and loans to governmental entities and of
our
 
commercial,
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
where
 
private
 
borrowers
 
could
 
be
 
directly
 
affected
 
by
governmental action;
 
the
 
amount of
 
Puerto Rico
 
public sector
 
deposits held
 
at
 
the Corporation,
 
whose future
 
balances are
 
uncertain and
difficult
 
to
 
predict
 
and
 
may
 
be
 
impacted
 
by
 
factors
 
such
 
as
 
the
 
amount
 
of
 
Federal
 
funds
 
received
 
by
 
the
 
P.R.
Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure
of
 
such
 
funds,
 
as
 
well
 
as
 
the
 
financial
 
condition,
 
liquidity
 
and
 
cash
 
management
 
practices
 
of
 
the
 
Puerto
 
Rico
Government and its instrumentalities;
 
unforeseen
 
or
 
catastrophic
 
events,
 
including
 
extreme
 
weather
 
events,
 
including
 
hurricanes,
 
other
 
natural
 
disasters,
man-made disasters,
 
acts of
 
violence or
 
war or
 
pandemics, epidemics
 
and other
 
health-related crises,
 
including any
resurgence of COVID-19, or the fear of any
 
such event occurring, any of which could cause adverse consequences for
our business, including, but not limited to, disruptions
 
in our operations;
 
our
 
ability
 
to
 
achieve
 
the
 
expected
 
benefits
 
from
 
our
 
transformation
 
initiative,
 
including
 
our
 
ability
 
to
 
achieve
 
our
targeted sustainable return on tangible common equity
 
of 14% by the end of 2025;
4
 
risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc.
to
 
service certain
 
of Banco
 
Popular de
 
Puerto Rico’s
 
key channels,
 
as well
 
as the
 
entry into
 
amended and
 
restated
commercial
 
agreements
 
(the
 
“Evertec
 
Business
 
Acquisition
 
Transaction”),
 
including
 
Popular’s
 
ability
 
to
 
successfully
transition and integrate the assets
 
acquired as part of the
 
Evertec Business Acquisition Transaction, as
 
well as related
operations,
 
employees
 
and
 
third
 
party
 
contractors;
 
unexpected
 
costs,
 
including,
 
without
 
limitation,
 
costs
 
due
 
to
exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Evertec Business
Acquisition Transaction or
 
that are not
 
subject to indemnification or
 
reimbursement by Evertec, Inc.;
 
and business and
other risks arising from the extension of Popular’s
 
current commercial agreements with Evertec,
 
Inc.;
 
the fiscal and monetary policies of the federal government
 
and its agencies;
 
changes
 
in
 
federal
 
bank
 
regulatory
 
and
 
supervisory
 
policies,
 
including
 
required
 
levels
 
of
 
capital
 
and
 
the
 
impact
 
of
proposed capital standards on our capital ratios;
 
additional Federal Deposit Insurance Corporation (“FDIC”)
 
assessments;
 
regulatory approvals
 
that may
 
be necessary
 
to undertake
 
certain actions
 
or consummate
 
strategic transactions,
 
such
as acquisitions and dispositions;
 
the
 
relative strength
 
or
 
weakness
 
of
 
the
 
consumer and
 
commercial credit
 
sectors
 
and
 
of
 
the
 
real
 
estate markets
 
in
Puerto Rico and the other markets in which
 
our borrowers are located;
 
the performance of the stock and bond markets;
 
competition in the financial services industry;
 
possible legislative, tax or regulatory changes;
 
a failure
 
in or
 
breach of
 
our operational
 
or security
 
systems or
 
infrastructure or
 
those of
 
Evertec, Inc.,
 
our provider
 
of
core financial
 
transaction processing and
 
information technology services,
 
or of
 
third parties
 
providing services
 
to us,
including
 
as
 
a
 
result
 
of
 
cyberattacks, e-fraud,
 
denial-of-services and
 
computer intrusion,
 
that
 
might result
 
in,
 
among
other
 
things,
 
loss
 
or
 
breach
 
of
 
customer
 
data,
 
disruption
 
of
 
services,
 
reputational
 
damage
 
or
 
additional
 
costs
 
to
Popular;
 
changes in market rates and prices which may
 
adversely impact the value of financial assets
 
and liabilities;
 
potential judgments,
 
claims, damages,
 
penalties, fines,
 
enforcement actions
 
and
 
reputational damage
 
resulting from
pending
 
or
 
future
 
litigation
 
and
 
regulatory
 
or
 
government
 
investigations
 
or
 
actions,
 
including
 
as
 
a
 
result
 
of
 
our
participation in and execution of government programs
 
related to the COVID-19 pandemic;
 
changes in accounting standards, rules and interpretations;
 
our ability to grow our core businesses;
 
decisions to downsize, sell or close branches or business
 
units or otherwise change our business mix;
 
and
 
management’s ability to identify and manage these and
 
other risks.
Moreover,
 
the
 
outcome
 
of
 
legal
 
and
 
regulatory
 
proceedings,
 
as
 
discussed
 
in
 
“Part
 
I,
 
Item
 
3.
 
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
“Part I, Item 1A” of this Form 10-K for a discussion
 
of certain risks and uncertainties to which
 
the Corporation is subject.
 
5
All forward-looking
 
statements included
 
in this
 
Form 10-K
 
are based
 
upon information
 
available to
 
Popular as
 
of the
 
date of
 
this
Form 10- K, and other than as required by law,
 
including the requirements of applicable securities laws, we assume no obligation to
update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date
of such statements.
 
 
 
 
 
6
TABLE OF CONTENTS
PART I
Page
Item 1
Business
7
Item 1A
Risk Factors
23
Item 1B
Unresolved Staff Comments
37
Item 2
Properties
37
Item 3
Legal Proceedings
37
Item 4
Mine Safety Disclosures
37
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
38
Item 6
[Reserved]
40
Item 7
Management’s Discussion and Analysis of Financial Condition
 
and Results of
Operations
40
Item 7A
Quantitative and Qualitative Disclosures About Market
 
Risk
40
Item 8
Financial Statements and Supplementary Data
41
Item 9
Changes in and Disagreements with Accountants
 
on Accounting and Financial
Disclosure
41
Item 9A
Controls and Procedures
41
Item 9B
Other Information
41
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent
 
Inspections
41
PART III
Item 10
Directors, Executive Officers and Corporate Governance
41
Item 11
Executive Compensation
42
Item 12
Security Ownership of Certain Beneficial Owners
 
and Management and
Related Stockholder Matters
42
Item 13
Certain Relationships and Related Transactions, and Director
 
Independence
42
Item 14
Principal Accountant Fees and Services
42
PART IV
Item 15
Exhibits and Financial Statement Schedules
42
Item 16
Form 10-K Summary
43
7
PART I POPULAR, INC.
ITEM 1. BUSINESS
 
General
 
Popular
 
is
 
a diversified,
 
publicly-owned financial
 
holding company,
 
registered under
 
the Bank
 
Holding Company
 
Act
 
of
 
1956, as
amended (the “BHC Act”), and subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”). Popular was incorporated in 1984 under the laws of the Commonwealth of Puerto Rico and is the
 
largest
financial institution
 
based in Puerto
 
Rico, with
 
consolidated assets of
 
$67.6 billion, total
 
deposits of
 
$61.2 billion
 
and stockholders’
equity of $4.1 billion at
 
December 31, 2022. At December 31,
 
2022, we ranked among the
 
50 largest U.S. bank holding companies
based on total assets according to information gathered
 
and disclosed by the Federal Reserve Board.
We operate in two principal markets:
 
Puerto Rico:
 
We
 
provide retail,
 
mortgage and
 
commercial banking
 
services through
 
our principal
 
banking subsidiary,
 
Banco
Popular
 
de
 
Puerto
 
Rico
 
(“Banco
 
Popular”
 
or
 
“BPPR”),
 
as
 
well
 
as
 
auto
 
and
 
equipment
 
leasing
 
and
 
financing,
 
investment
banking,
 
broker-dealer
 
and
 
insurance
 
services
 
through
 
specialized
 
subsidiaries.
 
BPPR’s
 
deposits
 
are
 
insured
 
under
 
the
Deposit Insurance
 
Fund (“DIF”)
 
of the
 
Federal Deposit
 
Insurance Corporation (“FDIC”).
 
The banking
 
operations of
 
BPPR are
primarily based in Puerto Rico, where BPPR has the
 
largest retail banking franchise.
 
Mainland
 
United
 
States:
 
We
 
provide
 
retail,
 
mortgage
 
and
 
commercial
 
banking
 
services
 
through
 
our
 
New
 
York-chartered
banking subsidiary,
 
Popular Bank (“PB” or
 
“Popular U.S.”), which has
 
branches in New York,
 
New Jersey and Florida;
 
as well
as commercial
 
direct financing
 
leases through
 
a specialized
 
subsidiary,
 
Popular Equipment
 
Finance LLC
 
in Minnesota.
 
PB’s
deposits are insured under the DIF of the FDIC.
 
BPPR
 
also
 
conducts
 
banking
 
operations
 
in
 
the
 
U.S.
 
Virgin
 
Islands,
 
the
 
British
 
Virgin
 
Islands
 
and
 
New
 
York.
 
In
 
addition
 
to
BPPR’s commercial
 
banking operations
 
in New
 
York
 
that include
 
direct loan
 
origination and
 
participating loans
 
originated by
PB,
 
BPPR
 
offers
 
or
 
holds
 
financial
 
products
 
on
 
a
 
National
 
scale
 
in
 
the
 
U.S.
 
market,
 
including
 
personal
 
loans
 
previously
originated
 
under
 
the
 
E-Loan
 
brand,
 
purchased
 
personal
 
loans
 
originated
 
by
 
third
 
parties,
 
issuing
 
co-branded
 
credit
 
cards
offerings
 
and
 
gathering
 
insured
 
institutional
 
deposits
 
via
 
online
 
deposit
 
gathering
 
platforms.
 
In
 
the
 
U.S.
 
and
 
British
 
Virgin
Islands, BPPR offers a range of banking products,
 
including loans and deposits to both retail
 
and commercial customers.
For further information about the Corporation’s results segregated by
 
its reportable segments, see “Reportable Segment Results” in
the Management’s Discussion
 
and Analysis of
 
Financial Condition and Results
 
of Operations section
 
(“MD&A”) and Note
 
37 to the
Consolidated Financial Statements included in this Form
 
10-K.
Transformation Initiative:
The
 
Corporation
 
launched
 
a
 
significant,
 
multi-year,
 
broad-based
 
technological
 
and
 
business
 
process
 
transformation
 
during
 
the
second half of 2022.
 
The needs and expectations of our clients, as well
 
as the competitive landscape, have evolved, compelling us
to make important investments in our technological infrastructure and adopt more agile practices. We
 
believe these investments will
result in an enhanced digital experience for our clients, as
 
well as better technology and more efficient processes for our employees,
and make us a more efficient and
 
profitable company, allowing us to
 
achieve a 14% return on tangible common equity target by
 
the
end of 2025.
 
Our technology and business transformation
 
will be a significant
 
priority for the Corporation over
 
the next three years
and beyond. Refer to the Overview section
 
of Management’s Discussion and Analysis included in
 
this Form 10-K for information on
this transformation initiative and other recent significant
 
events that have impacted or will impact
 
our current and future operations.
Lending Activities
We concentrate our lending activities in the following areas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
(1) Commercial.
 
Commercial loans are comprised of (i) commercial and industrial (“C&I”) loans and leases to commercial customers
for
 
use
 
in
 
normal
 
business
 
operations
 
and
 
to
 
finance
 
working
 
capital
 
needs,
 
equipment
 
purchases
 
or
 
other
 
projects,
 
and
 
(ii)
commercial real
 
estate (“CRE”) loans
 
(excluding construction loans)
 
for income-producing real
 
estate properties as
 
well as
 
owner-
occupied properties. C&I
 
loans are underwritten
 
individually and usually
 
secured with the
 
assets of the
 
company and the
 
personal
guarantee
 
of
 
the
 
business
 
owners. CRE
 
loans consist
 
of
 
loans
 
for
 
income-producing real
 
estate
 
properties and
 
the financing
 
of
owner-occupied facilities
 
if there
 
is real
 
estate as
 
collateral. Non-owner-occupied
 
CRE loans
 
are generally
 
made to
 
finance office
and
 
industrial buildings,
 
healthcare facilities,
 
multifamily buildings
 
and
 
retail shopping
 
centers
 
and are
 
repaid through
 
cash
 
flows
related to the operation, sale or refinancing of the
 
property.
(2) Mortgage. Mortgage
 
loans include residential
 
mortgage loans to
 
consumers for the
 
purchase or refinancing
 
of a
 
residence and
also include residential construction loans made
 
to individuals for the construction of refurbishment
 
of their residence.
 
(3) Consumer.
 
Consumer loans are mainly
 
comprised of personal loans,
 
credit cards, and automobile
 
loans, and to
 
a lesser extent
home equity lines of credit (“HELOCs”) and other
 
loans made by banks to individual borrowers.
 
(4)
 
Construction.
 
Construction
 
loans
 
are
 
CRE
 
loans
 
to
 
companies
 
or
 
developers
 
used
 
for
 
the
 
construction
 
of
 
a
 
commercial
 
or
residential property for which repayment will be generated by the sale
 
or permanent financing of the property.
 
Our construction loan
portfolio primarily consists of retail, residential (land and
 
condominiums), office and warehouse product types.
 
(5) Lease Financings.
 
Lease financings are offered by BPPR and are
 
primarily comprised of automobile loans/leases made through
automotive dealerships and equipment lease financings.
Business Concentration
Since our
 
business activities
 
are currently concentrated
 
primarily in
 
Puerto Rico,
 
our 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 our
 
operations in Puerto Rico exposes us
 
to greater risk than other
 
banking companies with a
wider
 
geographic
 
base.
 
Our
 
asset
 
and
 
revenue
 
composition
 
by
 
geographical
 
area
 
is
 
presented
 
in
 
“Financial
 
Information
 
about
Geographic Areas” below and in Note 37 to the Consolidated
 
Financial Statements included in this Form 10-K.
Our loan portfolio is diversified by loan category.
 
However, approximately 57% of our loan portfolio at December 31, 2022 consisted
of real estate-related
 
loans, including residential
 
mortgage loans, construction
 
loans and commercial
 
loans secured by
 
commercial
real estate. The table below presents the distribution
 
of our loan portfolio by loan category at
 
December 31, 2022.
Loan category
(Dollars in millions)
BPPR
%
PB
%
POPULAR
%
C&I
$3,796
17
$2,043
21
$5,839
18
CRE
4,627
20
5,273
55
9,900
31
Construction
147
1
611
7
758
2
Leasing
1,586
7
-
-
1,586
5
Consumer
6,281
28
317
3
6,598
21
Mortgage
6,110
27
1,287
14
7,397
23
Total
$22,547
100
$9,531
100
$32,078
100
Except for
 
the Corporation’s
 
exposure to
 
the Puerto
 
Rico Government
 
sector,
 
no individual
 
or single
 
group of
 
related accounts
 
is
considered material
 
in relation
 
to our
 
total assets
 
or deposits,
 
or in
 
relation to
 
our overall
 
business.
 
For a
 
discussion of
 
our loan
portfolio, our
 
deposits portfolio
 
and our
 
exposure to
 
the Government
 
of Puerto
 
Rico, see
 
“Financial Condition
 
– Loans”,
 
“Financial
Condition
 
 
Deposits”
 
and
 
“Credit
 
Risk
 
 
Geographical and
 
Government
 
Risk” in
 
the
 
MD&A
 
and
 
to
 
Note
 
24
 
-
 
Commitment and
Contingencies to the Consolidated Financial Statements
 
included in this
 
Form 10-K.
Credit
 
Administration
 
and
 
Credit
 
Policies
9
Interest
 
from our
 
loan portfolios
 
is our
 
principal source
 
of revenue.
 
Whenever we
 
make loans,
 
we expose
 
ourselves
 
to
credit
 
risk.
 
Credit
 
risk
 
is
 
controlled
 
and
 
monitored
 
through
 
active
 
asset
 
quality
 
management,
 
including
 
the
 
use
 
of
 
lending
standards,
 
thorough
 
review
 
of
 
potential
 
borrowers
 
and through
 
active
 
asset quality
 
administration.
Business
 
activities
 
that
 
expose
 
us to
 
credit
 
risk are
 
managed
 
within
 
the
 
Board
 
of Director’s
 
Risk Management policy,
and the Credit Risk Tolerance
 
Limits policy,
 
which establishe
 
s
 
limits
 
that
 
consider
 
factors
 
such
 
as maintainin
 
g
 
a prudent
 
balance
of risk-taking
 
across
 
diversified
 
risk types
 
and business
 
units,
 
compliance
 
with regulator
 
y
 
guidance,
 
and
 
controlling
 
the
 
exposure
to lower
 
credit
 
quality
 
assets.
We maintain
 
comprehensive
 
credit policies
 
for all lines of
 
business in order
 
to mitigate credit
 
risk. Our credit
 
policies
 
are
approved by
 
our Board
 
of Directors.
 
These policies set
 
forth,
 
among
 
other
 
things,
the objectives, scope and
 
responsibilities of the
credit
 
management cycle.
 
Our
 
internal
 
written
 
procedures
 
establish
underwriting
 
standards
 
and
 
procedures
 
for
 
monitoring
 
and
evaluating
 
loan
 
portfolio
 
quality
 
and
 
require
 
prompt
 
identificatio
 
n
 
and
 
quantificatio
 
n
 
of
 
asset
 
quality
 
deterioration
 
or
 
potential
loss
 
to
 
ensure
 
the
 
adequacy
 
of
 
the
 
allowance
 
for
 
credit
 
losses.
 
These
 
written
 
procedures
 
establish
 
various
 
approval
 
and
lending
 
limit
 
levels,
 
ranging
 
from
 
bank
 
branch
 
or
 
department
 
officers
 
to
 
managerial
 
and
 
senior
 
management
 
levels.
 
Approval
levels are
primarily
 
determined
 
by the
 
amount,
 
type
 
of loan
 
and risk
 
characteristics
 
of the credit
 
facility.
Our
 
credit
 
policies
 
and
 
procedures
 
establish
 
documentation
 
requirements
 
for
 
each
 
loan
 
and
 
related
 
collateral
 
type,
when
 
applicable,
 
during
 
the
 
underwriting,
 
closing
 
and
 
monitoring
 
phases.
 
For
 
commercial
 
and
 
construction
 
loans,
 
during
 
the
initial
 
loan
 
underwriting
 
process,
 
the
 
credit
 
policies
 
require,
 
at
 
a
 
minimum,
 
historical
 
financial
 
statements
 
or
 
tax
 
returns
 
of
 
the
borrower,
 
an analysis
 
of financial
 
information
 
contained
 
in
 
a
 
credit
 
approval
 
package,
 
a
 
risk
 
rating
 
determination
 
and
 
reports
from
 
credit
 
agencies
 
and appraisal
 
s
 
for
 
real
 
estate-related
 
loans when applicable
 
.
 
The credit
 
policies
 
also
 
set
 
forth
 
the
 
required
closing
 
documentation
 
depending
 
on the
 
loan
 
and the
 
collateral
 
type.
Although
 
we originat
 
e
 
most
 
of our
 
loans
 
internally
 
in both
 
the
 
Puerto
 
Rico
 
and mainlan
 
d
 
United
 
States
 
markets,
 
we
occasionally
 
purchase
 
or
 
participate
 
in
 
loans
 
originated
 
by
 
other
 
financial
 
institutions.
 
When
 
we
 
purchase
 
or
 
participate
 
in
loans
 
originated
 
by
 
others,
 
we
 
conduct
 
the
 
same
 
underwriting
 
analysis
 
of
 
the borrower
 
s
 
and apply
 
the
 
same
 
criteria
 
as we do
for
 
loans
 
originated
 
by us. This also
 
includes
 
a review
 
of the
 
applicable
 
legal
 
documentation.
 
Refer
 
to
 
the
 
Credit
 
Risk
 
section
 
of
 
the
 
MD&A
 
included
 
in
 
this
 
Form
 
10-K
 
for
 
information
 
related
 
to
 
management
committees and divisions with responsibilities for establishing
 
policies and monitoring the Corporation’s credit risk.
Loan
 
extensions
 
,
 
renewals
 
and restructurings
Loans with
 
satisfactory
 
credit
 
profiles
 
can be
 
extended,
 
renewed
 
or restructured
 
.
 
Many commercia
 
l
 
loan facilities
 
are
structured
 
as lines
 
of credit, which
 
are mainly
 
one year
 
in term
 
and therefore
 
are required
 
to be renewed
 
annually.
 
Other
 
facilities
may be restructure
 
d
 
or extended
 
from time
 
to time based
 
upon changes
 
in the
 
borrower’s
 
business
 
needs,
 
use
 
of
 
funds,
 
timing
of
 
completion
 
of
 
projects
 
and
 
other
 
factors.
 
If
 
the
 
borrower
 
is
 
not
 
deemed
 
to
 
have
 
financial
 
difficulties
 
,
 
extensions,
 
renewals
and restructuring
 
s
 
are done
 
in the
 
normal
 
course
 
of busines
 
s
 
and the
 
loans
 
continue
 
to be recorde
 
d
 
as performing.
We
 
evaluate
 
various
 
factors
 
to
 
determine
 
if
 
a
 
borrower
 
is
 
experiencing
 
financial
 
difficulties.
 
Indicators
 
that
 
the
borrower
 
is
 
experiencing
 
financial difficultie
 
s
 
include,
 
for example:
 
(i)
 
the borrower
 
is currently
 
in default on
 
any of its debt
 
or it is
probable tha
 
t
 
the borrower
 
would be
 
in payment
 
default on
 
any of
 
its debt
 
in th
 
e
 
foreseeable
 
future
 
without
 
the modificatio
 
n;
 
(ii)
 
the
 
borrower
 
has declare
 
d
 
or is in
 
the
 
process
 
of declarin
 
g
 
bankruptcy;
 
(iii)
 
there
 
is significan
 
t
 
doubt
 
as to
 
whether
 
the
 
borrower
will
 
continue
 
to
 
be
 
a
 
going
 
concern;
 
(iv)
 
the
 
borrower
 
has
 
securities
 
that
 
have
 
been
 
delisted,
 
are
 
in
 
the
 
process
 
of
 
being
delisted,
 
or
 
are
 
under threa
 
t
 
of bein
 
g
 
delisted
 
from
 
an exchange
 
;
 
(v) based
 
on estimate
 
s
 
and projection
 
s
 
that
 
only
 
encompass
the
 
current
 
business
 
capabilities
 
,
 
the
 
borrower
 
forecasts
 
that
 
its
 
entity-specifi
 
c
 
cash
 
flows
 
will
 
be
 
insufficien
 
t
 
to
 
service
 
the
debt
 
(both
 
interest
 
and
 
principal)
 
in
 
accordance
 
with
 
the
 
contractual
 
terms
 
of
 
the
 
existing
 
agreement
 
through
 
maturity;
 
and
(vi)
 
absent
 
the
 
current
 
modification,
 
the
 
borrower
 
cannot
 
obtain
 
funds
 
from
 
sources
 
other
 
than
 
the
 
existing
 
creditors
 
at
 
an
effective
 
interest
 
rate
 
equal to the current market
 
interest
 
rate for similar
 
debt for a non-trouble
 
d
 
debtor.
We
 
have
 
specialized
 
workout
 
officers
 
who
 
handle
 
the majority
 
of
 
commercial
 
loans
 
that
 
are
 
past
 
due
 
90
 
days
 
and
over,
 
borrowers
 
experiencing
 
financial
 
difficulties
 
,
 
and loans
 
that
 
are considere
 
d
 
problem
 
loans
 
based
 
on their
 
risk profile
 
.
 
As a
10
general
 
policy,
 
we
 
do
 
not
 
advance
 
additional
 
money
 
to
 
borrowers
 
who
 
have
 
loans
 
that
 
are
 
90
 
days
 
past
 
due
 
or
 
over.
 
In
commercial
 
and
 
construction
 
loans,
 
certain
 
exceptions
 
may
 
be approve
 
d
 
under
 
certain
 
circumstances,
 
including
 
(i) when
 
past
due
 
status
 
is administrativ
 
e
 
in nature,
 
such
 
as expiration
 
of a loan
 
facility
 
before
 
the
 
new documentatio
 
n
 
is executed,
 
and not as
a result
 
of paymen
 
t
 
or credit
 
issues;
 
(ii) to
 
improve
 
our collateral
 
position
 
or
 
otherwise
 
maximize
 
recovery
 
or
 
mitigate
 
potential
future
 
losses;
 
and
 
(iii)
 
with
 
respect
 
to
 
certain
 
entities
 
that,
 
although
 
related
 
through
 
common
 
ownership
 
,
 
are
 
not
 
cross
defaulted
 
nor
 
cross-collateralized
 
and
 
are
 
performing
 
satisfactorily
 
under
 
their
 
respective
 
loan
 
facilities.
 
Such
 
advances
 
are
underwritten
 
and
 
approved
 
following
 
our
 
credit
 
policy
 
guidelines
 
and
 
limits,
 
which
 
are
 
dependent
 
on
 
the
 
borrower’s
 
financial
condition,
 
collateral
 
and guarantee,
 
among
 
others.
In addition
 
to the legal
 
lending limit
 
established under
 
applicable
 
state banking
 
law, discusse
 
d
 
in detail
 
below,
 
business
activities
 
that
 
expose the
 
Corporation to
 
credit
 
risk
 
are managed
 
within
 
guidelines described
 
in the
 
Credit
 
Risk Tolerance
 
Limits
policy.
 
Limits are defined for
 
loss and credit
 
performance metrics, portfolio composition and
 
concentration, and industry and
 
name-
level,
which
monitors
 
lending
 
concentration
 
to
 
a
 
single
 
borrower
 
or
 
a
 
group
 
of
 
related
 
borrowers,
 
including
 
specific
 
lending
limits
 
based
 
on industr
 
y
 
or other
 
criteria,
 
such
 
as a percentage
 
of the
 
banks’
 
capital.
Refer to Note 2 and Note 9 to the Consolidated Financial Statements included
 
in this Form 10-K, for additional information
on troubled debt restructuring (“TDRs”).
Competition
The
 
financial
 
services
 
industry
 
in
 
which
 
we
 
operate
 
is
 
highly
 
competitive.
 
In
 
Puerto
 
Rico,
 
our
 
primary
 
market,
 
the
banking
 
business
 
is
 
highly
 
competitive
 
with
 
respect
 
to
 
originatin
 
g
 
loans,
 
acquiring
 
deposits
 
and
 
providing
 
other
 
banking
services.
 
Most
 
of
 
our
 
direct
 
competitio
 
n
 
for
 
our
 
products
 
and
 
services
 
comes
 
from
 
commercial
 
banks and
 
credit unions.
The
 
principal
 
competitors
 
for
 
BPPR
 
include
 
locally
 
based
 
commercial
 
banks
 
and
 
a
 
few
 
large
 
U.S.
 
and
 
foreign
 
banks
 
with
operations
 
in Puerto
 
Rico.
 
While
 
the
 
number
 
of
 
banking
 
competitors
 
in
 
Puerto
 
Rico
 
has
 
been
 
reduced
 
in
 
recent
 
years
 
as
 
a
result
 
of
 
consolidations,
 
these
 
transactions
 
have
 
allowed
 
some
 
of
 
our
 
competitors
 
to
 
gain
 
greater
 
resources,
 
such
 
as
 
a
broader
 
range of
 
products
 
and services.
We
 
also
 
compete
 
with
 
specialized
 
players
 
in th
 
e
 
local
 
financial
 
industry
 
that
 
are
 
not subje
 
ct
 
to
 
the
 
same
 
regulatory
restrictions
 
as domestic
 
banks
 
and bank holdin
 
g
 
companies.
 
Those
 
competitors
 
include
 
brokerage
 
firms,
 
mortgage
 
companies,
insurance
 
companies,
 
automobile
 
and
 
equipment
 
finance
 
companies,
 
local
 
and
 
federal
 
credit
 
unions
 
(locally
 
known
 
as
“cooperativas”
 
),
 
credit car
 
d
 
companies,
 
consumer
 
finance
 
companies,
 
institutional
 
lenders
 
and other
 
financial
 
and non-financia
 
l
institutions
 
and
 
entities.
 
Credit
 
unions
 
generally
 
provide
 
basic
 
consumer
 
financial
 
services.
 
These
 
competitors
 
collectively
represent a significant
 
portion of the
 
market and have
 
a lower cost structure
 
and fewer regulatory
 
constraints.
In
 
the
 
United
 
States
 
we
 
continue
 
to
 
face
 
substantial
 
competitive
 
pressure
 
as
 
our
 
footprint
 
resides
 
in
 
the
 
two
 
large,
metropolitan markets of
 
New York
 
City / Northern
 
New Jersey and
 
the greater Miami
 
area.
 
There is a
 
large number of
 
community
and
 
regional
 
banks
 
along
 
with
 
national
 
banking
 
institutions
 
present
 
in
 
both
 
markets,
 
many
 
of
 
which
 
have
 
a
 
larger
 
amount
 
of
resources than us.
In both
 
Puerto Rico
 
and the
 
United States,
 
the primary
 
factors in
 
competing
 
for business
 
include
 
pricing,
 
convenience
of branch
 
locations
 
and other
 
delivery
 
methods,
 
range of
 
products offered,
 
and the
 
level of
 
service delivered.
 
We must
 
compete
effectively
 
along
 
all
 
these
 
parameters
 
to
 
be
 
successful.
 
We
 
experience
 
pricing
 
pressure
 
as
 
some
 
of
 
our
 
competitors
 
seek
 
to
increase
 
market
 
share
 
by
 
reducing
 
prices
 
for
 
services
 
or
 
the
 
rates
 
charged
 
on
 
loans,
 
increasing
 
the
 
interest
 
rates
 
offered
 
on
deposits
 
or offering
 
more flexible
 
terms. Increased
 
competition
 
could require
 
that we
 
increase
 
the rates
 
offered
 
on deposits
 
and
lower the rates
 
charged on loans,
 
which could adversely
 
affect our profitability.
Economic
 
factors,
 
along
 
with
 
legislative
 
and
 
technological
 
changes,
 
have
 
an
 
ongoing
 
impact
 
on
 
the
 
competitive
environment
 
within
 
the financia
 
l
 
services
 
industry.
 
We work
 
to anticipat
 
e
 
and adap
 
t
 
to dynamic
 
competitive
 
conditions
 
whether
through developing
 
and marketing
 
innovative
 
products
 
and services,
 
adopting
 
or developin
 
g
 
new technologie
 
s
 
that
 
differentiat
 
e
our product
 
s
 
and
 
services
 
,
 
cross-marketing
 
,
 
or
 
providing
 
personalized
 
banking
 
services.
 
We
 
strive
 
to
 
distinguish
 
ourselves
from
 
other
 
banks
 
and
 
financial
 
services
 
providers
 
in our
 
marketplace
 
by providin
 
g
 
a high
 
level
 
of service
 
to enhance
 
customer
loyalty
 
and to attrac
 
t
 
and retain
 
business.
 
However,
 
we can
 
provide
 
no assuranc
 
e
 
as
 
to
 
the
 
effectivenes
 
s
 
of
 
these
 
effort
 
s
 
on
our
 
future
 
busines
 
s
 
or
 
results
 
of
 
operations
 
,
 
and
 
as
 
to
 
our
 
continue
 
d
 
ability
 
to
 
anticipat
 
e
 
and
 
adapt
 
to
 
changing
 
 
11
conditions,
 
and
 
to
 
sufficientl
 
y
 
improve
 
our
 
services
 
and/or
 
banking
 
products,
 
in
 
order
 
to
 
successfully
 
compete
 
in
 
our
 
primary
service
 
areas.
Human Capital Management
Attracting, developing, and retaining top
 
talent in an environment that
 
promotes wellness, inclusion, learning, and transparency
 
is a
fundamental pillar of our long-term strategy.
 
As of December 31, 2022, Popular
 
employed approximately 8,900 employees, none of
whom are represented by a collective bargaining group
.
 
Employee Well-Being & Safety
We are
 
cognizant that
 
our journey
 
to become
 
a better
 
organization is
 
dependent on
 
fostering our
 
employees’ health
 
and financial
wellbeing. The health and wellness of our employees are the foundation of our ability to support our customers and the communities
we serve. The
 
Corporation offers our employees
 
a comprehensive benefits package, including,
 
but not limited to,
 
health insurance,
paid time off,
 
and wellness initiatives. Our full
 
and part-time employees have access
 
to affordable healthcare with Popular
 
covering
up
 
to
 
90%
 
of
 
the
 
premium. Additionally,
 
the
 
Corporation promotes
 
employee
 
health
 
by
 
encouraging annual
 
physical
 
exams and
maintaining
 
a
 
Health
 
and
 
Wellness
 
Center
 
at
 
its
 
Puerto
 
Rico-based
 
corporate
 
offices
 
staffed
 
with
 
healthcare
 
providers,
 
where
employees and eligible dependents can complete their physical exam,
 
receive acute care or visit a nutritionist or psychologist free of
charge. The
 
Health and
 
Wellness Center
 
received more
 
than 18,600
 
in-person and
 
virtual visits
 
from employees
 
during 2022
 
and
acted as a key component to effectively manage the
 
challenges imposed by the COVID-19 pandemic.
The
 
Corporation
 
also
 
provides
 
targeted
 
benefits
 
aimed
 
at
 
promoting
 
work-life
 
balance.
 
For
 
example,
 
the
 
Corporation’s
 
time
 
off
program includes
 
community service
 
leave, paid
 
parental leave
 
(including for
 
childbirth, adoption,
 
and bonding
 
time)
 
and flexible
work arrangements. In
 
addition, the Corporation
 
implemented a hybrid
 
work model, for
 
which 49%
 
of our
 
population is eligible.
 
To
support
 
our
 
employees’
 
emotional
 
well-being
 
during
 
the
 
pandemic,
 
we
 
have
 
continued
 
enhancing
 
our
 
Well-Being
 
Academy
 
by
adapting our Employee Assistance Program to offer virtual mental health sessions geared at managing work and
 
life challenges.
 
In
addition,
 
the
 
Corporation
 
offers
 
physical
 
fitness
 
events
 
and
 
breaks,
 
as
 
well
 
as
 
employee
 
workshops
 
on
 
personal
 
financial
management.
 
Popular also
 
offers a
 
401(k) savings and
 
investment plan. Popular
 
matches $0.50 for
 
every dollar the
 
employee contributes to
 
the
401(k) plan, up to 8%
 
of their salary.
 
Moreover, the organization offers
 
a profit-sharing plan, which depends on the
 
achievement of
certain
 
predetermined
 
financial
 
goals,
 
through
 
which
 
employees
 
may
 
receive
 
up
 
to
 
8%
 
of
 
eligible
 
compensation
 
(capped
 
at
$70,000), partially
 
in cash
 
and partially
 
as a
 
401(k) contribution.
 
Furthermore, since
 
2017 we
 
have invested
 
in our
 
compensation
strategy,
 
introducing a
 
job leveling
 
framework, adjusting
 
salaries to
 
better compete
 
with the
 
market, offering
 
merit increases,
 
and
raising our base salary to $13
 
per hour in Puerto Rico, $15
 
per hour in the Virgin Islands,
 
$17 per hour in Florida, and $20
 
per hour
in New York
 
and New Jersey.
 
During January 2023, there
 
was an additional
 
increase to $15
 
per hour for
 
Puerto Rico and
 
$16 per
hour in the Virgin Islands.
Talent Development
Popular strives
 
to develop
 
the skills
 
of its
 
employees and
 
leaders to
 
sustain the
 
Corporation’s competitive
 
advantage. Employees
are subject to
 
mandatory trainings in
 
connection with regulatory compliance
 
matters and other
 
key topics throughout
 
the year.
 
Our
40,000 square
 
foot Development
 
Center in
 
San Juan,
 
Puerto Rico
 
offers training
 
sessions, activities,
 
and workshops
 
year-round.
During
 
2022,
 
the
 
Corporation
 
continued
 
offering
 
virtual
 
training
 
after
 
effectively
 
transitioning
 
most
 
sessions
 
provided
 
in
 
the
Development Center to a virtual setting to continue impacting employee growth despite the pandemic. More than 300 sessions were
delivered,
 
with
 
around
 
6,500
 
participating
 
employees.
 
Our
 
English
 
Program
 
helps
 
employees
 
whose
 
first
 
language
 
is
 
Spanish
strengthen
 
their
 
English
 
language
 
skills
 
and
 
feel
 
confident
 
speaking,
 
reading,
 
and
 
writing
 
in
 
business
 
or
 
personal
 
settings.
Additionally, the
 
English Placement Test
 
revealed that in 2022
 
the number of
 
intermediate learners increased from 4%
 
to 17% and
advanced learners
 
from 45%
 
to 53%,
 
compared to
 
2021.
 
Popular also
 
continues to
 
promote the
 
use of
 
LinkedIn Learning,
 
which
features over 16,000 on-demand e-learning courses
 
available anytime and anywhere, to strengthen
 
and advance the Corporation’s
development
 
strategies
 
for
 
all
 
its
 
employees.The
 
organization’s
 
strong
 
training
 
and
 
development
 
framework
 
has
 
contributed
 
to
internal growth opportunities for our employees. As
 
a result, the Corporation’s internal mobility
 
rate in 2022 was 33%. This
 
included
employees who applied or were selected for
 
vacancies, were promoted, or had lateral movements.
 
 
12
Popular received
 
the BAI
 
Innovation in
 
Learning &
 
Development Award for
 
being a
 
Talent
 
Lab &
 
Skills Accelerator.
 
This year,
 
we
performed an internal talent
 
and skills inventory of
 
83% of employees to
 
reveal underutilized skills and
 
education. The organization
invested in
 
the development
 
of 126
 
practitioners who
 
went through
 
Accelerated Development
 
Programs focused
 
on data
 
science
and analytics, process excellence and program management,
 
among other topics.
Recognizing that leadership development is crucial to driving
 
results, keeping employees engaged, and achieving the Corporation’s
strategic
 
goals, Popular
 
has
 
implemented programs
 
aimed
 
at
 
strengthening and
 
developing leadership
 
skills
 
and
 
effective
 
talent
management. As part of the Corporation’s Executive Leadership Development
 
strategy, readiness courses are offered to employees
in topics such as change management, conscious inclusion, leading
 
hybrid teams, and better conversations focused on the return to
office scenarios.
 
Our
 
organizational
 
development
 
strategy
 
is
 
aimed
 
at
 
creating
 
organizational
 
and
 
leadership
 
effectiveness,
 
while
 
advancing
organizational readiness
 
to succeed
 
based on
 
our future
 
needs. There
 
were more
 
than 80
 
organizational development
 
and team
interventions
 
and
 
exercises
 
facilitated
 
during
 
2022,
 
spanning
 
the
 
areas
 
of
 
change
 
management,
 
team
 
alignment
 
and
 
leader
effectiveness.
Diversity, Equity, and Inclusion
At Popular,
 
we value our
 
differences and strive
 
to improve the
 
workplace experience for
 
all. As of
 
December 31, 2022, 65%
 
of the
Corporation’s employees
 
were female,
 
while 35%
 
were male.
 
Women accounted
 
for 64%
 
of first
 
and mid-level
 
management and
33%
 
of
 
executive-level management
 
as
 
of such
 
date. The
 
Corporation also
 
maintains
 
a multidisciplinary
 
council,
 
headed by
 
our
Corporate
 
Diversity
 
Officer,
 
which
 
helps
 
develop
 
and
 
implement
 
initiatives
 
to
 
support
 
the
 
Corporation’s
 
Diversity,
 
Equity,
 
and
Inclusion (DE&I)
 
policy and
 
strategy.
 
The Corporation’s
 
DE&I strategy
 
seeks to
 
broaden the
 
inclusion, employment
 
advancement
and development
 
of underrepresented
 
communities in
 
the workplace,
 
as well
 
as the
 
utilization of
 
suppliers owned,
 
controlled, or
operated by
 
women or
 
diverse racial
 
or ethnic
 
groups. In
 
addition, this
 
strategy seeks
 
to prepare
 
the Corporation’s
 
employees to
recognize and value the differences of those we
 
serve.
 
 
We are
 
committed to
 
fair pay
 
and conduct
 
analyses on
 
such matter
 
on an
 
annual basis.
 
The 2022
 
company-wide market
 
salary
adjustments resulted
 
in an
 
overall improvement
 
to our
 
gender gap
 
of +1.5
 
percentage points,
 
compared to
 
the end
 
of 2021.
 
Our
gender
 
pay
 
gap
 
continues
 
to
 
narrow
 
improving
 
3.1
 
percentage
 
points
 
over
 
the
 
last
 
five
 
years.
 
Additionally,
 
for
 
the
 
second
consecutive year (2022-2023), Popular was honored to
 
be included in the Bloomberg Gender Equality
 
Index (GEI).
The Corporation has
 
also expressed public
 
support for
 
movements advocating for
 
equality such as
 
Pride Month.
 
In 2021,
 
Popular
established its first Employee Resource Group (ERG) for
 
our LGBTQ+ employees to better serve the interests of
 
the community and
create awareness
 
and engagement
 
among employees.
 
During 2022, this
 
group was composed
 
of 245
 
members and
 
performed 6
activities
 
within
 
the
 
organization
 
and
 
community.
 
Furthermore,
 
during
 
2022
 
the
 
following
 
two
 
additional
 
ERGs
 
were
 
launched:
Women’s
 
and
 
Functional
 
Diversity.
 
Popular
 
also
 
supports
 
victims
 
of
 
gender-based
 
violence
 
and
 
has
 
a
 
Gender
 
and
 
Domestic
Violence Policy, which grants a paid 15-day leave due to gender or domestic
 
violence, stalking and sexual harassment.
Employee Experience
 
Popular aims to
 
provide an excellent
employee experience that
 
inspires its employees to
 
provide customers and
 
communities with
the best
 
service. To
 
understand its
 
employees’ experience, the
 
Corporation conducts
 
anonymous pulse
 
and engagement
 
surveys
(including the
 
Great Place
 
to
 
Work survey)
 
as well
 
as
 
an exit
 
survey to
 
identify areas
 
of
 
opportunity and
 
set
 
and monitor
 
action
plans.
 
The
 
2022
 
employee satisfaction
 
scores
 
increased 2
 
points from
 
2020
 
and
 
5
 
points
 
since
 
2016.
 
We
 
seek
 
to
 
continuously
measure and improve the employee experience with aims to increase employee productivity while contributing to enhance customer
satisfaction and improve business results.
The
 
Corporation
 
capitalizes
 
on
 
an
 
interactive
 
dashboard
 
that
 
encompasses
 
data
 
surrounding
 
different
 
people-related
 
topics
 
to
support
 
the
 
people
 
strategy,
 
data-driven
 
decision-making
 
and
 
environmental,
 
social
 
and
 
governance
 
(“ESG”)
 
monitoring.
 
The
dashboard provides
 
senior management
 
with visibility
 
over people
 
metrics such
 
as workforce
 
demographics, hiring,
 
turnover,
 
and
Diversity, Equity, and Inclusion.
 
 
13
As of year-end 2022, our turnover rate was 10.8%, improving 1.9 percentage points since 2021. Additionally, voluntary turnover rate
was 8.8%, improving 2.3 percentage points since 2021.Throughout 2022, the Corporation saw
 
a stabilization in turnover, which
 
had
been
 
increasing
 
for
 
the
 
past
 
seven
 
quarters.
 
The
 
dashboard
 
metrics,
 
such
 
as
 
turnover,
 
help
 
shape
 
our
 
attraction
 
and
 
retention
strategy.
Board Oversight
The Talent
 
and Compensation Committee
 
of the Corporation’s
 
Board of Directors
 
has oversight responsibility for
 
the Corporation’s
human
 
capital
 
management.
 
As
 
part
 
of
 
its
 
responsibilities,
 
the
 
Talent
 
and
 
Compensation
 
Committee
 
reviews
 
and
 
advises
management
 
on
 
the
 
Corporation’s
 
general
 
compensation
 
philosophy,
 
programs,
 
and
 
policies,
 
and
 
on
 
the
 
Corporation’s
 
talent
acquisition
 
and
 
development,
 
workforce
 
engagement,
 
succession
 
planning,
 
culture,
 
diversity,
 
equity
 
(including
 
pay
 
equity)
 
and
inclusion, among other human capital topics.
We
 
encourage
 
you
 
to
 
review
 
our
 
Corporate
 
Sustainability
 
Report
 
published
 
on
 
www.popular.com
 
for
 
more
 
detailed
 
information
regarding the
 
Corporation’s
 
human
 
capital
 
management
 
programs
 
and
 
initiatives.
 
The
 
information on
 
the
 
Corporation’s
 
website,
including
 
the
 
Corporation’s
 
Corporate
 
Sustainability
 
Report,
 
is
 
not,
 
and
 
will
 
not
 
be
 
deemed
 
to
 
be,
 
a
 
part
 
of
 
this
 
Form
 
10-K
 
or
incorporated into any of the Corporation’s filings with
 
the SEC
.
Regulation and Supervision
Described below are the material elements of selected laws and regulations applicable to Popular, Popular North America
(“PNA”)
 
and
 
their
 
respective
 
subsidiaries.
 
Such
 
laws
 
and
 
regulations
 
are
 
continually
 
under
 
review
 
by
 
Congress
 
and
 
state
legislatures
 
and
 
federal
 
and
 
state
 
regulatory
 
agencies.
 
Any
 
change
 
in
 
the
 
laws
 
and
 
regulations
 
applicable
 
to
 
Popular
 
and
 
its
subsidiaries could have a material effect on the
 
business of Popular and its subsidiaries. We will continue to
 
assess our businesses
and risk management and compliance practices
 
to conform to developments in the regulatory environment.
General
Popular and
 
PNA are
 
bank holding
 
companies subject
 
to consolidated
 
supervision and
 
regulation by
 
the Federal
 
Reserve Board
under
 
the
 
Bank
 
Holding
 
Company
 
Act
 
of
 
1956
 
(as
 
amended,
 
the
 
“BHC
 
Act”).
 
BPPR
 
and
 
PB
 
are
 
subject
 
to
 
supervision
 
and
examination by applicable
 
federal and state
 
banking agencies including,
 
in the
 
case of BPPR,
 
the Federal Reserve
 
Board and the
Office of
 
the Commissioner
 
of Financial
 
Institutions of
 
Puerto Rico
 
(the “Office
 
of the
 
Commissioner”), and, in
 
the case
 
of PB,
 
the
Federal
 
Reserve
 
Board
 
and
 
the
 
New
 
York
 
State
 
Department
 
of
 
Financial
 
Services
 
(the
 
“NYSDFS”).
 
Popular’s
 
broker-dealer
 
/
investment adviser
 
subsidiary,
 
Popular Securities,
 
LLC (“PS”)
 
and investment
 
advisor subsidiary
 
Popular Asset
 
Management LLC
(“PAM”)
 
are subject
 
to
 
regulation by
 
the SEC,
 
the Financial
 
Industry
 
Regulatory Authority
 
(“FINRA”), and
 
the Securities
 
Investor
Protection Corporation, among others. Other of our non-bank subsidiaries conduct reinsurance and
 
insurance producer and agency
activities, which are
 
subject to other
 
federal, state and
 
Puerto Rico laws
 
and regulations as
 
well as licensing
 
and regulation by
 
the
Puerto Rico Office of the Commissioner of Insurance and,
 
for one insurance agency subsidiary, the NYSDFS.
Enhanced Prudential Standards
Under
 
the
 
Dodd-Frank
 
Wall
 
Street
 
Reform
 
and
 
Consumer
 
Protection
 
Act
 
(the
 
“Dodd-Frank
 
Act”),
 
as
 
modified
 
by
 
the
Economic
 
Growth,
 
Regulatory
 
Relief,
 
and
 
Consumer
 
Protection
 
Act
 
and
 
the
 
federal
 
banking
 
regulators’
 
2019
 
“Tailoring
 
Rules,”
banking
 
organizations are
 
categorized based
 
on status
 
as
 
a U.S.
 
G-SIB,
 
size
 
and four
 
other risk-based
 
indicators. Among
 
bank
holding companies with $100
 
billion or more in
 
total consolidated assets, the
 
most stringent standards apply
 
to U.S. G-SIBs,
 
which
are subject to Category I standards and the
 
least stringent standards apply to Category IV organizations, which have between $100
billion and $250 billion in total consolidated assets and less than $75 billion in all four
 
other risk-based indicators and which are also
not U.S. G-SIBs. Bank holding companies with total consolidated assets of $50 billion or more are subject to risk committee and risk
management requirements. As of December 31, 2022, Popular
 
had total consolidated assets of $67.6 billion.
Transactions with Affiliates
BPPR and
 
PB are
 
subject to
 
restrictions that
 
limit the
 
amount of
 
extensions of
 
credit and
 
certain other
 
“covered transactions”
 
(as
defined in Section
 
23A of the
 
Federal Reserve Act)
 
between BPPR or PB,
 
on the one
 
hand, and Popular,
 
PNA or any
 
of our other
non-banking subsidiaries, on the other hand,
 
and that impose collateralization requirements on
 
such credit extensions. A bank
 
may
not engage
 
in any
 
covered transaction if
 
the aggregate amount
 
of the bank’s
 
covered transactions with
 
that affiliate
 
would exceed
14
10% of
 
the bank’s
 
capital stock
 
and surplus
 
or the
 
aggregate amount
 
of the
 
bank’s covered
 
transactions with
 
all affiliates
 
would
exceed
 
20%
 
of
 
the
 
bank’s
 
capital
 
stock
 
and
 
surplus.
 
In
 
addition,
 
any
 
transaction
 
between
 
BPPR
 
or
 
PB,
 
on
 
the
 
one
 
hand,
 
and
Popular, PNA or any of our other non-banking subsidiaries, on the
 
other, is required to be carried out on an arm’s length basis.
Source of Financial Strength
The
 
Dodd-Frank Act
 
requires bank
 
holding companies,
 
such
 
as Popular
 
and
 
PNA, to
 
act
 
as
 
a source
 
of
 
financial
 
and
managerial strength to their subsidiary banks. Popular
 
and PNA are expected to commit resources
 
to support their subsidiary banks,
including at times when Popular
 
and PNA may not be
 
in a financial position to
 
provide such resources. Any capital
 
loans by a bank
holding company
 
to any
 
of its
 
subsidiary depository
 
institutions are
 
subordinated in
 
right of
 
payment to
 
depositors and
 
to certain
other indebtedness of such subsidiary depository institution. In the
 
event of a bank holding company’s bankruptcy,
 
any commitment
by
 
the
 
bank
 
holding
 
company
 
to
 
a
 
federal
 
banking
 
agency
 
to
 
maintain
 
the
 
capital
 
of
 
a
 
subsidiary
 
depository
 
institution
 
will
 
be
assumed by
 
the bankruptcy
 
trustee and
 
entitled to
 
a priority
 
of payment.
 
BPPR and
 
PB are
 
currently the
 
only insured
 
depository
institution subsidiaries of Popular and PNA.
Resolution Planning
A
bank holding
 
company with
 
$250 billion
 
or more
 
in total
 
consolidated assets
 
(or that
 
is a
 
Category III
 
firm based
 
on
certain risk-based indicators described in the Tailoring
 
Rules) is required to report periodically to the
 
FDIC and the Federal Reserve
Board
 
such
 
company’s
 
plan
 
for
 
its
 
rapid
 
and
 
orderly
 
resolution
 
in
 
the
 
event
 
of
 
material
 
financial
 
distress
 
or
 
failure.
 
In
 
addition,
insured depository institutions with total
 
assets of $50 billion or
 
more are required to
 
submit to the FDIC
 
periodic contingency plans
for resolution
 
in the
 
event of
 
the institution’s
 
failure. In
 
June 2021,
 
the FDIC
 
issued a
 
Statement on
 
Resolution Plans
 
for Insured
Depository Institutions,
 
which, among
 
other things,
 
establishes a three-year
 
filing cycle
 
for banks
 
with $100
 
billion or
 
more in
 
total
assets and provides details regarding the content
 
that filers will be expected to prepare.
As of December 31, 2022, Popular,
 
PNA, BPPR and PB’s total assets were below
 
the thresholds for applicability of these
rules.
FDIC Insurance
Substantially all the deposits of BPPR and PB are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of
the
 
FDIC,
 
and
 
BPPR
 
and
 
PB
 
are
 
subject
 
to
 
FDIC
 
deposit
 
insurance
 
assessments
 
to
 
maintain
 
the
 
DIF.
 
Deposit
 
insurance
assessments are
 
based on
 
the average
 
consolidated total
 
assets of
 
the insured
 
depository institution
 
minus the
 
average tangible
equity of the institution during the assessment period. For larger
 
depository institutions with over $10 billion in assets,
 
such as BPPR
and PB, the FDIC uses a “scorecard” methodology, which considers CAMELS ratings, among other
 
measures, that seeks to capture
both the probability that an individual large institution will
 
fail and the magnitude of the impact on the DIF
 
if such a failure occurs. The
FDIC has the ability
 
to make discretionary adjustments to the
 
total score based upon significant
 
risk factors that are not
 
adequately
captured in the calculations. The initial base deposit insurance assessment rate for larger depository institutions ranges from 3 to 30
basis points on an annualized basis.
 
After the effect of
 
potential base-rate adjustments, the total base assessment rate could
 
range
from 1.5 to 40 basis points on an annualized
 
basis.
On October 18,
 
2022, the FDIC finalized
 
a rule that
 
would increase initial
 
base deposit insurance assessment
 
rates by 2
basis
 
points,
 
beginning
 
with
 
the
 
first
 
quarterly
 
assessment
 
period
 
of
 
2023.
 
The
 
FDIC,
 
as
 
required
 
under
 
the
 
Federal
 
Deposit
Insurance
 
Act
 
(“FDIA”),
 
established
 
a
 
plan
 
in
 
September
 
2020
 
to
 
restore
 
the
 
DIF
 
reserve
 
ratio
 
to
 
meet
 
or
 
exceed
 
the
 
statutory
minimum of
 
1.35 percent
 
within eight
 
years. The
 
increased assessment
 
is intended
 
to improve
 
the likelihood
 
that the
 
DIF reserve
ratio would reach the required minimum by the
 
statutory deadline of September 30, 2028.
As
 
of
 
December
 
31,
 
2022,
 
we
 
had
 
a
 
DIF
 
average
 
total
 
asset
 
less
 
average
 
tangible
 
equity
 
assessment
 
base
 
of
approximately $65 billion.
Brokered Deposits
The FDIA
 
and regulations
 
adopted thereunder
 
restrict the
 
use of
 
brokered deposits
 
and the
 
rate of
 
interest payable
 
on
deposits for
 
institutions that
 
are
 
less than
 
well capitalized.
 
There are
 
no such
 
restrictions on
 
a bank
 
that
 
is well
 
capitalized (see
“Prompt
 
Corrective
 
Action”
 
below
 
for
 
a
 
description
 
of
 
the
 
standard
 
of
 
“well
 
capitalized”).
 
Popular
 
does
 
not
 
believe
 
the
 
brokered
deposits regulations have had or will have a
 
material effect on the funding or liquidity of BPPR and PB.
Capital Adequacy
Popular, Popular,
 
BPPR and PB
 
are each required
 
to comply
 
with applicable capital
 
adequacy standards established
 
by
15
the
 
federal
 
banking
 
agencies
 
(the
 
“Capital
 
Rules”),
 
which
 
implement
 
the
 
Basel
 
III
 
framework
 
set
 
forth
 
by
 
Basel
 
Committee
 
on
Banking Supervision (the “Basel Committee”) as
 
well as certain provisions of the Dodd-Frank
 
Act.
Among other
 
matters, the
 
Capital Rules:
 
(i) impose
 
a capital
 
measure called
 
“Common Equity
 
Tier
 
1” (“CET1”)
 
and the
related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1
capital” instruments meeting
 
certain revised requirements;
 
and (iii) mandate
 
that most deductions/adjustments to
 
regulatory capital
measures be made
 
to CET1
 
and not to
 
the other components
 
of capital.
 
Under the Capital
 
Rules, for most
 
banking organizations,
including
 
Popular,
 
the
 
most
 
common
 
form
 
of
 
Additional
 
Tier
 
1
 
capital
 
is
 
non-cumulative
 
perpetual preferred
 
stock
 
and
 
the
 
most
common form of Tier
 
2 capital is subordinated notes and
 
a portion of the
 
allocation for loan and lease losses,
 
in each case, subject
to the Capital Rules’ specific requirements.
Pursuant to the Capital Rules, the minimum
 
capital ratios are:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted
 
assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4% Tier 1 capital to average consolidated assets as reported
 
on consolidated financial statements (known
 
as the
“leverage ratio”).
The Capital Rules also impose
 
a “capital conservation buffer,”
 
composed entirely of CET1, on top
 
of these minimum risk-
weighted
 
asset
 
ratios. The
 
capital
 
conservation
 
buffer
 
is
 
designed
 
to
 
absorb
 
losses
 
during
 
periods
 
of
 
economic stress.
 
Banking
institutions
 
with
 
a
 
ratio
 
of
 
CET1
 
to
 
risk-weighted
 
assets
 
above
 
the
 
minimum
 
but
 
below
 
the
 
capital
 
conservation
 
buffer
 
will
 
face
constraints on
 
dividends, equity repurchases
 
and compensation based
 
on the
 
amount of
 
the shortfall and
 
eligible retained
 
income
(that is,
 
four quarter trailing
 
net income, net
 
of distributions
 
and tax
 
effects not
 
reflected in net
 
income). Thus, Popular,
 
BPPR and
PB are required to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of
 
(i)
CET1 to risk-weighted assets
 
of at least 7%,
 
(ii) Tier 1
 
capital to risk-weighted assets of
 
at least 8.5%, and
 
(iii) Total
 
capital to risk-
weighted assets of at least 10.5%.
In addition, under
 
prior risk-based capital rules,
 
the effects of
 
accumulated other comprehensive income
 
or loss (“AOCI”)
items included in stockholders’
 
equity (for example, marks-to-market of securities
 
held in the available
 
for sale portfolio) under
 
U.S.
GAAP were reversed
 
for the
 
purposes of determining
 
regulatory capital ratios.
 
Pursuant to the
 
Capital Rules, the
 
effects of certain
AOCI items
 
are not
 
excluded; however,
 
non-advanced approaches
 
banking organizations,
 
including Popular,
 
BPPR and
 
PB, may
make a one-time permanent election to continue to exclude these items. Popular,
 
BPPR and PB have made this election in order to
avoid significant
 
variations in
 
the level
 
of capital
 
depending upon
 
the impact
 
of interest
 
rate fluctuations
 
on the
 
fair value
 
of their
securities portfolios.
 
The
 
Capital
 
Rules
 
preclude certain
 
hybrid
 
securities, such
 
as
 
trust
 
preferred
 
securities, from
 
inclusion
 
in
 
bank
 
holding
companies’ Tier 1 capital. Trust preferred securities no
 
longer included in Popular’s Tier 1 capital may nonetheless be included as a
component of
 
Tier 2 capital.
 
Popular has
 
not issued
 
any trust
 
preferred securities since
 
May 19,
 
2010. As
 
of December
 
31, 2022,
Popular has
 
$193 million
 
of trust
 
preferred securities
 
outstanding which
 
no longer
 
qualify for
 
Tier
 
1 capital
 
treatment, but
 
instead
qualify for Tier 2 capital treatment.
The Capital
 
Rules also
 
provide for
 
a number
 
of deductions
 
from and
 
adjustments to
 
CET1.
 
Non-advanced approaches
banking organizations
 
are subject
 
to
 
rules that
 
provide for
 
simplified capital
 
requirements relating
 
to the
 
threshold deductions
 
for
certain
 
mortgage
 
servicing
 
assets,
 
deferred
 
tax
 
assets,
 
investments
 
in
 
the
 
capital
 
of
 
unconsolidated
 
financial
 
institutions
 
and
inclusion of minority interests in regulatory capital.
Failure
 
to
 
meet
 
capital
 
guidelines
 
could
 
subject
 
Popular
 
and
 
its
 
depository
 
institution
 
subsidiaries
 
to
 
a
 
variety
 
of
enforcement remedies, including the termination of deposit insurance by the FDIC
 
and to certain restrictions on our business. Refer
to “Prompt Corrective Action” below for further
 
discussion.
In
 
December 2017,
 
the Basel
 
Committee published
 
standards that
 
it
 
described as
 
the finalization
 
of the
 
Basel III
 
post-
crisis regulatory
 
reforms. Among other
 
things, these
 
standards revise
 
the Basel
 
Committee’s standardized approach
 
for credit
 
risk
(including
 
by
 
recalibrating
 
risk
 
weights
 
and
 
introducing
 
new
 
capital
 
requirements
 
for
 
certain
 
“unconditionally
 
cancellable
commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. The
16
Basel framework
 
contemplates that
 
these standards
 
will generally be
 
effective on
 
January 1,
 
2023, with
 
an aggregate
 
output floor
phasing in through January 1, 2028. The federal
 
bank regulators have not yet proposed rules implementing these standards. Under
the
 
current
 
U.S.
 
capital
 
rules,
 
operational
 
risk
 
capital
 
requirements
 
and
 
a
 
capital
 
floor
 
apply
 
only
 
to
 
advanced
 
approaches
institutions, and
 
not to Popular,
 
BPPR and
 
PB. The impact
 
of these standards
 
on us
 
will depend on
 
the manner
 
in which they
 
are
implemented by the federal bank regulators.
In
 
December
 
2018,
 
the
 
federal
 
banking
 
agencies
 
approved
 
a
 
final
 
rule
 
modifying
 
their
 
regulatory
 
capital
 
rules
 
and
providing an
 
option to
 
phase in
 
over a
 
period of
 
three years
 
the day-one
 
regulatory capital
 
effects of
 
the Current
 
Expected Credit
Loss (“CECL”) model
 
of ASU 2016-13.
 
The final
 
rule also revised
 
the agencies’
 
other rules to
 
reflect the update
 
to the
 
accounting
standards. Popular has availed itself
 
of the option to
 
phase in over a period
 
of three years the
 
day one effects on
 
regulatory capital
from the
 
adoption of
 
CECL. In
 
2020, federal
 
bank regulators
 
adopted a
 
rule that
 
allowed banking
 
organizations to
 
elect to
 
delay
temporarily
 
the
 
estimated
 
effects
 
of
 
adopting
 
CECL
 
on
 
regulatory
 
capital
 
until
 
January
 
2022
 
and
 
subsequently
 
to
 
phase
 
in
 
the
effects through January 2025. Under the rule, during 2020 and
 
2021, the adjustment to CET1 capital reflects the change in retained
earnings upon
 
adoption of CECL
 
at January
 
1, 2020, plus
 
25% of the
 
increase in
 
the allowance for
 
credit losses since
 
January 1,
2020.
Refer to the Consolidated Financial Statements in this Form 10-K., Note 21 and Table 9 of
 
Management’s Discussion and
Analysis for the capital ratios of Popular, BPPR and PB under Basel III. Refer
 
to the Consolidated Financial Statements in this Form
10-K Note 3 for more information regarding CECL.
 
Prompt Corrective Action
The
 
FDIA
 
requires,
 
among
 
other
 
things,
 
the
 
federal
 
banking
 
agencies
 
to
 
take
 
prompt
 
corrective
 
action
 
in
 
respect
 
of
insured
 
depository
 
institutions
 
that
 
do
 
not
 
meet
 
minimum
 
capital
 
requirements.
 
The
 
FDIA
 
establishes
 
five
 
capital
 
tiers:
 
“well
capitalized,”
 
“adequately
 
capitalized,”
 
“undercapitalized,”
 
“significantly
 
undercapitalized,”
 
and
 
“critically
 
undercapitalized”.
 
A
depository institution’s capital tier will depend upon how its
 
capital levels compare with various relevant capital
 
measures and certain
other factors.
An insured
 
depository institution will
 
be deemed
 
to be
 
(i) “well
 
capitalized” if
 
the institution
 
has a
 
total risk-based
 
capital
ratio of 10.0% or greater, a CET1 capital ratio of 6.5%
 
or greater, a Tier 1
 
risk-based capital ratio of 8.0% or greater, and a leverage
ratio of 5.0% or
 
greater, and is
 
not subject to any order
 
or written directive by
 
any such regulatory authority to
 
meet and maintain a
specific capital level for any capital
 
measure; (ii) “adequately capitalized” if the institution
 
has a total risk-based capital ratio
 
of 8.0%
or greater, a
 
CET1 capital ratio of 4.5%
 
or greater, a
 
Tier 1 risk-based capital
 
ratio of 6.0% or greater,
 
and a leverage ratio of
 
4.0%
or greater
 
and is
 
not “well
 
capitalized” (iii)
 
“undercapitalized” if
 
the institution
 
has a
 
total risk-based
 
capital ratio
 
that is
 
less than
8.0%, a CET1 capital
 
ratio less than 4.5%,
 
a Tier 1
 
risk-based capital ratio of
 
less than 6.0% or
 
a leverage ratio of
 
less than 4.0%;
(iv) “significantly
 
undercapitalized” if
 
the institution
 
has a
 
total risk-based
 
capital ratio
 
of less
 
than 6.0%,
 
a CET1
 
capital ratio
 
less
than 3%, a Tier
 
1 risk-based capital ratio of less than 4.0% or
 
a leverage ratio of less than 3.0%;
 
and (v) “critically undercapitalized”
if
 
the
 
institution’s
 
tangible
 
equity
 
is
 
equal
 
to
 
or
 
less
 
than
 
2.0%
 
of
 
average
 
quarterly
 
tangible
 
assets.
 
An
 
institution
 
may
 
be
downgraded to, or deemed
 
to be in, a
 
capital category that is
 
lower than indicated by
 
its capital ratios if
 
it is determined to
 
be in an
unsafe
 
or
 
unsound
 
condition
 
or
 
if
 
it
 
receives
 
an
 
unsatisfactory
 
examination
 
rating
 
with
 
respect
 
to
 
certain
 
matters.
 
An
 
insured
depository institution’s capital category is determined solely for the purpose of applying prompt corrective action
 
regulations, and the
capital category
 
may not
 
constitute an
 
accurate representation
 
of the
 
institution’s overall
 
financial condition
 
or prospects
 
for other
purposes.
The FDIC generally prohibits an insured depository institution from making any capital distribution (including payment of
 
a
dividend) or
 
paying any
 
management fee to
 
its holding
 
company, if
 
the depository
 
institution would thereafter
 
be undercapitalized.
Undercapitalized
 
depository
 
institutions
 
are
 
subject
 
to
 
restrictions
 
on
 
borrowing
 
from
 
the
 
Federal
 
Reserve
 
System.
 
In
 
addition,
undercapitalized
 
depository
 
institutions
 
are
 
subject
 
to
 
growth
 
limitations
 
and
 
are
 
required
 
to
 
submit
 
capital
 
restoration
 
plans.
 
A
depository institution’s
 
holding company must
 
guarantee the capital
 
restoration plan, up
 
to an
 
amount equal to
 
the lesser
 
of 5% of
the
 
depository
 
institution’s
 
assets
 
at
 
the
 
time
 
it
 
becomes
 
undercapitalized
 
or
 
the
 
amount
 
of
 
the
 
capital
 
deficiency,
 
when
 
the
institution fails to comply with the
 
plan. The federal banking agencies may
 
not accept a capital restoration plan without
 
determining,
among other things,
 
that the plan
 
is based
 
on realistic assumptions
 
and is
 
likely to succeed
 
in restoring the
 
depository institution’s
capital. If a depository institution fails to submit an
 
acceptable plan, it is treated as if it is
 
significantly undercapitalized.
Significantly
 
undercapitalized
 
depository
 
institutions
 
may
 
be
 
subject
 
to
 
a
 
number
 
of
 
requirements
 
and
 
restrictions,
17
including orders to
 
sell sufficient voting
 
stock to become
 
adequately capitalized, requirements to
 
reduce total assets
 
and cessation
of receipt
 
of deposits
 
from correspondent
 
banks. Critically
 
undercapitalized depository
 
institutions are
 
subject to
 
appointment of
 
a
receiver or conservator.
The capital-based prompt
 
corrective action provisions
 
of the FDIA
 
apply to
 
the FDIC-insured depository
 
institutions such
as
 
BPPR
 
and
 
PB,
 
but
 
they
 
are
 
not
 
directly
 
applicable
 
to
 
holding
 
companies
 
such
 
as
 
Popular
 
and
 
PNA,
 
which
 
control
 
such
institutions. As of December 31, 2022,
 
both BPPR and PB were well capitalized.
Restrictions on Dividends and Repurchases
The
 
principal
 
sources
 
of
 
funding
 
for
 
Popular
 
and
 
PNA
 
have
 
included
 
dividends
 
received
 
from
 
their
 
banking
 
and
 
non-
banking subsidiaries, asset sales
 
and proceeds from
 
the issuance of
 
debt and equity.
 
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 year
 
ended December 31, 2022, BPPR declared
 
cash dividends of $450 million,
 
a portion of which was
used by
 
Popular for
 
the payments
 
of the
 
cash dividends
 
on its
 
outstanding common
 
stock and
 
$231 million
 
in accelerated
 
stock
repurchases.
 
At
 
December
 
31,
 
2022,
 
BPPR
 
needed
 
to
 
obtain
 
prior
 
approval
 
of
 
the
 
Federal
 
Reserve
 
Board
 
before
 
declaring
 
a
dividend in excess of $53 million due to its declared
 
dividend activity and transfers to statutory reserves over the three year’s ended
December 31, 2022. 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.
It is Federal Reserve Board policy that bank holding companies generally should pay dividends on common
 
stock only out
of net
 
income available to
 
common shareholders
 
over the past
 
year and
 
only if
 
the prospective rate
 
of earnings retention
 
appears
consistent with the organization’s current and
 
expected future capital needs, asset quality
 
and overall financial condition. Moreover,
under Federal Reserve Board policy, a bank
 
holding company should not maintain dividend levels that place undue pressure on the
capital of depository
 
institution subsidiaries or that
 
may undermine the bank
 
holding company’s ability to
 
be a source
 
of strength to
its
 
banking subsidiaries.
 
Federal Reserve
 
policy
 
also
 
provides that
 
a
 
bank
 
holding company
 
should
 
inform
 
the
 
Federal
 
Reserve
reasonably in advance of declaring or paying a dividend that
 
exceeds earnings for the period for which the dividend is
 
being paid or
that could result in a material adverse change
 
to the bank holding company’s capital structure.
 
The
 
Federal Reserve
 
Board
 
also restricts
 
the
 
ability of
 
banking
 
organizations to
 
conduct stock
 
repurchases. In
 
certain
circumstances, a banking organization’s repurchases
 
of its common stock may
 
be subject to a
 
prior approval or notice
 
requirement
under other regulations or policies of the Federal Reserve. Any redemption or
 
repurchase of preferred stock or subordinated debt is
subject to the prior approval of the Federal Reserve.
Subject to compliance with certain conditions, distributions of U.S. sourced dividends to a corporation
 
organized under the
laws
 
of the
 
Commonwealth of
 
Puerto Rico
 
are subject
 
to
 
a withholding
 
tax
 
of 10%
 
instead of
 
the 30%
 
applied to
 
other “foreign”
corporations. Accordingly, dividends from current or accumulated earnings and profits paid
 
by PNA to Popular, Inc. sourced from the
U.S. operations of PB are subject to a 10%
 
tax withholding.
Refer to
 
Part II,
 
Item 5,
 
“Market for
 
Registrant’s Common
 
Equity,
 
Related Stockholder
 
Matters and
 
Issuer Purchases
 
of
Equity Securities” for further information on Popular’s
 
distribution of dividends and repurchases of equity
 
securities.
See
 
“Puerto
 
Rico
 
Regulation”
 
below
 
for
 
a
 
description
 
of
 
certain
 
restrictions
 
on
 
BPPR’s
 
ability
 
to
 
pay
 
dividends
 
under
Puerto Rico law.
Interstate Branching
The Dodd-Frank
 
Act amended
 
the Riegle-Neal
 
Interstate Banking
 
and Branching
 
Efficiency Act
 
of 1994
 
(the “Interstate
Banking
 
Act”)
 
to
 
authorize
 
national
 
banks
 
and
 
state
 
banks
 
to
 
branch
 
interstate
 
through
de
 
novo
 
branches. For
 
purposes
 
of
 
the
Interstate Banking Act, BPPR is treated as a state bank and is subject to the same restrictions on interstate branching as other state
banks.
18
Activities and Acquisitions
In general, the BHC Act limits the activities
 
permissible for bank holding companies to the business of banking, managing
or controlling banks and such other activities as the Federal Reserve Board has determined to be so closely related to banking as to
be
 
properly
 
incidental
 
thereto.
 
A
 
company
 
who
 
meets
 
management
 
and
 
capital
 
standards
 
and
 
whose
 
subsidiary
 
depository
institutions meet management,
 
capital and
 
Community Reinvestment Act
 
(“CRA”) standards may
 
elect to
 
be treated
 
as a
 
financial
holding company
 
and engage
 
in a
 
substantially broader
 
range of
 
nonbanking financial
 
activities, including
 
securities underwriting
and dealing, insurance underwriting and making merchant
 
banking investments in nonfinancial companies.
In order for a bank holding company to elect to be treated as a financial
 
holding company, (i) all of its depository institution
subsidiaries
 
must
 
be
 
well capitalized
 
(as described
 
above)
 
and
 
well managed
 
and
 
(ii)
 
it
 
must
 
file a
 
declaration with
 
the Federal
Reserve Board that it elects to be a “financial holding
 
company.” As noted above, a bank
 
holding company electing to be a financial
holding company must itself be and remain
 
well capitalized and well managed. The Federal Reserve Board’s
 
regulations applicable
to bank holding companies separately define
 
“well capitalized” for bank holding companies,
 
such as Popular,
 
to require maintaining
a tier 1 capital
 
ratio of at least
 
6% and a total capital
 
ratio of at least 10%.
 
Popular and PNA have elected
 
to be treated as
 
financial
holding
 
companies.
 
A
 
depository
 
institution
 
is
 
deemed
 
to
 
be
 
“well
 
managed”
 
if,
 
at
 
its
 
most
 
recent
 
inspection,
 
examination
 
or
subsequent review
 
by the
 
appropriate federal banking
 
agency (or
 
the appropriate state
 
banking agency), the
 
depository institution
received
 
at
 
least
 
a
 
“satisfactory”
 
composite
 
rating
 
and
 
at
 
least
 
a
 
“satisfactory”
 
rating
 
for
 
the
 
management
 
component
 
of
 
the
composite
 
rating.
 
If,
 
after
 
becoming
 
a
 
financial
 
holding
 
company,
 
the
 
company
 
fails
 
to
 
continue
 
to
 
meet
 
any
 
of
 
the
 
capital
 
or
management requirements
 
for financial
 
holding company
 
status, the
 
company
 
must
 
enter into
 
a confidential
 
agreement with
 
the
Federal
 
Reserve
 
Board
 
to
 
comply
 
with
 
all
 
applicable capital
 
and
 
management
 
requirements.
 
If
 
the
 
company
 
does
 
not
 
return
 
to
compliance
 
within
 
180
 
days,
 
the
 
Federal
 
Reserve
 
Board
 
may
 
extend
 
the
 
agreement
 
or
 
may
 
order
 
the
 
company
 
to
 
divest
 
its
subsidiary banks or the
 
company may discontinue, or
 
divest investments in companies
 
engaged in, activities permissible only
 
for a
bank holding company that has elected to be treated as a financial
 
holding company. In addition, if a depository institution subsidiary
controlled by a financial holding company does not
 
maintain a CRA rating of at least “satisfactory,” the financial holding company
 
will
be subject to restrictions on certain new activities
 
and acquisitions.
The Federal Reserve Board
 
may in certain circumstances limit
 
our ability to conduct
 
activities and make acquisitions that
would otherwise be permissible for
 
a financial holding company.
 
Furthermore, a financial holding company must obtain
 
prior written
approval from the Federal Reserve Board before acquiring a nonbank company with $10 billion or more in total consolidated assets.
In addition, we
 
are required to
 
obtain prior Federal
 
Reserve Board approval
 
before engaging in
 
certain banking and
 
other financial
activities both in the United States and abroad.
The “Volcker
 
Rule” adopted
 
as part
 
of the
 
Dodd-Frank Act
 
restricts the
 
ability of
 
Popular and
 
its subsidiaries,
 
including
BPPR and PB as
 
well as non-banking subsidiaries, to
 
sponsor or invest in
 
“covered funds,” including private funds,
 
or to engage in
certain types
 
of proprietary
 
trading. Popular
 
and its
 
subsidiaries generally
 
do not
 
engage in
 
the businesses
 
subject to
 
the Volcker
Rule; therefore, the Volcker Rule does not have a material effect on our
 
operations.
 
Anti-Money Laundering Initiative and the USA PATRIOT Act
A major focus of governmental policy relating to financial institutions in
 
recent years has been aimed at combating money
laundering and
 
terrorist financing.
 
The USA
 
PATRIOT
 
Act of
 
2001 (the
 
“USA PATRIOT
 
Act”) strengthened
 
the ability
 
of the
 
U.S.
government to help prevent, detect and prosecute international money
 
laundering and the financing of terrorism. Title
 
III of the USA
PATRIOT
 
Act imposed
 
significant compliance
 
and due
 
diligence obligations,
 
created new
 
crimes and
 
penalties and
 
expanded the
extra-territorial jurisdiction of the United States. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements
could have serious legal and reputational consequences
 
for the institution.
The
 
Anti-Money
 
Laundering
 
Act
 
of
 
2020
 
(“AMLA”),
 
which
 
amended
 
the
 
Bank
 
Secrecy
 
Act
 
(the
 
“BSA”),
 
is
 
intended
 
to
comprehensively
 
reform
 
and
 
modernize
 
U.S.
 
anti-money
 
laundering
 
laws.
 
Among
 
other
 
things,
 
the
 
AMLA
 
codifies
 
a
 
risk-based
approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to
 
promulgate
priorities
 
for
 
anti-money
 
laundering
 
and
 
countering
 
the
 
financing
 
of
 
terrorism
 
policy;
 
requires
 
the
 
development
 
of
 
standards
 
for
testing technology and
 
internal processes for BSA
 
compliance; expands enforcement-
 
and investigation-related authority,
 
including
a
 
significant
 
expansion
 
in
 
the
 
available
 
sanctions
 
for
 
certain
 
BSA
 
violations;
 
and
 
expands
 
BSA
 
whistleblower
 
incentives
 
and
protections. Many of
 
the statutory provisions
 
in the AMLA
 
will require additional
 
rulemakings, reports and
 
other measures, and
 
the
impact
 
of
 
the
 
AMLA
 
will
 
depend on,
 
among
 
other
 
things,
 
rulemaking and
 
implementation guidance.
 
In
 
June
 
2021,
 
the
 
Financial
19
Crimes Enforcement Network, a bureau of
 
the U.S. Department of the
 
Treasury,
 
issued the priorities for anti-money laundering
 
and
countering the
 
financing of
 
terrorism policy
 
required under AMLA.
 
The priorities
 
include: corruption, cybercrime,
 
terrorist financing,
fraud, transnational crime, drug trafficking, human trafficking and
 
proliferation financing.
Federal regulators
 
regularly examine BSA/Anti-Money
 
Laundering and sanctions
 
compliance to
 
enhance their
 
adequacy
and effectiveness, and the frequency and extent of such examinations
 
and related remedial actions have been
 
increasing.
Community Reinvestment Act
The
 
CRA
 
requires
 
banks
 
to
 
help
 
serve
 
the
 
credit
 
needs
 
of
 
their
 
communities,
 
including
 
extending
 
credit
 
to
 
low-
 
and
moderate-income individuals
 
and geographies.
 
Should
 
Popular
 
or our
 
bank
 
subsidiaries
 
fail
 
to
 
serve
 
adequately
 
the community,
potential penalties may include regulatory denials of applications to expand branches, relocate offices or branches, add subsidiaries
and affiliates, expand into
 
new financial activities and merge
 
with or purchase other financial
 
institutions. In May 2022, the
 
Office of
the Comptroller
 
of the
 
Currency (“OCC”),
 
the Federal
 
Reserve Board,
 
and the
 
FDIC jointly
 
issued a
 
proposed rule
 
to
 
modernize
federal banking
 
agencies’ CRA
 
regulations. The
 
proposed rule
 
would adjust
 
CRA evaluations
 
based on
 
bank size
 
and type,
 
with
many of the proposed changes applying only to banks
 
with over $2 billion in assets and several applying
 
only to banks with over $10
billion in assets,
 
such as Popular.
 
The effects on
 
Popular of any
 
potential change to the
 
CRA rules will
 
depend on the final
 
form of
any Federal Reserve rulemaking.
Interchange Fees Regulation
The Federal Reserve Board
 
has established standards for
 
debit card interchange fees
 
and prohibited network exclusivity
arrangements and routing restrictions. The
 
maximum permissible interchange fee that
 
an issuer may receive
 
for an electronic debit
transaction is
 
the sum
 
of
 
21 cents
 
per transaction
 
and 5
 
basis points
 
multiplied by
 
the value
 
of
 
the transaction.
 
Additionally,
 
the
Federal Reserve
 
Board allows
 
for an
 
upward adjustment
 
of
 
no more
 
than 1
 
cent
 
to
 
an issuer’s
 
debit card
 
interchange fee
 
if the
issuer develops and implements policies and procedures
 
reasonably designed to achieve certain fraud-prevention
 
standards.
Consumer Financial Protection Act of 2010
The Consumer
 
Financial Protection
 
Bureau (the
 
“CFPB”) supervises
 
“covered persons”
 
(broadly defined
 
to include
 
any
person offering or
 
providing a consumer financial
 
product or service and
 
any affiliated service
 
provider) for compliance with
 
federal
consumer financial laws. The CFPB
 
also has the broad power
 
to prescribe rules applicable to
 
a covered person or service
 
provider
identifying
 
as
 
unlawful,
 
unfair,
 
deceptive,
 
or
 
abusive
 
acts
 
or
 
practices
 
in
 
connection
 
with
 
any
 
transaction
 
with
 
a
 
consumer
 
for
 
a
consumer financial product or service, or the offering of
 
a consumer financial product or service. We are subject to examination and
regulation by the CFPB.
Office of Foreign Assets Control Regulation
The
 
U.S.
 
Treasury
 
Department
 
Office
 
of
 
Foreign
 
Assets
 
Control
 
(“OFAC”)
 
administers
 
economic
 
sanctions
 
that
 
affect
transactions
 
with
 
designated
 
foreign
 
countries,
 
nationals
 
and
 
others.
 
The
 
OFAC-administered
 
sanctions
 
targeting
 
countries
 
take
many
 
different
 
forms.
 
Generally,
 
however,
 
they
 
contain
 
one
 
or
 
more
 
of
 
the
 
following
 
elements:
 
(i)
 
restrictions
 
on
 
trade
 
with
 
or
investment in a sanctioned country; and (ii) a blocking
 
of assets in which the government of the
 
sanctioned country or other specially
designated nationals have an interest, by prohibiting
 
transfers of property subject to U.S. jurisdiction (including
 
property in the United
States or the possession or control of U.S.
 
persons outside of the United States). Blocked assets (e.g., property
 
and bank deposits)
cannot
 
be
 
paid
 
out,
 
withdrawn, set
 
off
 
or
 
transferred
 
in
 
any
 
manner without
 
a
 
license
 
from
 
OFAC.
 
Failure
 
to
 
comply
 
with these
sanctions could have serious legal and reputational
 
consequences.
Protection of Customer Personal Information and
 
Cybersecurity
The privacy
 
provisions of
 
the Gramm-Leach-Bliley Act
 
of 1999
 
generally prohibit financial
 
institutions, including
 
us, from
disclosing nonpublic personal financial information of consumer customers to
 
third parties for certain purposes (primarily marketing)
unless
 
customers
 
have
 
the
 
opportunity
 
to
 
opt
 
out
 
of
 
the
 
disclosure.
 
The
 
Fair
 
Credit
 
Reporting
 
Act
 
restricts
 
information
 
sharing
among affiliates for marketing purposes and governs
 
the use and provision of information to consumer
 
reporting agencies.
The federal
 
banking regulators have
 
also issued guidance
 
and proposed rules
 
regarding cybersecurity that
 
are intended
to
 
enhance cyber
 
risk management
 
standards among
 
financial institutions.
 
A
 
financial institution
 
is expected
 
to
 
establish lines
 
of
defense
 
and
 
to
 
maintain
 
risk
 
management
 
processes
 
that
 
are
 
designed
 
to
 
address
 
the
 
risk
 
posed
 
by
 
compromised
 
customer
credentials. A
 
financial institution’s
 
management is
 
expected to
 
maintain sufficient
 
business continuity
 
planning processes
 
for the
rapid
 
recovery,
 
resumption
 
and
 
maintenance
 
of
 
the
 
institution’s
 
operations
 
after
 
a
 
cyber-attack
 
involving
 
destructive
 
malware.
 
A
financial
 
institution
 
is
 
also
 
expected
 
to
 
develop
 
appropriate
 
processes
 
to
 
enable
 
recovery
 
of
 
data
 
and
 
business
 
operations
 
and
20
address rebuilding
 
network capabilities
 
and restoring
 
data if
 
the institution
 
or its
 
critical service
 
providers fall
 
victim to
 
this type
 
of
cyber-attack. If
 
we fail
 
to observe
 
the regulatory
 
guidance, we
 
could be
 
subject to
 
various regulatory
 
sanctions, including financial
penalties. In November 2021, the U.S. federal bank regulatory
 
agencies issued a final rule requiring banking
 
organizations, including
Popular,
 
PNA,
 
BPPR and
 
PB,
 
to
 
notify their
 
primary federal
 
banking regulator
 
within
 
36 hours
 
of
 
determining that
 
a “notification
incident”
 
has
 
occurred.
 
A
 
notification
 
incident
 
is
 
a
 
“computer-security
 
incident”
 
that
 
has
 
materially
 
disrupted
 
or
 
degraded,
 
or
 
is
reasonably likely
 
to materially
 
disrupt or
 
degrade, the
 
banking organization’s
 
ability to
 
deliver services
 
to
 
a material
 
portion of
 
its
customer base,
 
jeopardize the viability
 
of key
 
operations of the
 
banking organization, or
 
impact the stability
 
of the
 
financial sector.
The final rule also requires specific and immediate
 
notifications by bank service providers that
 
become aware of similar incidents.
State and foreign regulators
 
have also been increasingly active
 
in implementing privacy and cybersecurity
 
standards and
regulations. Several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and
providing detailed requirements with respect to these
 
programs, including data encryption requirements. In New York,
 
the NYSDFS
requires
 
financial
 
institutions
 
regulated
 
by
 
the
 
NYSDFS,
 
including
 
PB,
 
to,
 
among
 
other
 
things,
 
(i)
 
establish
 
and
 
maintain
 
a
cybersecurity program designed
 
to enhance the
 
confidentiality, integrity
 
and availability of
 
their information systems;
 
(ii) implement
and maintain a written
 
cyber security policy setting forth
 
policies and procedures for the
 
protection of their information systems
 
and
nonpublic information; and (iii) designate a Chief
 
Information Security Officer.
In
 
March
 
2022,
 
the
 
SEC
 
proposed
 
new
 
rules
 
that
 
would
 
require
 
registrants,
 
such
 
as
 
Popular,
 
to
 
(i)
 
report
 
material
cybersecurity incidents on
 
Form 8-K,
 
(ii) include updated
 
disclosure in Forms
 
10-K and
 
10-Q of
 
previously disclosed cybersecurity
incidents,
 
and
 
disclose
 
previously
 
undisclosed,
 
individually
 
immaterial
 
incidents
 
when
 
a
 
determination
 
is
 
made
 
that
 
they
 
have
become material on an aggregated basis, (iii) disclose cybersecurity policies and procedures and governance practices, including at
the board and management levels, in Form 10-K
 
and (iv) disclose the board of directors’
 
cybersecurity expertise.
Many states and foreign
 
governments have also recently implemented or
 
modified their data breach notification
 
and data
privacy
 
requirements. The
 
California Consumer
 
Privacy Act
 
(“CCPA”)
 
imposes privacy
 
compliance obligations
 
with regard
 
to
 
the
collection,
 
use
 
and
 
disclosure of
 
personal
 
information of
 
California residents,
 
and the
 
November 2020
 
amendment to
 
the
 
CCPA
creates the California Privacy Protection Agency, a watchdog privacy agency, and further expands the scope of businesses covered
by the law
 
and certain rights relating
 
to personal information. The
 
substantive obligations under the
 
2020 amendment to the
 
CCPA
became effective
 
on January
 
1, 2023.
 
In European
 
Union, the
 
General Data
 
Protection Regulation heightens
 
privacy compliance
obligations
 
and
 
imposes
 
strict
 
standards
 
for
 
reporting
 
data
 
breaches.
 
We
 
expect
 
this
 
trend
 
to
 
continue
 
and
 
are
 
continually
monitoring developments in the jurisdictions in which
 
we operate.
See
 
“Puerto
 
Rico
 
Regulation”
 
below
 
for
 
a
 
description
 
of
 
legislations
 
and
 
regulations
 
on
 
information
 
privacy
 
and
cybersecurity in Puerto Rico.
Climate-Related Financial Risks
 
State
 
and
 
federal
 
banking
 
regulators
 
have
 
become
 
increasingly
 
focused
 
on
 
matters
 
regarding climate
 
change
 
and
 
its
associated risks.
 
In 2021, the
 
OCC proposed principles to
 
provide for a framework
 
for the management of
 
climate-related risks for
financial institutions and in 2022, the FDIC, the Federal Reserve Board and the NYSDFS each proposed principles or guidance with
respect to
 
the management
 
of climate-related
 
risks for
 
financial institutions. Additionally,
 
in 2022,
 
the SEC
 
proposed rule
 
changes
that
 
would
 
require
 
registrants,
 
such
 
as
 
Popular,
 
to
 
disclose
 
information
 
about
 
climate-related
 
risks
 
and
 
certain
 
climate-related
financial statement metrics.
Incentive Compensation
The Federal Reserve Board reviews, as
 
part of its regular,
 
risk-focused examination process, the incentive compensation
arrangements of
 
banking organizations, such
 
as Popular,
 
that are
 
not “large,
 
complex banking
 
organizations.” Deficiencies will
 
be
incorporated into
 
the
 
organization’s supervisory
 
ratings, which
 
can
 
affect
 
the
 
organization’s ability
 
to
 
make
 
acquisitions and
 
take
other
 
actions. Enforcement
 
actions may
 
be taken
 
against
 
a
 
banking
 
organization if
 
its
 
incentive compensation
 
arrangements, or
related
 
risk-management
 
control
 
or
 
governance
 
processes,
 
pose
 
a
 
risk
 
to
 
the
 
organization’s
 
safety
 
and
 
soundness
 
and
 
the
organization is not taking prompt and effective measures
 
to correct the deficiencies.
The
 
Federal
 
Reserve
 
Board,
 
OCC
 
and
 
FDIC
 
have
 
issued
 
comprehensive
 
final
 
guidance
 
on
 
incentive
 
compensation
policies intended to discourage excessive risk-taking in
 
the incentive compensation policies of banking organizations
 
in order to not
21
undermine
 
the
 
safety
 
and
 
soundness
 
of
 
such
 
organizations.
 
The
 
guidance,
 
which
 
covers
 
all
 
employees
 
that
 
have
 
the
 
ability
 
to
materially affect
 
the risk
 
profile of an
 
organization, either individually
 
or as
 
part of
 
a group,
 
is based
 
upon the key
 
principles that a
banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond
the
 
organization’s
 
ability
 
to
 
effectively
 
identify
 
and
 
manage
 
risks,
 
(ii)
 
be
 
compatible
 
with
 
effective
 
internal
 
controls
 
and
 
risk
management, and (iii)
 
be supported by
 
strong corporate governance,
 
including active and
 
effective oversight
 
by the
 
organization’s
board of directors.
The Dodd-Frank Act requires the U.S. financial regulators, including the Federal Reserve Board, the other federal banking
agencies
 
and
 
the
 
SEC,
 
to
 
adopt
 
rules
 
prohibiting
 
incentive-based
 
payment
 
arrangements that
 
encourage
 
inappropriate
 
risks
 
by
providing excessive
 
compensation or
 
that could
 
lead to
 
a material
 
financial loss
 
at specified
 
regulated entities
 
having at
 
least $1
billion in total
 
assets (including Popular,
 
PNA, BPPR and
 
PB). The U.S.
 
financial regulators proposed revised
 
rules in 2016,
 
which
have not been finalized.
In October
 
2022, the SEC
 
adopted a final
 
rule requiring securities
 
exchanges to adopt
 
rules mandating, in
 
the case of
 
a
restatement, the
 
recovery or
 
“clawback” of
 
excess incentive-based
 
compensation paid
 
to current
 
or former
 
executive officers
 
and
requiring listed
 
issuers to
 
disclose any
 
recovery analysis where
 
recovery is
 
triggered by
 
a restatement.
 
The excess
 
compensation
would be based
 
on the amount
 
the executive officer
 
would have received
 
had the incentive-based
 
compensation been determined
using the
 
restated financials. The
 
final rule
 
requires the securities
 
exchanges to propose
 
conforming listing standards
 
by February
26,
 
2023
 
and
 
requires
 
the
 
standards
 
to
 
become
 
effective
 
no
 
later
 
than
 
November
 
28,
 
2023.
 
Each
 
listed
 
issuer,
 
which
 
includes
Popular as a
 
listed issuer on
 
the Nasdaq Stock
 
Market, would then
 
be required to
 
adopt a clawback
 
policy within 60
 
days after
 
its
exchange’s
 
listing standard
 
has
 
become
 
effective.
 
Popular
 
will
 
work
 
to
 
implement these
 
new
 
requirements
 
as
 
the
 
rule
 
becomes
effective.
Regulation of Broker-Dealers
Our subsidiary,
 
PS, is a
 
registered broker-dealer with the
 
SEC and subject to
 
regulation and examination by
 
the SEC as
well
 
as
 
FINRA
 
and
 
other
 
self-regulatory
 
organizations.
 
These
 
regulations
 
cover
 
a
 
broad
 
range
 
of
 
issues,
 
including
 
capital
requirements;
 
sales
 
and
 
trading
 
practices;
 
use
 
of
 
client
 
funds
 
and
 
securities;
 
the
 
conduct
 
of
 
directors,
 
officers
 
and
 
employees;
record-keeping and recording;
 
supervisory procedures to
 
prevent improper trading
 
on material
 
non-public information; qualification
and
 
licensing
 
of
 
sales
 
personnel;
 
and
 
limitations
 
on
 
the
 
extension
 
of
 
credit
 
in
 
securities
 
transactions.
 
In
 
addition
 
to
 
federal
registration, state securities
 
commissions require the
 
registration of certain
 
broker-dealers. PS is
 
registered with 35
 
U.S. state and
territory securities commissions.
Regulation of Reinsurers, Insurance Producers and
 
Agents
Popular’s subsidiaries that are engaged in
 
insurance agency and producer activities are
 
subject to regulatory supervision
by the Puerto
 
Rico Office of
 
the Commissioner of Insurance
 
and to insurance laws
 
and regulations requiring licensing
 
of insurance
producers and
 
agents. Popular’s
 
reinsurance subsidiaries
 
are subject
 
to
 
licensure and
 
regulatory supervision
 
by the
 
Puerto Rico
Office of the Commissioner of Insurance and
 
to insurance laws and regulations requiring, among
 
other things, minimum capital and
solvency standards, financial reporting, restrictions on
 
the amount of dividends payable, record
 
keeping and examinations.
Puerto Rico Regulation
As
 
a
 
commercial
 
bank
 
organized
 
under
 
the
 
laws
 
of
 
Puerto
 
Rico,
 
BPPR
 
is
 
subject
 
to
 
supervision,
 
examination
 
and
regulation by the Office of the Commissioner of Financial Institutions, pursuant to the Puerto Rico Banking Act of 1933, as amended
(the “Banking Law”).
Section 27
 
of the
 
Banking Law
 
requires that
 
at
 
least ten
 
percent (10%)
 
of the
 
yearly net
 
income of
 
BPPR be
 
credited
annually to a reserve
 
fund. The apportionment must be
 
done every year until the
 
reserve fund is equal to
 
the total of paid-in
 
capital
on common and preferred stock. During 2022, $76.9
 
million was transferred to the statutory reserve
 
account.
Section
 
27
 
of
 
the
 
Banking
 
Law
 
also
 
provides that
 
when
 
the
 
expenditures
 
of
 
a
 
bank
 
are
 
greater
 
than
 
its
 
receipts, the
excess of the
 
former over the latter
 
must be charged
 
against the undistributed profits
 
of the bank, and
 
the balance, if
 
any, must
 
be
charged against
 
the reserve
 
fund.
 
If the
 
reserve fund
 
is
 
not sufficient
 
to
 
cover such
 
balance in
 
whole or
 
in part,
 
the outstanding
22
amount must be charged against
 
the capital account and no
 
dividend may be declared until capital
 
has been restored to its
 
original
amount and the reserve fund to 20% of the original
 
capital.
Section 16 of the
 
Banking Law requires every
 
bank to maintain a
 
legal reserve that, except
 
as otherwise provided by
 
the
Office of
 
the Commissioner,
 
may not be
 
less than 20%
 
of its
 
demand liabilities, excluding
 
government deposits (federal,
 
state and
municipal) that
 
are secured
 
by collateral.
 
If a
 
bank is
 
authorized to
 
establish one
 
or more
 
bank branches
 
in a
 
state of
 
the United
States or in a foreign country, where such branches are subject to the reserve requirements of that state
 
or country, the Office of the
Commissioner
 
may
 
exempt
 
said
 
branch
 
or
 
branches
 
from
 
the
 
reserve
 
requirements
 
of
 
Section
 
16.
 
Pursuant
 
to
 
an
 
order
 
of
 
the
Federal
 
Reserve
 
Board
 
dated
 
November
 
24,
 
1982,
 
BPPR
 
has
 
been
 
exempted
 
from
 
the
 
reserve
 
requirements
 
of
 
the
 
Federal
Reserve
 
System
 
with
 
respect
 
to
 
deposits
 
payable
 
in
 
Puerto
 
Rico.
 
Accordingly,
 
BPPR
 
is
 
subject
 
to
 
the
 
reserve
 
requirement
prescribed by the Banking Law. During 2022, BPPR was in compliance
 
with the statutory reserve requirement.
Section 17 of the Banking Law permits a bank to make loans to
 
any one person, firm, partnership or corporation, up to an
aggregate amount of
 
fifteen percent (15%)
 
of the paid-in
 
capital and reserve fund
 
of the bank.
 
As of December
 
31, 2022, the
 
legal
lending limit
 
for BPPR
 
under this
 
provision was
 
approximately $334
 
million. In
 
the case
 
of loans
 
which are
 
secured by
 
collateral
worth at
 
least 25% more
 
than the amount
 
of the
 
loan, the
 
maximum aggregate amount
 
of such secured
 
loans is
 
increased to
 
one
third of
 
the paid-in capital
 
of the bank,
 
plus its reserve
 
fund. In no
 
event may the
 
total of unsecured
 
and secured loans
 
to any one
person, firm, partnership or corporation exceed an aggregate amount of 33 1/3% of the paid-in capital and reserve fund of the bank.
If the institution is well capitalized and had been rated
 
1 in the last examination performed by the Office
 
of the Commissioner or any
regulatory agency,
 
its legal
 
lending limit
 
shall also
 
include 15%
 
of 50%
 
of its
 
undivided profits
 
and for
 
loans secured
 
by collateral
worth at
 
least 25%
 
more than
 
the amount
 
of the
 
loan, the
 
capital of
 
the bank
 
shall also
 
include 33
 
1/3% of
 
50% of
 
its undivided
profits. Institutions rated 2
 
in their last
 
regulatory examination may include this
 
additional component in their
 
legal lending limit
 
only
with the previous authorization of the Office of the Commissioner. There are no restrictions under Section 17 on the amount of loans
that are wholly secured
 
by bonds, securities and
 
other evidence of indebtedness
 
of the Government of
 
the United States or
 
Puerto
Rico,
 
or
 
by
 
current
 
debt
 
bonds,
 
not
 
in
 
default,
 
of
 
municipalities
 
or
 
instrumentalities
 
of
 
Puerto
 
Rico.
 
During
 
2022,
 
BPPR
 
was
 
in
compliance with the lending limit requirements of Section
 
17 of the Banking Law.
Section
 
14
 
of
 
the
 
Banking Law
 
authorizes a
 
bank to
 
conduct certain
 
financial
 
and
 
related
 
activities directly
 
or
 
through
subsidiaries, including finance leasing of personal property and originating and servicing
 
mortgage loans. BPPR engages in finance
leasing through
 
its wholly-owned
 
subsidiary,
 
Popular Auto,
 
LLC, which
 
is organized
 
and operates
 
in Puerto
 
Rico. The
 
origination
and servicing of mortgage loans is conducted by
 
Popular Mortgage, a division of BPPR.
With
 
respect to
 
information privacy,
 
Puerto
 
Rico
 
law
 
requires businesses
 
to
 
implement information
 
security
 
controls to
protect
 
consumers’
 
personal
 
information
 
from
 
breaches,
 
as
 
well
 
as
 
to
 
provide
 
notice
 
of
 
any
 
breach
 
to
 
affected
 
customers.
 
In
addition, as
 
noted above
 
in “Regulation
 
of
 
Reinsurers, Insurance
 
Producers and
 
Agents”, Popular’s
 
reinsurance subsidiaries
 
are
subject to
 
licensure and regulatory
 
supervision by the
 
Puerto Rico Office
 
of the
 
Commissioner of Insurance
 
and to insurance
 
laws
and regulations.
Available Information
We maintain an
 
Internet website at www.popular.com.
 
Via the “Investor
 
Relations” link at our
 
website, our annual reports
on
 
Form 10-K,
 
quarterly reports
 
on
 
Form 10-Q,
 
current
 
reports on
 
Form 8-K
 
and amendments
 
to
 
such
 
reports filed
 
or furnished
pursuant to Section 13(a) or
 
15(d) of the Securities Exchange Act
 
of 1934, as amended (the
 
“Exchange Act”), are available, free
 
of
charge, as
 
soon as
 
reasonably practicable
 
after such
 
forms are
 
electronically filed
 
with, or
 
furnished to,
 
the SEC.
 
The SEC
 
also
maintains an
 
internet website at
 
http://www.sec.gov that
 
contains reports, proxy
 
and information statements,
 
and other information
regarding issuers that file electronically with the SEC.
 
You may obtain copies of our filings on the SEC site.
We have
 
adopted a
 
written code
 
of ethics
 
that applies
 
to all
 
directors, officers
 
and employees
 
of Popular,
 
including our
principal executive officer
 
and senior financial
 
officers, in accordance
 
with Section 406
 
of the Sarbanes-Oxley
 
Act of 2002
 
and the
rules
 
of
 
the
 
SEC
 
promulgated
 
thereunder.
 
Our
 
Code
 
of
 
Ethics
 
is
 
available
 
on
 
our
 
corporate
 
website,
 
www.popular.com,
 
in
 
the
section entitled “Corporate Governance.” In the event that we make changes to, or provide waivers from, the provisions of this Code
of Ethics that
 
the SEC requires
 
us to disclose,
 
we intend to
 
disclose these events
 
on our corporate
 
website in such
 
section. In the
Corporate Governance
 
section
 
of our
 
corporate
 
website,
 
we
 
have also
 
posted the
 
charters
 
for
 
our Audit
 
Committee, Talent
 
and
Compensation
 
Committee,
 
Risk
 
Management
 
Committee,
 
Corporate
 
Governance
 
and
 
Nominating
 
Committee
 
and
 
Technology
23
Committee, as well as our Corporate Governance Guidelines. In addition, information concerning
 
purchases and sales of our equity
securities by our executive officers and directors is
 
posted on our website.
All
 
website
 
addresses
 
given
 
in
 
this
 
document
 
are
 
for
 
information
 
only
 
and
 
are
 
not
 
intended
 
to
 
be
 
active
 
links
 
or
 
to
incorporate any website information into this Form
 
10-K.
ITEM 1A. RISK FACTORS
We, like
 
other financial institutions,
 
face risks
 
inherent to
 
our business,
 
financial condition, liquidity,
 
results of
 
operations
and
 
capital
 
position.
 
These
 
risks
 
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.
The risks described in
 
this report are not the
 
only risks we face. Additional
 
risks and uncertainties not currently
 
known by
us
 
or
 
that
 
we
 
currently
 
deem
 
to
 
be
 
immaterial,
 
or
 
that
 
are
 
generally
 
applicable
 
to
 
all
 
financial
 
institutions,
 
may
 
also
 
materially
adversely affect our business, financial condition, liquidity, results of operations or capital position.
ECONOMIC AND MARKET RISKS
Weakness in
 
the economy,
 
particularly in
 
Puerto Rico,
 
where a
 
significant portion
 
of our
 
business is
 
concentrated, has
adversely impacted us in the past and may adversely
 
impact us in the future.
We have been, and will continue to be, impacted by global and local
 
economic and market conditions, including weakness
in
 
the
 
economy,
 
disruptions
 
and
 
volatility
 
in
 
the
 
financial
 
markets,
 
inflation,
 
changing
 
monetary
 
and
 
fiscal
 
policies,
 
geopolitical
conflicts, consumer and changes
 
in business sentiment and
 
unemployment. A significant portion of
 
our business is concentrated in
Puerto Rico, which
 
accounted for approximately 79% of
 
our assets and 84%
 
of our deposits
 
as of December 31,
 
2022 and 82%
 
of
our
 
revenues
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022.
 
As
 
a
 
result,
 
our
 
financial
 
condition
 
and
 
results
 
of
 
operations
 
are
 
highly
dependent
 
on
 
the
 
general
 
trends
 
of
 
the
 
Puerto
 
Rico
 
economy
 
and
 
other
 
conditions
 
affecting
 
Puerto
 
Rico
 
consumers
 
and
businesses. The
 
concentration of
 
our operations
 
in Puerto
 
Rico exposes
 
us to
 
greater risks
 
than other
 
banking companies
 
with a
wider geographic base.
Puerto Rico
 
has faced significant
 
economic and fiscal
 
challenges in the
 
past, including a
 
severe recession that
 
began in
2007 and
 
persisted for
 
over a
 
decade and
 
an acute
 
fiscal crisis
 
that led
 
the Puerto
 
Rico government
 
to file
 
for a
 
form
 
of federal
bankruptcy protection
 
in 2017.
 
Puerto Rico’s
 
fiscal and
 
economic challenges
 
have in
 
the past
 
adversely affected
 
our customers,
resulting
 
in
 
higher
 
delinquencies,
 
charge-offs
 
and
 
increased
 
losses
 
for
 
us.
 
While
 
Puerto
 
Rico’s
 
economy
 
has
 
been
 
gradually
recovering
 
and
 
the
 
Puerto
 
Rico
 
government
 
has
 
recently
 
emerged from
 
bankruptcy,
 
Puerto
 
Rico
 
still
 
faces
 
economic
 
and
 
fiscal
challenges and could face additional economic or fiscal challenges in the
 
future, including as a result of weakness or volatility in
 
the
global economy
 
and financial
 
markets. A
 
weakening of
 
the Puerto
 
Rico economy
 
or other
 
adverse economic
 
conditions affecting
Puerto Rico
 
consumers and
 
businesses could
 
result in
 
decreased demand
 
for our
 
products or
 
services, deterioration
 
in the
 
credit
quality
 
of
 
our
 
customers,
 
higher delinquencies,
 
charge-offs
 
or
 
increased losses,
 
all
 
of
 
which
 
could adversely
 
affect
 
our
 
financial
condition and results of operations.
We are also exposed to risks related to the state of the local economies of the other markets in which we do business, such as New
York
 
and Florida,
 
and to
 
the state
 
of the
 
global and
 
U.S. economy
 
and financial
 
markets. Global
 
financial markets
 
have recently
experienced periods of
 
extraordinary disruption and volatility,
 
exacerbated by the
 
COVID-19 pandemic, the war
 
in Ukraine, supply-
chain disruptions, high levels of, and rapid increases in, inflation,
 
and increasing and high interest rates. Inflationary pressures have
increased certain
 
of our
 
expenses (including
 
our personnel
 
expenses) and
 
adversely affected
 
consumer sentiment.
 
Central bank
responses to inflationary pressures have led to
 
higher market interest rates and, in turn,
 
lower activity levels across U.S. and global
financial markets. These circumstances have resulted in, and could continue to
 
result in, reductions in the value of
 
our investments.
If
 
these
 
conditions
 
persist
 
or
 
worsen,
 
our
 
results
 
of
 
operations, financial
 
position
 
and
 
liquidity could
 
be
 
materially
 
and
 
adversely
affected.
Changes
 
in
 
interest
 
rates
 
and
 
credit
 
spreads
 
can
 
adversely
 
impact
 
our
 
financial
 
condition,
 
including
 
our
 
investment
portfolio,
 
since
 
a
 
significant
 
portion
 
of
 
our
 
business involves
 
borrowing
 
and
 
lending
 
money,
 
and
 
investing in
 
financial
instruments.
Our business
 
and financial
 
performance are
 
impacted by
 
market interest
 
rates and
 
movements in
 
those rates.
 
Since a
high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes
in interest rates, in the shape of the yield curve or in spreads between different types of rates, have had and could in the future have
24
a material impact on our results
 
of operations and the values of our
 
assets and liabilities, including our investment portfolio.
 
Interest
rates are
 
highly sensitive
 
to many
 
factors over
 
which we
 
have no
 
control and
 
which we
 
may not
 
be able
 
to anticipate
 
adequately,
including general
 
economic conditions
 
and the
 
monetary and
 
tax policies
 
of various
 
governmental bodies,
 
particularly the
 
Federal
Reserve Board.
Increasing levels of inflation, driven
 
by pent-up demand and supply-chain disruptions caused
 
by the COVID-19 pandemic
and the war in Ukraine, led the Federal Reserve Board to execute a series of sharp benchmark interest rate increases over the past
year.
 
While the
 
pace at
 
which inflation
 
is increasing
 
has slowed
 
down in
 
recent months,
 
following a
 
mid-2022 peak,
 
the Federal
Reserve Board has signaled
 
that it may increase
 
interest rates further to
 
continue to control and
 
bring down inflation. If
 
the interest
rates we
 
pay on
 
our deposits and
 
other borrowings increase
 
at a
 
faster rate than
 
the interest rates
 
we receive on
 
loans and
 
other
investments, our net interest income, and, therefore, our earnings, could be adversely affected. Higher interest rates could also lead
to fewer originations of commercial and residential real
 
estate loans, loss of deposits, a misalignment in the
 
pricing of short-term and
long-term
 
borrowings,
 
less
 
liquidity
 
in
 
the
 
financial
 
markets
 
and
 
higher
 
funding
 
costs.
 
Furthermore,
 
higher
 
interest
 
rates
 
could
negatively affect
 
the payment
 
performance on
 
loans linked
 
to variable
 
interest rates
 
to the
 
extent borrowers
 
are unable
 
to afford
higher
 
interest
 
payments, which
 
could
 
result
 
in
 
higher
 
delinquencies. Additionally,
 
inflationary
 
pressure arising
 
from
 
increases in
interest rates may also affect borrowers’ financial condition and their ability to pay their debts when due. All of these outcomes could
adversely affect our earnings, liquidity and capital levels.
The
 
rapid
 
rise
 
in
 
interest
 
rates
 
in
 
2022
 
resulted
 
in
 
approximately
 
$2.5
 
billion
 
in
 
unrealized
 
mark-to-market
 
losses
 
on
available-for-sale securities held in our investment securities portfolio. In October 2022, we transferred U.S. Treasury securities with
a fair value of approximately $6.5 billion (par value of
 
$7.4 billion), and with accumulated unrealized losses of $873 million, from our
available-for-sale portfolio to our held-to-maturity portfolio to reduce the
 
impact of further increases in interest rates on
 
accumulated
other comprehensive
 
income and
 
tangible capital.
 
However,
 
if interest
 
rates continue
 
to rise
 
rapidly or
 
for a
 
prolonged period,
 
we
may accumulate significant additional mark-to-market losses
 
on other investment securities in
 
our available-for-sale portfolio, which
may adversely affect our tangible capital and impact our
 
ability to return capital to our stockholders.
We are
 
also subject
 
to risks
 
related to
 
the transition
 
away from
 
the London
 
Interbank Offered
 
Rate (“LIBOR”)
 
upon the
cessation in
 
the publication
 
of the
 
remaining principal
 
tenors of
 
U.S. dollar
 
LIBOR, which
 
is scheduled
 
for June
 
30, 2023. These
risks were significantly reduced following the enactment by the U.S.
 
Congress of the Adjustable Interest Rate (LIBOR) Act in the first
quarter
 
of
 
2022,
 
which
 
provides
 
a
 
framework
 
for
 
replacing
 
LIBOR
 
with
 
new
 
benchmark
 
rates
 
based
 
on
 
the
 
Secured
 
Overnight
Financing Rate (“SOFR”)
 
in loans that
 
do not have
 
effective alternate interest
 
rate provisions. However,
 
there is no
 
assurance that
the new SOFR-based benchmarks will be similar to,
 
or produce the economic equivalent of, LIBOR, and the
 
transition to these new
benchmark rates could result in operational, systems or
 
other practical challenges, litigation or
 
other adverse consequences.
For a discussion of the Corporation’s
 
interest rate sensitivity, please refer
 
to the “Risk Management” section of the MD&A
in this Form 10-K.
Fiscal challenges facing the U.S. government could negatively impact financial markets, which in turn could have
an adverse effect on our financial position or
 
results of operations.
In
 
January
 
2023,
 
the
 
outstanding
 
debt
 
of
 
the
 
U.S.
 
reached
 
its
 
statutory
 
limit
 
and
 
the
 
U.S.
 
Treasury
 
Department
commenced taking
 
extraordinary measures
 
to
 
prevent the
 
U.S. from
 
defaulting on
 
its obligations.
 
If Congress
 
does not
 
raise the
debt
 
ceiling,
 
the
 
U.S.
 
could
 
default
 
on
 
its
 
obligations,
 
including
 
U.S.
 
Treasury
 
securities,
 
which
 
play
 
an
 
integral
 
role
 
in
 
financial
markets. Many
 
of the
 
investment securities
 
held in
 
our portfolio
 
are issued
 
by the
 
U.S. government
 
and government
 
agencies. A
U.S.
 
government
 
debt
 
default,
 
threatened
 
debt
 
default
 
or
 
downgrade
 
of
 
the
 
sovereign
 
credit
 
ratings
 
of
 
the
 
U.S.
 
by
 
credit
 
rating
agencies
 
could
 
have
 
a
 
significant
 
adverse
 
impact
 
on
 
market
 
volatility
 
and
 
illiquidity,
 
lead
 
to
 
further
 
increases
 
in
 
interest
 
rates,
heighten
 
operational
 
risks
 
relating
 
to
 
the
 
clearance
 
and
 
settlement
 
of
 
transactions,
 
and
 
result
 
in
 
a
 
significant
 
deterioration
 
in
economic conditions in
 
the U.S. and
 
worldwide. Even if
 
the U.S. does
 
not default, continued
 
uncertainty relating to
 
the debt ceiling
could
 
result in
 
downgrades of
 
the U.S.
 
credit
 
rating, which
 
could adversely
 
affect
 
market conditions,
 
lead
 
to
 
further increases
 
in
interest rates
 
and borrowing
 
costs or
 
necessitate significant
 
operational changes
 
among market
 
participants if
 
the liquidity
 
or fair
value of U.S. Treasury and/or agency securities decreases. Further, the fair value, liquidity and credit ratings of securities issued by,
or other obligations of, agencies of the U.S.
 
government as well as municipal bonds could be
 
similarly adversely affected.
BUSINESS RISKS
Negative
 
changes
 
in
 
the
 
financial
 
condition
 
of
 
our
 
clients
 
have
 
adversely
 
impacted
 
us
 
in
 
the
 
past
 
and
 
may
 
adversely
impact us in the future.
25
 
A significant portion of
 
our business involves lending money,
 
which exposes us to
 
credit risk and
 
risk of loss if
 
borrowers
do
 
not
 
repay
 
their
 
loans,
 
leases, credit
 
cards
 
or
 
other
 
credit
 
obligations.
 
The
 
performance of
 
these
 
credit
 
portfolios
 
significantly
affects our
 
financial condition
 
and results
 
of operations.
 
We have
 
in the
 
past been
 
adversely affected
 
by negative
 
changes in
 
the
financial condition of our clients due to weakness in
 
the Puerto Rico and U.S. economy. If the current economic environment were to
deteriorate, more customers may have difficulty in repaying their credit obligations, which may result in higher levels
 
of credit losses
and reserves for credit losses.
We are exposed to
 
increased credit risks and credit losses
 
to the extent our clients are
 
concentrated by industry segment
or type of client.
Our credit risk and credit
 
losses can increase to the extent
 
our loans are concentrated in borrowers engaged in
 
the same
or similar
 
activities or
 
in borrowers
 
who as
 
a group
 
may be
 
uniquely or
 
disproportionately affected
 
by certain
 
economic or
 
market
conditions. We have significant
 
exposure to borrowers in certain
 
economic sectors, such as residential
 
and commercial real estate,
hospitality and healthcare. Challenging economic or market conditions that affect
 
the industries or types of clients to
 
which we have
significant exposure could result in higher credit
 
losses and adversely affect our financial condition
 
and results of operations.
We also
 
have direct
 
lending and
 
investment exposure
 
to Puerto
 
Rico government
 
entities, which
 
have faced
 
significant
fiscal challenges.
 
At December
 
31, 2022,
 
our exposure
 
to the
 
Puerto Rico
 
government consisted
 
of $374
 
million in
 
direct lending
exposure to Puerto
 
Rico municipalities and
 
$251 million in
 
loans insured or
 
securities issued by
 
Puerto Rico governmental
 
entities
but for
 
which the
 
principal source
 
of repayment
 
is non-governmental.
 
We also
 
have indirect
 
lending exposure
 
to the
 
Puerto Rico
government in the
 
form of loans
 
to private borrowers
 
who are service
 
providers, lessors, suppliers
 
or have other
 
relationships with
the Puerto Rico government. While the overall fiscal situation
 
of the Puerto Rico government has improved in recent years,
 
including
as
 
result
 
of
 
the
 
government
 
and
 
certain
 
of
 
its
 
instrumentalities
 
having
 
restructured
 
their
 
debt
 
obligations,
 
some
 
Puerto
 
Rico
government entities, including certain municipalities, still face significant
 
fiscal challenges. A deterioration in the fiscal situation of
 
the
Puerto Rico
 
government and its
 
instrumentalities, and in
 
particular in the
 
fiscal situation
 
of the
 
Puerto Rico
 
municipalities to
 
which
we have direct lending exposure, could result in
 
higher credit losses and reserves for credit losses. For
 
a discussion of risks related
to the Corporation’s credit exposure to the Puerto Rico
 
and USVI governments, see the Geographic and
 
Government Risk section in
the MD&A section of this Form 10-K.
Deterioration in the
 
values of real
 
properties securing our commercial, mortgage
 
loan and construction portfolios
 
have in
the past resulted, and may in the future result,
 
in increased credit losses and harm our results
 
of operations.
As of
 
December 31,
 
2022, approximately
 
56% of
 
our loan
 
portfolio consisted
 
of loans
 
secured by
 
real estate
 
collateral
(comprised of 29% in commercial loans, 25% in residential
 
mortgage loans and 2% in construction loans).
 
The value of the collateral
securing such loans is dependent upon economic conditions in the area in which the collateral is located. Weakness in the economy
of some of the
 
markets we serve has in
 
the past resulted in significant
 
declines in the value of
 
the real properties securing our loan
portfolio, leading to increased credit losses. If the value of
 
the real estate properties securing our loan portfolio declines again in the
future, we may be
 
required to increase our
 
provisions for loan losses
 
and allowance for loan
 
losses. Any such increase could
 
have
an adverse effect on
 
our financial condition and results of
 
operations. For more information on the credit
 
quality of our construction,
commercial and mortgage portfolio, see the Credit Risk
 
section of the MD&A included in this Form
 
10-K.
We
 
are
 
exposed
 
to
 
credit
 
risk
 
from
 
mortgage
 
loans
 
that
 
have
 
been
 
sold
 
or
 
are
 
being
 
serviced
 
subject
 
to
 
recourse
arrangements.
Popular
 
is
 
generally
 
at
 
risk
 
for
 
mortgage
 
loan
 
defaults
 
from
 
the
 
time
 
it
 
funds
 
a
 
loan
 
until
 
the
 
time
 
the
 
loan
 
is
 
sold
 
or
securitized into a
 
mortgage
-
backed security.
 
However, we
 
have retained part
 
of the credit
 
risk on sales
 
of mortgage loans
 
through
recourse
 
arrangements,
 
and
 
we
 
also
 
service
 
certain
 
mortgage
 
loan
 
portfolios
 
with
 
recourse.
 
At
 
December
 
31,
 
2022,
 
we
 
were
exposed to credit risk with respect to $0.6 billion in residential mortgage loans sold
 
or serviced subject to credit recourse provisions,
consisting principally of loans associated with the Fannie Mae and
 
Freddie Mac programs. Pursuant to such recourse provisions,
 
we
are required to repurchase the loan or reimburse the third-party investor for the incurred loss in the event of a customer default. The
maximum potential amount of future payments that
 
we would be required to make
 
under the recourse arrangements in the
 
event of
nonperformance
 
by
 
the
 
borrowers
 
is
 
equivalent
 
to
 
the
 
total
 
outstanding balance
 
of
 
the
 
residential mortgage
 
loans
 
serviced
 
with
recourse
 
and
 
interest,
 
if
 
applicable. In
 
the
 
event of
 
nonperformance by
 
the
 
borrower,
 
we
 
have rights
 
to
 
the underlying
 
collateral
securing the
 
mortgage loan.
 
During 2022,
 
we repurchased
 
approximately $7
 
million in
 
mortgage loans
 
subject to
 
credit recourse
provisions. As
 
of December
 
31, 2022,
 
our liability
 
established
 
to cover
 
the estimated
 
credit loss
 
exposure related
 
to loans
 
sold or
serviced with credit recourse amounted
 
to $7 million. We may suffer losses on these loans if the proceeds from a foreclosure sale of
26
the property underlying
 
a defaulted mortgage
 
loan are less
 
than the outstanding
 
principal balance of
 
the loan plus
 
any uncollected
interest advanced and the costs of holding and disposing of
 
the related property.
Defective and repurchased
loans may harm our business and financial
 
condition.
In
 
connection
 
with
 
the
 
sale
 
and
 
securitization
 
of
 
mortgage
 
loans,
 
we
 
are
 
required
 
to
 
make
 
a
 
variety
 
of
 
customary
representations
 
and
 
warranties regarding
 
Popular
 
and
 
the
 
loans being
 
sold
 
or securitized.
 
Our
 
obligations with
 
respect to
 
these
representations and warranties are generally outstanding for the life
 
of the loan, and they relate
 
to, among other things, compliance
with
 
laws
 
and
 
regulations,
 
underwriting
 
standards,
 
the
 
accuracy
 
of
 
information
 
in
 
the
 
loan
 
documents
 
and
 
loan
 
file
 
and
 
the
characteristics
 
and
 
enforceability of
 
the
 
loan.
 
A
 
loan
 
that
 
does
 
not
 
comply
 
with
 
the
 
secondary
 
market’s
 
requirements
 
may
 
take
longer to
 
sell, impact
 
our ability
 
to securitize
 
the loans
 
or pledge
 
the loans
 
as collateral
 
for borrowings,
 
or be
 
unsalable or
 
salable
only
 
at
 
a
 
significant
 
discount.
 
Moreover,
 
if
 
any
 
such
 
loan
 
is
 
sold
 
before
 
we
 
detect
 
non-compliance,
 
we
 
may
 
be
 
obligated
 
to
repurchase the loan and bear any associated loss directly,
 
or we may be obligated to indemnify the purchaser against any loss.
 
We
seek to
 
minimize repurchases and
 
losses from defective
 
loans by correcting
 
flaws, if possible,
 
and selling or
 
re-selling such loans.
However,
 
if
 
we
 
were
 
to
 
suffer
 
significant
 
losses
 
from
 
defective
 
and
 
repurchased
 
loans,
 
our
 
results
 
of
 
operations
 
and
 
financial
condition could be materially impacted.
If we are
 
unable to maintain
 
or grow our
 
deposits, we may
 
be subject to
 
paying higher funding costs
 
and our net
 
interest
income may decrease.
 
We must maintain adequate liquidity and funding sources
 
to support our operations, comply with our financial
 
obligations,
finance our transformation initiative, fund
 
planned capital distributions and meet
 
regulatory requirements. We rely
 
primarily on bank
deposits
 
as
 
a
 
low cost
 
and stable
 
source
 
of
 
funding
 
for
 
our
 
lending activities
 
and
 
the
 
operation of
 
our
 
business.
 
Therefore,
 
our
funding costs
 
are largely
 
dependent on
 
our ability
 
to maintain
 
and grow
 
our deposits.
 
As our
 
competitors have
 
raised the
 
interest
rates they pay on deposits, our
 
funding costs have increased, as we have
 
needed to increase the rates we pay
 
to our depositors to
avoid losing
 
deposits. We
 
may also
 
need to
 
rely on
 
more expensive
 
sources of
 
funding if
 
deposits decrease. Rising
 
interest rates
have
 
also
 
led
 
customers
 
to
 
move
 
their
 
funds
 
to
 
alternative
 
investments
 
that
 
pay
 
higher
 
interest
 
rates.
 
Furthermore,
 
we
 
have
 
a
significant
 
amount
 
of
 
deposits
 
from
 
the
 
Puerto
 
Rico
 
government,
 
its
 
instrumentalities
 
and
 
municipalities
 
($15.2
 
billion,
 
or
approximately 25% of our
 
total deposits, as of
 
December 31, 2022), and
 
the amount of these
 
deposits may fluctuate depending on
the financial
 
condition and
 
liquidity of
 
these entities,
 
as well
 
as
 
on our
 
ability to
 
maintain these
 
customer relationships.
 
If we
 
are
unable to
 
maintain or
 
grow our
 
deposits for
 
any
 
reason, we
 
may be
 
subject to
 
paying higher
 
funding costs
 
and
 
our
 
net interest
income may decrease.
OPERATIONAL RISKS
We
 
and our
 
third-party providers
 
have been,
 
and expect
 
in the
 
future to
 
continue to
 
be, subject
 
to cyber
 
attacks, which
could cause substantial harm and have an adverse
 
effect on our business and results of operations.
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 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
 
are 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, the
 
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
27
employees,
 
to
 
access
 
networks,
 
websites
 
and
 
online
 
resources.
 
Computer
 
intrusion
 
attempts
 
either
 
direct
 
or
 
through
 
social
engineering, supply chain compromise, 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 are
 
the target of
 
phishing, smishing and vishing
 
attacks 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
 
customers
 
being
 
deceived
 
into
 
revealing
 
their
 
sensitive
 
information
 
to
 
threat
 
actors.
 
There
 
can
 
be
 
no
assurances 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 which
 
resulted in certain of our
customers
 
log-in
 
credentials
 
and
 
information
 
being
 
exposed.
 
As
 
a
 
result,
 
Popular
 
notified,
 
as
 
required
 
or
 
otherwise
 
deemed
appropriate, customers
 
identified as
 
affected by
 
the incident.
 
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
 
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. 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 material compromise or circumvention of the security of our systems could
 
have serious negative consequences for us,
including
 
significant
 
disruption
 
of
 
our
 
operations
 
and
 
those
 
of
 
our
 
clients,
 
customers
 
and
 
counterparties,
 
misappropriation
 
of
confidential information
 
of us
 
or that
 
of our
 
clients, customers,
 
counterparties or
 
employees, or
 
damage to
 
computers or
 
systems
used
 
by
 
us
 
or
 
by
 
our
 
clients,
 
customers
 
and
 
counterparties,
 
and
 
could
 
result
 
in
 
violations
 
of
 
applicable
 
privacy
 
and
 
other
 
laws,
financial loss
 
to us
 
or to
 
our customers,
 
loss of
 
confidence in
 
our security
 
measures, customer
 
dissatisfaction, significant litigation
exposure and harm to
 
our reputation, all of
 
which could have a
 
material adverse effect
 
on us. For example,
 
if personal, non-public,
confidential
 
or
 
proprietary
 
information
 
in
 
our
 
possession
 
were
 
to
 
be
 
mishandled,
 
misused
 
or
 
stolen,
 
we
 
could
 
suffer
 
significant
regulatory consequences, reputational damage
 
and financial loss.
 
Such mishandling, misuse
 
or misappropriation could include,
 
for
example, if such information
 
were provided to parties
 
who are not permitted
 
to have the
 
information, either by fault
 
of our systems,
by our employees
 
or counterparties, or
 
where such information
 
is intercepted or
 
otherwise inappropriately taken by
 
our employees
or third parties.
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.
 
Moreover, potential
 
new regulations may
 
require us to
disclose information about
 
a cybersecurity event before
 
it has been
 
resolved or fully
 
investigated. 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. Cyber attacks could cause interruptions in our operations and result in the
incurrence
 
of
 
significant
 
costs,
 
including those
 
related
 
to
 
forensic analysis
 
and
 
legal counsel,
 
each of
 
which may
 
be
 
required to
ascertain the extent
 
of any potential
 
harm to our
 
customers, or employees, or
 
damage to our information
 
systems and any
 
legal or
regulatory obligations that
 
may result therefrom.
 
Any cyber incidents
 
could also result
 
in, among other
 
things, increased regulatory
scrutiny
 
and adverse
 
regulatory or
 
civil
 
litigation consequences.
 
For a
 
discussion of
 
the guidance
 
and rules
 
that federal
 
banking
regulators
 
have
 
released
 
or
 
proposed
 
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,
 
2022. Any
 
or
 
all
 
of
 
the
foregoing factors could further increase the impact
 
of the incident and thereby the costs and consequences
 
of a cyber attack.
 
We also
 
rely on
 
third parties
 
for the
 
performance of
 
a significant
 
portion of
 
our information
 
technology functions and
 
the
28
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. Cyber
attacks at third-party service
 
providers are also becoming
 
increasingly common, and, as
 
a result, cybersecurity risks
 
relating to our
vendors have
 
increased. The most
 
important of
 
these third-party service
 
providers for us
 
is Evertec, and
 
certain risks
 
particular to
Evertec are
 
discussed under
 
“Operational Risks
 
— We
 
are subject
 
to additional
 
risks relating
 
to the
 
Evertec Business
 
Acquisition
Transaction”. 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
 
directly
 
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.
 
For
 
a
 
discussion of
 
the
 
risks
 
related
 
to
 
our
dependence
 
on
 
third
 
parties,
 
including
 
Evertec,
 
see
 
“We
 
rely
 
on
 
other
 
companies
 
to
 
provide
 
key
 
components
 
of
 
our
 
business
infrastructure, including 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” in the Operational Risks section of Item
1A in this Form 10-K.
As
 
cyber
 
threats
 
continue
 
to
 
evolve,
 
we
 
expect
 
to
 
expend
 
significant
 
additional
 
resources
 
to
 
continue
 
to
 
modify
 
or
enhance our
 
layers of
 
defense or
 
to investigate
 
and remediate
 
additional information
 
security vulnerabilities
 
or incidents.
 
System
enhancements and
 
updates 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,
 
including
“zero-day
 
vulnerabilities”,
 
as
 
well
 
as
 
the
 
obsolescence
 
in
 
some
 
of
 
our
 
hardware
 
and
 
software,
 
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, have other significant
 
shortcomings
or are impacted by cyber attacks, Popular could be
 
materially and adversely affected.
Unforeseen or
 
catastrophic events,
 
including
 
extreme weather
 
events and
 
other natural
 
disasters, man-made
 
disasters,
acts of violence or
 
war, or the
 
emergence of pandemics or epidemics, could
 
cause a disruption in our
 
operations or other
consequences that could have a material adverse
 
effect on our financial condition and results
 
of operations.
A
 
significant
 
portion
 
of
 
our
 
operations
 
are
 
located
 
in
 
the
 
Caribbean
 
and
 
Florida,
 
a
 
region
 
susceptible
 
to
 
hurricanes,
earthquakes and other
 
similar events. In
 
2017, Puerto Rico,
 
USVI and BVI
 
were severely impacted
 
by Hurricanes Irma
 
and María,
which resulted in significant disruption to our operations and adversely affected
 
our clients in these markets, and in 2022, Hurricane
Fiona impacted the
 
southwest area of
 
Puerto Rico,
 
adversely affecting our
 
customers in
 
that region. Other
 
types of
 
unforeseen or
catastrophic events, including
 
pandemics, epidemics, man-made
 
disasters, or acts
 
of violence or
 
war, or
 
the fear that
 
such events
could
 
occur,
 
could
 
also
 
adversely
 
impact
 
our
 
operations
 
and
 
financial
 
results.
 
For
 
example,
 
in
 
2020,
 
the
 
COVID-19
 
pandemic
severely
 
impacted
 
global
 
health,
 
financial
 
markets,
 
consumer
 
spending
 
and
 
global
 
economic
 
conditions,
 
and
 
caused
 
significant
disruption
 
to
 
businesses worldwide,
 
including
 
our
 
business
 
and
 
those
 
of
 
our
 
customers, service
 
providers
 
and
 
suppliers.
 
Future
unforeseen
 
or
 
catastrophic
 
events,
 
including
 
the
 
appearance
 
of
 
new
 
strains
 
of
 
the
 
COVID-19
 
virus,
 
and
 
actions
 
taken
 
by
governmental
 
authorities and
 
other
 
third
 
parties in
 
response to
 
such
 
events,
 
could
 
again
 
adversely affect
 
our
 
operations, cause
economic
 
and
 
market disruption,
 
adversely
 
impact the
 
ability
 
of
 
borrowers to
 
timely
 
repay their
 
loans,
 
or
 
affect
 
the value
 
of
 
any
29
collateral held by us, any of
 
which could have a material adverse effect
 
on our business, financial condition or results
 
of operations.
The frequency,
 
severity and
 
impact of
 
future unforeseen
 
or catastrophic
 
events is
 
difficult to
 
predict. While
 
we maintain
 
insurance
against
 
natural
 
disasters
 
and
 
other
 
unforeseen
 
events,
 
including
 
coverage
 
for
 
business
 
interruption,
 
the
 
insurance
 
may
 
not
 
be
sufficient to cover all
 
of the damage from any such
 
event, and there is no insurance
 
against the disruption that a catastrophic event
could produce to the markets that we serve and
 
the potential negative impact to economic
 
activity.
Climate change could have a material adverse
 
impact on our business operations and that
 
of our clients and customers.
Our business and
 
the activities and
 
operations of our
 
clients and customers
 
may be disrupted
 
by global climate
 
change.
Potential physical risks
 
from climate change
 
include the increase
 
in the
 
frequency and severity
 
of weather
 
events, such as
 
storms
and
 
hurricanes,
 
and
 
long-term
 
shifts
 
in
 
climate
 
patterns, such
 
as
 
sustained
 
higher
 
and
 
lower
 
temperatures,
 
sea
 
level
 
rise,
 
heat
waves and
 
droughts, among
 
others. Additionally,
 
the impact
 
of climate
 
change in
 
the markets
 
that we
 
operate and
 
in other
 
global
markets may
 
have the
 
effect of
 
increasing the
 
costs or
 
reducing the
 
availability of
 
insurance needed
 
for our
 
business operations.
Climate change may also create transitional risks resulting from a shift to a low-carbon economy.
 
These transition risks may include
changes in the legal and regulatory landscape, technology, consumer sentiment and preferences, and market demands that seek to
mitigate the
 
effects
 
of climate
 
change. Changes
 
in the
 
legal
 
and regulatory
 
landscape may
 
additionally increase
 
our compliance
costs.
 
These
 
climate
 
driven
 
changes
 
could
 
have
 
a
 
material
 
adverse
 
impact
 
on
 
asset
 
values
 
and
 
on
 
our
 
business
 
and
 
financial
performance and those of our clients and customers.
We
 
rely
 
on
 
other
 
companies
 
to
 
provide
 
key
 
components
 
of
 
our
 
business
 
infrastructure,
 
including
 
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.
Third parties provide key components of our business operations, such
 
as data processing, information security, recording
and monitoring transactions,
 
online banking interfaces and
 
services, Internet connections and
 
network access. The most
 
important
of these third-party
 
service providers for
 
us is Evertec.
 
Although the Evertec
 
Business Acquisition 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
 
are still dependent
 
on Evertec for
 
the provision of
 
essential
services
 
to
 
our
 
business,
 
including
 
certain
 
of
 
our
 
core
 
financial
 
transaction
 
processing
 
and
 
information
 
technology
 
and
 
security
services. As
 
a
 
result, 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. Over the course of
 
our relationship with Evertec, we have experienced
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
 
have
 
in
 
certain
 
cases
 
led
 
to
 
exposure
 
of
 
BPPR
 
customer
information.
 
For
 
a
 
discussion
 
of
 
the
 
Evertec
 
Business
 
Acquisition
 
Transaction,
 
please
 
refer
 
to
 
the
 
Year
 
2022
 
Significant Events
section of the MD&A.
 
 
While we
 
select third-party vendors
 
carefully and
 
have increased our
 
oversight of these
 
relationships, we do
 
not control
the
 
actions
 
of
 
our
 
vendors.
 
Any
 
problems
 
caused
 
by
 
these
 
vendors,
 
including
 
those
 
resulting
 
from
 
disruptions
 
in
 
the
 
services
provided, vulnerabilities in or breaches
 
of the vendor’s systems, failure of
 
the vendor to handle
 
current or higher volumes,
 
failure of
the vendor
 
to provide services
 
for any
 
reason or
 
poor performance of
 
services, or
 
failure of
 
the vendor to
 
notify us of
 
a reportable
event in a timely manner,
 
could adversely affect our ability to deliver products and services to
 
our customers and otherwise conduct
our
 
business,
 
result in
 
potential liability
 
to
 
clients
 
and customers,
 
result in
 
the
 
imposition of
 
fines,
 
penalties or
 
judgments by
 
our
regulators or
 
harm to
 
our reputation,
 
any of
 
which could
 
materially and
 
adversely affect
 
us. The
 
inability of
 
our third-party
 
service
providers to timely address
 
evolving cybersecurity threats may further
 
exacerbate these risks. Financial or
 
operational difficulties of
a third-party vendor could also
 
hurt our operations if those
 
difficulties interfere with the vendor’s ability to
 
serve us. Replacing these
third-party vendors, when possible, could also create significant
 
delay and expense. Accordingly,
 
the use of third parties
 
creates an
unavoidable inherent risk to our business operations.
30
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
 
one
 
or more
 
new
vendors
 
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 Amended and Restated
 
Master Services Agreement (the “MSA”) and related
 
agreements or (ii) earlier
upon the
 
termination of any
 
service for
 
convenience under the
 
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 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 MSA, delaying and
lengthening any transition process away from Evertec
 
while increasing related costs.
 
Under the
 
MSA, we
 
are able
 
to terminate
 
services for
 
convenience with
 
180 days’
 
prior notice.
 
We expect
 
to exercise
during the
 
term of
 
the MSA
 
the right
 
to terminate
 
certain services
 
for convenience
 
and to
 
transition such
 
services to
 
other service
providers prior to the expiration
 
of the MSA, subject to
 
complying with the revenue minimums contemplated in
 
the 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 MSA, and such process may extend beyond the current
 
term of the MSA.
Furthermore, if
 
we
 
are
 
unsuccessful or
 
decide 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.
We are subject to additional risks relating to the
 
Evertec Business Acquisition Transaction.
There are numerous additional risks and uncertainties
 
associated with the Evertec Business Acquisition
 
Transaction, including:
 
unforeseen events may materially diminish the expected
 
benefits of the Evertec Business Acquisition Transaction;
 
 
we have devoted, and will continue 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;
 
we may be
 
unable to retain the
 
employees and third-party contractors hired or
 
engaged by us in connection
 
with the Evertec
Business Acquisition
Transaction and who are
 
necessary to operate and integrate the
 
assets acquired as part of
 
the Evertec
Business Acquisition
Transaction (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 Business Acquisition
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
 
application programming interfaces (“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;
 
 
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; and
 
 
Evertec’s strategy and investments after the
 
closing of the Evertec Business
 
Acquisition
Transaction may be refocused away
from Popular towards other strategic initiatives.
Any of the foregoing risks and uncertainties could have a
 
material adverse effect on our earnings, cash flows, financial
 
condition,
and/or stock price.
31
LEGAL AND REGULATORY RISKS
Our
 
businesses
 
are
 
highly
 
regulated,
 
and
 
the
 
laws
 
and
 
regulations
 
that
 
apply
 
to
 
us
 
have
 
a
 
significant
 
impact
 
on
 
our
business and operations.
We are
 
subject to
 
extensive regulation
 
under U.S.
 
federal, state
 
and Puerto
 
Rico laws
 
that govern
 
almost all
 
aspects of
our operations and limit the businesses
 
in which we may be
 
engaged, including regulation, supervision and examination by federal,
state and foreign banking
 
authorities. These laws and regulations
 
have expanded significantly over an
 
extended period of time
 
and
are primarily intended
 
for the protection
 
of consumers, borrowers and
 
depositors. Compliance with
 
these laws and
 
regulations has
resulted, and will continue to result, in significant
 
costs.
Additional
 
laws
 
and
 
regulations
 
may
 
be
 
enacted
 
or
 
adopted
 
in
 
the
 
future
 
that
 
could
 
significantly
 
affect
 
our
 
powers,
authority
 
and
 
operations and
 
which could
 
have a
 
material adverse
 
effect
 
on
 
our
 
financial condition
 
and
 
results
 
of
 
operations. In
particular,
 
we
 
could
 
be
 
adversely
 
impacted
 
by
 
changes
 
in
 
laws
 
and
 
regulations,
 
or
 
changes
 
in
 
the
 
application,
 
interpretation
 
or
enforcement of
 
laws and
 
regulations, that proscribe
 
or institute more
 
stringent restrictions on
 
certain financial
 
services activities or
impose new
 
requirements relating to
 
the impact of
 
business activities on
 
ESG concerns, the
 
management of
 
risks associated with
those
 
concerns
 
and
 
the
 
offering of
 
products
 
intended to
 
achieve ESG-related
 
objectives. If
 
we
 
do not
 
appropriately comply
 
with
current or
 
future laws
 
or regulations,
 
we may
 
be subject
 
to fines,
 
penalties or
 
judgements, or to
 
material regulatory restrictions
 
on
our business, which could also materially and adversely
 
affect our financial condition and results of operations.
Our participation
 
(or lack
 
of participation)
 
in certain
 
governmental programs,
 
such as
 
the Paycheck
 
Protection Program
(“PPP”) enacted
 
in response
 
to the
 
COVID-19 pandemic,
 
also exposes
 
us to
 
increased legal
 
and regulatory
 
risks. We
 
have also
been and could continue to
 
be exposed to adverse
 
action for the violation of
 
applicable legal requirements or the improper
 
conduct
of our employees in connection with such loans. For example, on January 24, 2023, Popular Bank consented to the imposition of an
order from
 
the Federal
 
Reserve Board
 
requiring it
 
to
 
pay a
 
$2.3 million
 
civil money
 
penalty to
 
settle certain
 
findings arising
 
from
Popular Bank’s approval of six (6) Payment Protection Program loans. We may also have credit risk with respect to PPP loans if the
SBA determines that
 
there have been
 
deficiencies in the
 
way a PPP
 
loan was originated,
 
funded, or serviced
 
by us and
 
denies its
liability under the guaranty,
 
reduces the amount of the
 
guaranty or, if
 
it has already paid
 
under the guaranty,
 
seeks recovery of any
loss related to the deficiency.
We
 
are from
 
time to
 
time subject
 
to information
 
requests, investigations
 
and other
 
regulatory enforcement
 
proceedings
from departments
 
of the
 
U.S. and
 
Puerto Rico
 
governments, including
 
those that
 
investigate compliance
 
with consumer
protection
 
laws
 
and
 
regulations, which
 
may
 
expose
 
us
 
to
 
significant penalties
 
and
 
collateral consequences,
 
and
 
could
result in higher compliance costs or restrictions
 
on our operations.
We from time-to-time self-report
 
compliance matters to, or receive
 
requests for information from, departments of
 
the U.S.
and Puerto
 
Rico governments,
 
including with
 
respect to
 
compliance with
 
consumer protection
 
laws and
 
regulations. For
 
example,
BPPR has
 
in the
 
past received
 
subpoenas and
 
other requests
 
for information
 
from the
 
departments of
 
the U.S.
 
government that
investigate
 
mortgage-related conduct,
 
mainly
 
concerning
 
real
 
estate
 
appraisals
 
and
 
residential
 
and
 
construction
 
loans
 
in
 
Puerto
Rico. BPPR
 
has also
 
self-identified and
 
reported to
 
applicable regulators compliance
 
matters related
 
to mortgage,
 
credit reporting
and other consumer lending practices.
 
Incidents of this nature and investigations or examinations by governmental authorities have resulted in the past, and may
in the
 
future result, in
 
judgments, settlements, fines,
 
enforcement actions, penalties
 
or other sanctions
 
adverse to the
 
Corporation,
which could materially and adversely affect the
 
Corporation’s business, financial condition or results of operations, or cause
 
serious
reputational
 
harm.
 
In
 
connection with
 
the
 
resolution
 
of
 
regulatory proceedings,
 
enforcement authorities
 
may
 
seek
 
admissions of
wrongdoing
 
and,
 
in
 
some
 
cases,
 
criminal
 
pleas,
 
which
 
could
 
lead
 
to
 
increased
 
exposure
 
to
 
private
 
litigation,
 
loss
 
of
 
clients
 
or
customers,
 
and
 
restrictions
 
on
 
offering
 
certain
 
products
 
or
 
services.
 
In
 
addition,
 
responding
 
to
 
information-gathering
 
requests,
investigations and
 
other regulatory
 
proceedings, regardless
 
of the
 
ultimate
 
outcome of
 
the matter,
 
could be
 
time-consuming and
expensive. Further, regulators in the performance of their supervisory and enforcement duties, have significant discretion and power
to
 
prevent
 
or
 
remedy
 
what
 
they
 
deem
 
to
 
be
 
unsafe
 
and
 
unsound
 
practices
 
or
 
violations
 
of
 
laws
 
by
 
banks
 
and
 
bank
 
holding
companies. The exercise of this regulatory discretion
 
and power could have a negative impact
 
on Popular.
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.
32
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
 
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, together
with our
 
third-party oversight
 
of such
 
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.
 
We
 
are
 
subject
 
to
 
regulatory
 
capital
 
adequacy
 
requirements,
 
and
 
if
 
we
 
fail
 
to
 
meet
 
these
 
requirements
 
our
business and financial condition will be adversely
 
affected.
Under regulatory capital adequacy requirements, and other
 
regulatory requirements, Popular and our banking subsidiaries
must
 
meet
 
requirements
 
that
 
include
 
quantitative
 
measures
 
of
 
assets,
 
liabilities
 
and
 
certain
 
off-balance
 
sheet
 
items,
 
subject
 
to
qualitative
 
judgments
 
by
 
regulators
 
regarding
 
components,
 
risk
 
weightings
 
and
 
other
 
factors.
 
If
 
we
 
fail
 
to
 
meet
 
these
 
minimum
capital
 
requirements
 
and
 
other
 
regulatory
 
requirements,
 
our
 
business
 
and
 
financial
 
condition
 
will
 
be
 
materially
 
and
 
adversely
affected. If
 
a financial
 
holding company
 
fails to
 
maintain well-capitalized
 
status under
 
the regulatory
 
framework, or
 
is deemed
 
not
well managed
 
under regulatory
 
exam procedures, or
 
if it
 
experiences certain
 
regulatory violations, its
 
status as
 
a financial
 
holding
company and its
 
related eligibility for
 
a streamlined review
 
process for acquisition
 
proposals, and its
 
ability to offer
 
certain financial
products, may be
 
compromised and its
 
financial condition and
 
results of operations
 
could be adversely
 
affected. The failure
 
of any
depository
 
institution
 
subsidiary
 
of
 
a
 
financial
 
holding
 
company
 
to
 
maintain
 
well-capitalized
 
or
 
well-managed
 
status
 
could
 
have
similar consequences.
 
In addition,
 
the Basel
 
Committee on
 
Banking Supervision
 
published a
 
set of
 
standards to
 
finalize Basel
 
III in
 
December
2017. These standards significantly revise the Basel capital framework, which could heighten regulatory capital standards if adopted
in the U.S. The federal bank regulators
 
have not yet proposed rules to implement these
 
revisions,
and the impact on us will depend
33
on the way
 
the revisions are implemented
 
in the U.S.
 
See the “Supervision and
 
Regulation – Capital Adequacy”
 
discussion in Item
1. Business of this Form 10-K for additional information
 
related to the Basel III Capital Rules and
 
Basel III finalization.
Increases in FDIC insurance premiums may
 
have a material adverse effect on our earnings.
Substantially all the deposits of BPPR and PB are subject to insurance up to applicable limits by the FDIC’s DIF and, as a
result, BPPR and PB are subject to FDIC deposit insurance assessments.
 
On October 18, 2022, the FDIC finalized a rule that would
increase initial
 
base deposit insurance
 
assessment rates by
 
2 basis
 
points, beginning with
 
the first
 
quarterly assessment period
 
of
2023.
 
We
 
are
 
generally
 
unable to
 
control the
 
amount
 
of
 
premiums that
 
we
 
are
 
required to
 
pay
 
for
 
FDIC
 
insurance. If
 
there
 
are
additional bank or financial institution failures, our level of non-performing assets increases, or our risk profile changes or our capital
position is
 
impaired, we
 
may be
 
required to
 
pay even
 
higher FDIC
 
premiums. Any
 
future increases
 
or special
 
assessments may
materially adversely
 
affect our
 
results of
 
operations. See
 
the “Supervision
 
and Regulation—FDIC Insurance”
 
discussion in
 
Item 1.
Business of this Form
 
10-K for additional information related to
 
the FDIC’s deposit insurance
 
assessments applicable to BPPR and
PB.
 
The
 
resolution
 
of
 
pending
 
litigation
 
and
 
regulatory
 
proceedings,
 
if
 
unfavorable,
 
could
 
have
 
material
 
adverse
 
financial
effects or cause significant reputational harm to
 
us, which, in turn, could seriously harm
 
our business prospects.
We
 
face
 
legal
 
risks
 
in
 
our
 
businesses,
 
and
 
the
 
volume
 
of
 
claims
 
and
 
amount
 
of
 
damages
 
and
 
penalties
 
claimed
 
in
litigation
 
and
 
regulatory
 
proceedings against
 
financial
 
institutions
 
remains
 
high.
 
Substantial
 
legal
 
liability
 
or
 
significant
 
regulatory
action
 
against
 
us
 
could
 
have
 
material adverse
 
financial
 
effects
 
or cause
 
significant
 
reputational harm
 
to
 
us,
 
which
 
in
 
turn
 
could
seriously
 
harm
 
our
 
business
 
prospects.
 
For
 
further
 
information
 
relating
 
to
 
our
 
legal
 
risk,
 
see
 
Note
 
24
 
-
 
“Commitments
 
&
Contingencies”, to the Consolidated Financial Statements in this Form 10-K.
LIQUIDITY RISKS
We are
 
subject to risks
 
related to our
 
own credit rating
 
and capital levels.
 
Actions by the
 
rating agencies or
 
decreases in
our capital
 
levels may
 
have adverse effects
 
on our
 
business, including by
 
raising the cost
 
of our
 
obligations or affecting
our ability to borrow.
Actions by the rating agencies
 
could raise the cost of
 
our borrowings, since lower rated securities
 
are usually required by
the market
 
to pay
 
higher rates
 
than obligations
 
of higher
 
credit quality.
 
Our credit
 
ratings were
 
reduced substantially in
 
2009 and,
although one of
 
the three major rating
 
agencies upgraded our senior
 
unsecured rating back to
 
“investment grade” during 2021,
 
the
remaining two rating agencies have not
 
upgraded their current “non-investment grade” rating. The
 
market for non-investment grade
securities is much smaller and less liquid than for investment grade securities. If we were to attempt to issue preferred stock or
 
debt
securities into the capital markets, it
 
is possible that there would not
 
be sufficient demand to complete
 
a transaction or that the
 
cost
could be substantially higher than for more highly
 
rated securities.
In
 
addition,
 
changes
 
in
 
our
 
ratings
 
and
 
capital
 
levels
 
could
 
affect
 
our
 
relationships
 
with
 
some
 
creditors
 
and
 
business
counterparties. For example, having
 
negative tangible capital may
 
impact our ability to
 
access some sources of
 
wholesale funding.
The Federal Housing Finance Agency
 
restricts the Federal Home
 
Loan Bank of New
 
York
 
(“FHLBNY”) from lending to members
 
of
the FHLBNY with negative
 
tangible capital unless the
 
member’s primary banking regulator makes a
 
written request to the
 
FHLBNY
to
 
maintain access
 
to
 
borrowings. Both
 
BPPR
 
and PB
 
have secured
 
borrowing facilities
 
with the
 
FHLBNY,
 
and
 
had
 
outstanding
exposures of $1.9
 
billion and $1.4 million
 
respectively as of December 31,
 
2022. Losing access to
 
the FHLBNY borrowing facilities
could adversely impact
 
liquidity at the
 
banking subsidiaries. Additionally,
 
if BPPR or
 
PB cease to
 
be well-capitalized, the
 
FDIA and
regulations
 
adopted thereunder
 
would
 
restrict
 
their
 
ability to
 
accept
 
brokered
 
deposits
 
and
 
limits
 
the
 
rate
 
of
 
interest
 
payable
 
on
deposits.
 
 
Our banking
 
subsidiaries also have
 
recourse obligations under
 
certain agreements with
 
third parties, including
servicing and
 
custodial agreements,
 
that include
 
ratings covenants.
 
Upon failure
 
to
 
maintain the
 
required credit
 
ratings, the
 
third
parties could
 
have the
 
right to
 
require us
 
to
 
engage a
 
substitute fund
 
custodian and
 
increase collateral
 
levels securing
 
recourse
obligations. Collateral pledged by
 
us to secure
 
recourse obligations approximated $29
 
million at December
 
31, 2022. Management
expects
 
that
 
we
 
would
 
be
 
able
 
to
 
meet
 
any
 
additional
 
collateral
 
requirements
 
if
 
and
 
when
 
needed.
 
The
 
requirements
 
to
 
post
collateral under
 
certain agreements
 
or the
 
loss of
 
custodian funds,
 
however,
 
could reduce
 
our liquidity
 
resources and
 
impact our
results of operations. The termination of those agreements or the
 
inability to realize servicing income for our businesses could have
an
 
adverse
 
effect
 
on
 
those
 
businesses.
 
Other
 
counterparties
 
are
 
also
 
sensitive
 
to
 
the
 
risk
 
of
 
a
 
ratings
 
downgrade
 
and
 
the
implications
 
for
 
our
 
businesses,
 
and
 
may
 
be
 
less
 
likely
 
to
 
engage
 
in
 
transactions
 
with
 
us,
 
or
 
may
 
only
 
engage
 
in
 
them
 
at
 
a
substantially higher cost, if our ratings remain below
 
investment grade.
34
As a holding company, we depend on dividends and distributions from
 
our subsidiaries for liquidity.
As a bank holding company,
 
we depend primarily on dividends from
 
our banking and other operating subsidiaries
 
to fund
our cash needs, including to capitalize our subsidiaries. Our banking subsidiaries, BPPR and PB, are limited by law in their ability to
make dividend
 
payments and other
 
distributions to
 
us based
 
on their earnings,
 
dividend history,
 
and capital
 
position. Based
 
on its
current financial condition,
 
PB may
 
not declare or
 
pay a
 
dividend without the
 
prior approval of
 
the Federal Reserve
 
Board and
 
the
NYSDFS. A
 
failure by
 
our banking subsidiaries
 
to generate
 
sufficient income
 
and free
 
cash flow to
 
make dividend
 
payments to
 
us
may
 
affect
 
our
 
ability to
 
fund
 
our cash
 
needs, which
 
could have
 
a negative
 
impact on
 
our financial
 
condition, liquidity,
 
results
 
of
operation or capital position. Such failure could also affect
 
our ability to pay dividends to our stockholders and to
 
repurchase shares
of our common stock. We have in the past suspended dividend payments
 
on our common stock and preferred stock during times of
economic uncertainty,
 
and there
 
can be
 
no assurance
 
that we
 
will be
 
able to
 
continue to
 
declare dividends to
 
our stockholders
 
in
any future periods.
 
An
 
impact
 
on
 
the
 
tangible
 
capital
 
levels
 
of
 
our
 
operating
 
subsidiaries,
 
could
 
also
 
limit
 
the
 
amount
 
of
 
capital
 
we
 
may
upstream to the holding company.
 
Tangible
 
capital levels have, and may continue to
 
be, adversely affected by the impact
 
of rapidly
rising interest rates on investment securities in our available-for-sale portfolio. For a discussion
 
of risks related to changes in interest
rates,
 
see
 
“Changes
 
in
 
interest
 
rates
 
and
 
credit
 
spreads
 
can
 
adversely
 
impact
 
our
 
financial
 
condition,
 
including
 
our
 
investment
portfolio, since a significant portion of our
 
business involves borrowing and lending money,
 
and investing in financial instruments”
 
in
Item 1A of this Form 10-K.
We also depend
 
on dividends from our
 
banking and other operating subsidiaries
 
to pay debt service
 
on outstanding debt
and to
 
repay maturing
 
debt. We
 
have $300
 
million of
 
notes that
 
mature on
 
September 14,
 
2023. If
 
we were
 
unable to
 
refinance
these
 
notes, we
 
could
 
have to
 
declare extraordinary
 
dividends from
 
our
 
banking
 
and
 
other
 
operating subsidiaries
 
to
 
repay such
notes. Our ability to
 
declare such dividends would be
 
subject to regulatory requirements and
 
could require the prior
 
approval of the
Federal Reserve Board.
STRATEGIC RISKS
Potential acquisitions of businesses or
 
loan portfolios could increase some
 
of the risks that
 
we face, and may
 
be delayed
or prohibited due to regulatory constraints.
To
 
the extent
 
permitted by
 
our applicable
 
regulators, we
 
may pursue
 
strategic acquisition
 
opportunities. Acquiring
 
other
businesses, however, involves various risks,
 
including potential exposure to unknown or contingent liabilities of the
 
target company,
exposure
 
to
 
potential
 
asset
 
quality
 
issues
 
of
 
the
 
target
 
company,
 
potential
 
disruption
 
to
 
our
 
business,
 
the
 
possible
 
loss
 
of
 
key
employees and customers of
 
the target company,
 
and difficulty in
 
estimating the value of
 
the target company.
 
If we pay
 
a premium
over book or
 
market value in
 
connection with an
 
acquisition, some dilution of
 
our tangible book
 
value and net
 
income per common
share
 
may
 
occur
 
in
 
connection with
 
any
 
future
 
transaction. Furthermore,
 
failure
 
to
 
realize the
 
expected
 
revenue increases,
 
cost
savings, increases in geographic or product presence, or other projected benefits from an acquisition could have a material adverse
effect on our business, financial condition and results of
 
operations.
Similarly,
 
acquiring
 
loan
 
portfolios
 
involves
 
various
 
risks.
 
When
 
acquiring
 
loan
 
portfolios,
 
management
 
makes
assumptions and
 
judgments about
 
the collectability
 
of the
 
loans, including
 
the creditworthiness
 
of borrowers
 
and the
 
value of
 
the
real
 
estate and
 
other assets
 
serving
 
as collateral
 
for the
 
repayment of
 
secured loans.
 
In
 
estimating the
 
extent of
 
the losses,
 
we
analyze
 
the
 
loan
 
portfolio
 
based
 
on
 
historical
 
loss
 
experience,
 
volume
 
and
 
classification
 
of
 
loans,
 
volume
 
and
 
trends
 
in
delinquencies
 
and
 
nonaccruals,
 
local
 
economic
 
conditions,
 
and
 
other
 
pertinent
 
information.
 
If
 
our
 
assumptions
 
are
 
incorrect,
however,
 
our actual
 
losses could
 
be higher
 
than estimated
 
and increased
 
loss reserves
 
may be
 
required, which
 
would negatively
affect our results of operations.
Finally, certain
 
acquisitions by financial institutions,
 
including us, are
 
subject to approval
 
by a variety
 
of federal and
 
state
regulatory agencies.
 
Regulatory approvals
 
could be
 
delayed, impeded,
 
restrictively conditioned
 
or denied.
 
We may
 
fail to
 
pursue,
evaluate
 
or
 
complete
 
strategic
 
and
 
competitively
 
significant
 
acquisition
 
opportunities
 
as
 
a
 
result
 
of
 
our
 
inability,
 
or
 
perceived
 
or
anticipated inability,
 
to obtain regulatory
 
approvals in a
 
timely manner,
 
under reasonable conditions or
 
at all. Difficulties
 
associated
with
 
potential
 
acquisitions
 
that
 
may
 
result
 
from
 
these
 
factors
 
could
 
have
 
a
 
material
 
adverse
 
effect
 
on
 
our
 
business,
 
financial
condition and results of operations.
We
 
have
 
embarked
 
on
 
a
 
broad-based
 
multi-year,
 
technological
 
and
 
business
 
process
 
transformation.
 
The
 
failure
 
to
achieve
 
the
 
goals
 
of
 
the
 
transformation
 
project,
 
the
 
inability
 
to
 
maintain
 
project
 
expenses
 
within
 
current
 
estimates
 
or
delays in
 
executing our plans
 
to implement the
 
transformation project, may
 
materially and adversely
 
affect our business,
35
financial condition, results of operations, or
 
cause reputational harm.
The
 
Corporation
 
has
 
embarked
 
on
 
a
 
broad-based
 
multi-year,
 
technological
 
and
 
business
 
process
 
transformation. Our
technology and
 
business transformation will
 
be a significant
 
priority for the
 
Corporation over the
 
next three years
 
and beyond.
 
We
expect the
 
expenses tied
 
to this
 
transformation project,
 
which will
 
continue through
 
at least
 
2025, to
 
result in
 
an enhanced
 
digital
experience for our clients, as well as better technology
 
and more efficient processes for our employees.
 
To
 
execute the
 
transformation project,
 
we plan
 
to expand
 
our digital
 
capabilities, modernize
 
our technology
 
foundation,
and
 
implement
 
agile
 
and
 
efficient
 
business
 
processes
 
across
 
the
 
entire
 
company.
 
We
 
may
 
not
 
succeed
 
in
 
executing
 
the
transformation project, may fail
 
to properly estimate cost
 
of the same, or
 
may experience delays in
 
executing our plans, which
 
may
in turn
 
cause the
 
Corporation to
 
incur costs
 
exceeding our
 
current estimates
 
or disrupt
 
our operations,
 
including our
 
technological
services to our customers, or fall short
 
of our projected earnings targets driven by these
 
efforts. To
 
the extent that these disruptions
persist over time and/or recur, this could negatively impact our competitive
 
position, require additional expenditures, and/or harm
 
our
relationships
 
with
 
our
 
customers
 
and
 
thus
 
may
 
materially
 
and
 
adversely
 
affect
 
our
 
business,
 
financial
 
condition,
 
results
 
of
operations, or cause reputational harm.
We face significant and increasing competition in the
 
rapidly evolving financial services industry.
 
We
 
operate
 
in
 
a
 
highly competitive
 
environment, in
 
which
 
we
 
compete
 
on
 
the
 
basis
 
of
 
a
 
number of
 
factors,
 
including
customer service,
 
quality and variety
 
of products
 
and services,
 
price, interest rates
 
on loans
 
and deposits,
 
innovation, technology,
ease of use, reputation, and transaction execution. While our main competition
 
continues to come from other Puerto Rico banks and
financial
 
institutions,
 
we
 
may
 
face
 
increased
 
competition
 
from
 
other
 
institutions
 
in
 
the
 
future
 
as
 
emerging
 
technologies
 
and
 
the
growth of e-commerce have significantly reduced geographic barriers, made it easier for non-depositary institutions to offer products
and
 
services
 
that
 
traditionally
 
were
 
banking
 
products
 
and
 
allowed
 
non-traditional
 
financial
 
service
 
providers
 
and
 
technology
companies to provide electronic and internet-based financial solutions and services. Increased competition could create
 
pressure to
lower
 
prices,
 
fees,
 
commissions
 
or
 
credit
 
standards
 
on
 
our
 
products
 
and
 
services,
 
which
 
could
 
adversely
 
affect
 
our
 
financial
condition and results of operations. Increased competition could also
 
create pressure to raise interest rates on deposits, which could
also impact our financial condition and results of operations.
If we are unable to
 
meet constant technological changes and react quickly to
 
meet new industry standards, including as a
result
 
of our
 
continued dependence
 
on
 
Evertec, 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.
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 Business
Acquisition Transaction eliminated certain
 
provisions of a previous Master Services
 
Agreement with Evertec that required
 
us to use
Evertec exclusively to develop and implement new or
 
enhanced products and services, and 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
 
APIs that meet BPPR’s
 
requirements, which Evertec has committed
 
to develop under the
 
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 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
36
disadvantage and
 
significantly affect
 
our
 
business, financial
 
condition and
 
results of
 
operations. While
 
the closing
 
of
 
the Evertec
Business Acquisition
 
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 ability to attract and retain qualified employees
 
is critical to our success.
Our
 
success
 
depends,
 
in
 
large
 
part,
 
on
 
our
 
ability
 
to
 
attract
 
and
 
retain
 
qualified
 
employees. Competition
 
for
 
qualified
candidates is intense and has
 
increased recently as a result
 
of a tighter labor market. Increased competition
 
may lead to difficulties
in
 
attracting
 
or
 
retaining qualified
 
employees, which
 
may,
 
in turn,
 
lead to
 
significant challenges
 
in the
 
execution
 
of
 
our
 
business
strategies and
 
have an
 
adverse effect
 
on the
 
quality of the
 
service we
 
provide to
 
the customers
 
and communities we
 
serve. Such
challenges could
 
adversely affect
 
our business,
 
operations and
 
financial condition.
 
In addition,
 
increased competition
 
may lead
 
to
higher compensation
 
packages and
 
more flexible
 
work arrangements.
 
We may
 
also be
 
required to
 
hire employees
 
outside of
 
our
market
 
areas
 
for
 
certain
 
positions
 
that
 
require
 
specific
 
expertise,
 
which
 
could
 
result
 
in
 
employment
 
and
 
tax
 
compliance-related
expenses, challenges and
 
risks. In
 
addition, flexible
 
work arrangements, such
 
as remote
 
or hybrid
 
work models, have
 
led to
 
other
workplace
 
challenges,
 
including fewer
 
opportunities
 
for
 
face-to-face interactions
 
or
 
to
 
promote
 
a
 
cohesive
 
corporate
 
culture
 
and
heightened cybersecurity, information security and other operational risks.
Our
 
ability
 
to
 
attract
 
and
 
retain
 
qualified
 
employees
 
is
 
also
 
impacted
 
by
 
regulatory
 
limitations
 
on
 
our
 
compensation
practices, such a s clawback requirements of incentive compensation,
 
which may not affect other institutions with which we compete
for talent. The
 
scope and
 
content of
 
regulators’ policies
 
on executive
 
compensation continue to
 
develop and
 
are likely
 
to continue
evolving. Such policies and limitations on our compensation
 
practices could adversely affect our ability to attract, retain and motivate
talented senior leaders in support of our long-term
 
strategy.
OTHER RISKS
An impairment
 
of our
 
goodwill, deferred
 
tax assets
 
or amortizable
 
intangible assets
 
could adversely
 
affect our
 
financial
condition and results of operations.
As of December 31,
 
2022, we had approximately $827
 
million, $954 million and
 
$94 million, respectively,
 
of goodwill, net
deferred tax assets and amortizable intangible assets
 
recorded on our balance sheet.
Under
 
GAAP,
 
goodwill
 
is
 
tested
 
for
 
impairment
 
at
 
least
 
annually
 
and
 
amortizable
 
intangible
 
assets
 
are
 
tested
 
for
impairment
 
when
 
events
 
or
 
changes
 
in
 
circumstances indicate
 
the
 
carrying value
 
may
 
not
 
be
 
recoverable. Factors
 
that
 
may
 
be
considered a change in circumstances, indicating that the carrying value of the goodwill or amortizable intangible assets may not be
recoverable, include
 
a decline in
 
Popular’s stock price
 
related to
 
a deterioration in
 
global or
 
local economic conditions,
 
declines in
our market capitalization, reduced future earnings estimates, and interest rate changes. The goodwill impairment evaluation process
requires
 
us
 
to
 
make
 
estimates
 
and
 
assumptions
 
with
 
regards
 
to
 
the
 
fair
 
value
 
of
 
our
 
reporting
 
units.
 
Actual
 
values
 
may
 
differ
significantly
 
from
 
these
 
estimates.
 
Such
 
differences
 
could
 
result
 
in
 
future
 
impairment
 
of
 
goodwill
 
that
 
would,
 
in
 
turn,
 
negatively
impact our results of operations and the reporting
 
unit where the goodwill is recorded.
The
 
determination
 
of
 
whether
 
a
 
deferred
 
tax
 
asset
 
is
 
realizable
 
is
 
based
 
on
 
weighting
 
all
 
available
 
evidence.
 
The
realization
 
of
 
deferred
 
tax
 
assets, including
 
carryforwards
 
and
 
deductible temporary
 
differences,
 
depends upon
 
the
 
existence
 
of
sufficient taxable
 
income of the
 
same character during
 
the carryback or
 
carryforward period. The
 
analysis considers all
 
sources of
taxable income
 
available to
 
realize the
 
deferred tax
 
asset, including
 
the future
 
reversal of
 
existing taxable
 
temporary differences,
future taxable income
 
exclusive of reversing temporary
 
differences and carryforwards,
 
taxable income in
 
prior carryback years and
tax-planning strategies. Changes in these
 
factors may affect
 
the realizability of our
 
deferred tax assets in
 
our Puerto Rico and
 
U.S.
operations.
If our
 
goodwill, deferred
 
tax assets
 
or amortizable
 
intangible assets
 
become impaired,
 
we may
 
be required
 
to record
 
a
significant charge to earnings, which could adversely
 
affect our financial condition and results of operations.
We could experience unexpected
 
losses if the estimates
 
or assumptions we use
 
in preparing our financial
 
statements are
incorrect or differ materially from actual results.
In preparing
 
our financial
 
statements pursuant
 
to U.S.
 
GAAP,
 
we are
 
required to
 
make estimates
 
and assumptions
 
that
are often based
 
on subjective and
 
complex judgments about
 
matters that are
 
inherently uncertain. For example,
 
we use estimates
 
 
 
 
 
 
 
 
 
 
 
37
and assumptions to determine our allowance for credit losses, our
 
liability for contingent litigation losses, and the fair value of certain
of our
 
assets and
 
liabilities, such
 
as debt
 
securities, loans
 
held for
 
sale, MSRs,
 
intangible assets
 
and deferred
 
tax assets.
 
If such
estimates
 
or
 
assumptions are
 
incorrect
 
or
 
differ
 
materially
 
from
 
actual
 
results,
 
we
 
could
 
experience
 
unexpected
 
losses
 
or
 
other
adverse impacts, some of which could be significant.
For further information of other risks faced by
 
Popular please refer to the MD&A section of
 
this Form 10-K.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of
 
December 31,
 
2022, BPPR operated
 
168 branches,
 
of which 65
 
were owned and
 
103 were
 
leased premises, and
PB operated 39 branches of
 
which 3 were owned and
 
36 were on leased premises. Also,
 
the Corporation had 584 ATMs
 
operating
in
 
Puerto
 
Rico,
 
23
 
in
 
the
 
Virgin
 
Islands
 
and
 
94
 
in
 
the
 
U.S.
 
Mainland.
 
The
 
principal
 
properties
 
owned
 
by
 
Popular
 
for
 
banking
operations
 
and
 
other services
 
are
 
described
 
below.
 
Our
 
management believes
 
that
 
each
 
of
 
our
 
facilities
 
is
 
well
 
maintained
 
and
suitable for its purpose.
Puerto Rico
Popular Center, the twenty-story Popular and BPPR headquarters building, located
 
at 209 Muñoz Rivera Avenue, Hato Rey,
 
Puerto
Rico.
 
Popular Center North Building, a three-story building, on
 
the same block as Popular Center.
 
Popular Street Building, a parking and office building located
 
at Ponce de León Avenue and Popular Street, Hato Rey, Puerto Rico.
 
Cupey Center
 
Complex,
 
one building, three-stories
 
high, two
 
buildings, two-stories high
 
each, and
 
two buildings three-stories
 
high
each located in Cupey, Río Piedras, Puerto Rico.
 
Old San Juan Building, a twelve-story structure
 
located in Old San Juan, Puerto Rico.
 
Guaynabo Corporate Office Park Building, a two-story building
 
located in Guaynabo, Puerto Rico.
 
Altamira Building,
 
a nine-story office building located in Guaynabo,
 
Puerto Rico.
 
El Señorial Center, a four-story office building and a two-story branch building
 
located in Río Piedras, Puerto Rico.
 
Ponce de León 167 Building, a five-story office building
 
located in Hato Rey, Puerto Rico.
 
U.S. & British Virgin Islands
BPPR Virgin Islands Center, a three-story building located in St. Thomas,
 
U.S. Virgin Islands.
 
Popular Center -Tortola,
 
a four-story building located in Tortola, British Virgin Islands.
ITEM 3. LEGAL PROCEEDINGS
For a discussion
 
of Legal proceedings,
 
see Note 24,
 
“Commitments and Contingencies”, to
 
the Consolidated Financial Statements
in this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
38
PART II
ITEM
 
5.
 
MARKET
 
FOR
 
REGISTRANT’S
 
COMMON
 
EQUITY,
 
RELATED
 
STOCKHOLDER
 
MATTERS
 
AND
 
ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock
Popular’s Common Stock is traded on
 
the Nasdaq Global Select Market under the symbol “BPOP”.
 
During 2022, the Corporation declared cash dividends in the
 
total amount of $2.20 per common share outstanding,
 
for an
aggregate amount of $163.7
 
million. The Common Stock ranks junior to all series of Preferred Stock as
 
to dividend rights and rights
on liquidation,
 
dissolution or
 
winding up
 
of Popular.
 
Our ability
 
to declare
 
or pay
 
dividends on,
 
or purchase,
 
redeem or
 
otherwise
acquire, the Common
 
Stock is subject
 
to certain restrictions
 
in the event
 
that Popular fails
 
to pay or
 
set aside full
 
dividends on the
Preferred Stock for the latest dividend period.
On July 12, 2022, the Corporation completed an accelerated share repurchase (“ASR”) program for the repurchase of an
aggregate $400
 
million of
 
Popular’s common stock
 
for which
 
an initial
 
delivery of
 
3,483,942 shares
 
were delivered
 
in March
 
2022
(the
 
“March
 
ASR
 
Agreement”).
 
Upon
 
the
 
final
 
settlement
 
of
 
the
 
March
 
ASR
 
Agreement,
 
the
 
Corporation
 
received
 
an
 
additional
1,582,922
 
shares
 
of
 
common
 
stock.
 
The
 
Corporation
 
repurchased a
 
total
 
of
 
5,066,864 shares
 
at
 
an
 
average
 
purchase
 
price
 
of
$78.9443, which were recorded as treasury
 
stock by $440 million under the March ASR
 
Agreement.
On December
 
7, 2022
 
the Corporation
 
completed the
 
settlement of
 
another ASR
 
Agreement for
 
the repurchase
 
of an
aggregate $231
 
million of
 
Popular’s common stock,
 
for which
 
an initial
 
2,339,241 shares
 
were delivered
 
on August
 
26, 2022
 
(the
“August ASR Agreement”). Upon the final settlement of the ASR Agreement, the Corporation received an additional 840,024 shares
of common
 
stock. The
 
Corporation repurchased
 
a total
 
of 3,179,265
 
shares at
 
an average
 
purchase price
 
of $72.66,
 
which were
recorded as treasury stock by $245 million under
 
the August ASR Agreement.
On September 9, 2021, the Corporation completed an accelerated share repurchase (“ASR”) program
 
for the repurchase
of
 
an
 
aggregate $350
 
million
 
of Popular’s
 
common
 
stock.
 
Under the
 
terms
 
of
 
the
 
accelerated share
 
repurchase
 
agreement (the
“ASR
 
Agreement”),
 
on
 
May
 
4,
 
2021,
 
the
 
Corporation made
 
an
 
initial
 
payment
 
of
 
$350
 
million
 
and
 
received
 
an
 
initial
 
delivery
 
of
3,785,831
 
shares
 
of
 
Popular’s
 
Common
 
Stock
 
(the
 
“Initial
 
Shares”).
 
The
 
transaction
 
was
 
accounted
 
for
 
as
 
a
 
treasury
 
stock
transaction. As
 
a result
 
of the
 
receipt of
 
the Initial
 
Shares, the
 
Corporation recognized in
 
shareholders’ equity
 
approximately $280
million
 
in treasury
 
stock
 
and
 
$70
 
million
 
as
 
a
 
reduction in
 
capital surplus.
 
Upon the
 
final
 
settlement of
 
the
 
ASR
 
Agreement, the
Corporation received an additional 828,965 shares and recognized $61 million as treasury stock with a corresponding increase in its
capital surplus account. The Corporation repurchased a total of 4,614,796 shares at an average purchase price of $75.84
 
under the
ASR Agreement.
Additional information concerning legal or
 
regulatory restrictions on the payment
 
of dividends by Popular,
 
BPPR and PB
is contained under the caption “Regulation and Supervision”
 
in Item 1 herein.
As
 
of
 
February
 
24,
 
2023,
 
Popular
 
had
 
6,612
 
stockholders
 
of
 
record
 
of
 
the
 
Common
 
Stock,
 
not
 
including
 
beneficial
owners whose shares
 
are held in
 
record names
 
of brokers
 
or other
 
nominees. The last
 
sales price
 
for the
 
Common Stock
 
on that
date was $71.27 per share.
Preferred Stock
Popular has 30,000,000 shares of
 
authorized Preferred Stock that may
 
be issued in one
 
or more series, and the
 
shares
of each series
 
shall have such
 
rights and preferences as
 
shall be fixed
 
by the Board
 
of Directors when authorizing
 
the issuance of
that particular series. Popular’s Preferred Stock
 
issued and outstanding at December 31, 2022
 
consisted of:
 
885,726 shares of 6.375% non-cumulative monthly income Preferred Stock, Series A, no par value, liquidation preference
value of $25 per share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
All series of
 
Preferred Stock are pari
 
passu. Dividends on each
 
series of Preferred Stock
 
are payable if declared
 
by our
Board
 
of
 
Directors.
 
Our
 
ability
 
to
 
declare
 
and
 
pay
 
dividends
 
on
 
the
 
Preferred
 
Stock
 
is
 
dependent
 
on
 
certain
 
Federal
 
regulatory
considerations,
 
including
 
the
 
guidelines
 
of
 
the
 
Federal
 
Reserve
 
Board
 
regarding
 
capital
 
adequacy
 
and
 
dividends.
 
The
 
Board
 
of
Directors is not obligated to declare dividends and
 
dividends do not accumulate in the event
 
they are not paid.
Monthly
 
dividends
 
on
 
the
 
Preferred
 
Stock
 
amounted
 
to
 
a
 
total
 
of
 
$1.4
 
million
 
for
 
the
 
year
 
2022.
 
There
 
can
 
be
 
no
assurance that any dividends will be declared on
 
the Preferred Stock in any future periods.
Dividend Reinvestment and Stock Purchase Plan
Popular offers
 
a dividend
 
reinvestment and
 
stock purchase
 
plan for
 
our stockholders
 
that allows
 
them to
 
reinvest their
dividends in
 
shares of
 
the Common Stock
 
at a
 
5% discount
 
from the
 
average market
 
price at
 
the time
 
of the
 
issuance, as well
 
as
purchase shares of Common Stock directly from Popular
 
by making optional cash payments at prevailing
 
market prices.
Equity Based Plans
On May
 
12, 2020, the
 
stockholders of
 
the Corporation
 
approved the Popular,
 
Inc. 2020
 
Omnibus Incentive Plan,
 
which
permits the
 
Corporation to issue
 
several types of
 
stock-based compensation to
 
employees and directors
 
of the Corporation
 
and/or
any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan,
which was in
 
effect prior to
 
the adoption of the
 
2020 Incentive Plan.
 
As of December 31,
 
2022, the maximum number
 
of shares of
common stock remaining available for future issuance under this plan was 3,444,778. For information about
 
the securities remaining
available for issuance under our equity-based plans,
 
refer to Part III, Item 12.
Purchases of Equity Securities
The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended December 31,
2022:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid
per Share
Total Number of
 
Shares
Purchased as Part of Publicly
Announced Plans or Programs [2]
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs
 
October 1 – October 31
-
$-
-
-
November 1 – November 30
-
-
-
-
December 1 – December 31
840,064
70.80
840,024
-
Total December 31, 2022
840,064
$70.80
840,024
-
[1] Includes 40 shares of common stock acquired
 
by the Corporation during December 2022,
 
in connection with the satisfaction of tax
withholding obligations on vested awards of restricted
 
stock or restricted stock units granted to directors
 
and certain employees under
the Corporation’s Omnibus Incentive Plan. The acquired
 
shares of common stock were added back to
 
treasury stock.
 
[2] On August 24, 2022, the Corporation entered into
 
an accelerated repurchase program for the repurchase
 
of an aggregate $231
million of Popular's common stock, which was completed
 
on December 7, 2022. Upon the final
 
settlement, the Corporation received
840,024 shares of common stock.
Equity Compensation Plans
For information about our equity compensation plans,
 
refer to Part III, Item 12.
Stock Performance Graph (1)
bpop-20221231p40i0
40
The graph
 
below compares
 
the cumulative
 
total stockholder
 
return during
 
the measurement
 
period with
 
the cumulative
total return, assuming reinvestment of dividends, of
 
the Nasdaq Bank Index and the Nasdaq Composite
 
Index.
The
 
cumulative
 
total
 
stockholder
 
return
 
was
 
obtained
 
by
 
dividing
 
(i)
 
the
 
cumulative
 
amount
 
of
 
dividends
 
per
 
share,
assuming dividend reinvestment since the measurement point, December 31, 2017, plus (ii) the change
 
in the per share price since
the measurement date, by the share price at
 
the measurement date.
Comparison of Five-Year Cumulative Total Return (TSR)
Assumes all dividends were reinvested
Base Year:
 
December 31,
 
2017 = $100
(1) Unless Popular specifically states otherwise, this Stock Performance Graph shall not be deemed to be incorporated by
reference
 
and
 
shall
 
not
 
constitute
 
soliciting
 
material
 
or
 
otherwise
 
be
 
considered
 
filed
 
under
 
the
 
Securities
 
Act
 
of
 
1933
 
or
 
the
Securities Exchange Act of 1934.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
AND RESULTS OF OPERATIONS
The information required by this item is included in
 
this Form 10-K, commencing on page 50.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
The information regarding the
 
market risk of our
 
investments appears under the caption
 
“Risk Management”, on page
 
80
within Management’s Discussion and Analysis of Financial
 
Condition and Results of Operations in this
 
Form 10-K.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears under the caption “Statistical Summaries” on pages 106 to 108 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
 
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our
 
management,
 
with
 
the
 
participation
 
of
 
our
 
Chief
 
Executive
 
Officer
 
and
 
Chief
 
Financial
 
Officer,
 
has
 
evaluated
 
the
effectiveness
 
of
 
our
 
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, our Chief Executive
 
Officer and Chief
Financial
 
Officer
 
have
 
concluded
 
that,
 
as
 
of
 
the
 
end
 
of
 
such
 
period,
 
our
 
disclosure
 
controls
 
and
 
procedures
 
are
 
effective
 
in
recording, processing, summarizing and
 
reporting, on a timely
 
basis, information required to
 
be disclosed by Popular
 
in the reports
that
 
we
 
file
 
or
 
submit
 
under
 
the
 
Exchange
 
Act
 
and
 
such
 
information
 
is
 
accumulated
 
and
 
communicated
 
to
 
management,
 
as
appropriate, to allow timely decisions regarding required
 
disclosures.
Assessment on Internal Control over Financial Reporting
Information relating to our assessment on
 
internal control over financial reporting is presented under the
 
captions “Report
of
 
Management
 
on
 
Internal
 
Control
 
Over
 
Financial
 
Reporting”
 
and
 
“Report
 
of
 
Independent
 
Registered
 
Public
 
Accounting
 
Firm”
located on pages 109 and 110 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There have
 
been no
 
changes in
 
our 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 December 31, 2022, that have materially affected, or
are reasonably likely to materially affect, our internal control
 
over financial reporting.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN
 
JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
 
information
 
contained
 
under
 
the
 
captions
 
“Security
 
Ownership
 
of
 
Certain
 
Beneficial
 
Owners
 
and
 
Management”,
“Delinquent Section
 
16(a) Reports”,
 
“Corporate Governance”, “Nominees
 
for Election
 
as Directors”
 
and “Executive
 
Officers” in
 
the
 
 
 
 
 
42
Proxy Statement
 
are incorporated herein
 
by reference.
 
Information about our
 
Code of
 
Ethics, which
 
applies to
 
our senior
 
financial
officers, is included in “Business — Available Information” in Part
 
I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The
 
information
 
in
 
the
 
Proxy
 
Statement
 
under
 
the
 
caption
 
“Executive
 
and
 
Director
 
Compensation,”
 
including
 
the
“Compensation
 
Discussion
 
and
 
Analysis,”
 
the
 
“2022
 
Executive
 
Compensation
 
Tables
 
and
 
Compensation
 
Information”
 
and
 
the
“Compensation
 
of
 
Non-Employee
 
Directors,”
 
and
 
under
 
the
 
caption
 
“Committees
 
of
 
the
 
Board
 
 
Talent
 
and
 
Compensation
Committee – Talent and Compensation Committee Interlocks and Insider Participation” is
 
incorporated herein by reference.
ITEM
 
12.
 
SECURITY
 
OWNERSHIP
 
OF
 
CERTAIN
 
BENEFICIAL
 
OWNERS
 
AND
 
MANAGEMENT
 
AND
 
RELATED
STOCKHOLDERS MATTERS
The information
 
under the captions
 
“Principal Stockholders” and
 
“Shares Beneficially Owned
 
by Directors and
 
Executive
Officers” in the Proxy Statement is incorporated herein by
 
reference.
The following tables sets forth information as
 
of December 31, 2022 regarding securities remaining available for issuance
to directors and eligible employees under our
 
equity-based compensation plans.
Plan Category
Plan
Number of Securities
Remaining Available
 
for Future Issuance
 
Under Equity Compensation
 
Plan
Equity compensation plan approved by security holders
2020 Omnibus Incentive Plan
3,444,778
Total
3,444,778
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the caption “Board of Directors’ Independence” and “Certain Relationships and Transactions” in the
Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is set forth under Proposal 3 – Ratification of Appointment of
Independent Registered Public Accounting Firm in
 
the Proxy Statement, which is incorporated herein
 
by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a). The following financial statements and reports are
 
included on pages 110 through 260 in this Form10K.
(1)
 
Financial Statements
Report of Independent Registered Public Accounting
 
Firm (
PCAOB ID
238
)
Consolidated Statements of Financial Condition as of
 
December 31, 2022 and 2021
43
Consolidated Statements of Operations for each of
 
the years in the three-year period ended December 31, 2022
Consolidated Statements of Cash Flows for each of
 
the years in the three-year period ended December
 
31, 2022
Consolidated
 
Statements
 
of
 
Changes
 
in
 
Stockholders’
 
Equity
 
for
 
each
 
of
 
the
 
years
 
in
 
the
 
three-year
 
period
 
ended
December 31, 2022
Consolidated Statements of
 
Comprehensive Income for
 
each of
 
the years
 
in the
 
three-year period
 
ended December 31,
2022
Notes to Consolidated Financial Statements
(2)
 
Financial
 
Statement
 
Schedules:
 
No
 
schedules
 
are
 
presented
 
because
 
the
 
information
 
is
 
not
 
applicable
 
or
 
is
 
included
 
in
 
the
Consolidated Financial Statements described in (a) (1)
 
above or in the notes thereto.
(3) Exhibits
ITEM 16. FORM 10-K SUMMARY
None.
The exhibits listed on the Exhibits Index below are
 
filed herewith or are incorporated herein by
 
reference.
44
Exhibit Index
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
 
45
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
46
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
47
10.25
10.26
21.1
22.1
23.1
31.1
31.2
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. (1)
101.SCH
Inline XBRL 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. Annual Report on Form 10-K for the
 
year ended December 31, 2022, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
 
(1)
(1)
Included herewith
(2)
 
Furnished herewith. This
 
exhibit shall not
 
be deemed “filed”
 
for purposes of
 
Section 18 of
 
the Securities Exchange
Act of 1934, or otherwise subject
 
to the liability of that Section,
 
and shall not be deemed incorporated into
 
any filing
under the Securities Act of 1933 or the
 
Securities Exchange Act of 1934.
 
*
This exhibit is a management contract or compensatory
 
plan or arrangement.
Popular,
 
Inc. has
 
not filed
 
as exhibits
 
certain instruments
 
defining the rights
 
of holders
 
of debt
 
of Popular,
 
Inc. not
exceeding 10% of the
 
total assets of Popular,
 
Inc. and its consolidated
 
subsidiaries. Popular, Inc.
 
hereby agrees to
furnish
 
upon
 
request
 
to
 
the
 
Commission
 
a
 
copy
 
of
 
each
 
instrument
 
defining
 
the
 
rights
 
of
 
holders
 
of
 
senior
 
and
subordinated debt of Popular, Inc., or of any of its consolidated
 
subsidiaries.
48
Financial Review and
Supplementary Information
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
50
Statistical Summaries
106
Report of Management on Internal Control Over Financial
Reporting
109
Report of Independent Registered Public
 
Accounting Firm
110
Consolidated Statements of Financial Condition as of
 
December 31, 2022 and 2021
114
Consolidated Statements of Operations for the
 
years ended December 31, 2022, 2021 and
 
2020
115
Consolidated Statements of Comprehensive
Income for the years ended December 31, 2022,
 
2021 and
2020
116
Consolidated Statements of Changes in Stockholders’
Equity for the years ended December 31, 2022,
 
2021 and
2020
117
Consolidated Statements of Cash Flows for the
years ended December 31, 2022, 2021 and
 
2020
118
Notes to Consolidated Financial Statements
120
Signatures
261
49
Management’s Discussion and
Analysis of Financial Condition
 
and Results of Operations
Forward-Looking Statements
50
Overview
51
Critical Accounting Policies / Estimates
57
Statement of Operations Analysis
63
Net Interest Income
63
Provision for Credit Losses
66
Non-Interest Income
66
Operating Expenses
67
Income Taxes
69
Fourth Quarter Results
70
Reportable Segment Results
70
Statement of Financial Condition Analysis
72
Assets
72
Liabilities
74
Stockholders’ Equity
75
Regulatory Capital
76
Risk Management
80
Market / Interest Rate Risk
80
Liquidity
85
Enterprise Risk Management
104
Adoption of New Accounting Standards and Issued
 
but
Not Yet Effective Accounting Standards
105
Statistical Summaries
Statements of Financial Condition
106
Statements of Operations
107
Average Balance Sheet and Summary of Net Interest
Income
108
50
FORWARD-LOOKING STATEMENTS
This
 
Form
 
10-K contains
 
“forward-looking statements”
 
within the
 
meaning
 
of
 
the
 
U.S. Private
 
Securities Litigation
 
Reform Act
 
of
1995,
 
including,
 
without
 
limitation,
 
statements
 
about
 
Popular,
 
Inc.’s
 
(the
 
“Corporation,”
 
“Popular,”
 
“we,”
 
“us,”
 
“our”)
 
business,
financial condition, results
 
of operations, plans,
 
objectives and future
 
performance. These statements
 
are not
 
guarantees of future
performance,
 
are
 
based
 
on
 
management’s
 
current
 
expectations
 
and,
 
by
 
their
 
nature,
 
involve
 
risks,
 
uncertainties,
 
estimates
 
and
assumptions. Potential
 
factors, some
 
of which
 
are beyond
 
the Corporation’s
 
control, could
 
cause actual
 
results to
 
differ materially
from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect
of competitive and
 
economic factors, and our
 
reaction to those factors,
 
the adequacy of
 
the allowance for loan
 
losses, delinquency
trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity,
 
and the effect
of legal and regulatory proceedings and new accounting
 
standards on the Corporation’s financial condition and
 
results of operations.
All statements
 
contained herein
 
that are
 
not clearly
 
historical in
 
nature are
 
forward-looking, and
 
the words
 
“anticipate,” “believe,”
“continues,” “expect,”
 
“estimate,” “intend,”
 
“project” and
 
similar expressions
 
and future
 
or conditional
 
verbs such
 
as “will,”
 
“would,”
“should,” “could,” “might,” “can,” “may” or similar
 
expressions are generally intended
 
to identify forward-looking statements.
Various factors, some of which
 
are beyond Popular’s control, could cause actual results to differ materially from those expressed in,
or implied by, such forward-looking statements. Factors that might cause such a difference
 
include, but are not limited to, the rate of
growth or
 
decline in the
 
economy and employment
 
levels, as well
 
as general
 
business and economic
 
conditions in the
 
geographic
areas we serve and,
 
in particular, in
 
the Commonwealth of Puerto Rico
 
(the “Commonwealth” or “Puerto Rico”), where
 
a significant
portion of
 
our business
 
is concentrated;
 
adverse economic
 
conditions, including
 
high levels
 
of
 
and ongoing
 
increases in
 
inflation
rates,
 
that
 
adversely
 
affect
 
housing prices,
 
the
 
job
 
market,
 
consumer
 
confidence
 
and
 
spending
 
habits
 
which
 
may
 
affect
 
in
 
turn,
among other
 
things, our
 
level of
 
non-performing assets,
 
charge-offs and
 
provision expense;
 
changes in
 
interest rates
 
and market
liquidity,
 
which may
 
reduce
 
interest margins,
 
impact funding
 
sources,
 
reduce
 
loan
 
originations,
 
affect
 
our
 
ability to
 
originate
 
and
distribute financial products in the primary and secondary markets and impact the value
 
of our investment portfolio and our ability to
return capital to our shareholders; the
 
impact of the current fiscal
 
and economic challenges of Puerto Rico and
 
the measures taken
and to be
 
taken by the
 
Puerto Rico Government
 
and the Federally-appointed oversight
 
board on the
 
economy,
 
our customers and
our business;
 
the impact
 
of the
 
pending debt
 
restructuring proceedings
 
under Title
 
III of
 
the Puerto
 
Rico Oversight,
 
Management
and Economic Stability Act (“PROMESA”) and of
 
other actions taken or to be taken to address
 
Puerto Rico’s fiscal challenges on the
value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and
consumer
 
loan
 
portfolios
 
where
 
private borrowers
 
could
 
be
 
directly affected
 
by
 
governmental action;
 
the
 
amount
 
of
 
Puerto
 
Rico
public sector deposits held
 
at the Corporation, whose future
 
balances are uncertain and difficult
 
to predict and may
 
be impacted by
factors such
 
as
 
the amount
 
of
 
Federal funds
 
received by
 
the P.R.
 
Government in
 
connection with
 
the
 
COVID-19 pandemic
 
and
hurricane
 
recovery
 
assistance
 
and
 
the
 
rate
 
of
 
expenditure
 
of
 
such
 
funds,
 
as
 
well
 
as
 
the
 
financial
 
condition,
 
liquidity
 
and
 
cash
management
 
practices
 
of
 
the
 
Puerto
 
Rico
 
Government
 
and
 
its
 
instrumentalities;
 
unforeseen
 
or
 
catastrophic
 
events,
 
including
extreme weather
 
events, including hurricanes,
 
other natural
 
disasters, man-made disasters,
 
acts of
 
violence or
 
war or
 
pandemics,
epidemics and
 
other health-related crises,
 
including any
 
resurgence of
 
COVID-19, or
 
the fear
 
of any
 
such event
 
occurring, any
 
of
which could cause adverse
 
consequences for our business,
 
including, but not limited
 
to, disruptions in our
 
operations; our ability to
achieve the
 
expected benefits
 
from our
 
transformation initiative,
 
including our
 
ability to
 
achieve our
 
targeted sustainable
 
return on
tangible
 
common
 
equity
 
of
 
14% by
 
the
 
end
 
of
 
2025;
 
risks
 
related
 
to
 
Popular’s acquisition
 
of
 
certain
 
information technology
 
and
related assets formerly used by Evertec, Inc. to service certain of Banco Popular
 
de Puerto Rico’s key channels, as well as the entry
into amended
 
and restated
 
commercial agreements (the
 
“Evertec Business Acquisition
 
Transaction”), including
 
Popular’s ability to
successfully transition and integrate the assets
 
acquired as part of the
 
Evertec Business Acquisition Transaction, as
 
well as related
operations,
 
employees
 
and
 
third
 
party
 
contractors;
 
unexpected costs,
 
including,
 
without limitation,
 
costs
 
due
 
to
 
exposure
 
to
 
any
unrecorded liabilities
 
or issues
 
not identified
 
during due
 
diligence investigation
 
of the
 
Evertec Business
 
Acquisition Transaction
 
or
that are not subject to indemnification or reimbursement by Evertec, Inc.;
 
and business and other risks arising from the extension of
Popular’s current
 
commercial
 
agreements
 
with
 
Evertec,
 
Inc.;
 
the
 
fiscal
 
and
 
monetary
 
policies
 
of
 
the
 
federal
 
government
 
and
 
its
agencies;
 
changes
 
in
 
federal
 
bank
 
regulatory
 
and
 
supervisory
 
policies,
 
including
 
required
 
levels
 
of
 
capital
 
and
 
the
 
impact
 
of
proposed capital standards on our capital ratios; additional Federal
 
Deposit Insurance Corporation (“FDIC”) assessments; regulatory
approvals
 
that
 
may
 
be
 
necessary
 
to
 
undertake
 
certain
 
actions
 
or
 
consummate
 
strategic
 
transactions,
 
such
 
as
 
acquisitions
 
and
dispositions; the
 
relative strength
 
or
 
weakness of
 
the consumer
 
and commercial
 
credit sectors
 
and of
 
the real
 
estate markets
 
in
Puerto Rico and the other markets in which
 
our borrowers are located; the performance of the stock and bond
 
markets; competition
in the financial services
 
industry; possible legislative, tax
 
or regulatory changes; a
 
failure in or breach
 
of our operational
 
or security
systems or infrastructure
 
or those of
 
Evertec, Inc., our
 
provider of core
 
financial transaction processing and
 
information technology
services, or of
 
third parties providing
 
services to us,
 
including as a
 
result of cyberattacks,
 
e-fraud, denial-of-services and computer
intrusion, that
 
might result
 
in, among other
 
things, loss
 
or breach
 
of customer
 
data, disruption
 
of services,
 
reputational damage or
51
additional
 
costs
 
to
 
Popular;
 
changes
 
in
 
market
 
rates
 
and
 
prices
 
which
 
may
 
adversely
 
impact
 
the
 
value
 
of
 
financial
 
assets
 
and
liabilities;
 
potential
 
judgments,
 
claims,
 
damages,
 
penalties,
 
fines,
 
enforcement
 
actions
 
and
 
reputational
 
damage
 
resulting
 
from
pending or
 
future litigation
 
and regulatory
 
or government
 
investigations or
 
actions, including
 
as a
 
result of
 
our participation
 
in and
execution of government programs related
 
to the COVID-19 pandemic; changes
 
in accounting standards, rules and
 
interpretations;
our ability
 
to grow
 
our core
 
businesses; decisions
 
to downsize,
 
sell or
 
close branches
 
or business
 
units or
 
otherwise change
 
our
business mix; and management’s ability to identify and
 
manage these and other risks.
Moreover,
 
the
 
outcome
 
of
 
legal
 
and
 
regulatory
 
proceedings,
 
as
 
discussed
 
in
 
“Part
 
I,
 
Item
 
3.
 
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
“Part I, Item 1A” of this Form 10-K for a discussion
 
of certain risks and uncertainties to which
 
the Corporation is subject.
 
All forward-looking
 
statements included
 
in this
 
Form 10-K
 
are based
 
upon information
 
available to
 
Popular as
 
of the
 
date of
 
this
Form 10- K, 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.
OVERVIEW
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,
 
commercial banking
 
services,
 
as well
 
as equipment
 
leasing and
 
financing, through
 
its New
York-chartered banking subsidiary, Popular Bank (“PB” or “Popular U.S.”) which has branches located in New York, New Jersey and
Florida. Note 37 to the Consolidated Financial
 
Statements presents information about the Corporation’s business
 
segments.
YEAR 2022 SIGNIFICANT EVENTS
Acquisition of Key Customer Channels and Amendments
 
to Commercial Contracts with Evertec
On July 1, 2022, BPPR completed the 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
 
(the
 
“Business
 
Acquisition
Transaction”).
As
 
a
 
result
 
of
 
the closing
 
of
 
the Business
 
Acquisition Transaction,
 
BPPR
 
acquired
 
from
 
Evertec Group
 
certain critical
 
channels,
including
 
BPPR’s
 
retail
 
and
 
business
 
digital
 
banking
 
and
 
commercial
 
cash
 
management
 
applications.
 
In
 
connection
 
with
 
the
Business Acquisition Transaction, 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, Evertec
 
Group no
 
longer has
 
exclusive rights
 
to provide
 
certain of
 
Popular’s technology
services. The
 
amended service
 
agreements include
 
discounted pricing
 
and lowered
 
caps on
 
contractual pricing
 
escalators tied
 
to
the Consumer Price Index. As
 
part of the transaction, BPPR and Evertec
 
also entered into a revenue sharing
 
structure for BPPR in
connection
 
with
 
its
 
merchant
 
acquiring
 
relationship
 
with
 
Evertec.
 
Under
 
the
 
terms
 
of
 
the
 
amended
 
and
 
restated
 
Master
 
Service
Agreement (“MSA”), Evertec will be entitled to receive monthly payments
 
from the Corporation to the extent that Evertec’s revenues,
covered under the MSA, fall below certain agreed
 
annualized minimum amounts.
As consideration for the
 
Business Acquisition Transaction, BPPR delivered
 
to Evertec Group 4,589,169 shares
 
of Evertec common
stock valued at closing at $169.2 million (based on Evertec’s stock price on June 30, 2022 of $36.88). A total of $144.8 million of the
consideration for
 
the transaction
 
was attributed
 
to the
 
acquisition of
 
the critical
 
channels of
 
which $28.7
 
million were
 
attributed to
software
 
intangible
 
assets
 
and
 
$116.1
 
million
 
were
 
attributed
 
to
 
goodwill.
 
The
 
transaction
 
was
 
accounted
 
for
 
as
 
a
 
business
combination.
 
The
 
remaining
 
$24.2
 
million
 
was
 
attributed
 
to
 
the
 
renegotiation of
 
the
 
MSA
 
with
 
Evertec
 
and
 
was
 
recorded
 
as
 
an
52
expense. The Corporation also recorded a credit of $6.9 million in Evertec billings under the MSA during the third quarter of 2022 as
a result of the Business Acquisition Transaction, resulting in a net
 
expense charge for the quarter of $17.3
 
million.
On
 
August
 
15,
 
2022,
 
the
 
Corporation
 
completed
 
the
 
sale
 
of
 
its
 
remaining
 
7,065,634
 
shares
 
of
 
common
 
stock
 
of
 
Evertec
 
(the
“Evertec Stock Sale”, and collectively
 
with the Business Acquisition Transaction,
 
the “Evertec Transactions”). Following
 
the Evertec
Stock
 
Sale, Popular
 
no longer
 
owns any
 
Evertec common
 
stock. The
 
impact of
 
the
 
gain on
 
the sale
 
of
 
Evertec shares
 
used as
consideration
 
for
 
the
 
Business
 
Acquisition
 
Transaction
 
in
 
exchange
 
for
 
the
 
acquired
 
applications
 
on
 
July
 
1,
 
2022
 
and
 
the
 
net
expense associated with the renegotiation of the MSA resulted in an
 
after-tax gain of $97.9 million, while the Evertec Stock Sale and
the related
 
accounting adjustments resulted
 
in an after-tax
 
gain of $128.8
 
million, recorded during
 
the third quarter
 
of 2022, for
 
an
aggregate after-tax gain of $226.6 million.
Transformation Initiative:
Leveraging the completion
 
of the Evertec
 
Transactions, the
 
Corporation embarked on
 
a broad-based multi-year,
 
technological and
business
 
process
 
transformation
 
during
 
the
 
second
 
half
 
of
 
2022.
 
The
 
needs
 
and
 
expectations
 
of
 
our
 
clients,
 
as
 
well
 
as
 
the
competitive landscape, have evolved, requiring us to make important investments in our technological infrastructure and adopt more
agile practices.
 
Our technology and business
 
transformation will be a
 
significant priority for the
 
company over the next
 
three years
and beyond.
Through December
 
31, 2022,
 
excluding compensation
 
costs of
 
our employees
 
involved in
 
the initiative,
 
we expensed
 
$24 million
toward this effort,
 
primarily in professional
 
fees and technology
 
related expenses. As
 
part of this
 
transformation, we aim
 
to expand
our digital capabilities,
 
modernize our technology
 
platform, and implement
 
agile and efficient
 
business processes across
 
the entire
company.
 
In
 
2023,
 
we
 
plan
 
an
 
expense
 
of
 
approximately
 
$50
 
million
 
toward
 
this
 
effort,
 
excluding
 
employee
 
compensation
 
and
capitalized costs.
 
We
 
expect the
 
expenses tied
 
to
 
this transformation
 
initiative, which
 
will continue
 
through 2025
 
to
 
result in
 
an
enhanced digital experience for our clients, as well as better technology and more efficient processes for our employees. We expect
this effort to contribute to better efficiency
 
and higher earnings, resulting in a targeted sustainable return on tangible common equity
of 14% by the end of 2025.
 
To
 
facilitate
 
the
 
transparency
 
of
 
the
 
progress
 
with
 
these
 
efforts,
 
effective
 
in
 
the
 
fourth
 
quarter
 
of
 
2022,
 
the
 
Corporation
 
has
separated
 
technology,
 
professional
 
fees
 
and
 
transactional
 
activities
 
as
 
standalone
 
expense
 
categories
 
in
 
the
 
accompanying
Consolidated Statement of Operations. Refer to additional
 
information in the Operating expenses section
 
of this MD&A.
Capital Actions
On July 12,
 
2022, the Corporation completed
 
an accelerated share repurchase
 
(“ASR”) program for the
 
repurchase of $400 million
of
 
Popular’s
 
common
 
stock
 
for
 
which
 
an
 
initial
 
delivery
 
of
 
3,483,942
 
shares
 
were
 
delivered
 
in
 
March
 
2022
 
(the
 
“March
 
ASR
Agreement”). Upon
 
the final
 
settlement of
 
the March
 
ASR Agreement,
 
the Corporation
 
received an
 
additional 1,582,922 shares
 
of
common stock.
 
The Corporation
 
repurchased a
 
total of
 
5,066,864 shares
 
at an
 
average purchase
 
price of
 
$78.9443, which
 
were
recorded as treasury stock by $440 million under
 
the March ASR Agreement.
On December 7, 2022, the Corporation completed
 
the settlement of another ASR agreement (the
 
“August ASR Agreement”) for the
repurchase of
 
$231 million
 
of Popular’s
 
common stock,
 
for which
 
an initial
 
2,339,241 shares
 
were delivered
 
on August
 
26, 2022.
Upon the final
 
settlement of the
 
August ASR Agreement, the
 
Corporation received an additional
 
840,024 shares of common
 
stock.
The Corporation repurchased a total of
 
3,179,265 shares at an average purchase price
 
of $72.66, which were recorded as treasury
stock by $245 million under the August ASR Agreement.
Hurricanes Fiona and Ian
On September
 
18, 2022,
 
Hurricane Fiona made
 
landfall in
 
the southwest
 
area of
 
Puerto Rico
 
as a
 
Category 1
 
hurricane, bringing
record rainfall and flooding throughout the island and affecting communities where BPPR does business. Hurricane Fiona’s rain and
winds
 
caused
 
a
 
complete
 
blackout
 
on
 
the
 
island
 
and
 
caused
 
considerable
 
damage
 
to
 
certain
 
sectors
 
in
 
the
 
southwest
 
region.
President
 
Biden
 
issued
 
a
 
disaster
 
declaration
 
for
 
the
 
island.
 
While
 
the
 
impact
 
to
 
BPPR’s
 
operation
 
was
 
not
 
material,
 
certain
customers, highly concentrated in certain municipalities, were
 
impacted by the disaster.
 
 
53
As
 
part
 
of
 
hurricane
 
relief
 
efforts
 
on
 
the
 
island,
 
the
 
Corporation
 
waived
 
late-payment
 
fees
 
on
 
individual
 
lending
 
products
 
from
September 16 through October 31, 2022. Popular also waived, through September 30, withdrawal fees payable by our customers at
ATMs
 
outside of
 
the Popular
 
network and
 
fees payable
 
by customers
 
of other
 
banking institutions
 
at Popular’s ATMs.
 
In addition,
the Corporation
 
offered to
 
clients impacted
 
by the
 
hurricane a
 
moratorium of
 
up to
 
three monthly
 
payments, up
 
to December
 
31,
2022, on
 
personal and
 
commercial credit
 
cards, auto
 
loans, leases
 
and personal
 
loans, subject
 
to certain
 
eligibility requirements.
Mortgage clients
 
may also
 
benefit from
 
different payment
 
relief alternatives
 
available, depending
 
on their
 
type of
 
loan. Loan
 
relief
options for commercial clients are reviewed on a case-by-case
 
basis.
Separately,
 
on September 28,
 
2022, Hurricane Ian made
 
a landfall on
 
the west coast
 
of central Florida
 
as a Category
 
4 hurricane,
causing extensive
 
floods and
 
destruction in
 
the impacted
 
areas in
 
Florida. President
 
Biden made
 
a major
 
disaster declaration
 
for
certain counties
 
in central
 
Florida. PB
 
and BPPR
 
do not
 
have significant
 
operations in
 
the area
 
but have
 
some limited
 
retail and
commercial clients who reside or have business activities
 
in the impacted areas.
For
 
clients
 
impacted
 
by
 
the
 
hurricane
 
that
 
reside
 
in
 
counties
 
in
 
Florida declared
 
as
 
disaster zones
 
by
 
President
 
Biden,
 
Popular
offered a moratorium
 
for up to
 
three payments, up to
 
January 31, 2023, subject
 
to certain eligibility requirements.
 
As in the case
 
of
Puerto Rico, relief options for commercial clients
 
are reviewed on a case-by-case basis.
Refer to the Credit Risk section of this MD&A
 
for additional information of the loan moratorium
 
offered to clients.
Transfer of Securities from Available-for Sale to Held-To-Maturity
In October 2022, the
 
Corporation transferred U.S. Treasury securities
 
with a fair value
 
of $6.5 billion (par value
 
of $7.4 billion) from
its available-for-sale portfolio to its held-to-maturity portfolio. Management changed its intent, given its ability to hold these securities
to maturity
 
due to
 
the Corporation’s
 
liquidity position
 
and its
 
intention to
 
reduce the
 
impact on
 
accumulated other
 
comprehensive
income (loss) (“AOCI”) and tangible capital of further
 
increases in interest rates.
The
 
securities
 
were reclassified
 
at
 
fair value
 
at the
 
time
 
of
 
the transfer.
 
At
 
the
 
date of
 
the transfer,
 
these
 
securities
 
had
 
pre-tax
unrealized
 
losses
 
of
 
$873.0
 
million
 
recorded
 
in
 
AOCI.
 
This
 
fair
 
value
 
discount
 
is
 
being
 
accreted
 
to
 
interest
 
income
 
and
 
the
unrealized loss remaining in
 
AOCI is being amortized,
 
offsetting each other through
 
the remaining life of
 
the securities. There were
no realized gains or losses recorded as a result
 
of this transfer.
 
While changes
 
in the
 
amount of
 
unrealized gains
 
and losses
 
in AOCI
 
have an
 
impact on
 
the Corporation’s
 
and its
 
wholly-owned
banking
 
subsidiaries’
 
tangible
 
capital
 
ratios,
 
they
 
do
 
not
 
impact
 
regulatory
 
capital
 
ratios,
 
in
 
accordance
 
with
 
the
 
regulatory
framework.
 
Refer
 
to
 
Note
 
7
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
which
 
presents
 
information
 
about
 
the
 
Corporation’s
 
Debt
Securities Held-to-Maturity for additional details
Partial Release of the Deferred Tax Asset Valuation Allowance
During the
 
fourth quarter
 
of 2022,
 
the Corporation
 
recorded a
 
partial reversal
 
of the
 
deferred tax
 
asset valuation
 
allowance of
 
the
U.S. operations of $68.2 million. As
 
of December 31, 2022, the deferred tax
 
asset (“DTA”) for
 
the U.S. operations, mainly related to
net
 
operating
 
losses
 
(“NOLs”),
 
was
 
valued
 
at
 
$278
 
million,
 
net
 
of
 
the
 
corresponding
 
valuation
 
allowance
 
of
 
$402
 
million.
 
The
reversal during
 
the fourth
 
quarter was
 
determined based
 
on management’s
 
expectation of
 
the realization
 
of additional
 
amounts of
federal
 
and
 
state
 
NOLs
 
over
 
their
 
remaining
 
carryover
 
period.
 
The
 
determination
 
was
 
based
 
on
 
the
 
U.S.
 
operations’
 
sustained
profitability during the
 
years ended December 31,
 
2021 and 2022,
 
together with evidence of
 
stable credit metrics
 
and the length
 
of
the expiration of the net operating losses. As of December 31, 2022, the Corporation had approximately $525 million in
 
DTA related
to federal
 
NOLs with
 
expiration dates
 
between 2028
 
and 2033
 
and approximately
 
$135 million
 
in DTA
 
related to
 
state NOLs
 
with
expiration dates between 2030 and 2036.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
Table 1 - Selected Financial Data
Years ended December
 
31,
(Dollars in thousands, except per common share data)
2022
2021
2020
CONDENSED STATEMENTS
 
OF OPERATIONS
Interest income
$
2,465,911
$
2,122,637
$
2,091,551
Interest expense
298,552
165,047
234,938
Net interest income
 
2,167,359
1,957,590
1,856,613
Provision for credit losses (benefit)
 
83,030
(193,464)
292,536
Non-interest income
897,062
642,128
512,312
Operating expenses
1,746,420
1,549,275
1,457,829
Income tax expense
 
132,330
309,018
111,938
Net income
$
1,102,641
$
934,889
$
506,622
Net income applicable to common stock
$
1,101,229
$
933,477
$
504,864
PER COMMON SHARE DATA
Net income per common share - basic
$
14.65
$
11.49
$
5.88
Net income per common share - diluted
14.63
11.46
5.87
Dividends declared
2.20
1.75
1.60
Common equity per share
56.66
74.48
71.30
Market value per common share
66.32
82.04
56.32
Outstanding shares:
Average - basic
75,147,263
81,263,027
85,882,371
Average - assuming dilution
75,274,003
81,420,154
85,975,259
End of period
71,853,720
79,851,169
84,244,235
AVERAGE BALANCES
Net loans
[1]
$
30,405,281
$
29,074,036
$
28,384,981
Earning assets
69,729,933
68,088,675
56,404,607
Total assets
72,808,604
71,168,650
59,583,455
Deposits
64,716,404
63,102,916
51,585,779
Borrowings
1,119,878
1,255,495
1,321,772
Total stockholders'
 
equity
6,009,225
5,777,652
5,419,938
PERIOD END BALANCE
Net loans
[1]
$
32,083,150
$
29,299,725
$
29,484,651
Allowance for credit losses - loans portfolio
720,302
695,366
896,250
Earning assets
64,251,062
72,103,862
62,989,715
Total assets
67,637,917
75,097,899
65,926,000
Deposits
61,227,227
67,005,088
56,866,340
Borrowings
1,400,319
1,155,166
1,346,284
Total stockholders'
 
equity
4,093,425
5,969,397
6,028,687
SELECTED RATIOS
Net interest margin (non-taxable equivalent basis)
3.11
%
2.88
%
3.29
%
Net interest margin (taxable equivalent basis) -Non-GAAP
3.46
3.19
3.62
Return on assets
1.51
1.31
0.85
Return on common equity
18.39
16.22
9.36
Tier I capital
16.45
17.49
16.33
Total capital
18.26
19.35
18.81
[1] Includes loans held-for-sale.
 
55
Non-GAAP financial measures
Net interest income on a taxable equivalent basis
 
Net
 
interest
 
income,
 
on
 
a
 
taxable
 
equivalent
 
basis,
 
is
 
presented
 
with
 
its
 
different
 
components
 
in
 
Table
 
3
 
for
 
the
 
year
 
ended
December 31,
 
2022
 
as compared
 
with
 
the same
 
period in
 
2021, segregated
 
by
 
major categories
 
of
 
interest
 
earning assets
 
and
interest-bearing liabilities.
 
The 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,
 
and
 
certain
 
obligations
 
of
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
and
 
its
 
agencies
 
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 the
 
Puerto Rico
 
tax
law. Under Puerto Rico tax law,
 
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 exempt sources.
Net interest
 
income, on
 
a taxable
 
equivalent basis,
 
as used
 
by the
 
Corporation may
 
not be
 
comparable to
 
similarly named
 
non-
GAAP financial measures used by other companies.
Financial highlights for the year ended December 31,
 
2022
The Corporation’s net income for the year ended December 31, 2022 amounted to
 
$1.1 billion, compared to a net income of $934.9
million for 2021.
The discussion
 
that follows
 
provides highlights
 
of the
 
Corporation’s results
 
of
 
operations for
 
the year
 
ended December
 
31, 2022
compared to the results of
 
operations of 2021. It also
 
provides some highlights with respect to
 
the Corporation’s financial condition,
credit
 
quality,
 
capital and
 
liquidity.
 
Table
 
2 presents
 
a three-year
 
summary of
 
the components
 
of
 
net income
 
as a
 
percentage of
average total
 
assets. For
 
a discussion
 
of our
 
2021 results
 
of operations compared
 
with 2020,
 
see “Management’s
 
Discussion and
Analysis of
 
Financial Condition
 
and Results
 
of Operations”
 
in our
 
Annual Report
 
on Form
 
10-K for
 
the year
 
ended December
 
31,
2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
Table 2 - Components of Net
 
Income as a Percentage of Average Total
 
Assets
2022
2021
2020
Net interest income
2.98
%
2.75
%
3.12
%
Provision for credit (losses) benefit
(0.11)
0.27
(0.49)
Mortgage banking activities
0.06
0.07
0.02
Net (loss) gain and valuation adjustments on investment
 
securities
(0.01)
-
0.01
Other non-interest income
 
1.18
0.83
0.83
Total net interest
 
income and non-interest income, net of provision
 
for credit losses
 
4.10
3.92
3.49
Operating expenses
(2.40)
(2.18)
(2.45)
Income before income tax
 
1.70
1.74
1.04
Income tax expense
(0.19)
(0.43)
(0.19)
Net income
1.51
%
1.31
%
0.85
%
Net interest income for the
 
year ended December 31, 2022 was
 
$2.2 billion, an increase of $209.8
 
million when compared to 2021.
The
 
increase in
 
net interest
 
income was
 
mainly
 
driven
 
by
 
higher interest
 
income
 
from
 
money market
 
investments due
 
to
 
higher
interest rates,
 
higher income
 
from investment
 
securities and
 
higher interest
 
income from
 
commercial and
 
consumer loans
 
due to
higher volumes and
 
yields. The
 
net interest margin
 
for the year
 
ended December 31,
 
2022 was 3.11
 
%
 
compared to 2.88%
 
for the
same period in 2021, driven by higher average volume of earning assets
 
and higher interest rates as the Federal Reserve increased
the Federal Funds Rate
 
during 2022.
 
On a taxable equivalent
 
basis, net interest margin was
 
3.46% in 2022, compared to
 
3.19% in
2021. Refer to the Net Interest Income section
 
of this MD&A for additional information.
The
 
Corporation’s total
 
provision for
 
credit losses
 
reflected an
 
expense of
 
$83.0 million
 
for the
 
year ended
 
December 31,
 
2022,
compared to
 
a reserve
 
release of
 
$193.5 million
 
for
 
2021. The
 
expense for
 
the year
 
2022
 
was mostly
 
driven by
 
changes in
 
the
economic scenario, higher loan volumes
 
and changes in credit
 
quality.
 
The Corporation continued to exhibit
 
favorable credit quality
trends
 
with
 
low
 
levels
 
of
 
net
 
charge-offs
 
and
 
decreasing
 
non-performing loans.
 
Non-performing assets
 
totaled
 
$528.6
 
million
 
at
December 31, 2022, reflecting a decrease of $104.4 million when compared to December 31, 2021. Refer to the Provision for Credit
Losses and
 
Credit Risk
 
sections of
 
this MD&A
 
for information
 
on the
 
allowance for
 
credit losses,
 
non-performing assets,
 
troubled
debt restructurings, net charge-offs and credit quality metrics.
Non-interest
 
income
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
amounted
 
to
 
$897.1
 
million,
 
an
 
increase
 
of
 
$254.9
 
million,
 
when
compared with 2021, mostly due to:
 
the $257.7 million gain related to the
 
Evertec Transactions and related accounting adjustments
and
 
higher
 
service
 
fees
 
due
 
to
 
higher credit
 
card
 
fees
 
and
 
merchant
 
network
 
business fees
 
as
 
a
 
result
 
of
 
the
 
revenue sharing
agreement entered
 
into
 
in connection
 
with the
 
Evertec Transactions.
 
Refer to
 
the
 
Non-Interest Income
 
section of
 
this
 
MD&A for
additional information on the major variances of
 
the different categories of non-interest income.
Total
 
operating expenses amounted to $1.7 billion for the year 2022, reflecting an increase of
 
$197.1 million, when compared to the
same period
 
in 2021,
 
mainly due
 
to higher
 
personnel costs
 
reflecting salary increases
 
and a
 
higher headcount,
 
professional fees,
technology
 
and
 
software
 
expenses,
 
reflecting
 
the
 
impact
 
of
 
the
 
investment
 
in
 
the
 
transformation
 
initiative,
 
higher
 
business
promotions expense
 
driven by
 
customer loyalty
 
programs and
 
a $17.3
 
million expense
 
associated with
 
the Evertec
 
Transactions.
Refer to the Operating Expenses section of this MD&A
 
for additional information.
Income tax expense
 
amounted to $132.3 million
 
for the year
 
ended December 31, 2022,
 
compared with an
 
income tax expense of
$309.0 million
 
for the
 
previous year.
 
The decrease
 
in income
 
tax expense
 
for the
 
year is
 
mainly due
 
to
 
the impact
 
of the
 
partial
reversal of the deferred tax asset valuation allowance of the U.S. Operations and, higher taxable income that was exempt or subject
to preferential tax rates. Refer to
 
the Income Taxes
 
section in this MD&A and
 
Note 35 to the Consolidated Financial
 
Statements for
additional information
 
on income taxes.
At December
 
31, 2022,
 
the Corporation’s
 
total assets
 
were $67.6
 
billion, compared
 
with $75.1
 
billion at
 
December 31,
 
2021. The
decrease of $7.5 billion is mainly driven by lower money market
 
investments due to a decrease in deposits mainly
 
in the Puerto Rico
57
public sector, partially offset
 
by an increase in loans held-in-portfolio mainly in the commercial and
 
consumer portfolios.
 
Refer to the
Statement of Financial Condition Analysis section of
 
this MD&A for additional information.
Deposits amounted to
 
$61.2 billion at
 
December 31, 2022,
 
compared with $67.0
 
billion at December
 
31, 2021. Table
 
8 presents a
breakdown of deposits
 
by major categories. The
 
decrease in deposits was
 
mainly due to
 
lower Puerto Rico
 
public sector deposits.
The
 
Corporation’s
 
borrowings
 
amounted
 
to
 
$1.4
 
billion
 
at
 
December 31,
 
2022,
 
compared
 
to
 
$1.2
 
billion at
 
December 31,
 
2021.
Refer to Note 17 to the Consolidated Financial
 
Statements for detailed information on the Corporation’s
 
borrowings.
Refer
 
to
 
Table
 
7
 
in
 
the
 
Statement
 
of
 
Financial
 
Condition
 
Analysis
 
section
 
of
 
this
 
MD&A
 
for
 
the
 
percentage
 
allocation
 
of
 
the
composition of the Corporation’s financing to total assets.
Stockholders’ equity amounted to $4.1 billion at December 31, 2022, compared to
 
$6.0 billion at December 31, 2021. The decrease
was principally due to
 
higher accumulated unrealized losses on debt
 
securities available-for-sale and the impact of
 
two accelerated
share
 
repurchase
 
transactions
 
completed
 
during
 
2022,
 
declared
 
dividends,
 
partially
 
offset
 
by
 
net
 
income
 
for
 
the
 
year.
 
The
Corporation and its
 
banking subsidiaries continue to
 
be well-capitalized at December
 
31, 2022. The Common
 
Equity Tier
 
1 Capital
ratio at December 31, 2022 was 16.39%, compared
 
to 17.42% at December 31, 2021.
For further discussion of operating results, financial
 
condition and business risks refer to the narrative
 
and tables included
 
herein.
The shares of the Corporation’s common stock are traded
 
on the Nasdaq Global Select Market under the symbol
 
BPOP.
 
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The accounting and
 
reporting policies followed by
 
the Corporation and its
 
subsidiaries conform with generally
 
accepted accounting
principles in
 
the United
 
States of America
 
(“GAAP”) and
 
general practices within
 
the financial services
 
industry. The
 
Corporation’s
significant
 
accounting policies
 
are described
 
in
 
detail in
 
Note 2
 
to the
 
Consolidated Financial
 
Statements and
 
should
 
be
 
read in
conjunction with this section.
 
Critical accounting policies
 
require management to
 
make estimates and
 
assumptions, which involve significant
 
judgment about the
effect of matters
 
that are inherently uncertain
 
and that involve a
 
high degree of subjectivity.
 
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. The
 
following MD&A
 
section is
 
a summary
 
of what
 
management considers
 
the Corporation’s
 
critical accounting
policies and estimates.
Fair Value Measurement of Financial Instruments
The Corporation
 
currently measures
 
at fair
 
value on
 
a recurring
 
basis its
 
trading debt
 
securities, debt
 
securities available-for-sale,
certain equity securities,
 
derivatives and mortgage servicing
 
rights. Occasionally,
 
the Corporation is
 
required to record
 
at fair value
other assets
 
on a
 
nonrecurring basis,
 
such as
 
loans held-for-sale, loans
 
held-in-portfolio that
 
are collateral
 
dependent and
 
certain
other assets. These nonrecurring fair value
 
adjustments typically result from the application of lower of
 
cost or fair value accounting
or write-downs of individual assets.
 
The
 
Corporation categorizes
 
its
 
assets and
 
liabilities measured
 
at fair
 
value under
 
the three-level
 
hierarchy.
 
The level
 
within the
hierarchy is based on whether the inputs to
 
the valuation methodology used for fair value measurement
 
are observable.
The
 
Corporation
 
requires
 
the
 
use
 
of
 
observable
 
inputs
 
when
 
available,
 
in
 
order
 
to
 
minimize
 
the
 
use
 
of
 
unobservable
 
inputs
 
to
determine fair value. The inputs or methodologies used for valuing securities are
 
not necessarily an indication of the risk associated
with investing
 
in those
 
securities. The
 
amount of
 
judgment involved
 
in estimating
 
the fair
 
value of
 
a financial
 
instrument depends
upon the availability of
 
quoted market prices or observable market
 
parameters. In addition, it may
 
be affected by other
 
factors such
as the
 
type of instrument,
 
the liquidity of
 
the market for
 
the instrument, transparency
 
around the inputs
 
to the valuation,
 
as well
 
as
the
 
contractual
 
characteristics
 
of
 
the
 
instrument.
 
Broker
 
quotes
 
used
 
for
 
fair
 
value
 
measurements
 
inherently
 
reflect
 
any
 
lack
 
of
liquidity in the market since they represent an exit
 
price from the perspective of the market participants.
 
58
Trading Debt Securities and Debt Securities Available-for-Sale
The
 
majority
 
of
 
the
 
values
 
for
 
trading
 
debt
 
securities
 
and
 
debt
 
securities
 
available-for-sale
 
are
 
obtained
 
from
 
third-party
 
pricing
services and
 
are validated
 
with alternate
 
pricing sources
 
when available.
 
Securities not
 
priced by
 
a secondary
 
pricing source
 
are
documented
 
and
 
validated
 
internally
 
according
 
to
 
their
 
significance
 
to
 
the
 
Corporation’s
 
financial
 
statements.
 
Management
 
has
established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained
from the primary pricing service provider and the
 
secondary pricing source used as support for
 
the valuation results.
 
Inputs are evaluated to
 
ascertain that they consider current
 
market conditions, including the
 
relative liquidity of the
 
market. When a
market quote
 
for a
 
specific security
 
is not
 
available, the
 
pricing service
 
provider generally
 
uses observable
 
data to
 
derive an
 
exit
price
 
for
 
the
 
instrument,
 
such
 
as
 
benchmark
 
yield
 
curves
 
and
 
trade
 
data
 
for
 
similar
 
products.
 
To
 
the
 
extent
 
trading
 
data
 
is
 
not
available, the
 
pricing service provider
 
relies on specific
 
information including dialogue
 
with brokers,
 
buy side clients,
 
credit ratings,
spreads to
 
established benchmarks and
 
transactions on similar
 
securities, to
 
draw correlations based
 
on the
 
characteristics of
 
the
evaluated instrument. If
 
for any
 
reason the pricing
 
service provider cannot
 
observe data required
 
to feed
 
its model,
 
it discontinues
pricing the instrument.
Furthermore, management assesses the fair value of its
 
portfolio of investment securities at least on a quarterly
 
basis. Securities are
classified
 
in
 
the
 
fair
 
value
 
hierarchy
 
according
 
to
 
product
 
type,
 
characteristics
 
and
 
market
 
liquidity.
 
At
 
the
 
end
 
of
 
each
 
period,
management assesses the valuation hierarchy for each asset or liability measured. The fair
 
value measurement analysis performed
by
 
the
 
Corporation
 
includes
 
validation
 
procedures
 
and
 
review
 
of
 
market
 
changes,
 
pricing
 
methodology,
 
assumption
 
and
 
level
hierarchy changes, and evaluation of distressed transactions.
 
Refer to
 
Note 28
 
to the
 
Consolidated Financial Statements for
 
a description of
 
the Corporation’s
 
valuation methodologies used
 
for
the assets and liabilities measured at fair value.
Loans and Allowance for Credit Losses
 
Interest on loans is accrued and recorded as
 
interest income based upon the principal amount
 
outstanding.
Non-accrual loans are those loans on which the
 
accrual of interest is discontinued. When a loan is
 
placed on non-accrual status, all
previously
 
accrued
 
and
 
unpaid interest
 
is
 
charged against
 
interest
 
income
 
and
 
the
 
loan
 
is
 
accounted for
 
either
 
on
 
a cash-basis
method or
 
on the
 
cost-recovery method.
 
Loans designated
 
as non-accruing
 
are returned
 
to accrual
 
status when
 
the Corporation
expects repayment of the remaining contractual principal and interest.
 
The determination as to the ultimate collectability of the loan’s
balance may involve management’s judgment in the evaluation of
 
the borrower’s financial condition and
 
prospects for repayment.
Refer to
 
the MD&A
 
section titled
 
Credit Risk,
 
particularly the
 
Non-performing assets
 
sub-section, for
 
a detailed
 
description of
 
the
Corporation’s non-accruing and charge-off policies by major loan
 
categories.
 
One of
 
the most
 
critical and
 
complex accounting
 
estimates is
 
associated with
 
the determination
 
of the
 
allowance for
 
credit losses
(“ACL”).
 
The
 
Corporation
 
establishes
 
an
 
ACL
 
for
 
its
 
loan
 
portfolio
 
based
 
on
 
its
 
estimate
 
of
 
credit
 
losses
 
over
 
the
 
remaining
contractual term
 
of the
 
loans, adjusted
 
for expected
 
prepayments, in
 
accordance with
 
Accounting Standards
 
Codification (“ASC”)
Topic
 
326.
 
An
 
ACL
 
is
 
recognized
 
for
 
all
 
loans
 
including
 
originated
 
and
 
purchased
 
loans,
 
since
 
inception,
 
with
 
a
 
corresponding
charge
 
to
 
the
 
provision
 
for
 
credit
 
losses,
 
except
 
for
 
purchased
 
credit
 
deteriorated
 
(“PCD”)
 
loans
 
as
 
explained
 
below.
 
The
Corporation follows a methodology to establish the ACL which includes a reasonable and
 
supportable forecast period for estimating
credit
 
losses,
 
considering
 
quantitative
 
and
 
qualitative
 
factors
 
as
 
well
 
as
 
the
 
economic
 
outlook.
 
As
 
part
 
of
 
this
 
methodology,
management evaluates
 
various macroeconomic
 
scenarios provided
 
by third
 
parties. At
 
December 31,
 
2022, management
 
applied
probability weights to the outcome of the selected
 
scenarios.
The
 
Corporation
 
has
 
designated
 
as
 
collateral
 
dependent
 
loans
 
secured
 
by
 
collateral
 
when
 
foreclosure
 
is
 
probable
 
or
 
when
foreclosure is
 
not probable but
 
the practical expedient
 
is used.
 
The practical expedient
 
is used
 
when repayment is
 
expected to
 
be
provided
 
substantially
 
by
 
the
 
sale
 
or
 
operation
 
of
 
the
 
collateral
 
and
 
the
 
borrower is
 
experiencing financial
 
difficulty.
 
The
 
ACL
 
of
collateral dependent loans
 
is measured based
 
on the fair
 
value of the
 
collateral less costs
 
to sell. 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.
 
In
addition, refer
 
to the
 
Credit Risk
 
section of
 
this MD&A
 
for detailed
 
information on
 
the Corporation’s
 
collateral value
 
estimation for
other real estate.
59
A restructuring constitutes a TDR when the Corporation
 
separately concludes that the restructuring constitutes a
 
concession and the
debtor
 
is
 
experiencing financial
 
difficulties.
 
For
 
information on
 
the Corporation’s
 
TDR
 
policy,
 
refer
 
to
 
Note
 
2
 
to
 
the
 
Consolidated
Financial Statements. The established framework captures the impact of
 
concessions through discounting modified contractual cash
flows,
 
both
 
principal
 
and
 
interest,
 
at
 
the
 
loan’s
 
original
 
effective
 
rate.
 
The
 
impact
 
of
 
these
 
concessions
 
is
 
combined
 
with
 
the
expected credit losses generated by the quantitative loss
 
models in order to arrive at the ACL.
Loans Acquired with Deteriorated Credit Quality
 
PCD loans are defined as those with evidence of a more-than-insignificant
 
deterioration in credit quality since origination. PCD loans
are initially recorded
 
at its purchase
 
price plus an
 
estimated ACL. Upon
 
the acquisition of
 
a PCD loan,
 
the Corporation recognizes
the
 
estimate
 
of
 
the
 
expected
 
credit
 
losses
 
over
 
the
 
remaining
 
contractual
 
term
 
of
 
each
 
individual
 
loan
 
as
 
an
 
ACL
 
with
 
a
corresponding addition to the
 
loan purchase price. The
 
amount of the purchased
 
premium or discount which
 
is not related to
 
credit
risk
 
is
 
amortized
 
over
 
the
 
life
 
of
 
the
 
loan
 
through
 
net
 
interest
 
income
 
using
 
the
 
effective
 
interest
 
method
 
or
 
a
 
method
 
that
approximates the effective interest method. Changes in
 
expected credit losses are recorded as an
 
increase or decrease to the ACL
with a corresponding charge
 
(reverse) to the provision
 
for credit losses in
 
the Consolidated Statements of
 
Operations. These loans
follow the same nonaccrual policies as non-PCD loans. Modifications of PCD
 
loans that meet the definition of a
 
TDR are accounted
and reported as such following the same processes
 
as non-PCD loans.
Income Taxes
Income
 
taxes
 
are
 
accounted
 
for
 
using
 
the
 
asset
 
and
 
liability
 
method.
 
Under
 
this
 
method,
 
deferred
 
tax
 
assets
 
and
 
liabilities
 
are
recognized based
 
on the
 
future tax
 
consequences attributable
 
to temporary
 
differences
 
between the
 
financial statement
 
carrying
amounts
 
of
 
existing
 
assets
 
and
 
liabilities
 
and
 
their
 
respective
 
tax
 
basis,
 
and
 
attributable
 
to
 
operating
 
loss
 
and
 
tax
 
credit
carryforwards. Deferred tax assets
 
and liabilities are measured
 
using enacted tax rates
 
expected to apply in
 
the years in
 
which the
temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in earnings in the period when
 
the changes are enacted.
 
The
 
calculation
 
of
 
periodic
 
income
 
taxes
 
is
 
complex
 
and
 
requires
 
the
 
use
 
of
 
estimates
 
and
 
judgments.
 
The
 
Corporation
 
has
recorded
 
two
 
accruals
 
for
 
income
 
taxes:
 
(i)
 
the
 
net
 
estimated
 
amount
 
currently
 
due
 
or
 
to
 
be
 
received
 
from
 
taxing
 
jurisdictions,
including
 
any
 
reserve
 
for
 
potential
 
examination
 
issues,
 
and
 
(ii)
 
a
 
deferred
 
income
 
tax
 
that
 
represents
 
the
 
estimated
 
impact
 
of
temporary differences between how the Corporation recognizes assets and
 
liabilities under accounting principles generally accepted
in
 
the
 
United
 
States
 
(GAAP),
 
and
 
how
 
such
 
assets
 
and
 
liabilities
 
are
 
recognized
 
under
 
the
 
tax
 
code.
 
Differences
 
in
 
the
 
actual
outcome of these future tax consequences could impact the Corporation’s financial position or its results of operations. In estimating
taxes, management assesses the relative
 
merits and risks of
 
the appropriate tax treatment of
 
transactions taking into consideration
statutory, judicial and regulatory guidance.
 
A deferred
 
tax asset
 
should be
 
reduced by
 
a valuation
 
allowance if based
 
on the
 
weight of
 
all available evidence,
 
it is
 
more likely
than
 
not
 
(a
 
likelihood
 
of
 
more
 
than
 
50%)
 
that
 
some
 
portion
 
or
 
the
 
entire
 
deferred
 
tax
 
asset
 
will
 
not
 
be
 
realized.
 
The
 
valuation
allowance
 
should
 
be
 
sufficient
 
to
 
reduce
 
the
 
deferred
 
tax
 
asset
 
to
 
the
 
amount
 
that
 
is
 
more
 
likely
 
than
 
not
 
to
 
be
 
realized.
 
The
determination of whether a deferred
 
tax asset is realizable is
 
based on weighting all
 
available evidence, including both positive and
negative evidence.
 
The realization
 
of deferred
 
tax assets,
 
including carryforwards
 
and deductible
 
temporary differences,
 
depends
upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The realization of
deferred tax assets requires
 
the consideration of all
 
sources of taxable income
 
available to realize the
 
deferred tax asset, including
the
 
future
 
reversal
 
of
 
existing
 
temporary
 
differences,
 
future
 
taxable
 
income
 
exclusive
 
of
 
reversing
 
temporary
 
differences
 
and
carryforwards, taxable income in carryback years and
 
tax-planning strategies.
Management evaluates the
 
realization of the
 
deferred tax asset
 
by taxing
 
jurisdiction. The U.S.
 
mainland operations are
 
evaluated
as
 
a whole
 
since a
 
consolidated income
 
tax return
 
is filed;
 
on the
 
other
 
hand, the
 
deferred tax
 
asset related
 
to the
 
Puerto
 
Rico
operations
 
is evaluated
 
on an
 
entity by
 
entity basis,
 
since
 
no consolidation
 
is
 
allowed in
 
the income
 
tax filing.
 
Accordingly,
 
this
evaluation
 
is
 
composed
 
of
 
three
 
major
 
components:
 
U.S.
 
mainland
 
operations,
 
Puerto
 
Rico
 
banking
 
operations
 
and
 
Holding
Company.
60
For the
 
evaluation of
 
the realization
 
of the
 
deferred tax
 
asset by
 
taxing jurisdiction,
 
refer to
 
Note 35
 
to the
 
Consolidated Financial
Statements.
Under the Puerto Rico Internal Revenue Code, the
 
Corporation and its subsidiaries are treated as separate taxable
 
entities and are
not entitled to file
 
consolidated tax returns. The Code
 
provides a dividends-received deduction of 100%
 
on dividends received from
“controlled” subsidiaries subject to taxation in Puerto Rico
 
and 85% on dividends received from other
 
taxable domestic corporations.
 
Changes in
 
the Corporation’s
 
estimates can occur
 
due to changes
 
in tax
 
rates, new business
 
strategies, newly
 
enacted guidance,
and resolution
 
of issues
 
with taxing
 
authorities regarding
 
previously taken tax
 
positions. Such
 
changes could
 
affect the
 
amount of
accrued taxes. The Corporation has made
 
tax payments in accordance with
 
estimated tax payments rules. Any remaining
 
payment
will not have any significant impact on liquidity
 
and capital resources.
The valuation
 
of deferred
 
tax assets
 
requires judgment
 
in assessing
 
the likely
 
future tax
 
consequences of
 
events that
 
have been
recognized
 
in
 
the
 
financial
 
statements
 
or
 
tax
 
returns
 
and
 
future
 
profitability.
 
The
 
accounting
 
for
 
deferred
 
tax
 
consequences
represents management’s best
 
estimate of those
 
future events. Changes
 
in management’s current
 
estimates, due to
 
unanticipated
events, could have a material impact on the
 
Corporation’s financial condition and results of operations.
The Corporation establishes tax liabilities or reduces tax assets for uncertain tax positions when, despite its assessment that the tax
return positions are appropriate and supportable under local tax law, the Corporation believes it may not succeed in realizing the tax
benefit of certain
 
positions if challenged.
 
In evaluating
 
a tax position,
 
the Corporation determines
 
whether it is
 
more likely than
 
not
that the position will be sustained upon examination, including resolution
 
of any related appeals or litigation processes, based on the
technical
 
merits
 
of
 
the
 
position.
 
The
 
Corporation’s
 
estimate
 
of
 
the
 
ultimate
 
tax
 
liability
 
contains
 
assumptions
 
based
 
on
 
past
experiences, and judgments
 
about potential actions
 
by taxing jurisdictions
 
as well as
 
judgments about the
 
likely outcome of
 
issues
that have been raised by taxing jurisdictions. The tax
 
position is measured as the largest amount of benefit
 
that is greater than 50%
likely of being
 
realized upon ultimate settlement.
 
The Corporation evaluates these
 
uncertain tax positions each
 
quarter and adjusts
the related tax liabilities or
 
assets in light of changing
 
facts and circumstances, such as the
 
progress of a tax audit
 
or the expiration
of a
 
statute of
 
limitations. The Corporation
 
believes the
 
estimates and assumptions
 
used to
 
support its
 
evaluation of
 
uncertain tax
positions are reasonable.
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. Although
 
the
 
outcome of
 
tax audits
 
is uncertain,
 
the Corporation
 
believes that
 
adequate amounts
 
of tax,
interest and penalties
 
have been provided
 
for any adjustments
 
that are expected
 
to result from
 
open years. From
 
time to time,
 
the
Corporation is audited
 
by various federal, state
 
and local authorities regarding
 
income tax matters. Although
 
management believes
its
 
approach
 
in
 
determining the
 
appropriate
 
tax
 
treatment
 
is
 
supportable
 
and
 
in
 
accordance
 
with
 
the
 
accounting standards,
 
it
 
is
possible that the final tax
 
authority will take a tax position that
 
is different than the tax
 
position reflected in the Corporation’s income
tax provision and other tax reserves. As each audit is conducted, adjustments, if any,
 
are appropriately recorded in the consolidated
financial
 
statement
 
in
 
the
 
period
 
determined.
 
Such
 
differences
 
could
 
have
 
an
 
adverse
 
effect
 
on
 
the
 
Corporation’s
 
income
 
tax
provision or
 
benefit, or
 
other tax
 
reserves, in
 
the reporting
 
period in
 
which such
 
determination is
 
made and,
 
consequently,
 
on the
Corporation’s results of operations, financial position and
 
/ or cash flows for such period.
Goodwill and Other Intangible Assets
The
 
Corporation’s
 
goodwill
 
and
 
other
 
identifiable
 
intangible
 
assets
 
having
 
an
 
indefinite
 
useful
 
life
 
are
 
tested
 
for
 
impairment.
Intangibles
 
with
 
indefinite
 
lives
 
are
 
evaluated
 
for
 
impairment
 
at
 
least
 
annually,
 
and
 
on
 
a
 
more
 
frequent
 
basis,
 
if
 
events
 
or
circumstances indicate impairment could have taken place.
 
Such events could include, among others, a
 
significant adverse change
in the business climate, an adverse action by a regulator,
 
an unanticipated change in the competitive environment and a decision to
change
 
the
 
operations
 
or
 
dispose
 
of
 
a
 
reporting
 
unit.
 
Other
 
identifiable
 
intangible
 
assets
 
with
 
a
 
finite
 
useful
 
life
 
are
 
evaluated
periodically for impairment when events or changes
 
in circumstances indicate that the carrying amount
 
may not be recoverable.
 
Goodwill impairment is recognized when the carrying amount of any
 
of the reporting units exceeds its fair value up
 
to the amount of
the
 
goodwill.
 
The
 
Corporation
 
estimates
 
the
 
fair
 
value
 
of
 
each
 
reporting
 
unit,
 
consistent
 
with
 
the
 
requirements
 
of
 
the
 
fair
 
value
measurements
 
accounting
 
standard,
 
generally
 
using
 
a
 
combination
 
of
 
methods,
 
including
 
market
 
price
 
multiples
 
of
 
comparable
companies and
 
transactions, as
 
well as
 
discounted cash
 
flow analyses.
 
Subsequent reversal
 
of goodwill
 
impairment losses
 
is not
61
permitted under applicable accounting standards. For a detailed description of the annual goodwill impairment evaluation performed
by the Corporation during the third quarter of 2022,
 
refer to Note 15 to the Consolidated Financial
 
Statements.
Pension and Postretirement Benefit Obligations
The Corporation provides pension and
 
restoration benefit plans for certain employees
 
of various subsidiaries. The Corporation also
provides certain
 
health care
 
benefits for
 
retired employees of
 
BPPR. The
 
non-contributory defined pension
 
and benefit
 
restoration
plans (“the Pension Plans”) are frozen with regards
 
to all future benefit accruals.
 
The estimated
 
benefit costs
 
and obligations
 
of the
 
Pension Plans and
 
Postretirement Health
 
Care Benefit Plan
 
(“OPEB Plan”) are
impacted by
 
the use
 
of subjective
 
assumptions, which can
 
materially affect
 
recorded amounts, including
 
expected returns on
 
plan
assets,
 
discount
 
rates,
 
termination
 
rates,
 
retirement
 
rates
 
and
 
health
 
care
 
trend
 
rates.
 
Management
 
applies
 
judgment
 
in
 
the
determination of these factors, which normally undergo evaluation against current industry practice and the
 
actual experience of the
Corporation.
 
The
 
Corporation
 
uses
 
an
 
independent
 
actuarial
 
firm
 
for
 
assistance
 
in
 
the
 
determination
 
of
 
the
 
Pension
 
Plans
 
and
OPEB Plan
 
costs and
 
obligations. Detailed information
 
on the Plans
 
and related valuation
 
assumptions are included
 
in Note
 
30 to
the Consolidated Financial Statements.
 
The Corporation periodically reviews its assumption for the long-term expected return on Pension Plans
 
assets. The Pension Plans’
assets
 
fair
 
value
 
at
 
December
 
31,
 
2022
 
was
 
$619.9
 
million.
 
The
 
expected
 
return
 
on
 
plan
 
assets
 
is
 
determined
 
by
 
considering
various factors, including a total fund return estimate based on a weighted-average
 
of estimated returns for each asset class in each
plan.
 
Asset
 
class
 
returns
 
are
 
estimated
 
using
 
current
 
and
 
projected
 
economic
 
and
 
market
 
factors
 
such
 
as
 
real
 
rates
 
of
 
return,
inflation, credit spreads, equity risk premiums and
 
excess return expectations.
 
As part of the review,
 
the Corporation’s independent consulting actuaries performed an analysis of expected returns
 
based on each
plan’s expected asset
 
allocation for the year
 
2023 using the
 
Willis Towers
 
Watson US Expected
 
Return Estimator.
 
This analysis is
reviewed by the Corporation
 
and used as a
 
tool to develop expected
 
rates of return, together
 
with other data. This
 
forecast reflects
the actuarial firm’s view of
 
expected long-term rates of return for each significant asset
 
class or economic indicator as of January
 
1,
2023;
 
for
 
example, 8.5%
 
for
 
large
 
cap
 
stocks,
 
8.8% for
 
small cap
 
stocks,
 
9.0% for
 
international stocks,
 
6.1% for
 
long
 
corporate
bonds
 
and
 
4.9%
 
for
 
long
 
Treasury
 
bonds.
 
A
 
range
 
of
 
expected
 
investment
 
returns
 
is
 
developed,
 
and
 
this
 
range
 
relies
 
both
 
on
forecasts and on broad-market historical benchmarks
 
for expected returns, correlations, and volatilities
 
for each asset class.
 
As a consequence of recent
 
reviews, the Corporation increased its expected return
 
on plan assets for year
 
2023 to 5.9% and 6.5%
for the Pension
 
Plans. Expected rates
 
of return of
 
4.3% and 5.4%
 
had been used
 
for 2022 and
 
4.6% and 5.5%
 
had been used
 
for
2021 for the Pension Plans. Since the expected return assumption is on a long-term basis, it is not materially impacted by the yearly
fluctuations (either positive or negative) in the actual
 
return on assets. The expected return can be materially
 
impacted by a change
in the plan’s asset allocation.
Net Periodic
 
Benefit Cost
 
(“pension expense”)
 
for the
 
Pension Plans
 
amounted to
 
a net
 
benefit of
 
$0.5 million
 
in 2022.
 
The total
pension expense included a benefit of $35.4 million
 
for the expected return on assets.
 
Pension expense is sensitive
 
to changes in the
 
expected return on assets.
 
For example, decreasing the expected
 
rate of return for
2022 from
 
5.9% to
 
5.65% would
 
increase the
 
projected 2023
 
pension expense
 
for the
 
Banco Popular
 
de Puerto
 
Rico Retirement
Plan, the Corporation’s largest plan, by approximately
 
$1.4 million.
 
If
 
the
 
projected
 
benefit
 
obligation
 
exceeds
 
the
 
fair
 
value
 
of
 
plan
 
assets,
 
the
 
Corporation
 
shall
 
recognize
 
a
 
liability
 
equal
 
to
 
the
unfunded projected
 
benefit obligation
 
and vice
 
versa, if
 
the fair
 
value of
 
plan assets
 
exceeds the
 
projected benefit
 
obligation, the
Corporation recognizes an asset equal to the overfunded projected
 
benefit obligation. This asset or liability may result
 
in a taxable or
deductible temporary difference and its
 
tax effect shall be
 
recognized as an income tax
 
expense or benefit which
 
shall be allocated
to various
 
components of
 
the financial
 
statements, including
 
other comprehensive
 
income.
 
The determination
 
of the
 
fair value
 
of
pension
 
plan
 
obligations
 
involves
 
judgment,
 
and
 
any
 
changes
 
in
 
those
 
estimates
 
could
 
impact
 
the
 
Corporation’s
 
Consolidated
Statements of Financial
 
Condition. Management believes that
 
the fair value
 
estimates of the
 
Pension Plans assets
 
are reasonable
given
 
the
 
valuation
 
methodologies
 
used
 
to
 
measure
 
the
 
investments
 
at
 
fair
 
value
 
as
 
described
 
in
 
Note
 
28
 
to
 
the
 
Consolidated
Financial
 
Statements.
 
Also,
 
the
 
compositions
 
of
 
the
 
plan
 
assets
 
are
 
primarily
 
in
 
equity
 
and
 
debt
 
securities,
 
which
 
have
 
readily
determinable quoted market prices. The Corporation
 
had recorded a pension liability of $8.3
 
million at December 31, 2022.
62
The Corporation uses
 
the spot rate
 
yield curve from
 
the Willis Towers
 
Watson RATE:
 
Link (10/90) Model
 
to discount the
 
expected
projected
 
cash
 
flows
 
of
 
the
 
plans.
 
The
 
equivalent
 
single
 
weighted
 
average
 
discount
 
rate
 
ranged
 
from
 
5.34%
 
to
 
5.37%
 
for
 
the
Pension Plans and 5.42% for the OPEB Plan to determine
 
the benefit obligations at December 31, 2022.
A 50
 
basis point
 
decrease to
 
each of
 
the rates
 
in the
 
December 31,
 
2022 Willis
 
Towers
 
Watson RATE:
 
Link (10/90)
 
Model would
increase the
 
projected 2023
 
expense for
 
the Banco
 
Popular de
 
Puerto Rico
 
Retirement Plan
 
by approximately
 
$1.8 million.
 
The
change would not affect the minimum required contribution
 
to the Pension Plans.
 
The OPEB Plan was unfunded (no assets were held by the plan) at December 31, 2022. The Corporation had recorded a liability for
the underfunded postretirement benefit obligation of
 
$118.3 million at December 31, 2022.
 
63
STATEMENT
 
OF OPERATIONS ANALYSIS
Net Interest Income
 
Net interest income is the interest earned from loans, debt securities and money market investments, including loan fees, minus
 
the
interest cost of deposits and borrowed money.
 
Various risk factors
 
affect net interest income including the economic environment in
which we operate, market related events, the mix
 
and size of the earning assets and
 
related funding, changes in volumes, repricing
characteristics,
 
loan
 
fees
 
collected,
 
moratoriums granted
 
on
 
loan
 
payments
 
and
 
delay
 
charges,
 
interest
 
collected
 
on
 
nonaccrual
loans, as well as strategic decisions made by the
 
Corporation’s management.
Net
 
interest
 
income
 
for
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
was $2.2
 
billion
 
or
 
$209.8
 
million
 
higher than
 
in
 
2021.
 
Net
 
interest
income, on a taxable equivalent basis, for
 
the year ended December 31, 2022 was $2.4 billion
 
compared to $2.2 billion in 2021.
The average key index rates for the years 2022 and
 
2021 were as follows:
 
2022
2021
Prime rate………………………………………………………………………………………………….
4.86%
3.25%
Fed funds rate…………………………………………………………………………………………….
1.86
0.25
3-month Treasury Bill…………………………………………………………………………………….
2.01
0.03
10-year Treasury………………………………………………………………………………………….
2.95
1.44
FNMA 30-year…………………………………………………………………………………………….
4.26
1.84
Average
 
outstanding securities
 
balances are
 
based upon
 
amortized cost
 
excluding any
 
unrealized gains
 
or losses
 
on securities.
Non-accrual
 
loans
 
have
 
been
 
included
 
in
 
the
 
respective
 
average
 
loans
 
and
 
leases
 
categories.
 
Loan
 
fees
 
collected,
 
and
 
costs
incurred
 
in
 
the
 
origination
 
of
 
loans
 
are
 
deferred
 
and
 
amortized
 
over
 
the
 
term
 
of
 
the
 
loan
 
as
 
an
 
adjustment
 
to
 
interest
 
yield.
Prepayment penalties, late fees
 
collected and the
 
amortization of premiums /
 
discounts on purchased loans,
 
including the discount
accretion on purchased credit
 
deteriorated loans (“PCD”), are
 
also included as
 
part of the
 
loan yield. Interest income
 
for the period
ended December 31,
 
2022, included $44.6
 
million related to
 
those items, compared
 
to $131.5 million
 
for the
 
same period in
 
2021.
The year over
 
year decrease is
 
related to lower
 
amortized fees resulting from
 
the forgiveness of
 
PPP loans by
 
$55.7 million, lower
discount amortization on commercial loans by $16.3 million mainly driven by lower
 
interest from cancellation of PCD loans and $6.6
million lower amortization of the fair value discount
 
of the auto portfolios acquired in previous
 
years.
 
Table
 
3 presents
 
the
 
different
 
components
 
of
 
the
 
Corporation’s
 
net
 
interest
 
income,
 
on
 
a
 
taxable
 
equivalent
 
basis,
 
for
 
the
 
year
ended December 31,
 
2022, as compared
 
with the same
 
period in 2021,
 
segregated by major
 
categories of interest
 
earning assets
and
 
interest-bearing
 
liabilities.
 
Net
 
interest
 
margin
 
was
 
3.11%
 
in
 
2022
 
or
 
23
 
basis
 
points
 
higher
 
than
 
the
 
2.88%
 
reported
 
in
2021. The
 
higher
 
net
 
interest
 
margin
 
for
 
the
 
year
 
is
 
driven
 
by
 
$1.6
 
billion
 
higher
 
average
 
volume
 
of
 
earning
 
assets
 
and
 
higher
interest rates as
 
the Federal Reserve
 
increased the Federal
 
Funds Rate by
 
425 basis points
 
during 2022. On
 
a taxable equivalent
basis, net interest margin
 
was 3.46% in 2022, compared to 3.19%
 
in 2021, an increase
 
of 27 basis points.
 
The main drivers for the
increase in net interest income on a taxable equivalent
 
basis were:
Positive variances:
Higher interest income
 
from money market
 
investments by $96.9
 
million due to
 
higher interest rates
 
by 111
 
basis points,
partially offset by lower volume by $6.5 billion,
 
as part of the liquidity was deployed to
 
purchase investment securities and
fund loan growth;
Higher interest income from investment securities by
 
$156.1 million due to a higher volume
 
by $6.8 million;
Higher interest income from loans by $130.1
 
million due to:
Increase in commercial loan Interest
 
income by $71.4 million driven
 
by a higher average
 
volume of loans by
$1.1
 
billion
 
and
 
higher
 
yield
 
by
 
7
 
basis
 
points
 
as
 
the
 
origination
 
of
 
loans
 
occurs
 
in
 
a
 
higher
 
interest
 
rate
scenario and
 
the positive
 
impact on
 
the repricing
 
of adjustable-rate
 
loans, partially
 
offset by
 
lower amortized
fees
 
resulting
 
from
 
the
 
forgiveness
 
of
 
PPP
 
loans
 
by
 
$55.7
 
million
 
and
 
lower
 
discount
 
amortization
 
on
commercial loans by $16.3 million mainly from
 
cancellation of PCD loans;
64
Higher interest income from
 
consumer loans by $44.8
 
million resulting from a
 
higher volume by $280
 
million
and higher
 
yield by
 
49 basis
 
points, driven
 
by the
 
increase in
 
personal loans
 
year over
 
year and
 
increase in
credit cards volume.
Partially offset by:
Higher interest
 
expense on
 
deposits by
 
$141.2
 
million
 
due to
 
the increase
 
in interest
 
cost
 
by
 
29 basis
 
points
 
resulting
mainly from a
 
higher cost of
 
the fully indexed
 
Puerto Rico government
 
deposits and the
 
increase in cost
 
of Popular U.S.
deposits.
 
Under the
 
terms
 
of
 
BPPR’s
 
deposit pricing
 
agreement with
 
Puerto
 
Rico
 
public sector,
 
public funds
 
rates
 
are
market linked
 
with a
 
lag minus
 
a specified
 
spread. As
 
such, if
 
short-term interest
 
rates continue
 
to
 
increase, we
 
would
expect the costs
 
of public funds
 
to continue to
 
increase. This source
 
of funding still
 
results in an
 
attractive spread under
market rates.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
Table 3 – Analysis of Levels & Yields
 
on a Taxable Equivalent Basis
 
from Continuing Operations (Non-GAAP)
Year ended December 31,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2022
2021
Variance
2022
2021
 
Variance
2022
2021
Variance
Rate
Volume
(In millions)
(In thousands)
$
9,531
$
16,000
$
(6,469)
1.24
%
0.13
%
1.11
%
Money market investments
$
118,079
$
21,147
$
96,932
$
108,780
$
(11,848)
29,743
22,931
6,812
2.23
2.22
0.01
Investment securities [1]
664,278
508,131
156,147
16,116
140,031
51
84
(33)
5.94
5.16
0.78
Trading securities
 
3,049
4,339
(1,290)
600
(1,890)
Total money market,
 
investment and trading
39,325
39,015
310
2.00
1.37
0.63
securities
785,406
533,617
251,789
125,496
126,293
Loans:
14,562
13,455
1,107
5.46
5.39
0.07
Commercial
 
795,115
723,765
71,350
10,997
60,353
778
849
(71)
6.29
5.41
0.88
Construction
48,920
45,821
3,099
7,172
(4,073)
1,475
1,289
186
5.92
6.00
(0.08)
Leasing
87,274
77,356
9,918
(1,093)
11,011
7,322
7,696
(374)
5.34
5.09
0.25
Mortgage
391,133
392,047
(914)
18,584
(19,498)
2,743
2,463
280
11.66
11.17
0.49
Consumer
319,920
275,078
44,842
11,546
33,296
3,525
3,322
203
8.02
8.47
(0.45)
Auto
282,533
280,722
1,811
(14,833)
16,644
30,405
29,074
1,331
6.33
6.19
0.14
Total loans
1,924,895
1,794,789
130,106
32,373
97,733
$
69,730
$
68,089
$
1,641
3.89
%
3.43
%
0.46
%
Total earning assets
$
2,710,301
$
2,328,406
$
381,895
$
157,869
$
224,026
Interest bearing deposits:
$
25,884
$
25,959
$
(75)
0.61
%
0.12
%
0.49
%
NOW and money market [2]
$
158,664
$
31,911
$
126,753
$
127,953
$
(1,200)
15,886
15,429
457
0.20
0.18
0.02
Savings
 
32,400
27,123
5,277
4,983
294
6,853
7,028
(175)
0.90
0.75
0.15
Time deposits
61,781
52,587
9,194
10,241
(1,047)
48,623
48,416
207
0.52
0.23
0.29
Total interest bearing
 
deposits
252,845
111,621
141,224
143,177
(1,953)
206
92
114
2.78
0.35
2.43
Short-term borrowings
5,737
318
5,419
2,030
3,389
Other medium and
 
939
1,185
(246)
4.26
4.49
(0.23)
long-term debt
39,970
53,107
(13,137)
63
(13,200)
Total interest bearing
49,768
49,693
75
0.60
0.33
0.27
liabilities
298,552
165,046
133,506
145,270
(11,764)
16,094
14,687
1,407
Demand deposits
3,868
3,709
159
Other sources of funds
$
69,730
$
68,089
$
1,641
0.43
%
0.24
%
0.19
%
Total source of funds
298,552
165,046
133,506
145,270
(11,764)
3.46
%
3.19
%
0.27
%
Net interest margin/ income
on a taxable equivalent basis
(Non-GAAP)
2,411,749
2,163,360
248,389
$
12,599
$
235,790
3.29
%
3.10
%
0.19
%
Net interest spread
Taxable equivalent
adjustment
244,390
205,770
38,620
3.11
%
2.88
%
0.23
%
Net interest margin/ income
non-taxable equivalent basis
(GAAP)
$
2,167,359
$
1,957,590
$
209,769
Note: The changes that are not due solely to volume or
 
rate are allocated to volume and rate based on the
 
proportion of the change in each category.
[1] Average balances exclude unrealized gains or losses
 
on debt securities available-for-sale and the unrealized
 
loss related to certain securities transferred
from available-for-sale to held-to-maturity.
[2] Includes interest bearing demand deposits corresponding
 
to certain government entities in Puerto Rico.
66
Provision for Credit Losses - Loans Held-in-Portfolio
 
and Unfunded Commitments
For the
 
year ended
 
December 31,
 
2022, the
 
Corporation recorded
 
an expense
 
of $84.2
 
million for
 
its allowance
 
for credit
 
losses
(“ACL”) related to loans held-in-portfolio and unfunded commitments, compared with a reserve release of $191.3 million for the year
ended
 
December
 
31,
 
2021.
 
The
 
provision
 
expense
 
related
 
to
 
the
 
loans-held-in-portfolio
 
for
 
the
 
year
 
2022
 
was
 
$83.3
 
million,
compared
 
to
 
a
 
reserve
 
release
 
of
 
$183.3
 
million
 
for
 
the
 
year
 
2021.
 
The
 
reserve
 
increase
 
is
 
mostly
 
driven
 
by
 
changes
 
in
 
the
economic scenario, higher loan
 
volumes and changes in
 
credit quality.
 
The updated economic scenarios
 
used to estimate the
 
ACL
on December
 
31, 2022
 
considered an
 
expected slowdown in
 
the economy
 
as a
 
result of
 
tight monetary
 
policy,
 
weaker job
 
growth
and persistent inflation. The reserve release recorded in 2021 was driven
 
by the release of Covid-related reserves recorded in 2020.
The provision for
 
unfunded commitments for
 
the year 2022
 
reflected an expense
 
of $0.9 million,
 
compared to a
 
reserve release of
$8.0 million for the same period of 2021.
 
The provision expense related
 
to loans held-in-portfolio for
 
the BPPR segment was
 
$69.5 million for the
 
year ended December 31,
2022, compared to
 
a reserve release
 
of $129.0 million
 
for the
 
year ended December
 
31, 2021, an
 
unfavorable variance of
 
$198.6
million. The provision expense related to loans held-in-portfolio for
 
the Popular U.S. segment was $13.8 million for the year 2022, an
unfavorable variance of $68.1 million, compared to
 
a reserve release of $54.3 million for
 
the year 2021.
At
 
December
 
31,
 
2022,
 
the
 
total
 
allowance
 
for
 
credit
 
losses
 
for
 
loans
 
held-in-portfolio amounted
 
to
 
$720.3
 
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
 
2.25%
 
at
December
 
31,
 
2022, compared
 
to
 
2.38%
 
at
 
December 31,
 
2021. Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated Financial
 
Statements, for
additional information on the Corporation’s methodology to estimate its ACL. As discussed therein, within the process to estimate its
ACL, the Corporation applies probability weights 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.
 
In
addition,
 
refer
 
to
 
the
 
Credit
 
Risk
 
section
 
of
 
this
 
MD&A
 
for
 
a
 
detailed
 
analysis
 
of
 
net
 
charge-offs,
 
non-performing
 
assets,
 
the
allowance for credit losses and selected loan
 
losses statistics.
Provision for Credit Losses – Investment Securities
The
 
Corporation’s
 
provision
 
for
 
credit
 
losses
 
related
 
to
 
its
 
investment
 
securities
 
held-to-maturity
 
is
 
related
 
to
 
the
 
portfolio
 
of
obligations
 
from
 
the
 
Government
 
of
 
Puerto
 
Rico,
 
states
 
and
 
political
 
subdivisions.
 
For
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
Corporation recorded a reserve release of
 
$1.2 million, compared to a reserve
 
release of $2.2 million for the
 
year ended December
31, 2021. At
 
December 31, 2022,
 
the total allowance
 
for credit losses
 
for this portfolio
 
amounted to $6.9
 
million, compared to
 
$8.1
million as of December 31, 2021. Refer to Note 7 to the Consolidated Financial Statements for additional information on the ACL for
this portfolio.
Non-Interest Income
For the
 
year ended December
 
31, 2022, non-interest
 
income increased by
 
$254.9 million, when
 
compared with the
 
previous year.
The results for the year 2022 included a $257.7 million gain related to the Evertec
 
Transactions and related accounting adjustments.
Other factors that contributed to the variance in non-interest
 
income were:
 
higher other service fees by $22.8 million, principally at the BPPR segment, due to higher credit card fees by $18.9 million
mainly in interchange income resulting from higher customer purchase activity and higher fees from the merchant network
business by $6.7 million due to the revenue sharing
 
agreement entered into in connection with
 
the Evertec Transactions;
 
 
a
 
favorable
 
adjustment
 
of
 
$9.2
 
million
 
in
 
the
 
fair
 
value
 
of
 
the
 
contingent
 
consideration
 
related
 
to
 
purchase
 
price
adjustments
 
for
 
the
 
acquisition
 
of
 
the
 
K2
 
Capital
 
Group
 
LLC
 
business
 
in
 
2021
 
(‘’K2
 
Acquisition’’),
 
as
 
the
 
Corporation
updated its estimates related to the ability to realize
 
the earnings targets for the contingent payment; and
 
a gain of $8.2 million from the sale of an
 
investment which had been previously written off;
partially offset by:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
 
lower service charges on deposit accounts by $5.5 million, mainly at BPPR, due to lower overdraft related charges, in part
due to the
 
Corporation’s determination of
 
eliminating insufficient funds
 
fees and modifying
 
overdraft fees effective
 
on the
third quarter of 2022 and lower cash management service charges from commercial clients due to higher earnings credits
on transactional accounts driven by the current interest
 
rate environment;
 
lower
 
income
 
from
 
mortgage
 
banking
 
activities
 
by
 
7.7
 
million
 
mainly
 
due
 
to
 
lower
 
gains
 
from
 
loan
 
securitization
 
and
valuation adjustments
 
on loans
 
held for
 
sale
 
by
 
$21.9 million,
 
impacted by
 
the
 
Corporation’s determination
 
in the
 
third
quarter of 2022 to
 
retain certain guaranteed loans as
 
held for investment; partially offset
 
by a favorable variance of
 
$10.4
million in the
 
fair value adjustments for
 
mortgage servicing rights driven
 
by slower projected prepayments
 
in the serviced
portfolio and higher gains from closed derivative
 
positions by $5.3 million;
 
an unfavorable variance of $7.5 million on the fair value adjustments to the portfolio of equity securities related to deferred
benefit plans, which have an offsetting effect recorded as
 
lower personnel costs; and
 
the gain of $7.0 million recognized in the third
 
quarter of 2021 by BPPR as a result of
 
the sale and partial leaseback of two
corporate office buildings.
Operating Expenses
As discussed
 
in the
 
significant events
 
section of
 
this MD&A,
 
to facilitate
 
the transparency
 
of the
 
progress with
 
the transformation
initiative and
 
to better
 
portray the
 
level of
 
technology related
 
expenses categorized
 
by the
 
nature of
 
the expense,
 
effective in
 
the
fourth
 
quarter
 
of
 
2022,
 
the
 
Corporation
 
has
 
separated
 
technology,
 
professional
 
fees
 
and
 
transactional
 
activities
 
as
 
standalone
expense categories
 
in the
 
accompanying Consolidated
 
Statements
 
of
 
Operations. There
 
were no
 
changes to
 
the total
 
operating
expenses presented.
 
Prior periods amount in the financial
 
statements and related disclosures have been reclassified to conform
 
to
the current presentation.
 
Table 4 provides the detail of the reclassifications for each respective year.
 
Table 4 - Operating Expen
 
ses Reclassification
2021
2020
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
92,097
$
(59,178)
$
32,919
$
88,932
$
(56,418)
$
32,514
Professional services
410,865
(284,144)
126,721
394,122
(261,708)
132,414
Technology and
 
software expenses
-
277,979
277,979
-
263,886
263,886
Processing and transactional services
-
121,367
121,367
-
112,039
112,039
Communications
25,234
(11,205)
14,029
23,496
(10,266)
13,230
Other expenses
136,988
(44,819)
92,169
128,882
(47,533)
81,349
Net effect on operating expenses
$
665,184
$
-
$
665,184
$
635,432
$
-
$
635,432
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
Table 5 provides a breakdown of operating expenses by major categories.
 
Table 5 - Operating Expenses
Years ended December
 
31,
 
(In thousands)
2022
2021
2020
Personnel costs:
Salaries
$
432,910
$
371,644
$
370,179
Commissions, incentives and other bonuses
155,889
142,212
78,582
Pension, postretirement and medical insurance
56,085
52,077
44,123
Other personnel costs, including payroll taxes
74,880
65,869
71,321
Total personnel
 
costs
719,764
631,802
564,205
Net occupancy expenses
106,169
102,226
119,345
Equipment expenses
35,626
32,919
32,514
Other taxes
63,603
56,783
54,454
Professional fees
172,043
126,721
132,414
Technology and
 
software expenses
291,902
277,979
263,886
Processing and transactional services:
Credit and debit cards
45,455
40,383
40,903
Other processing and transactional services
81,690
80,984
71,136
Total processing
 
and transactional services
127,145
121,367
112,039
Communications
14,885
14,029
13,230
Business promotion:
Rewards and customer loyalty programs
51,832
38,919
30,380
Other business promotion
37,086
34,062
27,228
Total business
 
promotion
88,918
72,981
57,608
FDIC deposit insurance
26,787
25,579
23,868
Other real estate owned (OREO) income
(22,143)
(14,414)
(3,480)
Other operating expenses:
Operational losses
32,049
38,391
26,331
All other
77,397
53,778
55,018
Total other operating
 
expenses
109,446
92,169
81,349
Amortization of intangibles
3,275
9,134
6,397
Goodwill impairment charge
9,000
-
-
Total operating
 
expenses
$
1,746,420
$
1,549,275
$
1,457,829
Personnel costs to average assets
0.99
%
0.89
%
0.95
%
Operating expenses to average assets
2.40
2.18
2.45
Employees (full-time equivalent)
8,813
8,351
8,522
Average assets per employee (in millions)
$8.26
$8.52
$6.99
Operating expenses
 
for the
 
year ended
 
December 31,
 
2022 increased
 
by $197.1
 
million, when
 
compared with
 
the previous
 
year.
The increase in operating expenses was driven
 
primarily by:
 
Higher
 
personnel
 
costs
 
by
 
$88.0
 
million
 
mainly
 
due
 
to
 
higher
 
salaries
 
expense
 
by
 
$61.3
 
million
 
as
 
a
 
result
 
of
 
market
adjustments,
 
annual salary
 
revisions and
 
an increase
 
in headcount,
 
higher commission
 
and incentives
 
by $13.7
 
million,
due to higher headcount, salary revisions and, in part, profit-sharing expense and higher payroll taxes and fringe benefits,
including health and retirement benefits, reflecting
 
the overall increase in salary base;
 
Higher net occupancy expense by $3.9 million mainly due to BPPR’s lower rental income
 
due to the sale of two corporate
office buildings during the third quarter of 2021,
coupled with higher rent expense related to the space remaining occupied
by BPPR;
 
69
 
Higher other taxes by
 
$6.8 million mainly due to
 
an increase in personal property
 
tax expense and a higher
 
base used to
estimate an annual Puerto Rico regulatory license
 
fee;
 
Higher professional fees by $45.3 million primarily due
 
to Corporate initiatives including $22 million related to
 
a multi-year
corporate transformation
 
initiative to
 
expand the
 
Corporation’s digital
 
capabilities, modernize
 
its technology
 
platform and
implement agile and efficient business processes;
 
Higher technology and software
 
expenses by $13.9
 
million mainly due
 
to higher software
 
amortization expense by $10.3
million, including
 
$2.4 million
 
related to
 
the software
 
intangible assets acquired
 
as part
 
of the
 
Evertec Transactions,
 
and
higher
 
IT
 
professional
 
fees
 
and
 
network
 
management
 
expense
 
by
 
$15.5
 
million
 
due
 
to
 
various
 
ongoing
 
technology
projects; partially offset
 
by a decrease in
 
charges related to internet
 
banking of $9.6 million
 
and lower application hosting
expense reflecting savings as a result of the Evertec
 
Transactions;
 
Higher
 
processing
 
and
 
transactional
 
services
 
by
 
$5.8
 
million
 
mainly
 
due
 
to
 
higher
 
credit
 
and
 
debit
 
card
 
processing
expense as
 
a result
 
of higher transactional
 
volumes, reflecting
 
an increase in
 
customer purchase activity;
 
partially offset
by lower merchant processing
 
due to higher incentives received
 
during the year related to
 
the ATH
 
Network Participation
Agreement entered into in connection with the
 
Evertec Transactions;
 
Higher business promotion expense by $15.9 million mainly due to higher customer reward program expense in our credit
card business by $12.9
 
million, reflecting an increase
 
in customer purchase activity,
 
higher sponsorship expense by $1.5
million and higher donations by $1.2
 
million, including hurricane related donations;
 
Higher
 
total
 
other
 
operating
 
expenses,
 
including
 
operational
 
losses,
 
by
 
$17.3
 
million
 
mainly
 
due
 
to
 
the
 
$17.3
 
million
expense related to the Evertec Transactions;
 
net of $6.9 million in credits received in
 
connection with this transaction and
higher gain on sale of foreclosed auto units by
 
$6.6 million; offset by $6.5 million of lower sundry
 
losses;
 
and
 
a goodwill impairment charge of $9.0 million due
 
to a decrease in Popular Equipment Finance’s (PEF) projected earnings
considered as part of the Corporation’s annual goodwill
 
impairment analysis.
These variances were partially offset by:
 
Higher
 
other
 
real
 
estate
 
owned
 
(OREO)
 
income
 
by
 
$7.7
 
million
 
mainly
 
due
 
to
 
higher
 
gain
 
on
 
sale
 
of
 
commercial
properties;
 
and
 
Lower amortization
 
of intangibles
 
by $5.9
 
million due
 
to an
 
impairment write-down
 
of $5.4
 
million of
 
a trademark
 
during
2021.
Income Taxes
For the
 
year ended
 
December 31,
 
2022, the
 
Corporation recorded an
 
income tax
 
expense of
 
$132.3 million,
 
compared to
 
$309.0
million for
 
the same
 
period of
 
2021.
 
The income
 
tax expense
 
for the
 
year ended
 
December 31,
 
2022, reflects
 
the impact
 
of the
reversal of a portion of the deferred tax asset valuation allowance of the U. S. Operations amounting to $68.2 million, higher taxable
income
 
subject
 
to
 
preferential tax
 
rates,
 
primarily attributed
 
to
 
the
 
gain
 
from
 
the
 
sale
 
of
 
Evertec shares,
 
and
 
higher tax
 
exempt
income recorded during this year.
At December
 
31, 2022,
 
the Corporation
 
had a
 
net deferred
 
tax asset
 
amounting to
 
$1 billion,
 
net of
 
a valuation
 
allowance of
 
$0.5
billion. The net deferred tax asset related to the U.S.
 
operations was $0.3 billion, net of a valuation
 
allowance of $0.4 billion.
The Inflation
 
Reduction Act
 
of 2022 imposes
 
a new
 
corporate alternative minimum
 
tax (“AMT”),
 
effective for
 
taxable year
 
2023, to
corporations that meet a dual three-year average adjusted financial statement income (“AFSI”)
 
threshold of $1 billion on a worldwide
basis and $100
 
million for its
 
U.S. operations.
 
The AFSI is,
 
in general, the
 
GAAP net income
 
per financial statements
 
with certain
adjustments, including
 
foreign taxes
 
and tax
 
depreciation.
 
The Corporation
 
is still
 
evaluating the
 
application of
 
these adjustments
that could be
 
decisive in whether Popular
 
is subject to
 
the corporate AMT.
 
If it is
 
determined that the Corporation
 
is subject to
 
the
corporate AMT, it is not expected to have a material impact on the financial statements
 
of the Corporation.
Refer to
 
Note 35
 
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.
70
Fourth Quarter Results
The Corporation recognized net income of $257.1 million for the
 
quarter ended December 31, 2022, compared with a net income
 
of
$206.1 million for the same quarter of 2021.
Net interest income for the fourth quarter of
 
2022 amounted to $559.6 million, compared with $501.3 million for the
 
fourth quarter of
2021, an increase of $58.3 million.
 
The increase in net interest income was mainly due higher interest rates as the Federal Reserve
increased the Federal
 
Funds Rate by
 
425 basis points
 
during 2022 and
 
higher average balance
 
of loans resulting
 
from the growth
during 2022
 
at both
 
BPPR and
 
PB. The
 
net interest
 
margin increased
 
by 50
 
basis points
 
to 3.28%
 
due to
 
an increase
 
in market
rates
 
and
 
the
 
earning
 
assets
 
mix,
 
that
 
had
 
a
 
higher
 
concentration on
 
loans
 
which
 
carry
 
a
 
higher
 
yield
 
than
 
money
 
market
 
and
investment securities. On a taxable equivalent
 
basis, the net interest margin for the
 
fourth quarter of 2022 was 3.64%, compared
 
to
3.02% for the fourth quarter of 2021.
The provision
 
for credit
 
losses was
 
a $49.5
 
million for
 
the fourth
 
quarter of
 
2022, compared
 
to a
 
reserve release
 
benefit of
 
$33.1
million for the fourth quarter of 2021. The provision expense
 
recorded in the fourth quarter or 2022 reflects
 
changes in credit metrics,
portfolio growth
 
as well
 
as changes
 
in the
 
macroeconomic outlook
 
and considers
 
an
 
expected slowdown
 
in the
 
economy during
2023, as
 
a result
 
of weaker
 
job growth,
 
monetary policy
 
and the
 
persistent inflation.
 
The benefit
 
recorded in
 
the fourth
 
quarter of
2021
 
was
 
reflective
 
of
 
improvements
 
in
 
the
 
credit
 
metrics
 
and
 
the
 
macroeconomic
 
outlook
 
as
 
well
 
as
 
releases
 
in
 
qualitative
reserves.
 
Non-interest income
 
amounted to
 
$158.5 million
 
for the
 
quarter ended
 
December 31,
 
2022, compared
 
with $164.7
 
million for
 
the
same quarter in 2021. The
 
decrease of $6.2 million was mainly
 
due lower income from mortgage banking activities by
 
$10.5 million
due to
 
an unfavorable
 
variance of
 
$4.1 million
 
in the
 
fair value
 
adjustments of
 
mortgage servicing
 
rights and
 
lower gains
 
from the
sale and securitization of
 
mortgage loans as the
 
Corporation made the determination to
 
retain certain guaranteed loans
 
as held for
 
investment. In addition,
 
service charges on
 
deposit accounts were
 
lower by $6.9
 
million, due to
 
lower overdraft related
 
charges, in
part due
 
to the
 
Corporation’s determination of
 
eliminating insufficient funds
 
fees and
 
modifying overdraft fees
 
effective on
 
the third
quarter
 
of
 
2022
 
and
 
lower
 
cash
 
management
 
service
 
charges
 
from
 
commercial
 
clients
 
due
 
to
 
higher
 
earnings
 
credits
 
on
transactional accounts.
Operating expenses
 
totaled $461.7
 
million for
 
the quarter
 
ended December
 
31, 2022,
 
compared with
 
$417.4 million
 
for the
 
same
quarter in
 
the previous
 
year.
 
The increase
 
of $44.3
 
million is
 
mainly related
 
to higher
 
personnel costs
 
by $29.7
 
million, due
 
to
 
a
higher
 
headcount
 
and
 
market
 
and
 
annual
 
salary
 
revisions
 
as
 
well
 
as
 
higher
 
incentives
 
and
 
commissions;
 
higher
 
professional
services expense
 
by $16.6
 
million due
 
to various
 
corporate projects,
 
including the
 
transformation initiative;
 
higher technology
 
and
software expenses by $7.3
 
million due to various
 
ongoing technology projects and
 
software amortization, including from the
 
assets
acquired from Evertec; partially offset by higher benefit from OREO related activity by $5.3 million due to gains on sale of foreclosed
properties; lower operational losses by $7.8 million and lower
 
amortization of intangibles by $5.3 million due to an
 
impairment write-
down of $5.4 million of a trademark during 2021.
For the quarter ended December
 
31, 2022, the Corporation recorded
 
an income tax benefit of
 
$50.3 million, compared with income
tax expense of $75.6 million for
 
the same quarter of 2021. The
 
favorable variance in income tax expense was mainly
 
attributable to
a
 
partial
 
reversal
 
of
 
the
 
deferred tax
 
asset valuation
 
allowance
 
of
 
the
 
U.S.
 
operation during
 
the
 
fourth
 
quarter
 
of
 
2022
 
of
 
$68.2
million and lower
 
income before tax,
 
higher benefit from
 
tax-exempt income, including true-up
 
adjustment of $9.5 million
 
in relation
to the
 
fiscal year
 
2021 tax
 
returns for
 
the P.R.
 
subsidiaries filed
 
in the
 
fourth quarter
 
and related
 
year-to-date adjustments
 
for the
same concept.
 
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 37
 
to the Consolidated Financial Statements.
 
71
The Corporate group reported a net income of $150.1
 
million for the year ended December 31, 2022,
 
compared with a net income of
$13.4
 
million
 
for
 
the
 
previous
 
year.
 
The
 
increase
 
in
 
net
 
income
 
was
 
mainly
 
attributed
 
to
 
the
 
$128.8
 
million
 
in
 
after-tax
 
gains
recognized by the Corporation as
 
a result of the
 
Evertec Stock Sale and related
 
accounting adjustments; lower interest expense by
$10.4 million
 
from the
 
redemption in
 
the fourth
 
quarter of
 
2021 of
 
$186.7 million
 
in Trust
 
Preferred Securities
 
issued by
 
Popular
Capital Trust I; 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 $782.0
 
million for the
 
year ended December 31,
2022, compared with $787.5 million for
 
the year ended December 31, 2021.
 
The principal factors that contributed to the
 
variance in
the financial results included the following:
 
 
Higher
 
net
 
interest
 
income
 
by
 
$148.9
 
million
 
due
 
to
 
higher
 
income
 
from
 
money
 
market
 
and
 
investment
 
securities
 
by
$218.3
 
million mainly
 
due to
 
higher yields
 
driven by
 
the increase
 
in rates
 
by the
 
Federal Reserve
 
and
 
higher
 
average
balances of
 
U.S. Treasury
 
securities;
 
higher interest
 
income from
 
loans by
 
$54.7 million,
 
mainly due
 
to higher
 
average
balances from consumer, leasing and
 
commercial loans; partially offset by
 
higher interest expense on deposits by $123.7
million
 
mainly
 
due to
 
higher costs
 
on the
 
market- indexed
 
Puerto Rico
 
government deposits,
 
NOW accounts
 
and time
deposits.
 
The
 
BPPR
 
segment’s
 
net
 
interest margin
 
was
 
3.05%
 
for
 
2022
 
compared
 
with
 
2.86% for
 
the
 
same
 
period in
2021.
 
 
A provision for loan losses expenses of $70.3 million in 2022, compared to a reserve release of $136.4 million for the year
ended 2021,
 
or
 
an unfavorable
 
variance of
 
$206.7 million.
 
The provision
 
for loan
 
losses for
 
2022
 
reflects an
 
expected
slowdown in the economy in
 
2023. During 2021, BPPR recorded a
 
reserve for credit losses release of
 
$136.4 million due
to improved credit metrics and Covid-related macroeconomic
 
outlook and
 
changes in qualitative reserves;
 
 
Higher non-interest income by $115.0 million mainly due to:
 
Higher other operating income by $112.0 million mostly due to the benefit related to the Evertec Business Acquisition
Transaction,
 
 
Higher
 
other
 
service
 
fees
 
by
 
$21.3
 
million
 
due
 
to
 
higher
 
merchant
 
acquiring
 
fees
 
related
 
to
 
the
 
revenue
 
sharing
agreement
 
entered
 
in
 
connection with
 
the
 
Evertec
 
Transactions
 
and
 
higher
 
credit
 
card
 
fees
 
as
 
a
 
result
 
of
 
higher
interchange transaction volumes.
 
 
Higher operating expenses by $167.8 million, mainly
 
due to:
 
 
Higher other
 
expenses by $75.5
 
million mainly due
 
to higher allocations
 
from the
 
Corporate group by
 
$56.0 million,
mainly advisory and other professional services, and
 
a $17.3 million expense related to Evertec Transactions;
 
Higher personnel costs by $71.8 million driven
 
by higher salaries and benefits due to market
 
salary adjustments and
annual salary revisions
 
and a higher
 
headcount; higher incentive compensation,
 
higher profit sharing expenses
 
and
higher fringe benefits;
 
 
Higher
 
business
 
promotions
 
by
 
$15.6
 
million
 
mainly
 
due
 
to
 
higher
 
customer
 
rewards
 
expense
 
related
 
to
 
higher
transactional volumes and higher sponsorships and donations,
 
including hurricane related assistance;
 
 
Higher
 
technology and
 
software expenses
 
by
 
$5.7
 
million
 
including $2.4
 
million
 
related
 
to
 
the software
 
intangible
assets acquired as part of the Evertec Transactions, and costs
 
associated with several ongoing projects;
 
 
Higher processing
 
and transactional
 
services by
 
$5.8 million
 
mainly due
 
to higher
 
credit and
 
debit card
 
processing
expense as
 
a result
 
of higher
 
transactional volumes,
 
reflecting an
 
increase in
 
customer purchase
 
activity;
 
partially
offset by
 
lower merchant
 
processing due
 
to higher
 
incentives received
 
during the
 
year related
 
to the
 
ATH
 
Network
Participation Agreement entered into in connection with
 
the Evertec Transactions;
 
72
Partially offset by:
 
 
 
Higher OREO income by $7.4 million mainly due
 
to higher gain on sale of OREO of $5.9
 
million.
 
Lower professional fees by $3.8 million mainly due
 
to lower consulting fees related to ongoing projects.
 
 
Lower
 
income
 
tax
 
expense
 
by
 
$105.1
 
million
 
due
 
to
 
lower
 
income
 
before
 
tax
 
and
 
higher
 
income
 
that
 
was
 
exempt
 
or
subject to preferential tax rates.
Popular U.S.
 
For the
 
year ended
 
December 31, 2022, the
 
reportable segment of
 
Popular U.S.
 
reported net income
 
of $170.3
 
million, compared
with a net
 
income of $134.1 million for
 
the year ended December
 
31, 2021. The principal
 
factors that contributed to
 
the variance in
the financial results included the following:
 
 
Higher net interest income by $51.8 million mainly due to higher interest income from loans by $74.2 million mainly due to
higher
 
average
 
balances from
 
commercial
 
loans as
 
well
 
as
 
higher yields
 
due
 
to
 
increase
 
in
 
rates; and
 
higher
 
interest
income from money market investment securities by $2.9 million due to
 
higher rates,
 
partially offset by lower income from
debt securities by
 
$1.6 million and higher
 
cost of deposits
 
by $22.9 million due
 
to higher interest rates.
 
The Popular U.S.
reportable segment’s net interest margin was 3.68%
 
for 2022 compared with 3.39% for the same period
 
in 2021;
 
 
An unfavorable variance of
 
$69.3 million on the
 
provision for loan losses
 
and unfunded commitments, due to
 
the reserve
release
 
of
 
$56.9
 
million
 
in
 
2021,
 
which
 
reflected
 
improvements
 
in
 
credit
 
metrics
 
and
 
Covid-related
 
economic
 
outlook,
 
compared to
 
a provision
 
expense of
 
$12.5 million
 
recorded in
 
2022 which
 
reflected an
 
expected economic
 
slowdown in
2023;
 
 
Higher non-interest income by
 
$7.4 million mainly due
 
to the positive adjustment
 
of $9.2 million on
 
the contingent liability
related to the K-2 Acquisition;
 
Higher operating expenses by $35.4 million mainly due
 
to:
 
 
Higher personnel costs by $10.2 million due to
 
salary market and annual adjustments;
 
Higher
 
other
 
expenses
 
by
 
$7.4
 
million
 
due
 
to
 
higher
 
charges
 
allocated from
 
the
 
Corporate segment,
 
mainly
professional fees; and
 
The goodwill impairment charge of $9.0 million recorded
 
at PEF.
 
Lower
 
income
 
tax
 
expense
 
by
 
$81.7
 
million
 
due
 
mainly
 
to
 
a
 
lower
 
income
 
before
 
tax
 
and
 
the
 
partial
 
reversal
 
of
 
the
deferred tax asset valuation allowance recorded during
 
the fourth quarter of 2022 of $68.2 million.
 
STATEMENT
 
OF FINANCIAL CONDITION ANALYSIS
 
Assets
The Corporation’s total
 
assets were $67.6 billion
 
at December 31, 2022,
 
compared to $75.1 billion
 
at December 31, 2021.
 
Refer to
the Corporation’s Consolidated Statements of Financial Condition at December 31, 2022 and 2021 included in this 2022 Form 10-K.
Also, refer to the Statistical Summary 2022-2021
 
in this MD&A for Condensed Statements of Financial
 
Condition.
 
Money market investments and debt securities
Money market
 
investments decreased
 
by $11
 
.9 billion
 
at December
 
31, 2022,
 
when compared
 
to December
 
31, 2021.
 
This was
impacted
 
by
 
the
 
decrease
 
in
 
deposits of
 
$5.8
 
billion,
 
mainly
 
in the
 
Puerto
 
Rico
 
Public
 
sector,
 
and
 
the deployment
 
of
 
liquidity to
purchase
 
debt
 
securities.
 
Debt
 
securities
 
available-for-sale
 
decreased
 
by
 
$7.2
 
billion,
 
while
 
debt
 
securities
 
held-to-maturity
increased by $8.4 billion. As previously mentioned, during
 
2022 the Corporation transferred U.S. Treasury securities with
 
a fair value
73
of $6.5 billion (par
 
value of $7.4 billion)
 
from its available-for-sale portfolio to
 
its held-to-maturity portfolio. Refer to
 
Notes 6 and 7
 
to
the Consolidated Financial
 
Statements for additional
 
information with respect
 
to the
 
Corporation’s debt securities
 
available-for-sale
and held-to-maturity.
Loans
Refer to Table
 
6 for a breakdown of
 
the Corporation’s loan portfolio. Also,
 
refer to Note 8
 
to 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
 
$2.8
 
billion to
 
$32.1
 
billion
 
at
 
December
 
31,
 
2022,
 
mainly
 
due
 
to
 
growth in
 
the
 
commercial
portfolio
 
of
 
$2.0
 
billion,
 
reflected
 
at
 
both
 
BPPR
 
and
 
PB
 
by
 
approximately $1.0
 
billion,
 
at
 
each
 
segment
 
and
 
consumer
 
loans
 
at
BPPR.
 
The
 
commercial
 
loans
 
growth
 
includes
 
U.S.
 
region
 
loans
 
participated
 
between
 
BPPR
 
and
 
PB.
 
During
 
the
 
year
 
ended
December
 
31,
 
2022, BPPR
 
participated in
 
loans
 
originated by
 
PB
 
totaling
 
$184
 
million.
 
Consumer loans
 
at
 
BPPR
 
increased
 
by
$532.4 million in the aggregate including credit
 
cards, personal loans and auto loans.
 
The increase in BPPR’s consumer portfolio is
aligned with the increase in
 
retail sales and consumer spending in
 
Puerto Rico during 2022 and
 
the purchase of national consumer
loans through
 
its U.S.
 
branch. The
 
auto loans
 
portfolio at
 
BPPR benefited
 
from the
 
sustained level
 
of auto
 
sales, which
 
although
lower than 2021, remained a higher than 2020. In addition, though mortgage loans declined by $29.7 million from the previous year,
this was
 
impacted by
 
management’s determination
 
to retain
 
certain guaranteed
 
loans in
 
the portfolio,
 
which reduced
 
the portfolio
attrition.
 
The
 
allowance
 
for
 
credit
 
losses
 
for
 
the
 
loan
 
portfolio
 
increased
 
by
 
$24.9
 
million
 
mainly
 
due
 
to
 
changes
 
in
 
the
 
macroeconomic
outlook, credit quality metrics and portfolio
 
growth. Refer to the Credit
 
Quality section of the MD&A
 
for additional information on the
Allowance for credit losses for the loan portfolio.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
74
Table 6 - Loans Ending Balances
At December 31,
 
(In thousands)
2022
2021
Loans held-in-portfolio:
 
Commercial
 
$
15,739,132
$
13,732,701
 
Construction
757,984
716,220
 
Leasing
1,585,739
1,381,319
 
Mortgage
7,397,471
7,427,196
 
Auto
3,512,530
3,412,187
 
Consumer
 
3,084,913
2,570,934
Total loans held-in
 
-portfolio
$
32,077,769
$
29,240,557
Loans held-for-sale:
 
Mortgage
$
5,381
$
59,168
Total loans held-for-sale
$
5,381
$
59,168
Total loans
$
32,083,150
$
29,299,725
Other assets
Other assets amounted to $1.8
 
billion at December 31, 2022, an
 
increase of $0.2 billion when compared
 
to December 31, 2021. At
December 31,
 
2022, this
 
includes $125
 
million in
 
cash receivable
 
from the
 
maturities of
 
investment securities
 
near the
 
end of
 
the
year and
 
$28.7 million
 
in software
 
intangibles acquired
 
as part
 
of the
 
Evertec Transactions.
 
Refer to
 
Note 14
 
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 December
 
31, 2022 and 2021.
Liabilities
The Corporation’s
 
total liabilities
 
were $63.5
 
billion at
 
December 31,
 
2022, a
 
decrease of
 
$5.6 billion
 
compared to
 
$69.1 billion
 
at
December 31, 2021, mainly due to a
 
decrease in deposits as discussed below.
 
Refer to the Corporation’s Consolidated Statements
of Financial Condition included in this Form 10-K.
 
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
 
at December 31, 2022 and 2021 is included
 
in Table 7.
 
Table 7 - Financing to Total
 
Assets
December 31,
December 31,
 
% increase (decrease)
 
% of total assets
(In millions)
2022
2021
from 2021 to 2022
2022
2021
Non-interest bearing deposits
$
15,960
$
15,684
1.8
%
23.6
%
20.9
%
Interest-bearing core deposits
41,600
47,954
(13.3)
61.5
63.9
Other interest-bearing deposits
3,667
3,367
8.9
5.4
4.5
Repurchase agreements
149
92
62.0
0.2
0.1
Other short-term borrowings
365
75
N.M.
0.5
0.1
Notes payable
887
989
(10.3)
1.3
1.3
Other liabilities
917
968
(5.3)
1.4
1.3
Stockholders’ equity
4,093
5,969
(31.4)
6.1
7.9
Deposits
The
 
Corporation’s
 
deposits
 
totaled
 
$61.2
 
billion
 
at
 
December
 
31,
 
2022,
 
compared
 
to
 
$67.0
 
billion
 
at
 
December
 
31,
 
2021.The
deposits decrease
 
of $5.8
 
billion was mainly
 
due to
 
lower Puerto Rico
 
public sector
 
deposits by
 
$5.2 billion.
 
Public sector
 
deposit
balances
 
amounted
 
to
 
$15.2
 
billion
 
at
 
December
 
31,
 
2022.
 
The
 
receipt
 
by
 
the
 
Puerto
 
Rico
 
Government
 
of
 
additional
 
Federal
 
 
 
 
 
 
 
 
 
 
 
 
 
75
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
 
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”).
Approximately 25% of the
 
Corporation’s deposits are public
 
fund deposits from the
 
Government of Puerto Rico,
 
municipalities and
government instrumentalities and corporations (‘’public funds’’).
 
These public funds deposits are
 
indexed to short term market
 
rates
and fluctuate
 
in cost
 
with changes
 
in those
 
rates with
 
a one-quarter
 
lag, in
 
accordance with
 
contractual terms.
 
As a
 
result, these
public
 
funds
 
deposits’
 
costs
 
have
 
generally
 
lagged
 
variable
 
asset
 
repricing.
 
During
 
2022,
 
the
 
deposit
 
costs
 
for
 
public
 
funds
increased by 61% when compared
 
to 2021.
 
We expect these costs
 
to continue to increase if
 
short-term rates continue their recent
trend.
 
For example, we
 
expect an increase
 
in costs on
 
these public funds
 
by approximately 120
 
basis points in
 
the first quarter
 
of
2023 when compared to the last quarter in 2022.
Refer to Table 8 for a breakdown of the Corporation’s deposits at December 31, 2022 and 2021.
 
Table 8 - Deposits Ending Balances
(In thousands)
2022
2021
Demand deposits
[1]
$
26,382,605
$
25,889,732
Savings, NOW and money market deposits (non-brokered)
27,265,156
33,674,134
Savings, NOW and money market deposits (brokered)
798,064
729,073
Time deposits (non-brokered)
6,442,886
6,685,938
Time deposits (brokered CDs)
338,516
26,211
Total deposits
$
61,227,227
$
67,005,088
[1] Includes interest and non-interest bearing demand deposits.
Borrowings
The
 
Corporation’s
 
borrowings
 
amounted
 
to
 
$1.4
 
billion
 
at
 
December 31,
 
2022,
 
compared
 
to
 
$1.2
 
billion at
 
December
 
31,
 
2021.
Refer to
 
Note 17
 
to the
 
Consolidated Financial Statements
 
for detailed
 
information on
 
the Corporation’s
 
borrowings. Also,
 
refer to
the Liquidity section in this MD&A for additional information
 
on the Corporation’s funding sources.
Other liabilities
The Corporation’s
 
other liabilities
 
amounted to
 
$1.0 billion
 
at December
 
31, 2022,
 
a decrease
 
of $51.3
 
million when
 
compared to
December 31, 2021.
 
Stockholders’ Equity
Stockholders’ equity totaled
 
$4.1 billion at
 
December 31, 2022,
 
a decrease of
 
$1.9 billion when
 
compared to
 
December 31, 2021.
The decrease
 
was principally due
 
to higher
 
accumulated unrealized losses on
 
debt securities available-for-sale
 
by $2.2 billion
 
and
the impact of
 
$631.0 million from the
 
two accelerated share repurchase
 
transactions completed during 2022,
 
declared dividends of
$163.7 million on
 
common stock and
 
$1.4 million
 
in dividends on
 
preferred stock, partially
 
offset by
 
net income for
 
the year ended
December 31,
 
2022
 
of $1.1
 
billion. Refer
 
to
 
the Consolidated
 
Statements of
 
Financial Condition,
 
Comprehensive Income
 
and
 
of
Changes
 
in
 
Stockholders’
 
Equity
 
for
 
information
 
on
 
the
 
composition
 
of
 
stockholders’
 
equity.
 
Also,
 
refer
 
to
 
Note
 
22
 
to
 
the
Consolidated
 
Financial
 
Statements
 
for
 
a
 
detail
 
of
 
accumulated
 
other
 
comprehensive
 
loss
 
(income),
 
an
 
integral
 
component
 
of
stockholders’ equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
76
REGULATORY CAPITAL
The Corporation and its bank subsidiaries are subject to capital adequacy
 
standards established by the Federal Reserve Board. The
risk-based capital standards
 
applicable to Popular,
 
Inc. and the
 
Banks, BPPR
 
and PB, are
 
based on the
 
final capital framework
 
of
Basel III. The
 
capital rules of
 
Basel III include
 
a “Common Equity Tier
 
1” (“CET1”) capital
 
measure and specifies
 
that Tier
 
1 capital
consist of
 
CET1 and “Additional
 
Tier 1
 
Capital” instruments meeting
 
specified requirements. Note
 
21 to the
 
Consolidated Financial
Statements presents further
 
information on the
 
Corporation’s regulatory capital requirements,
 
including the regulatory capital
 
ratios
of its depository institutions, BPPR and PB.
An institution
 
is considered “well-capitalized”
 
if it
 
maintains a total
 
capital ratio
 
of 10%,
 
a Tier
 
1 capital ratio
 
of 8%,
 
a CET1 capital
ratio
 
of
 
6.5%
 
and
 
a
 
leverage
 
ratio
 
of
 
5%.
 
The
 
Corporation’s
 
ratios
 
presented
 
in
 
Table
9
 
show
 
that
 
the
 
Corporation
 
was
 
“well
capitalized” for
 
regulatory purposes,
 
the highest
 
classification, under
 
Basel III
 
for years
 
2022 and
 
2021. BPPR
 
and PB
 
were also
well-capitalized for all years presented.
The Basel III Capital Rules also require an additional 2.5% “capital conservation buffer”, composed entirely of CET1, on top of these
minimum risk-weighted asset ratios, which excludes the leverage ratio. The capital conservation buffer is
 
designed to absorb losses
during periods of
 
economic stress. Banking
 
institutions with a
 
ratio of CET1
 
to risk-weighted assets
 
above the minimum
 
but below
the capital conservation buffer will face constraints on dividends, equity repurchases, and compensation
 
based on the amount of the
shortfall. Popular,
 
BPPR and
 
PB are
 
required to
 
maintain this
 
additional capital
 
conservation buffer
 
of 2.5%
 
of CET1,
 
resulting in
minimum ratios
 
of (i) CET1
 
to risk-weighted
 
assets of
 
at least
 
7%, (ii) Tier
 
1 capital
 
to risk-weighted
 
assets of
 
at least
 
8.5%, and
(iii) Total capital to risk-weighted assets of at least 10.5%.
Table 9 presents the Corporation’s capital adequacy
 
information for the years 2022 and 2021.
 
Table 9 - Capital Adequacy
 
Data
At December 31,
 
(Dollars in thousands)
2022
2021
Risk-based capital:
Common Equity Tier 1 capital
$
5,639,686
$
5,476,031
Additional Tier 1 Capital
 
22,143
22,143
Tier 1 capital
$
5,661,829
$
5,498,174
Supplementary (Tier 2) capital
 
623,818
585,931
 
Total
 
capital
 
$
6,285,647
$
6,084,105
 
Total
 
risk-weighted assets
 
$
34,415,889
$
31,441,224
Adjusted average quarterly assets
$
70,287,610
$
74,238,367
Ratios:
Common Equity Tier 1 capital
16.39
%
17.42
%
Tier 1 capital
 
16.45
17.49
Total capital
 
18.26
19.35
Leverage ratio
 
8.06
7.41
Average equity to assets
8.25
8.12
Average tangible equity to assets
7.27
7.20
Average equity to loans
19.76
19.87
On April 1, 2020, the Corporation adopted the final rule issued by the federal banking regulatory agencies pursuant to the Economic
Growth and
 
Regulatory Paperwork
 
Reduction Act
 
of 1996
 
that simplified
 
several requirements
 
in the
 
agencies’ regulatory
 
capital
rules. These
 
rules simplified
 
the regulatory
 
capital requirement
 
for mortgage
 
servicing assets
 
(MSAs), deferred
 
tax assets
 
arising
from
 
temporary
 
differences
 
and
 
investments in
 
the
 
capital
 
of
 
unconsolidated financial
 
institutions
 
by
 
raising
 
the
 
CET1
 
deduction
threshold
 
from
 
10%
 
to
 
25%.
 
The
 
15%
 
CET1
 
deduction
 
threshold
 
which
 
applies
 
to
 
the
 
aggregate
 
amount
 
of
 
such
 
items
 
was
eliminated. The
 
rule also
 
requires, among
 
other changes,
 
increasing from
 
100% to
 
250% the
 
risk weight
 
to MSAs
 
and temporary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
difference deferred
 
tax asset
 
not deducted
 
from capital.
 
For investments
 
in the
 
capital of
 
unconsolidated financial
 
institutions, the
risk weight would be based on the exposure category
 
of the investment.
 
The decrease in the CET1 capital ratio,
 
Tier 1 capital ratio
 
and, total capital ratio as of
 
December 31, 2022, compared to December
31,
 
2021,
was
 
mostly
 
due
 
to
 
an
 
increase
 
in
 
risk
 
weighted
 
assets
 
driven
 
by
 
the
 
growth
 
in
 
the
 
commercial
 
and
 
consumer
 
loan
portfolios, partially offset by the annual earnings net of the accelerated share
 
repurchase agreements to repurchase an aggregate of
$400 million and
 
$231 million of Popular’s common
 
stock. The increase in
 
leverage capital ratio was
 
mainly due to the
 
decrease in
average total assets, driven by the reduction
 
in zero-risk weighted investments in money market FED accounts
 
and zero or low-risk
weighted debt securities, that therefore did not have
 
a significant impact on the risk-weighted assets.
Pursuant
 
to
 
the
 
adoption
 
of
 
CECL
 
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 benefits
 
provided during the
 
initial two-year delay.
 
As of
 
December 31, 2022,
 
the Corporation had
 
phased-in
25% of the cumulative CECL deferral with the remaining impact to be
 
recognized over the remaining two years. In the first quarter of
2023, the Corporation will phase in a cumulative
 
50% of the deferral.
On
 
August
 
26,
 
2020,
 
federal
 
banking
 
regulators
 
issued
 
a
 
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 December 31,
 
2022,
the Corporation has $38 million in PPP loans and no
 
loans were pledged as collateral for PPPL
 
Facilities.
Table 10 reconciles the Corporation’s total common stockholders’ equity to common equity Tier 1 capital.
Table 10 - Reconciliation Common
 
Equity Tier 1 Capital
At December 31,
 
(In thousands)
2022
2021
Common stockholders’ equity
$
4,198,409
$
6,116,756
 
AOCI related adjustments due to opt-out election
2,468,193
257,762
 
Goodwill, net of associated deferred tax liability
 
(DTL)
(691,560)
(591,703)
 
Intangible assets, net of associated DTLs
(12,944)
(16,219)
 
Deferred tax assets and other deductions
(322,412)
(290,565)
Common equity tier 1 capital
$
5,639,686
$
5,476,031
Common equity tier 1 capital to risk-weighted assets
16.39
%
17.42
%
Non-GAAP financial measures
The tangible
 
common equity
 
ratio 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
 
of
accounting
 
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
generally accepted accounting principles in the United
 
States of America (“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.
 
78
The decrease
 
in the
 
Tangible
 
common
 
equity to
 
tangible assets
 
ratio during
 
2022 was
 
mainly related
 
to the
 
decrease in
 
the fair
value of
 
the Corporation’s
 
fixed rate
 
available for sale
 
debt securities
 
portfolio and
 
its impact
 
on the
 
unrealized loss component
 
of
accumulated
 
other
 
comprehensive
 
income
 
(loss)
 
(‘’AOCI’’).
 
Given
 
its
 
ability
 
due
 
to
 
the
 
Corporation’s
 
liquidity
 
position
 
and
 
its
intention to reduce the
 
impact on AOCI and tangible
 
capital of further increases in
 
interest rates, management changed its intent
 
to
hold certain securities to maturity.
 
Therefore, in October 2022, the Corporation transferred U.S.
 
Treasury securities with a fair
 
value
of $6.5 billion (par value of $7.4 billion) from
 
its available-for-sale portfolio to its held-to-maturity portfolio.
 
The
 
securities
 
were reclassified
 
at
 
fair value
 
at the
 
time
 
of
 
the transfer.
 
At
 
the
 
date of
 
the transfer,
 
these
 
securities
 
had
 
pre-tax
unrealized
 
losses
 
of
 
$873.0
 
million
 
recorded
 
in
 
AOCI.
 
This
 
fair
 
value
 
discount
 
is
 
being
 
accreted
 
to
 
interest
 
income
 
and
 
the
unrealized loss remaining in
 
AOCI is being amortized,
 
offsetting each other through
 
the remaining life of
 
the securities. There were
no realized gains or losses recorded as a result
 
of this transfer.
 
While changes
 
in the
 
amount of
 
unrealized gains
 
and losses
 
in AOCI
 
have an
 
impact on
 
the Corporation’s
 
and its
 
wholly-owned
banking
 
subsidiaries’
 
tangible
 
capital
 
ratios,
 
they
 
do
 
not
 
impact
 
regulatory
 
capital
 
ratios,
 
in
 
accordance
 
with
 
the
 
regulatory
framework.
 
Refer
 
to
 
Note
 
7
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
which
 
presents
 
information
 
about
 
the
 
Corporation’s
 
Debt
Securities Held-to-Maturity for additional details.
Table
 
11
 
provides
 
a
 
reconciliation of
 
total
 
stockholders’
 
equity
 
to
 
tangible
 
common
 
equity
 
and
 
total
 
assets
 
to
 
tangible
 
assets
 
at
December 31, 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79
Table 11
 
- Reconciliation of Tangible
 
Common Equity and Tangible
 
Assets
At December 31,
(In thousands, except share or per share information)
2022
2021
Total stockholders’
 
equity
$
4,093,425
$
5,969,397
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(827,428)
(720,293)
Less: Other intangibles
(12,944)
(16,219)
Total tangible common
 
equity
$
3,230,910
$
5,210,742
Total assets
 
$
67,637,917
$
75,097,899
Less: Goodwill
(827,428)
(720,293)
Less: Other intangibles
(12,944)
(16,219)
Total tangible assets
$
66,797,545
$
74,361,387
Tangible common
 
equity to tangible assets
4.84
%
7.01
%
Common shares outstanding at end of period
71,853,720
79,851,169
Tangible book value
 
per common share
$
44.97
$
65.26
Year-to-date average
Total stockholders’
 
equity [1]
$
6,009,225
$
5,777,652
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(757,133)
(679,959)
Less: Other intangibles
(17,113)
(20,861)
Total tangible common
 
equity
$
5,212,836
$
5,054,689
Average return on tangible common equity
21.13
%
18.47
%
[1] Average balances exclude unrealized gains or losses
 
on debt securities available-for-sale and unrealized losses
 
on debt
 
securities transfer to held-
to-maturities.
 
 
80
RISK MANAGEMENT
Market / Interest Rate Risk
The financial results and capital levels of the
 
Corporation are constantly exposed to market, interest
 
rate and liquidity risks.
Market risk
 
refers to the
 
risk of a
 
reduction in the
 
Corporation’s capital due
 
to changes in
 
the market valuation
 
of its assets
 
and/or
liabilities.
 
Most of the assets
 
subject to market valuation risk
 
are debt securities classified as
 
available-for-sale. Refer to Notes 6
 
and 7 to the
Consolidated Financial
 
Statements for
 
further information
 
on the
 
debt
 
securities available-for-sale
 
and
 
held-to-maturity portfolios.
Debt securities classified
 
as available-for-sale amounted
 
to $17.8 billion
 
as of December
 
31, 2022. Other
 
assets subject to
 
market
risk include loans
 
held-for-sale, which amounted
 
to $5
 
million, mortgage servicing
 
rights (“MSRs”) which
 
amounted to $128
 
million
and securities classified as “trading”, which amounted
 
to $28 million, as of December 31, 2022.
 
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject
 
to various categories of interest rate
 
risk, including repricing, basis, yield curve and
option risks.
 
In managing
 
interest rate
 
risk, management may
 
alter the
 
mix of
 
floating and
 
fixed rate
 
assets and
 
liabilities, change
pricing
 
schedules,
 
adjust
 
maturities
 
through
 
sales
 
and
 
purchases
 
of
 
investment
 
securities,
 
and
 
enter
 
into
 
derivative
 
contracts,
among other alternatives.
 
Interest
 
rate
 
risk
 
management
 
is
 
an
 
active
 
process
 
that
 
encompasses
 
monitoring
 
loan
 
and
 
deposit
 
flows
 
complemented
 
by
investment and funding
 
activities. Effective management of
 
interest rate risk begins
 
with understanding the dynamic
 
characteristics
of assets and
 
liabilities and determining the
 
appropriate rate risk position
 
given line of
 
business forecasts, management objectives,
market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest
 
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value
 
of Equity
 
(“EVE”). The
 
three methodologies
 
complement each
 
other and
 
are used
 
jointly in
 
the evaluation
 
of the
Corporation’s IRR. NII
 
simulation modeling is
 
prepared for a
 
five-year period, which
 
in conjunction with
 
the EVE analysis,
 
provides
management a better view of long-term IRR.
Net interest
 
income simulation analysis
 
performed by legal
 
entity and on
 
a consolidated basis
 
is a
 
tool used
 
by the
 
Corporation in
estimating the
 
potential change
 
in net
 
interest income
 
resulting from
 
hypothetical changes
 
in interest
 
rates. Sensitivity
 
analysis is
calculated using a simulation model which incorporates
 
actual balance sheet figures detailed by maturity
 
and interest yields or costs.
 
Management assesses
 
interest rate
 
risk by
 
comparing various
 
NII simulations
 
under different
 
interest rate
 
scenarios that
 
differ in
direction of interest
 
rate changes, the
 
degree of change
 
and the projected
 
shape of the
 
yield curve. For
 
example, the types
 
of rate
scenarios processed during the
 
quarter include flat rates,
 
implied forwards, and parallel
 
and non-parallel rate shocks.
 
Management
also performs analyses to isolate and measure basis
 
and prepayment risk exposures.
 
The asset
 
and liability
 
management group
 
performs validation
 
procedures on
 
various assumptions
 
used as
 
part of
 
the simulation
analyses as well as validations
 
of results on a
 
monthly basis. In addition, the
 
model and processes used to
 
assess IRR are subject
to independent validations according to the guidelines
 
established in the Model Governance and Validation policy.
The Corporation processes NII
 
simulations under interest rate
 
scenarios in which the
 
yield curve is assumed
 
to rise and
 
decline by
the same
 
magnitude (parallel
 
shifts). The
 
rate scenarios
 
considered in
 
these market
 
risk simulations
 
reflect instantaneous
 
parallel
changes
 
of
 
-100,
 
-200,
 
+100,
 
+200
 
and
 
+400
 
basis
 
points
 
during the
 
succeeding
 
twelve-month
 
period.
 
Simulation
 
analyses
 
are
based on many assumptions, including relative levels of market interest rates across all yield curve points
 
and indexes, interest rate
spreads, loan prepayments
 
and deposit elasticity.
 
Thus, they should
 
not be
 
relied upon as
 
indicative of actual
 
results. Further,
 
the
estimates
 
do
 
not
 
contemplate
 
actions
 
that
 
management
 
could
 
take
 
to
 
respond
 
to
 
changes
 
in
 
interest
 
rates.
 
Additionally,
 
the
Corporation is also subject to
 
basis risk in the
 
repricing of its assets and
 
liabilities, including the basis related
 
to using different
 
rate
indexes for
 
the repricing
 
of assets and
 
liabilities, as
 
well as
 
the effect
 
of pricing
 
lags which
 
may be
 
contractual or
 
due to
 
historical
differences
 
in
 
the
 
timing
 
of
 
management
 
responses
 
to
 
changes
 
in
 
the
 
rate
 
environment.
 
By
 
their
 
nature,
 
these
 
forward-looking
computations are only
 
estimates and may
 
be different from
 
what may actually
 
occur in the
 
future. The following
 
table presents the
results of
 
the simulations
 
at December
 
31, 2022
 
and December
 
31, 2021,
 
assuming a
 
static balance
 
sheet and
 
parallel changes
over flat spot rates over a one-year time horizon:
 
 
 
 
 
 
 
 
 
 
 
 
 
81
Table 12 - Net Interest Income
 
Sensitivity (One Year Projection)
December 31, 2022
December 31, 2021
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+400 basis points
$
(38,548)
(1.75)
%
$
257,223
13.21
%
+200 basis points
(18,078)
(0.82)
197,354
10.14
+100 basis points
(7,787)
(0.35)
166,920
8.57
-100 basis points
41,763
1.90
(78,408)
(4.03)
-200 basis points
78,381
3.56
(120,661)
(6.20)
As of December 31, 2022, NII simulations show the Corporation
 
has a neutral to slightly liability sensitive position driven by the
 
rapid
increase in short-term
 
interest rates throughout the
 
year and its
 
impact on Puerto
 
Rico public sector deposits
 
which are indexed to
market rates, as well as the deployment of cash to fund loan growth and purchase investments. These results suggest that changes
in net interest income are driven by changes in liability
 
costs, primarily Puerto Rico public sector deposits. In
 
declining rate scenarios
net interest income would increase as the decline in
 
the cost of these deposits generates a greater benefit
 
than the changes in asset
yields.
 
In
 
rising
 
rate
 
scenarios
 
Popular’s
 
sensitivity
 
profile
 
is
 
also
 
impacted
 
by
 
its
 
large
 
proportion
 
of
 
Puerto
 
Rico
 
public
 
sector
deposits which
 
are indexed to
 
market rates. As
 
short-term rates
 
have risen, the
 
cost of these
 
deposits now increases
 
in sync
 
with
market rates and
 
therefore reduce the
 
benefit banks typically
 
have in
 
rising rate environments.
 
As of
 
December 31, 2022,
 
Popular
has a more neutral
 
position as 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 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 $15.2
 
billion or
25% of deposits as of December 31, 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82
Table 13 - Interest Rate Sensitivity
At December 31, 2022
By repricing dates
 
(Dollars in thousands)
0-30 days
Within 31 -
90 days
After three
months but
within six
months
After six
months but
within nine
months
 
After nine
months but
within one
year
After one
year but
within two
years
After two
years
Non-
interest
bearing
assets /
liabilities
Total
Assets:
Money market investments
$
5,614,595
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
5,614,595
Investment and trading securities
 
2,085,332
750,646
1,026,603
1,076,243
1,116,553
4,590,807
16,292,815
(392,593)
26,546,406
Loans
5,090,409
2,875,448
1,436,637
1,248,850
1,256,549
4,559,631
15,718,001
(102,375)
32,083,150
Other assets
-
-
-
-
-
-
-
3,393,766
3,393,766
 
Total
 
12,790,336
3,626,094
2,463,240
2,325,093
2,373,102
9,150,438
32,010,816
2,898,798
67,637,917
Liabilities and stockholders' equity:
Savings, NOW and money market and
 
other interest bearing demand
deposits
17,880,089
794,797
1,115,771
1,031,454
954,856
3,178,624
13,529,678
-
38,485,269
Certificates of deposit
1,921,505
468,312
640,081
452,482
496,747
1,194,998
1,607,276
-
6,781,401
Federal funds purchased and assets
 
sold under agreements to
repurchase
99,558
31,530
17,521
-
-
-
-
-
148,609
Other short-term borrowings
365,000
-
-
-
-
-
-
-
365,000
Notes payable
 
1,000
-
20,000
299,109
22,261
91,943
452,397
-
886,710
Non-interest bearing deposits
-
-
-
-
-
-
-
15,960,557
15,960,557
Other non-interest bearing liabilities
-
-
-
-
-
-
-
916,946
916,946
Stockholders' equity
-
-
-
-
-
-
-
4,093,425
4,093,425
 
Total
 
$
20,267,152
$
1,294,639
$
1,793,373
$
1,783,045
$
1,473,864
$
4,465,565
$
15,589,351
$
20,970,928
$
67,637,917
Interest rate sensitive gap
(7,476,816)
2,331,455
669,867
542,048
899,238
4,684,873
16,421,465
(18,072,130)
-
Cumulative interest rate sensitive gap
(7,476,816)
(5,145,361)
(4,475,494)
(3,933,446)
(3,034,208)
1,650,665
18,072,130
-
-
Cumulative interest rate sensitive gap
 
to earning assets
(11.55)
%
(7.95)
%
(6.91)
%
(6.08)
%
(4.69)
%
2.55
%
27.92
%
-
-
Table 14, which presents the maturity distribution of earning assets, takes into consideration
 
prepayment assumptions.
 
Table 14 - Maturity Distribution
 
of Earning Assets
As of December 31, 2022
Maturities
After one year
 
After five years
through five years
through fifteen years
After fifteen years
One year
Fixed
 
Variable
 
Fixed
 
Variable
 
Fixed
 
Variable
 
(In thousands)
 
or less
interest rates
interest rates
interest rates
interest rates
interest rates
interest rates
Total
Money market securities
 
$
5,614,595
$
-
$
-
$
-
 
$
 
-
 
$
 
-
 
$
 
-
$
5,614,595
Investment and trading
securities
 
5,972,315
15,917,065
12,593
4,474,589
3,287
-
-
26,379,849
Loans:
 
Commercial
 
4,609,900
5,335,022
3,628,170
1,092,038
930,166
45,176
98,659
15,739,132
 
Construction
 
469,212
45,911
193,334
8,261
34,232
-
7,033
757,984
 
Leasing
 
426,138
1,127,923
-
31,678
-
-
-
1,585,739
 
Consumer
 
1,845,426
3,584,443
298,977
187,647
595,179
85,770
-
6,597,443
 
Mortgage
 
581,384
2,074,029
107,067
3,759,026
54,812
826,508
26
7,402,852
Subtotal loans
 
7,932,060
12,167,328
4,227,549
5,078,651
1,614,390
957,454
105,718
32,083,150
Total earning assets
$
19,518,969
$
28,084,393
$
4,240,142
$
9,553,241
$
1,617,677
$
957,454
$
105,718
$
64,077,594
Note: Equity securities available-for-sale and other investment
 
securities, including Federal Reserve Bank stock and
 
Federal Home Loan Bank stock
held by the Corporation, are not included in this table.
 
Loans held-for-sale have been allocated according to the
 
expected sale date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
83
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 December 31, 2022,
 
the Corporation held trading securities
 
with a fair value
 
of $28 million, representing approximately 0.04%
 
of
the Corporation’s total assets,
 
compared with $30 million and 0.04%, respectively, at December 31, 2021. As
 
shown in Table 15, the
trading
 
portfolio
 
consists
 
principally
 
of
 
mortgage-backed
 
securities
 
and
 
U.S.
 
Treasuries,
 
which
 
at
 
December
 
31,
 
2022
 
were
investment grade
 
securities. As
 
of December
 
31, 2022
 
and December
 
31, 2021,
 
the trading
 
portfolio also
 
included $0.1
 
million in
Puerto Rico
 
government obligations.
 
Trading
 
instruments are
 
recognized at
 
fair value,
 
with changes
 
resulting from
 
fluctuations in
market prices, interest rates or exchange rates
 
reported in current period earnings. The Corporation recognized net
 
trading account
loss of $784
 
thousand and a net
 
trading account loss of
 
$389 thousand, respectively,
 
for the years ended
 
December 31, 2022 and
2021.
 
Table 15 - Trading
 
Portfolio
December 31, 2022
December 31, 2021
(Dollars in thousands)
Amount
 
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
 
$
14,223
5.79
%
$
22,559
5.12
%
U.S. Treasury securities
13,069
3.26
6,530
0.03
Collateralized mortgage obligations
160
5.51
257
5.61
Puerto Rico government obligations
64
0.45
85
0.47
Interest-only strips
 
207
12.00
280
12.00
Total
 
$
27,723
4.63
%
$
29,711
4.06
%
[1] Not on a taxable equivalent basis.
The Corporation’s trading activities are
 
limited by internal policies. For each
 
of the two subsidiaries, the
 
market risk assumed under
trading
 
activities
 
is
 
measured
 
by
 
the
 
5-day
 
net
 
value-at-risk
 
(“VAR”),
 
with
 
a
 
confidence
 
level
 
of
 
99%.
 
The
 
VAR
 
measures
 
the
maximum estimated loss that may occur over a
 
5-day holding period, given a 99% probability.
 
The Corporation’s
 
trading portfolio
 
had a
 
5-day VAR
 
of approximately
 
$0.2 million
 
for the
 
last week
 
in December
 
31, 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.
Derivatives
84
Derivatives may
 
be
 
used by
 
the Corporation
 
as
 
part
 
of
 
its
 
overall interest
 
rate risk
 
management strategy
 
to
 
minimize significant
unexpected
 
fluctuations
 
in
 
earnings
 
and
 
cash
 
flows
 
that
 
are
 
caused
 
by
 
interest
 
rate
 
volatility.
 
Derivative
 
instruments
 
that
 
the
Corporation may use
 
include, among others,
 
interest rate caps,
 
indexed options, and
 
forward contracts. The
 
Corporation does not
use highly leveraged derivative instruments in its interest rate risk management strategy. Credit risk embedded in these transactions
is
 
reduced
 
by
 
requiring
 
appropriate
 
collateral
 
from
 
counterparties
 
and
 
entering
 
into
 
netting
 
agreements
 
whenever
 
possible.
 
All
outstanding derivatives are
 
recognized in the
 
Corporation’s Consolidated Statements
 
of Condition at
 
their fair
 
value. Refer
 
to Note
26 to
 
the Consolidated Financial
 
Statements for further
 
information on the
 
Corporation’s involvement in
 
derivative instruments and
hedging activities.
 
Cash Flow Hedges
The
 
Corporation
 
manages
 
the
 
variability
 
of
 
cash
 
payments
 
due
 
to
 
interest
 
rate
 
fluctuations
 
by
 
the
 
effective
 
use
 
of
 
derivatives
designated
 
as
 
cash
 
flow
 
hedges
 
and
 
that
 
are
 
linked
 
to
 
specified
 
hedged
 
assets
 
and
 
liabilities.
 
The
 
cash
 
flow
 
hedges
 
relate
 
to
forward
 
contracts
 
or
 
TBA
 
mortgage-backed securities
 
that
 
are
 
sold
 
and
 
bought
 
for
 
future
 
settlement to
 
hedge
 
mortgage-backed
securities
 
and
 
loans
 
prior
 
to
 
securitization.
 
The
 
seller
 
agrees
 
to
 
deliver
 
on
 
a
 
specified
 
future
 
date
 
a
 
specified
 
instrument
 
at
 
a
specified price or
 
yield. These securities
 
are hedging a
 
forecasted transaction and
 
are designated for
 
cash flow hedge
 
accounting.
The notional
 
amount of
 
derivatives designated as
 
cash flow
 
hedges at December
 
31, 2022
 
amounted to $
 
15 million
 
(2021 -
 
$ 88
million).
 
Refer
 
to
 
Note
 
26
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
quantitative
 
information
 
on
 
these
 
derivative
contracts.
Fair Value Hedges
The
 
Corporation did
 
not
 
have
 
any
 
derivatives designated
 
as
 
fair value
 
hedges
 
during the
 
years
 
ended December
 
31,
 
2022
 
and
2021.
Trading and Non-Hedging Derivative Activities
The Corporation enters into derivative positions based on market expectations or to benefit from price differentials between financial
instruments
 
and
 
markets
 
mostly
 
to
 
economically
 
hedge
 
a
 
related
 
asset
 
or
 
liability.
 
The
 
Corporation
 
also
 
enters
 
into
 
various
derivatives to provide these
 
types of derivative products to
 
customers. These free-standing derivatives are carried
 
at fair value with
changes in fair value recorded as part of the results of
 
operations for the period.
 
Following
 
is
 
a
 
description
 
of
 
the
 
most
 
significant
 
of
 
the
 
Corporation’s
 
derivative
 
activities
 
that
 
are
 
not
 
designated
 
for
 
hedge
accounting.
 
The Corporation
 
has over-the-counter
 
option contracts
 
which are
 
utilized in
 
order to
 
limit the
 
Corporation’s exposure
 
on customer
deposits whose returns are tied
 
to the S&P 500
 
or to certain other
 
equity securities or commodity indexes. In
 
these certificates, the
customer’s
 
principal
 
is
 
guaranteed
 
by
 
the
 
Corporation
 
and
 
insured
 
by
 
the
 
FDIC
 
to
 
the
 
maximum
 
extent
 
permitted
 
by
 
law.
 
The
instruments pay a return based
 
on the increase of these
 
indexes, as applicable, during the term
 
of the instrument. Accordingly,
 
this
product
 
gives
 
customers
 
the
 
opportunity
 
to
 
invest
 
in
 
a
 
product
 
that
 
protects
 
the
 
principal
 
invested
 
but
 
allows
 
the
 
customer
 
the
potential to earn a return
 
based on the performance of the indexes. The
 
risk of issuing certificates of deposit
 
with returns tied to the
applicable indexes is economically hedged by the Corporation. Indexed
 
options are purchased from financial institutions with strong
credit standings, whose
 
return is designed
 
to match the
 
return payable on
 
the certificates of
 
deposit issued. By
 
hedging the risk
 
in
this manner,
 
the effective cost of
 
these deposits is fixed.
 
The contracts have a maturity
 
and an index equal to
 
the terms of the
 
pool
of retail deposits that they are economically hedging.
 
The purchased
 
indexed options
 
are used
 
to economically
 
hedge the
 
bifurcated embedded
 
option. These
 
option contracts
 
do not
qualify
 
for
 
hedge
 
accounting,
 
and
 
therefore,
 
cannot
 
be
 
designated
 
as
 
accounting
 
hedges.
 
At
 
December
 
31,
 
2022,
 
the
 
notional
amount of
 
the indexed
 
options on deposits
 
approximated $
 
85 million
 
(2021 -
 
$ 79
 
million) with
 
a fair
 
value of
 
$ 18
 
million (asset)
(2021 - $
 
26 million) while the
 
embedded options had a
 
notional value of
 
$ 79 million
 
(2021 - $
 
72 million) with
 
a fair value
 
of $ 16
million (liability) (2021 - $ 23 million).
 
Refer to Note 26 to
 
the Consolidated Financial Statements for a
 
description of other non-hedging derivative activities utilized
 
by the
Corporation during 2022 and 2021.
 
85
Foreign Exchange
The Corporation holds
 
an interest in
 
BHD León
 
in the
 
Dominican Republic, which
 
is an investment
 
accounted for under
 
the equity
method. The
 
Corporation’s carrying value
 
of the
 
equity interest in
 
BHD León
 
approximated $
 
199.8 million at
 
December 31, 2022.
 
This business is conducted in
 
the country’s foreign currency.
 
The resulting foreign currency translation
 
adjustment, from operations
for
 
which
 
the
 
functional
 
currency
 
is
 
other
 
than
 
the
 
U.S.
 
dollar,
 
is
 
reported
 
in
 
accumulated
 
other
 
comprehensive
 
loss
 
in
 
the
consolidated
 
statements
 
of
 
condition,
 
except
 
for
 
highly-inflationary
 
environments
 
in
 
which
 
the
 
effects
 
would
 
be
 
included
 
in
 
the
consolidated statements
 
of
 
operations. At
 
December 31,
 
2022, the
 
Corporation had
 
approximately $
 
57 million in
 
an unfavorable
foreign currency translation
 
adjustment as part
 
of accumulated other
 
comprehensive income (loss),
 
compared with an
 
unfavorable
adjustment of $ 67 million at December 31,
 
2021 and $ 71 million at December 31,
 
2020.
 
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 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 December
 
31, 2022
 
and 89%
 
at December
 
31, 2021.
 
The ratio of total ending loans to deposits was
 
52% at December 31, 2022, compared to 44% at December 31, 2021.
 
In addition to
traditional deposits, the Corporation maintains borrowing
 
arrangements, which amounted to approximately
 
$1.4 billion in outstanding
balances at December 31, 2022 (December 31, 2021 - $1.2 billion). A detailed
 
description of the Corporation’s borrowings, including
their terms,
 
is included
 
in Note
 
17 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
 
an
 
ASR
 
program
 
for
 
the
 
repurchase
 
of
 
an
 
aggregate
 
$400
 
million
 
of
 
Popular’s
common stock,
 
for which
 
an initial
 
3,483,942 shares
 
were delivered
 
in March
 
2022 (the
 
“March ASR
 
Agreement”). Upon
 
the final
settlement
 
of
 
the
 
March
 
ASR
 
Agreement,
 
the
 
Corporation
 
received
 
an
 
additional
 
1,582,922
 
shares
 
of
 
common
 
stock.
 
The
Corporation repurchased a
 
total of
 
5,066,864 shares
 
at an
 
average purchase
 
price of
 
$78.9443, which
 
were recorded
 
as treasury
stock by $440 million under the March ASR Agreement.
 
86
On December
 
7, 2022,
 
the Corporation
 
completed the
 
settlement of
 
another ASR
 
Agreement for
 
the repurchase
 
of an
 
aggregate
$231
 
million
 
of
 
Popular’s common
 
stock,
 
for
 
which
 
an
 
initial
 
2,339,241 shares
 
were
 
delivered
 
on
 
August
 
26,
 
2022
 
(the
 
“August
ASR”). Upon the
 
final settlement of
 
the ASR Agreement,
 
the Corporation received
 
an additional 840,024
 
shares of common
 
stock.
The Corporation repurchased a total of
 
3,179,265 shares at an average purchase price of
 
$72.66, which were recorded as treasury
stock by
 
$245 million under
 
the August ASR
 
Agreement.
 
Refer to Note
 
20 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
 
17
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
 
for
 
additional
 
information
 
of
 
the
 
Corporation’s
 
borrowing
 
facilities
available through its banking subsidiaries.
 
The principal
 
uses of
 
funds for
 
the banking
 
subsidiaries include
 
loan originations,
 
investment portfolio
 
purchases, loan
 
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
 
banking subsidiaries assume liquidity
 
risk related to collateral
 
posting requirements for certain
 
activities mainly
in
 
connection
 
with
 
contractual
 
commitments,
 
recourse
 
provisions,
 
servicing
 
advances,
 
derivatives
 
and
 
credit
 
card
 
licensing
agreements.
 
The banking
 
subsidiaries maintain
 
sufficient funding
 
capacity to
 
address large
 
increases in
 
funding requirements
 
such as
 
deposit
outflows.
 
The
 
Corporation has
 
established
 
liquidity
 
guidelines
 
that
 
require
 
the
 
banking
 
subsidiaries
 
to
 
have
 
sufficient
 
liquidity
 
to
cover all short-term borrowings and a portion of deposits.
 
The Corporation’s ability to compete
 
successfully in the marketplace for
 
deposits, excluding brokered deposits, depends on various
factors, including
 
pricing, service,
 
convenience and
 
financial stability
 
as reflected
 
by operating
 
results, 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
 
8 for
 
a breakdown
 
of deposits
 
by major
 
types. Core
 
deposits are
 
generated from
 
a large
base of consumer, corporate and
 
public sector customers. Core deposits include 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 $57.6 billion,
or
 
94% of total deposits, at December 31, 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 December 31, 2022, compared with 88%
 
at December 31, 2021.
 
The distribution by maturity of
 
certificates of deposits with denominations of
 
$250,000 and over at December 31,
 
2022 is presented
in the table that follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
87
Table 16 - Distribution by
 
Maturity of Certificate of Deposits of $250,000 and Over
(In thousands)
3 months or less
$
1,809,781
Over 3 to 12 months
333,648
Over 1 year to 3 years
282,506
Over 3 years
119,815
Total
$
2,545,750
For the
 
years ended
 
December 31,
 
2022 and
 
2021, average
 
deposits, including
 
brokered deposits,
 
represented
 
93% of
 
average
earning assets. Table 17 summarizes average deposits for the past three years.
 
Table 17 - Average
 
Total Deposits
For the years ended December 31,
(In thousands)
2022
2021
Non-interest bearing demand deposits
$
16,093,704
$
14,687,093
Savings accounts
 
16,242,457
15,753,630
NOW, money market and other interest
 
bearing demand accounts
25,539,909
25,648,707
Certificates of deposit
6,840,334
7,013,486
Total interest bearing
 
deposits
48,622,700
48,415,823
Total average deposits
$
64,716,404
$
63,102,916
The Corporation
 
had $1.1
 
billion in
 
brokered deposits
 
at December
 
31, 2022,
 
which financed
 
approximately 2%
 
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
 
December 31, 2022,
 
total public
sector deposits were $15.2 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.
 
Additionally,
 
the
 
Corporation
 
mainly
 
utilizes
 
fixed-rate
 
U.S.
 
Treasury
 
debt
 
securities
 
as
 
collateral.
 
While
 
these
securities have
 
limited credit risk,
 
they are
 
subject to
 
market value
 
risk based on
 
changes in
 
the interest rate
 
environment.
 
When
interest
 
rates
 
increase,
 
the
 
value
 
of
 
this
 
collateral
 
decreases
 
and
 
could
 
result
 
in
 
the
 
Corporation
 
having
 
to
 
provide
 
additional
collateral
 
to
 
cover
 
the
 
same
 
amount
 
of
 
deposit
 
liabilities.
 
This
 
additional
 
collateral
 
could
 
reduce
 
unpledged
 
securities
 
otherwise
available as liquidity sources to the Corporation.
 
At December 31, 2022,
 
management believes that the
 
banking subsidiaries had sufficient current
 
and projected liquidity sources to
meet their anticipated cash flow obligations,
 
as well as special needs
 
and off-balance sheet commitments, in the
 
ordinary course of
business and have sufficient
 
liquidity resources to address a
 
stress event. Although the
 
banking subsidiaries have historically been
able to replace
 
maturing deposits and advances,
 
no assurance can
 
be given that
 
they would be
 
able to replace
 
those funds in
 
the
future if the
 
Corporation’s financial condition
 
or general market
 
conditions were to
 
deteriorate. The Corporation’s
 
financial flexibility
will
 
be
 
severely constrained
 
if
 
the
 
banking subsidiaries
 
are
 
unable to
 
maintain access
 
to
 
funding
 
or
 
if
 
adequate financing
 
is
 
not
available to accommodate future financing needs at acceptable interest rates. The
 
banking subsidiaries also are required to deposit
cash or qualifying securities to meet margin requirements on repurchase
 
agreements and other collateralized borrowing facilities. To
the extent that
 
the value of securities
 
previously pledged as collateral
 
declines because of market
 
changes, the Corporation will
 
be
 
 
 
 
 
 
 
 
 
88
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,
repurchases of the Corporation’s securities and capitalizing its
 
banking subsidiaries.
 
The
 
outstanding
 
balance
 
of
 
notes
 
payable
 
at
 
the
 
BHCs
 
amounted
 
to
 
$497
 
million
 
at
 
December
 
31,
 
2022
 
and
 
$496
 
million
 
at
December 31, 2021.
The contractual maturities of the BHCs notes payable
 
at December 31, 2022 are presented in
 
Table 18.
Table 18
 
- Distribution of BHC's Notes Payable by Contractual
 
Maturity
Year
(In thousands)
2023
$
299,109
Later years
198,319
Total
$
497,428
The Corporation’s
 
6.125% unsecured senior
 
debt securities mature
 
in the
 
September of 2023.
 
Annual debt service
 
at the BHCs
 
is
approximately $32
 
million,
 
and
 
the
 
Corporation’s
 
latest
 
quarterly dividend
 
was
 
$0.55
 
per share
 
or
 
approximately $40
 
million
 
per
quarter.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
BHCs
 
had
 
cash
 
and
 
money
 
markets
 
investments
 
totaling
 
$203
 
million
 
and
 
borrowing
potential of
 
$169 million
 
from its
 
secured facility
 
with BPPR.
 
The BHCs’
 
liquidity position
 
continues to
 
be adequate
 
with sufficient
cash
 
on
 
hand,
 
investments
 
and
 
other
 
sources
 
of
 
liquidity
 
which
 
are
 
expected
 
to
 
be
 
enough
 
to
 
meet
 
all
 
interest
 
payments
 
and
dividend obligations during the
 
foreseeable future. The Corporation
 
intends to refinance
 
the 6.125% unsecured senior
 
debt prior to
its
 
maturity in
 
September.
 
If
 
we are
 
unable to
 
refinance these
 
notes, we
 
could have
 
to
 
declare extraordinary
 
dividends from
 
our
banking and other operating
 
subsidiaries to repay such
 
notes. Our ability to
 
declare such dividends could
 
be subject to
 
approval of
the Federal Reserve Board.
The BHCs have in
 
the past borrowed in the
 
corporate debt market primarily to finance
 
their non-banking subsidiaries and refinance
debt obligations. These
 
sources of funding
 
are more costly
 
due to the
 
fact that two
 
out of the
 
three principal credit
 
rating agencies
rate the Corporation below “investment grade”, which
 
affects the Corporation’s cost and
 
ability to raise funds in
 
the capital markets.
Factors that the Corporation
 
does not control, such
 
as the economic outlook,
 
interest rate volatility,
 
inflation, disruptions in the
 
debt
market, among others,
 
could also affect
 
its ability to
 
obtain funding. The
 
Corporation has an
 
automatic shelf registration
 
statement
filed and effective
 
with the Securities and Exchange
 
Commission, which permits the Corporation
 
to issue an
 
unspecified amount of
debt or equity securities.
On July 1,
 
2022, the Corporation exchanged a
 
portion of Evertec shares as
 
part of a transaction
 
in which it acquired
 
certain critical
channels from Evertec and renegotiated several service agreements. The Corporation completed the sale of its remaining shares of
Evertec on August 15, 2022. Following the
 
Evertec Stock Sale, Popular no longer owns any
 
Evertec common stock.
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
 
 
 
 
89
ended December
 
31, 2022,
 
Popular, Inc.
 
made capital
 
contributions to its
 
wholly owned subsidiaries
 
of $25
 
million to
 
Popular Re,
Inc., $10 million to Popular Securities,
 
LLC and $3 million to Popular Impact Fund, LLC.
Dividends
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
declared
 
cash
 
dividends
 
of
 
$2.20
 
per
 
common
 
share
 
outstanding
($163.7 million in the aggregate). The
 
dividends for the Corporation’s Series
 
A preferred stock amounted to $1.4
 
million. During the
year ended
 
December 31,
 
2022, the
 
BHCs received
 
dividends amounting
 
to $450
 
million from
 
BPPR, $54
 
million from
 
PNA,
 
$19
million
 
from
 
PIBI,
 
$8 million
 
in dividends
 
from
 
its
 
non-banking subsidiaries
 
and
 
$2 million
 
in
 
dividends from
 
Evertec.
 
In
 
addition,
during the year ended December 31, 2022, Popular International
 
Bank Inc., a 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
 
$8.0
 
billion at
 
December 31,
 
2022
 
and
 
$3.0 billion
 
at
 
December 31,
 
2021. A
 
substantial
portion of these debt securities could be used to
 
raise financing in the U.S. money markets or
 
from secured lending sources.
Additional liquidity may
 
be provided through
 
loan maturities, prepayments
 
and sales. The
 
loan portfolio can
 
also be used
 
to obtain
funding in the capital markets. In particular,
 
mortgage loans and some types of consumer loans, have
 
secondary markets which the
Corporation could use.
Off-Balance Sheet arrangements and other commitments
In the ordinary course
 
of business, the Corporation
 
engages in financial transactions that
 
are not recorded on
 
the balance sheet or
may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a
provider of
 
financial services,
 
the Corporation
 
routinely enters
 
into commitments
 
with off-balance
 
sheet risk
 
to meet
 
the financial
needs of
 
its customers. These
 
commitments may include
 
loan commitments and
 
standby letters of
 
credit. These commitments
 
are
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 24
 
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
 
33
 
to
 
the
Consolidated Financial Statements for information on operating leases and
 
to Note 23 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
 
17
 
to
 
the
 
Consolidated
Financial Statements has information on
 
the Corporation’s borrowings by maturity,
 
which amounted to $1.4
 
billion at December 31,
2022 (December 31, 2021 - $1.2 billion).
Financial information of guarantor and issuers of registered
 
guaranteed securities
The Corporation (not
 
including any of
 
its subsidiaries, “PIHC”)
 
is the parent
 
holding company of
 
Popular North America
 
“PNA” and
has other subsidiaries through which it
 
conducts its financial services operations. PNA is
 
an operating, 100% subsidiary of Popular,
Inc.
 
Holding Company
 
(“PIHC”) and
 
is the
 
holding company
 
of its
 
wholly-owned subsidiaries:
 
Equity One,
 
Inc.
 
and PB,
 
including
PB’s wholly-owned subsidiaries Popular Equipment Finance,
 
LLC, Popular Insurance Agency, U.S.A., and E-LOAN, Inc.
PNA
 
has
 
issued
 
junior
 
subordinated
 
debentures
 
guaranteed
 
by
 
PIHC
 
(together
 
with
 
PNA,
 
the
 
“obligor
 
group”)
 
purchased
 
by
statutory trusts
 
established by
 
the Corporation.
 
These debentures
 
were purchased
 
by the
 
statutory trust
 
using the
 
proceeds from
90
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
December
 
31,
 
2022
 
and
 
December 31,
 
2021,
 
and
 
the
 
results
 
of
 
their
 
operations
 
for
 
the
 
period
 
ended December
 
31,
 
2022
 
and
December 31,
 
2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the
obligor group have been excluded.
The
 
summarized
 
financial
 
information
 
of
 
the
 
obligor
 
group
 
is
 
presented
 
on
 
a
 
combined
 
basis
 
with
 
intercompany
 
balances
 
and
transactions
 
between
 
entities
 
in
 
the
 
obligor
 
group
 
eliminated.
 
The
 
obligor
 
group's
 
amounts
 
due
 
from,
 
amounts
 
due
 
to
 
and
transactions with
 
subsidiaries and
 
affiliates
 
have been
 
presented in
 
separate line
 
items, if
 
they are
 
material.
 
In
 
addition, related
parties transactions are presented separately.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
91
Table 19 - Summarized Statement
 
of Condition
(In thousands)
December 31, 2022
December 31, 2021
Assets
Cash and money market investments
$
203,083
$
291,540
Investment securities
24,815
25,691
Accounts receivables from non-obligor subsidiaries
16,853
17,634
Other loans (net of allowance for credit losses of $370 (2021
 
- $96))
27,826
29,349
Investment in equity method investees
5,350
114,955
Other assets
45,278
42,251
Total assets
$
323,205
$
521,420
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries
$
3,709
$
6,481
Accounts payable to affiliates and related parties
-
1,254
Notes payable
497,428
496,134
Other liabilities
112,847
97,172
Stockholders' deficit
(290,779)
(79,621)
Total liabilities and
 
stockholders' deficit
$
323,205
$
521,420
Table 20 - Summarized Statement
 
of Operations
For the years ended
(In thousands)
December 31, 2022
December 31, 2021
Income:
Dividends from non-obligor subsidiaries
$
458,000
$
792,000
Interest income from non-obligor subsidiaries and affiliates
705
848
Earnings from investments in equity method investees
15,688
29,387
Other operating income
145,295
3,136
Total income
$
619,688
$
825,371
Expenses:
Services provided by non-obligor subsidiaries and affiliates
 
(net of
reimbursement by subsidiaries for services provided by parent
 
of
$222,935 (2021 - $162,019))
$
18,467
$
13,594
Other operating expenses
23,607
33,524
Total expenses
$
42,074
$
47,118
Net income (loss)
$
577,614
$
778,253
During the year ended
 
December 31, 2022, the Obligor
 
group recorded $1.5 million of
 
dividend distributions from its direct
equity method investees, and $72.0 million of dividend distributions from non-obligor subsidiaries which were recorded as a
reduction
 
to
 
the
 
investments.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2021,
 
the
 
Obligor
 
group
 
recorded
 
$3.0
 
million
 
of
distributions from its direct equity method investees,
 
of which $2.3 million were related to dividend
 
distributions.
In
 
addition, during
 
the year
 
ending December
 
31, 2022,
 
the Obligor
 
group recorded
 
$228.1 million
 
in proceeds
 
from the
sale of two of its direct equity method investees (2021-
 
$0).
 
 
92
Risks to Liquidity
Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing
 
basis. Some of these lines
could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory
 
requirements, among
other factors.
 
Derivatives, such
 
as those
 
embedded in
 
long-term repurchase
 
transactions or
 
interest rate
 
swaps, and
 
off-balance
sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their
fair value increases, the collateral requirements may increase,
 
thereby reducing the balance of unpledged
 
securities.
The importance of
 
the Puerto Rico
 
market for the
 
Corporation is an
 
additional risk factor
 
that could affect
 
its financing activities.
 
In
the case
 
of a
 
deterioration in economic
 
and fiscal conditions
 
in Puerto Rico,
 
the credit quality
 
of the
 
Corporation could be
 
affected
and result
 
in higher
 
credit costs.
 
Refer to
 
the Geographic
 
and Government
 
Risk section
 
of this
 
MD&A for
 
some highlights
 
on the
current status of the Puerto Rico economy and the ongoing
 
fiscal crisis.
Factors that the Corporation does not control, such as the economic
 
outlook and credit ratings of its principal markets and regulatory
changes,
 
could also
 
affect
 
its
 
ability to
 
obtain funding.
 
In
 
order to
 
prepare for
 
the
 
possibility of
 
such scenario,
 
management has
adopted
 
contingency
 
plans
 
for
 
raising
 
financing
 
under
 
stress
 
scenarios
 
when
 
important
 
sources
 
of
 
funds
 
that
 
are
 
usually
 
fully
available
 
are
 
temporarily
 
unavailable. These
 
plans call
 
for
 
using
 
alternate
 
funding
 
mechanisms,
 
such
 
as
 
the
 
pledging
 
of
 
certain
asset classes
 
and accessing
 
secured credit
 
lines and
 
loan facilities
 
put in
 
place with
 
the FHLB
 
and the
 
FRB. The
 
Corporation is
subject to
 
positive tangible
 
capital
 
requirements to
 
utilize secured
 
loan facilities
 
with the
 
FHLB that
 
could
 
result in
 
a limitation
 
of
borrowing amounts or maturity terms, even if the Corporation
 
exceeds well-capitalized regulatory capital levels.
 
The credit
 
ratings of
 
Popular’s debt
 
obligations are
 
a relevant
 
factor for
 
liquidity because
 
they impact
 
the Corporation’s
 
ability to
borrow
 
in
 
the
 
capital
 
markets,
 
its
 
cost
 
and
 
access
 
to
 
funding
 
sources.
 
Credit
 
ratings
 
are
 
based
 
on
 
the
 
financial
 
strength,
 
credit
quality and
 
concentrations in
 
the loan
 
portfolio, the
 
level and
 
volatility of
 
earnings, capital
 
adequacy,
 
the quality
 
of management,
geographic concentration
 
in Puerto
 
Rico, the
 
liquidity of
 
the balance
 
sheet, the
 
availability of
 
a significant
 
base of
 
core retail
 
and
commercial deposits, and the Corporation’s ability
 
to access a broad array of wholesale funding
 
sources, among other factors.
 
Furthermore,
 
various
 
statutory
 
provisions
 
limit
 
the
 
amount
 
of
 
dividends
 
an
 
insured
 
depository
 
institution
 
may
 
pay
 
to
 
its
 
holding
company without
 
regulatory approval. A
 
member bank must
 
obtain the
 
approval of
 
the Federal
 
Reserve Board
 
for any
 
dividend, if
the total
 
of all
 
dividends declared
 
by the
 
member bank
 
during the
 
calendar year
 
would exceed
 
the total
 
of its
 
net income
 
for that
year,
 
combined with
 
its retained
 
net income
 
for the
 
preceding two
 
years, after
 
considering those
 
years’ dividend
 
activity,
 
less any
required transfers to surplus or to a fund for the retirement of any preferred
 
stock. During the year ended December 31, 2022, BPPR
declared
 
cash
 
dividends of
 
$450 million,
 
a
 
portion of
 
which was
 
used by
 
Popular for
 
the
 
payments of
 
the
 
cash
 
dividends on
 
its
outstanding common stock and $231 million in accelerated
 
stock repurchases.
 
At December 31, 2022, BPPR needed to obtain prior
approval of the Federal Reserve Board before
 
declaring a dividend in excess of $53 million
 
due to its declared dividend activity and
transfers to statutory reserves over the three years ended
 
December 31, 2022. In addition, a member bank
 
may not declare or pay a
dividend in an amount greater than its
 
undivided profits as reported in its Report of
 
Condition and Income, unless the member bank
has received the approval of the Federal Reserve Board. A member
 
bank also may not permit any portion of its permanent capital
 
to
be withdrawn unless the withdrawal has been approved by
 
the Federal Reserve Board. Pursuant to these requirements, PB
 
may not
declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary
to up-stream dividends to its BHC could thus
 
be impacted by its financial performance and capital, including tangible and
 
regulatory
capital, thus potentially limiting the
 
amount of cash moving
 
up to the BHCs from
 
the banking subsidiaries. This could,
 
in turn, affect
the
 
BHCs
 
ability to
 
declare dividends
 
on
 
its
 
outstanding common
 
and
 
preferred stock,
 
repurchase its
 
securities
 
or meet
 
its
 
debt
obligations, for example.
 
The Corporation’s banking subsidiaries have historically not
 
used unsecured capital market borrowings to finance its operations,
 
and
therefore are less sensitive to the level and
 
changes in the Corporation’s overall credit ratings.
Obligations Subject to Rating Triggers or Collateral Requirements
The
 
Corporation’s
 
banking
 
subsidiaries
 
currently
 
do
 
not
 
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 December 31, 2022 that are subject to
 
rating triggers.
 
In addition, certain
 
mortgage servicing and custodial
 
agreements that BPPR has
 
with third parties
 
include rating covenants.
 
In the
event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for
escrow
 
deposits
 
and/or
 
increase
 
collateral
 
levels
 
securing
 
the
 
recourse
 
obligations.
 
Also,
 
as
 
discussed
 
in
 
Note
 
23
 
to
 
the
Consolidated
 
Financial
 
Statements,
 
the
 
Corporation
 
services
 
residential
 
mortgage
 
loans
 
subject
 
to
 
credit
 
recourse
 
provisions.
 
 
93
Certain
 
contractual
 
agreements
 
require
 
the
 
Corporation
 
to
 
post
 
collateral
 
to
 
secure
 
such
 
recourse
 
obligations
 
if
 
the
 
institution’s
required
 
credit
 
ratings
 
are
 
not
 
maintained.
 
Collateral
 
pledged
 
by
 
the
 
Corporation
 
to
 
secure
 
recourse
 
obligations
 
amounted
 
to
approximately
 
$29
 
million
 
at
 
December
 
31,
 
2022.
 
The
 
Corporation
 
could
 
be
 
required
 
to
 
post
 
additional
 
collateral
 
under
 
the
agreements.
 
Management
 
expects
 
that
 
it
 
would
 
be
 
able
 
to
 
meet
 
additional
 
collateral
 
requirements
 
if
 
and
 
when
 
needed.
 
The
requirements
 
to
 
post
 
collateral under
 
certain
 
agreements or
 
the
 
loss
 
of
 
escrow deposits
 
could
 
reduce
 
the
 
Corporation’s liquidity
resources and impact its operating results.
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 37 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A
 
significant portion
 
of
 
our financial
 
activities and
 
credit
 
exposure is
 
concentrated in
 
the
 
Commonwealth of
 
Puerto Rico
 
(“Puerto
Rico”), which has faced severe economic and fiscal
 
challenges in the past and may face additional
 
challenges in the future.
 
Economic Performance.
 
Puerto
 
Rico’s
 
economy suffered
 
a
 
severe and
 
prolonged recession
 
from
 
2007
 
to
 
2017,
 
with real
 
gross national
 
product (“GNP”)
contracting approximately 15% during this
 
period.
 
In 2017, Hurricane María
 
caused significant damage and destruction
 
across the
island, resulting in further economic contraction.
 
Puerto Rico’s economy has been gradually recovering since 2018, in part aided by
the large amount
 
of federal disaster
 
relief and recovery
 
assistance funds injected
 
into the Puerto
 
Rico economy in
 
connection with
Hurricane María
 
and other
 
recent natural
 
disasters. This
 
growth was
 
interrupted by
 
the economic
 
shock caused
 
by the
 
COVID-19
pandemic in 2020, but has since resumed, in part
 
aided by additional federal assistance from
 
pandemic-related stimulus measures.
The
 
latest
 
Puerto
 
Rico
 
Economic Activity
 
Index,
 
published
 
by
 
the
 
Economic
 
Development Bank
 
for
 
Puerto
 
Rico
 
(the
 
“Economic
Activity
 
Index”),
 
reflected
 
a
 
0.6%
 
increase
 
in
 
December
 
2022,
 
compared
 
to
 
December
 
2021.
 
During
 
calendar
 
year
 
2022,
 
the
Economic Activity Index increased by 1.8%,
 
compared to the same period in
 
calendar year 2021.
 
The Economic Activity Index is
 
a
coincident indicator of ongoing economic activity but not a
 
direct measurement of real GNP.
 
According to the Puerto Rico Planning
Board’s latest economic forecast (dated August 2021), Puerto Rico’s
 
real GNP is projected to increase 1.7% during the
 
current fiscal
year (July 2022-June 2023).
While the
 
Puerto Rico
 
economy has
 
not directly
 
tracked the
 
United States
 
economy in
 
recent years,
 
many of
 
the external
 
factors
that impact the
 
Puerto Rico economy
 
are affected by
 
the policies and
 
performance of the
 
United States economy.
 
These external
factors include
 
the level
 
of interest
 
rates and
 
the rate
 
of inflation.
 
Inflation in
 
the United
 
States, as
 
measured by the
 
United States
Consumer Price Index
 
(published by the
 
U.S. Bureau of
 
Labor Statistics), increased
 
6.5% in calendar
 
year 2022, mainly
 
driven by
pent-up
 
demand
 
and
 
supply-chain
 
disruptions
 
caused
 
by
 
the
 
pandemic.
 
During
 
the
 
same
 
period,
 
inflation
 
in
 
Puerto
 
Rico,
 
as
measured by the Puerto Rico Consumer Price Index (published by the Department of Labor and Human Resources of Puerto Rico),
increased 6.1%
 
for similar
 
reasons.
 
The rate
 
of inflation
 
has slowed
 
down in
 
recent months,
 
following a
 
mid-2022 peak,
 
as the
Federal Reserve has
 
implemented a series
 
of benchmark interest
 
rate increases.
 
The speed
 
and scope of
 
the inflation slowdown
will inform
 
if and
 
how much
 
interest rates
 
will continue
 
to increase,
 
as well
 
how these
 
changes will
 
impact the
 
United States
 
and
Puerto Rico economies.
 
 
 
 
94
Fiscal Challenges.
 
As the
 
Puerto Rico
 
economy contracted, the
 
government’s public
 
debt rose
 
rapidly,
 
in part
 
from borrowing to
 
cover deficits
 
to pay
debt service, pension
 
benefits and other
 
government expenditures.
 
By 2016, the
 
Puerto Rico government
 
had over $120
 
billion in
combined debt and unfunded
 
pension liabilities, had lost access to the capital
 
markets, and was in the midst of a fiscal
 
crisis.
Puerto
 
Rico’s
 
escalating fiscal
 
and economic
 
challenges
 
and imminent
 
widespread defaults
 
in
 
its
 
public debt
 
prompted the
 
U.S.
Congress to
 
enact the
 
Puerto Rico
 
Oversight, Management,
 
and Economic
 
Stability Act
 
(“PROMESA”) in
 
June 2016.
 
PROMESA
created the “Oversight Board” with ample powers over Puerto Rico’s fiscal and economic affairs and those of its public corporations,
instrumentalities and municipalities (collectively, “PR
 
Government Entities”).
 
Pursuant to PROMESA, the Oversight Board will
 
be in
place
 
until
 
market
 
access
 
is
 
restored
 
and
 
balanced
 
budgets
 
are
 
produced
 
for
 
at
 
least
 
four
 
consecutive
 
years.
 
PROMESA
 
also
established two
 
mechanisms for
 
the restructuring
 
of the
 
obligations of
 
PR Government
 
Entities: (a)
 
Title III,
 
which provides
 
an in-
court process that incorporates many of the
 
powers and provisions of the U.S. Bankruptcy Code
 
and permits adjustment of a broad
range of obligations, and
 
(b) Title VI,
 
which provides for a
 
largely out-of-court process through which
 
modifications to financial debt
can be accepted by a supermajority of creditors
 
and bind holdouts.
Since 2017, Puerto Rico and several
 
of its instrumentalities have availed themselves
 
of the debt restructuring mechanisms of Titles
III and VI of PROMESA. The Puerto Rico government emerged from Title III of PROMESA in March 2022. Several instrumentalities,
including Government
 
Development Bank for
 
Puerto Rico,
 
the Puerto
 
Rico Sales
 
Tax
 
Financing Corporation, and
 
the Puerto
 
Rico
Highways
 
and
 
Transportation
 
Authority,
 
have
 
also
 
completed
 
debt
 
restructurings
 
under
 
Titles
 
III
 
or
 
VI
 
of
 
PROMESA.
 
While
 
the
majority
 
of
 
the
 
debt
 
has
 
already
 
been
 
restructured,
 
some
 
PR
 
Government
 
Entities
 
still
 
face
 
significant
 
fiscal
 
challenges.
 
For
example, the
 
Puerto Rico
 
Electric Power
 
Authority is
 
still in
 
the process
 
of restructuring
 
its debts
 
under Title
 
III of
 
PROMESA and
other PR Government
 
Entities, such as
 
the Puerto Rico
 
Industrial Development Company,
 
have defaulted on
 
their bonds but
 
have
not commenced debt restructuring proceedings under
 
PROMESA.
 
Municipalities.
 
Puerto Rico’s fiscal and economic challenges have
 
also adversely impacted its municipalities. Budgetary subsidies to municipalities
have
 
gradually
 
declined
 
in
 
recent
 
years
 
and
 
are
 
scheduled
 
to
 
be
 
ultimately
 
eliminated
 
by
 
fiscal
 
year
 
2025
 
as
 
part
 
of
 
the
 
fiscal
measures
 
required
 
by
 
the
 
Oversight
 
Board.
 
According
 
to
 
the
 
latest
 
Puerto
 
Rico
 
fiscal
 
plan
 
certified
 
by
 
the
 
Oversight
 
Board,
municipalities
 
have
 
made
 
little
 
to
 
no
 
progress
 
towards
 
implementing
 
the
 
fiscal
 
discipline
 
required
 
to
 
reduce
 
reliance
 
on
 
these
budgetary appropriations and this
 
lack of fiscal
 
management may threaten the
 
ability of certain
 
municipalities to provide
 
necessary
services, such as health, sanitation, public safety
 
and emergency services to their residents, forcing them
 
to prioritize expenditures.
Municipalities
 
are
 
subject
 
to
 
PROMESA
 
and,
 
at
 
the
 
Oversight
 
Board’s
 
request,
 
are
 
required
 
to
 
submit
 
fiscal
 
plans
 
and
 
annual
budgets
 
to
 
the
 
Oversight
 
Board
 
for
 
its
 
review
 
and
 
approval.
 
They
 
are
 
also
 
required to
 
seek
 
Oversight
 
Board
 
approval
 
to
 
issue,
guarantee
 
or
 
modify
 
their
 
debts
 
and
 
to
 
enter
 
into
 
contracts
 
with an
 
aggregate
 
value
 
of
 
$10
 
million
 
or
 
more.
 
With
 
the
 
Oversight
Board’s approval, municipalities are also eligible to avail themselves of the debt restructuring processes provided by PROMESA. To
date, however, no municipality has been subject to any such debt
 
restructuring process.
 
Exposure of the Corporation
 
The credit
 
quality of BPPR’s
 
loan portfolio
 
reflects, among other
 
things, the
 
general economic conditions
 
in Puerto
 
Rico and
 
other
adverse conditions affecting Puerto
 
Rico consumers and businesses.
 
Deterioration in the Puerto
 
Rico economy has resulted
 
in the
past, and could
 
result in the future,
 
in higher delinquencies, greater
 
charge-offs and increased losses,
 
which could materially affect
our financial condition and results of operations.
 
At
 
December 31,
 
2022, the
 
Corporation’s direct
 
exposure to
 
PR Government
 
Entities totaled
 
$374
 
million, of
 
which $327
 
million
were
 
outstanding,
 
compared
 
to
 
$367
 
million
 
at
 
December
 
31,
 
2021,
 
of
 
which
 
$349
 
million
 
were
 
outstanding.
 
A
 
deterioration
 
in
Puerto Rico’s fiscal
 
and economic situation could adversely
 
affect the value of
 
our Puerto Rico government
 
obligations, resulting in
losses to us. Of
 
the amount outstanding, $302 million
 
consists of loans and
 
$25 million are securities ($319
 
million and $30 million,
respectively,
 
at December
 
31, 2021).
 
All of
 
the Corporation’s
 
direct exposure
 
outstanding at
 
December 31,
 
2022 were
 
obligations
from various
 
Puerto Rico
 
municipalities. In
 
most cases,
 
these were
 
“general obligations”
 
of a
 
municipality,
 
to which
 
the applicable
municipality
 
has
 
pledged its
 
good
 
faith, credit
 
and unlimited
 
taxing power,
 
or
 
“special obligations”
 
of
 
a municipality,
 
to
 
which the
applicable
 
municipality
 
has
 
pledged basic
 
property tax
 
or
 
sales
 
tax
 
revenues. At
 
December 31,
 
2022,
 
73%
 
of
 
the
 
Corporation’s
exposure to municipal loans
 
and securities was concentrated in
 
the municipalities of San Juan,
 
Guaynabo, Carolina and Bayamón.
 
 
 
95
For
 
additional
 
discussion
 
of
 
the
 
Corporation’s
 
direct
 
exposure
 
to
 
the
 
Puerto
 
Rico
 
government
 
and
 
its
 
instrumentalities
 
and
municipalities, refer to Note 24 – Commitments and
 
Contingencies to the Consolidated Financial Statements.
 
In
 
addition,
 
at
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$251
 
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
 
$209
 
million
 
in
 
residential mortgage
 
loans
 
insured by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance Authority
 
(“HFA”),
 
a
 
PR
Government
 
Entity
 
(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
 
December
 
31,
 
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.
 
BPPR’s
 
commercial loan
 
portfolio also
 
includes loans
 
to
 
private borrowers
 
who
 
are service
 
providers, lessors,
 
suppliers or
 
have
other relationships with the government. These borrowers could be negatively
 
affected by a deterioration in the fiscal and
 
economic
situation
 
of
 
PR
 
Government
 
Entities.
 
Similarly,
 
BPPR’s
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
include
 
loans
 
to
 
government
employees
 
and
 
retirees,
 
which
 
could
 
also
 
be
 
negatively
 
affected
 
by
 
fiscal
 
measures,
 
such
 
as
 
employee
 
layoffs
 
or
 
furloughs
 
or
reductions in pension benefits, if the fiscal and economic
 
situation deteriorates.
As
 
of
 
December
 
31,
 
2022,
 
BPPR
 
had
 
$15.2
 
billion
 
in
 
deposits
 
from
 
the
 
Puerto
 
Rico
 
government,
 
its
 
instrumentalities,
 
and
municipalities. The rate at
 
which public deposit balances may
 
decline is uncertain and
 
difficult to predict. The
 
amount and timing of
any such
 
reduction is
 
likely to
 
be impacted
 
by,
 
for example,
 
the speed
 
at which
 
federal assistance
 
is distributed
 
and the
 
financial
condition, liquidity
 
and cash
 
management practices of
 
such entities,
 
as well
 
as on
 
the ability
 
of BPPR
 
to maintain
 
these customer
relationships.
The
 
Corporation may
 
also have
 
direct
 
exposure with
 
regards to
 
avoidance and
 
other causes
 
of
 
action initiated
 
by the
 
Oversight
Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 24
to the Consolidated Financial Statements.
United States Virgin Islands
The
 
Corporation
 
has
 
operations
 
in
 
the
 
United
 
States
 
Virgin
 
Islands
 
(the
 
“USVI”)
 
and
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
entities.
The USVI has
 
been experiencing a
 
number of fiscal
 
and economic challenges,
 
which could adversely
 
affect the
 
ability of its
 
public
corporations and instrumentalities to service their outstanding
 
debt obligations. PROMESA does not apply to the USVI
 
and, as such,
there
 
is
 
currently
 
no
 
federal
 
legislation
 
permitting
 
the
 
restructuring
 
of
 
the
 
debts
 
of
 
the
 
USVI
 
and
 
its
 
public
 
corporations
 
and
instrumentalities.
To
 
the extent that
 
the fiscal condition
 
of the USVI
 
continues to deteriorate, the
 
U.S. Congress or the
 
Government of the
 
USVI may
enact legislation allowing for the restructuring of the
 
financial obligations of USVI government entities or imposing a
 
stay on creditor
remedies, including by making PROMESA applicable
 
to the USVI.
 
At December
 
31, 2022,
 
the Corporation
 
had approximately $28
 
million in
 
direct exposure to
 
USVI government
 
entities (December
31, 2021 - $70 million).
 
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 December 31, 2022 it has a loan portfolio amounting to approximately
$214 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
 
6 and 7 to the
 
Consolidated Financial Statements, a substantial portion of the
 
Corporation’s investment
securities
 
represented exposure
 
to
 
the
 
U.S.
 
Government in
 
the
 
form
 
of
 
U.S. Government
 
sponsored entities,
 
as
 
well
 
as
 
agency
96
mortgage-backed and U.S. Treasury securities. In addition, $1.6 billion
 
of residential mortgages, $38 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $72 million
 
commercial loans were insured or guaranteed by
 
the U.S. Government or its
agencies at December 31, 2022 (compared
 
to $1.6 billion, $353 million and $67 million,
 
respectively, at December 31, 2021).
Non-Performing Assets
Non-performing assets (“NPAs”)
 
include primarily past-due
 
loans that
 
are no
 
longer accruing interest,
 
renegotiated loans, and
 
real
estate property acquired through foreclosure. A summary, including certain credit quality
 
metrics, is presented in Table 21.
During 2022, the Corporation showed favorable
 
credit quality trends with low levels
 
of NCOs and decreasing NPLs. We
 
continue to
closely
 
monitor
 
changes
 
in
 
the
 
macroeconomic
 
environment
 
and
 
borrower
 
performance,
 
given
 
inflationary
 
pressures
 
and
geopolitical
 
uncertainty.
 
However,
 
management
 
believes
 
that
 
the
 
improvement
 
over
 
recent
 
years
 
in
 
the
 
risk
 
profile
 
of
 
the
Corporation’s loan portfolios positions Popular to operate
 
successfully under the current environment.
 
Total
 
NPAs
 
decreased
 
by
 
$104
 
million
 
when
 
compared
 
with
 
December
 
31,
 
2021.
 
Total
 
non-performing
 
loans
 
held-in-portfolio
(“NPLs”) decreased
 
by
 
$108 million
 
from
 
December 31,
 
2021. BPPR’s
 
NPLs
 
decreased by
 
$112
 
million,
 
mainly
 
driven by
 
lower
mortgage and commercial NPLs by $91 million and
 
$38 million, respectively, in
 
part offset by higher auto NPLs by
 
$18 million.
 
The
mortgage
 
NPLs
 
decrease
 
was
 
mainly
 
due
 
to
 
the
 
combined
 
effects
 
of
 
collection
 
efforts,
 
increased foreclosure
 
activity
 
and
 
lower
inflows compared
 
with pre-pandemic
 
trends.
 
Popular U.S.
 
NPLs increased
 
by $4
 
million from
 
December 31,
 
2021, mainly
 
in the
commercial portfolio, in part due to an $11 million commercial borrower within the healthcare
 
industry that was placed in non-accrual
status and for which a partial charge-off of $8.7 million was recognized during the fourth quarter of 2022. At December 31, 2022, the
ratio of
 
NPLs to
 
total loans
 
held-in-portfolio was
 
1.4% compared
 
to 1.9%,
 
at December
 
31, 2021.
 
Other real
 
estate owned
 
loans
(“OREOs”) increased
 
by $4
 
million. At
 
December 31,
 
2022, NPLs
 
secured by
 
real estate
 
amounted to
 
$303 million
 
in the
 
Puerto
Rico
 
operations and
 
$33 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 $9.9 billion at December 31,
 
2022, of which
$3.1 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
 
$54
 
million
 
at
 
December
 
31,
 
2022,
 
compared
 
with
 
$77
 
million
 
at
December
 
31,
 
2021.
 
The
 
CRE
 
NPL
 
ratios
 
for
 
the
 
BPPR
 
and
 
Popular
 
U.S.
 
segments
 
were
 
1.04%
 
and
 
0.12%,
 
respectively,
 
at
December 31, 2021, compared with 1.95% and 0.04%,
 
respectively, at December 31, 2021.
In addition to the NPLs included in Table 21, at December 31, 2022, there were $374 million of performing loans, mostly commercial
loans, which in management’s opinion, are currently subject to potential future classification as non-performing (December 31, 2021
- $214 million).
For
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
total
 
inflows
 
of
 
NPLs
 
held-in-portfolio,
 
excluding
 
consumer
 
loans,
 
decreased
 
by
approximately $74 million, when compared to the inflows for the
 
same period in 2021. Inflows of NPLs held-in-portfolio at the
 
BPPR
segment decreased by $76 million compared
 
to the same period in
 
2021, driven by lower mortgage
 
and commercial inflows by $38
million each. Inflows of NPLs held-in-portfolio at
 
the Popular U.S. segment increased by $2 million
 
from the same period in 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
97
Table 21 - Non-Performing
 
Assets
December 31, 2022
December 31, 2021
(Dollars in thousands)
BPPR
Popular
U.S.
Popular,
Inc.
BPPR
Popular
U.S.
Popular,
Inc.
Non-accrual loans:
 
Commercial
 
$
82,171
$
10,868
$
93,039
$
120,047
$
5,532
$
125,579
 
Construction
 
-
-
-
485
-
485
 
Leasing
5,941
-
5,941
3,102
-
3,102
 
Mortgage
242,391
20,488
262,879
333,887
21,969
355,856
 
Auto
40,978
-
40,978
23,085
-
23,085
 
Consumer
 
30,528
6,076
36,604
33,683
6,087
39,770
Total non-performing
 
loans held-in-portfolio
402,009
37,432
439,441
514,289
33,588
547,877
Other real estate owned ("OREO")
88,773
353
89,126
83,618
1,459
85,077
Total non-performing
 
assets
 
$
490,782
$
37,785
$
528,567
$
597,907
$
35,047
$
632,954
Accruing loans past-due 90 days or more
[2]
$
351,248
$
366
$
351,614
$
480,649
$
118
$
480,767
Non-performing loans to loans held-in-portfolio
1.37
%
1.87
%
Interest lost
 
$
27,920
$
38,123
[1] There were no non-performing loans held-for-sale
 
as of December 31, 2022 and 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 $14 million at December 31,
2022 related to the rebooking of loans previously pooled into
 
GNMA securities, in which the Corporation had a buy-back
 
option as further described
below (December 31, 2021 - $13 million). Under the GNMA
 
program, issuers such as BPPR have the option
 
but not the obligation to repurchase loans
that are 90 days or more past due. For accounting purposes,
 
these loans subject to the repurchase option are required
 
to be reflected (rebooked) on
the financial statements of BPPR with an offsetting
 
liability. These balances include
 
$190 million of residential mortgage loans insured
 
by FHA or
guaranteed by the VA that
 
are no longer accruing interest as of December 31, 2022 (December
 
31, 2021 - $304 million).
 
Furthermore, the Corporation
has approximately $42 million in reverse mortgage loans which
 
are guaranteed by FHA, but which are currently not accruing
 
interest.
 
Due to the
guaranteed nature of the loans, it is the Corporation's
 
policy to exclude these balances from non-performing
 
assets (December 31, 2021 - $50 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
98
Table 22 - Activity in Non
 
-Performing Loans Held-in-Portfolio (Excluding Consumer
 
Loans)
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
454,419
$
27,501
$
481,920
Plus:
New non-performing loans
158,128
50,754
208,882
Advances on existing non-performing loans
-
2,825
2,825
Less:
Non-performing loans transferred to OREO
(38,580)
(85)
(38,665)
Non-performing loans charged-off
(7,413)
(9,062)
(16,475)
Loans returned to accrual status / loan collections
(241,992)
(40,577)
(282,569)
Ending balance NPLs
$
324,562
$
31,356
$
355,918
Table 23 - Activity in Non
 
-Performing Loans Held-in-Portfolio (Excluding Consumer
 
Loans)
For the year ended December 31, 2021
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
639,932
$
28,412
$
668,344
Plus:
New non-performing loans
234,258
51,494
285,752
Advances on existing non-performing loans
-
84
84
Less:
Non-performing loans transferred to OREO
(34,419)
-
(34,419)
Non-performing loans charged-off
(35,963)
(1,592)
(37,555)
Loans returned to accrual status / loan collections
(349,389)
(42,124)
(391,513)
Loans transferred to held-for-sale
-
(8,773)
(8,773)
Ending balance NPLs
$
454,419
$
27,501
$
481,920
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
99
Table 24 - Activity in Non
 
-Performing Commercial Loans Held-In-Portfolio
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$120,047
$5,532
$125,579
Plus:
New non-performing loans
19,476
33,861
53,337
Advances on existing non-performing loans
-
2,525
2,525
Less:
Non-performing loans transferred to OREO
(4,763)
-
(4,763)
Non-performing loans charged-off
(5,872)
(8,935)
(14,807)
Loans returned to accrual status / loan collections
(46,717)
(22,115)
(68,832)
Ending balance - NPLs
$82,171
$10,868
$93,039
Table 25 - Activity in Non
 
-Performing Commercial Loans Held-in-Portfolio
For the year ended December 31, 2021
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$204,092
5,988
$210,080
Plus:
New non-performing loans
57,132
13,510
70,642
Advances on existing non-performing loans
-
52
52
Less:
Non-performing loans transferred to OREO
(9,261)
-
(9,261)
Non-performing loans charged-off
(14,935)
(1,042)
(15,977)
Loans returned to accrual status / loan collections
(116,981)
(11,203)
(128,184)
Loans transferred to held-for-sale
-
(1,773)
(1,773)
Ending balance - NPLs
$120,047
$5,532
$125,579
Table 26
 
-
 
Activity in Non-Performing Construction Loans Held-In
 
-Portfolio
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$485
$-
$485
Less:
Loans returned to accrual status / loan collections
(485)
-
(485)
Ending balance - NPLs
$-
$-
$-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
Table 27 -
 
Activity in Non-Performing Construction Loans Held-in
 
-Portfolio
For the year ended December 31, 2021
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$21,497
$7,560
$29,057
Plus:
New non-performing loans
481
12,141
12,622
Less:
Non-performing loans charged-off
(6,620)
(523)
(7,143)
Loans returned to accrual status / loan collections
(14,873)
(12,178)
(27,051)
Loans in accrual status transfer to held-for-sale
-
(7,000)
(7,000)
Ending balance - NPLs
$485
$-
$485
Table 28 - Activity in Non
 
-Performing Mortgage Loans Held-in-Portfolio
For the year ended December 31,
 
2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$333,887
$21,969
$355,856
Plus:
New non-performing loans
138,652
16,893
155,545
Advances on existing non-performing loans
-
300
300
Less:
Non-performing loans transferred to OREO
(33,817)
(85)
(33,902)
Non-performing loans charged-off
(1,541)
(127)
(1,668)
Loans returned to accrual status / loan collections
(194,790)
(18,462)
(213,252)
Ending balance - NPLs
$242,391
$20,488
$262,879
Table 29 - Activity in Non
 
-Performing Mortgage Loans Held-in-Portfolio
For the year ended December 31,
 
2021
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$414,343
$14,864
$429,207
Plus:
New non-performing loans
176,645
25,843
202,488
Advances on existing non-performing loans
-
32
32
Less:
Non-performing loans transferred to OREO
(25,158)
-
(25,158)
Non-performing loans charged-off
(14,408)
(27)
(14,435)
Loans returned to accrual status / loan collections
(217,535)
(18,743)
(236,278)
Ending balance - NPLs
$333,887
$21,969
$355,856
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101
Loan Delinquencies
Another key measure used to evaluate and
 
monitor the Corporation’s asset quality is loan
 
delinquencies. Loans delinquent 30 days
or
 
more
 
and
 
delinquencies, as
 
a
 
percentage
 
of
 
their
 
related
 
portfolio
 
category
 
at
 
December
 
31,
 
2022
 
and
 
2021,
 
are
 
presented
below.
Table 30 - Loan Delinquencies
(Dollars in thousands)
2022
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
 
$
119,476
$
15,739,132
0.76
%
$
161,251
$
13,732,701
1.17
%
Construction
 
-
757,984
-
485
716,220
0.07
Leasing
21,487
1,585,739
1.36
14,379
1,381,319
1.04
Mortgage
[1]
937,253
7,397,471
12.67
1,141,082
7,427,196
15.36
Consumer
 
216,401
6,597,443
3.28
173,896
5,983,121
2.91
Loans held-for-sale
-
5,381
-
59,168
-
Total
 
$
1,294,617
$
32,083,150
4.04
%
$
1,491,093
$
29,299,725
5.09
%
[1]
Loans delinquent 30 days or more includes $0.5 billion of
 
residential mortgage loans insured by FHA or guaranteed
 
by the VA as of December
 
31,
2021 (December 31, 2020 - $0.6 billion). Refer to Note
 
8 to the Consolidated Financial Statements for additional
 
information of guaranteed loans.
Allowance for Credit Losses (“ACL”)
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 December
 
31, 2022, the
 
allowance for credit
 
losses amounted to
 
$720 million, an
 
increase of $25
 
million, when compared
 
with
December 31,
 
2021. Given that
 
any one economic
outlook is
 
inherently uncertain, the
 
Corporation leverages multiple
 
scenarios to
estimate its ACL. The
 
baseline scenario continues to be
 
assigned the highest probability,
 
followed by the pessimistic scenario.
 
The
Corporation evaluates,
 
at
 
least on
 
an annual
 
basis, the
 
assumptions tied
 
to the
 
CECL accounting
 
framework. These
 
include the
reasonable
 
and
 
supportable
 
period as
 
well
 
as
 
the
 
reversion window.
 
During the
 
third
 
quarter
 
of
 
2022,
 
as
 
part
 
of
 
its
 
evaluation
procedures, the Corporation decided to extend the reversion
 
window from 1 year to 3 years.
 
The extension in the reversion window
results in
 
a better
 
representation of
 
historical movements
 
for key
 
macroeconomic variables
 
that
 
impact the
 
ACL. This
 
change
 
in
assumptions contributed
 
to a
 
reduction of
 
$11
 
million in
 
the ACL.
 
The reasonable
 
and supportable
 
period assumptions
 
remained
unchanged at 2-years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
102
The baseline scenario assumes a 2023 annualized GDP growth for Puerto Rico and the United States of 1.3% and 0.7%. For 2022,
annualized expected
 
growth was
 
2.6% and
 
1.8% for
 
Puerto Rico
 
and United States,
 
respectively.
 
The reduction
 
in 2023
 
is due
 
to
the expected
 
slowdown in
 
the economy
 
as a
 
result of
 
tight monetary
 
policy,
 
weaker job
 
growth and
 
persistent inflation.
 
The 2023
average unemployment
 
rate is
 
forecasted at
 
7.8% and
 
4.0% for
 
Puerto Rico
 
and
 
United States,
 
respectively,
 
compared to
 
2022
average levels of 6.4% for Puerto Rico and 3.7% for the United States. In 2023, weaker job growth due to the expected slowdown in
the economy will contribute to the increase in unemployment
 
rate.
The ACL
 
for BPPR
 
increased by $21
 
million to
 
$616 million, when
 
compared to
 
December 31, 2021,
 
mostly driven
 
by changes
 
in
the economic scenario, higher loan volumes and changes in credit quality The ACL for Popular U.S. increased by $4 million to $105
million, when compared to December 31, 2021.
 
The provision
 
for credit
 
losses for
 
the year
 
ended December
 
31, 2022,
 
amounted to
 
an expense
 
of $83.3
 
million, compared
 
to a
benefit
 
of
 
$183.3
 
million
 
for
 
the
 
year
 
ended
 
December 31,
 
2021, as
 
the
 
prior
 
year
 
included
 
reductions in
 
reserves
 
due
 
to
 
post-
pandemic improvements in the macroeconomic outlook and lower NCOs. Refer
 
to Note 9 – Allowance for credit losses – loans held-
in-portfolio
 
to
 
the
 
Consolidated Financial
 
Statements, and
 
to
 
the Provision
 
for
 
Credit
 
Losses section
 
of
 
this
 
MD&A for
 
additional
information.
 
The following
 
table presents
 
net charge-offs
 
to average
 
loans held-in-portfolio
 
(“HIP”) ratios
 
by loan
 
category for
 
the years
 
ended
December 31, 2022 and 2021:
Table 31 - Net Charge-Offs
 
(Recoveries) to Average Loans HIP
December 31, 2022
December 31, 2021
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
 
(0.14)
%
0.11
%
(0.02)
%
(0.24)
%
(0.02)
%
(0.15)
%
Construction
 
(0.48)
(0.19)
(0.25)
1.27
(0.02)
0.19
Mortgage
 
(0.26)
-
(0.22)
0.04
-
0.04
Leasing
0.26
-
0.26
0.11
-
0.11
Consumer
 
1.22
1.33
1.22
0.58
0.99
0.60
Total
 
0.23
%
0.12
%
0.20
%
0.09
%
0.01
%
0.07
%
NCOs for the
 
year ended December
 
31, 2022
 
amounted to $59.3
 
million, increasing by
 
$38.6 million when
 
compared to the
 
same
period in
 
2021. The
 
BPPR segment
 
increased by
 
$29.4 million
 
mainly driven
 
by higher
 
consumer NCOs
 
by $40.5
 
million, mostly
auto loans, in part offset by lower mortgage NCOs by $18.5 million. The increase in the consumer NCOs was mostly related to post-
pandemic normalization, as NCOs continue at historical
 
low levels.
 
The PB segment NCOs increased by $9.2 million, mainly
 
driven
by
 
higher commercial
 
NCOs
 
by
 
$8.6
 
million,
 
due
 
to
 
the
 
$8.7
 
million
 
charge-off
 
during the
 
fourth
 
quarter of
 
2022
 
on
 
the
 
above-
mentioned healthcare NPL.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103
Table 32 - Allowance for Credit
 
Losses - Loan Portfolios
December 31, 2022
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
235,376
$
4,246
$
135,254
$
20,618
$
324,808
$
720,302
Total loans held-in
 
-portfolio
$
15,739,132
$
757,984
$
7,397,471
$
1,585,739
$
6,597,443
$
32,077,769
ACL to loans held-in-portfolio
1.50
%
0.56
%
1.83
%
1.30
%
4.92
%
2.25
%
Total Non-performing
 
loans held-in-portfolio
$
93,039
$
-
$
262,879
$
5,941
$
77,582
$
439,441
ACL to non-performing loans held-in-portfolio
252.99
%
N.M.
51.45
%
347.05
%
418.66
%
163.91
%
N.M. - Not meaningful.
Table 33 - 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.
Table
 
34
 
details
 
the
 
breakdown
 
of
 
the
 
allowance
 
for
 
credit
 
losses
 
by
 
loan
 
categories.
 
The
 
breakdown
 
is
 
made
 
for
 
analytical
purposes, and it is not necessarily indicative of
 
the categories in which future loan losses may occur.
Table 34 - Allocation of the
 
Allowance for Credit Losses - Loans
At December 31,
2022
2021
% of loans
% of loans
in each
in each
category to
category to
(Dollars in millions)
ACL
total loans
ACL
total loans
Commercial
$235.4
49.1
%
$215.8
47.0
%
Construction
4.2
2.4
6.4
2.4
Mortgage
135.3
23.1
154.5
25.4
Leasing
20.6
4.9
17.6
4.7
Consumer
324.8
20.5
301.1
20.5
Total
[1]
$720.3
100.0
%
$695.4
100.0
%
[1] Note: For purposes of this table the term loans refers to
 
loans held-in-portfolio excluding loans held-for-sale.
Troubled debt restructurings
The Corporation’s
 
troubled debt
 
restructurings (“TDRs”) loans
 
amounted to
 
$1.6 billion
 
at December
 
31, 2022,
 
decreasing by
 
$12
million,
 
from
 
December 31,
 
2021.
 
A
 
total
 
of
 
$725
 
million
 
of
 
these
 
TDRs
 
are
 
related
 
to
 
guaranteed
 
loans,
 
which
 
are
 
in
 
accruing
status.
 
The
 
Corporation
 
has
 
offered
 
to
 
clients
 
impacted
 
by
 
the
 
hurricanes
 
Fiona
 
and
 
Ian
 
a
 
moratorium
 
of
 
up
 
to
 
three
 
monthly
payments
 
on
 
personal
 
and
 
commercial
 
credit
 
cards,
 
auto
 
loans,
 
leases,
 
and
 
personal
 
loans,
 
subject
 
to
 
certain
 
eligibility
requirements. Mortgage clients
 
also benefited
 
from different
 
payment relief
 
alternatives available, depending
 
on their
 
type of
 
loan.
Loan relief options
 
for commercial clients
 
were reviewed on
 
a case-by-case basis.
 
As of December
 
31, 2022, approximately
 
2,428
loans with
 
a $94.8
 
million amortized
 
cost were
 
granted a
 
moratorium of
 
which 218
 
loans with
 
a $7.7
 
million amortized
 
cost have
been classified as TDR.
 
104
TDRs in the BPPR segment amounted to $1.6 billion,
 
a decrease of $12 million, mostly related to
 
lower consumer TDRs by $11
million. The Popular U.S. segment TDRs have remained
 
essentially flat since December 31, 2021. TDRs
 
in accruing status
increased by $26 million from December 31, 2021,
 
mostly related to an increase of $26 million
 
in BPPR’s mortgage TDRs, while
non-accruing TDRs decreased by $39 million, mostly related
 
to lower mortgage and commercial TDRs by $26
 
million and $10
million, respectively.
 
Refer to
 
Note 9
 
to the
 
Consolidated Financial
 
Statements for
 
additional information
 
on modifications
 
considered TDRs,
 
including
certain qualitative and quantitative data about TDRs
 
performed in the past twelve months.
Enterprise Risk Management
The Corporation’s
 
Board of
 
Directors has
 
established a
 
Risk Management
 
Committee (“RMC”)
 
to, among
 
other things,
 
assist the
Board in its (i) oversight of the Corporation’s overall risk framework and (ii)
 
to monitor, review, and approve policies to measure, limit
and manage the Corporation’s risks.
 
The
 
Corporation
 
has
 
established
 
a
 
three
 
lines
 
of
 
defense
 
framework:
 
(a)
 
business
 
line
 
management constitutes
 
the
 
first
 
line
 
of
defense by identifying
 
and managing the
 
risks associated with
 
business activities, (b) components
 
of the Risk
 
Management Group
and
 
the
 
Corporate
 
Security
 
Group,
 
among
 
others,
 
act
 
as
 
the
 
second
 
line
 
of
 
defense
 
by,
 
among
 
other
 
things,
 
measuring
 
and
reporting on the Corporation’s risk activities, and (c) the Corporate Auditing Division
,
 
as the third line of defense, reporting directly to
the Audit Committee of the Board, by independently providing
 
assurance regarding the effectiveness of the risk
 
framework.
 
The Enterprise Risk Management Committee (the “ERM Committee”) is a management committee
 
whose purpose is to: (a) monitor
the
 
principal risks
 
as defined
 
in the
 
Risk Appetite
 
Statement (“RAS”)
 
of the
 
Risk Management
 
Policy
 
affecting our
 
business and
within the Corporation’s Enterprise Risk Management (“ERM”) framework,
 
(b) review key risk indicators and related developments
 
at
the
 
business
 
level
 
consistent
 
with
 
the
 
RAS,
 
and
 
(c)
 
lead
 
the
 
incorporation
 
of
 
a
 
uniform
 
Governance,
 
Risk
 
and
 
Compliance
framework
 
across the
 
Corporation. The
 
ERM
 
Committee
 
and the
 
Enterprise
 
Risk Management
 
Department in
 
the
 
Financial and
Operational Risk Management
 
Division (the
 
“FORM Division”), in
 
coordination with the
 
Chief Risk
 
Officer, create
 
the framework to
identify and
 
manage multiple
 
and cross-enterprise
 
risks, and
 
to articulate
 
the RAS
 
and supporting
 
metrics.
Our risk
 
management
program
 
monitors
 
the
 
following
 
principal
 
risks:
 
credit,
 
interest
 
rate,
 
market,
 
liquidity,
 
operational, cyber
 
and
 
information
 
security,
climate, legal, regulatory affairs, regulatory and financial
 
compliance, BSA/ AML & sanctions, strategic and
 
reputational.
The
 
Enterprise
 
Risk
 
Management
 
Department
 
has
 
established
 
a
 
process
 
to
 
ensure
 
that
 
an
 
appropriate
 
standard
 
readiness
assessment is performed before we launch a new
 
product or service. Similar procedures are followed with the Treasury
 
Division for
transactions involving the purchase and sale of
 
assets, and by the Mergers and Acquisitions Division
 
for acquisition transactions.
The Asset/Liability
 
Committee (“ALCO”),
 
composed of
 
senior management
 
representatives from
 
the business
 
lines and
 
corporate
functions, and the Corporate Finance Group, are responsible for planning and executing the
 
Corporation’s market, interest rate risk,
funding
 
activities
 
and
 
strategy,
 
as
 
well
 
as
 
for
 
implementing
 
approved
 
policies
 
and
 
procedures.
 
The
 
ALCO
 
also
 
reviews
 
the
Corporation’s
 
capital
 
policy
 
and
 
the
 
attainment
 
of
 
the
 
capital
 
management
 
objectives.
 
In
 
addition,
 
the
 
Financial
 
Risk,
 
Corporate
Insurance Advisory
 
Department independently
 
measures, monitors
 
and reports
 
compliance with
 
liquidity and
 
market risk
 
policies,
and oversees controls surrounding interest risk measurements.
The Corporate Compliance
 
Committee, comprised of
 
senior management team
 
members and representatives
 
from the Regulatory
and Financial
 
Compliance Division
 
and the
 
Financial Crimes
 
Compliance Division,
 
among others,
 
are responsible
 
for overseeing
and
 
assessing
 
the
 
adequacy
 
of
 
the
 
risk
 
management
 
processes
 
that
 
underlie
 
Popular’s
 
compliance
 
program
 
for
 
identifying,
assessing,
 
measuring,
 
monitoring,
 
testing,
 
mitigating,
 
and
 
reporting
 
compliance
 
risks.
 
They
 
also
 
supervise
 
Popular’s
 
reporting
obligations under the compliance program so as to ensure the adequacy, consistency and timeliness of the reporting of compliance-
related risks across the Corporation.
 
The Regulatory Affairs
 
team is
 
responsible for maintaining
 
an open dialog
 
with the banking
 
regulatory agencies in
 
order to
 
ensure
regulatory
 
risks
 
are
 
properly identified,
 
measured,
 
monitored,
 
as
 
well
 
as
 
communicated to
 
the
 
appropriate regulatory
 
agency
 
as
necessary to keep them apprised of material matters within
 
the purview of these agencies.
105
The
 
Credit
 
Strategy
 
Committee,
 
composed
 
of
 
senior
 
level
 
management
 
representatives
 
from
 
the
 
business
 
lines
 
and
 
corporate
functions,
 
and
 
the
 
Corporate
 
Credit
 
Risk
 
Management
 
Division,
 
are
 
responsible
 
for
 
managing
 
the
 
Corporation’s
 
overall
 
credit
exposure by establishing policies, standards and guidelines that define, quantify and monitor credit risk and assessing
 
the adequacy
of the allowance for credit losses.
 
The Corporation’s
 
Operational Risk
 
Committee (“ORCO”)
 
and the
 
Cyber Security
 
Committee, which are
 
composed of
 
senior level
management representatives from
 
the business lines
 
and corporate functions,
 
provide executive oversight
 
to facilitate
 
consistency
of effective
 
policies, best practices,
 
controls and
 
monitoring tools for
 
managing and
 
assessing all types
 
of operational
 
risks across
the Corporation. The
 
FORM Division, within
 
the Risk Management Group,
 
serves as ORCO’s
 
operating arm and
 
is responsible for
establishing baseline processes to measure, monitor, limit and manage
 
operational risk.
 
 
The Corporate Security Group (“CSG”), under the direction of the
 
Chief Security Officer, leads
 
all efforts pertaining to cybersecurity,
enterprise fraud and data
 
privacy, including
 
developing strategies and oversight processes with
 
policies and programs that mitigate
compliance, operational,
 
strategic, financial
 
and reputational
 
risks associated
 
with the
 
Corporation’s and
 
our customers’
 
data and
assets.
 
The CSG also leads the Cyber Security Committee.
The Corporate Legal Division, in this context, has the responsibility
 
of assessing, monitoring, managing and reporting with respect
 
to
legal risks, including those related to litigation, investigations
 
and other material legal matters.
 
The Corporation
 
has also
 
established an
 
ESG Committee
 
whose purpose
 
and responsibility
 
is to
 
oversee the
 
Corporation’s ESG
strategies and
 
support the
 
development and
 
consistent application
 
of policies,
 
processes and
 
procedures that
 
measure, limit
 
and
manage ESG
 
matters and
 
risks. The ESG
 
Committee also assesses
 
ESG-related considerations in
 
the credit
 
approval process of
commercial credit applications.
The processes
 
of strategic
 
risk planning
 
and the
 
evaluation of
 
reputational risk
 
are on-going
 
processes through
 
which continuous
data gathering and
 
analysis are performed.
 
In order
 
to ensure strategic
 
risks are properly
 
identified and monitored,
 
the Corporate
Strategy and
 
Transformation Division,
 
which reports to
 
the Corporation’s
 
Chief Operations Officer,
 
performs periodic assessments
regarding corporate
 
strategic priority
 
initiatives, such as
 
the Corporation’s
 
transformation initiative
 
and other
 
emerging issues.
 
The
Acquisitions
 
and
 
Corporate
 
Investments
 
Division
 
continuously
 
assesses
 
potential
 
strategic
 
transactions.
 
The
 
Corporate
Communications
 
Division
 
is
 
responsible
 
for
 
the
 
monitoring,
 
management
 
and
 
implementation
 
of
 
action
 
plans
 
with
 
respect
 
to
reputational risk issues.
 
Popular’s capital planning process integrates the Corporation’s risk profile
 
as well as its strategic focus, operating
 
environment, and
other factors
 
that could
 
materially affect
 
capital adequacy
 
in hypothetical
 
highly-stressed business
 
scenarios. Capital
 
ratio targets
and triggers take into consideration the different risks evaluated
 
under Popular’s risk management framework.
In
 
addition to
 
establishing a
 
formal process
 
to manage
 
risk, our
 
corporate culture
 
is also
 
critical to
 
an effective
 
risk management
function.
 
Through our Code
 
of Ethics, the
 
Corporation provides a framework
 
for all our
 
employees to conduct themselves
 
with the
highest integrity.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
106
Statistical Summary 2022-2021
Statements of Financial Condition
At December 31,
(In thousands)
2022
2021
Assets:
 
Cash and due from banks
$
469,501
$
428,433
Money market investments:
 
Time deposits with other banks
 
5,614,595
17,536,719
Total money market investments
5,614,595
17,536,719
Trading account debt securities, at fair value
27,723
29,711
Debt securities available-for-sale, at fair
 
value
17,804,374
24,968,269
Debt securities held-to-maturity, at amortized cost
8,525,366
79,461
Less – Allowance for credit losses
6,911
8,096
Debt securities held-to-maturity, net
8,518,455
71,365
Equity securities
195,854
189,977
Loans held-for-sale, at lower of cost or fair
 
value
5,381
59,168
Loans held-in-portfolio:
Loans held-in-portfolio
32,372,925
29,506,225
Less – Unearned income
295,156
265,668
 
Allowance for credit losses
720,302
695,366
Total loans held-in-portfolio, net
31,357,467
28,545,191
Premises and equipment, net
498,711
494,240
Other real estate
 
89,126
85,077
Accrued income receivable
240,195
203,096
Mortgage servicing rights, at fair value
128,350
121,570
Other assets
1,847,813
1,628,571
Goodwill
827,428
720,293
Other intangible assets
12,944
16,219
Total assets
$
67,637,917
$
75,097,899
Liabilities and Stockholders’ Equity
Liabilities:
 
Deposits:
 
Non-interest bearing
$
15,960,557
$
15,684,482
Interest bearing
45,266,670
51,320,606
Total deposits
61,227,227
67,005,088
Assets sold under agreements to repurchase
148,609
91,603
Other short-term borrowings
365,000
75,000
Notes payable
886,710
988,563
Other liabilities
916,946
968,248
Total liabilities
63,544,492
69,128,502
Stockholders’ equity:
Preferred stock
22,143
22,143
Common stock
1,047
1,046
Surplus
4,790,993
4,650,182
Retained earnings
3,834,348
2,973,745
Treasury stock – at cost
(2,030,178)
(1,352,650)
Accumulated other comprehensive loss, net
 
of tax
(2,524,928)
(325,069)
Total stockholders’ equity
 
4,093,425
5,969,397
Total liabilities and stockholders’ equity
$
67,637,917
$
75,097,899
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
107
Statistical Summary 2020-2022
Statements of Operations
For the years ended December 31,
(In thousands)
2022
2021
2020
Interest income:
Loans
$
1,876,166
$
1,747,827
$
1,742,390
Money market investments
118,080
21,147
19,721
Investment securities
471,665
353,663
329,440
Total interest income
2,465,911
2,122,637
2,091,551
Less - Interest expense
298,552
165,047
234,938
Net interest income
2,167,359
1,957,590
1,856,613
Provision for credit losses (benefit)
83,030
(193,464)
292,536
Net interest income after provision for
 
credit losses
2,084,329
2,151,054
1,564,077
Mortgage banking activities
42,450
50,133
10,401
Net gain on sale of debt securities
-
23
41
Net (loss) gain, including impairment, on
 
equity securities
(7,334)
131
6,279
Net (loss) gain on trading account debt securities
(784)
(389)
1,033
Net (loss) gain on sale of loans, including
 
valuation adjustments on loans held-for-sale
-
(73)
1,234
Adjustment to indemnity reserves on loans
 
sold
919
4,406
390
Other non-interest income
861,811
587,897
492,934
Total non-interest income
897,062
642,128
512,312
Operating expenses:
 
Personnel costs
719,764
631,802
564,205
All other operating expenses
1,026,656
917,473
893,624
Total operating expenses
1,746,420
1,549,275
1,457,829
Income before income tax
 
1,234,971
1,243,907
618,560
Income tax expense
132,330
309,018
111,938
Net Income
$
1,102,641
$
934,889
$
506,622
Net Income Applicable to Common Stock
 
$
1,101,229
$
933,477
$
504,864
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
108
Statistical Summary 2020-2022
Average Balance Sheet and Summary
 
of Net Interest Income
On a Taxable Equivalent
 
Basis*
2022
2021
2020
(Dollars in thousands)
Average
Balance
Interest
 
Average
Rate
 
Average
Balance
Interest
 
Average
Rate
 
Average
Balance
Interest
 
Average
Rate
 
Assets
Interest earning assets:
Money market investments
$
9,530,698
$
118,079
1.24
%
$
15,999,741
$
21,147
0.13
%
$
8,597,652
$
19,723
0.23
%
U.S.
 
Treasury securities
21,141,431
448,961
2.12
12,396,773
266,670
2.16
12,107,819
257,308
2.13
Obligations of U.S.
 
Government
 
sponsored entities
41
2
5.66
7,972
120
1.50
70,424
2,818
4.00
Obligations of Puerto Rico, States
and political subdivisions
67,965
7,824
11.51
75,607
7,608
10.06
82,051
5,705
6.95
Collateralized mortgage obligations and
 
mortgage-backed securities
8,342,672
198,566
2.38
10,255,525
224,706
2.19
6,913,416
194,794
2.82
Other
 
190,489
8,925
4.68
194,640
9,027
4.64
178,818
7,369
4.12
Total investment securities
29,742,598
664,278
2.23
22,930,517
508,131
2.22
19,352,528
467,994
2.42
Trading account securities
51,357
3,049
5.94
84,380
4,339
5.16
69,446
4,165
6.00
Loans (net of unearned income)
30,405,280
1,924,895
6.33
29,074,036
1,794,789
6.19
28,384,981
1,785,022
6.29
Total interest earning
 
assets/Interest
income
$
69,729,933
$
2,710,301
3.89
%
$
68,088,674
$
2,328,406
3.43
%
$
56,404,607
$
2,276,904
4.04
%
Total non-interest
 
earning assets
3,078,671
3,079,976
3,178,848
Total assets
$
72,808,604
$
71,168,650
$
59,583,455
Liabilities and Stockholders' Equity
 
Interest bearing liabilities:
Savings, NOW,
 
money market and
other
 
 
interest bearing demand accounts
$
41,769,576
$
191,064
0.46
%
$
41,387,504
$
59,034
0.15
%
$
32,077,578
$
92,417
0.29
%
Time deposits
6,853,127
61,781
0.90
7,028,334
52,587
0.75
7,970,474
83,438
1.05
Federal funds purchased
7
-
3.92
1
-
0.25
342
1
0.25
Securities purchased under agreement
to resell
107,305
2,309
2.15
91,394
317
0.35
143,718
2,336
1.63
Other short-term borrowings
99,083
3,428
3.46
343
1
0.35
21,557
120
0.56
Notes payable
 
938,778
39,970
4.26
1,184,737
53,107
4.49
1,178,169
56,626
4.81
 
Total interest bearing
 
liabilities/Interest
expense
49,767,876
298,552
0.60
49,692,313
165,046
0.33
41,391,838
234,938
0.57
 
Total non-interest
 
bearing liabilities
17,031,503
15,698,685
12,771,679
Total liabilities
66,799,379
65,390,998
54,163,517
Stockholders' equity
 
6,009,225
5,777,652
5,419,938
Total liabilities and
 
stockholders' equity
$
72,808,604
$
71,168,650
$
59,583,455
Net interest income on a taxable
equivalent basis
$
2,411,749
$
2,163,360
$
2,041,966
Cost of funding earning assets
0.43
%
0.24
%
0.42
%
Net interest margin
3.46
%
3.19
%
3.62
%
Effect of the taxable equivalent
adjustment
244,390
205,770
185,353
Net interest income per books
$
2,167,359
$
1,957,590
$
1,856,613
*
 
Shows
 
the
 
effect
 
of
 
the
 
tax
 
exempt
 
status
 
of
 
some
 
loans
 
and
 
investments
 
on
 
their
 
yield,
 
using
 
the
 
applicable
 
statutory
 
income
 
tax
 
rates.
 
The
computation considers
 
the interest
 
expense disallowance
 
required by
 
the Puerto
 
Rico Internal
 
Revenue Code.
 
This adjustment
 
is shown
 
in order
 
to
compare the yields of the tax exempt and taxable assets
 
on a taxable basis.
 
Note: Average loan
 
balances include the
 
average balance of
 
non-accruing loans. No
 
interest income is
 
recognized for these
 
loans in accordance
 
with
the Corporation’s policy.
 
bpop-20221231p109i0 bpop-20221231p109i2 bpop-20221231p109i1
109
Report of Management on Internal Control Over Financial
 
Reporting
The management of
 
Popular, Inc.
 
(the “Corporation”) is responsible
 
for establishing and
 
maintaining adequate internal control
 
over
financial reporting as defined in Rules 13a - 15(f) and 15d -
 
15(f) under the Securities Exchange Act of 1934 and for our assessment
of internal control over financial reporting. The Corporation’s internal
 
control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in
 
accordance
 
with
 
accounting
 
principles
 
generally
 
accepted
 
in
 
the
 
United
 
States
 
of
 
America,
 
and
 
includes
 
controls
 
over
 
the
preparation of
 
financial statements
 
in accordance
 
with the
 
instructions to
 
the Consolidated
 
Financial Statements
 
for Bank
 
Holding
Companies (Form FR Y-9C)
 
to comply with the reporting requirements of Section 112
 
of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA). The Corporation’s internal control
 
over financial reporting includes those policies
 
and procedures that:
(i)
 
pertain
 
to
 
the
 
maintenance
 
of
 
records
 
that,
 
in
 
reasonable
 
detail,
 
accurately
 
and
 
fairly
 
reflect
 
the
 
transactions
 
and
dispositions of the assets of the Corporation;
(ii)
 
provide
 
reasonable
 
assurance
 
that
 
transactions
 
are
 
recorded
 
as
 
necessary
 
to
 
permit
 
preparation
 
of
 
financial
statements in accordance with accounting principles generally accepted in the United States of America, and that receipts
and expenditures of the Corporation are being made only in accordance with authorizations of management and
 
directors
of the Corporation; and
(iii) provide reasonable assurance regarding
 
prevention or timely detection of
 
unauthorized acquisition, use or disposition
of the Corporation’s assets that could have a material effect
 
on the financial statements.
Because
 
of
 
its
 
inherent
 
limitations,
 
internal
 
control
 
over
 
financial
 
reporting
 
may
 
not
 
prevent
 
or
 
detect
 
misstatements.
 
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance
 
with the policies or procedures may deteriorate.
The management of Popular,
 
Inc. has assessed the
 
effectiveness of the Corporation’s
 
internal control over financial reporting
 
as of
December
 
31,
 
2022.
 
In
 
making
 
this
 
assessment,
 
management
 
used
 
the
 
criteria
 
set
 
forth
 
in
 
the
 
Internal
 
Control-Integrated
Framework
 
(2013) issued by the Committee of Sponsoring
 
Organizations of the Treadway Commission (COSO).
 
Based on our assessment, management concluded that the Corporation maintained effective internal control over financial reporting
as of December 31, 2022 based on the
 
criteria referred to above.
The Corporation’s
 
independent registered
 
public accounting
 
firm,
PricewaterhouseCoopers LLP
,
 
has audited
 
the effectiveness
 
of
the Corporation’s
 
internal control
 
over financial
 
reporting as
 
of December
 
31, 2022,
 
as stated
 
in their
 
report dated
 
March 1,
 
2023
which appears herein.
Ignacio Alvarez
Carlos J. Vázquez
President and
Executive Vice President
Chief Executive Officer
and Chief Financial Officer
bpop-20221231p110i0
110
Report of Independent Registered Public Accounting Firm
 
To
the
Board of Directors and Stockholders of Popular, Inc.
Opinions on the Financial Statements and Internal
 
Control over Financial Reporting
 
We
 
have
 
audited
 
the
 
accompanying
 
consolidated
 
statements
 
of
 
financial
 
condition
 
of
 
Popular,
 
Inc.
 
and
 
its
subsidiaries
 
(the
 
“Corporation”)
 
as
 
of
 
December
 
31,
 
2022
 
and
 
2021,
 
and
 
the
 
related
 
consolidated
 
statements
 
of
operations, comprehensive (loss) income,
 
changes in stockholders’ equity
 
and cash flows for
 
each of the three
 
years
in
 
the
 
period
 
ended
 
December
 
31,
 
2022,
 
including
 
the
 
related
 
notes
 
(collectively
 
referred
 
to
 
as
 
the
 
“consolidated
financial
 
statements”).
 
We
 
also
 
have
 
audited
 
the
 
Corporation's
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
December
 
31, 2022,
 
based on
 
criteria
 
established in
 
Internal Control
 
- Integrated
 
Framework (2013)
 
issued
 
by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
In
 
our
 
opinion,
 
the
 
consolidated
 
financial
 
statements
 
referred
 
to
 
above
 
present
 
fairly,
 
in
 
all
 
material
 
respects,
 
the
financial position of the Corporation as of
 
December 31, 2022 and 2021, and the
 
results of its operations and its cash
flows
 
for
 
each
 
of
 
the
 
three
 
years
 
in
 
the
 
period
 
ended
 
December
 
31,
 
2022
 
in
 
conformity with
 
accounting
 
principles
generally accepted
 
in the
 
United States
 
of America.
 
Also, in
 
our opinion,
 
the Corporation
 
maintained, in
 
all material
respects, effective
 
internal control over
 
financial reporting as
 
of December 31,
 
2022, based on
 
criteria established
 
in
Internal Control - Integrated Framework (2013) issued by the COSO.
 
Change in Accounting Principle
As
 
discussed
 
in
 
Note
 
3
to
 
the
 
consolidated
 
financial
 
statements,
 
the
 
Corporation
 
changed
 
the
 
manner
 
in
 
which
 
it
accounts for its allowance for credit losses in 2020.
Basis for Opinions
 
The
 
Corporation's management
 
is responsible
 
for these
 
consolidated
 
financial statements,
 
for maintaining
 
effective
internal control
 
over financial
 
reporting, and
 
for its
 
assessment of
 
the effectiveness
 
of internal
 
control over
 
financial
reporting,
 
included
 
in
 
the
 
accompanying
 
Report
 
of
 
Management
 
on
 
Internal
 
Control
 
over
 
Financial
 
Reporting.
 
Our
responsibility is
 
to express opinions
 
on the
 
Corporation’s consolidated
 
financial statements and
 
on the
 
Corporation’s
internal
 
control
 
over
 
financial
 
reporting
 
based
 
on
 
our
 
audits.
 
We
 
are
 
a
 
public
 
accounting
 
firm
 
registered
 
with
 
the
Public
 
Company
 
Accounting
 
Oversight
 
Board
 
(United
 
States)
 
(PCAOB)
 
and
 
are
 
required
 
to
 
be
 
independent
 
with
respect
 
to
 
the
 
Corporation
 
in
 
accordance
 
with
 
the
 
U.S.
 
federal
 
securities
 
laws
 
and
 
the
 
applicable
 
rules
 
and
regulations of the Securities and Exchange Commission and the
 
PCAOB.
 
We conducted our audits
 
in accordance with the standards
 
of the PCAOB. Those standards
 
require that we plan and
perform
 
the audits
 
to obtain
 
reasonable assurance
 
about
 
whether the
 
consolidated financial
 
statements are
 
free of
material
 
misstatement,
 
whether due
 
to error
 
or
 
fraud, and
 
whether
 
effective
 
internal control
 
over financial
 
reporting
was maintained in all material respects.
 
Our
 
audits
 
of
 
the
 
consolidated
 
financial
 
statements
 
included
 
performing
 
procedures
 
to
 
assess
 
the
 
risks of
 
material
misstatement of the consolidated
 
financial statements, whether due
 
to error or fraud,
 
and performing procedures that
respond to
 
those risks.
 
Such procedures
 
included examining,
 
on a
 
test basis,
 
evidence regarding
 
the amounts
 
and
disclosures
 
in
 
the
 
consolidated
 
financial
 
statements.
 
Our
 
audits
 
also
 
included
 
evaluating
 
the
 
accounting
 
principles
used
 
and
 
significant
 
estimates
 
made
 
by
 
management,
 
as
 
well
 
as
 
evaluating
 
the
 
overall
 
presentation
 
of
 
the
consolidated
 
financial
 
statements.
 
Our
 
audit
 
of
 
internal
 
control
 
over
 
financial
 
reporting
 
included
 
obtaining
 
an
111
understanding
 
of
 
internal
 
control
 
over
 
financial
 
reporting,
 
assessing
 
the
 
risk
 
that
 
a
 
material
 
weakness
 
exists,
 
and
testing
 
and
 
evaluating
 
the
 
design
 
and
 
operating
 
effectiveness
 
of
 
internal
 
control
 
based
 
on
 
the
 
assessed
 
risk.
 
Our
audits also included performing such other procedures as we considered necessary in
 
the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
 
Definition and Limitations of Internal Control over Financial Reporting
 
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
is
 
a
 
process
 
designed
 
to
 
provide
 
reasonable
 
assurance
regarding
 
the
 
reliability
 
of
 
financial
 
reporting
 
and
 
the
 
preparation
 
of
 
financial
 
statements
 
for
 
external
 
purposes
 
in
accordance
 
with
 
generally
 
accepted
 
accounting
 
principles.
 
Management's
 
assessment
 
and
 
our
 
audit
 
of
 
Popular,
Inc.'s
 
internal
 
control
 
over
 
financial
 
reporting
 
also
 
included
 
controls
 
over
 
the
 
preparation
 
of
 
financial
 
statements
 
in
accordance with the instructions
 
to the Consolidated Financial Statements
 
for Bank Holding Companies
 
(Form FR Y-
9C)
 
to
 
comply
 
with
 
the
 
reporting
 
requirements
 
of
 
Section
 
112
 
of
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
Improvement
 
Act
 
(FDICIA).
 
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
includes
 
those
 
policies
 
and
procedures
 
that (i)
 
pertain to
 
the maintenance
 
of records
 
that, in
 
reasonable detail,
 
accurately
 
and fairly
 
reflect the
transactions and
 
dispositions of
 
the assets
 
of the
 
company; (ii)
 
provide reasonable
 
assurance that
 
transactions are
recorded
 
as
 
necessary
 
to
 
permit
 
preparation
 
of
 
financial
 
statements
 
in
 
accordance
 
with
 
generally
 
accepted
accounting
 
principles, and
 
that receipts
 
and expenditures
 
of the
 
company are
 
being made
 
only
 
in accordance
 
with
authorizations
 
of
 
management
 
and
 
directors
 
of
 
the
 
company;
 
and
 
(iii)
 
provide
 
reasonable
 
assurance
 
regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
 
Because of
 
its inherent
 
limitations, internal
 
control over
 
financial reporting
 
may not
 
prevent or
 
detect misstatements.
Also, projections of
 
any evaluation of effectiveness
 
to future periods are
 
subject to the risk
 
that controls may become
inadequate because
 
of changes
 
in conditions,
 
or that
 
the degree
 
of compliance
 
with the
 
policies or
 
procedures may
deteriorate.
 
Critical Audit Matters
 
The critical
 
audit matters
 
communicated below
 
are matters
 
arising from
 
the current
 
period audit
 
of the
 
consolidated
financial
 
statements
 
that
 
were
 
communicated
 
or
 
required
 
to
 
be
 
communicated
 
to
 
the
 
audit
 
committee
 
and
 
that
 
(i)
relate
 
to
 
accounts
 
or
 
disclosures
 
that
 
are
 
material
 
to
 
the
 
consolidated
 
financial
 
statements
 
and
 
(ii)
 
involved
 
our
especially challenging,
 
subjective, or
 
complex judgments.
 
The communication
 
of critical
 
audit matters
 
does not
 
alter
in any way our opinion on the consolidated financial statements, taken as a whole, and
 
we are not, by communicating
the
 
critical
 
audit
 
matters
 
below,
 
providing
 
separate
 
opinions
 
on
 
the
 
critical
 
audit
 
matters
 
or
 
on
 
the
 
accounts
 
or
disclosures to which they relate.
 
Allowance
 
for
 
Credit
 
Losses
 
on
 
Loans
 
Held-in-Portfolio
 
-
 
Quantitative
 
Models,
 
and
 
Qualitative
 
Adjustments
 
to
 
the
Puerto Rico Portfolios
 
As described in
 
Notes 2 and
 
9 to the
 
consolidated financial statements,
 
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. As of December
 
31, 2022, the allowance
 
for credit losses
 
was $720
million
 
on
 
total
 
loans
 
of
 
$32
 
billion.
 
This
 
CECL
 
model
 
establishes
 
a
 
forward-looking
 
methodology
 
that
 
reflects
 
the
expected credit losses over the lives of financial assets. The quantitative modeling framework includes competing risk
models
 
to
 
generate
 
lifetime
 
defaults
 
and
 
prepayments,
 
and
 
other
 
loan
 
level
 
modeling
 
techniques
 
to
 
estimate
 
loss
severity.
 
As
 
part
 
of
 
this
 
methodology,
 
management
 
evaluates
 
various
 
macroeconomic
 
scenarios,
 
and
 
may
 
apply
probability
 
weights
 
to
 
the
 
outcome
 
of
 
the
 
selected
 
scenarios.
 
The
 
ACL
 
also
 
includes
 
a
 
qualitative
 
framework
 
that
addresses losses
 
that are
 
expected but
 
not captured
 
within the
 
quantitative modeling
 
framework. In
 
order to
 
identify
potential
 
losses
 
that are
 
not captured
 
through the
 
models, management
 
evaluated model
 
limitations as
 
well as
 
the
different
 
risks covered
 
by the
 
variables used
 
in each
 
quantitative model.
 
To
 
complement the
 
analysis, management
also evaluated
 
sectors that
 
have low
 
levels of
 
historical defaults,
 
but current
 
conditions show
 
the potential
 
for future
losses.
112
The
 
principal
 
considerations
 
for
 
our
 
determination
 
that
 
performing
 
procedures
 
relating
 
to
 
the
 
allowance
 
for
 
credit
losses on
 
loans
 
held-in-portfolio quantitative
 
models, and
 
qualitative adjustments
 
to the
 
Puerto Rico
 
portfolios is
 
a
critical
 
audit
 
matter
 
are
 
(i)
 
the
 
significant
 
judgment
 
by
 
management
 
in
 
determining
 
the
 
allowance
 
for
 
credit
 
losses,
including
 
qualitative adjustments
 
to the
 
Puerto Rico
 
portfolios,
 
which in
 
turn led
 
to a
 
high degree
 
of auditor
 
effort,
judgment, and subjectivity in performing
 
procedures and evaluating audit evidence
 
relating to the allowance for
 
credit
losses,
 
including management’s
 
selection of
 
macroeconomic
 
scenarios and
 
probability weights
 
applied; and
 
(ii) the
audit
 
effort
 
involved the
 
use of
 
professionals with
 
specialized skill
 
and knowledge.
 
Addressing
 
the matter
 
involved
performing
 
procedures
 
and
 
evaluating
 
audit
 
evidence
 
in
 
connection
 
with
 
forming
 
our
 
overall
 
opinion
 
on
 
the
consolidated
 
financial
 
statements.
 
These
 
procedures
 
included
 
testing
 
the
 
effectiveness
 
of
 
controls
 
relating
 
to
 
the
allowance for
 
credit losses
 
for loans
 
held-in-portfolio, including
 
qualitative adjustments
 
to the
 
Puerto Rico
 
portfolios.
These procedures also included, among others, testing management’s
 
process for estimating the allowance for credit
losses
 
by (i)
 
evaluating the
 
appropriateness of
 
the methodology,
 
including models
 
used for
 
estimating the
 
ACL; (ii)
evaluating
 
the reasonableness of management’s
 
selection of various macroeconomic
 
scenarios including probability
weights
 
applied
 
to
 
the
 
expected
 
loss
 
outcome
 
of
 
the
 
selected
 
macroeconomic
 
scenarios;
 
(iii)
 
evaluating
 
the
reasonableness of
 
the qualitative
 
adjustments to
 
Puerto Rico
 
portfolios allowance
 
for credit
 
losses;
 
and (iv)
 
testing
the
 
data
 
used
 
in
 
the
 
allowance
 
for
 
credit
 
losses.
 
Professionals
 
with
 
specialized
 
skill
 
and
 
knowledge
 
were
 
used
 
to
assist
 
in
 
evaluating
 
the
 
appropriateness
 
of
 
the
 
methodology
 
and
 
models,
 
the
 
reasonableness
 
of
 
management’s
selection
 
and
 
weighting
 
of
 
macroeconomic
 
scenarios
 
used
 
to
 
estimate
 
current
 
expected
 
credit
 
losses
 
and
reasonableness of the
 
qualitative adjustments to Puerto Rico portfolios allowance for credit losses.
 
Goodwill Annual Impairment Assessment - Banco Popular de Puerto Rico and Popular Bank Reporting Units
As
 
described
 
in
 
Note
 
15
 
to
 
the
 
consolidated
 
financial
 
statements,
 
the
 
Corporation’s
 
consolidated
 
goodwill
 
balance
was $827 million as of December 31, 2022, of which a significant
 
portion relates to the Banco Popular de Puerto Rico
(“BPPR”) and
 
Popular Bank
 
(“PB”) reporting
 
units. Management
 
conducts an
 
impairment test
 
as of
 
July 31
 
of each
year
 
and
 
on
 
a
 
more
 
frequent
 
basis
 
if
 
events
 
or
 
circumstances
 
indicate
 
an
 
impairment
 
could
 
have
 
taken
 
place.
 
In
determining
 
the
 
fair
 
value
 
of each
 
reporting
 
unit,
 
management
 
generally
 
uses
 
a
 
combination
 
of
 
methods,
 
including
market
 
price
 
multiples
 
of
 
comparable
 
companies
 
and
 
transactions,
 
as
 
well
 
as
 
discounted
 
cash
 
flow
 
analysis.
Management evaluates the particular circumstances of
 
each reporting unit in order to determine
 
the most appropriate
valuation
 
methodology
 
and
 
the
 
weights
 
applied
 
to
 
each
 
valuation
 
methodology,
 
as
 
applicable.
 
The
 
computations
require
 
management
 
to
 
make
 
estimates,
 
assumptions
 
and
 
calculations
 
related
 
to:
 
(i)
 
a
 
selection
 
of
 
comparable
publicly
 
traded
 
companies,
 
based
 
on
 
the
 
nature
 
of
 
business,
 
location
 
and
 
size;
 
(ii)
 
a
 
selection
 
of
 
comparable
acquisitions, (iii)
 
calculation of average price multiples
 
of relevant value drivers from
 
a group of selected
 
comparable
companies
 
and
 
acquisitions;
 
(iv)
 
the
 
discount
 
rate
 
applied
 
to
 
future
 
earnings,
 
based
 
on
 
an
 
estimate
 
of
 
the
 
cost
 
of
equity;
 
(v)
 
the
 
potential
 
future
 
earnings
 
of
 
the
 
reporting
 
units;
 
and
 
(vi)
 
the
 
market
 
growth
 
and
 
new
 
business
assumptions.
 
Furthermore,
 
as
 
part
 
of
 
the
 
analyses,
 
management
 
performed
 
a
 
reconciliation
 
of
 
the
 
aggregate
 
fair
values determined for
 
the reporting units
 
to the market
 
capitalization of the
 
Corporation concluding that
 
the fair value
results determined for the reporting units were reasonable.
 
The principal
 
considerations for our
 
determination that performing
 
procedures relating to
 
goodwill annual
 
impairment
assessments of
 
the Banco
 
Popular de
 
Puerto Rico
 
and Popular
 
Bank reporting
 
units is
 
a critical
 
audit matter
 
are (i)
the significant judgment by
 
management when determining the
 
fair value measurements of
 
the reporting units, which
in
 
turn
 
led
 
to
 
a
 
high
 
degree
 
of
 
auditor
 
judgment,
 
subjectivity,
 
and
 
effort
 
in
 
performing
 
procedures
 
and
 
evaluating
evidence
 
relating
 
to
 
the
 
calculation
 
of
 
average
 
price
 
multiples
 
of
 
relevant
 
value
 
drivers
 
from
 
a
 
group
 
of
 
selected
comparable
 
companies
 
and
 
acquisitions;
 
the
 
potential
 
future
 
earnings
 
of
 
the
 
reporting
 
unit;
 
the
 
estimated
 
cost
 
of
equity;
 
and
 
the
 
market
 
growth
 
and
 
new
 
business
 
assumptions;
 
and
 
(ii)
 
the
 
audit
 
effort
 
involved
 
the
 
use
 
of
professionals
 
with
 
specialized
 
skill
 
and
 
knowledge.
 
Addressing
 
the
 
matter
 
involved
 
performing
 
procedures
 
and
evaluating
 
audit
 
evidence
 
in
 
connection
 
with
 
forming
 
our
 
overall
 
opinion
 
on
 
the
 
consolidated
 
financial
 
statements.
These
 
procedures
 
included
 
testing
 
the
 
effectiveness
 
of
 
controls
 
relating
 
to
 
management’s
 
goodwill
 
impairment
assessment
 
process,
 
including
 
controls
 
over
 
the
 
valuation
 
of
 
Banco
 
Popular
 
de
 
Puerto
 
Rico
 
and
 
Popular
 
Bank
reporting units. These procedures
 
also included, among others, (i) testing management’s process for determining the
fair
 
value
 
estimates
 
of
 
Banco
 
Popular
 
de
 
Puerto
 
Rico
 
and
 
Popular
 
Bank
 
reporting
 
units;
 
(ii)
 
evaluating
 
the
appropriateness of
 
the discounted cash
 
flow analyses and
 
guideline public companies
 
methodologies including
 
the
weights applied
 
to each
 
valuation method;
 
(iii) testing
 
the underlying
 
data used
 
in the
 
estimates;
 
(iv) evaluating
 
the
bpop-20221231p113i0
113
appropriateness
 
of
 
the
 
calculation
 
of
 
average
 
price
 
multiples
 
of
 
relevant
 
value
 
drivers
 
from
 
a
 
group
 
of
 
selected
comparable
 
companies
 
and acquisitions;
 
and (v)
 
evaluating the
 
potential
 
future
 
earnings of
 
the
 
reporting
 
units;
 
the
 
estimated cost
 
of equity;
 
and the market
 
growth and
 
new business
 
assumptions, including
 
whether the
 
assumptions
used
 
by
 
management
 
were
 
reasonable
 
considering,
 
as
 
applicable,
 
(i)
 
the
 
current
 
and
 
past
 
performance
 
of
 
the
reporting units;
 
(ii) the
 
consistency with
 
external market and
 
industry data;
 
and (iii) whether
 
these assumptions
 
were
consistent with evidence obtained in other areas of the audit.
 
Professionals with specialized skill and knowledge were
used
 
to
 
assist
 
in
 
evaluating
 
the
 
appropriateness
 
of
 
the
 
methods
 
and
 
the
 
reasonableness
 
of
 
certain
 
significant
assumptions.
 
San Juan, Puerto Rico
March 1, 2023
We have served as the Corporation’s auditor since 1971, which includes periods before the Corporation became
subject to SEC reporting requirements.
CERTIFIED PUBLIC ACCOUNTANTS
 
(OF PUERTO RICO)
License No. LLP-216 Expires Dec. 1, 2025
Stamp E497972 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
December 31,
December 31,
(In thousands, except share information)
2022
2021
Assets:
Cash and due from banks
$
469,501
$
428,433
Money market investments:
 
Time deposits with other banks
 
5,614,595
17,536,719
Total money market investments
5,614,595
17,536,719
Trading account debt securities, at fair value:
 
Other trading account debt securities
27,723
29,711
Debt securities available-for-sale, at fair
 
value:
Pledged securities with creditors’ right to repledge
 
129,203
93,330
Other debt securities available-for-sale
17,675,171
24,874,939
Debt securities held-to-maturity, at amortized cost (fair value 2022
 
- $
8,440,196
; 2021 - $
83,368
)
8,525,366
79,461
Less – Allowance for credit losses
6,911
8,096
Debt securities held-to-maturity, net
8,518,455
71,365
Equity securities (realizable value 2022 -
 
$
196,665
; 2021 - $
192,345
)
195,854
189,977
Loans held-for-sale, at lower of cost or fair
 
value
5,381
59,168
Loans held-in-portfolio
32,372,925
29,506,225
Less – Unearned income
295,156
265,668
 
Allowance for credit losses
720,302
695,366
Total loans held-in-portfolio, net
31,357,467
28,545,191
Premises and equipment, net
498,711
494,240
Other real estate
89,126
85,077
Accrued income receivable
240,195
203,096
Mortgage servicing rights, at fair value
128,350
121,570
Other assets
1,847,813
1,628,571
Goodwill
827,428
720,293
Other intangible assets
12,944
16,219
Total assets
$
67,637,917
$
75,097,899
Liabilities and Stockholders’ Equity
Liabilities:
 
Deposits:
Non-interest bearing
$
15,960,557
$
15,684,482
Interest bearing
45,266,670
51,320,606
Total deposits
61,227,227
67,005,088
Assets sold under agreements to repurchase
148,609
91,603
Other short-term borrowings
365,000
75,000
Notes payable
886,710
988,563
Other liabilities
916,946
968,248
Total liabilities
63,544,492
69,128,502
Commitments and contingencies (Refer
 
to Note 24)
 
 
Stockholders’ equity:
 
Preferred stock,
30,000,000
 
shares authorized;
885,726
 
shares issued and outstanding (2021 -
885,726
)
22,143
22,143
Common stock, $
0.01
 
par value;
170,000,000
 
shares authorized;
104,657,522
 
shares issued (2021 -
104,579,334
) and
71,853,720
 
shares outstanding (2021 -
79,851,169
)
1,047
1,046
Surplus
4,790,993
4,650,182
Retained earnings
3,834,348
2,973,745
Treasury stock - at cost,
32,803,802
 
shares (2021 -
24,728,165
)
 
(2,030,178)
(1,352,650)
Accumulated other comprehensive loss, net
 
of tax
 
(2,524,928)
(325,069)
Total stockholders’ equity
 
4,093,425
5,969,397
Total liabilities and stockholders’ equity
$
67,637,917
$
75,097,899
The accompanying notes are an integral part of
 
these Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
115
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF OPERATIONS
 
Years ended December 31,
(In thousands, except per share information)
2022
2021
2020
Interest income:
Loans
$
1,876,166
$
1,747,827
$
1,742,390
Money market investments
118,080
21,147
19,721
Investment securities
471,665
353,663
329,440
Total interest income
2,465,911
2,122,637
2,091,551
Interest expense:
Deposits
252,845
111,621
175,855
Short-term borrowings
5,737
319
2,457
Long-term debt
39,970
53,107
56,626
Total interest expense
298,552
165,047
234,938
Net interest income
2,167,359
1,957,590
1,856,613
Provision for credit losses (benefit)
83,030
(193,464)
292,536
Net interest income after provision for credit losses
 
(benefit)
2,084,329
2,151,054
1,564,077
Service charges on deposit accounts
157,210
162,698
147,823
Other service fees
334,009
311,248
257,892
Mortgage banking activities (Refer to Note 10)
42,450
50,133
10,401
Net gain on sale of debt securities
-
23
41
Net (loss) gain, including impairment on equity securities
(7,334)
131
6,279
Net (loss) profit on trading account debt securities
(784)
(389)
1,033
Net (loss) gain on sale of loans, including
 
valuation adjustments on loans
held-for-sale
-
(73)
1,234
Adjustments to indemnity reserves on loans sold
919
4,406
390
Other operating income
370,592
113,951
87,219
Total non-interest income
897,062
642,128
512,312
Operating expenses:
Personnel costs
719,764
631,802
564,205
Net occupancy expenses
106,169
102,226
119,345
Equipment expenses
35,626
32,919
32,514
Other taxes
63,603
56,783
54,454
Professional fees
172,043
126,721
132,414
Technology and software expenses
291,902
277,979
263,886
Processing and transactional services
127,145
121,367
112,039
Communications
14,885
14,029
13,230
Business promotion
88,918
72,981
57,608
FDIC deposit insurance
26,787
25,579
23,868
Other real estate owned (OREO) income
(22,143)
(14,414)
(3,480)
Other operating expenses
109,446
92,169
81,349
Amortization of intangibles
3,275
9,134
6,397
Goodwill impairment charge
9,000
-
-
Total operating expenses
1,746,420
1,549,275
1,457,829
Income before income tax
1,234,971
1,243,907
618,560
Income tax expense
132,330
309,018
111,938
Net Income
$
1,102,641
$
934,889
$
506,622
Net Income Applicable to Common Stock
$
1,101,229
$
933,477
$
504,864
Net Income per Common Share – Basic
$
14.65
$
11.49
$
5.88
Net Income per Common Share – Diluted
$
14.63
$
11.46
$
5.87
The accompanying notes are an integral part of
 
these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
116
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE (LOSS) INCOME
Years ended December 31,
 
(In thousands)
2022
2021
2020
Net income
$
1,102,641
$
934,889
$
506,622
Other comprehensive (loss) income before
 
tax:
Foreign currency translation adjustment
10,572
3,947
(14,471)
Adjustment of pension and postretirement
 
benefit plans
7,811
36,950
(9,032)
Amortization of net losses
15,644
20,749
21,447
Unrealized net holding (losses) gains on debt
 
securities arising during the period
 
(2,539,421)
(619,470)
419,993
Reclassification adjustment for gains included
 
in net income
-
(23)
(41)
Amortization of unrealized losses of debt
 
securities transfer from available-for-sale
 
to
held-to-maturity [1]
41,642
-
-
Unrealized net gains (losses) on cash flow
 
hedges
3,719
539
(8,872)
Reclassification adjustment for net (gains)
 
losses included in net income
(960)
1,847
6,379
Other comprehensive (loss) income before
 
tax
(2,460,993)
(555,461)
415,403
Income tax benefit (expense)
261,134
40,401
(55,474)
Total other comprehensive (loss) income, net of tax
(2,199,859)
(515,060)
359,929
Comprehensive (loss) income, net of tax
$
(1,097,218)
$
419,829
$
866,551
Tax effect allocated to each component of other comprehensive
 
(loss) income:
Years ended December 31,
 
(In thousands)
2022
2021
2020
Adjustment of pension and postretirement
 
benefit plans
$
(2,929)
$
(13,856)
$
3,387
Amortization of net losses
(5,867)
(7,781)
(8,042)
Unrealized net holding (losses) gains on debt
 
securities arising during the period
 
278,324
62,468
(51,213)
Reclassification adjustment for gains included
 
in net income
-
5
6
Amortization of unrealized losses of debt
 
securities transfered from available-for-sale
 
to
held-to-maturity [1]
(8,328)
-
-
Unrealized net gains (losses) on cash flow
 
hedges
(612)
(172)
2,472
Reclassification adjustment for net (gains)
 
losses included in net income
546
(263)
(2,084)
Income tax benefit (expense)
$
261,134
$
40,401
$
(55,474)
[1] In October 2022, the Corporation transferred
 
U.S. Treasury securities with a fair value of $
6.5
 
billion (par value of $
7.4
 
billion) from its available-
for-sale portfolio to its held-to-maturity portfolio.
 
Refer to Note 7 to the Consolidated Financial
 
Statements for additional information.
The accompanying notes are an integral
 
part of these consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
117
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated
 
other
Common
 
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
(loss) income
Total
Balance at December 31, 2019
$
1,044
$
50,160
$
4,447,412
$
2,147,915
$
(459,814)
$
(169,938)
$
6,016,779
Cumulative effect of accounting change
(205,842)
(205,842)
Net income
506,622
506,622
Issuance of stock
1
4,262
4,263
Dividends declared:
Common stock
[1]
(136,561)
(136,561)
Preferred stock
(1,758)
(1,758)
Common stock purchases
[2]
76,335
(580,507)
(504,172)
Common stock reissuance
(1,192)
6,022
4,830
Preferred Stock, Redemption Amount
[3]
(28,017)
(28,017)
Stock based compensation
(4,731)
17,345
12,614
Other comprehensive income, net of tax
359,929
359,929
Transfer to statutory reserve
49,448
(49,448)
-
Balance at December 31, 2020
$
1,045
$
22,143
$
4,571,534
$
2,260,928
$
(1,016,954)
$
189,991
$
6,028,687
Net income
934,889
934,889
Issuance of stock
1
4,673
4,674
Dividends declared:
Common stock
[1]
(142,290)
(142,290)
Preferred stock
(1,412)
(1,412)
Common stock purchases
[4]
(8,557)
(347,093)
(355,650)
Stock based compensation
4,162
11,397
15,559
Other comprehensive loss, net of tax
(515,060)
(515,060)
Transfer to statutory reserve
78,370
(78,370)
-
Balance at December 31, 2021
$
1,046
$
22,143
$
4,650,182
$
2,973,745
$
(1,352,650)
$
(325,069)
$
5,969,397
Net income
1,102,641
1,102,641
Issuance of stock
1
5,836
5,837
Dividends declared:
Common stock
[1]
(163,693)
(163,693)
Preferred stock
(1,412)
(1,412)
Common stock purchases
[5]
53,592
(691,256)
(637,664)
Stock based compensation
4,450
13,728
18,178
Other comprehensive loss, net of tax
(2,199,859)
(2,199,859)
Transfer
 
to statutory reserve
76,933
(76,933)
-
Balance at December 31, 2022
$
1,047
$
22,143
$
4,790,993
$
3,834,348
$
(2,030,178)
$
(2,524,928)
$
4,093,425
[1]
Dividends declared per common share during the year ended
 
December 31, 2022 - $
2.20
 
(2021 - $
1.75
; 2020 - $
1.60
).
[2]
During the year ended December 31, 2020, the Corporation
 
completed a $
500
 
million accelerated share repurchase transaction with respect
 
to its
common stock, which was accounted for as a treasury stock
 
transaction. Refer to Note 20 for additional information.
[3]
On February 24, 2020, the Corporation redeemed all
 
the outstanding shares of 2008 Series B Preferred Stock.
 
Refer to Note 20 for additional
information.
[4]
During the year ended December 31, 2021, the Corporation
 
completed a $
350
 
million accelerated share repurchase transaction with respect
 
to its
common stock, which was accounted for as a treasury stock
 
transaction. Refer to Note 20 for additional information.
[5]
During the year ended December 31, 2022, the Corporation
 
completed two accelerated share repurchase transaction
 
with respect to its common
stock, which were accounted for as a treasury stock transactions.
 
The aggregate amount of both transactions was $
631
 
million. Refer to Note 20
for additional information.
Years ended December
 
31,
Disclosure of changes in number of shares:
2022
2021
2020
Preferred Stock:
Balance at beginning of year
885,726
885,726
2,006,391
Redemption of stocks
-
-
(1,120,665)
Balance at end of year
885,726
885,726
885,726
Common Stock:
Balance at beginning of year
104,579,334
104,508,290
104,392,222
Issuance of stock
78,188
71,044
116,068
Balance at end of year
104,657,522
104,579,334
104,508,290
Treasury stock
(32,803,802)
(24,728,165)
(20,264,055)
Common Stock – Outstanding
71,853,720
79,851,169
84,244,235
The accompanying notes are an integral part of these consolidated
 
financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
Years ended December
 
31,
(In thousands)
2022
2021
2020
Cash flows from operating activities:
Net income
$
1,102,641
$
934,889
$
506,622
Adjustments to reconcile net income to net cash provided
 
by operating activities:
Provision for credit losses (benefit)
83,030
(193,464)
292,536
Goodwill impairment losses
9,000
-
-
Amortization of intangibles
3,275
9,134
6,397
Depreciation and amortization of premises and equipment
55,107
55,104
58,452
Net accretion of discounts and amortization of premiums and
 
deferred fees
 
29,120
(21,962)
(63,300)
Interest capitalized on loans subject to the temporary payment
 
moratorium or loss mitigation
alternatives
(11,521)
(15,567)
(95,212)
Share-based compensation
16,727
17,774
8,254
Impairment losses on right-of-use and long-lived assets
2,233
5,320
18,004
Fair value adjustments on mortgage servicing rights
(166)
10,206
42,055
Fair value adjustment for contingent consideration
(9,241)
-
-
Adjustments to indemnity reserves on loans sold
(919)
(4,406)
(390)
Earnings from investments under the equity method, net
 
of dividends or distributions
(29,522)
(50,942)
(27,738)
Deferred income tax (benefit) expense
(33,129)
229,371
75,044
(Gain) loss on:
Disposition of premises and equipment and other productive
 
assets
(9,453)
(18,393)
(11,561)
Proceeds from insurance claims
-
-
(366)
Sale of debt securities
-
(23)
(41)
Sale of loans, including valuation adjustments on loans
 
held-for-sale and mortgage banking
activities
252
(21,611)
(32,449)
Sale of equity method investment
 
(8,198)
-
-
Disposition of stock as part of the Evertec Transactions
(240,412)
-
-
Sale of foreclosed assets, including write-downs
(33,008)
(30,098)
(19,958)
Acquisitions of loans held-for-sale
(122,363)
(251,336)
(227,697)
Proceeds from sale of loans held-for-sale
64,542
95,100
83,456
Net originations on loans held-for-sale
(202,913)
(527,585)
(391,537)
Net decrease (increase) in:
Trading debt securities
353,301
741,465
493,993
Equity securities
54
(2,336)
(8,263)
Accrued income receivable
 
(62,932)
6,193
(35,616)
Other assets
76,589
25,022
114,329
Net increase (decrease) in:
Interest payable
6,061
(5,395)
(5,404)
Pension and other postretirement benefits obligation
(2,893)
(4,104)
5,898
Other liabilities
(20,724)
22,802
(106,736)
Total adjustments
(88,103)
70,269
172,150
Net cash provided by operating activities
1,014,538
1,005,158
678,772
Cash flows from investing activities:
 
Net decrease (increase) in money market investments
11,922,703
(5,895,789)
(8,378,577)
Purchases of investment securities:
Available-for-sale
(22,232,278)
(14,672,856)
(21,033,807)
Held-to-maturity
(1,879,443)
-
-
Equity
(48,921)
(16,196)
(30,794)
Proceeds from calls, paydowns, maturities and redemptions
 
of investment securities:
Available-for-sale
20,143,921
9,602,430
18,224,362
Held-to-maturity
9,826
15,700
6,733
Proceeds from sale of investment securities:
Available-for-sale
-
235,992
5,103
Equity
42,990
2,904
25,206
Net (disbursements) repayments on loans
(2,237,084)
469,268
(875,941)
Proceeds from sale of loans
141,314
203,179
84,385
Acquisition of loan portfolios
(753,684)
(348,179)
(1,138,276)
Payments to acquire other intangible
-
(905)
(83)
Payments to acquire businesses, net of cash acquired
-
(155,828)
-
Return of capital from equity method investments
681
6,362
959
Payments to acquire equity method investments
(1,625)
(375)
(1,778)
Proceeds from sale of equity method investment
8,198
-
-
Proceeds from the Evertec stock sale
219,883
-
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
119
Acquisition of premises and equipment
(103,789)
(72,781)
(60,073)
Proceeds from insurance claims
-
-
366
Proceeds from sale of:
Premises and equipment and other productive assets
10,305
21,482
26,548
Foreclosed assets
107,203
86,942
77,521
Net cash provided by (used in) investing activities
5,350,200
(10,518,650)
(13,068,146)
Cash flows from financing activities:
 
Net (decrease) increase in:
Deposits
(5,770,261)
10,138,617
13,102,028
Assets sold under agreements to repurchase
 
57,006
(29,700)
(72,076)
Other short-term borrowings
290,000
75,000
-
Payments of notes payable
(103,147)
(237,713)
(139,920)
Principal payments of finance leases
(3,346)
(2,852)
(3,145)
Proceeds from issuance of notes payable
-
-
261,999
Proceeds from issuance of common stock
5,837
4,674
9,093
Payments for repurchase of redeemable preferred stock
-
-
(28,017)
Dividends paid
(161,516)
(141,466)
(133,645)
Net payments for repurchase of common stock
(631,893)
(350,535)
(500,479)
Payments related to tax withholding for share-based compensation
(5,771)
(5,115)
(3,693)
Net cash (used in) provided by financing activities
(6,323,091)
9,450,910
12,492,145
Net increase (decrease) in cash and due from banks, and
 
restricted cash
41,647
(62,582)
102,771
Cash and due from banks, and restricted cash at beginning
 
of period
434,512
497,094
394,323
Cash and due from banks, and restricted cash at end of period
$
476,159
$
434,512
$
497,094
The accompanying notes are an integral part of these consolidated
 
financial statements.
120
Notes to Consolidated Financial Statements
 
Note 1 -
Nature of Operations and Basis of Presentation
121
Note 2 -
Summary of Significant Accounting Policies
122
Note 3 -
New Accounting Pronouncements
133
Note 4 -
Business Combination
137
Note 5 -
Restrictions on Cash and Due from Banks and Certain Securities
141
Note 6 -
Debt Securities Available-For-Sale
142
Note 7 -
Debt Securities Held-to-Maturity
145
Note 8 -
Loans
148
Note 9 -
Allowance for Credit Losses – Loans Held-In-Portfolio
157
Note 10 -
Mortgage Banking Activities
179
Note 11 -
Transfers of Financial Assets and Mortgage
 
Servicing Assets
180
Note 12 -
Premises and Equipment
183
Note 13 -
Other Real Estate Owned
184
Note 14 -
Other Assets
185
Note 15 -
Goodwill and Other Intangible Assets
 
186
Note 16 -
Deposits
190
Note 17 -
Borrowings
191
Note 18 -
Trust Preferred Securities
194
Note 19 -
Other Liabilities
195
Note 20 -
Stockholders’ Equity
196
Note 21 -
Regulatory Capital Requirements
198
Note 22 -
Other Comprehensive (Loss) Income
 
201
Note 23 -
Guarantees
203
Note 24 -
Commitments and Contingencies
206
Note 25-
Non-consolidated Variable Interest
 
Entities
214
Note 26 -
Derivative Instruments and Hedging Activities
216
Note 27 -
Related Party Transactions
219
Note 28 -
Fair Value Measurement
222
Note 29 -
Fair Value of Financial Instruments
231
Note 30 -
Employee Benefits
 
234
Note 31 -
Net Income per Common Share
242
Note 32 -
Revenue from Contracts with Customers
243
Note 33 -
Leases
245
Note 34 -
Stock-Based Compensation
247
Note 35 -
Income Taxes
250
Note 36 -
Supplemental Disclosure on the Consolidated Statements of Cash
 
Flows
254
Note 37 -
Segment Reporting
255
Note 38 -
Popular, Inc. (Holding company only)
 
Financial Information
258
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
121
Note 1 – Nature of Operations and basis of
 
Presentation
Nature of Operations
Popular,
 
Inc. (the
 
“Corporation” or
 
“Popular”) is
 
a diversified,
 
publicly-owned financial
 
holding company
 
subject to
 
the supervision
and
 
regulation
 
of
 
the
 
Board
 
of
 
Governors
 
of
 
the
 
Federal
 
Reserve
 
System.
 
The
 
Corporation
 
has
 
operations
 
in
 
Puerto
 
Rico,
 
the
mainland United
 
States (“U.S.”)
 
and the
 
U.S. and
 
British Virgin
 
Islands. In
 
Puerto Rico,
 
the Corporation
 
provides retail,
 
mortgage,
and
 
commercial
 
banking
 
services,
 
through
 
its
 
principal
 
banking
 
subsidiary,
 
Banco
 
Popular
 
de
 
Puerto
 
Rico
 
(“BPPR”),
 
as
 
well
 
as
investment
 
banking,
 
broker-dealer,
 
auto
 
and
 
equipment
 
leasing
 
and
 
financing,
 
and
 
insurance
 
services
 
through
 
specialized
subsidiaries.
 
In
 
the
 
mainland
 
U.S.,
 
the
 
Corporation
 
provides
 
retail,
 
mortgage
 
and
 
commercial
 
banking
 
services
 
through
 
its
 
New
York-chartered
 
banking subsidiary,
 
Popular Bank
 
(“PB” or
 
“Popular U.S.”),
 
which has
 
branches located
 
in New
 
York,
 
New Jersey
and Florida, and equipment
 
leasing and financing services through Popular
 
Equipment Finance (“PEF”), a wholly
 
owned subsidiary
of PB based in Minnesota.
 
Basis of Presentation
Leveraging
 
the
 
completion
 
of
 
the
 
Evertec
 
Transactions,
 
as
 
defined
 
in
 
Note
 
4
 
to
 
the
 
Consolidated
 
Financial
 
Statements,
 
the
Corporation embarked
 
on a
 
broad-based multi-year,
 
technological and
 
business process
 
transformation during
 
the second
 
half of
2022.
 
The
 
needs
 
and
 
expectations
 
of
 
our
 
clients,
 
as
 
well
 
as
 
the
 
competitive
 
landscape,
 
have
 
evolved,
 
requiring
 
us
 
to
 
make
important
 
investments
 
in
 
our
 
technological
 
infrastructure
 
and
 
adopt
 
more
 
agile
 
practices.
 
Our
 
technology
 
and
 
business
transformation will be a significant priority for the Corporation
 
over the next three years and beyond.
 
As part of this transformation, we aim to expand our digital capabilities,
 
modernize our technology platform, and implement agile and
efficient
 
business processes
 
across the
 
entire Corporation.
 
To
 
facilitate
 
the transparency
 
of the
 
progress with
 
the transformation
initiative and
 
to better
 
portray the
 
level of
 
technology related
 
expenses categorized
 
by the
 
nature of
 
the expense,
 
effective in
 
the
fourth quarter of 2022, the
 
Corporation has separated technology,
 
professional fees and transactional and items
 
processing related
expenses as standalone expense categories in the accompanying Consolidated statement of operations. There were no changes to
the
 
total
 
operating
 
expenses
 
presented.
 
Prior
 
periods
 
amount
 
in
 
the
 
financial
 
statements
 
and
 
related
 
disclosures
 
have
 
been
reclassified to conform to the current presentation.
 
The following table provides the detail of
 
the reclassifications for each respective year:
 
2021
2020
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
92,097
$
(59,178)
$
32,919
$
88,932
$
(56,418)
$
32,514
Professional services
410,865
(284,144)
126,721
394,122
(261,708)
132,414
Technology and
 
software expenses
-
277,979
277,979
-
263,886
263,886
Processing and transactional services
-
121,367
121,367
-
112,039
112,039
Communications
25,234
(11,205)
14,029
23,496
(10,266)
13,230
Other expenses
136,988
(44,819)
92,169
128,882
(47,533)
81,349
Net effect on operating expenses
$
665,184
$
-
$
665,184
$
635,432
$
-
$
635,432
122
Note 2 – Summary of significant accounting
 
policies
The
 
accounting
 
and
 
financial
 
reporting
 
policies
 
of
 
Popular,
 
Inc.
 
and
 
its
 
subsidiaries
 
(the
 
“Corporation”) conform
 
with
 
accounting
principles generally accepted in the United States
 
of America and with prevailing practices within
 
the financial services industry.
 
The following is a description of the most significant
 
of these policies:
Principles of consolidation
The
 
consolidated
 
financial
 
statements
 
include
 
the
 
accounts
 
of
 
Popular,
 
Inc.
 
and
 
its
 
subsidiaries.
 
Intercompany
 
accounts
 
and
transactions have been
 
eliminated in consolidation. In
 
accordance with the
 
consolidation guidance for variable
 
interest entities, the
Corporation
 
would
 
also
 
consolidate
 
any
 
variable
 
interest
 
entities
 
(“VIEs”)
 
for
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest;
 
and
therefore, it is the primary beneficiary. Assets
 
held in a fiduciary capacity are not assets of the Corporation and, accordingly,
 
are not
included in the Consolidated Statements of Financial
 
Condition.
Unconsolidated investments, in
 
which there is
 
at least
 
20% ownership and
 
/ or
 
the Corporation exercises
 
significant influence, are
generally
 
accounted
 
for
 
by
 
the
 
equity
 
method
 
with
 
earnings
 
recorded
 
in
 
other
 
operating
 
income.
 
Limited
 
partnerships
 
are
 
also
accounted for by the equity method unless the investor’s
 
interest is so “minor” that the limited partner may have
 
virtually no influence
over
 
partnership
 
operating
 
and
 
financial
 
policies.
 
These
 
investments
 
are
 
included
 
in
 
other
 
assets
 
and
 
the
 
Corporation’s
proportionate share of income or loss is included
 
in other operating income.
 
Statutory business trusts that are wholly-owned by the Corporation and are
 
issuers of trust preferred securities are not consolidated
in the Corporation’s Consolidated Financial Statements.
Business combinations
Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and
any noncontrolling
 
interest in
 
the acquiree
 
at the
 
acquisition date
 
are measured
 
at their
 
fair values
 
as of
 
the acquisition
 
date. The
acquisition
 
date
 
is
 
the
 
date
 
the
 
acquirer
 
obtains
 
control.
 
Transaction
 
costs
 
are
 
expensed
 
as
 
incurred.
 
Contingent
 
consideration
classified as an asset
 
or a liability is remeasured to
 
fair value at each
 
reporting date until the contingency
 
is resolved. The changes
in fair
 
value of
 
the contingent
 
consideration are
 
recognized in
 
earnings unless
 
the arrangement
 
is a
 
hedging instrument
 
for which
changes
 
are
 
initially
 
recognized
 
in
 
other
 
comprehensive
 
income.
 
Refer
 
to
 
Note
 
4
 
for
 
information
 
of
 
business
 
combinations
completed by the Corporation for the years presented.
 
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.
Fair value measurements
The Corporation determines the fair values of its
 
financial instruments based on the fair value framework
 
established in the guidance
for
 
Fair
 
Value
 
Measurements
 
in
 
ASC
 
Subtopic
 
820-10,
 
which
 
requires
 
an
 
entity
 
to
 
maximize
 
the
 
use
 
of
 
observable
 
inputs
 
and
minimize
 
the
 
use
 
of
 
unobservable inputs
 
when
 
measuring fair
 
value.
 
Fair value
 
is
 
defined
 
as
 
the
 
exchange
 
price
 
that
 
would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly
 
transaction between market participants
 
on the measurement date.
 
The standard describes three
 
levels of inputs
 
that
may
 
be
 
used
 
to
 
measure
 
fair
 
value
 
which
 
are
 
(1)
 
quoted
 
market
 
prices
 
for
 
identical
 
assets
 
or
 
liabilities
 
in
 
active
 
markets,
 
(2)
observable market-based inputs or unobservable inputs
 
that are corroborated by market
 
data, and (3) unobservable inputs
 
that are
not corroborated
 
by market
 
data. The fair
 
value hierarchy
 
ranks the
 
quality and
 
reliability of the
 
information used to
 
determine fair
values.
 
The
 
guidance
 
in
 
ASC
 
Subtopic
 
820-10
 
also
 
addresses
 
measuring
 
fair
 
value
 
in
 
situations
 
where
 
markets
 
are
 
inactive
 
and
transactions are
 
not orderly.
 
Transactions
 
or quoted
 
prices for
 
assets and
 
liabilities may
 
not be
 
determinative of
 
fair value
 
when
transactions are not
 
orderly, and
 
thus, may require
 
adjustments to estimate fair
 
value. Price quotes
 
based on transactions
 
that are
not orderly should be given
 
little, if any,
 
weight in measuring fair value. Price
 
quotes based on transactions that are
 
orderly shall be
considered
 
in
 
determining
 
fair
 
value,
 
and
 
the
 
weight
 
given
 
is
 
based
 
on
 
facts
 
and
 
circumstances.
 
If
 
sufficient
 
information
 
is
 
not
available to
 
determine if
 
price quotes
 
are based
 
on orderly
 
transactions, less
 
weight should
 
be given to
 
the price
 
quote relative
 
to
other transactions that are known to be orderly.
 
123
Investment securities
Investment securities are classified in four categories and
 
accounted for as follows:
 
Debt securities that
 
the Corporation has
 
the intent and
 
ability to hold
 
to maturity are
 
classified as debt securities
 
held-to-
maturity and reported
 
at amortized cost. An
 
ACL is established
 
for the expected credit
 
losses over the remaining
 
term of
debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which
 
considers
qualitative factors,
 
including internal credit
 
ratings and
 
the underlying source
 
of repayment
 
in determining
 
the amount
 
of
expected
 
credit
 
losses.
 
Debt
 
securities
 
held-to-maturity
 
are
 
written-off
 
through
 
the
 
ACL
 
when
 
a
 
portion
 
or
 
the
 
entire
amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of
the
 
asset.
 
The
 
ACL
 
is
 
estimated
 
by
 
leveraging
 
the
 
expected
 
loss
 
framework
 
for
 
mortgages
 
in
 
the
 
case
 
of
 
securities
collateralized by
 
2
nd
 
lien loans
 
and the
 
commercial C&I
 
models for
 
municipal bonds.
 
As part
 
of this
 
framework, internal
factors are stressed,
 
as a qualitative
 
adjustment, to reflect current
 
conditions that are
 
not necessarily captured within
 
the
historical
 
loss
 
experience.
 
The
 
modeling
 
framework
 
includes
 
a
 
2-year
 
reasonable
 
and
 
supportable
 
period
 
gradually
reverting,
 
over
 
a
 
3-years
 
horizon,
 
to
 
historical
 
information
 
at
 
the
 
model
 
input
 
level.
 
The
 
Corporation
 
may
 
not
 
sell
 
or
transfer held-to-maturity securities without calling into question its
 
intent to hold other debt securities
 
to maturity, unless
 
a
nonrecurring or unusual event that could not have
 
been reasonably anticipated has occurred.
 
Debt securities
 
classified as
 
trading securities
 
are reported
 
at fair
 
value, with
 
unrealized and
 
realized gains
 
and losses
included in non-interest income.
 
Debt
 
securities
 
classified
 
as
 
available-for-sale
 
are
 
reported
 
at
 
fair
 
value.
 
Declines
 
in
 
fair
 
value
 
below
 
the
 
securities’
amortized cost which are not related to estimated credit losses are recorded through other comprehensive income or loss,
net of
 
taxes. If
 
the Corporation intends
 
to sell
 
or believes
 
it is
 
more likely than
 
not that it
 
will be
 
required to sell
 
the debt
security,
 
it is
 
written down
 
to
 
fair value
 
through earnings.
 
Credit losses
 
relating to
 
available-for-sale debt
 
securities are
recorded through an
 
ACL, which are
 
limited to the
 
difference between the
 
amortized cost and the
 
fair value of
 
the asset.
The ACL is established for the expected credit losses over the remaining term of debt security. The Corporation’s portfolio
of
 
available-for-sale securities
 
is comprised
 
mainly
 
of
 
U.S. Treasury
 
notes
 
and
 
obligations from
 
the
 
U.S.
 
Government.
These
 
securities
 
have
 
an
 
explicit
 
or
 
implicit
 
guarantee
 
from
 
the
 
U.S.
 
government,
 
are
 
highly
 
rated
 
by
 
major
 
rating
agencies, and have a
 
long history of no
 
credit losses. Accordingly,
 
the Corporation applies a
 
zero-credit loss assumption
and no
 
ACL for
 
these securities
 
has been
 
established. The Corporation
 
monitors its securities
 
portfolio composition and
credit performance on a
 
quarterly basis to determine if
 
any allowance is considered necessary.
 
Debt securities available-
for-sale are written-off when
 
a portion or
 
the entire amount is
 
deemed uncollectible, based on the
 
information considered
to
 
develop expected
 
credit losses
 
through the
 
life of
 
the asset.
 
The specific
 
identification method
 
is used
 
to
 
determine
realized
 
gains
 
and
 
losses
 
on
 
debt
 
securities
 
available-for-sale,
 
which
 
are
 
included
 
in
 
net
 
(loss)
 
gain
 
on
 
sale
 
of
 
debt
securities in the Consolidated Statements of Operations.
 
Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily
available fair
 
values are
 
measured at
 
cost, less
 
any impairment,
 
plus or
 
minus changes
 
resulting from
 
observable price
changes in
 
orderly transactions
 
for the
 
identical or
 
a similar
 
investment of
 
the same
 
issuer.
 
Stock that
 
is owned
 
by the
Corporation
 
to
 
comply
 
with
 
regulatory
 
requirements,
 
such
 
as
 
Federal
 
Reserve
 
Bank
 
and
 
Federal
 
Home
 
Loan
 
Bank
(“FHLB”) stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and
losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in
the Consolidated Statements
 
of Operations. Dividend income
 
from investments in
 
equity securities is included
 
in interest
income.
The
 
amortization
 
of
 
premiums is
 
deducted
 
and
 
the
 
accretion of
 
discounts is
 
added to
 
net
 
interest income
 
based on
 
the
 
interest
method
 
over the
 
outstanding period
 
of
 
the
 
related
 
securities.
 
Purchases and
 
sales
 
of
 
securities
 
are
 
recognized
 
on
 
a
 
trade
 
date
basis.
Derivative financial instruments
All derivatives are recognized on the Statements of Financial Condition at
 
fair value. The Corporation’s policy is not to
 
offset the fair
value
 
amounts
 
recognized
 
for
 
multiple
 
derivative
 
instruments
 
executed
 
with
 
the
 
same
 
counterparty
 
under
 
a
 
master
 
netting
arrangement nor to offset the fair value amounts recognized for the
 
right to reclaim cash collateral (a receivable) or the obligation
 
to
return cash collateral (a payable) arising from the
 
same master netting arrangement as the derivative
 
instruments.
124
For
 
a
 
cash
 
flow
 
hedge,
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
derivative
 
instrument
 
are
 
recorded
 
net
 
of
 
taxes
 
in
 
accumulated
 
other
comprehensive income/(loss) and subsequently
 
reclassified to net
 
income (loss) in
 
the same period(s)
 
that the hedged
 
transaction
impacts earnings. For free-standing derivative instruments,
 
changes in fair values are reported in current period earnings.
Prior
 
to
 
entering
 
a
 
hedge
 
transaction,
 
the
 
Corporation
 
formally
 
documents
 
the
 
relationship
 
between
 
hedging
 
instruments
 
and
hedged
 
items,
 
as
 
well
 
as
 
the
 
risk
 
management objective
 
and
 
strategy for
 
undertaking various
 
hedge
 
transactions.
 
This
 
process
includes
 
linking all
 
derivative instruments
 
to
 
specific assets
 
and
 
liabilities on
 
the Statements
 
of
 
Financial Condition
 
or to
 
specific
forecasted transactions
 
or firm
 
commitments along
 
with a
 
formal assessment,
 
at both
 
inception of
 
the hedge
 
and on
 
an ongoing
basis,
 
as
 
to
 
the
 
effectiveness
 
of the
 
derivative instrument
 
in
 
offsetting
 
changes
 
in
 
fair
 
values
 
or
 
cash
 
flows
 
of
 
the
 
hedged
 
item.
Hedge accounting
 
is discontinued
 
when the
 
derivative instrument
 
is not
 
highly effective
 
as a
 
hedge, a
 
derivative expires,
 
is sold,
terminated, when it is unlikely that a forecasted transaction will
 
occur or when it is determined that it is
 
no longer appropriate. When
hedge accounting is discontinued the derivative continues
 
to be carried at fair value with changes in fair
 
value included in earnings.
 
For non-exchange
 
traded contracts,
 
fair value
 
is based
 
on dealer
 
quotes, pricing
 
models, discounted
 
cash flow
 
methodologies or
similar techniques for which the determination of
 
fair value may require significant management judgment
 
or estimation.
 
The fair value of derivative instruments considers
 
the risk of non-performance by the counterparty
 
or the Corporation, as applicable.
 
The Corporation obtains or pledges collateral in
 
connection with its derivative activities when applicable
 
under the agreement
.
Loans
 
Loans
 
are
 
classified
 
as
 
loans
 
held-in-portfolio when
 
management has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
the
 
loan
 
for
 
the
 
foreseeable
future, or
 
until maturity
 
or payoff.
 
The foreseeable
 
future is
 
a management
 
judgment which
 
is determined
 
based upon
 
the type
 
of
loan,
 
business strategies,
 
current market
 
conditions, balance
 
sheet
 
management and
 
liquidity needs.
 
Management’s view
 
of
 
the
foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that
 
was
not originated or
 
initially acquired with the
 
intent to sell
 
or securitize, the loan
 
is reclassified from held-in-portfolio
 
into held-for-sale.
Due to changing market conditions or other
 
strategic initiatives, management’s intent with respect to the
 
disposition of the loan may
change,
 
and
 
accordingly,
 
loans
 
previously classified
 
as
 
held-for-sale may
 
be
 
reclassified into
 
held-in-portfolio. Loans
 
transferred
between loans held-for-sale and held-in-portfolio
 
classifications are recorded at the lower of cost or
 
fair value at the date of transfer.
 
Purchased
 
loans
 
with
 
no
 
evidence
 
of
 
credit
 
deterioration
 
since
 
origination
 
are
 
recorded
 
at
 
fair
 
value
 
upon
 
acquisition.
 
Credit
discounts are included in the determination of fair
 
value.
 
Loans held-for-sale are stated
 
at the lower
 
of cost or
 
fair value, cost
 
being determined based on
 
the outstanding loan balance
 
less
unearned income, and fair value determined, generally in
 
the aggregate. Fair value is measured
 
based on current market prices for
similar loans,
 
outstanding investor
 
commitments, prices
 
of recent
 
sales or
 
discounted cash
 
flow analyses
 
which utilize
 
inputs and
assumptions
 
which
 
are
 
believed
 
to
 
be
 
consistent
 
with
 
market
 
participants’
 
views.
 
The
 
cost
 
basis
 
also
 
includes
 
consideration
 
of
deferred origination fees and costs, which are recognized in earnings
 
at the time of sale. Upon reclassification to held-for-sale,
 
credit
related
 
fair
 
value
 
adjustments are
 
recorded
 
as
 
a
 
reduction
 
in
 
the
 
ACL.
 
To
 
the
 
extent
 
that
 
the
 
loan's
 
reduction
 
in
 
value
 
has
 
not
already been provided for in the ACL, an additional provision for credit losses is recorded. Subsequent to reclassification to held-for-
sale, the amount,
 
by which cost exceeds
 
fair value, if any,
 
is accounted for as
 
a valuation allowance with
 
changes therein included
in the determination of net income (loss) for
 
the period in which the change occurs.
 
Loans held-in-portfolio
 
are reported
 
at their
 
outstanding principal
 
balances net
 
of any
 
unearned income,
 
charge-offs, unamortized
deferred fees and
 
costs on originated
 
loans, and premiums
 
or discounts on
 
purchased loans. Fees
 
collected and costs
 
incurred in
the
 
origination of
 
new
 
loans are
 
deferred and
 
amortized using
 
the interest
 
method or
 
a method
 
which approximates
 
the interest
method over the term of the loan as an adjustment
 
to interest yield.
The past due status of a loan is determined in accordance with its
 
contractual repayment terms. Furthermore, loans are reported
 
as
past due when either interest or principal remains
 
unpaid for 30 days or more in accordance
 
with its contractual repayment terms.
Non-accrual loans are those loans on which the
 
accrual of interest is discontinued. When a loan is
 
placed on non-accrual status, all
previously
 
accrued
 
and
 
unpaid interest
 
is
 
charged against
 
interest
 
income
 
and
 
the
 
loan
 
is
 
accounted for
 
either
 
on
 
a cash-basis
method or
 
on the
 
cost-recovery method.
 
Loans designated
 
as non-accruing
 
are returned
 
to accrual
 
status when
 
the Corporation
expects repayment of the remaining contractual principal
 
and interest.
 
Recognition of interest income on commercial and construction loans is discontinued when the loans are 90 days or more in arrears
on payments of principal or interest or when other factors indicate that the collection of principal and interest is
 
doubtful. The portion
of
 
a
 
secured
 
loan
 
deemed
 
uncollectible
 
is
 
charged-off
 
no
 
later
 
than
 
365
 
days
 
past
 
due.
 
However,
 
in
 
the
 
case
 
of
 
a
 
collateral
125
dependent
 
loan,
 
the
 
excess
 
of
 
the
 
recorded
 
investment
 
over
 
the
 
fair
 
value
 
of
 
the
 
collateral
 
(portion
 
deemed
 
uncollectible)
 
is
generally
 
promptly charged-off,
 
but
 
in
 
any
 
event,
 
not
 
later
 
than
 
the
 
quarter
 
following
 
the
 
quarter
 
in
 
which
 
such
 
excess was
 
first
recognized.
 
Commercial
 
unsecured
 
loans
 
are
 
charged-off
 
no
 
later
 
than
 
180
 
days
 
past
 
due.
 
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
portion of a
 
mortgage loan deemed
 
uncollectible is charged-off
 
when the loan
 
is 180 days
 
past due. The
 
Corporation discontinues
the recognition
 
of interest
 
on residential
 
mortgage loans
 
insured by
 
the Federal
 
Housing Administration
 
(“FHA”) or
 
guaranteed by
the U.S.
 
Department of Veterans
 
Affairs (“VA”)
 
when 15-months
 
delinquent as
 
to principal
 
or interest.
 
The principal
 
repayment on
these loans is insured. Recognition of interest income
 
on closed-end consumer loans and home equity lines of credit is discontinued
when the
 
loans are
 
90 days
 
or more
 
in arrears
 
on payments
 
of principal
 
or interest.
 
Income is
 
generally recognized
 
on open-end
consumer loans,
 
except for
 
home equity
 
lines
 
of
 
credit,
 
until
 
the
 
loans are
 
charged-off.
 
Recognition of
 
interest
 
income
 
for
 
lease
financing is ceased when
 
loans are 90 days
 
or more in arrears.
 
Closed-end consumer loans and leases
 
are charged-off when they
are 120
 
days in
 
arrears. Open-end
 
(revolving credit)
 
consumer loans
 
are charged-off
 
when 180
 
days in
 
arrears. Commercial
 
and
consumer overdrafts are generally charged-off no later than
 
60 days past their due date.
A loan classified
 
as a troubled
 
debt restructuring (“TDR”) is
 
typically in non-accrual status
 
at the time
 
of the modification.
 
The TDR
loan continues
 
in non-accrual
 
status
 
until the
 
borrower has
 
demonstrated a
 
willingness and
 
ability to
 
make the
 
restructured loan
payments (at least six months of sustained performance after the modification
 
(or one year for loans providing for quarterly or semi-
annual payments))
 
and management
 
has concluded
 
that
 
it is
 
probable that
 
the borrower
 
would not
 
be
 
in payment
 
default in
 
the
foreseeable future.
Lease financing
The
 
Corporation leases
 
passenger and
 
commercial
 
vehicles
 
and
 
equipment
 
to
 
individual
 
and
 
corporate
 
customers.
 
The
 
finance
method of accounting
 
is used to
 
recognize revenue on lease
 
contracts that meet
 
the criteria specified in
 
the guidance for leases
 
in
ASC Topic
 
842. Aggregate
 
rentals due
 
over the
 
term of
 
the leases
 
less unearned
 
income are
 
included in
 
finance lease
 
contracts
receivable.
 
Unearned
 
income
 
is
 
amortized
 
using
 
a
 
method
 
which
 
results
 
in
 
approximate
 
level
 
rates
 
of
 
return
 
on
 
the
 
principal
amounts outstanding. Finance lease origination
 
fees and costs
 
are deferred and amortized
 
over the average life
 
of the lease as
 
an
adjustment to the interest yield.
Revenue for other leases is recognized as it becomes
 
due under the terms of the agreement.
Loans acquired with deteriorated credit quality
 
Purchased credit
 
deteriorated (“PCD”) loans
 
are defined
 
as those
 
with evidence
 
of a
 
more-than-insignificant deterioration in
 
credit
quality since origination.
 
PCD loans are initially recorded at its purchase price plus an
 
estimated allowance for credit losses (“ACL”).
Upon the acquisition of a PCD loan, the Corporation makes an estimate
 
of the expected credit losses over the remaining contractual
term
 
of
 
each individual
 
loan. The
 
estimated credit
 
losses over
 
the life
 
of the
 
loan are
 
recorded as
 
an ACL
 
with a
 
corresponding
addition to the loan purchase price. The amount of the purchased
 
premium or discount which is not related to credit risk is
 
amortized
over the life of
 
the loan through net
 
interest income using the
 
effective interest method or
 
a method that approximates the
 
effective
interest
 
method.
 
Changes
 
in
 
expected
 
credit
 
losses
 
are
 
recorded as
 
an
 
increase
 
or
 
decrease
 
to
 
the
 
ACL
 
with
 
a
 
corresponding
charge
 
(reverse)
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
in
 
the
 
Consolidated
 
Statement
 
of
 
Operations.
 
These
 
loans
 
follow
 
the
 
same
nonaccrual policies as non-PCD loans. Modifications of PCD loans that meet the definition of
 
a TDR are accounted and reported as
such following the same processes as non-PCD loans.
Refer to Note 8
to the Consolidated Financial Statements
 
for additional information with respect
 
to loans acquired with
 
deteriorated
credit quality.
Accrued interest receivable
The
 
amortized
 
basis
 
for
 
loans
 
and
 
investments
 
in
 
debt
 
securities
 
is
 
presented
 
exclusive
 
of
 
accrued
 
interest
 
receivable.
 
The
Corporation has elected
 
not to establish
 
an ACL for
 
accrued interest receivable for
 
loans and investments
 
in debt securities,
 
given
the Corporation’s
 
non-accrual policies, in
 
which accrual
 
of interest is
 
discontinued and reversed
 
based on the
 
asset’s delinquency
status.
 
Allowance for credit losses – loans portfolio
The Corporation establishes an ACL
 
for its loan
 
portfolio based on its
 
estimate of credit losses
 
over the remaining contractual
 
term
of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since
inception, with
 
a corresponding charge
 
to the
 
provision for
 
credit losses,
 
except for
 
PCD loans
 
for which
 
the ACL
 
at acquisition
 
is
126
recorded
 
as
 
an
 
addition
 
to
 
the
 
purchase
 
price
 
with
 
subsequent
 
changes
 
recorded
 
in
 
earnings.
 
Loan
 
losses
 
are
 
charged
 
and
recoveries are credited to the ACL.
The
 
Corporation
 
follows
 
a
 
methodology
 
to
 
estimate
 
the
 
ACL
 
which
 
includes
 
a
 
reasonable
 
and
 
supportable
 
forecast
 
period
 
for
estimating
 
credit
 
losses,
 
considering
 
quantitative
 
and
 
qualitative
 
factors
 
as
 
well
 
as
 
the
 
economic
 
outlook.
 
As
 
part
 
of
 
this
methodology,
 
management
 
evaluates
 
various
 
macroeconomic
 
scenarios
 
provided
 
by
 
third
 
parties.
 
At
 
December
 
31,
 
2022,
management
 
applied
 
probability
 
weights
 
to
 
the
 
outcome
 
of
 
the
 
selected
 
scenarios.
 
This
 
evaluation
 
includes
 
benchmarking
procedures
 
as
 
well
 
as
 
careful
 
analysis
 
of
 
the
 
underlying assumptions
 
used to
 
build the
 
scenarios. The
 
application of
 
probability
weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as
part
 
of
 
the
 
ACL’s
 
governance
 
process. The
 
Corporation considers
 
additional
 
macroeconomic scenarios
 
as
 
part
 
of
 
its
 
qualitative
adjustment framework.
 
The
 
macroeconomic variables
 
chosen
 
to
 
estimate credit
 
losses
 
were
 
selected
 
by
 
combining
 
quantitative
 
procedures with
 
expert
judgment.
 
These
 
variables
 
were
 
determined
 
to
 
be
 
the
 
best
 
predictors
 
of
 
expected
 
credit
 
losses
 
within
 
the
 
Corporation’s
 
loan
portfolios and
 
include drivers such
 
as unemployment rate,
 
different measures
 
of employment levels,
 
house prices,
 
gross domestic
product
 
and
 
measures
 
of
 
disposable
 
income,
 
amongst
 
others.
 
The
 
loss
 
estimation
 
framework
 
includes
 
a
 
reasonable
 
and
supportable period of 2 years for PR portfolios, gradually
 
reverting, over a 3-years horizon, to historical macroeconomic variables at
the
 
model
 
input
 
level.
 
For
 
the
 
US
 
portfolio
 
the
 
reasonable
 
and
 
supportable
 
period
 
considers
 
the
 
contractual
 
life
 
of
 
the
 
asset,
impacted
 
by
 
prepayments, except
 
for the
 
US
 
CRE portfolio.
 
The US
 
CRE portfolio
 
utilizes a
 
2-year reasonable
 
and supportable
period gradually reverting, over a 3-years horizon,
 
to historical information at the output level.
 
The
 
Corporation
 
developed
 
loan
 
level
 
quantitative
 
models
 
distributed
 
by
 
geography
 
and
 
loan
 
type.
 
This
 
segmentation
 
was
determined
 
by
 
evaluating
 
their
 
risk
 
characteristics,
 
which
 
include
 
default
 
patterns,
 
source
 
of
 
repayment,
 
type
 
of
 
collateral,
 
and
lending
 
channels,
 
amongst
 
others.
 
The
 
modeling
 
framework
 
includes
 
competing
 
risk
 
models
 
to
 
generate
 
lifetime
 
defaults
 
and
prepayments, and other loan
 
level modeling techniques to estimate
 
loss severity.
 
Recoveries on future losses
 
are contemplated as
part
 
of
 
the
 
loss
 
severity
 
modeling.
 
These
 
parameters
 
are
 
estimated
 
by
 
combining
 
internal
 
risk
 
factors
 
with
 
macroeconomic
expectations. In
 
order to
 
generate the
 
expected credit
 
losses, the
 
output of
 
these models
 
is combined
 
with loan
 
level repayment
information.
 
The
 
internal
 
risk
 
factors
 
contemplated
 
within
 
the
 
models
 
may
 
include
 
borrowers’
 
credit
 
scores,
 
loan-to-value,
delinquency status, risk ratings, interest rate, loan
 
term, loan age and type of collateral, amongst
 
others.
 
The ACL
 
also includes
 
a qualitative
 
framework that
 
addresses two
 
main components:
 
losses that
 
are expected
 
but not
 
captured
within the quantitative modeling framework, and model imprecision. In order
 
to identify potential losses that are not captured
 
through
the
 
models,
 
management
 
evaluates
 
model
 
limitations
 
as
 
well
 
as
 
the
 
different
 
risks
 
covered
 
by
 
the
 
variables
 
used
 
in
 
each
quantitative model. The
 
Corporation considers additional macroeconomic
 
scenarios to address
 
these risks. This
 
assessment takes
into
 
consideration factors
 
listed
 
as
 
part
 
of
 
ASC
 
326-20-55-4. To
 
complement
 
the
 
analysis, management
 
also
 
evaluates
 
whether
there are sectors
 
that have low
 
levels of historical
 
defaults, but current
 
conditions show the
 
potential for future
 
losses. This type
 
of
qualitative
 
adjustment
 
is
 
more
 
prevalent
 
in
 
the
 
commercial
 
portfolios.
 
The
 
model
 
imprecision
 
component
 
of
 
the
 
qualitative
adjustments
 
is
 
determined
 
after
 
evaluating
 
model
 
performance
 
for
 
these
 
portfolios
 
through
 
different
 
time
 
periods.
 
This
 
type
 
of
qualitative adjustment mainly impacts consumer portfolios.
The
 
Corporation
 
has
 
designated
 
as
 
collateral
 
dependent
 
loans
 
secured
 
by
 
collateral
 
when
 
foreclosure
 
is
 
probable
 
or
 
when
foreclosure is
 
not probable but
 
the practical expedient
 
is used.
 
The practical expedient
 
is used
 
when repayment is
 
expected to be
provided
 
substantially
 
by
 
the
 
sale
 
or
 
operation
 
of
 
the
 
collateral
 
and
 
the
 
borrower is
 
experiencing financial
 
difficulty.
 
The
 
ACL
 
of
collateral dependent loans
 
is measured based
 
on the fair
 
value of the
 
collateral less costs
 
to sell. 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.
 
In
 
the
 
case
 
of
 
troubled
 
debt
 
restructurings
 
(“TDRs”),
 
the
 
established
 
framework
 
captures
 
the
 
impact
 
of
 
concessions
 
through
discounting
 
modified contractual
 
cash
 
flows,
 
both principal
 
and
 
interest, at
 
the
 
loan’s
 
original
 
effective rate.
 
The
 
impact of
 
these
concessions is combined with the expected credit losses generated by the quantitative loss models in order to arrive at
 
the ACL. As
a result, the ACL related to TDRs is impacted by
 
the expected macroeconomic conditions.
The Credit Cards
 
portfolio, due to
 
its revolving nature,
 
does not have
 
a specified maturity date.
 
To
 
estimate the average remaining
term
 
of
 
this
 
segment,
 
management evaluated
 
the
 
portfolios
 
payment
 
behavior
 
based
 
on
 
internal
 
historical data.
 
These
 
payment
behaviors were
 
further classified
 
into sub-categories
 
that accounted
 
for delinquency
 
history and
 
differences between
 
transactors,
revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without
any
 
finance
 
charge
 
in
 
the
 
last
 
6
 
months.
 
The
 
paydown
 
curves
 
generated
 
for
 
each
 
sub-category
 
are
 
applied
 
to
 
the
 
outstanding
127
exposure at
 
the measurement
 
date using
 
the first-in
 
first-out (FIFO)
 
methodology.
 
These amortization
 
patterns are
 
combined with
loan level default and loss severity modeling to arrive
 
at the ACL.
Troubled debt restructurings
A
 
restructuring constitutes
 
a
 
TDR
 
when
 
the
 
Corporation separately
 
concludes
 
that
 
both
 
of
 
the
 
following
 
conditions
 
exist:
 
1)
 
the
restructuring
 
constitute
 
a
 
concession
 
and
 
2)
 
the
 
debtor
 
is
 
experiencing
 
financial
 
difficulties.
 
The
 
concessions
 
stem
 
from
 
an
agreement between the Corporation and the
 
debtor or are imposed by
 
law or a court. These
 
concessions could include a reduction
in the
 
interest rate
 
on the
 
loan, payment
 
extensions, forgiveness
 
of principal,
 
forbearance or
 
other actions
 
intended to
 
maximize
collection.
 
A
 
concession
 
has
 
been
 
granted
 
when,
 
as
 
a
 
result
 
of
 
the
 
restructuring,
 
the
 
Corporation does
 
not
 
expect
 
to
 
collect
 
all
amounts
 
due,
 
including
 
interest
 
accrued
 
at
 
the
 
original
 
contract
 
rate.
 
If
 
the
 
payment
 
of
 
principal
 
is
 
dependent
 
on
 
the
 
value
 
of
collateral,
 
the
 
current
 
value
 
of
 
the
 
collateral
 
is
 
taken
 
into
 
consideration
 
in
 
determining
 
the
 
amount
 
of
 
principal
 
to
 
be
 
collected;
therefore, all factors that changed are considered to determine if a concession was granted, including the change in the fair value of
the
 
underlying collateral
 
that
 
may
 
be
 
used
 
to
 
repay
 
the
 
loan.
 
Classification of
 
loan
 
modifications
 
as
 
TDRs
 
involves
 
a
 
degree
 
of
judgment. Indicators that the debtor is experiencing financial difficulties
 
which are considered include: (i) the borrower is currently
 
in
default on any of its
 
debt or it is
 
probable that the borrower would be
 
in payment default on any
 
of its debt in the
 
foreseeable future
without the modification; (ii)
 
the borrower has declared or
 
is in the process
 
of declaring bankruptcy; (iii) there
 
is significant doubt as
to
 
whether the
 
borrower will
 
continue to
 
be a
 
going concern;
 
(iv) the
 
borrower has
 
securities that
 
have been
 
delisted, are
 
in the
process of being delisted,
 
or are under threat
 
of being delisted from an
 
exchange; (v) based on
 
estimates and projections that only
encompass
 
the
 
borrower’s current
 
business
 
capabilities,
 
it
 
is
 
forecasted
 
that
 
the
 
entity-specific
 
cash
 
flows
 
will
 
be
 
insufficient
 
to
service the
 
debt (both
 
interest and
 
principal) in
 
accordance with the
 
contractual terms
 
of the
 
existing agreement through
 
maturity;
and
 
(vi)
 
absent
 
the
 
current
 
modification,
 
the
 
borrower
 
cannot
 
obtain
 
funds
 
from
 
sources
 
other
 
than
 
the
 
existing
 
creditors
 
at
 
an
effective interest rate equal to the current market interest rate for similar debt for a non-troubled debtor. The identification of TDRs is
critical in the determination of the adequacy of the ACL.
 
A loan
 
may be
 
restructured in
 
a troubled
 
debt restructuring
 
into two
 
(or more)
 
loan agreements,
 
for example,
 
Note A
 
and Note
 
B.
Note
 
A
 
represents
 
the
 
portion
 
of
 
the
 
original
 
loan
 
principal
 
amount
 
that
 
is
 
expected
 
to
 
be
 
fully
 
collected
 
along
 
with
 
contractual
interest. Note B represents the portion of the original loan that may be considered uncollectible and charged-off, but the obligation is
not forgiven
 
to the
 
borrower.
 
Note A
 
may be
 
returned to
 
accrual status
 
provided all
 
of the
 
conditions for
 
a TDR
 
to be
 
returned to
accrual status are met. The modified loans are
 
considered TDRs.
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
qualitative
 
information
 
on
 
TDRs
 
and
 
the
 
Corporation’s
determination of the ACL.
Reserve for unfunded commitments
The Corporation
 
establishes a
 
reserve for
 
unfunded commitments,
 
based on
 
the estimated
 
losses over
 
the remaining
 
term of
 
the
facility.
 
An allowance
 
is not
 
established for
 
commitments that
 
are unconditionally
 
cancellable by
 
the Corporation.
 
Accordingly,
 
no
reserve
 
is
 
established
 
for
 
unfunded commitments
 
related to
 
its
 
credit
 
cards
 
portfolio.
 
Reserve for
 
the
 
unfunded
 
portion
 
of
 
credit
commitments
 
is
 
presented
 
within
 
other
 
liabilities
 
in
 
the
 
Consolidated Statements
 
of
 
Financial
 
Condition.
 
Net
 
adjustments
 
to
 
the
reserve for unfunded commitments are
 
reflected in the Consolidated Statements
 
of Operations as provision for credit
 
losses for the
years ended December 31, 2022 and 2021.
Transfers and servicing of financial assets
The transfer
 
of an
 
entire financial
 
asset, a
 
group of
 
entire financial
 
assets, or
 
a participating interest
 
in an
 
entire financial
 
asset in
which the Corporation surrenders control over the assets is accounted
 
for as a sale
 
if all of the following conditions set forth in
 
ASC
Topic
 
860 are met:
 
(1) the assets
 
must be isolated
 
from creditors of
 
the transferor,
 
(2) the transferee
 
must obtain the
 
right (free of
conditions that constrain it
 
from taking advantage
 
of that right)
 
to pledge or
 
exchange the transferred assets,
 
and (3) the
 
transferor
cannot maintain effective control over
 
the transferred assets through an agreement
 
to repurchase them before their
 
maturity. When
the
 
Corporation
 
transfers
 
financial
 
assets
 
and
 
the
 
transfer
 
fails
 
any
 
one
 
of
 
these
 
criteria,
 
the
 
Corporation
 
is
 
prevented
 
from
derecognizing the transferred financial
 
assets and the
 
transaction is accounted for
 
as a secured
 
borrowing. For federal and
 
Puerto
Rico income
 
tax purposes,
 
the Corporation
 
treats the
 
transfers of
 
loans which
 
do not
 
qualify as
 
“true sales”
 
under the
 
applicable
accounting guidance, as sales, recognizing a deferred
 
tax asset or liability on the transaction.
 
For transfers
 
of financial
 
assets that
 
satisfy the
 
conditions to
 
be accounted
 
for as
 
sales, the
 
Corporation derecognizes
 
all assets
sold; recognizes all
 
assets obtained and liabilities
 
incurred in consideration as
 
proceeds of the
 
sale, including servicing
 
assets and
128
servicing liabilities, if
 
applicable; initially measures
 
at fair
 
value assets obtained
 
and liabilities incurred
 
in a
 
sale; and
 
recognizes in
earnings any gain or loss on the sale.
 
The guidance
 
on transfer
 
of financial
 
assets requires a
 
true sale
 
analysis of
 
the treatment
 
of the
 
transfer under state
 
law as
 
if the
Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the
nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a
true sale
 
is never
 
absolute and
 
unconditional, but
 
contains qualifications
 
based on
 
the inherent
 
equitable powers
 
of a
 
bankruptcy
court, as
 
well as
 
the unsettled
 
state of
 
the common
 
law.
 
Once the
 
legal isolation
 
test has
 
been met,
 
other factors
 
concerning the
nature
 
and
 
extent
 
of
 
the
 
transferor’s
 
control
 
over
 
the
 
transferred
 
assets
 
are
 
taken
 
into
 
account
 
in
 
order
 
to
 
determine
 
whether
derecognition of assets is warranted.
 
The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”)
 
in the normal course of business
and retains the servicing rights. The GNMA programs under which the
 
loans are sold allow the Corporation to repurchase individual
delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may
repurchase the delinquent
 
loan for an
 
amount equal to
 
100% of the
 
remaining principal balance
 
of the loan.
 
Once the Corporation
has the
 
unconditional ability
 
to repurchase
 
the delinquent
 
loan, the
 
Corporation is
 
deemed to
 
have regained
 
effective control
 
over
the
 
loan
 
and
 
recognizes
 
the
 
loan
 
on
 
its
 
balance
 
sheet
 
as
 
well
 
as
 
an
 
offsetting
 
liability,
 
regardless of
 
the
 
Corporation’s
 
intent
 
to
repurchase the loan.
Servicing assets
The
 
Corporation
 
periodically
 
sells
 
or
 
securitizes
 
loans
 
while
 
retaining
 
the
 
obligation
 
to
 
perform
 
the
 
servicing
 
of
 
such
 
loans.
 
In
addition,
 
the
 
Corporation
 
may
 
purchase
 
or
 
assume
 
the
 
right
 
to
 
service
 
loans
 
originated
 
by
 
others.
 
Whenever
 
the
 
Corporation
undertakes an
 
obligation to
 
service a
 
loan, management
 
assesses whether
 
a servicing
 
asset or
 
liability should
 
be recognized.
 
A
servicing
 
asset
 
is
 
recognized
 
whenever
 
the
 
compensation
 
for
 
servicing
 
is
 
expected
 
to
 
more
 
than
 
adequately
 
compensate
 
the
servicer
 
for
 
performing
 
the
 
servicing.
 
Likewise,
 
a
 
servicing
 
liability
 
would
 
be
 
recognized
 
in
 
the
 
event
 
that
 
servicing
 
fees
 
to
 
be
received are not
 
expected to adequately
 
compensate the Corporation
 
for its
 
expected cost. Mortgage servicing
 
assets recorded at
fair value are separately presented on the Consolidated
 
Statements of Financial Condition.
 
All separately recognized servicing assets are initially recognized at fair value. For subsequent
 
measurement of servicing rights, the
Corporation
 
has
 
elected
 
the
 
fair
 
value
 
method
 
for
 
mortgage
 
loans
 
servicing
 
rights
 
(“MSRs”).
 
Under
 
the
 
fair
 
value
 
measurement
method,
 
MSRs
 
are
 
recorded
 
at
 
fair
 
value
 
each
 
reporting
 
period,
 
and
 
changes
 
in
 
fair
 
value
 
are
 
reported
 
in
 
mortgage
 
banking
activities in the Consolidated Statement of Operations. Contractual
 
servicing fees including ancillary income and late
 
fees, as well as
fair
 
value
 
adjustments, are
 
reported in
 
mortgage
 
banking
 
activities in
 
the
 
Consolidated Statement
 
of
 
Operations. Loan
 
servicing
fees, which are based on a percentage of the principal balances of the
 
loans serviced, are credited to income as loan payments are
collected.
 
The fair value
 
of servicing rights is
 
estimated by using a
 
cash flow valuation model
 
which calculates the present value
 
of estimated
future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing
 
costs,
and other economic factors, which are determined
 
based on current market conditions.
Premises and equipment
 
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a
 
straight-
line basis over the estimated useful life of each
 
type of asset. Amortization of leasehold improvements
 
is computed over the terms of
the respective
 
leases or
 
the estimated
 
useful lives
 
of the
 
improvements, whichever
 
is shorter.
 
Costs of
 
maintenance and
 
repairs
which do not
 
improve or extend
 
the life of
 
the respective assets
 
are expensed as
 
incurred. Costs of
 
renewals and betterments
 
are
capitalized. When assets are
 
disposed of, their cost
 
and related accumulated depreciation are removed
 
from the accounts and
 
any
gain or loss is reflected in earnings as realized
 
or incurred, respectively.
The Corporation
 
capitalizes interest
 
cost
 
incurred in
 
the construction
 
of
 
significant real
 
estate projects,
 
which consist
 
primarily of
facilities
 
for
 
its
 
own
 
use
 
or
 
intended for
 
lease.
 
The
 
amount
 
of
 
interest cost
 
capitalized is
 
to
 
be
 
an
 
allocation of
 
the
 
interest cost
incurred during the
 
period required to substantially
 
complete the asset.
 
The interest rate
 
for capitalization purposes is
 
to be based
on a weighted
 
average rate on
 
the Corporation’s outstanding
 
borrowings, unless there
 
is a specific
 
new borrowing associated
 
with
the asset. Interest cost capitalized for the years ended
 
December 31, 2022, 2021 and 2020 was not
 
significant.
 
The
 
Corporation
 
recognizes
 
right-of-use
 
assets
 
(“ROU
 
assets”)
 
and
 
lease
 
liabilities
 
relating
 
to
 
operating
 
and
 
finance
 
lease
arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance
leases, interest is recognized on the
 
lease liability separately from the amortization
 
of the ROU asset, whereas for
 
operating leases
129
a single lease cost
 
is recognized so that
 
the cost of the
 
lease is allocated over
 
the lease term on
 
a straight-line basis. Impairments
on ROU assets are evaluated under the guidance for impairment
 
or disposal of long-lived assets.
 
The Corporation recognizes gains
on sale and
 
leaseback transactions in earnings when
 
the transfer constitutes a
 
sale, and the transaction
 
was at fair
 
value. Refer to
Note 33 to the Consolidated Financial Statements
 
for additional information on operating and finance
 
lease arrangements.
Impairment of long-lived assets
The
 
Corporation
 
evaluates
 
for
 
impairment
 
its
 
long-lived
 
assets
 
to
 
be
 
held
 
and
 
used,
 
and
 
long-lived
 
assets
 
to
 
be
 
disposed
 
of,
whenever events or changes
 
in circumstances indicate that the
 
carrying amount of an
 
asset may not be recoverable
 
and records a
write down for the difference between the carrying amount
 
and the fair value less costs to sell.
 
Other real estate
Other
 
real
 
estate,
 
received
 
in
 
satisfaction
 
of
 
a
 
loan,
 
is
 
recorded
 
at
 
fair
 
value
 
less
 
estimated
 
costs
 
of
 
disposal.
 
The
 
difference
between the carrying amount of the loan and the fair value less cost to
 
sell is recorded as an adjustment to the ACL. Subsequent to
foreclosure, any
 
losses in
 
the carrying
 
value arising
 
from periodic
 
re-evaluations of the
 
properties, and any
 
gains or
 
losses on
 
the
sale of these properties are credited or charged to expense in the period incurred and are included as OREO expenses. The cost of
maintaining and operating such properties is expensed
 
as incurred.
Updated appraisals
 
are obtained
 
to adjust
 
the value
 
of the
 
other real
 
estate assets.
 
The frequency
 
depends on
 
the loan
 
type and
total credit exposure. The appraisal for a commercial or construction other real estate property with a book
 
value equal to or greater
than $1 million is updated annually and if lower
 
than $1 million it is updated every two years.
 
For residential mortgage properties, the
Corporation requests appraisals annually.
 
Appraisals
 
may
 
be
 
adjusted
 
due
 
to
 
age,
 
collateral
 
inspections,
 
property
 
profiles,
 
or
 
general
 
market
 
conditions.
 
The
 
adjustments
applied are based upon
 
internal information such
 
as other appraisals for
 
the type of
 
properties and/or loss severity
 
information that
can provide historical trends in the real estate market
 
and may change from time to time based
 
on market conditions.
Goodwill and other intangible assets
Goodwill is recognized when the purchase price
 
is higher than the fair value
 
of net assets acquired in business combinations
 
under
the purchase
 
method of
 
accounting. Goodwill
 
is not
 
amortized but
 
is tested
 
for impairment
 
at least
 
annually or
 
more frequently
 
if
events or circumstances indicate possible impairment. If the
 
carrying amount of any of the
 
reporting units exceeds its fair value, the
Corporation would be required to record an impairment
 
charge for the difference up to the amount of the goodwill. In determining
 
the
fair
 
value
 
of
 
each
 
reporting
 
unit,
 
the
 
Corporation
 
generally
 
uses
 
a
 
combination
 
of
 
methods,
 
including
 
market
 
price
 
multiples
 
of
comparable companies and transactions, as well as discounted cash flow analysis. Goodwill impairment
 
losses are recorded as part
of operating expenses in the Consolidated Statements
 
of Operations.
 
Other intangible assets deemed
 
to have an
 
indefinite life are
 
not amortized but are
 
tested for impairment using
 
a one-step process
which compares the fair value with the carrying amount of the asset. In determining
 
that an intangible asset has an indefinite life, the
Corporation
 
considers
 
expected
 
cash
 
inflows
 
and
 
legal,
 
regulatory,
 
contractual,
 
competitive,
 
economic
 
and
 
other
 
factors,
 
which
could limit the intangible asset’s useful life.
 
Other
 
identifiable
 
intangible
 
assets
 
with
 
a
 
finite
 
useful
 
life,
 
mainly
 
core
 
deposits,
 
are
 
amortized
 
using
 
various
 
methods
 
over
 
the
periods
 
benefited,
 
which
 
range
 
from
 
5
 
to
 
10
 
years.
 
These
 
intangibles are
 
evaluated
 
periodically for
 
impairment
 
when
 
events
 
or
changes in circumstances
 
indicate that the carrying
 
amount may not
 
be recoverable. Impairments on
 
intangible assets with
 
a finite
useful life are evaluated under the guidance for
 
impairment or disposal of long-lived assets.
 
Assets sold / purchased under agreements to repurchase
 
/ resell
Repurchase and resell agreements
 
are treated as collateralized
 
financing transactions and are
 
carried at the
 
amounts at which the
assets will be subsequently reacquired or resold as
 
specified in the respective agreements.
It is the
 
Corporation’s policy to take possession
 
of securities purchased under agreements to
 
resell. However, the counterparties
 
to
such
 
agreements
 
maintain
 
effective
 
control
 
over
 
such
 
securities,
 
and
 
accordingly
 
those
 
securities
 
are
 
not
 
reflected
 
in
 
the
Corporation’s Consolidated Statements
 
of Financial
 
Condition. The Corporation
 
monitors the
 
fair value of
 
the underlying
 
securities
as compared to the related receivable, including accrued
 
interest.
 
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.
130
The Corporation may require counterparties to deposit
 
additional collateral or return collateral pledged,
 
when appropriate.
Software
Capitalized
 
software
 
is
 
stated
 
at
 
cost,
 
less
 
accumulated
 
amortization.
 
Capitalized
 
software
 
includes
 
purchased
 
software
 
and
capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line
method, is charged to operations
 
over the estimated useful life
 
of the software. Capitalized software is
 
included in “Other assets” in
the Consolidated Statement of Financial Condition.
Guarantees,
 
including indirect guarantees of indebtedness to
 
others
The estimated losses to be absorbed under the credit
 
recourse arrangements are recorded as a liability when
 
the loans are sold and
are updated by
 
accruing or reversing expense
 
(categorized in the line
 
item “Adjustments (expense) to
 
indemnity reserves on loans
sold”
 
in
 
the
 
Consolidated
 
Statements
 
of
 
Operations)
 
throughout
 
the
 
life
 
of
 
the
 
loan,
 
as
 
necessary,
 
when
 
additional
 
relevant
information
 
becomes
 
available.
 
The
 
methodology
 
used
 
to
 
estimate
 
the
 
recourse
 
liability
 
considers
 
current
 
conditions,
macroeconomic expectations
 
through a
 
2-years reasonable
 
and supportable
 
period, gradually
 
reverting over
 
a 3-years
 
horizon to
historical
 
loss
 
experience,
 
portfolio
 
composition
 
by
 
risk
 
characteristics,
 
amongst
 
other
 
factors.
 
Statistical
 
methods
 
are
 
used
 
to
estimate the recourse liability. Expected loss rates are
 
applied to different loan segmentations. The expected loss, which represents
the amount expected to be lost
 
on a given loan, considers the probability of
 
default and loss severity.
 
The reserve for the estimated
losses
 
under
 
the
 
credit
 
recourse
 
arrangements
 
is
 
presented
 
separately
 
within
 
other
 
liabilities in
 
the
 
Consolidated Statements
 
of
Financial Condition. Refer to Note 23 to the Consolidated
 
Financial Statements for further disclosures on guarantees.
Treasury stock
Treasury stock is
 
recorded at cost and
 
is carried as a
 
reduction of stockholders’ equity in
 
the Consolidated Statements of Financial
Condition.
 
At the
 
date of
 
retirement or
 
subsequent reissue,
 
the treasury
 
stock account
 
is reduced
 
by
 
the cost
 
of such
 
stock.
 
At
retirement, the excess of the cost of the treasury stock over
 
its par value is recorded entirely to surplus. At reissuance,
 
the difference
between the consideration received upon issuance and
 
the specific cost is charged or credited to surplus.
 
Revenues from contract with customers
Refer
 
to
 
Note
 
32
 
for
 
a
 
detailed
 
description
 
of
 
the
 
Corporation’s
 
policies
 
on
 
the
 
recognition
 
and
 
presentation
 
of
 
revenues
 
from
contract with customers.
Foreign exchange
Assets and liabilities
 
denominated in foreign currencies
 
are translated to U.S.
 
dollars using prevailing rates
 
of exchange at
 
the end
of
 
the
 
period.
 
Revenues, expenses,
 
gains
 
and
 
losses
 
are
 
translated using
 
weighted
 
average
 
rates
 
for
 
the
 
period.
 
The
 
resulting
foreign currency translation adjustment
 
from operations for which
 
the functional currency is
 
other than the U.S.
 
dollar is reported in
accumulated
 
other
 
comprehensive
 
loss,
 
except
 
for
 
highly
 
inflationary
 
environments
 
in
 
which
 
the
 
effects
 
are
 
included
 
in
 
other
operating expenses.
The Corporation
 
holds interests
 
in Centro
 
Financiero BHD
 
León, S.A.
 
(“BHD León”)
 
in the
 
Dominican Republic.
 
The business
 
of
BHD León is
 
mainly conducted in their
 
country’s foreign currency.
 
The resulting foreign currency
 
translation adjustment from these
operations is reported in accumulated other comprehensive
 
loss.
 
Refer to the disclosure of accumulated other comprehensive
 
income (loss) included in Note 22.
Income taxes
The Corporation
 
recognizes deferred tax
 
assets and
 
liabilities for
 
the expected
 
future tax
 
consequences of
 
events that
 
have been
recognized in
 
the Corporation’s
 
financial statements
 
or tax
 
returns. Deferred
 
income tax
 
assets and
 
liabilities are
 
determined
 
for
differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible
 
amounts in the
future.
 
The
 
computation
 
is
 
based
 
on
 
enacted
 
tax
 
laws
 
and
 
rates
 
applicable
 
to
 
periods
 
in
 
which
 
the
 
temporary
 
differences
 
are
expected to be recovered or settled.
 
The
 
guidance for
 
income
 
taxes
 
requires a
 
reduction of
 
the
 
carrying
 
amounts
 
of
 
deferred tax
 
assets
 
by
 
a valuation
 
allowance if,
based on the available evidence, it is more likely
 
than not (defined as a likelihood of more
 
than 50 percent) that such assets will not
be
 
realized.
 
Accordingly,
 
the
 
need
 
to
 
establish
 
valuation
 
allowances
 
for
 
deferred
 
tax
 
assets
 
is
 
assessed
 
periodically
 
by
 
the
Corporation
 
based
 
on
 
the
 
more
 
likely
 
than
 
not
 
realization
 
threshold
 
criterion.
 
In
 
the
 
assessment
 
for
 
a
 
valuation
 
allowance,
appropriate consideration
 
is given
 
to all
 
positive and
 
negative evidence
 
related to
 
the realization
 
of the
 
deferred tax
 
assets. This
131
assessment considers, among others,
 
all sources of
 
taxable income available to
 
realize the deferred tax
 
asset, including the future
reversal of existing temporary differences, the future taxable income
 
exclusive of reversing temporary differences and carryforwards,
taxable income in carryback years and tax-planning strategies. In making such
 
assessments, significant weight is given to evidence
that can be objectively verified.
 
The valuation
 
of deferred
 
tax assets
 
requires judgment
 
in assessing
 
the likely
 
future tax
 
consequences of
 
events that
 
have been
recognized in the Corporation’s financial statements or tax returns and future profitability.
 
The Corporation’s accounting for deferred
tax consequences represents management’s best estimate
 
of those future events.
 
Positions taken in
 
the Corporation’s
 
tax returns may
 
be subject to
 
challenge by the
 
taxing authorities upon
 
examination. Uncertain
tax positions
 
are initially
 
recognized in the
 
financial statements when
 
it is
 
more likely than
 
not (greater than
 
50%) that
 
the position
will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts.
 
The amount
of unrecognized tax benefit 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 statute of limitations, changes in management’s judgment about the level
of
 
uncertainty,
 
including
 
addition
 
or
 
elimination
 
of
 
uncertain
 
tax
 
positions,
 
status
 
of
 
examinations, litigation,
 
settlements
 
with
 
tax
authorities and legislative activity.
The Corporation accounts for the taxes collected from customers
 
and remitted to governmental authorities on a net
 
basis (excluded
from revenues).
Income
 
tax
 
expense
 
or
 
benefit
 
for
 
the
 
year
 
is
 
allocated
 
among
 
continuing
 
operations,
 
discontinued
 
operations,
 
and
 
other
comprehensive income, as applicable. The
 
amount allocated to continuing operations
 
is the tax effect
 
of the pre-tax income
 
or loss
from
 
continuing operations
 
that
 
occurred during
 
the year,
 
plus
 
or minus
 
income tax
 
effects
 
of
 
(a) changes
 
in circumstances
 
that
cause
 
a
 
change
 
in
 
judgment
 
about
 
the
 
realization
 
of
 
deferred
 
tax
 
assets
 
in
 
future
 
years,
 
(b)
 
changes
 
in
 
tax
 
laws
 
or
 
rates,
 
(c)
changes in tax status, and (d) tax-deductible
 
dividends paid to stockholders, subject to certain
 
exceptions.
Employees’ retirement and other postretirement benefit
 
plans
Pension costs are
 
computed on the
 
basis of accepted
 
actuarial methods and are
 
charged to current
 
operations. Net pension costs
are based
 
on various actuarial
 
assumptions regarding future
 
experience under the
 
plan, which include
 
costs for services
 
rendered
during the
 
period, interest
 
costs and
 
return on
 
plan assets,
 
as well
 
as deferral
 
and amortization
 
of certain
 
items such
 
as actuarial
gains or losses.
 
The funding policy is
 
to contribute to the
 
plan, as necessary,
 
to provide for services
 
to date and for
 
those expected to be
 
earned in
the
 
future.
 
To
 
the
 
extent
 
that
 
these
 
requirements
 
are
 
fully
 
covered
 
by
 
assets
 
in
 
the
 
plan,
 
a
 
contribution
 
may
 
not
 
be
 
made
 
in
 
a
particular year.
The cost
 
of postretirement
 
benefits, which
 
is determined
 
based on
 
actuarial assumptions
 
and estimates
 
of the
 
costs of
 
providing
these benefits in the future, is accrued during
 
the years that the employee renders the required
 
service.
The guidance for compensation
 
retirement benefits of ASC
 
Topic
 
715 requires the recognition
 
of the funded status
 
of each defined
pension
 
benefit
 
plan,
 
retiree
 
health
 
care
 
and
 
other
 
postretirement
 
benefit
 
plans
 
on
 
the
 
Consolidated
 
Statements
 
of
 
Financial
Condition.
 
Stock-based compensation
The
 
Corporation
 
opted
 
to
 
use
 
the
 
fair
 
value
 
method
 
of
 
recording
 
stock-based
 
compensation
 
as
 
described
 
in
 
the
 
guidance
 
for
employee share plans in ASC Subtopic 718-50.
Comprehensive income
 
Comprehensive income
 
(loss) is
 
defined as
 
the change
 
in equity
 
of
 
a business
 
enterprise during
 
a period
 
from
 
transactions and
other events
 
and circumstances,
 
except those
 
resulting from
 
investments by
 
owners and
 
distributions to
 
owners. Comprehensive
income (loss) is separately presented in the Consolidated
 
Statements of Comprehensive Income.
Net income per common share
Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or
unpaid dividends
 
if cumulative,
 
and charges
 
or credits
 
related to
 
the extinguishment
 
of preferred
 
stock or
 
induced conversions
 
of
preferred stock, by the weighted average number of
 
common shares outstanding during the year. Diluted income per common
 
share
132
takes into consideration the weighted average common shares adjusted for the effect of stock options, restricted stock, performance
shares and warrants, if any, using the treasury stock method.
Statement of cash flows
For purposes of reporting cash flows, cash includes
 
cash on hand and amounts due from banks, including
 
restricted cash.
 
133
Note 3 - New accounting pronouncements
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2022-06,
Reference Rate Reform
(Topic 848) - Deferral of
the Sunset Date of Topic
848
The
 
FASB
 
issued
 
Accounting
 
Standards
Update
 
("ASU")
 
2022-06
 
in
 
December
2022, which defers the sunset date of
 
Topic
848 from
 
December 31,
 
2022 to
 
December
31,
 
2024.
 
Topic
 
848
 
provided
 
optional
guidance
 
to
 
ease
 
the
 
potential
 
burden
 
in
accounting for (or recognizing the effects of)
reference rate reform on financial reporting.
December 21, 2022
The
 
Corporation
 
was
 
not
 
impacted
 
by
the
 
adoption
 
of
 
ASU
 
2022-06
 
during
the
 
fourth
 
quarter of
 
2022 since
 
it
 
had
adopted
 
FASB
 
ASU
 
2020-04,
Reference Rate
 
Reform (Topic
 
848) in
December 2021, as disclosed in Note 2
to
 
the
 
Consolidated
 
Financial
Statements
 
included
 
in
 
Form
 
10-K
 
for
the
 
year
 
ended
 
December
 
31,
 
2021.
The
 
Corporation
 
ceased
 
originating
LIBOR-based
 
contracts
 
in
 
December
2021.
 
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.
 
134
FASB ASUs Financial Instruments – Credit Losses (Topic 326)
The CECL
 
model applies
 
to financial
 
assets measured
 
at amortized
 
cost that
 
are subject
 
to credit
 
losses and
 
certain off-balance
sheet exposures. CECL 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.
 
Under
 
the
 
revised
 
methodology,
 
credit
 
losses
 
are
 
measured
based on past
 
events, current conditions
 
and reasonable and
 
supportable forecasts that
 
affect the collectability
 
of financial assets.
CECL
 
also
 
revises
 
the
 
approach
 
to
 
recognizing
 
credit
 
losses
 
for
 
available-for-sale
 
securities
 
by
 
replacing
 
the
 
direct
 
write-down
approach with
 
the allowance
 
approach and
 
limiting the
 
allowance to
 
the amount
 
at which
 
the security’s
 
fair value
 
is less
 
than the
amortized
 
cost.
 
In
 
addition,
 
CECL
 
provides
 
that
 
the
 
initial
 
allowance
 
for
 
credit
 
losses
 
on
 
purchased
 
credit
 
deteriorated
 
(“PCD”)
financial assets
 
will be
 
recorded as
 
an increase
 
to the
 
purchase price,
 
with subsequent
 
changes to
 
the allowance
 
recorded as
 
a
credit loss
 
expense.
 
The standards
 
also expand credit
 
quality disclosures. These
 
accounting standards
 
updates were
 
effective on
January 1,
 
2020. Prior
 
to the
 
adoption of
 
CECL, the Corporation
 
followed a
 
systematic methodology to
 
establish and
 
evaluate the
adequacy of the allowance for credit losses to provide
 
for probable losses in the loan portfolio.
As a result of the adoption, the Corporation recorded an
 
increase in its allowance for credit losses related to its loan
 
portfolio of $
315
million, and
 
a decrease
 
of $
9
 
million in
 
the allowance
 
for credit
 
losses for
 
unfunded commitments
 
and credit
 
recourse guarantees
which is
 
recorded in Other
 
Liabilities. The Corporation
 
also recognized an
 
allowance for credit
 
losses of
 
approximately $
13
 
million
related
 
to
 
its
 
held-to-maturity
 
debt
 
securities
 
portfolio.
 
The
 
adoption
 
of
 
CECL
 
was
 
recognized
 
under
 
the
 
modified
 
retrospective
approach. Therefore, the
 
adjustments to record
 
the increase
 
in the
 
allowance for credit
 
losses was
 
recorded as
 
a decrease to
 
the
opening
 
balance
 
of
 
retained
 
earnings
 
of
 
the
 
year
 
of
 
implementation,
 
net
 
of
 
income
 
taxes,
 
except
 
for
 
approximately
 
$
17
 
million
related to loans
 
previously accounted under ASC
 
Subtopic 310-30, which
 
resulted in a
 
reclassification between certain contra
 
loan
balance
 
accounts to
 
the
 
allowance for
 
credit
 
losses. The
 
total
 
impact to
 
retained earnings,
 
net of
 
tax,
 
related to
 
the adoption
 
of
CECL
 
was of
 
$
205.8
 
million. As
 
part
 
of
 
the adoption
 
of
 
CECL, the
 
Corporation made
 
the election
 
to
 
break the
 
existing pools
 
of
purchased credit impaired (“PCI”) loans and, as
 
such, these loans are no longer excluded
 
from non-performing status.
 
135
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2022-05,
Financial Services -
Insurance (Topic 944)
Transition for Sold
Contracts
The
 
FASB
 
issued
 
ASU
 
2022-05
 
in
December 2022, which
 
allows an insurance
entity to make
 
an accounting policy election
of
 
applying
 
the
 
Long-Duration
 
Contracts
(LDTI) transition guidance
 
on a transaction-
by-transaction
 
basis
 
if
 
the
 
contracts
 
have
been
 
derecognized
 
because
 
of
 
a
 
sale
 
or
disposal
 
and
 
the
 
insurance
 
entity
 
has
 
no
significant
 
continuing
 
involvement
 
with
 
the
derecognized contract.
January 1, 2023
The Corporation
 
does not
 
expect to
 
be
impacted
 
by
 
the
 
adoption
 
of
 
this
standard since
 
it does
 
not holds
 
Long-
Duration Contracts (LDTI).
FASB ASU 2022-04,
Liabilities—Supplier
Finance Programs
(Subtopic 405-50)
Disclosure of Supplier
Finance Program
Obligations
The
 
FASB
 
issued
 
ASU
 
2022-04
 
in
September 2022, which requires to disclose
information
 
about
 
the
 
use
 
of
 
supplier
finance
 
programs
 
in
 
connection
 
with
 
the
purchase of goods and services.
January 1, 2023
The Corporation
 
does not
 
expect to
 
be
impacted
 
by
 
the
 
adoption
 
of
 
this
standard since
 
it does
 
not use
 
supplier
finance programs.
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
 
does
 
not
 
anticipate
that
 
the
 
adoption
 
of
 
this
 
accounting
pronouncement
 
will
 
have
 
a
 
material
effect
 
in
 
its
 
consolidated
 
statement
 
of
financial
 
condition
 
and
 
results
 
of
operations.
FASB ASU 2022-02,
Financial Instruments—
Credit Losses (Topic 326)
Troubled Debt
Restructurings and
Vintage Disclosures
The
 
FASB
 
issued
 
ASU
 
2022-02
 
in
 
March
2022,
 
which
 
eliminates
 
the
 
accounting
guidance
 
for
 
troubled
 
debt
 
restructurings
(“TDRs”) in
 
Subtopic 310-40
 
Receivables—
Troubled
 
Debt
 
Restructurings
 
by
 
Creditors
and
 
requires
 
creditors
 
to
 
apply
 
the
 
loan
refinancing
 
and
 
restructuring
 
guidance
 
to
determine whether
 
a modification
 
results in
a new
 
loan or
 
a continuation
 
of an
 
existing
loan.
 
In
 
addition,
 
the
 
ASU
 
enhances
 
the
disclosure
 
requirements
 
for
 
certain
 
loan
refinancing
 
and
 
restructurings
 
by
 
creditors
when
 
a
 
borrower
 
is
 
experiencing
 
financial
difficulty
 
and
 
enhances
 
the
 
vintage
disclosure
 
by
 
requiring
 
the
 
disclosure
 
of
current-period
 
gross
 
write-offs
 
by
 
year
 
of
origination for financing
 
receivables and net
investments in leases.
 
January 1, 2023
The adoption of this
 
standard will result
in
 
enhanced
 
disclosure
 
for
 
loans
modified
 
to
 
borrowers
 
with
 
financial
difficulties
 
and
 
the
 
disclosure
 
of
 
gross
charge
 
offs
 
by
 
vintage
 
year.
 
The
Corporation
 
anticipates
 
that
 
there
 
will
be loans subject to disclosure under the
new standard that
 
did not qualify
 
under
the prior guidance
 
given the removal
 
of
the
 
concession
 
requirement
 
for
 
such
disclosures.
 
The
 
amended
 
guidance
eliminates
 
the
 
requirement to
 
measure
the effect of the concession from a
 
loan
modification, for
 
which the
 
Corporation
used
 
a
 
discounted
 
cash
 
flow
 
(“DCF”)
model.
 
The
 
Corporation
 
preliminarily
estimates
 
that
 
the
 
impact
 
of
discontinuing the use of the DCF model
to measure the concession will
 
result in
a
 
release
 
of
 
the
 
ACL
 
of
 
approximately
$45 million,
 
mainly related
 
to mortgage
loans
 
for
 
which
 
modifications
 
mostly
included
 
a
 
reduction
 
in
 
contractual
interest
 
rates
 
and
 
given
 
the
 
extended
maturity
 
term
 
of
 
these
 
loans,
 
this
resulted
 
in
 
an
 
increase
 
in
 
the
 
ACL
 
in
the
 
period
 
of
 
modification.
 
The
Corporation
 
has
 
elected
 
to
 
apply
 
the
modified retrospective approach
 
for the
adoption
 
of
 
this
 
standard.
 
Accordingly,
this will
 
be presented as
 
an adjustment
increase,
 
net
 
of
 
tax
 
effect,
 
to
 
the
beginning balance
 
of retained
 
earnings
upon adoption on January 1, 2023.
 
136
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2022-01,
Derivatives and Hedging
(Topic 815) – Fair Value
Hedging—Portfolio Layer
Method
The
 
FASB
 
issued
 
ASU
 
2022-01
 
in
 
March
2022,
 
which
 
amends
 
ASC
 
Topic
 
815
 
by
allowing
 
non
 
prepayable
 
financial
 
assets
also
 
to
 
be
 
included
 
in
 
a
 
closed
 
portfolio
hedged
 
using
 
the
 
portfolio
 
layer
 
method.
This
 
amendment permits
 
an entity
 
to
 
apply
fair
 
value
 
hedging to
 
a
 
stated
 
amount
 
of
 
a
closed
 
portfolio
 
of
 
prepayable
 
and
 
non-
prepayable
 
financial
 
assets
 
without
considering
 
prepayment
 
risk
 
or
 
credit
 
risk
when measuring those assets.
January 1, 2023
The Corporation
 
does not
 
expect to
 
be
impacted
 
by
 
the
 
adoption
 
of
 
this
standard
 
since
 
it
 
does
 
not
 
hold
derivatives
 
designated
 
as
 
fair
 
value
hedges.
FASB ASU 2021-08,
Business Combinations
(Topic 805) – Accounting
for Contract Assets and
Contract Liabilities from
Contracts with Customers
The FASB
 
issued ASU
 
2021-08 in
 
October
2021,
 
which
 
amends
 
ASC
 
Topic
 
805
 
by
requiring
 
contract
 
assets
 
and
 
contract
liabilities arising
 
from revenue
 
contract with
customers
 
to
 
be
 
recognized
 
in
 
accordance
with ASC
 
Topic
 
606 on
 
the acquisition date
instead of fair value.
January 1, 2023
Upon
 
adoption
 
of
 
this
 
ASU,
 
The
Corporation will
 
consider this
 
guidance
for
 
revenue
 
contracts
 
with
 
customers
recognized
 
as
 
part
 
of
 
business
combinations
 
entered
 
into
 
on
 
or
 
after
the effective date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
137
Note 4
 
Business combinations
Acquisition of key customer channels and business
 
from Evertec
On July
 
1,
 
2022, BPPR
 
completed its
 
previously announced
 
acquisition of
 
certain assets
 
used by
 
Evertec Group,
 
LLC (“Evertec
Group”),
 
a
 
wholly
 
owned
 
subsidiary
 
of
 
Evertec,
 
Inc.
 
(“Evertec”),
 
to
 
service
 
certain
 
BPPR
 
channels
 
(“Business
 
Acquisition
Transaction”).
As
 
a
 
result
 
of
 
the closing
 
of
 
the Business
 
Acquisition Transaction,
 
BPPR
 
acquired
 
from
 
Evertec Group
 
certain critical
 
channels,
including
 
BPPR’s
 
retail
 
and
 
business
 
digital
 
banking
 
and
 
commercial
 
cash
 
management
 
applications.
 
In
 
connection
 
with
 
the
Business Acquisition Transaction, 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, Evertec
 
Group no
 
longer has
 
exclusive rights
 
to provide
 
certain of
 
Popular’s technology
services. The
 
amended service
 
agreements include
 
discounted pricing
 
and lowered
 
caps on
 
contractual pricing
 
escalators tied
 
to
the Consumer Price Index. As
 
part of the transaction, BPPR and Evertec
 
also entered into a revenue sharing
 
structure for BPPR in
connection
 
with
 
its
 
merchant
 
acquiring
 
relationship
 
with
 
Evertec.
 
Under
 
the
 
terms
 
of
 
the
 
amended
 
and
 
restated
 
Master
 
Service
Agreement (“MSA”), Evertec will be entitled to receive monthly payments
 
from the Corporation to the extent that Evertec’s revenues,
covered under the MSA, fall below certain agreed
 
annualized minimum amounts.
As consideration for the
 
Business Acquisition Transaction, BPPR delivered
 
to Evertec Group
4,589,169
 
shares of Evertec common
stock valued at closing at $
169.2
 
million (based on Evertec’s stock price on June 30, 2022 of $
36.88
). A total of $
144.8
 
million of the
consideration for
 
the transaction
 
was attributed
 
to the
 
acquisition of
 
the critical
 
channels of
 
which $
28.7
 
million were
 
attributed to
Software
 
Intangible
 
Assets
 
and
 
$
116.1
 
million
 
were
 
attributed
 
to
 
goodwill.
 
The
 
transaction
 
was
 
accounted
 
for
 
as
 
a
 
business
combination.
 
The
 
remaining
 
$
24.2
 
million
 
was
 
attributed
 
to
 
the
 
renegotiation of
 
the
 
MSA
 
with
 
Evertec
 
and
 
was
 
recorded
 
as
 
an
expense. The Corporation also recorded a credit of $
6.9
 
million in Evertec billings under the MSA during the third quarter of 2022 as
a result of the Business Acquisition Transaction, resulting in a net
 
expense charge of $
17.3
 
million.
On
 
August
 
15,
 
2022,
 
the
 
Corporation
 
completed
 
the
 
sale
 
of
 
its
 
remaining
7,065,634
 
shares
 
of
 
common
 
stock
 
of
 
Evertec
 
(the
“Evertec Stock Sale”, and collectively
 
with the Business Acquisition Transaction,
 
the “Evertec Transactions”). Following
 
the Evertec
Stock
 
Sale, Popular
 
no longer
 
owns any
 
Evertec common
 
stock. The
 
impact of
 
the
 
gain on
 
the sale
 
of
 
Evertec shares
 
used as
consideration
 
for
 
the
 
Business
 
Acquisition
 
Transaction
 
in
 
exchange
 
for
 
the
 
acquired
 
applications
 
on
 
July
 
1,
 
2022
 
and
 
the
 
net
expense associated with the renegotiation of the MSA, together with the Evertec Stock Sale and the related accounting adjustments
of the Evertec Transactions, resulted in an aggregate after-tax gain
 
of $
226.6
 
million, recorded during the third quarter of 2022.
 
The following
 
table presents
 
the fair
 
values of
 
the consideration
 
and major
 
classes of
 
identifiable assets
 
acquired by
 
BPPR as
 
of
July 1, 2022.
(In thousands)
Fair Value
Stock consideration
$
144,785
Total consideration
$
144,785
Assets:
Developed technology - Software intangible assets
 
$
28,650
Total assets
 
$
28,650
Net assets acquired
$
28,650
Goodwill on acquisition
$
116,135
The fair
 
value initially
 
assigned to the
 
assets acquired is
 
preliminary and subject
 
to refinement
 
for up
 
to one
 
year after
 
the closing
date
 
of
 
the
 
acquisition
 
as
 
new
 
information
 
relative
 
to
 
closing
 
date
 
fair
 
value
 
becomes
 
available. As
 
the
 
Corporation finalizes
 
its
138
analysis, there may
 
continue to be
 
adjustments to the
 
recorded carrying values, and
 
thus the recognized
 
goodwill may increase
 
or
decrease.
The
 
following
 
is
 
a
 
description
 
of
 
the
 
methods
 
used
 
to
 
determine
 
the
 
fair
 
values
 
of
 
significant
 
assets
 
acquired
 
in
 
the
 
Business
Acquisition Transaction:
Developed technology – Software intangible assets
In order
 
to determine
 
the fair
 
value of
 
the developed
 
technology acquired,
 
the Corporation
 
considered the
 
guidance in
 
ASC Topic
820,
 
Fair Value
 
Measurements. The
 
Corporation
 
used the
 
cost
 
replacement methodology
 
and
 
estimated the
 
cost
 
that
 
would
 
be
incurred in developing the acquired technology as the assets’ fair value. In developing this
 
estimate, the Corporation considered the
historical direct costs as well as indirect costs and applied an inflation factor to arrive at what would be the current replacement cost.
To
 
this
 
estimated
 
cost,
 
the
 
Corporation
 
applied
 
an
 
obsolescence
 
factor
 
to
 
arrive
 
at
 
the
 
estimated
 
fair
 
value
 
of
 
the
 
acquired
technology.
 
The obsolescence
 
factor considered
 
the estimated
 
remaining useful
 
life of
 
the acquired
 
software, considering existing
and
 
upcoming technology
 
changes,
 
as
 
well
 
as
 
the
 
scalability
 
of
 
the
 
system
 
architecture for
 
further
 
developments. This
 
software
acquired
 
for
 
internal
 
use
 
is
 
recorded
 
within
 
Other
 
Assets
 
in
 
the
 
accompanying
 
Consolidated
 
Financial
 
Statements
 
and
 
will
 
be
amortized over its current estimated remaining useful
 
life of
5
 
years.
 
Goodwill
The goodwill
 
is the
 
residual difference
 
between the consideration
 
transferred to
 
Evertec and
 
the fair
 
value of
 
the assets
 
acquired,
net of
 
the liabilities assumed,
 
if any.
 
The entire amount
 
of goodwill is
 
deductible for income
 
tax purposes pursuant
 
to P.R.
 
Internal
Revenue Code (“IRC”) section 1033.07 over a
15
-year period.
The Corporation believes
 
that given the
 
amount of assets
 
acquired and the
 
size of
 
the operations acquired
 
in relation to
 
Popular’s
operations, the historical results of Evertec are not
 
material to Popular’s results, and thus
 
no pro forma information is presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
139
Acquisition of K2 Capital Group LLC’s equipment leasing and financing
 
business
 
On October
 
15, 2021, Popular
 
Equipment Finance, LLC
 
(“PEF”), a newly
 
formed wholly-owned subsidiary
 
of Popular Bank
 
(“PB”),
completed the
 
acquisition of
 
certain assets
 
and
 
the
 
assumption of
 
certain
 
liabilities of
 
K2
 
Capital Group
 
LLC’s
 
(“K2”) equipment
leasing and
 
financing business
 
based in
 
Minnesota (the
 
“Acquired Business”).
 
Commercial loans
 
acquired by
 
PEF as
 
part of
 
this
transaction consisted of $
105
 
million in commercial direct financing leases and $
14
 
million in working capital lines.
 
Specializing in the healthcare industry,
 
the Acquired Business provided a
 
variety of lease products, including
 
operating and finance
leases,
 
and
 
also
 
offers
 
private
 
label
 
vendor
 
finance
 
programs
 
to
 
equipment
 
manufacturers
 
and
 
healthcare
 
organizations.
 
The
acquisition provides PB with a national equipment
 
leasing platform that complements its existing health
 
care lending business.
The
 
following
 
table
 
presents
 
the
 
fair
 
values
 
of
 
the
 
consideration
 
and
 
major
 
classes
 
of
 
identifiable
 
assets
 
acquired
 
and
 
liabilities
assumed by PEF as of October 15, 2021.
(In thousands)
Fair Value
Cash consideration
$
156,628
Contingent consideration
9,241
Total consideration
$
165,869
Assets:
Cash and due from banks
$
800
Commercial loans
115,575
Premises and equipment
8,996
Accrued income receivable
57
Other assets
2,822
Other intangible assets
2,887
Total assets
 
$
131,137
Other liabilities
14,439
Total liabilities
$
14,439
Net assets acquired
$
116,698
Goodwill on acquisition
$
49,171
The fair
 
value initially
 
assigned to the
 
assets acquired is
 
preliminary and subject
 
to refinement
 
for up
 
to one
 
year after
 
the closing
date
 
of
 
the
 
acquisition
 
as
 
new
 
information
 
relative
 
to
 
closing
 
date
 
fair
 
value
 
becomes
 
available. As
 
the
 
Corporation finalizes
 
its
analysis, there may
 
continue to be
 
adjustments to the
 
recorded carrying values, and
 
thus the recognized
 
goodwill may increase
 
or
decrease.
Following is a description of
 
the methods used to determine
 
the fair values of significant
 
assets acquired and liabilities assumed
 
on
the K2 Transaction:
Commercial Loans
In determining the fair value
 
of commercial direct financing leases, the specific
 
terms and conditions of each lease
 
agreement were
considered.
 
The
 
fair
 
values
 
for
 
commercial
 
direct
 
financing
 
leases
 
were
 
calculated
 
based
 
on
 
the
 
fair
 
value
 
of
 
the
 
underlying
collateral, or from
 
the cash flows
 
expected to be
 
collected discounted at
 
a market rate
 
commensurate with the
 
credit risk profile
 
of
the
 
lessee at
 
origination in
 
instances where
 
there
 
was a
 
purchase option
 
at the
 
end of
 
the lease
 
term
 
with a
 
stated
 
guaranteed
residual value. Fair values for commercial working capital lines were calculated based on the present value of remaining contractual
payments discounted
 
at a
 
market rate
 
commensurate with
 
the credit
 
risk profile
 
of the
 
borrower at
 
origination. These
 
commercial
loans were
 
accounted for
 
under ASC
 
Subtopic 310-20.
 
As of
 
October 15,
 
2021, the
 
gross contractual
 
receivable for
 
commercial
loans amounted to $
125
 
million. An allowance for credit losses of $
1
 
million was recognized as of October 15, 2021 with an offset to
provision for credit losses, which represents the estimate
 
of contractual cash flows not expected to be
 
collected.
140
Goodwill
The
 
amount
 
of
 
goodwill
 
is
 
the
 
residual
 
difference
 
between
 
the
 
consideration
 
transferred
 
to
 
K2
 
and
 
the
 
fair
 
value
 
of
 
the
 
assets
acquired,
 
net
 
of
 
the
 
liabilities
 
assumed.
 
The
 
entire
 
amount
 
of
 
goodwill
 
is
 
deductible
 
for
 
income
 
tax
 
purposes
 
pursuant
 
to
 
U.S.
Internal Revenue Code (“IRC”) section 197 over
 
a
15
-year period.
 
During the third
 
quarter of 2022,
 
the Corporation revised
 
its projected earnings
 
related to this
 
Acquired Business, and
 
accordingly,
recorded a goodwill impairment charge of $
9.0
 
million.
 
Contingent consideration
The fair value of the contingent consideration, which related to approximately $
29
 
million in earnout payments that could be payable
to K2 over a three-year period, was calculated based
 
on a Montecarlo Simulation model.
 
During the
 
third quarter
 
of 2022,
 
the Corporation
 
updated its
 
estimates related
 
to the
 
ability to
 
realize the
 
earnings targets
 
for the
contingent payment, and accordingly, recorded a positive adjustment of $
9.2
 
million related this liability.
The Corporation believes that given the
 
amount of assets and liabilities assumed
 
and the size of the operations
 
acquired in relation
to
 
Popular’s operations,
 
the
 
historical results
 
of
 
K2
 
are
 
not significant
 
to
 
Popular’s results,
 
and thus
 
no
 
pro
 
forma
 
information is
presented.
 
141
Note 5 - Restrictions on cash and due from
 
banks and certain securities
BPPR is
 
required by
 
regulatory agencies
 
to maintain
 
average reserve
 
balances with
 
the Federal
 
Reserve Bank
 
of New
 
York
 
(the
“Fed”) or
 
other banks.
 
Those required
 
average reserve
 
balances amounted
 
to
 
$
2.8
 
billion at
 
December 31,
 
2022 (December
 
31,
2021
 
-
 
$
2.7
 
billion). Cash
 
and
 
due from
 
banks, as
 
well
 
as
 
other highly
 
liquid securities,
 
are
 
used to
 
cover
 
the required
 
average
reserve balances.
 
At
 
December
 
31,
 
2022,
 
the
 
Corporation
 
held
 
$
80
 
million
 
in
 
restricted
 
assets
 
in
 
the
 
form
 
of
 
funds
 
deposited
 
in
 
money
 
market
accounts, debt
 
securities available for
 
sale and
 
equity securities (December
 
31, 2021
 
- $
50
 
million).
 
The restricted
 
assets held
 
in
debt securities available for
 
sale and equity securities
 
consist primarily of assets
 
held for the Corporation’s
 
non-qualified retirement
plans and fund deposits guaranteeing possible liens
 
or encumbrances over the title of insured
 
properties.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
142
Note 6 – Debt securities available-for-sale
The following tables present
 
the amortized cost, gross
 
unrealized gains and losses,
 
approximate fair value, weighted average
 
yield
and contractual maturities of debt securities available-for-sale
 
at December 31, 2022 and December 31, 2021.
 
At December 31, 2022
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
 
average
(In thousands)
cost
gains
 
losses
value
yield
U.S. Treasury securities
Within 1 year
$
4,576,127
$
506
$
47,156
$
4,529,477
2.42
%
After 1 to 5 years
6,793,739
-
410,858
6,382,881
1.35
After 5 to 10 years
308,854
-
40,264
268,590
1.63
Total U.S. Treasury
 
securities
11,678,720
506
498,278
11,180,948
1.78
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
3,914
-
213
3,701
1.77
After 5 to 10 years
47,979
-
3,428
44,551
1.73
After 10 years
127,639
24
10,719
116,944
2.53
Total collateralized
 
mortgage obligations - federal agencies
179,532
24
14,360
165,196
2.30
Mortgage-backed securities
After 1 to 5 years
74,328
11
3,428
70,911
2.33
After 5 to 10 years
866,757
43
58,997
807,803
2.16
After 10 years
6,762,150
932
1,184,626
5,578,456
1.61
Total mortgage-backed
 
securities
 
7,703,235
986
1,247,051
6,457,170
1.68
Other
After 1 to 5 years
1,062
-
2
1,060
3.98
Total other
 
1,062
-
2
1,060
3.98
Total debt securities
 
available-for-sale
[1]
$
19,562,549
$
1,516
$
1,759,691
$
17,804,374
1.75
%
[1]
 
Includes $
11.3
 
billion pledged to secure government and trust
 
deposits, assets sold under agreements to repurchase, credit
 
facilities and loan
servicing agreements that the secured parties are not permitted
 
to sell or repledge the collateral, of which $
10.3
 
billion serve as collateral for
public funds.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
143
At December 31, 2021
Gross
 
Gross
 
Weighted
 
Amortized
 
unrealized
unrealized
Fair
 
average
 
(In thousands)
cost
gains
 
losses
value
yield
U.S. Treasury securities
 
Within 1 year
$
1,225,558
$
13,556
$
69
$
1,239,045
2.33
%
After 1 to 5 years
10,059,163
98,808
65,186
10,092,785
1.18
After 5 to 10 years
4,563,265
739
36,804
4,527,200
1.22
Total U.S. Treasury
 
securities
15,847,986
113,103
102,059
15,859,030
1.27
Obligations of U.S. Government sponsored entities
Within 1 year
70
-
-
70
5.63
Total obligations of
 
U.S. Government sponsored entities
 
70
-
-
70
5.63
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
2,433
42
-
2,475
2.16
After 5 to 10 years
43,241
295
6
43,530
1.54
After 10 years
172,176
3,441
357
175,260
2.13
Total collateralized
 
mortgage obligations - federal agencies
217,850
3,778
363
221,265
2.01
Mortgage-backed securities
Within 1 year
11
1
-
12
4.79
After 1 to 5 years
65,749
2,380
11
68,118
2.23
After 5 to 10 years
665,600
17,998
5
683,593
1.97
After 10 years
8,263,835
68,128
195,910
8,136,053
1.67
Total mortgage-backed
 
securities
 
8,995,195
88,507
195,926
8,887,776
1.69
Other
After 1 to 5 years
123
5
-
128
3.62
Total other
 
123
5
-
128
3.62
Total debt securities
 
available-for-sale
[1]
$
25,061,224
$
205,393
$
298,348
$
24,968,269
1.42
%
[1]
Includes $
22
.0 billion pledged to secure government and trust deposits,
 
assets sold under agreements to repurchase, credit facilities
 
and loan
servicing agreements that the secured parties are not permitted
 
to sell or repledge the collateral, of which $
20.9
 
billion serve as collateral for
public funds.
The weighted
 
average yield
 
on debt
 
securities available-for-sale
 
is based
 
on amortized
 
cost; therefore,
 
it
 
does not
 
give
 
effect to
changes in fair value.
Securities
 
not
 
due
 
on
 
a
 
single
 
contractual
 
maturity
 
date,
 
such
 
as
 
mortgage-backed
 
securities
 
and
 
collateralized
 
mortgage
obligations, are classified
 
in the period
 
of final contractual
 
maturity. The
 
expected maturities of
 
collateralized mortgage obligations,
mortgage-backed securities and certain other securities may
 
differ from their contractual maturities
 
because they may be subject to
prepayments or may be called by the issuer.
The following table presents the
 
aggregate amortized cost and fair value of
 
debt securities available-for-sale at December 31, 2022
by contractual maturity.
(In thousands)
Amortized cost
 
Fair value
Within 1 year
$
4,576,127
$
4,529,477
After 1 to 5 years
6,873,043
6,458,553
After 5 to 10 years
1,223,590
1,120,944
After 10 years
6,889,789
5,695,400
Total debt securities
 
available-for-sale
$
19,562,549
$
17,804,374
There were
no
 
debt securities available-for-sale sold during the year ended
 
December 31, 2022. During the year
 
ended
 
December
31, 2021,
 
the Corporation
 
sold U.S
 
Treasury
 
Notes. The
 
proceeds from
 
these sales
 
were $
236
 
million. Gross
 
realized gains
 
and
losses on the sale of debt securities available-for-sale
 
for the years ended December 31, 2022,
 
2021 and 2020 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
144
(In thousands)
2022
2021
2020
Gross realized gains
$
-
$
695
$
41
Gross realized losses
-
(672)
-
Net realized gains (losses) on sale of debt securities available
 
-for-sale
$
-
$
23
$
41
The
 
following
 
tables
 
present
 
the
 
Corporation’s
 
fair
 
value
 
and
 
gross
 
unrealized
 
losses
 
of
 
debt
 
securities
 
available-for-sale,
aggregated by investment category
 
and length of time
 
that individual securities have been
 
in a continuous unrealized loss
 
position,
at December 31, 2022 and 2021.
At December 31, 2022
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
 
 
unrealized
Fair
 
 
unrealized
Fair
 
 
unrealized
(In thousands)
value
 
losses
value
 
losses
value
 
losses
U.S. Treasury securities
$
6,027,786
$
288,582
$
3,244,572
$
209,696
$
9,272,358
$
498,278
Collateralized mortgage obligations - federal agencies
 
139,845
10,655
22,661
3,705
162,506
14,360
Mortgage-backed securities
1,740,214
138,071
4,662,195
1,108,980
6,402,409
1,247,051
Other
60
2
-
-
60
2
Total debt securities
 
available-for-sale in an unrealized loss position
 
$
7,907,905
$
437,310
$
7,929,428
$
1,322,381
$
15,837,333
$
1,759,691
At December 31, 2021
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
 
 
unrealized
Fair
 
 
unrealized
Fair
 
 
unrealized
(In thousands)
value
 
losses
value
 
losses
value
 
losses
U.S. Treasury securities
$
9,590,448
$
102,059
$
-
$
-
$
9,590,448
$
102,059
Collateralized mortgage obligations - federal agencies
 
35,533
334
1,084
29
36,617
363
Mortgage-backed securities
5,767,556
170,614
595,051
25,312
6,362,607
195,926
Total debt securities
 
available-for-sale in an unrealized loss position
 
$
15,393,537
$
273,007
$
596,135
$
25,341
$
15,989,672
$
298,348
As of
 
December 31,
 
2022, the
 
portfolio of
 
available-for-sale debt
 
securities reflects
 
gross unrealized
 
losses of
 
approximately $
1.8
billion, driven mainly by fixed-rate U.S. Treasury Securities and mortgage-backed securities,
 
which have been impacted by a decline
in fair value as
 
a result of the
 
rising interest rate environment.
 
The portfolio of available-for-sale debt securities is
 
comprised mainly
of
 
U.S
 
Treasuries
 
and
 
obligations
 
from
 
the
 
U.S.
 
Government,
 
its
 
agencies
 
or
 
government
 
sponsored
 
entities,
 
including
 
FNMA,
FHMLC and GNMA.
 
As discussed in
 
Note 2 to
 
the Consolidated Financial
 
Statements, these securities
 
carry an
 
explicit or implicit
guarantee
 
from
 
the
 
U.S.
 
Government,
 
are
 
highly
 
rated
 
by
 
major
 
rating
 
agencies,
 
and
 
have
 
a
 
long
 
history
 
of
 
no
 
credit
 
losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
 
these securities has been established.
 
In October 2022, the
 
Corporation transferred U.S. Treasury securities
 
with a fair value
 
of $
6.5
 
billion (par value of
 
$
7.4
 
billion) from
its available-for-sale portfolio to its held-to-maturity portfolio.
 
Management changed its intent, given its ability to hold these securities
to maturity
 
due to
 
the Corporation’s
 
liquidity position
 
and its
 
intention to
 
reduce the
 
impact on
 
accumulated other
 
comprehensive
income (loss) (“AOCI”) and
 
tangible capital of further
 
increases in interest rates.
 
The securities were reclassified
 
at fair value at
 
the
time of
 
the transfer.
 
At the
 
date of
 
the transfer,
 
these securities
 
had pre-tax
 
unrealized losses of
 
$
873.0
 
million recorded
 
in AOCI.
This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting
each other through the remaining life of the securities.
 
There were no realized gains or losses recorded
 
as a result of this transfer.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
145
Note 7 –Debt securities held-to-maturity
The following
 
tables present
 
the amortized
 
cost, allowance
 
for credit
 
losses, gross
 
unrealized gains
 
and losses,
 
approximate fair
value, weighted average yield and contractual
 
maturities of debt securities held-to-maturity at December
 
31, 2022 and 2021.
 
At December 31, 2022
Allowance
Carrying
Value
 
Gross
 
Gross
 
Weighted
Amortized
 
Book
[1]
for Credit
Net of
 
unrealized
unrealized
Fair
 
average
(In thousands)
cost
Value
Losses
Allowance
gains
 
losses
value
yield
U.S. Treasury securities
 
Within 1 year
$
499,034
$
499,034
$
-
$
499,034
$
-
$
6,203
$
492,831
2.83
%
After 1 to 5 years
6,147,568
5,640,767
-
5,640,767
-
59,806
5,580,961
1.49
After 5 to 10 years
2,638,238
2,313,666
-
2,313,666
-
14,857
2,298,809
1.41
Total U.S. Treasury
 
securities
9,284,840
8,453,467
-
8,453,467
-
80,866
8,372,601
1.54
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,530
4,530
8
4,522
5
-
4,527
6.08
After 1 to 5 years
19,105
19,105
234
18,871
150
82
18,939
4.24
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
41,261
41,261
6,635
34,626
4,729
2,229
37,126
1.40
Total obligations of
 
Puerto Rico, States and
political subdivisions
65,921
65,921
6,911
59,010
4,918
2,311
61,617
2.61
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
19
19
-
19
-
-
19
6.44
Total collateralized
 
mortgage obligations -
federal agencies
19
19
-
19
-
-
19
6.44
Securities in wholly owned statutory business
trusts
After 10 years
5,959
5,959
-
5,959
-
-
5,959
6.33
Total securities
 
in wholly owned statutory
business trusts
5,959
5,959
-
5,959
-
-
5,959
6.33
Total debt securities
 
held-to-maturity [2]
$
9,356,739
$
8,525,366
$
6,911
$
8,518,455
$
4,918
$
83,177
$
8,440,196
1.55
%
[1]
Book value includes $
831
 
million of net unrealized loss which remains in Accumulated
 
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
 
portfolio to the held-to-maturity securities portfolio as
 
discussed in Note 6.
[2]
Includes $
6.9
 
million pledged to secure public and trust deposits
 
that the secured parties are not permitted to sell or repledge
 
the collateral.
At December 31, 2021
Allowance
 
Gross
 
Gross
 
Weighted
 
Amortized
 
for Credit
Net of
unrealized
unrealized
Fair
 
average
 
(In thousands)
cost
Losses
Allowance
gains
 
losses
value
yield
Obligations of Puerto Rico, States and political
subdivisions
Within 1 year
$
4,240
$
7
$
4,233
$
4
$
-
$
4,237
6.07
%
After 1 to 5 years
14,395
148
14,247
149
-
14,396
6.23
After 5 to 10 years
11,280
122
11,158
104
-
11,262
2.18
After 10 years
43,561
7,819
35,742
11,746
-
47,488
1.50
Total obligations of
 
Puerto Rico, States and political
subdivisions
73,476
8,096
65,380
12,003
-
77,383
2.79
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
25
-
25
-
-
25
6.44
Total collateralized
 
mortgage obligations - federal
agencies
25
-
25
-
-
25
6.44
Securities in wholly owned statutory business trusts
After 10 years
5,960
-
5,960
-
-
5,960
6.33
Total securities
 
in wholly owned statutory business
trusts
5,960
-
5,960
-
-
5,960
6.33
Total debt securities
 
held-to-maturity
$
79,461
$
8,096
$
71,365
$
12,003
$
-
$
83,368
3.06
%
Securities not due
 
on a single
 
contractual maturity date,
 
such as collateralized
 
mortgage obligations, are classified
 
in the
 
period of
final contractual maturity. The
 
expected maturities of collateralized mortgage obligations and certain other securities may differ from
their contractual maturities because they may be
 
subject to prepayments or may be called by
 
the issuer.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
146
The following
 
table presents the
 
aggregate amortized cost
 
and fair value
 
of debt securities
 
held-to-maturity at December
 
31, 2022
by contractual maturity.
 
(In thousands)
Amortized cost
 
Book Value
Fair value
Within 1 year
$
503,564
$
503,564
$
497,358
After 1 to 5 years
6,166,692
5,659,891
5,599,919
After 5 to 10 years
2,639,263
2,314,691
2,299,834
After 10 years
47,220
47,220
43,085
Total debt securities
 
held-to-maturity
$
9,356,739
$
8,525,366
$
8,440,196
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, U.S. Treasury securities carry
 
an explicit guarantee from the U.S.
Government are
 
highly rated
 
by major
 
rating agencies,
 
and have
 
a long
 
history of
 
no credit
 
losses. Accordingly,
 
the Corporation
applies a zero-credit loss assumption and no ACL
 
for these securities has been established.
At December 31, 2022 and December 31, 2021, the “Obligations
 
of Puerto Rico, States and political subdivisions” classified
 
as held-
to-maturity,
 
includes securities
 
issued by
 
municipalities of
 
Puerto Rico
 
that are
 
generally not
 
rated by
 
a credit
 
rating agency.
 
This
includes $
25
 
million of general and special obligation bonds issued by three municipalities of Puerto Rico, that
 
are payable primarily
from
 
certain
 
property
 
taxes
 
imposed
 
by
 
the
 
issuing
 
municipality
 
(December
 
31,
 
2021
 
-
 
$
30
 
million).
 
In
 
the
 
case
 
of
 
general
obligations, they
 
also benefit
 
from a
 
pledge of
 
the full
 
faith, credit
 
and unlimited
 
taxing power
 
of the
 
issuing municipality,
 
which is
required by law to levy property taxes in an amount sufficient for the payment of
 
debt service on such general obligation bonds. The
Corporation performs periodic credit quality
 
reviews of these securities and
 
internally assigns standardized credit risk ratings based
on its evaluation.
 
The Corporation considers these ratings
 
in its estimate to
 
develop the allowance for credit
 
losses associated with
these
 
securities.
 
For
 
the
 
definitions
 
of
 
the
 
obligor
 
risk
 
ratings,
 
refer
 
to
 
the
 
Credit
 
Quality
 
section
 
of
 
Note
 
9
 
to
 
the
 
Consolidated
Financial Statements.
The
 
following
 
presents
 
the
 
amortized
 
cost
 
basis
 
of
 
securities
 
held
 
by
 
the
 
Corporation
 
issued
 
by
 
municipalities
 
of
 
Puerto
 
Rico
aggregated by the internally assigned standardized
 
credit risk rating:
At December 31, 2022
At December 31, 2021
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
13,735
$
16,345
Pass
10,925
13,800
Total
$
24,660
$
30,145
At December
 
31, 2022,
 
the portfolio
 
of “Obligations
 
of Puerto
 
Rico, States
 
and political
 
subdivisions” also
 
includes $
42
 
million in
securities
 
issued
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“HFA”),
 
a
 
government
 
instrumentality,
 
for
 
which
 
the
 
underlying
source of payment is second mortgage loans in Puerto Rico
 
residential properties (not the government), but for which HFA, provides
a guarantee
 
in the
 
event of default
 
and upon the
 
satisfaction of certain
 
other conditions (December
 
31, 2021 -
 
$
43
 
million). These
securities
 
are
 
not
 
rated
 
by
 
a
 
credit
 
rating
 
agency.
 
The
 
Corporation assesses
 
the
 
credit
 
risk
 
associated
 
with
 
these
 
securities
 
by
evaluating the refreshed
 
FICO scores of
 
a representative sample of
 
the underlying borrowers.
 
At December 31,
 
2022, the average
refreshed FICO
 
score
 
for the
 
representative sample,
 
comprised of
65
%
 
of
 
the
 
nominal value
 
of the
 
securities, used
 
for the
 
loss
estimate was
 
of
707
 
(compared to
64
%
 
and
704
,
 
respectively,
 
at December
 
31, 2021).
 
The
 
loss estimates
 
for this
 
portfolio was
based on the methodology established under CECL
 
for similar loan obligations. The Corporation does not
 
consider the government
guarantee when estimating the credit losses associated
 
with this portfolio.
 
 
 
 
 
 
 
 
 
 
 
147
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 24
to the
 
Consolidated Financial
 
Statements
for additional
 
information on
 
the Corporation’s
 
exposure to
 
the Puerto
Rico Government.
Delinquency status
At December 31, 2022 and December 31, 2021,
 
there were
no
 
securities held-to-maturity in past due or non-performing
 
status.
Allowance for credit losses on debt securities held-to-maturity
The following table provides the
 
activity in the allowance for
 
credit losses related to debt securities
 
held-to-maturity by security type
at December 31, 2022 and December 31, 2021:
For the year ended December 31,
 
2022
2021
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
8,096
$
10,261
Provision for credit losses (benefit)
(1,185)
(2,165)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,911
$
8,096
The
 
allowance
 
for
 
credit
 
losses
 
for
 
the
 
Obligations
 
of
 
Puerto
 
Rico,
 
States
 
and
 
political
 
subdivisions
 
includes
 
$
0.3
 
million
 
for
securities issued by municipalities of
 
Puerto Rico, and $
6.6
 
million for bonds issued by
 
the Puerto Rico HFA,
 
which are secured by
second mortgage loans on
 
Puerto Rico residential properties (compared to
 
$
0.3
 
million and $
7.8
 
million, respectively, at
 
December
31, 2021).
148
Note 8 – Loans
For
 
a
 
summary
 
of the
 
accounting policies
 
related to
 
loans, interest
 
recognition
 
and
 
allowance for
 
credit
 
losses
 
refer to
 
Note
 
2
 
-
Summary of Significant Accounting Policies of this Form
 
10-K.
During the year ended December 31, 2022, the Corporation recorded purchases (including repurchases) of mortgage loans
 
of $
299
million, which
 
include $
4
 
million in
 
Purchased Credit
 
Deteriorated (“PCD”)
 
loans, consumer
 
loans of
 
$
433
 
million and
 
commercial
loans of $
142
 
million; compared to purchases (including repurchases)
 
of mortgage loans of $
393
 
million, which include $
14
 
million in
PCD loans, consumer loans of $
61
 
million and commercial loans of $
139
 
million during the year ended December 31, 2021.
 
The Corporation performed
 
whole-loan sales involving
 
approximately $
63
 
million of
 
residential mortgage loans
 
and $
138
 
million of
commercial and
 
construction loans
 
during the
 
year ended
 
December 31,
 
2022 (December
 
31, 2021
 
- $
145
 
million of
 
residential
mortgage
 
loans
 
and
 
$
131
 
million
 
of
 
commercial
 
and
 
construction loans).
 
Also,
 
during
 
the
 
year
 
ended December
 
31,
 
2022,
 
the
Corporation securitized
 
approximately $
169
 
million of
 
mortgage loans
 
into Government
 
National Mortgage
 
Association (“GNMA”)
mortgage-backed securities
 
and $
122
 
million of
 
mortgage loans
 
into Federal
 
National Mortgage
 
Association (“FNMA”)
 
mortgage-
backed securities, compared
 
to $
380
 
million and $
330
 
million, respectively,
 
during the year
 
ended December 31,
 
2021. Also, the
Corporation
 
securitized
 
approximately
 
$
9
 
million
 
of
 
mortgage
 
loans
 
into
 
Federal
 
Home
 
Loan
 
Mortgage
 
Corporation
 
(“FHLMC”)
mortgage-backed securities during the year ended December
 
31, 2022.
Delinquency status
The following tables present the
 
amortized cost basis of loans
 
held-in-portfolio (“HIP”), net of unearned
 
income, by past due status,
and by loan class including those that are in non-performing status or that are accruing
 
interest but are past due 90 days or more at
December 31, 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
149
December 31, 2022
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
 
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
425
$
-
$
242
$
667
$
280,706
$
281,373
$
242
$
-
Commercial real estate:
Non-owner occupied
941
428
23,662
25,031
2,732,296
2,757,327
23,662
-
Owner occupied
729
245
23,990
24,964
1,563,092
1,588,056
23,990
-
Commercial and industrial
3,036
941
35,777
39,754
3,756,754
3,796,508
34,277
1,500
Construction
-
-
-
-
147,041
147,041
-
-
Mortgage
222,926
91,881
579,993
894,800
5,215,479
6,110,279
242,391
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,766
1,041,831
-
11,910
Home equity lines of credit
-
-
-
-
2,954
2,954
-
-
Personal
13,232
8,752
18,082
40,066
1,545,621
1,585,687
18,082
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,682
13,256
124,324
137,580
12,446
236
Total
$
329,733
$
130,189
$
753,257
$
1,213,179
$
21,333,726
$
22,546,905
$
402,009
$
351,248
December 31, 2022
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
 
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
2,177
$
-
$
-
$
2,177
$
2,038,163
$
2,040,340
$
-
$
-
Commercial real estate:
Non-owner occupied
484
-
1,454
1,938
1,740,405
1,742,343
1,454
-
Owner occupied
-
-
5,095
5,095
1,485,398
1,490,493
5,095
-
Commercial and industrial
12,960
2,205
4,685
19,850
2,022,842
2,042,692
4,319
366
Construction
-
-
-
-
610,943
610,943
-
-
Mortgage
16,131
5,834
20,488
42,453
1,244,739
1,287,192
20,488
-
Consumer:
Credit cards
-
-
-
-
39
39
-
-
Home equity lines of
credit
413
161
4,110
4,684
64,278
68,962
4,110
-
Personal
1,808
1,467
1,958
5,233
232,659
237,892
1,958
-
Other
-
-
8
8
9,960
9,968
8
-
Total
$
33,973
$
9,667
$
37,798
$
81,438
$
9,449,426
$
9,530,864
$
37,432
$
366
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
150
December 31, 2022
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2] [3]
loans
loans
Commercial multi-family
$
2,602
$
-
$
242
$
2,844
$
2,318,869
$
2,321,713
$
242
$
-
Commercial real estate:
Non-owner occupied
1,425
428
25,116
26,969
4,472,701
4,499,670
25,116
-
Owner occupied
729
245
29,085
30,059
3,048,490
3,078,549
29,085
-
Commercial and industrial
15,996
3,146
40,462
59,604
5,779,596
5,839,200
38,596
1,866
Construction
-
-
-
-
757,984
757,984
-
-
Mortgage
[1]
239,057
97,715
600,481
937,253
6,460,218
7,397,471
262,879
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,805
1,041,870
-
11,910
Home equity lines of credit
413
161
4,110
4,684
67,232
71,916
4,110
-
Personal
15,040
10,219
20,040
45,299
1,778,280
1,823,579
20,040
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,690
13,264
134,284
147,548
12,454
236
Total
$
363,706
$
139,856
$
791,055
$
1,294,617
$
30,783,152
$
32,077,769
$
439,441
$
351,614
[1]
It is the Corporation’s policy to report delinquent residential
 
mortgage loans insured by 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 $
14
 
million at December 31, 2022 related to the rebooking
 
of loans previously pooled
into GNMA securities, in which the Corporation had a
 
buy-back option. 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 also include $
190
 
million of
residential mortgage loans insured by FHA or guaranteed by
 
the VA that are no longer accruing
 
interest as of December 31, 2022. Furthermore,
the Corporation has approximately $
42
 
million in reverse mortgage loans which are guaranteed
 
by FHA, but which are currently not accruing
interest. Due to the guaranteed nature of the loans, it is
 
the Corporation’s policy to exclude these balances
 
from non-performing
 
assets.
[2]
Loans held-in-portfolio are net of $
295
 
million in unearned income and exclude $
5
 
million in loans held-for-sale.
[3]
Includes $
7.4
 
billion pledged to secure credit facilities and public funds
 
that the secured parties are not permitted to sell or
 
repledge the collateral,
of which $
4.8
 
billion were pledged at the Federal Home Loan Bank
 
("FHLB") as collateral for borrowings and $
2.6
 
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
151
December 31, 2021
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
314
$
-
$
272
$
586
$
154,183
$
154,769
$
272
$
-
Commercial real estate:
Non-owner occupied
2,399
136
20,716
23,251
2,266,672
2,289,923
20,716
-
Owner occupied
3,329
278
54,335
57,942
1,365,787
1,423,729
54,335
-
Commercial and industrial
3,438
1,727
45,242
50,407
3,478,041
3,528,448
44,724
518
Construction
-
-
485
485
86,626
87,111
485
-
Mortgage
217,830
81,754
805,245
1,104,829
5,147,037
6,251,866
333,887
471,358
Leasing
9,240
2,037
3,102
14,379
1,366,940
1,381,319
3,102
-
Consumer:
Credit cards
5,768
3,520
8,577
17,865
901,986
919,851
-
8,577
Home equity lines of credit
46
-
23
69
3,502
3,571
-
23
Personal
10,027
6,072
21,235
37,334
1,250,726
1,288,060
21,235
-
Auto
59,128
15,019
23,085
97,232
3,314,955
3,412,187
23,085
-
Other
432
714
12,621
13,767
110,781
124,548
12,448
173
Total
$
311,951
$
111,257
$
994,938
$
1,418,146
$
19,447,236
$
20,865,382
$
514,289
$
480,649
December 31, 2021
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
3,826
$
-
$
-
$
3,826
$
1,804,035
$
1,807,861
$
-
$
-
Commercial real estate:
Non-owner occupied
5,721
683
622
7,026
2,316,441
2,323,467
622
-
Owner occupied
1,095
-
1,013
2,108
392,265
394,373
1,013
-
Commercial and industrial
9,410
2,680
4,015
16,105
1,794,026
1,810,131
3,897
118
Construction
-
-
-
-
629,109
629,109
-
-
Mortgage
11,711
2,573
21,969
36,253
1,139,077
1,175,330
21,969
-
Consumer:
Credit cards
-
-
-
-
10
10
-
-
Home equity lines of credit
71
34
5,406
5,511
69,780
75,291
5,406
-
Personal
 
863
574
681
2,118
152,827
154,945
681
-
Other
-
-
-
-
4,658
4,658
-
-
Total
$
32,697
$
6,544
$
33,706
$
72,947
$
8,302,228
$
8,375,175
$
33,588
$
118
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
152
December 31, 2021
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
[2]
[3]
loans
loans
Commercial multi-family
$
4,140
$
-
$
272
$
4,412
$
1,958,218
$
1,962,630
$
272
$
-
Commercial real estate:
Non-owner occupied
8,120
819
21,338
30,277
4,583,113
4,613,390
21,338
-
Owner occupied
4,424
278
55,348
60,050
1,758,052
1,818,102
55,348
-
Commercial and industrial
12,848
4,407
49,257
66,512
5,272,067
5,338,579
48,621
636
Construction
-
-
485
485
715,735
716,220
485
-
Mortgage
[1]
229,541
84,327
827,214
1,141,082
6,286,114
7,427,196
355,856
471,358
Leasing
9,240
2,037
3,102
14,379
1,366,940
1,381,319
3,102
-
Consumer:
Credit cards
5,768
3,520
8,577
17,865
901,996
919,861
-
8,577
Home equity lines of credit
117
34
5,429
5,580
73,282
78,862
5,406
23
Personal
10,890
6,646
21,916
39,452
1,403,553
1,443,005
21,916
-
Auto
59,128
15,019
23,085
97,232
3,314,955
3,412,187
23,085
-
Other
432
714
12,621
13,767
115,439
129,206
12,448
173
Total
$
344,648
$
117,801
$
1,028,644
$
1,491,093
$
27,749,464
$
29,240,557
$
547,877
$
480,767
[1]
It is the Corporation’s policy to report delinquent residential
 
mortgage loans insured by FHA or guaranteed
 
by the VA as accruing loans
 
past due
90 days or more as opposed to non-performing since
 
the principal repayment is insured.
 
The balance of these loans includes $
13
 
million at
December 31, 2021 related to the rebooking of loans
 
previously pooled into GNMA securities, in which the Corporation
 
had a buy-back option.
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 also include $
304
 
million of residential mortgage loans insured by
 
FHA or guaranteed by the VA
 
that are
no longer accruing interest as of December 31, 2021.
 
Furthermore, the Corporation has approximately $
50
 
million in reverse mortgage loans
which are guaranteed by FHA, but which are currently
 
not accruing interest. Due to the guaranteed nature of the loans,
 
it is the Corporation’s
policy to exclude these balances from non-performing assets.
[2]
Loans held-in-portfolio are net of $
266
 
million in unearned income and exclude $
59
 
million in loans held-for-sale.
[3]
Includes $
6.6
 
billion pledged to secure credit facilities and public funds
 
that the secured parties are not permitted to sell or
 
repledge the collateral,
of which $
3.2
 
billion were pledged at the FHLB as collateral for borrowings
 
and $
1.7
 
billion at the FRB for discount window borrowings
 
and $
1.7
billion serve as collateral for public funds.
Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments
of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the
FHA or
 
guaranteed by
 
VA
 
when 15
 
months delinquent
 
as to
 
principal or
 
interest, since
 
the principal
 
repayment on
 
these loans
 
is
insured.
At December
 
31, 2022, mortgage
 
loans held-in-portfolio include
 
$
2.0
 
billion (December 31,
 
2021 -
 
$
1.9
 
billion) of loans
 
insured by
the FHA,
 
or guaranteed
 
by the
 
VA
 
of which
 
$
0.3
 
billion (December
 
31, 2021
 
- $
0.5
 
billion) are
 
90 days
 
or more
 
past due.
 
These
balances include
 
$
725
 
million in
 
loans modified
 
under a
 
TDR (December
 
31, 2021
 
- $
716
 
million), that
 
are presented
 
as accruing
loans.
 
The
 
portfolio
 
of
 
guaranteed
 
loans
 
includes
 
$
190
 
million
 
of
 
residential
 
mortgage
 
loans
 
in
 
Puerto
 
Rico
 
that
 
are
 
no
 
longer
accruing interest
 
as of
 
December 31, 2022
 
(December 31, 2021
 
- $
304
 
million). The
 
Corporation has approximately
 
$
42
 
million in
reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at December 31,
2022 (December 31, 2021 - $
50
 
million).
 
Loans with
 
a delinquency status
 
of 90
 
days past due
 
as of
 
December 31, 2022
 
include $
14
 
million in loans
 
previously pooled into
GNMA securities (December 31, 2021 -
 
$
13
 
million). Under the GNMA program, issuers
 
such as BPPR have the
 
option but not the
obligation to repurchase loans
 
that are 90
 
days or more
 
past due. For
 
accounting purposes, these loans
 
subject to the
 
repurchase
option
 
are
 
required to
 
be
 
reflected on
 
the
 
financial statements
 
of BPPR
 
with
 
an
 
offsetting
 
liability.
 
Loans
 
in
 
our
 
serviced
 
GNMA
portfolio benefit
 
from payment
 
forbearance programs
 
but continue
 
to reflect
 
the contractual
 
delinquency until
 
the borrower
 
repays
deferred payments or completes a payment deferral
 
modification or other borrower assistance alternative.
The components of the net financing leases,
 
including finance leases within the C&I category,
 
receivable at December 31, 2022 and
2021 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
153
(In thousands)
2022
2021
Total minimum lease
 
payments
$
1,336,173
$
1,190,545
Estimated residual value of leased property
605,638
518,670
Deferred origination costs, net of fees
24,909
21,474
Less - Unearned financing income
293,091
257,738
Net minimum lease payments
1,673,629
1,472,951
Less - Allowance for credit losses
22,216
18,581
Net minimum lease payments, net of allowance for credit losses
$
1,651,413
$
1,454,370
At December 31, 2022, future minimum lease payments
 
are expected to be received as follows:
(In thousands)
2023
$
111,779
2024
132,371
2025
177,836
2026
303,773
2027
402,035
2028 and thereafter
208,379
Total
$
1,336,173
The following tables present the amortized cost basis
 
of non-accrual loans as of December 31, 2022
 
and 2021 by class of loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
154
December 31, 2022
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
242
$
-
$
-
$
-
$
242
Commercial real estate non-owner occupied
15,639
8,023
1,454
-
17,093
8,023
Commercial real estate owner occupied
9,070
14,920
5,095
-
14,165
14,920
Commercial and industrial
20,227
14,050
-
4,319
20,227
18,369
Mortgage
119,027
123,364
71
20,417
119,098
143,781
Leasing
458
5,483
-
-
458
5,483
Consumer:
 
HELOCs
-
-
-
4,110
-
4,110
 
Personal
 
4,623
13,459
-
1,958
4,623
15,417
 
Auto
 
1,177
39,801
-
-
1,177
39,801
 
Other
263
12,183
-
8
263
12,191
Total
$
170,484
$
231,525
$
6,620
$
30,812
$
177,104
$
262,337
December 31, 2021
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
272
$
-
$
-
$
-
$
272
Commercial real estate non-owner occupied
15,819
4,897
-
622
15,819
5,519
Commercial real estate owner occupied
13,491
40,844
-
1,013
13,491
41,857
Commercial and industrial
30,177
14,547
-
3,897
30,177
18,444
Construction
-
485
-
-
-
485
Mortgage
169,827
164,060
29
21,940
169,856
186,000
Leasing
276
2,826
-
-
276
2,826
Consumer:
 
HELOCs
-
-
-
5,406
-
5,406
 
Personal
 
6,279
14,956
81
600
6,360
15,556
 
Auto
 
879
22,206
-
-
879
22,206
 
Other
-
12,448
-
-
-
12,448
Total
$
236,748
$
277,541
$
110
$
33,478
$
236,858
$
311,019
Loans in non-accrual status with no
 
allowance at December 31, 2022 include
 
$
177
 
million in collateral dependent loans (December
31,
 
2021
 
-
 
$
237
 
million).
 
The
 
Corporation recognized
 
$
4
 
million
 
in
 
interest
 
income
 
on
 
non-accrual loans
 
during
 
the
 
year
 
ended
December 31, 2022 (December 31, 2021 - $
3
 
million).
The Corporation has
 
designated loans classified as
 
collateral dependent for
 
which the ACL
 
is measured based
 
on the fair
 
value of
the collateral less
 
cost to sell,
 
when foreclosure is
 
probable or when
 
the repayment is
 
expected to be
 
provided substantially by the
sale or
 
operation of
 
the collateral
 
and the
 
borrower is
 
experiencing financial
 
difficulty.
 
The fair
 
value of
 
the collateral
 
is based
 
on
appraisals, which may be
 
adjusted due to their
 
age, and the
 
type, location, and condition
 
of the property
 
or area or general
 
market
conditions to reflect the expected change in value between the effective date
 
of the appraisal and the measurement date. Appraisals
are updated every one to two years depending on
 
the type of loan and the total exposure of
 
the borrower.
The following tables present the amortized cost basis
 
of collateral-dependent loans, for which the ACL was measured
 
based on the
fair value of the collateral less cost to sell, by class
 
of loans and type of collateral as of December
 
31, 2022 and 2021:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
155
December 31, 2022
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
202,980
-
-
-
-
202,980
Owner occupied
18,234
-
-
-
-
18,234
Commercial and industrial
1,345
-
32
9,853
20,985
32,215
Mortgage
128,069
-
-
-
-
128,069
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total BPPR
$
357,338
$
10,576
$
32
$
9,853
$
21,248
$
399,047
Popular U.S.
Commercial real estate:
Non-owner occupied
$
1,454
$
-
$
-
$
-
$
-
$
1,454
Owner occupied
5,095
-
-
-
-
5,095
Commercial and industrial
-
-
136
-
-
136
Mortgage
1,104
-
-
-
-
1,104
Total Popular U.S.
$
7,653
$
-
$
136
$
-
$
-
$
7,789
Popular, Inc.
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
204,434
-
-
-
-
204,434
Owner occupied
23,329
-
-
-
-
23,329
Commercial and industrial
1,345
-
168
9,853
20,985
32,351
Mortgage
129,173
-
-
-
-
129,173
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total Popular,
 
Inc.
$
364,991
$
10,576
$
168
$
9,853
$
21,248
$
406,836
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
156
December 31, 2021
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,374
$
-
$
-
$
-
$
-
$
1,374
Commercial real estate:
Non-owner occupied
211,026
-
-
-
-
211,026
Owner occupied
47,268
-
-
-
-
47,268
Commercial and industrial
2,650
-
680
10,675
27,893
41,898
Mortgage
179,774
-
-
-
-
179,774
Leasing
-
574
-
-
-
574
Consumer:
Personal
6,165
-
-
-
-
6,165
Auto
-
8,983
-
-
-
8,983
Total BPPR
$
448,257
$
9,557
$
680
$
10,675
$
27,893
$
497,062
Popular U.S.
Mortgage
$
926
$
-
$
-
$
-
$
-
$
926
Total Popular U.S.
$
926
$
-
$
-
$
-
$
-
$
926
Popular, Inc.
Commercial multi-family
$
1,374
$
-
$
-
$
-
$
-
$
1,374
Commercial real estate:
Non-owner occupied
211,026
-
-
-
-
211,026
Owner occupied
47,268
-
-
-
-
47,268
Commercial and industrial
2,650
-
680
10,675
27,893
41,898
Mortgage
180,700
-
-
-
-
180,700
Leasing
-
574
-
-
-
574
Consumer:
Personal
6,165
-
-
-
-
6,165
Auto
-
8,983
-
-
-
8,983
Total Popular,
 
Inc.
$
449,183
$
9,557
$
680
$
10,675
$
27,893
$
497,988
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
 
the year 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)
December 31, 2022
December 31, 2021
Purchase price of loans at acquisition
$
3,144
$
10,995
Allowance for credit losses at acquisition
915
3,142
Non-credit discount / (premium) at acquisition
140
446
Par value of acquired loans at acquisition
$
4,199
$
14,583
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
157
Note 9 – Allowance for credit losses – loans
 
held-in-portfolio
The
Corporation follows the current
 
expected credit loss (“CECL”)
 
model, to establish
 
and evaluate the adequacy
 
of the 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
 
December
 
31,
 
2022,
 
the
 
Corporation
 
estimated
 
the
 
ACL
 
by
 
weighting
 
the
 
outputs
 
of
 
optimistic,
 
baseline,
 
and
 
pessimistic
scenarios. Among
 
the three
 
scenarios used
 
to estimate
 
the ACL,
 
the baseline
 
is assigned
 
the highest
 
probability,
 
followed by
 
the
pessimistic
 
scenario
 
given
 
the
 
uncertainties
 
in
 
the
 
economic
 
outlook
 
and
 
downside
 
risk.
 
The
 
weightings
 
applied
 
are
 
subject
 
to
evaluation on
 
a quarterly
 
basis as
 
part of
 
the ACL’s
 
governance process. The
 
Corporation evaluates, at
 
least on
 
an annual
 
basis,
the
 
assumptions
 
tied
 
to
 
the
 
CECL
 
accounting
 
framework.
 
These
 
include
 
the
 
reasonable
 
and
 
supportable
 
period
 
as
 
well
 
as
 
the
reversion
 
window.
 
During the
 
third
 
quarter
 
of
 
2022,
 
as
 
part
 
of
 
its
 
evaluation
 
procedures, the
 
Corporation decided
 
to
 
extend
 
the
reversion
 
window
 
from
1
 
year
 
to
3
 
years.
 
The
 
extension
 
in
 
the
 
reversion
 
window
 
results
 
in
 
a
 
better
 
representation
 
of
 
historical
movements for
 
key macroeconomic
 
variables that
 
impact the
 
ACL. This
 
change in
 
assumptions contributed
 
to a
 
reduction of
 
$
11
million in the ACL. The reasonable and supportable
 
period assumptions remained unchanged at 2-
 
years.
The baseline scenario assumes a 2023 annualized
 
GDP growth for Puerto Rico and
 
the United States of 1.3% and
 
0.7%. For 2022
annualized expected growth
 
was 2.6% and
 
1.8% for Puerto
 
Rico and United
 
States, respectively.
 
The reduction in
 
2023 is due
 
to
the expected slowdown in the economy as a
 
result of tight monetary policy, weaker job growth and persistent inflation.
The 2023 average unemployment rate is forecasted at 7.8% and 4.0% for Puerto Rico and United States, respectively, compared to
2022 average level 6.4% for Puerto Rico and 3.7% for the United States. In 2023, weaker job growth due to the expected slowdown
in the economy will contribute to an increase
 
in the unemployment rate.
The
 
following
 
tables
 
present
 
the
 
changes
 
in
 
the
 
ACL
 
of
 
loans
 
held-in-portfolio
 
and
 
unfunded
 
commitments
 
for
 
the
 
years
 
ended
December 31, 2022 and 2021.
For the year ended December 31, 2022
BPPR
(In thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
151,928
$
1,641
$
138,286
$
17,578
$
284,729
$
594,162
Provision for credit losses (benefit)
11,475
526
(37,600)
6,832
88,311
69,544
Initial allowance for credit losses - PCD Loans
-
-
915
-
-
915
Charge-offs
(7,238)
-
(5,105)
(7,107)
(106,752)
(126,202)
Recoveries
18,130
811
20,848
3,315
34,022
77,126
Ending balance - loans
$
174,295
$
2,978
$
117,344
$
20,618
$
300,310
$
615,545
Allowance for credit losses - unfunded commitments:
Beginning balance
$
1,751
$
2,388
$
-
$
-
$
-
$
4,139
Provision for credit losses (benefit)
2,585
(366)
-
-
-
2,219
Ending balance - unfunded commitments [1]
$
4,336
$
2,022
$
-
$
-
$
-
$
6,358
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
158
For the year ended December 31, 2022
Popular U.S.
(In thousands)
Commercial
Construction
Mortgage
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
63,877
$
4,722
$
16,192
$
16,413
$
101,204
Provision for credit losses (benefit)
4,597
(4,586)
1,706
12,046
13,763
Charge-offs
(10,012)
-
(68)
(8,036)
(18,116)
Recoveries
2,619
1,132
80
4,075
7,906
Ending balance - loans
$
61,081
$
1,268
$
17,910
$
24,498
$
104,757
Allowance for credit losses - unfunded commitments:
Beginning balance
$
1,384
$
2,337
$
-
$
37
$
3,758
Provision for credit losses (benefit)
(209)
(1,153)
-
51
(1,311)
Ending balance - unfunded commitments [1]
$
1,175
$
1,184
$
-
$
88
$
2,447
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
For the year ended December 31, 2022
Popular, Inc.
(In thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
215,805
$
6,363
$
154,478
$
17,578
$
301,142
$
695,366
Provision for credit losses (benefit)
16,072
(4,060)
(35,894)
6,832
100,357
83,307
Initial allowance for credit losses - PCD Loans
-
-
915
-
-
915
Charge-offs
(17,250)
-
(5,173)
(7,107)
(114,788)
(144,318)
Recoveries
20,749
1,943
20,928
3,315
38,097
85,032
Ending balance - loans
$
235,376
$
4,246
$
135,254
$
20,618
$
324,808
$
720,302
Allowance for credit losses - unfunded commitments:
Beginning balance
$
3,135
$
4,725
$
-
$
-
$
37
$
7,897
Provision for credit losses (benefit)
2,376
(1,519)
-
-
51
908
Ending balance - unfunded commitments [1]
$
5,511
$
3,206
$
-
$
-
$
88
$
8,805
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
159
For the year ended December 31, 2021
BPPR
(In thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
225,323
$
4,871
$
195,557
$
16,863
$
297,136
$
739,750
Provision for credit losses (benefit)
(91,695)
(1,533)
(57,684)
2,094
19,800
(129,018)
Initial allowance for credit losses - PCD Loans
-
-
3,142
-
-
3,142
Charge-offs
(17,180)
(6,620)
(17,656)
(4,637)
(78,047)
(124,140)
Recoveries
35,480
4,923
14,927
3,258
45,840
104,428
Ending balance - loans
$
151,928
$
1,641
$
138,286
$
17,578
$
284,729
$
594,162
Allowance for credit losses - unfunded commitments:
Beginning balance
$
4,913
$
4,610
$
-
$
-
$
-
$
9,523
Provision for credit losses (benefit)
(3,162)
(2,222)
-
-
-
(5,384)
Ending balance - unfunded commitments [1]
$
1,751
$
2,388
$
-
$
-
$
-
$
4,139
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
For the year ended December 31, 2021
Popular U.S.
 
(In thousands)
Commercial
Construction
Mortgage
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
108,057
$
9,366
$
20,159
$
18,918
$
156,500
Provision for credit losses (benefit)
(45,427)
(4,764)
(3,949)
(187)
(54,327)
Charge-offs
(1,177)
(523)
(605)
(8,732)
(11,037)
Recoveries
2,424
643
587
6,414
10,068
Ending balance - loans
$
63,877
$
4,722
$
16,192
$
16,413
$
101,204
Allowance for credit losses - unfunded commitments:
Beginning balance
$
1,753
$
4,469
$
-
$
106
$
6,328
Provision for credit losses (benefit)
(369)
(2,132)
-
(69)
(2,570)
Ending balance - unfunded commitments [1]
$
1,384
$
2,337
$
-
$
37
$
3,758
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
160
For the year ended December 31, 2021
Popular, Inc.
(In thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Allowance for credit losses - loans:
Beginning balance
$
333,380
$
14,237
$
215,716
$
16,863
$
316,054
$
896,250
Provision for credit losses (benefit)
(137,122)
(6,297)
(61,633)
2,094
19,613
(183,345)
Initial allowance for credit losses - PCD Loans
-
-
3,142
-
-
3,142
Charge-offs
(18,357)
(7,143)
(18,261)
(4,637)
(86,779)
(135,177)
Recoveries
37,904
5,566
15,514
3,258
52,254
114,496
Ending balance - loans
$
215,805
$
6,363
$
154,478
$
17,578
$
301,142
$
695,366
Allowance for credit losses - unfunded commitments:
Beginning balance
$
6,666
$
9,079
$
-
$
-
$
106
$
15,851
Provision for credit losses (benefit)
(3,531)
(4,354)
-
-
(69)
(7,954)
Ending balance - unfunded commitments [1]
$
3,135
$
4,725
$
-
$
-
$
37
$
7,897
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
Modifications
A
 
modification
 
of
 
a
 
loan
 
constitutes
 
a
 
troubled
 
debt
 
restructuring
 
when
 
a
 
borrower
 
is
 
experiencing
 
financial
 
difficulty
 
and
 
the
modification constitutes a concession. For a summary of the accounting policy related to troubled debt restructurings (“TDRs”), refer
to the Summary of Significant Accounting Policies
 
included in Note 2 to these Consolidated Financial
 
Statements.
The outstanding
 
balance of
 
loans classified
 
as TDRs
 
amounted to
 
$
1.6
 
billion at
 
December 31,
 
2022 (December
 
31, 2021
 
- $
1.7
billion).
 
The amount
 
of outstanding
 
commitments to
 
lend additional
 
funds to
 
debtors owing
 
receivables whose
 
terms have
 
been
modified in TDRs amounted to
 
$
12
 
million related to the commercial
 
loan portfolio at December 31,
 
2022 (December 31, 2021 -
 
$
9
million).
The following table presents
 
the outstanding balance of
 
loans classified as TDRs
 
according to their accruing
 
status and the related
allowance at December 31, 2022 and 2021.
The Corporation has offered to clients impacted by the hurricanes Fiona
 
a moratorium of up to three monthly payments on personal
and commercial credit cards, auto loans, leases, and personal loans,
 
subject to certain eligibility requirements. Mortgage clients also
benefited from
 
different
 
payment relief
 
alternatives available,
 
depending on
 
their type
 
of
 
loan. Loan
 
relief options
 
for commercial
clients were reviewed on a
 
case-by-case basis. As of December 31,
 
2022, approximately 2,428 loans with
 
a $94.8 loans amortized
cost were granted a moratorium of which 218
 
loans with a $7.7 million amortized cost have
 
been classified as TDR.
 
December 31, 2022
 
December 31, 2021
(In thousands)
Accruing
Non-
Accruing
Total
Related
Allowance
Accruing
Non-
Accruing
Total
Related
Allowance
Loans held-in-portfolio:
 
Commercial
$
269,784
$
54,641
$
324,425
$
18,451
$
261,344
$
64,744
$
326,088
$
24,736
 
Mortgage
[1]
1,169,976
86,790
1,256,766
58,819
1,143,204
112,509
1,255,713
61,888
 
Leasing
1,154
24
1,178
43
325
47
372
42
 
Consumer
54,395
7,883
62,278
13,577
64,093
10,556
74,649
16,124
Loans held-in-portfolio
$
1,495,309
$
149,338
$
1,644,647
$
90,890
$
1,468,966
$
187,856
$
1,656,822
$
102,790
[1] At December 31, 2022, accruing mortgage loan TDRs include
 
$
725
 
million guaranteed by U.S. sponsored entities
 
at BPPR, compared to $
716
million at December 31, 2021.
The
 
following
 
tables
 
present
 
the
 
loan
 
count
 
by
 
type
 
of
 
modification
 
for
 
those
 
loans
 
modified
 
in
 
a
 
TDR
 
during
 
the
 
years
 
ended
December 31, 2022 and 2021. Loans modified
 
as TDRs for the U.S. operations are considered
 
insignificant to the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
161
For the year ended December 31, 2022
Reduction in
interest rate
Extension of
maturity date
Combination of
reduction in interest
rate and extension of
maturity date
Other
Commercial real estate non-owner occupied
-
2
2
4
Commercial real estate owner occupied
3
10
1
14
Commercial and industrial
4
9
1
16
Mortgage
7
217
881
5
Leasing
-
2
1
34
Consumer:
 
Credit cards
48
-
-
48
 
HELOCs
-
-
1
-
 
Personal
111
111
3
40
 
Auto
-
1
-
129
 
Other
1
-
-
-
Total
174
352
890
290
For the year ended December 31, 2021
Reduction in
interest rate
Extension of
maturity date
Combination of
reduction in interest
rate and extension of
maturity date
Other
Commercial multi-family
-
1
1
-
Commercial real estate non-owner occupied
-
11
1
-
Commercial real estate owner occupied
4
23
4
12
Commercial and industrial
5
13
-
21
Mortgage
39
140
1,590
5
Leasing
-
-
2
-
Consumer:
 
Credit cards
134
-
1
43
 
HELOCs
-
1
1
-
 
Personal
183
117
1
2
 
Auto
-
7
3
-
 
Other
7
-
-
1
Total
372
313
1,604
84
During the year ended December 31, 2022,
three
 
loans with an aggregate unpaid principal balance of $
2.7
 
million were restructured
into multiple notes (“Note A / B split”)
,
 
compared to
five
 
loans with an aggregate unpaid principal balance of $
10.2
 
million during the
year ended December 31,
 
2021.
No
 
charge-offs were recorded as part of Note A / B splits during 2022 and
 
2021. These loans were
restructured after analyzing the borrowers’ capacity
 
to repay the debt, collateral and ability to perform
 
under the modified terms.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
162
The following tables present,
 
by class, quantitative information related
 
to loans modified as TDRs during the years
 
ended December
31, 2022 and 2021.
Popular, Inc.
 
For the year ended December 31, 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
8
$
6,530
$
6,527
$
60
Commercial real estate owner occupied
28
19,192
19,165
(2,078)
Commercial and industrial
30
51,139
50,929
2,120
Mortgage
1,110
128,581
125,875
4,447
Leasing
37
1,181
1,180
13
Consumer:
 
Credit cards
96
866
898
10
 
HELOCs
1
245
236
67
 
Personal
265
3,581
3,479
671
 
Auto
130
1,631
1,631
5
 
Other
1
8
8
1
Total
1,706
$
212,954
$
209,928
$
5,316
Popular, Inc.
 
For the year ended December 31, 2021
(Dollars in thousands)
Loan count
Pre-modification
outstanding recorded
investment
Post-modification
outstanding recorded
investment
Increase (decrease) in the
allowance for credit losses
as a result of modification
Commercial multi-family
2
$
246
$
211
$
26
Commercial real estate non-owner occupied
12
3,612
3,604
177
Commercial real estate owner occupied
43
95,354
90,096
1,577
Commercial and industrial
39
6,573
5,719
745
Mortgage
1,774
213,661
214,367
6,632
Leasing
2
40
38
5
Consumer:
 
Credit cards
178
2,223
2,136
42
 
HELOCs
2
176
228
54
 
Personal
303
4,222
4,217
899
 
Auto
10
199
206
65
 
Other
8
305
303
124
Total
2,373
$
326,611
$
321,125
$
10,346
The following tables present,
 
by class, TDRs that were subject
 
to payment default and that
 
had been modified as a TDR
 
during the
twelve months preceding the default date.
 
Payment default is defined as a restructured loan becoming 90 days past due after being
modified,
 
foreclosed
 
or
 
charged-off,
 
whichever
 
occurs
 
first.
 
The
 
recorded
 
investment
 
as
 
of
 
period
 
end
 
is
 
inclusive
 
of
 
all
 
partial
paydowns
 
and
 
charge-offs
 
since
 
the
 
modification
 
date.
 
Loans
 
modified
 
as
 
a
 
TDR
 
that
 
were
 
fully
 
paid
 
down,
 
charged-off
 
or
foreclosed upon by period end are not reported..
 
Defaulted during the year ended December 31, 2022
(Dollars in thousands)
Loan count
Recorded investment as of first default date
Commercial real estate owner occupied
2
$
620
Commercial and industrial
7
6,639
Mortgage
75
9,391
Leasing
1
5
Consumer:
 
Credit cards
29
249
 
Personal
49
918
Total
163
$
17,822
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
163
Defaulted during the year ended December 31, 2021
(Dollars in thousands)
Loan count
Recorded investment as of first default date
Commercial real estate non-owner occupied
4
$
8,421
Commercial real estate owner occupied
4
4,500
Commercial and industrial
5
317
Mortgage
104
10,543
Consumer:
 
Credit cards
81
979
 
Personal
27
723
Total
225
$
25,483
 
 
164
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 allowance for credit losses
 
may be increased or partial
charge-offs may be taken to further write-down the carrying
 
value of the loan.
Credit Quality
The
 
Corporation
 
has
 
defined
 
a
 
risk
 
rating
 
system
 
to
 
assign
 
a
 
rating
 
to
 
all
 
credit
 
exposures,
 
particularly
 
for
 
the
 
commercial
 
and
construction loan
 
portfolios. Risk
 
ratings in
 
the aggregate
 
provide the
 
Corporation’s management
 
the asset
 
quality profile
 
for
 
the
loan portfolio. 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 Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk
of payment default of a borrower in the ordinary
 
course of business.
 
Pass Credit Classifications:
Pass (Scales 1 through 8)
 
– Loans classified as
 
pass have a well defined
 
primary source of repayment, with no
 
apparent
risk, strong financial position, minimal operating risk, profitability, liquidity and strong
 
capitalization.
 
Watch
 
(Scale 9)
 
– Loans
 
classified as
 
watch have
 
acceptable business
 
credit,
 
but borrower’s
 
operations, cash
 
flow or
financial condition evidence more than average risk, requires above
 
average levels of supervision and attention from Loan
Officers.
Special Mention (Scale 10) -
 
Loans classified as special mention have
 
potential weaknesses that deserve management’s
close attention.
 
If left uncorrected, these potential weaknesses may result
 
in deterioration of the repayment prospects for
the loan or of the Corporation’s credit position at
 
some future date.
 
Adversely Classified Classifications:
Substandard
 
(Scales
 
11
 
and
 
12)
 
-
 
Loans
 
classified
 
as
 
substandard
 
are
 
deemed
 
to
 
be
 
inadequately
 
protected
 
by
 
the
current net worth
 
and payment capacity
 
of the obligor
 
or of the
 
collateral pledged, if
 
any.
 
Loans classified as
 
such have
well-defined weaknesses that jeopardize the liquidation of
 
the debt.
 
They are characterized by the
 
distinct possibility that
the institution will sustain some loss if the deficiencies
 
are not corrected.
 
Doubtful (Scale
 
13) - Loans
 
classified as
 
doubtful have
 
all the
 
weaknesses inherent
 
in those
 
classified as
 
substandard,
with the
 
additional characteristic
 
that the
 
weaknesses make
 
the collection
 
or liquidation
 
in full,
 
on the
 
basis of
 
currently
existing facts, conditions, and values, highly questionable
 
and improbable.
 
Loss
 
(Scale
 
14)
 
-
 
Uncollectible
 
and
 
of
 
such
 
little
 
value
 
that
 
continuance
 
as
 
a
 
bankable
 
asset
 
is
 
not
 
warranted.
 
This
classification does
 
not mean
 
that the
 
asset has
 
absolutely no
 
recovery or
 
salvage value,
 
but rather
 
it is
 
not practical
 
or
desirable to defer writing off this asset even though partial
 
recovery may be effected in the future.
Risk
 
ratings scales
 
10
 
through
 
14
 
conform
 
to
 
regulatory
 
ratings.
 
The
 
assignment
 
of
 
the
 
obligor
 
risk
 
rating
 
is
 
based
 
on
 
relevant
information about the ability of borrowers to
 
service their debts such as current
 
financial information, historical payment experience,
credit documentation, public information, and
 
current economic trends, among other factors.
 
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
 
December 31, 2022 and 2021 by vintage year.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
165
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
 
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
-
$
-
$
-
$
18,508
$
-
$
4,687
$
-
$
-
$
23,195
Special mention
-
-
-
-
-
2,692
-
-
2,692
Substandard
-
-
-
-
-
3,326
100
-
3,426
Pass
137,411
22,850
20,821
16,145
24,640
30,193
-
-
252,060
Total commercial
multi-family
$
137,411
$
22,850
$
20,821
$
34,653
$
24,640
$
40,898
$
100
$
-
$
281,373
Commercial real estate non-owner occupied
Watch
$
173
$
36,228
$
14,045
$
14,942
$
7,777
$
99,269
$
-
$
-
$
172,434
Special Mention
-
4,361
19,970
7,517
-
25,540
-
-
57,388
Substandard
8,933
-
3,209
19,004
25,490
21,064
-
-
77,700
Pass
855,839
585,690
294,086
94,056
35,105
568,893
16,136
-
2,449,805
Total commercial
real estate non-
owner occupied
$
864,945
$
626,279
$
331,310
$
135,519
$
68,372
$
714,766
$
16,136
$
-
$
2,757,327
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
9,447
$
4,275
$
31,649
$
71,568
$
-
$
-
$
124,506
Special Mention
10
284
1,684
6,578
1,076
61,460
-
-
71,092
Substandard
16,205
6,177
802
800
770
84,205
-
-
108,959
Doubtful
-
-
-
-
-
505
-
-
505
Pass
227,404
258,473
274,333
30,691
68,029
407,322
16,742
-
1,282,994
Total commercial
real estate owner
occupied
$
245,915
$
270,205
$
286,266
$
42,344
$
101,524
$
625,060
$
16,742
$
-
$
1,588,056
Commercial and industrial
Watch
$
32,376
$
2,185
$
15,493
$
18,829
$
15,483
$
51,602
$
56,508
$
-
$
192,476
Special Mention
2,537
2,479
5,770
1,139
6,767
46,040
6,283
-
71,015
Substandard
789
1,276
1,600
3,138
11,536
40,636
46,226
-
105,201
Doubtful
-
-
29
-
75
75
-
-
179
Loss
-
-
-
-
-
-
144
-
144
Pass
793,662
684,647
211,013
177,265
65,197
292,173
1,203,536
-
3,427,493
Total commercial
and industrial
$
829,364
$
690,587
$
233,905
$
200,371
$
99,058
$
430,526
$
1,312,697
$
-
$
3,796,508
Construction
Watch
$
35,446
$
3,116
$
98
$
-
$
-
$
-
$
141
$
-
$
38,801
Substandard
-
-
9,629
-
-
-
$
-
-
9,629
Pass
13,044
34,387
15,961
2,262
-
-
32,957
-
98,611
Total construction
$
48,490
$
37,503
$
25,688
$
2,262
$
-
$
-
$
33,098
$
-
$
147,041
Mortgage
Substandard
$
-
$
574
$
687
$
3,926
$
4,227
$
93,959
$
-
$
-
$
103,373
Pass
449,286
451,027
285,026
204,170
237,007
4,380,390
-
-
6,006,906
Total mortgage
$
449,286
$
451,601
$
285,713
$
208,096
$
241,234
$
4,474,349
$
-
$
-
$
6,110,279
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
166
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
 
Years
Total
BPPR
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,921
-
1,029,921
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,831
$
-
$
1,041,831
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,954
$
-
$
2,954
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,954
$
-
$
2,954
Personal
Substandard
$
1,330
$
2,001
$
764
$
1,774
$
503
$
10,831
$
-
$
1,285
$
18,488
Loss
-
-
53
20
31
10
-
1
115
Pass
841,564
320,809
103,337
117,568
46,555
109,543
-
27,708
1,567,084
Total Personal
$
842,894
$
322,810
$
104,154
$
119,362
$
47,089
$
120,384
$
-
$
28,994
$
1,585,687
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,902
$
-
$
12,380
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
60,238
-
124,897
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
71,140
$
-
$
137,580
Total Puerto Rico
$
5,284,550
$
3,842,437
$
2,132,518
$
1,331,262
$
920,786
$
6,511,660
$
2,494,698
$
28,994
$
22,546,905
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
167
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
85,579
$
9,633
$
52,835
$
-
$
-
$
155,932
Special mention
-
-
1,198
-
14,491
8,372
-
-
24,061
Substandard
-
-
-
9,305
7,373
2,941
-
-
19,619
Pass
503,010
399,397
238,903
210,295
138,723
347,615
2,785
-
1,840,728
Total commercial
multi-family
$
503,760
$
400,314
$
246,319
$
305,179
$
170,220
$
411,763
$
2,785
$
-
$
2,040,340
Commercial real estate non-owner occupied
Watch
$
-
$
2,167
$
13,622
$
3,355
$
26,931
$
29,849
$
-
$
-
$
75,924
Special Mention
-
-
-
1,353
-
75,269
-
-
76,622
Substandard
-
2,864
2,149
3,220
1,429
4,722
-
-
14,384
Pass
552,258
209,338
211,449
109,781
100,065
383,409
9,113
-
1,575,413
Total commercial
real estate non-
owner occupied
$
552,258
$
214,369
$
227,220
$
117,709
$
128,425
$
493,249
$
9,113
$
-
$
1,742,343
Commercial real estate owner occupied
Watch
$
-
$
-
$
1,197
$
1,079
$
6,095
$
55,005
$
-
$
-
$
63,376
Special Mention
-
-
3,886
-
-
901
-
-
4,787
Substandard
-
-
-
7,403
11,165
33,586
-
-
52,154
Pass
363,655
422,959
114,988
82,971
119,565
258,881
7,157
-
1,370,176
Total commercial
real estate owner
occupied
$
363,655
$
422,959
$
120,071
$
91,453
$
136,825
$
348,373
$
7,157
$
-
$
1,490,493
Commercial and industrial
Watch
$
12,328
$
2,218
$
2,022
$
2,049
$
8,438
$
532
$
4,291
$
-
$
31,878
Special Mention
1,262
1,130
314
244
60
-
3
-
3,013
Substandard
260
935
74
4,278
315
1,829
1,408
-
9,099
Loss
292
525
1
75
192
3
-
-
1,088
Pass
185,318
341,855
368,398
202,301
171,528
376,045
352,169
-
1,997,614
Total commercial
and industrial
$
199,460
$
346,663
$
370,809
$
208,947
$
180,533
$
378,409
$
357,871
$
-
$
2,042,692
Construction
Watch
$
-
$
12,085
$
-
$
6,979
$
18,310
$
34,126
$
-
$
-
$
71,500
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
1,423
-
6,540
2,095
-
-
10,058
Pass
164,272
146,062
91,486
93,118
10,863
23,581
-
-
529,382
Total construction
$
164,272
$
158,150
$
92,909
$
100,097
$
35,713
$
59,802
$
-
$
-
$
610,943
Mortgage
Substandard
$
-
$
2,009
$
3,478
$
4,048
$
1,156
$
9,798
$
-
$
-
$
20,489
Pass
236,595
303,204
243,468
183,846
58,026
241,564
-
-
1,266,703
Total mortgage
$
236,595
$
305,213
$
246,946
$
187,894
$
59,182
$
251,362
$
-
$
-
$
1,287,192
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
168
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
41,724
13,959
64,852
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
41,744
$
15,899
$
68,962
Personal
Substandard
$
621
$
454
$
149
$
238
$
70
$
6
$
-
$
-
$
1,538
Loss
-
-
-
-
-
421
-
-
421
Pass
165,153
46,320
7,339
13,443
2,021
1,657
-
-
235,933
Total Personal
$
165,774
$
46,774
$
7,488
$
13,681
$
2,091
$
2,084
$
-
$
-
$
237,892
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
8
$
-
$
8
Pass
-
-
-
-
-
-
9,960
-
9,960
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
9,968
$
-
$
9,968
Total Popular U.S.
$
2,185,774
$
1,894,442
$
1,311,762
$
1,024,960
$
712,989
$
1,956,361
$
428,677
$
15,899
$
9,530,864
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
169
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
104,087
$
9,633
$
57,522
$
-
$
-
$
179,127
Special mention
-
-
1,198
-
14,491
11,064
-
-
26,753
Substandard
-
-
-
9,305
7,373
6,267
100
-
23,045
Pass
640,421
422,247
259,724
226,440
163,363
377,808
2,785
-
2,092,788
Total commercial
multi-family
$
641,171
$
423,164
$
267,140
$
339,832
$
194,860
$
452,661
$
2,885
$
-
$
2,321,713
Commercial real estate non-owner occupied
Watch
$
173
$
38,395
$
27,667
$
18,297
$
34,708
$
129,118
$
-
$
-
$
248,358
Special Mention
-
4,361
19,970
8,870
-
100,809
-
-
134,010
Substandard
8,933
2,864
5,358
22,224
26,919
25,786
-
-
92,084
Pass
1,408,097
795,028
505,535
203,837
135,170
952,302
25,249
-
4,025,218
Total commercial
real estate non-
owner occupied
$
1,417,203
$
840,648
$
558,530
$
253,228
$
196,797
$
1,208,015
$
25,249
$
-
$
4,499,670
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
10,644
$
5,354
$
37,744
$
126,573
$
-
$
-
$
187,882
Special Mention
10
284
5,570
6,578
1,076
62,361
-
-
75,879
Substandard
16,205
6,177
802
8,203
11,935
117,791
-
-
161,113
Doubtful
-
-
-
-
-
505
-
-
505
Pass
591,059
681,432
389,321
113,662
187,594
666,203
23,899
-
2,653,170
Total commercial
real estate owner
occupied
$
609,570
$
693,164
$
406,337
$
133,797
$
238,349
$
973,433
$
23,899
$
-
$
3,078,549
Commercial and industrial
Watch
$
44,704
$
4,403
$
17,515
$
20,878
$
23,921
$
52,134
$
60,799
$
-
$
224,354
Special Mention
3,799
3,609
6,084
1,383
6,827
46,040
6,286
-
74,028
Substandard
1,049
2,211
1,674
7,416
11,851
42,465
47,634
-
114,300
Doubtful
-
-
29
-
75
75
-
-
179
Loss
292
525
1
75
192
3
144
-
1,232
Pass
978,980
1,026,502
579,411
379,566
236,725
668,218
1,555,705
-
5,425,107
Total commercial
and industrial
$
1,028,824
$
1,037,250
$
604,714
$
409,318
$
279,591
$
808,935
$
1,670,568
$
-
$
5,839,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
170
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
35,446
$
15,201
$
98
$
6,979
$
18,310
$
34,126
$
141
$
-
$
110,301
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
11,052
-
6,540
2,095
-
-
19,687
Pass
177,316
180,449
107,447
95,380
10,863
23,581
32,957
-
627,993
Total construction
$
212,762
$
195,653
$
118,597
$
102,359
$
35,713
$
59,802
$
33,098
$
-
$
757,984
Mortgage
Substandard
$
-
$
2,583
$
4,165
$
7,974
$
5,383
$
103,757
$
-
$
-
$
123,862
Pass
685,881
754,231
528,494
388,016
295,033
4,621,954
-
-
7,273,609
Total mortgage
$
685,881
$
756,814
$
532,659
$
395,990
$
300,416
$
4,725,711
$
-
$
-
$
7,397,471
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
171
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,960
-
1,029,960
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,870
$
-
$
1,041,870
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
44,678
13,959
67,806
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
44,698
$
15,899
$
71,916
Personal
Substandard
$
1,951
$
2,455
$
913
$
2,012
$
573
$
10,837
$
-
$
1,285
$
20,026
Loss
-
-
53
20
31
431
-
1
536
Pass
1,006,717
367,129
110,676
131,011
48,576
111,200
-
27,708
1,803,017
Total Personal
$
1,008,668
$
369,584
$
111,642
$
133,043
$
49,180
$
122,468
$
-
$
28,994
$
1,823,579
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,910
$
-
$
12,388
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
70,198
-
134,857
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
81,108
$
-
$
147,548
Total Popular Inc.
$
7,470,324
$
5,736,879
$
3,444,280
$
2,356,222
$
1,633,775
$
8,468,021
$
2,923,375
$
44,893
$
32,077,769
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
172
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
BPPR
Commercial:
Commercial multi-family
Watch
$
-
$
-
$
-
$
-
$
-
$
4,485
$
-
$
-
$
4,485
Special mention
-
-
-
-
-
3,025
-
-
3,025
Substandard
-
-
982
-
-
6,257
100
-
7,339
Pass
24,936
21,288
34,840
25,311
2,066
31,468
11
-
139,920
Total commercial
multi-family
$
24,936
$
21,288
$
35,822
$
25,311
$
2,066
$
45,235
$
111
$
-
$
154,769
Commercial real estate non-owner occupied
Watch
$
100,465
$
228,852
$
25,443
$
137,044
$
2,406
$
205,304
$
3,237
$
-
$
702,751
Special Mention
18,509
12,563
7,271
-
4,608
24,056
-
-
67,007
Substandard
30,155
27,790
24,200
25,456
2,770
72,407
-
-
182,778
Pass
513,087
88,662
88,353
37,999
42,522
557,052
9,712
-
1,337,387
Total commercial
real estate non-
owner occupied
$
662,216
$
357,867
$
145,267
$
200,499
$
52,306
$
858,819
$
12,949
$
-
$
2,289,923
Commercial real estate owner occupied
Watch
$
8,393
$
8,612
$
8,972
$
6,958
$
3,039
$
121,716
$
-
$
-
$
157,690
Special Mention
5,573
857
7,598
1,427
2,449
103,472
-
-
121,376
Substandard
6,960
1,028
1,646
35,529
1,869
113,288
-
-
160,320
Doubtful
-
-
-
-
76
612
-
-
688
Pass
238,533
198,442
44,943
23,112
32,585
429,651
16,389
-
983,655
Total commercial
real estate owner
occupied
$
259,459
$
208,939
$
63,159
$
67,026
$
40,018
$
768,739
$
16,389
$
-
$
1,423,729
Commercial and industrial
Watch
$
186,529
$
12,542
$
21,536
$
103,835
$
14,577
$
90,776
$
108,183
$
-
$
537,978
Special Mention
7,380
9,936
14,856
28,473
1,012
28,448
60,397
-
150,502
Substandard
2,190
1,091
3,041
35,826
66,771
45,168
38,003
-
192,090
Doubtful
-
-
-
-
-
62
-
-
62
Pass
843,661
335,369
275,357
84,084
72,580
333,869
702,896
-
2,647,816
Total commercial
and industrial
$
1,039,760
$
358,938
$
314,790
$
252,218
$
154,940
$
498,323
$
909,479
$
-
$
3,528,448
Construction
Substandard
$
-
$
-
$
485
$
-
$
-
$
-
$
-
$
-
$
485
Pass
21,596
41,622
1,148
-
-
-
22,260
-
86,626
Total construction
$
21,596
$
41,622
$
1,633
$
-
$
-
$
-
$
22,260
$
-
$
87,111
Mortgage
Substandard
$
-
$
954
$
5,212
$
5,613
$
4,310
$
122,690
$
-
$
-
$
138,779
Pass
463,742
304,780
223,464
265,239
194,982
4,660,880
-
-
6,113,087
Total mortgage
$
463,742
$
305,734
$
228,676
$
270,852
$
199,292
$
4,783,570
$
-
$
-
$
6,251,866
Leasing
Substandard
$
124
$
618
$
880
$
613
$
613
$
235
$
-
$
-
$
3,083
Loss
-
-
-
1
16
2
-
-
19
Pass
613,452
328,085
222,770
133,112
62,881
17,917
-
-
1,378,217
Total leasing
$
613,576
$
328,703
$
223,650
$
133,726
$
63,510
$
18,154
$
-
$
-
$
1,381,319
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
173
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
BPPR
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
8,577
$
-
$
8,577
Pass
-
-
-
-
-
-
911,274
-
911,274
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
919,851
$
-
$
919,851
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
23
$
-
$
23
Pass
-
-
-
-
-
-
3,548
-
3,548
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
3,571
$
-
$
3,571
Personal
Substandard
$
426
$
610
$
2,105
$
866
$
936
$
15,680
$
-
$
1,385
$
22,008
Loss
30
2
3
-
-
3
-
-
38
Pass
539,604
197,652
227,328
91,341
53,630
120,065
-
36,394
1,266,014
Total Personal
$
540,060
$
198,264
$
229,436
$
92,207
$
54,566
$
135,748
$
-
$
37,779
$
1,288,060
Auto
Substandard
$
3,080
$
7,520
$
9,498
$
4,739
$
2,210
$
1,422
$
-
$
-
$
28,469
Loss
42
11
-
-
-
-
-
-
53
Pass
1,259,800
808,339
637,300
420,293
177,104
80,829
-
-
3,383,665
Total Auto
$
1,262,922
$
815,870
$
646,798
$
425,032
$
179,314
$
82,251
$
-
$
-
$
3,412,187
Other consumer
Substandard
$
-
$
114
$
21
$
487
$
-
$
135
$
11,250
$
-
$
12,007
Loss
-
-
-
579
-
34
-
-
613
Pass
24,845
9,781
9,348
5,610
3,914
947
57,483
-
111,928
Total Other
consumer
$
24,845
$
9,895
$
9,369
$
6,676
$
3,914
$
1,116
$
68,733
$
-
$
124,548
Total Puerto Rico
$
4,913,112
$
2,647,120
$
1,898,600
$
1,473,547
$
749,926
$
7,191,955
$
1,953,343
$
37,779
$
20,865,382
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
174
December 31, 2021
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2021
2020
2019
2018
2017
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
8,600
$
41,348
$
56,229
$
20,682
$
37,343
$
48,753
$
-
$
-
$
212,955
Special mention
-
3,752
9,013
30,244
11,071
28,297
-
-
82,377
Substandard
-
-
67,149
12,748
-
18,644
-
-
98,541
Pass
422,613
241,805
201,298
144,534
46,809
352,724
4,205
-
1,413,988
Total commercial
multi-family
$
431,213
$
286,905
$
333,689
$
208,208
$
95,223
$
448,418
$
4,205
$
-
$
1,807,861
Commercial real estate non-owner occupied
Watch
$
12,716
$
22,109
$
42,067
$
56,576
$
28,604
$
154,289
$
780
$
-
$
317,141
Special Mention
2,939
-
3,205
7,025
10,573
15,569
-
-
39,311
Substandard
-
756
6,405
14,544
11,384
60,323
-
-
93,412
Pass
543,667
356,071
156,925
211,432
250,516
346,606
8,386
-
1,873,603
Total commercial
real estate non-
owner occupied
$
559,322
$
378,936
$
208,602
$
289,577
$
301,077
$
576,787
$
9,166
$
-
$
2,323,467
Commercial real estate owner occupied
Watch
$
-
$
239
$
7,825
$
8,150
$
1,676
$
17,132
$
4,222
$
-
$
39,244
Special Mention
-
-
-
-
-
1,800
-
-
1,800
Substandard
-
-
1,148
2,878
-
20,841
-
-
24,867
Pass
129,898
46,737
34,355
23,845
26,236
63,463
3,928
-
328,462
Total commercial
real estate owner
occupied
$
129,898
$
46,976
$
43,328
$
34,873
$
27,912
$
103,236
$
8,150
$
-
$
394,373
Commercial and industrial
Watch
$
3,747
$
4,667
$
4,292
$
9,273
$
5
$
1,530
$
3,925
$
-
$
27,439
Special Mention
2,504
7,203
670
481
59
215
8,177
-
19,309
Substandard
537
97
4,559
495
168
1,890
159
-
7,905
Loss
262
58
108
17
51
191
-
-
687
Pass
273,254
339,564
211,695
191,086
115,146
339,336
284,710
-
1,754,791
Total commercial
and industrial
$
280,304
$
351,589
$
221,324
$
201,352
$
115,429
$
343,162
$
296,971
$
-
$
1,810,131
Construction
Watch
$
-
$
14,300
$
23,547
$
28,757
$
34,205
$
-
$
-
$
-
$
100,809
Special Mention
-
-
-
-
-
13,622
-
-
13,622
Substandard
-
-
-
15,438
10,231
-
-
-
25,669
Pass
130,587
136,045
165,105
13,634
36,500
7,138
-
-
489,009
Total construction
$
130,587
$
150,345
$
188,652
$
57,829
$
80,936
$
20,760
$
-
$
-
$
629,109
Mortgage
Substandard
$
-
$
4,338
$
3,894
$
967
$
217
$
12,680
$
-
$
-
$
22,096
Pass
326,641
266,212
215,071
61,986
6,376
276,948
-
-
1,153,234
Total mortgage
$
326,641
$
270,550
$
218,965
$
62,953
$
6,593
$
289,628
$
-
$
-
$
1,175,330
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
175
December 31, 2021
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2021
2020
2019
2018
2017
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
10
$
-
$
10
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
10
$
-
$
10
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
3,006
$
-
$
935
$
3,941
Loss
-
-
-
-
-
207
-
1,258
1,465
Pass
-
-
-
-
-
11,423
38,267
20,195
69,885
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
14,636
$
38,267
$
22,388
$
75,291
Personal
Substandard
$
72
$
81
$
250
$
73
$
17
$
163
$
2
$
-
$
658
Loss
-
-
4
-
-
19
-
-
23
Pass
75,538
19,411
43,346
7,418
2,802
5,625
124
-
154,264
Total Personal
$
75,610
$
19,492
$
43,600
$
7,491
$
2,819
$
5,807
$
126
$
-
$
154,945
Other consumer
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
4,658
$
-
$
4,658
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
4,658
$
-
$
4,658
Total Popular U.S.
$
1,933,575
$
1,504,793
$
1,258,160
$
862,283
$
629,989
$
1,802,434
$
361,553
$
22,388
$
8,375,175
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
176
December 31, 2021
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2021
2020
2019
2018
2017
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
8,600
$
41,348
$
56,229
$
20,682
$
37,343
$
53,238
$
-
$
-
$
217,440
Special mention
-
3,752
9,013
30,244
11,071
31,322
-
-
85,402
Substandard
-
-
68,131
12,748
-
24,901
100
-
105,880
Pass
447,549
263,093
236,138
169,845
48,875
384,192
4,216
-
1,553,908
Total commercial
multi-family
$
456,149
$
308,193
$
369,511
$
233,519
$
97,289
$
493,653
$
4,316
$
-
$
1,962,630
Commercial real estate non-owner occupied
Watch
$
113,181
$
250,961
$
67,510
$
193,620
$
31,010
$
359,593
$
4,017
$
-
$
1,019,892
Special Mention
21,448
12,563
10,476
7,025
15,181
39,625
-
-
106,318
Substandard
30,155
28,546
30,605
40,000
14,154
132,730
-
-
276,190
Pass
1,056,754
444,733
245,278
249,431
293,038
903,658
18,098
-
3,210,990
Total commercial
real estate non-
owner occupied
$
1,221,538
$
736,803
$
353,869
$
490,076
$
353,383
$
1,435,606
$
22,115
$
-
$
4,613,390
Commercial real estate owner occupied
Watch
$
8,393
$
8,851
$
16,797
$
15,108
$
4,715
$
138,848
$
4,222
$
-
$
196,934
Special Mention
5,573
857
7,598
1,427
2,449
105,272
-
-
123,176
Substandard
6,960
1,028
2,794
38,407
1,869
134,129
-
-
185,187
Doubtful
-
-
-
-
76
612
-
-
688
Pass
368,431
245,179
79,298
46,957
58,821
493,114
20,317
-
1,312,117
Total commercial
real estate owner
occupied
$
389,357
$
255,915
$
106,487
$
101,899
$
67,930
$
871,975
$
24,539
$
-
$
1,818,102
Commercial and industrial
Watch
$
190,276
$
17,209
$
25,828
$
113,108
$
14,582
$
92,306
$
112,108
$
-
$
565,417
Special Mention
9,884
17,139
15,526
28,954
1,071
28,663
68,574
-
169,811
Substandard
2,727
1,188
7,600
36,321
66,939
47,058
38,162
-
199,995
Doubtful
-
-
-
-
-
62
-
-
62
Loss
262
58
108
17
51
191
-
-
687
Pass
1,116,915
674,933
487,052
275,170
187,726
673,205
987,606
-
4,402,607
Total commercial
and industrial
$
1,320,064
$
710,527
$
536,114
$
453,570
$
270,369
$
841,485
$
1,206,450
$
-
$
5,338,579
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
177
December 31, 2021
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2021
2020
2019
2018
2017
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
-
$
14,300
$
23,547
$
28,757
$
34,205
$
-
$
-
$
-
$
100,809
Special Mention
-
-
-
-
-
13,622
-
-
13,622
Substandard
-
-
485
15,438
10,231
-
-
-
26,154
Pass
152,183
177,667
166,253
13,634
36,500
7,138
22,260
-
575,635
Total construction
$
152,183
$
191,967
$
190,285
$
57,829
$
80,936
$
20,760
$
22,260
$
-
$
716,220
Mortgage
Substandard
$
-
$
5,292
$
9,106
$
6,580
$
4,527
$
135,370
$
-
$
-
$
160,875
Pass
790,383
570,992
438,535
327,225
201,358
4,937,828
-
-
7,266,321
Total mortgage
$
790,383
$
576,284
$
447,641
$
333,805
$
205,885
$
5,073,198
$
-
$
-
$
7,427,196
Leasing
Substandard
$
124
$
618
$
880
$
613
$
613
$
235
$
-
$
-
$
3,083
Loss
-
-
-
1
16
2
-
-
19
Pass
613,452
328,085
222,770
133,112
62,881
17,917
-
-
1,378,217
Total leasing
$
613,576
$
328,703
$
223,650
$
133,726
$
63,510
$
18,154
$
-
$
-
$
1,381,319
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
178
December 31, 2021
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2021
2020
2019
2018
2017
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
8,577
$
-
$
8,577
Pass
-
-
-
-
-
-
911,284
-
911,284
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
919,861
$
-
$
919,861
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
3,006
$
23
$
935
$
3,964
Loss
-
-
-
-
-
207
-
1,258
1,465
Pass
-
-
-
-
-
11,423
41,815
20,195
73,433
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
14,636
$
41,838
$
22,388
$
78,862
Personal
Substandard
$
498
$
691
$
2,355
$
939
$
953
$
15,843
$
2
$
1,385
$
22,666
Loss
30
2
7
-
-
22
-
-
61
Pass
615,142
217,063
270,674
98,759
56,432
125,690
124
36,394
1,420,278
Total Personal
$
615,670
$
217,756
$
273,036
$
99,698
$
57,385
$
141,555
$
126
$
37,779
$
1,443,005
Auto
Substandard
$
3,080
$
7,520
$
9,498
$
4,739
$
2,210
$
1,422
$
-
$
-
$
28,469
Loss
42
11
-
-
-
-
-
-
53
Pass
1,259,800
808,339
637,300
420,293
177,104
80,829
-
-
3,383,665
Total Auto
$
1,262,922
$
815,870
$
646,798
$
425,032
$
179,314
$
82,251
$
-
$
-
$
3,412,187
Other consumer
Substandard
$
-
$
114
$
21
$
487
$
-
$
135
$
11,250
$
-
$
12,007
Loss
-
-
-
579
-
34
-
-
613
Pass
24,845
9,781
9,348
5,610
3,914
947
62,141
-
116,586
Total Other
consumer
$
24,845
$
9,895
$
9,369
$
6,676
$
3,914
$
1,116
$
73,391
$
-
$
129,206
Total Popular Inc.
$
6,846,687
$
4,151,913
$
3,156,760
$
2,335,830
$
1,379,915
$
8,994,389
$
2,314,896
$
60,167
$
29,240,557
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
179
Note 10 – Mortgage banking activities
Income
 
from
 
mortgage
 
banking
 
activities
 
includes
 
mortgage
 
servicing
 
fees
 
earned
 
in
 
connection
 
with
 
administering
 
residential
mortgage
 
loans
 
and
 
valuation
 
adjustments
 
on
 
mortgage
 
servicing
 
rights.
 
It
 
also
 
includes
 
gain
 
on
 
sales
 
and
 
securitizations
 
of
residential mortgage
 
loans, losses
 
on repurchased
 
loans, including
 
interest advances,
 
and trading
 
gains and
 
losses on
 
derivative
contracts
 
used
 
to
 
hedge
 
the
 
Corporation’s
 
securitization
 
activities.
 
In
 
addition,
 
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:
Years ended December
 
31,
(In thousands)
2022
2021
2020
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
36,487
$
38,105
$
43,234
Mortgage servicing rights fair value adjustments
236
(10,206)
(42,055)
Total mortgage
 
servicing fees, net of fair value adjustments
36,723
27,899
1,179
Net (loss) gain on sale of loans, including valuation on
 
loans held for sale
(251)
21,684
31,215
Trading account profit (loss):
Realized gains (losses) on closed derivative positions
6,635
1,323
(10,586)
Total trading account
 
profit (loss)
6,635
1,323
(10,586)
Losses on repurchased loans, including interest advances [1]
(657)
(773)
(11,407)
Total mortgage
 
banking activities
$
42,450
$
50,133
$
10,401
[1]
The Corporation, from time to time, repurchases delinquent
 
loans from its GNMA servicing portfolio, in compliance
 
with Guarantor guidelines, and
may incur in losses related to previously advanced interest
 
on delinquent loans. During the quarter ended September
 
30, 2020 the Corporation
repurchased $
687.9
 
million of GNMA loans and recorded a loss of $
10.5
 
million for previously advanced interest on delinquent
 
loans. Effective for
the quarter ended September 30, 2020, the Corporation
 
has determined to present these losses as part of its
 
Mortgage Banking Activities, which
were previously presented within the indemnity reserves on loans
 
sold component of non-interest income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
180
Note 11 – Transfers of financial assets and mortgage servicing assets
The
 
Corporation
 
typically
 
transfers
 
conforming
 
residential
 
mortgage
 
loans
 
in
 
conjunction
 
with
 
GNMA,
 
FNMA
 
and
 
FHLMC
securitization transactions
 
whereby the
 
loans are
 
exchanged for
 
cash or
 
securities and
 
servicing rights.
 
As seller,
 
the Corporation
has made
 
certain representations
 
and warranties
 
with respect
 
to the
 
originally transferred
 
loans and,
 
in the
 
past,
 
has sold
 
certain
loans
 
with
 
credit
 
recourse
 
to
 
a
 
government-sponsored
 
entity,
 
namely
 
FNMA.
 
Refer
 
to
 
Note
 
23
 
to
 
the
 
Consolidated
 
Financial
Statements for a description of such arrangements.
 
No
 
liabilities were incurred
 
as a result
 
of these securitizations
 
during the years
 
ended December 31, 2022
 
and 2021 because
 
they
did
 
not
 
contain
 
any
 
credit
 
recourse
 
arrangements.
 
The
 
Corporation recorded
 
a
 
net
 
loss
 
of
 
$
1.8
 
million
 
and
 
a
 
net
 
gain
 
of
 
$
18.4
million, respectively, during the years ended December 31, 2022 and 2021
 
related to the residential mortgage loans securitized.
 
The
 
following tables
 
present the
 
initial fair
 
value of
 
the
 
assets obtained
 
as
 
proceeds from
 
residential mortgage
 
loans securitized
during the years ended December 31, 2022 and
 
2021:
Proceeds Obtained During the Year
 
Ended December 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Initial fair value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
169,352
$
-
$
169,352
Mortgage-backed securities - FNMA
-
122,422
-
122,422
Mortgage-backed securities - FHLMC
-
8,505
-
8,505
Total trading account
 
debt securities
$
-
$
300,279
$
-
$
300,279
Mortgage servicing rights
$
-
$
-
$
5,318
$
5,318
Total
 
$
-
$
300,279
$
5,318
$
305,597
Proceeds Obtained During the Year
 
Ended December 31, 2021
(In thousands)
Level 1
Level 2
Level 3
Initial fair value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
380,228
$
-
$
380,228
Mortgage-backed securities - FNMA
-
329,617
-
329,617
Mortgage-backed securities - FHLMC
-
22,688
-
22,688
Total trading account
 
debt securities
$
-
$
732,533
$
-
$
732,533
Mortgage servicing rights
$
-
$
-
$
11,314
$
11,314
Total
 
$
-
$
732,533
$
11,314
$
743,847
During the
 
year ended
 
December 31,
 
2022, the
 
Corporation retained
 
servicing rights
 
on whole
 
loan sales
 
involving approximately
$
114
 
million in principal balance outstanding (2021 - $
144
 
million), with net realized gains of approximately $
1.8
 
million (2021 - $
3.2
million). All loan sales performed during the
 
years ended December 31, 2022 and 2021 were without
 
credit recourse agreements.
 
The Corporation recognizes as assets the rights to service loans for others,
 
whether these rights are purchased or result from asset
transfers such as sales and securitizations. These mortgage
 
servicing rights (“MSRs”) are measured at fair value.
The
 
Corporation
 
uses
 
a
 
discounted
 
cash
 
flow
 
model
 
to
 
estimate
 
the
 
fair
 
value
 
of
 
MSRs.
 
The
 
discounted
 
cash
 
flow
 
model
incorporates
 
assumptions
 
that
 
market
 
participants
 
would
 
use
 
in
 
estimating
 
future
 
net
 
servicing
 
income,
 
including
 
estimates
 
of
prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late
fees, among other considerations. Prepayment speeds are
 
adjusted for the loans’ characteristics and portfolio behavior.
 
The following table
 
presents the changes
 
in MSRs measured
 
using the fair
 
value method for
 
the years ended
 
December 31, 2022
and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
181
Residential MSRs
(In thousands)
December 31, 2022
December 31, 2021
Fair value at beginning of period
$
121,570
$
118,395
Additions
6,614
13,391
Changes due to payments on loans
 
[1]
(11,063)
(15,383)
Reduction due to loan repurchases
(779)
(1,233)
Changes in fair value due to changes in valuation model inputs
 
or assumptions
12,845
6,410
Other
(837)
(10)
Fair value at end of period
 
[2]
$
128,350
$
121,570
[1] Represents changes due to collection / realization
 
of expected cash flows over time.
[2] At December 31, 2022, PB had MSRs amounting to $
2.0
 
million (December 31, 2021 - $
1.6
 
million).
Residential mortgage loans serviced for others were $
11.1
 
billion at December 31, 2022 (2021 - $
12.1
 
billion).
Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the
changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows.
The banking
 
subsidiaries receive servicing
 
fees based
 
on a
 
percentage of the
 
outstanding loan balance.
 
These servicing fees
 
are
credited to
 
income when they
 
are collected. At
 
December 31,
 
2022, those
 
weighted average mortgage
 
servicing fees
 
were
0.31
%
(2021 –
0.30
%). Under these
 
servicing agreements, the
 
banking subsidiaries do
 
not generally earn
 
significant prepayment penalty
fees on the underlying loans serviced.
The section
 
below includes
 
information on
 
assumptions used
 
in the
 
valuation model
 
of the
 
MSRs, originated
 
and purchased.
 
Key
economic assumptions used
 
in measuring the
 
servicing rights derived
 
from loans securitized
 
or sold by
 
the Corporation during
 
the
years ended December 31, 2022 and 2021 were
 
as follows:
Years ended
December 31, 2022
December 31, 2021
 
BPPR
PB
BPPR
PB
Prepayment speed
5.4
%
8.1
%
6.8
%
19.0
%
Weighted average life (in years)
9.5
7.8
8.3
20.9
Discount rate (annual rate)
10.5
%
9.9
%
10.5
%
10.7
%
Key
 
economic
 
assumptions
 
used
 
to
 
estimate
 
the
 
fair
 
value
 
of
 
MSRs
 
derived
 
from
 
sales
 
and
 
securitizations
 
of
 
mortgage
 
loans
performed
 
by
 
the
 
banking
 
subsidiaries
 
and
 
servicing
 
rights
 
purchased
 
from
 
other
 
financial
 
institutions,
 
and
 
the
 
sensitivity
 
to
immediate changes in those assumptions, were as follows
 
as of the end of the periods reported:
Originated MSRs
Purchased MSRs
December 31,
December 31,
December 31,
December 31,
 
(In thousands)
2022
2021
2022
2021
Fair value of servicing rights
$
41,548
$
40,058
$
86,802
$
81,512
Weighted average life (in years)
6.8
7.1
6.9
7.5
Weighted average prepayment speed (annual
 
rate)
5.9
%
7.7
%
7.0
%
7.6
%
Impact on fair value of 10% adverse change
$
(730)
$
(1,500)
$
(1,602)
$
(1,486)
Impact on fair value of 20% adverse change
$
(1,433)
$
(2,359)
$
(3,143)
$
(3,495)
Weighted average discount rate (annual rate)
11.2
%
11.2
%
11.0
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,485)
$
(2,079)
$
(3,256)
$
(2,731)
Impact on fair value of 20% adverse change
$
(2,876)
$
(3,452)
$
(6,304)
$
(5,832)
182
The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables
included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
 
At December 31, 2022, the Corporation serviced $
0.6
 
billion (2021 - $
0.7
 
billion) in residential mortgage loans with credit recourse
 
to
the Corporation, from which $
15
 
million was 60 days or
 
more past due (2021 - $
26
 
million). Also refer to Note
 
23 for information on
changes in the Corporation’s liability of estimated losses
 
related to loans serviced with credit recourse.
Under the GNMA
 
securitizations, the Corporation, as
 
servicer, has
 
the right to
 
repurchase (but not the
 
obligation), at its
 
option and
without
 
GNMA’s
 
prior
 
authorization,
 
any
 
loan
 
that
 
is
 
collateral
 
for
 
a
 
GNMA
 
guaranteed
 
mortgage-backed
 
security
 
when
 
certain
delinquency
 
criteria
 
are
 
met.
 
At
 
the
 
time
 
that
 
individual
 
loans
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria
 
and
 
are
 
eligible
 
for
repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
recorded
 
$
14
 
million
 
in
 
mortgage
 
loans
 
on
 
its
 
Consolidated
 
Statements
 
of
 
Financial
Condition related to this
 
buy-back option program (2021 -
 
$
13
 
million). Loans in
 
our serviced GNMA portfolio
 
benefit from payment
forbearance programs but continue to reflect the contractual delinquency until
 
the borrower repays deferred payments or completes
a payment deferral modification
 
or other borrower assistance
 
alternative. As long as
 
the Corporation continues to service
 
the loans
that continue to be collateral in a GNMA guaranteed
 
mortgage-backed security, the MSR is recognized by the Corporation.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
repurchased
 
approximately
 
$
58
 
million
 
of
 
mortgage
 
loans
 
from
 
its
GNMA servicing portfolio (2021 - $
94
 
million). The determination to repurchase these loans
 
was based on the economic benefits
 
of
the transaction, which results in a reduction of the servicing costs for
 
these severely delinquent loans, mostly related to principal and
interest advances. The
 
risk associated with
 
the loans is
 
reduced due to
 
their guaranteed nature.
 
The Corporation may place
 
these
loans under modification
 
programs offered by
 
FHA, VA
 
or United States
 
Department of Agriculture (USDA)
 
or other loss
 
mitigation
programs offered by the Corporation, and once brought back to
 
current status, these may be either retained in portfolio or re-sold
 
in
the secondary market.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
183
Note 12 - Premises and equipment
Premises and equipment are stated at cost less accumulated
 
depreciation and amortization as follows:
(In thousands)
Useful life in years
2022
2021
Premises and equipment:
Land
$
90,625
$
94,246
Buildings
10
-
50
482,030
468,293
Equipment
2
-
10
388,911
374,192
Leasehold improvements
3
-
10
89,693
87,406
960,634
929,891
 
Less - Accumulated depreciation and amortization
586,479
559,234
Subtotal
374,155
370,657
Construction in progress
33,931
29,337
Premises and equipment, net
$
498,711
$
494,240
Depreciation and
 
amortization of premises
 
and equipment for
 
the year 2022
 
was $
55.1
 
million (2021 -
 
$
55.1
 
million; 2020
 
- $
58.4
million), of
 
which $
24.8
 
million (2021
 
- $
25.2
 
million; 2020
 
- $
27.2
 
million) was
 
charged to
 
occupancy expense
 
and $
30.3
 
million
(2021
 
-
 
$
29.8
 
million;
 
2020
 
-
 
$
31.2
 
million)
 
was charged
 
to
 
equipment, technology
 
and
 
software
 
and
 
other
 
operating expenses.
Occupancy expense of premises and equipment
 
is net of rental income
 
of $
13.1
 
million (2021 - $
13.4
 
million; 2020 - $
15.5
 
million).
For information related to the amortization expense
 
of finance leases, refer to Note 33 - Leases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
184
Note 13 – Other real estate owned
The following
 
tables present
 
the activity
 
related to
 
Other Real
 
Estate Owned
 
(“OREO”), for
 
the years
 
ended December
 
31, 2022,
2021 and 2020.
 
For the year ended December 31, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
15,017
$
70,060
$
85,077
Write-downs in value
(959)
(1,517)
(2,476)
Additions
5,787
70,069
75,856
Sales
(7,453)
(61,453)
(68,906)
Other adjustments
108
(533)
(425)
Ending balance
$
12,500
$
76,626
$
89,126
For the year ended December 31, 2021
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
13,214
$
69,932
$
83,146
Write-downs in value
(1,058)
(2,161)
(3,219)
Additions
9,746
55,898
65,644
Sales
(7,282)
(52,666)
(59,948)
Other adjustments
397
(943)
(546)
Ending balance
$
15,017
$
70,060
$
85,077
For the year ended December 31, 2020
OREO
OREO
(In thousands)
Commercial/ Construction
Mortgage
Total
Balance at beginning of period
$
16,959
$
105,113
$
122,072
Write-downs in value
(1,564)
(3,060)
(4,624)
Additions
2,223
17,785
20,008
Sales
(4,359)
(49,797)
(54,156)
Other adjustments
(45)
(109)
(154)
Ending balance
$
13,214
$
69,932
$
83,146
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
185
Note 14 − Other assets
The caption of other assets in the consolidated
 
statements of financial condition consists of the following
 
major categories:
(In thousands)
December 31, 2022
December 31, 2021
Net deferred tax assets (net of valuation allowance)
$
953,676
$
657,597
Investments under the equity method
210,001
298,988
Prepaid taxes
39,405
37,924
Other prepaid expenses
33,384
34,937
Capitalized software costs
81,862
44,908
Derivative assets
19,229
26,093
Trades receivable from brokers and counterparties
35,099
65,460
Receivables from investments maturities
125,000
-
Principal, interest and escrow servicing advances
41,916
53,942
Guaranteed mortgage loan claims receivable
59,659
98,001
Operating ROU assets (Note 33)
125,573
141,748
Finance ROU assets (Note 33)
18,884
13,459
Others
104,125
155,514
Total other assets
$
1,847,813
$
1,628,571
The Corporation regularly incurs in
 
capitalizable costs associated with software development or
 
licensing which are recorded within
the Other Assets line item in the accompanying Consolidated Statements of Financial Condition.
 
In addition, the Corporation incurs
costs
 
associated
 
with
 
hosting
 
arrangements
 
that
 
are
 
service
 
contracts
 
that
 
are
 
also
 
recorded
 
within
 
Other
 
Assets.
 
The
 
hosting
arrangements can
 
include capitalizable
 
implementation costs
 
that are
 
amortized during
 
the term
 
of the
 
hosting arrangement.
The
following
 
table
 
summarizes
 
the
 
composition
 
of
 
acquired
 
or
 
developed
 
software
 
costs
 
as
 
well
 
as
 
costs
 
related
 
to
 
hosting
arrangements:
 
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
December 31, 2022
Software development costs [1]
$
63,609
$
16,803
$
46,806
Software license costs
37,165
14,164
23,001
Cloud computing arrangements
20,745
8,690
12,055
Total Capitalized
 
software costs [2]
$
121,519
$
39,657
$
81,862
December 31, 2021
Software development costs
$
40,033
$
18,972
$
21,061
Software license costs
168,862
154,571
14,291
Cloud computing arrangements
18,346
8,790
9,556
Total Capitalized
 
software costs
$
227,241
$
182,333
$
44,908
[1]
Software development costs includes $
28.7
 
million acquired as part of the Evertec Transactions.
[2]
At December 31, 2022 the table above excludes assets which
 
have been fully amortized.
Total
 
amortization expense for
 
all capitalized software
 
and hosting arrangement
 
cost, reflected as
 
part of
 
technology and software
expenses in the consolidated statement of operations,
 
is as follows:
Year ended December
 
31,
(In thousands)
2022
2021
2020
Software development and license costs
$
55,011
 
$
45,577
$
43,259
Cloud computing arrangements
3,805
 
3,867
2,206
Total amortization
 
expense
$
58,816
 
$
49,444
$
45,465
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
186
Note 15 – Goodwill and other intangible assets
The
 
changes
 
in
 
the
 
carrying
 
amount
 
of
 
goodwill
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2022
 
and
 
2021,
 
allocated
 
by
 
reportable
segments, were as follows (refer to Note 37 for
 
the definition of the Corporation’s reportable segments):
 
2022
Balance at
 
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2022
 
acquisition
 
impairment
December 31, 2022
Banco Popular de Puerto Rico
$
320,248
$
116,135
$
-
$
436,383
Popular U.S.
400,045
-
(9,000)
391,045
Total Popular,
 
Inc.
 
$
720,293
$
116,135
$
(9,000)
$
827,428
2021
Balance at
 
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2021
 
acquisition
 
impairment
December 31, 2021
Banco Popular de Puerto Rico
$
320,248
$
-
$
-
$
320,248
Popular U.S.
350,874
49,171
-
400,045
Total Popular,
 
Inc.
 
$
671,122
$
49,171
$
-
$
720,293
The goodwill recognized during
 
the year ended
 
December 31, 2022 in
 
the reportable segment of
 
Banco Popular de Puerto
 
Rico of
$
116.1
 
million
 
was
 
related
 
to
 
the
 
Evertec
 
Business
 
Acquisition
 
Transaction.
 
The
 
goodwill
 
recognized
 
during
 
the
 
year
 
ended
December 31,
 
2021 in
 
the reportable
 
segment of
 
Popular U.S.
 
of $
49
 
million was
 
related to
 
the PEF
 
Acquired Business.
 
Refer to
Note
 
4,
 
Business
 
combination,
 
for
 
additional
 
information
 
related
 
to
 
the
 
assets
 
acquired
 
and
 
liabilities
 
assumed
 
as
 
a
 
result
 
of
business combinations, including
 
goodwill and other intangible assets. The goodwill impairment in Popular U.S. of
 
$
9
 
million during
the year ended December 31, 2022 was recognized by the Corporation
 
from the annual test as of July 31, 2022 related to PEF, as a
result of a decrease in the projected earnings
 
of this business unit.
At December 31, 2022 and 2021, the Corporation
 
had $
0.7
 
million of identifiable intangible assets with indefinite
 
useful lives.
 
The following table reflects the components of
 
other intangible assets subject to amortization:
Gross
Net
Carrying
Accumulated
Carrying
(In thousands)
Amount
Amortization
Value
December 31, 2022
Core deposits
$
12,810
$
10,034
$
2,776
Other customer relationships
14,286
4,878
9,408
Total other intangible
 
assets
$
27,096
$
14,912
$
12,184
December 31, 2021
Core deposits
$
12,810
$
8,754
$
4,056
Other customer relationships
14,286
2,883
11,403
Total other intangible
 
assets
$
27,096
$
11,637
$
15,459
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
recognized
 
$
3.3
 
million
 
in
 
amortization
 
expense
 
related
 
to
 
other
intangible assets with definite useful lives (2021
 
- $
9.1
 
million; 2020 - $
6.4
 
million).
 
 
 
 
 
 
 
 
 
 
187
The following
 
table presents
 
the estimated
 
amortization of
 
the intangible
 
assets with
 
definite useful
 
lives for
 
each of
 
the following
periods:
(In thousands)
Year 2023
$
3,179
Year 2024
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Later years
1,918
Results of the Annual Goodwill Impairment Test
 
The Corporation’s goodwill and
 
other identifiable intangible assets having
 
an indefinite useful life
 
are tested for impairment,
 
at least
annually and
 
on a
 
more frequent basis
 
if events
 
or circumstances indicate
 
impairment could have
 
taken place. Such
 
events could
include,
 
among others,
 
a significant
 
adverse change
 
in the
 
business climate,
 
an adverse
 
action by
 
a regulator,
 
an unanticipated
change in the competitive environment and a decision
 
to change the operations or dispose of a
 
reporting unit.
 
Management
 
monitors
 
events
 
or
 
changes
 
in
 
circumstances
 
between
 
annual
 
tests
 
to
 
determine
 
if
 
these
 
events
 
or
 
changes
 
in
circumstances would more likely than not reduce
 
the fair value of its
 
reporting units below their carrying amounts.
The Corporation
 
performed the
 
annual goodwill
 
impairment evaluation
 
for the
 
entire organization
 
during the
 
third quarter
 
of 2022
using July 31, 2022 as the annual evaluation date. The reporting units
 
utilized for this evaluation were those that are one level below
the business segments,
 
which are the
 
legal entities within the
 
reportable segment. The Corporation
 
follows push-down accounting,
as such all goodwill is assigned to the reporting
 
units when carrying out a business combination.
In determining the fair value of each reporting unit, the Corporation generally uses a combination of methods, including market price
multiples
 
of
 
comparable
 
companies
 
and
 
transactions,
 
as
 
well
 
as
 
discounted
 
cash
 
flow
 
analysis.
 
Management
 
evaluates
 
the
particular circumstances
 
of each
 
reporting unit
 
in order
 
to determine
 
the most
 
appropriate valuation methodology
 
and the
 
weights
applied
 
to
 
each
 
valuation
 
methodology,
 
as
 
applicable.
 
The
 
Corporation
 
evaluates
 
the
 
results
 
obtained
 
under
 
each
 
valuation
methodology to
 
identify and
 
understand the
 
key
 
value drivers
 
in order
 
to
 
ascertain that
 
the
 
results obtained
 
are
 
reasonable and
appropriate
 
under
 
the
 
circumstances.
 
Elements
 
considered
 
include
 
current
 
market
 
and
 
economic
 
conditions,
 
developments
 
in
specific lines of business, and any particular
 
features in the individual reporting units.
 
The computations
 
require management
 
to make
 
estimates and
 
assumptions. Critical
 
assumptions that
 
are used
 
as part
 
of these
evaluations include:
 
a selection of comparable publicly traded companies,
 
based on nature of business, location and
 
size;
 
a selection of comparable acquisitions;
 
the discount rate applied to future earnings, based
 
on an estimate of the cost of equity;
 
the potential future earnings of the reporting unit;
 
and
 
the market growth and new business assumptions.
For purposes of the market comparable companies’ approach, valuations were determined by calculating
 
average price multiples of
relevant value drivers from a group of
 
companies that are comparable to the reporting
 
unit being analyzed and applying those price
multiples
 
to
 
the
 
value
 
drivers
 
of
 
the
 
reporting
 
unit.
 
Management
 
uses
 
judgment
 
in
 
the
 
determination
 
of
 
which
 
value
 
drivers
 
are
considered more appropriate for each reporting unit.
 
Comparable companies’ price multiples represent minority-based multiples and
thus, a
 
control premium
 
adjustment is
 
added to
 
the comparable
 
companies’ market
 
multiples applied
 
to the
 
reporting unit’s
 
value
drivers.
 
For purposes
 
of the
 
market comparable transactions’
 
approach, valuations had
 
been previously determined
 
by the
 
Corporation by
calculating
 
average
 
price
 
multiples
 
of
 
relevant
 
value
 
drivers
 
from
 
a
 
group
 
of
 
transactions
 
for
 
which
 
the
 
target
 
companies
 
are
comparable to the reporting unit being analyzed and
 
applying those price multiples to the value drivers
 
of the reporting unit.
 
 
 
 
 
 
 
 
 
 
 
 
188
For purposes
 
of the
 
discounted cash flows
 
(“DCF”) approach, the
 
valuation is
 
based on
 
estimated future cash
 
flows. The
 
financial
projections
 
used
 
in
 
the
 
DCF
 
valuation
 
analysis
 
for
 
each
 
reporting
 
unit
 
are
 
based
 
on
 
the
 
most
 
recent
 
(as
 
of
 
the
 
valuation
 
date)
financial
 
projections presented
 
to
 
the
 
Corporation’s Asset
 
/
 
Liability Management
 
Committee (“ALCO”).
 
The
 
growth assumptions
included
 
in
 
these
 
projections
 
are
 
based
 
on
 
management’s
 
expectations for
 
each
 
reporting
 
unit’s
 
financial
 
prospects
 
considering
economic and industry conditions as well
 
as particular plans of each entity
 
(i.e. restructuring plans, de-leveraging, etc.). The cost
 
of
equity used to
 
discount the cash flows
 
was calculated using the
 
Ibbotson Build-Up Method and
 
ranged from
12.51
% to
15.73
% for
the 2022 analysis. The Ibbotson Build-Up Method
 
builds up a cost of equity
 
starting with the rate of
 
return of a “risk-free” asset (20-
year U.S. Treasury
 
note) and adds
 
to it additional
 
risk elements such as
 
equity risk premium, size
 
premium, industry risk
 
premium,
and a
 
specific geographic risk
 
premium (as applicable).
 
The resulting discount
 
rates were
 
analyzed in terms
 
of reasonability given
the current market conditions.
The results of the BPPR annual goodwill impairment test as of July 31, 2022
 
indicated that the average estimated fair value using all
valuation methodologies exceeded BPPR’s equity
 
value by approximately $
3.1
 
billion or
245
% compared to $
1.5
 
billion or
50
%, for
the annual
 
goodwill impairment test
 
completed as
 
of July
 
31, 2021. PB’s
 
annual goodwill impairment
 
test results
 
as of
 
such dates
indicated that the average estimated fair value using all valuation methodologies exceeded PB’s equity value by approximately $
670
million
 
or
41
%,
 
compared
 
to
 
$
412
 
million
 
or
24
%,
 
for
 
the
 
annual
 
goodwill
 
impairment
 
test
 
completed
 
as
 
of
 
July
 
31,
 
2021.
Accordingly, no
 
impairment was recognized for
 
BPPR or PB.
 
The goodwill balance
 
of BPPR and PB,
 
as legal entities,
 
represented
approximately
93
% of the Corporation’s total goodwill balance as of
 
the July 31, 2022 valuation date.
An impairment of $
9
 
million was recognized by the Corporation from the annual test as of July 31, 2022 related to PEF as a result of
a decrease in the projected earnings of this
 
business unit.
 
Furthermore,
 
as
 
part
 
of
 
the
 
analyses,
 
management
 
performed
 
a
 
reconciliation
 
of
 
the
 
aggregate
 
fair
 
values
 
determined
 
for
 
the
reporting units to the market capitalization of the Corporation concluding that the
 
fair value results determined for the reporting units
in the July 31, 2022 annual assessment were reasonable.
The goodwill
 
impairment evaluation
 
process requires
 
the Corporation
 
to
 
make estimates
 
and assumptions
 
with regard
 
to the
 
fair
value
 
of
 
the
 
reporting
 
units.
 
Actual
 
values
 
may
 
differ
 
significantly
 
from
 
these
 
estimates.
 
Such
 
differences
 
could
 
result
 
in
 
future
impairment of goodwill that would, in turn, negatively
 
impact the Corporation’s results of operations and the
 
reporting units where the
goodwill is
 
recorded. Declines in
 
the Corporation’s
 
market capitalization and
 
adverse economic conditions
 
sustained over a
 
longer
period of time negatively affecting forecasted cash flows could
 
increase the risk of goodwill impairment in
 
the future.
 
A decline in
 
the Corporation’s stock
 
price related to
 
global and/or regional macroeconomic
 
conditions, a deterioration in
 
the Puerto
Rico
 
economy
 
and
 
fiscal
 
situation,
 
reduced
 
future
 
earnings
 
estimates,
 
additional
 
expenses
 
and
 
higher
 
credit
 
losses,
 
and
 
the
continuance
 
of
 
the
 
current
 
interest
 
rate
 
environment
 
could,
 
individually
 
or
 
in
 
the
 
aggregate,
 
have
 
a
 
material
 
impact
 
on
 
the
determination
 
of
 
the
 
fair
 
value
 
of
 
our
 
reporting
 
units,
 
which
 
could
 
in
 
turn
 
result
 
in
 
an
 
impairment
 
of
 
goodwill
 
in
 
the
 
future.
 
An
impairment of goodwill would result in a non-cash expense, net
 
of tax impact. A charge to earnings related to a
 
goodwill impairment
would not impact regulatory capital calculations.
The following tables present the gross amount
 
of goodwill and accumulated impairment losses
 
by reportable segments.
December 31, 2022
Balance at
Balance at
December 31,
Accumulated
December 31,
2022
impairment
 
2022
(In thousands)
 
(gross amounts)
losses
 
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
 
Inc.
 
$
1,004,640
$
177,212
$
827,428
 
 
 
 
 
 
 
 
 
 
 
 
189
December 31, 2021
 
Balance at
 
 
Balance at
 
December 31,
Accumulated
December 31,
2021
impairment
 
2021
(In thousands)
 
(gross amounts)
losses
 
(net amounts)
Banco Popular de Puerto Rico
$
324,049
$
3,801
$
320,248
Popular U.S.
564,456
164,411
400,045
Total Popular,
 
Inc.
 
$
888,505
$
168,212
$
720,293
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
190
Note 16 – Deposits
Total interest bearing deposits as of the end of the periods presented consisted of:
(In thousands)
December 31, 2022
December 31, 2021
Savings accounts
$
14,746,329
$
15,871,998
NOW, money market and other interest
 
bearing demand deposits
23,738,940
28,736,459
Total savings, NOW,
 
money market and other interest bearing demand
 
deposits
38,485,269
44,608,457
Certificates of deposit:
Under $250,000
4,235,651
4,086,059
$250,000 and over
2,545,750
2,626,090
 
Total certificates
 
of deposit
6,781,401
6,712,149
Total interest bearing
 
deposits
$
45,266,670
$
51,320,606
A summary of certificates of deposits by maturity at
 
December 31, 2022 follows:
 
(In thousands)
2023
$
3,949,235
2024
1,102,195
2025
743,799
2026
416,106
2027
486,738
2028 and thereafter
83,328
Total certificates of
 
deposit
$
6,781,401
At December 31, 2022, the Corporation had brokered
 
deposits amounting to $
1.1
 
billion (December 31, 2021 - $
0.8
 
billion).
The aggregate amount
 
of overdrafts in
 
demand deposit accounts
 
that were reclassified
 
to loans
 
was $
6.3
 
million at
 
December 31,
2022 (December 31, 2021 - $
6.0
 
million).
At
 
December
 
31,
 
2022,
 
public
 
sector
 
deposits
 
amounted
 
to
 
$
15.2
 
billion.
 
Public
 
deposit
 
balances
 
are
 
difficult
 
to
 
predict.
 
For
example, the receipt by
 
the Puerto Rico Government of
 
hurricane recovery related Federal assistance and
 
seasonal tax collections
could increase public
 
deposit balances at BPPR.
 
On the other
 
hand, the amount
 
and timing of
 
reductions in balances are
 
likely to
be
 
impacted
 
by,
 
for
 
example,
 
the
 
speed
 
at
 
which
 
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”).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
191
Note 17 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
 
to $
149
 
million at December 31, 2022 and $
92
 
million at December 31,
2021.
The Corporation’s
 
repurchase transactions are
 
overcollateralized with the
 
securities detailed in
 
the table
 
below.
 
The Corporation’s
repurchase
 
agreements
 
have
 
a
 
right
 
of
 
set-off
 
with
 
the
 
respective
 
counterparty
 
under
 
the
 
supplemental
 
terms
 
of
 
the
 
master
repurchase agreements.
 
In
 
an event
 
of
 
default each
 
party has
 
a right
 
of
 
set-off
 
against the
 
other party
 
for amounts
 
owed in
 
the
related
 
agreement
 
and
 
any
 
other
 
amount
 
or
 
obligation
 
owed
 
in
 
respect
 
of
 
any
 
other
 
agreement
 
or
 
transaction
 
between
 
them.
Pursuant to the
 
Corporation’s accounting policy,
 
the repurchase agreements
 
are not offset
 
with other repurchase
 
agreements held
with the same counterparty.
The following table
 
presents information related to
 
the Corporation’s repurchase
 
transactions accounted for as
 
secured borrowings
that are collateralized with
 
debt securities available-for-sale, debt securities
 
held-to-maturity, other assets
 
held-for-trading purposes
or which have been obtained under agreements to resell.
 
It is the Corporation’s policy to maintain effective control over assets sold
under agreements
 
to repurchase;
 
accordingly,
 
such securities
 
continue to
 
be carried
 
on the
 
Consolidated Statements
 
of Financial
Condition.
Repurchase agreements accounted for as secured borrowings
December 31, 2022
December 31, 2021
Repurchase liability
Repurchase liability
Repurchase
 
weighted average
Repurchase
 
weighted average
(Dollars in thousands)
 
liability
interest rate
 
liability
interest rate
U.S. Treasury securities
 
Within 30 days
$
410
4.40
%
$
19,538
0.30
%
 
After 30 to 90 days
30,739
3.79
30,295
0.21
 
After 90 days
17,521
4.39
29,036
0.29
Total U.S. Treasury
 
securities
48,670
4.01
78,869
0.26
Mortgage-backed securities
 
Within 30 days
98,984
4.27
11,733
0.26
 
After 30 to 90 days
791
3.27
-
-
 
After 90 days
-
-
722
0.16
Total mortgage-backed
 
securities
99,775
4.26
12,455
0.26
Collateralized mortgage obligations
 
Within 30 days
164
4.25
279
0.25
Total collateralized
 
mortgage obligations
164
4.25
279
0.25
Total
$
148,609
4.18
%
$
91,603
0.26
%
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
192
(Dollars in thousands)
2022
2021
Maximum aggregate balance outstanding at any month-end
$
162,450
$
92,101
Average monthly aggregate balance outstanding
$
107,305
$
91,394
Weighted average interest rate:
For the year
2.15
%
0.35
%
At December 31
4.23
%
0.26
%
Other short-term borrowings
 
At December 31, 2022 and December 31, 2021,
 
other short-term borrowings consisted of $
365
 
million and $
75
 
million, respectively,
in FHLB Advances.
The following table presents additional information
 
related to the Corporation’s other short-term borrowings
 
for
the years ended December 31, 2022 and December
 
31, 2021.
(Dollars in thousands)
2022
2021
Maximum aggregate balance outstanding at any month-end
$
375,000
$
75,000
Average monthly aggregate balance outstanding
$
99,083
$
343
Weighted average interest rate:
For the year
3.46
%
0.35
%
At December 31
4.47
%
0.35
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
193
Notes Payable
The following table presents the composition of notes
 
payable at December 31, 2022 and December
 
31, 2021.
(In thousands)
December 31, 2022
December 31, 2021
Advances with the FHLB with maturities ranging from
2023
 
through
2029
 
paying interest at monthly
fixed rates ranging from
0.39
% to
3.18
%
 
(2021 -
0.39
% to
3.18
%)
$
389,282
$
492,429
Unsecured senior debt securities maturing on September
2023
 
paying interest
semiannually
 
at a fixed
rate of
6.125
%, net of debt issuance costs of $
891
 
(2021 - $
2,158
)
299,109
297,842
Junior subordinated deferrable interest debentures (related to
 
trust preferred securities) maturing on
2034
 
with fixed interest rates ranging from
6.125
% to
6.564
% (2021 -
6.125
% to
6.564
%), net of debt
issuance costs of $
315
 
(2021 - $
342
)
198,319
198,292
Total notes payable
$
886,710
$
988,563
A breakdown of borrowings by contractual maturities
 
at December 31, 2022 is included in
 
the table below.
 
Assets sold under
 
Short-term
(In thousands)
agreements to
repurchase
borrowings
Notes payable
Total
2023
$
148,609
$
365,000
$
342,370
$
855,979
2024
-
-
91,944
91,944
2025
-
-
139,920
139,920
2026
-
-
74,500
74,500
Later years
-
-
237,976
237,976
Total borrowings
$
148,609
$
365,000
$
886,710
$
1,400,319
At
 
December
 
31,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
Corporation had
 
FHLB
 
borrowing
 
facilities
 
whereby
 
the
 
Corporation could
borrow up to
 
$
3.3
 
billion and $
3.0
 
billion, respectively,
 
of which $
0.8
 
billion and $
0.6
 
billion, respectively,
 
were used. In
 
addition, at
December 31, 2022 and
 
December 31, 2021, the
 
Corporation had placed $
0.4
 
billion and $
1.2
 
billion, respectively,
 
of the available
FHLB credit
 
facility as
 
collateral for
 
municipal letters
 
of credit
 
to secure
 
deposits. The
 
FHLB borrowing
 
facilities are
 
collateralized
with loans held-in-portfolio, and do not have restrictive
 
covenants or callable features.
 
Also, at
 
December 31, 2022,
 
the Corporation has
 
a borrowing facility
 
at the discount
 
window of the
 
Federal Reserve Bank
 
of New
York amounting to $
1.4
 
billion (December 31, 2021 - $
1.3
 
billion), which remained unused at December 31, 2022
 
and December 31,
2021.
 
The facility is a collateralized source
 
of credit that is highly reliable even under difficult
 
market conditions.
 
 
 
 
 
 
 
 
 
 
 
194
Note 18 – Trust preferred securities
Statutory trusts established by the Corporation (Popular North America
 
Capital Trust I and Popular
 
Capital Trust II) had issued
 
trust
preferred
 
securities
 
(also
 
referred
 
to
 
as
 
“capital
 
securities”)
 
to
 
the
 
public.
 
The
 
proceeds
 
from
 
such
 
issuances,
 
together
 
with
 
the
proceeds of the related issuances of common securities of the trusts (the “common securities”), were used by the trusts to purchase
junior subordinated deferrable interest debentures (the
 
“junior subordinated debentures”) issued by the
 
Corporation.
 
The sole
 
assets of
 
the trusts
 
consisted of
 
the junior
 
subordinated debentures
 
of the
 
Corporation and
 
the related
 
accrued interest
receivable. These trusts are not consolidated
 
by the Corporation pursuant to accounting
 
principles generally accepted in the United
States of America.
The junior subordinated
 
debentures are included
 
by the Corporation
 
as notes payable
 
in the Consolidated
 
Statements of Financial
Condition, while
 
the common
 
securities issued
 
by the
 
issuer trusts
 
are included
 
as debt
 
securities held-to-maturity.
 
The common
securities of each trust are wholly-owned, or indirectly
 
wholly-owned, by the Corporation.
On November 1,
 
2021, the
 
Corporation redeemed
 
all
 
outstanding trust
 
preferred securities
 
issued by
 
the Popular
 
Capital Trust
 
I
amounting to approximately $
187
 
million (or approximately $
181
 
million after excluding the Corporation’s participation in the Trust of
approximately $
6
 
million) in the aggregate.
The following table presents financial data pertaining
 
to the different trusts at December 31, 2022 and 2021.
(Dollars in thousands)
December 31, 2022 and 2021
Popular
 
North America
 
Popular
 
Issuer
Capital Trust I
Capital Trust Il
Capital securities
$
91,651
$
101,023
Distribution rate
6.564
%
6.125
%
Common securities
$
2,835
$
3,125
Junior subordinated debentures aggregate liquidation amount
$
94,486
$
104,148
Stated maturity date
September 2034
December 2034
Reference notes
[1],[3],[5]
[2],[4],[5]
[1] Statutory business trust that is wholly-owned by
 
PNA and indirectly wholly-owned by the Corporation.
[2] Statutory business trust that is wholly-owned by
 
the Corporation.
[3] The obligation of PNA under the junior subordinated
 
debenture and its guarantees of the capital securities under
 
the trust is fully and unconditionally
guaranteed on a subordinated basis by the Corporation
 
to the extent set forth in the guarantee agreement.
[4] These capital securities are fully and unconditionally guaranteed
 
on a subordinated basis by the Corporation to the extent
 
set forth in the guarantee
agreement.
[5] The Corporation has the right, subject to any required
 
prior approval from the Federal Reserve, to redeem
 
after certain dates or upon the
occurrence of certain events mentioned below,
 
the junior subordinated debentures at a redemption
 
price equal to 100% of the principal amount, plus
accrued and unpaid interest to the date of redemption. The
 
maturity of the junior subordinated debentures may
 
be shortened at the option of the
Corporation prior to their stated maturity dates (i) on or
 
after the stated optional redemption dates stipulated in
 
the agreements, in whole at any time or
in part from time to time, or (ii) in whole, but not in part,
 
at any time within 90 days following the occurrence
 
and during the continuation of a tax event,
an investment company event or a capital treatment event
 
as set forth in the indentures relating to the capital securities,
 
in each case subject to
regulatory approval.
 
At
 
December
 
31,
 
2022,
 
the
 
Corporation’s
 
$
193
 
million
 
in
 
trust
 
preferred
 
securities
 
outstanding
 
do
 
not
 
qualify
 
for
 
Tier
 
1
 
capital
treatment, but instead qualify for Tier 2 capital treatment compared
 
to $
193
 
million at December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
195
Note 19 − Other liabilities
The caption of other liabilities in the consolidated
 
statements of financial condition consists of the following
 
major categories:
(In thousands)
December 31, 2022
December 31, 2021
Accrued expenses
$
337,284
$
308,594
Accrued interest payable
39,288
33,227
Accounts payable
76,456
91,804
Dividends payable
39,525
35,937
Trades payable
9,461
13,789
Liability for GNMA loans sold with an option to repurchase
14,271
12,806
Reserves for loan indemnifications
7,520
12,639
Reserve for operational losses
39,266
43,886
Operating lease liabilities (Note 33)
137,290
154,114
Finance lease liabilities (Note 33)
24,737
19,719
Pension benefit obligation
8,290
8,778
Postretirement benefit obligation
118,336
161,988
Others
65,222
70,967
Total other liabilities
$
916,946
$
968,248
196
Note 20 – Stockholders’ equity
 
The Corporation’s common stock ranks junior to all series of
 
preferred stock as to dividend rights and / or as
 
to rights on liquidation,
dissolution
 
or
 
winding
 
up
 
of
 
the
 
Corporation.
 
Dividends
 
on
 
preferred
 
stock
 
are
 
payable
 
if
 
declared.
 
The
 
Corporation’s
 
ability
 
to
declare or
 
pay dividends
 
on, or
 
purchase, redeem
 
or otherwise
 
acquire, its
 
common stock
 
is subject
 
to certain
 
restrictions in
 
the
event that the
 
Corporation fails to pay
 
or set aside
 
full dividends on the
 
preferred stock for the
 
latest dividend period. The
 
ability of
the Corporation to
 
pay dividends in
 
the future is
 
limited by regulatory
 
requirements, legal availability of
 
funds, recent and
 
projected
financial results, capital levels and liquidity of the Corporation, general
 
business conditions and other factors deemed relevant by
 
the
Corporation’s Board of Directors.
The Corporation’s
 
common stock
 
trades on
 
the Nasdaq
 
Global Select
 
Market (the
 
“Nasdaq”) under
 
the symbol
 
BPOP.
 
The 2003
Series A Preferred Stock are not listed on Nasdaq.
 
Preferred stocks
The Corporation has
30,000,000
 
shares of authorized
 
preferred stock that may
 
be issued in
 
one or more
 
series, and the
 
shares of
each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that
particular series. The Corporation’s shares of preferred stock at
 
December 31, 2022 consisted of:
6.375
% non-cumulative monthly income preferred stock, 2003 Series
 
A, no par value, liquidation
 
preference value of $
25
per share. Holders on record of the 2003 Series A Preferred Stock are entitled to
 
receive, when, as and if declared by the
Board of
 
Directors of
 
the Corporation
 
or an
 
authorized
 
committee thereof,
 
out of
 
funds legally
 
available, non-cumulative
cash dividends at the
 
annual rate per share
 
of
6.375
% of their
 
liquidation preference value, or
 
$
0.1328125
 
per share per
month.
 
These
 
shares
 
of
 
preferred
 
stock
 
are
 
perpetual,
 
nonconvertible,
 
have
 
no
 
preferential
 
rights
 
to
 
purchase
 
any
securities of the
 
Corporation and are redeemable solely
 
at the option of
 
the Corporation with the
 
consent of the Board
 
of
Governors
 
of
 
the
 
Federal
 
Reserve
 
System.
 
The
 
redemption
 
price
 
per
 
share
 
is
 
$
25.00
.
 
The
 
shares
 
of
 
2003
 
Series
 
A
Preferred Stock have no voting
 
rights, except for certain rights in
 
instances when the Corporation does not
 
pay dividends
for a defined period. These
 
shares are not subject to
 
any sinking fund requirement. Cash dividends declared and
 
paid on
the 2003
 
Series A
 
Preferred Stock
 
amounted to
 
$
1.4
 
million for
 
the years
 
ended December
 
31, 2022,
 
2021 and
 
2020.
Outstanding shares of 2003 Series A Preferred Stock amounted
 
to
885,726
 
at December 31, 2022, 2021 and 2020.
On February 24, 2020, the
 
Corporation redeemed all the outstanding shares of the
 
2008 Series B Preferred Stock. The
 
redemption
price of
 
the 2008
 
Series B
 
Preferred Stock
 
was $
25.00
 
per share,
 
plus $
0.1375
 
(representing the
 
amount of
 
accrued and
 
unpaid
dividends for the current monthly dividend period to
 
the redemption date), for a total payment per
 
share in the amount of $
25.1375
.
Common stock
Dividends
During
 
the
 
year
 
2022,
 
cash
 
dividends
 
of
 
$
2.20
 
(2021
 
-
 
$
1.75
;
 
2020
 
-
 
$
1.60
)
 
per
 
common
 
share
 
outstanding
 
were
 
declared
amounting to $
163.7
 
million (2021 - $
142.3
 
million; 2020 -
 
$
136.6
 
million) of which
 
$
39.5
 
million were payable to
 
stockholders of
common
 
stock
 
at
 
December
 
31,
 
2022
 
(2021
 
-
 
$
35.9
 
million;
 
2020
 
-
 
$
33.7
 
million).
 
The
 
quarterly
 
dividend
 
of
 
$
0.55
 
per
 
share
declared to stockholders of record as of the close of business on
December 7, 2022
, was paid on
January 3, 2023
. On February 28,
2023, the Corporation’s Board of Directors approved a quarterly cash dividend of $
0.55
 
per share on its outstanding common stock,
payable on
April 3, 2023
 
to stockholders of record at the close of business
 
on
March 20, 2023
.
Accelerated share repurchase transaction (“ASR”)
On August
 
24, 2022,
 
the Corporation
 
entered into
 
a $
231
 
million ASR
 
transaction with
 
respect to
 
its common
 
stock (the
 
“August
ASR Agreement”), which was accounted for as
 
a treasury transaction. As a result of the
 
receipt of the initial
 
2,339,241
 
shares,
 
the
Corporation recognized in stockholders’ equity approximately $
185
 
million in treasury stock and $
46
 
million as a reduction of capital
surplus. The Corporation completed the transaction on December 7, 2022 and received
840,024
 
additional shares of common stock
and
 
recognized
 
approximately
 
$
60
 
million
 
as
 
treasury
 
stock
 
with
 
a
 
corresponding
 
increase
 
in
 
its
 
capital
 
surplus.
 
In
 
total
 
the
Corporation repurchase a total of
3,179,265
 
shares at an average purchased price of $
72.6583
 
under the August ASR Agreement.
On
 
March
 
1,
 
2022,
 
the
 
Corporation
 
announced
 
that
 
on
 
February 28,
 
2022
 
it
 
entered
 
into
 
a
 
$
400
 
million
 
ASR
 
transactions
 
with
respect to
 
its common
 
stock (the
 
“March ASR
 
Agreement”), which was
 
accounted for
 
as a
 
treasury transaction. As
 
a result
 
of the
receipt
 
of
 
the
 
initial
3,483,942
 
shares,
 
the
 
Corporation recognized
 
in
 
stockholders’
 
equity
 
approximately $
320
 
million
 
in
 
treasury
stock and
 
$
80
 
million as
 
a reduction
 
of capital
 
surplus. The
 
Corporation completed the
 
transaction on
 
July 12,
 
2022 and
 
received
197
1,582,922
 
additional shares
 
of common
 
stock and
 
recognized $
120
 
million in
 
treasury stock
 
with a
 
corresponding increase
 
in its
capital surplus. In
 
total the Corporation
 
repurchased a total
 
of
5,066,864
 
shares at an
 
average purchased price
 
of $
78.9443
 
under
the March ASR Agreement.
On
 
May
 
3,
 
2021,
 
the
 
Corporation
 
entered
 
into
 
a
 
$
350
 
million
 
ASR
 
transaction
 
with
 
respect
 
to
 
its
 
common
 
stock,
 
which
 
was
accounted for as a treasury stock transaction. As a result of the receipt of the initial
3,785,831
 
shares, the Corporation recognized in
stockholders’ equity approximately $
280
 
million in treasury stock
 
and $
70
 
million as a
 
reduction in capital surplus.
 
The Corporation
completed the
 
transaction on
 
September 9,
 
2021 and
 
received
828,965
 
additional shares
 
of
 
common stock
 
and
 
recognized $
61
million in treasury
 
stock with a
 
corresponding increase in
 
capital surplus. In
 
total, the Corporation
 
repurchased a total
 
of
4,614,796
shares at an average price of $
75.8430
 
under the ASR Agreement.
On January
 
30, 2020,
 
the Corporation
 
entered into
 
a $
500
 
million ASR
 
transaction with
 
respect to
 
its common
 
stock, which
 
was
accounted for as a treasury stock transaction. As a result of the receipt of the initial
7,055,919
 
shares, the Corporation recognized in
stockholders’ equity
 
approximately $
400
 
million in
 
treasury stock
 
and $
100
 
million as
 
a reduction
 
in capital
 
surplus. On
 
March 19,
2020 (the
 
“early termination
 
date”), the
 
dealer counterparty
 
to the
 
ASR exercised
 
its right
 
to terminate
 
the ASR
 
as a
 
result of
 
the
trading price of the
 
Corporation’s common stock falling below a
 
specified level due to the
 
effects of the COVID-19 pandemic
 
on the
global markets. As a result of such early
 
termination, the final settlement of the ASR, which was
 
expected to occur during the fourth
quarter
 
of
 
2020,
 
occurred during
 
the
 
second
 
quarter
 
of
 
2020.
 
The
 
Corporation completed
 
the
 
transaction on
 
May
 
27,
 
2020
 
and
received
4,763,216
 
additional
 
shares
 
of
 
common
 
stock
 
after
 
the
 
early
 
termination
 
date.
 
In
 
total
 
the
 
Corporation
 
repurchased
11,819,135
 
shares at an average price per share of
 
$
42.3043
 
under the ASR.
Statutory reserve
The
 
Banking
 
Act
 
of
 
the
 
Commonwealth of
 
Puerto
 
Rico
 
requires that
a minimum of 10% of BPPR’s net income
 
for
 
the
 
year
 
be
transferred to
 
a statutory
 
reserve account
 
until such
 
statutory reserve
 
equals the
 
total of
 
paid-in capital
 
on common
 
and preferred
stock. Any losses
 
incurred by a
 
bank must first
 
be charged to
 
retained earnings and then
 
to the reserve
 
fund. Amounts credited
 
to
the
 
reserve
 
fund
 
may
 
not
 
be
 
used
 
to
 
pay
 
dividends
 
without
 
the
 
prior
 
consent
 
of
 
the
 
Puerto
 
Rico
 
Commissioner
 
of
 
Financial
Institutions.
 
The
 
failure
 
to
 
maintain
 
sufficient
 
statutory
 
reserves
 
would
 
preclude
 
BPPR
 
from
 
paying
 
dividends.
 
BPPR’s
 
statutory
reserve fund
 
amounted to $
863
 
million at
 
December 31, 2022
 
(2021 - $
786
 
million; 2020 -
 
$
708
 
million). During
 
2022, $
77
 
million
was transferred to the statutory reserve account (2021 - $
78
 
million, 2020 - $
49
 
million). BPPR was in compliance with the statutory
reserve requirement in 2022, 2021 and 2020.
198
Note 21 – Regulatory capital requirements
The Corporation,
 
BPPR and
 
PB are
 
subject to
 
various regulatory
 
capital requirements
 
imposed by
 
the federal
 
banking agencies.
Failure to meet minimum capital requirements can
 
lead to certain mandatory and additional
 
discretionary actions by regulators that,
if undertaken,
 
could have
 
a direct
 
material effect
 
on the
 
Corporation’s consolidated financial
 
statements. Popular,
 
Inc., BPPR
 
and
PB are
 
subject to
 
Basel III
 
capital requirements,
 
including minimum
 
and well
 
capitalized regulatory
 
capital ratios
 
and compliance
with the standardized approach for determining
 
risk-weighted assets.
 
The Basel III Capital
 
Rules established a Common Equity
 
Tier I (“CET1”) capital
 
measure and related regulatory capital ratio
 
CET1
to risk-weighted assets.
 
The Basel III Capital Rules provide that a
 
depository institution will be deemed to be well capitalized if
 
it maintained a leverage ratio
of at
 
least
5
%, a
 
CET1 ratio of
 
at least
6.5
%, a Tier
 
1 risk-based capital
 
ratio of at
 
least
8
% and
 
a total risk-based
 
ratio of
 
at least
10
%.
 
Management
 
has
 
determined
 
that
 
at
 
December
 
31,
 
2022
 
and
 
2021,
 
the
 
Corporation
 
exceeded
 
all
 
capital
 
adequacy
requirements to which it is subject.
The Corporation
 
has
 
been designated
 
by the
 
Federal Reserve
 
Board as
 
a Financial
 
Holding Company
 
(“FHC”) and
 
is eligible
 
to
engage in certain financial activities permitted under
 
the Gramm-Leach-Bliley Act of 1999.
Pursuant to the adoption of the CECL accounting standard on
 
January 1, 2020, the Corporation elected to use a five-year
 
transition
period
 
option
 
as
 
permitted
 
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 the adoption of the CECL accounting standard on regulatory capital, followed
by a three-year transition period to phase out
 
the aggregate amount of the capital benefit provided
 
during the initial two-year delay.
On
 
August
 
26,
 
2020,
 
federal
 
banking
 
regulators
 
issued
 
a
 
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 December 31,
 
2022,
the Corporation has $
38
 
million in PPP loans and
no
 
loans were pledged as collateral for PPPL
 
Facilities.
At December 31, 2022 and 2021, BPPR and
 
PB were well-capitalized under the regulatory
 
framework for prompt corrective action.
 
The following
 
tables present
 
the Corporation’s
 
risk-based capital
 
and leverage
 
ratios at
 
December 31,
 
2022 and
 
2021 under
 
the
Basel III regulatory guidance.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
199
Actual
 
Capital adequacy minimum
requirement (including
conservation capital buffer) [1]
(Dollars in thousands)
Amount
 
Ratio
Amount
Ratio
2022
Total Capital (to Risk-Weighted
 
Assets):
Corporation
$
6,285,648
18.26
%
$
3,613,668
10.500
%
BPPR
4,541,915
18.34
2,599,872
10.500
PB
1,463,511
15.59
985,510
10.500
Common Equity Tier I Capital (to Risk-Weighted
 
Assets):
Corporation
$
5,639,686
16.39
%
$
2,409,112
7.000
%
BPPR
4,230,820
17.09
1,733,248
7.000
PB
1,395,272
14.87
657,007
7.000
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
5,661,829
16.45
%
$
2,925,351
8.500
%
BPPR
4,230,820
17.09
2,104,658
8.500
PB
1,395,272
14.87
797,794
8.500
Tier I Capital (to Average Assets):
Corporation
 
$
5,661,829
8.06
%
$
2,811,504
4
%
 
BPPR
4,230,820
7.10
2,383,478
4
PB
1,395,272
13.08
426,832
4
[1] The conservation capital buffer included for these
 
ratios is
2.5
%, except for the Tier I to Average
 
Asset ratio for which the buffer is not applicable
and therefore the capital adequacy minimum of
4
% is presented.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
200
Actual
 
Capital adequacy minimum
requirement (including
conservation capital buffer)
(Dollars in thousands)
Amount
 
Ratio
Amount
Ratio
2021
Total Capital (to Risk-Weighted
 
Assets):
Corporation
$
6,084,105
19.35
%
$
3,301,329
10.500
%
BPPR
4,281,930
18.92
2,376,184
10.500
PB
1,361,911
16.78
852,032
10.500
Common Equity Tier I Capital (to Risk-Weighted
 
Assets):
Corporation
$
5,476,031
17.42
%
$
2,200,886
7.000
%
BPPR
3,998,102
17.67
1,584,123
7.000
PB
1,309,398
16.14
568,021
7.000
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
5,498,174
17.49
%
$
2,672,504
8.500
%
BPPR
3,998,102
17.67
1,923,577
8.500
PB
1,309,398
16.14
689,740
8.500
Tier I Capital (to Average Assets):
Corporation
 
$
5,498,174
7.41
%
$
2,969,535
4
%
BPPR
3,998,102
6.24
2,561,003
4
PB
1,309,398
13.44
389,736
4
The following table presents the minimum amounts
 
and ratios for the Corporation’s banks to be
 
categorized as well-capitalized.
2022
2021
(Dollars in thousands)
Amount
 
Ratio
 
Amount
 
Ratio
Total Capital (to Risk-Weighted
 
Assets):
BPPR
$
2,476,068
10
%
$
2,263,032
10
%
PB
938,581
10
811,459
10
Common Equity Tier I Capital (to Risk-Weighted
 
Assets):
BPPR
$
1,609,444
6.5
%
$
1,470,971
6.5
%
PB
610,078
6.5
527,448
6.5
Tier I Capital (to Risk-Weighted Assets):
BPPR
$
1,980,855
8
%
$
1,810,426
8
%
PB
750,865
8
649,167
8
Tier I Capital (to Average Assets):
BPPR
$
2,979,348
5
%
$
3,201,254
5
%
PB
533,540
5
487,171
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
201
Note 22 – Other comprehensive (loss) income
 
The
 
following
 
table
 
presents
 
changes
 
in
 
accumulated
 
other
 
comprehensive
 
(loss)
 
income
 
by
 
component
 
for
 
the
 
years
 
ended
December 31, 2022, 2021 and 2020.
Changes in Accumulated Other Comprehensive (Loss) Income
 
by Component [1]
Years ended December
 
31,
(In thousands)
2022
2021
2020
Foreign currency translation
Beginning Balance
$
(67,307)
$
(71,254)
$
(56,783)
Other comprehensive income (loss)
 
10,572
3,947
(14,471)
Net change
10,572
3,947
(14,471)
Ending balance
$
(56,735)
$
(67,307)
$
(71,254)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(158,994)
$
(195,056)
$
(202,816)
Other comprehensive income (loss) before reclassifications
4,882
23,094
(5,645)
Amounts reclassified from accumulated other comprehensive loss
 
for
amortization of net losses
9,777
12,968
13,405
Net change
14,659
36,062
7,760
Ending balance
$
(144,335)
$
(158,994)
$
(195,056)
Unrealized net holding
(losses) gains on debt
securities
Beginning Balance
$
(96,120)
$
460,900
$
92,155
Other comprehensive (loss) income before reclassifications
(2,261,097)
(557,002)
368,780
Amounts reclassified from accumulated other comprehensive
 
(loss)
income for gains on securities
-
(18)
(35)
Amounts reclassified from accumulated other comprehensive
 
(loss)
income for amortization of net unrealized losses of debt securities
transferred from available-for-sale to held-to-maturity
33,314
-
-
Net change
(2,227,783)
(557,020)
368,745
Ending balance
$
(2,323,903)
$
(96,120)
$
460,900
Unrealized net gains (losses)
on cash flow hedges
Beginning Balance
$
(2,648)
$
(4,599)
$
(2,494)
Other comprehensive income (loss) before reclassifications
3,107
367
(6,400)
Amounts reclassified from accumulated other comprehensive income
(loss)
(414)
1,584
4,295
Net change
2,693
1,951
(2,105)
Ending balance
$
45
$
(2,648)
$
(4,599)
Total
 
$
(2,524,928)
$
(325,069)
$
189,991
[1] All amounts presented are net of tax.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
202
The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for
the years ended December 31, 2022, 2021, and
 
2020.
Reclassifications Out of Accumulated Other Comprehensive
 
(Loss) Income
Affected Line Item in the
 
Years ended December
 
31,
(In thousands)
Consolidated Statements of Operations
2022
2021
2020
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(15,644)
$
(20,749)
$
(21,447)
Total before tax
(15,644)
(20,749)
(21,447)
Income tax benefit
5,867
7,781
8,042
Total net of tax
$
(9,777)
$
(12,968)
$
(13,405)
Unrealized net holding (losses) gains on debt securities
Realized gain on sale of debt securities
Net gain (loss) on sale of debt securities
$
-
$
23
$
41
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Investment securities [1]
(41,642)
-
-
Total before tax
(41,642)
23
41
Income tax benefit (expense)
8,328
(5)
(6)
Total net of tax
$
(33,314)
$
18
$
35
Unrealized net gains (losses) losses on cash flow
hedges
Forward contracts
Mortgage banking activities
$
1,458
$
(704)
$
(5,559)
Interest rate swaps
Other operating income
(498)
(1,143)
(820)
Total before tax
960
(1,847)
(6,379)
Income tax (expense) benefit
(546)
263
2,084
Total net of tax
$
414
$
(1,584)
$
(4,295)
Total reclassification
 
adjustments, net of tax
$
(42,677)
$
(14,534)
$
(17,665)
[1]
 
In October 2022, the Corporation transferred U.S. Treasury
 
securities with a fair value of $
6.5
 
billion (par value of $
7.4
 
billion) from its available-for-
sale portfolio to its held-to-maturity portfolio. Refer to Note 7 to
 
the Consolidated Financial Statements for additional
 
information.
 
 
 
 
 
 
 
 
203
Note 23 – Guarantees
The Corporation
 
has obligations
 
upon the
 
occurrence of
 
certain events
 
under financial
 
guarantees provided
 
in certain
 
contractual
agreements as summarized below.
The
 
Corporation
 
issues
 
financial
 
standby
 
letters
 
of
 
credit
 
and
 
has
 
risk
 
participation
 
in
 
standby
 
letters
 
of
 
credit
 
issued
 
by
 
other
financial institutions, in each case to guarantee the performance of various
 
customers to third parties. If the customers failed to meet
its financial
 
or performance
 
obligation to
 
the third
 
party under
 
the terms
 
of the
 
contract, then,
 
upon their
 
request, the
 
Corporation
would be obligated to make the payment to the guaranteed party. At December 31, 2022, the Corporation recorded a liability of $
0.3
million (December
 
31, 2021
 
- $
0.2
 
million), which
 
represents the
 
unamortized balance of
 
the obligations undertaken
 
in issuing
 
the
guarantees under the standby
 
letters of credit.
 
In accordance with the
 
provisions of ASC Topic
 
460, the Corporation recognizes at
fair value the obligation at
 
inception of the standby letters
 
of credit. The fair value
 
approximates the fee received from the
 
customer
for issuing such commitments. These fees are deferred and are recognized over the commitment period. The contracted amounts
 
in
standby letters of
 
credit outstanding at
 
December 31, 2022
 
and 2021, shown
 
in Note 24,
 
represent the maximum
 
potential amount
of future
 
payments that
 
the Corporation
 
could be
 
required to
 
make under
 
the guarantees
 
in the
 
event of
 
nonperformance by
 
the
customers. These
 
standby letters
 
of credit
 
are used
 
by the
 
customers as
 
a credit
 
enhancement and
 
typically expire
 
without being
drawn
 
upon.
 
The
 
Corporation’s
 
standby
 
letters
 
of
 
credit
 
are
 
generally
 
secured,
 
and
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
customers, the Corporation has rights to the underlying
 
collateral provided, which normally includes cash,
 
marketable securities, real
estate, receivables, and others. Management does
 
not anticipate any material losses related to these
 
instruments.
Also, from
 
time to
 
time, the
 
Corporation securitized mortgage
 
loans into
 
guaranteed mortgage-backed securities
 
subject in
 
certain
instances, to 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. Also,
 
from time
 
to time,
 
the Corporation
 
may sell,
 
in bulk
 
sale
transactions, residential mortgage loans
 
and Small Business Administration
 
(“SBA”) commercial loans subject
 
to credit recourse
 
or
to certain representations
 
and warranties from the
 
Corporation to the purchaser.
 
These representations and warranties
 
may relate,
for example, to borrower creditworthiness, loan documentation, collateral, prepayment and early payment defaults.
 
The Corporation
may be required to repurchase the loans under
 
the credit recourse agreements or representation
 
and warranties.
At
 
December
 
31,
 
2022,
 
the
 
Corporation
 
serviced
 
$
0.6
 
billion
 
(December
 
31,
 
2021
 
-
 
$
0.7
 
billion)
 
in
 
residential
 
mortgage
 
loans
subject to
 
credit recourse
 
provisions, principally loans
 
associated with
 
FNMA and
 
FHLMC residential
 
mortgage loan
 
securitization
programs. In the event
 
of any customer default, pursuant to
 
the credit recourse provided, the
 
Corporation is required to repurchase
the
 
loan
 
or
 
reimburse
 
the
 
third
 
party
 
investor
 
for
 
the
 
incurred
 
loss.
 
The
 
maximum
 
potential
 
amount of
 
future
 
payments
 
that
 
the
Corporation
 
would
 
be
 
required
 
to
 
make
 
under
 
the
 
recourse
 
arrangements
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
borrowers
 
is
equivalent
 
to
 
the
 
total
 
outstanding
 
balance
 
of
 
the
 
residential
 
mortgage
 
loans
 
serviced
 
with
 
recourse
 
and
 
interest,
 
if
 
applicable.
During 2022,
 
the Corporation
 
repurchased approximately
 
$
7
 
million of
 
unpaid principal
 
balance in
 
mortgage loans
 
subject to
 
the
credit recourse
 
provisions (2021
 
- $
19
 
million). In
 
the event
 
of nonperformance
 
by the
 
borrower, the
 
Corporation has
 
rights to
 
the
underlying
 
collateral
 
securing
 
the
 
mortgage
 
loan.
 
The
 
Corporation
 
suffers
 
losses
 
on
 
these
 
loans
 
when
 
the
 
proceeds
 
from
 
a
foreclosure sale
 
of the
 
property underlying
 
a defaulted
 
mortgage loan
 
are less
 
than the
 
outstanding principal
 
balance of
 
the loan
plus any
 
uncollected interest
 
advanced and
 
the costs
 
of holding
 
and disposing
 
the related
 
property.
 
At
 
December 31,
 
2022, the
Corporation’s liability
 
established to cover
 
the estimated credit
 
loss exposure
 
related to loans
 
sold or serviced
 
with credit
 
recourse
amounted to
 
$
7
 
million (December
 
31, 2021
 
- $
12
 
million).
The following
 
table shows
 
the changes
 
in the
 
Corporation’s liability
 
of
estimated losses from
 
these credit recourses agreements,
 
included in the
 
consolidated statements of financial
 
condition during the
years ended December 31, 2022 and 2021.
 
Years ended December
 
31,
(In thousands)
2022
2021
Balance as of beginning of period
$
11,800
$
22,484
Provision (benefit) for recourse liability
(1,715)
(2,948)
Net charge-offs
(3,188)
(7,736)
Balance as of end of period
$
6,897
$
11,800
204
The estimated losses to be absorbed under the credit
 
recourse arrangements are recorded as a liability when
 
the loans are sold and
are updated by
 
accruing or reversing expense
 
(categorized in the line
 
item “Adjustments (expense)
 
to indemnity reserves on
 
loans
sold”
 
in
 
the
 
consolidated
 
statements
 
of
 
operations)
 
throughout
 
the
 
life
 
of
 
the
 
loan,
 
as
 
necessary,
 
when
 
additional
 
relevant
information becomes available. The
 
methodology used to
 
estimate the recourse
 
liability is a
 
function of the
 
recourse arrangements
given and
 
considers a
 
variety of
 
factors, which
 
include actual
 
defaults and
 
historical loss
 
experience, foreclosure
 
rate, estimated
future defaults
 
and the
 
probability that
 
a loan
 
would be
 
delinquent. Statistical
 
methods are
 
used to
 
estimate the
 
recourse liability.
Expected loss
 
rates are
 
applied to
 
different loan
 
segmentations. The
 
expected loss,
 
which represents
 
the amount
 
expected to
 
be
lost on a given loan, considers the
 
probability of default and loss severity.
 
The probability of default represents the probability that
 
a
loan in
 
good standing
 
would become
 
90 days
 
delinquent within
 
the following
 
twelve-month period.
 
Regression analysis
 
quantifies
the relationship
 
between the
 
default event
 
and loan-specific
 
characteristics, including
 
credit scores,
 
loan-to-value ratios,
 
and loan
aging, among others.
 
When the
 
Corporation sells or
 
securitizes mortgage loans,
 
it generally makes
 
customary representations and
 
warranties regarding
the characteristics
 
of the
 
loans sold. The
 
Corporation’s mortgage operations
 
in Puerto
 
Rico group conforming
 
mortgage loans into
pools which are
 
exchanged for FNMA and
 
GNMA mortgage-backed securities, which are
 
generally sold to
 
private investors, or are
sold directly
 
to FNMA
 
for cash.
 
As required
 
under the
 
government agency
 
programs, quality
 
review procedures
 
are performed
 
by
the Corporation to
 
ensure that asset
 
guideline qualifications are met.
 
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
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
purchased
 
$
1
 
million
 
under
 
representation
 
and
 
warranty
arrangements.
 
There
 
were
no
 
repurchases
 
under
 
BPPR’s
 
representation
 
and
 
warranty
 
arrangements
 
during
 
the
 
year
 
ended
December 31, 2021.
 
A substantial amount
 
of these loans
 
reinstate to performing
 
status or
 
have mortgage insurance,
 
and thus the
ultimate losses on the loans are not deemed
 
significant.
From
 
time
 
to
 
time, the
 
Corporation sells
 
loans and
 
agrees to
 
indemnify the
 
purchaser for
 
credit
 
losses
 
or
 
any
 
breach
 
of
 
certain
representations and
 
warranties made
 
in connection
 
with the
 
sale. At
 
December 31,
 
2022, the
 
Corporation’s liability
 
for estimated
losses associated with indemnifications and representations and warranties related to loans sold by BPPR
 
amounted to $
0.6
 
million
(December 31, 2021 - $
0.8
 
million).
205
Servicing agreements
 
relating to
 
the mortgage-backed
 
securities
 
programs of
 
FNMA and
 
GNMA, and
 
to
 
mortgage loans
 
sold
 
or
serviced to
 
certain other
 
investors, including
 
FHLMC, require
 
the Corporation
 
to
 
advance funds
 
to make
 
scheduled payments
 
of
principal, interest, taxes
 
and insurance,
 
if such
 
payments have not
 
been received
 
from the
 
borrowers. At
 
December 31,
 
2022, the
Corporation serviced
 
$
11.1
 
billion in
 
mortgage loans
 
for third-parties,
 
including the
 
loans serviced
 
with credit
 
recourse (December
31, 2021
 
- $
12.1
 
billion). The
 
Corporation generally
 
recovers funds
 
advanced pursuant
 
to these
 
arrangements from
 
the mortgage
owner, from
 
liquidation proceeds when the
 
mortgage loan is foreclosed
 
or, in
 
the case of
 
FHA/VA loans,
 
under the applicable FHA
and
 
VA
 
insurance
 
and
 
guarantees
 
programs.
 
However,
 
in
 
the
 
meantime,
 
the
 
Corporation
 
must
 
absorb
 
the
 
cost
 
of
 
the
 
funds
 
it
advances
 
during
 
the
 
time
 
the
 
advance
 
is
 
outstanding.
 
The
 
Corporation
 
must
 
also
 
bear
 
the
 
costs
 
of
 
attempting
 
to
 
collect
 
on
delinquent and defaulted mortgage loans. In
 
addition, if a defaulted loan
 
is not cured, the mortgage
 
loan would be canceled as
 
part
of
 
the
 
foreclosure
 
proceedings
 
and
 
the
 
Corporation would
 
not
 
receive
 
any
 
future
 
servicing
 
income
 
with
 
respect
 
to
 
that
 
loan.
 
At
December
 
31,
 
2022,
 
the
 
outstanding
 
balance
 
of
 
funds
 
advanced
 
by
 
the
 
Corporation
 
under
 
such
 
mortgage
 
loan
 
servicing
agreements
 
was approximately
 
$
42
 
million
 
(December 31,
 
2021
 
- $
54
 
million).
 
To
 
the extent
 
the mortgage
 
loans underlying
 
the
Corporation’s servicing portfolio experience increased delinquencies, the
 
Corporation would be required to dedicate
 
additional cash
resources
 
to
 
comply
 
with
 
its
 
obligation to
 
advance
 
funds
 
as
 
well as
 
incur
 
additional
 
administrative costs
 
related
 
to
 
increases
 
in
collection efforts.
 
Popular,
 
Inc. Holding
 
Company (“PIHC”) fully
 
and unconditionally guarantees
 
certain borrowing
 
obligations issued by
 
certain of
 
its
100
% owned consolidated subsidiaries amounting to
 
$
94
 
million at both December 31,
 
2022 and December 31, 2021, respectively.
In addition, at both December 31, 2022 and December 31, 2021, PIHC
 
fully and unconditionally guaranteed on a subordinated basis
$
193
 
million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the
applicable
 
guarantee
 
agreement.
 
Refer
 
to
 
Note
 
18
 
to
 
the
 
consolidated
 
financial
 
statements
 
for
 
further
 
information
 
on
 
the
 
trust
preferred securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
206
Note 24 – Commitments and contingencies
Off-balance sheet risk
The Corporation
 
is a
 
party to
 
financial instruments
 
with off-balance
 
sheet credit
 
risk in
 
the normal
 
course of
 
business to
 
meet the
financial needs of its customers. These financial instruments
 
include loan commitments, letters of credit and standby
 
letters of credit.
These instruments involve,
 
to varying
 
degrees, elements of
 
credit and
 
interest rate
 
risk in
 
excess of
 
the amount
 
recognized in
 
the
consolidated statements of financial condition.
The
 
Corporation’s
 
exposure
 
to
 
credit
 
loss
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
other
 
party
 
to
 
the
 
financial
 
instrument
 
for
commitments to extend credit, standby
 
letters of credit and financial
 
guarantees is represented by the
 
contractual notional amounts
of those instruments. The
 
Corporation uses the same
 
credit policies in
 
making these commitments and conditional
 
obligations as it
does for those reflected on the consolidated statements
 
of financial condition.
Financial instruments with
 
off-balance sheet credit
 
risk, whose contract
 
amounts represent potential credit
 
risk as of
 
the end of
 
the
periods presented were as follows:
(In thousands)
December 31, 2022
December 31, 2021
Commitments to extend credit:
Credit card lines
$
5,853,990
$
5,382,089
Commercial and construction lines of credit
4,425,825
3,830,601
Other consumer unused credit commitments
 
250,271
250,229
Commercial letters of credit
3,351
3,260
Standby letters of credit
27,868
27,848
Commitments to originate or fund mortgage loans
45,170
95,372
At
 
December
 
31,
 
2022
 
and
 
December
 
31,
 
2021,
 
the
 
Corporation
 
maintained
 
a
 
reserve
 
of
 
approximately
 
$
8.8
 
million
 
and
 
$
7.9
million, respectively, for potential losses associated with unfunded loan commitments related to
 
commercial and construction lines of
credit.
Other commitments
At December 31,
 
2022, and December
 
31, 2021, the
 
Corporation also maintained
 
other non-credit commitments
 
for approximately
$
4.8
 
million and $
1.0
 
million, respectively, primarily for the acquisition of other investments.
 
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition
are dependent
 
upon the
 
general trends
 
of the
 
Puerto Rico
 
economy and,
 
in particular,
 
the residential
 
and commercial
 
real estate
markets. The concentration
 
of the Corporation’s
 
operations in Puerto Rico
 
exposes it to
 
greater risk than other
 
banking companies
with a wider geographic base. Its
 
asset and revenue composition by geographical area
 
is presented in Note 37
 
to the Consolidated
Financial Statements.
 
Puerto
 
Rico
 
has
 
faced
 
significant
 
fiscal
 
and
 
economic
 
challenges
 
for
 
over
 
a
 
decade.
 
In
 
response
 
to
 
such
 
challenges,
 
the
 
U.S.
Congress enacted the
 
Puerto Rico Oversight
 
Management and Economic Stability
 
Act (“PROMESA”) in
 
2016, which, among
 
other
things,
 
established
 
the
 
Oversight
 
Board
 
and
 
a
 
framework
 
for
 
the
 
restructuring
 
of
 
the
 
debts
 
of
 
the
 
Commonwealth,
 
its
instrumentalities and
 
municipalities.
 
The
 
Commonwealth and
 
several
 
of
 
its
 
instrumentalities have
 
commenced
 
debt
 
restructuring
proceedings under
 
PROMESA. As
 
of the
 
date of
 
this report,
 
while municipalities
 
have been
 
designated as
 
covered entities
 
under
PROMESA,
 
no
 
municipality
 
has
 
commenced,
 
or
 
has
 
been
 
authorized
 
by
 
the
 
Oversight
 
Board
 
to
 
commence,
 
any
 
such
 
debt
restructuring proceeding under PROMESA.
At December 31, 2022, the Corporation’s direct exposure to the
 
Puerto Rico government and its instrumentalities and municipalities
totaled $
374
 
million, of which
 
$
327
 
million were outstanding
 
($
367
 
million and $
349
 
million at December
 
31, 2021). Of
 
the amount
outstanding,
 
$
302
 
million
 
consists
 
of
 
loans
 
and
 
$
25
 
million
 
are
 
securities
 
($
319
 
million
 
and
 
$
30
 
million
 
at
 
December 31,
 
2021).
Substantially all
 
of the
 
amount outstanding
 
at December
 
31, 2022
 
and December
 
31, 2021
 
were obligations
 
from various
 
Puerto
Rico
 
municipalities.
 
In
 
most
 
cases,
 
these
 
were
 
“general
 
obligations”
 
of
 
a
 
municipality,
 
to
 
which
 
the
 
applicable
 
municipality
 
has
pledged
 
its
 
good
 
faith,
 
credit
 
and
 
unlimited
 
taxing
 
power,
 
or
 
“special
 
obligations”
 
of
 
a
 
municipality,
 
to
 
which
 
the
 
applicable
municipality
 
has
 
pledged
 
other
 
revenues.
 
At
 
December
 
31,
 
2022,
73
%
 
of
 
the
 
Corporation’s
 
exposure
 
to
 
municipal
 
loans
 
and
securities was concentrated in the municipalities of
 
San Juan, Guaynabo, Carolina and Bayamón.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
207
The following table details the loans and investments representing the Corporation’s direct exposure to
 
the Puerto Rico government
according to their maturities as of December 31, 2022:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
12
$
-
$
12
$
12
After 5 to 10 years
1
-
1
1
After 10 years
29
-
29
29
Total Central
 
Government
42
-
42
42
Municipalities
Within 1 year
4,530
20,243
24,773
42,962
After 1 to 5 years
19,105
101,009
120,114
149,114
After 5 to 10 years
1,025
131,202
132,227
132,227
After 10 years
-
49,831
49,831
49,831
Total Municipalities
24,660
302,285
326,945
374,134
Total Direct Government
 
Exposure
$
24,702
$
302,285
$
326,987
$
374,176
In
 
addition,
 
at
 
December
 
31,
 
2022,
 
the
 
Corporation
 
had
 
$
251
 
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
 
$
209
 
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 December
 
31,
2022, $
42
 
million in bonds
 
issued by HFA
 
which are secured by
 
second mortgage loans on
 
Puerto Rico residential properties,
 
and
for which HFA
 
also provides insurance to
 
cover losses in
 
the event of
 
a borrower default
 
and upon the
 
satisfaction of certain
 
other
conditions (December
 
31, 2021
 
- $
43
 
million). In
 
the event
 
that the
 
mortgage loans
 
insured by
 
HFA
 
and held
 
by the
 
Corporation
directly or those serving as collateral for the HFA
 
bonds default and the collateral is insufficient to satisfy the
 
outstanding balance of
these loans, HFA’s
 
ability to honor its insurance will depend, among other factors, on the financial condition of HFA
 
at the time such
obligations
 
become
 
due
 
and
 
payable. The
 
Corporation does
 
not consider
 
the
 
government guarantee
 
when
 
estimating the
 
credit
losses
 
associated
 
with
 
this
 
portfolio.
 
Although
 
the
 
Governor
 
is
 
currently
 
authorized
 
by
 
local
 
legislation
 
to
 
impose
 
a
 
temporary
moratorium on the financial obligations of the HFA, a moratorium on
 
such obligations has not been imposed as of
 
the date hereof.
 
BPPR’s
 
commercial loan
 
portfolio also
 
includes loans
 
to
 
private borrowers
 
who
 
are service
 
providers, lessors,
 
suppliers or
 
have
other relationships with the government. These
 
borrowers could be negatively affected by
 
the Commonwealth’s fiscal crisis and
 
the
ongoing
 
Title
 
III
 
proceedings
 
under
 
PROMESA.
 
Similarly,
 
BPPR’s
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
include
 
loans
 
to
government
 
employees
 
and
 
retirees,
 
which
 
could
 
also
 
be
 
negatively
 
affected
 
by
 
fiscal
 
measures
 
such
 
as
 
employee
 
layoffs
 
or
furloughs or reductions in pension benefits.
 
In
 
addition, $
1.6
 
billion of
 
residential mortgages,
 
$
38
 
million of
 
Small Business
 
Administration (“SBA”)
 
loans under
 
the Paycheck
Protection Program (“PPP”) and
 
$
72
 
million commercial loans were
 
insured or guaranteed
 
by the U.S.
 
Government or its agencies
at December 31, 2022 (compared to $
1.6
 
billion, $
353
 
million and $
67
 
million, respectively, at December 31, 2021). The Corporation
also had U.S. Treasury and obligations from the U.S. Government,
 
its agencies or government sponsored entities
 
within the portfolio
of available-for-sale and held-to-maturity securities as described
 
in Note 6 and 7 to the Consolidated
 
Financial Statements.
At December 31,
 
2022, the Corporation has
 
operations in the United
 
States Virgin Islands
 
(the “USVI”) and
 
has approximately $
28
million
 
in
 
direct
 
exposure
 
to
 
USVI
 
government
 
entities
 
(December
 
31,
 
2021
 
-
 
$
70
 
million).
 
The
 
USVI
 
has
 
been
 
experiencing
 
a
number of
 
fiscal and
 
economic challenges
 
that could
 
adversely affect
 
the ability
 
of its
 
public corporations
 
and instrumentalities
 
to
service their outstanding
 
debt obligations.
 
At December
 
31, 2022, the
 
Corporation has
 
operations in the
 
British Virgin
 
Islands (“BVI”),
 
which has
 
been negatively affected
 
by
the COVID-19
 
pandemic, particularly
 
as a
 
reduction in
 
the tourism
 
activity which
 
accounts for
 
a significant
 
portion of
 
its economy.
Although
 
the
 
Corporation
 
has
 
no
 
significant
 
exposure
 
to
 
a
 
single
 
borrower
 
in
 
the
 
BVI,
 
it
 
has
 
a
 
loan
 
portfolio
 
amounting
 
to
208
approximately
 
$
214
 
million
 
comprised
 
of
 
various
 
retail
 
and
 
commercial
 
clients,
 
compared
 
to
 
a
 
loan
 
portfolio
 
of
 
$
221
 
million
 
at
December 31, 2021.
Legal Proceedings
The
 
nature
 
of
 
Popular’s
 
business
 
ordinarily
 
generates
 
claims,
 
litigation,
 
investigations,
 
and
 
legal
 
and
 
administrative
 
cases
 
and
proceedings
 
(collectively,
 
“Legal Proceedings”).
 
When the
 
Corporation determines
 
that
 
it
 
has
 
meritorious
 
defenses to
 
the
 
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment, it
 
is in the best
 
interest of the Corporation and
 
its stockholders to do so.
 
On at least a
quarterly basis, Popular assesses its liabilities and contingencies relating
 
to outstanding Legal Proceedings utilizing the most current
information
 
available.
 
For
 
matters
 
where
 
it
 
is
 
probable
 
that
 
the
 
Corporation
 
will
 
incur
 
a
 
material
 
loss
 
and
 
the
 
amount
 
can
 
be
reasonably estimated,
 
the Corporation
 
establishes an
 
accrual for
 
the loss.
 
Once established,
 
the accrual
 
is adjusted
 
on at
 
least a
quarterly
 
basis
 
to
 
reflect
 
any
 
relevant
 
developments,
 
as
 
appropriate.
 
For
 
matters
 
where
 
a
 
material
 
loss
 
is
 
not
 
probable,
 
or
 
the
amount of the loss cannot be reasonably estimated,
 
no accrual is established.
 
In certain
 
cases, exposure
 
to loss
 
exists in
 
excess of
 
the accrual
 
to the
 
extent such
 
loss is
 
reasonably possible, but
 
not probable.
Management believes and
 
estimates that the
 
range of reasonably
 
possible losses (with
 
respect to those
 
matters where such
 
limits
may be determined, in excess of amounts accrued)
 
for current Legal Proceedings ranged from $
0
 
to approximately $
20.6
 
million as
of
 
December
 
31,
 
2022.
 
In
 
certain
 
cases,
 
management cannot
 
reasonably
 
estimate
 
the
 
possible
 
loss
 
at
 
this
 
time.
 
Any
 
estimate
involves significant judgment, given the
 
varying stages of the
 
Legal Proceedings (including the fact
 
that many of them
 
are currently
in preliminary stages), the
 
existence of multiple
 
defendants in several of
 
the current Legal Proceedings
 
whose share of liability
 
has
yet to be determined, the numerous unresolved issues in
 
many of the Legal Proceedings, and the inherent uncertainty
 
of the various
potential
 
outcomes
 
of
 
such
 
Legal
 
Proceedings.
 
Accordingly,
 
management’s
 
estimate
 
will
 
change
 
from
 
time-to-time,
 
and
 
actual
losses may be more or less than the current estimate.
 
While the
 
outcome of
 
Legal Proceedings
 
is inherently
 
uncertain, based
 
on information
 
currently available,
 
advice of
 
counsel, and
available
 
insurance
 
coverage,
 
management
 
believes
 
that
 
the
 
amount
 
it
 
has
 
already
 
accrued
 
is
 
adequate
 
and
 
any
 
incremental
liability arising from
 
the Legal Proceedings
 
in matters in
 
which a loss
 
amount can be
 
reasonably estimated will not
 
have a material
adverse effect
 
on the Corporation’s
 
consolidated financial position.
 
However, in
 
the event
 
of unexpected future
 
developments, it is
possible that
 
the ultimate
 
resolution of
 
these matters
 
in a
 
reporting period, if
 
unfavorable, could have
 
a material
 
adverse effect
 
on
the Corporation’s consolidated financial position for that period.
 
Set forth below is a description of the Corporation’s
 
significant Legal Proceedings.
BANCO POPULAR DE PUERTO RICO
Hazard Insurance Commission-Related Litigation
Popular,
 
Inc., BPPR
 
and Popular
 
Insurance, LLC
 
(the “Popular
 
Defendants”) were
 
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 alleged that the
Popular
 
Defendants
 
were
 
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 demanded
 
the reimbursement to
 
the purported “class”
 
of an
 
estimated $
400
 
million plus legal
 
interest, for the
 
“good
experience”
 
commissions
 
allegedly
 
paid
 
by
 
the
 
Defendant
 
Insurance
 
Companies
 
during
 
the
 
relevant
 
time
 
period,
 
as
 
well
 
as
injunctive relief seeking to
 
enjoin the Defendant Insurance
 
Companies from paying commissions to
 
the insurance agent/mortgagee
and ordering them
 
to pay
 
those fees
 
directly to the
 
insured. A motion
 
for dismissal
 
on the merits
 
filed by
 
the Defendant Insurance
Companies
 
was
 
denied and
 
each
 
of
 
the
 
Puerto
 
Rico
 
Court
 
of
 
Appeals and
 
the
 
Puerto
 
Rico
 
Supreme
 
Court
 
denied the
 
Popular
Defendants’ request to review the lower court’s denial of the motion to dismiss. In December 2017, plaintiffs amended the complaint
and,
 
in
 
January
 
2018,
 
defendants
 
filed
 
an
 
answer
 
thereto.
 
Separately,
 
in
 
October
 
2017,
 
the
 
Court
 
entered
 
an
 
order
 
whereby
 
it
broadly certified the
 
class, after
 
which the Popular
 
Defendants filed a
 
certiorari petition before
 
the Puerto Rico
 
Court of Appeals
 
in
relation
 
to
 
the
 
class
 
certification,
 
which
 
the
 
Court
 
declined
 
to
 
entertain.
 
In
 
November
 
2018
 
and
 
in
 
January
 
2019,
 
plaintiffs
 
filed
voluntary dismissal petitions against MAPFRE-PRAICO Insurance Company and
 
Antilles Insurance Company,
 
respectively, leaving
the Popular Defendants as the sole remaining
 
defendants in the action.
 
209
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, LLC
 
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 was never 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. Also, in
 
May 2021, Popular,
 
Inc.
and BPPR
 
filed a
 
separate motion
 
for summary
 
judgment for
 
failure to
 
state a
 
claim against
 
such entities.
 
During an
 
oral hearing
held in September 2021 to discuss the pending motions for summary judgment, Plaintiffs notified they did not object the dismissal of
the action with prejudice as to Popular,
 
Inc. and BPPR, leaving Popular Insurance, LLC (“Popular Insurance”) as the sole
 
remaining
defendant in the case. In October 2021, the Court
 
issued a resolution denying Popular Insurance’s Motion
 
for Summary Judgment.
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 Insurance’s summary judgment motion.
 
In
 
May
 
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. On
 
August 12,
 
2022, the
 
Court of
 
Appeals reversed
 
the trial
 
court’s ruling,
granted summary
 
judgment in
 
favor of
 
Popular Insurance,
 
and ordered
 
the dismissal
 
of the
 
case in
 
its entirety.
 
After the
 
Court of
Appeals denied
 
a Motion
 
for Reconsideration
 
filed by
 
Plaintiffs, on
 
October 13,
 
2022, Plaintiffs
 
filed a
 
certiorari petition
 
before the
Puerto Rico Supreme Court seeking review of the
 
Court of Appeals judgment.
Popular Insurance
 
filed its
 
opposition brief
 
to Plaintiff’s
 
certiorari petition
 
on October
 
24, 2022.
 
On December
 
4, 2022,
 
the Puerto
Rico
 
Supreme
 
Court
 
issued
 
an
 
order denying
 
the
 
certiorari
 
petition.
 
The
 
judgment
 
ordering the
 
dismissal of
 
the
 
complaint
 
in
 
its
entirety became final and unappealable on December
 
19, 2022. This matter is now closed.
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
210
the covenant of good faith and fair dealing
 
and unjust enrichment due to BPPR’s purported practice of (a)
 
assessing more than one
insufficient funds fee (“NSF Fees”) on the
 
same ACH “item” or transaction and (b) charging
 
both NSF Fees and overdraft fees (“OD
Fees”) on
 
the same
 
ACH item
 
or transaction,
 
and is
 
filed on
 
behalf of
 
all persons
 
who during
 
the applicable
 
statute of
 
limitations
period
 
were
 
charged
 
NSF
 
Fees
 
and/or
 
OD
 
Fees
 
pursuant
 
to
 
these
 
purported
 
practices.
 
In
 
April
 
2020,
 
BPPR
 
filed
 
a
 
motion
 
to
dismiss the case. In April
 
2021, the Court issued an order granting
 
in part and denying in part
 
BPPR’s motion to dismiss; the
 
unjust
enrichment claim
 
was dismissed,
 
whereas the
 
breach of
 
contract and
 
covenant of
 
good faith
 
and fair
 
dealing claims
 
survived the
motion.
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 in
 
April 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. The parties filed before the
 
Court a notice of settlement
and a
 
request to
 
stay the
 
proceedings in
 
both cases
 
and, on
 
August 15,
 
2022, the
 
parties submitted
 
the class
 
action settlement
agreement for the Court's preliminary
 
approval.
 
On November 23, 2022, the
 
court issued an order
 
granting preliminary approval of
the settlement agreement and scheduled the
 
final approval hearing for March 14, 2023.
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
alleged breach
 
of contract,
 
violation
 
of
 
the covenant
 
of
 
good faith
 
and
 
fair
 
dealing, unjust
 
enrichment and
 
violation
 
of
 
New York
consumer protection law
 
due to Popular’s
 
purported practice of
 
charging OD Fees
 
on transactions that,
 
under plaintiffs’
 
theory,
 
do
not overdraw the
 
account. Plaintiff described Popular’s
 
purported practice of charging
 
OD Fees as
 
“Authorize Positive, Purportedly
Settle
 
Negative”
 
(“APPSN”)
 
transactions
 
and
 
alleged
 
that
 
Popular
 
assesses
 
OD
 
Fees
 
over
 
authorized
 
transactions
 
for
 
which
sufficient funds
 
are held for
 
settlement.
 
In August 2020,
 
Popular filed a
 
Motion to Dismiss
 
on several grounds,
 
including failure to
state a
 
claim against
 
Popular,
 
Inc. and
 
improper venue.
 
In October
 
2020, Plaintiff
 
filed a
 
Notice of
 
Voluntary
 
Dismissal before
 
the
U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for
the
 
District
 
of
 
the
 
Virgin
 
Islands
 
against
 
Popular,
 
Inc.,
 
Popular
 
Bank
 
and
 
BPPR.
 
In
 
November
 
2020,
 
Plaintiff
 
filed
 
a
 
Notice
 
of
Voluntary
 
Dismissal against
 
Popular,
 
Inc.
 
and Popular
 
Bank following
 
a Motion
 
to
 
Dismiss filed
 
on behalf
 
of such
 
entities, which
argued failure
 
to state
 
a claim
 
and lack
 
of minimum
 
contacts of
 
such parties
 
with the
 
U.S.V.I.
 
district court
 
jurisdiction. BPPR,
 
the
only defendant remaining in the case, was served
 
with process in November 2020 and filed
 
a Motion to Dismiss in January 2021.
In
 
October
 
2021,
 
the
 
District
 
Court,
 
notwithstanding that
 
BPPR’s
 
Motion
 
to
 
Dismiss
 
remained
 
pending
 
resolution,
 
held
 
an
 
initial
scheduling
 
conference
 
and,
 
thereafter,
 
issued
 
a
 
trial
 
management
 
order
 
where
 
it
 
scheduled
 
the
 
deadline
 
for
 
all
 
discovery
 
for
November 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. During
 
a mediation
hearing held on October 14, 2022, the parties in the Golden action reached a settlement in principle on a class-wide basis subject to
final
 
court
 
approval.
 
On
 
October
 
19,
 
2022,
 
the
 
parties
 
filed
 
before
 
the
 
Court
 
a
 
notice
 
of
 
settlement
 
and
 
a
 
request
 
to
 
stay
 
the
proceedings while
 
Plaintiffs submit
 
a motion
 
for the
 
preliminary approval of
 
the class
 
action settlement. On
 
January 19,
 
2023, the
parties filed the motion for preliminary approval of
 
the settlement agreement, which is pending resolution.
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.
 
211
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.
 
After
 
Plaintiff
 
responded
 
to
 
the
 
Pre-Motion
conference motion, on
 
September 2, 2022,
 
the Court allowed
 
Popular Bank to
 
file its Motion
 
to Compel Arbitration,
 
which it did
 
on
September 8, 2022. Plaintiff opposed to such motion on
 
October 13, 2022, and PB filed its reply on
 
November 3, 2022.
 
On December
 
9, 2022, the
 
Court issued a
 
Decision and Order
 
denying Popular’s Motion
 
to Compel Arbitration.
 
On December
 
20,
2022, Popular Bank filed
 
a Notice of Appeal
 
with the United States
 
Court of Appeals for
 
the Second Circuit.
 
On January 31, 2022,
the
 
Court
 
of
 
Appeals
 
issued
 
a
 
briefing
 
schedule
 
granting Popular
 
Bank
 
until
 
April
 
6,
 
2023
 
to
 
file
 
its
 
appeal
 
brief.
 
The
 
Court
 
of
Appeals also scheduled a “CAMP” mediation conference, which was held
 
on February 21, 2023. No settlement was reached during
the mediation.
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. On August 15,
 
2022, Plaintiff filed her
 
opposition to the Motion
to Dismiss
 
and, on
 
September 14,
 
2022, BPPR
 
filed a
 
reply in
 
support of
 
its Motion
 
to Dismiss.
 
BPPR’s Motion
 
to Dismiss
 
is fully
briefed and pending resolution.
POPULAR BANK
Employment-Related Litigation
In
 
July 2019,
 
PB
 
was served
 
in a
 
putative class
 
complaint in
 
which it
 
was named
 
as a
 
defendant along
 
with five
 
(
5
) current
 
PB
employees (collectively,
 
the “AB
 
Defendants”),
 
captioned Aileen
 
Betances, et
 
al. v.
 
Popular Bank,
 
et al.,
 
filed before
 
the Supreme
Court of the State of New York (the “AB Action”). The complaint, filed by five (
5
) current and former PB employees, seeks to recover
damages
 
for
 
the
 
AB
 
Defendants'
 
alleged
 
violation
 
of
 
local
 
and
 
state
 
sexual
 
harassment,
 
discrimination
 
and
 
retaliation
 
laws.
Additionally,
 
in July
 
2019, PB
 
was served
 
in a
 
putative class
 
complaint in
 
which it
 
was named
 
as a
 
defendant along
 
with six
 
(
6
)
current PB
 
employees (collectively,
 
the “DR
 
Defendants”), captioned Damian
 
Reyes, et
 
al. v.
 
Popular Bank,
 
et al.,
 
filed before the
Supreme Court
 
of the
 
State of
 
New York
 
(the “DR
 
Action”). The
 
DR Action,
 
filed by
 
three (
3
) current
 
and former
 
PB employees,
seeks to recover damages for the DR Defendants’
 
alleged violation of local and state discrimination and retaliation laws. Plaintiffs in
both complaints are represented by the same legal counsel, and
 
five of the six named individual defendants in the DR
 
Action are the
same named
 
individual defendants
 
in the
 
AB Action.
 
Both complaints
 
are related,
 
among other
 
things, to
 
allegations of
 
purported
sexual harassment and/or misconduct by a former PB employee as
 
well as PB’s actions in connection thereto and seek no less than
$
100
 
million in
 
damages each. In
 
October 2019,
 
PB and
 
the other
 
defendants filed several
 
Motions to
 
Dismiss. Plaintiffs
 
opposed
the motions
 
in December
 
2019 and
 
PB and
 
the other
 
defendants replied
 
in January
 
2020. In
 
July 2020,
 
a hearing
 
to discuss
 
the
motions
 
to
 
dismiss filed
 
by
 
PB
 
in
 
both
 
actions
 
was
 
held, at
 
which
 
the
 
Court
 
dismissed one
 
of
 
the causes
 
of
 
action
 
included
 
by
plaintiffs in the AB Action.
 
In
 
June
 
2021,
 
the
 
Court
 
in the
 
AB
 
Action
 
entered a
 
judgment dismissing
 
all
 
claims
 
except those
 
regarding the
 
principal
 
plaintiff
Aileen Betances against PB for retaliation, and Betances’ claim against
 
three (
3
) other AB Defendants for aiding/abetting the alleged
retaliation. Also, in July
 
2021, the Court
 
in the DR
 
action entered a partial
 
judgment dismissing all claims
 
against the individual DR
Defendants,
 
with
 
all
 
surviving
 
claims
 
being
 
against
 
PB
 
and
 
limited
 
to
 
local
 
retaliation
 
claims
 
and
 
local
 
and
 
state
 
discrimination
claims. Plaintiffs in both the AB Action and the DR Action filed notices of appeal of both judgments. On August 11, 2021, PB and the
remaining AB Defendants in the
 
AB Action, as well as
 
PB in the DR
 
Action, answered the respective complaints as
 
to the surviving
claims.
 
212
On
 
March
 
25,
 
2022,
 
Plaintiffs
 
in
 
both
 
the
 
AB
 
Action
 
and
 
the
 
DR
 
Action
 
perfected
 
their
 
appeals
 
seeking
 
to
 
reverse
 
both
 
partial
judgments. PB
 
filed opposition
 
briefs as
 
to both
 
appeals on
 
August 10,
 
2022. However,
 
on October
 
24, 2022,
 
PB and
 
all but
 
the
principal plaintiff
 
in the
 
AB Action,
 
Aileen Betances,
 
reached an
 
agreement in
 
principle subject to
 
final documentation,
 
to settle
 
all
their claims
 
included in
 
the AB
 
Action. Also,
 
on that
 
same
 
date, PB
 
and all
 
Plaintiffs
 
in the
 
DR Action
 
reached an
 
agreement in
principle subject to final documentation, to settle all claims
 
included in the DR Action.
In
 
December 2022,
 
after reaching
 
a settlement
 
agreement with
 
the principal
 
plaintiff in
 
the AB
 
Action, the
 
parties in
 
both the
 
AB
Action and the DR Action executed settlement agreements that disposed
 
of both actions.
 
On December 22, 2022, the parties filed a
Stipulation of Dismissal with Prejudice with the
 
court in both actions. These matters are now closed.
POPULAR SECURITIES
Puerto Rico Bonds and Closed-End Investment
 
Funds
The volatility
 
in prices
 
and declines
 
in value
 
that Puerto
 
Rico municipal
 
bonds and
 
closed-end investment
 
companies that
 
invest
primarily in
 
Puerto Rico
 
municipal bonds experienced
 
following August
 
2013 have
 
led to
 
regulatory inquiries, customer
 
complaints
and
 
arbitrations
 
for
 
most
 
broker-dealers
 
in
 
Puerto
 
Rico,
 
including
 
Popular
 
Securities.
 
Popular
 
Securities
 
has
 
received
 
customer
complaints
 
and,
 
as
 
of
 
December 31,
 
2022,
 
was named
 
as
 
a
 
respondent (among
 
other
 
broker-dealers) in
13
 
pending arbitration
proceedings with
 
initial claimed
 
amounts of
 
approximately $
13.4
 
million in
 
the aggregate.
 
While Popular
 
Securities believes
 
it has
meritorious defenses to the claims asserted in these proceedings,
 
it has often determined that it is in its best interest to settle certain
claims
 
rather
 
than
 
expend
 
the
 
money
 
and
 
resources required
 
to
 
see
 
such
 
cases
 
to
 
completion.
 
The
 
Puerto
 
Rico
 
Government’s
defaults and
 
non-payment of
 
its various
 
debt obligations,
 
as well
 
as the
 
Oversight Board
 
decision to
 
pursue restructurings
 
under
Title III and
 
Title VI of
 
PROMESA, have impacted the number of
 
customer complaints (and claimed damages) filed
 
against Popular
Securities concerning Puerto Rico bonds and closed-end investment companies that invest primarily in Puerto
 
Rico bonds. Adverse
results
 
in
 
the
 
arbitration
 
proceedings
 
described
 
above,
 
or
 
a
 
significant
 
increase
 
in
 
customer
 
complaints,
 
could
 
have
 
a
 
material
adverse effect on Popular.
In October 2021, a panel in an arbitration proceeding with claimed damages arising from trading losses of approximately $
30
 
million
ordered
 
Popular
 
Securities to
 
pay
 
claimants
 
approximately $
6.9
 
million
 
in
 
compensatory
 
damages and
 
expenses. In
 
November,
2021,
 
the
 
claimants
 
in such
 
arbitration proceeding
 
filed
 
a complaint
 
captioned Trinidad
 
García v.
 
Popular,
 
Inc.
 
et.
 
al.
 
before
 
the
United
 
States
 
District
 
Court
 
for
 
the
 
District
 
of
 
Puerto
 
Rico
 
against
 
Popular,
 
Inc.,
 
BPPR
 
and
 
Popular
 
Securities
 
(the
 
“Popular
Defendants”) alleging, inter alia,
 
that they sustained monetary
 
losses as a
 
result of the Popular
 
Defendants’ anticompetitive,
 
unfair,
and
 
predatory
 
practices,
 
including
 
tying
 
arrangements
 
prohibited
 
by
 
the
 
Bank
 
Holding
 
Company
 
Act.
 
Plaintiffs
 
claim
 
that
 
the
Popular Defendants caused them to
 
enter a tying arrangement scheme whereby
 
BPPR allegedly would extend secured credit
 
lines
to the Plaintiffs on
 
the conditions that they transfer
 
their portfolios to Popular
 
Securities to be used
 
as pledged collateral and
 
obtain
additional investment
 
services and
 
products solely
 
from Popular
 
Securities, not
 
from any
 
of its
 
competitors. Plaintiffs
 
also invoke
federal
 
court’s
 
supplemental jurisdiction
 
to
 
allege
 
several
 
state
 
law claims
 
against
 
the Popular
 
Defendants, including
 
contractual
fault, fault in causing losses in value of the pledge collateral, breach of contract, request for specific compliance thereof, fault in pre-
contractual negotiations, emotional distress, and punitive damages. In January 2022, Plaintiffs filed an Amended Complaint, and the
Popular Defendants were served with summons on that same date. Plaintiffs demand no less than $
390
 
million in damages, plus an
award for costs and attorney's fees. The
 
Popular Defendants filed a Motion to Dismiss
 
on March 21, 2022, which Plaintiffs
 
opposed
on June 10, 2022. Popular
 
filed its reply in support
 
of the Motion to Dismiss
 
on June 30, 2022, and
 
Plaintiffs sur-replied on July 27,
2022.
 
On
 
February 9,
 
2023, the
 
Popular Defendants
 
executed a
 
global
 
settlement agreement
 
with Plaintiffs
 
resolving all
 
controversies
between
 
the
 
parties,
 
including
 
those
 
arising
 
from
 
the
 
aforementioned
 
case.
 
After
 
the
 
parties
 
filed
 
a
 
stipulation
 
of
 
dismissal,
 
on
February 15, 2023, the United States District Court for the District of Puerto Rico issued an order dismissing the case
 
with prejudice
and stating that a judgment shall be entered accordingly.
 
This matter is now closed.
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
213
requests
 
for
 
the
 
preservation
 
and
 
voluntary
 
production
 
of
 
certain
 
documents
 
and
 
witnesses
 
with
 
respect
 
to
 
Kobre
 
&
 
Kim’s
independent investigation.
 
In August
 
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. In January
 
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.
214
Note 25 – Non-consolidated variable interest
 
entities
The Corporation
 
is involved
 
with three
 
statutory trusts
 
which it
 
established to
 
issue trust
 
preferred securities
 
to the
 
public. These
trusts
 
are
 
deemed to
 
be
 
variable
 
interest
 
entities (“VIEs”)
 
since
 
the
 
equity
 
investors at
 
risk
 
have no
 
substantial decision-making
rights. The
 
Corporation does
 
not hold
 
any variable
 
interest in
 
the trusts,
 
and therefore,
 
cannot be
 
the trusts’
 
primary beneficiary.
Furthermore, the Corporation
 
concluded that it
 
did not hold
 
a controlling financial
 
interest in these
 
trusts since the
 
decisions of the
trusts
 
are
 
predetermined
 
through
 
the
 
trust
 
documents
 
and
 
the
 
guarantee
 
of
 
the
 
trust
 
preferred
 
securities
 
is
 
irrelevant
 
since
 
in
substance the sponsor is guaranteeing its own debt.
Also, the
 
Corporation is
 
involved with
 
various special
 
purpose entities
 
mainly in
 
guaranteed mortgage
 
securitization transactions,
including
 
GNMA
 
and
 
FNMA.
 
The
 
Corporation
 
has
 
also
 
engaged
 
in
 
securitization
 
transactions
 
with
 
FHLMC,
 
but
 
considers
 
its
exposure in the
 
form of servicing
 
fees and servicing
 
advances not to be
 
significant at December
 
31, 2022.
 
These special purpose
entities
 
are
 
deemed
 
to
 
be
 
VIEs
 
since
 
they
 
lack
 
equity
 
investments
 
at
 
risk.
 
The
 
Corporation’s
 
continuing
 
involvement
 
in
 
these
guaranteed loan
 
securitizations includes
 
owning certain
 
beneficial interests in
 
the form
 
of securities as
 
well as
 
the servicing
 
rights
retained. The Corporation is not required to provide additional financial support to
 
any of the variable interest entities to which it has
transferred
 
the
 
financial
 
assets.
 
The
 
mortgage-backed
 
securities,
 
to
 
the
 
extent
 
retained,
 
are
 
classified
 
in
 
the
 
Corporation’s
Consolidated
 
Statements
 
of
 
Financial
 
Condition
 
as
 
available-for-sale
 
or
 
trading
 
securities.
 
The
 
Corporation
 
concluded
 
that,
essentially,
 
these
 
entities
 
(FNMA
 
and
 
GNMA)
 
control
 
the
 
design
 
of
 
their
 
respective
 
VIEs,
 
dictate
 
the
 
quality
 
and
 
nature
 
of
 
the
collateral, require
 
the underlying
 
insurance, set
 
the servicing
 
standards via
 
the servicing
 
guides and
 
can change
 
them at
 
will, and
can remove a
 
primary servicer with cause,
 
and without cause in
 
the case of
 
FNMA. Moreover, through
 
their guarantee obligations,
agencies (FNMA and GNMA) have the obligation
 
to absorb losses that could be potentially significant
 
to the VIE.
The
 
Corporation
 
holds
 
variable
 
interests
 
in
 
these
 
VIEs
 
in
 
the
 
form
 
of
 
agency
 
mortgage-backed
 
securities
 
and
 
collateralized
mortgage obligations, including those securities originated by the Corporation and those acquired from
 
third parties. Additionally, the
Corporation holds agency mortgage-backed securities
 
and agency collateralized mortgage obligations
 
issued by third party
 
VIEs in
which
 
it
 
has
 
no
 
other
 
form
 
of
 
continuing
 
involvement.
 
Refer
 
to
 
Note
 
28
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
information
 
on
 
the
 
debt
 
securities
 
outstanding
 
at
 
December
 
31,
 
2022
 
and
 
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 December 31, 2022 and 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
215
(In thousands)
December 31, 2022
December 31, 2021
Assets
Servicing assets:
Mortgage servicing rights
$
99,614
$
94,464
Total servicing
 
assets
 
$
99,614
$
94,464
Other assets:
Servicing advances
$
6,157
$
7,968
Total other assets
$
6,157
$
7,968
Total assets
$
105,771
$
102,432
Maximum exposure to loss
$
105,771
$
102,432
The size of
 
the non-consolidated VIEs,
 
in which the
 
Corporation has a
 
variable interest in
 
the form
 
of servicing fees,
 
measured as
the total unpaid principal balance of the loans,
 
amounted to $
7.7
 
billion at December 31, 2022 (December
 
31, 2021 - $
8.3
 
billion).
The Corporation
 
determined that
 
the maximum
 
exposure to
 
loss includes
 
the fair
 
value of
 
the MSRs
 
and the
 
assumption that
 
the
servicing advances
 
at December 31,
 
2022 and
 
2021 will
 
not be
 
recovered. The agency
 
debt securities are
 
not included as
 
part of
the maximum exposure to loss since they are guaranteed
 
by the related agencies.
ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the
primary beneficiary of any of the VIEs it is
 
involved with. The conclusion on the assessment of these non-consolidated VIEs has not
changed
 
since
 
their
 
initial
 
evaluation.
 
The
 
Corporation
 
concluded
 
that
 
it
 
is
 
still
 
not
 
the
 
primary
 
beneficiary
 
of
 
these
 
VIEs,
 
and
therefore, these VIEs are not required to be consolidated
 
in the Corporation’s financial statements at December 31,
 
2022.
216
Note 26 – Derivative instruments and hedging
 
activities
The
 
use
 
of
 
derivatives
 
is
 
incorporated
 
as
 
part
 
of
 
the
 
Corporation’s
 
overall
 
interest
 
rate
 
risk
 
management
 
strategy
 
to
 
minimize
significant unplanned fluctuations in
 
earnings and cash flows
 
that are caused
 
by interest rate volatility.
 
The Corporation’s goal
 
is to
manage interest
 
rate sensitivity by
 
modifying the repricing
 
or maturity characteristics
 
of certain
 
balance sheet assets
 
and liabilities
so
 
that the
 
net interest
 
income is
 
not materially
 
affected
 
by movements
 
in interest
 
rates. The
 
Corporation uses
 
derivatives in
 
its
trading activities
 
to facilitate
 
customer transactions,
 
and as
 
a means
 
of risk
 
management. As
 
a result
 
of interest
 
rate fluctuations,
hedged fixed and
 
variable interest rate
 
assets and liabilities
 
will appreciate or
 
depreciate in fair
 
value. The effect
 
of this
 
unrealized
appreciation or depreciation is expected to be substantially
 
offset by the Corporation’s gains or
 
losses on the derivative instruments
that are linked to these hedged assets and liabilities. As a matter of policy,
 
the Corporation does not use highly leveraged derivative
instruments for interest rate risk management.
 
The credit
 
risk attributed to
 
the counterparty’s
 
nonperformance risk is
 
incorporated in the
 
fair value
 
of the
 
derivatives. Additionally,
the
 
fair value
 
of
 
the
 
Corporation’s own
 
credit
 
standing is
 
considered in
 
the fair
 
value
 
of the
 
derivative liabilities.
 
During the
 
year
ended December
 
31, 2022, inclusion
 
of the
 
credit risk
 
in the
 
fair value
 
of the
 
derivatives resulted in
 
a loss
 
of $
0.5
 
million from the
Corporation’s credit standing adjustment.
 
During the years ended December 31,
 
2021 and 2020, the Corporation recognized a
 
loss
of $
0.3
 
million and a gain of $
0.7
 
million, respectively, from the Corporation’s credit standing adjustment.
The Corporation’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty.
 
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
 
fair
 
value
 
of
 
derivatives
 
is
 
not
 
offset
 
with
 
the
 
fair
 
value
 
of
 
other
 
derivatives
 
held
 
with
 
the
 
same
 
counterparty
 
even
 
if
 
these
agreements allow
 
a right
 
of set-off.
 
In
 
addition,
 
the fair
 
value of
 
derivatives is
 
not offset
 
with the
 
amounts for
 
the right
 
to
 
reclaim
financial collateral or the obligation to return financial
 
collateral.
 
Financial
 
instruments
 
designated as
 
cash
 
flow
 
hedges
 
or
 
non-hedging derivatives
 
outstanding at
 
December 31,
 
2022
 
and
 
2021
were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
217
Notional amount
Derivative assets
Derivative liabilities
 
Statement of
Fair value at
Statement of
Fair value at
At December 31,
condition
December 31,
condition
December 31,
(In thousands)
2022
2021
classification
2022
2021
classification
2022
2021
Derivatives designated as
 
hedging instruments:
Forward contracts
$
15,100
$
87,900
Other assets
$
93
$
18
Other liabilities
 
$
22
$
125
Total derivatives designated
 
 
as hedging instruments
$
15,100
$
87,900
$
93
$
18
$
22
$
125
Derivatives not designated
 
as hedging instruments:
Interest rate caps
$
150,000
$
27,866
Other assets
$
1,045
$
-
Other liabilities
$
1,045
$
-
Indexed options on deposits
 
85,414
79,114
Other assets
18,091
26,075
-
-
-
Bifurcated embedded options
78,972
72,352
-
-
-
Interest
bearing
deposits
15,933
22,753
Total derivatives not
 
designated as
 
 
hedging instruments
$
314,386
$
179,332
$
19,136
$
26,075
$
16,978
$
22,753
Total derivative assets
 
and liabilities
 
$
329,486
$
267,232
$
19,229
$
26,093
$
17,000
$
22,878
Cash Flow Hedges
The Corporation
 
utilizes forward
 
contracts to
 
hedge the
 
sale
 
of mortgage-backed
 
securities with
 
duration terms
 
over one
 
month.
Interest rate forwards are contracts for the delayed delivery of securities,
 
which the seller agrees to deliver on a specified future date
at
 
a specified
 
price or
 
yield.
 
These forward
 
contracts are
 
hedging a
 
forecasted transaction
 
and thus
 
qualify for
 
cash flow
 
hedge
accounting. Changes in the fair value of the derivatives are recorded in other comprehensive (loss)
 
income.
 
The amount included in
accumulated other comprehensive (loss) income corresponding to these forward contracts is expected to be reclassified to earnings
in the next twelve months. These contracts have
 
a maximum remaining maturity of
72
 
days at December 31, 2022.
 
For cash flow hedges,
 
net gains (losses) on
 
derivative contracts that are
 
reclassified from accumulated other comprehensive
 
(loss)
income to current period
 
earnings are included in the
 
line item in which the
 
hedged item is recorded and
 
during the period in
 
which
the forecasted transaction impacts earnings, as
 
presented in the tables below.
Year ended December
 
31, 2022
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
1,636
Mortgage banking activities
$
1,458
$
-
Total
$
1,636
$
1,458
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
218
Year ended December
 
31, 2021
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
456
Mortgage banking activities
$
(704)
$
-
Total
$
456
$
(704)
$
-
Year ended December
 
31, 2020
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
(6,594)
Mortgage banking activities
$
(5,559)
$
-
Total
$
(6,594)
$
(5,559)
$
-
Fair Value Hedges
At December 31, 2022 and 2021, there were
no
 
derivatives designated as fair value hedges.
Non-Hedging Activities
For the year ended December 31, 2022, the
 
Corporation recognized a gain of $
7.7
 
million (2021 –gain of $
2.3
 
million; 2020 – loss
of $
3.0
 
million) related to its non-hedging derivatives, as
 
detailed in the table below.
Amount of Net Gain (Loss) Recognized in Income on Derivatives
Year ended
 
Year ended
 
Year ended
 
Classification of Net Gain (Loss)
December 31,
December 31,
December 31,
(In thousands)
Recognized in Income on Derivatives
2022
2021
2020
Forward contracts
Mortgage banking activities
$
8,094
$
2,027
$
(5,027)
Indexed options on deposits
Interest expense
(5,290)
6,824
5,462
Bifurcated embedded options
 
Interest expense
4,942
(6,538)
(3,417)
Total
 
$
7,746
$
2,313
$
(2,982)
Forward Contracts
The Corporation has forward contracts to sell
 
mortgage-backed securities, which are accounted for as trading
 
derivatives. Changes
in their fair value are recognized in mortgage banking
 
activities.
Interest Rate Caps
 
The
 
Corporation enters
 
into
 
interest rate
 
caps as
 
an intermediary
 
on
 
behalf of
 
its customers
 
and simultaneously
 
takes offsetting
positions under the same terms and conditions, thus
 
minimizing its market and credit risks.
Indexed and Embedded Options
The Corporation offers certain customers’ deposits whose return
 
are tied to the performance of the Standard
 
and Poor’s (“S&P 500”)
stock
 
market
 
indexes,
 
and
 
other
 
deposits
 
whose
 
returns
 
are
 
tied
 
to
 
other
 
stock
 
market
 
indexes
 
or
 
other
 
equity
 
securities
performance. The
 
Corporation bifurcated the
 
related options embedded
 
within these
 
customers’ deposits from
 
the host
 
contract in
accordance with
 
ASC Subtopic
 
815-15. In
 
order to
 
limit the
 
Corporation’s exposure
 
to changes
 
in these
 
indexes, the
 
Corporation
purchases indexed options which
 
returns are tied to
 
the same indexes from
 
major broker dealer companies
 
in the over the
 
counter
market. Accordingly, the embedded options and the related indexed options are
 
marked-to-market through earnings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
219
Note 27 – Related party transactions
The Corporation grants loans to its directors, executive officers, including
 
certain related individuals or organizations, and affiliates in
the ordinary course of business. The activity and balance
 
of these loans were as follows:
(In thousands)
Balance at December 31, 2020
$
124,891
New loans
3,182
Payments
(28,208)
Other changes, including existing loans to new related parties
2,714
Balance at December 31, 2021
$
102,579
New loans
11,090
Payments
(15,402)
Other changes, including existing loans to new related parties
27,070
Balance at December 31, 2022
$
125,337
New loans and payments include disbursements and collections
 
from existing lines of credit.
The Corporation has had loan transactions with
 
the Corporation’s directors, executive officers, including certain related
 
individuals or
organizations, and affiliates, and
 
proposes to continue such
 
transactions in the ordinary
 
course of its business,
 
on substantially the
same terms, including interest rates and collateral, as those prevailing for comparable loan transactions with third parties. Except as
discussed
 
below,
 
the extensions
 
of
 
credit
 
have not
 
involved and
 
do not
 
currently
 
involve more
 
than normal
 
risks of
 
collection
 
or
present other unfavorable features.
 
In 2010,
 
as part
 
of the
 
Westernbank FDIC
 
assisted transaction,
 
BPPR acquired
 
five commercial
 
loans made
 
to entities
 
that were
wholly
 
owned
 
by
 
one
 
brother-in-law
 
of
 
a
 
director
 
of
 
the
 
Corporation.
 
The
 
loans
 
were
 
secured
 
by
 
real
 
estate
 
and
 
personally
guaranteed
 
by
 
the
 
director’s
 
brother-in-law.
 
The
 
loans
 
were
 
originated
 
by
 
Westernbank
 
between
 
2001
 
and
 
2005
 
and
 
had
 
an
aggregate outstanding principal
 
balance of approximately
 
$
33.5
 
million when they
 
were acquired by BPPR
 
in 2010. Between
 
2011
and 2014,
 
the loans
 
were restructured to
 
consist of
 
(i)
five
 
notes with
 
an aggregate
 
outstanding principal
 
balance of
 
$
19.8
 
million
with
 
a
6
%
 
annual interest
 
rate
 
(“Notes A”)
 
and
 
(ii)
five
 
notes
 
with
 
an
 
aggregate outstanding
 
balance
 
of
 
$
13.5
 
million
 
with a
1
%
annual interest
 
rate, to
 
be paid
 
upon maturity
 
(“Notes B”).
 
The restructured
 
notes had
 
an original
 
maturity of
 
September 30,
 
2016
and, thereafter, various
 
interim renewals were approved to allow
 
for the re-negotiation of a
 
longer-term extension. The last of these
interim
 
renewals,
 
among
 
other
 
things,
 
extended the
 
maturity
 
date until
 
April
 
2022,
 
decreased
 
the
 
interest
 
rate
 
applicable
 
to
 
the
Notes A
 
to
4.25
% and
 
maintained the
 
Notes B at
 
an interest
 
rate of
1
%. In
 
March and July
 
2022, the Audit
 
Committee authorized
two
 
separate
 
90-day interim
 
maturity extensions
 
to
 
provide additional
 
time
 
for
 
the Bank
 
to
 
analyze and
 
negotiate the
 
terms
 
and
conditions
 
for
 
a
 
longer-term
 
renewal
 
of
 
the
 
credit
 
facilities.
 
In
 
November
 
2022,
 
BPPR
 
and
 
related
 
parties
 
of
 
the
 
Corporation’s
director entered into a three-year extension of
 
the loans, until November 2025, which, among
 
other things: (i) increased the interest
rate applicable to Notes A to
5.25
% and maintained the Notes B
 
at an interest rate of
1
% and (ii) established a
 
principal repayment
schedule for
 
Notes A,
 
including a $
0.7
 
million mandatory prepayment.
 
The three-year extension
 
of the
 
loans was
 
approved by the
Audit Committee in accordance with the Related Party
 
Policy. The aggregate outstanding
 
balance on the loans as of December
 
31,
2022 was approximately $
29.3
 
million, of which approximately $
15.8
 
million corresponded to Notes A
 
and $
13.5
 
million to Notes B.
During 2022, the borrower paid approximately $
1.4
 
million and $
0.7
 
million in principal and interest, respectively.
 
In April 2010, in
 
connection with the acquisition of
 
the Westernbank assets from the
 
FDIC, as receiver,
 
BPPR acquired a term
 
loan
to a
 
corporate borrower
 
partially owned
 
by an
 
investment corporation
 
in which
 
the Corporation’s
 
Chairman, at
 
that time
 
the Chief
Executive Officer, as well as certain of his
 
family members, are the owners. In addition, the Chairman’s sister and brother-in-law are
owners of an
 
entity that holds
 
an ownership interest
 
in the borrower.
 
At the time
 
the loan was
 
acquired by BPPR, it
 
had an unpaid
principal balance of $
40.2
 
million. In May 2017, this loan
 
was sold by BPPR to Popular,
 
Inc., holding company (“PIHC”). At the time
of sale, the loan had an unpaid principal balance of $
37.9
 
million. PIHC paid $
37.9
 
million to BPPR for the loan, of which $
6.0
 
million
was recognized by BPPR as a capital contribution representing the difference
 
between the fair value and the book value of the
 
loan
at the
 
time of
 
transfer.
 
Immediately upon
 
being acquired
 
by PIHC,
 
the loan’s
 
maturity was
 
extended by
 
90 days
 
(under the
 
same
terms as
 
originally contracted) to
 
provide the PIHC
 
additional time to
 
evaluate a refinancing
 
or long-term extension
 
of the loan.
 
In
August 2017, the credit
 
facility was refinanced with
 
a stated maturity in
 
February 2019.
 
During 2017, the facility
 
was subject to the
220
loan payment moratorium offered as part of the hurricane relief efforts. As such,
 
interest payments amounting to approximately $
0.5
million
 
were
 
deferred
 
and
 
capitalized
 
as
 
part
 
of
 
the
 
loan
 
balance.
 
In
 
February
 
2019,
 
the
 
Audit
 
Committee
 
approved,
 
under
 
the
Related Party Policy, a
36
-month renewal of the loan at an interest rate of
5.75
% and a
30
-year amortization schedule. In
December
2021, the Corporation refinanced the then-current $
36.0
 
million principal balance of the loan
 
at an interest rate of
4.50
%, a maturity
date of December
 
2026 and a
20
-year amortization schedule. Payments
 
of principal and
 
interest of approximately
 
$
1.2
 
million and
$
1.5
 
million,
 
respectively,
 
were
 
made
 
during
 
2022.
 
As
 
of
 
December
 
31,
 
2022,
 
the
 
outstanding
 
balance
 
of
 
the
 
loan
 
was
approximately $
33.6
 
million. The borrower is current on its payments.
 
At December 31,
 
2022, the Corporation’s
 
banking subsidiaries held deposits
 
from related parties
 
amounting to approximately $
628
million (2020 - $
700
 
million).
 
From
 
time
 
to
 
time,
 
the
 
Corporation,
 
in
 
the
 
ordinary
 
course
 
of
 
business,
 
obtains
 
services
 
from
 
related
 
parties
 
that
 
have
 
some
association with the
 
Corporation. Management believes the
 
terms of such
 
arrangements are consistent with
 
arrangements entered
into with independent third parties.
 
For
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation made
 
contributions
 
of
 
approximately
 
$
4.8
 
million
 
to
 
Fundación
 
Banco
Popular and
 
Popular Bank
 
Foundation, which
 
are not-for-profit
 
corporations dedicated
 
to philanthropic
 
work (2021
 
- $
4.5
 
million).
The Corporation also provided
 
human and operational resources to
 
support the activities of
 
the Fundación Banco Popular
 
which in
2022 amounted to approximately $
1.5
 
million (2021- $
1.3
 
million).
 
Related party transactions with Evertec,
 
as an affiliate
Until August 15, 2022, the Corporation had an investment in Evertec, which provides various processing and information technology
services to the Corporation
 
and its subsidiaries and gave
 
BPPR access to the
 
ATH network
 
owned and operated by Evertec.
 
As of
December
 
31,
 
2021,
 
the
 
Corporation
 
held
11,654,803
 
shares
 
of
 
Evertec,
 
representing
 
an
 
ownership
 
stake
 
of
16.19
%.
 
This
investment was
 
accounted for
 
under the
 
equity method.
 
The Corporation
 
recorded $
1.5
 
million in
 
dividends from
 
its investment
 
in
Evertec during the year ended December 31, 2022
 
(December 31, 2021 - $
2.3
 
million).
As discussed
 
in Note
 
4, Business
 
combination, on
 
July 1,
 
2022, BPPR
 
completed its
 
previously announced
 
acquisition of
 
certain
assets from Evertec
 
Group to service certain
 
BPPR channels. In connection
 
with the Business Acquisition
 
Transaction, 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. 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
 
Business Acquisition
 
Transaction,
 
BPPR delivered
 
to Evertec
 
Group
4,589,169
 
shares of Evertec common stock valued at
 
closing at $
169.2
 
million (based on Evertec’s stock price
 
on June 30, 2022 of
$
36.88
). As a result of the exchange of shares, the
 
Corporation recognized a pre-tax gain of $
119.9
 
million.
Additionally, on August 15, 2022, the Corporation completed the sale of its remaining
7,065,634
 
shares of common stock of Evertec,
Inc..
 
Following
 
the
 
Evertec
 
Stock
 
Sale,
 
Popular
 
no
 
longer
 
owns
 
any
 
Evertec
 
common
 
stock.
 
As
 
a
 
result,
 
the
 
Corporation
discontinued accounting for its
 
proportionate share of Evertec’s
 
income (loss) and changes in
 
stockholder’s equity under the equity
method of
 
accounting in the
 
third quarter of
 
2022. The Corporation
 
recognized a pre-tax
 
gain on the
 
Evertec Stock Sale
 
of $
137.8
million, including related accounting adjustments.
The following
 
table presents
 
the Corporation’s
 
proportionate share
 
of Evertec’s
 
income (loss)
 
and changes
 
in stockholders’
 
equity
for the years ended December 31, 2022 and 2021,
 
including
 
the effects of the gains recognized related to the Evertec
 
Transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
221
Years ended December
 
31,
(In thousands)
2022
2021
2020
Share of Evertec income and Gain from the Evertec
Transactions and related accounting adjustments
 
[1]
$
269,539
$
26,096
$
16,936
Share of other changes in Evertec's stockholders' equity
3,168
53
865
Share of Evertec's changes in equity recognized in income
 
and
Gain from the Evertec Transaction and
 
related accounting
adjustments
 
$
272,707
$
26,149
$
17,801
[1]
 
The
 
Gain
 
from
 
the
 
Evertec
 
Transactions
 
and
 
related
 
accounting
 
adjustments
 
are
 
reflected
 
within
 
other
 
operating
 
income
 
in
 
the
 
accompanying
consolidated
 
financial
 
statements.
 
As
 
discussed
 
in
 
Note
 
4,
 
the
 
Corporation
 
recognized
 
an
 
additional
 
$
17.3
 
million
 
as
 
an
 
operating
 
expense
 
in
connection with the Business Acquisition Transaction.
 
The following tables present the
 
impact of transactions and service payments
 
between the Corporation and Evertec (as
 
an affiliate)
and
 
their
 
impact
 
on
 
the
 
results
 
of
 
operations
 
for
 
the
 
years
 
ended
 
December
 
31,
 
2022,
 
2021
 
and
 
2020.
 
Items
 
that
 
represent
expenses to the Corporation are presented with
 
parenthesis.
Years ended December
 
31,
(In thousands)
2022 [1]
2021
2020
Category
Interest expense on deposits
$
(267)
$
(388)
$
(315)
Interest expense
ATH and credit cards interchange
 
income from services to Evertec
13,955
27,384
22,406
Other service fees
Rental income charged to Evertec
3,258
6,593
7,305
Net occupancy
Fees on services provided by Evertec
(128,681)
(245,945)
(223,069)
Professional fees
Other services provided to Evertec
420
740
1,002
Other operating expenses
Total
$
(111,315)
$
(211,616)
$
(192,671)
[1] Includes activity through June 30, 2022.
The Corporation continues to obtain programming, processing, and other technology services from Evertec under the amended and
restated Master
 
Service Agreement (“MSA”).
 
For the
 
year ended
 
December 31,
 
2022
 
the Corporation incurred
 
expenses of
 
$
242
million
 
in connection
 
with these
 
services. In
 
addition, the
 
Corporation received
 
$
6.7
 
million from
 
Evertec, related
 
to
 
its merchant
acquiring relationship. Under the terms of the MSA, Evertec will be entitled to receive monthly payments from the Corporation to the
extent that Evertec’s revenues, covered under the MSA, fall
 
below certain agreed annualized minimum amounts.
Centro Financiero BHD León
At December 31, 2022, the Corporation had a
15.84
% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the
largest
 
banking
 
and
 
financial
 
services
 
groups
 
in
 
the
 
Dominican
 
Republic.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
Corporation recorded $
31.2
 
million in earnings
 
from its investment
 
in BHD León
 
(December 31, 2021
 
- $
27.7
 
million), which had
 
a
carrying amount
 
of $
199.8
 
million at
 
December 31,
 
2022 (December
 
31, 2021
 
- $
180.3
 
million). The
 
Corporation received
 
$
16.0
million in dividends distributions during the
 
year ended December 31, 2022
 
from its investment in BHD
 
León (December 31, 2021 -
$
4.3
 
million).
Investment Companies
The Corporation,
 
through its subsidiary Popular
 
Asset Management LLC (“PAM”),
 
provides advisory services to several
 
investment
companies registered
 
under the
 
Investment Company
 
Act of
 
1940 in
 
exchange for
 
a fee.
 
The Corporation,
 
through its
 
subsidiary
BPPR,
 
also
 
provides
 
administrative,
 
custody
 
and
 
transfer
 
agency
 
services
 
to
 
these
 
investment
 
companies.
 
These
 
fees
 
are
calculated
 
at
 
an
 
annual
 
rate
 
of
 
the
 
average
 
net
 
assets
 
of
 
the
 
investment
 
company,
 
as
 
defined
 
in
 
each
 
agreement.
 
Due
 
to
 
its
advisory role, the Corporation considers these investment
 
companies as related parties.
For
 
the
 
year
 
ended
 
December
 
31,
 
2022
 
administrative
 
fees
 
charged
 
to
 
these
 
investment
 
companies
 
amounted
 
to
 
$
2.5
 
million
(December 31, 2021 -
4.1
 
million) and waived fees amounted to $
0.9
 
million (December 31, 2021 - $
1.5
 
million), for a net fee of $
1.6
million (December 31, 2021 - $
2.6
 
million).
222
Note 28 – Fair value measurement
 
ASC Subtopic
 
820-10 “Fair
 
Value
 
Measurements and
 
Disclosures” establishes
 
a fair
 
value hierarchy
 
that prioritizes
 
the inputs
 
to
valuation techniques
 
used to
 
measure fair
 
value into
 
three levels
 
in order
 
to increase
 
consistency and
 
comparability in
 
fair value
measurements and disclosures. The hierarchy is broken
 
down into three levels based on the reliability
 
of inputs as follows:
Level 1
- Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to
access at
 
the measurement date.
 
Valuation
 
on these
 
instruments does not
 
necessitate a
 
significant degree of
 
judgment
since valuations are based on quoted prices that
 
are readily available in an active market.
Level 2
- Quoted prices other than those included in Level 1 that are observable either directly or indirectly.
 
Level 2 inputs
include
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
 
liabilities
 
in
 
active
 
markets,
 
quoted
 
prices
 
for
 
identical
 
or
 
similar
 
assets
 
or
liabilities in
 
markets that
 
are
 
not active,
 
or other
 
inputs that
 
are
 
observable or
 
that can
 
be corroborated
 
by
 
observable
market data for substantially the full term of the
 
financial instrument.
Level
 
3
-
 
Inputs
 
are
 
unobservable
 
and
 
significant
 
to
 
the
 
fair
 
value
 
measurement.
 
Unobservable
 
inputs
 
reflect
 
the
Corporation’s own judgements about assumptions that
 
market participants would use in pricing the asset
 
or liability.
The
 
Corporation
 
maximizes
 
the
 
use
 
of
 
observable
 
inputs
 
and
 
minimizes
 
the
 
use
 
of
 
unobservable
 
inputs
 
by
 
requiring
 
that
 
the
observable inputs be used when
 
available. Fair value is
 
based upon quoted market prices
 
when available. If listed prices
 
or quotes
are
 
not
 
available,
 
the
 
Corporation
 
employs
 
internally-developed
 
models
 
that
 
primarily
 
use
 
market-based
 
inputs
 
including
 
yield
curves, interest rates,
 
volatilities, and credit
 
curves, among others.
 
Valuation
 
adjustments are limited
 
to those necessary
 
to ensure
that the financial instrument’s
 
fair value is adequately representative of
 
the price that would
 
be received or paid
 
in the marketplace.
These adjustments include amounts that reflect counterparty credit quality,
 
the Corporation’s credit standing, constraints on liquidity
and unobservable parameters that are applied consistently.
 
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 December 31, 2022 and
 
2021:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
223
At December 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
1,908,589
$
9,272,359
$
-
$
-
$
11,180,948
Collateralized mortgage obligations - federal
agencies
-
165,196
-
-
165,196
Mortgage-backed securities
-
6,456,459
711
-
6,457,170
Other
-
60
1,000
-
1,060
Total debt securities
 
available-for-sale
$
1,908,589
$
15,894,074
$
1,711
$
-
$
17,804,374
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
13,069
$
-
$
-
$
-
$
13,069
Obligations of Puerto Rico, States and political
subdivisions
-
64
-
-
64
Collateralized mortgage obligations
-
47
113
-
160
Mortgage-backed securities
-
14,008
215
-
14,223
Other
-
-
207
-
207
Total trading account
 
debt securities, excluding
derivatives
$
13,069
$
14,119
$
535
$
-
$
27,723
Equity securities
$
-
$
29,302
$
-
$
330
$
29,632
Mortgage servicing rights
-
-
128,350
-
128,350
Derivatives
 
-
19,229
-
-
19,229
Total assets measured
 
at fair value on a
recurring basis
$
1,921,658
$
15,956,724
$
130,596
$
330
$
18,009,308
Liabilities
Derivatives
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(17,000)
$
-
$
-
$
(17,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
224
At December 31, 2021
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
-
$
15,859,030
$
-
$
-
$
15,859,030
Obligations of U.S. Government
 
sponsored
entities
-
70
-
-
70
Collateralized mortgage obligations - federal
agencies
-
221,265
-
-
221,265
Mortgage-backed securities
-
8,886,950
826
-
8,887,776
Other
-
128
-
-
128
Total debt securities
 
available-for-sale
$
-
$
24,967,443
$
826
$
-
$
24,968,269
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
6,530
$
-
$
-
$
-
$
6,530
Obligations of Puerto Rico, States and political
subdivisions
-
85
-
-
85
Collateralized mortgage obligations
-
59
198
-
257
Mortgage-backed securities
-
22,559
-
-
22,559
Other
-
-
280
-
280
Total trading account
 
debt securities, excluding
derivatives
$
6,530
$
22,703
$
478
$
-
$
29,711
Equity securities
$
-
$
32,429
$
-
$
77
$
32,506
Mortgage servicing rights
-
-
121,570
-
121,570
Derivatives
 
-
26,093
-
-
26,093
Total assets measured
 
at fair value on a
recurring basis
$
6,530
$
25,048,668
$
122,874
$
77
$
25,178,149
Liabilities
 
 
 
Derivatives
$
-
$
(22,878)
$
-
$
-
$
(22,878)
Contingent consideration
-
-
(9,241)
-
(9,241)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(22,878)
$
(9,241)
$
-
$
(32,119)
The fair value information included in the following
 
tables is not as of period end, but as
 
of the date that the fair value measurement
was recorded during the years ended December 31, 2022,
 
2021 and 2020
 
and excludes nonrecurring fair value measurements
 
of
assets no longer outstanding
 
as of the reporting date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
225
Year ended December
 
31, 2022
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
11,215
$
11,215
$
(2,067)
Other real estate owned
[2]
-
-
3,992
3,992
(1,026)
Other foreclosed assets
[2]
-
-
13
13
(1)
Long-lived assets held-for-sale
[3]
-
-
1,178
1,178
(2,155)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
16,398
$
16,398
$
(5,249)
[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.
[3] Represents the fair value of long-lived assets held-for-sale
 
that were written down to their fair value.
Year ended December
 
31, 2021
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
21,167
$
21,167
$
(3,721)
Other real estate owned
[2]
-
-
7,727
7,727
(1,579)
Other foreclosed assets
[2]
-
-
68
68
(33)
Long-lived assets held-for-sale
[3]
-
-
9,007
9,007
(5,320)
Trademark
[4]
-
-
156
156
(5,404)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
38,125
$
38,125
$
(16,057)
[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.
[3] Represents the fair value of long-lived assets held-for-sale
 
that were written down to their fair value.
[4] Represents the fair value of a trademark due to a write-down
 
on impairment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
226
Year ended December
 
31, 2020
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
74,511
$
74,511
$
(15,290)
Loans held-for-sale
[2]
-
-
2,738
2,738
(1,311)
Other real estate owned
[3]
-
-
20,123
20,123
(3,325)
Other foreclosed assets
[3]
-
-
116
116
(148)
ROU assets
[4]
-
-
446
446
(15,920)
Leasehold improvements
[4]
-
-
126
126
(2,084)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
98,060
$
98,060
$
(38,078)
[1] Relates mostly to certain impaired collateral dependent loans.
 
The impairment was measured based on the fair value
 
of the collateral, which
is derived from appraisals that take into consideration
 
prices in observed transactions involving similar assets
 
in similar locations. Costs to sell are
excluded from the reported fair value amount.
[2] Relates to a quarterly valuation on loans held-for-sale.
 
Costs to sell are excluded from the reported fair value amount.
[3] Represents the fair value of foreclosed real estate and
 
other collateral owned that were written down to their fair
 
value. Costs to sell are
excluded from the reported fair value amount.
[4] The impairment was measured based on the sublease
 
rental value of the branches that were subject to the strategic
 
realignment of PB's New
Metro Branch network.
 
The following tables present the changes in Level
 
3 assets and liabilities measured at fair
 
value on a recurring basis for the years
ended December 31, 2022, 2021, and 2020.
Year ended December
 
31, 2022
MBS
Other
classified
classified
CMOs
MBS
 
Other
as debt
as debt
classified
classified
securities
securities
securities
as trading
as trading
classified as
Mortgage
available-
available-
account debt
account debt
trading account
servicing
Total
Contingent
Total
(In thousands)
for-sale
for-sale
securities
securities
debt securities
rights
assets
Consideration
liabilities
Balance at January 1,
 
2022
$
826
$
-
$
198
$
-
$
280
$
121,570
$
122,874
$
(9,241)
$
(9,241)
Gains (losses) included in
earnings
-
-
(2)
4
(73)
166
95
9,241
9,241
Gains (losses) included in OCI
(15)
-
-
-
-
-
(15)
-
-
Additions
-
1,000
5
211
-
6,614
7,830
-
-
Settlements
(100)
-
(88)
-
-
-
(188)
-
-
Balance at December 31, 2022
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
$
-
$
-
Changes in unrealized gains
(losses) included in earnings
relating to assets still held at
December 31, 2022
$
-
$
-
$
(2)
$
4
$
(23)
$
11,964
$
11,943
$
-
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
227
Year ended December
 
31, 2021
MBS
Other
classified
CMOs
securities
as debt
classified
classified
securities
as trading
as trading
Mortgage
available-
account debt
account debt
 
servicing
Total
Contingent
Total
(In thousands)
for-sale
securities
securities
rights
assets
Consideration
liabilities
Balance at January 1, 2021
$
1,014
$
278
$
381
$
118,395
$
120,068
$
-
$
-
Gains (losses) included in earnings
-
(1)
(101)
(10,216)
(10,318)
-
-
Gains (losses) included in OCI
(13)
-
-
-
(13)
-
-
Additions
-
29
-
13,391
13,419
(9,241)
(9,241)
Settlements
(175)
(107)
-
-
(282)
-
-
Balance at December 31, 2021
$
826
$
198
$
280
$
121,570
$
122,874
$
(9,241)
$
(9,241)
Changes in unrealized gains (losses) included in
earnings relating to assets still held at December 31,
2021
$
-
$
(1)
$
(45)
$
6,410
$
6,364
$
-
$
-
Year ended December
 
31, 2020
MBS
Other
classified
CMOs
securities
as debt
classified
classified
securities
as trading
as trading
Mortgage
available-
account debt
account debt
 
servicing
Total
(In thousands)
for-sale
securities
securities
rights
assets
Balance at January 1,
 
2020
$
1,182
$
530
$
440
$
150,906
$
153,058
Gains (losses) included in earnings
-
(1)
(59)
(42,055)
(42,115)
Gains (losses) included in OCI
(18)
-
-
-
(18)
Additions
-
4
-
9,544
9,548
Settlements
(150)
(255)
-
-
(405)
Balance at December 31, 2020
$
1,014
$
278
$
381
$
118,395
$
120,068
Changes in unrealized gains (losses) included in earnings
 
relating to assets still
held at December 31, 2020
$
-
$
-
$
27
$
(19,327)
$
(19,300)
Gains and losses (realized and
 
unrealized) included in earnings for the
 
years ended December 31, 2022,
 
2021, and 2020 for Level
3 assets and liabilities included in the previous
 
tables are reported in the consolidated statement
 
of operations as follows:
2022
2021
2020
Total
Changes in unrealized
Total
Changes in unrealized
Total
Changes in unrealized
gains (losses)
gains (losses)
 
gains (losses)
gains (losses)
 
gains (losses)
gains (losses)
 
included
relating to assets still
included
relating to assets still
included
relating to assets still
 
(In thousands)
in earnings
held at reporting date
in earnings
held at reporting date
in earnings
held at reporting date
Mortgage banking activities
$
166
$
11,964
$
(10,216)
$
6,410
$
(42,055)
$
(19,327)
Trading account (loss) profit
 
(71)
(21)
(102)
(46)
(60)
27
Other operating income
9,241
-
-
-
-
-
Total
 
$
9,336
$
11,943
$
(10,318)
$
6,364
$
(42,115)
$
(19,300)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
228
The following
 
tables include
 
quantitative information
 
about significant
 
unobservable inputs
 
used to
 
derive the
 
fair value
 
of Level
 
3
instruments, excluding those instruments
 
for which the
 
unobservable inputs were not
 
developed by the
 
Corporation such as
 
prices
of prior transactions and/or unadjusted third-party pricing
 
sources at December 31, 2022 and 2021.
Fair value at
 
December 31,
(In thousands)
2022
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
113
Discounted cash flow model
Weighted average life
0.4
 
years (
0.1
 
-
0.6
 
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
10.2
% (
9.1
% -
32
%)
Other - trading
$
207
Discounted cash flow model
Weighted average life
2.5
 
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
5,087
[2]
External appraisal
Haircut applied on
external appraisals
8.3
% (
5.0
% -
10.4
%)
Other real estate owned
$
528
[3]
External appraisal
Haircut applied on
external appraisals
18.4
% (
5.0
% -
35
%)
[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
 
December 31,
(In thousands)
2021
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
198
Discounted cash flow model
Weighted average life
0.8
 
years (
0.4
 
-
1
 
years)
Yield
3.6
% (
3.6
% -
4.1
%)
Prepayment speed
11.4
% (
10.1
% -
17.2
%)
Other - trading
$
280
Discounted cash flow model
Weighted average life
2.9
 
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
20,041
[2]
External appraisal
Haircut applied on
external appraisals
5
.0%
Other real estate owned
$
3,631
[3]
External appraisal
Haircut applied on
external appraisals
22.3
% (
5.0
% -
35.0
%)
[1]
 
Weighted average of significant unobservable inputs
 
used to develop Level 3 fair value measurements
 
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
 
to external appraisals were excluded from this table.
 
[3]
Other real estate owned in which haircuts were not applied
 
to external appraisals were excluded from this table.
Effective the fourth quarter 2021, the mortgage
 
servicing rights fair value was provided by
 
a third-party valuation specialist. Refer to
Note 11 to the Consolidated Financial Statements for additional information on
 
MSRs.
The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and
interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield,
constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would
result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant
prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is
reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant
prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield.
The
significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant
prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to
products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement
.
Following is
 
a description
 
of the
 
Corporation’s valuation
 
methodologies used
 
for assets
 
and liabilities
 
measured at
 
fair value.
 
The
disclosure requirements exclude certain financial instruments and all
 
non-financial instruments. Accordingly, the aggregate fair value
amounts of the financial instruments disclosed do
 
not represent management’s estimate of the underlying
 
value of the Corporation.
Trading account debt securities and debt securities available-for-sale
 
229
 
U.S. Treasury securities:
 
The fair value
 
of U.S. Treasury
 
notes is based
 
on yields that
 
are interpolated from the
 
constant
maturity treasury curve.
 
These securities are classified
 
as Level 2.
 
U.S. Treasury
 
bills are classified as
 
Level 1 given the
high volume of trades and pricing based on those
 
trades.
 
 
Obligations of U.S.
 
Government sponsored entities: The
 
Obligations of U.S. Government
 
sponsored entities include U.S.
agency
 
securities,
 
which
 
fair
 
value
 
is
 
based
 
on
 
an
 
active
 
exchange
 
market
 
and
 
on
 
quoted
 
market
 
prices
 
for
 
similar
securities. The U.S. agency securities are classified as Level
 
2.
 
 
Obligations of Puerto
 
Rico, States and
 
political subdivisions: Obligations of
 
Puerto Rico, States
 
and political subdivisions
include
 
municipal
 
bonds.
 
The
 
bonds
 
are
 
segregated
 
and
 
the
 
like
 
characteristics
 
divided
 
into
 
specific
 
sectors.
 
Market
inputs used in the
 
evaluation process include all or
 
some of the following:
 
trades, bid price or
 
spread, two sided markets,
quotes, benchmark curves including but not
 
limited to Treasury benchmarks, LIBOR
 
and swap curves, market data feeds
such
 
as those
 
obtained from
 
municipal market
 
sources,
 
discount and
 
capital
 
rates,
 
and trustee
 
reports. The
 
municipal
bonds are classified as Level 2.
 
Mortgage-backed securities: Certain agency mortgage-backed
 
securities (“MBS”) are priced based on a bond’s theoretical
value
 
derived
 
from
 
similar
 
bonds
 
defined
 
by
 
credit
 
quality
 
and
 
market
 
sector.
 
Their
 
fair
 
value
 
incorporates
 
an
 
option
adjusted spread. The
 
agency MBS are classified
 
as Level 2.
 
Other agency MBS
 
such as GNMA
 
Puerto Rico Serials
 
are
priced using an internally-prepared pricing matrix with quoted prices from local brokers dealers. These particular MBS are
classified as Level 3.
 
Collateralized mortgage
 
obligations: Agency
 
collateralized mortgage
 
obligations (“CMOs”)
 
are priced
 
based on
 
a bond’s
theoretical
 
value
 
derived
 
from
 
similar
 
bonds
 
defined
 
by
 
credit
 
quality
 
and
 
market
 
sector
 
and
 
for
 
which
 
fair
 
value
incorporates
 
an
 
option
 
adjusted
 
spread.
 
The
 
option
 
adjusted
 
spread
 
model
 
includes
 
prepayment
 
and
 
volatility
assumptions,
 
ratings
 
(whole
 
loans
 
collateral)
 
and
 
spread
 
adjustments.
 
These
 
CMOs
 
are
 
classified
 
as
 
Level
 
2.
 
Other
CMOs, due
 
to their
 
limited liquidity,
 
are classified
 
as Level
 
3 due
 
to the
 
insufficiency of
 
inputs such
 
as executed
 
trades,
credit information and cash flows.
 
 
Corporate securities (included
 
as “other” in
 
the “available-for-sale” category):
 
Given that the
 
quoted prices are
 
for similar
instruments, these securities are classified as Level
 
2.
 
 
Corporate securities
 
and
 
interest-only strips
 
(included as
 
“other” in
 
the
 
“trading account
 
debt securities”
 
category): For
corporate securities, quoted prices for these security types are obtained from broker dealers. Given that the quoted prices
are for similar instruments or do not trade in highly liquid markets,
 
these securities are classified as Level 2. Given that the
fair
 
value
 
was
 
estimated
 
based
 
on
 
a
 
discounted
 
cash
 
flow
 
model
 
using
 
unobservable
 
inputs,
 
interest-only
 
strips
 
are
classified as Level 3.
 
Equity securities
Equity
 
securities
 
are
 
comprised principally
 
of
 
shares
 
in
 
closed-ended and
 
open-ended mutual
 
funds
 
and
 
other
 
equity
 
securities.
Closed-end funds are
 
traded on the
 
secondary market at
 
the shares’ market value.
 
Open-ended funds are considered
 
to be liquid,
as investors can sell their shares continually to the fund and are priced at NAV.
 
Mutual funds are classified as Level 2. Other equity
securities that
 
do not
 
trade in
 
highly liquid
 
markets are
 
also classified
 
as Level
 
2, except
 
for one
 
equity security
 
that do
 
not have
readily determinable fair value and is under an investment
 
company is measured at NAV.
Mortgage servicing rights
 
Mortgage
 
servicing
 
rights
 
(“MSRs”)
 
do
 
not
 
trade
 
in
 
an
 
active
 
market
 
with
 
readily
 
observable
 
prices.
 
MSRs
 
are
 
priced
 
using
 
a
discounted cash
 
flow model
 
valuation performed
 
by a
 
third party.
 
The discounted
 
cash flow
 
model incorporates
 
assumptions that
market
 
participants
 
would
 
use
 
in
 
estimating
 
future
 
net
 
servicing
 
income,
 
including
 
portfolio
 
characteristics,
 
prepayments
assumptions, discount
 
rates, delinquency
 
and foreclosure
 
rates, late
 
charges, other
 
ancillary revenues,
 
cost to
 
service and
 
other
economic factors.
 
Prepayment speeds
 
are adjusted
 
for the
 
loans’ characteristics
 
and portfolio
 
behavior.
 
Due to
 
the unobservable
nature of certain valuation inputs, the MSRs are
 
classified as Level 3.
 
Derivatives
 
Interest
 
rate
 
caps
 
and
 
indexed
 
options
 
are
 
traded
 
in
 
over-the-counter
 
active
 
markets.
 
These
 
derivatives
 
are
 
indexed
 
to
 
an
observable interest rate benchmark, such
 
as LIBOR or equity indexes,
 
and are priced using an
 
income approach based on present
value
 
and
 
option
 
pricing
 
models
 
using
 
observable
 
inputs.
 
Other
 
derivatives
 
are
 
liquid
 
and
 
have
 
quoted
 
prices,
 
such
 
as
 
forward
contracts or
 
“to be
 
announced securities”
 
(“TBAs”). All
 
of these
 
derivatives are
 
classified as
 
Level 2.
 
The non-performance
 
risk is
determined using internally-developed models that
 
consider the collateral
 
held, the remaining
 
term, and the
 
creditworthiness of the
entity that
 
bears the
 
risk, and
 
uses available
 
public data
 
or internally-developed
 
data related
 
to current
 
spreads that
 
denote their
probability of default.
230
Contingent consideration liability
The fair
 
value of
 
the contingent
 
consideration, which
 
relates to
 
earnout payments
 
that could
 
be payable
 
to
 
K2 over
 
a three-year
period, was
 
calculated based
 
on a
 
discounted cash
 
flow technique
 
using the
 
probability-weighted average
 
from
 
likely scenarios.
 
This contingent consideration is classified as Level
 
3.
Loans held-in-portfolio that are collateral dependent
The impairment is
 
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
 
and
 
which
 
could
 
be
 
subject
 
to
 
internal
 
adjustments.
These collateral dependent loans are classified as Level
 
3.
 
Loans measured at fair value pursuant to lower
 
of cost or fair value adjustments
Loans measured at fair value on a nonrecurring basis pursuant to lower
 
of cost or fair value were priced based on secondary market
prices
 
and
 
discounted
 
cash
 
flow
 
models
 
which
 
incorporate
 
internally-developed
 
assumptions
 
for
 
prepayments
 
and
 
credit
 
loss
estimates. These loans are classified as Level 3.
 
Other real estate owned and other foreclosed assets
 
Other
 
real
 
estate
 
owned
 
includes
 
real
 
estate
 
properties
 
securing
 
mortgage,
 
consumer,
 
and
 
commercial
 
loans.
 
Other
 
foreclosed
assets include primarily automobiles
 
securing auto loans. The
 
fair value of
 
foreclosed assets may be
 
determined using an external
appraisal, broker price opinion, or an
 
internal valuation.
 
These foreclosed assets are classified as Level
 
3 since they are subject
 
to
internal adjustments.
ROU assets and leasehold improvements
The impairment was measured based on the sublease rental value of
 
the branches that were subject to the strategic
 
realignment of
PB’s New York Metro Branch network.
 
These ROU assets and leasehold improvements are
 
classified as Level 3.
Long-lived assets held-for-sale
The
 
Corporation
 
evaluates
 
for
 
impairment
 
its
 
long-lived
 
assets,
 
whenever
 
events
 
or
 
changes
 
in
 
circumstances
 
indicate
 
that
 
the
carrying amount of
 
an asset may not
 
be recoverable and records
 
a write down for
 
the difference between the
 
carrying amount and
the fair value less cost to sell. These long-lived
 
assets held-for-sale are classified as Level
 
3.
Trademark
The write-down on impairment of a trademark was based on the
 
discontinuance of origination thru e-loan platform. This
 
trademark is
classified as Level 3.
231
Note 29 – Fair value of financial instruments
The fair
 
value of
 
financial instruments
 
is the
 
amount at
 
which an
 
asset or
 
obligation could
 
be exchanged
 
in a
 
current transaction
between
 
willing
 
parties,
 
other
 
than
 
in
 
a
 
forced
 
or
 
liquidation
 
sale.
 
For
 
those
 
financial
 
instruments
 
with
 
no
 
quoted
 
market
 
prices
available, fair values have been estimated using present
 
value calculations or other valuation techniques, as well
 
as management’s
best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment
assumptions. Many of these
 
estimates involve various assumptions and
 
may vary significantly from
 
amounts that could be
 
realized
in actual transactions.
The
 
fair
 
values
 
reflected
 
herein
 
have
 
been
 
determined
 
based
 
on
 
the
 
prevailing
 
rate
 
environment
 
at
 
December
 
31,
 
2022
 
and
December 31, 2021, as
 
applicable. In different interest
 
rate environments, fair value
 
estimates can differ significantly,
 
especially for
certain
 
fixed
 
rate
 
financial
 
instruments.
 
In
 
addition,
 
the
 
fair
 
values
 
presented
 
do
 
not
 
attempt
 
to
 
estimate
 
the
 
value
 
of
 
the
Corporation’s fee
 
generating businesses and
 
anticipated future business
 
activities, that
 
is, they
 
do not
 
represent the
 
Corporation’s
value as
 
a going concern.
 
There have been
 
no changes in
 
the Corporation’s valuation
 
methodologies and inputs
 
used to estimate
the fair values for each class of financial assets and
 
liabilities not measured at fair value.
The following tables present the
 
carrying amount and estimated fair
 
values of financial instruments with their
 
corresponding level in
the fair
 
value hierarchy.
 
The aggregate
 
fair value
 
amounts of
 
the financial
 
instruments disclosed
 
do not
 
represent management’s
estimate of the underlying value of the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
232
December 31, 2022
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Assets:
Cash and due from banks
$
469,501
$
469,501
$
-
$
-
$
-
$
469,501
Money market investments
5,614,595
5,607,937
6,658
-
-
5,614,595
Trading account debt securities, excluding
 
derivatives
[1]
27,723
13,069
14,119
535
-
27,723
Debt securities available-for-sale
[1]
17,804,374
1,908,589
15,894,074
1,711
-
17,804,374
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,453,467
$
-
$
8,372,601
$
-
$
-
$
8,372,601
Obligations of Puerto Rico, States and political
subdivisions
59,010
-
-
61,617
-
61,617
Collateralized mortgage obligation-federal agency
19
-
-
19
-
19
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
 
held-to-maturity
$
8,518,455
$
-
$
8,378,560
$
61,636
$
-
$
8,440,196
Equity securities:
FHLB stock
$
65,861
$
-
$
65,861
$
-
$
-
$
65,861
FRB stock
96,206
-
96,206
-
-
96,206
Other investments
33,787
-
29,302
4,966
330
34,598
Total equity securities
$
195,854
$
-
$
191,369
$
4,966
$
330
$
196,665
Loans held-for-sale
$
5,381
$
-
$
-
$
5,404
$
-
$
5,404
Loans held-in-portfolio
31,357,467
-
-
29,366,365
-
29,366,365
Mortgage servicing rights
128,350
-
-
128,350
-
128,350
Derivatives
19,229
-
19,229
-
-
19,229
December 31, 2022
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Liabilities:
Deposits:
Demand deposits
$
54,445,825
$
-
$
54,445,825
$
-
$
-
$
54,445,825
Time deposits
6,781,402
-
6,464,943
-
-
6,464,943
Total deposits
$
61,227,227
$
-
$
60,910,768
$
-
$
-
$
60,910,768
Assets sold under agreements to repurchase
$
148,609
$
-
$
148,566
$
-
$
-
$
148,566
Other short-term borrowings
[2]
365,000
-
365,000
-
-
365,000
Notes payable:
FHLB advances
$
389,282
$
-
$
361,951
$
-
$
-
$
361,951
Unsecured senior debt securities
299,109
-
300,027
-
-
300,027
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,319
-
173,938
-
-
173,938
Total notes payable
$
886,710
$
-
$
835,916
$
-
$
-
$
835,916
Derivatives
$
17,000
$
-
$
17,000
$
-
$
-
$
17,000
[1]
Refer to Note 28 to the Consolidated Financial Statements
 
for the fair value by class of financial asset and its hierarchy
 
level.
[2]
Refer to Note 17 to the Consolidated Financial Statements
 
for the composition of other short-term borrowings.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
233
December 31, 2021
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Assets:
Cash and due from banks
$
428,433
$
428,433
$
-
$
-
$
-
$
428,433
Money market investments
17,536,719
17,530,640
6,079
-
-
17,536,719
Trading account debt securities, excluding
 
derivatives
[1]
29,711
6,530
22,703
478
-
29,711
Debt securities available-for-sale
[1]
24,968,269
-
24,967,443
826
-
24,968,269
Debt securities held-to-maturity:
Obligations of Puerto Rico, States and political
subdivisions
$
65,380
$
-
$
-
$
77,383
$
-
$
77,383
Collateralized mortgage
 
obligation-federal agency
25
-
-
25
-
25
Securities in wholly owned statutory business trusts
5,960
-
5,960
-
-
5,960
Total debt securities
 
held-to-maturity
$
71,365
$
-
$
5,960
$
77,408
$
-
$
83,368
Equity securities:
FHLB stock
$
59,918
$
-
$
59,918
$
-
$
-
$
59,918
FRB stock
96,217
-
96,217
-
-
96,217
Other investments
33,842
-
32,429
3,704
77
36,210
Total equity securities
$
189,977
$
-
$
188,564
$
3,704
$
77
$
192,345
Loans held-for-sale
$
59,168
$
-
$
-
$
59,885
$
-
$
59,885
Loans held-in-portfolio
28,545,191
-
-
27,489,583
-
27,489,583
Mortgage servicing rights
121,570
-
-
121,570
-
121,570
Derivatives
26,093
-
26,093
-
-
26,093
December 31, 2021
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Liabilities:
Deposits:
Demand deposits
$
60,292,939
$
-
$
60,292,939
$
-
$
-
$
60,292,939
Time deposits
6,712,149
-
6,647,301
-
-
6,647,301
Total deposits
$
67,005,088
$
-
$
66,940,240
$
-
$
-
$
66,940,240
Assets sold under agreements to repurchase
$
91,603
$
-
$
91,602
$
-
$
-
$
91,602
Other short-term borrowings
[2]
75,000
-
75,000
-
-
75,000
Notes payable:
FHLB advances
$
492,429
$
-
$
496,091
$
-
$
-
$
496,091
Unsecured senior debt securities
297,842
-
319,296
-
-
319,296
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,292
-
201,879
-
-
201,879
Total notes payable
$
988,563
$
-
$
1,017,266
$
-
$
-
$
1,017,266
Derivatives
$
22,878
$
-
$
22,878
$
-
$
-
$
22,878
Contingent consideration
$
9,241
$
-
$
-
$
9,241
$
-
$
9,241
[1]
Refer to Note 28 to the Consolidated Financial Statements
 
for the fair value by class of financial asset and its hierarchy
 
level.
 
[2]
Refer to Note 17 to the Consolidated Financial Statements
 
for the composition of other short-term borrowings.
 
The
 
notional
 
amount
 
of
 
commitments to
 
extend credit
 
at
 
December 31,
 
2022
 
and
 
December 31,
 
2021
 
is
 
$
10.5
 
billion
 
and
 
$
9.5
billion, respectively,
 
and represents
 
the unused
 
portion of
 
credit facilities
 
granted to
 
customers. The
 
notional amount
 
of letters
 
of
credit at
 
December 31,
 
2022 and
 
December 31,
 
2021 is
 
$
31
 
million and
 
represents the
 
contractual amount
 
that is
 
required to
 
be
paid in
 
the event
 
of nonperformance. The
 
fair value
 
of commitments to
 
extend credit
 
and letters
 
of credit,
 
which are
 
based on
 
the
fees charged to enter into those agreements, are
 
not material to Popular’s financial statements.
 
 
 
 
 
 
 
234
Note 30 – Employee benefits
Certain employees of BPPR are covered by three
 
non-contributory defined benefit pension plans,
 
the Banco Popular de Puerto Rico
Retirement Plan and two Restoration Plans (the
 
“Pension Plans”).
 
Pension benefits are based on age, years of
 
credited service,
and final average compensation.
The Pension
 
Plans are
 
currently closed to
 
new hires
 
and the
 
accrual of
 
benefits are
 
frozen to
 
all participants. The
 
Pension Plans’
benefit formula
 
is based
 
on a
 
percentage of
 
average final
 
compensation and
 
years of
 
service as
 
of the
 
plan freeze
 
date. Normal
retirement age under
 
the retirement plan
 
is age 65
 
with 5 years
 
of service. Pension
 
costs are funded
 
in accordance with
 
minimum
funding standards
 
under the
 
Employee Retirement
 
Income Security
 
Act of
 
1974 (“ERISA”).
 
Benefits under
 
the Pension
 
Plans are
subject to
 
the U.S.
 
and Puerto
 
Rico Internal Revenue
 
Code limits
 
on compensation
 
and benefits.
 
Benefits under restoration
 
plans
restore benefits
 
to selected
 
employees that are
 
limited under
 
the Banco
 
Popular de
 
Puerto Rico
 
Retirement Plan
 
due to
 
U.S. and
Puerto Rico
 
Internal Revenue
 
Code limits
 
and a
 
compensation definition
 
that excludes
 
amounts deferred pursuant
 
to nonqualified
arrangements.
 
In
 
addition
 
to
 
providing
 
pension
 
benefits,
 
BPPR
 
provides
 
certain
 
health
 
care
 
benefits
 
for
 
certain
 
retired
 
employees
 
(the
 
“OPEB
Plan”).
 
Regular employees
 
of BPPR,
 
hired before
 
February 1,
 
2000, may
 
become eligible
 
for health
 
care benefits,
 
provided they
reach retirement age while working for BPPR.
The Corporation’s funding policy is to make annual contributions to the plans, when necessary, in amounts which fully provide for all
benefits as they become due under the plans.
 
The Corporation’s pension fund investment strategy
 
is to invest in a
 
prudent manner for the exclusive
 
purpose of providing benefits
to participants. A well defined internal structure has
 
been established to develop and implement
 
a risk-controlled investment strategy
that is targeted to
 
produce a total return that,
 
when combined with BPPR contributions to
 
the fund, will maintain the
 
fund’s ability to
meet all
 
required benefit obligations.
 
Risk is controlled
 
through diversification of
 
asset types, such
 
as investments in
 
domestic and
international equities and fixed income.
Equity investments include various types of stock and index funds. Also, this category
 
includes Popular, Inc.’s common stock. Fixed
income
 
investments include
 
U.S. Government
 
securities
 
and
 
other U.S.
 
agencies’ obligations,
 
corporate
 
bonds, mortgage
 
loans,
mortgage-backed securities
 
and index
 
funds, among
 
others. A
 
designated committee
 
periodically reviews
 
the performance
 
of the
pension
 
plans’
 
investments
 
and
 
assets
 
allocation.
 
The
 
Trustee
 
and
 
the
 
money
 
managers
 
are
 
allowed
 
to
 
exercise
 
investment
discretion, subject
 
to limitations
 
established by
 
the pension
 
plans’ investment
 
policies. The
 
plans forbid
 
money managers
 
to enter
into derivative transactions, unless approved by the
 
Trustee.
 
The
 
overall
 
expected
 
long-term
 
rate-of-return-on-assets assumption
 
reflects
 
the
 
average rate
 
of
 
earnings
 
expected
 
on
 
the funds
invested or
 
to
 
be invested
 
to provide
 
for the
 
benefits included
 
in the
 
benefit obligation.
 
The assumption
 
has been
 
determined by
reflecting
 
expectations
 
regarding
 
future
 
rates
 
of
 
return
 
for
 
the
 
plan
 
assets,
 
with
 
consideration
 
given
 
to
 
the
 
distribution
 
of
 
the
investments by asset
 
class and
 
historical rates of
 
return for each
 
individual asset class.
 
This process is
 
reevaluated at least
 
on an
annual basis and if market, actuarial and economic
 
conditions change, adjustments to the rate of return
 
may come into place.
The
 
Pension
 
Plans
 
weighted
 
average
 
asset
 
allocation
 
as
 
of
 
December
 
31,
 
2022
 
and
 
2021
 
and
 
the
 
approved
 
asset
 
allocation
ranges, by asset category, are summarized in the table below.
Minimum allotment
Maximum allotment
2022
2021
Equity
0
%
70
%
27
%
30
%
Debt securities
0
%
100
%
69
%
67
%
Popular related securities
0
%
5
%
2
%
2
%
Cash and cash equivalents
0
%
100
%
2
%
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
235
The following table sets
 
forth by level, within
 
the fair value hierarchy,
 
the Pension Plans’ assets at
 
fair value at December
 
31, 2022
and 2021. Investments
 
measured at net
 
asset value per share
 
(“NAV”) as
 
a practical expedient have
 
not been classified
 
in the fair
value hierarchy,
 
but are presented in order to
 
permit reconciliation of the plans’ assets.
 
During the year ended December 31, 2022
investments in certain government
 
obligations classified as Level
 
2 were substituted by
 
proprietary funds of a
 
money manager that
invest in government obligations that are measured
 
at NAV.
2022
2021
(In thousands)
Level 1
Level 2
Level 3
Measured
at NAV
Total
 
Level 1
Level 2
Level 3
Measured
at NAV
Total
 
Obligations of the U.S.
Government, its agencies,
states and political
subdivisions
$
-
$
8,113
$
-
$
130,397
$
138,510
$
-
$
9,259
$
-
$
188,377
$
197,636
Corporate bonds and
debentures
-
268,641
-
6,291
274,932
-
375,875
-
8,485
384,360
Equity securities - Common
Stock
32,906
-
-
-
32,906
41,414
-
-
-
41,414
Equity securities - ETF's
51,836
20,276
-
-
72,112
111,365
25,446
-
-
136,811
Foreign commingled trust
funds
-
-
-
64,630
64,630
-
-
-
82,912
82,912
Mutual fund
-
3,471
-
22,106
25,577
-
5,262
-
-
5,262
Private equity investments
-
-
-
-
-
-
-
56
-
56
Cash and cash equivalents
7,637
-
-
-
7,637
7,523
-
-
-
7,523
Accrued investment income
 
-
-
3,581
-
3,581
-
-
4,510
-
4,510
Total assets
 
$
92,379
$
300,501
$
3,581
$
223,424
$
619,885
$
160,302
$
415,842
$
4,566
$
279,774
$
860,484
236
The closing prices reported in the active markets
 
in which the securities are traded are used
 
to value the investments.
 
Following is a description of the valuation methodologies
 
used for investments measured at fair value:
 
Obligations
 
of
 
U.S.
 
Government,
 
its
 
agencies,
 
states
 
and
 
political
 
subdivisions
 
-
 
The
 
fair
 
value
 
of
 
Obligations
 
of
 
U.S.
Government and its agencies obligations are based on
 
an active exchange market and on quoted
 
market prices for similar
securities. U.S.
 
agency structured
 
notes
 
are
 
priced based
 
on
 
a bond’s
 
theoretical value
 
from similar
 
bonds
 
defined by
credit quality
 
and market sector
 
and for
 
which the
 
fair value
 
incorporates an
 
option adjusted spread
 
in deriving
 
their fair
value.
 
The fair value
 
of municipal bonds
 
are based on
 
trade data on
 
these instruments reported on
 
Municipal Securities
Rulemaking Board (“MSRB”)
 
transaction reporting system
 
or comparable bonds
 
from the same
 
issuer and credit
 
quality.
 
These securities are classified as Level 2, except for
 
the governmental index funds that are measured
 
at NAV.
 
Corporate bonds and debentures -
 
Corporate bonds and debentures are
 
valued at fair value at
 
the closing price reported
in the active market in
 
which the bond is traded. These
 
securities are classified as Level
 
2, except for the
c
orporate bond
funds that are measured at NAV.
 
Equity securities – common stock
 
- Equity securities with
 
quoted market prices obtained from
 
an active exchange market
and high liquidity are classified as Level 1.
 
Equity securities – ETF’s
 
– Exchange Traded Funds
 
shares with quoted market prices
 
obtained from an active
 
exchange
market. Highly liquid ETF’s are classified as Level 1 while
 
less liquid ETF’s are classified as Level 2.
 
 
Foreign commingled trust fund- Collective investment
 
funds are valued at the NAV of shares held by the plan at year end.
 
 
Mutual funds – Mutual funds are valued at
 
the NAV of
 
shares held by the plan at year
 
end. Mutual funds are classified as
Level 2.
 
Private equity
 
investments - Private
 
equity investments include
 
an investment in
 
a private
 
equity fund. The
 
fund value is
recorded at its net realizable value which is affected by the changes in the fair market value of the investments held in the
fund. This fund is classified as Level 3.
 
Cash and cash equivalents - The carrying amount of
 
cash and cash equivalents is a reasonable estimate of the
 
fair value
since it is available on demand or due to
 
their short-term maturity. Cash and cash equivalents are classified as Level
 
1.
 
Accrued investment income – Given the
 
short-term nature of these assets, their carrying
 
amount approximates fair value.
Since there is a lack of observable inputs
 
related to instrument specific attributes,
 
these are reported as Level 3.
The preceding valuation methods may produce a fair value calculation that may not be indicative of net realizable value or
 
reflective
of future fair values. Furthermore, although the plan believes its valuation methods are appropriate and consistent with other market
participants, the
 
use
 
of
 
different
 
methodologies
 
or
 
assumptions to
 
determine
 
the
 
fair value
 
of
 
certain financial
 
instruments could
result in a different fair value measurement at the reporting
 
date.
The following table presents the change in Level
 
3 assets measured at fair value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
237
(In thousands)
2022
2021
Balance at beginning of year
$
4,566
$
3,917
Purchases, sales, issuance and settlements (net)
(985)
649
Balance at end of year
$
3,581
$
4,566
There were
no
 
transfers in
 
and/or out
 
of Level
 
3 for
 
financial instruments
 
measured at
 
fair value
 
on a
 
recurring basis
 
during the
years ended
 
December 31,
 
2022 and
 
2021. There
 
were
no
 
transfers in
 
and/or out
 
of Level
 
1 and
 
Level 2
 
during the
 
years ended
December 31, 2022 and 2021.
Information on the shares of common stock held by
 
the pension plans is provided in the table that
 
follows.
(In thousands, except number of shares information)
2022
2021
Shares of Popular, Inc. common stock
171,931
167,182
Fair value of shares of Popular, Inc. common
 
stock
$
11,402
$
13,716
Dividends paid on shares of Popular,
 
Inc. common stock held by the plan
$
355
$
280
The following table presents the components of net
 
periodic benefit cost for the years ended
 
December 31, 2022, 2021 and 2020.
Pension Plans
OPEB Plan
(In thousands)
2022
2021
2020
2022
2021
2020
(in thousands)
Service cost
$
-
$
-
$
-
$
485
$
642
$
713
Other operating expenses:
Interest cost
19,199
15,993
23,389
3,931
3,573
4,913
Expected return on plan assets
(35,388)
(38,679)
(38,104)
-
-
-
Recognized net actuarial loss
15,644
18,876
20,880
-
1,873
567
Net periodic benefit cost
$
(545)
$
(3,810)
$
6,165
$
4,416
$
6,088
$
6,193
Other Adjustments
-
-
-
60
-
-
Total benefit cost
 
$
(545)
$
(3,810)
$
6,165
$
4,476
$
6,088
$
6,193
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
238
The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements
at December 31, 2022 and 2021.
Pension Plans
OPEB Plan
(In thousands)
2022
2021
2022
2021
Change in benefit obligation:
Benefit obligation at beginning of year
$
851,471
$
914,353
$
159,958
$
179,210
Service cost
 
-
-
485
642
Interest cost
 
19,199
15,993
3,931
3,573
Actuarial (gain)/loss
[1]
(194,473)
(34,297)
(39,479)
(17,286)
Benefits paid
(48,022)
(44,578)
(6,619)
(6,181)
Other adjustments
-
-
60
-
Benefit obligation at end of year
$
628,175
$
851,471
$
118,336
$
159,958
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
$
860,484
$
878,785
$
-
$
-
Actual return on plan assets
(192,807)
26,049
-
-
Employer contributions
230
228
6,619
6,181
Benefits paid
(48,022)
(44,578)
(6,619)
(6,181)
Fair value of plan assets at end of year
$
619,885
$
860,484
$
-
$
-
Funded status of the plan:
Benefit obligation at end of year
$
(628,175)
$
(851,471)
$
(118,336)
$
(159,958)
Fair value of plan assets at end of year
619,885
860,484
-
-
Funded status at year end
$
(8,290)
$
9,013
$
(118,336)
$
(159,958)
Amounts recognized in accumulated other comprehensive
 
loss:
Net loss/(gain)
243,434
225,356
(26,486)
12,993
Accumulated other comprehensive loss (AOCL)
$
243,434
$
225,356
$
(26,486)
$
12,993
Reconciliation of net (liabilities) assets:
Net liabilities at beginning of year
$
9,013
$
(35,568)
$
(159,958)
$
(179,210)
Amount recognized in AOCL at beginning of year,
 
pre-tax
225,356
265,899
12,993
32,152
Amount prepaid at beginning of year
234,369
230,331
(146,965)
(147,058)
Total benefit
 
cost
545
3,810
(4,476)
(6,088)
Contributions
230
228
6,619
6,181
Amount prepaid at end of year
235,144
234,369
(144,822)
(146,965)
Amount recognized in AOCL
(243,434)
(225,356)
26,486
(12,993)
Net asset/(liabilities) at end of year
$
(8,290)
$
9,013
$
(118,336)
$
(159,958)
[1]
For 2022, significant components of the Pension Plans
 
actuarial gain that changed the benefit obligation were
 
mainly related to an increase in the
single weighted-average discount rates partially offset
 
by a lower return on the fair value of plan assets. For OPEB
 
Plans significant components of
the actuarial gain that change the benefit obligation
 
were mainly related to an increase in discount rates and
 
the per capita claim assumption at year-
end which was lower than expected partially offset
 
by the health care cost trend assumption which
 
was updated to reflect inflationary pressures in
the health care industry.
 
For 2021, significant components of the Pension Plans
 
actuarial gain that changed the benefit obligation
 
were mainly
related to an increase in the single weighted-average discount
 
rates partially offset by a lower return on the
 
fair value of plan assets. For OPEB
Plans significant components of the actuarial gain that change
 
the benefit obligation were mainly related to an increase
 
in discount rates and the per
capita claim assumption at year-end which was lower than
 
expected.
 
The per capita claim methodology for the fully insured
 
Medicare Advantage
plans changed from age-based per capita cost to cost that
 
do not vary by age.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
239
The following table presents the change in accumulated other
 
comprehensive loss (“AOCL”), pre-tax, for the years ended December
31, 2022 and 2021.
(In thousands)
Pension Plans
OPEB Plan
2022
2021
2022
2021
Accumulated other comprehensive loss at beginning of year
$
225,356
$
265,899
$
12,993
$
32,152
Increase (decrease) in AOCL:
Recognized during the year:
Amortization of actuarial losses
(15,644)
(18,876)
-
(1,873)
Occurring during the year:
Net actuarial (gains)/losses
33,722
(21,667)
(39,479)
(17,286)
Total (decrease) increase
 
in AOCL
18,078
(40,543)
(39,479)
(19,159)
Accumulated other comprehensive loss at end of year
$
243,434
$
225,356
$
(26,486)
$
12,993
The Corporation estimates
 
the service
 
and interest cost
 
components utilizing a
 
full yield curve
 
approach in the
 
estimation of these
components
 
by
 
applying the
 
specific spot
 
rates
 
along
 
the yield
 
curve
 
used in
 
the
 
determination of
 
the
 
benefit obligation
 
to
 
their
underlying projected cash flows.
 
To
 
determine
 
benefit
 
obligation
 
at
 
year
 
end,
 
the
 
Corporation
 
used
 
a
 
weighted
 
average
 
of
 
annual
 
spot
 
rates
 
applied
 
to
 
future
expected cash flows for years ended December 31, 2022
 
and 2021.
The following
 
table presents
 
the discount
 
rate and
 
assumed health
 
care cost
 
trend rates
 
used to
 
determine the
 
benefit obligation
and net periodic benefit cost for the plans:
Pension Plan
OPEB Plan
Weighted average assumptions used to
determine net periodic benefit cost for the
years ended December 31:
2022
2021
2020
2022
2021
2020
Discount rate for benefit obligation
2.79
 
-
2.83
%
2.41
 
-
2.48
%
3.22
 
-
3.27
%
2.94
%
2.65
%
3.38
%
Discount rate for service cost
N/A
N/A
N/A
3.21
%
3.09
%
3.72
%
Discount rate for interest cost
2.3
0 -
2.33
%
1.76
 
-
1.8
0
%
2.81
 
-
2.83
%
2.51
%
2.03
%
2.98
%
Expected return on plan assets
4.3
0 -
5.40
%
4.6
0 -
5.50
%
5
.00 -
5.8
0
%
N/A
N/A
N/A
Initial health care cost trend rate
N/A
N/A
N/A
4.75
%
5.00
%
5.00
%
Ultimate health care cost trend rate
N/A
N/A
N/A
4.50
%
4.50
%
5.00
%
Year that the ultimate trend
 
rate is reached
N/A
N/A
N/A
2023
2023
2020
Pension Plans
OPEB Plan
Weighted average assumptions used to determine
 
benefit obligation at
December 31:
2022
2021
2022
2021
Discount rate for benefit obligation
5.34
-
5.37
%
2.79
-
2.83
%
5.42
%
2.94
%
Initial health care cost trend rate
N/A
N/A
7.50
%
4.75
%
Ultimate health care cost trend rate
N/A
N/A
4.50
%
4.50
%
Year that the ultimate trend
 
rate is reached
N/A
N/A
2035
2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
240
The following table presents information for plans with a projected benefit obligation and accumulated benefit obligation in excess of
plan assets for the years ended December 31,
 
2022 and 2021.
Pension Plans
OPEB Plan
(In thousands)
2022
2021
2022
2021
Projected benefit obligation
$
628,175
$
851,471
$
118,336
$
159,958
Accumulated benefit obligation
 
628,175
851,471
118,336
159,958
Fair value of plan assets
 
619,885
860,484
-
-
The Corporation expects to pay the following contributions
 
to the plans during the year ended December
 
31, 2023.
(In thousands)
2023
Pension Plans
$
228
OPEB Plan
$
5,924
Benefit payments projected to be made from the
 
plans during the next ten years are presented
 
in the table below.
 
(In thousands)
Pension Plans
OPEB Plan
2023
$
48,472
$
5,924
2024
45,590
6,149
2025
45,750
6,429
2026
45,847
6,754
2027
45,843
7,053
2028 - 2032
225,107
38,873
 
 
 
 
 
 
 
 
 
 
 
 
 
241
The table below presents a breakdown of the
 
plans’ assets and liabilities at December
 
31, 2022 and 2021.
Pension Plans
OPEB Plan
(In thousands)
2022
2021
2022
2021
Non-current assets
$
-
$
17,792
$
-
$
-
Current liabilities
 
222
227
5,779
5,959
Non-current liabilities
8,068
8,552
112,557
153,999
Savings plans
The
 
Corporation
 
also
 
provides
 
defined
 
contribution
 
savings
 
plans
 
pursuant
 
to
 
Section
 
1081.01(d)
 
of
 
the
 
Puerto
 
Rico
 
Internal
Revenue
 
Code
 
and
 
Section
 
401(k)
 
of
 
the
 
U.S.
 
Internal
 
Revenue Code,
 
as
 
applicable, for
 
substantially
 
all
 
the
 
employees
 
of
 
the
Corporation. Investments
 
in the
 
plans are
 
participant-directed, and employer
 
matching contributions
 
are determined
 
based on
 
the
specific provisions
 
of each
 
plan. Employees
 
are fully
 
vested in
 
the employer’s
 
contribution after
 
five years
 
of service.
 
The cost
 
of
providing these benefits in the year ended
 
December 31, 2022 was $
18.7
 
million (2021 - $
13.3
 
million, 2020 - $
14.0
 
million).
 
The
 
plans held
1,246,519
 
(2021 –
1,279,982
) shares
 
of common
 
stock
 
of
 
the
 
Corporation with
 
a market
 
value of
 
approximately
$
82.7
 
million at December 31, 2022 (2021 - $
105
 
million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
242
Note 31 – Net income per common share
The
 
following table
 
sets
 
forth the
 
computation of
 
net
 
income per
 
common share
 
(“EPS”), basic
 
and diluted,
 
for the
 
years
 
ended
December 31, 2022, 2021 and 2020:
(In thousands, except per share information)
2022
2021
2020
Net income
$
1,102,641
$
934,889
$
506,622
Preferred stock dividends
(1,412)
(1,412)
(1,758)
Net income applicable to common stock
$
1,101,229
$
933,477
$
504,864
Average common shares outstanding
75,147,263
81,263,027
85,882,371
Average potential dilutive common shares
 
126,740
157,127
92,888
Average common shares outstanding - assuming dilution
75,274,003
81,420,154
85,975,259
Basic EPS
$
14.65
$
11.49
$
5.88
Diluted EPS
$
14.63
$
11.46
$
5.87
As
 
disclosed
 
in
 
Note
 
20,
 
as
 
of
 
September
 
30,
 
2022,
 
the
 
Corporation completed
 
its
 
$
400
 
million
 
accelerated
 
share
 
repurchase
transaction (“ASR”)
 
and, in
 
connection therewith,
 
received an
 
initial delivery
 
of
3,483,942
 
shares of
 
common stock
 
during the
 
first
quarter
 
of
 
2022
 
and
1,582,922
 
additional shares
 
of
 
common
 
stock
 
during the
 
third
 
quarter of
 
2022.
 
The final
 
number
 
of
 
shares
delivered
 
was
 
based
 
in
 
the
 
average
 
daily
 
volume
 
weighted
 
average
 
price
 
(“VWAP”)
 
of
 
the
 
Corporation’s
 
common
 
stock,
 
net
 
of
discount, during the term of the ASR, which amounted
 
to $
78.94
.
 
As of December 31,
 
2022, the Corporation completed its
 
$
231
 
million accelerated share repurchase transaction
 
entered on August
2022, (the “August ASR Agreement”) and, in connection therewith, received an initial delivery of
2,339,241
 
shares of common stock
during the third quarter of 2022 and
840,024
 
additional shares of common stock during the fourth quarter of 2022.
 
The final number
of shares
 
delivered was based
 
in the
 
average daily volume
 
weighted average price
 
(“VWAP”) of
 
the Corporation’s common
 
stock,
net of discount, during the term of the ASR, which
 
amounted to $
72.66
.
 
Potential common shares consist of shares of common stock issuable under the assumed exercise of stock options, restricted stock
and
 
performance
 
share
 
awards
 
using
 
the
 
treasury
 
stock
 
method.
 
This
 
method
 
assumes
 
that
 
the
 
potential
 
common
 
shares
 
are
issued and
 
the proceeds
 
from exercise,
 
in addition
 
to the
 
amount of
 
compensation cost
 
attributed to
 
future services,
 
are used
 
to
purchase shares of common stock at the exercise date. The difference between the number of potential common shares issued and
the shares
 
of common
 
stock
 
purchased is
 
added as
 
incremental shares
 
to
 
the actual
 
number of
 
shares outstanding
 
to
 
compute
diluted
 
earnings
 
per
 
share.
 
Warrants,
 
stock
 
options,
 
restricted
 
stock
 
and
 
performance share
 
awards,
 
if
 
any,
 
that
 
result
 
in
 
lower
potential common shares
 
issued than shares
 
of common stock
 
purchased under the treasury
 
stock method are
 
not included in
 
the
computation of dilutive earnings per share
 
since their inclusion would have an antidilutive effect in earnings
 
per common share.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
243
Note 32 – Revenue from contracts with customers
The following table presents
 
the Corporation’s revenue streams
 
from contracts with customers
 
by reportable segment for the
 
years
ended December 31, 2022, 2021 and 2020
.
Years ended December
 
31,
(In thousands)
2022
2021
2020
BPPR
Popular U.S.
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
146,073
$
11,137
$
151,453
$
11,245
$
136,703
$
11,120
Other service fees:
Debit card fees
49,297
876
47,681
956
38,685
967
Insurance fees, excluding reinsurance
40,545
5,018
40,929
3,798
35,799
2,484
Credit card fees, excluding late fees and membership
 
fees
136,295
1,275
117,418
1,052
88,091
831
Sale and administration of investment products
23,553
-
23,634
-
21,755
-
Trust fees
23,614
-
24,855
-
21,700
-
Total revenue from
 
contracts with customers
[1]
$
419,377
$
18,306
$
405,970
$
17,051
$
342,733
$
15,402
[1] The amounts include intersegment transactions of $
5
 
million, $
4.1
 
million and $
4.3
 
million, respectively, for
 
the years ended December 31, 2022,
2021 and 2020.
Revenue from contracts with
 
customers is recognized when,
 
or as, the performance
 
obligations are satisfied by
 
the Corporation by
transferring the
 
promised services
 
to
 
the customers.
 
A
 
service is
 
transferred to
 
the customer
 
when, or
 
as, the
 
customer obtains
control
 
of
 
that
 
service.
 
A
 
performance obligation
 
may
 
be
 
satisfied over
 
time
 
or
 
at
 
a
 
point
 
in
 
time.
 
Revenue from
 
a
 
performance
obligation satisfied
 
over time
 
is recognized
 
based on
 
the services
 
that have
 
been rendered
 
to date.
 
Revenue from
 
a performance
obligation satisfied at a point in time
 
is recognized when the customer obtains control over the
 
service. The transaction price, or the
amount of revenue
 
recognized, reflects the
 
consideration the Corporation expects
 
to be entitled
 
to in exchange
 
for those promised
services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration
is included
 
in the
 
transaction price
 
only to
 
the extent
 
it is
 
probable that a
 
significant reversal
 
in the
 
amount of
 
cumulative revenue
recognized will
 
not occur.
 
The Corporation
 
is the
 
principal in
 
a transaction
 
if it
 
obtains control
 
of the
 
specified goods
 
or services
before they
 
are transferred
 
to
 
the customer.
 
If the
 
Corporation acts
 
as principal,
 
revenues are
 
presented in
 
the gross
 
amount of
consideration to which it expects
 
to be entitled and are
 
not netted with any related
 
expenses. On the other hand, the
 
Corporation is
an agent if it does not control
 
the specified goods or services before they are transferred
 
to the customer. If
 
the Corporation acts as
an agent, revenues are presented in the amount
 
of consideration to which it expects to be entitled,
 
net of related expenses.
Following is a description of the nature and timing
 
of revenue streams from contracts with customers:
Service charges on deposit accounts
Service
 
charges
 
on
 
deposit
 
accounts
 
are
 
earned
 
on
 
retail
 
and
 
commercial
 
deposit
 
activities
 
and
 
include,
 
but
 
are
 
not
 
limited
 
to,
nonsufficient fund
 
fees, overdraft
 
fees and
 
checks stop
 
payment fees.
 
These transaction-based
 
fees are
 
recognized at
 
a point
 
in
time,
 
upon
 
occurrence
 
of
 
an
 
activity
 
or
 
event
 
or
 
upon
 
the
 
occurrence
 
of
 
a
 
condition
 
which
 
triggers
 
the
 
fee
 
assessment.
 
The
Corporation is acting as principal in these transactions.
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
244
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
245
Note 33 – Leases
The
 
Corporation enters
 
in
 
the
 
ordinary course
 
of
 
business
 
into
 
operating and
 
finance
 
leases
 
for
 
land,
 
buildings
 
and
 
equipment.
These contracts generally do
 
not include purchase options
 
or residual value guarantees.
 
The remaining lease terms
 
of
0.1
 
to
32.0
years considers
 
options to
 
extend the
 
leases for
 
up to
20.0
 
years. The
 
Corporation identifies
 
leases when
 
it has
 
both the
 
right to
obtain substantially all of the economic benefits from
 
the use of the asset and the right to direct
 
the use of the asset.
The Corporation
 
recognizes right-of-use
 
assets (“ROU
 
assets”) and
 
lease liabilities
 
related to
 
operating and
 
finance leases
 
in its
Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 14
and
 
Note
 
19
 
to
 
the
 
Consolidated Financial
 
Statements,
 
respectively,
 
for
 
information
 
on
 
the
 
balances of
 
these
 
lease
 
assets
 
and
liabilities.
The Corporation uses the
 
incremental borrowing rate for
 
purposes of discounting lease payments
 
for operating and finance leases,
since it
 
does not have
 
enough information to
 
determine the rates
 
implicit in the
 
leases. The discount
 
rates are based
 
on fixed-rate
and
 
fully
 
amortizing
 
borrowing
 
facilities
 
of
 
its
 
banking
 
subsidiaries
 
that
 
are
 
collateralized.
 
For
 
leases
 
held
 
by
 
non-banking
subsidiaries, a credit spread is added to this rate
 
based on financing transactions with a
 
similar credit risk profile.
The following table presents the undiscounted
 
cash flows of operating and finance leases for
 
each of the following periods:
December 31, 2022
(In thousands)
2023
2024
2025
2026
2027
Later
Years
Total Lease
Payments
Less:
Imputed
Interest
Total
Operating Leases
$
29,836
$
28,220
$
25,301
$
16,779
$
11,633
$
44,208
$
155,977
$
(18,687)
$
137,290
Finance Leases
4,328
4,426
4,537
4,197
2,263
8,185
27,936
(3,199)
24,737
The following table presents the lease cost recognized
 
by the Corporation in the Consolidated
 
Statements of Operations as follows:
Years ended December
 
31,
(In thousands)
2022
2021
2020
Finance lease cost:
Amortization of ROU assets
$
2,938
$
2,006
$
2,215
Interest on lease liabilities
1,117
1,044
1,185
Operating lease cost
30,534
29,970
31,674
Short-term lease cost
505
647
214
Variable lease cost
124
93
51
Sublease income
(37)
(70)
(113)
Net gain recognized from sale and leaseback transaction
[1]
-
(7,007)
(5,550)
Impairment of operating ROU assets
[2]
-
-
14,805
Impairment of finance ROU assets
[2]
-
-
1,115
Total lease cost
[3]
$
35,181
$
26,683
$
45,596
[1]
During the quarter ended September 30, 2021, the Corporation
 
recognized the transfer of two corporate office
 
buildings as a sale. During the
quarter ended June 30, 2020, the Corporation recognized the
 
transfer of the Caparra Center as a sale. Since these
 
sale and partial leaseback
transactions were considered to be at fair value, no portion
 
of the gain on sale was deferred.
[2]
Impairment loss recognized during the fourth quarter of
 
2020 in connection with the closure of nine branches as
 
a result of the strategic
realignment of PB’s New York
 
Metro branch network.
[3]
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.
The
 
following
 
table
 
presents
 
supplemental
 
cash
 
flow
 
information
 
and
 
other
 
related
 
information
 
related
 
to
 
operating
 
and
 
finance
leases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
246
Years ended December
 
31,
(Dollars in thousands)
2022
2021
2020
Cash paid for amounts included in the measurement of
 
lease liabilities:
Operating cash flows from operating leases
[1]
$
29,985
$
38,288
$
41,650
Operating cash flows from finance leases
1,117
1,044
1,185
Financing cash flows from finance leases
[1]
3,346
2,852
3,145
ROU assets obtained in exchange for new lease obligations:
Operating leases
[2]
$
14,564
$
24,136
$
14,975
Finance leases
556
-
4,510
Weighted-average remaining lease term:
Operating leases
7.5
years
7.9
years
8.0
years
Finance leases
8.2
years
8.3
years
8.9
years
Weighted-average discount rate:
Operating leases
3.0
%
2.7
%
3.0
%
Finance leases
4.2
%
5.0
%
5.0
%
[1]
During the quarter ended March 31, 2021, the Corporation made
 
base lease termination payments amounting to $
7.8
 
million in connection with
the closure of nine branches as a result of the strategic realignment
 
of PB’s New York
 
Metro branch network.
[2]
During the quarter ended September 30, 2021, the Corporation
 
recognized a lease liability of $
16.8
 
million and a corresponding ROU asset for
the same amount as a result of the partial leaseback of
 
two corporate office buildings.
As of December 31, 2022, the Corporation has additional operating and finance leases contracts that have not yet commenced with
an undiscounted
 
contract amount
 
of $
4.1
 
million and
 
$
2.2
 
million, respectively,
 
which will
 
have lease
 
terms ranging
 
from
10
 
to
20
years.
247
Note 34 - Stock-based compensation
Incentive Plan
 
On May 12, 2020, the stockholders of the Corporation approved the
 
Popular, Inc. 2020 Omnibus Incentive Plan, which
 
permits
the Corporation to issue several types of stock-based compensation to employees and directors of
 
the Corporation and/or any of its
subsidiaries (the
 
“2020 Incentive
 
Plan”). The
 
2020 Incentive
 
Plan replaced
 
the Popular,
 
Inc. 2004
 
Omnibus Incentive
 
Plan, which
was in effect
 
prior to the adoption of
 
the 2020 Incentive Plan (the
 
“2004 Incentive Plan” and, together
 
with the 2020 Incentive
 
Plan,
the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board
of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and
performance shares to its employees and restricted
 
stock and restricted stock units (“RSUs”)
 
to its directors.
The restricted
 
stock granted
 
under the
 
Incentive Plan
 
to employees
 
becomes vested
 
based on
 
the employees’
 
continued service
with
 
Popular.
 
Unless
 
otherwise
 
stated
 
in
 
an
 
agreement,
the compensation cost associated with the shares of restricted stock
granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years
commencing at the date of grant (the “graduated vesting portion”) and the second part is vested at termination of employment after
attaining 55 years of age and 10 years of service or 60 years of age and 5 years of service (the “retirement vesting portion”). The
graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service or 60
years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a
period of 4 years or 3 years, depending in the classification of the employee. The vesting schedule is accelerated at termination of
employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.
 
The
 
performance share
 
awards
 
granted
 
under
 
the
 
Incentive
 
Plan
 
consist
 
of
 
the
 
opportunity
 
to
 
receive
 
shares
 
of
 
Popular,
 
Inc.’s
common stock provided that the Corporation achieves certain goals during a three-year performance cycle.
 
The goals will be based
on
 
two
 
metrics
 
weighted
 
equally:
 
the
 
Relative
 
Total
 
Shareholder
 
Return
 
(“TSR”)
 
and,
 
depending
 
on
 
the
 
date
 
of
 
the
 
grant,
 
the
Absolute Return
 
on Average
 
Assets (“ROA”) goal
 
or the
 
Absolute Return on
 
Average Tangible
 
Common Equity (“ROATCE”)
 
goal.
 
The TSR metric is considered to be a market condition under ASC 718.
 
For equity settled awards based on a market condition, the
fair value is determined as of the grant date and is not subsequently revised based on actual performance.
 
The ROA and ROATCE
metrics
 
are considered
 
to
 
be a
 
performance condition
 
under ASC
 
718.
 
The fair
 
value is
 
determined based
 
on the
 
probability of
achieving the ROA or ROATCE
 
goal as of each reporting period.
 
The TSR and ROA or ROATCE
 
metrics are equally weighted and
work independently.
 
The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market
(TSR) and performance (ROA and ROATCE) conditions. The performance shares vest at the end of the three-year performance
cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age
and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.
The
 
following
 
table
 
summarizes
 
the
 
restricted
 
stock
 
and
 
performance
 
shares
 
activity
 
under
 
the
 
Incentive
 
Plan
 
for
 
members
 
of
management.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
248
(Not in thousands)
Shares
Weighted-average
grant date fair value
Non-vested at January 1, 2020
345,365
$
41.68
Granted
253,943
42.49
Performance Shares Quantity Adjustment
(7)
48.79
Vested
 
(234,421)
42.64
Forfeited
(6,368)
44.26
Non-vested at December 31, 2020
358,512
$
41.23
Granted
191,479
69.38
Performance Shares Quantity Adjustment
54,306
54.21
Vested
 
(273,974)
55.11
Forfeited
(8,440)
43.48
Non-vested at December 31, 2021
321,883
$
47.98
Granted
194,791
84.29
Performance Shares Quantity Adjustment
6,947
78.02
Vested
 
(240,033)
66.11
Forfeited
(1,625)
78.86
Non-vested at December 31, 2022
281,963
$
56.50
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
137,934
 
shares
 
of
 
restricted
 
stock
 
(2021
 
-
120,105
;
 
2020
 
-
213,511
)
 
and
56,857
performance shares (2021 -
71,374
; 2020 -
40,432
) were awarded to management under the
 
Incentive Plan.
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
recognized
 
$
10.3
 
million
 
of
 
restricted
 
stock
 
expense
 
related
 
to
management incentive awards,
 
with a tax
 
benefit of $
1.8
 
million (2021 -
 
$
8.6
 
million, with a
 
tax benefit of
 
$
1.6
 
million; 2020 -
 
$
7.6
million, with
 
a tax
 
benefit of
 
$
1.3
 
million). During
 
the year
 
ended December
 
31, 2022,
 
the fair
 
market value
 
of the
 
restricted stock
and performance shares vested was $
12.2
 
million at grant date and $
20.7
 
million at vesting date. This differential triggers
 
a windfall
of $
3.1
 
million that was recorded as a reduction in income tax expense.
 
During the year ended December 31, 2022, the Corporation
recognized $
4.8
 
million of performance
 
shares expense, with
 
a tax benefit
 
of $
0.4
 
million (2021 -
 
$
5.8
 
million, with a
 
tax benefit of
$
0.5
 
million; 2020 - $
2.3
 
million, with a tax benefit of $
0.2
 
million).
 
The total unrecognized compensation cost related to non-vested
restricted
 
stock
 
awards
 
and
 
performance
 
shares
 
to
 
members
 
of
 
management
 
at
 
December
 
31,
 
2022
 
was
 
$
10.1
 
million
 
and
 
is
expected to be recognized over a weighted-average
 
period of
1.86
 
years.
The following table summarizes the restricted stock
 
activity under the Incentive Plan for members of
 
the Board of Directors:
(Not in thousands)
RSU
Weighted-average
 
grant
date fair value
Non-vested at January 1, 2020
-
-
Granted
43,866
$
35.47
Vested
 
(43,866)
35.47
Forfeited
-
-
Non-vested at December 31, 2020
-
-
Granted
20,638
$
78.20
Vested
 
(20,638)
78.20
Forfeited
-
-
Non-vested at December 31, 2021
-
-
Granted
25,321
$
77.48
Vested
 
(25,321)
77.48
Forfeited
-
-
Non-vested at December 31, 2022
-
-
249
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
common
 
stock underlying
 
the
 
RSU 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.
 
For the year
 
ended December 31,
 
2022,
25,321
 
RSUs were granted
 
to the
Directors (2021 -
20,638
; 2020 -
 
43,866
).
 
For the year ended December
 
31, 2022, $
2.0
 
million of restricted stock expense
 
related
to these
 
RSUs was recognized,
 
with a tax
 
benefit of $
0.4
 
million (2021 -
 
$
1.9
 
million with a
 
tax benefit of
 
$
0.4
 
million; 2020 -
 
$
1.6
million with
 
a tax
 
benefit of
 
$
0.3
 
million).
 
The fair
 
value at
 
vesting date
 
of the
 
RSUs vested
 
during the
 
year ended
 
December 31,
2022 for the Directors was $
2.0
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
250
Note 35 – Income taxes
 
The components of income tax expense for the years
 
ended December 31, are summarized in the
 
following table.
 
(In thousands)
2022
2021
2020
Current income tax (benefit) expense:
Puerto Rico
$
156,425
$
69,415
$
33,281
Federal and States
9,034
10,232
3,613
 
Subtotal
165,459
79,647
36,894
Deferred income tax expense (benefit):
Puerto Rico
(4,373)
179,688
69,300
Federal and States
(28,756)
49,683
5,744
 
Subtotal
(33,129)
229,371
75,044
Total income tax
 
expense
$
132,330
$
309,018
$
111,938
The reasons
 
for the
 
difference between
 
the income
 
tax expense
 
applicable to
 
income before
 
provision for
 
income taxes
 
and the
amount computed by applying the statutory tax rate
 
in Puerto Rico were as follows:
2022
2021
2020
(In thousands)
Amount
 
% of pre-tax
income
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax at statutory rates
 
$
463,114
38
%
$
466,465
38
%
$
231,960
38
%
Benefit of net tax exempt interest income
(165,065)
(13)
(139,426)
(12)
(126,232)
(20)
Effect of income subject to preferential tax rate
(86,797)
(7)
(11,981)
(1)
(10,141)
(2)
Deferred tax asset valuation allowance
(21,469)
(2)
20,932
2
15,276
2
NOL Adjustments
(34,817)
(3)
-
-
-
-
Difference in tax rates due to multiple jurisdictions
(26,887)
(2)
(30,719)
(3)
(1,903)
-
Unrecognized tax benefits
(1,503)
-
(5,484)
-
(2,163)
-
State and local taxes
14,981
1
14,629
1
4,350
-
Others
(9,227)
(1)
(5,398)
-
791
-
Income tax expense
$
132,330
11
%
$
309,018
25
%
$
111,938
18
%
For the year ended December 31, 2022, the Corporation
 
recorded income tax expense of $
132.3
 
million, compared to $
309.0
 
million
for the
 
same period
 
of 2021.
 
The decrease
 
in income
 
tax expense was
 
mainly due
 
to the
 
reversal of a
 
portion of
 
the deferred
 
tax
asset (“DTA”) valuation allowance of the U.S. operations amounting to $
68.2
 
million, to higher taxable income subject to preferential
tax rates, primarily attributed to the gain from the
 
sale of Evertec shares, and
 
higher tax-exempt income recorded during this
 
year.
Deferred income taxes reflect the
 
net tax effects
 
of temporary differences between the
 
carrying amounts of assets
 
and liabilities for
financial reporting
 
purposes and
 
their tax
 
bases. Significant
 
components of
 
the Corporation’s
 
deferred tax
 
assets and
 
liabilities at
December 31 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
251
December 31, 2022
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
 
121,742
661,144
782,886
Postretirement and pension benefits
47,122
-
47,122
Allowance for credit losses
250,615
32,688
283,303
Accelerated depreciation
5,972
6,309
12,281
FDIC-assisted transaction
152,665
-
152,665
Intercompany deferred gains
1,548
-
1,548
Lease liability
28,290
23,521
51,811
Unrealized net loss on investment securities
 
265,955
23,913
289,868
Difference in outside basis from pass-through entities
40,602
-
40,602
Other temporary differences
29,285
7,815
37,100
Total gross deferred
 
tax assets
944,057
758,171
1,702,228
Deferred tax liabilities:
Intangibles
81,174
54,623
135,797
Right of use assets
26,015
20,262
46,277
Deferred loan origination fees/cost
1,076
2,961
4,037
Other temporary differences
24,884
-
24,884
 
Total gross deferred
 
tax liabilities
133,149
77,846
210,995
Valuation allowance
137,863
402,333
540,196
Net deferred tax asset
$
673,045
$
277,992
$
951,037
 
December 31, 2021
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
 
112,331
665,164
777,495
Postretirement and pension benefits
57,002
-
57,002
Deferred loan origination fees/cost
2,788
-
2,788
Allowance for credit losses
233,500
31,872
265,372
Deferred gains
1,642
-
1,642
Accelerated depreciation
5,246
7,422
12,668
FDIC-assisted transaction
152,665
-
152,665
Lease liability
31,211
23,894
55,105
Difference in outside basis from pass-through entities
54,781
-
54,781
Other temporary differences
38,512
8,418
46,930
Total gross deferred
 
tax assets
689,939
739,551
1,429,490
Deferred tax liabilities:
Intangibles
76,635
51,150
127,785
Unrealized net gain on investment securities
 
4,329
2,817
7,146
Right of use assets
29,025
20,282
49,307
Deferred loan origination fees/cost
-
3,567
3,567
Other temporary differences
43,856
1,530
45,386
 
Total gross deferred
 
tax liabilities
153,845
79,346
233,191
Valuation allowance
128,557
410,970
539,527
Net deferred tax asset
$
407,537
$
249,235
$
656,772
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
252
The net deferred
 
tax asset shown
 
in the
 
table above at
 
December 31, 2022
 
is reflected in
 
the consolidated statements
 
of financial
condition as
 
$
1.0
 
billion in
 
net deferred
 
tax assets
 
(in the
 
“other assets”
 
caption) (2021
 
- $
0.7
 
billion in
 
deferred tax
 
asset in
 
the
“other assets” caption) and
 
$
2.6
 
million in deferred tax
 
liabilities (in the “other
 
liabilities” caption) (2021 - $
825
 
thousand in deferred
tax
 
liabilities
 
in
 
the
 
“other
 
liabilities”
 
caption),
 
reflecting
 
the
 
aggregate
 
deferred
 
tax
 
assets
 
or
 
liabilities
 
of
 
individual
 
tax-paying
subsidiaries of the Corporation.
The deferred tax asset related to the NOLs and
 
other carryforwards as of December 31, 2022, expires
 
as follows:
(In thousands)
2023
$
1,363
2024
9,310
2025
13,516
2026
13,367
2027
15,202
2028
260,622
2029
111,307
2030
121,017
2031
122,324
2032
55,335
2033
10,565
2034
5,666
2035
43,121
2036
171
$
782,886
At December
 
31, 2022
 
the net
 
deferred tax
 
asset of the
 
U.S. operations
 
amounted to $
680.3
 
million with
 
a valuation
 
allowance of
$
402.3
 
million, for a net DTA of $
278
 
million. The Corporation evaluates on a quarterly basis the realization of the deferred tax asset
by taxing jurisdiction.
 
The U. S. operations sustained profitability for the three years period ended December 31, 2022.
 
Years 2020
and 2021 were
 
impacted by the
 
COVID-19 pandemic and other
 
events.
 
Year
 
2020 was unfavorably
 
impacted by the
 
ACL reserve
build-ups and the impairment
 
of expenses on the branch
 
closures in the New
 
York
 
region. Year
 
2021 had been favorably impacted
by a strong economic recovery that resulted in ACL reserve releases, reversing the year 2020 build-up.
 
The financial results for the
year ended December 31, 2022, demonstrate financial stability for the
 
U. S. operations, despite the climate of uncertainty as a result
of
 
recent global
 
geopolitical challenges.
 
These historical
 
financial results
 
together with
 
pre-tax earnings
 
forecasts are
 
objectively
verifiable positive evidence, evaluated in
 
addition to positive evidence
 
of stable credit metrics,
 
in combination with the
 
length of the
expiration of the NOLs.
 
On the other hand, the Corporation evaluated the negative evidence
 
accumulated over the years, including
financial
 
results
 
lower
 
than
 
expectations
 
in
 
prior
 
years,
 
and
 
challenges
 
to
 
the
 
economy
 
due
 
to
 
global
 
geopolitical
 
uncertainty.
Accordingly,
 
after weighting
 
all positive
 
and negative
 
evidence, the
 
Corporation recorded
 
during the
 
fourth quarter
 
of year
 
2022 a
partial release of its
 
valuation allowance amounting to
 
$
68.2
 
million and concluded that
 
it is more
 
likely than not that
 
approximately
$
278
 
million of the
 
DTA from
 
the U.S. Operations will
 
be realized. The
 
Corporation has approximately $
525
 
million in deferred
 
tax
asset related
 
to federal
 
NOLs with
 
expiration dates
 
between 2028
 
and 2033
 
and $
135
 
million in
 
DTA
 
related to
 
state NOLs
 
with
expiration dates
 
between 2030
 
and 2036.
 
The Corporation
 
based this
 
determination on
 
its estimated
 
earnings available
 
to realize
the deferred tax asset for the remaining carryforward period, together
 
with the historical level of book income adjusted by permanent
differences.
 
Management will continue
 
to monitor and
 
review the U.
 
S. operation’s
 
results, the pre-tax
 
earnings forecast, any
 
new
tax initiative, and other factors, including net income
 
versus forecast, targeted loan growth, net interest income
 
margin, allowance for
credit losses, charge offs, NPLs inflows and NPA balances.
At December 31, 2022, the Corporation’s net deferred
 
tax assets related to its Puerto Rico operations
 
amounted to $
673
 
million.
The Corporation’s
 
Puerto Rico
 
Banking operation
 
is not
 
in a
 
cumulative loss
 
position and
 
has sustained
 
profitability for
 
the three
years period ended
 
December 31, 2022.
 
This is considered
 
a strong piece
 
of objectively verifiable
 
positive evidence that
 
outweigh
any
 
negative evidence
 
considered by
 
management in
 
the
 
evaluation of
 
the
 
realization of
 
the
 
deferred tax
 
asset.
 
Based
 
on
 
this
 
 
 
 
 
 
 
 
 
 
253
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
 
December 31, 2022.
 
Management expects these
 
losses will be
 
a trend in
future years. This
 
objectively verifiable negative evidence is
 
considered by management strong negative
 
evidence that will suggest
that income
 
in future years
 
will be insufficient
 
to support
 
the realization of
 
all deferred tax
 
asset. After weighting
 
of all
 
positive and
negative evidence management concluded, as of the reporting date, that it is
 
more likely than not that the Holding Company will not
be able to realize any portion of the deferred
 
tax assets, considering the criteria of ASC Topic 740.
 
Accordingly, the Corporation has
maintained a full valuation allowance on the deferred
 
tax asset of $
138
 
million as of December 2022.
Under the Puerto Rico Internal Revenue Code, the
 
Corporation and its subsidiaries are treated as separate taxable
 
entities and are
not
 
entitled to
 
file consolidated
 
tax returns.
 
However,
 
certain subsidiaries
 
that
 
are organized
 
as limited
 
liability companies
 
with a
partnership
 
election
 
are
 
treated
 
as
 
pass-through entities
 
for
 
Puerto
 
Rico
 
tax
 
purposes. The
 
Code provides
 
a
 
dividends-received
deduction of
100
%
 
on dividends
 
received from
 
“controlled” subsidiaries
 
subject to
 
taxation in
 
Puerto Rico
 
and
85
%
 
on dividends
received from other taxable domestic corporations.
The Corporation’s
 
subsidiaries in
 
the United
 
States file
 
a consolidated
 
federal income
 
tax return.
 
The intercompany
 
settlement of
taxes paid is based on tax sharing agreements
 
which generally allocate taxes to each
 
entity based on a separate return basis.
The following table presents a reconciliation of
 
unrecognized tax benefits.
(In millions)
Balance at January 1, 2021
$
14.8
Reduction as a result of lapse of statute of limitations
(11.3)
Balance at December 31, 2021
$
3.5
Reduction as a result of lapse of statute of limitations
(1.0)
Balance at December 31, 2022
$
2.5
At
 
December 31,
 
2022, the
 
total amount
 
of
 
interest recognized
 
in the
 
statement of
 
financial condition
 
approximated
 
$
2.6
 
million
(2021 -
 
$
2.8
 
million). The
 
total interest
 
expense recognized
 
during 2022
 
was $
268
 
thousand net
 
of a
 
reduction of
 
$
448
 
thousand
due to the
 
expiration of the
 
statute of limitation
 
(2021 - $
892
 
thousand net of
 
a reduction of
 
$
2.9
 
million). Management determined
that, as of
 
December 31, 2022
 
and 2021, there
 
was no need
 
to accrue for
 
the payment of
 
penalties. The Corporation’s
 
policy is to
report interest related to unrecognized tax benefits in income tax expense, while the penalties, if any, are reported in other operating
expenses in the consolidated statements of operations.
 
After consideration
 
of the
 
effect on
 
U.S. federal
 
tax of
 
unrecognized U.S.
 
state tax
 
benefits, the
 
total amount
 
of unrecognized
 
tax
benefits, including U.S.
 
and Puerto Rico
 
that, if recognized
 
through earnings, would
 
affect the Corporation’s
 
effective tax rate,
 
was
approximately $
4.3
 
million at December 31, 2022 (2021 - $
5.5
 
million).
The amount of
 
unrecognized tax benefits
 
may increase or
 
decrease in the
 
future for various
 
reasons including adding amounts
 
for
current
 
tax
 
year
 
positions,
 
expiration
 
of
 
open
 
income
 
tax
 
returns
 
due
 
to
 
the
 
statute
 
of
 
limitations,
 
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. As
 
of December 31,
 
2022, the
 
following years remain
 
subject to
 
examination in the
U.S.
 
Federal
 
jurisdiction
 
 
2019
 
and
 
thereafter
 
and
 
in
 
the
 
Puerto
 
Rico
 
jurisdiction
 
 
2018
 
and
 
thereafter.
 
The
 
Corporation
anticipates
 
a
 
reduction
 
in
 
the
 
total
 
amount
 
of
 
unrecognized
 
tax
 
benefits
 
within
 
the
 
next
 
12
 
months,
 
which
 
could
 
amount
 
to
approximately $
1.5
 
million, including interest.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
254
Note 36 – Supplemental disclosure on the consolidated
 
statements of cash flows
Additional disclosures on cash flow information and
 
non-cash activities for the years ended December
 
31, 2022, 2021 and 2020 are
listed in the following table:
(In thousands)
2022
2021
2020
Income taxes paid
$
178,808
$
64,997
$
13,045
Interest paid
292,491
170,442
240,342
Non-cash activities:
 
Loans transferred to other real estate
64,953
57,638
14,464
 
Loans transferred to other property
51,642
45,144
48,614
 
Total loans transferred
 
to foreclosed assets
116,595
102,782
63,078
 
Loans transferred to other assets
8,664
7,219
7,117
 
Financed sales of other real estate assets
8,535
13,014
15,606
 
Financed sales of other foreclosed assets
38,467
43,060
34,492
 
Total financed sales
 
of foreclosed assets
47,002
56,074
50,098
 
Financed sale of premises and equipment
47,697
31,085
31,350
 
Transfers from premises and equipment to
 
long-lived assets held-for-sale
1,739
32,103
-
 
Transfers from loans held-in-portfolio to
 
loans held-for-sale
11,531
69,890
82,299
 
Transfers from loans held-for-sale to loans
 
held-in-portfolio
26,425
9,762
20,153
 
Transfers from available-for-sale to held-to-maturity
 
debt securities
6,531,092
-
-
 
Loans securitized into investment securities
[1]
300,279
732,533
508,071
 
Trades receivables from brokers and
 
counterparties
9,461
64,824
64,092
 
Trades payable to brokers and counterparties
9,461
13,789
720,212
 
Receivables from investments securities
125,000
-
-
 
Recognition of mortgage servicing rights on securitizations
 
or asset transfers
6,614
13,391
9,544
 
Loans booked under the GNMA buy-back option
9,799
19,798
24,244
 
Capitalization of right of use assets
17,932
35,683
29,692
 
Acquisition of software intangible assets
28,650
-
-
 
Goodwill on acquisition
116,135
-
-
 
Total stock consideration
 
related to Evertec transaction
144,785
-
-
[1]
 
Includes loans securitized into trading securities and subsequently
 
sold before year end.
The following table provides a reconciliation of
 
cash and due from banks, and restricted cash reported
 
within the Consolidated
Statement of Financial Condition that sum to the total of
 
the same such amounts shown in the Consolidated
 
Statement of Cash
Flows.
(In thousands)
December 31, 2022
December 31, 2021
December 31, 2020
Cash and due from banks
$
423,233
$
411,346
$
484,859
Restricted cash and due from banks
46,268
17,087
6,206
Restricted cash in money market investments
6,658
6,079
6,029
Total cash and due
 
from banks, and restricted cash
[2]
$
476,159
$
434,512
$
497,094
[2]
 
Refer to Note 5 - Restrictions on cash and due from banks
 
and certain securities for nature of restrictions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
255
Note 37 – Segment reporting
The
 
Corporation’s
 
corporate
 
structure
 
consists
 
of
two
 
reportable
 
segments
 
Banco Popular de Puerto Rico and Popular U.S.
Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess
where to allocate resources.
 
The segments were
 
determined based on the
 
organizational structure, which focuses
 
primarily on the
markets the segments serve, as well as on the products
 
and services offered by the segments.
Banco Popular de Puerto Rico:
 
The Banco Popular de
 
Puerto Rico reportable segment
 
includes commercial, consumer and retail
 
banking operations conducted at
BPPR, including
 
U.S. based
 
activities conducted
 
through its
 
New York
 
Branch. It
 
also includes
 
the lending
 
operations of
 
Popular
Auto
 
and
 
Popular
 
Mortgage.
 
Other
 
financial
 
services
 
within
 
the
 
BPPR
 
segment
 
include
 
the
 
trust
 
service
 
units
 
of
 
BPPR,
 
asset
management services of Popular Asset
 
Management, the brokerage and investment
 
banking operations of Popular Securities,
 
and
the insurance agency and reinsurance businesses
 
of Popular Insurance, Popular Risk Services, Popular
 
Life Re, and Popular Re.
Popular U.S.:
 
Popular U.S. reportable segment
 
consists of the
 
banking operations of Popular
 
Bank (PB), Popular Insurance
 
Agency, U.S.A.,
 
and
PEF.
 
PB
 
operates through
 
a retail
 
branch network
 
in the
 
U.S. mainland
 
under the
 
name of
 
Popular,
 
and equipment
 
leasing and
financing services through PEF.
 
Popular Insurance Agency,
 
U.S.A. offers investment and insurance
 
services across the PB
 
branch
network.
 
The Corporate group
 
consists primarily of
 
the holding companies
 
Popular, Inc.,
 
Popular North America,
 
Popular International Bank
and certain of
 
the Corporation’s
 
investments accounted for
 
under the equity
 
method, including Evertec,
 
until August 15,
 
2022, and
Centro Financiero BHD, León.
 
The
 
accounting
 
policies
 
of
 
the
 
individual
 
operating
 
segments
 
are
 
the
 
same
 
as
 
those
 
of
 
the
 
Corporation.
 
Transactions
 
between
reportable segments are primarily conducted at market rates, resulting
 
in profits that are eliminated for reporting consolidated results
of operations.
The tables that follow present the results of operations
 
and total assets by reportable segments:
December 31, 2022
Banco Popular
 
Intersegment
 
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
1,823,517
$
372,988
$
3
Provision for credit losses
70,304
12,452
-
Non-interest income
 
680,276
31,958
(547)
Amortization of intangibles
1,937
1,338
-
Goodwill impairment charge
-
9,000
-
Depreciation expense
47,003
6,919
-
Other operating expenses
1,454,187
230,136
(543)
Income tax expense
148,351
(25,205)
-
Net income
$
782,011
$
170,306
$
(1)
Segment assets
$
56,190,260
$
11,558,280
$
(421,781)
 
December 31, 2022
Reportable
Total
(In thousands)
 
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
2,196,508
$
(29,149)
$
-
$
2,167,359
Provision for credit losses
82,756
274
-
83,030
Non-interest income
711,687
189,835
(4,460)
897,062
Amortization of intangibles
3,275
-
-
3,275
Goodwill impairment charge
9,000
-
-
9,000
Depreciation expense
53,922
1,185
-
55,107
Other operating expenses
1,683,780
80
(4,822)
1,679,038
Income tax expense
123,146
9,074
110
132,330
Net income
$
952,316
$
150,073
$
252
$
1,102,641
Segment assets
$
67,326,759
$
5,390,122
$
(5,078,964)
$
67,637,917
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
256
December 31, 2021
Banco Popular
 
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
 
Eliminations
Net interest income
$
1,674,589
$
321,154
$
6
Provision for credit losses (benefit)
(136,352)
(56,897)
-
Non-interest income
 
565,310
24,518
(548)
Amortization of intangibles
2,813
665
-
Depreciation expense
46,539
7,415
-
Other operating expenses
1,285,959
203,892
(544)
Income tax expense
253,479
56,538
-
Net income
$
787,461
$
134,059
$
2
Segment assets
$
64,336,681
$
10,399,066
$
(31,528)
 
December 31, 2021
Reportable
Total
(In thousands)
 
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,995,749
$
(38,159)
$
-
$
1,957,590
Provision for credit losses (benefit)
(193,249)
(215)
-
(193,464)
Non-interest income
589,280
56,535
(3,687)
642,128
Amortization of intangibles
3,478
5,656
-
9,134
Depreciation expense
53,954
1,150
-
55,104
Other operating expenses
1,489,307
(545)
(3,725)
1,485,037
Income tax expense (benefit)
310,017
(1,085)
86
309,018
Net income
$
921,522
$
13,415
$
(48)
$
934,889
Segment assets
$
74,704,219
$
5,458,718
$
(5,065,038)
$
75,097,899
December 31, 2020
Banco Popular
 
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
 
Eliminations
Net interest income
$
1,593,599
$
302,517
$
11
Provision for credit losses
210,955
81,486
-
Non-interest income
 
445,893
24,285
(553)
Amortization of intangibles
5,634
665
-
Depreciation expense
47,890
9,558
-
Other operating expenses
1,169,816
228,406
(544)
Income tax expense
106,211
7,411
-
Net income (loss)
$
498,986
$
(724)
$
2
Segment assets
$
55,353,626
$
10,255,954
$
(33,935)
 
December 31, 2020
Reportable
Total
(In thousands)
 
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,896,127
$
(39,514)
$
-
$
1,856,613
Provision for credit losses
292,441
95
-
292,536
Non-interest income
469,625
46,442
(3,755)
512,312
Amortization of intangibles
6,299
98
-
6,397
Depreciation expense
57,448
1,004
-
58,452
Other operating expenses
1,397,678
(1,212)
(3,486)
1,392,980
Income tax expense (benefit)
113,622
(1,560)
(124)
111,938
Net income
$
498,264
$
8,503
$
(145)
$
506,622
Segment assets
$
65,575,645
$
5,214,439
$
(4,864,084)
$
65,926,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
257
Geographic Information
The following information presents selected
 
financial information based on the
 
geographic location where the Corporation conducts
its business. The
 
banking operations of BPPR
 
are primarily based in
 
Puerto Rico, where it
 
has the largest retail
 
banking franchise.
BPPR
 
also
 
conducts
 
banking
 
operations
 
in
 
the
 
U.S.
 
Virgin
 
Islands,
 
the
 
British
 
Virgin
 
Islands
 
and
 
New
 
York.
 
BPPR’s
 
banking
operations
 
in
 
the
 
United States
 
include co-branded
 
credit
 
cards
 
offerings
 
and commercial
 
lending activities.
 
BPPR’s
 
commercial
lending
 
activities
 
in
 
the
 
U.S.,
 
through its
 
New
 
York
 
Branch,
 
include periodic
 
loan
 
participations
 
with
 
PB.
 
During
 
the
 
year
 
ended
December 31, 2022, BPPR participated
 
in loans originated by PB
 
totaling $
184
 
million (2021 - $
35
 
million). At December 31, 2022,
total
 
assets for
 
the BPPR
 
segment
 
related
 
to
 
its
 
operations in
 
the United
 
States
 
amounted to
 
$
1.2
 
billion
 
(2021 -
 
$
589
 
million).
During the year ended December 31, 2022, the
 
BPPR segment generated approximately $
67.8
 
million (2021 - $
50.6
 
million, 2020 -
$
55.3
 
million)
 
in
 
revenues
 
from
 
its
 
operations
 
in
 
the
 
United
 
States,
 
including
 
net
 
interest
 
income,
 
service
 
charges
 
on
 
deposit
accounts and
 
other service
 
fees. In
 
the Virgin
 
Islands, the
 
BPPR segment
 
offers banking
 
products, including
 
loans and
 
deposits.
The BPPR segment
 
generated $
46.6
 
million in revenues
 
(2021 - $
45.4
 
million, 2020 -
 
$
44.2
 
million) from its
 
operations in the U.S.
and British Virgin Islands.
 
(In thousands)
2022
2021
2020
Revenues:
[1]
Puerto Rico
 
$
2,505,988
$
2,136,481
$
1,921,207
United States
480,545
390,201
376,529
Other
77,888
73,036
71,189
Total consolidated
 
revenues
$
3,064,421
$
2,599,718
$
2,368,925
[1]
Total revenues include
 
net interest income, service charges on deposit accounts,
 
other service fees, mortgage banking activities, net
 
gain on sale
of debt securities, net gain, including impairment on equity securities,
 
net (loss) profit on trading account debt securities
 
,
 
net (loss) gain on sale of
loans, including valuation adjustments on loans held-for-sale,
 
adjustments to indemnity reserves on loans sold, and
 
other operating income.
Selected Balance Sheet Information
(In thousands)
2022
2021
2020
Puerto Rico
Total assets
$
53,541,427
$
63,221,282
$
54,143,954
Loans
20,884,442
19,770,118
20,413,112
Deposits
51,138,790
57,211,608
47,586,880
United States
Total assets
$
12,718,775
$
10,986,055
$
10,878,030
Loans
10,643,964
8,903,493
8,396,983
Deposits
8,182,702
7,777,232
7,672,549
Other
Total assets
$
1,377,715
$
890,562
$
904,016
Loans
554,744
626,115
674,556
Deposits
[1]
1,905,735
2,016,248
1,606,911
[1]
Represents deposits from BPPR operations located in the
 
U.S. and British Virgin Islands.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
258
Note 38 - Popular, Inc. (holding company only) financial information
The following
 
condensed financial
 
information presents
 
the financial
 
position of
 
Popular,
 
Inc. Holding
 
Company only
 
at December
31, 2022 and 2021, and the results of its
 
operations and cash flows for the years ended
 
December 31, 2022, 2021 and 2020.
Condensed Statements of Condition
December 31,
(In thousands)
2022
2021
ASSETS
Cash and due from banks (includes $
101,753
 
due from bank subsidiary (2021 - $
79,660
))
$
101,753
$
79,660
Money market investments
77,180
205,646
Debt securities held-to-maturity,
 
at amortized cost (includes $
3,125
 
in common
 
securities from statutory trusts (2021 - $
3,125
))
[1]
3,125
3,125
Equity securities, at lower of cost or realizable value
18,835
19,711
Investment in BPPR and subsidiaries, at equity
2,120,503
3,858,701
Investment in Popular North America and subsidiaries, at
 
equity
1,879,123
1,834,931
Investment in other non-bank subsidiaries, at equity
335,552
288,736
Other loans
 
28,196
29,445
Less - Allowance for credit losses
370
96
Premises and equipment
6,411
5,684
Investment in equity method investees
5,350
114,955
Other assets (includes $
6,115
 
due from subsidiaries and affiliate (2021 - $
6,802
))
34,841
32,810
Total assets
 
$
4,610,499
$
6,473,308
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable
$
403,257
$
401,990
Other liabilities (includes $
2,764
 
due to subsidiaries and affiliate (2021 - $
6,591
))
113,772
101,923
Stockholders’ equity
4,093,470
5,969,395
Total liabilities and
 
stockholders’ equity
 
$
4,610,499
$
6,473,308
[1] Refer to Note 18 to the consolidated financial statements
 
for information on the statutory trusts.
 
Condensed Statements of Operations
Years ended December 31,
(In thousands)
2022
2021
2020
Income:
Dividends from subsidiaries
$
458,000
$
792,000
$
586,000
Interest income (includes $
680
 
due from subsidiaries and affiliates (2021 - $
828
; 2020 -
$
2,290
))
2,846
4,303
4,949
Earnings from investments in equity method investees
15,688
29,387
17,841
Other operating income
139,191
-
1
Net (loss) gain, including impairment, on equity securities
(4,446)
(525)
1,494
Total income
 
611,279
825,165
610,285
Expenses:
Interest expense
26,021
36,444
38,528
Provision for credit losses (benefit)
274
(215)
95
Operating expense (income) (includes expenses for services
 
provided by subsidiaries and
affiliate of $
18,414
 
(2021 - $
13,546
 
; 2020 - $
13,140
)), net of reimbursement by subsidiaries
for services provided by parent of $
222,935
 
(2021 - $
162,019
 
; 2020 - $
138,729
)
223
5,432
(921)
Total expenses
26,517
41,661
37,702
Income before income taxes and equity in undistributed
 
earnings (losses) of subsidiaries
584,762
783,504
572,583
Income tax expense
8,723
352
17
Income before equity in undistributed earnings (losses) of subsidiaries
576,038
783,152
572,566
Equity in undistributed earnings (losses) of subsidiaries
526,603
151,737
(65,944)
Net income
$
1,102,641
$
934,889
$
506,622
Comprehensive (loss) income, net of tax
$
(1,097,218)
$
419,829
$
866,551
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
259
Condensed Statements of Cash Flows
Years ended December 31,
(In thousands)
2022
2021
2020
Cash flows from operating activities:
Net income
$
1,102,641
$
934,889
$
506,622
Adjustments to reconcile net income to net cash provided
 
by operating activities:
Equity in (earnings) losses of subsidiaries, net of dividends
 
or distributions
(526,603)
(151,737)
65,944
Provision for credit losses (benefit)
274
(215)
95
Amortization of intangibles
-
5,656
98
Net accretion of discounts and amortization of premiums and
 
deferred fees
 
1,250
1,241
1,233
Share-based compensation
9,440
8,895
5,770
Earnings from investments under the equity method, net
 
of dividends or distributions
(14,170)
(26,360)
(15,510)
(Gain) loss on:
Disposition of stock as part of the Evertec Transactions
(137,813)
-
-
Sale of foreclosed assets, including write-downs
-
59
-
Net increase in:
Equity securities
(339)
(3,662)
(5,305)
Other assets
(1,952)
(1,970)
(8,327)
Net (decrease) increase in:
Interest payable
-
(1,042)
-
Other liabilities
8,257
19,095
2,470
Total adjustments
(661,656)
(150,040)
46,468
Net cash provided by operating activities
440,985
784,849
553,090
Cash flows from investing activities:
 
Net decrease (increase) in money market investments
129,000
(94,000)
110,000
Proceeds from calls, paydowns, maturities and redemptions
 
of investment securities held-to-maturity
-
5,601
-
Net repayments on other loans
1,267
1,879
587
Capital contribution to subsidiaries
(54,188)
(12,900)
(10,000)
Return of capital from wholly owned subsidiaries
72,000
-
12,500
Return of capital from equity method investments
-
-
131
Proceeds from Evertec Stock Sale
219,883
-
-
Acquisition of premises and equipment
(2,224)
(1,788)
(2,667)
Proceeds from sale of premises and equipment
1,678
83
285
Proceeds from sale of foreclosed assets
-
87
-
Net cash provided by (used in) investing activities
367,416
(101,038)
110,836
Cash flows from financing activities:
 
Payments of notes payable
-
(186,664)
-
Proceeds from issuance of common stock
13,479
10,493
15,175
Payments for repurchase of redeemable preferred stock
-
-
(28,017)
Dividends paid
(161,516)
(141,466)
(133,645)
Net payments for repurchase of common stock
(631,965)
(350,656)
(500,705)
Payments related to tax withholding for share-based compensation
(5,771)
(5,107)
(3,394)
Net cash used in financing activities
(785,773)
(673,400)
(650,586)
Net increase in cash and due from banks, and restricted
 
cash
 
22,628
10,411
13,340
Cash and due from banks, and restricted cash at beginning
 
of period
80,305
-
69,894
56,554
Cash and due from banks, and restricted cash at end of
 
period
$
102,933
$
80,305
$
69,894
 
 
 
 
 
 
 
 
 
 
 
260
Popular, Inc.
 
(parent company only)
 
received distributions from
 
its direct equity
 
method investees amounting to
 
$
1.5
 
million for the
year ended December
 
31, 2022 (2021
 
- $
3.0
 
million; 2020 -
 
$
2.3
 
million), of which
 
$
1.5
 
million are related
 
to dividend distributions
(2021
 
-
 
$
2.3
 
million;
 
2020
 
-
 
$
2.3
 
million).
 
Also
 
received
 
dividend
 
distributions
 
from
 
PNA
 
amounting
 
to
 
$
53.5
 
million
 
(2021
 
-
 
$
0
million; 2020
 
- $
0
 
million) and
 
from PIBI
 
amounting to
 
$
18.5
 
million (2021
 
- $
0
 
million; 2020
 
- $
12.5
 
million). PIBI
 
main source
 
of
income is derived from its investment in BHD.
Notes payable include junior
 
subordinated debentures issued by
 
the Corporation that are
 
associated to capital securities
 
issued by
the
 
Popular Capital
 
Trust
 
II
 
and medium-term
 
notes. Refer
 
to
 
Note 18
 
for
 
a description
 
of
 
significant provisions
 
related to
 
these
junior subordinated
 
debentures. The following
 
table presents
 
the aggregate amounts
 
by contractual maturities
 
of notes
 
payable at
December 31, 2022:
 
Year
(In thousands)
2023
$
299,109
2024
-
2025
-
2026
-
2027
-
Later years
104,148
Total
 
$
403,257
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
261
SIGNATURES
Pursuant to the
 
requirements of Section
 
13 or
 
15 (d)
 
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 on March 1, 2023.
POPULAR, INC.
(Registrant)
By: /S/ IGNACIO ALVAREZ
Ignacio Alvarez
President and
Chief Executive Officer
Pursuant to the requirements
 
of the Securities Exchange Act
 
of 1934, this report
 
has been signed below by
 
the following persons
on behalf of the registrant and in the capacities
 
and on the dates indicated.
/S/ RICHARD L. CARRIÓN
Chairman of the Board
3-1-2023
Richard L. Carrión
Chairman of the Board
/S/ IGNACIO ALVAREZ
President, Chief Executive Officer
3-1-2023
Ignacio Alvarez
and Director
President and Chief Executive Officer
/S/ CARLOS J. VÁZQUEZ
Principal Financial Officer
3-1-2023
Carlos J. Vázquez
Executive Vice President
/S/ JORGE J. GARCÍA
Principal Accounting Officer
3-1-2023
Jorge J. García
Senior Vice President and Comptroller
/S/ ALEJANDRO M. BALLESTER
Director
3-1-2023
Alejandro M. Ballester
S/ MARÍA LUISA FERRÉ
Director
3-1-2023
María Luisa Ferré
/S/ C. KIM GOODWIN
Director
3-1-2023
C. Kim Goodwin
/S/ JOAQUÍN E. BACARDÍ, III
Director
3-1-2023
Joaquín E. Bacardi, III
/S/ CARLOS A. UNANUE
Director
3-1-2023
Carlos A. Unanue
/S/ JOHN W. DIERCKSEN
Director
3-1-2023
John W. Diercksen
/S/ MYRNA M. SOTO
Director
3-1-2023
Myrna M. Soto
/S/ ROBERT CARRADY
Director
3-1-2023
Robert Carrady
/S/ JOSÉ R. RODRÍGUEZ
Director
3-1-2023
José R. Rodríguez
/S/ BETTY DEVITA
Director
3-1-2023
Betty Devita