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POPULAR, INC. - Quarter Report: 2023 March (Form 10-Q)

Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
[X]
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
 
March 31, 2023
or
[ ]
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number:
 
001-34084
POPULAR, INC.
(Exact name of registrant as specified in its charter)
Puerto Rico
66-0667416
(State or other jurisdiction of Incorporation or
(IRS Employer Identification Number)
organization)
Popular Center Building
209 Muñoz Rivera Avenue
Hato Rey
,
Puerto Rico
00918
(Address of principal executive offices)
(Zip code)
(
787
)
765-9800
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock ($0.01 par value)
BPOP
The
NASDAQ Stock Market
6.125% Cumulative Monthly Income Trust
Preferred Securities
BPOPM
The
NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports
 
required to be filed by Section 13 or 15(d) of the
Securities Exchange
 
Act of
 
1934 during
 
the preceding
 
12 months
 
(or for
 
such shorter
 
period that
 
the registrant
 
was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]
 
Yes
[
 
]
 
No
Indicate by
 
check mark
 
whether the registrant
 
has submitted electronically
 
every Interactive
 
Data File
 
required to
 
be
submitted pursuant to
 
Rule 405 of
 
Regulation S-T (§
 
232.405 of this
 
chapter) during the
 
preceding 12 months
 
(or for
such shorter period that the registrant was required to submit such files).
[X]
 
Yes
[
 
]
 
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company.
 
See definitions of “large accelerated filer”, “accelerated
filer,” “smaller reporting company,”
 
and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
 
[X]
Accelerated filer [
 
]
Non-accelerated filer [
 
]
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
 
[
 
]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[
 
]
 
Yes
[X]
 
No
Indicate
 
the
 
number
 
of
 
shares
 
outstanding
 
of
 
each
 
of
 
the
 
issuer’s
 
classes
 
of
 
common
 
stock,
 
as
 
of
 
the
 
latest
practicable date:
 
Common Stock, $0.01 par value,
71,974,054
 
shares outstanding as of May 8, 2023.
 
 
 
2
POPULAR, INC.
INDEX
Part I – Financial Information
Page
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition
 
at March 31, 2023 and
December 31, 2022
6
Unaudited Consolidated Statements of Operations for
 
the quarters
 
ended March 31, 2023 and 2022
7
Unaudited Consolidated Statements of Comprehensive
 
Income (Loss) for the
quarters
 
ended March 31, 2023 and 2022
8
Unaudited Consolidated Statements of Changes in Stockholders’
 
Equity for the
quarters ended March 31, 2023 and 2022
9
Unaudited Consolidated Statements of Cash Flows for
 
the quarters
ended March 31, 2023 and 2022
11
Notes to Unaudited Consolidated Financial Statements
13
Item 2. Management’s Discussion and Analysis of Financial
 
Condition and
 
 
Results of Operations
117
Item 3. Quantitative and Qualitative Disclosures about
 
Market Risk
 
156
Item 4. Controls and Procedures
156
Part II – Other Information
Item 1. Legal Proceedings
157
Item 1A. Risk Factors
157
Item 2. Unregistered Sales of Equity Securities and
 
Use of Proceeds
 
157
 
Item 3. Defaults Upon Senior Securities
158
Item 4. Mine Safety Disclosures
158
Item 5. Other information
 
158
Item 6. Exhibits
158
Signatures
 
159
 
 
3
Forward-Looking Information
This
 
Form 10-Q
 
contains “forward-looking
 
statements” within
 
the meaning
 
of the
 
U.S. Private
 
Securities Litigation
 
Reform Act
 
of
1995,
 
including,
 
without
 
limitation,
 
statements
 
about
 
Popular,
 
Inc.’s
 
(the
 
“Corporation,”
 
“Popular,”
 
“we,”
 
“us,”
 
“our”)
 
business,
financial condition, results
 
of operations, plans,
 
objectives and future
 
performance. These statements
 
are not
 
guarantees of future
performance,
 
are
 
based
 
on
 
management’s
 
current
 
expectations
 
and,
 
by
 
their
 
nature,
 
involve
 
risks,
 
uncertainties,
 
estimates
 
and
assumptions. Potential
 
factors, some
 
of which
 
are beyond
 
the Corporation’s
 
control, could
 
cause actual
 
results to
 
differ materially
from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect
of competitive and
 
economic factors, and our
 
reaction to those factors,
 
the adequacy of
 
the allowance for loan
 
losses, delinquency
trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity,
 
and the effect
of legal and regulatory proceedings and new accounting
 
standards on the Corporation’s financial condition and results
 
of operations.
All statements
 
contained herein
 
that are
 
not clearly
 
historical in
 
nature are
 
forward-looking, and
 
the words
 
“anticipate,” “believe,”
“continues,” “expect,”
 
“estimate,” “intend,”
 
“project” and
 
similar expressions
 
and future
 
or conditional
 
verbs such
 
as “will,”
 
“would,”
“should,” “could,” “might,” “can,” “may” or similar
 
expressions are generally intended to identify
 
forward-looking statements.
 
Various factors, some of which
 
are beyond Popular’s control, could cause actual results to differ materially from those expressed in,
or implied by, such forward-looking statements. Factors that might cause such a
 
difference include, but are not limited to:
 
●
 
the
 
rate
 
of
 
growth
 
or
 
decline
 
in
 
the
 
economy
 
and
 
employment
 
levels,
 
as
 
well
 
as
 
general
 
business
 
and
 
economic
conditions
 
in
 
the
 
geographic
 
areas
 
we
 
serve
 
and,
 
in
 
particular,
 
in
 
the
 
Commonwealth
 
of
 
Puerto
 
Rico
 
(the
“Commonwealth” or “Puerto Rico”), where a significant
 
portion of our business is concentrated;
●
 
adverse
 
economic conditions,
 
including high
 
levels
 
of
 
and
 
ongoing increases
 
in
 
inflation
 
rates,
 
that
 
adversely
 
affect
housing prices, the job market, consumer confidence
 
and spending habits which may affect in turn, among
 
other things,
our level of non-performing assets, charge-offs and provision
 
expense;
●
 
changes in interest rates and market liquidity,
 
which may reduce interest margins, impact funding sources, reduce loan
originations, affect
 
our ability
 
to originate
 
and distribute
 
financial products
 
in the
 
primary and
 
secondary markets
 
and
impact the value of our investment portfolio and
 
our ability to return capital to our shareholders;
●
 
changes
 
to
 
regulatory
 
capital,
 
liquidity
 
and
 
resolution-related
 
requirements
 
applicable
 
to
 
financial
 
institutions
 
in
response to recent developments affecting the banking sector;
●
 
the
 
impact
 
of
 
bank
 
failures
 
or
 
adverse
 
developments
 
at
 
other
 
banks
 
and
 
related
 
negative
 
media
 
coverage
 
of
 
the
banking industry in general on investor and depositor
 
sentiment regarding the stability and liquidity of
 
banks;
●
 
the impact of the current fiscal and economic challenges of Puerto Rico and
 
the measures taken and to be taken by the
Puerto
 
Rico
 
Government
 
and
 
the
 
Federally-appointed
 
oversight
 
board
 
on
 
the
 
economy,
 
our
 
customers
 
and
 
our
business;
●
 
the impact of the pending debt
 
restructuring proceedings under Title III of the
 
Puerto Rico Oversight, Management and
Economic
 
Stability
 
Act
 
(“PROMESA”)
 
and
 
of
 
other
 
actions
 
taken
 
or
 
to
 
be
 
taken
 
to
 
address
 
Puerto
 
Rico’s
 
fiscal
challenges on the value of our portfolio of Puerto Rico government securities and
 
loans to governmental entities and of
our
 
commercial,
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
where
 
private
 
borrowers
 
could
 
be
 
directly
 
affected
 
by
governmental action;
●
 
the
 
amount of
 
Puerto Rico
 
public sector
 
deposits held
 
at
 
the Corporation,
 
whose future
 
balances are
 
uncertain and
difficult
 
to
 
predict
 
and
 
may
 
be
 
impacted
 
by
 
factors
 
such
 
as
 
the
 
amount
 
of
 
Federal
 
funds
 
received
 
by
 
the
 
P.R.
Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure
of
 
such
 
funds,
 
as
 
well
 
as
 
the
 
financial
 
condition,
 
liquidity
 
and
 
cash
 
management
 
practices
 
of
 
the
 
Puerto
 
Rico
Government and its instrumentalities;
●
 
unforeseen
 
or
 
catastrophic
 
events,
 
including
 
extreme
 
weather
 
events,
 
including
 
hurricanes,
 
other
 
natural
 
disasters,
man-made disasters,
 
acts of
 
violence or
 
war or
 
pandemics, epidemics
 
and other
 
health-related crises,
 
including any
4
resurgence of COVID-19, or the fear of any
 
such event occurring, any of which could cause adverse consequences for
our business, including, but not limited to, disruptions
 
in our operations;
●
 
our
 
ability
 
to
 
achieve
 
the
 
expected
 
benefits
 
from
 
our
 
transformation
 
initiative,
 
including
 
our
 
ability
 
to
 
achieve
 
our
targeted sustainable return on tangible common equity
 
of 14% by the end of 2025;
●
 
risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc.
to
 
service certain
 
of Banco
 
Popular de
 
Puerto Rico’s
 
key channels,
 
as well
 
as the
 
entry into
 
amended and
 
restated
commercial
 
agreements
 
(the
 
“Evertec
 
Business
 
Acquisition
 
Transaction”),
 
including
 
Popular’s
 
ability
 
to
 
successfully
transition and integrate the assets
 
acquired as part of the
 
Evertec Business Acquisition Transaction, as
 
well as related
operations,
 
employees
 
and
 
third
 
party
 
contractors;
 
unexpected
 
costs,
 
including,
 
without
 
limitation,
 
costs
 
due
 
to
exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Evertec Business
Acquisition Transaction or
 
that are not
 
subject to indemnification or
 
reimbursement by Evertec, Inc.;
 
and business and
other risks arising from the extension of Popular’s
 
current commercial agreements with Evertec,
 
Inc.;
●
 
the fiscal and monetary policies of the federal government
 
and its agencies;
●
 
changes
 
in
 
federal
 
bank
 
regulatory
 
and
 
supervisory
 
policies,
 
including
 
required
 
levels
 
of
 
capital
 
and
 
the
 
impact
 
of
proposed capital standards on our capital ratios;
●
 
additional Federal Deposit Insurance Corporation (“FDIC”)
 
assessments;
●
 
regulatory approvals
 
that may
 
be necessary
 
to undertake
 
certain actions
 
or consummate
 
strategic transactions,
 
such
as acquisitions and dispositions;
●
 
the
 
relative strength
 
or
 
weakness
 
of
 
the
 
consumer and
 
commercial credit
 
sectors
 
and
 
of
 
the
 
real
 
estate markets
 
in
Puerto Rico and the other markets in which
 
our borrowers are located;
●
 
the performance of the stock and bond markets;
●
 
competition in the financial services industry;
●
 
possible legislative, tax or regulatory changes;
●
 
a failure
 
in or
 
breach of
 
our operational
 
or security
 
systems or
 
infrastructure or
 
those of
 
Evertec, Inc.,
 
our provider
 
of
core financial
 
transaction processing and
 
information technology services,
 
or of
 
third parties
 
providing services
 
to us,
including
 
as
 
a
 
result
 
of
 
cyberattacks, e-fraud,
 
denial-of-services and
 
computer intrusion,
 
that
 
might result
 
in,
 
among
other
 
things,
 
loss
 
or
 
breach
 
of
 
customer
 
data,
 
disruption
 
of
 
services,
 
reputational
 
damage
 
or
 
additional
 
costs
 
to
Popular;
●
 
changes in market rates and prices which may
 
adversely impact the value of financial assets
 
and liabilities;
●
 
potential judgments,
 
claims, damages,
 
penalties, fines,
 
enforcement actions
 
and
 
reputational damage
 
resulting from
pending
 
or
 
future
 
litigation
 
and
 
regulatory
 
or
 
government
 
investigations
 
or
 
actions,
 
including
 
as
 
a
 
result
 
of
 
our
participation in and execution of government programs
 
related to the COVID-19 pandemic;
●
 
changes in accounting standards, rules and interpretations;
●
 
our ability to grow our core businesses;
●
 
decisions to downsize, sell or close branches or business
 
units or otherwise change our business mix;
 
and
●
 
management’s ability to identify and manage these and
 
other risks.
5
Moreover,
 
the
 
outcome
 
of
 
legal
 
and
 
regulatory
 
proceedings,
 
as
 
discussed
 
in
 
“Part
 
II,
 
Item
 
1.
 
Legal
 
Proceedings,”
 
is
 
inherently
uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to
the Corporation’s Annual
 
Report on Form
 
10-K for the
 
year ended December 31,
 
2022 (the “2022
 
Form 10-K”), as
 
well as “Part
 
II,
Item 1A”
 
of our
 
Quarterly Reports
 
on Form
 
10-Q for
 
a discussion
 
of such
 
factors and
 
certain risks
 
and uncertainties
 
to which
 
the
Corporation is subject.
All forward-looking
 
statements included
 
in this
 
Form 10-Q
 
are based
 
upon information
 
available to
 
Popular as
 
of the
 
date of
 
this
Form 10-Q, and other than as
 
required by law, including the
 
requirements of applicable securities laws, we assume no
 
obligation to
update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date
of such statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(UNAUDITED)
[UNAUDITED]
March 31,
December 31,
(In thousands, except share information)
2023
2022
Assets:
Cash and due from banks
$
462,013
$
469,501
Money market investments:
 
Time deposits with other banks
 
6,098,288
5,614,595
Total money market investments
6,098,288
5,614,595
Trading account debt securities, at fair value:
 
Other trading account debt securities
29,839
27,723
Debt securities available-for-sale, at fair
 
value:
Pledged securities with creditors’ right to repledge
 
106,094
129,203
Other debt securities available-for-sale
17,067,034
17,675,171
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
 
26,676
26,496
Other debt securities held-to-maturity
8,536,376
8,498,870
Debt securities held-to-maturity (fair
 
value 2023 - $
8,597,920
; 2022 - $
8,440,196
)
8,563,052
8,525,366
Less – Allowance for credit losses
6,792
6,911
Debt securities held-to-maturity, net
8,556,260
8,518,455
Equity securities (realizable value 2023 -
 
$
186,744
; 2022 - $
196,665
)
185,917
195,854
Loans held-for-sale, at fair value
11,181
5,381
Loans held-in-portfolio
32,645,023
32,372,925
Less – Unearned income
306,650
295,156
 
Allowance for credit losses
689,120
720,302
Total loans held-in-portfolio, net
31,649,253
31,357,467
Premises and equipment, net
508,007
498,711
Other real estate
91,721
89,126
Accrued income receivable
239,815
240,195
Mortgage servicing rights, at fair value
127,475
128,350
Other assets
1,703,285
1,847,813
Goodwill
827,428
827,428
Other intangible assets
12,149
12,944
Total assets
$
67,675,759
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
 
Deposits:
Non-interest bearing
$
15,940,850
$
15,960,557
Interest bearing
45,013,038
45,266,670
Total deposits
60,953,888
61,227,227
Assets sold under agreements to repurchase
123,499
148,609
Other short-term borrowings
-
365,000
Notes payable
1,279,127
886,710
Other liabilities
848,520
916,946
Total liabilities
63,205,034
63,544,492
Commitments and contingencies (Refer
 
to Note 21)
 
 
Stockholders’ equity:
 
Preferred stock,
30,000,000
 
shares authorized;
885,726
 
shares issued and outstanding (2022 -
885,726
)
22,143
22,143
Common stock, $
0.01
 
par value;
170,000,000
 
shares authorized;
104,683,010
 
shares issued (2022 -
104,657,522
) and
71,965,984
 
shares outstanding (2022 -
71,853,720
)
1,047
1,047
Surplus
4,792,619
4,790,993
Retained earnings
3,982,140
3,834,348
Treasury stock - at cost,
32,717,026
 
shares (2022 -
32,803,802
)
 
(2,025,399)
(2,030,178)
Accumulated other comprehensive loss, net
 
of tax
 
(2,301,825)
(2,524,928)
Total stockholders’ equity
 
4,470,725
4,093,425
Total liabilities and stockholders’ equity
$
67,675,759
$
67,637,917
The accompanying notes are an integral part of
 
these Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF OPERATIONS
(UNAUDITED)
 
Quarters ended March 31,
(In thousands, except per share information)
2023
2022
Interest income:
Loans
$
541,210
$
426,791
Money market investments
65,724
6,464
Investment securities
132,088
96,466
Total interest income
739,022
529,721
Interest expense:
 
Deposits
193,215
24,783
Short-term borrowings
2,885
80
Long-term debt
11,266
10,546
Total interest expense
207,366
35,409
Net interest income
 
531,656
494,312
Provision for credit losses (benefit)
47,637
(15,500)
Net interest income after provision for credit losses
 
(benefit)
484,019
509,812
Service charges on deposit accounts
34,678
40,713
Other service fees
90,076
77,134
Mortgage banking activities (Refer to Note 10)
7,400
12,865
Net gain (loss), including impairment on equity securities
1,100
(2,094)
Net gain (loss) on trading account debt securities
378
(723)
Adjustments to indemnity reserves on loans sold
 
612
(745)
Other operating income
27,717
27,542
Total non-interest income
161,961
154,692
Operating expenses:
 
Personnel costs
198,760
166,996
Net occupancy expenses
26,039
24,723
Equipment expenses
8,412
8,389
Other taxes
16,291
15,715
Professional fees
33,431
36,792
Technology and software expenses
68,559
70,535
Processing and transactional services
33,909
30,953
Communications
4,088
3,673
Business promotion
18,871
15,083
FDIC deposit insurance
8,865
7,372
Other real estate owned (OREO) income
(1,694)
(2,713)
Other operating expenses
24,361
23,930
Amortization of intangibles
795
891
Total operating expenses
440,687
402,339
Income before income tax
205,293
262,165
Income tax expense
46,314
50,479
Net Income
$
158,979
$
211,686
Net Income Applicable to Common Stock
 
$
158,626
$
211,333
Net Income per Common Share - Basic
$
2.22
$
2.69
Net Income per Common Share - Diluted
$
2.22
$
2.69
The accompanying notes are an integral part of
 
these Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Quarters ended March 31,
(In thousands)
2023
2022
Net income
 
$
158,979
$
211,686
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment
(5,245)
(2,858)
Adjustment of pension and postretirement benefit plans
-
2,030
Amortization of net losses of pension and
 
postretirement benefit plans
4,813
3,911
Unrealized holding gains (losses) on debt securities arising
 
during the period
 
213,318
(1,219,023)
Amortization of unrealized losses of debt securities
 
transfer from available-for-sale to held-to-
maturity
42,040
-
Unrealized net (losses) gains on cash flow hedges
(30)
3,888
Reclassification adjustment for net gains included
 
in net income
(41)
(699)
Other comprehensive income (loss) before tax
254,855
(1,212,751)
Income tax (expense) benefit
(31,752)
140,582
Total other comprehensive income (loss), net of tax
223,103
(1,072,169)
Comprehensive income (loss), net of tax
$
382,082
$
(860,483)
Tax effect allocated to each component of other comprehensive income
 
(loss):
Quarters ended March 31,
(In thousands)
2023
2022
Adjustment of pension and postretirement benefit plans
$
-
$
(761)
Amortization of net losses of pension and
 
postretirement benefit plans
(1,805)
(1,467)
Unrealized holding gains (losses) on debt securities arising
 
during the period
 
(21,566)
143,193
Amortization of unrealized losses of debt securities
 
transfer from available-for-sale to held-to-
maturity
(8,407)
-
Unrealized net (losses) gains on cash flow hedges
11
(749)
Reclassification adjustment for net gains included
 
in net income
15
366
Income tax (expense) benefit
$
(31,752)
$
140,582
The accompanying notes are an integral part of
 
these Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
 
other
Common
Preferred
 
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
(loss) income
Total
Balance at December 31, 2021
$
1,046
$
22,143
$
4,650,182
$
2,973,745
$
(1,352,650)
$
(325,069)
$
5,969,397
Net income
211,686
211,686
Issuance of stock
-
1,199
1,199
Dividends declared:
Common stock
[1]
(42,074)
(42,074)
Preferred stock
(353)
(353)
Common stock purchases
[2]
(80,000)
(324,920)
(404,920)
Stock based compensation
(270)
8,750
8,480
Other comprehensive loss, net of tax
(1,072,169)
(1,072,169)
Balance at March 31, 2022
 
$
1,046
$
22,143
$
4,571,111
$
3,143,004
$
(1,668,820)
$
(1,397,238)
$
4,671,246
Balance at December 31, 2022
$
1,047
$
22,143
$
4,790,993
$
3,834,348
$
(2,030,178)
$
(2,524,928)
$
4,093,425
Cumulative effect of accounting change
28,752
28,752
Net income
158,979
158,979
Issuance of stock
1,567
1,567
Dividends declared:
Common stock
[1]
(39,586)
(39,586)
Preferred stock
(353)
(353)
Common stock purchases
-
(2,970)
(2,970)
Stock based compensation
59
7,749
7,808
Other comprehensive income, net of tax
223,103
223,103
Balance at March 31, 2023
$
1,047
$
22,143
$
4,792,619
$
3,982,140
$
(2,025,399)
$
(2,301,825)
$
4,470,725
[1]
Dividends declared per common share during the quarter
 
ended March 31, 2023 - $
0.55
 
(2022 - $
0.55
).
[2]
During the quarter
 
ended March 31,
 
2022, the Corporation
 
entered into a
 
$
400
 
million accelerated share
 
repurchase transaction with
 
respect to
its common stock, which was accounted for as a treasury
 
stock transaction. Refer to Note 18 for additional information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
For the quarters ended
March 31,
March 31,
Disclosure of changes in number of shares:
2023
2022
Preferred Stock:
Balance at beginning and end of period
885,726
885,726
Common Stock – Issued:
Balance at beginning of period
104,657,522
104,579,334
Issuance of stock
25,488
15,460
Balance at end of period
104,683,010
104,594,794
Treasury stock
(32,717,026)
(28,107,271)
Common Stock – Outstanding
71,965,984
76,487,523
The accompanying notes are an integral part of these Consolidated
 
Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
POPULAR, INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(UNAUDITED)
Quarters ended March 31,
(In thousands)
2023
2022
Cash flows from operating activities:
Net income
$
158,979
$
211,686
Adjustments to reconcile net income to net cash provided
 
by operating activities:
Provision for credit losses (benefit)
47,637
(15,500)
Amortization of intangibles
795
891
Depreciation and amortization of premises and equipment
13,842
13,630
Net accretion of discounts and amortization of premiums and
 
deferred fees
 
(2,276)
15,843
Interest capitalized on loans subject to the temporary payment
 
moratorium or loss mitigation alternatives
(2,876)
(3,416)
Share-based compensation
7,873
8,276
Fair value adjustments on mortgage servicing rights
1,376
(1,017)
Adjustments to indemnity reserves on loans sold
(612)
745
Earnings from investments under the equity method, net
 
of dividends or distributions
(8,621)
(15,099)
Deferred income tax (benefit) expense
(2,064)
22,129
(Gain) loss on:
Disposition of premises and equipment and other productive
 
assets
(2,423)
(2,363)
Sale of loans, including valuation adjustments on loans
 
held-for-sale and mortgage banking activities
(264)
1,534
Sale of foreclosed assets, including write-downs
(5,228)
(7,566)
Acquisitions of loans held-for-sale
(2,861)
(55,134)
Proceeds from sale of loans held-for-sale
9,148
19,739
Net originations on loans held-for-sale
(21,790)
(98,356)
Net (increase) decrease in:
Trading debt securities
(1,055)
136,941
Equity securities
(3,731)
(111)
Accrued income receivable
 
314
(1,379)
Other assets
25,072
4,068
Net (decrease) increase in:
Interest payable
(2,846)
(7,106)
Pension and other postretirement benefits obligation
4,038
(196)
Other liabilities
(59,381)
(31,053)
Total adjustments
(5,933)
(14,500)
Net cash provided by operating activities
153,046
197,186
Cash flows from investing activities:
 
Net (increase) decrease in money market investments
(483,178)
7,467,248
Purchases of investment securities:
Available-for-sale
(3,960,443)
(5,747,659)
Equity
(11,927)
(845)
Proceeds from calls, paydowns, maturities and redemptions
 
of investment securities:
Available-for-sale
4,909,334
3,109,090
Held-to-maturity
3,818
4,114
Proceeds from sale of investment securities:
 
 
Equity
25,595
4,585
Net disbursements on loans
(155,538)
(236,365)
Proceeds from sale of loans
3,276
752
Acquisition of loan portfolios
(145,735)
(119,479)
Return of capital from equity method investments
249
-
Acquisition of premises and equipment
(36,062)
(15,205)
Proceeds from sale of:
Premises and equipment and other productive assets
1,972
578
Foreclosed assets
21,417
23,631
Net cash provided by investing activities
172,778
4,490,445
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
Cash flows from financing activities:
 
Net decrease in:
Deposits
(293,780)
(4,141,068)
Assets sold under agreements to repurchase
 
(25,110)
(18,784)
Other short-term borrowings
(365,000)
(75,000)
Payments of notes payable
(1,000)
(1,000)
Principal payments of finance leases
(804)
(833)
Proceeds from issuance of notes payable
394,178
-
Proceeds from issuance of common stock
1,567
1,199
Dividends paid
(39,878)
(36,289)
Net payments for repurchase of common stock
(282)
(400,604)
Payments related to tax withholding for share-based compensation
(2,688)
(4,316)
Net cash used in financing activities
(332,797)
(4,676,695)
Net (decrease) increase in cash and due from banks, and
 
restricted cash
(6,973)
10,936
Cash and due from banks, and restricted cash at beginning
 
of period
476,159
434,512
Cash and due from banks, and restricted cash at the end of
 
the period
$
469,186
$
445,448
The accompanying notes are an integral part of these Consolidated
 
Financial Statements.
13
Notes to Consolidated Financial
 
Statements
 
(Unaudited)
Note 1 -
Nature of operations
14
Note 2 -
Basis of presentation
15
Note 3 -
New accounting pronouncements
16
Note 4 -
Summary of significant accounting policies
 
19
Note 5 -
Restrictions on cash and due from banks and
 
certain securities
20
Note 6 -
Debt securities available-for-sale
21
Note 7 -
Debt securities held-to-maturity
24
Note 8 -
Loans
28
Note 9 -
Allowance for credit losses – loans held-in-
portfolio
37
Note 10 -
Mortgage banking activities
64
Note 11 -
Transfers of financial assets and mortgage
servicing assets
65
Note 12 -
Other real estate owned
68
Note 13 -
Other assets
69
Note 14 -
Goodwill and other intangible assets
 
70
Note 15 -
Deposits
72
Note 16 -
Borrowings
73
Note 17 -
Other liabilities
75
Note 18 -
Stockholders’ equity
76
Note 19 -
Other comprehensive loss
 
77
Note 20 -
Guarantees
79
Note 21 -
Commitments and contingencies
81
Note 22-
Non-consolidated variable interest entities
87
Note 23 -
Related party transactions
89
Note 24 -
Fair value measurement
91
Note 25 -
Fair value of financial instruments
97
Note 26 -
Net income per common share
100
Note 27 -
Revenue from contracts with customers
101
Note 28 -
Leases
103
Note 29 -
Pension and postretirement benefits
105
Note 30 -
Stock-based compensation
106
Note 31 -
Income taxes
108
Note 32 -
Supplemental disclosure on the consolidated
statements of cash flows
112
Note 33 -
Segment reporting
113
14
Note 1 – Nature of Operations
Nature of Operations
Popular,
 
Inc. (the
 
“Corporation” or
 
“Popular”) is
 
a diversified,
 
publicly-owned financial
 
holding company
 
subject to
 
the supervision
and
 
regulation
 
of
 
the
 
Board
 
of
 
Governors
 
of
 
the
 
Federal
 
Reserve
 
System.
 
The
 
Corporation
 
has
 
operations
 
in
 
Puerto
 
Rico,
 
the
mainland United
 
States (“U.S.”)
 
and the
 
U.S. and
 
British Virgin
 
Islands. In
 
Puerto Rico,
 
the Corporation
 
provides retail,
 
mortgage,
and
 
commercial
 
banking
 
services,
 
through
 
its
 
principal
 
banking
 
subsidiary,
 
Banco
 
Popular
 
de
 
Puerto
 
Rico
 
(“BPPR”),
 
as
 
well
 
as
investment
 
banking,
 
broker-dealer,
 
auto
 
and
 
equipment
 
leasing
 
and
 
financing,
 
and
 
insurance
 
services
 
through
 
specialized
subsidiaries. In
 
the U.S.
 
mainland, the
 
Corporation provides
 
retail, mortgage,
 
commercial banking
 
services, as
 
well as
 
equipment
leasing
 
and
 
financing,
 
through
 
its
 
New
 
York-chartered
 
banking
 
subsidiary,
 
Popular
 
Bank
 
(“PB”
 
or
 
“Popular
 
U.S.”),
 
which
 
has
branches located in New York, New Jersey, and Florida.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Note 2 – Basis of Presentation
Basis of Presentation
The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition
data at
 
December 31,
 
2022 was
 
derived from
 
audited financial
 
statements. The
 
unaudited interim
 
financial statements
 
are, in
 
the
opinion
 
of
 
management,
 
a
 
fair
 
statement
 
of
 
the
 
results
 
for
 
the
 
periods
 
reported
 
and
 
include
 
all
 
necessary
 
adjustments,
 
all
 
of
 
a
normal recurring nature, for a fair statement of
 
such results.
 
Certain
 
information
 
and
 
note
 
disclosures
 
normally
 
included
 
in
 
financial
 
statements
 
prepared
 
in
 
accordance
 
with
 
accounting
principles
 
generally
 
accepted
 
in
 
the
 
United
 
States
 
of
 
America
 
have
 
been
 
condensed
 
or
 
omitted
 
from
 
the
 
unaudited
 
financial
statements
 
pursuant
 
to
 
the
 
rules
 
and
 
regulations
 
of
 
the
 
Securities
 
and
 
Exchange
 
Commission.
 
Accordingly,
 
these
 
financial
statements should be read in conjunction
 
with the audited Consolidated Financial Statements of the
 
Corporation for the year ended
December 31, 2022, included
 
in the 2022 Form
 
10-K. Operating results for
 
the interim periods disclosed herein
 
are not necessarily
indicative of the results that may be expected for
 
a full year or any future period.
The Corporation embarked on a
 
broad-based multi-year, technological and
 
business process transformation during the second
 
half
of 2022. The needs and expectations of
 
the Corporation’s clients, as well as
 
the competitive landscape, have evolved, requiring the
Corporation to
 
make
 
important
 
investments
 
in
 
its
 
technological infrastructure
 
and
 
adopt
 
more
 
agile
 
practices.
 
The
 
Corporation’s
technology and business transformation will be
 
a significant priority for the Corporation over the next
 
three years and beyond.
As
 
part
 
of
 
this
 
transformation,
 
the
 
Corporation
 
aims
 
to
 
expand
 
its
 
digital
 
capabilities,
 
modernize
 
our
 
technology
 
platform,
 
and
implement agile and
 
efficient business
 
processes across the
 
entire Corporation. To
 
facilitate the transparency
 
of the
 
progress with
the transformation initiative and to better portray the level of technology
 
related expenses categorized by the nature of the expense,
effective
 
in the
 
fourth quarter
 
of
 
2022,
 
the
 
Corporation has
 
separated technology,
 
professional fees
 
and
 
transactional and
 
items
processing related expenses as standalone expense categories in the
 
accompanying Consolidated Statement of Operations. There
were no
 
changes to
 
the total
 
operating expenses
 
presented.
 
Prior periods
 
amount in
 
the Consolidated
 
Financial Statements
 
and
related disclosures have been reclassified to conform
 
to the current presentation.
 
The following table provides the detail of
 
the reclassifications for each respective quarter:
31-Mar-22
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
23,479
$
(15,090)
$
8,389
Professional services
108,497
(71,705)
36,792
Technology and
 
software expenses
-
70,535
70,535
Processing and transactional services
-
30,953
30,953
Communications
6,147
(2,474)
3,673
Other expenses
36,149
(12,219)
23,930
Net effect on operating expenses
$
174,272
$
-
$
174,272
Use of Estimates in the Preparation of Financial Statements
The preparation of financial
 
statements in conformity with
 
accounting principles generally accepted in
 
the United States
 
of America
requires management to make
 
estimates and assumptions that
 
affect the reported
 
amounts of assets and
 
liabilities and contingent
assets
 
and
 
liabilities
 
at
 
the
 
date
 
of
 
the
 
financial
 
statements,
 
and
 
the
 
reported
 
amounts
 
of
 
revenues
 
and
 
expenses
 
during
 
the
reporting period. Actual results could differ from those estimates.
 
16
Note 3 - New accounting pronouncements
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2022-05,
Financial Services -
Insurance (Topic 944)
Transition for Sold
Contracts
The
 
FASB
 
issued
 
ASU
 
2022-05
 
in
December 2022, which
 
allows an insurance
entity to make
 
an accounting policy election
of
 
applying
 
the
 
Long-Duration
 
Contracts
(LDTI) transition guidance
 
on a transaction-
by-transaction
 
basis
 
if
 
the
 
contracts
 
have
been
 
derecognized
 
because
 
of
 
a
 
sale
 
or
disposal
 
and
 
the
 
insurance
 
entity
 
has
 
no
significant
 
continuing
 
involvement
 
with
 
the
derecognized contract.
January 1, 2023
The
 
Corporation
 
was
 
not
 
impacted
 
by
the
 
adoption
 
of
 
ASU
 
2022-05
 
during
the
 
first
 
quarter
 
of
 
2023
 
since
 
it
 
does
not
 
hold
 
Long-Duration
 
Contracts
(LDTI).
FASB ASU 2022-04,
Liabilities—Supplier
Finance Programs
(Subtopic 405-50)
Disclosure of Supplier
Finance Program
Obligations
The
 
FASB
 
issued
 
ASU
 
2022-04
 
in
September 2022, which requires to disclose
information
 
about
 
the
 
use
 
of
 
supplier
finance
 
programs
 
in
 
connection
 
with
 
the
purchase of goods and services.
January 1, 2023
The
 
Corporation
 
was
 
not
 
impacted
 
by
the
 
adoption
 
of
 
ASU
 
2022-04
 
during
the
 
first
 
quarter
 
of
 
2023
 
since
 
it
 
does
not use supplier finance programs.
FASB ASU 2022-02,
Financial Instruments—
Credit Losses (Topic 326)
Troubled Debt
Restructurings and
Vintage Disclosures
The
 
FASB
 
issued
 
ASU
 
2022-02
 
in
 
March
2022,
 
which
 
eliminates
 
the
 
accounting
guidance
 
for
 
troubled
 
debt
 
restructurings
(“TDRs”) in
 
Subtopic 310-40
 
Receivables—
Troubled
 
Debt
 
Restructurings
 
by
 
Creditors
and
 
requires
 
creditors
 
to
 
apply
 
the
 
loan
refinancing
 
and
 
restructuring
 
guidance
 
to
determine whether
 
a modification
 
results in
a new
 
loan or
 
a continuation
 
of an
 
existing
loan.
 
In
 
addition,
 
the
 
ASU
 
enhances
 
the
disclosure
 
requirements
 
for
 
certain
 
loan
refinancing
 
and
 
restructurings
 
by
 
creditors
when
 
a
 
borrower
 
is
 
experiencing
 
financial
difficulty
 
and
 
enhances
 
the
 
vintage
disclosure
 
by
 
requiring
 
the
 
disclosure
 
of
current-period
 
gross
 
write-offs
 
by
 
year
 
of
origination for financing
 
receivables and net
investments in leases.
 
January 1, 2023
The Corporation adopted ASU
 
2022-02
during
 
the
 
first
 
quarter
 
of
 
2023.
 
The
adoption
 
of
 
this
 
standard
 
resulted
 
in
enhanced disclosure for
 
loans modified
to
 
borrowers
 
with
 
financial
 
difficulties
and
 
the
 
disclosure
 
of
 
period
 
gross
charge
 
offs
 
by
 
vintage
 
year.
 
The
Corporation
 
anticipates
 
that
 
there
 
will
be
 
loans
 
subject
 
to
 
disclosure
 
under
the
 
new
 
standard
 
that
 
did
 
not
 
qualify
under
 
the
 
prior
 
guidance
 
given
 
the
removal of
 
the concession
 
requirement
for
 
such
 
disclosures.
 
The
 
amended
guidance eliminated
 
the requirement to
measure
 
the
 
effect
 
of
 
the
 
concession
from
 
a loan
 
modification, for
 
which the
Corporation
 
used
 
a
 
discounted
 
cash
flow
 
(“DCF”)
 
model.
 
The
 
impact
 
of
discontinuing the use of the DCF model
to
 
measure
 
the
 
concession
 
resulted in
a
 
release
 
of
 
the
 
allowance
 
for
 
credit
losses
 
("ACL")
 
of
 
$
46
 
million,
 
mainly
related
 
to
 
mortgage
 
loans
 
for
 
which
modifications
 
mostly
 
included
 
a
reduction
 
in
 
contractual
 
interest
 
rates
and
 
given
 
the
 
extended
 
maturity
 
term
of
 
these
 
loans,
 
this
 
resulted
 
in
 
an
increase
 
in
 
the
 
ACL
 
in
 
the
 
period
 
of
modification. For
 
the
 
transition
 
method
related
 
to
 
the
 
recognition
 
and
measurement of TDRs, the Corporation
has
 
elected
 
to
 
apply
 
the
 
modified
retrospective approach for the
 
adoption
of
 
this
 
standard.
 
Accordingly,
 
this
presented
 
an
 
adjustment
 
increase
 
of
$
29
 
million,
 
net
 
of
 
tax
 
effect,
 
to
 
the
beginning balance
 
of retained
 
earnings
on January 1, 2023.
 
17
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2022-01,
Derivatives and Hedging
(Topic 815) – Fair Value
Hedging—Portfolio Layer
Method
The
 
FASB
 
issued
 
ASU
 
2022-01
 
in
 
March
2022,
 
which
 
amends
 
ASC
 
Topic
 
815
 
by
allowing
 
non
 
prepayable
 
financial
 
assets
also
 
to
 
be
 
included
 
in
 
a
 
closed
 
portfolio
hedged
 
using
 
the
 
portfolio
 
layer
 
method.
This
 
amendment permits
 
an entity
 
to
 
apply
fair
 
value
 
hedging to
 
a
 
stated
 
amount
 
of
 
a
closed
 
portfolio
 
of
 
prepayable
 
and
 
non-
prepayable
 
financial
 
assets
 
without
considering
 
prepayment
 
risk
 
or
 
credit
 
risk
when measuring those assets.
January 1, 2023
The
 
Corporation
 
was
 
not
 
impacted
 
by
the adoption of ASU 2022-01 during the
first
 
quarter
 
of
 
2023
 
since
 
it
 
does
 
not
hold
 
derivatives
 
designated
 
as
 
fair
value hedges.
FASB ASU 2021-08,
Business Combinations
(Topic 805) – Accounting
for Contract Assets and
Contract Liabilities from
Contracts with Customers
The FASB
 
issued ASU
 
2021-08 in
 
October
2021,
 
which
 
amends
 
ASC
 
Topic
 
805
 
by
requiring
 
contract
 
assets
 
and
 
contract
liabilities arising
 
from revenue
 
contract with
customers
 
to
 
be
 
recognized
 
in
 
accordance
with ASC
 
Topic
 
606 on
 
the acquisition date
instead of fair value.
January 1, 2023
The
 
Corporation
 
was
 
not
 
impacted
 
by
the adoption of ASU 2021-08 during the
first
 
quarter
 
of
 
2023,
 
however,
 
it
 
will
consider
 
this
 
guidance
 
for
 
revenue
contracts with customers recognized as
part
 
of
 
business
 
combinations
 
entered
into on or after the effective date.
 
18
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
 
FASB ASU 2023-02,
Investments—Equity
Method and Joint
Ventures (Topic 323) -
Accounting for
Investments in Tax Credit
Structures Using the
Proportional Amortization
Method
The
 
FASB
 
issued
 
ASU
 
2023-02
 
in
 
March
2023,
 
which
 
amend
 
topic
 
ASC
 
323
 
by
permitting
 
the
 
election
 
to
 
apply
 
the
proportional amortization method to account
for
 
tax
 
equity
 
investments
 
that
 
generate
income
 
tax
 
credits
 
through
 
investment
 
in
low-income-housing
 
tax
 
credit
 
(LIHTC)
structures
 
and
 
other
 
tax
 
credit
 
programs
 
if
certain
 
conditions
 
are
 
met.
 
The
 
ASU
 
also
eliminates
 
the
 
application
 
of
 
the
 
subtopic
323-740
 
to
 
LIHTC
 
investment
 
not
accounted
 
for
 
using
 
the
 
proportional
amortization
 
method
 
and
 
instead
 
requires
the use of other guidance.
January 1, 2024
The Corporation
 
is currently
 
evaluating
the
 
impact
 
that
 
the
 
adoption
 
of
 
this
guidance
 
will
 
have
 
on
 
its
 
financial
statements
 
and
 
presentation
 
and
disclosures.
FASB ASU 2023-01,
Leases (Topic 842),
Lessors – Common
Control Arrangements
The
 
FASB
 
issued
 
ASU
 
2023-01
 
in
 
March
2023,
 
which
 
amends
 
ASC
 
Topic
 
842
 
and
requires
 
to
 
amortize
 
leasehold
improvements
 
associated
 
with
 
common
control
 
leases
 
over
 
the
 
useful
 
life
 
of
 
the
leasehold
 
improvements
 
to
 
the
 
common
control group as long
 
as the lessee controls
the
 
use
 
of
 
the
 
underlying assets
 
through a
lease.
 
In
 
addition,
 
the
 
ASU
 
requires
companies
 
to
 
account
 
for
 
leasehold
improvements
 
associated
 
with
 
common
control leases as a transfer between entities
under
 
common
 
control
 
through
 
an
adjustments
 
to
 
equity
 
if,
 
and
 
when,
 
the
lessee
 
no
 
longer
 
controls
 
the
 
use
 
of
 
the
underlying asset.
January 1, 2024
The Corporation
 
is currently
 
evaluating
the
 
impact
 
that
 
the
 
adoption
 
of
 
this
guidance
 
will
 
have
 
on
 
its
 
financial
statements
 
and
 
presentation
 
and
disclosures.
For other recently issued Accounting Standards
 
Updates not yet effective, refer to Note 3
 
to the Consolidated Financial Statements
included in the 2022 Form 10-K.
19
Note 4 – Summary of significant accounting
 
policies
The
 
accounting
 
and
 
financial
 
reporting
 
policies
 
of
 
Popular,
 
Inc.
 
and
 
its
 
subsidiaries
 
(the
 
“Corporation”) conform
 
with
 
accounting
principles generally accepted
 
in the
 
United States of
 
America and with
 
prevailing practices within
 
the financial services
 
industry.
 
A
description of the significant accounting and
 
financial reporting policies can be found on Note 2
 
to the 2022 Form 10-K.
 
In connection with the implementation of the Accounting Standards Update (“ASU”) 2022-02, the Corporation has modified its policy
related to
 
loan modifications.
 
As discussed
 
in Note
 
3, the
 
new accounting
 
guidance eliminates
 
the recognition
 
and measurement
principle of
 
TDRs.
 
The Corporation
 
has
 
also made
 
changes to
 
certain of
 
its
 
accounting policies
 
related to
 
its
 
loans portfolio
 
and
allowance for credit losses in connection with
 
this accounting standards update.
 
A
 
modification is
 
subject to
 
disclosure under
 
the new
 
ASU when
 
the Corporation
 
separately concludes
 
that both
 
of the
 
following
conditions exist:
 
1) the
 
debtor is experiencing
 
financial difficulties 2)
 
the modification constitutes
 
a reduction
 
in the
 
interest rate
 
on
the loan, a payment extension, a forgiveness of principal, or a more-than-insignificant payment delay. Determination that a borrower
is experiencing
 
financial difficulties
 
involves a
 
degree of
 
judgment. The identification
 
of loan
 
modifications to
 
debtors with
 
financial
difficulties is critical in the determination of the adequacy
 
of the ACL.
 
The
 
ASU
 
also
 
eliminates
 
the
 
requirement to
 
use
 
a
 
DCF
 
approach
 
to
 
estimated
 
credit
 
losses
 
for
 
modified
 
loans
 
with
 
borrowers
experiencing financial difficulties. The
 
entity can apply
 
a methodology similar to
 
the one used for
 
loans that were not
 
modified. The
Corporation applied a modified retrospective transition method for the implementation of ASU 2022-02 which
 
resulted in a reduction
of approximately $
46
 
million, $
29
 
million net of tax, in the reserve which was recorded as an
 
adjustment to the beginning balance of
retained earnings.
A
loan modified
 
with financial
 
difficulties is
 
typically in
 
non-accrual status
 
at the
 
time of
 
the modification.
 
These loans
 
continue in
non-accrual status until the borrower has demonstrated a willingness
 
and ability to make the restructured loan payments (at least
 
six
months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and
management has concluded that it is probable
 
that the borrower would not be in payment
 
default in the foreseeable
 
future.
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
qualitative
 
information
 
on
 
loan
 
modifications
 
and
 
the
Corporation’s determination of the ACL.
Refer below for changes in accounting policies due
 
to the adoption of the new ASU and other
 
policy adoptions:
Loans
 
Effective on January 1, 2023,
 
newly originated mortgage loans held-for-sale are stated at fair
 
value, with changes recorded through
earnings.
 
Previously held-for-sale
 
were carried
 
at
 
the lower
 
of
 
its cost
 
or market
 
value. Fair
 
value is
 
generally determined
 
in the
aggregate and
 
is measured
 
based on
 
current market
 
prices for
 
similar loans,
 
outstanding investor
 
commitments, prices
 
of recent
sales
 
or
 
discounted
 
cash
 
flow
 
analyses
 
which
 
utilize
 
inputs
 
and
 
assumptions
 
which
 
are
 
believed
 
to
 
be
 
consistent
 
with
 
market
participants’ views.
 
Derivative instruments
Effective on
 
January 1,
 
2023, the
 
Corporation discontinued
 
the hedge
 
accounting treatment
 
of certain
 
forward contracts
 
for which
the
 
changes
 
in
 
fair
 
value
 
were
 
recorded,
 
net
 
of
 
taxes,
 
in
 
accumulated
 
other
 
comprehensive
 
income/(loss)
 
and
 
subsequently
reclassified to net
 
income (loss) in
 
the same
 
period that the
 
hedged transaction impacted
 
earnings. As a
 
result of this
 
change, the
changes in the fair
 
value of these forward contracts
 
are being recorded through net
 
income (loss). The Corporation utilizes
 
forward
contracts to hedge the
 
sale of mortgage-backed securities with
 
duration terms over one month.
 
Interest rate forwards are contracts
for the delayed delivery of securities, which the seller agrees to deliver on a specified future
 
date at a specified price or yield. These
forward contracts are hedging a forecasted transaction
 
and thus qualify for cash flow hedge accounting.
 
 
Based
 
on
 
the
 
election
 
to
 
apply
 
fair
 
value
 
accounting
 
for
 
its
 
mortgage
 
loans
 
held
 
for
 
sale,
 
effective
 
on
 
January
 
1,
 
2023,
 
the
Corporation discontinued
 
the
 
hedge accounting
 
since
 
the
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
loans
 
is
 
expected
 
to
 
be
 
offset
 
by
 
the
changes in the fair value of the forward
 
contract, both of which are now recorded through
 
net income (loss).
20
Note 5 - Restrictions on cash and due from
 
banks and certain securities
BPPR is
 
required by
 
regulatory agencies
 
to maintain
 
average reserve
 
balances with
 
the Federal
 
Reserve Bank
 
of New
 
York
 
(the
“Fed”) or other banks.
 
Those required average reserve balances amounted
 
to $
2.8
 
billion at March 31, 2023
 
(December 31, 2022 -
$
2.8
 
billion). Cash
 
and due
 
from banks,
 
as well
 
as other
 
highly liquid
 
securities, are
 
used to
 
cover the
 
required average
 
reserve
balances.
 
At March 31,
 
2023, the Corporation
 
held $
72
 
million in restricted
 
assets in the
 
form of funds
 
deposited in money
 
market accounts,
debt
 
securities
 
available
 
for
 
sale
 
and
 
equity
 
securities
 
(December
 
31,
 
2022
 
-
 
$
80
 
million).
 
The
 
restricted
 
assets
 
held
 
in
 
debt
securities available for sale and equity securities consist primarily of assets
 
held for the Corporation’s non-qualified retirement plans
and fund deposits guaranteeing possible liens or encumbrances
 
over the title of insured properties.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
Note 6 – Debt securities available-for-sale
The following tables present
 
the amortized cost, gross
 
unrealized gains and losses,
 
approximate fair value, weighted average
 
yield
and contractual maturities of debt securities available-for-sale
 
at March 31, 2023 and December 31, 2022.
 
At March 31, 2023
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
 
average
(In thousands)
cost
gains
 
losses
value
yield
U.S. Treasury securities
Within 1 year
$
4,724,780
$
622
$
50,140
$
4,675,262
2.69
%
After 1 to 5 years
5,991,694
43
308,049
5,683,688
1.33
After 5 to 10 years
308,525
-
32,728
275,797
1.63
Total U.S. Treasury
 
securities
11,024,999
665
390,917
10,634,747
1.92
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
13,109
-
733
12,376
1.58
After 5 to 10 years
34,671
-
2,230
32,441
1.80
After 10 years
123,200
34
9,279
113,955
2.56
Total collateralized
 
mortgage obligations - federal agencies
170,980
34
12,242
158,772
2.33
Mortgage-backed securities
Within 1 year
460
-
3
457
3.37
After 1 to 5 years
71,211
14
2,721
68,504
2.36
After 5 to 10 years
837,061
47
52,682
784,426
2.19
After 10 years
6,610,019
1,220
1,086,066
5,525,173
1.63
Total mortgage-backed
 
securities
 
7,518,751
1,281
1,141,472
6,378,560
1.70
Other
After 1 to 5 years
1,049
-
-
1,049
3.98
Total other
 
1,049
-
-
1,049
3.98
Total debt securities
 
available-for-sale
[1]
$
18,715,779
$
1,980
$
1,544,631
$
17,173,128
1.84
%
[1]
 
Includes $
10.3
 
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 $
9.4
 
billion serve as collateral for public
funds.
 
The Corporation had unpledged Available for Sale
 
securities with a fair value of
 
$
6.7
 
billion that could be used to increase its borrowing
facilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
At December 31, 2022
Gross
 
Gross
 
Weighted
 
Amortized
 
unrealized
unrealized
Fair
 
average
 
(In thousands)
cost
gains
 
losses
value
yield
U.S. Treasury securities
 
Within 1 year
$
4,576,127
$
506
$
47,156
$
4,529,477
2.42
%
After 1 to 5 years
6,793,739
-
410,858
6,382,881
1.35
After 5 to 10 years
308,854
-
40,264
268,590
1.63
Total U.S. Treasury
 
securities
11,678,720
506
498,278
11,180,948
1.78
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
3,914
-
213
3,701
1.77
After 5 to 10 years
47,979
-
3,428
44,551
1.73
After 10 years
127,639
24
10,719
116,944
2.53
Total collateralized
 
mortgage obligations - federal agencies
179,532
24
14,360
165,196
2.30
Mortgage-backed securities
After 1 to 5 years
74,328
11
3,428
70,911
2.33
After 5 to 10 years
866,757
43
58,997
807,803
2.16
After 10 years
6,762,150
932
1,184,626
5,578,456
1.61
Total mortgage-backed
 
securities
 
7,703,235
986
1,247,051
6,457,170
1.68
Other
After 1 to 5 years
1,062
-
2
1,060
3.98
Total other
 
1,062
-
2
1,060
3.98
Total debt securities
 
available-for-sale
[1]
$
19,562,549
$
1,516
$
1,759,691
$
17,804,374
1.75
%
[1]
Includes $
11.3
 
billion pledged to secure government and trust deposits,
 
assets sold under agreements to repurchase, credit facilities
 
and loan
servicing agreements that the secured parties are not permitted
 
to sell or repledge the collateral, of which $
10.3
 
billion serve as collateral for
public funds. The Corporation had unpledged Available
 
for Sale securities with a fair value of
 
$
6.4
 
billion that could be used to increase its
borrowing facilities.
The weighted
 
average yield
 
on debt
 
securities available-for-sale
 
is based
 
on amortized
 
cost; therefore,
 
it
 
does not
 
give
 
effect to
changes in fair value.
Debt
 
securities
 
not
 
due
 
on
 
a
 
single
 
contractual
 
maturity
 
date,
 
such
 
as
 
mortgage-backed
 
securities
 
and
 
collateralized
 
mortgage
obligations, are classified
 
in the period
 
of final contractual
 
maturity. The
 
expected maturities of
 
collateralized mortgage obligations,
mortgage-backed securities and certain other securities may
 
differ from their contractual maturities
 
because they may be subject to
prepayments or may be called by the issuer.
There were
no
 
debt securities sold during the quarters ended March
 
31, 2023 and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The
 
following
 
tables
 
present
 
the
 
Corporation’s
 
fair
 
value
 
and
 
gross
 
unrealized
 
losses
 
of
 
debt
 
securities
 
available-for-sale,
aggregated by investment category and length of
 
time that individual securities have been in a continuous
 
unrealized loss position at
March 31, 2023 and December 31, 2022.
At March 31, 2023
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
 
 
unrealized
Fair
 
 
unrealized
Fair
 
 
unrealized
(In thousands)
value
 
losses
value
 
losses
value
 
losses
U.S. Treasury securities
$
2,162,329
$
42,295
$
6,598,099
$
348,622
$
8,760,428
$
390,917
Collateralized mortgage obligations - federal agencies
 
42,946
1,526
113,220
10,716
156,166
12,242
Mortgage-backed securities
440,122
22,396
5,881,221
1,119,076
6,321,343
1,141,472
Total debt securities
 
available-for-sale in an unrealized loss position
 
$
2,645,397
$
66,217
$
12,592,540
$
1,478,414
$
15,237,937
$
1,544,631
At December 31, 2022
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
 
 
unrealized
Fair
 
 
unrealized
Fair
 
 
unrealized
(In thousands)
value
 
losses
value
 
losses
value
 
losses
U.S. Treasury securities
$
6,027,786
$
288,582
$
3,244,572
$
209,696
$
9,272,358
$
498,278
Collateralized mortgage obligations - federal agencies
 
139,845
10,655
22,661
3,705
162,506
14,360
Mortgage-backed securities
1,740,214
138,071
4,662,195
1,108,980
6,402,409
1,247,051
Other
60
2
-
-
60
2
Total debt securities
 
available-for-sale in an unrealized loss position
 
$
7,907,905
$
437,310
$
7,929,428
$
1,322,381
$
15,837,333
$
1,759,691
As of March 31, 2023, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $
1.5
 
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 in the 2022
 
Form 10-K, these securities carry an explicit or
implicit guarantee from the U.S. Government, are highly rated
 
by major rating agencies, and have a long history
 
of no credit losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
 
these securities has been established.
 
In October 2022, the
 
Corporation transferred U.S. Treasury securities
 
with a fair value
 
of $
6.5
 
billion (par value of
 
$
7.4
 
billion) from
its available-for-sale portfolio to its held-to-maturity portfolio.
 
Management changed its intent, given its ability to hold these securities
to maturity
 
due to
 
the Corporation’s
 
liquidity position
 
and its
 
intention to
 
reduce the
 
impact on
 
accumulated other
 
comprehensive
income (loss) (“AOCI”) and
 
tangible capital of further
 
increases in interest rates.
 
The securities were reclassified
 
at fair value at
 
the
time of
 
the transfer.
 
At the
 
date of
 
the transfer,
 
these securities
 
had pre-tax
 
unrealized losses of
 
$
873.0
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
Note 7 –Debt securities held-to-maturity
The following
 
tables present
 
the amortized
 
cost, allowance
 
for credit
 
losses, gross
 
unrealized gains
 
and losses,
 
approximate fair
value, weighted
 
average yield
 
and contractual
 
maturities of
 
debt securities
 
held-to-maturity at
 
March 31,
 
2023 and
 
December 31,
2022.
At March 31, 2023
Allowance
Carrying
Value
 
Gross
 
Gross
 
Weighted
Amortized
 
Book
[1]
for Credit
Net of
 
unrealized
unrealized
Fair
 
average
(In thousands)
cost
Value
Losses
Allowance
gains
 
losses
value
yield
U.S. Treasury securities
 
Within 1 year
$
649,391
$
649,391
$
-
$
649,391
$
-
$
6,923
$
642,468
2.75
%
After 1 to 5 years
6,591,199
6,043,507
-
6,043,507
49,211
28,571
6,064,147
1.45
After 5 to 10 years
2,043,395
1,801,754
-
1,801,754
25,736
-
1,827,490
1.44
Total U.S. Treasury
 
securities
9,283,985
8,494,652
-
8,494,652
74,947
35,494
8,534,105
1.54
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,730
4,730
21
4,709
18
3
4,724
6.15
After 1 to 5 years
15,805
15,805
212
15,593
119
115
15,597
3.83
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
40,865
40,865
6,525
34,340
4,423
2,270
36,493
1.40
Total obligations of
 
Puerto Rico, States and
political subdivisions
62,425
62,425
6,792
55,633
4,594
2,388
57,839
2.45
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
16
16
-
16
1
-
17
6.44
Total collateralized
 
mortgage obligations -
federal agencies
16
16
-
16
1
-
17
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]
$
9,352,385
$
8,563,052
$
6,792
$
8,556,260
$
79,542
$
37,882
$
8,597,920
1.55
%
[1]
Book value includes $
789
 
million of net unrealized loss which remains in Accumulated
 
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
 
portfolio to the held-to-maturity securities portfolio as
 
discussed in Note 6.
[2]
Includes $
7.1
 
billion pledged to secure public and trust deposits that
 
the secured parties are not permitted to sell or repledge
 
the collateral.
 
The
Corporation had unpledged held-to-maturities securities with
 
a fair value of
 
$
1.3
 
billion that could be used to increase
 
its borrowing facilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25
At December 31, 2022
Allowance
 
Carrying
Value
 
Gross
 
Gross
 
Weighted
 
Amortized
 
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
 
average
 
(In thousands)
cost
Value
Losses
Allowance
gains
 
losses
value
yield
U.S. Treasury securities
 
Within 1 year
$
499,034
$
499,034
$
-
$
499,034
$
-
$
6,203
$
492,831
2.83
%
After 1 to 5 years
6,147,568
5,640,767
-
5,640,767
-
59,806
5,580,961
1.49
After 5 to 10 years
2,638,238
2,313,666
-
2,313,666
-
14,857
2,298,809
1.41
Total U.S. Treasury
 
securities
9,284,840
8,453,467
-
8,453,467
-
80,866
8,372,601
1.54
Obligations of Puerto Rico, States and
political subdivisions
`
Within 1 year
4,530
4,530
8
4,522
5
-
4,527
6.08
%
After 1 to 5 years
19,105
19,105
234
18,871
150
82
18,939
4.24
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
41,261
41,261
6,635
34,626
4,729
2,229
37,126
1.40
Total obligations of
 
Puerto Rico, States and
political subdivisions
65,921
65,921
6,911
59,010
4,918
2,311
61,617
2.61
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
19
19
-
19
-
-
19
6.44
Total collateralized
 
mortgage obligations -
federal agencies
19
19
-
19
-
-
19
6.44
Securities in wholly owned statutory business
trusts
After 10 years
5,959
5,959
-
5,959
-
-
5,959
6.33
Total securities
 
in wholly owned statutory
business trusts
5,959
5,959
-
5,959
-
-
5,959
6.33
Total debt securities
 
held-to-maturity [2]
$
9,356,739
$
8,525,366
$
6,911
$
8,518,455
$
4,918
$
83,177
$
8,440,196
1.55
%
[1]
Book value includes $
831
 
million of net unrealized loss which remains in Accumulated
 
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
 
portfolio to the held-to-maturity securities portfolio as
 
discussed in Note 6.
[2]
Includes $
6.9
 
billion pledged to secure public and trust deposits that
 
the secured parties are not permitted to sell or repledge
 
the collateral. The
Corporation had unpledged held-to-maturities securities with
 
a fair value of
 
$
1.5
 
billion that could be used to increase its borrowing
 
facilities.
Debt securities not due on a single contractual maturity date,
 
such as collateralized mortgage obligations, are classified in the period
of final
 
contractual maturity.
 
The expected
 
maturities of
 
collateralized mortgage
 
obligations and
 
certain other
 
securities may
 
differ
from their contractual maturities because they may be
 
subject to prepayments or may be called
 
by the issuer.
Credit Quality Indicators
The following describes the credit quality
 
indicators by major security type that
 
the Corporation considers in its’ estimate
 
to develop
the allowance for credit losses for investment securities
 
held-to-maturity.
As discussed in
 
Note 2 to
 
the Consolidated Financial Statements
 
in the 2022
 
Form 10-K, U.S.
 
Treasury securities carry
 
an explicit
guarantee
 
from
 
the
 
U.S.
 
Government
 
are
 
highly
 
rated
 
by
 
major
 
rating
 
agencies,
 
and
 
have
 
a
 
long
 
history
 
of
 
no
 
credit
 
losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
 
these securities has been established.
At March 31, 2023
 
and December 31, 2022, the
 
“Obligations of Puerto Rico, States and
 
political subdivisions” classified as held-to-
maturity,
 
includes
 
securities
 
issued by
 
municipalities
 
of
 
Puerto
 
Rico
 
that
 
are
 
generally
 
not
 
rated
 
by
 
a
 
credit
 
rating
 
agency.
 
This
includes $
22
 
million of general and special obligation bonds issued by three municipalities of Puerto Rico, that
 
are payable primarily
from
 
certain
 
property
 
taxes
 
imposed
 
by
 
the
 
issuing
 
municipality
 
(December
 
31,
 
2022
 
-
 
$
25
 
million).
 
In
 
the
 
case
 
of
 
general
obligations, they
 
also benefit
 
from a
 
pledge of
 
the full
 
faith, credit
 
and unlimited
 
taxing power
 
of the
 
issuing municipality,
 
which is
required by law to levy property taxes in an amount sufficient for the payment of
 
debt service on such general obligation bonds. The
Corporation performs periodic credit quality
 
reviews of these securities and
 
internally assigns standardized credit risk ratings
 
based
on its evaluation.
 
The Corporation considers these ratings
 
in its estimate to
 
develop the allowance for credit
 
losses associated with
these
 
securities.
 
For
 
the
 
definitions
 
of
 
the
 
obligor
 
risk
 
ratings,
 
refer
 
to
 
the
 
Credit
 
Quality
 
section
 
of
 
Note
 
9
 
to
 
the
 
Consolidated
Financial Statements.
The
 
following
 
presents
 
the
 
amortized
 
cost
 
basis
 
of
 
securities
 
held
 
by
 
the
 
Corporation
 
issued
 
by
 
municipalities
 
of
 
Puerto
 
Rico
aggregated by the internally assigned standardized
 
credit risk rating:
 
 
 
 
 
 
 
 
 
 
26
At March 31, 2023
At December 31, 2022
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
2,905
$
13,735
Pass
18,655
10,925
Total
$
21,560
$
24,660
At
 
March
 
31,
 
2023,
 
the
 
portfolio
 
of
 
“Obligations
 
of
 
Puerto
 
Rico,
 
States
 
and
 
political
 
subdivisions”
 
also
 
includes
 
$
41
 
million
 
in
securities
 
issued
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“HFA”),
 
a
 
government
 
instrumentality,
 
for
 
which
 
the
 
underlying
source of payment is second mortgage loans in Puerto Rico
 
residential properties (not the government), but for which HFA, provides
a guarantee
 
in the
 
event of default
 
and upon the
 
satisfaction of certain
 
other conditions (December
 
31, 2022 -
 
$
42
 
million). These
securities
 
are
 
not
 
rated
 
by
 
a
 
credit
 
rating
 
agency.
 
The
 
Corporation assesses
 
the
 
credit
 
risk
 
associated
 
with
 
these
 
securities
 
by
evaluating
 
the
 
refreshed
 
FICO
 
scores
 
of
 
a
 
representative sample
 
of
 
the
 
underlying borrowers.
 
At
 
March
 
31,
 
2023,
 
the
 
average
refreshed FICO
 
score
 
for the
 
representative sample,
 
comprised of
66
%
 
of
 
the
 
nominal value
 
of the
 
securities, used
 
for the
 
loss
estimate was
 
of
707
 
(compared to
65
%
 
and
707
,
 
respectively,
 
at December
 
31, 2022).
 
The
 
loss estimates
 
for this
 
portfolio was
based on the methodology established under CECL
 
for similar loan obligations. The Corporation does not
 
consider the government
guarantee when estimating the credit losses associated
 
with this portfolio.
A
 
further
 
deterioration
 
of
 
the
 
Puerto
 
Rico
 
economy
 
or
 
of
 
the
 
fiscal
 
health
 
of
 
the
 
Government
 
of
 
Puerto
 
Rico
 
and/or
 
its
instrumentalities (including if any of
 
the issuing municipalities become subject to
 
a debt restructuring proceeding under PROMESA)
could further affect the value of these securities, resulting in losses
 
to the Corporation.
 
Refer to
 
Note 21
to the
 
Consolidated Financial
 
Statements
for additional
 
information on
 
the Corporation’s
 
exposure to
 
the Puerto
Rico Government.
Delinquency status
At March 31, 2023 and December 31, 2022, there were
no
 
securities held-to-maturity in past due or non-performing
 
status.
Allowance for credit losses on debt securities held-to-maturity
The following table provides the
 
activity in the allowance for
 
credit losses related to debt securities
 
held-to-maturity by security type
at March 31, 2023 and March 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
27
For the quarters ended March 31,
 
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,911
$
8,096
Provision for credit losses (benefit)
(119)
(252)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,792
$
7,844
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 $
6.5
 
million for bonds issued by
 
the Puerto Rico HFA,
 
which are secured by
second mortgage loans on
 
Puerto Rico residential properties (compared to
 
$
0.3
 
million and $
6.6
 
million, respectively, at
 
December
31, 2022).
28
Note 8 – Loans
For
 
a
 
summary
 
of the
 
accounting policies
 
related to
 
loans, interest
 
recognition
 
and
 
allowance for
 
credit
 
losses
 
refer to
 
Note
 
2
 
-
Summary of Significant Accounting Policies of the 2022
 
Form 10-K.
During the
 
quarter ended
 
March 31,
 
2023, the
 
Corporation recorded purchases
 
(including repurchases)
 
of mortgage
 
loans of
 
$
76
million,
 
consumer
 
loans
 
of
 
$
27
 
million
 
and
 
commercial
 
loans
 
of
 
$
45
 
million;
 
compared
 
to
 
purchases
 
(including
 
repurchases)
 
of
mortgage loans of
 
$
82
 
million, which include
 
$
3
 
million in PCD
 
loans, and consumer
 
loans of $
91
 
million during the
 
quarter ended
March 31, 2022.
 
The
 
Corporation performed
 
whole-loan
 
sales
 
involving
 
approximately $
10
 
million
 
of
 
residential mortgage
 
loans
 
and
 
$
2
 
million
 
of
commercial and construction loans
 
during the quarter ended
 
March 31, 2023 (March
 
31, 2022 -
 
$
19
 
million of residential mortgage
loans
 
and
 
$
1
 
million
 
of
 
commercial
 
loans).
 
Also,
 
during
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
 
Corporation
 
securitized
approximately $
1
 
million of mortgage
 
loans into Government
 
National Mortgage Association (“GNMA”)
 
mortgage-backed securities
and $
10
 
million of mortgage
 
loans into Federal
 
National Mortgage Association
 
(“FNMA”) mortgage-backed securities, compared
 
to
$
78
 
million and $
58
 
million, respectively, during the quarter ended March 31, 2022.
 
Delinquency status
The following tables present the
 
amortized cost basis of loans
 
held-in-portfolio (“HIP”), net of unearned
 
income, by past due status,
and by loan class including those that are in non-performing status or that are accruing
 
interest but are past due 90 days or more at
March 31, 2023 and December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
March 31, 2023
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
 
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
650
$
-
$
185
$
835
$
291,971
$
292,806
$
185
$
-
Commercial real estate:
Non-owner occupied
2,739
1,584
22,856
27,179
2,858,304
2,885,483
22,856
-
Owner occupied
21,496
-
37,779
59,275
1,438,228
1,497,503
37,779
-
Commercial and industrial
17,934
793
31,847
50,574
3,883,859
3,934,433
30,132
1,715
Construction
8,081
-
-
8,081
147,268
155,349
-
-
Mortgage
183,187
81,729
515,752
780,668
5,336,016
6,116,684
224,075
291,677
Leasing
12,301
2,605
6,103
21,009
1,593,335
1,614,344
6,103
-
Consumer:
Credit cards
7,162
5,823
12,061
25,046
1,021,129
1,046,175
-
12,061
Home equity lines of credit
-
-
-
-
2,865
2,865
-
-
Personal
14,131
8,990
17,427
40,548
1,572,370
1,612,918
17,412
15
Auto
60,324
12,684
39,516
112,524
3,405,416
3,517,940
39,516
-
Other
1,264
49
1,091
2,404
127,608
130,012
921
170
Total
$
329,269
$
114,257
$
684,617
$
1,128,143
$
21,678,369
$
22,806,512
$
378,979
$
305,638
March 31, 2023
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
 
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
-
$
-
$
421
$
421
$
2,043,130
$
2,043,551
$
421
$
-
Commercial real estate:
Non-owner occupied
16,033
-
207
16,240
1,748,952
1,765,192
207
-
Owner occupied
18,042
-
5,095
23,137
1,497,947
1,521,084
5,095
-
Commercial and industrial
13,779
3
5,570
19,352
2,045,857
2,065,209
5,325
245
Construction
7,165
-
-
7,165
536,482
543,647
-
-
Mortgage
22,041
1,499
14,719
38,259
1,250,964
1,289,223
14,719
-
Consumer:
Credit cards
-
-
-
-
21
21
-
-
Home equity lines of
credit
496
70
4,618
5,184
61,838
67,022
4,618
-
Personal
1,900
1,259
2,505
5,664
222,487
228,151
2,505
-
Other
2
-
514
516
8,245
8,761
514
-
Total
$
79,458
$
2,831
$
33,649
$
115,938
$
9,415,923
$
9,531,861
$
33,404
$
245
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30
March 31, 2023
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2] [3]
loans
loans
Commercial multi-family
$
650
$
-
$
606
$
1,256
$
2,335,101
$
2,336,357
$
606
$
-
Commercial real estate:
Non-owner occupied
18,772
1,584
23,063
43,419
4,607,256
4,650,675
23,063
-
Owner occupied
39,538
-
42,874
82,412
2,936,175
3,018,587
42,874
-
Commercial and industrial
31,713
796
37,417
69,926
5,929,716
5,999,642
35,457
1,960
Construction
15,246
-
-
15,246
683,750
698,996
-
-
Mortgage
[1]
205,228
83,228
530,471
818,927
6,586,980
7,405,907
238,794
291,677
Leasing
12,301
2,605
6,103
21,009
1,593,335
1,614,344
6,103
-
Consumer:
Credit cards
7,162
5,823
12,061
25,046
1,021,150
1,046,196
-
12,061
Home equity lines of credit
496
70
4,618
5,184
64,703
69,887
4,618
-
Personal
16,031
10,249
19,932
46,212
1,794,857
1,841,069
19,917
15
Auto
60,324
12,684
39,516
112,524
3,405,416
3,517,940
39,516
-
Other
1,266
49
1,605
2,920
135,853
138,773
1,435
170
Total
$
408,727
$
117,088
$
718,266
$
1,244,081
$
31,094,292
$
32,338,373
$
412,383
$
305,883
[1]
It is the Corporation’s policy to report delinquent residential
 
mortgage loans insured by Federal Housing Administration
 
(“FHA”) or guaranteed by
the U.S. Department of Veterans Affairs
 
(“VA”) as accruing loans past
 
due 90 days or more as opposed to non-performing
 
since the principal
repayment is insured.
 
These balances include $
167
 
million of residential mortgage loans insured by
 
FHA or guaranteed by the VA that
 
are no
longer accruing interest as of March 31, 2023. Furthermore, the
 
Corporation has approximately $
40
 
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 $
307
 
million in unearned income and exclude $
11
 
million in loans held-for-sale.
[3]
Includes $
7.7
 
billion pledged to secure credit facilities and public funds
 
that the secured parties are not permitted to sell or
 
repledge the collateral,
of which $
5.1
 
billion were pledged at the Federal Home Loan Bank
 
("FHLB") as collateral for borrowings and $
2.6
 
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings. The Corporation
 
had an available borrowing facility with the FHLB and
 
the discount window of
Federal Reserve Bank of New York
 
of $
2.8
 
billion and $
1.5
 
billion, respectively, as of
 
March 31, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
December 31, 2022
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
425
$
-
$
242
$
667
$
280,706
$
281,373
$
242
$
-
Commercial real estate:
Non-owner occupied
941
428
23,662
25,031
2,732,296
2,757,327
23,662
-
Owner occupied
729
245
23,990
24,964
1,563,092
1,588,056
23,990
-
Commercial and industrial
3,036
941
35,777
39,754
3,756,754
3,796,508
34,277
1,500
Construction
-
-
-
-
147,041
147,041
-
-
Mortgage
222,926
91,881
579,993
894,800
5,215,479
6,110,279
242,391
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,766
1,041,831
-
11,910
Home equity lines of credit
-
-
-
-
2,954
2,954
-
-
Personal
13,232
8,752
18,082
40,066
1,545,621
1,585,687
18,082
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,682
13,256
124,324
137,580
12,446
236
Total
$
329,733
$
130,189
$
753,257
$
1,213,179
$
21,333,726
$
22,546,905
$
402,009
$
351,248
December 31, 2022
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
2,177
$
-
$
-
$
2,177
$
2,038,163
$
2,040,340
$
-
$
-
Commercial real estate:
Non-owner occupied
484
-
1,454
1,938
1,740,405
1,742,343
1,454
-
Owner occupied
-
-
5,095
5,095
1,485,398
1,490,493
5,095
-
Commercial and industrial
12,960
2,205
4,685
19,850
2,022,842
2,042,692
4,319
366
Construction
-
-
-
-
610,943
610,943
-
-
Mortgage
16,131
5,834
20,488
42,453
1,244,739
1,287,192
20,488
-
Consumer:
Credit cards
-
-
-
-
39
39
-
-
Home equity lines of credit
413
161
4,110
4,684
64,278
68,962
4,110
-
Personal
 
1,808
1,467
1,958
5,233
232,659
237,892
1,958
-
Other
-
-
8
8
9,960
9,968
8
-
Total
$
33,973
$
9,667
$
37,798
$
81,438
$
9,449,426
$
9,530,864
$
37,432
$
366
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
December 31, 2022
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
 
Total
Non-accrual
Accruing
(In thousands)
 
days
 
days
or more
past due
Current
Loans HIP
[2]
[3]
loans
loans
Commercial multi-family
$
2,602
$
-
$
242
$
2,844
$
2,318,869
$
2,321,713
$
242
$
-
Commercial real estate:
Non-owner occupied
1,425
428
25,116
26,969
4,472,701
4,499,670
25,116
-
Owner occupied
729
245
29,085
30,059
3,048,490
3,078,549
29,085
-
Commercial and industrial
15,996
3,146
40,462
59,604
5,779,596
5,839,200
38,596
1,866
Construction
-
-
-
-
757,984
757,984
-
-
Mortgage
[1]
239,057
97,715
600,481
937,253
6,460,218
7,397,471
262,879
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,805
1,041,870
-
11,910
Home equity lines of credit
413
161
4,110
4,684
67,232
71,916
4,110
-
Personal
15,040
10,219
20,040
45,299
1,778,280
1,823,579
20,040
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,690
13,264
134,284
147,548
12,454
236
Total
$
363,706
$
139,856
$
791,055
$
1,294,617
$
30,783,152
$
32,077,769
$
439,441
$
351,614
[1]
It is the Corporation’s policy to report delinquent residential
 
mortgage loans insured by FHA or guaranteed
 
by the VA as accruing loans
 
past due
90 days or more as opposed to non-performing since
 
the principal repayment is insured.
 
These balances also include $
190
 
million of residential
mortgage loans insured by FHA or guaranteed by the VA
 
that are no longer accruing interest as of December
 
31, 2022. Furthermore, the
Corporation has approximately $
42
 
million in reverse mortgage loans which are guaranteed
 
by FHA, but which are currently not accruing interest.
Due to the guaranteed nature of the loans, it is the Corporation’s
 
policy to exclude these balances from non-performing assets.
[2]
Loans held-in-portfolio are net of $
295
 
million in unearned income and exclude $
5
 
million in loans held-for-sale.
[3]
Includes $
7.4
 
billion pledged to secure credit facilities and public funds
 
that the secured parties are not permitted to sell or
 
repledge the collateral,
of which $
4.8
 
billion were pledged at the Federal Home Loan Bank
 
(FHLB) as collateral for borrowings and $
2.6
 
billion at the Federal Reserve
Bank (FRB) for discount window borrowings. The Corporation
 
had an available borrowing facility with the FHLB and
 
the discount window of
Federal Reserve Bank of New York
 
of $
2.1
 
billion and $
1.4
 
billion, respectively, as of December
 
31, 2022.
Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments
of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the
FHA or
 
guaranteed by
 
VA
 
when 15
 
months delinquent
 
as to
 
principal or
 
interest, since
 
the principal
 
repayment on
 
these loans
 
is
insured.
At March
 
31, 2023, mortgage
 
loans held-in-portfolio include
 
$
2.0
 
billion (December 31,
 
2022 -
 
$
2
.0 billion)
 
of loans
 
insured by the
FHA, or guaranteed by the VA of which $
0.3
 
billion (December 31, 2022 - $
0.3
 
billion) are 90 days or more past due. The portfolio of
guaranteed loans includes $
167
 
million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of March
31, 2023
 
(December 31, 2022
 
- $
190
 
million). The Corporation
 
has approximately $
40
 
million in
 
reverse mortgage loans
 
in Puerto
Rico
 
which are
 
guaranteed by
 
FHA,
 
but which
 
are currently
 
not
 
accruing interest
 
at
 
March 31,
 
2023 (December
 
31, 2022
 
- $
42
million).
Loans with a delinquency status of
 
90 days past due as of
 
March 31, 2023 include $
7
 
million in loans previously pooled into GNMA
securities
 
(December
 
31,
 
2022
 
-
 
$
14
 
million).
 
Under
 
the
 
GNMA
 
program,
 
issuers
 
such
 
as
 
BPPR
 
have
 
the
 
option
 
but
 
not
 
the
obligation to repurchase loans
 
that are 90
 
days or more
 
past due. For
 
accounting purposes, these loans
 
subject to the
 
repurchase
option
 
are
 
required to
 
be
 
reflected on
 
the
 
financial statements
 
of BPPR
 
with
 
an
 
offsetting
 
liability.
 
Loans
 
in
 
our
 
serviced
 
GNMA
portfolio benefit
 
from payment
 
forbearance programs
 
but continue
 
to reflect
 
the contractual
 
delinquency until
 
the borrower
 
repays
deferred payments or completes a payment deferral
 
modification or other borrower assistance alternative.
 
The following tables present the amortized cost basis
 
of non-accrual loans as of March 31, 2023
 
and December 31, 2022 by class of
loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
March 31, 2023
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
185
$
-
$
421
$
-
$
606
Commercial real estate non-owner occupied
19,324
3,532
-
207
19,324
3,739
Commercial real estate owner occupied
24,513
13,266
5,095
-
29,608
13,266
Commercial and industrial
17,551
12,581
-
5,325
17,551
17,906
Mortgage
103,316
120,759
227
14,492
103,543
135,251
Leasing
194
5,909
-
-
194
5,909
Consumer:
 
HELOCs
-
-
-
4,618
-
4,618
 
Personal
 
5,122
12,290
-
2,505
5,122
14,795
 
Auto
 
1,117
38,399
-
-
1,117
38,399
 
Other
263
658
-
514
263
1,172
Total
$
171,400
$
207,579
$
5,322
$
28,082
$
176,722
$
235,661
December 31, 2022
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
242
$
-
$
-
$
-
$
242
Commercial real estate non-owner occupied
15,639
8,023
1,454
-
17,093
8,023
Commercial real estate owner occupied
9,070
14,920
5,095
-
14,165
14,920
Commercial and industrial
20,227
14,050
-
4,319
20,227
18,369
Mortgage
119,027
123,364
71
20,417
119,098
143,781
Leasing
458
5,483
-
-
458
5,483
Consumer:
 
HELOCs
-
-
-
4,110
-
4,110
 
Personal
 
4,623
13,459
-
1,958
4,623
15,417
 
Auto
 
1,177
39,801
-
-
1,177
39,801
 
Other
263
12,183
-
8
263
12,191
Total
$
170,484
$
231,525
$
6,620
$
30,812
$
177,104
$
262,337
Loans in non-accrual status with
 
no allowance at March 31,
 
2023 include $
176
 
million in collateral dependent loans
 
(December 31,
2022 - $
177
 
million). The Corporation recognized $
4
 
million in interest income on non-accrual loans during the quarter ended March
31, 2023 (March 31, 2022 - $
4
 
million).
The Corporation has
 
designated loans classified as
 
collateral dependent for
 
which the ACL
 
is measured based
 
on the fair
 
value of
the collateral less
 
cost to sell,
 
when foreclosure is
 
probable or when
 
the repayment is
 
expected to be
 
provided substantially by the
sale or
 
operation of
 
the collateral
 
and the
 
borrower is
 
experiencing financial
 
difficulty.
 
The fair
 
value of
 
the collateral
 
is based
 
on
appraisals, which may be
 
adjusted due to their
 
age, and the
 
type, location, and condition
 
of the property
 
or area or general
 
market
conditions to reflect the expected change in value between the effective date
 
of the appraisal and the measurement date. Appraisals
are updated every one to two years depending on
 
the type of loan and the total exposure of
 
the borrower.
The following tables present the amortized cost basis
 
of collateral-dependent loans, for which the ACL was measured
 
based on the
fair value of the collateral less cost to sell, by class
 
of loans and type of collateral as of March
 
31, 2023 and December 31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
March 31, 2023
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,316
$
-
$
-
$
-
$
-
$
1,316
Commercial real estate:
Non-owner occupied
180,090
-
-
-
-
180,090
Owner occupied
32,471
-
-
-
-
32,471
Commercial and industrial
1,070
-
22
8,397
18,995
28,484
Mortgage
106,168
-
-
-
-
106,168
Leasing
-
844
-
-
-
844
Consumer:
Personal
5,433
-
-
-
-
5,433
Auto
-
10,074
-
-
-
10,074
Other
-
-
-
-
263
263
Total BPPR
$
326,548
$
10,918
$
22
$
8,397
$
19,258
$
365,143
Popular U.S.
Commercial real estate:
Owner occupied
$
5,095
$
-
$
-
$
-
$
-
$
5,095
Commercial and industrial
-
-
74
-
2,000
2,074
Mortgage
775
-
-
-
-
775
Total Popular U.S.
$
5,870
$
-
$
74
$
-
$
2,000
$
7,944
Popular, Inc.
Commercial multi-family
$
1,316
$
-
$
-
$
-
$
-
$
1,316
Commercial real estate:
Non-owner occupied
180,090
-
-
-
-
180,090
Owner occupied
37,566
-
-
-
-
37,566
Commercial and industrial
1,070
-
96
8,397
20,995
30,558
Mortgage
106,943
-
-
-
-
106,943
Leasing
-
844
-
-
-
844
Consumer:
Personal
5,433
-
-
-
-
5,433
Auto
-
10,074
-
-
-
10,074
Other
-
-
-
-
263
263
Total Popular,
 
Inc.
$
332,418
$
10,918
$
96
$
8,397
$
21,258
$
373,087
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
December 31, 2022
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
202,980
-
-
-
-
202,980
Owner occupied
18,234
-
-
-
-
18,234
Commercial and industrial
1,345
-
32
9,853
20,985
32,215
Mortgage
128,069
-
-
-
-
128,069
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total BPPR
$
357,338
$
10,576
$
32
$
9,853
$
21,248
$
399,047
Popular U.S.
Commercial real estate:
Non-owner occupied
$
1,454
$
-
$
-
$
-
$
-
$
1,454
Owner occupied
5,095
-
-
-
-
5,095
Commercial and industrial
-
-
136
-
-
136
Mortgage
1,104
-
-
-
-
1,104
Total Popular U.S.
$
7,653
$
-
$
136
$
-
$
-
$
7,789
Popular, Inc.
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
204,434
-
-
-
-
204,434
Owner occupied
23,329
-
-
-
-
23,329
Commercial and industrial
1,345
-
168
9,853
20,985
32,351
Mortgage
129,173
-
-
-
-
129,173
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total Popular,
 
Inc.
$
364,991
$
10,576
$
168
$
9,853
$
21,248
$
406,836
 
 
 
 
 
 
 
 
 
36
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
 
the quarter for which there was, at acquisition, evidence
 
of more than insignificant
deterioration of credit quality since origination. The
 
carrying amount of those loans is as follows:
(In thousands)
March 31, 2023
March 31, 2022
Purchase price of loans at acquisition
$
255
$
2,002
Allowance for credit losses at acquisition
68
612
Non-credit discount / (premium) at acquisition
9
99
Par value of acquired loans at acquisition
$
332
$
2,713
37
Note 9 – Allowance for credit losses – loans
 
held-in-portfolio
The
Corporation follows
 
the current
 
expected credit
 
loss (“CECL”)
 
model, to
 
establish and
 
evaluate the
 
adequacy of
 
the ACL
 
to
provide for
 
expected losses
 
in the
 
loan portfolio.
 
This model
 
establishes a forward-looking
 
methodology that
 
reflects the
 
expected
credit losses over the lives of financial assets, starting when such
 
assets are first acquired or originated. In addition, CECL provides
that the initial ACL on purchased credit deteriorated (“PCD”) financial
 
assets be recorded as an increase to the
 
purchase price, with
subsequent
 
changes
 
to
 
the
 
allowance
 
recorded
 
as
 
a
 
credit
 
loss
 
expense.
 
The
 
provision
 
for
 
credit
 
losses
 
recorded
 
in
 
current
operations
 
is
 
based
 
on
 
this
 
methodology.
 
Loan
 
losses
 
are
 
charged
 
and
 
recoveries
 
are
 
credited
 
to
 
the
 
ACL.
 
The
 
Corporation’s
modeling framework includes competing
 
risk models that
 
generate lifetime default and
 
prepayment estimates as well
 
as other loan
level techniques to estimate loss severity.
 
These models combine credit risk factors, which include the
 
impact of loan modifications,
with macroeconomic expectations to derive the
 
lifetime expected loss.
At March
 
31, 2023, the
 
Corporation estimated the
 
ACL by
 
weighting the outputs
 
of optimistic, baseline,
 
and pessimistic scenarios.
Among the
 
three scenarios used
 
to estimate
 
the ACL, the
 
baseline is
 
assigned the highest
 
probability,
 
followed by the
 
pessimistic
scenario given the
 
uncertainties in the
 
economic outlook and
 
downside risk. The
 
weightings applied are subject
 
to evaluation on
 
a
quarterly basis as
 
part of the
 
ACL’s governance
 
process. The Corporation evaluates,
 
at least on
 
an annual basis, the
 
assumptions
tied to the CECL accounting framework. These
 
include the reasonable and supportable period
 
as well as the reversion window.
The
 
2023
 
annualized
 
GDP
 
growth
 
in
 
the
 
baseline
 
scenario
 
stands
 
at
 
2.1%
 
and
 
1.3%
 
for
 
Puerto
 
Rico
 
and
 
the
 
United
 
States,
respectively,
 
increasing from
 
1.3% and
 
0.7% in
 
the previous
 
quarter. The
 
2023 forecasted
 
average unemployment
 
rate continues
strong, improving quarter-over-quarter to
 
6.9% and 3.5%
 
for Puerto Rico
 
and the United
 
States, respectively,
 
from 7.8% and
 
4.0%
respectively, in the previous forecast.
The following
 
tables present
 
the changes
 
in the
 
ACL of
 
loans held-in-portfolio
 
and unfunded
 
commitments for
 
the quarters
 
ended
March 31, 2023 and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
For the quarter ended March 31, 2023
BPPR
Impact of
Provision for
Allowance
for
Beginning
Adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
5,210
$
-
$
(454)
$
-
$
-
$
-
$
4,756
Commercial real estate non-owner occupied
52,475
-
1,284
-
-
135
53,894
Commercial real estate owner occupied
48,393
(1,161)
(2,730)
-
(3)
1,510
46,009
Commercial and industrial
68,217
(552)
9,819
-
(1,607)
1,165
77,042
Total Commercial
174,295
(1,713)
7,919
-
(1,610)
2,810
181,701
Construction
2,978
-
94
-
-
-
3,072
Mortgage
117,344
(33,556)
1,267
68
(846)
4,800
89,077
Leasing
20,618
(35)
734
-
(1,417)
1,090
20,990
Consumer
 
Credit Cards
58,670
-
15,570
-
(8,676)
2,389
67,953
 
HELOCs
103
-
(39)
-
(33)
69
100
 
Personal
96,369
(7,020)
11,104
-
(13,580)
1,535
88,408
 
Auto
129,735
(21)
8,319
-
(12,118)
4,914
130,829
 
Other
15,433
-
235
-
(11,007)
216
4,877
Total Consumer
300,310
(7,041)
35,189
-
(45,414)
9,123
292,167
Total - Loans
$
615,545
$
(42,345)
$
45,203
$
68
$
(49,287)
$
17,823
$
587,007
Allowance for credit losses - unfunded commitments:
Commercial
$
4,336
$
-
$
564
$
-
$
-
$
-
$
4,900
Construction
2,022
-
(76)
-
-
-
1,946
Ending balance - unfunded commitments [1]
$
6,358
$
-
$
488
$
-
$
-
$
-
$
6,846
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
For the quarter ended March 31, 2023
Popular U.S.
Impact of
Provision for
 
Beginning
Adopting
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefits)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
21,101
$
-
$
(493)
$
-
$
2
$
20,610
Commercial real estate non-owner occupied
19,065
-
(2,961)
-
1,852
17,956
Commercial real estate owner occupied
8,688
-
(224)
-
24
8,488
Commercial and industrial
12,227
-
2,528
(499)
968
15,224
Total Commercial
61,081
-
(1,150)
(499)
2,846
62,278
Construction
1,268
-
(10)
-
-
1,258
Mortgage
17,910
(2,098)
(426)
-
14
15,400
Consumer
 
Credit Cards
-
-
1
(1)
-
-
 
HELOCs
2,439
-
(712)
(143)
269
1,853
 
Personal
22,057
(1,140)
4,191
(4,170)
383
21,321
 
Other
2
-
49
(53)
5
3
Total Consumer
24,498
(1,140)
3,529
(4,367)
657
23,177
Total - Loans
$
104,757
$
(3,238)
$
1,943
$
(4,866)
$
3,517
$
102,113
Allowance for credit losses - unfunded commitments:
Commercial
$
1,175
$
-
$
54
$
-
$
-
$
1,229
Construction
1,184
-
94
-
-
1,278
Consumer
88
-
(26)
-
-
62
Ending balance - unfunded commitments [1]
$
2,447
$
-
$
122
$
-
$
-
$
2,569
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
For the quarter ended March 31, 2023
Popular Inc.
Impact
Provision for
Allowance
for
Beginning
of adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
26,311
$
-
$
(947)
$
-
$
-
$
2
$
25,366
Commercial real estate non-owner occupied
71,540
-
(1,677)
-
-
1,987
71,850
Commercial real estate owner occupied
57,081
(1,161)
(2,954)
-
(3)
1,534
54,497
Commercial and industrial
80,444
(552)
12,347
-
(2,106)
2,133
92,266
Total Commercial
235,376
(1,713)
6,769
-
(2,109)
5,656
243,979
Construction
4,246
-
84
-
-
-
4,330
Mortgage
135,254
(35,654)
841
68
(846)
4,814
104,477
Leasing
20,618
(35)
734
-
(1,417)
1,090
20,990
Consumer
 
Credit Cards
58,670
-
15,571
-
(8,677)
2,389
67,953
 
HELOCs
2,542
-
(751)
-
(176)
338
1,953
 
Personal
118,426
(8,160)
15,295
-
(17,750)
1,918
109,729
 
Auto
129,735
(21)
8,319
-
(12,118)
4,914
130,829
 
Other
15,435
-
284
-
(11,060)
221
4,880
Total Consumer
324,808
(8,181)
38,718
-
(49,781)
9,780
315,344
Total - Loans
$
720,302
$
(45,583)
$
47,146
$
68
$
(54,153)
$
21,340
$
689,120
Allowance for credit losses - unfunded commitments:
Commercial
$
5,511
$
-
$
618
$
-
$
-
$
-
$
6,129
Construction
3,206
-
18
-
-
-
3,224
Consumer
88
-
(26)
-
-
-
62
Ending balance - unfunded commitments [1]
$
8,805
$
-
$
610
$
-
$
-
$
-
$
9,415
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
For the quarter ended March 31, 2022
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,050
$
385
$
-
$
-
$
-
$
3,435
Commercial real estate non-owner occupied
45,211
6,244
-
-
184
51,639
Commercial real estate owner occupied
54,176
(10,091)
-
(118)
3,060
47,027
Commercial and industrial
49,491
(7,225)
-
(409)
1,513
43,370
Total Commercial
151,928
(10,687)
-
(527)
4,757
145,471
Construction
1,641
357
-
-
416
2,414
Mortgage
138,286
(10,528)
612
(1,321)
4,313
131,362
Leasing
17,578
386
-
(407)
841
18,398
Consumer
 
Credit Cards
43,499
3,701
-
(5,683)
2,265
43,782
 
HELOCs
98
(16)
-
(90)
94
86
 
Personal
71,022
1,613
-
(6,858)
1,777
67,554
 
Auto
154,498
2,693
-
(8,878)
4,017
152,330
 
Other
15,612
(180)
-
(556)
338
15,214
Total Consumer
284,729
7,811
-
(22,065)
8,491
278,966
Total - Loans
$
594,162
$
(12,661)
$
612
$
(24,320)
$
18,818
$
576,611
Allowance for credit losses - unfunded commitments:
Commercial
$
1,751
$
(104)
$
-
$
-
$
-
$
1,647
Construction
2,388
(464)
-
-
-
1,924
Ending balance - unfunded commitments [1]
$
4,139
$
(568)
$
-
$
-
$
-
$
3,571
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
For the quarter ended March 31, 2022
Popular U.S.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
25,418
$
(2,770)
$
-
$
-
$
7
$
22,655
Commercial real estate non-owner occupied
22,246
(6,851)
-
-
3
15,398
Commercial real estate owner occupied
6,053
3,836
-
-
112
10,001
Commercial and industrial
10,160
453
-
(127)
632
11,118
Total Commercial
63,877
(5,332)
-
(127)
754
59,172
Construction
4,722
(1,725)
-
-
1,128
4,125
Mortgage
16,192
1,632
-
-
20
17,844
Consumer
 
Credit Cards
-
(9)
-
-
9
-
 
HELOCs
3,708
(992)
-
(10)
919
3,625
 
Personal
12,700
4,616
-
(1,218)
313
16,411
 
Other
5
66
-
(77)
10
4
Total Consumer
16,413
3,681
-
(1,305)
1,251
20,040
Total - Loans
$
101,204
$
(1,744)
$
-
$
(1,432)
$
3,153
$
101,181
Allowance for credit losses - unfunded commitments:
Commercial
$
1,384
$
(66)
$
-
$
-
$
-
$
1,318
Construction
2,337
(202)
-
-
-
2,135
Consumer
37
(7)
-
-
-
30
Ending balance - unfunded commitments [1]
$
3,758
$
(275)
$
-
$
-
$
-
$
3,483
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
For the quarter ended March 31, 2022
Popular Inc.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
28,468
$
(2,385)
$
-
$
-
$
7
$
26,090
Commercial real estate non-owner occupied
67,457
(607)
-
-
187
67,037
Commercial real estate owner occupied
60,229
(6,255)
-
(118)
3,172
57,028
Commercial and industrial
59,651
(6,772)
-
(536)
2,145
54,488
Total Commercial
215,805
(16,019)
-
(654)
5,511
204,643
Construction
6,363
(1,368)
-
-
1,544
6,539
Mortgage
154,478
(8,896)
612
(1,321)
4,333
149,206
Leasing
17,578
386
-
(407)
841
18,398
Consumer
 
Credit Cards
43,499
3,692
-
(5,683)
2,274
43,782
 
HELOCs
3,806
(1,008)
-
(100)
1,013
3,711
 
Personal
83,722
6,229
-
(8,076)
2,090
83,965
 
Auto
154,498
2,693
-
(8,878)
4,017
152,330
 
Other
15,617
(114)
-
(633)
348
15,218
Total Consumer
301,142
11,492
-
(23,370)
9,742
299,006
Total - Loans
$
695,366
$
(14,405)
$
612
$
(25,752)
$
21,971
$
677,792
Allowance for credit losses - unfunded commitments:
Commercial
$
3,135
$
(170)
$
-
$
-
$
-
$
2,965
Construction
4,725
(666)
-
-
-
4,059
Consumer
37
(7)
-
-
-
30
Ending balance - unfunded commitments [1]
$
7,897
$
(843)
$
-
$
-
$
-
$
7,054
[1]
Allowance for credit losses of unfunded commitments is
 
presented as part of Other Liabilities in the Consolidated
 
Statements of Financial Condition.
Modifications
A
 
modification
 
constitutes
 
a
 
change
 
in
 
loan
 
terms
 
in
 
the
 
form
 
of
 
principal
 
forgiveness,
 
an
 
interest
 
rate
 
reduction,
 
other
 
than-
insignificant payment delay, term extension or combination of the above made
 
to a borrower experiencing financial difficulty.
The amount
 
of outstanding
 
commitments to
 
lend additional
 
funds to
 
debtors owing
 
receivables whose
 
terms have
 
been modified
during the quarter ended at March 31, 2023 amounted
 
to $
7
 
million related to the commercial loan portfolio.
The following tables show the amortized cost basis of the loans modified to borrowers experiencing financial difficulties at the end of
the reporting
 
period disaggregated
 
by class
 
of financing
 
receivable and
 
type
 
of concession
 
granted for
 
the quarter
 
ended March
31,2023. Loans modified to borrowers under financial difficulties that were fully paid down, charged-off
 
or foreclosed upon by period
end are not reported.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
Loan Modifications Made to Borrowers Experiencing
 
Financial Difficulty for the quarter ended March 31,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Mortgage
$
227
0.00
%
$
-
0.00
%
$
227
0.00
%
Consumer:
 
Credit cards
497
0.05
%
-
0.00
%
497
0.05
%
 
Personal
172
0.01
%
-
0.00
%
172
0.01
%
 
Other
3
0.00
%
-
0.00
%
3
0.00
%
Total
$
899
0.00
%
$
-
0.00
%
$
899
0.00
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
1,754
0.12
%
$
-
0.00
%
$
1,754
0.06
%
Commercial and industrial
3,705
0.09
%
-
0.00
%
3,705
0.06
%
Construction
-
0.00
%
3,518
0.65
%
3,518
0.50
%
Mortgage
14,521
0.24
%
1,853
0.14
%
16,374
0.22
%
Consumer:
 
Personal
26
0.00
%
54
0.02
%
80
0.00
%
Total
$
20,006
0.09
%
$
5,425
0.06
%
$
25,431
0.08
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
1,751
0.06
%
$
-
0.00
%
$
1,751
0.04
%
CRE owner occupied
13,156
0.88
%
13,744
0.90
%
26,900
0.89
%
Commercial and industrial
1,411
0.04
%
864
0.04
%
2,275
0.04
%
Consumer:
 
Other
33
0.03
%
-
0.00
%
33
0.02
%
Total
$
16,351
0.07
%
$
14,608
0.15
%
$
30,959
0.10
%
Combination - Term extension
 
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
101
0.01
%
$
-
0.00
%
$
101
0.00
%
Mortgage
10,473
0.17
%
328
0.03
%
10,801
0.15
%
Consumer:
 
Personal
422
0.03
%
-
0.00
%
422
0.02
%
 
Auto
29
0.00
%
-
0.00
%
29
0.00
%
Total
$
11,025
0.05
%
$
328
0.00
%
$
11,353
0.04
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
The following table describes the financial effect of the
 
modifications made to borrowers experiencing
 
financial difficulties:
For the quarter ended March 31, 2023
Interest rate reduction
Loan Type
Financial Effect
CRE Owner occupied
Reduced weighted-average contractual interest rate from
6.00
% to
5.25
%.
Mortgage
Reduced weighted-average contractual interest rate from
5.69
% to
4.17
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
17.76
% to
4.47
%.
Personal
Reduced weighted-average contractual interest rate from
16.97
% to
9.11
%.
Auto
Reduced weighted-average contractual interest rate from
12.64
% to
12.62
%.
Other
Reduced weighted-average contractual interest rate from
17.99
% to
0
%.
Term extension
Loan Type
Financial Effect
CRE Owner occupied
Added a weighted-average
2
 
years to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Commercial and industrial
Added a weighted-average
5
 
months to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Construction
Added a weighted-average
6
 
months to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Mortgage
Added a weighted-average
10
 
years to the life of loans, which reduced monthly payment
 
amount for the borrowers.
Consumer:
Personal
Added a weighted-average
6
 
years to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Auto
Added a weighted-average
2
 
years to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average
12
 
months to the life of loans, which reduced monthly
 
payment amount for the
borrowers.
CRE Owner occupied
Added a weighted-average
7
 
months to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Commercial and industrial
Added a weighted-average
9
 
months to the life of loans, which reduced monthly
 
payment amount for the borrowers.
Consumer:
Other
Added a weighted-average
11
 
months to the life of loans, which reduced monthly
 
payment amount for the
borrowers.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
The following table presents, by class, the performance
 
of loans that have been modified in the last
 
three months at March 31, 2023.
The
 
past
 
due
 
90
 
days
 
or
 
more
 
categories includes
 
all
 
loans modified
 
classified
 
as
 
non-accruing
 
at
 
the
 
time
 
of
 
the
 
modification.
These loans will continue in non-accrual status, and presented as past
 
due 90 days or more, until the borrower has
 
demonstrated a
willingness and ability to
 
make the restructured loan
 
payments (at least six
 
months of sustained
 
performance after the modification
(or one year for loans providing for
 
quarterly or semi-annual payments)) and management has concluded that it
 
is probable that the
borrower would not be in payment default in the
 
foreseeable future.
 
BPPR
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
-
$
-
$
1,751
$
1,751
$
-
$
-
CRE Owner occupied
-
-
1,803
1,803
13,208
15,011
209
1,594
Commercial and industrial
-
-
142
142
4,974
5,116
28
114
Mortgage
1,202
180
7,518
8,900
16,321
25,221
-
7,518
Consumer:
 
Credit cards
21
46
96
163
334
497
96
-
 
Personal
6
-
232
238
382
620
-
232
 
Auto
-
-
-
-
29
29
-
-
 
Other
-
-
33
33
3
36
-
33
Total
$
1,229
$
226
$
9,824
$
11,279
$
37,002
$
48,281
$
333
$
9,491
[1] Loans that were in non-accrual status at the time
 
of modification are presented as past due until the borrower
 
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
 
is defined as a restructured loan becoming 90 days past
 
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
 
as of period end is inclusive of all partial paydowns
 
and charge-offs since the modification
date. Loans modified with financial difficulty that
 
were fully paid down, charged-off or foreclosed upon
 
by period end are not reported.
Popular U.S.
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Owner occupied
$
-
$
-
$
-
$
-
$
13,744
$
13,744
$
-
$
-
Commercial and industrial
-
-
-
-
864
864
-
-
Construction
-
-
-
-
3,518
3,518
-
-
Mortgage
-
-
104
104
2,077
2,181
-
104
Consumer:
 
Personal
-
-
54
54
-
54
-
54
Total
$
-
$
-
$
158
$
158
$
20,203
$
20,361
$
-
$
158
[1] Loans that were in non-accrual status at the time
 
of modification are presented as past due until the borrower
 
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
 
is defined as a restructured loan becoming 90 days past
 
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
 
as of period end is inclusive of all partial paydowns
 
and charge-offs since the modification
date. Loans modified with financial difficulty that
 
were fully paid down, charged-off or foreclosed upon
 
by period end are not reported.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
Popular Inc.
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
-
$
-
$
1,751
$
1,751
$
-
$
-
CRE Owner occupied
-
-
1,803
1,803
26,952
28,755
209
1,594
Commercial and industrial
-
-
142
142
5,838
5,980
28
114
Construction
-
-
-
-
3,518
3,518
-
-
Mortgage
1,202
180
7,622
9,004
18,398
27,402
-
7,622
Consumer:
 
Credit cards
21
46
96
163
334
497
96
-
 
Personal
6
-
286
292
382
674
-
286
 
Auto
-
-
-
-
29
29
-
-
 
Other
-
-
33
33
3
36
-
33
Total
$
1,229
$
226
$
9,982
$
11,437
$
57,205
$
68,642
$
333
$
9,649
[1] Loans that were in non-accrual status at the time
 
of modification are presented as past due until the borrower
 
has demonstrated a willingness and ability
to make the restructured loan payments.
 
Payment default is defined as a restructured loan becoming
 
90 days past due after being modified, foreclosed
 
or
charged-off, whichever occurs first. The recorded inve
 
stment as of period end is inclusive of all partial
 
paydowns and charge-offs since the modification
date. Loans modified with financial difficulty that
 
were fully paid down, charged-off or foreclosed upon
 
by period end are not reported.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
The
 
activity
 
of
 
modified
 
loans
 
to
 
borrowers
 
under
 
financial
 
difficulties
 
that
 
were
 
subject
 
to
 
payment
 
default
 
and
 
that
 
had
 
been
modified during the
 
quarter ended March 31,
 
2023 was considered immaterial
 
for the Corporation.
 
Payment default is defined
 
as a
restructured loan becoming 90 days past due after
 
being modified, foreclosed or charged-off, whichever occurs
 
first.
 
Legacy TDR Modifications
A modification of
 
a loan, prior
 
to ASU 2022-02,
 
constituted a troubled
 
debt restructuring (TDR)
 
when a borrower
 
was experiencing
financial difficulty
 
and the
 
modification constituted
 
a concession.
 
For a
 
summary of
 
the legacy
 
accounting policy
 
related to
 
TDRs,
refer to the Summary of Significant Accounting Policies
 
included in Note 2 to the 2022 Form 10-K.
The outstanding
 
balance of
 
loans classified
 
as TDRs
 
amounted to
 
$
1.6
 
billion at
 
December 31,
 
2022. The
 
amount of
 
outstanding
commitments to
 
lend additional
 
funds to
 
debtors owing
 
loans whose
 
terms have
 
been modified
 
in TDRs
 
amounted to
 
$
12
 
million
related to the commercial loan portfolio at December 31,
 
2022.
The following table presents
 
the outstanding balance of
 
loans classified as TDRs
 
according to their accruing
 
status and the related
allowance at December 31, 2022.
 
December 31, 2022
(In thousands)
Accruing
Non-Accruing
Total
Related
Allowance
Loans held-in-portfolio:
 
Commercial
$
269,784
$
54,641
$
324,425
$
18,451
 
Mortgage
[1]
1,169,976
86,790
1,256,766
58,819
 
Leasing
1,154
24
1,178
43
 
Consumer
54,395
7,883
62,278
13,577
Loans held-in-portfolio
$
1,495,309
$
149,338
$
1,644,647
$
90,890
[1] At December 31, 2022, accruing mortgage loan TDRs include
 
$
725
 
million guaranteed by U.S. sponsored entities
 
at BPPR.
The
 
following table
 
presents
 
the
 
loan count
 
by
 
type
 
of
 
modification for
 
those
 
loans modified
 
in
 
a TDR
 
during the
 
quarter ended
March 31, 2022. Loans modified as TDRs for the
 
U.S. operations are considered insignificant to
 
the Corporation.
For the quarter ended March 31, 2022
Reduction in
interest rate
Extension of
maturity date
Combination of
reduction in interest
rate and extension of
maturity date
Other
Commercial real estate non-owner occupied
-
-
-
1
Commercial real estate owner occupied
1
1
-
-
Commercial and industrial
1
5
-
11
Mortgage
1
34
288
1
Consumer:
 
Credit cards
15
-
-
15
 
Personal
25
20
-
-
 
Auto
-
1
-
-
Total
43
61
288
28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
The following table presents, by class, quantitative
 
information related to loans modified as TDRs
 
during the quarter ended March
31, 2022.
Popular, Inc.
 
For the quarter ended March 31, 2022
(In thousands)
Loan count
Pre-modification outstanding
recorded investment
Post-modification
outstanding recorded
investment
Increase (decrease) in the
allowance for loan losses as
a result of modification
Commercial real estate non-owner occupied
1
$
3,400
$
3,400
$
-
Commercial real estate owner occupied
2
729
727
-
Commercial and industrial
17
49,346
49,155
2,030
Mortgage
324
34,876
35,592
1,020
Consumer:
 
Credit cards
30
248
273
5
 
Personal
45
729
728
130
 
Auto
1
28
28
5
Total
420
$
89,356
$
89,903
$
3,190
The following table presents, by
 
class, TDRs that were subject to
 
payment default and that had been modified
 
as a TDR during the
twelve months preceding the default date.
 
Payment default is defined as a restructured loan becoming 90 days past due after being
modified,
 
foreclosed
 
or
 
charged-off,
 
whichever
 
occurs
 
first.
 
The
 
recorded
 
investment
 
as
 
of
 
period
 
end
 
is
 
inclusive
 
of
 
all
 
partial
paydowns
 
and
 
charge-offs
 
since
 
the
 
modification
 
date.
 
Loans
 
modified
 
as
 
a
 
TDR
 
that
 
were
 
fully
 
paid
 
down,
 
charged-off
 
or
foreclosed upon by period end are not reported.
 
Defaulted during the quarter ended March 31, 2022
(In thousands)
Loan count
Recorded investment as of first default date
Mortgage
6
$
1,870
Consumer:
 
Credit cards
16
127
 
Personal
12
128
Total
34
$
2,125
Credit Quality
The risk
 
rating system
 
provides for
 
the assignment
 
of ratings
 
at the
 
obligor level
 
based on
 
the financial
 
condition of
 
the borrower.
The
 
risk rating
 
analysis process
 
is
 
performed at
 
least
 
once a
 
year
 
or more
 
frequently if
 
events or
 
conditions change
 
which may
deteriorate the credit quality.
 
In the case of
 
consumer and mortgage loans, these
 
loans are classified considering their
 
delinquency
status at the end of the reporting period.
The following tables present the amortized cost basis, net of unearned income, of
 
loans held-in-portfolio based on the Corporation’s
assignment
 
of
 
obligor
 
risk
 
ratings
 
as
 
defined
 
at
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022
 
and
 
the
 
gross
 
write-offs
 
recorded
 
by
vintage year. For
 
the definitions of the obligor risk ratings,
 
refer to the Credit Quality section of
 
Note 9 to the Consolidated Financial
Statements included in the 2022 Form 10-K:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
 
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
6,867
$
-
$
-
$
-
$
18,365
$
4,378
$
-
$
-
$
29,610
Special mention
-
-
-
-
-
2,651
-
-
2,651
Substandard
-
-
-
-
-
3,234
100
-
3,334
Pass
28,087
138,361
22,771
20,740
16,039
30,943
270
-
257,211
Total commercial
multi-family
$
34,954
$
138,361
$
22,771
$
20,740
$
34,404
$
41,206
$
370
$
-
$
292,806
Commercial real estate non-owner occupied
Watch
$
-
$
348
$
11,102
$
13,622
$
14,506
$
68,267
$
-
$
-
$
107,845
Special Mention
-
-
29,425
19,841
63,115
49,505
5,000
-
166,886
Substandard
-
8,802
-
2,607
18,488
20,454
-
-
50,351
Pass
76,455
857,954
578,637
368,293
38,120
631,836
9,106
-
2,560,401
Total commercial
real estate non-
owner occupied
$
76,455
$
867,104
$
619,164
$
404,363
$
134,229
$
770,062
$
14,106
$
-
$
2,885,483
Commercial real estate owner occupied
Watch
$
-
$
11,755
$
4,457
$
9,329
$
4,148
$
95,445
$
600
$
-
$
125,734
Special Mention
-
9
2,417
1,534
6,147
66,300
13,834
-
90,241
Substandard
-
16,087
6,078
784
712
80,734
-
-
104,395
Doubtful
-
-
-
-
-
438
-
-
438
Pass
19,721
222,551
255,853
200,352
29,877
440,518
7,823
-
1,176,695
Total commercial
real estate owner
occupied
$
19,721
$
250,402
$
268,805
$
211,999
$
40,884
$
683,435
$
22,257
$
-
$
1,497,503
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
3
$
-
$
-
$
3
Commercial and industrial
Watch
$
2,151
$
21,021
$
1,994
$
2,889
$
18,406
$
76,544
$
42,623
$
-
$
165,628
Special Mention
-
1,578
5,168
20,849
1,076
53,511
5,785
-
87,967
Substandard
5,418
766
1,137
1,813
2,588
29,834
44,565
-
86,121
Doubtful
-
-
-
28
-
37
-
-
65
Pass
228,133
758,835
578,791
275,748
164,951
328,693
1,259,501
-
3,594,652
Total commercial
and industrial
$
235,702
$
782,200
$
587,090
$
301,327
$
187,021
$
488,619
$
1,352,474
$
-
$
3,934,433
Year-to-Date gross
write-offs
$
172
$
-
$
54
$
609
$
-
$
5
$
767
$
-
$
1,607
Construction
Watch
$
-
$
35,764
$
4,792
$
-
$
-
$
-
$
-
$
-
$
40,556
Substandard
-
-
-
9,657
-
-
$
-
-
9,657
Pass
-
16,381
36,334
11,790
2,306
-
38,325
-
105,136
Total construction
$
-
$
52,145
$
41,126
$
21,447
$
2,306
$
-
$
38,325
$
-
$
155,349
Mortgage
Substandard
$
-
$
107
$
166
$
481
$
3,255
$
90,003
$
-
$
-
$
94,012
Pass
117,402
452,532
445,012
280,846
201,346
4,525,534
-
-
6,022,672
Total mortgage
$
117,402
$
452,639
$
445,178
$
281,327
$
204,601
$
4,615,537
$
-
$
-
$
6,116,684
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
846
$
-
$
-
$
846
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
 
Years
Total
BPPR
Leasing
Substandard
$
-
$
1,065
$
1,819
$
623
$
1,293
$
1,250
$
-
$
-
$
6,050
Loss
-
54
-
-
-
-
-
-
54
Pass
193,921
595,135
399,400
218,226
130,385
71,173
-
-
1,608,240
Total leasing
$
193,921
$
596,254
$
401,219
$
218,849
$
131,678
$
72,423
$
-
$
-
$
1,614,344
Year-to-Date gross
write-offs
$
-
 
$
640
$
634
$
94
$
-
 
$
49
$
-
$
-
$
1,417
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
12,058
$
-
$
12,058
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,034,114
-
1,034,114
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,046,175
$
-
$
1,046,175
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
8,676
$
-
$
8,676
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,865
$
-
$
2,865
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,865
$
-
$
2,865
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
33
$
-
$
-
$
33
Personal
Substandard
$
-
$
1,879
$
2,078
$
545
$
1,493
$
10,640
$
-
$
1,073
$
17,708
Loss
-
105
141
17
32
2
-
-
297
Pass
225,516
734,207
281,093
89,554
100,679
137,702
-
26,162
1,594,913
Total Personal
$
225,516
$
736,191
$
283,312
$
90,116
$
102,204
$
148,344
$
-
$
27,235
$
1,612,918
Year-to-Date gross
write-offs
$
2
$
5,105
$
4,533
$
1,372
$
1,449
$
1,119
$
-
$
-
$
13,580
Auto
Substandard
$
-
$
8,772
$
11,611
$
9,978
$
8,858
$
5,505
$
-
$
-
$
44,724
Loss
-
50
9
21
16
-
-
-
96
Pass
292,535
1,094,296
895,350
539,897
381,528
269,514
-
-
3,473,120
Total Auto
$
292,535
$
1,103,118
$
906,970
$
549,896
$
390,402
$
275,019
$
-
$
-
$
3,517,940
Year-to-Date gross
write-offs
$
83
$
6,034
$
3,168
$
1,633
$
1,200
$
-
 
$
-
$
-
$
12,118
Other consumer
Substandard
$
-
$
-
$
-
$
90
$
18
$
550
$
170
$
-
$
828
Loss
-
-
-
-
-
263
-
-
263
Pass
7,750
28,099
16,877
6,725
4,002
5,788
59,680
-
128,921
Total Other
consumer
$
7,750
$
28,099
$
16,877
$
6,815
$
4,020
$
6,601
$
59,850
$
-
$
130,012
Year-to-Date gross
write-offs
$
-
$
6
$
-
$
-
$
1
$
11,000
$
-
$
-
$
11,007
Total Puerto Rico
$
1,203,956
$
5,006,513
$
3,592,512
$
2,106,879
$
1,231,749
$
7,101,246
$
2,536,422
$
27,235
$
22,806,512
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
-
$
747
$
-
$
6,182
$
61,528
$
44,317
$
-
$
-
$
112,774
Special mention
-
-
-
1,181
-
22,401
-
-
23,582
Substandard
-
-
-
-
14,893
10,661
-
-
25,554
Pass
10,788
507,984
398,506
234,898
227,384
496,971
5,110
-
1,881,641
Total commercial
multi-family
$
10,788
$
508,731
$
398,506
$
242,261
$
303,805
$
574,350
$
5,110
$
-
$
2,043,551
Commercial real estate non-owner occupied
Watch
$
-
$
-
$
2,155
$
1,241
$
3,339
$
52,379
$
-
$
-
$
59,114
Special Mention
-
-
-
-
1,347
75,149
-
-
76,496
Substandard
-
-
2,844
2,138
1,750
3,420
-
-
10,152
Pass
28,126
549,487
204,917
246,309
108,845
474,644
7,102
-
1,619,430
Total commercial
real estate non-
owner occupied
$
28,126
$
549,487
$
209,916
$
249,688
$
115,281
$
605,592
$
7,102
$
-
$
1,765,192
Commercial real estate owner occupied
Watch
$
-
$
-
$
-
$
1,191
$
-
$
55,949
$
-
$
-
$
57,140
Special Mention
-
-
-
3,860
6,192
892
-
-
10,944
Substandard
-
-
-
-
7,365
45,975
-
-
53,340
Pass
47,027
361,856
417,522
114,090
77,271
376,040
5,854
-
1,399,660
Total commercial
real estate owner
occupied
$
47,027
$
361,856
$
417,522
$
119,141
$
90,828
$
478,856
$
5,854
$
-
$
1,521,084
Commercial and industrial
Watch
$
2,320
$
11,947
$
2,532
$
1,474
$
1,783
$
8,747
$
3,641
$
-
$
32,444
Special Mention
-
1,174
1,296
279
267
73
3
-
3,092
Substandard
255
584
176
134
4,219
2,089
3,477
-
10,934
Loss
-
55
-
38
315
-
-
-
408
Pass
15,362
224,336
368,242
356,952
190,287
531,348
331,804
-
2,018,331
Total commercial
and industrial
$
17,937
$
238,096
$
372,246
$
358,877
$
196,871
$
542,257
$
338,925
$
-
$
2,065,209
Year-to-Date gross
write-offs
$
257
$
218
$
1
$
8
$
13
$
2
$
-
$
-
$
499
Construction
Watch
$
-
$
-
$
12,364
$
-
$
6,909
$
37,626
$
-
$
-
$
56,899
Substandard
-
-
-
1,423
-
9,260
-
-
10,683
Pass
9,512
208,550
134,923
46,418
73,785
2,877
-
-
476,065
Total construction
$
9,512
$
208,550
$
147,287
$
47,841
$
80,694
$
49,763
$
-
$
-
$
543,647
Mortgage
Substandard
$
-
$
-
$
1,595
$
-
$
3,608
$
9,516
$
-
$
-
$
14,719
Pass
26,786
230,092
299,773
243,692
181,334
292,827
-
-
1,274,504
Total mortgage
$
26,786
$
230,092
$
301,368
$
243,692
$
184,942
$
302,343
$
-
$
-
$
1,289,223
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
53
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
21
$
-
$
21
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
21
$
-
$
21
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,162
$
20
$
1,551
$
3,733
Loss
-
-
-
-
-
111
-
775
886
Pass
-
-
-
-
-
8,645
41,072
12,686
62,403
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,918
$
41,092
$
15,012
$
67,022
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
143
$
-
$
-
$
143
Personal
Substandard
$
-
$
1,035
$
226
$
86
$
175
$
188
$
-
$
-
$
1,710
Loss
-
93
107
45
23
528
-
-
796
Pass
20,044
147,255
39,982
5,756
10,285
2,323
-
-
225,645
Total Personal
$
20,044
$
148,383
$
40,315
$
5,887
$
10,483
$
3,039
$
-
$
-
$
228,151
Year-to-Date gross
write-offs
$
-
$
2,331
$
1,191
$
271
$
281
$
96
$
-
$
-
$
4,170
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
514
$
-
$
514
Pass
-
-
-
-
-
-
8,247
-
8,247
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
8,761
$
-
$
8,761
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
53
$
-
$
-
$
53
Total Popular U.S.
$
160,220
$
2,245,195
$
1,887,160
$
1,267,387
$
982,904
$
2,567,118
$
406,865
$
15,012
$
9,531,861
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
6,867
$
747
$
-
$
6,182
$
79,893
$
48,695
$
-
$
-
$
142,384
Special mention
-
-
-
1,181
-
25,052
-
-
26,233
Substandard
-
-
-
-
14,893
13,895
100
-
28,888
Pass
38,875
646,345
421,277
255,638
243,423
527,914
5,380
-
2,138,852
Total commercial
multi-family
$
45,742
$
647,092
$
421,277
$
263,001
$
338,209
$
615,556
$
5,480
$
-
$
2,336,357
Commercial real estate non-owner occupied
Watch
$
-
$
348
$
13,257
$
14,863
$
17,845
$
120,646
$
-
$
-
$
166,959
Special Mention
-
-
29,425
19,841
64,462
124,654
5,000
-
243,382
Substandard
-
8,802
2,844
4,745
20,238
23,874
-
-
60,503
Pass
104,581
1,407,441
783,554
614,602
146,965
1,106,480
16,208
-
4,179,831
Total commercial
real estate non-
owner occupied
$
104,581
$
1,416,591
$
829,080
$
654,051
$
249,510
$
1,375,654
$
21,208
$
-
$
4,650,675
Commercial real estate owner occupied
Watch
$
-
$
11,755
$
4,457
$
10,520
$
4,148
$
151,394
$
600
$
-
$
182,874
Special Mention
-
9
2,417
5,394
12,339
67,192
13,834
-
101,185
Substandard
-
16,087
6,078
784
8,077
126,709
-
-
157,735
Doubtful
-
-
-
-
-
438
-
-
438
Pass
66,748
584,407
673,375
314,442
107,148
816,558
13,677
-
2,576,355
Total commercial
real estate owner
occupied
$
66,748
$
612,258
$
686,327
$
331,140
$
131,712
$
1,162,291
$
28,111
$
-
$
3,018,587
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
3
$
-
$
-
$
3
Commercial and industrial
Watch
$
4,471
$
32,968
$
4,526
$
4,363
$
20,189
$
85,291
$
46,264
$
-
$
198,072
Special Mention
-
2,752
6,464
21,128
1,343
53,584
5,788
-
91,059
Substandard
5,673
1,350
1,313
1,947
6,807
31,923
48,042
-
97,055
Doubtful
-
-
-
28
-
37
-
-
65
Loss
-
55
-
38
315
-
-
-
408
Pass
243,495
983,171
947,033
632,700
355,238
860,041
1,591,305
-
5,612,983
Total commercial
and industrial
$
253,639
$
1,020,296
$
959,336
$
660,204
$
383,892
$
1,030,876
$
1,691,399
$
-
$
5,999,642
Year-to-Date gross
write-offs
$
429
$
218
$
55
$
617
$
13
$
7
$
767
$
-
$
2,106
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
-
$
35,764
$
17,156
$
-
$
6,909
$
37,626
$
-
$
-
$
97,455
Substandard
-
-
-
11,080
-
9,260
-
-
20,340
Pass
9,512
224,931
171,257
58,208
76,091
2,877
38,325
-
581,201
Total construction
$
9,512
$
260,695
$
188,413
$
69,288
$
83,000
$
49,763
$
38,325
$
-
$
698,996
Mortgage
Substandard
$
-
$
107
$
1,761
$
481
$
6,863
$
99,519
$
-
$
-
$
108,731
Pass
144,188
682,624
744,785
524,538
382,680
4,818,361
-
-
7,297,176
Total mortgage
$
144,188
$
682,731
$
746,546
$
525,019
$
389,543
$
4,917,880
$
-
$
-
$
7,405,907
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
846
$
-
$
-
$
846
Substandard
$
-
$
1,065
$
1,819
$
623
$
1,293
$
1,250
$
-
$
-
$
6,050
Loss
-
54
-
-
-
-
-
-
54
Pass
193,921
595,135
399,400
218,226
130,385
71,173
-
-
1,608,240
Total leasing
$
193,921
$
596,254
$
401,219
$
218,849
$
131,678
$
72,423
$
-
$
-
$
1,614,344
Year-to-Date gross
write-offs
$
-
$
640
$
634
$
94
$
-
$
49
$
-
$
-
$
1,417
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
12,058
$
-
$
12,058
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,034,135
-
1,034,135
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,046,196
$
-
$
1,046,196
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
8,677
$
-
$
8,677
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,162
$
20
$
1,551
$
3,733
Loss
-
-
-
-
-
111
-
775
886
Pass
-
-
-
-
-
8,645
43,937
12,686
65,268
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,918
$
43,957
$
15,012
$
69,887
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
176
$
-
$
-
$
176
Personal
Substandard
$
-
$
2,914
$
2,304
$
631
$
1,668
$
10,828
$
-
$
1,073
$
19,418
Loss
-
198
248
62
55
530
-
-
1,093
Pass
245,560
881,462
321,075
95,310
110,964
140,025
-
26,162
1,820,558
Total Personal
$
245,560
$
884,574
$
323,627
$
96,003
$
112,687
$
151,383
$
-
$
27,235
$
1,841,069
Year-to-Date gross
write-offs
$
2
$
7,436
$
5,724
$
1,643
$
1,730
$
1,215
$
-
$
-
$
17,750
Auto
Substandard
$
-
$
8,772
$
11,611
$
9,978
$
8,858
$
5,505
$
-
$
-
$
44,724
Loss
-
50
9
21
16
-
-
-
96
Pass
292,535
1,094,296
895,350
539,897
381,528
269,514
-
-
3,473,120
Total Auto
$
292,535
$
1,103,118
$
906,970
$
549,896
$
390,402
$
275,019
$
-
$
-
$
3,517,940
Year-to-Date gross
write-offs
$
83
$
6,034
$
3,168
$
1,633
$
1,200
$
-
$
-
$
-
$
12,118
Other consumer
Substandard
$
-
$
-
$
-
$
90
$
18
$
550
$
684
$
-
$
1,342
Loss
-
-
-
-
-
263
-
-
263
Pass
7,750
28,099
16,877
6,725
4,002
5,788
67,927
-
137,168
Total Other
consumer
$
7,750
$
28,099
$
16,877
$
6,815
$
4,020
$
6,601
$
68,611
$
-
$
138,773
Year-to-Date gross
write-offs
$
-
$
6
$
-
$
-
$
1
$
11,053
$
-
$
-
$
11,060
Total Popular Inc.
$
1,364,176
$
7,251,708
$
5,479,672
$
3,374,266
$
2,214,653
$
9,668,364
$
2,943,287
$
42,247
$
32,338,373
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
59
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
62
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
64
Note 10 – Mortgage banking activities
Income
 
from
 
mortgage
 
banking
 
activities
 
includes
 
mortgage
 
servicing
 
fees
 
earned
 
in
 
connection
 
with
 
administering
 
residential
mortgage
 
loans
 
and
 
valuation
 
adjustments
 
on
 
mortgage
 
servicing
 
rights.
 
It
 
also
 
includes
 
gain
 
on
 
sales
 
and
 
securitizations
 
of
residential mortgage
 
loans, losses
 
on repurchased
 
loans, including
 
interest advances,
 
and trading
 
gains and
 
losses on
 
derivative
contracts
 
used
 
to
 
hedge
 
the
 
Corporation’s
 
securitization
 
activities.
 
In
 
addition,
 
fair
 
value
 
valuation
 
adjustments
 
to
 
residential
mortgage loans held for sale, if any, are recorded as part of the mortgage
 
banking activities.
The following table presents the components of mortgage
 
banking activities:
Quarters ended March 31,
(In thousands)
2023
2022
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
8,689
$
9,323
Mortgage servicing rights fair value adjustments
(1,376)
1,088
Total mortgage
 
servicing fees, net of fair value adjustments
7,313
10,411
Net gain (loss) on sale of loans, including valuation on loans
 
held-for-sale
[1]
263
(1,534)
Trading account (loss) profit:
Unrealized (loss) gains on outstanding derivative positions
(131)
2
Realized gains on closed derivative positions
56
4,135
Total trading account
 
(loss) profit
(75)
4,137
Losses on repurchased loans, including interest advances
(101)
(149)
Total mortgage
 
banking activities
$
7,400
$
12,865
[1]
 
Effective on January 1, 2023, loans held-for-sale
 
are stated at fair value. Prior to such date, loans held-for-sale
 
were stated
at lower-of-cost-or-market.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65
Note 11 – Transfers of financial assets and mortgage servicing assets
The
 
Corporation
 
typically
 
transfers
 
conforming
 
residential
 
mortgage
 
loans
 
in
 
conjunction
 
with
 
GNMA,
 
FNMA
 
and
 
FHLMC
securitization transactions
 
whereby the
 
loans are
 
exchanged for
 
cash or
 
securities and
 
servicing rights.
 
As seller,
 
the Corporation
has made
 
certain representations
 
and warranties
 
with respect
 
to the
 
originally transferred
 
loans and,
 
in the
 
past, has
 
sold certain
loans
 
with
 
credit
 
recourse
 
to
 
a
 
government-sponsored
 
entity,
 
namely
 
FNMA.
 
Refer
 
to
 
Note
 
20
 
to
 
the
 
Consolidated
 
Financial
Statements for a description of such arrangements.
 
No
 
liabilities were incurred as a result of these securitizations during the quarters ended March 31, 2023 and 2022 because they did
not contain
 
any credit
 
recourse arrangements.
 
During the
 
quarter ended
 
March 31,
 
2023, the
 
Corporation recorded
 
a net
 
gain of
$
0.1
 
million (March 31, 2022 - a net gain of $
1.1
 
million) related to the residential mortgage
 
loans securitized.
 
The
 
following tables
 
present the
 
initial fair
 
value of
 
the
 
assets obtained
 
as
 
proceeds from
 
residential mortgage
 
loans securitized
during the quarters ended March 31, 2023 and
 
2022:
Proceeds Obtained During the Quarter Ended March
 
31, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
1,067
$
-
$
1,067
Mortgage-backed securities - FNMA
-
9,899
-
9,899
Total trading account
 
debt securities
$
-
$
10,966
$
-
$
10,966
Mortgage servicing rights
$
-
$
-
$
278
$
278
Total
 
$
-
$
10,966
$
278
$
11,244
Proceeds Obtained During the Quarter Ended March
 
31, 2022
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
77,894
$
-
$
77,894
Mortgage-backed securities - FNMA
-
57,690
-
57,690
Mortgage-backed securities - FHLMC
-
7,118
-
7,118
Total trading account
 
debt securities
$
-
$
142,702
$
-
$
142,702
Mortgage servicing rights
$
-
$
-
$
2,409
$
2,409
Total
 
$
-
$
142,702
$
2,409
$
145,111
During the quarter ended March 31, 2023, the Corporation retained servicing rights on whole loan sales involving approximately $
10
million in principal
 
balance outstanding (March 31,
 
2022 - $
19
 
million), with net
 
realized gains of approximately
 
$
0.2
 
million (March
31, 2022 -
 
gains of $
0.2
 
million). All loan
 
sales performed during the
 
quarters ended March 31,
 
2023 and 2022
 
were without credit
recourse agreements.
 
The Corporation recognizes as assets the rights to service loans for others,
 
whether these rights are purchased or result from asset
transfers such as sales and securitizations. These mortgage
 
servicing rights (“MSRs”) are measured at fair
 
value.
The
 
Corporation
 
uses
 
a
 
discounted
 
cash
 
flow
 
model
 
to
 
estimate
 
the
 
fair
 
value
 
of
 
MSRs.
 
The
 
discounted
 
cash
 
flow
 
model
incorporates
 
assumptions
 
that
 
market
 
participants
 
would
 
use
 
in
 
estimating
 
future
 
net
 
servicing
 
income,
 
including
 
estimates
 
of
prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late
fees, among other considerations. Prepayment speeds are
 
adjusted for the loans’ characteristics and portfolio behavior.
 
The following
 
table presents
 
the changes
 
in MSRs
 
measured using
 
the fair
 
value method
 
for the
 
quarters ended
 
March 31,
 
2023
and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66
Residential MSRs
(In thousands)
March 31, 2023
March 31, 2022
Fair value at beginning of period
$
128,350
$
121,570
Additions
501
2,771
Changes due to payments on loans
[1]
(2,422)
(2,983)
Reduction due to loan repurchases
(240)
(252)
Changes in fair value due to changes in valuation model inputs
 
or assumptions
1,286
4,252
Fair value at end of period
[2]
$
127,475
$
125,358
[1] Represents changes due to collection / realization of expected cash flows over time.
[2] At March 31, 2023, PB had MSRs amounting to $
2
.0 million (March 31, 2022 - $
1.8
 
million).
Residential mortgage loans serviced for others were
 
$
10.9
 
billion at March 31, 2023 (December 31,
 
2022 - $
11.1
 
billion).
 
Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the
changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows.
The banking
 
subsidiaries receive servicing
 
fees based
 
on a
 
percentage of the
 
outstanding loan balance.
 
These servicing fees
 
are
credited
 
to
 
income
 
when
 
they
 
are
 
collected.
 
At
 
March
 
31,
 
2023,
 
those
 
weighted
 
average
 
mortgage
 
servicing
 
fees
 
were
0.31
%
(March 31, 2022 -
0.31
%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment
penalty fees on the underlying loans serviced.
The section
 
below includes
 
information on
 
assumptions used
 
in the
 
valuation model
 
of the
 
MSRs, originated
 
and purchased.
 
Key
economic assumptions used
 
in measuring the
 
servicing rights derived
 
from loans securitized
 
or sold by
 
the Corporation during
 
the
quarters ended March 31, 2023 and 2022 were
 
as follows:
Quarters ended
March 31, 2023
March 31, 2022
 
BPPR
PB
BPPR
PB
Prepayment speed
6.7
%
7.3
%
5.2
%
10.0
%
Weighted average life (in years)
8.9
8.0
9.4
6.9
Discount rate (annual rate)
9.5
%
10.5
%
10.3
%
10.0
%
Key
 
economic
 
assumptions
 
used
 
to
 
estimate
 
the
 
fair
 
value
 
of
 
MSRs
 
derived
 
from
 
sales
 
and
 
securitizations
 
of
 
mortgage
 
loans
performed
 
by
 
the
 
banking
 
subsidiaries
 
and
 
servicing
 
rights
 
purchased
 
from
 
other
 
financial
 
institutions,
 
and
 
the
 
sensitivity
 
to
immediate changes in those assumptions, were as follows
 
as of the end of the periods reported:
Originated MSRs
Purchased MSRs
March 31,
December 31,
March 31,
December 31,
 
(In thousands)
2023
2022
2023
2022
Fair value of servicing rights
$
41,143
$
41,548
$
86,332
$
86,802
Weighted average life (in years)
6.7
6.8
6.9
6.9
Weighted average prepayment speed (annual
 
rate)
6.0
%
5.9
%
7.0
%
7.0
%
Impact on fair value of 10% adverse change
$
(707)
$
(730)
$
(1,557)
$
(1,602)
Impact on fair value of 20% adverse change
$
(1,387)
$
(1,433)
$
(3,056)
$
(3,143)
Weighted average discount rate (annual rate)
11.3
%
11.2
%
11.0
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,449)
$
(1,485)
$
(3,192)
$
(3,256)
Impact on fair value of 20% adverse change
$
(2,806)
$
(2,876)
$
(6,182)
$
(6,304)
67
The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables
included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
At
 
March
 
31,
 
2023,
 
the
 
Corporation
 
serviced
 
$
0.6
 
billion
 
in
 
residential
 
mortgage
 
loans
 
with
 
credit
 
recourse
 
to
 
the
 
Corporation
(December 31, 2022 - $
0.6
 
billion). Also refer to Note 20 to the Consolidated Financial Statements for information on changes in the
Corporation’s liability of estimated losses related to loans
 
serviced with credit recourse.
Under the GNMA
 
securitizations, the Corporation, as
 
servicer, has
 
the right to
 
repurchase (but not the
 
obligation), at its
 
option and
without
 
GNMA’s
 
prior
 
authorization,
 
any
 
loan
 
that
 
is
 
collateral
 
for
 
a
 
GNMA
 
guaranteed
 
mortgage-backed
 
security
 
when
 
certain
delinquency
 
criteria
 
are
 
met.
 
At
 
the
 
time
 
that
 
individual
 
loans
 
meet
 
GNMA’s
 
specified
 
delinquency
 
criteria
 
and
 
are
 
eligible
 
for
repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At
March 31,
 
2023, the Corporation had
 
recorded $
7
 
million in
 
mortgage loans on
 
its Consolidated Statements
 
of Financial Condition
related
 
to
 
this
 
buy-back
 
option
 
program
 
(December
 
31,
 
2022
 
-
 
$
14
 
million).
 
Loans
 
in
 
our
 
serviced
 
GNMA
 
portfolio
 
benefit from
payment forbearance programs
 
but continue to
 
reflect the contractual
 
delinquency until the
 
borrower repays deferred
 
payments or
completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service
the
 
loans
 
that
 
continue
 
to
 
be
 
collateral
 
in
 
a
 
GNMA
 
guaranteed
 
mortgage-backed
 
security,
 
the
 
MSR
 
is
 
recognized
 
by
 
the
Corporation.
 
During the quarter ended March 31,
 
2023, the Corporation repurchased approximately $
18
 
million (March 31, 2022 -
 
$
19
 
million) of
mortgage
 
loans
 
from
 
its
 
GNMA
 
servicing
 
portfolio.
 
The
 
determination
 
to
 
repurchase
 
these
 
loans
 
was
 
based
 
on
 
the
 
economic
benefits of the
 
transaction, which results in
 
a reduction of
 
the servicing costs
 
for these severely
 
delinquent loans, mainly
 
related to
principal and interest advances. The risk associated with
 
the loans is reduced due to their
 
guaranteed nature. The Corporation may
place these loans under modification programs offered by FHA, VA or United States Department of Agriculture (USDA)
 
or other loss
mitigation programs offered by the Corporation,
 
and once brought back to current status, these may be either retained in portfolio or
re-sold in the secondary market.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
68
Note 12 – Other real estate owned
The following tables present the
 
activity related to Other Real Estate
 
Owned (“OREO”),
 
for the quarters
 
ended March 31, 2023 and
2022.
For the quarter ended March 31, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,500
$
76,626
$
89,126
Write-downs in value
(194)
(751)
(945)
Additions
1,023
18,675
19,698
Sales
(941)
(15,099)
(16,040)
Other adjustments
-
(118)
(118)
Ending balance
$
12,388
$
79,333
$
91,721
For the quarter ended March 31, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
15,017
$
70,060
$
85,077
Write-downs in value
(364)
(328)
(692)
Additions
2,687
19,240
21,927
Sales
(1,980)
(13,543)
(15,523)
Other adjustments
108
(330)
(222)
Ending balance
$
15,468
$
75,099
$
90,567
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
69
Note 13 − Other assets
The caption of other assets in the consolidated
 
statements of financial condition consists of the following
 
major categories:
(In thousands)
March 31, 2023
December 31, 2022
Net deferred tax assets (net of valuation allowance)
$
907,689
$
953,676
Investments under the equity method
210,923
210,001
Prepaid taxes
34,585
39,405
Other prepaid expenses
32,131
33,384
Capitalized software costs
80,097
81,862
Derivative assets
19,365
19,229
Trades receivable from brokers and counterparties
10,638
35,099
Receivables from investments maturities
25,000
125,000
Principal, interest and escrow servicing advances
56,952
41,916
Guaranteed mortgage loan claims receivable
59,738
59,659
Operating ROU assets (Note 28)
119,895
125,573
Finance ROU assets (Note 28)
19,856
18,884
Others
126,416
104,125
Total other assets
$
1,703,285
$
1,847,813
The Corporation regularly incurs in
 
capitalizable costs associated with software development or
 
licensing which are recorded within
the Other Assets line item in the accompanying Consolidated Statements of Financial Condition.
 
In addition, the Corporation incurs
costs
 
associated
 
with
 
hosting
 
arrangements
 
that
 
are
 
service
 
contracts
 
that
 
are
 
also
 
recorded
 
within
 
Other
 
Assets.
 
The
 
hosting
arrangements can
 
include capitalizable
 
implementation costs
 
that are
 
amortized during
 
the term
 
of the
 
hosting arrangement.
The
following
 
table
 
summarizes
 
the
 
composition
 
of
 
acquired
 
or
 
developed
 
software
 
costs
 
as
 
well
 
as
 
costs
 
related
 
to
 
hosting
arrangements:
 
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
March 31, 2023
Software development costs
$
65,817
$
19,930
$
45,887
Software license costs
41,298
18,658
22,640
Cloud computing arrangements
21,244
9,674
11,570
Total Capitalized
 
software costs [1] [2]
$
128,359
$
48,262
$
80,097
December 31, 2022
Software development costs
$
63,609
$
16,803
$
46,806
Software license costs
37,165
14,164
23,001
Cloud computing arrangements
20,745
8,690
12,055
Total Capitalized
 
software costs [1] [2]
$
121,519
$
39,657
$
81,862
[1]
Software intangible assets is presented as part of Other
 
Assets in the Consolidated Statements of Financial
 
Condition.
[2]
The tables above excludes assets which have been fully
 
amortized.
Total
 
amortization expense for
 
all capitalized software
 
and hosting arrangement
 
cost, reflected as
 
part of
 
technology and software
expenses in the consolidated statement of operations,
 
is as follows:
Quarters ended March 31,
(In thousands)
2023
2022
Software development and license costs
$
14,991
$
11,755
Cloud computing arrangements
984
958
Total amortization
 
expense
$
15,975
$
12,713
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
70
Note 14 – Goodwill and other intangible assets
Goodwill
There were
no
 
changes in the carrying amount of goodwill for
 
the quarters ended March 31, 2023 and 2022.
The following tables present the gross amount of
 
goodwill and accumulated impairment losses by
 
reportable segments:
 
March 31, 2023
Balance at
Balance at
March 31,
Accumulated
March 31,
2023
impairment
 
2023
(In thousands)
 
(gross amounts)
losses
 
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
 
Inc.
 
$
1,004,640
$
177,212
$
827,428
December 31, 2022
 
Balance at
 
 
Balance at
 
December 31,
Accumulated
December 31,
2022
impairment
 
2022
(In thousands)
 
(gross amounts)
losses
 
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
 
Inc.
 
$
1,004,640
$
177,212
$
827,428
Other Intangible Assets
The following table reflects the components of
 
other intangible assets subject to amortization:
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
March 31, 2023
Core deposits
$
12,810
$
10,355
$
2,455
Other customer relationships
14,286
5,352
8,934
Total other intangible
 
assets
$
27,096
$
15,707
$
11,389
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
 
 
 
 
 
 
 
 
71
During the
 
quarter ended
 
March 31,
 
2023,
 
the
 
Corporation recognized
 
$
0.8
 
million
 
in
 
amortization expense
 
related to
 
intangible
assets with definite useful lives (March 31, 2022
 
- $
0.9
 
million).
 
The following
 
table presents
 
the estimated
 
amortization of
 
the intangible
 
assets with
 
definite useful
 
lives for
 
each of
 
the following
periods:
(In thousands)
Remaining 2023
$
2,384
Year 2024
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Later years
1,918
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
72
Note 15 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
March 31, 2023
December 31, 2022
Savings accounts
$
15,168,450
$
14,746,329
NOW, money market and other interest
 
bearing demand deposits
22,438,462
23,738,940
Total savings, NOW,
 
money market and other interest bearing demand
 
deposits
37,606,912
38,485,269
Certificates of deposit:
Under $250,000
4,690,631
4,235,651
$250,000 and over
2,715,495
2,545,750
 
Total certificates
 
of deposit
7,406,126
6,781,401
Total interest bearing
 
deposits
$
45,013,038
$
45,266,670
Non- interest bearing deposits
$
15,940,850
$
15,960,557
Total deposits
$
60,953,888
$
61,227,227
A summary of certificates of deposits by maturity at
 
March 31, 2023 follows:
 
(In thousands)
2023
$
3,522,720
2024
1,753,093
2025
818,396
2026
512,800
2027
456,013
2028 and thereafter
343,104
Total certificates of
 
deposit
$
7,406,126
At March 31, 2023, the Corporation had brokered
 
deposits amounting to $
1.2
 
billion (December 31, 2022 - $
1.1
 
billion).
The aggregate amount of overdrafts in demand
 
deposit accounts that were reclassified to loans was
 
$
5.4
 
million at March 31, 2023
(December 31, 2022 - $
6.3
 
million).
At March
 
31, 2023,
 
Puerto Rico
 
public sector
 
deposits amounted
 
to
 
$
15.5
 
billion. Puerto
 
Rico public
 
sector deposits
 
are interest
bearing
 
accounts.
 
Public
 
deposit
 
balances
 
are
 
difficult
 
to
 
predict.
 
For
 
example,
 
the
 
receipt
 
by
 
the
 
Puerto
 
Rico
 
Government
 
of
hurricane recovery related Federal assistance and seasonal
 
tax collections could increase public deposit balances at BPPR.
 
On the
other hand,
 
the amount and
 
timing of
 
reductions in balances
 
are likely to
 
be impacted by,
 
for example, the
 
speed at
 
which federal
assistance is
 
distributed,
 
the financial
 
condition, liquidity
 
and cash
 
management practices
 
of the
 
Puerto Rico
 
Government and
 
its
instrumentalities
 
and
 
the
 
implementation
 
of
 
fiscal
 
and
 
debt
 
adjustment
 
plans
 
approved
 
pursuant
 
to
 
PROMESA
 
or
 
other
 
actions
mandated
 
by
 
the
 
Fiscal
 
Oversight
 
and
 
Management
 
Board
 
for
 
Puerto
 
Rico
 
(the
 
“Oversight
 
Board”).
 
Generally,
 
these
 
deposits
require
 
that
 
the
 
bank
 
pledge
 
high
 
credit
 
quality
 
securities
 
as
 
collateral, therefore,
 
liquidity
 
risk
 
arising from
 
public sector
 
deposit
outflows are lower.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
73
Note 16 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
 
to $
123
 
million at March 31, 2023 and $
149
 
million at December 31, 2022.
The Corporation’s
 
repurchase transactions are
 
overcollateralized with the
 
securities detailed in
 
the table
 
below.
 
The Corporation’s
repurchase
 
agreements
 
have
 
a
 
right
 
of
 
set-off
 
with
 
the
 
respective
 
counterparty
 
under
 
the
 
supplemental
 
terms
 
of
 
the
 
master
repurchase agreements.
 
In an
 
event of
 
default,
 
each party
 
has a
 
right of
 
set-off against
 
the other
 
party for
 
amounts owed
 
in the
related
 
agreement
 
and
 
any
 
other
 
amount
 
or
 
obligation
 
owed
 
in
 
respect
 
of
 
any
 
other
 
agreement
 
or
 
transaction
 
between
 
them.
Pursuant to the
 
Corporation’s accounting policy,
 
the repurchase agreements
 
are not offset
 
with other repurchase
 
agreements held
with the same counterparty.
The following table
 
presents information related to
 
the Corporation’s repurchase
 
transactions accounted for as
 
secured borrowings
that are collateralized with
 
debt securities available-for-sale, debt securities
 
held-to-maturity, other assets
 
held-for-trading purposes
or which have been obtained under agreements to resell.
 
It is the Corporation’s policy to maintain effective control over assets
 
sold
under agreements
 
to repurchase;
 
accordingly,
 
such securities
 
continue to
 
be carried
 
on the
 
Consolidated Statements
 
of Financial
Condition.
Repurchase agreements accounted for as secured borrowings
March 31, 2023
December 31, 2022
Repurchase
Repurchase
(In thousands)
 
liability
 
liability
U.S. Treasury securities
Within 30 days
$
17,521
$
410
After 30 to 90 days
21,607
30,739
After 90 days
8,788
17,521
Total U.S. Treasury
 
securities
47,916
48,670
Mortgage-backed securities
 
Within 30 days
25,106
98,984
 
After 30 to 90 days
791
791
 
After 90 days
49,474
-
Total mortgage-backed
 
securities
75,371
99,775
Collateralized mortgage obligations
 
Within 30 days
212
164
Total collateralized
 
mortgage obligations
212
164
Total
$
123,499
$
148,609
Repurchase agreements in this portfolio
 
are generally short-term, often overnight.
 
As such our risk
 
is very limited.
 
We manage the
liquidity risks arising from secured
 
funding by sourcing funding globally from
 
a diverse group of counterparties, providing
 
a range of
securities collateral and pursuing longer durations,
 
when appropriate.
Other short-term borrowings
There
 
were
no
 
other
 
short-term
 
borrowings
 
outstanding
 
at
 
March
 
31,
 
2023,
 
compared
 
to
 
$
365
 
million
 
in
 
FHLB
 
Advances
 
at
December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
74
Notes Payable
The following table presents the composition of notes
 
payable at March 31, 2023 and December
 
31, 2022.
(In thousands)
March 31, 2023
December 31, 2022
Advances with the FHLB with maturities ranging from
2023
 
through
2029
 
paying interest at
monthly
fixed rates ranging from
0.39
% to
3.18
%
$
388,282
$
389,282
Unsecured senior debt securities with maturities ranging
 
from
2023
 
to
2028
 
paying interest
semiannually
 
at fixed rates ranging from
6.125
% to
7.25
%, net of debt issuance costs of $
7,481
692,519
299,109
Junior subordinated deferrable interest debentures (related to
 
trust preferred securities) maturing on
2034
 
with fixed interest rates ranging from
6.125
% to
6.564
%, net of debt issuance costs of $
308
198,326
198,319
Total notes payable
$
1,279,127
$
886,710
Note: Refer to the 2022 Form 10-K for rates information
 
at December 31, 2022.
A breakdown of borrowings by contractual maturities
 
at March 31, 2023 is included in the table
 
below.
 
Assets sold under
 
(In thousands)
agreements to
repurchase
Notes payable
Total
2023
$
118,894
$
341,687
$
460,581
2024
4,605
91,943
96,548
2025
-
139,920
139,920
2026
-
74,500
74,500
Later years
-
631,077
631,077
Total borrowings
$
123,499
$
1,279,127
$
1,402,626
At March
 
31, 2023
 
and December 31,
 
2022, the
 
Corporation had FHLB
 
borrowing facilities whereby
 
the Corporation could
 
borrow
up to
 
$
3.4
 
billion and $
3.3
 
billion, respectively,
 
of which $
0.4
 
billion and $
0.8
 
billion, respectively,
 
were used. In
 
addition, at March
31, 2023 and December 31, 2022, the Corporation had placed $
0.3
 
billion and $
0.4
 
billion, respectively, of the available FHLB credit
facility as collateral for
 
municipal letters of credit
 
to secure deposits. The
 
FHLB borrowing facilities are
 
collateralized with
 
securities
and loans held-in-portfolio, and do not have restrictive
 
covenants or callable features.
 
Also, at March 31,
 
2023, the Corporation has a
 
borrowing facility at the discount
 
window of the Federal Reserve Bank
 
of New York
amounting to
 
$
1.5
 
billion (December 31,
 
2022 -
 
$
1.4
 
billion), which remained
 
unused at March
 
31, 2023
 
and December
 
31, 2022.
 
The facility is a collateralized source of credit that
 
is highly reliable even under difficult market conditions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75
Note 17 − Other liabilities
The caption of other liabilities in the consolidated
 
statements of financial condition consists of the following
 
major categories:
(In thousands)
March 31, 2023
December 31, 2022
Accrued expenses
$
286,567
$
337,284
Accrued interest payable
36,442
39,288
Accounts payable
87,642
76,456
Dividends payable
39,586
39,525
Trades payable
402
9,461
Liability for GNMA loans sold with an option to repurchase
7,086
14,271
Reserves for loan indemnifications
6,472
7,520
Reserve for operational losses
37,165
39,266
Operating lease liabilities (Note 28)
131,438
137,290
Finance lease liabilities (Note 28)
25,729
24,737
Pension benefit obligation
7,544
8,290
Postretirement benefit obligation
118,308
118,336
Others
64,139
65,222
Total other liabilities
$
848,520
$
916,946
76
Note 18 – Stockholders’
 
equity
 
As of March 31,
 
2023, stockholders’ equity totaled $
4.5
 
billion. During the quarter
 
ended March 31, 2023, the
 
Corporation declared
cash dividends of $
0.55
 
(2022 - $
0.55
) per common share amounting to
 
$
39.6
 
million (2022 - $
42.0
 
million). The quarterly dividend
declared to stockholders of record as of the close
 
of business on
March 20, 2023
 
was paid on
April 3, 2023
.
Accelerated share repurchase transaction (“ASR”)
 
On
 
March
 
1,
 
2022,
 
the
 
Corporation announced
 
that
 
on
 
February 28,
 
2022
 
it
 
entered
 
into
 
a
 
$
400
 
million
 
ASR
 
transactions
 
with
respect to
 
its common
 
stock, which
 
was accounted
 
for as
 
a treasury
 
transaction. As
 
a result
 
of the
 
receipt of
 
the initial
3,483,942
shares,
 
the
 
Corporation
 
recognized
 
in
 
stockholders’
 
equity
 
approximately
 
$
320
 
million
 
in
 
treasury
 
stock
 
and
 
$
80
 
million
 
as
 
a
reduction of capital surplus.
 
The Corporation completed the
 
transaction on July
 
12, 2022 and received
1,582,922
 
additional shares
of
 
common stock
 
and
 
recognized $
120
 
million in
 
treasury stock
 
with a
 
corresponding increase
 
in its
 
capital surplus.
 
In
 
total, the
Corporation repurchased a total of
5,066,864
 
shares at an average purchased price of $
78.9443
 
under the ASR.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
Note 19 – Other comprehensive loss
 
The following
 
table presents
 
changes in
 
accumulated other
 
comprehensive loss
 
by component
 
for the
 
quarters ended
 
March 31,
2023 and 2022.
Changes in Accumulated Other Comprehensive Loss
 
by Component [1]
Quarters ended March 31,
(In thousands)
2023
2022
Foreign currency translation
Beginning Balance
$
(56,735)
$
(67,307)
Other comprehensive loss
(5,245)
(2,858)
Net change
(5,245)
(2,858)
Ending balance
$
(61,980)
$
(70,165)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(144,335)
$
(158,994)
Other comprehensive loss before reclassifications
-
1,269
Amounts reclassified from accumulated other comprehensive
 
loss for
amortization of net losses
3,008
2,444
Net change
3,008
3,713
Ending balance
$
(141,327)
$
(155,281)
Unrealized net holding losses on
debt securities
Beginning Balance
$
(2,323,903)
$
(96,120)
Other comprehensive income (loss) before reclasifications
191,752
(1,075,830)
Amounts reclassified from accumulated other comprehensive loss
 
for
amortization of net unrealized losses of debt securities
 
transferred from
available-for-sale to held-to-maturity
33,633
-
Net change
225,385
(1,075,830)
Ending balance
$
(2,098,518)
$
(1,171,950)
Unrealized net gains on cash
flow hedges
Beginning Balance
$
45
$
(2,648)
Other comprehensive (loss) income before reclassifications
(19)
3,139
Amounts reclassified from accumulated other comprehensive
 
gains
(26)
(333)
Net change
(45)
2,806
Ending balance
$
-
$
158
Total
 
$
(2,301,825)
$
(1,397,238)
[1] All amounts presented are net of tax.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78
The following table
 
presents the amounts
 
reclassified out of
 
each component of
 
accumulated other comprehensive loss
 
during the
quarters ended March 31, 2023 and 2022.
Reclassifications Out of Accumulated Other Comprehensive
 
Loss
Affected Line Item in the
 
Quarters ended March 31,
(In thousands)
Consolidated Statements of Operations
2023
2022
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(4,813)
$
(3,911)
Total before tax
(4,813)
(3,911)
Income tax benefit
1,805
1,467
Total net of tax
$
(3,008)
$
(2,444)
Unrealized holding losses on debts securities
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Investment securities
$
(42,040)
$
-
Total before tax
(42,040)
-
Income tax benefit
8,407
-
Total net of tax
$
(33,633)
$
-
Unrealized net gains on cash flow hedges
Forward contracts
Mortgage banking activities
$
41
$
978
Interest rate swaps
Other operating income
$
-
$
(279)
Total before tax
41
699
Income tax expense
(15)
(366)
Total net of tax
$
26
$
333
Total reclassification
 
adjustments, net of tax
$
(36,615)
$
(2,111)
 
 
 
 
 
 
 
 
79
Note 20 – Guarantees
At
 
March
 
31,
 
2023
 
the
 
Corporation
 
had
 
a
 
liability
 
of
 
$
0.2
 
million
 
(December
 
31,
 
2022
 
-
 
$
0.3
 
million),
 
which
 
represents
 
the
unamortized balance of the obligations
 
undertaken in issuing the
 
guarantees under the standby letters
 
of credit. Management does
not anticipate any material losses related to these
 
instruments.
From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in
certain instances, lifetime credit
 
recourse on the loans
 
that serve as
 
collateral for the
 
mortgage-backed securities. The Corporation
has not
 
sold any
 
mortgage loans
 
subject to
 
credit recourse
 
since 2009.
 
At March
 
31, 2023,
 
the Corporation
 
serviced $
0.6
 
billion
(December 31,
 
2022 -
 
$
0.6
 
billion) in residential
 
mortgage loans
 
subject to
 
credit recourse
 
provisions, principally loans
 
associated
with FNMA
 
and FHLMC
 
residential mortgage
 
loan securitization
 
programs. In
 
the event
 
of any
 
customer default,
 
pursuant to
 
the
credit recourse
 
provided, the
 
Corporation is
 
required to
 
repurchase the
 
loan or
 
reimburse the
 
third party
 
investor for
 
the incurred
loss.
 
The
 
maximum
 
potential
 
amount
 
of
 
future
 
payments
 
that
 
the
 
Corporation
 
would
 
be
 
required
 
to
 
make
 
under
 
the
 
recourse
arrangements
 
in
 
the
 
event
 
of
 
nonperformance by
 
the
 
borrowers
 
is
 
equivalent
 
to
 
the
 
total
 
outstanding
 
balance
 
of
 
the
 
residential
mortgage
 
loans
 
serviced
 
with
 
recourse
 
and
 
interest,
 
if
 
applicable.
 
During
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
 
Corporation
repurchased approximately $
1
 
million of unpaid principal balance in mortgage loans subject to the credit recourse provisions (March
31,
 
2022
-
$
3
 
million).
 
In
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
borrower,
 
the
 
Corporation
 
has
 
rights
 
to
 
the
 
underlying
 
collateral
securing the
 
mortgage loan. The
 
Corporation suffers
 
ultimate losses on
 
these loans when
 
the proceeds from
 
a foreclosure sale
 
of
the property underlying
 
a defaulted mortgage
 
loan are less
 
than the outstanding
 
principal balance of
 
the loan plus
 
any uncollected
interest
 
advanced
 
and
 
the
 
costs
 
of
 
holding
 
and
 
disposing
 
the
 
related
 
property.
 
At
 
March
 
31,
 
2023
 
the
 
Corporation’s
 
liability
established to cover the estimated credit loss exposure related to loans sold
 
or serviced with credit recourse amounted to $
6
 
million
(December 31, 2022 - $
7
 
million).
The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse
provisions during the quarters ended March 31, 2023
 
and 2022.
Quarters ended March 31,
(In thousands)
2023
2022
Balance as of beginning of period
$
6,897
$
11,800
Provision (benefit) for recourse liability
(654)
46
Net charge-offs
(379)
(1,511)
Balance as of end of period
$
5,864
$
10,335
When the
 
Corporation sells or
 
securitizes mortgage loans,
 
it generally makes
 
customary representations and
 
warranties regarding
the characteristics of the loans
 
sold. To
 
the extent the loans do
 
not meet specified characteristics, the Corporation may
 
be required
to
 
repurchase such
 
loans
 
or
 
indemnify for
 
losses
 
and
 
bear
 
any
 
subsequent
 
loss
 
related
 
to
 
the
 
loans.
 
During
 
the
 
quarter
 
ended
March 31,
 
2023, the
 
Corporation purchased
 
$
134
 
thousand under
 
representation and
 
warranty arrangements
 
compared to
 
$
927
thousand
 
during the
 
quarter ended
 
March
 
31,
 
2022. 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 March 31,
 
2023, 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, 2022 - $
0.6
 
million).
Servicing agreements
 
relating to
 
the mortgage-backed
 
securities programs
 
of FNMA,
 
FHLMC and
 
GNMA, and
 
to mortgage
 
loans
sold or serviced to certain other investors, including FHLMC,
 
require the Corporation to advance funds to make
 
scheduled payments
of principal,
 
interest, taxes
 
and insurance,
 
if such
 
payments have
 
not been
 
received from
 
the borrowers.
 
At March
 
31, 2023,
 
the
Corporation serviced
 
$
10.9
 
billion in
 
mortgage loans
 
for third-parties,
 
including the
 
loans serviced
 
with credit
 
recourse (December
31, 2022
 
- $
11.1
 
billion). The
 
Corporation generally
 
recovers funds
 
advanced pursuant
 
to these
 
arrangements from
 
the mortgage
owner, from
 
liquidation proceeds when the
 
mortgage loan is foreclosed
 
or, in
 
the case of
 
FHA/VA loans,
 
under the applicable FHA
and
 
VA
 
insurance
 
and
 
guarantees
 
programs.
 
However,
 
in
 
the
 
meantime,
 
the
 
Corporation
 
must
 
absorb
 
the
 
cost
 
of
 
the
 
funds
 
it
advances
 
during
 
the
 
time
 
the
 
advance
 
is
 
outstanding.
 
The
 
Corporation
 
must
 
also
 
bear
 
the
 
costs
 
of
 
attempting
 
to
 
collect
 
on
delinquent and defaulted mortgage loans. In
 
addition, if a defaulted loan
 
is not cured, the mortgage
 
loan would be canceled as
 
part
80
of the foreclosure proceedings and the Corporation
 
would not receive any future servicing income with
 
respect to that loan. At March
31,
 
2023,
 
the
 
outstanding
 
balance
 
of
 
funds
 
advanced
 
by
 
the
 
Corporation under
 
such
 
mortgage
 
loan
 
servicing
 
agreements
 
was
approximately
 
$
57
 
million
 
(December
 
31,
 
2022
 
-
 
$
42
 
million).
 
To
 
the
 
extent
 
the
 
mortgage
 
loans
 
underlying
 
the
 
Corporation’s
servicing portfolio experience
 
increased delinquencies, the Corporation
 
would be required
 
to dedicate additional
 
cash resources to
comply with its obligation to advance funds as well
 
as incur additional administrative costs related
 
to increases in collection efforts.
Popular,
 
Inc. Holding
 
Company (“PIHC”) fully
 
and unconditionally guarantees
 
certain borrowing
 
obligations issued by
 
certain of
 
its
100
% owned consolidated
 
subsidiaries amounting to
 
$
94
 
million at March
 
31, 2023 and
 
December 31, 2022.
 
In addition, at
 
March
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
PIHC
 
fully
 
and
 
unconditionally
 
guaranteed
 
on
 
a
 
subordinated
 
basis
 
$
193
 
million
 
of
 
capital
securities (trust preferred securities) issued by
 
wholly-owned issuing trust entities to the
 
extent set forth in the
 
applicable guarantee
agreement. Refer
 
to Note
 
18 to
 
the Consolidated
 
Financial Statements
 
in the
 
2022 Form
 
10-K for
 
further information
 
on the
 
trust
preferred securities.
 
 
 
 
 
 
 
 
 
 
 
 
 
81
Note 21 – Commitments and contingencies
Off-balance sheet risk
The Corporation
 
is a
 
party to
 
financial instruments
 
with off-balance
 
sheet credit
 
risk in
 
the normal
 
course of
 
business to
 
meet the
financial needs of its customers. These financial instruments
 
include loan commitments, letters of credit and standby
 
letters of credit.
These instruments involve,
 
to varying
 
degrees, elements of
 
credit and
 
interest rate
 
risk in
 
excess of
 
the amount
 
recognized in
 
the
consolidated statements of financial condition.
The
 
Corporation’s
 
exposure
 
to
 
credit
 
loss
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
other
 
party
 
to
 
the
 
financial
 
instrument
 
for
commitments to extend credit, standby
 
letters of credit and financial
 
guarantees is represented by the
 
contractual notional amounts
of those instruments. The
 
Corporation uses the same
 
credit policies in
 
making these commitments and conditional
 
obligations as it
does for those reflected on the consolidated statements
 
of financial condition.
Financial instruments with
 
off-balance sheet credit
 
risk, whose contract
 
amounts represent potential credit
 
risk as of
 
the end of
 
the
periods presented were as follows:
(In thousands)
March 31, 2023
December 31, 2022
Commitments to extend credit:
Credit card lines
$
5,956,261
$
5,853,990
Commercial and construction lines of credit
4,727,401
4,425,825
Other consumer unused credit commitments
 
249,773
250,271
Commercial letters of credit
1,982
3,351
Standby letters of credit
28,938
27,868
Commitments to originate or fund mortgage loans
36,662
45,170
At March
 
31, 2023
 
and December
 
31, 2022,
 
the Corporation
 
maintained a
 
reserve of
 
approximately $
9.4
 
million and
 
$
8.8
 
million,
respectively, for potential losses associated with unfunded loan commitments
 
related to commercial
 
and construction lines of credit.
Other commitments
At March 31,
 
2023 and December 31,
 
2022, the Corporation also
 
maintained other non-credit commitments for
 
approximately $
4.8
million, primarily for the acquisition of other investments.
 
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition
are dependent
 
upon the
 
general trends
 
of the
 
Puerto Rico
 
economy and,
 
in particular,
 
the residential
 
and commercial
 
real estate
markets. The concentration
 
of the Corporation’s
 
operations in Puerto Rico
 
exposes it to
 
greater risk than other
 
banking companies
with a wider geographic base. Its
 
asset and revenue composition by geographical area
 
is presented in Note 33
 
to the Consolidated
Financial Statements.
 
Puerto
 
Rico
 
has
 
faced
 
significant
 
fiscal
 
and
 
economic
 
challenges
 
for
 
over
 
a
 
decade.
 
In
 
response
 
to
 
such
 
challenges,
 
the
 
U.S.
Congress enacted the
 
Puerto Rico Oversight
 
Management and Economic Stability
 
Act (“PROMESA”) in
 
2016, which, among
 
other
things,
 
established
 
the
 
Oversight
 
Board
 
and
 
a
 
framework
 
for
 
the
 
restructuring
 
of
 
the
 
debts
 
of
 
the
 
Commonwealth,
 
its
instrumentalities and
 
municipalities.
 
The
 
Commonwealth and
 
several
 
of
 
its
 
instrumentalities have
 
commenced
 
debt
 
restructuring
proceedings under
 
PROMESA. As
 
of the
 
date of
 
this report,
 
while municipalities
 
have been
 
designated as
 
covered entities
 
under
PROMESA,
 
no
 
municipality
 
has
 
commenced,
 
or
 
has
 
been
 
authorized
 
by
 
the
 
Oversight
 
Board
 
to
 
commence,
 
any
 
such
 
debt
restructuring proceeding under PROMESA.
At
 
March 31,
 
2023, the
 
Corporation’s
 
direct exposure
 
to
 
the Puerto
 
Rico
 
government and
 
its
 
instrumentalities and
 
municipalities
totaled $
353
 
million, of which
 
$
324
 
million were outstanding
 
($
374
 
million and $
327
 
million at December
 
31, 2022). Of
 
the amount
outstanding,
 
$
302
 
million
 
consists
 
of
 
loans
 
and
 
$
22
 
million
 
are
 
securities
 
($
302
 
million
 
and
 
$
25
 
million
 
at
 
December 31,
 
2022).
Substantially all
 
of the
 
amount outstanding
 
at March
 
31, 2023
 
and December
 
31, 2022
 
were obligations from
 
various Puerto
 
Rico
municipalities. In most cases, these were “general obligations” of a municipality, to
 
which the applicable municipality has pledged its
good
 
faith,
 
credit
 
and
 
unlimited taxing
 
power,
 
or
 
“special
 
obligations”
 
of
 
a
 
municipality,
 
to
 
which
 
the
 
applicable
 
municipality
 
has
pledged other revenues. At March 31, 2023,
73
% of the Corporation’s exposure to municipal loans and securities
 
was concentrated
in the municipalities of San Juan, Guaynabo, Carolina
 
and Bayamón.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82
The following table details the loans and investments representing the Corporation’s direct exposure to
 
the Puerto Rico government
according to their maturities as of March 31, 2023:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
10
$
-
$
10
$
10
After 5 to 10 years
1
-
1
1
After 10 years
30
-
30
30
Total Central
 
Government
41
-
41
41
Municipalities
Within 1 year
4,730
20,243
24,973
24,973
After 1 to 5 years
15,805
101,009
116,814
145,814
After 5 to 10 years
1,025
131,202
132,227
132,227
After 10 years
-
49,831
49,831
49,831
Total Municipalities
21,560
302,285
323,845
352,845
Total Direct Government
 
Exposure
$
21,601
$
302,285
$
323,886
$
352,886
In addition, at March
 
31, 2023, the Corporation had
 
$
245
 
million in loans insured
 
or securities issued by
 
Puerto Rico governmental
entities but for
 
which the principal
 
source of
 
repayment is non-governmental
 
($
251
 
million at December
 
31, 2022). These
 
included
$
204
 
million
 
in
 
residential
 
mortgage
 
loans
 
insured
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“HFA”),
 
a
 
governmental
instrumentality
 
that
 
has
 
been
 
designated
 
as
 
a
 
covered
 
entity
 
under
 
PROMESA
 
(December
 
31,
 
2022
 
-
 
$
209
 
million).
 
These
mortgage loans
 
are secured
 
by first
 
mortgages on
 
Puerto Rico
 
residential properties
 
and the
 
HFA
 
insurance covers
 
losses in
 
the
event of a
 
borrower default and upon
 
the satisfaction of certain
 
other conditions. The Corporation
 
also had at March
 
31, 2023, $
41
million in
 
bonds issued by
 
HFA which
 
are secured by
 
second mortgage loans
 
on Puerto Rico
 
residential properties, and
 
for which
HFA also provides
 
insurance to cover losses in the
 
event of a borrower default and
 
upon the satisfaction of certain other
 
conditions
(December 31,
 
2022 -
 
$
42
 
million). In
 
the event
 
that the
 
mortgage loans
 
insured by
 
HFA
 
and held
 
by the
 
Corporation directly
 
or
those serving
 
as collateral
 
for the
 
HFA
 
bonds default
 
and the
 
collateral is
 
insufficient to
 
satisfy the
 
outstanding balance
 
of these
loans,
 
HFA’s
 
ability
 
to
 
honor
 
its
 
insurance
 
will
 
depend, among
 
other factors,
 
on
 
the
 
financial
 
condition
 
of
 
HFA
 
at
 
the
 
time
 
such
obligations
 
become
 
due
 
and
 
payable. The
 
Corporation does
 
not consider
 
the
 
government guarantee
 
when
 
estimating the
 
credit
losses
 
associated
 
with
 
this
 
portfolio.
 
Although
 
the
 
Governor
 
is
 
currently
 
authorized
 
by
 
local
 
legislation
 
to
 
impose
 
a
 
temporary
moratorium on the financial obligations of the HFA, a moratorium on
 
such obligations has not been imposed as of
 
the date hereof.
 
BPPR’s
 
commercial loan
 
portfolio also
 
includes loans
 
to
 
private borrowers
 
who
 
are service
 
providers, lessors,
 
suppliers or
 
have
other relationships with the government. These
 
borrowers could be negatively affected by
 
the Commonwealth’s fiscal crisis and
 
the
ongoing
 
Title
 
III
 
proceedings
 
under
 
PROMESA.
 
Similarly,
 
BPPR’s
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
include
 
loans
 
to
government
 
employees
 
and
 
retirees,
 
which
 
could
 
also
 
be
 
negatively
 
affected
 
by
 
fiscal
 
measures
 
such
 
as
 
employee
 
layoffs
 
or
furloughs or reductions in pension benefits.
 
In
 
addition, $
1.6
 
billion of
 
residential mortgages,
 
$
27
 
million of
 
Small Business
 
Administration (“SBA”)
 
loans under
 
the Paycheck
Protection Program (“PPP”) and
 
$
73
 
million commercial loans were
 
insured or guaranteed
 
by the U.S.
 
Government or its agencies
at March 31, 2023 (compared to $
1.6
 
billion, $
38
 
million and $
72
 
million, respectively, at December 31, 2022). The Corporation also
had U.S. Treasury
 
and obligations from the
 
U.S. Government, its
 
agencies or government sponsored
 
entities within the
 
portfolio
 
of
available-for-sale and held-to-maturity securities as described
 
in Note 6 and 7 to the Consolidated Financial
 
Statements.
At
 
March
 
31,
 
2023, the
 
Corporation has
 
operations in
 
the
 
United
 
States
 
Virgin
 
Islands
 
(the
 
“USVI”) and
 
has
 
approximately
 
$
28
million
 
in
 
direct
 
exposure
 
to
 
USVI
 
government
 
entities
 
(December
 
31,
 
2022
 
-
 
$
28
 
million).
 
The
 
USVI
 
has
 
been
 
experiencing
 
a
number of
 
fiscal and
 
economic challenges
 
that could
 
adversely affect
 
the ability
 
of its
 
public corporations
 
and instrumentalities
 
to
service their outstanding debt obligations.
 
At March
 
31, 2023,
 
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
83
approximately
 
$
210
 
million
 
comprised
 
of
 
various
 
retail
 
and
 
commercial
 
clients,
 
compared
 
to
 
a
 
loan
 
portfolio
 
of
 
$
214
 
million
 
at
December 31, 2022.
Legal Proceedings
The
 
nature
 
of
 
Popular’s
 
business
 
ordinarily
 
generates
 
claims,
 
litigation,
 
investigations,
 
and
 
legal
 
and
 
administrative
 
cases
 
and
proceedings
 
(collectively,
 
“Legal Proceedings”).
 
When the
 
Corporation determines
 
that
 
it
 
has
 
meritorious
 
defenses to
 
the
 
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment,
 
it is in the
 
best interest of the Corporation
 
and its stockholders to do
 
so. On at least
 
a
quarterly basis, Popular assesses its liabilities and contingencies relating
 
to outstanding Legal Proceedings utilizing the most current
information
 
available.
 
For
 
matters
 
where
 
it
 
is
 
probable
 
that
 
the
 
Corporation
 
will
 
incur
 
a
 
material
 
loss
 
and
 
the
 
amount
 
can
 
be
reasonably estimated,
 
the Corporation
 
establishes an
 
accrual for
 
the loss.
 
Once established,
 
the accrual
 
is adjusted
 
on at
 
least a
quarterly
 
basis
 
to
 
reflect
 
any
 
relevant
 
developments,
 
as
 
appropriate.
 
For
 
matters
 
where
 
a
 
material
 
loss
 
is
 
not
 
probable,
 
or
 
the
amount of the loss cannot be reasonably estimated,
 
no accrual is established.
 
In certain cases,
 
exposure to loss
 
exists in
 
excess of any
 
accrual to the
 
extent such loss
 
is reasonably possible,
 
but not
 
probable.
Management believes and
 
estimates that the
 
range of reasonably
 
possible losses (with
 
respect to those
 
matters where such
 
limits
may be
 
determined, in
 
excess of amounts
 
accrued) for current
 
Legal Proceedings ranged
 
from $
0
 
to approximately $
16.04
 
million
as
 
of
 
March
 
31,
 
2023.
 
In
 
certain
 
cases,
 
management
 
cannot
 
reasonably
 
estimate
 
the
 
possible
 
loss
 
at
 
this
 
time.
 
Any
 
estimate
involves significant judgment, given the
 
varying stages of the
 
Legal Proceedings (including the fact
 
that many of them
 
are currently
in preliminary stages), the
 
existence of multiple
 
defendants in several of
 
the current Legal Proceedings
 
whose share of liability
 
has
yet to be determined, the numerous unresolved issues in
 
many of the Legal Proceedings, and the inherent uncertainty
 
of the various
potential
 
outcomes
 
of
 
such
 
Legal
 
Proceedings.
 
Accordingly,
 
management’s
 
estimate
 
will
 
change
 
from
 
time-to-time,
 
and
 
actual
losses may be more or less than the current estimate.
 
While the
 
outcome of
 
Legal Proceedings
 
is inherently
 
uncertain, based
 
on information
 
currently available,
 
advice of
 
counsel, and
available
 
insurance
 
coverage,
 
management
 
believes
 
that
 
the
 
amount
 
it
 
has
 
already
 
accrued
 
is
 
adequate
 
and
 
any
 
incremental
liability arising from
 
the Legal Proceedings
 
in matters in
 
which a loss
 
amount can be
 
reasonably estimated will not
 
have a material
adverse effect
 
on the Corporation’s
 
consolidated financial position.
 
However, in
 
the event
 
of unexpected future
 
developments, it is
possible that
 
the ultimate
 
resolution of
 
these matters
 
in a
 
reporting period, if
 
unfavorable, could have
 
a material
 
adverse effect
 
on
the Corporation’s consolidated financial position for that period.
 
Set forth below is a description of the Corporation’s
 
significant Legal Proceedings.
BANCO POPULAR DE PUERTO RICO
Mortgage-Related Litigation
 
BPPR was
 
named a
 
defendant in
 
a putative
 
class action
 
captioned Yiries
 
Josef Saad
 
Maura v.
 
Banco Popular,
 
et al.
 
on behalf
 
of
residential
 
customers
 
of
 
the
 
defendant
 
banks
 
who
 
have
 
allegedly
 
been
 
subject
 
to
 
illegal
 
foreclosures
 
and/or
 
loan
 
modifications
through
 
their
 
mortgage
 
servicers.
 
Plaintiffs
 
contend
 
that
 
when
 
they
 
sought
 
to
 
reduce
 
their
 
loan
 
payments,
 
defendants
 
failed
 
to
provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure
claims
 
against
 
them
 
in
 
parallel,
 
all
 
in
 
violation
 
of
 
the
 
Truth
 
In
 
Lending
 
Act
 
(“TILA”),
 
the
 
Real
 
Estate
 
Settlement
 
Procedures
 
Act
(“RESPA”),
 
the Equal
 
Credit Opportunity Act
 
(“ECOA”), the
 
Fair Credit
 
Reporting Act
 
(“FCRA”), the
 
Fair Debt
 
Collection Practices
Act (“FDCPA”)
 
and other consumer-protection laws
 
and regulations. Plaintiffs did
 
not include a specific
 
amount of damages in
 
their
complaint. After waiving service
 
of process, BPPR filed
 
a motion to
 
dismiss the complaint
 
(as did most
 
co-defendants, separately).
 
BPPR
 
further
 
filed
 
a
 
motion
 
to
 
oppose
 
class
 
certification,
 
which the
 
Court
 
granted
 
in
 
September
 
2018.
 
In
 
April
 
2019,
 
the
 
Court
entered an
 
Opinion and
 
Order granting
 
BPPR’s and
 
several other
 
defendants’ motions
 
to dismiss
 
with prejudice.
 
Plaintiffs filed
 
a
Motion for Reconsideration in April 2019, which Popular timely opposed. In September 2019, the Court issued an Amended Opinion
and Order dismissing plaintiffs’ claims against all
 
defendants, denying the reconsideration requests and other pending motions, and
issuing final
 
judgment.
 
In October
 
2019, plaintiffs
 
filed a
 
Motion for
 
Reconsideration of
 
the Court’s
 
Amended Opinion
 
and Order,
which was denied
 
in December 2019.
 
In January
 
2020, plaintiffs filed
 
a Notice
 
of Appeal to
 
the U.S. Court
 
of Appeals for
 
the First
Circuit.
 
Plaintiffs filed their
 
appeal brief in
 
July 2020, Appellees
 
filed their brief
 
in September 2020,
 
and Appellants filed
 
their reply
brief in January 2021. On March
 
13, 2023, the U.S. Court of
 
Appeals for the First Circuit entered
 
judgment affirming the trial court’s
84
order dismissing
 
the complaint.
 
On
 
March 23,
 
2023, Plaintiffs
 
filed
 
a
 
Petition for
 
Rehearing and/or
 
Rehearing en
 
Banc,
 
which is
pending resolution.
 
Insufficient Funds and Overdraft Fees Class Actions
In February
 
2020, BPPR
 
was served
 
with a
 
putative class
 
action complaint captioned
 
Soto-Melendez v.
 
Banco Popular
 
de Puerto
Rico, filed before the United States District
 
Court for the District of Puerto Rico.
 
The complaint alleges breach of contract, breach of
the covenant of good faith and fair dealing
 
and unjust enrichment due to BPPR’s purported practice of (a)
 
assessing more than one
insufficient funds fee (“NSF Fees”) on the
 
same ACH “item” or transaction and (b) charging
 
both NSF Fees and overdraft fees (“OD
Fees”) on
 
the same
 
ACH item
 
or transaction,
 
and is
 
filed on
 
behalf of
 
all persons
 
who during
 
the applicable
 
statute of
 
limitations
period
 
were
 
charged
 
NSF
 
Fees
 
and/or
 
OD
 
Fees
 
pursuant
 
to
 
these
 
purported
 
practices.
 
In
 
April
 
2020,
 
BPPR
 
filed
 
a
 
motion
 
to
dismiss the case. In April
 
2021, the Court issued an order granting
 
in part and denying in part
 
BPPR’s motion to dismiss; the
 
unjust
enrichment claim
 
was dismissed,
 
whereas the
 
breach of
 
contract and
 
covenant of
 
good faith
 
and fair
 
dealing claims
 
survived the
motion.
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,
 
on
 
March 14,
 
2023, it
 
held a
 
hearing granting
 
final
 
approval to
 
the settlement
 
agreement. These
matters are now closed.
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 2022, and several other
 
trial-related deadlines for June 2023.
 
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
 
submitted 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.
 
On
 
March
 
31,
 
2023,
 
the
 
Court
 
issued
 
an
 
order
 
granting
 
preliminary
 
approval
 
of
 
the
settlement agreement and scheduled the final approval
 
hearing for September 8, 2023.
On January
 
31, 2022,
 
Popular was
 
also named
 
as a
 
defendant on
 
a putative
 
class action
 
complaint captioned
 
Lipsett v.
 
Popular,
Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District
 
of New York, seeking damages, restitution and
85
injunctive relief. Similar to the claims set forth in the
 
aforementioned Golden complaint, Plaintiff alleges breach of contract, including
violations of the covenant of good faith and
 
fair dealing, as a result of Popular’s purported practice of
 
charging OD Fees for APPSN
transactions.
 
The complaint further alleged that
 
Popular assesses OD Fees
 
over authorized transactions for
 
which sufficient funds
are held for settlement. Popular waived service of process
 
and filed a Motion to Compel Arbitration. In response to Popular’s
 
motion,
Plaintiff filed a Notice of Voluntary Dismissal in April 2022.
 
On May
 
13, 2022,
 
Plaintiff in
 
the Lipsett
 
complaint filed
 
a new
 
complaint captioned
 
Lipsett v.
 
Banco Popular
 
North America
 
d/b/a
Popular
 
Community Bank
 
with the
 
same
 
allegations of
 
his
 
previous complaint
 
against Popular.
 
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
(“PB”) 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 PB
 
to
 
file its
 
Motion to
 
Compel Arbitration,
 
which it
 
did on
September 8, 2022. Plaintiff opposed 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 PB’s Motion to
 
Compel Arbitration. On December 20, 2022,
PB
 
filed
 
a
 
Notice
 
of
 
Appeal
 
with the
 
United States
 
Court
 
of
 
Appeals for
 
the Second
 
Circuit.
 
On January
 
31,
 
2022, the
 
Court
 
of
Appeals issued
 
a briefing
 
schedule granting
 
PB 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. On April 5,
2023, PB filed its appeal brief and, on April 10,
 
2023, Plaintiff filed a scheduling request to file his opposition
 
brief by July 5, 2023.
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. On March 31,
 
2023, the U.S. District
Court for
 
the District
 
of Puerto
 
Rico issued
 
an Opinion
 
and Order
 
granting BPPR’s
 
Motion to
 
Dismiss for
 
lack of
 
jurisdiction, and
entered a judgement dismissing the complaint without prejudice.
 
Plaintiff’s notice of appeal is due on May 3, 2023. Since plaintiff did
not file a notice of appeal, the judgment became
 
final. This matter is 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
 
March
 
31,
 
2023,
 
was
 
named
 
as
 
a
 
respondent
 
(among
 
other
 
broker-dealers)
 
in
8
 
pending
 
arbitration
proceedings with
 
initial claimed
 
amounts of
 
approximately $
10.4
 
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
86
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
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. On March 28, 2023, the Popular
 
Companies and the Puerto
Rico Avoidance Action Trust executed a settlement agreement as to potential claims related to the role of the Popular Companies in
the offering of the challenged bond issuances. This matter
 
is now closed.
87
Note 22 – Non-consolidated variable interest
 
entities
The Corporation is
 
involved with
three
 
statutory trusts which
 
it created to
 
issue trust preferred
 
securities to the
 
public. These trusts
are deemed to be variable interest entities (“VIEs”) since the equity investors at risk have no substantial decision-making rights. The
Corporation does not
 
hold any variable
 
interest in the
 
trusts, and therefore,
 
cannot be the
 
trusts’ primary beneficiary.
 
Furthermore,
the
 
Corporation concluded
 
that
 
it did
 
not
 
hold
 
a
 
controlling financial
 
interest
 
in
 
these
 
trusts
 
since the
 
decisions
 
of
 
the
 
trusts
 
are
predetermined through
 
the trust
 
documents and the
 
guarantee of
 
the trust
 
preferred securities is
 
irrelevant since
 
in substance
 
the
sponsor is guaranteeing its own debt.
Also, the
 
Corporation is
 
involved with
 
various special
 
purpose entities
 
mainly in
 
guaranteed mortgage
 
securitization transactions,
including
 
GNMA
 
and
 
FNMA.
The
 
Corporation
 
has
 
also
 
engaged
 
in
 
securitization
 
transactions
 
with
 
FHLMC,
 
but
 
considers
 
its
exposure
 
in
 
the
 
form
 
of
 
servicing
 
fees
 
and
 
servicing
 
advances
 
not
 
to
 
be
 
significant
at
 
March
 
31,
 
2023
.
These
 
special
 
purpose
entities
 
are
 
deemed
 
to
 
be
 
VIEs
 
since
 
they
 
lack
 
equity
 
investments
 
at
 
risk.
 
The
 
Corporation’s
 
continuing
 
involvement
 
in
 
these
guaranteed loan
 
securitizations includes
 
owning certain
 
beneficial interests in
 
the form
 
of securities as
 
well as
 
the servicing
 
rights
retained. The Corporation is not required to provide additional financial support to
 
any of the variable interest entities to which it has
transferred
 
the
 
financial
 
assets.
 
The
 
mortgage-backed
 
securities,
 
to
 
the
 
extent
 
retained,
 
are
 
classified
 
in
 
the
 
Corporation’s
Consolidated
 
Statements
 
of
 
Financial
 
Condition
 
as
 
available-for-sale
 
or
 
trading
 
securities.
 
The
 
Corporation
 
concluded
 
that,
essentially,
 
these
 
entities
 
(FNMA
 
and
 
GNMA)
 
control
 
the
 
design
 
of
 
their
 
respective
 
VIEs,
 
dictate
 
the
 
quality
 
and
 
nature
 
of
 
the
collateral, require
 
the underlying
 
insurance, set
 
the servicing
 
standards via
 
the servicing
 
guides and
 
can change
 
them at
 
will, and
can remove a
 
primary servicer with cause,
 
and without cause in
 
the case of
 
FNMA. Moreover, through
 
their guarantee obligations,
agencies (FNMA and GNMA) have the obligation
 
to absorb losses that could be potentially significant
 
to the VIE.
The
 
Corporation
 
holds
 
variable
 
interests
 
in
 
these
 
VIEs
 
in
 
the
 
form
 
of
 
agency
 
mortgage-backed
 
securities
 
and
 
collateralized
mortgage obligations, including those securities originated by the Corporation and those acquired from
 
third parties. Additionally, the
Corporation holds agency mortgage-backed securities
 
and agency collateralized mortgage obligations
 
issued by third party
 
VIEs in
which
 
it
 
has
 
no
 
other
 
form
 
of
 
continuing
 
involvement. Refer
 
to
 
Note
 
24
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
information on the debt securities outstanding at March 31,
 
2023 and December 31, 2022, which are classified
 
as available-for-sale
and
 
trading
 
securities
 
in
 
the
 
Corporation’s
 
Consolidated
 
Statements
 
of
 
Financial
 
Condition.
 
In
 
addition,
 
the
 
Corporation
 
holds
variable
 
interests
 
in
 
the
 
form
 
of
 
servicing
 
fees,
 
since
 
it
 
retains
 
the
 
right
 
to
 
service
 
the
 
transferred
 
loans
 
in
 
those
 
government-
sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs
that were transferred to those SPEs by a third-party.
 
The following
 
table presents
 
the carrying
 
amount and
 
classification of
 
the assets
 
related to
 
the Corporation’s
 
variable interests
 
in
non-consolidated VIEs
 
and the
 
maximum exposure
 
to loss
 
as a
 
result of
 
the Corporation’s
 
involvement as
 
servicer of
 
GNMA and
FNMA loans at March 31, 2023 and December
 
31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
88
(In thousands)
March 31, 2023
December 31, 2022
Assets
Servicing assets:
Mortgage servicing rights
$
98,184
$
99,614
Total servicing
 
assets
 
$
98,184
$
99,614
Other assets:
Servicing advances
$
5,942
$
6,157
Total other assets
$
5,942
$
6,157
Total assets
$
104,126
$
105,771
Maximum exposure to loss
$
104,126
$
105,771
The size of
 
the non-consolidated VIEs,
 
in which the
 
Corporation has a
 
variable interest in
 
the form
 
of servicing fees,
 
measured as
the total unpaid principal balance of the loans,
 
amounted to $
7.5
 
billion at March 31, 2023 (December 31, 2022 - $
7.7
 
billion).
The Corporation
 
determined that
 
the maximum
 
exposure to
 
loss includes
 
the fair
 
value of
 
the MSRs
 
and the
 
assumption that
 
the
servicing advances at March
 
31, 2023 and December
 
31, 2022, will not
 
be recovered. The agency
 
debt securities are not
 
included
as part of the maximum exposure to loss since
 
they are guaranteed by the related agencies.
ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the
primary beneficiary of any of the VIEs it is
 
involved with. The conclusion on the assessment of these non-consolidated VIEs has not
changed
 
since
 
their
 
initial
 
evaluation.
 
The
 
Corporation
 
concluded
 
that
 
it
 
is
 
still
 
not
 
the
 
primary
 
beneficiary
 
of
 
these
 
VIEs,
 
and
therefore, these VIEs are not required to be consolidated
 
in the Corporation’s financial statements at March 31,
 
2023.
 
 
 
 
 
 
 
 
89
Note 23 – Related party transactions
The Corporation
 
considers its
 
equity method
 
investees as
 
related parties.
 
The following
 
provides information
 
on transactions
 
with
equity method investees considered related parties.
EVERTEC
Until
 
August
 
15,
 
2022,
 
the
 
Corporation
 
had
 
an
 
investment
 
in
 
Evertec,
 
Inc.
 
(“Evertec”)
 
which
 
provides
 
various
 
processing
 
and
information
 
technology services
 
to
 
the
 
Corporation and
 
its
 
subsidiaries
 
and
 
gave
 
BPPR
 
access to
 
the
 
ATH
 
network owned
 
and
operated
 
by
 
Evertec.
 
This
 
investment
 
was
 
accounted
 
for
 
under
 
the
 
equity
 
method.
 
The
 
Corporation
 
recorded
 
$
0.6
 
million
 
in
dividends from its investment in Evertec during
 
the quarter ended March 31, 2022.
On July 1, 2022, BPPR completed its previously announced
 
acquisition of certain assets from Evertec Group,
 
LLC (“Evertec Group”)
to
 
service
 
certain
 
BPPR
 
channels.
 
In
 
connection
 
with
 
the
 
Evertec
 
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.
 
On
 
August
 
15,
 
2022,
 
the
 
Corporation completed
 
the
 
sale
 
of
 
its
 
remaining
 
shares
 
of
 
common
 
stock
 
of
Evertec. As a
 
result, the Corporation discontinued accounting
 
for its proportionate share
 
of Evertec’s income
 
(loss) and changes in
stockholder’s equity under the equity method
 
of accounting in the third quarter of 2022.
The following
 
table presents
 
the Corporation’s
 
proportionate share
 
of Evertec’s
 
income (loss)
 
and changes
 
in stockholders’
 
equity
for the quarter ended March 31, 2022.
Quarter ended March 31,
(In thousands)
2022
Share of income from
 
investment in Evertec
$
6,318
Share of other changes in Evertec's stockholders' equity
1,787
Share of Evertec's changes in equity recognized in income
$
8,105
The following table presents
 
the impact of transactions and
 
service payments between the Corporation and Evertec
 
(as an affiliate)
and
 
their
 
impact
 
on
 
the
 
results
 
of
 
operations
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2022.
 
Items
 
that
 
represent
 
expenses
 
to
 
the
Corporation are presented with parenthesis.
 
 
 
 
 
 
 
 
 
 
 
90
Quarter ended March 31,
(In thousands)
2022
Category
Interest expense on deposits
$
(132)
Interest expense
ATH and credit cards interchange
 
income from services to EVERTEC
6,683
Other service fees
Rental income charged to EVERTEC
1,681
Net occupancy
Processing fees on services provided by EVERTEC
(62,222)
Professional fees
Other services provided to EVERTEC
218
Other operating expenses
Total
$
(53,772)
Centro Financiero BHD León
At March
 
31, 2023,
 
the Corporation
 
had a
15.84
% equity
 
interest in
 
Centro Financiero
 
BHD León,
 
S.A. (“BHD
 
León”), one
 
of the
largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2023, the Corporation
recorded $
9.1
 
million in earnings from
 
its investment in BHD
 
León (March 31,
 
2022 - $
7.4
 
million), which had a
 
carrying amount of
$
201.4
 
million
 
at
 
March
 
31,
 
2023
 
(December
 
31,
 
2022
 
-
 
$
199.8
 
million).
 
There
 
were
 
no
 
dividends
 
distributions
 
received
 
by
 
the
Corporation from its investment in BHD León, during
 
the quarter ended March 31, 2023 and 2022.
 
Investment Companies
The Corporation,
 
through its subsidiary Popular
 
Asset Management LLC (“PAM”),
 
provides advisory services to several
 
investment
companies registered
 
under the
 
Investment Company
 
Act of
 
1940 in
 
exchange for
 
a fee.
 
The Corporation,
 
through its
 
subsidiary
BPPR, also
 
provides transfer
 
agency services to
 
these investment companies.
 
These fees
 
are calculated
 
at an
 
annual rate
 
of the
average net
 
assets of the
 
investment company,
 
as defined in
 
each agreement. Due
 
to its
 
advisory role, the
 
Corporation considers
these investment companies as related parties.
For the quarter ended March 31, 2023 administrative fees charged to
 
these investment companies amounted to $
0.6
 
million (March
31, 2022 -
0.7
 
million) and waived fees amounted to $
0.2
 
million (March 31, 2022 - $
0.3
 
million), for a net fee of $
0.4
 
million (March
31, 2022 - $
0.4
 
million).
91
Note 24 – Fair value measurement
 
ASC Subtopic
 
820-10 “Fair
 
Value
 
Measurements and
 
Disclosures” establishes
 
a fair
 
value hierarchy
 
that prioritizes
 
the inputs
 
to
valuation techniques
 
used to
 
measure fair
 
value into
 
three levels
 
in order
 
to increase
 
consistency and
 
comparability in
 
fair value
measurements and disclosures. The hierarchy is broken
 
down into three levels based on the reliability
 
of inputs as follows:
●
Level 1
- Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to
access at
 
the measurement date.
 
Valuation
 
on these
 
instruments does not
 
necessitate a
 
significant degree of
 
judgment
since valuations are based on quoted prices that
 
are readily available in an active market.
●
Level 2
- Quoted prices other than those included in Level 1 that are observable either directly or indirectly.
 
Level 2 inputs
include
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
 
liabilities
 
in
 
active
 
markets,
 
quoted
 
prices
 
for
 
identical
 
or
 
similar
 
assets
 
or
liabilities in
 
markets that
 
are
 
not active,
 
or other
 
inputs that
 
are
 
observable or
 
that can
 
be corroborated
 
by
 
observable
market data for substantially the full term of the
 
financial instrument.
●
Level
 
3
-
 
Inputs
 
are
 
unobservable
 
and
 
significant
 
to
 
the
 
fair
 
value
 
measurement.
 
Unobservable
 
inputs
 
reflect
 
the
Corporation’s own judgements about assumptions that
 
market participants would use in pricing the asset
 
or liability.
The
 
Corporation
 
maximizes
 
the
 
use
 
of
 
observable
 
inputs
 
and
 
minimizes
 
the
 
use
 
of
 
unobservable
 
inputs
 
by
 
requiring
 
that
 
the
observable inputs be used when
 
available. Fair value is
 
based upon quoted market prices
 
when available. If listed prices
 
or quotes
are
 
not
 
available,
 
the
 
Corporation
 
employs
 
internally-developed
 
models
 
that
 
primarily
 
use
 
market-based
 
inputs
 
including
 
yield
curves, interest rates,
 
volatilities, and credit
 
curves, among others.
 
Valuation
 
adjustments are limited
 
to those necessary
 
to ensure
that the financial instrument’s
 
fair value is adequately representative of
 
the price that would
 
be received or paid
 
in the marketplace.
These adjustments include amounts that reflect counterparty credit quality,
 
the Corporation’s credit standing, constraints on liquidity
and unobservable parameters that are applied consistently.
 
There have been no changes in the
 
Corporation’s methodologies used
to estimate the fair value of assets and liabilities from
 
those disclosed in the 2022 Form 10-K.
The estimated fair
 
value may
 
be subjective in
 
nature and may
 
involve uncertainties and
 
matters of
 
significant judgment for
 
certain
financial instruments. Changes in the underlying assumptions
 
used in calculating fair value could significantly affect
 
the results.
Fair Value on a Recurring and Nonrecurring Basis
The following fair value hierarchy tables
 
present information about the Corporation’s assets
 
and liabilities measured at fair value
 
on
a recurring basis at March 31, 2023 and December
 
31, 2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
92
At March 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
1,865,470
$
8,769,277
$
-
$
-
$
10,634,747
Collateralized mortgage obligations - federal
agencies
-
158,772
-
-
158,772
Mortgage-backed securities
-
6,377,905
655
-
6,378,560
Other
-
49
1,000
-
1,049
Total debt securities
 
available-for-sale
$
1,865,470
$
15,306,003
$
1,655
$
-
$
17,173,128
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
15,462
$
-
$
-
$
-
$
15,462
Obligations of Puerto Rico, States and political
subdivisions
-
62
-
-
62
Collateralized mortgage obligations
-
45
88
-
133
Mortgage-backed securities
-
13,779
188
-
13,967
Other
-
-
199
-
199
Total trading account
 
debt securities, excluding
derivatives
$
15,462
$
13,886
$
475
$
-
$
29,823
Equity securities
$
-
$
32,545
$
-
$
318
$
32,863
Mortgage servicing rights
-
-
127,475
-
127,475
Loans held-for-sale
-
11,181
-
-
11,181
Derivatives
 
-
19,365
-
-
19,365
Total assets measured
 
at fair value on a
recurring basis
$
1,880,932
$
15,382,980
$
129,605
$
318
$
17,393,835
Liabilities
Derivatives
$
-
$
(17,115)
$
-
$
-
$
(17,115)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(17,115)
$
-
$
-
$
(17,115)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
93
At December 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
1,908,589
$
9,272,359
$
-
$
-
$
11,180,948
Collateralized mortgage obligations - federal
agencies
-
165,196
-
-
165,196
Mortgage-backed securities
-
6,456,459
711
-
6,457,170
Other
-
60
1,000
-
1,060
Total debt securities
 
available-for-sale
$
1,908,589
$
15,894,074
$
1,711
$
-
$
17,804,374
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
13,069
$
-
$
-
$
-
$
13,069
Obligations of Puerto Rico, States and political
subdivisions
-
64
-
-
64
Collateralized mortgage obligations
-
47
113
-
160
Mortgage-backed securities
-
14,008
215
-
14,223
Other
-
-
207
-
207
Total trading account
 
debt securities, excluding
derivatives
$
13,069
$
14,119
$
535
$
-
$
27,723
Equity securities
$
-
$
29,302
$
-
$
330
$
29,632
Mortgage servicing rights
-
-
128,350
-
128,350
Derivatives
 
-
19,229
-
-
19,229
Total assets measured
 
at fair value on a
recurring basis
$
1,921,658
$
15,956,724
$
130,596
$
330
$
18,009,308
Liabilities
 
 
 
Derivatives
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Beginning in the first quarter of 2023, the Corporation
 
has elected the fair value option for BPPR
 
mortgage loans held for sale. This
election better aligns with the management of
 
the portfolio from a business perspective. As of
 
December 31, 2022, the Corporation
had not elected the fair value option for any
 
of the loans in the held for sale portfolio.
Loans held-for-sale measured at fair value
 
Loans held-for-sale measured at fair value were priced
 
based on secondary market prices. These loans
 
are classified as Level 2.
The following table summarizes the difference between
 
the aggregate fair value and the aggregate
 
unpaid principal balance for
mortgage loans held for sale measured at fair value
 
as of March 31,2023.
(In thousands)
March 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
11,181
$
11,116
$
65
No
 
loans held for sell were 90 or more days past
 
due or on nonaccrual status as of March 31,2023.
During the quarter ended March 31,2023, the Corporation
 
recognized an unrealized gain of $
70
 
thousand for changes in the fair
value of mortgage loans held for sale for which
 
we elected the fair value option, that was
 
offset by the changes in the fair value of
the related hedging instrument, both of which
 
are recorded within the mortgage banking activities
 
line item of the accompanying
Statement of Operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
94
The fair value information included in the following
 
tables is not as of period end, but as
 
of the date that the fair value measurement
was recorded during the quarters ended March 31,
 
2023 and 2022 and excludes nonrecurring
 
fair value measurements of assets no
longer outstanding
 
as of the reporting date.
Quarter ended March 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
1,629
$
1,629
$
(3)
Other real estate owned
[2]
-
-
2,330
2,330
(628)
Other foreclosed assets
[2]
-
-
15
15
(4)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
3,974
$
3,974
$
(635)
[1] Relates mainly to certain impaired collateral dependent loans.
 
The impairment was measured based on the fair value
 
of the collateral, which is
derived from appraisals that take into consideration prices
 
in observed transactions involving similar assets in similar
 
locations. Costs to sell are
excluded from the reported fair value amount.
[2] Represents the fair value of foreclosed real estate and
 
other collateral owned that were written down to their fair
 
value. Costs to sell are
excluded from the reported fair value amount.
Quarter ended March 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
4,891
$
4,891
$
(180)
Loans held-for-sale
[2]
-
-
55,150
55,150
(675)
Other real estate owned
[3]
-
-
1,432
1,432
(495)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
61,473
$
61,473
$
(1,350)
[1] Relates mainly to certain impaired collateral dependent loans.
 
The impairment was measured based on the fair value
 
of the collateral, which is
derived from appraisals that take into consideration prices
 
in observed transactions involving similar assets in similar
 
locations. Costs to sell are
excluded from the reported fair value amount.
[2] Relates to a quarterly valuation on loans held-for-sale.
 
Costs to sell are excluded from the reported fair value amount.
[3] Represents the fair value of foreclosed real estate and
 
other collateral owned that were written down to their fair
 
value. Costs to sell are
excluded from the reported fair value amount.
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters
ended March 31, 2023 and 2022.
 
Quarter ended March 31, 2023
MBS
Other
CMOs
MBS
Other
classified
securities
classified
classified
securities
as debt
classified as
 
as trading
as trading
classified
securities
 
debt securities
account
account
as trading
Mortgage
available-
available-
 
debt
 
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at December 31, 2022
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(1)
(8)
(1,376)
(1,385)
Gains (losses) included in OCI
(6)
-
-
-
-
-
(6)
Additions
-
-
-
-
-
501
501
Settlements
(50)
-
(25)
(26)
-
-
(101)
Balance at March 31, 2023
$
655
$
1,000
$
88
$
188
$
199
$
127,475
$
129,605
Changes in unrealized gains (losses) included
in earnings relating to assets still held at March
31, 2023
$
-
$
-
$
-
$
-
$
9
$
1,286
$
1,295
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95
Quarter ended March 31, 2022
MBS
Other
classified
CMOs
securities
as investment
classified
classified
securities
as trading
as trading
Mortgage
available-
account
account
servicing
Total
Contingent
Total
(In thousands)
for-sale
securities
securities
rights
assets
consideration
liabilities
Balance at
 
December 31, 2021
$
826
$
198
$
280
$
121,570
$
122,874
$
9,241
$
9,241
Gains (losses) included in earnings
-
(1)
(13)
1,017
1,003
-
-
Gains (losses) included in OCI
(8)
-
-
-
(8)
-
-
Additions
-
2
-
2,771
2,773
-
-
Settlements
(25)
(25)
-
-
(50)
-
-
Balance at March 31, 2022
$
793
$
174
$
267
$
125,358
$
126,592
$
9,241
$
9,241
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at March 31, 2022
$
-
$
(1)
$
5
$
4,252
$
4,256
$
-
$
-
Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2023 and 2022 for
 
Level 3 assets
and liabilities included in the previous tables are
 
reported in the consolidated statements of operations
 
as follows:
Quarter ended March 31, 2023
Quarter ended March 31, 2022
Changes in unrealized
Changes in unrealized
Total gains
gains (losses) relating to
Total gains
gains (losses) relating to
(losses) included
assets still held at
(losses) included
assets still held at
(In thousands)
in earnings
reporting date
in earnings
reporting date
Mortgage banking activities
$
(1,376)
$
1,286
$
1,017
$
4,252
Trading account (loss) profit
(9)
9
(14)
4
Total
 
$
(1,385)
$
1,295
$
1,003
$
4,256
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
96
The following
 
tables include
 
quantitative information
 
about significant
 
unobservable inputs
 
used to
 
derive the
 
fair value
 
of Level
 
3
instruments, excluding those instruments
 
for which the
 
unobservable inputs were not
 
developed by the
 
Corporation such as
 
prices
of prior transactions and/or unadjusted third-party pricing
 
sources at March 31, 2023 and 2022.
Fair value at
 
March 31,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
88
Discounted cash flow model
Weighted average life
0.3
 
years (
0.1
 
-
0.5
 
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
9.2
% (
8.3
% -
27.8
%)
Other - trading
$
199
Discounted cash flow model
Weighted average life
2.5
 
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
1,560
[2]
External appraisal
Haircut applied on
external appraisals
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.
 
Fair value at
 
March 31,
(In thousands)
2022
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
174
Discounted cash flow model
Weighted average life
0.7
 
years (
0.5
 
-
1
 
years)
Yield
3.9
% (
3.9
% -
4.5
%)
Prepayment speed
8.4
% (
0.1
% -
15.7
%)
Other - trading
$
267
Discounted cash flow model
Weighted average life
2.9
 
years
Yield
12.0%
Prepayment speed
10.8%
Contingent consideration
$
(9,241)
Probability weighted
discounted cash flows
Discount rate
2.52
%
Loans held-in-portfolio
$
4,653
[2]
External appraisal
Haircut applied on
external appraisals
12.6
%
[1]
 
Weighted average of significant unobservable inputs
 
used to develop Level 3 fair value measurements
 
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
 
to external appraisals were excluded from this table.
 
97
Note 25 – Fair value of financial instruments
The fair
 
value of
 
financial instruments
 
is the
 
amount at
 
which an
 
asset or
 
obligation could
 
be exchanged
 
in a
 
current transaction
between
 
willing
 
parties,
 
other
 
than
 
in
 
a
 
forced
 
or
 
liquidation
 
sale.
 
For
 
those
 
financial
 
instruments
 
with
 
no
 
quoted
 
market
 
prices
available, fair values have been estimated using present
 
value calculations or other valuation techniques, as well
 
as management’s
best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment
assumptions. Many of these
 
estimates involve various assumptions and
 
may vary significantly from
 
amounts that could be
 
realized
in actual transactions.
The fair values
 
reflected herein have been
 
determined based on the
 
prevailing rate environment at
 
March 31, 2023
 
and December
31, 2022, as applicable. In different interest rate environments,
 
fair value estimates can differ significantly, especially for certain fixed
rate
 
financial
 
instruments.
 
In
 
addition,
 
the
 
fair
 
values
 
presented
 
do
 
not
 
attempt
 
to
 
estimate
 
the
 
value
 
of
 
the
 
Corporation’s
 
fee
generating businesses
 
and anticipated
 
future business
 
activities, that
 
is, they
 
do not
 
represent the
 
Corporation’s value
 
as a
 
going
concern. There have been
 
no changes in the
 
Corporation’s valuation methodologies and inputs
 
used to estimate the
 
fair values for
each class of financial assets and liabilities not measured
 
at fair value.
The following tables present the
 
carrying amount and estimated fair
 
values of financial instruments with their
 
corresponding level in
the fair
 
value hierarchy.
 
The aggregate
 
fair value
 
amounts of
 
the financial
 
instruments disclosed
 
do not
 
represent management’s
estimate of the underlying value of the Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
98
March 31, 2023
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Assets:
Cash and due from banks
$
462,013
$
462,013
$
-
$
-
$
-
$
462,013
Money market investments
6,098,288
6,091,115
7,173
-
-
6,098,288
Trading account debt securities, excluding
 
derivatives
[1]
29,823
15,462
13,886
475
-
29,823
Debt securities available-for-sale
[1]
17,173,128
1,865,470
15,306,003
1,655
-
17,173,128
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,494,652
$
-
$
8,534,105
$
-
$
-
$
8,534,105
Obligations of Puerto Rico, States and political
subdivisions
55,633
-
-
57,839
-
57,839
Collateralized mortgage obligation-federal agency
16
-
-
16
-
16
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
 
held-to-maturity
$
8,556,260
$
-
$
8,540,064
$
57,855
$
-
$
8,597,919
Equity securities:
FHLB stock
$
49,265
$
-
$
49,265
$
-
$
-
$
49,265
FRB stock
99,134
-
99,134
-
-
99,134
Other investments
37,518
-
32,545
5,482
318
38,345
Total equity securities
$
185,917
$
-
$
180,944
$
5,482
$
318
$
186,744
Loans held-for-sale
$
11,181
$
-
$
11,181
$
-
$
-
$
11,181
Loans held-in-portfolio
31,649,253
-
-
30,066,069
-
30,066,069
Mortgage servicing rights
127,475
-
-
127,475
-
127,475
Derivatives
19,365
-
19,365
-
-
19,365
March 31, 2023
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Liabilities:
Deposits:
Demand deposits
$
53,547,761
$
-
$
53,547,761
$
-
$
-
$
53,547,761
Time deposits
7,406,127
-
7,019,993
-
-
7,019,993
Total deposits
$
60,953,888
$
-
$
60,567,754
$
-
$
-
$
60,567,754
Assets sold under agreements to repurchase
$
123,499
$
-
$
123,487
$
-
$
-
$
123,487
Notes payable:
FHLB advances
$
388,282
$
-
$
365,862
$
-
$
-
$
365,862
Unsecured senior debt securities
692,519
-
693,253
-
-
693,253
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,326
-
177,823
-
-
177,823
Total notes payable
$
1,279,127
$
-
$
1,236,938
$
-
$
-
$
1,236,938
Derivatives
$
17,115
$
-
$
17,115
$
-
$
-
$
17,115
[1]
Refer to Note 24 to the Consolidated Financial Statements
 
for the fair value by class of financial asset and its hierarchy
 
level.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
99
December 31, 2022
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Assets:
Cash and due from banks
$
469,501
$
469,501
$
-
$
-
$
-
$
469,501
Money market investments
5,614,595
5,607,937
6,658
-
-
5,614,595
Trading account debt securities, excluding
 
derivatives
[1]
27,723
13,069
14,119
535
-
27,723
Debt securities available-for-sale
[1]
17,804,374
1,908,589
15,894,074
1,711
-
17,804,374
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,453,467
$
-
$
8,372,601
$
-
$
-
$
8,372,601
Obligations of Puerto Rico, States and political
subdivisions
59,010
-
-
61,617
-
61,617
Collateralized mortgage
 
obligation-federal agency
19
-
-
19
-
19
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
 
held-to-maturity
$
8,518,455
$
-
$
8,378,560
$
61,636
$
-
$
8,440,196
Equity securities:
FHLB stock
$
65,861
$
-
$
65,861
$
-
$
-
$
65,861
FRB stock
96,206
-
96,206
-
-
96,206
Other investments
33,787
-
29,302
4,966
330
34,598
Total equity securities
$
195,854
$
-
$
191,369
$
4,966
$
330
$
196,665
Loans held-for-sale
$
5,381
$
-
$
-
$
5,404
$
-
$
5,404
Loans held-in-portfolio
31,357,467
-
-
29,366,365
-
29,366,365
Mortgage servicing rights
128,350
-
-
128,350
-
128,350
Derivatives
19,229
-
19,229
-
-
19,229
December 31, 2022
Carrying
 
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
 
Financial Liabilities:
Deposits:
Demand deposits
$
54,445,825
$
-
$
54,445,825
$
-
$
-
$
54,445,825
Time deposits
6,781,402
-
6,464,943
-
-
6,464,943
Total deposits
$
61,227,227
$
-
$
60,910,768
$
-
$
-
$
60,910,768
Assets sold under agreements to repurchase
$
148,609
$
-
$
148,566
$
-
$
-
$
148,566
Other short-term borrowings
[2]
365,000
-
365,000
-
-
365,000
Notes payable:
-
FHLB advances
$
389,282
$
-
$
361,951
$
-
$
-
$
361,951
Unsecured senior debt securities
299,109
-
300,027
-
-
300,027
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,319
-
173,938
-
-
173,938
Total notes payable
$
886,710
$
-
$
835,916
$
-
$
-
$
835,916
Derivatives
$
17,000
$
-
$
17,000
$
-
$
-
$
17,000
[1]
Refer to Note 24 to the Consolidated Financial Statements
 
for the fair value by class of financial asset and its hierarchy
 
level.
 
[2]
Refer to Note 16 to the Consolidated Financial Statements
 
for the composition of other short-term borrowings.
 
The notional amount
 
of commitments to extend
 
credit at March
 
31, 2023 and
 
December 31, 2022 is
 
$
10.9
 
billion and $
10.5
 
billion,
respectively,
 
and represents the
 
unused portion of
 
credit facilities
 
granted to customers.
 
The notional amount
 
of letters of
 
credit at
March 31, 2023 and December 31, 2022 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
Note 26 – Net income per common share
The following table
 
sets forth the
 
computation of net
 
income per common
 
share (“EPS”), basic
 
and diluted, for
 
the quarters
 
ended
March 31, 2023 and 2022
:
 
Quarters ended March 31,
(In thousands, except per share information)
2023
2022
Net income
$
158,979
$
211,686
Preferred stock dividends
(353)
(353)
Net income applicable to common stock
$
158,626
$
211,333
Average common shares outstanding
71,541,778
78,443,706
Average potential dilutive common shares
 
64,418
151,757
Average common shares outstanding - assuming dilution
71,606,196
78,595,463
Basic EPS
$
2.22
$
2.69
Diluted EPS
$
2.22
$
2.69
For the quarters
 
ended March 31, 2023 and
 
2022, the Corporation calculated the impact
 
of potential dilutive common shares under
the
 
treasury
 
stock
 
method,
 
consistent
 
with
 
the
 
method
 
used
 
for
 
the
 
preparation
 
of
 
the
 
financial
 
statements
 
for
 
the
 
year
 
ended
December
 
31,
 
2022.
 
For
 
a
 
discussion
 
of
 
the
 
calculation
 
under
 
the
 
treasury
 
stock
 
method,
 
refer
 
to
 
Note
 
31
 
of
 
the
 
Consolidated
Financial Statements included in the 2022 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101
Note 27 – Revenue from contracts with customers
The
 
following
 
table
 
presents
 
the
 
Corporation’s
 
revenue
 
streams
 
from
 
contracts
 
with
 
customers
 
by
 
reportable
 
segment
 
for
 
the
quarters ended March 31, 2023 and 2022
.
Quarters ended March 31,
(In thousands)
2023
2022
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
32,152
$
2,526
$
37,985
$
2,728
Other service fees:
Debit card fees
12,948
218
11,562
217
Insurance fees, excluding reinsurance
10,798
1,307
10,038
1,322
Credit card fees, excluding late fees and membership
 
fees
36,174
579
30,222
324
Sale and administration of investment products
6,558
-
5,791
-
Trust fees
5,896
-
6,149
-
Total revenue from
 
contracts with customers
[1]
$
104,526
$
4,630
$
101,747
$
4,591
[1] The amounts include intersegment transactions of $
1.6
 
million and $
1.5
 
million, respectively, for the
 
quarters ended March 31, 2023 and 2022.
Revenue from contracts with
 
customers is recognized when,
 
or as, the performance
 
obligations are satisfied by
 
the Corporation by
transferring the
 
promised services
 
to
 
the customers.
 
A
 
service is
 
transferred to
 
the customer
 
when, or
 
as, the
 
customer obtains
control
 
of
 
that
 
service.
 
A
 
performance obligation
 
may
 
be
 
satisfied over
 
time
 
or
 
at
 
a
 
point
 
in
 
time.
 
Revenue from
 
a
 
performance
obligation satisfied
 
over time
 
is recognized
 
based on
 
the services
 
that have
 
been rendered
 
to date.
 
Revenue from
 
a performance
obligation satisfied at a point in time
 
is recognized when the customer obtains control over the
 
service. The transaction price, or the
amount of revenue
 
recognized, reflects the
 
consideration the Corporation expects
 
to be entitled
 
to in exchange
 
for those promised
services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration
is included
 
in the
 
transaction price
 
only to
 
the extent
 
it is
 
probable that a
 
significant reversal
 
in the
 
amount of
 
cumulative revenue
recognized will
 
not occur.
 
The Corporation
 
is the
 
principal in
 
a transaction
 
if it
 
obtains control
 
of the
 
specified goods
 
or services
before they
 
are transferred
 
to
 
the customer.
 
If the
 
Corporation acts
 
as principal,
 
revenues are
 
presented in
 
the gross
 
amount of
consideration to which it expects to
 
be entitled and are not
 
netted with any related expenses. On the
 
other hand, the Corporation
 
is
an agent if it does not control
 
the specified goods or services before they are transferred
 
to the customer. If
 
the Corporation acts as
an agent, revenues are presented in the amount
 
of consideration to which it expects to be entitled,
 
net of related expenses.
Following is a description of the nature and timing
 
of revenue streams from contracts with customers:
Service charges on deposit accounts
Service
 
charges
 
on
 
deposit
 
accounts
 
are
 
earned
 
on
 
retail
 
and
 
commercial
 
deposit
 
activities
 
and
 
include,
 
but
 
are
 
not
 
limited
 
to,
nonsufficient fund
 
fees, overdraft
 
fees and
 
checks stop
 
payment fees.
 
These transaction-based
 
fees are
 
recognized at
 
a point
 
in
time,
 
upon
 
occurrence
 
of
 
an
 
activity
 
or
 
event
 
or
 
upon
 
the
 
occurrence
 
of
 
a
 
condition
 
which
 
triggers
 
the
 
fee
 
assessment.
 
The
Corporation is acting as principal in these transactions.
Debit card fees
Debit card fees include, but are not limited to, interchange
 
fees, surcharging income and foreign transaction
 
fees.
 
These transaction-
based fees
 
are recognized at
 
a point in
 
time, upon
 
occurrence of an
 
activity or
 
event or upon
 
the occurrence of
 
a condition which
triggers
 
the
 
fee
 
assessment.
 
Interchange
 
fees
 
are
 
recognized
 
upon
 
settlement
 
of
 
the
 
debit
 
card
 
payment
 
transactions.
 
The
Corporation is acting as principal in these transactions.
Insurance fees
Insurance fees
 
include, but
 
are
 
not limited
 
to, commissions
 
and contingent
 
commissions.
 
Commissions and
 
fees
 
are
 
recognized
when related
 
policies are effective
 
since the Corporation
 
does not
 
have an enforceable
 
right to
 
payment for services
 
completed to
date.
 
An
 
allowance
 
is
 
created
 
for
 
expected
 
adjustments
 
to
 
commissions
 
earned
 
related
 
to
 
policy
 
cancellations.
 
Contingent
commissions
 
are
 
recorded
 
on
 
an
 
accrual
 
basis
 
when
 
the
 
amount
 
to
 
be
 
received
 
is
 
notified
 
by
 
the
 
insurance
 
company.
 
The
102
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103
Note 28 – Leases
The
 
Corporation enters
 
in
 
the
 
ordinary course
 
of
 
business
 
into
 
operating and
 
finance
 
leases
 
for
 
land,
 
buildings
 
and
 
equipment.
These contracts generally do
 
not include purchase options
 
or residual value guarantees.
 
The remaining lease terms
 
of
0.1
 
to
31.8
years
 
considers options
 
to
 
extend the
 
leases for
 
up
 
to
20
 
years. The
 
Corporation identifies
 
leases when
 
it
 
has
 
both the
 
right to
obtain substantially all of the economic benefits from
 
the use of the asset and the right to direct
 
the use of the asset.
The Corporation
 
recognizes right-of-use
 
assets (“ROU
 
assets”) and
 
lease liabilities
 
related to
 
operating and
 
finance leases
 
in its
Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 13
and
 
Note
 
17
 
to
 
the
 
Consolidated Financial
 
Statements,
 
respectively,
 
for
 
information
 
on
 
the
 
balances
 
of
 
these
 
lease
 
assets
 
and
liabilities.
The Corporation uses the
 
incremental borrowing rate for
 
purposes of discounting lease payments
 
for operating and finance leases,
since it
 
does not have
 
enough information to
 
determine the rates
 
implicit in the
 
leases. The discount
 
rates are based
 
on fixed-rate
and
 
fully
 
amortizing
 
borrowing
 
facilities
 
of
 
its
 
banking
 
subsidiaries
 
that
 
are
 
collateralized.
 
For
 
leases
 
held
 
by
 
non-banking
subsidiaries, a credit spread is added to this rate
 
based on financing transactions with a
 
similar credit risk profile.
The following table presents the undiscounted
 
cash flows of operating and finance leases for
 
each of the following periods:
March 31, 2023
(In thousands)
Remaining
2023
2024
2025
2026
2027
Later
Years
Total Lease
Payments
Less:
Imputed
Interest
Total
Operating Leases
$
22,345
$
28,441
$
25,514
$
16,995
$
11,769
$
44,279
$
149,343
$
(17,905)
$
131,438
Finance Leases
3,404
4,631
4,743
4,402
2,468
9,346
28,994
(3,265)
25,729
The following table presents the lease cost recognized
 
by the Corporation in the Consolidated
 
Statements of Operations as follows:
Quarters ended March 31,
(In thousands)
2023
2022
Finance lease cost:
Amortization of ROU assets
$
824
$
759
Interest on lease liabilities
296
308
Operating lease cost
7,854
7,627
Short-term lease cost
73
55
Variable lease cost
56
23
Sublease income
(9)
(9)
Total lease cost
[1]
$
9,094
$
8,763
[1]
Total lease cost
 
is recognized as part of net occupancy expense.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
104
The
 
following
 
table
 
presents
 
supplemental
 
cash
 
flow
 
information
 
and
 
other
 
related
 
information
 
related
 
to
 
operating
 
and
 
finance
leases.
Quarters ended March 31,
(Dollars in thousands)
2023
2022
Cash paid for amounts included in the measurement of
 
lease liabilities:
Operating cash flows from operating leases
$
7,754
$
7,506
Operating cash flows from finance leases
296
308
Financing cash flows from finance leases
804
833
ROU assets obtained in exchange for new lease obligations:
Operating leases
$
967
$
1,553
Finance leases
1,796
-
Weighted-average remaining lease term:
Operating leases
7.3
years
7.6
years
Finance leases
8.2
years
8.7
years
Weighted-average discount rate:
Operating leases
3.0
%
2.8
%
Finance leases
4.1
%
4.4
%
As of March 31, 2023, the Corporation has additional operating
 
leases contracts that have not yet commenced with an undiscounted
contract amount of $
6.8
 
million, which will have lease terms ranging
 
from
10
 
to
20
 
years.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
105
Note 29 – Pension and postretirement benefits
The
 
Corporation
 
has
 
a
 
non-contributory
 
defined
 
benefit
 
pension
 
plan
 
and
 
supplementary
 
pension
 
benefit
 
restoration
 
plans
 
for
regular employees of
 
certain of its
 
subsidiaries (the “Pension
 
Plans”). The accrual
 
of benefits under
 
the Pension Plans
 
is frozen to
all
 
participants.
 
The
 
Corporation
 
also
 
provides
 
certain
 
postretirement
 
health
 
care
 
benefits
 
for
 
retired
 
employees
 
of
 
certain
subsidiaries (the “OPEB Plan”).
 
The components of net periodic cost for the Pension
 
Plans and the OPEB Plan for the periods presented
 
were as follows:
Pension Plans
OPEB Plan
Quarter ended March 31,
Quarter ended March 31,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
 
Service cost
$
-
$
-
$
48
$
121
Other operating expenses:
 
Interest cost
7,887
4,800
1,520
983
 
Expected return on plan assets
(8,591)
(8,847)
-
-
 
Amortization of prior service cost/(credit)
-
-
-
-
 
Amortization of net loss
5,366
3,911
(553)
-
Total net periodic
 
pension cost
 
$
4,662
$
(136)
$
1,015
$
1,104
The Corporation
 
paid the
 
following contributions
 
to the
 
plans for
 
the three
 
months ended
 
March 31,
 
2023 and
 
expects to
 
pay the
following contributions for the year ending December
 
31, 2023.
For the three months
ended
For the year ending
(In thousands)
March 31, 2023
December 31, 2023
Pension Plans
$
57
$
228
OPEB Plan
$
1,566
$
5,924
106
Note 30 - Stock-based compensation
On May 12,
 
2020, the stockholders of
 
the Corporation approved the
 
Popular, Inc.
 
2020 Omnibus Incentive Plan,
 
which permits the
Corporation to
 
issue several
 
types of
 
stock-based compensation
 
to employees
 
and directors
 
of the
 
Corporation and/or
 
any of
 
its
subsidiaries (the
 
“2020 Incentive
 
Plan”). The
 
2020 Incentive
 
Plan replaced
 
the Popular,
 
Inc. 2004
 
Omnibus Incentive
 
Plan, which
was in effect
 
prior to the adoption of
 
the 2020 Incentive Plan (the
 
“2004 Incentive Plan” and, together
 
with the 2020 Incentive
 
Plan,
the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board
of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and
performance shares to its employees and restricted
 
stock and restricted stock units (“RSUs”)
 
to its directors.
 
The restricted
 
stock granted
 
under the
 
Incentive Plan
 
to employees
 
becomes vested
 
based on
 
the employees’
 
continued service
with
 
Popular.
Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock
granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years
commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after
attainment of 55 years of age and 10 years of service or 60 years of age and 5 years of service (“the retirement vesting portion”).
The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years
of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual
installments over a period of 4 years or 3 years, depending on the classification of the employee. The vesting schedule is
accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age
and 5 years of service.
 
The
 
performance share
 
awards
 
granted
 
under
 
the
 
Incentive
 
Plan
 
consist
 
of
 
the
 
opportunity
 
to
 
receive
 
shares
 
of
 
Popular,
 
Inc.’s
common stock provided that the Corporation achieves certain goals during a three-year performance cycle.
 
The goals will be based
on
 
two
 
metrics
 
weighted
 
equally:
 
the
 
Relative
 
Total
 
Shareholder
 
Return
 
(“TSR”)
 
and
 
the
 
Absolute
 
Return
 
on
 
Average
 
Tangible
Common Equity
 
(“ROATCE”).
 
The TSR metric
 
is considered to
 
be a
 
market condition under
 
ASC 718.
 
For equity settled
 
awards
based
 
on a
 
market condition,
 
the
 
fair value
 
is
 
determined as
 
of the
 
grant date
 
and
 
is not
 
subsequently revised
 
based on
 
actual
performance.
 
The ROATCE
 
metrics
 
is considered
 
to
 
be a
 
performance condition
 
under ASC
 
718.
 
The fair
 
value is
 
determined
based on
 
the probability
 
of achieving
 
the ROATCE
 
goal as
 
of each
 
reporting period.
 
The TSR
 
and ROATCE
 
metric are
 
equally
weighted and
 
work independently.
 
The number of shares that will ultimately vest ranges from 50% to a 150% of target based on
both market (TSR) and performance (ROATCE) conditions. The performance shares vest at the end of the three-year performance
cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age
and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.
The
 
following
 
table
 
summarizes
 
the
 
restricted
 
stock
 
and
 
performance
 
shares
 
activity
 
under
 
the
 
Incentive
 
Plan
 
for
 
members
 
of
management.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
107
(Not in thousands)
Shares
Weighted-Average
Grant Date Fair
Value
Non-vested at December 31, 2021
321,883
$
47.98
Granted
194,791
84.29
Performance Shares Quantity Adjustment
6,947
78.02
Vested
 
(240,033)
66.11
Forfeited
(1,625)
78.86
Non-vested at December 31, 2022
281,963
$
56.50
Granted
127,203
74.29
Performance Shares Quantity Adjustment
5,674
64.57
Vested
 
(128,027)
68.60
Forfeited
(12,375)
56.76
Non-vested at March 31, 2023
274,438
$
58.48
During the
 
quarter ended
 
March 31,
 
2023,
69,488
 
shares of
 
restricted stock
 
(March 31,
 
2022 -
52,584
) and
57,715
 
performance
shares (March 31, 2022 -
56,857
) were awarded to management under the
 
Incentive Plan.
 
During
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
 
Corporation
 
recognized
 
$
4.4
 
million
 
of
 
restricted
 
stock
 
expense
 
related
 
to
management incentive awards, with a tax benefit of
 
$
0.3
 
million (March 31, 2022 - $
4.5
 
million, with a tax benefit of $
0.5
 
million). For
the quarter ended
 
March 31, 2023,
 
the fair market
 
value of the
 
restricted stock and performance
 
shares vested was
 
$
5.8
 
million at
grant date and $
8.9
 
million at vesting date.
 
These differential triggers a
 
windfall, of $
1.1
 
million that was recorded
 
as a reduction in
income
 
tax
 
expense.
 
For
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
 
Corporation
 
recognized
 
$
3.6
 
million
 
of
 
performance
 
shares
expense, with a tax
 
benefit of $
0.1
 
million (March 31, 2022
 
- $
3.7
 
million, with a
 
tax benefit of
 
$
0.3
 
million). The total
 
unrecognized
compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31,
2023 was $
11.4
 
million and is expected to be recognized over
 
a weighted-average period of
1.72
 
years.
The following table summarizes the restricted stock
 
activity under the Incentive Plan for members of
 
the Board of Directors:
(Not in thousands)
Restricted Stock units
Weighted-Average
 
Grant Date Fair
Value per Unit
Non-vested at December 31, 2021
$
-
$
-
Granted
25,321
77.48
Vested
 
(25,321)
77.48
Forfeited
-
-
Non-vested at December 31, 2022
$
-
$
-
Granted
1,029
65.57
Vested
 
(1,029)
65.57
Forfeited
-
-
Non-vested at March 31, 2023
$
-
$
-
The
 
equity
 
awards
 
granted
 
to
 
members
 
of
 
the
 
Board
 
of
 
Directors
 
of
 
Popular,
 
Inc.
 
(the
 
“Directors”)
 
will
 
vest
 
and
 
become
 
non-
forfeitable on the
 
grant date
 
of such
 
award. Effective in
 
May 2019 all
 
equity awards granted
 
to the
 
Directors may be
 
paid in
 
either
restricted
 
stocks
 
or
 
RSUs,
 
at
 
the
 
Directors’
 
election.
 
If
 
RSUs
 
are
 
elected
 
the
 
Directors
 
may
 
defer
 
the
 
delivery
 
of
 
the
 
shares
 
of
common stock
 
underlying the
 
RSU award
 
after 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 reinvested dividend equivalent.
 
During the
 
quarter ended March
 
31, 2023,
1,029
 
RSUs were granted
 
to the
 
Directors (March 31,
 
2022 -
530
).
 
During this period,
the Corporation
 
recognized $
67
 
thousand of
 
restricted stock
 
expense related
 
to
 
these RSUs,
 
with a
 
tax
 
benefit of
 
$
13
 
thousand
(March 31,
 
2022 -
 
$
44
 
thousand, with
 
a tax
 
benefit of
 
$
8
 
thousand). The
 
fair value
 
at vesting
 
date of
 
the RSUs
 
vested during
 
the
quarter ended March 31, 2023 for Directors was
 
$
67
 
thousand
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
108
Note 31 – Income taxes
 
The reason for the difference between the income
 
tax expense applicable to income before provision
 
for income taxes and the
amount computed by applying the statutory tax rate
 
in Puerto Rico, were as follows:
 
Quarters ended
March 31, 2023
March 31, 2022
(In thousands)
Amount
 
% of pre-tax
income
 
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
 
$
76,985
38
%
$
98,312
38
%
Net benefit of tax exempt interest income
(21,902)
(11)
(42,869)
(16)
Effect of income subject to preferential tax rate
(855)
-
(3,945)
(2)
Deferred tax asset valuation allowance
(4,565)
(2)
3,891
1
Difference in tax rates due to multiple jurisdictions
(5,169)
(3)
(6,493)
(2)
State and local taxes
3,355
2
3,665
1
Others
(1,535)
(1)
(2,082)
(1)
Income tax expense
$
46,314
23
%
$
50,479
19
%
For the quarter ended March 31, 2023,
 
the Corporation recorded an income tax expense
 
of $
46.3
 
million compared to $
50.5
 
million
for the
 
quarter ended
 
March 31,2022.
 
The decrease
 
in income
 
tax expense
 
was due
 
to a
 
lower pre-tax
 
income and
 
reversal of
 
a
valuation
 
allowance
 
on
 
a
 
tax
 
credit
 
expected
 
to
 
be
 
realized
 
on
 
the
 
U.
 
S.
 
operations
 
as
 
a
 
result
 
of
 
the
 
implementation
 
of
 
the
Corporate Alternative
 
Minimum
 
Tax.
 
This
 
positive variance
 
was
 
partially offset
 
by
 
lower benefits
 
on
 
the
 
exempt income,
 
mainly
associated with the allocation of higher interest
 
expense disallowance.
The following table presents a breakdown of the
 
significant components of the Corporation’s deferred tax assets
 
and liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
109
March 31, 2023
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
261
$
4,726
$
4,987
Net operating loss and other carryforward available
 
121,758
655,505
777,263
Postretirement and pension benefits
47,039
-
47,039
Allowance for credit losses
238,695
30,628
269,323
Depreciation
6,033
6,257
12,290
FDIC-assisted transaction
152,665
-
152,665
Lease liability
27,995
22,427
50,422
Unrealized net loss on investment securities
 
235,932
20,832
256,764
Difference in outside basis from pass-through entities
32,800
-
32,800
Mortgage Servicing Rights
13,012
-
13,012
Other temporary differences
29,835
8,589
38,424
Total gross deferred
 
tax assets
906,025
748,964
1,654,989
Deferred tax liabilities:
Intangibles
82,103
55,415
137,518
Right of use assets
25,631
19,322
44,953
Deferred loan origination fees/cost
1,804
2,995
4,799
Loans acquired
22,134
-
22,134
Other temporary differences
6,159
422
6,581
 
Total gross deferred
 
tax liabilities
137,831
78,154
215,985
Valuation allowance
138,016
396,472
534,488
Net deferred tax asset
$
630,178
$
274,338
$
904,516
 
December 31, 2022
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
 
121,742
661,144
782,886
Postretirement and pension benefits
47,122
-
47,122
Allowance for credit losses
250,615
32,688
283,303
Depreciation
5,972
6,309
12,281
FDIC-assisted transaction
152,665
-
152,665
Lease liability
28,290
23,521
51,811
Unrealized net loss on investment securities
265,955
23,913
289,868
Difference in outside basis from pass-through entities
40,602
-
40,602
Mortgage Servicing Rights
13,711
-
13,711
Other temporary differences
17,122
7,815
24,937
Total gross deferred
 
tax assets
944,057
758,171
1,702,228
Deferred tax liabilities:
Intangibles
81,174
54,623
135,797
Right of use assets
26,015
20,262
46,277
Deferred loan origination fees/cost
1,076
2,961
4,037
Loans acquired
23,353
-
23,353
Other temporary differences
1,531
-
1,531
 
Total gross deferred
 
tax liabilities
133,149
77,846
210,995
Valuation allowance
137,863
402,333
540,196
Net deferred tax asset
$
673,045
$
277,992
$
951,037
110
The
 
net
 
deferred tax
 
asset
 
shown
 
in
 
the
 
table
 
above
 
at
 
March
 
31,
 
2023
 
is
 
reflected
 
in
 
the
 
consolidated statements
 
of
 
financial
condition as $
0.9
 
billion in net deferred tax assets in the
 
“Other assets” caption (December 31, 2022 - $
1.0
 
billion) and $
3.2
 
million in
deferred
 
tax
 
liabilities
 
in
 
the
 
“Other
 
liabilities”
 
caption
 
(December 31,
 
2022
 
-
 
$
2.6
 
million),
 
reflecting
 
the
 
aggregate
 
deferred
 
tax
assets
 
or
 
liabilities
 
of
 
individual
 
tax-paying
 
subsidiaries
 
of
 
the
 
Corporation
 
in
 
their
 
respective tax
 
jurisdiction, Puerto
 
Rico
 
or
 
the
United States.
 
At
 
March
 
31,
 
2023
 
the
 
net
 
deferred
 
tax
 
asset
 
of
 
the
 
U.S.
 
operations
 
amounted
 
to
 
$
671
 
million
 
with
 
a
 
valuation
 
allowance
 
of
approximately $
396
 
million, for
 
a net
 
deferred tax
 
asset after
 
valuation allowance
 
of approximately
 
$
274
 
million. The
 
Corporation
evaluates
 
the
 
realization
 
of
 
the
 
deferred tax
 
asset
 
on
 
a
 
quarterly
 
basis
 
by
 
taxing
 
jurisdiction. The
 
U.S.
 
operation
 
has
 
sustained
profitability for
 
last three
 
calendar years
 
and for
 
the quarter
 
ended March 31,
 
2023. These
 
financial results
 
demonstrated
 
financial
stability for
 
the U.S.
 
operations, despite
 
the climate
 
of uncertainty
 
as a
 
result of
 
global geopolitical
 
and health
 
challenges.
 
These
historical financial
 
results are objectively
 
verifiable positive
 
evidence, evaluated together
 
with the
 
positive evidence of
 
stable credit
metrics, in
 
combination with
 
the length
 
of the
 
expiration of
 
the NOLs.
 
On the
 
other hand,
 
the Corporation
 
evaluated the
 
negative
evidence accumulated
 
over the
 
years,
 
including financial
 
results lower
 
than
 
expectations and
 
challenges to
 
the economy
 
due to
global geopolitical uncertainty.
 
As of March 31,
 
2023, after weighting all
 
positive and negative evidence, the
 
Corporation concluded
that it is more likely than not that approximately $
274
 
million of the deferred tax asset from the U.S. operations, comprised mainly of
net operating
 
losses, will
 
be realized.
 
The Corporation
 
based this
 
determination on
 
its estimated
 
earnings available
 
to realize
 
the
deferred tax
 
asset for
 
the remaining
 
carryforward period,
 
together with
 
the historical
 
level of
 
book income
 
adjusted by
 
permanent
differences. Management
 
will continue
 
to monitor
 
and review
 
the U.S.
 
operation’s results
 
and the
 
pre-tax earnings
 
forecast on
 
a
quarterly
 
basis to
 
assess the
 
future realization
 
of the
 
deferred tax
 
asset.
 
Management will
 
closely monitor
 
factors, including,
 
net
income versus
 
forecast, targeted
 
loan growth,
 
net interest
 
income margin,
 
changes in
 
deposits costs,
 
allowance for
 
credit losses,
charge offs, NPLs inflows and NPA balances.
 
At March 31, 2023, the Corporation’s net deferred tax
 
assets related to its Puerto Rico operations amounted
 
to $
630
 
million.
The Corporation’s Puerto Rico Banking operation is not in a cumulative loss position and has sustained profitability for the last three
calendar
 
years
 
and
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023.
 
This
 
is
 
considered
 
a
 
strong
 
piece
 
of
 
objectively
 
verifiable
 
positive
evidence that
 
outweighs any negative
 
evidence considered by
 
management in the
 
evaluation of the
 
realization of
 
the deferred tax
asset.
 
Based on this evidence and management’s
 
estimate of future taxable income, the Corporation
 
has concluded that it is
 
more
likely than not that such net deferred tax asset of
 
the Puerto Rico Banking operations will be realized.
The
 
Holding
 
Company
 
operation
 
is
 
in
 
a
 
cumulative
 
loss
 
position,
 
taking
 
into
 
account
 
taxable
 
income
 
exclusive
 
of
 
reversing
temporary
 
differences, for
 
the
 
last
 
three
 
calendar
 
years
 
and for
 
the
 
quarter ended
 
March
 
31,
 
2023.
 
Management expects
 
these
losses will
 
be a
 
trend in
 
future years.
 
This objectively
 
verifiable negative
 
evidence is
 
considered by
 
management strong
 
negative
evidence that
 
will suggest
 
that income
 
in future
 
years will
 
be insufficient
 
to support
 
the realization
 
of all
 
deferred tax
 
assets. After
weighting of all
 
positive and negative
 
evidence management concluded, as
 
of the reporting
 
date, that it
 
is more likely
 
than not that
the Holding Company will not be able
 
to realize any portion of the
 
deferred tax assets. Accordingly,
 
the Corporation has maintained
a valuation allowance on the deferred tax asset
 
of $
138
 
million as of March 31, 2023.
The reconciliation of unrecognized tax benefits, excluding
 
interest, was as follows:
 
 
 
 
 
 
111
(In millions)
2023
2022
Balance at January 1
$
2.5
$
3.5
Balance at March 31
$
2.5
$
3.5
At March 31,
 
2023, the total amount
 
of accrued interest recognized
 
in the statement
 
of financial condition amounted
 
to $
2.6
 
million
(December 31, 2022 - $
2.6
 
million). The total interest expense recognized
 
at March 31, 2023 was
 
$
56
 
thousand, (March 31, 2022–
$
83
 
thousand).
 
Management determined
 
that
 
at
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022
 
there
 
was
no
 
need
 
to
 
accrue
 
for
 
the
payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while
the penalties, if any, are reported in other operating expenses in the
 
consolidated statements of operations.
 
After consideration
 
of the
 
effect on
 
U.S. federal
 
tax of
 
unrecognized U.S.
 
state tax
 
benefits, the
 
total amount
 
of unrecognized
 
tax
benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $
4.3
million at March 31, 2023 (December 31, 2022 - $
4.3
 
million).
The amount of
 
unrecognized tax benefits
 
may increase or
 
decrease in the
 
future for various
 
reasons including adding amounts
 
for
current
 
tax
 
year
 
positions,
 
expiration
 
of
 
open
 
income
 
tax
 
returns
 
due
 
to
 
the
 
statutes
 
of
 
limitation,
 
changes
 
in
 
management’s
judgment about
 
the level
 
of uncertainty,
 
status of
 
examinations, litigation
 
and legislative
 
activity and
 
the addition
 
or elimination
 
of
uncertain tax positions.
 
The Corporation does not
 
anticipate a reduction
 
in the total
 
amount of unrecognized tax
 
benefits within the
next 12 months.
 
The
 
Corporation and
 
its subsidiaries
 
file
 
income tax
 
returns in
 
Puerto
 
Rico, the
 
U.S. federal
 
jurisdiction, various
 
U.S. states
 
and
political subdivisions,
 
and foreign
 
jurisdictions. At
 
March 31,
 
2023, the
 
following years
 
remain subject
 
to
 
examination in
 
the
 
U.S.
Federal jurisdiction: 2019 and thereafter; and in
 
the Puerto Rico jurisdiction, 2018 and thereafter.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
112
Note 32 – Supplemental disclosure on the consolidated
 
statements of cash flows
Additional disclosures on cash flow information and
 
non-cash activities for the quarters ended March
 
31, 2023 and March 31, 2022
are listed in the following table:
(In thousands)
March 31, 2023
March 31, 2022
Non-cash activities:
 
Loans transferred to other real estate
$
18,367
$
18,647
 
Loans transferred to other property
17,343
13,425
 
Total loans transferred
 
to foreclosed assets
35,710
32,072
 
Loans transferred to other assets
2,778
2,228
 
Financed sales of other real estate assets
3,203
2,109
 
Financed sales of other foreclosed assets
13,232
9,384
 
Total financed sales
 
of foreclosed assets
16,435
11,493
 
Financed sale of premises and equipment
14,105
11,738
 
Transfers from loans held-in-portfolio to
 
loans held-for-sale
2,475
7,607
 
Transfers from loans held-for-sale to loans
 
held-in-portfolio
1,500
786
 
Loans securitized into investment securities
[1]
10,966
142,702
 
Trades receivable from brokers and counterparties
10,307
60,186
 
Trades payable to brokers and counterparties
402
10,710
 
Receivables from investments maturities
99,620
-
 
Recognition of mortgage servicing rights on securitizations
 
or asset transfers
501
2,771
 
Loans booked under the GNMA buy-back option
855
4,961
 
Capitalization of lease right of use asset
2,699
3,689
[1]
Includes loans securitized into trading securities and subsequently
 
sold before quarter end.
The following table provides a reconciliation of
 
cash and due from banks, and restricted cash
 
reported within the Consolidated
Statement of Financial Condition that sum to the total of
 
the same such amounts shown in the Consolidated
 
Statement of Cash
Flows.
(In thousands)
March 31, 2023
March 31, 2022
Cash and due from banks
$
427,160
$
381,658
Restricted cash and due from banks
34,853
57,490
Restricted cash in money market investments
7,173
6,300
Total cash and due
 
from banks, and restricted cash
[2]
$
469,186
$
445,448
[2]
 
Refer to Note 5 - Restrictions on cash and due from banks
 
and certain securities for nature of restrictions.
113
Note 33 – Segment reporting
The
 
Corporation’s
 
corporate
 
structure
 
consists
 
of
two
 
reportable
 
segments
 
–
Banco Popular de Puerto Rico and Popular U.S.
Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess
where to allocate resources.
 
The segments were
 
determined based on the
 
organizational structure, which focuses
 
primarily on the
markets the segments serve, as well as on the products
 
and services offered by the segments.
Banco Popular de Puerto Rico:
 
The Banco Popular de
 
Puerto Rico reportable segment
 
includes commercial, consumer and retail
 
banking operations conducted at
BPPR, including
 
U.S. based
 
activities conducted
 
through its
 
New York
 
Branch. It
 
also includes
 
the lending
 
operations of
 
Popular
Auto
 
and
 
Popular
 
Mortgage.
 
Other
 
financial
 
services
 
within
 
the
 
BPPR
 
segment
 
include
 
the
 
trust
 
service
 
units
 
of
 
BPPR,
 
asset
management services of Popular Asset
 
Management, the brokerage and investment
 
banking operations of Popular Securities,
 
and
the insurance agency and reinsurance businesses
 
of Popular Insurance, Popular Risk Services, Popular
 
Life Re, and Popular Re.
Popular U.S.:
 
Popular U.S. reportable segment
 
consists of the
 
banking operations of Popular
 
Bank (PB), Popular Insurance
 
Agency, U.S.A.,
 
and
PEF.
 
PB
 
operates through
 
a retail
 
branch network
 
in the
 
U.S. mainland
 
under the
 
name of
 
Popular,
 
and equipment
 
leasing and
financing services through PEF.
 
Popular Insurance Agency,
 
U.S.A. offers investment and insurance
 
services across the PB
 
branch
network.
 
The Corporate group
 
consists primarily of
 
the holding companies
 
Popular, Inc.,
 
Popular North America,
 
Popular International Bank
and certain of
 
the Corporation’s
 
investments accounted for
 
under the equity
 
method, including Evertec,
 
until August 15,
 
2022, and
Centro Financiero BHD, León.
 
The
 
accounting
 
policies
 
of
 
the
 
individual
 
operating
 
segments
 
are
 
the
 
same
 
as
 
those
 
of
 
the
 
Corporation.
 
Transactions
 
between
reportable segments are primarily conducted at market rates, resulting
 
in profits that are eliminated for reporting consolidated results
of operations.
The tables that follow present the results of operations
 
and total assets by reportable segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
114
2023
For the quarter ended March 31, 2023
Banco Popular
 
Intersegment
 
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
449,820
$
90,086
$
1
Provision for credit losses
45,708
2,065
-
Non-interest income
 
147,471
6,384
(136)
Amortization of intangibles
484
311
-
Depreciation expense
11,669
1,814
-
Other operating expenses
363,715
63,317
(136)
Income tax expense
42,832
3,976
-
Net income
$
132,883
$
24,987
$
1
Segment assets
$
55,770,442
$
12,147,556
$
(541,534)
For the quarter ended March 31, 2023
Reportable
 
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
 
Inc.
Net interest income (expense)
$
539,907
$
(8,251)
$
-
$
531,656
Provision for credit losses (benefit)
47,773
(136)
-
47,637
Non-interest income
153,719
9,714
(1,472)
161,961
Amortization of intangibles
795
-
-
795
Depreciation expense
13,483
359
-
13,842
Other operating expenses
426,896
230
(1,076)
426,050
Income tax expense (benefit)
46,808
(321)
(173)
46,314
Net income
$
157,871
$
1,331
$
(223)
$
158,979
Segment assets
$
67,376,464
$
5,803,751
$
(5,504,456)
$
67,675,759
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
115
2022
For the quarter ended March 31, 2022
Banco Popular
 
Intersegment
 
(In thousands)
de Puerto Rico
 
Popular U.S.
Eliminations
Net interest income
$
415,169
$
86,520
$
1
Provision for credit losses (benefit)
(13,690)
(2,019)
-
Non-interest income
 
135,862
5,954
(137)
Amortization of intangibles
484
407
-
Depreciation expense
11,517
1,824
-
Other operating expenses
334,878
53,639
(136)
Income tax expense
39,316
11,592
-
Net income
$
178,526
$
27,031
$
-
Segment assets
$
58,708,519
$
10,579,410
$
(167,754)
For the quarter ended March 31, 2022
Reportable
 
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
 
Inc.
Net interest income (expense)
$
501,690
$
(7,378)
$
-
$
494,312
Provision for credit losses (benefit)
(15,709)
209
-
(15,500)
Non-interest income
141,679
14,265
(1,252)
154,692
Amortization of intangibles
891
-
-
891
Depreciation expense
13,341
289
-
13,630
Other operating expenses
388,381
444
(1,007)
387,818
Income tax expense (benefit)
50,908
(332)
(97)
50,479
Net income
$
205,557
$
6,277
$
(148)
$
211,686
Segment assets
$
69,120,175
$
5,490,318
$
(5,085,411)
$
69,525,082
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
116
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. As of March 31, 2023, BPPR
participated in loans
 
originated by PB
 
totaling $
316
 
million (December 31, 2022
 
- $
294
 
million). At March
 
31, 2023, total
 
assets for
the BPPR segment related to its operations in the United
 
States amounted to $
1.4
 
billion (December 31, 2022 - $
1.2
 
billion). During
the quarter
 
ended March
 
31, 2023,
 
the BPPR
 
segment generated
 
approximately $
25.4
 
million (2022
 
- $
12.0
 
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
$
11.6
 
million
 
in revenues
 
during the
 
first
 
quarter of
 
2023 (2022
 
- $
10.8
 
million) from
 
its
 
operations in
 
the U.S.
 
and British
 
Virgin
Islands.
 
Geographic Information
 
Quarter ended
(In thousands)
March 31, 2023
March 31, 2022
Revenues:
[1]
 
Puerto Rico
 
$
547,903
$
527,673
 
United States
125,045
103,174
 
Other
20,669
18,157
Total consolidated
 
revenues
 
$
693,617
$
649,004
[1]
Total revenues include
 
net interest income, service charges on deposit accounts,
 
other service fees, mortgage banking activities, net
 
gain
(loss), including impairment on equity securities, net gain (loss)
 
on trading account debt securities, adjustments to indemnity
 
reserves on loans
sold and other operating income.
Selected Balance Sheet Information:
(In thousands)
March 31, 2023
December 31, 2022
Puerto Rico
 
Total assets
$
52,973,724
$
53,541,427
 
Loans
20,970,708
20,884,442
 
Deposits
50,589,328
51,138,790
United States
 
Total assets
$
13,506,272
$
12,718,775
 
Loans
10,825,221
10,643,964
 
Deposits
8,630,394
8,182,702
Other
 
Total assets
$
1,195,763
$
1,377,715
 
Loans
553,625
554,744
 
Deposits
[1]
1,734,166
1,905,735
[1]
Represents deposits from BPPR operations located in the
 
U.S. and British Virgin Islands.
 
117
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
AND RESULTS OF OPERATIONS
This
 
report
 
includes
 
management’s
 
discussion
 
and
 
analysis
 
(“MD&A”)
 
of
 
the
 
consolidated
 
financial
 
position
 
and
 
financial
performance
 
of
 
Popular,
 
Inc.
 
(the
 
“Corporation”
 
or
 
“Popular”). All
 
accompanying
 
tables,
 
financial
 
statements
 
and
 
notes
 
included
elsewhere in this report should be considered an
 
integral part of this analysis.
 
The Corporation is a
 
diversified, publicly-owned financial holding company subject to the
 
supervision and regulation of the Board
 
of
Governors of the Federal Reserve System. The Corporation has
 
operations in Puerto Rico, the United States (“U.S.”) mainland and
the
 
U.S.
 
and
 
British
 
Virgin
 
Islands.
 
In
 
Puerto
 
Rico,
 
the
 
Corporation
 
provides
 
retail,
 
mortgage
 
and
 
commercial
 
banking
 
services
through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment
 
banking, broker-dealer, auto
and
 
equipment
 
leasing
 
and
 
financing,
 
and
 
insurance
 
services
 
through
 
specialized
 
subsidiaries.
 
In
 
the
 
U.S.
 
mainland,
 
the
Corporation provides
 
retail, mortgage
 
and
 
commercial banking
 
services, as
 
well as
 
equipment leasing
 
and
 
financing, through
 
its
New
 
York-chartered
 
banking
 
subsidiary,
 
Popular
 
Bank
 
(“PB”
 
or
 
“Popular U.S.”),
 
which
 
has
 
branches
 
located
 
in
 
New
 
York,
 
New
Jersey
 
and
 
Florida.
 
Note
 
33
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
presents
 
information
 
about
 
the
 
Corporation’s
 
business
segments.
SIGNIFICANT EVENTS
 
Issuance of Senior Notes
On March 13, 2023, the Corporation
 
issued $400 million aggregate principal amount of
 
7.25% Senior Notes due 2028
 
(the “Notes”)
in an underwritten public offering. The Corporation intends to use a portion of the proceeds of the offering of
 
the Notes to redeem or
repay $300 million aggregate principal amount of
 
its outstanding 6.125% Senior Notes due September
 
2023.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters ended
 
March 31, 2023 and 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118
Table 1 - Financial highlights
Financial Condition Highlights
Ending Balances at
Average for the quarter ended
(In thousands)
March 31,
2023
 
December 31,
2022
Variance
March 31,
2023
March 31,
2022
Variance
Money market investments
$
6,098,288
$
5,614,595
$
483,693
$
5,736,352
$
14,763,104
$
(9,026,752)
Investment securities
25,951,936
26,553,317
(601,381)
28,076,090
28,540,438
(464,348)
Loans
32,349,554
32,083,150
266,404
32,048,055
29,246,344
2,801,711
Earning assets
64,399,778
64,251,062
148,716
65,860,497
72,549,886
(6,689,389)
Total assets
67,675,759
67,637,917
37,842
68,843,309
75,628,669
(6,785,360)
Deposits
60,953,888
61,227,227
(273,339)
61,145,654
67,601,597
(6,455,943)
Borrowings
1,402,626
1,400,319
2,307
1,167,845
1,079,096
88,749
Total liabilities
63,205,034
63,544,492
(339,458)
63,202,001
69,645,361
(6,443,360)
Stockholders’ equity
4,470,725
4,093,425
377,300
5,641,308
5,983,308
(342,000)
Note: Average balances exclude unrealized gains or losses on debt securities available-for-sale.
Operating Highlights
Quarter ended March 31,
(In thousands, except per share information)
2023
2022
 
Variance
Net interest income
$
531,656
$
494,312
$
37,344
Provision for credit losses (benefit)
47,637
(15,500)
63,137
Non-interest income
161,961
154,692
7,269
Operating expenses
440,687
402,339
38,348
Income before income tax
205,293
262,165
(56,872)
Income tax expense
46,314
50,479
(4,165)
Net income
$
158,979
$
211,686
$
(52,707)
Net income applicable to common stock
$
158,626
$
211,333
$
(52,707)
Net income per common share - basic
$
2.22
$
2.69
$
(0.47)
Net income per common share - diluted
$
2.22
$
2.69
$
(0.47)
Dividends declared per common share
$
0.55
$
0.55
$
―
Quarter ended March 31,
Selected Statistical Information
2023
2022
Common Stock Data
 
End market price
$
57.41
$
81.74
 
Book value per common share at period end
61.82
60.78
Profitability Ratios
 
Return on assets
0.93
%
1.14
%
 
Return on common equity
10.00
14.38
 
Net interest spread
2.68
2.69
 
Net interest spread (taxable equivalent) - Non-GAAP
2.92
2.98
 
Net interest margin
3.22
2.75
 
Net interest margin (taxable equivalent) - Non-GAAP
3.46
3.05
Capitalization Ratios
 
Average equity to average assets
8.19
%
7.91
%
 
Common equity Tier 1 capital
16.73
16.26
 
Tier I capital
16.79
16.33
 
Total capital
18.61
18.19
 
Tier 1 leverage
8.37
6.98
 
119
Net interest income on a taxable equivalent basis
 
– Non-GAAP Financial Measure
The Corporation’s
 
interest earning
 
assets include
 
investment securities
 
and loans
 
that are
 
exempt from
 
income tax,
 
principally in
Puerto
 
Rico. The
 
main sources
 
of tax-exempt
 
interest income
 
are certain
 
investments in
 
obligations of
 
the
 
U.S. Government,
 
its
agencies and sponsored entities, certain obligations of the Commonwealth
 
of Puerto Rico and/or its agencies and municipalities and
assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the
interest income
 
has been converted
 
to a
 
taxable equivalent basis,
 
using the
 
applicable statutory income
 
tax rates
 
for each
 
period.
The
 
taxable equivalent
 
computation considers
 
the interest
 
expense and
 
other related
 
expense disallowances
 
required by
 
Puerto
Rico tax law. Thereunder, the exempt interest can be deducted up to the amount of taxable
 
income.
 
Net interest
 
income on
 
a taxable
 
equivalent basis
 
is a
 
non-GAAP financial
 
measure. Management
 
believes that
 
this presentation
provides meaningful
 
information since
 
it facilitates
 
the comparison
 
of
 
revenues arising
 
from taxable
 
and tax-exempt
 
sources. Net
interest
 
income
 
on
 
a
 
taxable
 
equivalent
 
basis
 
is
 
presented
 
with
 
its
 
different
 
components
 
in
 
Tables
 
2
 
and
 
3,
 
along
 
with
 
the
reconciliation to
 
net interest
 
income
 
(GAAP), for
 
the quarter
 
ended March
 
31, 2023
 
as compared
 
with the
 
same
 
period in
 
2022,
segregated by major categories of interest earning
 
assets and interest-bearing liabilities.
Non-GAAP financial measures
 
used by
 
the Corporation may
 
not be
 
comparable to
 
similarly named non-GAAP
 
financial measures
used by other companies.
Financial highlights for the quarter ended March 31, 2023
●
 
For the
 
quarter ended March
 
31, 2023, the
 
Corporation recorded net
 
income of $
 
159.0 million, compared
 
to net
 
income of $
211.7 million for the same quarter of the previous year.
 
Net interest margin for the first quarter of 2023 was 3.22%, an increase
of
 
47
 
basis
 
points
 
when
 
compared
 
to
 
2.75%
 
for
 
the
 
same
 
quarter
 
of
 
the
 
previous
 
year,
 
mainly
 
due
 
to
 
an
 
improvement
 
in
earnings assets mix,
 
higher interest income
 
from money market,
 
investment and trading securities
 
and higher interest
 
income
from loans,
 
which was
 
partially offset
 
by higher
 
interest expense
 
on deposits.
 
On a
 
taxable equivalent
 
basis, the
 
net interest
margin was
 
of 3.46%, compared
 
to 3.05%
 
for the
 
same quarter
 
of the previous
 
year. For
 
the quarter
 
ended March
 
31, 2023,
the Corporation
 
recorded a
 
provision for
 
credit losses
 
of $47.6
 
million, compared
 
to
 
a release
 
of $15.5
 
million for
 
the same
quarter of
 
the previous
 
year.
 
The higher
 
provision for
 
2023 is
 
attributed to
 
reductions in
 
the P.R.
 
Home Pricing
 
Index (“HPI”)
forecast, higher loan volumes and migration of consumer credit scores. The first quarter of 2022 also included releases of ACL
reserves
 
originally
 
related
 
to
 
Covid-19
 
economic
 
uncertainty.
 
Non-interest
 
income
 
was
 
$162.0
 
million
 
for
 
the
 
quarter,
 
an
increase of
 
$7.3 million
 
when compared
 
to
 
the quarter
 
ended March
 
31, 2022,
 
mainly due
 
to higher
 
other service
 
fees and
income from
 
a litigation-related
 
insurance claim
 
reimbursement.
 
Operating expenses
 
were higher
 
by $38.3
 
million principally
due to higher personnel costs, business promotion
 
expenses,
 
and higher processing and transactional
 
expenses.
●
 
Total
 
assets at March 31, 2023 amounted to $67.7 billion, compared to
 
$67.6 billion, at December 31, 2022. The increase was
mainly
 
due
 
to
 
higher
 
money
 
market
 
investments,
 
loans,
 
and
 
debt
 
securities
 
held-to-maturity,
 
partially
 
offset
 
by
 
lower
 
debt
securities available-for-sale and other assets.
●
Total
 
deposits at March 31,
 
2023 decreased by $273.3 million
 
when compared to deposits
 
at December 31, 2022, mainly
 
due
to lower Puerto Rico public sector deposits by $0.4 billion
 
and lower interest bearing retail deposits at
 
BPPR.
●
 
Stockholders’ equity
 
totaled $4.5
 
billion at
 
March 31,
 
2023, an
 
increase of
 
$377.3 million
 
when compared
 
to
 
December 31,
2022,
 
principally
 
due
 
to
 
net
 
income
 
for
 
the
 
quarter
 
of
 
$159.0
 
million,
 
the
 
after-tax
 
impact
 
of
 
the
 
favorable
 
variance
 
in
 
net
unrealized losses in the portfolio of available-for-sale securities of $191.8 million, the amortization of the unrealized losses from
securities
 
reclassified to
 
held-to-maturity as
 
described below
 
of
 
$33.6 million,
 
and
 
the
 
adoption of
 
the
 
new
 
ASU
 
during the
quarter of $28.8 million, partially offset by dividends
 
declared for the quarter.
●
 
At March 31, 2023, the Corporation’s tangible book value per common share was $50.15, an increase of $5.18 from December
31, 2022 due mainly to the increase in Stockholders’
 
equity during the period.
 
●
 
Capital ratios continued to
 
be strong. As
 
of March 31, 2023,
 
the Corporation’s common equity
 
tier 1 capital
 
ratio was 16.73%,
the tier 1 leverage ratio was 8.47%, and the total
 
capital ratio was 18.61%. Refer to Table 8 for capital ratios.
120
Refer to
 
the Operating
 
Results Analysis
 
and Financial
 
Condition Analysis
 
within this
 
MD&A for
 
additional discussion
 
of significant
quarterly variances and items impacting the financial performance
 
of the Corporation.
As a financial services company,
 
the Corporation’s earnings are significantly affected
 
by general business and economic conditions
in the
 
markets which
 
we serve.
 
Lending and
 
deposit activities
 
and fee
 
income generation
 
are influenced
 
by the
 
level of
 
business
spending and
 
investment, consumer
 
income, spending
 
and savings,
 
capital market
 
activities, competition,
 
customer preferences,
interest rate conditions and prevailing market rates
 
on competing products.
The Corporation
 
operates in
 
a highly
 
regulated environment
 
and may
 
be adversely
 
affected by
 
changes in
 
federal and
 
local laws
and regulations. Also, competition with other financial institutions
 
could adversely affect its profitability.
The
 
Corporation
 
continuously
 
monitors
 
general
 
business
 
and
 
economic
 
conditions,
 
industry-related
 
indicators
 
and
 
trends,
competition, interest rate volatility, credit
 
quality indicators, loan and deposit demand, operational and systems efficiencies, revenue
enhancements and changes in the regulation of financial
 
services companies.
 
The description of the Corporation’s business contained in
 
Item 1 of the 2022 Form 10-K, while not all inclusive,
 
discusses additional
information about the business of the Corporation. Readers should also refer to “Part I - Item 1A” of the 2022 Form 10-K and “Part II
- Item 1A” of this Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, many
 
beyond the
Corporation’s control that, in addition to the other information in
 
this Form 10-Q, readers should consider.
The Corporation’s common stock is traded on the NASDAQ
 
Global Select Market under the symbol BPOP.
121
CRITICAL ACCOUNTING POLICIES / ESTIMATES
 
The accounting
 
and reporting
 
policies followed
 
by the
 
Corporation and
 
its subsidiaries
 
conform to
 
generally accepted
 
accounting
principles
 
in
 
the
 
United
 
States
 
of
 
America
 
and
 
general
 
practices
 
within
 
the
 
financial
 
services
 
industry.
 
Various
 
elements
 
of
 
the
Corporation’s accounting policies, by
 
their nature, are
 
inherently subject to
 
estimation techniques, valuation assumptions and
 
other
subjective assessments.
 
These estimates
 
are made
 
under facts
 
and circumstances
 
at a
 
point in
 
time and
 
changes in
 
those facts
and circumstances could produce actual results that
 
differ from those estimates.
 
Management has discussed
 
the development and
 
selection of the
 
critical accounting policies
 
and estimates with
 
the Corporation’s
Audit
 
Committee.
 
The
 
Corporation
 
has
 
identified
 
as
 
critical
 
accounting
 
policies
 
those
 
related
 
to:
 
(i)
 
Fair
 
Value
 
Measurement
 
of
Financial Instruments; (ii) Loans
 
and Allowance for Credit
 
Losses; (iii) Loans Acquired
 
with Deteriorated Credit Quality;
 
(iv) Income
Taxes;
 
(v) Goodwill and
 
Other Intangible Assets; and
 
(vi) Pension and Postretirement
 
Benefit Obligations. For a
 
summary of these
critical accounting policies and estimates, refer to that particular section in
 
the MD&A included in the 2022 Form
 
10-K. Also, refer to
Note 2
 
to
 
the Consolidated
 
Financial Statements
 
included in
 
the 2022
 
Form 10-K
 
for a
 
summary of
 
the Corporation’s
 
significant
accounting policies and
 
to Note
 
3 to
 
the Consolidated Financial
 
Statements included in
 
this Form
 
10-Q for information
 
on recently
adopted accounting standard updates.
OPERATING RESULTS ANALYSIS
NET INTEREST INCOME
Net interest
 
income for
 
the quarter
 
ended March
 
31, 2023
 
was $531.7
 
million, compared
 
to $494.3
 
million in
 
the same
 
quarter of
2022, an increase of $37.3 million. Net
 
interest income on a taxable equivalent basis for
 
the first quarter of 2023 was $570.4 million
compared
 
to
 
$548.1
 
million
 
in
 
the
 
first
 
quarter
 
of
 
2022,
 
an
 
increase
 
of
 
$22.3
 
million.
 
The
 
lower
 
positive
 
variance
 
in
 
the
 
taxable
equivalent
 
net
 
interest income
 
as compared
 
to
 
the
 
GAAP
 
net interest
 
income
 
is
 
related
 
to
 
a
 
higher
 
effective
 
tax
 
during the
 
first
quarter of 2023 due to a higher disallowed interest expense as a result of the increase in the Corporation’s cost of deposits. Refer to
the Income taxes discussion for further information.
 
Net interest margin for the quarter was 3.22% compared to 2.75% in the first quarter of 2022 or an increase of 47 basis points. On a
taxable equivalent basis,
 
net interest margin
 
for the first
 
quarter of 2023,
 
was 3.46%, compared
 
to 3.05% for
 
the same quarter
 
the
prior year. The main variances in net interest income on a taxable
 
equivalent basis were:
●
Higher interest
 
income from
 
money market,
 
investment and
 
trading securities
 
by $80.1
 
million driven
 
by higher
 
average
yield
 
by 128
 
basis points,
 
related to
 
a
 
higher interest
 
rate environment,
 
partially offset
 
by lower
 
volume by
 
$8.7 billion
linked to a lower volume
 
of
 
the Puerto Rico public sector deposits
 
at BPPR, as a
 
result of the payments made by
 
Puerto
Rico pursuant
 
to the
 
Plan of
 
Adjustment for
 
Puerto Rico
 
under Title
 
III of
 
the Puerto
 
Rico Oversight,
 
Management, and
Economic Stability Act (“PROMESA”) which became
 
effective on March 15, 2022 and the increase in
 
loan volume;
●
higher interest income
 
from loans
 
by $114.1
 
million resulting from
 
an increase
 
in average loans
 
by $2.8
 
billion reflecting
increases
 
in
 
both
 
PB
 
and
 
Banco
 
Popular
 
de
 
Puerto
 
Rico
 
(“BPPR”)
 
and
 
across
 
most
 
major
 
lending
 
segments.
 
Loan
origination in
 
a higher
 
interest rate
 
environment and
 
the repricing
 
of
 
adjustable-rate loans
 
resulted in
 
a higher
 
yield on
loans by 91 basis points.
 
The categories with the highest impact
 
were commercial loans with an increase of
 
$73.3 million
in interest income, or 124 basis points, and consumer loans which increased $25.7 million in interest income, or 165 basis
points.
 
Partially offset by:
●
higher interest expense
 
on deposits by
 
$168.4 million due
 
to the increase
 
in rates, mainly
 
from Puerto Rico
 
government,
commercial
 
deposits
 
and
 
Popular
 
Bank
 
(“PB”)
 
deposits,
 
partially
 
offset
 
by
 
lower
 
volume
 
of
 
average
 
interest-bearing
deposits by $6.0 billion mainly related to the
 
decrease on Puerto Rico government deposits, accounting for approximately
75% of the decrease in volume;
Net interest income for the BPPR segment amounted to $449.8
 
million for the first quarter of 2023, compared
 
to $415.2 million in the
first quarter
 
of 2022.
 
Net interest
 
margin increased
 
to 3.24%
 
compared to
 
2.67% in
 
the first
 
quarter of
 
2022. The
 
increase in
 
net
interest income
 
of $34.7
 
million was
 
driven by
 
a higher
 
volume on
 
loans and
 
a higher
 
yield on
 
earning assets
 
related to
 
a higher
122
interest rate environment, partially offset
 
by the increase in the
 
cost of deposits, mainly from
 
the P.R.
 
public sector and commercial
interest-bearing deposits. The cost of interest-bearing deposits increased 145 basis points to 1.61% from 0.16% in the
 
same quarter
of 2022. Total deposit cost for the quarter increased by 106 basis points, from 0.12%
 
in the first quarter of 2022 to 1.18%.
Net
 
interest
 
income
 
for
 
PB
 
was
 
$90.1
 
million
 
for
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
compared
 
to
 
$86.5
 
million
 
during
 
the
 
first
quarter of
 
2022, an
 
increase of
 
$3.6 million.
 
Net interest
 
margin decreased
 
22 basis
 
points when
 
compared to
 
the first
 
quarter of
2022 to 3.56%. The decrease in net interest margin was mostly driven by a higher cost of deposits, partially offset by the increase in
loan volume and the
 
repricing of adjustable-rate loans driven
 
by the changes in interest
 
rates. The cost of
 
interest-bearing deposits
was 2.47%
 
compared to
 
0.46%, or
 
an increase
 
of 201
 
basis points, while
 
total deposit cost
 
was 2.01% compared
 
to 0.36%
 
in the
first quarter of 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
123
Table 2 - Analysis of Levels & Yields
 
on a Taxable Equivalent Basis
 
(Non-GAAP)
Quarter ended March 31,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
 
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
5,736
$
14,763
$
(9,027)
4.65
%
0.18
%
4.47
%
Money market investments
$
65,724
$
6,464
$
59,260
$
65,572
$
(6,312)
28,862
28,471
391
2.22
1.95
0.27
Investment securities [1]
158,914
137,350
21,564
21,280
284
31
70
(39)
4.47
5.90
(1.43)
Trading securities
 
338
1,019
(681)
(206)
(475)
Total money market,
 
investment and trading
34,629
43,304
(8,675)
2.63
1.35
1.28
securities
224,976
144,833
80,143
86,646
(6,503)
Loans:
15,761
13,741
2,020
6.32
5.08
1.24
Commercial
245,469
172,128
73,341
45,728
27,613
732
727
5
8.40
5.45
2.95
Construction
15,155
9,758
5,397
5,320
77
1,588
1,393
195
6.12
5.95
0.17
Leasing
24,282
20,720
3,562
586
2,976
7,388
7,388
-
5.46
5.24
0.22
Mortgage
100,773
96,768
4,005
4,005
-
3,020
2,537
483
12.85
11.20
1.65
Consumer
95,715
70,062
25,653
11,118
14,535
3,559
3,460
99
8.14
8.12
0.02
Auto
71,407
69,252
2,155
169
1,986
32,048
29,246
2,802
6.97
6.06
0.91
Total loans
552,801
438,688
114,113
66,926
47,187
$
66,677
$
72,550
$
(5,873)
4.72
%
3.25
%
1.47
%
Total earning assets
$
777,777
$
583,521
$
194,256
$
153,572
$
40,684
Interest bearing deposits:
$
23,313
$
28,288
$
(4,975)
2.52
%
0.10
%
2.42
%
NOW and money market [2]
$
144,970
$
7,323
$
137,647
$
139,459
$
(1,812)
15,029
16,434
(1,405)
0.47
0.16
0.31
Savings
 
17,443
6,564
10,879
12,314
(1,435)
7,099
6,737
362
1.76
0.66
1.10
Time deposits
30,802
10,896
19,906
16,703
3,203
45,441
51,459
(6,018)
1.72
0.20
1.52
Total interest bearing
 
deposits
193,215
24,783
168,432
168,476
(44)
15,704
16,143
(439)
Non-interest bearing demand
deposits
61,145
67,602
(6,457)
1.28
0.15
1.13
Total deposits
193,215
24,783
168,432
168,476
(44)
247
91
156
4.74
0.36
4.38
Short-term borrowings
2,885
80
2,805
2,081
724
Other medium and
 
947
1,013
(66)
4.78
4.18
0.60
long-term debt
11,266
10,546
720
426
294
Total interest bearing
46,635
52,563
(5,928)
1.80
0.27
1.53
liabilities (excluding demand
deposits)
207,366
35,409
171,957
170,983
974
4,338
3,844
494
Other sources of funds
$
66,677
$
72,550
$
(5,873)
1.26
%
0.20
%
1.06
%
Total source of funds
207,366
35,409
171,957
170,983
974
Net interest margin/
 
3.46
%
3.05
%
0.41
%
income on a taxable
equivalent basis (Non-
GAAP)
570,411
548,112
22,299
$
(17,411)
$
39,710
2.92
%
2.98
%
(0.06)
%
 
Net interest spread
 
Net interest spread
38,755
53,800
(15,045)
Net interest margin/ income
3.22
%
2.75
%
0.47
%
non-taxable equivalent basis
(GAAP)
$
531,656
$
494,312
$
37,344
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.
124
Provision for Credit Losses - Loans Held-in-Portfolio
 
and Unfunded Commitments
For the quarter ended March 31, 2023, the Corporation recorded an
 
expense of $47.8 million for its reserve for credit losses
 
related
to
 
loans
 
held-in-portfolio
 
and
 
unfunded
 
commitments.
 
The
 
provision
 
for
 
credit
 
loss
 
related
 
to
 
the
 
loans-held-in-portfolio
 
for
 
the
quarter ended March 31, 2023
 
was $47.1 million, compared to the
 
reserve release of $14.4 million for
 
the quarter ended March 31,
2022. The provision
 
expense was mainly driven
 
by reductions in
 
the HPI forecast,
 
higher loan volumes
 
and migration of consumer
credit scores.
 
The first quarter of 2022 also included releases of ACL reserves originally related to
 
COVID-19 economic uncertainty.
The
 
provision
 
related
 
to
 
unfunded commitments
 
for
 
the
 
first
 
quarter of
 
2023
 
was
 
$0.6
 
million,
 
compared
 
to
 
the
 
reserve
 
release
related to unfunded commitments of $0.8 million for the
 
same period of 2022.
 
For the quarter ended March 31, 2023, the Corporation recorded a provision for credit loss of $45.2 million for loans-held-in-portfolio
for the
 
BPPR segment,
 
compared to
 
a reserve
 
release of
 
$12.7 million
 
for the
 
quarter ended
 
March 31,
 
2022. The
 
Popular U.S.
segment recorded a provision of $1.9 million
 
for the quarter ended March 31, 2023, compared to
 
a reserve release of $1.7 million for
the same quarter in 2022.
 
At March 31,
 
2023, the total
 
allowance for credit
 
losses for loans
 
held-in-portfolio amounted to
 
$689.1 million, compared
 
to $720.3
million as of December 31, 2022. The ratio of the allowance for credit losses
 
to loans held-in-portfolio was 2.13% at March 31, 2023,
compared
 
to
 
2.25%
 
at
 
December 31,
 
2022.
 
During
 
the
 
first
 
quarter,
 
the
 
Corporation adopted
 
ASU
 
2022-02
 
which
 
resulted
 
in
 
a
reduction of approximately $46 million, $29 million net of tax, in the reserve related to
 
TDR which was recorded as an adjustment to
the beginning balance of retained earnings.
 
As discussed in Note 9 to
 
the Consolidated Financial Statements, within the process
 
to
estimate its
 
ACL, the
 
Corporation applies probability
 
weightings to the
 
outcomes of simulations
 
using Moody’s Analytics’
 
Baseline,
S3 (pessimistic) and S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic
scenario
 
given
 
the
 
uncertainties
 
in
 
the
 
economic
 
outlook
 
and
 
downside
 
risk.
 
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
Statements, for additional information on the Corporation’s
 
methodology to estimate its ACL. Refer to
 
the Credit Risk section of this
MD&A for
 
a detailed
 
analysis of
 
net charge-offs,
 
non-performing assets,
 
the allowance
 
for credit
 
losses and
 
selected loan
 
losses
statistics.
Provision for Credit Losses – Investment Securities
The
 
Corporation’s
 
provision
 
for
 
credit
 
losses
 
related
 
to
 
its
 
investment
 
securities
 
held-to-maturity
 
is
 
related
 
to
 
the
 
portfolio
 
of
obligations
 
from
 
the
 
Government
 
of
 
Puerto
 
Rico,
 
states
 
and
 
political
 
subdivisions.
 
For
 
the
 
quarter
 
ended
 
March
 
31,
 
2023,
 
the
provision for credit losses for investment securities was a reserve release of $0.1 million, compared to a $0.3 million reserve release
for the
 
quarter ended
 
March 31,
 
2022. At
 
March 31,
 
2023, the
 
total allowance
 
for credit
 
losses for
 
this portfolio
 
amounted to
 
$6.8
million, compared
 
to
 
$6.9 million
 
as
 
of
 
December 31,
 
2022. Refer
 
to
 
Note 7
to
 
Consolidated Financial
 
Statements
for
 
additional
information on the ACL for this portfolio.
125
Non-Interest Income
Non-interest
 
income
 
was
 
$162.0 million
 
for
 
the
 
first
 
quarter of
 
2023,
 
an
 
increase
 
of
 
$7.3
 
million
 
when compared
 
with
 
the
 
same
quarter of the previous year. The increase in non-interest income was primarily
 
driven by:
 
●
 
higher other service fees
 
by $12.9 million mainly
 
due to higher credit card
 
fees by $6.9 million
 
and higher debit card fees
by $1.4 million as a result of higher interchange transactional volumes
 
and higher other fees by $4.4 million mainly due to
the merchant
 
business fees
 
as a
 
result of
 
the revenue
 
sharing agreement
 
entered into
 
with Evertec,
 
Inc. on
 
July 2022;
and
●
 
a favorable
 
variance in
 
unrealized net
 
gains on
 
equity securities
 
by $3.2
 
million mainly
 
on deferred
 
compensation plans
that have an offsetting expense in personnel related expenses.
partially offset by
●
 
lower service
 
charges on
 
deposit accounts
 
by $6.0
 
million mainly
 
as
 
a
 
result of
 
the Corporation’s
 
initiative of
 
reducing
overdraft fees implemented in the third quarter of 2022;
 
●
 
lower income from mortgage banking activities by $5.5 million mainly due to an unfavorable variance of
 
$2.5 million in the
fair value adjustment
 
of mortgage servicing
 
rights and lower
 
net gains on
 
closed derivative positions, partially
 
offset by a
positive variance of $1.8 million in net gains (losses)
 
on the sale and valuation adjustments of mortgage
 
loans.
 
Operating Expenses
Operating expenses
 
for the
 
quarter ended
 
March 31,
 
2023
 
increased by
 
$38.3 million
 
when compared
 
with the
 
same
 
quarter of
2022, driven primarily by:
 
●
 
higher
 
personnel
 
cost
 
by
 
$31.8
 
million
 
mainly
 
due
 
to
 
higher
 
salaries
 
by
 
$26.7
 
million
 
as
 
a
 
result
 
of
 
merit
 
and
 
market
related
 
increases
 
during
 
2022,
 
minimum
 
salary
 
increases
 
during
 
the
 
first
 
quarter
 
of
 
2023
 
and
 
higher
 
headcount,
 
an
increase in
 
health insurance
 
costs by
 
$2.7 million,
 
and higher
 
payroll taxes
 
and fringe
 
benefits by
 
$6.8 million;
 
partially
offset by a decrease in profit-sharing accrual of $4.2
 
million;
●
 
higher business promotion expenses by $3.8 million
 
mainly due to higher credit cards rewards expense;
 
and
●
 
higher processing
 
and transactional expenses
 
by $3.0
 
million mainly due
 
to higher
 
merchant processing and
 
credit card
processing expenses as a result of higher
 
transactional volumes;
partially offset by:
●
 
lower professional fees by $3.4 million mainly due
 
to lower advisory expenses related to corporate
 
initiatives;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
126
Table 3 - Operating Expenses
Quarters ended March 31,
(In thousands)
2023
2022
Variance
Personnel costs:
Salaries
$
125,393
$
98,673
$
26,720
Commissions, incentives and other bonuses
31,162
35,521
(4,359)
Pension, postretirement and medical insurance
15,378
12,783
2,595
Other personnel costs, including payroll taxes
26,827
20,019
6,808
Total personnel
 
costs
198,760
166,996
31,764
Net occupancy expenses
26,039
24,723
1,316
Equipment expenses
8,412
8,389
23
Other taxes
16,291
15,715
576
Professional fees
33,431
36,792
(3,361)
Technology and
 
software expenses
68,559
70,535
(1,976)
Processing and transactional services:
Credit and debit cards
12,550
11,472
1,078
Other processing and transactional services
21,359
19,481
1,878
Total processing
 
and transactional services
33,909
30,953
2,956
Communications
4,088
3,673
415
Business promotion:
Rewards and customer loyalty programs
12,348
10,021
2,327
Other business promotion
6,523
5,062
1,461
Total business
 
promotion
18,871
15,083
3,788
FDIC deposit insurance
8,865
7,372
1,493
Other real estate owned (OREO) income
(1,694)
(2,713)
1,019
Other operating expenses:
Operational losses
6,800
11,825
(5,025)
All other
17,561
12,105
5,456
Total other operating
 
expenses
24,361
23,930
431
Amortization of intangibles
795
891
(96)
Total operating
 
expenses
$
440,687
$
402,339
$
38,348
As
 
part
 
of
 
this
 
transformation,
 
the
 
Corporation
 
aims
 
to
 
expand
 
its
 
digital
 
capabilities,
 
modernize
 
our
 
technology
 
platform,
 
and
implement agile and
 
efficient business
 
processes across the
 
entire Corporation. To
 
facilitate the transparency
 
of the
 
progress with
the transformation initiative and to better portray the level of technology
 
related expenses categorized by the nature of the expense,
effective
 
in the
 
fourth quarter
 
of
 
2022,
 
the
 
Corporation has
 
separated technology,
 
professional fees
 
and
 
transactional and
 
items
processing related expenses as standalone expense categories in the
 
accompanying Consolidated Statement of Operations. There
were no
 
changes to
 
the total
 
operating expenses
 
presented.
 
Prior periods
 
amount in
 
the Consolidated
 
Financial Statements
 
and
related disclosures have been reclassified to conform
 
to the current presentation.
The following table provides the detail of
 
the reclassifications for each respective quarter:
 
 
 
 
 
 
 
 
 
 
 
 
 
127
Table 4 - Operating Expenses
 
Reclassification
31-Mar-22
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
23,479
$
(15,090)
$
8,389
Professional services
108,497
(71,705)
36,792
Technology and
 
software expenses
-
70,535
70,535
Processing and transactional services
-
30,953
30,953
Communications
6,147
(2,474)
3,673
Other expenses
36,149
(12,219)
23,930
Net effect on operating expenses
$
174,272
$
-
$
174,272
Income Taxes
For the
 
quarter ended March
 
31, 2023, the
 
corporation recorded an
 
income tax
 
expense of $46.3
 
million with
 
an effective tax
 
rate
(ETR) of 23%, compared to $50.5
 
million with an ETR of
 
19% for the same period
 
of 2022. The income tax expense for
 
the quarter
ended March 31,
 
2023, reflects the
 
impact of lower
 
pre-tax income, a reversal
 
of a valuation
 
allowance on a
 
tax credit expected to
be realized on the
 
U. S. operations as
 
a result of the
 
implementation of the Corporate Alternative Minimum
 
Tax,
 
and lower benefits
on the exempt income mainly due to higher
 
allocation of interest expense disallowance.
At
 
March 31,
 
2023, the
 
Corporation had
 
a net
 
deferred tax
 
asset amounting
 
to
 
$0.9 billion,
 
net of
 
a valuation
 
allowance of
 
$0.5
billion. The net deferred tax asset related to the U.S.
 
operations was $0.3 billion, net of a valuation
 
allowance of $0.4 billion.
The Inflation
 
Reduction Act of
 
2022 imposed
 
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. As
 
of
 
January 1,
 
2023,
 
the
 
Corporation met
 
this
 
dual threshold.
 
The
implementation of the AMT
 
will not have
 
a material impact in
 
the Corporation, since any
 
amount paid would be
 
recorded as a
 
DTA
with no expiration period.
Refer to
 
Note 31
 
to the
 
Consolidated Financial
 
Statements for
 
a reconciliation
 
of the
 
statutory income
 
tax rate
 
to the
 
effective tax
rate and additional information on the income
 
tax expense and deferred tax asset balances.
REPORTABLE SEGMENT RESULTS
The Corporation’s
 
reportable segments
 
for managerial
 
reporting purposes
 
consist of
 
Banco Popular
 
de Puerto
 
Rico and
 
Popular
U.S. A Corporate group
 
has been defined to support the reportable
 
segments.
 
 
For
 
a
 
description
 
of
 
the
 
Corporation’s
 
reportable
 
segments,
 
including
 
additional
 
financial
 
information
 
and
 
the
 
underlying
management accounting process, refer to Note 33
 
to the Consolidated Financial Statements.
 
The Corporate
 
group reported a
 
net income
 
of $1.3
 
million for
 
the quarter
 
ended March
 
31, 2023,
 
compared with
 
a net
 
income of
$6.3 million for
 
the same
 
quarter of the
 
previous year.
 
The decrease in
 
net income was
 
mainly attributed to
 
an $8.1 million
 
for the
quarter
 
ended
 
March
 
31,2022
 
of
 
equity
 
pick-up
 
from
 
Evertec,
 
that
 
is
 
not
 
reflected
 
in
 
2023
 
as
 
the
 
Corporation
 
sold
 
its
 
entire
ownership stake in Evertec in August 2022.
 
Highlights on the earnings results for the reportable
 
segments are discussed below:
Banco Popular de Puerto Rico
 
The Banco
 
Popular de
 
Puerto Rico
 
reportable segment’s
 
net income
 
amounted to
 
$132.9 million
 
for the
 
quarter ended
 
March 31,
2023,
 
compared
 
with
 
net
 
income
 
of
 
$178.5
 
million
 
for
 
the
 
same
 
quarter of
 
the
 
previous year.
 
The
 
decrease
 
in
 
net
 
income
 
was
principally driven by the following:
 
128
●
 
Higher net interest income by $34.7 million mainly
 
due to:
●
 
higher interest income from money market and investment
 
securities by $92.5 million due to higher yields driven
by the increase in interest rates and higher average
 
balances of U.S. Treasury securities.
●
 
higher interest income from loans by $77.9 million mainly
 
due to higher average balances from commercial and
consumer loans, mainly from credit cards and personal
 
loans.
partially offset by
●
 
higher interest expense on deposits by
 
$135.5 million mainly due to higher
 
costs on the market-indexed Puerto
Rico
 
government
 
deposits,
 
and
 
the
 
higher interest
 
rate
 
environment’s
 
impact on
 
the cost
 
of
 
NOW accounts,
time deposits, and savings deposits.
The
 
net interest
 
margin
 
for
 
the
 
quarter ended
 
March
 
31,
 
2023
 
was
 
3.24%
 
compared to
 
2.67% for
 
the
 
same
 
quarter in
 
the
previous year. The
 
increase in net interest margin is
 
driven by higher yields from investments securities
 
and loans, particularly
commercial and consumer loans, due to the increase
 
in rates;
 
partially offset by higher cost of deposits.
●
 
A
 
provision for
 
loan losses
 
expense of
 
$45.7 million,
 
compared to
 
a
 
reserve release
 
of
 
$13.7 million
 
in
 
quarter ended
March 31, 2022,
 
or an unfavorable
 
variance of $59.4
 
million as the
 
2022 results included
 
a release of
 
COVID-19 related
reserves;
●
 
Non-interest income was higher by $11.4 million mainly due to:
●
 
Higher other service fees by $12.7 million mainly due to higher credit card fees as a result of higher interchange
transactional volumes;
 
●
 
Higher other
 
operating income
 
by $6.7
 
million mostly
 
due to
 
an insurance
 
policy reimbursement
 
gain of
 
$7.0
million;
 
partially offset by
●
 
lower income
 
from mortgage
 
banking activities
 
by $5.2
 
million mainly
 
due to
 
an unfavorable
 
variance of
 
$2.2
million in the fair value adjustment of mortgage service rights and lower
 
net gains on closed derivative positions,
partially offset by a
 
positive variance of $1.8 million
 
in net gains (losses) on
 
the sale and valuation
 
adjustments
of mortgage loans.
 
●
 
Higher operating expenses by $28.8 million mostly due
 
to:
●
 
higher personnel
 
costs by
 
$21.5 million
 
driven by
 
higher salaries
 
due to
 
minimum salary
 
adjustments, market
adjustments, annual salary
 
revisions,
 
and increase in headcount;
●
 
higher
 
business
 
promotions
 
by
 
$3.2
 
million
 
due
 
to
 
higher
 
customer
 
rewards
 
expense
 
related
 
to
 
higher
transactional volumes;
●
 
lower net
 
recoveries from OREO
 
by $1.2
 
million mainly due
 
to lower average
 
gain per loan
 
and a
 
decrease in
units sold;
●
 
higher other
 
operating expenses
 
by
 
$6.2 million
 
due to
 
$4.4 million
 
of
 
higher pension
 
expense calculated
 
by
actuaries and
 
higher charges
 
allocated from the
 
Corporate segment
 
group by
 
$3.1 million,
 
mainly from
 
higher
personnel costs;
 
129
●
 
higher
 
processing
 
and
 
transactional
 
services
 
by
 
$3.0
 
million
 
mainly
 
due
 
to
 
higher
 
credit
 
and
 
debit
 
card
processing
 
expense
 
as
 
result
 
of
 
higher
 
transactional
 
volumes,
 
reflecting
 
an
 
increase
 
in
 
customer
 
purchase
activity;
 
partially offset by
●
 
lower
 
technology
 
and
 
software
 
expenses
 
by
 
$3.0
 
million
 
mainly
 
due
 
to
 
lower
 
costs
 
associated
 
with
 
several
ongoing projects and expense savings associated with
 
the acquired services from the Evertec transaction.
●
 
Higher
 
income
 
tax
 
expense
 
by
 
$3.5
 
million
 
is
 
mainly
 
due
 
lower
 
benefit
 
on
 
the
 
exempt
 
income
 
as
 
a
 
result
 
of
 
higher
allocation of interest expense disallowance.
 
Popular U.S.
For the
 
quarter ended March
 
31, 2023,
 
the reportable
 
segment of
 
Popular U.S.
 
reported a
 
net income
 
of $25.0
 
million, compared
with
 
a
 
net income
 
of
 
$27.0 million
 
for the
 
same
 
quarter of
 
the previous
 
year.
 
The
 
factors that
 
contributed to
 
the variance
 
in the
financial results included the following:
●
 
Higher net interest income by $3.6 million due
 
to:
●
 
higher interest income from loans by
 
$36.5 million, mainly from growth in the commercial
 
portfolio loans as well
as higher yields due to increase in rates; and
●
 
higher interest income from money market and investment securities
 
by $6.3 million due to higher yields
 
due to
the increase in market rates;
partially offset by
●
 
higher interest
 
expense on
 
deposits by
 
$37.4 million
 
mainly
 
due
 
to
 
higher interest
 
rates
 
and
 
higher average
balance of time deposits.
 
The net interest
 
margin for the
 
quarter ended March 31,
 
2023 was 3.34% compared
 
to 3.56% for
 
the same quarter in
 
the previous
year.
●
 
An unfavorable variance of $4.1 million
 
on the provision for loan losses
 
and unfunded commitments reflecting a provision
of $2.1
 
million for
 
the first
 
quarter of
 
2023, compared to
 
a reserve
 
release of
 
$2.0 million
 
recorded in
 
the quarter
 
ended
March 31, 2022;
●
 
Higher operating expenses by $9.6 million mostly
 
due to
 
●
 
higher personnel costs by $4.5 million due to salary
 
merit and market adjustments;
●
 
higher other
 
operating expenses
 
by $2.5
 
million due
 
to higher
 
charges allocated
 
from the
 
Corporate segment
group by $1.2 million mainly from higher personnel costs;
partially offset by
●
 
Lower
 
income
 
tax
 
expense
 
by
 
$7.6
 
million
 
is
 
related
 
to
 
a
 
lower
 
income
 
before
 
tax
 
and
 
the
 
reversal
 
of
 
a
 
valuation
allowance on a tax credit expected to be realized
 
with the implementation of the Corporate Alternative
 
Minimum Tax.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
130
FINANCIAL CONDITION ANALYSIS
 
Assets
The Corporation’s total
 
assets were $67.7 billion
 
at March 31,
 
2023, compared to $67.6
 
billion at December 31,
 
2022. Refer to the
Consolidated Statements of Financial Condition included
 
in this report for additional information.
 
Money market investments and debt securities available-for-sale
Money market investments increased by $483.7 million due mainly to an increase in overnight FED fund balances of
 
$483.1 million,
reflecting
 
net funding
 
activities
 
and
 
the
 
issuance of
 
the
 
$400
 
million
 
senior
 
notes
 
due
 
in
 
2028.
 
Debt securities
 
available-for-sale
decreased $631.2
 
million reflecting
 
repayment and
 
maturities, offset
 
by
 
a reduction
 
of $215.5
 
million in
 
unrealized losses
 
mainly
from U.S. Treasury
 
and mortgage-backed securities at
 
BPPR. Debt securities
 
held-to-maturity increased by
 
$37.8 million at
 
March
31,
 
2023,
 
due
 
mainly
 
to
 
the
 
amortization
 
of
 
$42.0
 
million
 
of
 
the
 
discount
 
related
 
to
 
securities
 
previously
 
reclassified
 
from
 
the
available-for-sale to
 
HTM, which
 
has
 
an offsetting
 
unrealized loss
 
included within
 
other comprehensive
 
income that
 
is also
 
being
accreted, resulting in a neutral effect to earnings.
 
Refer to Note 6 to the Consolidated Financial Statements for
 
additional information
with respect to the Corporation’s debt securities available-for-sale.
Loans
Refer to Table
 
5 for a
 
breakdown of the Corporation’s
 
loan portfolio. Also, refer
 
to Note 8 in
 
the Consolidated Financial Statements
for detailed information about the Corporation’s loan portfolio
 
composition and loan purchases and sales.
 
Loans held-in-portfolio increased by $260.6 million to $32.3 billion at
 
March 31, 2023, mainly due to an increase in commercial
 
loans
at both BPPR and U.S. as well as consumer
 
and lease financing at BPPR.
 
Table 5 - Loans Ending Balances
(In thousands)
March 31, 2023
December 31, 2022
Variance
 
Loans held-in-portfolio:
 
Commercial
 
$
16,005,261
$
15,739,132
$
266,129
 
Construction
698,996
757,984
(58,988)
 
Leasing
1,614,344
1,585,739
28,605
 
Mortgage
7,405,907
7,397,471
8,436
 
Auto
3,517,940
3,512,530
5,410
 
Consumer
 
3,095,925
3,084,913
11,012
Total loans held-in
 
-portfolio
$
32,338,373
$
32,077,769
$
260,604
Loans held-for-sale:
 
Mortgage
$
11,181
$
5,381
$
5,800
Total loans held-for-sale
$
11,181
$
5,381
$
5,800
Total loans
$
32,349,554
$
32,083,150
$
266,404
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
131
Other assets
Other assets
 
amounted to $1.7
 
billion at March
 
31, 2023, compared
 
to $1.8
 
billion at December
 
31, 2022. Refer
 
to Note
 
13 to the
Consolidated Financial
 
Statements for
 
a breakdown
 
of the
 
principal categories
 
that comprise
 
the caption
 
of “Other
 
Assets” in
 
the
Consolidated Statements of Financial Condition at
 
March 31, 2023 and December 31, 2022.
 
Liabilities
The Corporation’s
 
total liabilities
 
were $63.2
 
billion at
 
March 31,
 
2023, a
 
decrease of
 
$339.5 million,
 
compared to
 
$63.5 billion
 
at
December 31, 2022, mainly due to lower deposits
 
and short term borrowings as discussed below.
 
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
 
at March 31, 2023 and December 31, 2022
 
is included in Table 6.
Table 6 - Financing to Total
 
Assets
March 31,
December 31,
 
% increase (decrease)
 
% of total assets
(In millions)
2023
2022
from 2022 to 2023
2023
2022
Non-interest bearing deposits
$
15,941
$
15,960
(0.1)
%
23.6
%
23.6
%
Interest-bearing core deposits
41,077
41,600
(1.3)
60.7
61.5
Other interest-bearing deposits
3,936
3,667
7.3
5.8
5.4
Repurchase agreements
123
149
(17.4)
0.2
0.2
Other short-term borrowings
-
365
N.M.
-
0.5
Notes payable
1,279
887
44.2
1.9
1.3
Other liabilities
849
917
(7.4)
1.2
1.4
Stockholders’ equity
4,471
4,093
9.2
6.6
6.1
Deposits
The Corporation’s deposits
 
totaled $61.0 billion
 
at March 31,
 
2023, compared to
 
$61.2 billion at
 
December 31, 2022.
 
The deposits
decrease of $273.3
 
million was mainly
 
in public sector
 
accounts as well
 
as interest bearing
 
retail deposits at
 
BPPR, partially offset
by an
 
increase at
 
PB, mainly from
 
time and
 
savings deposits gathered
 
through its
 
direct channel. At
 
March 31,
 
2023, Puerto Rico
public sector deposits amounted
 
to $15.5 billion. The
 
rate at which public
 
deposit balances may change is
 
uncertain and difficult to
predict. The
 
receipt by
 
the Puerto
 
Rico Government
 
of additional
 
hurricane recovery
 
related Federal
 
assistance and
 
seasonal tax
collections, could increase public deposit balances at BPPR in the
 
near term. The amount and timing of any reduction is
 
likely to be
impacted
 
by,
 
for
 
example,
 
the
 
speed
 
at
 
which
 
federal
 
assistance
 
is
 
distributed,
 
the
 
financial
 
condition,
 
liquidity
 
and
 
cash
management
 
practices
 
of
 
the
 
Puerto
 
Rico
 
Government
 
and
 
its
 
instrumentalities
 
and
 
the
 
implementation
 
of
 
fiscal
 
and
 
debt
adjustment plans approved
 
pursuant to PROMESA
 
or other actions
 
mandated by the
 
Fiscal Oversight and
 
Management Board for
Puerto Rico (the “Oversight Board”).
 
Approximately 25% of
 
the Corporation’s
 
deposits are public
 
fund deposits from
 
the Government of
 
Puerto Rico,
 
municipalities and
government instrumentalities
 
and corporations.
 
These deposits
 
are indexed
 
to
 
short-term market
 
rates and
 
fluctuate in
 
cost
 
with
changes
 
in
 
those
 
rates
 
with
 
a
 
one-quarter
 
lag,
 
in
 
accordance
 
with
 
contractual
 
terms.
 
As
 
a
 
result,
 
these
 
deposits’
 
costs
 
have
generally lagged
 
variable asset
 
repricing. Generally,
 
these
 
deposits require
 
that the
 
bank pledge
 
high credit
 
quality securities
 
as
collateral; therefore, liquidity risks arising
 
from public sector deposit outflows
 
are lower.
 
Refer to the Liquidity
 
section in this MD&A
for additional information on the Corporation’s funding
 
sources.
Refer to Table 7 for a breakdown of the Corporation’s deposits at March 31, 2023 and December
 
31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
132
Table 7 - Deposits Ending Balances
(In thousands)
March 31, 2023
December 31, 2022
Variance
Demand deposits
 
[1]
$
26,191,672
$
26,382,605
$
(190,933)
Savings, NOW and money market deposits (non-brokered)
26,622,020
27,265,156
(643,136)
Savings, NOW and money market deposits (brokered)
734,069
798,064
(63,995)
Time deposits (non-brokered)
6,891,051
6,442,886
448,165
Time deposits (brokered CDs)
515,076
338,516
176,560
Total deposits
$
60,953,888
$
61,227,227
$
(273,339)
[1] Includes interest and non-interest bearing demand deposits.
 
At March 31, 2023, non-interest bearing deposits
 
were $15.9 billion (December 31,
2022-$16.0 billion)
Borrowings
The Corporation’s borrowings
 
totaled $1.4 billion
 
at March 31,
 
2023 compared to $1.4
 
billion at December 31,
 
2022. Refer to
 
Note
16 to
 
the Consolidated
 
Financial Statements
 
for detailed
 
information on
 
the Corporation’s
 
borrowings. Also,
 
refer to
 
the Liquidity
section in this MD&A for additional information
 
on the Corporation’s funding sources.
Stockholders’ Equity
Stockholders’
 
equity
 
totaled
 
$4.5
 
billion
 
at
 
March
 
31,
 
2023,
 
a
 
increased
 
$377.3
 
million
 
when
 
compared
 
to
 
December
 
31,
 
2022,
principally due to net income for the
 
quarter of $159.0 million, the after-tax impact of
 
the favorable variance in net unrealized losses
in the portfolio of available-for-sale securities
 
of $191.8 million, the amortization of
 
the unrealized losses from securities reclassified
to HTM as described above of
 
$33.6 million, and the adoption of the
 
new ASU during the quarter
 
of $28.8 million, partially offset by
dividends
 
declared for
 
the
 
quarter.
 
Refer
 
to
 
the
 
Consolidated Statements
 
of
 
Financial Condition,
 
Comprehensive Income
 
and
 
of
Changes in Stockholders’ Equity for information on
 
the composition of stockholders’ equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
133
REGULATORY CAPITAL
The Corporation, BPPR and PB
 
are subject to regulatory capital
 
requirements established by the Federal Reserve Board.
 
The risk-
based
 
capital
 
standards
 
applicable
 
to
 
the
 
Corporation,
 
BPPR
 
and
 
PB
 
(“Basel
 
III
 
capital
 
rules”)
 
are
 
based
 
on
 
the
 
final
 
capital
framework for strengthening international capital standards, known
 
as Basel III, of the Basel Committee on Banking Supervision.
 
As
of March 31, 2023, the Corporation’s, BPPR’s and
 
PB’s capital ratios continue to exceed the minimum requirements for being
 
“well-
capitalized” under the Basel III capital rules.
 
The risk-based
 
capital ratios
 
presented in
 
Table
 
8,
 
which include
 
common equity
 
tier 1,
 
Tier
 
1 capital,
 
total capital
 
and leverage
capital as of March 31, 2023 and December 31,
 
2022.
Table 8 - Capital Adequacy
 
Data
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
March 31, 2023
 
 
December 31, 2022
 
Common equity tier 1 capital:
 
 
 
 
 
 
Common stockholders equity - GAAP basis
$
4,448,582
$
4,071,282
CECL transitional amount
 
[1]
84,752
127,127
AOCI related adjustments due to opt-out election
2,239,846
2,468,193
Goodwill, net of associated deferred tax liability (DTL)
(689,987)
(691,560)
Intangible assets, net of associated DTLs
(12,149)
(12,944)
Deferred tax assets and other deductions
 
(319,082)
(322,412)
Common equity tier 1 capital
$
5,751,962
$
5,639,686
Additional tier 1 capital:
Preferred stock
22,143
22,143
Additional tier 1 capital
$
22,143
 
$
22,143
Tier 1 capital
$
5,774,105
 
$
5,661,829
 
Tier 2 capital:
Trust preferred securities subject to phase in as
 
tier 2
192,674
192,674
Other inclusions (deductions), net
431,184
431,144
Tier 2 capital
$
623,858
$
623,818
Total risk-based capital
 
$
6,397,963
 
$
6,285,647
 
Minimum total capital requirement to be well capitalized
$
3,438,371
 
$
3,441,589
 
Excess total capital over minimum well capitalized
$
2,959,592
 
$
2,844,058
 
Total risk-weighted
 
assets
$
34,383,712
 
$
34,415,889
 
Total assets for leverage
 
ratio
$
68,966,230
 
$
70,287,610
 
Risk-based capital ratios:
 
 
 
 
 
 
Common equity tier 1 capital
16.73
%
16.39
%
 
Tier 1 capital
 
 
16.79
 
16.45
 
Total capital
 
18.61
 
 
18.26
 
 
Tier 1 leverage
 
8.37
 
 
8.06
 
[1] The CECL transitional amount includes the impact
 
of Popular's adoption of the new CECL accounting standard
 
on January 1, 2020.
134
The Basel III capital rules provide that
 
a depository institution will be deemed to be
 
well capitalized if it maintains a leverage ratio
 
of
at least 5%, a common equity Tier
 
1 ratio of at least 6.5%, a
 
Tier 1 capital ratio of
 
at least 8% and a total risk-based
 
ratio of at least
10%. Management
 
has determined
 
that
 
as of
 
March 31,
 
2023, the
 
Corporation, BPPR
 
and PB
 
continue to
 
exceed the
 
minimum
requirements for being “well-capitalized” under the Basel
 
III capital rules.
 
Pursuant
 
to
 
the
 
adoption
 
of
 
the
 
CECL
 
accounting
 
standard
 
on
 
January
 
1,
 
2020,
 
the
 
Corporation
 
elected
 
to
 
use
 
the
 
five-year
transition
 
period option
 
as
 
provided in
 
the
 
final
 
interim
 
regulatory capital
 
rules effective
 
March 31,
 
2020.
 
The
 
five-year
 
transition
period provision delays for two
 
years the estimated impact
 
of CECL on regulatory capital,
 
followed by a three-year
 
transition period
to
 
phase
 
out
 
the
 
aggregate
 
amount
 
of
 
the
 
capital
 
benefit
 
provided
 
during
 
the
 
initial
 
two-year
 
delay.
 
As
 
of
 
March
 
31,
 
2023,
 
the
Corporation had phased-in 50% of
 
the cumulative CECL deferral with
 
the remaining impact to
 
be recognized over the
 
remainder of
the three-year transition period.
On April 9,
 
2020, federal banking regulators
 
issued an interim final
 
rule to modify
 
the Basel III
 
regulatory capital rules applicable
 
to
banking organizations to allow
 
those organizations participating in
 
the Paycheck Protection Program
 
(“PPP”) established under the
Coronavirus Aid, Relief
 
and Economic Security
 
Act (the
 
“CARES Act”) to
 
neutralize the regulatory
 
capital effects
 
of participating in
the
 
program.
 
Specifically,
 
the
 
agencies
 
have
 
clarified
 
that
 
banking
 
organizations,
 
including
 
the
 
Corporation
 
and
 
its
 
Bank
subsidiaries, are permitted to
 
assign a zero
 
percent risk weight to
 
PPP loans for
 
purposes of determining risk-weighted
 
assets and
risk-based
 
capital
 
ratios.
 
Additionally,
 
in
 
order
 
to
 
facilitate
 
use
 
of
 
the
 
Paycheck
 
Protection
 
Program
 
Liquidity
 
Facility
 
(the
 
“PPPL
Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to
fund PPP loans, the
 
agencies further clarified that,
 
for purposes of determining
 
leverage ratios, a banking
 
organization is permitted
to exclude from total average assets PPP loans that
 
have been pledged as collateral for a PPPL
 
Facility. As of March
 
31, 2023, the
Corporation has $27 million in PPP loans and no
 
loans were pledge as collateral for PPPL Facilities.
The increase in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of March
 
31, 2023 as compared to
December 31,
 
2022 was
 
mainly to
 
the period
 
earnings.
 
The increase
 
in leverage
 
capital ratio
 
was mainly
 
due to
 
the decrease
 
in
average total assets, which mostly did not have
 
a significant impact on the risk-weighted assets.
Non-GAAP financial measures
The tangible common
 
equity, tangible
 
common equity ratio,
 
tangible assets and
 
tangible book value
 
per common share,
 
which are
presented
 
in
 
the
 
table
 
that
 
follows,
 
are
 
non-GAAP
 
measures.
 
Management
 
and
 
many
 
stock
 
analysts
 
use
 
the
 
tangible
 
common
equity ratio and tangible book value per common share in
 
conjunction with more traditional bank capital ratios to compare
 
the capital
adequacy of banking organizations with significant
 
amounts of goodwill or other intangible assets,
 
typically stemming from the use of
the
 
purchase
 
accounting
 
method
 
for
 
mergers
 
and
 
acquisitions.
 
Neither
 
tangible
 
common
 
equity
 
nor
 
tangible
 
assets
 
or
 
related
measures should be considered in
 
isolation or as a substitute
 
for stockholders' equity,
 
total assets or any
 
other measure calculated
in accordance
 
with GAAP.
 
Moreover,
 
the manner
 
in which
 
the Corporation
 
calculates its
 
tangible common
 
equity,
 
tangible assets
and any other related measures may differ from that of
 
other companies reporting measures with similar
 
names.
Table
 
9 provides
 
a reconciliation
 
of total
 
stockholders’ equity
 
to tangible
 
common equity
 
and total
 
assets to
 
tangible assets
 
as of
March 31, 2023, and December 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
135
Table 9 - Reconciliation of Tangible
 
Common Equity and Tangible
 
Assets
(In thousands, except share or per share information)
March 31, 2023
December 31, 2022
Total stockholders’
 
equity
$
4,470,725
$
4,093,425
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(12,149)
(12,944)
Total tangible common
 
equity
$
3,609,005
$
3,230,910
Total assets
 
$
67,675,759
$
67,637,917
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(12,149)
(12,944)
Total tangible assets
$
66,836,182
$
66,797,545
Tangible common
 
equity to tangible assets
5.40
%
4.84
%
Common shares outstanding at end of period
71,965,984
71,853,720
Tangible book value
 
per common share
$
50.15
$
44.97
Quarterly average
Total stockholders’
 
equity [1]
$
6,452,889
$
6,161,634
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(827,427)
(827,427)
Less: Other intangibles
(12,678)
(13,440)
Total tangible common
 
equity
$
5,590,641
$
5,298,624
Return on average tangible common equity
11.51
%
19.23
%
[1] Average balances exclude unrealized gains or losses
 
on debt securities available-for-sale and the unrealized
 
loss related to certain securities
transferred from available-for-sale to held-to-maturity.
 
136
RISK MANAGEMENT
Market / Interest Rate Risk
The financial results and capital levels of the
 
Corporation are constantly exposed to market, interest
 
rate and liquidity risks.
Market risk
 
refers to the
 
risk of a
 
reduction in the
 
Corporation’s capital due
 
to changes in
 
the market valuation
 
of its assets
 
and/or
liabilities.
 
Most of the assets
 
subject to market valuation risk
 
are debt securities classified as
 
available-for-sale. Refer to Notes 6
 
and 7 to the
Consolidated Financial
 
Statements for
 
further information
 
on the
 
debt
 
securities available-for-sale
 
and
 
held-to-maturity portfolios.
Debt securities classified
 
as available-for-sale amounted to
 
$17.2 billion as
 
of March 31,
 
2023. Other assets subject
 
to market risk
include loans held-for-sale, which amounted to $11
 
million, mortgage servicing rights (“MSRs”) which amounted to $127
 
million and
securities classified as “trading”, which amounted
 
to $30 million, as of March 31, 2023.
 
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject
 
to various categories of interest rate risk,
 
including repricing, basis, yield curve and
option risks.
 
In managing
 
interest rate
 
risk, management may
 
alter the
 
mix of
 
floating and
 
fixed rate
 
assets and
 
liabilities, change
pricing
 
schedules,
 
adjust
 
maturities
 
through
 
sales
 
and
 
purchases
 
of
 
investment
 
securities,
 
and
 
enter
 
into
 
derivative
 
contracts,
among other alternatives.
 
Interest
 
rate
 
risk
 
management
 
is
 
an
 
active
 
process
 
that
 
encompasses
 
monitoring
 
loan
 
and
 
deposit
 
flows
 
complemented
 
by
investment and funding
 
activities. Effective management of
 
interest rate risk begins
 
with understanding the dynamic
 
characteristics
of assets and
 
liabilities and determining the
 
appropriate rate risk position
 
given line of
 
business forecasts, management objectives,
market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest
 
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value
 
of Equity
 
(“EVE”). The
 
three methodologies
 
complement each
 
other and
 
are used
 
jointly in
 
the evaluation
 
of the
Corporation’s IRR. NII
 
simulation modeling is
 
prepared for a
 
five-year period, which
 
in conjunction with
 
the EVE analysis,
 
provides
management a better view of long-term IRR.
Net interest
 
income simulation analysis
 
performed by legal
 
entity and on
 
a consolidated basis
 
is a
 
tool used
 
by the
 
Corporation in
estimating the
 
potential change
 
in net
 
interest income
 
resulting from
 
hypothetical changes
 
in interest
 
rates. Sensitivity
 
analysis is
calculated using a simulation model which incorporates
 
actual balance sheet figures detailed by maturity
 
and interest yields or costs.
 
Management assesses
 
interest rate
 
risk by
 
comparing various
 
NII simulations
 
under different
 
interest rate
 
scenarios that
 
differ in
direction of interest
 
rate changes, the
 
degree of change
 
and the projected
 
shape of the
 
yield curve. For
 
example, the types
 
of rate
scenarios processed during the
 
quarter include flat
 
rates, implied forwards, and
 
parallel and non-parallel rate
 
shocks. Management
also performs analyses to isolate and measure basis
 
and prepayment risk exposures.
 
The asset
 
and liability
 
management group
 
performs validation
 
procedures on
 
various assumptions
 
used as
 
part of
 
the simulation
analyses as well as validations
 
of results on a
 
monthly basis. In addition, the
 
model and processes used to
 
assess IRR are subject
to independent validations according to the guidelines
 
established in the Model Governance and
 
Validation policy.
The Corporation processes NII
 
simulations under interest rate
 
scenarios in which the
 
yield curve is assumed
 
to rise and
 
decline by
the same
 
magnitude (parallel
 
shifts). The
 
rate scenarios
 
considered in
 
these market
 
risk simulations
 
reflect instantaneous
 
parallel
changes
 
of
 
-100,
 
-200,
 
+100,
 
+200
 
and
 
+400
 
basis
 
points
 
during the
 
succeeding
 
twelve-month period.
 
Simulation
 
analyses
 
are
based on many assumptions, including relative levels of market interest rates across all yield curve points
 
and indexes, interest rate
spreads, loan prepayments
 
and deposit elasticity.
 
Thus, they should
 
not be
 
relied upon as
 
indicative of actual
 
results. Further,
 
the
estimates
 
do
 
not
 
contemplate
 
actions
 
that
 
management
 
could
 
take
 
to
 
respond
 
to
 
changes
 
in
 
interest
 
rates.
 
Additionally,
 
the
Corporation is also subject to
 
basis risk in the
 
repricing of its assets and
 
liabilities, including the basis related
 
to using different rate
indexes for
 
the repricing
 
of assets and
 
liabilities, as
 
well as
 
the effect
 
of pricing
 
lags which
 
may be
 
contractual or
 
due to
 
historical
differences
 
in
 
the
 
timing
 
of
 
management
 
responses
 
to
 
changes
 
in
 
the
 
rate
 
environment.
 
By
 
their
 
nature,
 
these
 
forward-looking
computations are only
 
estimates and may
 
be different from
 
what may actually
 
occur in the
 
future. The following
 
table presents the
results of the simulations at March 31, 2023 and December
 
31, 2022, assuming a static balance sheet
 
and parallel changes over flat
spot rates over a one-year time horizon:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
137
Table 10 - Net Interest Income
 
Sensitivity (One Year Projection)
March 31, 2023
December 31, 2022
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+400 basis points
$
18,478
0.84
%
$
(38,548)
(1.75)
%
+200 basis points
10,292
0.47
(18,078)
(0.82)
+100 basis points
6,271
0.29
(7,787)
(0.35)
-100 basis points
36,003
1.64
41,763
1.90
-200 basis points
73,542
3.36
78,381
3.56
As of
 
March 31,
 
2023, NII
 
simulations show
 
the Corporation
 
has a
 
relatively neutral
 
sensitivity position
 
as compared
 
to a
 
slightly
liability sensitive position as of December 31, 2022. The primary reasons for the variation in sensitivity are changes in balance sheet
composition that
 
include
 
a
 
decrease in
 
Puerto
 
Rico
 
public sector
 
deposits
 
which
 
are
 
indexed
 
to
 
market
 
rates
 
combined
 
with
 
an
increase in time
 
deposits, as well
 
as loan growth
 
and maturities of
 
investments. These results suggest
 
that changes in
 
net interest
income are driven primarily by changes in liability costs, primarily
 
Puerto Rico public sector deposits that represented $15.5 billion
 
or
25%
 
of
 
deposits
 
as
 
of
 
March
 
31,
 
2023,
 
and
 
partly
 
by
 
portfolio
 
management
 
strategies.
 
In
 
declining
 
rate
 
scenarios
 
net
 
interest
income would increase as
 
the decline in the
 
cost of these deposits
 
generates a greater benefit
 
than the changes in
 
asset yields. In
rising rate scenarios Popular’s sensitivity profile
 
is also impacted by its
 
large proportion of Puerto Rico
 
public sector deposits which
are indexed to market rates. As short-term rates have
 
risen, the cost of these deposits now increases in
 
sync with market rates and
therefore reduce the benefit banks typically have in
 
rising rate environments.
 
The Corporation’s
 
loan and
 
investment portfolios
 
are subject
 
to
 
prepayment risk,
 
which results
 
from the
 
ability of
 
a third-party
 
to
repay debt
 
obligations prior
 
to maturity.
 
Prepayment risk
 
also could
 
have a
 
significant impact
 
on the
 
duration of
 
mortgage-backed
securities
 
and
 
collateralized
 
mortgage
 
obligations
 
since
 
prepayments
 
could
 
shorten
 
(or
 
lower
 
prepayments
 
could
 
extend)
 
the
weighted average life of these portfolios.
Trading
 
The Corporation
 
engages in
 
trading activities
 
in the
 
ordinary course
 
of business
 
at its
 
subsidiaries, BPPR
 
and Popular
 
Securities.
Popular Securities’
 
trading activities
 
consist primarily
 
of market-making
 
activities to
 
meet expected
 
customers’ needs
 
related to
 
its
retail brokerage business,
 
and purchases and sales of U.S. Government and
 
government sponsored securities with the objective of
realizing gains
 
from expected
 
short-term price
 
movements. BPPR’s
 
trading activities consist
 
primarily of
 
holding U.S.
 
Government
sponsored
 
mortgage-backed securities
 
classified
 
as
 
“trading” and
 
hedging
 
the
 
related
 
market
 
risk
 
with
 
“TBA”
 
(to-be-announced)
market
 
transactions.
 
The
 
objective
 
is
 
to
 
derive
 
spread
 
income
 
from
 
the
 
portfolio
 
and
 
not
 
to
 
benefit
 
from
 
short-term
 
market
movements. In
 
addition, BPPR
 
uses forward
 
contracts or
 
TBAs to
 
hedge its
 
securitization pipeline.
 
Risks related
 
to variations
 
in
interest rates
 
and market volatility
 
are hedged
 
with TBAs
 
that have
 
characteristics similar to
 
that of
 
the forecasted security
 
and its
conversion timeline.
At March 31,
 
2023, the Corporation held trading
 
securities with a fair
 
value of $30
 
million, representing approximately 0.04% of
 
the
Corporation’s total
 
assets,
 
compared with
 
$28 million
 
and 0.04%,
 
respectively,
 
at December
 
31, 2022.
 
As shown
 
in Table
 
11,
 
the
trading portfolio consists
 
principally of mortgage-backed
 
securities and U.S.
 
Treasuries, which
 
at March
 
31, 2023 were
 
investment
grade
 
securities.
 
As
 
of
 
March
 
31,
 
2023
 
and
 
December
 
31,
 
2022,
 
the
 
trading
 
portfolio
 
also
 
included
 
$0.1
 
million
 
in
 
Puerto
 
Rico
government obligations.
 
Trading instruments are
 
recognized at fair value,
 
with changes resulting from fluctuations
 
in market prices,
interest rates or
 
exchange rates reported in
 
current period earnings. The
 
Corporation recognized net trading
 
account gain of $
 
378
thousand and a net trading account loss of
 
$723 thousand, respectively, for the quarters ended March 31, 2023 and
 
2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
138
Table 11
 
- Trading Portfolio
March 31, 2023
December 31, 2022
(Dollars in thousands)
Amount
 
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
 
$
13,967
5.80
%
$
14,223
5.79
%
U.S. Treasury securities
15,462
4.14
13,069
3.26
Collateralized mortgage obligations
133
5.44
160
5.51
Puerto Rico government obligations
62
0.44
64
0.45
Interest-only strips
 
199
12.00
207
12.00
Other (includes related trading derivatives)
16
4.23
-
-
Total
 
$
29,839
4.97
%
$
27,723
4.63
%
[1] Not on a taxable equivalent basis.
The Corporation’s trading activities are
 
limited by internal policies. For each
 
of the two subsidiaries, the
 
market risk assumed under
trading
 
activities
 
is
 
measured
 
by
 
the
 
5-day
 
net
 
value-at-risk
 
(“VAR”),
 
with
 
a
 
confidence
 
level
 
of
 
99%.
 
The
 
VAR
 
measures
 
the
maximum estimated loss that may occur over a
 
5-day holding period, given a 99% probability.
 
The
 
Corporation’s
 
trading
 
portfolio
 
had
 
a
 
5-day
 
VAR
 
of
 
approximately
 
$0.4
 
million
 
for
 
the
 
last
 
week
 
in
 
March
 
2023.
 
There
 
are
numerous assumptions
 
and estimates
 
associated with
 
VAR
 
modeling, and
 
actual results
 
could differ
 
from these
 
assumptions and
estimates. Backtesting is
 
performed to compare
 
actual results
 
against maximum estimated
 
losses, in order
 
to evaluate
 
model and
assumptions accuracy.
 
In the opinion of management, the size and composition
 
of the trading portfolio does not represent
 
a significant source of market risk
for the Corporation.
Liquidity
 
The objective
 
of effective
 
liquidity management
 
is to
 
ensure that
 
the Corporation
 
has sufficient
 
liquidity to
 
meet all
 
of its
 
financial
obligations, finance
 
expected future
 
growth,
 
fund
 
planned capital
 
distributions and
 
maintain a
 
reasonable safety
 
margin for
 
cash
needs under
 
both normal
 
and stressed market
 
conditions. The Board
 
of Directors
 
is responsible
 
for establishing the
 
Corporation’s
tolerance for liquidity risk,
 
including approving relevant risk limits and
 
policies. The Board of
 
Directors has delegated the monitoring
of
 
these risks
 
to
 
the Board’s
 
Risk Management
 
Committee and
 
the Asset/Liability
 
Management Committee.
 
The management
 
of
liquidity
 
risk,
 
on
 
a
 
long-term
 
and
 
day-to-day
 
basis,
 
is
 
the
 
responsibility
 
of
 
the
 
Corporate
 
Treasury
 
Division.
 
The
 
Corporation’s
Corporate
 
Treasurer
 
is
 
responsible
 
for
 
implementing
 
the
 
policies
 
and
 
procedures
 
approved
 
by
 
the
 
Board
 
of
 
Directors
 
and
 
for
monitoring
 
the
 
Corporation’s
 
liquidity
 
position
 
on
 
an
 
ongoing
 
basis.
 
Also,
 
the
 
Corporate
 
Treasury
 
Division coordinates
 
corporate
wide
 
liquidity
 
management
 
strategies
 
and
 
activities
 
with
 
the
 
reportable
 
segments,
 
oversees
 
policy
 
breaches
 
and
 
manages
 
the
escalation process.
 
The
 
Financial and
 
Operational Risk
 
Management Division
 
is
 
responsible for
 
the independent
 
monitoring and
reporting of adherence with established policies.
An
 
institution’s liquidity
 
may be
 
pressured if,
 
for example,
 
it experiences
 
a sudden
 
and unexpected
 
substantial cash
 
outflow due
deposit outflows
 
(whether due
 
to a
 
loss of
 
confidence by
 
depositors, or
 
other reasons)
 
exogenous events
 
such as
 
the COVID-19
pandemic), a
 
downgrading of
 
its credit
 
rating, or
 
some other
 
event that
 
causes counterparties
 
to avoid
 
exposure to
 
the institution.
Factors that the Corporation does not control, such as the
 
economic outlook, adverse ratings of its principal markets, perceptions of
the financial services industry and regulatory changes,
 
could also affect its ability to obtain funding.
 
The Corporation
 
has adopted
 
policies and
 
limits to
 
monitor the
 
Corporation’s liquidity
 
position and
 
that of
 
its banking
 
subsidiaries.
Additionally, contingency funding
 
plans are used to
 
model various stress events
 
of different magnitudes and
 
affecting different time
horizons that assist
 
management in evaluating
 
the size of
 
the liquidity
 
buffers needed if
 
those stress events
 
occur. However,
 
such
models
 
may
 
not
 
predict
 
accurately
 
how
 
the
 
market
 
and
 
customers
 
might
 
react
 
to
 
every
 
event,
 
and
 
are
 
dependent
 
on
 
many
assumptions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
139
Deposits, including
 
customer deposits,
 
brokered deposits
 
and public
 
funds deposits,
 
continue to
 
be the
 
most significant
 
source of
funds for the
 
Corporation, funding
 
90% of the
 
Corporation’s total assets
 
at March 31,
 
2023 and 91%
 
at December 31,
 
2022.
 
The
ratio
 
of
 
total
 
ending
 
loans
 
to
 
deposits
 
was
 
53%
 
at
 
March
 
31,
 
2023,
 
compared
 
to
 
52%
 
at
 
December 31,
 
2022.
 
In
 
addition
 
to
traditional deposits, the Corporation maintains borrowing
 
arrangements, which amounted to approximately
 
$1.4 billion in outstanding
balances at
 
March 31,
 
2023 (December
 
31, 2022
 
- $1.4
 
billion). A
 
detailed description
 
of the
 
Corporation’s borrowings,
 
including
their terms,
 
is included
 
in Note
 
16 to
 
the Consolidated
 
Financial Statements. Also,
 
the Consolidated Statements
 
of Cash
 
Flows in
the accompanying Consolidated Financial Statements provide
 
information on the Corporation’s cash inflows and outflows.
 
The
 
following
 
sections
 
provide
 
further
 
information
 
on
 
the
 
Corporation’s
 
major
 
funding
 
activities
 
and
 
needs,
 
as
 
well
 
as
 
the
 
risks
involved in these activities.
Banking Subsidiaries
Primary
 
sources of
 
funding
 
for the
 
Corporation’s
 
banking subsidiaries
 
(BPPR and
 
PB
 
or,
 
collectively,
 
“the banking
 
subsidiaries”)
include
 
retail,
 
commercial
 
and
 
public
 
sector
 
deposits,
 
brokered
 
deposits,
 
unpledged
 
investment
 
securities,
 
mortgage
 
loan
securitization and, to a lesser extent, loan sales. In
 
addition, the Corporation maintains borrowing facilities with the FHLB and at the
discount window
 
of the
 
Federal Reserve
 
Bank of
 
New York
 
(the “FRB”)
 
and has
 
a considerable
 
amount of
 
collateral pledged
 
that
can be used to raise funds under these facilities.
 
During the first quarter of 2023 the Corporation had
 
no material incremental use of its available liquidity sources. At
 
March 31,2023,
the Corporation’s available liquidity
 
increased to $18.3 billion from
 
$17.0 billion on December
 
31, 2022. The liquidity sources
 
of the
Corporation at March 31,2023 are presented in
 
Table 12:
Table 12 - Liquidity Sources
31-Mar-23
31-Dec-22
(In thousands)
BPPR
Popular U.S.
Total
BPPR
Popular U.S.
Total
Unpledged securities and unused funding
sources:
Money market (excess funds at the
Federal Reserve Bank)
$
5,181,531
$
909,613
$
6,091,144
$
5,240,100
$
367,966
$
5,608,066
Unpledged securities
7,690,887
273,980
7,964,867
7,494,189
326,599
7,820,788
FHLB borrowing capacity
1,623,246
1,127,316
2,750,562
1,389,579
722,005
2,111,584
Discount window of the Federal Reserve
Bank borrowing capacity
1,132,411
331,753
1,464,164
1,090,308
329,385
1,419,693
Total available liquidity
$
15,628,075
$
2,642,662
$
18,270,737
$
15,214,176
$
1,745,955
$
16,960,131
Refer
 
to
 
Note
 
16
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
information
 
of
 
the
 
Corporation’s
 
borrowing
 
facilities
available through its banking subsidiaries.
 
The principal
 
uses of
 
funds for
 
the banking
 
subsidiaries include
 
loan originations,
 
investment portfolio
 
purchases, loan
 
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
 
banking subsidiaries assume liquidity
 
risk related to collateral
 
posting requirements for certain
 
activities mainly
in
 
connection
 
with
 
contractual
 
commitments,
 
recourse
 
provisions,
 
servicing
 
advances,
 
derivatives
 
and
 
credit
 
card
 
licensing
agreements.
 
The banking
 
subsidiaries maintain
 
sufficient funding
 
capacity to
 
address large
 
increases in
 
funding requirements
 
such as
 
deposit
outflows.
 
The
 
Corporation has
 
established
 
liquidity
 
guidelines
 
that
 
require
 
the
 
banking
 
subsidiaries
 
to
 
have
 
sufficient
 
liquidity
 
to
cover all short-term borrowings and a portion of deposits.
 
The Corporation’s ability to compete
 
successfully in the marketplace for
 
deposits, excluding brokered deposits, depends on various
factors, including pricing, service, convenience
 
and financial stability as
 
reflected by operating results and
 
financial condition, credit
ratings (by
 
nationally recognized credit
 
rating agencies), customer
 
confidence, and
 
importantly,
 
FDIC deposit
 
insurance coverage.
Deposits at all of the Corporation’s banking subsidiaries are federally insured
 
(subject to FDIC limits) and this is expected to mitigate
the potential effect of the aforementioned risks.
 
 
 
 
 
 
 
 
 
140
Deposits are a
 
key source of
 
funding as they
 
tend to be
 
less volatile than institutional
 
borrowings and their cost
 
is less sensitive
 
to
changes in
 
market rates.
 
Refer to
 
Table
 
7 for
 
a breakdown
 
of deposits
 
by major
 
types. Core
 
deposits are
 
generated from
 
a large
base
 
of
 
consumer,
 
corporate
 
and
 
public
 
sector
 
customers.
 
Core
 
deposits
 
include certificate
 
of
 
deposit
 
under
 
$250,000,
 
all
 
non-
interest bearing deposits, and
 
savings deposits.
 
Core deposits exclude brokered
 
deposits. Core deposits have
 
historically provided
the Corporation
 
with a
 
sizable source
 
of relatively
 
stable and
 
low-cost funds.
 
Core deposits
 
totaled $57.0
 
billion, or
 
94% of
 
total
deposits, at March
 
31, 2023, compared
 
with $57.6 billion,
 
or 94% of
 
total deposits, at
 
December 31, 2022.
 
Core deposits financed
89% of the Corporation’s earning assets at March 31,
 
2023, compared with 90% at December 31,
 
2022.
 
The distribution
 
by maturity of
 
certificates of
 
deposits with denominations
 
of $250,000 and
 
over at
 
March 31,
 
2023 is
 
presented in
the table that follows:
Table 13 - Distribution by
 
Maturity of Certificate of Deposits of $250,000 and Over
(In thousands)
3 months or less
$
1,768,494
Over 3 to 12 months
589,257
Over 1 year to 3 years
210,633
Over 3 years
147,111
Total
$
2,715,495
The
 
Corporation
 
had
 
$1.2
 
billion
 
in
 
brokered
 
deposits
 
at
 
March
 
31,
 
2023,
 
which
 
financed
 
approximately
 
2%
 
of
 
its
 
total
 
assets
(December 31, 2022 -
 
$1.1 billion and 2%,
 
respectively).
 
In the event that
 
any of the Corporation’s
 
banking subsidiaries’ regulatory
capital
 
ratios fall
 
below those
 
required
 
by
 
a well-capitalized
 
institution or
 
are subject
 
to capital
 
restrictions by
 
the regulators,
 
that
banking subsidiary faces
 
the risk of
 
not being able
 
to raise or
 
maintain brokered deposits
 
and faces limitations
 
on the rate
 
paid on
deposits, which
 
may hinder
 
the Corporation’s
 
ability to
 
effectively compete
 
in its
 
retail markets
 
and could
 
affect its
 
deposit raising
efforts.
 
Deposits from the public sector represent an important source of funds for the Corporation. As of March 31, 2023, total public sector
deposits were $15.5 billion,
 
compared to $15.8 billion at December 31, 2022. Generally, these deposits require that the bank pledge
high credit quality securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower given that the
bank receives its
 
collateral in return.
 
This, now unpledged,
 
collateral can either
 
be financed via
 
repurchase agreements or
 
sold for
cash.
 
However,
 
there
 
are
 
some
 
timing
 
differences
 
between the
 
time
 
the
 
deposit
 
outflow occurs
 
and
 
when the
 
bank receives
 
its
collateral. Additionally,
 
the Corporation mainly
 
utilizes fixed-rate U.S.
 
Treasury debt
 
securities as collateral.
 
While these securities
have limited credit risk, they are subject to market
 
value risk based on changes in the interest rate environment.
 
When interest rates
increase, the value of this collateral decreases and could result in the Corporation having to provide additional collateral to cover the
same
 
amount
 
of
 
deposit
 
liabilities.
 
This
 
additional
 
collateral
 
could
 
reduce
 
unpledged
 
securities
 
otherwise
 
available
 
as
 
liquidity
sources to the Corporation.
 
At March 31, 2023, management believes that the banking subsidiaries had sufficient current and projected
 
liquidity sources to meet
their
 
anticipated
 
cash
 
flow
 
obligations,
 
as
 
well
 
as
 
special
 
needs
 
and
 
off-balance
 
sheet
 
commitments,
 
in
 
the
 
ordinary
 
course
 
of
business and have sufficient
 
liquidity resources to address a
 
stress event. Although the
 
banking subsidiaries have historically been
able to replace
 
maturing deposits and advances,
 
no assurance can
 
be given that
 
they would be
 
able to replace
 
those funds in
 
the
future if the
 
Corporation’s financial condition
 
or general market
 
conditions were to
 
deteriorate. The Corporation’s
 
financial flexibility
will
 
be
 
severely constrained
 
if
 
the
 
banking subsidiaries
 
are
 
unable to
 
maintain access
 
to
 
funding
 
or
 
if
 
adequate
 
financing is
 
not
available to accommodate future financing needs at acceptable interest rates. The
 
banking subsidiaries also are required to deposit
cash or qualifying securities to meet margin requirements on repurchase
 
agreements and other collateralized borrowing facilities. To
the extent that
 
the value of securities
 
previously pledged as collateral
 
declines because of market
 
changes, the Corporation will
 
be
required to
 
deposit additional cash
 
or securities to
 
meet its
 
margin requirements, thereby
 
adversely affecting its
 
liquidity. Finally,
 
if
management
 
is
 
required
 
to
 
rely
 
more
 
heavily
 
on
 
more
 
expensive
 
funding
 
sources
 
to
 
meet
 
its
 
future
 
growth,
 
revenues
 
may
 
not
increase proportionately to cover costs. In this
 
case, profitability would be adversely affected.
The Corporation
 
monitors uninsured
 
deposits under
 
applicable FDIC
 
regulations.
 
Additionally,
 
the Corporation
 
monitors accounts
with balances over $250,000.
 
While the Corporation has a
 
diverse deposit base from retail, commercial,
 
corporate and government
clients,
 
as
 
well
 
as
 
wholesale funding
 
sources such
 
as
 
brokered deposits,
 
it
 
considers
 
balance
 
in
 
excess
 
of
 
$250,000 to
 
have a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
141
higher
 
potential
 
liquidity
 
risk.
 
Table
 
14
 
reflects
 
the
 
aggregate
 
balance
 
in
 
deposit
 
accounts
 
in
 
excess
 
of
 
$250,000,
 
including
collateralized public funds and deposits outside of the
 
U.S. and its territories.
 
Collateralized public funds, as presented in Table
 
14,
represent public
 
deposit balances from
 
governmental entities in
 
the U.S. and
 
its territories, including
 
Puerto Rico
 
and the U.S.V.I.,
that are collateralized based
 
on such jurisdictions’ applicable collateral
 
requirements. On March 31,2023,
 
deposits with balances in
excess
 
of
 
$250,000,
 
excluding
 
foreign
 
deposits
 
(mainly
 
deposits
 
in
 
the
 
British
 
Virgin
 
Islands)
 
intercompany
 
deposits
 
and
collateralized
 
public
 
funds,
 
were
 
$11.4
 
billion
 
or
 
22%
 
at
 
BPPR
 
and
 
$2.4
 
billion
 
or
 
25%
 
at
 
Popular
 
U.S.,
 
compared
 
to
 
available
liquidity sources of $15.6 billion at BPPR and $2.6
 
billion at Popular U.S.
Table 14 - Deposits
31-Mar-23
Popular, Inc.
(In thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
24,823,608
47
%
$
5,979,010
62
%
$
30,802,618
51
%
Transactional deposits balances over
$250,000
9,503,850
18
%
2,151,732
22
%
11,655,582
19
%
Time deposits balances over $250,000
1,869,792
4
%
255,322
3
%
2,125,114
3
%
Uninsured foreign deposits
412,444
1
%
-
-
%
412,444
1
%
Collateralized public funds
15,712,622
30
%
245,508
3
%
15,958,130
26
%
Intercompany deposits
134,110
-
%
986,943
10
%
-
-
%
Total deposits
$
52,456,426
100
%
$
9,618,515
100
%
$
60,953,888
100
%
[1] Includes the first $250,000 in balances of transactional
 
and time deposit accounts with balances in excess
 
of $250,000.
31-Dec-22
Popular, Inc.
(In thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits
Deposits balances under $250,000 [1]
$
24,505,697
46
%
$
5,231,417
60
%
$
29,737,114
49
%
Transactional deposits balances over
$250,000
9,957,877
19
%
2,674,841
31
%
12,632,718
21
%
Time deposits balances over $250,000
1,920,455
4
%
167,067
2
%
2,087,522
3
%
Uninsured foreign deposits
425,855
1
%
-
-
%
425,855
1
%
Collateralized public funds
16,233,342
31
%
$
110,676
1
%
$
16,344,018
27
%
Intercompany deposits
135,172
-
%
482,167
6
%
-
-
%
Total deposits
$
53,178,398
100
%
$
8,666,168
100
%
$
61,227,227
100
%
[1] Includes the first $250,000 in balances of transactional
 
and time deposit accounts with balances in excess
 
of $250,000.
Bank Holding Companies
The principal
 
sources of
 
funding for
 
the BHCs,
 
which are
 
Popular,
 
Inc.
 
(holding company
 
only) and
 
PNA, include
 
cash on
 
hand,
investment
 
securities,
 
dividends
 
received from
 
banking
 
and
 
non-banking subsidiaries,
 
asset sales,
 
credit
 
facilities
 
available from
affiliate banking subsidiaries and proceeds from potential securities offerings.
 
Dividends from banking and non-banking subsidiaries
are subject to various regulatory limits
 
and authorization requirements that are further described
 
below and that may limit the
 
ability
of those subsidiaries to act as a source of
 
funding to the BHCs.
 
 
 
 
 
 
 
 
 
 
142
The
 
principal
 
use
 
of
 
these
 
funds
 
includes
 
the
 
repayment
 
of
 
debt,
 
and
 
interest
 
payments
 
to
 
holders
 
of
 
senior
 
debt
 
and
 
junior
subordinated
 
deferrable
 
interest
 
(related
 
to
 
trust
 
preferred
 
securities),
 
the
 
payment
 
of
 
dividends
 
to
 
common
 
stockholders,
repurchases of the Corporation’s securities and capitalizing its
 
banking subsidiaries.
 
The outstanding balance of notes
 
payable at the BHCs
 
amounted to $891 million at
 
March 31, 2023 and
 
$497 million at December
31, 2022.
The contractual maturities of the BHCs notes payable
 
at March 31, 2023 are presented in Table 15.
Table 15
 
- Distribution of BHC's Notes Payable by Contractual
 
Maturity
Year
(In thousands)
2023
$
299,426
Later years
591,419
Total
$
890,845
The Corporation’s
 
6.125% unsecured
 
senior debt
 
securities mature
 
in September
 
of 2023.
 
As of
 
March 31,
 
2023, the
 
BHCs had
cash
 
and
 
money markets
 
investments totaling
 
$593
 
million
 
and
 
borrowing potential
 
of
 
$211
 
million
 
from
 
its
 
secured
 
facility
 
with
BPPR. The BHCs’ liquidity position continues to be adequate
 
with sufficient cash on hand, investments and other sources of liquidity
which are expected to be enough to meet all interest
 
payments and dividend obligations during the
 
foreseeable future. On March 13,
2023,
 
the
 
Corporation
 
issued
 
$400
 
million
 
aggregate
 
principal
 
amount
 
of
 
7.25%
 
Senior
 
Notes
 
due
 
2028
 
(the
 
“Notes”)
 
in
 
an
underwritten public offering. The Corporation intends to use a portion of the proceeds
 
of the offering to redeem or repay $300 million
aggregate principal
 
amount of
 
its
 
outstanding 6.125%
 
Senior
 
Notes due
 
September 2023.
 
For the
 
remainder of
 
year
 
2023, debt
service at
 
the BHCs
 
is approximately
 
$40 million,
 
including $8
 
million from
 
the 6.125%
 
unsecured senior
 
debt through
 
maturity in
September
 
2023.
 
Additionally,
 
the
 
Corporation’s
 
latest
 
quarterly
 
dividend
 
was
 
$0.55
 
per
 
share
 
or
 
approximately
 
$40
 
million
 
per
quarter.
The BHCs have in
 
the past borrowed in the
 
corporate debt market primarily to finance
 
their non-banking subsidiaries and refinance
debt obligations. These
 
sources of funding
 
are more costly
 
due to the
 
fact that
 
two out of
 
the three principal
 
credit rating agencies
rate the Corporation below “investment grade”, which
 
affects the Corporation’s cost and
 
ability to raise funds in
 
the capital markets.
Factors that the Corporation
 
does not control, such
 
as the economic outlook,
 
interest rate volatility,
 
inflation, disruptions in the
 
debt
market, among others,
 
could also affect
 
its ability to
 
obtain funding. The
 
Corporation has an
 
automatic shelf registration
 
statement
filed and effective
 
with the Securities and Exchange
 
Commission, which permits the Corporation
 
to issue an
 
unspecified amount of
debt or equity securities.
Non-Banking Subsidiaries
The
 
principal
 
sources
 
of
 
funding
 
for
 
the
 
non-banking
 
subsidiaries
 
include
 
internally
 
generated
 
cash
 
flows
 
from
 
operations,
 
loan
sales, repurchase agreements, capital
 
injections and borrowed funds
 
from their direct
 
parent companies or the
 
holding companies.
The principal uses of funds for the non-banking
 
subsidiaries include repayment of maturing debt,
 
operational expenses and payment
of dividends to the
 
BHCs. The liquidity needs
 
of the non-banking subsidiaries
 
are minimal since most
 
of them are
 
funded internally
from operating cash flows or from intercompany borrowings
 
or capital contributions from their holding companies.
 
Dividends
During the
 
quarter ended March
 
31, 2023,
 
the Corporation
 
declared cash
 
dividends of
 
$0.55 per common
 
share outstanding ($40
million in the
 
aggregate). The dividends for the
 
Corporation’s Series A preferred
 
stock amounted to $0.4
 
million. During the quarter
ended
 
March
 
31,
 
2023,
 
the
 
BHCs
 
received
 
dividends
 
amounting
 
to
 
$50
 
million
 
from
 
BPPR.
 
Dividends
 
from
 
BPPR
 
constitute
Popular, Inc.’s primary source of liquidity.
 
Other Funding Sources and Capital
In addition
 
to cash
 
reserves held
 
at the
 
FRB that
 
totaled $
 
6.1 billion
 
at March
 
31,2023,
 
the debt
 
securities portfolio
 
provides an
additional
 
source
 
of
 
liquidity,
 
which
 
may
 
be
 
realized
 
through
 
either
 
securities
 
sales,
 
collateralized
 
borrowings
 
or
 
repurchase
agreements.
 
The
 
Corporation’s
 
debt
 
securities
 
portfolio
 
consists
 
primarily
 
of
 
liquid
 
U.S.
 
government
 
debt
 
securities,
 
U.S.
government
 
sponsored
 
agency
 
debt
 
securities,
 
U.S.
 
government
 
sponsored
 
agency
 
mortgage-backed
 
securities,
 
and
 
U.S.
government
 
sponsored
 
agency
 
collateralized
 
mortgage
 
obligations
 
that
 
can
 
be
 
used
 
to
 
raise
 
funds
 
in
 
the
 
repo
 
markets.
 
The
 
 
 
143
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 March 31, 2023
 
and $ 7.8 billion at December 31, 2022. A substantial portion
of these
 
debt securities
 
could be
 
used to
 
raise financing
 
in the
 
U.S. money
 
markets or
 
from secured
 
lending sources,
 
subject to
changes in their fair market value and customary adjustments
 
(haircuts).
 
Additional liquidity may
 
be provided through
 
loan maturities, prepayments
 
and sales. The
 
loan portfolio can
 
also be used
 
to obtain
funding in the capital markets. In particular,
 
mortgage loans and some types of consumer loans, have
 
secondary markets which the
Corporation could use.
Off-Balance Sheet arrangements and other commitments
In the ordinary course
 
of business, the Corporation
 
engages in financial transactions that
 
are not recorded on
 
the balance sheet or
may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a
provider of
 
financial services,
 
the Corporation
 
routinely enters
 
into commitments
 
with off-balance
 
sheet risk
 
to meet
 
the financial
needs of
 
its customers. These
 
commitments may include
 
loan commitments and
 
standby letters of
 
credit. These commitments
 
are
subject
 
to
 
the
 
same
 
credit
 
policies
 
and
 
approval
 
process
 
used
 
for
 
on-balance
 
sheet
 
instruments.
 
These
 
instruments
 
involve,
 
to
varying degrees, elements
 
of credit and
 
interest rate risk
 
in excess of
 
the amount recognized
 
in the statement
 
of financial position.
Refer to
 
Note 21
 
to the
 
Consolidated Financial
 
Statements for
 
information on
 
the Corporation’s
 
commitments to
 
extent credit
 
and
other non-credit commitments.
 
Other types
 
of off-balance
 
sheet arrangements
 
that the
 
Corporation enters
 
in the
 
ordinary course
 
of business
 
include derivatives,
operating
 
leases
 
and
 
provision
 
of
 
guarantees,
 
indemnifications,
 
and
 
representation
 
and
 
warranties.
 
Refer
 
to
 
Note
 
28
 
to
 
the
Consolidated Financial Statements for information on operating leases and
 
to Note 20 to the
 
Consolidated Financial Statements for
a
 
detailed
 
discussion
 
related
 
to
 
the
 
Corporation’s
 
obligations
 
under
 
credit
 
recourse
 
and
 
representation
 
and
 
warranties
arrangements.
 
The Corporation monitors its cash requirements, including
 
its contractual obligations and debt commitments.
 
FDIC Special Assessments
 
On March
 
12 and
 
13, 2023,
 
following the
 
closures of
 
Silicon Valley
 
Bank (“SVB”)
 
and Signature Bank
 
and the
 
appointment of the
FDIC as the
 
receiver for those
 
banks, the FDIC announced
 
that, under the
 
systemic risk exception set
 
forth in the
 
Federal Deposit
Insurance Act (“FDIA”),
 
all insured and
 
uninsured deposits of those
 
banks were transferred to
 
the respective bridge
 
banks for SVB
and Signature Bank.
 
The FDIC
 
also announced
 
that, as
 
required by
 
the FDIA,
 
any losses
 
to the
 
Deposit Insurance
 
Fund (“DIF”)
 
to support
 
uninsured
depositors
 
would
 
be
 
recovered
 
by
 
a
 
special
 
assessment.
 
Under
 
the
 
FDIA,
 
the
 
assessment
 
may
 
be
 
on
 
insured
 
depository
institutions,
 
depository
 
institution
 
holding
 
companies
 
(with
 
the
 
concurrence
 
of
 
the
 
Treasury
 
Secretary),
 
or
 
both,
 
as
 
the
 
FDIC
determines to
 
be
 
appropriate.
 
In
 
March 2023
 
testimony
 
before
 
Congress, the
 
Chairman of
 
the
 
FDIC
 
stated
 
that
 
the
 
FDIC
 
then
preliminarily estimated the
 
losses to the
 
DIF of
 
resolving SVB and
 
Signature Bank to
 
be $22.5
 
billion in the
 
aggregate.
 
The FDIA
provides that the special assessment will be prescribed through regulation, and the Chairman also noted in the same
 
testimony that
the FDIC
 
intends to
 
issue a
 
proposed rulemaking
 
for the
 
assessment in
 
May 2023.
 
The FDIC
 
has discretion
 
with respect
 
to the
design and
 
timeframe for
 
any special
 
assessment, and,
 
under the
 
FDIA, the
 
FDIC may
 
consider the
 
types of
 
entities that
 
benefit
from the action taken, economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate.
 
The
timing, amount and
 
allocation of the special
 
assessment that will be
 
imposed on banking organizations
 
is uncertain, but
 
the impact
of the special assessment on our noninterest
 
expense and results of operations may be
 
material.
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
144
trust preferred securities issued to the public (referred to as
 
“capital securities”), together with the proceeds of the related issuances
of common securities of the trusts.
PIHC
 
fully
 
and
 
unconditionally
 
guarantees
 
the
 
junior
 
subordinated
 
debentures
 
issued
 
by
 
PNA.
 
PIHC’s
 
obligation
 
to
 
make
 
a
guarantee payment may be satisfied by direct
 
payment of the required amounts to the
 
holders of the applicable capital securities or
by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions
by
 
the
 
applicable
 
trust
 
except
 
to
 
the
 
extent
 
such
 
trust
 
has
 
funds
 
available
 
for
 
such
 
payments.
 
If
 
PIHC
 
does
 
not
 
make
 
interest
payments on the
 
debentures held by such
 
trust, such trust
 
will not pay
 
distributions on the
 
applicable capital securities and
 
will not
have
 
funds
 
available
 
for
 
such
 
payments.
 
PIHC’s
 
guarantee
 
of
 
PNA’s
 
junior
 
subordinated
 
debentures
 
is
 
unsecured
 
and
 
ranks
subordinate and junior in
 
right of payment to
 
all the PIHC’s other
 
liabilities in the same manner
 
as the applicable debentures as
 
set
forth in the applicable indentures; and equally with all other guarantees
 
that the PIHC issues. The guarantee constitutes a guarantee
of
 
payment
 
and
 
not
 
of
 
collection,
 
which means
 
that
 
the
 
guaranteed party
 
may
 
sue
 
the
 
guarantor to
 
enforce its
 
rights
 
under the
respective guarantee without suing any other person
 
or entity.
The
 
principal
 
sources
 
of
 
funding
 
for
 
PIHC
 
and
 
PNA
 
have
 
included
 
dividends
 
received
 
from
 
their
 
banking
 
and
 
non-banking
subsidiaries, asset
 
sales and
 
proceeds from
 
the issuance
 
of debt
 
and equity.
 
As further
 
described below,
 
in the
 
Risk to
 
Liquidity
section, various statutory
 
provisions limit the
 
amount of dividends
 
an insured depository
 
institution may pay
 
to its holding
 
company
without regulatory approval.
 
The following
 
summarized financial information
 
presents the financial
 
position of
 
the obligor
 
group, on a
 
combined basis
 
at March
31, 2023
 
and December
 
31, 2022,
 
and the
 
results of
 
their operations
 
for the
 
period ended
 
March 31,
 
2023 and
 
March 31,
 
2022.
Investments in and
 
equity in the
 
earnings from the
 
other subsidiaries and
 
affiliates that are
 
not members of
 
the obligor group
 
have
been excluded.
The
 
summarized
 
financial
 
information
 
of
 
the
 
obligor
 
group
 
is
 
presented
 
on
 
a
 
combined
 
basis
 
with
 
intercompany
 
balances
 
and
transactions
 
between
 
entities
 
in
 
the
 
obligor
 
group
 
eliminated.
 
The
 
obligor
 
group's
 
amounts
 
due
 
from,
 
amounts
 
due
 
to
 
and
transactions with
 
subsidiaries and
 
affiliates
 
have been
 
presented in
 
separate line
 
items, if
 
they are
 
material.
 
In
 
addition, related
parties transactions are presented separately.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
145
Table 16 - Summarized Statement
 
of Condition
(In thousands)
March 31, 2023
December 31, 2022
Assets
Cash and money market investments
$
593,315
$
203,083
Investment securities
27,406
24,815
Accounts receivables from non-obligor subsidiaries
15,060
16,853
Other loans (net of allowance for credit losses of $215 (2022
 
- $370))
27,671
27,826
Investment in equity method investees
5,350
5,350
Other assets
66,733
45,278
Total assets
$
735,535
$
323,205
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries
$
10,101
$
3,709
Notes payable
890,845
497,428
Other liabilities
116,276
112,847
Stockholders' deficit
(281,687)
(290,779)
Total liabilities and
 
stockholders' deficit
$
735,535
$
323,205
Table 17 - Summarized Statement
 
of Operations
For the quarters ended
(In thousands)
March 31, 2023
March 31, 2022
Income:
Dividends from non-obligor subsidiaries
$
50,000
$
450,000
Interest income from non-obligor subsidiaries and affiliates
810
204
Earnings from investments in equity method investees
-
8,105
Other operating income
1,146
(755)
Total income
$
51,956
$
457,554
Expenses:
Services provided by non-obligor subsidiaries and affiliates
 
(net of
reimbursement by subsidiaries for services provided by parent
 
of
$56,071 (2022 - $51,707))
$
4,989
$
3,867
Other operating expenses
4,486
4,637
Total expenses
$
9,475
$
8,504
Net income
$
42,481
$
449,050
During the
 
quarter ended
 
March 31,
 
2022, the
 
obligor group
 
recorded $0.6
 
million
 
of
 
dividend receivable
 
from
 
its
 
direct
equity method investees.
Risks to Liquidity
 
Total lines of credit outstanding, or available borrowing capacity under lines of credit are not necessarily
 
a measure of the total credit
available
 
on
 
a
 
continuing
 
basis.
 
Some
 
of
 
these
 
lines
 
could
 
be
 
subject
 
to
 
collateral
 
requirements,
 
changes
 
to
 
the
 
value
 
of
 
the
collateral, standards of
 
creditworthiness, leverage ratios
 
and other regulatory
 
requirements, among other factors.
 
Derivatives, such
as
 
those
 
embedded
 
in
 
long-term
 
repurchase
 
transactions
 
or
 
interest
 
rate
 
swaps,
 
and
 
off-balance
 
sheet
 
exposures,
 
such
 
as
 
146
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 quarter ended March 31,
 
2023, BPPR
declared cash dividends of $50 million. At March 31, 2023, BPPR can declare a dividend of approximately $259 million without prior
approval of the Federal Reserve Board due to its retained income, declared
 
dividend activity and transfers to statutory reserves over
the measurement
 
period.
 
In addition,
 
a member
 
bank may
 
not declare
 
or pay
 
a dividend
 
in an
 
amount greater
 
than its
 
undivided
profits as reported in its Report of Condition and Income,
 
unless the member bank has received the
 
approval of the Federal Reserve
Board. A
 
member bank
 
also may
 
not permit
 
any portion
 
of its
 
permanent capital to
 
be withdrawn
 
unless the
 
withdrawal has
 
been
approved by
 
the Federal
 
Reserve Board. Pursuant
 
to these
 
requirements, PB may
 
not declare
 
or pay
 
a dividend
 
without the
 
prior
approval of the
 
Federal Reserve Board and
 
the NYSDFS. The
 
ability of a
 
bank subsidiary to
 
up-stream dividends to its
 
BHC could
thus
 
be
 
impacted
 
by
 
its
 
financial
 
performance
 
and
 
capital,
 
including
 
tangible
 
and
 
regulatory
 
capital,
 
thus
 
potentially
 
limiting
 
the
amount
 
of
 
cash
 
moving
 
up
 
to
 
the
 
BHCs
 
from
 
the
 
banking
 
subsidiaries.
 
This
 
could,
 
in
 
turn,
 
affect
 
the
 
BHCs
 
ability
 
to
 
declare
dividends on its outstanding common and preferred
 
stock, repurchase its securities or meet its debt obligations,
 
for example.
 
The Corporation’s banking subsidiaries have historically not
 
used unsecured capital market borrowings to finance
 
its operations, and
therefore are less sensitive to the level and
 
changes in the Corporation’s overall credit ratings.
Obligations Subject to Rating Triggers or Collateral Requirements
The
 
Corporation’s
 
banking
 
subsidiaries
 
currently
 
do
 
not
 
issue
 
unsecured
 
senior
 
debt,
 
as
 
these
 
banking
 
subsidiaries
 
are
 
funded
primarily with
 
deposits and
 
secured borrowings.
 
The banking
 
subsidiaries had
 
$8.7 million
 
in deposits
 
at March
 
31, 2023
 
that are
subject to rating triggers.
 
In addition,
 
certain mortgage servicing
 
and custodial agreements
 
that BPPR
 
has with
 
third parties
 
include rating covenants.
 
In the
event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for
escrow
 
deposits
 
and/or
 
increase
 
collateral
 
levels
 
securing
 
the
 
recourse
 
obligations.
 
Also,
 
as
 
discussed
 
in
 
Note
 
20
 
to
 
the
Consolidated
 
Financial
 
Statements,
 
the
 
Corporation
 
services
 
residential
 
mortgage
 
loans
 
subject
 
to
 
credit
 
recourse
 
provisions.
Certain
 
contractual
 
agreements
 
require
 
the
 
Corporation
 
to
 
post
 
collateral
 
to
 
secure
 
such
 
recourse
 
obligations
 
if
 
the
 
institution’s
required
 
credit
 
ratings
 
are
 
not
 
maintained.
 
Collateral
 
pledged
 
by
 
the
 
Corporation
 
to
 
secure
 
recourse
 
obligations
 
amounted
 
to
approximately
 
$28.2
 
million
 
at
 
March
 
31,
 
2023.
 
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.
 
 
 
147
Credit Risk
Geographic and Government Risk
 
The Corporation is exposed to geographic and government risk.
 
The Corporation’s assets and revenue composition by geographical
area and by business segment reporting are presented
 
in Note 33 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A
 
significant portion
 
of
 
our financial
 
activities and
 
credit
 
exposure is
 
concentrated in
 
the
 
Commonwealth of
 
Puerto Rico
 
(“Puerto
Rico”), which has faced severe economic and fiscal
 
challenges in the past and may face additional
 
challenges in the future.
 
Economic Performance.
 
Puerto
 
Rico’s
 
economy suffered
 
a
 
severe and
 
prolonged recession
 
from
 
2007
 
to
 
2017,
 
with real
 
gross national
 
product (“GNP”)
contracting approximately 15%
 
during this
 
period. In 2017,
 
Hurricane María caused
 
significant damage and
 
destruction across the
island, resulting in further economic contraction. Puerto Rico’s
 
economy has been gradually recovering since 2018, in
 
part aided by
the large amount
 
of federal disaster
 
relief and recovery
 
assistance funds injected
 
into the Puerto
 
Rico economy in
 
connection with
Hurricane María
 
and other
 
recent natural
 
disasters. This
 
growth was
 
interrupted by
 
the economic
 
shock caused
 
by the
 
COVID-19
pandemic in 2020, but has since resumed, in part
 
aided by additional federal assistance from
 
pandemic-related stimulus measures.
The
 
latest
 
Puerto
 
Rico
 
Economic Activity
 
Index,
 
published
 
by
 
the
 
Economic
 
Development Bank
 
for
 
Puerto
 
Rico
 
(the
 
“Economic
Activity Index”), reflected a 0.6% and
 
0.2% decrease in January and February
 
2023, respectively, compared to
 
the same months in
2022. During January and February
 
2023, the Economic Activity Index
 
increased by 0.5% and 0.3%,
 
respectively, in
 
a month-over-
month basis.
 
The Economic Activity Index is a coincident indicator of ongoing
 
economic activity but not a direct measurement of real
GNP.
 
In February
 
2023, the
 
Puerto Rico
 
Planning Board
 
revised its
 
real GNP
 
forecast for
 
the current
 
fiscal year
 
(July 2022-June
2023) from 1.7% growth to 0.7% growth, citing
 
an anticipated deacceleration in the global economy.
 
While the
 
Puerto Rico
 
economy has
 
not directly
 
tracked the
 
United States
 
economy in
 
recent years,
 
many of
 
the external
 
factors
that impact
 
the Puerto
 
Rico economy
 
are affected
 
by the
 
policies and performance
 
of the
 
United States
 
economy.
 
These external
factors include
 
the level
 
of interest
 
rates and
 
the rate
 
of inflation.
 
Inflation in
 
the United
 
States, as
 
measured by the
 
United States
Consumer Price Index (published by the U.S.
 
Bureau of Labor Statistics), increased 5.0% during
 
the 12-month period ended March
2023, 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 5.1%
 
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.
 
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
 
 
148
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 March
 
31, 2023,
 
the Corporation’s
 
direct exposure
 
to PR
 
Government Entities
 
totaled $353
 
million, of
 
which $324
 
million were
outstanding, compared
 
to
 
$374 million
 
at
 
December 31,
 
2022, of
 
which $327
 
million
 
were outstanding.
 
A
 
deterioration in
 
Puerto
Rico’s fiscal and
 
economic situation could adversely
 
affect the value
 
of our Puerto
 
Rico government obligations, resulting
 
in losses
to
 
us.
 
Of
 
the
 
amount
 
outstanding,
 
$302
 
million
 
consists
 
of
 
loans
 
and
 
$22
 
million
 
are
 
securities
 
($302
 
million
 
and
 
$25
 
million,
respectively, at
 
December 31, 2022).
 
All of the
 
Corporation’s direct exposure
 
outstanding at March
 
31, 2023 were
 
obligations from
various
 
Puerto
 
Rico
 
municipalities.
 
In
 
most
 
cases,
 
these
 
were
 
“general
 
obligations”
 
of
 
a
 
municipality,
 
to
 
which
 
the
 
applicable
municipality
 
has
 
pledged its
 
good
 
faith, credit
 
and unlimited
 
taxing power,
 
or
 
“special obligations”
 
of
 
a municipality,
 
to
 
which the
applicable municipality has pledged basic property tax or sales tax revenues.
 
At March 31, 2023, 73% of the Corporation’s exposure
to
 
municipal
 
loans
 
and
 
securities
 
was
 
concentrated
 
in
 
the
 
municipalities
 
of
 
San
 
Juan,
 
Guaynabo,
 
Carolina
 
and
 
Bayamón.
 
For
additional discussion of the Corporation’s direct exposure to the Puerto
 
Rico government and its instrumentalities and municipalities,
refer to Note 21 – Commitments and Contingencies
 
to the Consolidated Financial Statements.
 
In addition, at March
 
31, 2023, the Corporation had
 
$245 million in loans
 
insured or securities issued by
 
Puerto Rico governmental
entities, but for
 
which the principal source
 
of repayment is
 
non-governmental ($251 million at December 31, 2022).
 
These included
$204 million in
 
residential mortgage loans insured
 
by the Puerto
 
Rico Housing Finance Authority
 
(“HFA”), a
 
PR Government Entity
(December 31, 2022 - $209 million). These mortgage loans are secured by first mortgages on Puerto
 
Rico residential properties and
the
 
HFA
 
insurance
 
covers
 
losses
 
in
 
the
 
event
 
of
 
a
 
borrower
 
default
 
and
 
upon
 
the
 
satisfaction
 
of
 
certain
 
other
 
conditions.
 
The
Corporation also
 
had
 
at
 
March
 
31,
 
2023,
 
$41
 
million
 
in bonds
 
issued by
 
HFA
 
which
 
are secured
 
by
 
second
 
mortgage
 
loans on
Puerto Rico residential properties, and for which HFA also provides insurance to
 
cover losses in the event of a borrower default, and
upon the satisfaction of certain
 
other conditions (December 31, 2022 - $42
 
million). In the event that
 
the mortgage loans insured by
HFA and held
 
by the Corporation directly or those serving
 
as collateral for the HFA
 
bonds default and the collateral is
 
insufficient to
satisfy the outstanding balance of these loans, HFA’s
 
ability to honor its insurance will depend, among other factors, on the financial
 
 
 
149
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 March 31, 2023, BPPR had $15.5 billion in deposits from the Puerto Rico government, its instrumentalities, and municipalities.
The
 
rate
 
at
 
which
 
public
 
deposit
 
balances
 
may
 
decline is
 
uncertain and
 
difficult
 
to
 
predict.
 
The
 
amount
 
and
 
timing
 
of
 
any
 
such
reduction is
 
likely to
 
be impacted
 
by,
 
for example,
 
the speed
 
at which
 
federal assistance
 
is distributed
 
and the
 
financial condition,
liquidity and cash management practices of such entities,
 
as well as on the ability of BPPR to
 
maintain these customer relationships.
The
 
Corporation may
 
also have
 
direct
 
exposure with
 
regards to
 
avoidance and
 
other causes
 
of
 
action initiated
 
by the
 
Oversight
Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 21
to the Consolidated Financial Statements.
United States Virgin Islands
The
 
Corporation
 
has
 
operations
 
in
 
the
 
United
 
States
 
Virgin
 
Islands
 
(the
 
“USVI”)
 
and
 
has
 
credit
 
exposure
 
to
 
USVI
 
government
entities.
The USVI has
 
been experiencing a
 
number of fiscal
 
and economic challenges,
 
which could adversely
 
affect the
 
ability of its
 
public
corporations and instrumentalities to service their outstanding
 
debt obligations. PROMESA does not apply to the USVI
 
and, as such,
there
 
is
 
currently
 
no
 
federal
 
legislation
 
permitting
 
the
 
restructuring
 
of
 
the
 
debts
 
of
 
the
 
USVI
 
and
 
its
 
public
 
corporations
 
and
instrumentalities.
To
 
the extent that
 
the fiscal condition
 
of the USVI
 
continues to deteriorate, the
 
U.S. Congress or the
 
Government of the
 
USVI may
enact legislation allowing for the restructuring of the
 
financial obligations of USVI government entities or imposing
 
a stay on creditor
remedies, including by making PROMESA applicable
 
to the USVI.
At March
 
31, 2023,
 
the Corporation
 
had approximately
 
$28 million
 
in direct
 
exposure to
 
USVI government
 
entities (December 31,
2022 - $28 million).
 
British Virgin Islands
The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic,
particularly as
 
a reduction
 
in the
 
tourism activity
 
which accounts
 
for a
 
significant portion
 
of its
 
economy.
 
Although the
 
Corporation
has no
 
significant exposure to
 
a single
 
borrower in
 
the BVI,
 
at March 31,
 
2023, it
 
has a
 
loan portfolio amounting
 
to approximately
$210 million comprised of various retail and commercial
 
clients, compared to a loan portfolio of $214 million
 
at December 31, 2022.
U.S. Government
As further detailed in Notes
 
6 and 7 to the
 
Consolidated Financial Statements, a substantial portion of the
 
Corporation’s investment
securities
 
represented exposure
 
to
 
the
 
U.S.
 
Government in
 
the
 
form
 
of
 
U.S. Government
 
sponsored entities,
 
as
 
well
 
as
 
agency
mortgage-backed and U.S. Treasury securities. In addition, $1.6 billion
 
of residential mortgages, $27 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $73 million
 
commercial loans were insured or guaranteed by
 
the U.S. Government or its
agencies at March 31, 2023 (compared to $1.6
 
billion, $38 million and $72 million, respectively, at December 31, 2022).
Non-Performing Assets
Non-performing assets (“NPAs”)
 
include primarily past-due
 
loans that
 
are no
 
longer accruing interest,
 
renegotiated loans, and
 
real
estate property acquired through foreclosure. A summary, including certain credit
 
quality metrics, is presented in Table 21.
During
 
the
 
first
 
quarter
 
of
 
2023,
 
the
 
Corporation continued
 
to
 
show
 
favorable
 
credit
 
quality
 
trends with
 
low
 
levels
 
of
 
NCOs
 
and
decreasing NPLs.
 
We continue
 
to closely
 
monitor changes
 
in the
 
macroeconomic environment
 
and borrower
 
performance, given
150
inflationary
 
pressures and
 
geopolitical
 
risks.
 
However,
 
management believes
 
that
 
the
 
improvement
 
over
 
recent years
 
in
 
the
 
risk
profile of the Corporation’s loan portfolios positions
 
Popular to operate successfully under the current environment.
 
Total
 
NPAs
 
decreased
 
by
 
$24
 
million
 
when
 
compared
 
with
 
December
 
31,
 
2022.
 
Total
 
non-performing
 
loans
 
held-in-portfolio
(“NPLs”)
 
decreased
 
by
 
$27
 
million
 
from
 
December
 
31,
 
2022.
 
BPPR’s
 
NPLs
 
decreased
 
by
 
$23
 
million,
 
mainly
 
driven
 
by
 
lower
mortgage and consumer NPLs
 
by $18 million
 
and $14 million, respectively,
 
in part offset
 
by higher commercial NPLs
 
by $9 million.
 
The
 
consumer
 
NPLs
 
decrease
 
was
 
mostly
 
driven
 
by
 
a
 
$11
 
million
 
line
 
of
 
credit
 
charge-off
 
on
 
a
 
single
 
relationship,
 
while
 
the
commercial
 
NPLs
 
increase
 
was
 
driven
 
by
 
a
 
$14
 
million
 
loan
 
relationship.
 
Popular
 
U.S.
 
NPLs
 
decreased
 
by
 
$4
 
million
 
from
December 31, 2022, mainly driven by lower mortgage NPLs. At March 31, 2023,
 
the ratio of NPLs to total loans held-in-portfolio was
1.3% compared
 
to 1.4%,
 
at December
 
31, 2022.
 
Other real
 
estate owned
 
loans (“OREOs”)
 
increased by
 
$3 million.
 
At March
 
31,
2023,
 
NPLs
 
secured
 
by
 
real
 
estate
 
amounted
 
to
 
$297
 
million
 
in
 
the
 
Puerto
 
Rico
 
operations
 
and
 
$27
 
million
 
in
 
Popular
 
U.S,
compared with $303 million and $33 million, respectively,
 
at December 31, 2022.
 
The Corporation’s commercial
 
loan portfolio secured
 
by real estate
 
(“CRE”) amounted to
 
$10.0 billion at
 
March 31,
 
2023, of which
$3.0 billion was secured
 
with owner occupied properties, compared
 
with $9.9 billion and
 
$3.1 billion, respectively,
 
at December 31,
2022. Office space
 
leasing exposure in
 
our non-owner occupied
 
CRE portfolio is
 
limited, representing only
 
1.9% or $608
 
million of
our total loan portfolio.
 
The exposure is mainly comprised of low- to mid- rise properties with average
 
loan size of $2.0 million and is
well diversified across tenant type.
CRE NPLs amounted to
 
$67 million at March
 
31, 2023, compared with
 
$54 million at
 
December 31, 2022. The CRE
 
NPL ratios for
the BPPR and
 
Popular U.S. segments
 
were 1.30% and 0.11%,
 
respectively, at
 
March 31, 2023, compared
 
with 1.04% and
 
0.12%,
respectively, at December 31, 2022.
In addition
 
to the
 
NPLs included
 
in Table
 
21, at
 
March 31,
 
2023, there
 
were $334
 
million of
 
performing loans,
 
mostly commercial
loans, which in management’s opinion, are currently subject to potential future classification as non-performing (December 31, 2022
- $374 million).
For the period ended March 31, 2023, total inflows of NPLs held-in-portfolio, excluding consumer loans, increased by approximately
$4
 
million,
 
when
 
compared
 
to
 
the
 
inflows
 
for
 
the
 
same
 
period
 
in
 
2022.
 
Inflows
 
of
 
NPLs
 
held-in-portfolio
 
at
 
the
 
BPPR
 
segment
increased by
 
$6 million compared
 
to the
 
same period in
 
2022, driven by
 
higher commercial inflows
 
by $10
 
million in
 
part offset
 
by
lower mortgage inflows by $4 million. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $2 million from the
same period in 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
151
Table 18 - Non-Performing
 
Assets
March 31, 2023
December 31, 2022
(Dollars in thousands)
BPPR
Popular
U.S.
Popular,
Inc.
As a % of
loans HIP
by category
BPPR
Popular
U.S.
Popular,
Inc.
As a % of
loans HIP
by category
Commercial
$
90,952
$
11,048
$
102,000
0.6
%
$
82,171
$
10,868
$
93,039
0.6
%
Leasing
6,103
-
6,103
0.4
5,941
-
5,941
0.4
Mortgage
224,075
14,719
238,794
3.2
242,391
20,488
262,879
3.6
Auto
39,516
-
39,516
1.1
40,978
-
40,978
1.2
Consumer
 
18,333
7,637
25,970
0.8
30,528
6,076
36,604
1.2
Total non-performing
 
loans held-in-
portfolio
378,979
33,404
412,383
1.3
%
402,009
37,432
439,441
1.4
%
Other real estate owned (“OREO”)
91,345
376
91,721
88,773
353
89,126
Total non-performing
 
assets
[1]
$
470,324
$
33,780
$
504,104
$
490,782
$
37,785
$
528,567
Accruing loans past due 90 days or
more
[2]
$
305,638
$
245
$
305,883
$
351,248
$
366
$
351,614
Ratios:
Non-performing assets to total
assets
0.87
%
0.25
%
0.74
%
0.89
%
0.30
%
0.78
%
Non-performing loans held-in-
portfolio to loans held-in-portfolio
 
1.66
0.35
1.28
1.78
0.39
1.37
Allowance for credit losses to loans
held-in-portfolio
2.57
1.07
2.13
2.73
1.10
2.25
Allowance for credit losses to non-
performing loans, excluding held-for-
sale
154.89
305.69
167.11
153.12
279.86
163.91
[1] There were no non-performing loans held-for-sale
 
as of March 31, 2023 and December 31, 2022.
[2] It is
 
the Corporation’s
 
policy to report
 
delinquent residential
 
mortgage loans
 
insured by FHA
 
or guaranteed by
 
the VA
 
as accruing loans
 
past due
90 days or more as opposed to non-performing
 
since the principal repayment is insured.
 
These balances include $167 million
 
of residential mortgage
loans
 
insured
 
by
 
FHA
 
or
 
guaranteed
 
by
 
the
 
VA
 
that
 
are
 
no
 
longer
 
accruing
 
interest
 
as
 
of
 
March
 
31,
 
2023
 
(December
 
31,
 
2022
 
-
 
$190
 
million).
Furthermore, the
 
Corporation has
 
approximately
 
$40 million
 
in reverse
 
mortgage loans
 
which are
 
guaranteed
 
by FHA,
 
but which
 
are currently
 
not
accruing interest.
 
Due
 
to
 
the guaranteed
 
nature
 
of the
 
loans, it
 
is the
 
Corporation’s
 
policy
 
to exclude
 
these balances
 
from
 
non-performing
 
assets
(December 31, 2022 - $42 million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
152
Table 19 - Activity in Non
 
-Performing Loans Held-in-Portfolio (Excluding Consumer
 
Loans)
For the quarter ended March 31, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
324,562
$
31,356
$
355,918
Plus:
New non-performing loans
50,613
8,531
59,144
Advances on existing non-performing loans
-
65
65
Less:
Non-performing loans transferred to OREO
(10,873)
(58)
(10,931)
Non-performing loans charged-off
(1,176)
(216)
(1,392)
Loans returned to accrual status / loan collections
(48,099)
(13,911)
(62,010)
Ending balance NPLs
$
315,027
$
25,767
$
340,794
Table 20 - Activity in Non
 
-Performing Loans Held-in-Portfolio (Excluding Consumer
 
Loans)
For the quarter ended March 31, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
454,419
$
27,501
$
481,920
Plus:
New non-performing loans
44,320
7,799
52,119
Advances on existing non-performing loans
-
2,639
2,639
Less:
Non-performing loans transferred to OREO
(13,396)
(85)
(13,481)
Non-performing loans charged-off
(723)
(73)
(796)
Loans returned to accrual status / loan collections
(60,278)
(10,552)
(70,830)
Ending balance NPLs
$
424,342
$
27,229
$
451,571
Table 21 - Activity in Non
 
-Performing Commercial Loans Held-In-Portfolio
For the quarter ended March 31, 2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
82,171
$
10,868
$
93,039
Plus:
New non-performing loans
16,594
5,719
22,313
Advances on existing non-performing loans
-
26
26
Less:
Non-performing loans transferred to OREO
(287)
-
(287)
Non-performing loans charged-off
(673)
(216)
(889)
Loans returned to accrual status / loan collections
(6,853)
(5,349)
(12,202)
Ending balance - NPLs
$
90,952
$
11,048
$
102,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
153
Table 22 - Activity in Non
 
-Performing Commercial Loans Held-In-Portfolio
For the quarter ended March 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
120,047
$
5,532
$
125,579
Plus:
New non-performing loans
6,127
2,999
9,126
Advances on existing non-performing loans
-
2,505
2,505
Less:
Non-performing loans transferred to OREO
(3,052)
-
(3,052)
Non-performing loans charged-off
(256)
(73)
(329)
Loans returned to accrual status / loan collections
(5,084)
(5,560)
(10,644)
Ending balance - NPLs
$
117,782
$
5,403
$
123,185
Table 23 - Activity in Non
 
-Performing Construction Loans Held-In-Portfolio
For the quarter ended March 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
485
$
-
$
485
Plus:
Less:
-
-
Loans returned to accrual status / loan collections
(485)
-
(485)
Ending balance - NPLs
$
-
$
-
$
-
Table 24 - Activity in Non
 
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended March 31, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
242,391
$
20,488
$
262,879
Plus:
New non-performing loans
34,019
2,812
36,831
Advances on existing non-performing loans
-
39
39
Less:
Non-performing loans transferred to OREO
(10,586)
(58)
(10,644)
Non-performing loans charged-off
(503)
-
(503)
Loans returned to accrual status / loan collections
(41,246)
(8,562)
(49,808)
Ending balance - NPLs
$
224,075
$
14,719
$
238,794
Table 25 - Activity in Non
 
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended March 31, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
333,887
$
21,969
$
355,856
Plus:
New non-performing loans
38,193
4,800
42,993
Advances on existing non-performing loans
-
134
134
Less:
Non-performing loans transferred to OREO
(10,344)
(85)
(10,429)
Non-performing loans charged-off
(467)
-
(467)
Loans returned to accrual status / loan collections
(54,709)
(4,992)
(59,701)
Ending balance - NPLs
$
306,560
$
21,826
$
328,386
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
154
Loan Delinquencies
Another key measure used to evaluate and
 
monitor the Corporation’s asset quality is loan
 
delinquencies. Loans delinquent 30 days
or more, as a percentage of their related portfolio
 
category at March 31, 2023 and December 31,
 
2022, are presented below.
Table 26 - Loan Delinquencies
(Dollars in thousands)
March 31, 2023
December 31, 2022
Loans delinquent
30 days or more
Total loans
Total delinquencies
 
as
a percentage of total
loans
Loans delinquent
30 days or more
Total loans
Total delinquencies
 
as
a percentage of total
loans
Commercial
 
$
197,013
$
16,005,261
1.23
%
$
119,476
$
15,739,132
0.76
%
Construction
 
15,246
698,996
2.18
-
757,984
-
Leasing
21,009
1,614,344
1.30
21,487
1,585,739
1.36
Mortgage
[1]
818,927
7,405,907
11.06
937,253
7,397,471
12.67
Consumer
 
191,886
6,613,865
2.90
216,401
6,597,443
3.28
Loans held-for-sale
-
11,181
-
-
5,381
-
Total
 
$
1,244,081
$
32,349,554
3.85
%
$
1,294,617
$
32,083,150
4.04
%
[1]
 
Loans delinquent 30 days or more includes $0.4 billion
 
of residential mortgage loans insured by FHA or guaranteed
 
by the VA as of March
 
31,
2023 (December 31, 2022 - $0.5 billion). Refer to Note
 
8 to the Consolidated Financial Statements for additional
 
information of guaranteed loans.
Allowance for Credit Losses Loans Held-in-Portfolio
The Corporation adopted the new CECL accounting standard effective on January 1,
 
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
 
loans
 
modified
 
to
 
borrowers
 
with
 
financial
 
difficulty,
 
including
 
legacy
 
troubled
 
debt
 
restructurings,
separately
 
from
 
the
 
remainder
 
of
 
the
 
loan
 
portfolio.
 
The
 
Corporation’s
 
management
 
evaluates
 
the
 
adequacy
 
of
 
the
 
ACL
 
on
 
a
quarterly
 
basis.
 
In
 
this
 
evaluation,
 
management
 
considers
 
current
 
conditions,
 
macroeconomic
 
economic
 
expectations
 
through
 
a
reasonable and supportable period,
 
historical loss experience, portfolio composition
 
by loan type
 
and risk characteristics, results
 
of
periodic credit reviews
 
of individual loans,
 
and regulatory requirements, amongst
 
other factors. The
 
Corporation evaluates, at
 
least
on an
 
annual basis, the
 
assumptions tied to
 
the CECL
 
accounting framework, including
 
the reasonable
 
and supportable period
 
as
well as the reversion window.
 
The Corporation must rely on
 
estimates and exercise judgment regarding matters where
 
the ultimate outcome is unknown,
 
such as
economic developments affecting specific
 
customers, industries, or markets.
 
Other factors that can
 
affect management’s estimates
are
 
recalibration
 
of
 
statistical
 
models
 
used
 
to
 
calculate
 
lifetime
 
expected
 
losses,
 
changes
 
in
 
underwriting
 
standards,
 
financial
accounting standards and loan impairment measurements,
 
among others. Changes in the financial condition
 
of individual borrowers,
in economic
 
conditions, and
 
in the
 
condition of
 
the various
 
markets in
 
which collateral
 
may be
 
sold, may
 
also affect
 
the required
level of
 
the allowance
 
for credit
 
losses. Consequently,
 
the business
 
financial condition,
 
liquidity,
 
capital, and
 
results of
 
operations
could also be affected.
Given that any one
 
economic outlook is inherently uncertain, the
 
Corporation leverages multiple scenarios to estimate
 
its ACL. The
baseline scenario
 
continues to
 
be assigned
 
the highest
 
probability,
 
followed
 
by the
 
pessimistic scenario.
 
The baseline
 
scenario
assumes a 2023 annualized
 
GDP growth in the
 
baseline scenario stands at
 
2.1% and 1.3% for
 
Puerto Rico and the
 
United States,
respectively,
 
increasing from
 
1.3% and
 
0.7% in
 
the previous
 
quarter. The
 
2023 forecasted
 
average unemployment
 
rate continues
strong, improving quarter-over-quarter to
 
6.9% and 3.5%
 
for Puerto Rico
 
and the United
 
States, respectively,
 
from 7.8% and
 
4.0%
respectively, in the previous forecast.
 
At
 
March
 
31,
 
2023,
 
the
 
allowance
 
for
 
credit
 
losses
 
amounted
 
to
 
$689
 
million,
 
a
 
decrease
 
of
 
$31
 
million,
 
when
 
compared
 
with
December 31, 2022.
 
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 in
March 2022, which eliminates the
 
accounting guidance for troubled debt
 
restructures (“TDRs”) and the requirement
 
to measure the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
155
effect
 
of
 
the
 
concession from
 
a
 
loan
 
modification, for
 
which
 
the
 
Corporation used
 
a
 
discounted cash
 
flow
 
(“DCF”)
 
method.
 
This
impact
 
resulted
 
in
 
a
 
release
 
in
 
the
 
ACL
 
of
 
approximately
 
$46
 
million
 
presented
 
as
 
an
 
adjustment
 
to
 
the
 
beginning
 
balance
 
of
retained earnings, net of tax effect.
 
Excluding ASU 2022-02 impact, the
 
ACL for BPPR increased by
 
$14 million, when compared to
 
December 31, 2022, mostly driven
by reductions in the HPI forecast, higher loan volumes and migration of consumer credit scores. The ACL for
 
Popular U.S remained
essentially flat
 
from
 
December 31,
 
2022. quarter-over-quarter.
 
The Corporation’s
 
ratio of
 
the allowance
 
for credit
 
losses to
 
loans
held-in-portfolio was
 
2.13% at
 
March 31,
 
2023, compared
 
to 2.25%
 
in December
 
31, 2022.
 
The ratio
 
of the
 
allowance for
 
credit
losses to NPLs held-in-portfolio stood at 167.1%,
 
compared to 163.9% in December 31, 2022.
The provision for credit losses
 
for the period ended March 31,
 
2023, amounted to an expense of
 
$47 million, compared to a benefit
of
 
$14
 
million
 
for
 
the
 
period
 
ended
 
March
 
31,
 
2022,
 
as
 
the
 
prior
 
period
 
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.
Table 27 - Allowance for Credit
 
Losses - Loan Portfolios
March 31, 2023
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
243,979
$
4,330
$
104,477
$
20,990
$
315,344
$
689,120
Total loans held-in
 
-portfolio
16,005,261
698,996
7,405,907
1,614,344
6,613,865
32,338,373
ACL to loans held-in-portfolio
1.52
%
0.62
%
1.41
%
1.30
%
4.77
%
2.13
%
Total non-performing
 
loans held-in-portfolio
$
102,000
$
-
$
238,794
$
6,103
$
65,486
$
412,383
ACL to non-performing loans held-in-portfolio
239.20
%
N.M.
43.75
%
343.93
%
481.54
%
167.11
%
N.M. - Not meaningful.
Table 28 - 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
156
Annualized net charge-offs (recoveries)
The following
 
tables present
 
annualized net charge-offs
 
(recoveries) to average
 
loans held-in-portfolio (“HIP”)
 
by loan
 
category for
the quarters ended March 31, 2023 and 2022.
Table 29
 
- Annualized
 
Net Charge-offs (Recoveries) to Average
 
Loans Held-in-Portfolio
Quarter ended March 31, 2023
Quarter ended March 31, 2022
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Commercial
 
(0.06)
%
(0.13)
%
(0.09)
%
(0.23)
%
(0.04)
%
(0.14)
%
Construction
―
―
―
(1.61)
(0.72)
(0.85)
Mortgage
(0.26)
―
(0.22)
(0.19)
(0.01)
(0.16)
Leasing
0.08
―
0.08
(0.12)
―
(0.12)
Consumer
2.31
4.81
2.43
0.95
0.08
0.91
Total annualized
 
net charge-offs to
average loans held-in-portfolio
0.56
%
0.06
%
0.41
%
0.11
%
(0.08)
%
0.05
%
NCOs for the quarter ended March 31, 2023
 
amounted to $33 million, increasing by $29 million when compared to
 
the same period
in 2022. The
 
BPPR segment increased by
 
$26 million mainly
 
driven by higher consumer
 
NCOs by $23
 
million. The increase in
 
the
consumer NCOs was
 
mostly related
 
to $11
 
million line
 
of credit charge-off
 
on a single
 
borrower and post-pandemic
 
normalization.
The PB segment NCOs increased by $3 million, mainly
 
driven by higher consumer NCOs by $4
 
million.
Loan Modifications
During the
 
quarter ended
 
March 31,
 
2023, the
 
Corporation modified
 
loans to
 
borrowers with
 
financial difficulty
 
amounting to
 
$69
million,
 
of
 
which
 
$59
 
million
 
are
 
in
 
accruing
 
status.
 
The
 
BPPR
 
segment’s
 
modifications
 
to
 
borrowers
 
with
 
financial
 
difficulty
amounted to $48 million, mainly comprised of mortgage and commercial loans of $25 million and $22 million, respectively.
 
A total of
$18 million of the mortgage modifications were related to guaranteed loans. The
 
Popular U.S. segment’s modifications to borrowers
with financial difficulty amounted to $20 million, of
 
which $15 million were commercial loans.
 
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
information
 
on
 
modifications
 
made
 
to
 
borrowers
experiencing financial difficulties.
ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT
 
YET EFFECTIVE ACCOUNTING STANDARDS
Refer to Note 3, “New Accounting Pronouncements”
 
to the Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About
 
Market Risk
Quantitative and qualitative disclosures for the current
 
period can be found in the Market Risk
 
section of this report, which includes
changes in market risk exposures from disclosures presented
 
in the 2022 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Corporation’s management,
 
with the
 
participation of the
 
Corporation’s Chief Executive
 
Officer and Chief
 
Financial Officer,
 
has
evaluated
 
the effectiveness
 
of the
 
Corporation’s disclosure
 
controls and
 
procedures (as
 
such term
 
is defined
 
in Rules
 
13a-15(e)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
157
and
 
15d-15(e)
 
under
 
the
 
Exchange
 
Act)
 
as
 
of
 
the
 
end
 
of
 
the
 
period
 
covered
 
by
 
this
 
report.
 
Based
 
on
 
such
 
evaluation,
 
the
Corporation’s
 
Chief
 
Executive
 
Officer
 
and
 
Chief
 
Financial
 
Officer
 
have
 
concluded
 
that,
 
as
 
of
 
the
 
end
 
of
 
such
 
period,
 
the
Corporation’s
 
disclosure
 
controls
 
and
 
procedures
 
are
 
effective
 
in
 
recording,
 
processing,
 
summarizing and
 
reporting,
 
on
 
a
 
timely
basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such
information
 
is
 
accumulated
 
and
 
communicated
 
to
 
management,
 
as
 
appropriate,
 
to
 
allow
 
timely
 
decisions
 
regarding
 
required
disclosures.
Internal Control Over Financial Reporting
 
There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act)
 
that occurred during the quarter ended March
 
31, 2023 that have materially affected,
 
or are
reasonably likely to materially affect, the Corporation’s internal control
 
over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
 
For a discussion of Legal Proceedings, see Note 21,
 
Commitments and Contingencies, to the Consolidated
 
Financial Statements.
Item 1A. Risk Factors
In addition to the other information set forth in
 
this report, you should carefully consider the risk
 
factors discussed under “Part I - Item
1A - Risk Factors” in our 2022 Form
 
10-K. These factors could materially adversely affect our business, financial condition, liquidity,
results of
 
operations and
 
capital position,
 
and could
 
cause our
 
actual results
 
to
 
differ
 
materially from
 
our historical
 
results or
 
the
results contemplated
 
by the
 
forward-looking statements
 
contained in
 
this report.
 
Also refer
 
to the
 
discussion in
 
“Part I
 
- Item
 
2 –
Management’s Discussion
 
and Analysis
 
of Financial
 
Condition and
 
Results of
 
Operations” in
 
this report
 
for additional
 
information
that may supplement or update the discussion
 
of risk factors below and in our 2022 Form
 
10-K.
There have been no material changes to the risk
 
factors previously disclosed under Item 1A of the
 
Corporation’s 2022 Form 10-K.
The risks described
 
in our 2022 Form
 
10-K and in
 
this report are not
 
the only risks
 
facing us. Additional risks
 
and uncertainties not
currently
 
known
 
to
 
us
 
or
 
that
 
we
 
currently
 
deem
 
to
 
be
 
immaterial
 
also
 
may
 
materially
 
adversely
 
affect
 
our
 
business,
 
financial
condition, liquidity, results of operations and capital position.
Item 2.
 
Unregistered Sales of Equity Securities and
 
Use of Proceeds
 
The Corporation did not have any unregistered
 
sales of equity securities during the quarter ended March
 
31, 2023.
Issuer Purchases of Equity Securities
The following
 
table sets
 
forth the
 
details of
 
purchases of
 
Common Stock
 
by the
 
Corporation during
 
the quarter
 
ended March
 
31,
2023:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid per
Share
Total Number of
 
Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of
Shares that May Yet be
Purchased Under the Plans or
Programs
January 1 - January 31
905
$
66.48
-
$-
February 1 - February 28
-
-
-
-
March 1 - March 31
39,904
71.20
-
-
Total
 
40,809
$
71.10
-
-
[1] Includes 905 and 39,904
 
shares of the Corporation’s
 
common stock acquired
 
by the Corporation during
 
January 2023 and March
 
2023 respectively,
in connection
 
with the
 
satisfaction of
 
tax withholding
 
obligations on
 
vested awards
 
of restricted
 
stock or
 
restricted stock
 
units granted
 
to directors
 
and
certain employees under the Corporation’s Omnibus Incentive
 
Plan. The acquired shares of common stock were added
 
back to treasury stock.
 
 
 
 
 
 
158
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6.
 
Exhibits
 
Exhibit Index
Exhibit No
Exhibit Description
10.1
22.1
31.1
31.2
 
32.1
32.2
101. INS
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104
The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the
 
quarter ended March 31, 2023,
formatted in Inline XBRL (included within the Exhibit
 
101 attachments)
(1)
(1)
 
Included herewith
Popular, Inc. has not filed as exhibits certain instruments defining
 
the rights of holders of debt of Popular, Inc. not
exceeding 10% of the total assets of Popular, Inc. and its consolidated
 
subsidiaries. Popular, Inc. hereby agrees to
furnish upon request to the Commission a copy of
 
each instrument defining the rights of holders
 
of senior and
subordinated debt of Popular, Inc., or of any of its consolidated
 
subsidiaries.
 
 
 
159
SIGNATURES
Pursuant to the
 
requirements of the Securities Exchange
 
Act of 1934, the
 
registrant has duly caused this
 
report to be signed
 
on its
behalf by the undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: May 10, 2023
By: /s/ Carlos J. Vázquez
Carlos J. Vázquez
Executive Vice President &
Chief Financial Officer
Date: May 10, 2023
By: /s/ Jorge J. García
Jorge J. García
Senior Vice President & Corporate Comptroller