UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-Q
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 20172018
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 organization) | (IRS Employer | |
Identification Number) | ||
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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act:
Large accelerated filer | ☒ | 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 Rule12b-2 of the Exchange Act). ☐ Yes ☒ 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, 102,059,726100,352,514 shares outstanding as of November 6, 2017.5, 2018.
POPULAR, INC.
Part I – Financial Information | Page | |||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||
Forward-Looking Information
This Form10-Q contains forward-looking statements“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”), including without limitation statements about Popular’s 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, the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations, and the impact of Hurricanes Irma and María on the Corporation. 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 in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve;
the impact of the current fiscal and economic crisis of the Commonwealth of Puerto Rico (the “Commonwealth” or “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 crisis on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and private borrowers that have relationships with the government, and the possibility that these actions may result in credit losses that are higher than currently expected;
the impact of Hurricanes Irma and Maria, and the measures taken to recover from these hurricanes (including the availability of relief funds and insurance proceeds), on the economy of Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands, and on our customers and our business;
changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets;
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;
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on our businesses, business practices and cost of operations;
regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;
the ability to successfully integrate the auto finance business acquired from Wells Fargo & Company, as well as unexpected costs, including, without limitation, costs due to exposure to any unrecorded liabilities or issues not identified during the due diligence investigation of the business or that are not subject to indemnification or reimbursement, and risks that the business may suffer as a result of the transaction, including due to adverse effects on relationships with customers, employees and service providers;
the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;
the performance of the stock and bond markets;
competition in the financial services industry;
additional Federal Deposit Insurance Corporation (“FDIC”) assessments;
possible legislative, tax or regulatory changes; and
a failure in or breach of our operational or security systems or infrastructure or those of EVERTEC, Inc., our provider of core financial transaction processing and information technology services, as a result of cyberattacks, includinge-fraud,denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.
Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following:
negative economic conditions, including as a result of Hurricanes Irma and Maria, that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level ofnon-performing assets, charge-offs and provision expense;
changes in market rates and prices which may adversely impact the value of financial assets and liabilities;
liabilities resulting from litigation and regulatory investigations;
changes in accounting standards, rules and interpretations;
our ability to grow our core businesses;
decisions to downsize, sell or close units or otherwise change our business mix; and
management’s ability to identify and manage these and other risks.
Moreover, the outcome of legal proceedings, as discussed in “Part II, Item I. 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 Form10-K for the year ended December 31, 20162017 as well as “Part II, Item 1A” of this Form10-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 Form10-Q are based upon information available to Popular as of the date of this Form10-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 or information which speak as of their respective dates.
.
POPULAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(In thousands, except share information) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Assets: | ||||||||||||||||
Cash and due from banks | $ | 517,437 | $ | 362,394 | $ | 400,949 | $ | 402,857 | ||||||||
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Money market investments: | ||||||||||||||||
Securities purchased under agreements to resell | — | 23,637 | ||||||||||||||
Time deposits with other banks | 5,488,212 | 2,866,580 | 4,609,061 | 5,255,119 | ||||||||||||
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Total money market investments | 5,488,212 | 2,890,217 | 4,609,061 | 5,255,119 | ||||||||||||
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Trading account securities, at fair value: | ||||||||||||||||
Trading account debt securities, at fair value: | ||||||||||||||||
Pledged securities with creditors’ right to repledge | 636 | 11,486 | 600 | 625 | ||||||||||||
Other trading securities | 45,315 | 48,319 | 37,131 | 33,301 | ||||||||||||
Investment securitiesavailable-for-sale, at fair value: | ||||||||||||||||
Debt securitiesavailable-for-sale, at fair value: | ||||||||||||||||
Pledged securities with creditors’ right to repledge | 378,227 | 491,843 | 295,437 | 393,634 | ||||||||||||
Other investment securitiesavailable-for-sale | 8,682,774 | 7,717,963 | 12,752,180 | 9,783,289 | ||||||||||||
Investment securitiesheld-to-maturity, at amortized cost (fair value 2017 - $74,512; 2016 - $75,576) | 93,438 | 98,101 | ||||||||||||||
Other investment securities, at lower of cost or realizable value (realizable value 2017 - $177,141; 2016 - $170,890) | 173,965 | 167,818 | ||||||||||||||
Debt securitiesheld-to-maturity, at amortized cost (fair value 2018 - $105,074; 2017 - $97,501) | 101,238 | 107,019 | ||||||||||||||
Equity securities (realizable value 2018 -$162,741); (2017 - $168,417) | 157,962 | 165,103 | ||||||||||||||
Loansheld-for-sale, at lower of cost or fair value | 68,864 | 88,821 | 51,742 | 132,395 | ||||||||||||
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Loansheld-in-portfolio: | ||||||||||||||||
Loans not covered under loss-sharing agreements with the FDIC | 23,302,047 | 22,895,172 | 26,661,951 | 24,423,427 | ||||||||||||
Loans covered under loss-sharing agreements with the FDIC | 524,854 | 572,878 | — | 517,274 | ||||||||||||
Less – Unearned income | 128,597 | 121,425 | 149,783 | 130,633 | ||||||||||||
Allowance for loan losses | 646,913 | 540,651 | 633,718 | 623,426 | ||||||||||||
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Total loansheld-in-portfolio, net | 23,051,391 | 22,805,974 | 25,878,450 | 24,186,642 | ||||||||||||
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FDIC loss-share asset | 48,470 | 69,334 | — | 45,192 | ||||||||||||
Premises and equipment, net | 532,532 | 543,981 | 557,104 | 547,142 | ||||||||||||
Other real estate not covered under loss-sharing agreements with the FDIC | 176,728 | 180,445 | 133,780 | 169,260 | ||||||||||||
Other real estate covered under loss-sharing agreements with the FDIC | 21,545 | 32,128 | — | 19,595 | ||||||||||||
Accrued income receivable | 146,339 | 138,042 | 163,443 | 213,844 | ||||||||||||
Mortgage servicing assets, at fair value | 180,157 | 196,889 | 162,779 | 168,031 | ||||||||||||
Other assets | 2,329,927 | 2,145,510 | 1,900,850 | 1,991,323 | ||||||||||||
Goodwill | 627,294 | 627,294 | 687,536 | 627,294 | ||||||||||||
Other intangible assets | 38,016 | 45,050 | 29,186 | 35,672 | ||||||||||||
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Total assets | $ | 42,601,267 | $ | 38,661,609 | $ | 47,919,428 | $ | 44,277,337 | ||||||||
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Liabilities and Stockholders’ Equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Deposits: | ||||||||||||||||
Non-interest bearing | $ | 7,449,857 | $ | 6,980,443 | $ | 8,803,752 | $ | 8,490,945 | ||||||||
Interest bearing | 26,799,079 | 23,515,781 | 30,845,075 | 26,962,563 | ||||||||||||
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Total deposits | 34,248,936 | 30,496,224 | 39,648,827 | 35,453,508 | ||||||||||||
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Assets sold under agreements to repurchase | 374,405 | 479,425 | 300,116 | 390,921 | ||||||||||||
Other short-term borrowings | 240,598 | 1,200 | 1,200 | 96,208 | ||||||||||||
Notes payable | 1,532,061 | 1,574,852 | 1,744,687 | 1,536,356 | ||||||||||||
Other liabilities | 919,836 | 911,951 | 980,249 | 1,696,439 | ||||||||||||
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Total liabilities | 37,315,836 | 33,463,652 | 42,675,079 | 39,173,432 | ||||||||||||
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Commitments and contingencies (Refer to Note 22) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, 30,000,000 shares authorized; 2,006,391shares issued and outstanding | 50,160 | 50,160 | ||||||||||||||
Common stock, $0.01 par value; 170,000,000 shares authorized; 104,197,524 shares issued (2016 - 104,058,684) and 102,026,417 shares outstanding (2016 - 103,790,932) | 1,042 | 1,040 | ||||||||||||||
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding | 50,160 | 50,160 | ||||||||||||||
Common stock, $0.01 par value; 170,000,000 shares authorized; 104,304,529 shares issued (2017 - 104,238,159) and 100,336,341 shares outstanding (2017 - 102,068,981) | 1,043 | 1,042 | ||||||||||||||
Surplus | 4,265,053 | 4,255,022 | 4,281,515 | 4,298,503 | ||||||||||||
Retained earnings | 1,350,730 | 1,220,307 | 1,629,692 | 1,194,994 | ||||||||||||
Treasury stock - at cost, 2,171,107 shares (2016 - 267,752) | (90,222 | ) | (8,286 | ) | ||||||||||||
Treasury stock - at cost, 3,968,188 shares (2017 - 2,169,178) | (183,872 | ) | (90,142 | ) | ||||||||||||
Accumulated other comprehensive loss, net of tax | (291,332 | ) | (320,286 | ) | (534,189 | ) | (350,652 | ) | ||||||||
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Total stockholders’ equity | 5,285,431 | 5,197,957 | 5,244,349 | 5,103,905 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 42,601,267 | $ | 38,661,609 | $ | 47,919,428 | $ | 44,277,337 | ||||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements. | The accompanying notes are an integral part of these Consolidated Financial Statements. |
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POPULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands, except per share information) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Interest income: | ||||||||||||||||
Loans | $ | 430,637 | $ | 371,979 | $ | 1,190,498 | $ | 1,102,784 | ||||||||
Money market investments | 27,581 | 15,529 | 86,258 | 33,233 | ||||||||||||
Investment securities | 70,147 | 48,375 | 185,537 | 144,594 | ||||||||||||
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Total interest income | 528,365 | 435,883 | 1,462,293 | 1,280,611 | ||||||||||||
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Interest expense: | ||||||||||||||||
Deposits | 55,134 | 37,058 | 139,050 | 104,907 | ||||||||||||
Short-term borrowings | 1,622 | 1,524 | 5,387 | 3,734 | ||||||||||||
Long-term debt | 20,140 | 19,130 | 59,204 | 57,222 | ||||||||||||
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Total interest expense | 76,896 | 57,712 | 203,641 | 165,863 | ||||||||||||
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Net interest income | 451,469 | 378,171 | 1,258,652 | 1,114,748 | ||||||||||||
Provision for loan losses -non-covered loans | 54,387 | 157,659 | 183,774 | 249,681 | ||||||||||||
Provision for loan losses - covered loans | — | 3,100 | 1,730 | 4,255 | ||||||||||||
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Net interest income after provision for loan losses | 397,082 | 217,412 | 1,073,148 | 860,812 | ||||||||||||
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Service charges on deposit accounts | 38,147 | 39,273 | 111,704 | 119,882 | ||||||||||||
Other service fees | 64,316 | 53,481 | 187,794 | 168,824 | ||||||||||||
Mortgage banking activities (Refer to Note 11) | 11,269 | 5,239 | 33,408 | 27,349 | ||||||||||||
Net gain on sale of debt securities | — | 83 | — | 83 | ||||||||||||
Other-than-temporary impairment losses on debt securities | — | — | — | (8,299 | ) | |||||||||||
Net gain (loss), including impairment on equity securities | 370 | 20 | (42 | ) | 201 | |||||||||||
Net (loss) profit on trading account debt securities | (122 | ) | 253 | (299 | ) | (680 | ) | |||||||||
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale | — | (420 | ) | — | (420 | ) | ||||||||||
Adjustments (expense) to indemnity reserves on loans sold | (3,029 | ) | (6,406 | ) | (6,482 | ) | (11,302 | ) | ||||||||
FDIC loss-share (expense) income (Refer to Note 29) | — | (3,948 | ) | 94,725 | (12,680 | ) | ||||||||||
Other operating income | 40,070 | 12,799 | 78,519 | 50,078 | ||||||||||||
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Totalnon-interest income | 151,021 | 100,374 | 499,327 | 333,036 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Personnel costs | 139,757 | 117,769 | 389,941 | 358,457 | ||||||||||||
Net occupancy expenses | 18,602 | 22,254 | 63,829 | 65,295 | ||||||||||||
Equipment expenses | 18,303 | 16,457 | 53,284 | 48,677 | ||||||||||||
Other taxes | 11,923 | 10,858 | 33,701 | 32,567 | ||||||||||||
Professional fees | 83,860 | 70,772 | 260,748 | 212,956 | ||||||||||||
Communications | 6,054 | 5,394 | 17,342 | 17,242 | ||||||||||||
Business promotion | 15,478 | 15,216 | 44,265 | 40,158 | ||||||||||||
FDIC deposit insurance | 8,610 | 6,271 | 22,534 | 18,936 | ||||||||||||
Other real estate owned (OREO) expenses | 7,950 | 11,724 | 21,028 | 41,212 | ||||||||||||
Other operating expenses | 52,576 | 38,028 | 111,462 | 92,707 | ||||||||||||
Amortization of intangibles | 2,324 | 2,345 | 6,973 | 7,034 | ||||||||||||
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Total operating expenses | 365,437 | 317,088 | 1,025,107 | 935,241 | ||||||||||||
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Income before income tax | 182,666 | 698 | 547,368 | 258,607 | ||||||||||||
Income tax expense (benefit) | 42,018 | (19,966 | ) | 35,613 | 48,772 | |||||||||||
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Net Income | $ | 140,648 | $ | 20,664 | $ | 511,755 | $ | 209,835 | ||||||||
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Net Income Applicable to Common Stock | $ | 139,718 | $ | 19,734 | $ | 508,963 | $ | 207,043 | ||||||||
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Net Income per Common Share – Basic | $ | 1.38 | $ | 0.19 | $ | 5.01 | $ | 2.03 | ||||||||
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Net Income per Common Share – Diluted | $ | 1.38 | $ | 0.19 | $ | 5.00 | $ | 2.03 | ||||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements.
POPULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands, except per share information) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest income: | ||||||||||||||||
Loans | $ | 371,979 | $ | 363,550 | $ | 1,102,784 | $ | 1,096,468 | ||||||||
Money market investments | 15,529 | 4,568 | 33,233 | 11,320 | ||||||||||||
Investment securities | 47,276 | 37,732 | 140,699 | 110,728 | ||||||||||||
Trading account securities | 1,099 | 1,449 | 3,895 | 5,013 | ||||||||||||
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Total interest income | 435,883 | 407,299 | 1,280,611 | 1,223,529 | ||||||||||||
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Interest expense: | ||||||||||||||||
Deposits | 37,058 | 32,362 | 104,907 | 92,835 | ||||||||||||
Short-term borrowings | 1,524 | 2,132 | 3,734 | 6,051 | ||||||||||||
Long-term debt | 19,130 | 19,118 | 57,222 | 57,993 | ||||||||||||
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Total interest expense | 57,712 | 53,612 | 165,863 | 156,879 | ||||||||||||
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Net interest income | 378,171 | 353,687 | 1,114,748 | 1,066,650 | ||||||||||||
Provision for loan losses -non-covered loans | 157,659 | 42,594 | 249,681 | 130,202 | ||||||||||||
Provision (reversal) for loan losses - covered loans | 3,100 | 750 | 4,255 | (1,551 | ) | |||||||||||
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Net interest income after provision for loan losses | 217,412 | 310,343 | 860,812 | 937,999 | ||||||||||||
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Service charges on deposit accounts | 39,273 | 40,776 | 119,882 | 120,934 | ||||||||||||
Other service fees (Refer to Note 28) | 53,481 | 59,169 | 168,824 | 169,496 | ||||||||||||
Mortgage banking activities (Refer to Note 11) | 5,239 | 15,272 | 27,349 | 42,050 | ||||||||||||
Net gain on sale of investment securities | 103 | 349 | 284 | 1,932 | ||||||||||||
Other-than-temporary impairment losses on investment securities | — | — | (8,299 | ) | (209 | ) | ||||||||||
Trading account profit (loss) | 253 | (113 | ) | (680 | ) | 842 | ||||||||||
Net (loss) gain on sale of loans, including valuation adjustments on loansheld-for-sale | (420 | ) | 8,549 | (420 | ) | 8,245 | ||||||||||
Adjustments (expense) to indemnity reserves on loans sold | (6,406 | ) | (4,390 | ) | (11,302 | ) | (14,234 | ) | ||||||||
FDIC loss-share expense (Refer to Note 29) | (3,948 | ) | (61,723 | ) | (12,680 | ) | (77,445 | ) | ||||||||
Other operating income | 12,799 | 18,089 | 50,078 | 46,500 | ||||||||||||
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Totalnon-interest income | 100,374 | 75,978 | 333,036 | 298,111 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Personnel costs | 119,636 | 121,224 | 364,058 | 365,023 | ||||||||||||
Net occupancy expenses | 22,254 | 21,626 | 65,295 | 63,770 | ||||||||||||
Equipment expenses | 16,457 | 15,922 | 48,677 | 45,731 | ||||||||||||
Other taxes | 10,858 | 11,324 | 32,567 | 31,689 | ||||||||||||
Professional fees | 70,772 | 81,266 | 212,956 | 237,350 | ||||||||||||
Communications | 5,394 | 5,785 | 17,242 | 18,117 | ||||||||||||
Business promotion | 15,216 | 12,726 | 40,158 | 37,541 | ||||||||||||
FDIC deposit insurance | 6,271 | 5,854 | 18,936 | 18,586 | ||||||||||||
Other real estate owned (OREO) expenses | 11,724 | 11,295 | 41,212 | 33,416 | ||||||||||||
Other operating expenses | 36,161 | 29,752 | 87,106 | 70,432 | ||||||||||||
Amortization of intangibles | 2,345 | 3,097 | 7,034 | 9,308 | ||||||||||||
Goodwill impairment charge | — | 3,801 | — | 3,801 | ||||||||||||
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Total operating expenses | 317,088 | 323,672 | 935,241 | 934,764 | ||||||||||||
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Income before income tax | 698 | 62,649 | 258,607 | 301,346 | ||||||||||||
Income tax (benefit) expense | (19,966 | ) | 15,839 | 48,772 | 80,550 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income | $ | 20,664 | $ | 46,810 | $ | 209,835 | $ | 220,796 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Income Applicable to Common Stock | $ | 19,734 | $ | 45,880 | $ | 207,043 | $ | 218,004 | ||||||||
|
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| |||||||||
Net Income per Common Share – Basic | $ | 0.19 | $ | 0.44 | $ | 2.03 | $ | 2.11 | ||||||||
|
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| |||||||||
Net Income per Common Share – Diluted | $ | 0.19 | $ | 0.44 | $ | 2.03 | $ | 2.11 | ||||||||
|
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| |||||||||
Dividends Declared per Common Share | $ | 0.25 | $ | 0.15 | $ | 0.75 | $ | 0.45 | ||||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements.
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarters ended, | Nine months ended, | |||||||||||||||||||||||||||||||
September 30, | September 30, | Quarters ended, September 30, | Nine months ended, September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net income | $ | 20,664 | $ | 46,810 | $ | 209,835 | $ | 220,796 | $ | 140,648 | $ | 20,664 | $ | 511,755 | $ | 209,835 | ||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||
Other comprehensive income (loss) before tax: | ||||||||||||||||||||||||||||||||
Reclassification to retained earnings due to cumulative effect of accounting change | — | — | (605 | ) | — | |||||||||||||||||||||||||||
Other comprehensive (loss) income before tax: | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | (390 | ) | (325 | ) | (1,839 | ) | (2,465 | ) | (605 | ) | (390 | ) | (3,968 | ) | (1,839 | ) | ||||||||||||||||
Amortization of net losses of pension and postretirement benefit plans | 5,606 | 5,488 | 16,819 | 16,461 | 5,386 | 5,606 | 16,157 | 16,819 | ||||||||||||||||||||||||
Amortization of prior service credit of pension and postretirement benefit plans | (950 | ) | (950 | ) | (2,850 | ) | (2,850 | ) | (868 | ) | (950 | ) | (2,603 | ) | (2,850 | ) | ||||||||||||||||
Unrealized holding gains (losses) on investments arising during the period | 9,240 | (15,428 | ) | 15,137 | 98,900 | |||||||||||||||||||||||||||
Unrealized holding (losses) gains on debt securities arising during the period | (43,781 | ) | 9,180 | (201,193 | ) | 14,912 | ||||||||||||||||||||||||||
Other-than-temporary impairment included in net income | — | — | 8,299 | 209 | — | — | — | 8,299 | ||||||||||||||||||||||||
Reclassification adjustment for gains included in net income | (103 | ) | (349 | ) | (284 | ) | (349 | ) | — | (83 | ) | — | (83 | ) | ||||||||||||||||||
Unrealized net losses on cash flow hedges | (410 | ) | (1,123 | ) | (1,424 | ) | (4,662 | ) | ||||||||||||||||||||||||
Reclassification adjustment for net losses included in net income | 232 | 1,650 | 2,122 | 4,466 | ||||||||||||||||||||||||||||
Unrealized holding gains on equity securities arising during the period | — | 60 | — | 225 | ||||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income | — | (20 | ) | — | (201 | ) | ||||||||||||||||||||||||||
Unrealized net gains (losses) on cash flow hedges | 341 | (410 | ) | 1,296 | (1,424 | ) | ||||||||||||||||||||||||||
Reclassification adjustment for net losses (gains) included in net income | 147 | 232 | (870 | ) | 2,122 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Other comprehensive income (loss) before tax | 13,225 | (11,037 | ) | 35,980 | 109,710 | |||||||||||||||||||||||||||
Income tax expense | (1,614 | ) | (646 | ) | (7,026 | ) | (10,119 | ) | ||||||||||||||||||||||||
Other comprehensive (loss) income before tax | (39,380 | ) | 13,225 | (191,786 | ) | 35,980 | ||||||||||||||||||||||||||
Income tax benefit (expense) | 1,983 | (1,614 | ) | 8,249 | (7,026 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
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|
| |||||||||||||||||||||||||
Total other comprehensive income (loss), net of tax | 11,611 | (11,683 | ) | 28,954 | 99,591 | |||||||||||||||||||||||||||
Total other comprehensive (loss) income, net of tax | (37,397 | ) | 11,611 | (183,537 | ) | 28,954 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Comprehensive income, net of tax | $ | 32,275 | $ | 35,127 | $ | 238,789 | $ | 320,387 | $ | 103,251 | $ | 32,275 | $ | 328,218 | $ | 238,789 | ||||||||||||||||
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| |||||||||||||||||||||||||
Tax effect allocated to each component of other comprehensive income (loss): |
| |||||||||||||||||||||||||||||||
Quarters ended | Nine months ended, | |||||||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||
Amortization of net losses of pension and postretirement benefit plans | $ | (2,185 | ) | $ | (2,140 | ) | $ | (6,556 | ) | $ | (6,420 | ) | ||||||||||||||||||||
Amortization of prior service credit of pension and postretirement benefit plans | 370 | 370 | 1,110 | 1,110 | ||||||||||||||||||||||||||||
Unrealized holding gains (losses) on investments arising during the period | 110 | 1,297 | 194 | (4,877 | ) | |||||||||||||||||||||||||||
Other-than-temporary impairment included in net income | — | — | (1,559 | ) | (42 | ) | ||||||||||||||||||||||||||
Reclassification adjustment for gains included in net income | 21 | 33 | 57 | 33 | ||||||||||||||||||||||||||||
Unrealized net losses on cash flow hedges | 160 | 438 | 555 | 1,819 | ||||||||||||||||||||||||||||
Reclassification adjustment for net losses included in net income | (90 | ) | (644 | ) | (827 | ) | (1,742 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Income tax expense | $ | (1,614 | ) | $ | (646 | ) | $ | (7,026 | ) | $ | (10,119 | ) | ||||||||||||||||||||
|
|
|
|
Tax effect allocated to each component of other comprehensive (loss) income:
Quarters ended September 30, | Nine months ended, September 30, | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Amortization of net losses of pension and postretirement benefit plans | $ | (2,101 | ) | $ | (2,185 | ) | $ | (6,301 | ) | $ | (6,556 | ) | ||||
Amortization of prior service credit of pension and postretirement benefit plans | 339 | 370 | 1,016 | 1,110 | ||||||||||||
Unrealized holding (losses) gains on debt securities arising during the period | 3,936 | 122 | 13,701 | 239 | ||||||||||||
Other-than-temporary impairment included in net income | — | — | — | (1,559 | ) | |||||||||||
Reclassification adjustment for gains included in net income | — | 17 | — | 17 | ||||||||||||
Unrealized holding gains on equity securities arising during the period | — | (12 | ) | — | (45 | ) | ||||||||||
Reclassification adjustment for gains included in net income | — | 4 | — | 40 | ||||||||||||
Unrealized net gains (losses) on cash flow hedges | (133 | ) | 160 | (506 | ) | 555 | ||||||||||
Reclassification adjustment for net losses (gains) included in net income | (58 | ) | (90 | ) | 339 | (827 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income tax benefit (expense) | $ | 1,983 | $ | (1,614 | ) | $ | 8,249 | $ | (7,026 | ) | ||||||
|
|
|
|
|
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|
The accompanying notes are an integral part of the consolidated financial statements.Consolidated Financial Statements.
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common | Preferred | Retained | Treasury | comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | stock | stock | Surplus | earnings | stock | loss | Total | Common stock | Preferred stock | Surplus | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 | $ | 1,038 | $ | 50,160 | $ | 4,229,156 | $ | 1,087,957 | $ | (6,101 | ) | $ | (256,886 | ) | $ | 5,105,324 | ||||||||||||||||||||||||||||||||||||||||
Net income | 220,796 | 220,796 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock | 2 | 5,716 | 5,718 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Tax shortfall expense on vesting of restricted stock | (30 | ) | (30 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock | (46,666 | ) | (46,666 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | (2,792 | ) | (2,792 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock purchases | (1,563 | ) | (1,563 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock reissuance | 17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 99,591 | 99,591 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2016 | $ | 1,040 | $ | 50,160 | $ | 4,234,842 | $ | 1,259,295 | $ | (7,647 | ) | $ | (157,295 | ) | $ | 5,380,395 | ||||||||||||||||||||||||||||||||||||||||
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Balance at December 31, 2016 | $ | 1,040 | $ | 50,160 | $ | 4,255,022 | $ | 1,220,307 | $ | (8,286 | ) | $ | (320,286 | ) | $ | 5,197,957 | $ | 1,040 | $ | 50,160 | $ | 4,255,022 | $ | 1,220,307 | $ | (8,286 | ) | $ | (320,286 | ) | $ | 5,197,957 | ||||||||||||||||||||||||
Net income | 209,835 | 209,835 | 209,835 | 209,835 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock | 2 | 5,513 | 5,515 | 2 | 5,513 | 5,515 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock | (76,620 | ) | (76,620 | ) | (76,620 | ) | (76,620 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | (2,792 | ) | (2,792 | ) | (2,792 | ) | (2,792 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock purchases | 4,518 | (81,936 | ) | (77,418 | ) | 4,518 | (81,936 | ) | (77,418 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | 28,954 | 28,954 | 28,954 | 28,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2017 | $ | 1,042 | $ | 50,160 | $ | 4,265,053 | $ | 1,350,730 | $ | (90,222 | ) | $ | (291,332 | ) | $ | 5,285,431 | $ | 1,042 | $ | 50,160 | $ | 4,265,053 | $ | 1,350,730 | $ | (90,222 | ) | $ | (291,332 | ) | $ | 5,285,431 | ||||||||||||||||||||||||
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Balance at December 31, 2017 | $ | 1,042 | $ | 50,160 | $ | 4,298,503 | $ | 1,194,994 | $ | (90,142 | ) | $ | (350,652 | ) | $ | 5,103,905 | ||||||||||||||||||||||||||||||||||||||||
Cumulative effect of accounting change | 1,935 | 1,935 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 511,755 | 511,755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock | 1 | 2,564 | 2,565 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock | (76,200 | ) | (76,200 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | (2,792 | ) | (2,792 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock purchases | (23,020 | ) | (104,423 | ) | (127,443 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock reissuance | 143 | 2,008 | 2,151 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation | 3,325 | 8,685 | 12,010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | (183,537 | ) | (183,537 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | $ | 1,043 | $ | 50,160 | $ | 4,281,515 | $ | 1,629,692 | $ | (183,872 | ) | $ | (534,189 | ) | $ | 5,244,349 | ||||||||||||||||||||||||||||||||||||||||
September 30, | September 30, |
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| ||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of changes in number of shares: | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning and end of period | 2,006,391 | 2,006,391 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock – Issued: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | 104,058,684 | 103,816,185 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of stock | 138,840 | 198,196 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at end of period | 104,197,524 | 104,014,381 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury stock | (2,171,107 | ) | (251,785 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock – Outstanding | 102,026,417 | 103,762,596 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Disclosure of changes in number of shares: | September 30, 2018 | September 30, 2017 | ||||||
Preferred Stock: | ||||||||
Balance at beginning and end of period | 2,006,391 | 2,006,391 | ||||||
|
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|
| |||||
Common Stock – Issued: | ||||||||
Balance at beginning of period | 104,238,159 | 104,058,684 | ||||||
Issuance of stock | 66,370 | 138,840 | ||||||
|
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|
| |||||
Balance at end of period | 104,304,529 | 104,197,524 | ||||||
Treasury stock | (3,968,188 | ) | (2,171,107 | ) | ||||
|
|
|
| |||||
Common Stock – Outstanding | 100,336,341 | 102,026,417 | ||||||
|
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|
The accompanying notes are an integral part of these Consolidated Financial Statements.
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2018 | 2017 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 209,835 | $ | 220,796 | $ | 511,755 | $ | 209,835 | ||||||||
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|
| |||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Provision for loan losses | 253,936 | 128,651 | 185,504 | 253,936 | ||||||||||||
Goodwill impairment losses | — | 3,801 | ||||||||||||||
Amortization of intangibles | 7,034 | 9,308 | 6,973 | 7,034 | ||||||||||||
Depreciation and amortization of premises and equipment | 35,966 | 34,725 | 39,083 | 35,966 | ||||||||||||
Net accretion of discounts and amortization of premiums and deferred fees | (17,371 | ) | (36,753 | ) | (43,533 | ) | (17,371 | ) | ||||||||
Share-based compensation | 5,962 | — | ||||||||||||||
Impairment losses on long-lived assets | 11,286 | — | 272 | 11,286 | ||||||||||||
Other-than-temporary impairment on investment securities | 8,299 | 209 | ||||||||||||||
Other-than-temporary impairment on debt securities | — | 8,299 | ||||||||||||||
Fair value adjustments on mortgage servicing rights | 24,262 | 18,879 | 13,123 | 24,262 | ||||||||||||
FDIC loss share expense | 12,680 | 77,445 | ||||||||||||||
FDIC loss share (income) expense | (94,725 | ) | 12,680 | |||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | 11,302 | 14,234 | 6,482 | 11,302 | ||||||||||||
Earnings from investments under the equity method | (27,350 | ) | (23,812 | ) | ||||||||||||
Deferred income tax expense | 30,471 | 61,918 | ||||||||||||||
Earnings from investments under the equity method, net of dividends or distributions | (14,772 | ) | (11,514 | ) | ||||||||||||
Deferred income tax (benefit) expense | (97,708 | ) | 30,471 | |||||||||||||
Loss (gain) on: | ||||||||||||||||
Disposition of premises and equipment and other productive assets | 5,018 | 3,603 | 17,694 | 5,018 | ||||||||||||
Sale and valuation adjustments of investment securities | (284 | ) | (1,932 | ) | ||||||||||||
Proceeds from insurance claims | (14,411 | ) | — | |||||||||||||
Sale and valuation adjustments of debt securities | — | (83 | ) | |||||||||||||
Sale of loans, including valuation adjustments on loansheld-for-sale and mortgage banking activities | (16,455 | ) | (32,982 | ) | (6,734 | ) | (16,455 | ) | ||||||||
Sale of foreclosed assets, including write-downs | 19,228 | 13,160 | (638 | ) | 19,228 | |||||||||||
Acquisitions of loansheld-for-sale | (204,813 | ) | (223,189 | ) | (173,644 | ) | (204,813 | ) | ||||||||
Proceeds from sale of loansheld-for-sale | 68,326 | 58,003 | 51,131 | 68,326 | ||||||||||||
Net originations on loansheld-for-sale | (283,709 | ) | (365,353 | ) | (186,063 | ) | (283,709 | ) | ||||||||
Net decrease (increase) in: | ||||||||||||||||
Trading securities | 498,840 | 578,133 | ||||||||||||||
Trading debt securities | 346,455 | 499,714 | ||||||||||||||
Equity securities | (2,480 | ) | (613 | ) | ||||||||||||
Accrued income receivable | (8,297 | ) | 4,543 | 51,868 | (8,297 | ) | ||||||||||
Other assets | 13,454 | (28,201 | ) | 234,836 | (1,882 | ) | ||||||||||
Net (decrease) increase in: | ||||||||||||||||
Interest payable | (9,299 | ) | (11,553 | ) | (9,933 | ) | (9,299 | ) | ||||||||
Pension and other postretirement benefits obligation | (13,760 | ) | (56,537 | ) | 3,392 | (13,760 | ) | |||||||||
Other liabilities | 15,178 | (5,292 | ) | (197,035 | ) | 15,178 | ||||||||||
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|
|
| |||||||||||||
Total adjustments | 433,942 | 221,008 | 121,099 | 434,904 | ||||||||||||
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|
|
| |||||||||||||
Net cash provided by operating activities | 643,777 | 441,804 | 632,854 | 644,739 | ||||||||||||
|
|
|
| |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Net increase in money market investments | (2,597,994 | ) | (1,783,402 | ) | ||||||||||||
Net increase (decrease) in money market investments | 647,519 | (2,600,853 | ) | |||||||||||||
Purchases of investment securities: | ||||||||||||||||
Available-for-sale | (2,356,389 | ) | (2,408,514 | ) | (6,968,920 | ) | (2,356,385 | ) | ||||||||
Other | (23,822 | ) | (14,017 | ) | ||||||||||||
Equity | (11,304 | ) | (23,822 | ) | ||||||||||||
Proceeds from calls, paydowns, maturities and redemptions of investment securities: | ||||||||||||||||
Available-for-sale | 1,225,915 | 951,447 | 3,925,362 | 1,225,915 | ||||||||||||
Held-to-maturity | 6,229 | 4,182 | 7,184 | 6,229 | ||||||||||||
Other | — | 11,051 | ||||||||||||||
Proceeds from sale of investment securities: | ||||||||||||||||
Available-for-sale | 14,888 | 1,556 | — | 14,423 | ||||||||||||
Other | 17,675 | 8,006 | ||||||||||||||
Equity | 20,925 | 17,675 | ||||||||||||||
Net disbursements on loans | (77,400 | ) | (93,354 | ) | (15,604 | ) | (77,400 | ) | ||||||||
Proceeds from sale of loans | 415 | 134,114 | 1,354 | 415 | ||||||||||||
Acquisition of loan portfolios | (448,121 | ) | (355,507 | ) | (461,117 | ) | (448,121 | ) | ||||||||
Net payments (to) from FDIC under loss sharing agreements | (11,520 | ) | 95,407 | (25,012 | ) | (11,520 | ) | |||||||||
Payments to acquire businesses, net of cash acquired | (1,830,050 | ) | — | |||||||||||||
Return of capital from equity method investments | 8,556 | 324 | 2,501 | 8,056 | ||||||||||||
Acquisition of premises and equipment | (40,158 | ) | (78,297 | ) | (53,144 | ) | (40,158 | ) | ||||||||
Proceeds from insurance claims | 14,411 | — | ||||||||||||||
Proceeds from sale of: | ||||||||||||||||
Premises and equipment and other productive assets | 6,982 | 5,519 | 6,991 | 6,982 | ||||||||||||
Foreclosed assets | 85,705 | 54,600 | 85,622 | 85,705 | ||||||||||||
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Net cash used in investing activities | (4,189,039 | ) | (3,466,885 | ) | (4,653,282 | ) | (4,192,859 | ) | ||||||||
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Cash flows from financing activities: | ||||||||||||||||
Net increase (decrease) in: | ||||||||||||||||
Deposits | 3,751,367 | 3,119,674 | 4,193,859 | 3,751,367 | ||||||||||||
Federal funds purchased and assets sold under agreements to repurchase | (105,020 | ) | 3,106 | |||||||||||||
Assets sold under agreements to repurchase | (90,805 | ) | (105,020 | ) | ||||||||||||
Other short-term borrowings | 239,398 | — | (95,008 | ) | 239,398 | |||||||||||
Payments of notes payable | (89,375 | ) | (230,608 | ) | (226,976 | ) | (89,375 | ) | ||||||||
Proceeds from issuance of notes payable | 45,000 | 165,047 | 434,706 | 45,000 | ||||||||||||
Proceeds from issuance of common stock | 5,515 | 5,718 | 10,852 | 5,515 | ||||||||||||
Dividends paid | (69,162 | ) | (49,438 | ) | (79,115 | ) | (69,162 | ) | ||||||||
Net payments for repurchase of common stock | (75,662 | ) | (1,547 | ) | (125,326 | ) | (75,662 | ) | ||||||||
Payments related to tax withholding for share-based compensation | (1,756 | ) | — | (2,205 | ) | (1,756 | ) | |||||||||
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Net cash provided by financing activities | 3,700,305 | 3,011,952 | 4,019,982 | 3,700,305 | ||||||||||||
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Net increase (decrease) in cash and due from banks | 155,043 | (13,129 | ) | |||||||||||||
Cash and due from banks at beginning of period | 362,394 | 363,674 | ||||||||||||||
Net (decrease) increase in cash and due from banks, and restricted cash | (446 | ) | 152,185 | |||||||||||||
Cash and due from banks, and restricted cash at beginning of period | 412,629 | 374,196 | ||||||||||||||
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Cash and due from banks at the end of the period | $ | 517,437 | $ | 350,545 | ||||||||||||
Cash and due from banks, and restricted cash at the end of the period | $ | 412,183 | $ | 526,381 | ||||||||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements.
Notes to Consolidated Financial
Statements (Unaudited)
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 and the Caribbean.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 operates Bancoprovides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular North AmericaBank (“BPNA”PB”). BPNA focuses efforts and resources on the core community banking business. BPNA operates, which has branches located in New York, New Jersey and South FloridaFlorida.
Prior to April 9, 2018, PB operated under the legal name of Banco Popular North America and conducted business under the assumed name of Popular Community Bank.
On August 1, 2018, Popular, Inc., through its subsidiary Popular Auto, LLC, acquired and assumed from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company, certain assets and liabilities related to their auto finance business in Puerto Rico (the “Reliable Transaction” or “Transaction”). Refer to Note 4, Business combination, for further details on the Reliable Transaction.
During September 2017, Hurricanes Irma and Maria (the “hurricanes”), impacted Puerto Rico, the U.S. and British Virgin Islands, causing extensive damage and disrupting the markets in which Banco Popular de Puerto Rico (“BPPR”) does business.
On September 6, 2017, Hurricane Irma made landfall in the USVI and the BVI as a Category 5 hurricane on the Saffir-Simpson scale, causing catastrophic wind and water damage to the islands’ infrastructure, homes and businesses. Hurricane Irma’s winds and resulting flooding also impacted certain municipalities of Puerto Rico, causing the failure of electricity infrastructure in a significant portion of the island. While hurricane Irma also struck Popular’s operations in Florida, neither our operations nor those of our clients in the region were materially impacted.
Two weeks later, on September 20, 2017, Hurricane Maria, made landfall in Puerto Rico as a Category 4 hurricane, causing extensive destruction and flooding throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed and the government imposed a mandatory curfew. The hurricanes caused a significant disruption to the island’s economic activity. Most business establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.
Puerto Rico and the USVI were declared disaster zones by President Trump due to the impact of the hurricanes, thus making them eligible for Federal assistance. Notwithstanding the significant recovery operation that is underway by the Federal, state and local governments, as of the date of this report, most businesses and homes in Puerto Rico and the USVI remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are partially operating or remain closed. Electronic transactions, a significant source of revenue for the bank, have also declined significantly as a result of the lack of power and telecommunication services. Several reports indicate that the hurricanes have also accelerated the outmigration trends that Puerto Rico was experiencing, with many residents moving to the mainland United States, either on a temporary or permanent basis.
While it is too early to assess and quantify the full extent of the damage caused by the hurricanes, as well as their long-term impact on economic activity, the damages are substantial and have, at least in the short-term, had a material adverse impact on economic activity, as reflected by, among other things, the slowdown in production and sales activity and the reduction in the government’s tax revenues. Employment levels are also expected to decrease at least in the short-term. The speed at which the government is able to restore power and other basic services throughout Puerto Rico, which we are not able to predict, will be a critical variable in determining the extent of the impact on economic activity. Furthermore, the hurricanes severely damaged or destroyed buildings, homes and other structures, impacting the value of such properties, some of which may serve as collateral to our loans. While our collateral is generally insured, the value of such insured structures, as well as other structures unaffected by the hurricanes, may be significantly impacted. Although some of the impact of the hurricanes, including its short-term impact on economic activity, may be offset by recovery and reconstruction activity and the influx of Federal emergency funds and private insurance proceeds, it is too early to know the amount of Federal and private insurance money to be received and whether such transfers will significantly offset the negative economic, fiscal and demographic impact of the hurricanes.
Prior to the hurricanes, the Corporation had implemented its business continuity action program. Although the Corporation’s business critical systems experienced minimal outages as a result of the storms, the Corporation’s physical operations in Puerto Rico, the USVI and the BVI, including its branch and ATM networks, were materially disrupted by the storms mostly due to lack of electricity and communication as well as limited accessibility. Reconstruction of the island’s electric infrastructure and restoration of the telecommunications network remain the most critical challenges for Puerto Rico’s recovery from the hurricanes.
The following summarizes the estimated impact on the Corporation’s earnings for the quarter ended September 30, 2017 as a result of the impact caused by Hurricanes Irma and Maria, net of estimated insurance receivables of $7.5 million. We expect the hurricanes to continue to impact the Corporation’s earnings for the quarter ending December 31, 2017 and future periods.
(In thousands) Provision for loan losses[1] Operating expenses: Personnel costs Net occupancy expenses Business promotion Donations Other sponsorship and promotions expenses Total business promotion OREO expenses Other expenses Write-down of premises and equipment Other operating expense Total other expenses Total operating expenses Totalpre-tax hurricane expenses Quarter ended
September 30,
2017 $ 69,887 58 468 1,123 203 1,326 2,685 3,932 1,033 4,965 9,502 $ 79,389
Provision for Loan Losses
Damages associated with Hurricanes Irma and Maria impacted certain of the Corporation’s asset quality measures, including higher delinquencies andnon-performing loans. Payment channels, collection efforts and loss mitigation operations were interrupted during the last month of the quarter as a result of the hurricanes. An incremental provision expense of $69.9 million was made to the allowance for loan losses based on management’s best estimate of the impact of the hurricanes as of September 30, 2017 on the Corporation’s loan portfolios and the ability of borrowers to repay their loans, taking into consideration currently available information and the already challenging economic environment in Puerto Rico prior to the hurricanes.
Management has initially estimated that the effects of the hurricanes could result in loan losses in the range of $70 to $160 million. However, since the Corporation’s base allowance for loan losses already incorporated reserves for environmental factors such as unemployment and deterioration in economic activity of approximately $57.9 million, management increased the environmental factors reserve by $64.3 million to $122.2 million using the nearmid-range as the best estimate. The $69.9 million provision also includes $5.6 million for the portfolio of purchased credit impaired loans, accounted for under ASC310-30, for which the estimated cash flows were adjusted to reflect a three-month payment moratorium offered to certain eligible borrowers. Since there is significant uncertainty with respect to the full extent of the impact due to the unprecedented nature of Hurricane María, the estimate is judgmental and subject to change as conditions evolve. Management will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and that assessment and review could result in further loan loss provisions in future periods.
Operating Expenses
The results for the quarter include $6.6 million in expenses, net of $7.5 million in insurance receivables, from structural damages caused by the hurricanes to branches, buildings and repossessed properties as a result of the hurricanes. An additional $2.9 million in other operating expenses are reflected for costs such as donations, debris removal, fuel for backup generators and other ancillary costs associated with hurricane recovery efforts.
The Corporation has over 200 branches and office buildings and over 2,000 repossessed properties in the areas affected by the hurricanes. While the Corporation has completed a preliminary estimate of the physical damages to these properties, it has been unable to individually examine each of these properties. As the Corporation continues to evaluate the extent of the damage, additional adjustments may be necessary. However, the Corporation believes that given its level of insurance coverage, the estimated impact of damages to these properties should not vary materially.
Revenue Reduction
In addition to the previously mentioned incremental provision and direct operating expenses, results for the three months ended September 30, 2017 were impacted by the hurricanes in the form of a reduction in revenue resulting from reduced merchant transaction activity, the waiver of certain late fees and service charges, including ATM transaction fees, to businesses and consumers in hurricane-affected areas, as well as the economic and operational disruption in the Corporation’s mortgage origination, servicing and loss mitigation activities due to the hurricanes’ operational and economic impact. The impact on transactional and collection based revenues has continued into the fourth quarter and the amount will depend on the speed at which electricity, telecommunications and general merchant services can be restored across the region.
Note 3 – Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated interim financial statements have been prepared without audit. The consolidated statement of financial condition data at December 31, 20162017 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 reclassifications have been made to the 2017 Consolidated Financial Statements and notes to the financial statements to conform to the 2018 presentation.
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, 2016,2017, included in the Corporation’s 20162017 Form10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Business Combination
The Corporation determined that the acquisition of certain assets and assumption of certain liabilities in connection with the Reliable Transaction constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805 “Business Combinations”. The assets and liabilities, both tangible and intangible, were initially recorded at their estimated fair values. Fair values were determined based on the requirements of FASB ASC Topic 820 “Fair Value Measurements”. These fair value estimates are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair value becomes available. Acquisition-related costs are expensed as incurred. Refer to Note 4, Business combination, for additional information of assets acquired and liabilities assumed in connection with the Transaction.
Note 43 – New accounting pronouncements
Recently Adopted Accounting Standards Updates
FASB Accounting Standards Update (“ASU”)2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Liabilities
The FASB issued ASU2018-03 in February 2018, which clarifies certain aspects of the guidance in ASU2016-01, principally related to equity securities without a readily determinable fair value.
The Corporation was not impacted by these technical corrections and improvements upon adoption of this ASU.
FASB Accounting Standards Update (“ASU”)2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
The FASB issued ASU2017-07 in March 2017, which requires that an employer disaggregate the service cost component from the other components of net benefit cost of pension and postretirement benefit plans. The amendments also provide guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization.
As a result of the adoption of this accounting pronouncement, the Corporation recognized $6.7 million during the nine months ended September 30, 2018 (September 30, 2017—$5.6 million) as components of net periodic benefit cost other than service cost in the other operating expenses caption, which would have otherwise previously been recognized as personnel cost. The presentation for prior periods has been adjusted to reflect the new classification. Effective January 1, 2018, these expenses are no longer capitalized as part of loan origination costs.
FASB Accounting Standards Update (“ASU”)2017-05, Other Income– Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
The FASB issued ASU2017-05 in February 2017, which, among other things, clarifies the scope of the derecognition of nonfinancial assets, the definition of in substance financial assets, and impacts the accounting for partial sales of nonfinancial assets by requiring full gain recognition upon the sale.
The adoption of this standard during the first quarter of 2018 did not have a material impact on the Corporation’s financial statements.
FASB Accounting Standards Update (“ASU”)2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
The FASB issued ASU2017-01 in January 2017, which revises the definition of a business by providing an initial screen to determine when an integrated set of assets and activities (“set”) is not a business. Also, the amendments, among other things, specify the minimum inputs and processes required for a set to meet the definition of a business when the initial screen is not met and narrow the definition of the term output so that the term is consistent with Topic 606.
The Corporation adopted ASU2017-01 during the first quarter of 2018. As such, the Corporation will consider this guidance in any business combinations completed after the effective date. Refer to Note 4, Business combination, for additional information on assets acquired and liabilities assumed in connection with the Reliable Transaction.
FASB Accounting Standards Update (“ASU”)2016-18, Statement of Cash Flows (Topic 230): Restricted Cash
The FASB issued ASU2016-18 in November 2016, which requires entities to present the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance also requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet if restricted cash and restricted cash equivalents are presented in a different line item in the balance sheet.
As a result of the adoption of this accounting pronouncement, the Corporation included restricted cash and restricted cash equivalents within money market investments of $11.2 million at September 30, 2018 (September 30, 2017—$8.9 million) in the Consolidated Statements of Cash Flows. In addition, the Corporation presented a reconciliation of the totals in the Consolidated Statements of Cash Flows to the related captions in the Consolidated Statements of Condition in Note 33, Supplemental disclosure on the consolidated statements of cash flows.
FASB Accounting Standards Update (“ASU”)2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
The FASB issued ASU2016-16 in October 2016, which eliminates the exception for all intra-entity sales of assets other than inventory that requires deferral of the tax effects until the transferred asset is sold to a third party or otherwise recovered through use. The new guidance requires a reporting entity to recognize the tax impact from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though thepre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer.
As a result of the adoption of this accounting pronouncement during the first quarter of 2018, the Corporation recorded a positive cumulative effect adjustment of $1.3 million to retained earnings to reflect the net tax benefit resulting from intra-entity sales of assets.
FASB Accounting Standards Update (“ASU”)2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
The FASB issued ASU2016-15 in August 2016, which addresses specific cash flow issues with the objective of reducing existing diversity in practice, which may lead to a difference in the classification of transactions between operating, financing or investing activities. Among other things, the guidance provides an accounting policy election for classifying distributions received from equity method investees and clarifies the application of the predominance principle.
As a result of the adoption of this accounting pronouncement, the Corporation reclassified from investing to operating activities $0.5 million in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 as a result of electing the cumulative earnings approach for classifying distributions received from equity investees.
FASB Accounting Standards Updates (“ASUs”), Revenue from Contracts with Customers (Topic 606)
The FASB has issued a series of ASUs which, among other things, clarify the principles for recognizing revenue and develop a common revenue standard. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services, that is, the satisfaction of performance obligations, to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. A five-step process is defined to achieve this core principle. The new guidance also requires disclosures to enable users of financial statements to understand the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Corporation adopted this accounting pronouncement during the first quarter of 2018 using the modified retrospective approach. The Corporation elected the practical expedient that permits an entity to expense incremental costs of obtaining contracts, given the amortization periods were one year or less. There were no material changes in the presentation and timing of when revenues are recognized. ASC Topic 606 was applied to contracts that were not completed as of January 1, 2018. There was no impact in the evaluation of these contracts. Refer to additional disclosures on Note 28, Revenue from contracts with customers.
FASB Accounting Standards Update (“ASU”)2016-01, Financial Instruments—Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
The FASB issued ASU2016-01 in January 2016, which primarily affects the accounting for equity investments and financial liabilities under the fair value option as follows: require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; simplify the impairment assessment of equity investments without readily determinable fair values; require changes in fair value due to instrument-specific credit risk to be presented separately in other comprehensive income for financial liabilities under the fair value option; and clarify that the need for a valuation allowance on a deferred tax asset related toavailable-for-sale securities should be evaluated in combination with the entity’s other deferred tax assets. In addition, the ASU also impacts the presentation and disclosure requirements of financial instruments.
As a result of the adoption of this accounting pronouncement during the first quarter of 2018, the Corporation aggregated $11 million previously classified asavailable-for-sale and as trading to those under the other investment securities caption and reclassified under the caption of equity securities. In addition, a positive cumulative effect adjustment of $0.6 million was recognized due to the reclassification of unrealized gains of equity securitiesavailable-for-sale, net of tax, from accumulated other comprehensive loss to retained earnings.
The adoption ofFASB Accounting Standards Update (“ASU”)2017-09, Compensation– Stock Compensation (Topic 718): Scope of Modification Accounting, effective during the first quarter of 2018, did not have a significant impact on the Consolidated Financial Statements.
Recently Issued Accounting Standards Updates
FASB Accounting Standards Update (“ASU”)2017-12,2018-18, DerivativesCollaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging ActivitiesTopic 606
The FASB issued ASU2017-122018-18 in August 2017,November 2018 which, makes more financial and nonfinancial hedging strategies eligible for hedge accounting and changes how companies assess effectiveness by, among other things, eliminating the requirementprovides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for entities to recognize hedge ineffectiveness each reporting period for cash flow hedges and requiring presentation of the changes in fair value of cash flow hedges in the same income statement line item(s) as the earnings effect of the hedged items when the hedged item affects earnings.under Topic 606.
The amendments in this UpdateASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early2019, with early adoption is permitted. The amendments in this Update should be applied using a modified retrospective approach as of the adoption date.
The Corporation will be impacted by the simplified application of hedge accounting. The Corporation does not anticipate that the adoption of this accounting pronouncement willexpect to be impacted by these amendments since it does not have a material effect on its consolidated statements of financial condition and results of operations since hedge ineffectiveness has been immaterial to the Corporationand the earnings effect of the hedges and the hedged items are already presented in the same income statement line item.collaborative arrangements.
FASB Accounting Standards Update (“ASU”)2017-11,2018-17, Earnings per ShareConsolidation (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)810): Part I: AccountingTargeted Improvements to Related Party Guidance for Certain Financial Instruments with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain NonpublicVariable Interest Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception
The FASB issued ASU2017-112018-17 in July 2017,October 2018, which changesrequires entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the classification analysisequivalent of certain equity-linked financial instruments with down round features. Whena direct interest in its entirety when determining whether these instruments should be classified as liabilities or equity, a down round feature no longer precludes equity classification when assessing whether the instrumentdecision-making fee is indexed to an entity’s own stock. For EPS purposes, the effect of the down round feature should be recognized as a dividend when triggered.variable interest.
The amendments in this UpdateASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early2019, with early adoption permitted. These amendments should be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.
The Corporation does not expect to be materially impacted by these amendments.
FASB Accounting Standards Update (“ASU”)2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
The FASB issued ASU2018-16 in October 2018 which permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to other permissible U.S. benchmark rates.
The amendments in this ASU are required to be adopted concurrently with the amendments in ASU2017-12, which are effective in the first quarter of 2019. The amendments should be adopted on a prospective basis for qualifying new orre-designated hedging relationships entered into on or after the date of adoption.
The Corporation will consider this guidance for qualifying new hedging relationships entered into on or after the effective date.
FASB Accounting Standards Update (“ASU”)2018-15, Intangibles – Goodwill and Other –Internal-Use Software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
The FASB issued ASU2018-15 in August 2018 which, among other things, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software, and clarifies the term over which such capitalized implementation costs should be amortized.
The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.
The Corporation does not expect to be materially impacted by these amendments.
FASB Accounting Standards Update (“ASU”)2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans
The FASB issued ASU2018-14 in August 2018, which modifies the disclosure requirements for employers that sponsor defined benefit pension or postretirement plans. The most significant changes include the removal of the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of aone-percentage point change in assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic benefit costs and benefit obligation for postretirement health care benefits. In addition, certain disclosure requirements were added which include, but are not limited to, an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
The amendments in this ASU are effective for fiscal years ending after December 15, 2020, with early adoption permitted. The amendments in this Update mayASU should be applied using eitheron a modified retrospective approach or a full retrospective approach.basis to all periods presented.
Upon adoption of this standard, the Corporation will be impacted principally by the simplified disclosures on defined benefit plans.
FASB Accounting Standards Update (“ASU”)2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
The FASB issued ASU2018-13 in August 2018, which modifies the disclosure requirements on fair value measurements. The most significant changes include, among other things, the removal of the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. In addition, certain disclosure requirements were added, which include but are not limited to, how the weighted average of significant unobservable inputs used to develop Level 3 fair value measurements was calculated.
The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.
Upon adoption of this standard, the Corporation will be impacted principally by the simplified disclosures on fair value measurements.
FASB Accounting Standards Update (“ASU”)2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
The FASB issued ASU2018-12 in August 2018, which makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance entity.
The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.
The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effectsignificant impact on its consolidated statements of financial condition and results of operations since it does not have any outstanding equity-linked financial instruments with a down round feature.Consolidated Financial Statements.
FASB Accounting Standards Update (“ASU”)2017-09,2018-11, Compensation– Stock CompensationLeases (Topic 718)842): Scope of Modification AccountingTargeted Improvements
The FASB issued ASU2017-092018-11 in May 2017,July 2018, which clarifiesprovides entities with an additional and optional transition method that modification accounting is required only ifallows entities to apply the fair value, the vesting conditions, or the classificationtransition provisions of the award (as equity or liability) changes asnew leases standard at the adoption date, instead of at the earliest comparative period presented. If elected, comparative periods will continue to be presented in accordance with ASC Topic 840. Also, the amendments provide lessors with a resultpractical expedient, by class of the change in terms or conditions.underlying asset, to not separate nonlease components, subject to certain circumstances.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.
The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since it is not customary for the Corporation to modify the terms or conditions of its share-based payment awards.
FASB Accounting Standards Update (“ASU”)2017-08, Receivables– Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities
The FASB issued ASU2017-08 in March 2017, which amends the amortization period for certain callable debt securities held at a premium by shortening such period to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments in this Update should be applied on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.
The Corporation will elect this optional transition method to initially apply the new leases standard as of January 1, 2019. On the other hand, the Corporation does not anticipate thatexpect to elect the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since the premium of purchased callable debt securities is not significant.practical expedient provided to lessors.
FASB Accounting Standards Update (“ASU”)2017-07,2018-10, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostCodification Improvements to Topic 842, Leases
The FASB issued ASU2017-072018-10 in March 2017,July 2018, which requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide guidance onmakes various technical corrections to clarify how to presentapply certain aspects of the service cost componentnew leases standard such as lease reassessment of lease classification, variable lease payments that depend on an index or a rate, lease term and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization.purchase option, certain transition adjustments, among others.
The amendments in this UpdateASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and other components of net benefit cost and prospectively for the capitalization of the service cost component.2018.
The Corporation does not expect that the limitation to capitalize only the service cost component of the net periodic benefit cost will have a material impact on its consolidated statement of operations. Upon adoption, the Corporation will segregate the presentation of the service cost from the other components of net periodic benefit costs, all which are currently reported within personnel costs in its accompanying consolidated statement of operations.be materially impacted by these Codification improvements.
FASB Accounting Standards Update (“ASU”)2016-13,2018-09, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsCodification Improvements
The Corporation has continued its evaluation and implementation effortsFASB issued ASU2018-09 in July 2018, which makes various codification improvements in the areas of excess tax benefits on share-based compensation awards, income tax accounting for ASU2016-13, Financial Instruments – Credit Losses, and has established a cross-discipline governance structure. A Current Expected Credit Losses (“CECL”) Working Group, with members from different areas within the organization, has been created and assigned the responsibility of assessing the impact of the standard, evaluating interpretative issues, evaluating the current credit loss models against the new guidance to determine any changes necessary and other related implementation activities. The Working Group provides periodic updates to the CECL Steering Committee, which has oversight responsibilities for the implementation efforts.business combinations, derivatives offsetting, liability or equity-classified financial instruments, among others.
The Corporation plansamendments in this ASU are effective immediately, except for amendments that require transition guidance, which are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018; and amendments to adopt ASU2016-13guidance not yet effective which are effective on January 1, 2020 using a modified retrospective approach. Although early adoption is permitted beginning in the first quarter of 2019,same date as the original Updates.
The Corporation does not expect to makebe materially impacted by these Codification improvements.
FASB Accounting Standards Update (“ASU”)2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
The FASB issued ASU2018-07 in June 2018, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, although differences remain in the accounting for attribution and a contractual term election for valuing nonemployee equity share options.
The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.
The Corporation does not expect to be impacted by these amendments since it does not enter into share-based payment transactions for acquiring goods and services from nonemployees.
FASB Accounting Standards Update (“ASU”)2018-06, Codification Improvements to Topic 942, Financial Services – Depository and Lending
The FASB issued ASU2018-06 in May 2018, which removes outdated guidance related to the Comptroller of the Currency’s Banking Circular 202, “Accounting for Net Deferred Taxes” in ASC Topic 942.
The amendments in this ASU were effective upon issuance of the Update. The Corporation was not impacted by this Codification improvement.
FASB Accounting Standards Update (“ASU”)2016-02, Leases (Topic 842)
The FASB issued ASU2016-02 in February 2016, which supersedes ASC Topic 840 and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessors and lessees. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record aright-of-use asset (“ROU”) and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that election.is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.
The amendments of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.
The ASU is expected to impact the Corporation’s Consolidated Financial Statements since the Corporation has operating and land lease arrangements for which it is the lessee. The Corporation expects an increase into recognize lease liabilities of approximately $0.2 billion, with a corresponding recognition of ROU assets on its allowance for loan and lease losses due to the consideration of lifetime credit losses as part of the calculation. operating leases.
For additional information on ASU2016-13 and other recently issued Accounting Standards Updates not yet effective, refer to Note 34 to the Consolidated Financial Statements included in the 20162017 Form10-K.
FASB Accounting Standards Updates
On August 1, 2018, Popular Auto, LLC (“ASUs”Popular Auto”), Revenue from ContractsBanco Popular de Puerto Rico’s auto finance subsidiary, completed the acquisition of certain assets and the assumption of certain liabilities related to Wells Fargo & Company’s (“Wells Fargo”) auto finance business in Puerto Rico (“Reliable”). Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. Reliable will continue operating as a Division of Popular Auto in parallel with Customers (Topic 606)Popular Auto’s existing operations for a period after closing to provide continuity of service to Reliable customers while allowing Popular to assess best practices before completing the integration of the two operations.
Wells Fargo retained approximately $398 million in retail auto loans and has separately entered into a loan servicing agreement with Popular Auto with respect to such loans.
Popular entered into the Transaction as part of its growth strategy to increase its market share in the auto finance business in Puerto Rico.
The Corporation’s implementation efforts regarding ASU2014-09, Revenue from Contracts with Customers, have included a scoping analysisfollowing table presents the fair values of revenue streamsthe consideration and major classes of identifiable assets acquired and liabilities assumed by the Corporation as of August 1, 2018.
(In thousands) | Book value prior to purchase accounting adjustments | Fair value adjustments | As recorded by Popular, Inc. | |||||||||
Cash consideration | $ | 1,843,256 | $ | — | $ | 1,843,256 | ||||||
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Assets: | ||||||||||||
Loans | 1,912,866 | (126,908 | )[1] | 1,785,958 | ||||||||
Premises and equipment | 1,246 | — | 1,246 | |||||||||
Accrued income receivable | 1,466 | — | 1,466 | |||||||||
Other assets | 5,020 | — | 5,020 | |||||||||
Trademark | — | 488 | 488 | |||||||||
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Total assets | $ | 1,920,598 | $ | (126,420 | ) | $ | 1,794,178 | |||||
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Liabilities: | ||||||||||||
Other liabilities | $ | 11,164 | $ | — | $ | 11,164 | ||||||
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Total liabilities | $ | 11,164 | $ | — | $ | 11,164 | ||||||
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Net assets acquired | $ | 1,909,434 | $ | (126,420 | ) | $ | 1,783,014 | |||||
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Goodwill on acquisition | $ | 60,242 | ||||||||||
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[1] The fair value discount is comprised of $118 million related costs, reviewingto the associated contracts, evaluatingretail auto loans portfolio and $9 million related to the timingcommercial loans portfolio.
The fair values initially assigned to the assets acquired and liabilities assumed are preliminary and are subject to refinement for up to one year after the closing date of when revenues are currently being recognized in lightthe acquisition as new information relative to closing date fair values becomes available. Because of when the performance obligations are fulfilledshort time period between the August 1, 2018 closing of the transaction and assessing principal vs. agent considerations. The Corporation does not expect material changes in the timing of when revenues are recognized upon the adoption of this standard. Nonetheless,September 30, 2018 reporting date, the Corporation continues to evaluate certain costs, including card interchange transactions,analyze its estimates of fair value on loans acquired. As the Corporation finalizes its analyses, there may be adjustments to the recorded carrying values, and thus the recognized goodwill may increase or decrease.
Following is a description of the methods used to determine if these should be presentedthe fair values of significant assets acquired on the Reliable Transaction:
Loans
Retail Auto Loans
Fair values for retail auto loans were based on a gross basis ordiscounted cash flow methodology. Aggregation into pools considered characteristics such as an offsetpayment terms, remaining terms, and credit quality. Principal and interest projections considered prepayment rates and credit loss expectations. The discount rates were developed based on the relative risk of the cash flows as of the valuation date, taking into account the expected life of the loans. Retail auto loans were accounted for under ASC Subtopic310-20. As of August 1, 2018, contractual cash flows amounted to $1.8 billion, from which $112 million are not expected to be collected.
Commercial Loans
Fair values for commercial loans were based on a probability of default/loss given default (“PD/LGD”) methodology. The PD was determined based on characteristics such as payment terms, remaining terms, and credit quality. Commercial loans were accounted for under ASC Subtopic310-20. As of August 1, 2018, contractual cash flows amounted to $348 million, from which $8 million are not expected to be collected.
Goodwill
The amount of goodwill is the corresponding revenues. Althoughresidual difference between the consideration transferred to Wells Fargo and the fair value of the assets acquired, net of the liabilities assumed. The goodwill is deductible for income tax purposes.
Trademark
The fair value of the Reliable trademark was calculated using the relief-from-royalty method. The Reliable trademark is subject to amortization, since Popular intends to use the trademark for a limited period of time.
The operating results of the Corporation expects changes onfor the presentationquarter ended September 30, 2018 include the operating results produced by the acquired assets and liabilities assumed for the period of certain costs relatedAugust 1, 2018 to its brokerage, underwritingSeptember 30, 2018. This includes approximately $35.7 million in gross revenues, including $13.4 million in accretion of the fair value discount, and valuation servicesapproximately $8.6 million in its broker-dealer subsidiary, it does not anticipate these changes in presentation to be material to the Corporation’s financial statements.operating expenses, including $3.8 million of transaction-related expenses. The Corporation will adopt this guidance on January 1, 2018 usingbelieves that given the modified retrospective approach.amount of assets and liabilities assumed and the size of the operations acquired in relation to Popular’s operations, the historical results of Reliable are not significant to Popular’s results, and thus no pro forma information is presented.
Note 5 – Restrictions on cash and due from banks and certain securities
The Corporation’s banking subsidiaries, BPPR and BPNA,PB, are required by federal and state 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 $ 1.2$1.5 billion at September 30, 20172018 (December 31, 2016 - 2017—$ 1.21.4 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.
At September 30, 2017,2018, the Corporation held $38$47 million in restricted assets in the form of funds deposited in money market accounts, trading account securities and investmentdebt securities available for sale and equity securities (December 31, 2016 - $312017—$41 million). The amountsrestricted assets held in trading account securities and investmentdebt securities available for sale and equity securities consist primarily of restricted assets held for the Corporation’snon-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.
Note 6 – InvestmentDebt securitiesavailable-for-sale
The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investmentdebt securitiesavailable-for-sale at September 30, 20172018 and December 31, 2016.2017.
At September 30, 2017 | At September 30, 2018 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield | ||||||||||||||||||||||||||||||
U.S. Treasury securities | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | $ | 594,340 | $ | 3 | $ | 863 | $ | 593,480 | 1.01 | % | $ | 3,305,842 | $ | 16 | $ | 6,510 | $ | 3,299,348 | 1.75 | % | ||||||||||||||||||||
After 1 to 5 years | 2,179,553 | 1,276 | 9,446 | 2,171,383 | 1.41 | 4,348,322 | — | 76,258 | 4,272,064 | 2.22 | �� | |||||||||||||||||||||||||||||
After 5 to 10 years | 295,352 | 9 | 4,811 | 290,550 | 2.64 | |||||||||||||||||||||||||||||||||||
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Total U.S. Treasury securities | 2,773,893 | 1,279 | 10,309 | 2,764,863 | 1.32 | 7,949,516 | 25 | 87,579 | 7,861,962 | 2.04 | ||||||||||||||||||||||||||||||
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Obligations of U.S. Government sponsored entities | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 204,201 | 97 | 282 | 204,016 | 1.22 | 220,063 | 1 | 1,081 | 218,983 | 1.46 | ||||||||||||||||||||||||||||||
After 1 to 5 years | 408,988 | 254 | 1,612 | 407,630 | 1.46 | 188,811 | 4 | 4,004 | 184,811 | 1.45 | ||||||||||||||||||||||||||||||
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Total obligations of U.S. Government sponsored entities | 613,189 | 351 | 1,894 | 611,646 | 1.38 | 408,874 | 5 | 5,085 | 403,794 | 1.45 | ||||||||||||||||||||||||||||||
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Obligations of Puerto Rico, States and political subdivisions | ||||||||||||||||||||||||||||||||||||||||
After 1 to 5 years | 6,605 | 10 | — | 6,615 | 2.49 | 6,861 | — | 182 | 6,679 | 1.33 | ||||||||||||||||||||||||||||||
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Total obligations of Puerto Rico, States and political subdivisions | 6,605 | 10 | — | 6,615 | 2.49 | 6,861 | — | 182 | 6,679 | 1.33 | ||||||||||||||||||||||||||||||
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Collateralized mortgage obligations—federal agencies | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 80 | — | — | 80 | 2.74 | |||||||||||||||||||||||||||||||||||
After 1 to 5 years | 17,330 | 273 | 44 | 17,559 | 2.89 | 906 | — | 8 | 898 | 1.92 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 39,546 | 149 | 320 | 39,375 | 2.33 | 115,854 | — | 6,397 | 109,457 | 1.67 | ||||||||||||||||||||||||||||||
After 10 years | 974,289 | 4,276 | 19,982 | 958,583 | 2.00 | 681,359 | 1,208 | 34,310 | 648,257 | 2.10 | ||||||||||||||||||||||||||||||
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Total collateralized mortgage obligations—federal agencies | 1,031,245 | 4,698 | 20,346 | 1,015,597 | 2.03 | 798,119 | 1,208 | 40,715 | 758,612 | 2.03 | ||||||||||||||||||||||||||||||
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Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 740 | 16 | — | 756 | 4.39 | 879 | 11 | — | 890 | 4.46 | ||||||||||||||||||||||||||||||
After 1 to 5 years | 14,721 | 295 | 189 | 14,827 | 3.70 | 4,748 | 23 | 148 | 4,623 | 2.31 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 329,955 | 3,117 | 2,079 | 330,993 | 2.26 | 351,597 | 949 | 11,726 | 340,820 | 2.21 | ||||||||||||||||||||||||||||||
After 10 years | 4,335,400 | 27,249 | 49,699 | 4,312,950 | 2.46 | 3,834,855 | 9,383 | 174,558 | 3,669,680 | 2.43 | ||||||||||||||||||||||||||||||
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Total mortgage-backed securities | 4,680,816 | 30,677 | 51,967 | 4,659,526 | 2.45 | 4,192,079 | 10,366 | 186,432 | 4,016,013 | 2.41 | ||||||||||||||||||||||||||||||
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Equity securities (without contractual maturity) | 985 | 900 | — | 1,885 | 8.22 | |||||||||||||||||||||||||||||||||||
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Other | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 848 | 21 | — | 869 | 3.62 | 556 | 1 | — | 557 | 3.62 | ||||||||||||||||||||||||||||||
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Total other | 848 | 21 | — | 869 | 3.62 | 556 | 1 | — | 557 | 3.62 | ||||||||||||||||||||||||||||||
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Total investment securitiesavailable-for-sale[1] | $ | 9,107,581 | $ | 37,936 | $ | 84,516 | $ | 9,061,001 | 1.99 | % | ||||||||||||||||||||||||||||||
Total debt securitiesavailable-for-sale[1] | $ | 13,356,005 | $ | 11,605 | $ | 319,993 | $ | 13,047,617 | 2.14 | % | ||||||||||||||||||||||||||||||
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[1] | Includes |
(In thousands) U.S. Treasury securities Within 1 year After 1 to 5 years Total U.S. Treasury securities Obligations of U.S. Government sponsored entities Within 1 year After 1 to 5 years After 5 to 10 years Total obligations of U.S. Government sponsored entities Obligations of Puerto Rico, States and political subdivisions After 1 to 5 years After 5 to 10 years After 10 years Total obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations—federal agencies Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total collateralized mortgage obligations—federal agencies Mortgage-backed securities Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total mortgage-backed securities Equity securities (without contractual maturity) Other Within 1 year After 5 to 10 years Total other Total investment securitiesavailable-for-sale[1] At December 31, 2016 Amortized
cost Gross
unrealized
gains Gross
unrealized
losses Fair
value Weighted
average
yield $ 844,002 $ 1,254 $ 28 $ 845,228 1.00 % 1,300,729 214 9,551 1,291,392 1.11 2,144,731 1,468 9,579 2,136,620 1.06 100,050 102 — 100,152 0.98 613,293 710 2,505 611,498 1.38 200 — — 200 5.64 713,543 812 2,505 711,850 1.32 6,419 — 161 6,258 2.89 5,000 — 1,550 3,450 3.80 17,605 — 4,542 13,063 7.09 29,024 — 6,253 22,771 5.60 13 — — 13 1.23 18,524 429 28 18,925 2.89 39,178 428 61 39,545 2.68 1,180,686 6,313 23,956 1,163,043 1.99 1,238,401 7,170 24,045 1,221,526 2.02 55 1 — 56 4.76 19,960 537 43 20,454 3.86 317,185 3,701 1,721 319,165 2.29 3,805,675 28,772 68,790 3,765,657 2.47 4,142,875 33,011 70,554 4,105,332 2.46 1,246 876 — 2,122 7.94 8,539 11 — 8,550 1.78 1,004 31 — 1,035 3.62 9,543 42 — 9,585 1.97 $ 8,279,363 $ 43,379 $ 112,936 $ 8,209,806 1.94 %
At December 31, 2017 | ||||||||||||||||||||
(In thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield | |||||||||||||||
U.S. Treasury securities | ||||||||||||||||||||
Within 1 year | $ | 1,112,791 | $ | 8 | $ | 2,101 | $ | 1,110,698 | 1.06 | % | ||||||||||
After 1 to 5 years | 2,550,116 | — | 26,319 | 2,523,797 | 1.55 | |||||||||||||||
After 5 to 10 years | 293,579 | 281 | 191 | 293,669 | 2.24 | |||||||||||||||
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Total U.S. Treasury securities | 3,956,486 | 289 | 28,611 | 3,928,164 | 1.46 | |||||||||||||||
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Obligations of U.S. Government sponsored entities | ||||||||||||||||||||
Within 1 year | 276,304 | 21 | 818 | 275,507 | 1.26 | |||||||||||||||
After 1 to 5 years | 336,922 | 22 | 3,518 | 333,426 | 1.48 | |||||||||||||||
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Total obligations of U.S. Government sponsored entities | 613,226 | 43 | 4,336 | 608,933 | 1.38 | |||||||||||||||
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Obligations of Puerto Rico, States and political subdivisions | ||||||||||||||||||||
After 1 to 5 years | 6,668 | — | 59 | 6,609 | 2.30 | |||||||||||||||
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Total obligations of Puerto Rico, States and political subdivisions | 6,668 | — | 59 | 6,609 | 2.30 | |||||||||||||||
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Collateralized mortgage obligations - federal agencies | ||||||||||||||||||||
Within 1 year | 40 | — | — | 40 | 2.60 | |||||||||||||||
After 1 to 5 years | 16,972 | 173 | 75 | 17,070 | 2.90 | |||||||||||||||
After 5 to 10 years | 36,186 | 57 | 526 | 35,717 | 2.31 | |||||||||||||||
After 10 years | 914,568 | 2,789 | 26,431 | 890,926 | 2.01 | |||||||||||||||
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Total collateralized mortgage obligations - federal agencies | 967,766 | 3,019 | 27,032 | 943,753 | 2.03 | |||||||||||||||
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Mortgage-backed securities | ||||||||||||||||||||
Within 1 year | 484 | 8 | — | 492 | 4.23 | |||||||||||||||
After 1 to 5 years | 14,599 | 206 | 211 | 14,594 | 3.50 | |||||||||||||||
After 5 to 10 years | 339,161 | 2,390 | 3,765 | 337,786 | 2.21 | |||||||||||||||
After 10 years | 4,385,368 | 19,493 | 69,071 | 4,335,790 | 2.46 | |||||||||||||||
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Total mortgage-backed securities | 4,739,612 | 22,097 | 73,047 | 4,688,662 | 2.44 | |||||||||||||||
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Other | ||||||||||||||||||||
After 5 to 10 years | 789 | 13 | — | 802 | 3.62 | |||||||||||||||
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Total other | 789 | 13 | — | 802 | 3.62 | |||||||||||||||
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Total debt securitiesavailable-for-sale[1] | $ | 10,284,547 | $ | 25,461 | $ | 133,085 | $ | 10,176,923 | 1.96 | % | ||||||||||
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[1] | Includes |
The weighted average yield on investment securitiesavailable-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.
Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified based on the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.
There were no securities sold during the nine months ended September 30, 2018. During the nine months ended September 30, 2017, the Corporation sold equity securities and obligations from the Puerto Rico government and its political subdivisions with a realized gain of $284$83 thousand. The proceeds from these sales were $14.9$14.4 million. There were no securities sold during the nine months ended September 30, 2016.
The following tables present the Corporation’s fair value and gross unrealized losses of investmentdebt securitiesavailable-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 20172018 and December 31, 2016.2017.
(In thousands) U.S. Treasury securities Obligations of U.S. Government sponsored entities Collateralized mortgage obligations—federal agencies Mortgage-backed securities Total investment securitiesavailable-for-sale in an unrealized loss position (In thousands) U.S. Treasury securities Obligations of U.S. Government sponsored entities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations—federal agencies Mortgage-backed securities Total investment securitiesavailable-for-sale in an unrealized loss position At September 30, 2017 Less than 12 months 12 months or more Total Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses $ 2,195,874 $ 10,309 $ — $ — $ 2,195,874 $ 10,309 496,345 1,797 24,139 97 520,484 1,894 364,098 5,401 387,284 14,945 751,382 20,346 3,042,806 44,187 352,342 7,780 3,395,148 51,967 $ 6,099,123 $ 61,694 $ 763,765 $ 22,822 $ 6,862,888 $ 84,516 At December 31, 2016 Less than 12 months 12 months or more Total Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses $ 1,162,110 $ 9,579 $ — $ — $ 1,162,110 $ 9,579 430,273 2,426 3,126 79 433,399 2,505 6,258 161 16,512 6,092 22,770 6,253 505,503 8,112 339,236 15,933 844,739 24,045 3,537,606 70,173 15,113 381 3,552,719 70,554 $ 5,641,750 $ 90,451 $ 373,987 $ 22,485 $ 6,015,737 $ 112,936
At September 30, 2018 | ||||||||||||||||||||||||
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 | $ | 5,699,061 | $ | 57,506 | $ | 1,617,265 | $ | 30,073 | $ | 7,316,326 | $ | 87,579 | ||||||||||||
Obligations of U.S. Government sponsored entities | 62,347 | 135 | 340,364 | 4,950 | 402,711 | 5,085 | ||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | 6,679 | 182 | — | — | 6,679 | 182 | ||||||||||||||||||
Collateralized mortgage obligations—federal agencies | 122,520 | 2,481 | 576,298 | 38,234 | 698,818 | 40,715 | ||||||||||||||||||
Mortgage-backed securities | 973,548 | 35,262 | 2,760,024 | 151,170 | 3,733,572 | 186,432 | ||||||||||||||||||
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Total debt securitiesavailable-for-sale in an unrealized loss position | $ | 6,864,155 | $ | 95,566 | $ | 5,293,951 | $ | 224,427 | $ | 12,158,106 | $ | 319,993 | ||||||||||||
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At December 31, 2017 | ||||||||||||||||||||||||
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 | $ | 2,608,473 | $ | 14,749 | $ | 1,027,066 | $ | 13,862 | $ | 3,635,539 | $ | 28,611 | ||||||||||||
Obligations of U.S. Government sponsored entities | 214,670 | 1,108 | 376,807 | 3,228 | 591,477 | 4,336 | ||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | 6,609 | 59 | — | — | 6,609 | 59 | ||||||||||||||||||
Collateralized mortgage obligations—federal agencies | 153,336 | 2,110 | 595,339 | 24,922 | 748,675 | 27,032 | ||||||||||||||||||
Mortgage-backed securities | 1,515,295 | 12,529 | 2,652,359 | 60,518 | 4,167,654 | 73,047 | ||||||||||||||||||
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Total debt securitiesavailable-for-sale in an unrealized loss position | $ | 4,498,383 | $ | 30,555 | $ | 4,651,571 | $ | 102,530 | $ | 9,149,954 | $ | 133,085 | ||||||||||||
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As of September 30, 2017,2018, the portfolio ofavailable-for-sale investment portfoliodebt securities reflects gross unrealized losses of approximately $85$320 million, driven mainly by mortgage-backed securities, U.S. Treasury Securities, Collateralized Mortgage Obligations,securities, and Mortgage Backed Securities.collateralized mortgage obligations.
Management evaluates investmentdebt securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.
During the third quarter of 2017,At September 30, 2018, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analysis performed, management concluded that no individual debt security was other-than-temporarily-impairedother-than-temporarily impaired as of such date. During the quarter ended on June 30, 2017, the Corporation recognized an other-than-temporary impairment charge of $8.3 million on Puerto Rico Sales Tax Financing Corporation (“COFINA”) bonds classified asavailable-for-sale. These were subsequently sold by the Corporation during the third quarter of 2017, at a gain of approximately $0.1 million.
At September 30, 2017,2018, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it was not more likely than not that the Corporation would have to sell the investmentsdebt securities prior to recovery of their amortized cost basis.
During the third quarter of 2016, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analysis performed, management concluded that no individual debt security was other-than-temporarily-impaired as such date. During the quarter ended on June 30, 2016 the Corporation recognized an other-temporary-impairment charge of $209 thousand on an investment securityavailable-for-sale classified as obligations from Puerto Rico government and its political subdivisions. The security was sold during the fourth quarter of 2016.
The following table states the name of issuers, and the aggregate amortized cost and fair value of the debt securities of such issuer (includesavailable-for-sale andheld-to-maturity debt securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes debt securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.
September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
(In thousands) | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | ||||||||||||||||||||||||
FNMA | $ | 3,531,694 | $ | 3,502,711 | $ | 3,255,844 | $ | 3,211,443 | $ | 3,132,301 | $ | 2,993,841 | $ | 3,621,537 | $ | 3,572,474 | ||||||||||||||||
Freddie Mac | 1,397,117 | 1,383,523 | 1,381,197 | 1,361,933 | 1,119,833 | 1,066,880 | 1,358,708 | 1,335,685 | ||||||||||||||||||||||||
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Note 7 – Investment–Debt securitiesheld-to-maturity
The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investmentdebt securitiesheld-to-maturity at September 30, 20172018 and December 31, 2016.2017.
At September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Weighted | ||||||||||||||||||||||||||||||||||||||
At September 30, 2017 | Amortized | unrealized | unrealized | Fair | average | |||||||||||||||||||||||||||||||||||
(In thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield | cost | gains | losses | value | yield | ||||||||||||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | $ | 3,295 | $ | — | $ | 1,835 | $ | 1,460 | 5.97 | % | $ | 3,510 | $ | 8 | $ | 3 | $ | 3,515 | 6.00 | % | ||||||||||||||||||||
After 1 to 5 years | 15,485 | — | 7,142 | 8,343 | 6.05 | 16,505 | 497 | 1 | 17,001 | 6.07 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 29,240 | — | 13,145 | 16,095 | 3.89 | 23,885 | 1,127 | 575 | 24,437 | 3.61 | ||||||||||||||||||||||||||||||
After 10 years | 44,349 | 3,660 | 447 | 47,562 | 1.94 | 45,221 | 3,004 | 219 | 48,006 | 1.87 | ||||||||||||||||||||||||||||||
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Total obligations of Puerto Rico, States and political subdivisions | 92,369 | 3,660 | 22,569 | 73,460 | 3.39 | 89,121 | 4,636 | 798 | 92,959 | 3.28 | ||||||||||||||||||||||||||||||
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Collateralized mortgage obligations - federal agencies | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 69 | 4 | — | 73 | 5.45 | 56 | 3 | — | 59 | 5.45 | ||||||||||||||||||||||||||||||
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Total collateralized mortgage obligations - federal agencies | 69 | 4 | — | 73 | 5.45 | 56 | 3 | — | 59 | 5.45 | ||||||||||||||||||||||||||||||
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Trust preferred securities | ||||||||||||||||||||||||||||||||||||||||
After 10 years | 11,561 | — | — | 11,561 | 6.51 | |||||||||||||||||||||||||||||||||||
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Total trust preferred securities | 11,561 | — | — | 11,561 | 6.51 | |||||||||||||||||||||||||||||||||||
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Other | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 500 | — | 13 | 487 | 1.96 | |||||||||||||||||||||||||||||||||||
After 1 to 5 years | 500 | — | 8 | 492 | 2.97 | 500 | — | 5 | 495 | 2.97 | ||||||||||||||||||||||||||||||
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Total other | 1,000 | — | 21 | 979 | 2.47 | 500 | — | 5 | 495 | 2.97 | ||||||||||||||||||||||||||||||
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Total investment securitiesheld-to-maturity[1] | $ | 93,438 | $ | 3,664 | $ | 22,590 | $ | 74,512 | 3.38 | % | ||||||||||||||||||||||||||||||
Total debt securitiesheld-to-maturity[1] | $ | 101,238 | $ | 4,639 | $ | 803 | $ | 105,074 | 3.65 | % | ||||||||||||||||||||||||||||||
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[1] | Includes |
At December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Weighted | ||||||||||||||||||||||||||||||||||||||
At December 31, 2016 | Amortized | unrealized | unrealized | Fair | average | |||||||||||||||||||||||||||||||||||
(In thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield | cost | gains | losses | value | yield | ||||||||||||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | $ | 3,105 | $ | — | $ | 1,240 | $ | 1,865 | 5.90 | % | $ | 3,295 | $ | — | $ | 79 | $ | 3,216 | 5.96 | % | ||||||||||||||||||||
After 1 to 5 years | 14,540 | — | 5,957 | 8,583 | 6.02 | 15,485 | — | 4,143 | 11,342 | 6.05 | ||||||||||||||||||||||||||||||
After 5 to 10 years | 18,635 | — | 7,766 | 10,869 | 6.20 | 29,240 | — | 8,905 | 20,335 | 3.89 | ||||||||||||||||||||||||||||||
After 10 years | 59,747 | 1,368 | 8,892 | 52,223 | 1.91 | 44,734 | 3,834 | 222 | 48,346 | 1.93 | ||||||||||||||||||||||||||||||
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Total obligations of Puerto Rico, States and political subdivisions | 96,027 | 1,368 | 23,855 | 73,540 | 3.49 | 92,754 | 3,834 | 13,349 | 83,239 | 3.38 | ||||||||||||||||||||||||||||||
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Collateralized mortgage obligations - federal agencies | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 74 | 4 | — | 78 | 5.45 | 67 | 4 | — | 71 | 5.45 | ||||||||||||||||||||||||||||||
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Total collateralized mortgage obligations - federal agencies | 74 | 4 | — | 78 | 5.45 | 67 | 4 | — | 71 | 5.45 | ||||||||||||||||||||||||||||||
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Trust preferred securities | ||||||||||||||||||||||||||||||||||||||||
After 5 to 10 years | 1,637 | — | — | 1,637 | 8.33 | |||||||||||||||||||||||||||||||||||
After 10 years | 11,561 | — | — | 11,561 | 6.51 | |||||||||||||||||||||||||||||||||||
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Total trust preferred securities | 13,198 | — | — | 13,198 | 6.73 | |||||||||||||||||||||||||||||||||||
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Other | ||||||||||||||||||||||||||||||||||||||||
Within 1 year | 1,000 | — | 3 | 997 | 1.65 | 500 | — | 7 | 493 | 1.96 | ||||||||||||||||||||||||||||||
After 1 to 5 years | 1,000 | — | 39 | 961 | 2.44 | 500 | — | — | 500 | 2.97 | ||||||||||||||||||||||||||||||
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Total other | 2,000 | — | 42 | 1,958 | 2.05 | 1,000 | — | 7 | 993 | 2.47 | ||||||||||||||||||||||||||||||
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Total investment securitiesheld-to-maturity[1] | $ | 98,101 | $ | 1,372 | $ | 23,897 | $ | 75,576 | 3.46 | % | ||||||||||||||||||||||||||||||
Total debt securitiesheld-to-maturity[1] | $ | 107,019 | $ | 3,838 | $ | 13,356 | $ | 97,501 | 3.79 | % | ||||||||||||||||||||||||||||||
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[1] | Includes |
SecuritiesDebt 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.
The following tables present the Corporation’s fair value and gross unrealized losses of investmentdebt securitiesheld-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 20172018 and December 31, 2016.2017.
(In thousands) Obligations of Puerto Rico, States and political subdivisions Other Total investment securitiesheld-to-maturity in an unrealized loss position (In thousands) Obligations of Puerto Rico, States and political subdivisions Other Total investment securitiesheld-to-maturity in an unrealized loss position At September 30, 2017 Less than 12 months 12 months or more Total Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses $ 6,981 $ 77 $ 26,553 $ 22,492 $ 33,534 $ 22,569 492 8 237 13 729 21 $ 7,473 $ 85 $ 26,790 $ 22,505 $ 34,263 $ 22,590 At December 31, 2016 Less than 12 months 12 months or more Total Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses Fair
value Gross
unrealized
losses $ 31,294 $ 1,702 $ 30,947 $ 22,153 $ 62,241 $ 23,855 491 9 1,217 33 1,708 42 $ 31,785 $ 1,711 $ 32,164 $ 22,186 $ 63,949 $ 23,897
At September 30, 2018 | ||||||||||||||||||||||||
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 | ||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | $ | 17,359 | $ | 219 | $ | 14,431 | $ | 579 | $ | 31,790 | $ | 798 | ||||||||||||
Other | — | — | 495 | 5 | 495 | 5 | ||||||||||||||||||
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Total debt securitiesheld-to-maturity in an unrealized loss position | $ | 17,359 | $ | 219 | $ | 14,926 | $ | 584 | $ | 32,285 | $ | 803 | ||||||||||||
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At December 31, 2017 | ||||||||||||||||||||||||
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 | ||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | $ | — | $ | — | $ | 35,696 | $ | 13,349 | $ | 35,696 | $ | 13,349 | ||||||||||||
Other | — | — | 743 | 7 | 743 | 7 | ||||||||||||||||||
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Total debt securitiesheld-to-maturity in an unrealized loss position | $ | — | $ | — | $ | 36,439 | $ | 13,356 | $ | 36,439 | $ | 13,356 | ||||||||||||
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As indicated in Note 6 to these Consolidated Financial Statements, management evaluates investmentdebt securities for OTTI declines in fair value on a quarterly basis.
The “Obligations of Puerto Rico, States and political subdivisions” classified asheld-to-maturity at September 30, 20172018 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $49$45 million of general and special obligation bonds issued by three municipalities of Puerto Rico, which are payable primarily from, and have a lien on, certain property taxes imposed by the issuing municipality. 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 and issuing municipalities are required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligations bonds.
The portfolio also includes approximately $43$44 million in securities for which the underlying source of payment is not the central government, but in which a government instrumentality provides a guarantee in the event of default. The Corporation performs periodic credit quality reviews on these issuers. Based on the quarterly analysis performed, management concluded that no individual debt securityheld-to-maturity was other-than-temporarily impaired at September 30, 2017.2018. Further deterioration of the Puerto Rico economy or of the fiscal crisis of the Government of Puerto Rico or(including if any of Puerto Rico’s economythe 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. The Corporation does not have the intent to sell debt securitiesheld-to-maturity and it is more likely than not that the Corporation will not have to sell these investment securities prior to recovery of their amortized cost basis.
Refer to Note 22for additional information on the Corporation’s exposure to the Puerto Rico Government.
Loans acquired in the Westernbank FDIC-assisted transaction, except for lines of credit with revolving privileges, are accounted for by the Corporation in accordance with ASC Subtopic310-30. Under ASC Subtopic310-30, the acquired loans were aggregated into pools based on similar characteristics. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The loans which are accounted for under ASC Subtopic310-30 by the Corporation are not considerednon-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation measures additional losses for this portfolio when it is probable the Corporation will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Lines of credit with revolving privileges that were acquired as part of the Westernbank FDIC-assisted transaction are accounted for under the guidance of ASC Subtopic310-20, which requires that any differences between the contractually required loan payment receivable in excess of the Corporation’s initial investment in the loans be accreted into interest income. Loans accounted for under ASC Subtopic310-20 are placed innon-accrual status when past due in accordance with the Corporation’snon-accruing policy and any accretion of discount is discontinued.
The risks on loans acquired in the FDIC-assisted transaction are significantly different from the risks on loans not covered under the FDIC loss sharing agreements because of the loss protection provided by the FDIC. Accordingly, the Corporation presents loans subject to the loss sharing agreements as “covered loans” in the information below and loans that are not subject to the FDIC loss sharing agreements as“non-covered loans”. The FDIC loss sharing agreements expired on June 30, 2015 for commercial (including construction) and consumer loans, and expires on June 30, 2020 for single-family residential mortgage loans, as explained in Note 10.
For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2—3 - Summary of significant accounting policies of the 20162017 Form10-K.
The Corporation has presented the loans covered by the loss-sharing agreements with the FDIC separately as “covered loans” since the risk of loss was significantly different than those not covered under the loss-sharing agreements, due to the loss protection provided by the FDIC. As discussed in Note 10, on May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. As a result of the Termination Agreement, assets that were covered by the loss share agreement, including covered loans in the amount of approximately $514.6 million as of March 31, 2018, were reclassified asnon-covered. The Corporation now recognizes entirely all future credit losses, expenses, gains, and recoveries related to the formerly covered assets with no offset due to or from the FDIC.
As previously disclosed in Note 4, as a result of the Reliable Transaction completed on August 1, 2018, Popular Auto, LLC, acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. These loans are included in the information presented in this note.
During the quarter and nine months ended September 30, 2018, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $147 million and $480 million, respectively and consumer loans of $48 million and $152 million, respectively. During the quarter and nine months ended September 30, 2017, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $104 million and $364 million, respectively; consumer loans of $133 million and $283 million, respectively; and leases of $2 million, for the nine months ended September 30, 2017. During the quarter and nine months ended September 30, 2016, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $118 million and $358 million, respectively; consumer loans of $164 million and commercial loans amounting to $51 million during the nine months ended September 30, 2016.
The Corporation performed whole-loan sales involving approximately $9$19 million and $63$45 million of residential mortgage loans during the quarter and nine months ended September 30, 2017,2018, respectively (September 30, 2016—$132017 - $9 million and $53$63 million, respectively). Excluding the bulk sale of Westernbank loans with a carrying value of approximately $100 million, the Corporation sold commercial and construction loans with a carrying value of approximately $38 million and $39 million during the quarter and nine months ended September 30, 2016, respectively. Also, the Corporation securitized approximately $ 86$110 million and $ 369$320 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2017,2018, respectively (September 30, 2016—$ 1612017 - $86 million and $ 465$369 million, respectively). Furthermore, the Corporation securitized approximately $ 21$26 million and $ 86$72 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2017,2018, respectively (September 30, 20162017 - $ 50$21 million and $ 129$86 million, respectively). The disruption in our operations over the last 10 days of the quarter impacted the volume of loan sales and securitizations.
Non-covered loansDelinquency status
The following table presents the composition ofnon-covered loansheld-in-portfolio (“HIP”), net of unearned income, by past due status, at September 30, 2017 and December 31, 2016, including loans previously covered by the commercial FDIC loss sharing agreements.
September 30, 2017 Puerto Rico (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Credit cards Home equity lines of credit Personal Auto Other Total September 30, 2017 U.S. mainland (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Legacy Consumer: Credit cards Home equity lines of credit Personal Auto Other Total Past due Non-covered 30-59 60-89 90 days Total loans HIP days days or more past due Current Puerto Rico $ 108 $ 157 $ 1,060 $ 1,325 $ 145,226 $ 146,551 39,076 10,571 34,234 83,881 2,440,914 2,524,795 24,283 8,107 103,379 135,769 1,536,504 1,672,273 5,708 1,806 45,993 53,507 2,772,485 2,825,992 — — 269 269 87,436 87,705 583,383 221,646 856,307 1,661,336 4,154,169 5,815,505 12,990 4,543 2,684 20,217 734,664 754,881 17,523 9,863 20,626 48,012 1,035,234 1,083,246 117 243 48 408 5,716 6,124 24,363 10,640 20,247 55,250 1,159,081 1,214,331 44,331 18,933 12,259 75,523 746,481 822,004 575 357 16,491 17,423 147,242 164,665 $ 752,457 $ 286,866 $ 1,113,597 $ 2,152,920 $ 14,965,152 $ 17,118,072 Past due 30-59 60-89 90 days Total Loans HIP days days or more past due Current U.S. mainland $ 1,414 $ — $ — $ 1,414 $ 1,179,773 $ 1,181,187 — 800 3,074 3,874 1,565,321 1,569,195 4,350 — 486 4,836 283,948 288,784 960 1,766 94,407 97,133 921,185 1,018,318 5,243 — — 5,243 730,377 735,620 2,253 6,193 14,348 22,794 690,936 713,730 111 275 3,268 3,654 33,854 37,508 10 6 13 29 51 80 5,993 2,446 11,960 20,399 176,419 196,818 2,321 1,750 2,342 6,413 307,430 313,843 — — — — 3 3 — 25 22 47 245 292 $ 22,655 $ 13,261 $ 129,920 $ 165,836 $ 5,889,542 $ 6,055,378
September 30, 2017 Popular, Inc. (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Leasing Legacy[3] Consumer: Credit cards Home equity lines of credit Personal Auto Other Total Past due Non-covered 30-59 60-89 90 days Total loans HIP days days or more past due Current Popular, Inc.[1] [2] $ 1,522 $ 157 $ 1,060 $ 2,739 $ 1,324,999 $ 1,327,738 39,076 11,371 37,308 87,755 4,006,235 4,093,990 28,633 8,107 103,865 140,605 1,820,452 1,961,057 6,668 3,572 140,400 150,640 3,693,670 3,844,310 5,243 — 269 5,512 817,813 823,325 585,636 227,839 870,655 1,684,130 4,845,105 6,529,235 12,990 4,543 2,684 20,217 734,664 754,881 111 275 3,268 3,654 33,854 37,508 17,533 9,869 20,639 48,041 1,035,285 1,083,326 6,110 2,689 12,008 20,807 182,135 202,942 26,684 12,390 22,589 61,663 1,466,511 1,528,174 44,331 18,933 12,259 75,523 746,484 822,007 575 382 16,513 17,470 147,487 164,957 $ 775,112 $ 300,127 $ 1,243,517 $ 2,318,756 $ 20,854,694 $ 23,173,450
December 31, 2016 | ||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||
Past due | Non-covered | |||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | loans HIP | ||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | Puerto Rico | ||||||||||||||||||
Commercial multi-family | $ | 232 | $ | — | $ | 664 | $ | 896 | $ | 173,644 | $ | 174,540 | ||||||||||||
Commercial real estatenon-owner occupied | 98,604 | 4,785 | 51,435 | 154,824 | 2,409,461 | 2,564,285 | ||||||||||||||||||
Commercial real estate owner occupied | 12,967 | 5,014 | 112,997 | 130,978 | 1,660,497 | 1,791,475 | ||||||||||||||||||
Commercial and industrial | 19,156 | 2,638 | 32,147 | 53,941 | 2,617,976 | 2,671,917 | ||||||||||||||||||
Construction | — | — | 1,668 | 1,668 | 83,890 | 85,558 | ||||||||||||||||||
Mortgage | 289,635 | 136,558 | 801,251 | 1,227,444 | 4,689,056 | 5,916,500 | ||||||||||||||||||
Leasing | 6,619 | 1,356 | 3,062 | 11,037 | 691,856 | 702,893 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Credit cards | 11,646 | 8,752 | 18,725 | 39,123 | 1,061,484 | 1,100,607 | ||||||||||||||||||
Home equity lines of credit | — | 65 | 185 | 250 | 8,101 | 8,351 | ||||||||||||||||||
Personal | 12,148 | 7,918 | 20,686 | 40,752 | 1,109,425 | 1,150,177 | ||||||||||||||||||
Auto | 32,441 | 7,217 | 12,320 | 51,978 | 774,614 | 826,592 | ||||||||||||||||||
Other | 1,259 | 294 | 19,311 | 20,864 | 154,665 | 175,529 | ||||||||||||||||||
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Total | $ | 484,707 | $ | 174,597 | $ | 1,074,451 | $ | 1,733,755 | $ | 15,434,669 | $ | 17,168,424 | ||||||||||||
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December 31, 2016 U.S. mainland (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Legacy Consumer: Credit cards Home equity lines of credit Personal Auto Other Total December 31, 2016 Popular, Inc. (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Leasing Legacy[3] Consumer: Credit cards Home equity lines of credit Personal Auto Other Total Past due 30-59 60-89 90 days Total Loans HIP days days or more past due Current U.S. mainland $ 5,952 $ — $ 206 $ 6,158 $ 1,058,138 $ 1,064,296 1,992 379 1,195 3,566 1,353,750 1,357,316 2,116 540 472 3,128 240,617 243,745 960 610 101,257 102,827 828,106 930,933 — — — — 690,742 690,742 15,974 5,272 11,713 32,959 746,902 779,861 833 346 3,337 4,516 40,777 45,293 8 28 30 66 92 158 2,908 1,055 4,762 8,725 243,450 252,175 2,547 1,675 1,864 6,086 234,521 240,607 — — — — 9 9 — — 8 8 180 188 $ 33,290 $ 9,905 $ 124,844 $ 168,039 $ 5,437,284 $ 5,605,323 Past due Non-covered 30-59 60-89 90 days Total loans HIP days days or more past due Current Popular, Inc.[1] [2] $ 6,184 $ — $ 870 $ 7,054 $ 1,231,782 $ 1,238,836 100,596 5,164 52,630 158,390 3,763,211 3,921,601 15,083 5,554 113,469 134,106 1,901,114 2,035,220 20,116 3,248 133,404 156,768 3,446,082 3,602,850 — — 1,668 1,668 774,632 776,300 305,609 141,830 812,964 1,260,403 5,435,958 6,696,361 6,619 1,356 3,062 11,037 691,856 702,893 833 346 3,337 4,516 40,777 45,293 11,654 8,780 18,755 39,189 1,061,576 1,100,765 2,908 1,120 4,947 8,975 251,551 260,526 14,695 9,593 22,550 46,838 1,343,946 1,390,784 32,441 7,217 12,320 51,978 774,623 826,601 1,259 294 19,319 20,872 154,845 175,717 $ 517,997 $ 184,502 $ 1,199,295 $ 1,901,794 $ 20,871,953 $ 22,773,747
The level of delinquencies as of September 30, 2017 was impacted by the disruptions caused by Hurricanes Irma and Maria. The Corporation’s payment channels, collection efforts and loss mitigation operations were interrupted and mostly unavailable for the last 10 days of the quarter.
The following tables presentnon-covered loansheld-in-portfolio by loan class including those that are innon-performing status or that are accruing interest but are past due 90 days or more at September 30, 20172018 and December 31, 2016. Accruing loans past due 90 days or more consist primarily of credit cards, Federal Housing Administration (“FHA”) / U.S. Department of Veterans Affairs (“VA”) and other insured mortgage loans, and delinquent mortgage loans which are included in the Corporation’s financial statements pursuant to GNMA’sbuy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.2017.
At September 30, 2017 (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage[3] Leasing Legacy Consumer: Credit cards Home equity lines of credit Personal Auto Other Total[2] Puerto Rico U.S. mainland Popular, Inc. Accruing loans Accruing loans Accruing loans Non-accrual past-due 90 Non-accrual past-due 90 Non-accrual past-due 90 loans days or more [1] loans days or more [1] loans days or more [1] $ 1,060 $ — $ — $ — $ 1,060 $ — 23,028 — 3,074 — 26,102 — 90,346 — 486 — 90,832 — 45,609 384 1,749 — 47,358 384 99 — — — 99 — 337,967 443,377 14,348 — 352,315 443,377 2,684 — — — 2,684 — — — 3,268 — 3,268 — — 20,626 13 — 13 20,626 — 48 11,960 — 11,960 48 19,738 77 2,342 — 22,080 77 12,259 — — — 12,259 — 15,876 615 22 — 15,898 615 $ 548,666 $ 465,127 $ 37,262 $ — $ 585,928 $ 465,127
September 30, 2018 | ||||||||||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||||||||||
Past due | Past due 90 days or more | |||||||||||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | Non-accrual | Accruing | |||||||||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | Loans HIP | loans | loans[1] | ||||||||||||||||||||||||
Commercial multi-family | $ | 466 | $ | 242 | $ | 2,061 | $ | 2,769 | $ | 145,459 | $ | 148,228 | $ | 577 | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | 34,587 | 1,612 | 86,831 | 123,030 | 2,234,301 | 2,357,331 | 29,288 | — | ||||||||||||||||||||||||
Owner occupied | 12,947 | 3,260 | 120,401 | 136,608 | 1,598,897 | 1,735,505 | 93,192 | — | ||||||||||||||||||||||||
Commercial and industrial | 8,313 | 503 | 48,425 | 57,241 | 3,109,171 | 3,166,412 | 48,214 | 211 | ||||||||||||||||||||||||
Construction | 2,306 | — | 1,829 | 4,135 | 73,658 | 77,793 | 1,829 | — | ||||||||||||||||||||||||
Mortgage | 285,917 | 136,265 | 1,215,269 | 1,637,451 | 4,893,825 | 6,531,276 | 348,779 | 735,454 | ||||||||||||||||||||||||
Leasing | 7,416 | 2,259 | 3,009 | 12,684 | 890,856 | 903,540 | 3,009 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 9,515 | 6,178 | 16,768 | 32,461 | 1,005,372 | 1,037,833 | — | 16,768 | ||||||||||||||||||||||||
Home equity lines of credit | 159 | 391 | 107 | 657 | 4,824 | 5,481 | 11 | 96 | ||||||||||||||||||||||||
Personal | 12,609 | 7,162 | 19,780 | 39,551 | 1,203,845 | 1,243,396 | 18,939 | 1 | ||||||||||||||||||||||||
Auto | 53,347 | 10,783 | 22,165 | 86,295 | 2,382,315 | 2,468,610 | 22,097 | 68 | ||||||||||||||||||||||||
Other | 443 | 92 | 15,344 | 15,879 | 132,069 | 147,948 | 14,868 | 476 | ||||||||||||||||||||||||
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Total | $ | 428,025 | $ | 168,747 | $ | 1,551,989 | $ | 2,148,761 | $ | 17,674,592 | $ | 19,823,353 | $ | 580,803 | $ | 753,074 | ||||||||||||||||
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[1] | Loans HIP of |
September 30, 2018 | ||||||||||||||||||||||||||||||||
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[1] | ||||||||||||||||||||||||
Commercial multi-family | $ | 2,581 | $ | 17 | $ | — | $ | 2,598 | $ | 1,325,974 | $ | 1,328,572 | $ | — | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | — | 13,993 | 365 | 14,358 | 1,885,035 | 1,899,393 | 365 | — | ||||||||||||||||||||||||
Owner occupied | 1,578 | 618 | 389 | 2,585 | 285,820 | 288,405 | 389 | — | ||||||||||||||||||||||||
Commercial and industrial | 1,350 | 2,036 | 86,220 | 89,606 | 980,255 | 1,069,861 | 660 | — | ||||||||||||||||||||||||
Construction | 20,588 | — | 17,866 | 38,454 | 827,118 | 865,572 | 17,866 | — | ||||||||||||||||||||||||
Mortgage | 932 | 3,112 | 12,306 | 16,350 | 756,544 | 772,894 | 12,306 | — | ||||||||||||||||||||||||
Legacy | 23 | 269 | 3,403 | 3,695 | 23,871 | 27,566 | 3,403 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 1 | — | 5 | 6 | 57 | 63 | 5 | — | ||||||||||||||||||||||||
Home equity lines of credit | 1,739 | 594 | 13,938 | 16,271 | 129,274 | 145,545 | 13,938 | — | ||||||||||||||||||||||||
Personal | 2,164 | 1,778 | 2,753 | 6,695 | 283,966 | 290,661 | 2,753 | — | ||||||||||||||||||||||||
Other | — | 4 | — | 4 | 279 | 283 | — | — | ||||||||||||||||||||||||
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Total | $ | 30,956 | $ | 22,421 | $ | 137,245 | $ | 190,622 | $ | 6,498,193 | $ | 6,688,815 | $ | 51,685 | $ | — | ||||||||||||||||
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[ | Loans HIP of |
September 30, 2018 | ||||||||||||||||||||||||||||||||
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[3] [4] | loans | loans[5] | ||||||||||||||||||||||||
Commercial multi-family | $ | 3,047 | $ | 259 | $ | 2,061 | $ | 5,367 | $ | 1,471,433 | $ | 1,476,800 | $ | 577 | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | 34,587 | 15,605 | 87,196 | 137,388 | 4,119,336 | 4,256,724 | 29,653 | — | ||||||||||||||||||||||||
Owner occupied | 14,525 | 3,878 | 120,790 | 139,193 | 1,884,717 | 2,023,910 | 93,581 | — | ||||||||||||||||||||||||
Commercial and industrial | 9,663 | 2,539 | 134,645 | 146,847 | 4,089,426 | 4,236,273 | 48,874 | 211 | ||||||||||||||||||||||||
Construction | 22,894 | — | 19,695 | 42,589 | 900,776 | 943,365 | 19,695 | — | ||||||||||||||||||||||||
Mortgage[1] | 286,849 | 139,377 | 1,227,575 | 1,653,801 | 5,650,369 | 7,304,170 | 361,085 | 735,454 | ||||||||||||||||||||||||
Leasing | 7,416 | 2,259 | 3,009 | 12,684 | 890,856 | 903,540 | 3,009 | — | ||||||||||||||||||||||||
Legacy[2] | 23 | 269 | 3,403 | 3,695 | 23,871 | 27,566 | 3,403 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 9,516 | 6,178 | 16,773 | 32,467 | 1,005,429 | 1,037,896 | 5 | 16,768 | ||||||||||||||||||||||||
Home equity lines of credit | 1,898 | 985 | 14,045 | 16,928 | 134,098 | 151,026 | 13,949 | 96 | ||||||||||||||||||||||||
Personal | 14,773 | 8,940 | 22,533 | 46,246 | 1,487,811 | 1,534,057 | 21,692 | 1 | ||||||||||||||||||||||||
Auto | 53,347 | 10,783 | 22,165 | 86,295 | 2,382,315 | 2,468,610 | 22,097 | 68 | ||||||||||||||||||||||||
Other | 443 | 96 | 15,344 | 15,883 | 132,348 | 148,231 | 14,868 | 476 | ||||||||||||||||||||||||
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Total | $ | 458,981 | $ | 191,168 | $ | 1,689,234 | $ | 2,339,383 | $ | 24,172,785 | $ | 26,512,168 | $ | 632,488 | $ | 753,074 | ||||||||||||||||
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[ | 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 tonon-performing since the principal repayment is insured. |
[2] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the Popular U.S. segment. |
[3] | Loansheld-in-portfolio are net of $150 million in unearned income and exclude $52 million in loansheld-for-sale. |
[4] | Includes $7.2 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.7 billion were pledged at the Federal Home Loan Bank (“FHLB”) as collateral for borrowings, $2.1 billion at the Federal Reserve Bank (“FRB”) for discount window borrowings and $0.4 billion serve as collateral for public funds. |
[5] | Loans HIP of $304 million accounted for under ASC Subtopic310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. |
December 31, 2017 | ||||||||||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||||||||||
Past due | Past due 90 days or more | |||||||||||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | Non-covered | Non-accrual | Accruing | ||||||||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | loans HIP | loans | loans[1] | ||||||||||||||||||||||||
Commercial multi-family | $ | — | $ | 426 | $ | 1,210 | $ | 1,636 | $ | 144,763 | $ | 146,399 | $ | 1,115 | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | 39,617 | 131 | 28,045 | 67,793 | 2,336,766 | 2,404,559 | 18,866 | — | ||||||||||||||||||||||||
Owner occupied | 7,997 | 2,291 | 123,929 | 134,217 | 1,689,397 | 1,823,614 | 101,068 | — | ||||||||||||||||||||||||
Commercial and industrial | 3,556 | 1,251 | 40,862 | 45,669 | 2,845,658 | 2,891,327 | 40,177 | 685 | ||||||||||||||||||||||||
Construction | — | — | 170 | 170 | 95,199 | 95,369 | — | — | ||||||||||||||||||||||||
Mortgage | 217,890 | 77,833 | 1,596,763 | 1,892,486 | 4,684,293 | 6,576,779 | 306,697 | 1,204,691 | ||||||||||||||||||||||||
Leasing | 10,223 | 1,490 | 2,974 | 14,687 | 795,303 | 809,990 | 2,974 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 7,319 | 4,464 | 18,227 | 30,010 | 1,063,211 | 1,093,221 | — | 18,227 | ||||||||||||||||||||||||
Home equity lines of credit | 438 | 395 | 257 | 1,090 | 4,997 | 6,087 | — | 257 | ||||||||||||||||||||||||
Personal | 13,926 | 6,857 | 19,981 | 40,764 | 1,181,548 | 1,222,312 | 19,460 | 141 | ||||||||||||||||||||||||
Auto | 24,405 | 5,197 | 5,466 | 35,068 | 815,745 | 850,813 | 5,466 | — | ||||||||||||||||||||||||
Other | 537 | 444 | 16,765 | 17,746 | 139,842 | 157,588 | 15,617 | 1,148 | ||||||||||||||||||||||||
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Total | $ | 325,908 | $ | 100,779 | $ | 1,854,649 | $ | 2,281,336 | $ | 15,796,722 | $ | 18,078,058 | $ | 511,440 | $ | 1,225,149 | ||||||||||||||||
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[1] | Non-covered loans HIP of $118 million accounted for under ASC Subtopic310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. |
December 31, 2017 | ||||||||||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||||||||||
Past due | Past due 90 days or more | |||||||||||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | Non-covered | Non-accrual | Accruing | ||||||||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | loans HIP | loans | loans[1] | ||||||||||||||||||||||||
Commercial multi-family | $ | 395 | $ | — | $ | 784 | $ | 1,179 | $ | 1,209,514 | $ | 1,210,693 | $ | 784 | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | 4,028 | 1,186 | 1,599 | 6,813 | 1,681,498 | 1,688,311 | 1,599 | — | ||||||||||||||||||||||||
Owner occupied | 2,684 | — | 862 | 3,546 | 315,429 | 318,975 | 862 | — | ||||||||||||||||||||||||
Commercial and industrial | 1,121 | 5,278 | 97,427 | 103,826 | 901,157 | 1,004,983 | 594 | — | ||||||||||||||||||||||||
Construction | — | — | — | — | 784,660 | 784,660 | — | — | ||||||||||||||||||||||||
Mortgage | 13,453 | 6,148 | 14,852 | 34,453 | 659,175 | 693,628 | 14,852 | — | ||||||||||||||||||||||||
Legacy | 291 | 417 | 3,039 | 3,747 | 29,233 | 32,980 | 3,039 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 3 | 2 | 11 | 16 | 84 | 100 | 11 | — | ||||||||||||||||||||||||
Home equity lines of credit | 4,653 | 3,675 | 14,997 | 23,325 | 158,760 | 182,085 | 14,997 | — | ||||||||||||||||||||||||
Personal | 3,342 | 2,149 | 2,779 | 8,270 | 289,732 | 298,002 | 2,779 | — | ||||||||||||||||||||||||
Other | — | — | — | — | 319 | 319 | — | — | ||||||||||||||||||||||||
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Total | $ | 29,970 | $ | 18,855 | $ | 136,350 | $ | 185,175 | $ | 6,029,561 | $ | 6,214,736 | $ | 39,517 | $ | — | ||||||||||||||||
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[1] | Non-covered loans HIP of $97 million accounted for under ASC Subtopic310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. |
December 31, 2017 | ||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||
Past due | Past due 90 days or more | |||||||||||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | Non-covered | Non-accrual | Accruing | ||||||||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | loans HIP[3] [4] | loans | loans[5] | ||||||||||||||||||||||||
Commercial multi-family | $ | 395 | $ | 426 | $ | 1,994 | $ | 2,815 | $ | 1,354,277 | $ | 1,357,092 | $ | 1,899 | $ | — | ||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||||||||||
Non-owner occupied | 43,645 | 1,317 | 29,644 | 74,606 | 4,018,264 | 4,092,870 | 20,465 | — | ||||||||||||||||||||||||
Owner occupied | 10,681 | 2,291 | 124,791 | 137,763 | 2,004,826 | 2,142,589 | 101,930 | — | ||||||||||||||||||||||||
Commercial and industrial | 4,677 | 6,529 | 138,289 | 149,495 | 3,746,815 | 3,896,310 | 40,771 | 685 | ||||||||||||||||||||||||
Construction | — | — | 170 | 170 | 879,859 | 880,029 | — | — | ||||||||||||||||||||||||
Mortgage[1] | 231,343 | 83,981 | 1,611,615 | 1,926,939 | 5,343,468 | 7,270,407 | 321,549 | 1,204,691 | ||||||||||||||||||||||||
Leasing | 10,223 | 1,490 | 2,974 | 14,687 | 795,303 | 809,990 | 2,974 | — | ||||||||||||||||||||||||
Legacy[2] | 291 | 417 | 3,039 | 3,747 | 29,233 | 32,980 | 3,039 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 7,322 | 4,466 | 18,238 | 30,026 | 1,063,295 | 1,093,321 | 11 | 18,227 | ||||||||||||||||||||||||
Home equity lines of credit | 5,091 | 4,070 | 15,254 | 24,415 | 163,757 | 188,172 | 14,997 | 257 | ||||||||||||||||||||||||
Personal | 17,268 | 9,006 | 22,760 | 49,034 | 1,471,280 | 1,520,314 | 22,239 | 141 | ||||||||||||||||||||||||
Auto | 24,405 | 5,197 | 5,466 | 35,068 | 815,745 | 850,813 | 5,466 | — | ||||||||||||||||||||||||
Other | 537 | 444 | 16,765 | 17,746 | 140,161 | 157,907 | 15,617 | 1,148 | ||||||||||||||||||||||||
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Total | $ | 355,878 | $ | 119,634 | $ | 1,990,999 | $ | 2,466,511 | $ | 21,826,283 | $ | 24,292,794 | $ | 550,957 | $ | 1,225,149 | ||||||||||||||||
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[1] | It is the Corporation’s policy to report delinquent residential mortgage loans |
[2] | The legacy portfolio is comprised of |
[3] | Loansheld-in-portfolio are net of $131 million in |
At December 31, 2016 | ||||||||||||||||||||||||
Puerto Rico | U.S. mainland | Popular, Inc. | ||||||||||||||||||||||
Accruing loans | Accruing loans | Accruing loans | ||||||||||||||||||||||
Non-accrual | past-due 90 | Non-accrual | past-due 90 | Non-accrual | past-due 90 | |||||||||||||||||||
(In thousands) | loans | days or more [1] | loans | days or more [1] | loans | days or more [1] | ||||||||||||||||||
Commercial multi-family | $ | 664 | $ | — | $ | 206 | $ | — | $ | 870 | $ | — | ||||||||||||
Commercial real estatenon-owner occupied | 24,611 | — | 1,195 | — | 25,806 | — | ||||||||||||||||||
Commercial real estate owner occupied | 102,771 | — | 472 | — | 103,243 | — | ||||||||||||||||||
Commercial and industrial | 31,609 | 538 | 1,820 | — | 33,429 | 538 | ||||||||||||||||||
Mortgage[3] | 318,194 | 406,583 | 11,713 | — | 329,907 | 406,583 | ||||||||||||||||||
Leasing | 3,062 | — | — | — | 3,062 | — | ||||||||||||||||||
Legacy | — | — | 3,337 | — | 3,337 | — | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Credit cards | — | 18,725 | 30 | — | 30 | 18,725 | ||||||||||||||||||
Home equity lines of credit | — | 185 | 4,762 | — | 4,762 | 185 | ||||||||||||||||||
Personal | 20,553 | 34 | 1,864 | — | 22,417 | 34 | ||||||||||||||||||
Auto | 12,320 | — | — | — | 12,320 | — | ||||||||||||||||||
Other | 18,724 | 587 | 8 | — | 18,732 | 587 | ||||||||||||||||||
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Total[2] | $ | 532,508 | $ | 426,652 | $ | 25,407 | $ | — | $ | 557,915 | $ | 426,652 | ||||||||||||
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[ | Includes $7.1 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.6 billion were pledged at the FHLB as collateral for borrowings, $2.0 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds. |
[5] | Non-covered loans |
At September 30, 2018, mortgage loansheld-in-portfolio include $1.4 billion of loans insured by the Federal Housing Administration (“FHA”), or guaranteed by the U.S. Department of Veterans Affairs (“VA”) of which $739 million are 90 days or more past due, including $195 million of loans rebooked under the GNMA buyback option, discussed below (December 31, 2017—$1.8 billion, $1.2 billion and $840 million, respectively). Within this portfolio, loans in a delinquency status of 90 days or more are reported as accruing loans as opposed tonon-performing since the principal repayment is insured. These balances include $238 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of September 30, 2018 (December 31, 2017 - $178 million). Additionally, the Corporation has approximately $53 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at September 30, 2018 (December 31, 2017—$58 million).
Loans with a delinquency status of 90 days past due as of September 30, 2018 include $195 million in loans previously pooled into GNMA securities (December 31, 2017—$840 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 the Bank with an offsetting liability.
Covered loans
The following tables presenttable presents the composition of covered loansheld-in-portfolio by past due status, and by loan class that are innon-performing status or are accruing interest but are past due 90 days or more at September 30, 2017 and December 31, 2016 for covered loansheld-in-portfolio. The information considers covered loans accounted for under ASC Subtopic310-20 and ASC Subtopic310-30.2017.
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2017 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past due | Past due 90 days or more | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past due | 30-59 | 60-89 | 90 days | Total | Covered | Non-accrual | Accruing | |||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | 30-59 days | 60-89 days | 90 days or more | Total past due | Current | Covered loans HIP [1] | days | days | or more | past due | Current | loans HIP [2] | loans | loans | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | $ | 47,726 | $ | 16,104 | $ | 60,973 | $ | 124,803 | $ | 385,408 | $ | 510,211 | $ | 16,640 | $ | 5,453 | $ | 59,018 | $ | 81,111 | $ | 421,818 | $ | 502,929 | $ | 3,165 | $ | — | ||||||||||||||||||||||||||||
Consumer | 1,503 | 442 | 1,004 | 2,949 | 11,694 | 14,643 | 518 | 147 | 988 | 1,653 | 12,692 | 14,345 | 188 | — | ||||||||||||||||||||||||||||||||||||||||||
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Total covered loans | $ | 49,229 | $ | 16,546 | $ | 61,977 | $ | 127,752 | $ | 397,102 | $ | 524,854 | ||||||||||||||||||||||||||||||||||||||||||||
Total covered loans[1] | $ | 17,158 | $ | 5,600 | $ | 60,006 | $ | 82,764 | $ | 434,510 | $ | 517,274 | $ | 3,353 | $ | — | ||||||||||||||||||||||||||||||||||||||||
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[1] |
December 31, 2016 | ||||||||||||||||||||||||
Past due | ||||||||||||||||||||||||
(In thousands) | 30-59 days | 60-89 days | 90 days or more | Total past due | Current | Covered loans HIP [1] | ||||||||||||||||||
Mortgage | $ | 25,506 | $ | 12,904 | $ | 69,856 | $ | 108,266 | $ | 448,304 | $ | 556,570 | ||||||||||||
Consumer | 751 | 245 | 1,074 | 2,070 | 14,238 | 16,308 | ||||||||||||||||||
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Total covered loans | $ | 26,257 | $ | 13,149 | $ | 70,930 | $ | 110,336 | $ | 462,542 | $ | 572,878 | ||||||||||||
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The following table presents covered loans innon-performing status and accruing loanspast-due 90 days or more by loan class at September 30, 2017 and December 31, 2016.
September 30, 2017 | December 31, 2016 | |||||||||||||||
(In thousands) | Non-accrual loans | Accruing loans past due 90 days or more | Non-accrual loans | Accruing loans past due 90 days or more | ||||||||||||
Mortgage | $ | 3,210 | $ | — | $ | 3,794 | $ | — | ||||||||
Consumer | 196 | — | 121 | — | ||||||||||||
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Total[1] | $ | 3,406 | $ | — | $ | 3,915 | $ | — | ||||||||
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Covered loans accounted for under ASC Subtopic310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses. |
The Corporation accounts for lines of credit with revolving privileges under the accounting guidance of ASC Subtopic310-20, which requires that any differences between the contractually required loans payment receivable in excess of the initial investment in the loans be accreted into interest income over the life of the loans, if the loan is accruing interest. Covered loans accounted for under ASC Subtopic310-20 amounted to $10 million at September 30, 2017 (December 31, 2016—$10 million).
[2] | Includes $279 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral. |
Loans acquired with deteriorated credit quality accounted for under ASC310-30
The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC310-30.
LoansThe outstanding principal balance of acquired from Westernbank as part of an FDIC-assisted transaction
loans accounted pursuant to ASC Subtopic310-30, amounted to $2.3 billion at September 30, 2018 (December 31, 2017—$2.5 billion). The carrying amount of the Westernbankthese loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic310-30(“non-credit impaired loans”), as detailed in.
The following table provides the following table.
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Carrying amount | Carrying amount | |||||||||||||||||||||||
(In thousands) | Non-credit impaired loans | Credit impaired loans | Total | Non-credit impaired loans | Credit impaired loans | Total | ||||||||||||||||||
Commercial real estate | $ | 902,908 | $ | 14,491 | $ | 917,399 | $ | 985,181 | $ | 14,440 | $ | 999,621 | ||||||||||||
Commercial and industrial | 86,795 | — | 86,795 | 103,476 | — | 103,476 | ||||||||||||||||||
Construction | — | 170 | 170 | — | 1,668 | 1,668 | ||||||||||||||||||
Mortgage | 544,745 | 21,592 | 566,337 | 587,949 | 25,781 | 613,730 | ||||||||||||||||||
Consumer | 17,075 | 771 | 17,846 | 18,775 | 1,059 | 19,834 | ||||||||||||||||||
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Carrying amount [1] | 1,551,523 | 37,024 | 1,588,547 | 1,695,381 | 42,948 | 1,738,329 | ||||||||||||||||||
Allowance for loan losses | (61,034 | ) | (6,066 | ) | (67,100 | ) | (61,855 | ) | (7,022 | ) | (68,877 | ) | ||||||||||||
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Carrying amount, net of allowance | $ | 1,490,489 | $ | 30,958 | $ | 1,521,447 | $ | 1,633,526 | $ | 35,926 | $ | 1,669,452 | ||||||||||||
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The outstanding principal balance of Westernbank loans accounted pursuant tofor under ASC Subtopic310-30 amounted to $1.9 billionby portfolio at September 30, 2017 (December2018 and December 31, 2016 - $2.1 billion). 2017.
Carrying amount | ||||||||
(In thousands) | September 30, 2018 | December 31, 2017 | ||||||
Commercial real estate | $ | 876,521 | $ | 923,424 | ||||
Commercial and industrial | 86,000 | 88,130 | ||||||
Construction | — | 170 | ||||||
Mortgage | 1,012,789 | 1,079,611 | ||||||
Consumer | 15,312 | 17,658 | ||||||
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Carrying amount | 1,990,622 | 2,108,993 | ||||||
Allowance for loan losses | (168,559 | ) | (119,505 | ) | ||||
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Carrying amount, net of allowance | $ | 1,822,063 | $ | 1,989,488 | ||||
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At September 30, 2017,2018, none of the acquired loans from the Westernbank FDIC-assisted transaction accounted for under ASC Subtopic310-30 were considerednon-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.
Changes in the carrying amount and the accretable yield for the Westernbank loans accounted pursuant to the ASC Subtopic310-30, for the quarters and the nine months ended September 30, 20172018 and 2016,2017, were as follows:
Activity in the accretable yield | ||||||||||||||||||||||||
Westernbank loans ASC310-30 | ||||||||||||||||||||||||
For the quarters ended | ||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||
(In thousands) | Non-credit impaired loans | Credit impaired loans | Total | Non-credit impaired loans | Credit impaired loans | Total | ||||||||||||||||||
Beginning balance | $ | 936,204 | $ | 6,464 | $ | 942,668 | $ | 1,061,971 | $ | 9,709 | $ | 1,071,680 | ||||||||||||
Accretion | (34,064 | ) | (726 | ) | (34,790 | ) | (38,597 | ) | (993 | ) | (39,590 | ) | ||||||||||||
Change in expected cash flows | 1,842 | (391 | ) | 1,451 | 6,992 | (390 | ) | 6,602 | ||||||||||||||||
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Ending balance | $ | 903,982 | $ | 5,347 | $ | 909,329 | $ | 1,030,366 | $ | 8,326 | $ | 1,038,692 | ||||||||||||
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Activity in the accretable yield | ||||||||||||||||||||||||||||||||||||||||
Westernbank loans ASC310-30 | ||||||||||||||||||||||||||||||||||||||||
For the nine months ended | ||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||||||||||||||||
Non-credit impaired loans | Credit impaired loans | Non-credit impaired loans | Credit impaired loans | |||||||||||||||||||||||||||||||||||||
Carrying amount of acquired loans accounted for pursuant to ASC310-30 | Carrying amount of acquired loans accounted for pursuant to ASC310-30 | |||||||||||||||||||||||||||||||||||||||
For the quarter ended | For the nine months ended | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Non-credit impaired loans | Credit impaired loans | Total | Non-credit impaired loans | Credit impaired loans | Total | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||||||||||||||||||||
Beginning balance | $ | 1,010,087 | $ | 1,112,458 | $ | 2,033,457 | $ | 2,168,664 | $ | 2,108,993 | $ | 2,301,024 | ||||||||||||||||||||||||||||
Accretion | (108,170 | ) | (131,599 | ) | ||||||||||||||||||||||||||||||||||||
Change in expected cash flows | 7,833 | (421 | ) | 7,412 | 50,368 | 7,465 | 57,833 | |||||||||||||||||||||||||||||||||
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Ending balance | $ | 903,982 | $ | 5,347 | $ | 909,329 | $ | 1,030,366 | $ | 8,326 | $ | 1,038,692 | ||||||||||||||||||||||||||||
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Carrying amount of Westernbank loans accounted for pursuant to ASC310-30 | ||||||||||||||||||||||||||||||||||||||||
For the quarters ended | ||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Non-credit impaired loans | Credit impaired loans | Total | Non-credit impaired loans | Credit impaired loans | Total | ||||||||||||||||||||||||||||||||||
Beginning balance | $ | 1,579,196 | $ | 38,591 | $ | 1,617,787 | $ | 1,754,613 | $ | 45,330 | $ | 1,799,943 | ||||||||||||||||||||||||||||
Additions | 3,062 | 4,792 | 8,334 | 14,671 | ||||||||||||||||||||||||||||||||||||
Accretion | 34,064 | 726 | 34,790 | 38,597 | 993 | 39,590 | 38,886 | 42,735 | 121,752 | 133,373 | ||||||||||||||||||||||||||||||
Collections / loan sales / charge-offs | (61,737 | ) | (2,293 | ) | (64,030 | ) | (69,030 | ) | (2,964 | ) | (71,994 | ) | (84,783 | ) | (82,245 | ) | (248,457 | ) | (315,122 | ) | ||||||||||||||||||||
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Ending balance[1] | $ | 1,551,523 | $ | 37,024 | $ | 1,588,547 | $ | 1,724,180 | $ | 43,359 | $ | 1,767,539 | $ | 1,990,622 | $ | 2,133,946 | $ | 1,990,622 | $ | 2,133,946 | ||||||||||||||||||||
Allowance for loan losses ASC310-30 Westernbank loans | (61,034 | ) | (6,066 | ) | (67,100 | ) | (62,114 | ) | (7,457 | ) | (69,571 | ) | ||||||||||||||||||||||||||||
Allowance for loan losses | (168,559 | ) | (138,030 | ) | (168,559 | ) | (138,030 | ) | ||||||||||||||||||||||||||||||||
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Ending balance, net of ALLL | $ | 1,490,489 | $ | 30,958 | $ | 1,521,447 | $ | 1,662,066 | $ | 35,902 | $ | 1,697,968 | $ | 1,822,063 | $ | 1,995,916 | $ | 1,822,063 | $ | 1,995,916 | ||||||||||||||||||||
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[1] | At September 30, 2018, includes $1.5 billion of loans |
Carrying amount of Westernbank loans accounted for pursuant to ASC310-30 | ||||||||||||||||||||||||
For the nine months ended | ||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||
(In thousands) | Non-credit impaired loans | Credit impaired loans | Total | Non-credit impaired loans | Credit impaired loans | Total | ||||||||||||||||||
Beginning balance | $ | 1,695,381 | $ | 42,948 | $ | 1,738,329 | $ | 1,898,146 | $ | 76,355 | $ | 1,974,501 | ||||||||||||
Accretion | 105,759 | 2,411 | 108,170 | 125,734 | 5,865 | 131,599 | ||||||||||||||||||
Collections / loan sales / charge-offs[1] | (249,617 | ) | (8,335 | ) | (257,952 | ) | (299,700 | ) | (38,861 | ) | (338,561 | ) | ||||||||||||
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Ending balance[2] | $ | 1,551,523 | $ | 37,024 | $ | 1,588,547 | $ | 1,724,180 | $ | 43,359 | $ | 1,767,539 | ||||||||||||
Allowance for loan losses ASC310-30 Westernbank loans | (61,034 | ) | (6,066 | ) | (67,100 | ) | (62,114 | ) | (7,457 | ) | (69,571 | ) | ||||||||||||
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Ending balance, net of ALLL | $ | 1,490,489 | $ | 30,958 | $ | 1,521,447 | $ | 1,662,066 | $ | 35,902 | $ | 1,697,968 | ||||||||||||
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Activity in the accretable yield of acquired loans accounted for pursuant to ASC310-30 | ||||||||||||||||
For the quarter ended | For the nine months ended | |||||||||||||||
(In thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Beginning balance | $ | 1,178,042 | $ | 1,245,672 | $ | 1,214,488 | $ | 1,288,983 | ||||||||
Additions | 315 | 2,882 | 3,752 | 8,737 | ||||||||||||
Accretion | (38,886 | ) | (42,735 | ) | (121,752 | ) | (133,373 | ) | ||||||||
Change in expected cash flows | (16,739 | ) | (6,475 | ) | 26,244 | 34,997 | ||||||||||
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Ending balance[1] | $ | 1,122,732 | $ | 1,199,344 | $ | 1,122,732 | $ | 1,199,344 | ||||||||
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[1] | At September 30, |
Other loans acquired with deteriorated credit quality
The outstanding principal balance of other acquired loans accounted pursuant to ASC Subtopic310-30, amounted to $598 million at September 30, 2017 (December 31, 2016 - $700 million). At September 30, 2017, none of the other acquired loans accounted under ASC Subtopic310-30 were considerednon-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.
Changes in the carrying amount and the accretable yield for the other acquired loans accounted pursuant to the ASC Subtopic310-30, for the quarters and nine months ended September 30, 2017 and 2016 were as follows:
Activity in the accretable yield - other acquired loans ASC310-30 | ||||||||
(In thousands) | For the quarter ended September 30, 2017 | For the quarter ended September 30, 2016 | ||||||
Beginning balance | $ | 303,004 | $ | 272,609 | ||||
Additions | 2,882 | 3,809 | ||||||
Accretion | (7,945 | ) | (8,689 | ) | ||||
Change in expected cash flows | (7,926 | ) | 8,672 | |||||
|
|
|
| |||||
Ending balance | $ | 290,015 | $ | 276,401 | ||||
|
|
|
| |||||
Activity in the accretable yield - other acquired loans ASC310-30 | ||||||||
(In thousands) | For the nine months ended September 30, 2017 | For the nine months ended September 30, 2016 | ||||||
Beginning balance | $ | 278,896 | $ | 221,128 | ||||
Additions | 8,737 | 12,320 | ||||||
Accretion | (25,203 | ) | (25,974 | ) | ||||
Change in expected cash flows | 27,585 | 68,927 | ||||||
|
|
|
| |||||
Ending balance | $ | 290,015 | $ | 276,401 | ||||
|
|
|
|
Carrying amount of other acquired loans accounted for pursuant to ASC310-30 | ||||||||
(In thousands) | For the quarter ended September 30, 2017 | For the quarter ended September 30, 2016 | ||||||
Beginning balance | $ | 550,877 | 562,745 | |||||
Additions | 4,792 | 8,349 | ||||||
Accretion | 7,945 | 8,689 | ||||||
Collections and charge-offs | (18,215 | ) | (17,861 | ) | ||||
|
|
|
| |||||
Ending balance | $ | 545,399 | $ | 561,922 | ||||
Allowance for loan losses ASC310-30 other acquired loans | (70,930 | ) | (18,550 | ) | ||||
|
|
|
| |||||
Ending balance, net of ALLL | $ | 474,469 | $ | 543,372 | ||||
|
|
|
| |||||
Carrying amount of other acquired loans accounted for pursuant to ASC310-30 | ||||||||
(In thousands) | For the nine months ended September 30, 2017 | For the nine months ended September 30, 2016 | ||||||
Beginning balance | $ | 562,695 | $ | 564,050 | ||||
Purchase accounting adjustments related to the Doral Bank Transaction (Refer to Note 15) | — | (4,707 | ) | |||||
Additions | 14,671 | 26,754 | ||||||
Accretion | 25,203 | 25,974 | ||||||
Collections and charge-offs | (57,170 | ) | (50,149 | ) | ||||
|
|
|
| |||||
Ending balance | $ | 545,399 | $ | 561,922 | ||||
Allowance for loan losses ASC310-30 other acquired loans | (70,930 | ) | (18,550 | ) | ||||
|
|
|
| |||||
Ending balance, net of ALLL | $ | 474,469 | $ | 543,372 | ||||
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|
|
Note 9 – Allowance for loan losses
The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses (“ALLL”) to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience and results of periodic credit reviews of individual loans. The provision for loan losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the allowance for loan losses.ALLL.
The Corporation’s assessment of the allowance for loan lossesALLL is determined in accordance with the guidance of loss contingencies in ASC Subtopic450-20 and loan impairment guidance in ASCSection 310-10-35. Also, the Corporation determines the allowance for loan lossesALLL on purchased impaired loans and purchased loans accounted for under ASC Subtopic310-30, by evaluating decreases in expected cash flows after the acquisition date.
The accounting guidance provides for the recognition of a loss allowance for groups of homogeneous loans. The determination for general reserves of the allowance for loan lossesgeneral ALLL includes the following principal factors:
Base net loss rates, which are based on the moving average of annualized net loss rates computed over a5-year historical loss period for the commercial and construction loan portfolios, and an18-month period for the consumer and mortgage loan portfolios. The base net loss rates are applied by loan type and by legal entity.
Recent loss trend adjustment, which replaces the base loss rate with a12-month average loss rate, when these trends are higher than the respective base loss rates. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process.
For the period ended September 30, 2017, 45%2018, 80% (September 30, 2016 - 49%2017—45%) of the ALLL fornon-covered the BPPR segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The recent loss trends were impacted by charge-off activity related to the impact of Hurricanes Irma and Maria. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the mortgage, leasing and overall consumer portfolios for 2018 and in the leasing, credit cards, personal, auto and other consumer loan portfoliosloans for 2017 and in the leasing, auto, other consumer loan and mortgage loan portfolios for 2016.2017.
For the period ended September 30, 2017, 5%2018, 6% (September 30, 2016 - 42017—5 %) of our BPNAthe Popular U.S. segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was concentrated in the consumer portfoliosportfolio for 20172018 and 2016.2017.
Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, adopted to account for current market conditions that are likely to cause estimated credit losses to differ from historical losses. The Corporation reflects the effect of these environmental factors on each loan group as an adjustment that, as appropriate, increases the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis is used to select these indicators and quantify the effect on the general reserveALLL.
During the third quarter of 2018, management completed the annual review of the allowancecomponents of the ALLL models. As part of this review, management updated core metrics related to the estimation process for loan losses.
As discussedevaluating the adequacy of the general ALLL. These updates to the ALLL models, which are described in Note 2, Hurricanes impact,the paragraph below, were implemented as of September 30, 2018 and resulted in a net decrease to the ALLL of $6.1 million.
Management made the following revisions to the ALLL models during the third quarter ended September 30, 2017, an incremental provision expense of $69.9 million was made2018:
Annual review and recalibration of the environmental factors adjustments. The environmental factors adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the third quarter of 2018, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends.
The effect of the recalibration to the allowance for loan losses based on management’s best estimate of the impact of the hurricanes on the Corporation’s loan portfolios and the ability of borrowers to repay their loans, taking into consideration currently available information and the already challenging economic environmentenvironmental factors adjustments resulted in Puerto Rico priora decrease to the hurricanes. Refer to Note 2 for additional information.ALLL of $5.9 million and $0.2 million at the BPPR and Popular U.S. segments, respectively.
The following tables present the changes in the allowance for loan losses, loan ending balances and whether such loans and the allowance pertain to loans individually or collectively evaluated for impairment for the quarters and nine months ended September 30, 20172018 and 2016.2017.
For the quarter ended September 30, 2017 Puerto Rico -Non-covered loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impairednon-covered loans Non-covered loansheld-in-portfolio excluding impaired loans Totalnon-covered loansheld-in-portfolio For the quarter ended September 30, 2017 Puerto Rico - Covered loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired covered loans Covered loansheld-in-portfolio excluding impaired loans Total covered loansheld-in-portfolio For the quarter ended September 30, 2017 U.S. Mainland (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio Commercial Construction Mortgage Leasing Consumer Total $ 174,189 $ 1,473 $ 147,866 $ 8,003 $ 122,904 $ 454,435 31,059 176 38,838 3,924 41,118 115,115 (5,573 ) 9 (17,460 ) (1,733 ) (31,793 ) (56,550 ) 6,011 41 389 238 4,570 11,249 $ 205,686 $ 1,699 $ 169,633 $ 10,432 $ 136,799 $ 524,249 $ 40,863 $ — $ 49,129 $ 450 $ 21,730 $ 112,172 $ 164,823 $ 1,699 $ 120,504 $ 9,982 $ 115,069 $ 412,077 $ 328,704 $ — $ 510,134 $ 1,468 $ 101,948 $ 942,254 6,840,907 87,705 5,305,371 753,413 3,188,422 16,175,818 $ 7,169,611 $ 87,705 $ 5,815,505 $ 754,881 $ 3,290,370 $ 17,118,072 Commercial Construction Mortgage Leasing Consumer Total $ — $ — $ 30,284 $ — $ 524 $ 30,808 — — 2,538 — 562 3,100 — — (863 ) — (24 ) (887 ) — — 32 — 4 36 $ — $ — $ 31,991 $ — $ 1,066 $ 33,057 $ — $ — $ — $ — $ — $ — $ — $ — $ 31,991 $ — $ 1,066 $ 33,057 $ — $ — $ — $ — $ — $ — — — 510,211 — 14,643 524,854 $ — $ — $ 510,211 $ — $ 14,643 $ 524,854 Commercial Construction Mortgage Legacy Consumer Total $ 28,319 $ 6,528 $ 4,122 $ 993 $ 14,809 $ 54,771 39,246 595 (39 ) (418 ) 3,160 42,544 (4,553 ) — (113 ) (86 ) (4,957 ) (9,709 ) 271 — 287 383 1,060 2,001 $ 63,283 $ 7,123 $ 4,257 $ 872 $ 14,072 $ 89,607 $ — $ — $ 2,292 $ — $ 727 $ 3,019 $ 63,283 $ 7,123 $ 1,965 $ 872 $ 13,345 $ 86,588 $ — $ — $ 9,094 $ — $ 3,439 $ 12,533 4,057,484 735,620 704,636 37,508 507,597 6,042,845 $ 4,057,484 $ 735,620 $ 713,730 $ 37,508 $ 511,036 $ 6,055,378
For the quarter ended September 30, 2017 Popular, Inc. (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio For the nine months ended September 30, 2017 Puerto Rico -Non-covered loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impairednon-covered loans Non-covered loansheld-in-portfolio excluding impaired loans Totalnon-covered loansheld-in-portfolio For the nine months ended September 30, 2017 Puerto Rico - Covered loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired covered loans Covered loansheld-in-portfolio excluding impaired loans Total covered loansheld-in-portfolio Commercial Construction Mortgage Legacy Leasing Consumer Total $ 202,508 $ 8,001 $ 182,272 $ 993 $ 8,003 $ 138,237 $ 540,014 70,305 771 41,337 (418 ) 3,924 44,840 160,759 (10,126 ) 9 (18,436 ) (86 ) (1,733 ) (36,774 ) (67,146 ) 6,282 41 708 383 238 5,634 13,286 $ 268,969 $ 8,822 $ 205,881 $ 872 $ 10,432 $ 151,937 $ 646,913 $ 40,863 $ — $ 51,421 $ — $ 450 $ 22,457 $ 115,191 $ 228,106 $ 8,822 $ 154,460 $ 872 $ 9,982 $ 129,480 $ 531,722 $ 328,704 $ — $ 519,228 $ — $ 1,468 $ 105,387 $ 954,787 10,898,391 823,325 6,520,218 37,508 753,413 3,710,662 22,743,517 $ 11,227,095 $ 823,325 $ 7,039,446 $ 37,508 $ 754,881 $ 3,816,049 $ 23,698,304 Commercial Construction Mortgage Leasing Consumer Total $ 189,686 $ 1,353 $ 143,320 $ 7,662 $ 125,963 $ 467,984 29,945 (2,218 ) 77,692 6,516 76,831 188,766 (38,219 ) (3,646 ) (53,936 ) (5,030 ) (81,607 ) (182,438 ) 24,274 6,210 2,557 1,284 15,612 49,937 $ 205,686 $ 1,699 $ 169,633 $ 10,432 $ 136,799 $ 524,249 $ 40,863 $ — $ 49,129 $ 450 $ 21,730 $ 112,172 $ 164,823 $ 1,699 $ 120,504 $ 9,982 $ 115,069 $ 412,077 $ 328,704 $ — $ 510,134 $ 1,468 $ 101,948 $ 942,254 6,840,907 87,705 5,305,371 753,413 3,188,422 16,175,818 $ 7,169,611 $ 87,705 $ 5,815,505 $ 754,881 $ 3,290,370 $ 17,118,072 Commercial Construction Mortgage Leasing Consumer Total $ — $ — $ 30,159 $ — $ 191 $ 30,350 — — 3,253 — 1,002 4,255 — — (2,700 ) — (134 ) (2,834 ) — — 1,279 — 7 1,286 $ — $ — $ 31,991 $ — $ 1,066 $ 33,057 $ — $ — $ — $ — $ — $ — $ — $ — $ 31,991 $ — $ 1,066 $ 33,057 $ — $ — $ — $ — $ — $ — — — 510,211 — 14,643 524,854 $ — $ — $ 510,211 $ — $ 14,643 $ 524,854
For the nine months ended September 30, 2017 U.S. Mainland (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio Commercial Construction Mortgage Legacy Consumer Total $ 12,968 $ 8,172 $ 4,614 $ 1,343 $ 15,220 $ 42,317 53,491 (1,049 ) (173 ) (1,554 ) 10,200 60,915 (4,774 ) — (1,064 ) (669 ) (14,476 ) (20,983 ) 1,598 — 880 1,752 3,128 7,358 $ 63,283 $ 7,123 $ 4,257 $ 872 $ 14,072 $ 89,607 $ — $ — $ 2,292 $ — $ 727 $ 3,019 $ 63,283 $ 7,123 $ 1,965 $ 872 $ 13,345 $ 86,588 $ — $ — $ 9,094 $ — $ 3,439 $ 12,533 4,057,484 735,620 704,636 37,508 507,597 6,042,845 $ 4,057,484 $ 735,620 $ 713,730 $ 37,508 $ 511,036 $ 6,055,378
For the quarter ended September 30, 2018 | ||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 190,926 | $ | 765 | $ | 182,103 | $ | 14,285 | $ | 179,066 | $ | 567,145 | ||||||||||||
Provision (reversal of provision) | 21,548 | (12 | ) | 10,145 | (422 | ) | 20,618 | 51,877 | ||||||||||||||||
Charge-offs | (7,335 | ) | (21 | ) | (23,526 | ) | (2,088 | ) | (42,180 | ) | (75,150 | ) | ||||||||||||
Recoveries | 4,966 | 146 | 1,564 | 531 | 9,097 | 16,304 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 210,105 | $ | 878 | $ | 170,286 | $ | 12,306 | $ | 166,601 | $ | 560,176 | ||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | 52,250 | $ | — | $ | 43,841 | $ | 297 | $ | 24,906 | $ | 121,294 | ||||||||||||
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|
|
|
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|
|
| |||||||||||||
General ALLL | $ | 157,855 | $ | 878 | $ | 126,445 | $ | 12,009 | $ | 141,695 | $ | 438,882 | ||||||||||||
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| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impairednon-covered loans | $ | 356,007 | $ | 1,829 | $ | 508,258 | $ | 931 | $ | 107,184 | $ | 974,209 | ||||||||||||
Non-covered loansheld-in-portfolio excluding impaired loans | 7,051,469 | 75,964 | 6,023,018 | 902,609 | 4,796,084 | 18,849,144 | ||||||||||||||||||
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| |||||||||||||
Totalnon-covered loansheld-in-portfolio | $ | 7,407,476 | $ | 77,793 | $ | 6,531,276 | $ | 903,540 | $ | 4,903,268 | $ | 19,823,353 | ||||||||||||
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| |||||||||||||
For the quarter ended September 30, 2018 | ||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 50,920 | $ | 6,937 | $ | 4,363 | $ | 700 | $ | 12,953 | $ | 75,873 | ||||||||||||
Provision (reversal of provision) | (14,744 | ) | 7,305 | (65 | ) | (1,008 | ) | 11,022 | 2,510 | |||||||||||||||
Charge-offs | (2,792 | ) | — | (17 | ) | (81 | ) | (5,015 | ) | (7,905 | ) | |||||||||||||
Recoveries | 1,051 | — | 20 | 766 | 1,227 | 3,064 | ||||||||||||||||||
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| |||||||||||||
Ending balance | $ | 34,435 | $ | 14,242 | $ | 4,301 | $ | 377 | $ | 20,187 | $ | 73,542 | ||||||||||||
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| |||||||||||||
Specific ALLL | $ | — | $ | 5,530 | $ | 2,364 | $ | — | $ | 1,349 | $ | 9,243 | ||||||||||||
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|
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| |||||||||||||
General ALLL | $ | 34,435 | $ | 8,712 | $ | 1,937 | $ | 377 | $ | 18,838 | $ | 64,299 | ||||||||||||
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| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired loans | $ | — | $ | 17,866 | $ | 8,825 | $ | — | $ | 7,388 | $ | 34,079 | ||||||||||||
Loansheld-in-portfolio excluding impaired loans | 4,586,231 | 847,706 | 764,069 | 27,566 | 429,164 | 6,654,736 | ||||||||||||||||||
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|
|
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|
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| |||||||||||||
Total loansheld-in-portfolio | $ | 4,586,231 | $ | 865,572 | $ | 772,894 | $ | 27,566 | $ | 436,552 | $ | 6,688,815 | ||||||||||||
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For the nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the quarter ended September 30, 2018 | For the quarter ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Popular, Inc. | Popular, Inc. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 202,654 | $ | 9,525 | $ | 178,093 | $ | 1,343 | $ | 7,662 | $ | 141,374 | $ | 540,651 | $ | 241,846 | $ | 7,702 | $ | 186,466 | $ | 700 | $ | 14,285 | $ | 192,019 | $ | 643,018 | ||||||||||||||||||||||||||||
Provision (reversal of provision) | 83,436 | (3,267 | ) | 80,772 | (1,554 | ) | 6,516 | 88,033 | 253,936 | 6,804 | 7,293 | 10,080 | (1,008 | ) | (422 | ) | 31,640 | 54,387 | ||||||||||||||||||||||||||||||||||||||
Charge-offs | (42,993 | ) | (3,646 | ) | (57,700 | ) | (669 | ) | (5,030 | ) | (96,217 | ) | (206,255 | ) | (10,127 | ) | (21 | ) | (23,543 | ) | (81 | ) | (2,088 | ) | (47,195 | ) | (83,055 | ) | ||||||||||||||||||||||||||||
Recoveries | 25,872 | 6,210 | 4,716 | 1,752 | 1,284 | 18,747 | 58,581 | 6,017 | 146 | 1,584 | 766 | 531 | 10,324 | 19,368 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 268,969 | $ | 8,822 | $ | 205,881 | $ | 872 | $ | 10,432 | $ | 151,937 | $ | 646,913 | $ | 244,540 | $ | 15,120 | $ | 174,587 | $ | 377 | $ | 12,306 | $ | 186,788 | $ | 633,718 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | 51,421 | $ | — | $ | 450 | $ | 22,457 | $ | 115,191 | $ | 52,250 | $ | 5,530 | $ | 46,205 | $ | — | $ | 297 | $ | 26,255 | $ | 130,537 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
General ALLL | $ | 228,106 | $ | 8,822 | $ | 154,460 | $ | 872 | $ | 9,982 | $ | 129,480 | $ | 531,722 | $ | 192,290 | $ | 9,590 | $ | 128,382 | $ | 377 | $ | 12,009 | $ | 160,533 | $ | 503,181 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired loans | $ | 328,704 | $ | — | $ | 519,228 | $ | — | $ | 1,468 | $ | 105,387 | $ | 954,787 | $ | 356,007 | $ | 19,695 | $ | 517,083 | $ | — | $ | 931 | $ | 114,572 | $ | 1,008,288 | ||||||||||||||||||||||||||||
Loansheld-in-portfolio excluding impaired loans | 10,898,391 | 823,325 | 6,520,218 | 37,508 | 753,413 | 3,710,662 | 22,743,517 | 11,637,700 | 923,670 | 6,787,087 | 27,566 | 902,609 | 5,225,248 | 25,503,880 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total loansheld-in-portfolio | $ | 11,227,095 | $ | 823,325 | $ | 7,039,446 | $ | 37,508 | $ | 754,881 | $ | 3,816,049 | $ | 23,698,304 | $ | 11,993,707 | $ | 943,365 | $ | 7,304,170 | $ | 27,566 | $ | 903,540 | $ | 5,339,820 | $ | 26,512,168 | ||||||||||||||||||||||||||||
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For the nine months ended September 30, 2018 | ||||||||||||||||||||||||
PuertoRico - Non-covered loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 171,531 | $ | 1,286 | $ | 159,081 | $ | 11,991 | $ | 174,215 | $ | 518,104 | ||||||||||||
Provision (reversal of provision) | 52,846 | (1,042 | ) | 24,564 | 5,022 | 71,610 | 153,000 | |||||||||||||||||
Charge-offs | (25,626 | ) | 9 | (50,164 | ) | (6,404 | ) | (101,703 | ) | (183,888 | ) | |||||||||||||
Recoveries | 11,354 | 625 | 3,383 | 1,697 | 22,291 | 39,350 | ||||||||||||||||||
Allowance transferred from covered loans[1] | — | — | 33,422 | — | 188 | 33,610 | ||||||||||||||||||
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|
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|
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| |||||||||||||
Ending balance | $ | 210,105 | $ | 878 | $ | 170,286 | $ | 12,306 | $ | 166,601 | $ | 560,176 | ||||||||||||
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|
|
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|
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| |||||||||||||
Specific ALLL | $ | 52,250 | $ | — | $ | 43,841 | $ | 297 | $ | 24,906 | $ | 121,294 | ||||||||||||
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|
|
|
|
|
| |||||||||||||
General ALLL | $ | 157,855 | $ | 878 | $ | 126,445 | $ | 12,009 | $ | 141,695 | $ | 438,882 | ||||||||||||
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| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impairednon-covered loans | $ | 356,007 | $ | 1,829 | $ | 508,258 | $ | 931 | $ | 107,184 | $ | 974,209 | ||||||||||||
Non-covered loansheld-in-portfolio excluding impaired loans | 7,051,469 | 75,964 | 6,023,018 | 902,609 | 4,796,084 | 18,849,144 | ||||||||||||||||||
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|
|
|
|
|
| |||||||||||||
Totalnon-covered loansheld-in-portfolio | $ | 7,407,476 | $ | 77,793 | $ | 6,531,276 | $ | 903,540 | $ | 4,903,268 | $ | 19,823,353 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2016 | ||||||||||||||||||||||||
Puerto Rico -Non-covered loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 199,827 | $ | 3,605 | $ | 136,724 | $ | 10,094 | $ | 130,471 | $ | 480,721 | ||||||||||||
Provision (reversal of provision) | 13,746 | (605 | ) | 13,841 | (1,363 | ) | 10,662 | 36,281 | ||||||||||||||||
Charge-offs | (13,799 | ) | (951 | ) | (16,002 | ) | (1,429 | ) | (25,470 | ) | (57,651 | ) | ||||||||||||
Recoveries | 10,600 | 65 | 765 | 613 | 12,649 | 24,692 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 210,374 | $ | 2,114 | $ | 135,328 | $ | 7,915 | $ | 128,312 | $ | 484,043 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | 58,527 | $ | — | $ | 43,567 | $ | 540 | $ | 23,708 | $ | 126,342 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 151,847 | $ | 2,114 | $ | 91,761 | $ | 7,375 | $ | 104,604 | $ | 357,701 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impairednon-covered loans | $ | 328,868 | $ | — | $ | 487,972 | $ | 1,899 | $ | 108,341 | $ | 927,080 | ||||||||||||
Non-covered loansheld-in-portfolio excluding impaired loans | 6,925,290 | 81,054 | 5,476,876 | 680,911 | 3,185,490 | 16,349,621 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Totalnon-covered loansheld-in-portfolio | $ | 7,254,158 | $ | 81,054 | $ | 5,964,848 | $ | 682,810 | $ | 3,293,831 | $ | 17,276,701 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2016 Puerto Rico - Covered Loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired covered loans Covered loansheld-in-portfolio excluding impaired loans Total covered loansheld-in-portfolio For the quarter ended September 30, 2016 U.S. Mainland - Continuing Operations (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio Commercial Construction Mortgage Leasing Consumer Total $ — $ — $ 29,951 $ — $ 630 $ 30,581 — — 845 — (95 ) 750 — — (973 ) — (411 ) (1,384 ) — — 312 — 3 315 $ — $ — $ 30,135 $ — $ 127 $ 30,262 $ — $ — $ — $ — $ — $ — $ — $ — $ 30,135 $ — $ 127 $ 30,262 $ — $ — $ — $ — $ — $ — — — 571,349 — 16,862 588,211 $ — $ — $ 571,349 $ — $ 16,862 $ 588,211 Commercial Construction Mortgage Legacy Consumer Total $ 9,854 $ 7,460 $ 4,762 $ 1,852 $ 13,490 $ 37,418 2,765 368 1,380 (690 ) 2,490 6,313 (155 ) — (2,022 ) (145 ) (2,884 ) (5,206 ) 1,328 — 80 665 952 3,025 $ 13,792 $ 7,828 $ 4,200 $ 1,682 $ 14,048 $ 41,550 $ — $ — $ 1,990 $ — $ 725 $ 2,715 $ 13,792 $ 7,828 $ 2,210 $ 1,682 $ 13,323 $ 38,835 $ — $ — $ 8,896 $ — $ 2,588 $ 11,484 3,283,022 650,298 800,763 47,914 525,790 5,307,787 $ 3,283,022 $ 650,298 $ 809,659 $ 47,914 $ 528,378 $ 5,319,271
[1] | Represents the allowance transferred from covered tonon-covered loans at June 30, 2018, due to the Termination Agreement with the FDIC. |
For the quarter ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the nine months ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Puerto Rico - Covered loans | Puerto Rico - Covered loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | Commercial | Construction | Mortgage | Leasing | Consumer | Total | |||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 209,681 | $ | 11,065 | $ | 171,437 | $ | 1,852 | $ | 10,094 | $ | 144,591 | $ | 548,720 | $ | — | $ | — | $ | 32,521 | $ | — | $ | 723 | $ | 33,244 | ||||||||||||||||||||||||||
Provision (reversal of provision) | 16,511 | (237 | ) | 16,066 | (690 | ) | (1,363 | ) | 13,057 | 43,344 | — | — | 2,265 | — | (535 | ) | 1,730 | |||||||||||||||||||||||||||||||||||
Charge-offs | (13,954 | ) | (951 | ) | (18,997 | ) | (145 | ) | (1,429 | ) | (28,765 | ) | (64,241 | ) | — | — | (1,446 | ) | — | (2 | ) | (1,448 | ) | |||||||||||||||||||||||||||||
Recoveries | 11,928 | 65 | 1,157 | 665 | 613 | 13,604 | 28,032 | — | — | 82 | — | 2 | 84 | |||||||||||||||||||||||||||||||||||||||
Allowance transferred tonon-covered loans | — | — | (33,422 | ) | — | (188 | ) | (33,610 | ) | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Ending balance | $ | 224,166 | $ | 9,942 | $ | 169,663 | $ | 1,682 | $ | 7,915 | $ | 142,487 | $ | 555,855 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Specific ALLL | $ | 58,527 | $ | — | $ | 45,557 | $ | — | $ | 540 | $ | 24,433 | $ | 129,057 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
General ALLL | $ | 165,639 | $ | 9,942 | $ | 124,106 | $ | 1,682 | $ | 7,375 | $ | 118,054 | $ | 426,798 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired loans | $ | 328,868 | $ | — | $ | 496,868 | $ | — | $ | 1,899 | $ | 110,929 | $ | 938,564 | ||||||||||||||||||||||||||||||||||||||
Loansheld-in-portfolio excluding impaired loans | 10,208,312 | 731,352 | 6,848,988 | 47,914 | 680,911 | 3,728,142 | 22,245,619 | |||||||||||||||||||||||||||||||||||||||||||||
Impaired covered loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||
Covered loansheld-in-portfolio excluding impaired loans | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Total loansheld-in-portfolio | $ | 10,537,180 | $ | 731,352 | $ | 7,345,856 | $ | 47,914 | $ | 682,810 | $ | 3,839,071 | $ | 23,184,183 | ||||||||||||||||||||||||||||||||||||||
Total covered loansheld-in-portfolio | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2016 Puerto Rico -Non-covered loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Net recoveries (write-downs) Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impairednon-covered loans Non-covered loansheld-in-portfolio excluding impaired loans Totalnon-covered loansheld-in-portfolio For the nine months ended September 30, 2016 Puerto Rico - Covered Loans (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired covered loans Covered loansheld-in-portfolio excluding impaired loans Total covered loansheld-in-portfolio For the nine months ended September 30, 2016 U.S. Mainland (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio Commercial Construction Mortgage Leasing Consumer Total $ 186,925 $ 4,957 $ 128,327 $ 10,993 $ 138,721 $ 469,923 30,630 (5,786 ) 50,398 (190 ) 43,451 118,503 (47,256 ) (3,026 ) (45,924 ) (4,435 ) (78,860 ) (179,501 ) 35,706 5,055 2,527 1,547 24,838 69,673 4,369 914 — — 162 5,445 $ 210,374 $ 2,114 $ 135,328 $ 7,915 $ 128,312 $ 484,043 $ 58,527 $ — $ 43,567 $ 540 $ 23,708 $ 126,342 $ 151,847 $ 2,114 $ 91,761 $ 7,375 $ 104,604 $ 357,701 $ 328,868 $ — $ 487,972 $ 1,899 $ 108,341 $ 927,080 6,925,290 81,054 5,476,876 680,911 3,185,490 16,349,621 $ 7,254,158 $ 81,054 $ 5,964,848 $ 682,810 $ 3,293,831 $ 17,276,701 Commercial Construction Mortgage Leasing Consumer Total $ — $ — $ 33,967 $ — $ 209 $ 34,176 — — (1,476 ) — (75 ) (1,551 ) — — (3,078 ) — (17 ) (3,095 ) — — 722 — 10 732 $ — $ — $ 30,135 $ — $ 127 $ 30,262 $ — $ — $ — $ — $ — $ — $ — $ — $ 30,135 $ — $ 127 $ 30,262 $ — $ — $ — $ — $ — $ — — — 571,349 — 16,862 588,211 $ — $ — $ 571,349 $ — $ 16,862 $ 588,211 Commercial Construction Mortgage Legacy Consumer Total $ 9,908 $ 3,912 $ 4,985 $ 2,687 $ 11,520 $ 33,012 1,651 3,916 1,403 (2,665 ) 7,394 11,699 (1,040 ) — (2,595 ) (388 ) (8,194 ) (12,217 ) 3,273 — 407 2,048 3,328 9,056 $ 13,792 $ 7,828 $ 4,200 $ 1,682 $ 14,048 $ 41,550 $ — $ — $ 1,990 $ — $ 725 $ 2,715 $ 13,792 $ 7,828 $ 2,210 $ 1,682 $ 13,323 $ 38,835 $ — $ — $ 8,896 $ — $ 2,588 $ 11,484 3,283,022 650,298 800,763 47,914 525,790 5,307,787 $ 3,283,022 $ 650,298 $ 809,659 $ 47,914 $ 528,378 $ 5,319,271
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 44,134 | $ | 7,076 | $ | 4,541 | $ | 798 | $ | 15,529 | $ | 72,078 | ||||||||||||
Provision (reversal of provision) | 9,004 | 7,166 | (529 | ) | (1,714 | ) | 16,847 | 30,774 | ||||||||||||||||
Charge-offs | (22,435 | ) | — | (160 | ) | (252 | ) | (16,329 | ) | (39,176 | ) | |||||||||||||
Recoveries | 3,732 | — | 449 | 1,545 | 4,140 | 9,866 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 34,435 | $ | 14,242 | $ | 4,301 | $ | 377 | $ | 20,187 | $ | 73,542 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | — | $ | 5,530 | $ | 2,364 | $ | — | $ | 1,349 | $ | 9,243 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 34,435 | $ | 8,712 | $ | 1,937 | $ | 377 | $ | 18,838 | $ | 64,299 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired loans | $ | — | $ | 17,866 | $ | 8,825 | $ | — | $ | 7,388 | $ | 34,079 | ||||||||||||
Loansheld-in-portfolio excluding impaired loans | 4,586,231 | 847,706 | 764,069 | 27,566 | 429,164 | 6,654,736 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loansheld-in-portfolio | $ | 4,586,231 | $ | 865,572 | $ | 772,894 | $ | 27,566 | $ | 436,552 | $ | 6,688,815 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | |||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 215,665 | $ | 8,362 | $ | 196,143 | $ | 798 | $ | 11,991 | $ | 190,467 | $ | 623,426 | ||||||||||||||
Provision (reversal of provision) | 61,850 | 6,124 | 26,300 | (1,714 | ) | 5,022 | 87,922 | 185,504 | ||||||||||||||||||||
Charge-offs | (48,061 | ) | 9 | (51,770 | ) | (252 | ) | (6,404 | ) | (118,034 | ) | (224,512 | ) | |||||||||||||||
Recoveries | 15,086 | 625 | 3,914 | 1,545 | 1,697 | 26,433 | 49,300 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | $ | 244,540 | $ | 15,120 | $ | 174,587 | $ | 377 | $ | 12,306 | $ | 186,788 | $ | 633,718 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Specific ALLL | $ | 52,250 | $ | 5,530 | $ | 46,205 | $ | — | $ | 297 | $ | 26,255 | $ | 130,537 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
General ALLL | $ | 192,290 | $ | 9,590 | $ | 128,382 | $ | 377 | $ | 12,009 | $ | 160,533 | $ | 503,181 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||
Impaired loans | $ | 356,007 | $ | 19,695 | $ | 517,083 | $ | — | $ | 931 | $ | 114,572 | $ | 1,008,288 | ||||||||||||||
Loansheld-in-portfolio excluding impaired loans | 11,637,700 | 923,670 | 6,787,087 | 27,566 | 902,609 | 5,225,248 | 25,503,880 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total loansheld-in-portfolio | $ | 11,993,707 | $ | 943,365 | $ | 7,304,170 | $ | 27,566 | $ | 903,540 | $ | 5,339,820 | $ | 26,512,168 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2017 | ||||||||||||||||||||||||
Puerto Rico -Non-covered loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 174,189 | $ | 1,473 | $ | 147,866 | $ | 8,003 | $ | 122,904 | $ | 454,435 | ||||||||||||
Provision | 31,059 | 176 | 38,838 | 3,924 | 41,118 | 115,115 | ||||||||||||||||||
Charge-offs | (5,573 | ) | 9 | (17,460 | ) | (1,733 | ) | (31,793 | ) | (56,550 | ) | |||||||||||||
Recoveries | 6,011 | 41 | 389 | 238 | 4,570 | 11,249 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 205,686 | $ | 1,699 | $ | 169,633 | $ | 10,432 | $ | 136,799 | $ | 524,249 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | 49,129 | $ | 450 | $ | 21,730 | $ | 112,172 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 164,823 | $ | 1,699 | $ | 120,504 | $ | 9,982 | $ | 115,069 | $ | 412,077 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impairednon-covered loans | $ | 328,704 | $ | — | $ | 510,134 | $ | 1,468 | $ | 101,948 | $ | 942,254 | ||||||||||||
Non-covered loansheld-in-portfolio excluding impaired loans | 6,840,907 | 87,705 | 5,305,371 | 753,413 | 3,188,422 | 16,175,818 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Totalnon-covered loansheld-in-portfolio | $ | 7,169,611 | $ | 87,705 | $ | 5,815,505 | $ | 754,881 | $ | 3,290,370 | $ | 17,118,072 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2016 Popular, Inc. (In thousands) Allowance for credit losses: Beginning balance Provision (reversal of provision) Charge-offs Recoveries Net recoveries (write-downs) Ending balance Specific ALLL General ALLL Loansheld-in-portfolio: Impaired loans Loansheld-in-portfolio excluding impaired loans Total loansheld-in-portfolio Commercial Construction Mortgage Legacy Leasing Consumer Total $ 196,833 $ 8,869 $ 167,279 $ 2,687 $ 10,993 $ 150,450 $ 537,111 32,281 (1,870 ) 50,325 (2,665 ) (190 ) 50,770 128,651 (48,296 ) (3,026 ) (51,597 ) (388 ) (4,435 ) (87,071 ) (194,813 ) 38,979 5,055 3,656 2,048 1,547 28,176 79,461 4,369 914 — — — 162 5,445 $ 224,166 $ 9,942 $ 169,663 $ 1,682 $ 7,915 $ 142,487 $ 555,855 $ 58,527 $ — $ 45,557 $ — $ 540 $ 24,433 $ 129,057 $ 165,639 $ 9,942 $ 124,106 $ 1,682 $ 7,375 $ 118,054 $ 426,798 $ 328,868 $ — $ 496,868 $ — $ 1,899 $ 110,929 $ 938,564 10,208,312 731,352 6,848,988 47,914 680,911 3,728,142 22,245,619 $ 10,537,180 $ 731,352 $ 7,345,856 $ 47,914 $ 682,810 $ 3,839,071 $ 23,184,183
For the quarter ended September 30, 2017 | ||||||||||||||||||||||||
Puerto Rico - Covered Loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | — | $ | — | $ | 30,284 | $ | — | $ | 524 | $ | 30,808 | ||||||||||||
Provision | — | — | 2,538 | — | 562 | 3,100 | ||||||||||||||||||
Charge-offs | — | — | (863 | ) | — | (24 | ) | (887 | ) | |||||||||||||||
Recoveries | — | — | 32 | — | 4 | 36 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | — | $ | — | $ | 31,991 | $ | — | $ | 1,066 | $ | 33,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | — | $ | — | $ | 31,991 | $ | — | $ | 1,066 | $ | 33,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired covered loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Covered loansheld-in-portfolio excluding impaired loans | — | — | 510,211 | — | 14,643 | 524,854 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total covered loansheld-in-portfolio | $ | — | $ | — | $ | 510,211 | $ | — | $ | 14,643 | $ | 524,854 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
For the quarter ended September 30, 2017 | ||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 28,319 | $ | 6,528 | $ | 4,122 | $ | 993 | $ | 14,809 | $ | 54,771 | ||||||||||||
Provision (reversal of provision) | 39,246 | 595 | (39 | ) | (418 | ) | 3,160 | 42,544 | ||||||||||||||||
Charge-offs | (4,553 | ) | — | (113 | ) | (86 | ) | (4,957 | ) | (9,709 | ) | |||||||||||||
Recoveries | 271 | — | 287 | 383 | 1,060 | 2,001 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 63,283 | $ | 7,123 | $ | 4,257 | $ | 872 | $ | 14,072 | $ | 89,607 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | — | $ | — | $ | 2,292 | $ | — | $ | 727 | $ | 3,019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 63,283 | $ | 7,123 | $ | 1,965 | $ | 872 | $ | 13,345 | $ | 86,588 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired loans | $ | — | $ | — | $ | 9,094 | $ | — | $ | 3,439 | $ | 12,533 | ||||||||||||
Loansheld-in-portfolio excluding impaired loans | 4,057,484 | 735,620 | 704,636 | 37,508 | 507,597 | 6,042,845 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loansheld-in-portfolio | $ | 4,057,484 | $ | 735,620 | $ | 713,730 | $ | 37,508 | $ | 511,036 | $ | 6,055,378 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2017 | ||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | |||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 202,508 | $ | 8,001 | $ | 182,272 | $ | 993 | $ | 8,003 | $ | 138,237 | $ | 540,014 | ||||||||||||||
Provision (reversal of provision) | 70,305 | 771 | 41,337 | (418 | ) | 3,924 | 44,840 | 160,759 | ||||||||||||||||||||
Charge-offs | (10,126 | ) | 9 | (18,436 | ) | (86 | ) | (1,733 | ) | (36,774 | ) | (67,146 | ) | |||||||||||||||
Recoveries | 6,282 | 41 | 708 | 383 | 238 | 5,634 | 13,286 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | $ | 268,969 | $ | 8,822 | $ | 205,881 | $ | 872 | $ | 10,432 | $ | 151,937 | $ | 646,913 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | 51,421 | $ | — | $ | 450 | $ | 22,457 | $ | 115,191 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
General ALLL | $ | 228,106 | $ | 8,822 | $ | 154,460 | $ | 872 | $ | 9,982 | $ | 129,480 | $ | 531,722 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||
Impaired loans | $ | 328,704 | $ | — | $ | 519,228 | $ | — | $ | 1,468 | $ | 105,387 | $ | 954,787 | ||||||||||||||
Loansheld-in-portfolio excluding impaired loans | 10,898,391 | 823,325 | 6,520,218 | 37,508 | 753,413 | 3,710,662 | 22,743,517 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total loansheld-in-portfolio | $ | 11,227,095 | $ | 823,325 | $ | 7,039,446 | $ | 37,508 | $ | 754,881 | $ | 3,816,049 | $ | 23,698,304 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2017 | ||||||||||||||||||||||||
Puerto Rico -Non-covered loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 189,686 | $ | 1,353 | $ | 143,320 | $ | 7,662 | $ | 125,963 | $ | 467,984 | ||||||||||||
Provision (reversal of provision) | 29,945 | (2,218 | ) | 77,692 | 6,516 | 76,831 | 188,766 | |||||||||||||||||
Charge-offs | (38,219 | ) | (3,646 | ) | (53,936 | ) | (5,030 | ) | (81,607 | ) | (182,438 | ) | ||||||||||||
Recoveries | 24,274 | 6,210 | 2,557 | 1,284 | 15,612 | 49,937 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 205,686 | $ | 1,699 | $ | 169,633 | $ | 10,432 | $ | 136,799 | $ | 524,249 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | 49,129 | $ | 450 | $ | 21,730 | $ | 112,172 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 164,823 | $ | 1,699 | $ | 120,504 | $ | 9,982 | $ | 115,069 | $ | 412,077 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impairednon-covered loans | $ | 328,704 | $ | — | $ | 510,134 | $ | 1,468 | $ | 101,948 | $ | 942,254 | ||||||||||||
Non-covered loansheld-in-portfolio excluding impaired loans | 6,840,907 | 87,705 | 5,305,371 | 753,413 | 3,188,422 | 16,175,818 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Totalnon-covered loansheld-in-portfolio | $ | 7,169,611 | $ | 87,705 | $ | 5,815,505 | $ | 754,881 | $ | 3,290,370 | $ | 17,118,072 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
For the nine months ended September 30, 2017 | ||||||||||||||||||||||||
Puerto Rico - Covered Loans | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | — | $ | — | $ | 30,159 | $ | — | $ | 191 | $ | 30,350 | ||||||||||||
Provision | — | — | 3,253 | — | 1,002 | 4,255 | ||||||||||||||||||
Charge-offs | — | — | (2,700 | ) | — | (134 | ) | (2,834 | ) | |||||||||||||||
Recoveries | — | — | 1,279 | — | 7 | 1,286 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | — | $ | — | $ | 31,991 | $ | — | $ | 1,066 | $ | 33,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | — | $ | — | $ | 31,991 | $ | — | $ | 1,066 | $ | 33,057 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired covered loans | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Covered loansheld-in-portfolio excluding impaired loans | — | — | 510,211 | — | 14,643 | 524,854 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total covered loansheld-in-portfolio | $ | — | $ | — | $ | 510,211 | $ | — | $ | 14,643 | $ | 524,854 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
For the nine months ended September 30, 2017 | ||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Consumer | Total | ||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||
Beginning balance | $ | 12,968 | $ | 8,172 | $ | 4,614 | $ | 1,343 | $ | 15,220 | $ | 42,317 | ||||||||||||
Provision (reversal of provision) | 53,491 | (1,049 | ) | (173 | ) | (1,554 | ) | 10,200 | 60,915 | |||||||||||||||
Charge-offs | (4,774 | ) | — | (1,064 | ) | (669 | ) | (14,476 | ) | (20,983 | ) | |||||||||||||
Recoveries | 1,598 | — | 880 | 1,752 | 3,128 | 7,358 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending balance | $ | 63,283 | $ | 7,123 | $ | 4,257 | $ | 872 | $ | 14,072 | $ | 89,607 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Specific ALLL | $ | — | $ | — | $ | 2,292 | $ | — | $ | 727 | $ | 3,019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
General ALLL | $ | 63,283 | $ | 7,123 | $ | 1,965 | $ | 872 | $ | 13,345 | $ | 86,588 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||
Impaired loans | $ | — | $ | — | $ | 9,094 | $ | — | $ | 3,439 | $ | 12,533 | ||||||||||||
Loansheld-in-portfolio excluding impaired loans | 4,057,484 | 735,620 | 704,636 | 37,508 | 507,597 | 6,042,845 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total loansheld-in-portfolio | $ | 4,057,484 | $ | 735,620 | $ | 713,730 | $ | 37,508 | $ | 511,036 | $ | 6,055,378 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2017 | ||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||
(In thousands) | Commercial | Construction | Mortgage | Legacy | Leasing | Consumer | Total | |||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||
Beginning balance | $ | 202,654 | $ | 9,525 | $ | 178,093 | $ | 1,343 | $ | 7,662 | $ | 141,374 | $ | 540,651 | ||||||||||||||
Provision (reversal of provision) | 83,436 | (3,267 | ) | 80,772 | (1,554 | ) | 6,516 | 88,033 | 253,936 | |||||||||||||||||||
Charge-offs | (42,993 | ) | (3,646 | ) | (57,700 | ) | (669 | ) | (5,030 | ) | (96,217 | ) | (206,255 | ) | ||||||||||||||
Recoveries | 25,872 | 6,210 | 4,716 | 1,752 | 1,284 | 18,747 | 58,581 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | $ | 268,969 | $ | 8,822 | $ | 205,881 | $ | 872 | $ | 10,432 | $ | 151,937 | $ | 646,913 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | 51,421 | $ | — | $ | 450 | $ | 22,457 | $ | 115,191 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
General ALLL | $ | 228,106 | $ | 8,822 | $ | 154,460 | $ | 872 | $ | 9,982 | $ | 129,480 | $ | 531,722 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||
Impaired loans | $ | 328,704 | $ | — | $ | 519,228 | $ | — | $ | 1,468 | $ | 105,387 | $ | 954,787 | ||||||||||||||
Loansheld-in-portfolio excluding impaired loans | 10,898,391 | 823,325 | 6,520,218 | 37,508 | 753,413 | 3,710,662 | 22,743,517 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total loansheld-in-portfolio | $ | 11,227,095 | $ | 823,325 | $ | 7,039,446 | $ | 37,508 | $ | 754,881 | $ | 3,816,049 | $ | 23,698,304 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides the activity in the allowance for loan losses related to Westernbank loans accounted for pursuant to ASC Subtopic310-30.
ASC310-30 | ASC310-30 | |||||||||||||||||||||||||||||||
For the quarters ended | For the nine months ended | For the quarters ended | For the nine months ended | |||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||||||||||||||
Balance at beginning of period | $ | 65,674 | $ | 66,995 | $ | 68,877 | $ | 63,563 | $ | 156,328 | $ | 103,597 | $ | 119,505 | $ | 91,308 | ||||||||||||||||
Provision (reversal of provision) | 2,995 | 6,710 | 8,214 | 2,640 | ||||||||||||||||||||||||||||
Net recoveries (charge-offs) | (1,569 | ) | (4,134 | ) | (9,991 | ) | 3,368 | |||||||||||||||||||||||||
Provision | 17,854 | 41,683 | 78,317 | 64,336 | ||||||||||||||||||||||||||||
Net charge-offs | (5,623 | ) | (7,250 | ) | (29,263 | ) | (17,614 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Balance at end of period | $ | 67,100 | $ | 69,571 | $ | 67,100 | $ | 69,571 | $ | 168,559 | $ | 138,030 | $ | 168,559 | $ | 138,030 | ||||||||||||||||
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|
|
|
|
|
|
|
Impaired loans
The following tables present loans individually evaluated for impairment at September 30, 20172018 and December 31, 2016.2017.
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2018 | September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Puerto Rico | Puerto Rico | Puerto Rico | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | Allowance | With No Allowance | Impaired Loans - Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | Unpaid | Unpaid | Unpaid | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 204 | $ | 204 | $ | 30 | $ | — | $ | — | $ | 204 | $ | 204 | $ | 30 | $ | 1,501 | $ | 1,501 | $ | 13 | $ | — | $ | — | $ | 1,501 | $ | 1,501 | $ | 13 | ||||||||||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 109,814 | 120,252 | 25,535 | 7,617 | 12,780 | 117,431 | 133,032 | 25,535 | 85,259 | 86,091 | 27,582 | 48,690 | 61,520 | 133,949 | 147,611 | 27,582 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate owner occupied | 120,196 | 178,892 | 8,729 | 28,389 | 59,034 | 148,585 | 237,926 | 8,729 | 116,746 | 138,880 | 8,489 | 29,740 | 63,750 | 146,486 | 202,630 | 8,489 | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 46,807 | 49,869 | 6,569 | 15,677 | 25,105 | 62,484 | 74,974 | 6,569 | 64,437 | 66,344 | 16,166 | 9,634 | 19,878 | 74,071 | 86,222 | 16,166 | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | 1,829 | 1,829 | 1,829 | 1,829 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage | 452,734 | 502,908 | 49,129 | 57,400 | 69,694 | 510,134 | 572,602 | 49,129 | 444,980 | 506,941 | 43,841 | 63,278 | 84,504 | 508,258 | 591,445 | 43,841 | ||||||||||||||||||||||||||||||||||||||||||||||||
Leasing | 1,468 | 1,468 | 450 | — | — | 1,468 | 1,468 | 450 | 931 | 931 | 297 | — | — �� | 931 | 931 | 297 | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 35,782 | 35,782 | 5,500 | — | — | 35,782 | 35,782 | 5,500 | 30,674 | 30,674 | 5,193 | — | — | 30,674 | 30,674 | 5,193 | ||||||||||||||||||||||||||||||||||||||||||||||||
Personal | 63,015 | 63,015 | 15,616 | — | — | 63,015 | 63,015 | 15,616 | 74,114 | 74,114 | 19,296 | — | — | 74,114 | 74,114 | 19,296 | ||||||||||||||||||||||||||||||||||||||||||||||||
Auto | 2,049 | 2,049 | 440 | — | — | 2,049 | 2,049 | 440 | 1,099 | 1,099 | 225 | — | — | 1,099 | 1,099 | 225 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 1,102 | 1,102 | 174 | — | — | 1,102 | 1,102 | 174 | 1,297 | 1,297 | 192 | — | — | 1,297 | 1,297 | 192 | ||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||
Total Puerto Rico | $ | 833,171 | $ | 955,541 | $ | 112,172 | $ | 109,083 | $ | 166,613 | $ | 942,254 | $ | 1,122,154 | $ | 112,172 | $ | 821,038 | $ | 907,872 | $ | 121,294 | $ | 153,171 | $ | 231,481 | $ | 974,209 | $ | 1,139,353 | $ | 121,294 | ||||||||||||||||||||||||||||||||
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September 30, 2017 U.S. mainland (In thousands) Mortgage Consumer: HELOCs Personal Total U.S. mainland September 30, 2017 Popular, Inc. (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit Cards HELOCs Personal Auto Other Total Popular, Inc. December 31, 2016 Puerto Rico (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards Personal Auto Other Total Puerto Rico December 31, 2016 U.S. mainland (In thousands) Mortgage Consumer: HELOCs Personal Total U.S. mainland Impaired Loans – With an Impaired Loans Allowance With No Allowance Impaired Loans - Total Unpaid Unpaid Unpaid Recorded principal Related Recorded principal Recorded principal Related investment balance allowance investment balance investment balance allowance $ 6,501 $ 8,282 $ 2,292 $ 2,593 $ 3,513 $ 9,094 $ 11,795 $ 2,292 2,149 2,158 501 519 536 2,668 2,694 501 554 555 226 217 217 771 772 226 $ 9,204 $ 10,995 $ 3,019 $ 3,329 $ 4,266 $ 12,533 $ 15,261 $ 3,019 Impaired Loans – With an Impaired Loans Allowance With No Allowance Impaired Loans - Total Unpaid Unpaid Unpaid Recorded principal Related Recorded principal Recorded principal Related investment balance allowance investment balance investment balance allowance $ 204 $ 204 $ 30 $ — $ — $ 204 $ 204 $ 30 109,814 120,252 25,535 7,617 12,780 117,431 133,032 25,535 120,196 178,892 8,729 28,389 59,034 148,585 237,926 8,729 46,807 49,869 6,569 15,677 25,105 62,484 74,974 6,569 459,235 511,190 51,421 59,993 73,207 519,228 584,397 51,421 1,468 1,468 450 — — 1,468 1,468 450 35,782 35,782 5,500 — — 35,782 35,782 5,500 2,149 2,158 501 519 536 2,668 2,694 501 63,569 63,570 15,842 217 217 63,786 63,787 15,842 2,049 2,049 440 — — 2,049 2,049 440 1,102 1,102 174 — — 1,102 1,102 174 $ 842,375 $ 966,536 $ 115,191 $ 112,412 $ 170,879 $ 954,787 $ 1,137,415 $ 115,191 Impaired Loans – With an Impaired Loans Allowance With No Allowance Impaired Loans - Total Unpaid Unpaid Unpaid Recorded principal Related Recorded principal Recorded principal Related investment balance allowance investment balance investment balance allowance $ 82 $ 82 $ 34 $ — $ — $ 82 $ 82 $ 34 104,119 105,047 24,537 15,935 29,631 120,054 134,678 24,537 131,634 169,013 13,007 31,962 50,094 163,596 219,107 13,007 46,862 49,301 4,797 7,828 11,478 54,690 60,779 4,797 426,737 466,249 42,428 70,751 87,806 497,488 554,055 42,428 1,817 1,817 535 — — 1,817 1,817 535 37,464 37,464 5,588 — — 37,464 37,464 5,588 66,043 66,043 16,955 — — 66,043 66,043 16,955 2,117 2,117 474 — — 2,117 2,117 474 991 991 168 — — 991 991 168 $ 817,866 $ 898,124 $ 108,523 $ 126,476 $ 179,009 $ 944,342 $ 1,077,133 $ 108,523 Impaired Loans – With an Impaired Loans Allowance With No Allowance Impaired Loans - Total Unpaid Unpaid Unpaid Recorded principal Related Recorded principal Recorded principal Related investment balance allowance investment balance investment balance allowance $ 6,381 $ 7,971 $ 2,182 $ 2,495 $ 3,369 $ 8,876 $ 11,340 $ 2,182 2,421 2,429 667 300 315 2,721 2,744 667 39 39 5 79 79 118 118 5 $ 8,841 $ 10,439 $ 2,854 $ 2,874 $ 3,763 $ 11,715 $ 14,202 $ 2,854
September 30, 2018 | ||||||||||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | ||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||
Construction | $ | 17,866 | $ | 18,128 | $ | 5,530 | $ | — | $ | — | $ | 17,866 | $ | 18,128 | $ | 5,530 | ||||||||||||||||
Mortgage | 6,629 | 8,231 | 2,364 | 2,196 | 3,137 | 8,825 | 11,368 | 2,364 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
HELOCs | 5,335 | 5,366 | 1,102 | 1,288 | 1,354 | 6,623 | $ | 6,720 | $ | 1,102 | ||||||||||||||||||||||
Personal | 633 | 633 | 247 | 132 | 132 | 765 | $ | 765 | $ | 247 | ||||||||||||||||||||||
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Total Popular U.S. | $ | 30,463 | $ | 32,358 | $ | 9,243 | $ | 3,616 | $ | 4,623 | $ | 34,079 | $ | 36,981 | $ | 9,243 | ||||||||||||||||
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September 30, 2018 | ||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | ||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||
Commercial multi-family | $ | 1,501 | $ | 1,501 | $ | 13 | $ | — | $ | — | $ | 1,501 | $ | 1,501 | $ | 13 | ||||||||||||||||
Commercial real estatenon-owner occupied | 85,259 | 86,091 | 27,582 | 48,690 | 61,520 | 133,949 | 147,611 | 27,582 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 116,746 | 138,880 | 8,489 | 29,740 | 63,750 | 146,486 | 202,630 | 8,489 | ||||||||||||||||||||||||
Commercial and industrial | 64,437 | 66,344 | 16,166 | 9,634 | 19,878 | 74,071 | 86,222 | 16,166 | ||||||||||||||||||||||||
Construction | 17,866 | 18,128 | 5,530 | 1,829 | 1,829 | 19,695 | 19,957 | 5,530 | ||||||||||||||||||||||||
Mortgage | 451,609 | 515,172 | 46,205 | 65,474 | 87,641 | 517,083 | 602,813 | 46,205 | ||||||||||||||||||||||||
Leasing | 931 | 931 | 297 | — | — | 931 | 931 | 297 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit Cards | 30,674 | 30,674 | 5,193 | — | — | 30,674 | 30,674 | 5,193 | ||||||||||||||||||||||||
HELOCs | 5,335 | 5,366 | 1,102 | 1,288 | 1,354 | 6,623 | 6,720 | 1,102 | ||||||||||||||||||||||||
Personal | 74,747 | 74,747 | 19,543 | 132 | 132 | 74,879 | 74,879 | 19,543 | ||||||||||||||||||||||||
Auto | 1,099 | 1,099 | 225 | — | — | 1,099 | 1,099 | 225 | ||||||||||||||||||||||||
Other | 1,297 | 1,297 | 192 | — | — | 1,297 | 1,297 | 192 | ||||||||||||||||||||||||
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Total Popular, Inc. | $ | 851,501 | $ | 940,230 | $ | 130,537 | $ | 156,787 | $ | 236,104 | $ | 1,008,288 | $ | 1,176,334 | $ | 130,537 | ||||||||||||||||
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December 31, 2017 | ||||||||||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | ||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||
Commercial multi-family | $ | 206 | $ | 206 | $ | 32 | $ | — | $ | — | $ | 206 | $ | 206 | $ | 32 | ||||||||||||||||
Commercial real estatenon-owner occupied | 101,485 | 102,262 | 23,744 | 11,454 | 27,522 | 112,939 | 129,784 | 23,744 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 127,634 | 153,495 | 10,221 | 24,634 | 57,219 | 152,268 | 210,714 | 10,221 | ||||||||||||||||||||||||
Commercial and industrial | 43,493 | 46,918 | 2,985 | 14,549 | 23,977 | 58,042 | 70,895 | 2,985 | ||||||||||||||||||||||||
Mortgage | 450,226 | 504,006 | 46,354 | 58,807 | 75,228 | 509,033 | 579,234 | 46,354 | ||||||||||||||||||||||||
Leasing | 1,456 | 1,456 | 475 | — | — | 1,456 | 1,456 | 475 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 33,676 | 33,676 | 5,569 | — | — | 33,676 | 33,676 | 5,569 | ||||||||||||||||||||||||
Personal | 62,488 | 62,488 | 15,690 | — | — | 62,488 | 62,488 | 15,690 | ||||||||||||||||||||||||
Auto | 2,007 | 2,007 | 425 | — | — | 2,007 | 2,007 | 425 | ||||||||||||||||||||||||
Other | 1,009 | 1,009 | 165 | — | — | 1,009 | 1,009 | 165 | ||||||||||||||||||||||||
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Total Puerto Rico | $ | 823,680 | $ | 907,523 | $ | 105,660 | $ | 109,444 | $ | 183,946 | $ | 933,124 | $ | 1,091,469 | $ | 105,660 | ||||||||||||||||
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December 31, 2017 | ||||||||||||||||||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | ||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||
Mortgage | $ | 6,774 | $ | 8,439 | $ | 2,478 | $ | 2,468 | $ | 3,397 | $ | 9,242 | $ | 11,836 | $ | 2,478 | ||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
HELOCs | 3,530 | 3,542 | 722 | 761 | 780 | 4,291 | 4,322 | 722 | ||||||||||||||||||||||||
Personal | 542 | 542 | 231 | 224 | 224 | 766 | 766 | 231 | ||||||||||||||||||||||||
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Total Popular U.S. | $ | 10,846 | $ | 12,523 | $ | 3,431 | $ | 3,453 | $ | 4,401 | $ | 14,299 | $ | 16,924 | $ | 3,431 | ||||||||||||||||
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December 31, 2016 Popular, Inc. (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit Cards HELOCs Personal Auto Other Total Popular, Inc. Impaired Loans – With an Impaired Loans Allowance With No Allowance Impaired Loans - Total Unpaid Unpaid Unpaid Recorded principal Related Recorded principal Recorded principal Related investment balance allowance investment balance investment balance allowance $ 82 $ 82 $ 34 $ — $ — $ 82 $ 82 $ 34 104,119 105,047 24,537 15,935 29,631 120,054 134,678 24,537 131,634 169,013 13,007 31,962 50,094 163,596 219,107 13,007 46,862 49,301 4,797 7,828 11,478 54,690 60,779 4,797 433,118 474,220 44,610 73,246 91,175 506,364 565,395 44,610 1,817 1,817 535 — — 1,817 1,817 535 37,464 37,464 5,588 — — 37,464 37,464 5,588 2,421 2,429 667 300 315 2,721 2,744 667 66,082 66,082 16,960 79 79 66,161 66,161 16,960 2,117 2,117 474 — — 2,117 2,117 474 991 991 168 — — 991 991 168 $ 826,707 $ 908,563 $ 111,377 $ 129,350 $ 182,772 $ 956,057 $ 1,091,335 $ 111,377
December 31, 2017 | ||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||
Impaired Loans – With an | Impaired Loans | |||||||||||||||||||||||||||||||
Allowance | With No Allowance | Impaired Loans - Total | ||||||||||||||||||||||||||||||
Unpaid | Unpaid | Unpaid | ||||||||||||||||||||||||||||||
Recorded | principal | Related | Recorded | principal | Recorded | principal | Related | |||||||||||||||||||||||||
(In thousands) | investment | balance | allowance | investment | balance | investment | balance | allowance | ||||||||||||||||||||||||
Commercial multi-family | $ | 206 | $ | 206 | $ | 32 | $ | — | $ | — | $ | 206 | $ | 206 | $ | 32 | ||||||||||||||||
Commercial real estatenon-owner occupied | 101,485 | 102,262 | 23,744 | 11,454 | 27,522 | 112,939 | 129,784 | 23,744 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 127,634 | 153,495 | 10,221 | 24,634 | 57,219 | 152,268 | 210,714 | 10,221 | ||||||||||||||||||||||||
Commercial and industrial | 43,493 | 46,918 | 2,985 | 14,549 | 23,977 | 58,042 | 70,895 | 2,985 | ||||||||||||||||||||||||
Mortgage | 457,000 | 512,445 | 48,832 | 61,275 | 78,625 | 518,275 | 591,070 | 48,832 | ||||||||||||||||||||||||
Leasing | 1,456 | 1,456 | 475 | — | — | 1,456 | 1,456 | 475 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit Cards | 33,676 | 33,676 | 5,569 | — | — | 33,676 | 33,676 | 5,569 | ||||||||||||||||||||||||
HELOCs | 3,530 | 3,542 | 722 | 761 | 780 | 4,291 | 4,322 | 722 | ||||||||||||||||||||||||
Personal | 63,030 | 63,030 | 15,921 | 224 | 224 | 63,254 | 63,254 | 15,921 | ||||||||||||||||||||||||
Auto | 2,007 | 2,007 | 425 | — | — | 2,007 | 2,007 | 425 | ||||||||||||||||||||||||
Other | 1,009 | 1,009 | 165 | — | — | 1,009 | 1,009 | 165 | ||||||||||||||||||||||||
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Total Popular, Inc. | $ | 834,526 | $ | 920,046 | $ | 109,091 | $ | 112,897 | $ | 188,347 | $ | 947,423 | $ | 1,108,393 | $ | 109,091 | ||||||||||||||||
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The following tables present the average recorded investment and interest income recognized on impaired loans for the quarters and nine months ended September 30, 20172018 and 2016.2017.
For the quarter ended September 30, 2018 | For the quarter ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Puerto Rico | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||||||||||||||||||||||||||
recorded | income | recorded | income | recorded | income | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) | investment | recognized | investment | recognized | investment | recognized | ||||||||||||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 1,100 | $ | 9 | $ | — | $ | — | $ | 1,100 | $ | 9 | ||||||||||||||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 132,927 | 1,371 | — | — | 132,927 | 1,371 | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate owner occupied | 148,931 | 1,636 | — | — | 148,931 | 1,636 | ||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 74,770 | 1,053 | — | — | 74,770 | 1,053 | ||||||||||||||||||||||||||||||||||||||||||
Construction | 2,194 | — | 17,884 | — | 20,078 | — | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 507,919 | 3,561 | 9,277 | 43 | 517,196 | 3,604 | ||||||||||||||||||||||||||||||||||||||||||
Leasing | 1,031 | — | — | — | 1,031 | — | ||||||||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 31,998 | — | — | — | 31,998 | — | ||||||||||||||||||||||||||||||||||||||||||
HELOCs | — | — | 6,208 | — | 6,208 | — | ||||||||||||||||||||||||||||||||||||||||||
Personal | 72,353 | 65 | 768 | — | 73,121 | 65 | ||||||||||||||||||||||||||||||||||||||||||
Auto | 1,067 | — | — | — | 1,067 | — | ||||||||||||||||||||||||||||||||||||||||||
Other | 1,136 | — | — | — | 1,136 | — | ||||||||||||||||||||||||||||||||||||||||||
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Total Popular, Inc. | $ | 975,426 | $ | 7,695 | $ | 34,137 | $ | 43 | $ | 1,009,563 | $ | 7,738 | ||||||||||||||||||||||||||||||||||||
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For the quarter ended September 30, 2017 | For the quarter ended September 30, 2017 | For the quarter ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Puerto Rico | U.S. Mainland | Popular, Inc. | Puerto Rico | Popular U.S. | Popular, Inc. | |||||||||||||||||||||||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||||||||||||||||||||
recorded | income | recorded | income | recorded | income | recorded | income | recorded | income | recorded | income | |||||||||||||||||||||||||||||||||||||
(In thousands) | investment | recognized | investment | recognized | investment | recognized | investment | recognized | investment | recognized | investment | recognized | ||||||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 141 | $ | 1 | $ | — | $ | — | $ | 141 | $ | 1 | $ | 141 | $ | 1 | $ | — | $ | — | $ | 141 | $ | 1 | ||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 117,650 | 1,272 | — | — | 117,650 | 1,272 | 117,650 | 1,272 | — | — | 117,650 | 1,272 | ||||||||||||||||||||||||||||||||||||
Commercial real estate owner occupied | 151,580 | 1,413 | — | — | 151,580 | 1,413 | 151,580 | 1,413 | — | — | 151,580 | 1,413 | ||||||||||||||||||||||||||||||||||||
Commercial and industrial | 61,950 | 531 | — | — | 61,950 | 531 | 61,950 | 531 | — | — | 61,950 | 531 | ||||||||||||||||||||||||||||||||||||
Mortgage | 507,689 | 3,211 | 8,995 | 60 | 516,684 | 3,271 | 507,689 | 3,211 | 8,995 | 60 | 516,684 | 3,271 | ||||||||||||||||||||||||||||||||||||
Leasing | 1,568 | — | — | — | 1,568 | — | 1,568 | — | — | — | 1,568 | — | ||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 35,727 | — | — | — | 35,727 | — | 35,727 | — | — | — | 35,727 | — | ||||||||||||||||||||||||||||||||||||
Helocs | — | — | 2,572 | — | 2,572 | — | ||||||||||||||||||||||||||||||||||||||||||
HELOCs | — | — | 2,572 | — | 2,572 | — | ||||||||||||||||||||||||||||||||||||||||||
Personal | 64,091 | — | 763 | — | 64,854 | — | 64,091 | — | 763 | — | 64,854 | — | ||||||||||||||||||||||||||||||||||||
Auto | 2,065 | — | — | — | 2,065 | — | 2,065 | — | — | — | 2,065 | — | ||||||||||||||||||||||||||||||||||||
Other | 991 | — | — | — | 991 | — | 991 | — | — | — | 991 | — | ||||||||||||||||||||||||||||||||||||
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Total Popular, Inc. | $ | 943,452 | $ | 6,428 | $ | 12,330 | $ | 60 | $ | 955,782 | $ | 6,488 | $ | 943,452 | $ | 6,428 | $ | 12,330 | $ | 60 | $ | 955,782 | $ | 6,488 | ||||||||||||||||||||||||
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For the quarter ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Puerto Rico | U.S. Mainland | Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||||||||||||||||||||||||||
recorded | income | recorded | income | recorded | income | |||||||||||||||||||||||||||||||||||||||||||
(In thousands) | investment | recognized | investment | recognized | investment | recognized | ||||||||||||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 43 | $ | 1 | $ | — | $ | — | $ | 43 | $ | 1 | ||||||||||||||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 140,083 | 1,345 | — | — | 140,083 | 1,345 | ||||||||||||||||||||||||||||||||||||||||||
Commercial real estate owner occupied | 136,565 | 1,408 | — | — | 136,565 | 1,408 | ||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 55,685 | 483 | — | — | 55,685 | 483 | ||||||||||||||||||||||||||||||||||||||||||
Construction | 518 | — | — | — | 518 | — | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 482,067 | 3,538 | 8,730 | 68 | 490,797 | 3,606 | ||||||||||||||||||||||||||||||||||||||||||
Leasing | 2,005 | — | — | — | 2,005 | — | ||||||||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 38,431 | — | — | — | 38,431 | — | ||||||||||||||||||||||||||||||||||||||||||
Helocs | — | — | 1,883 | — | 1,883 | — | ||||||||||||||||||||||||||||||||||||||||||
Personal | 67,077 | — | 651 | — | 67,728 | — | ||||||||||||||||||||||||||||||||||||||||||
Auto | 2,501 | — | — | — | 2,501 | — | ||||||||||||||||||||||||||||||||||||||||||
Other | 728 | — | — | — | 728 | — | ||||||||||||||||||||||||||||||||||||||||||
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Total Popular, Inc. | $ | 925,703 | $ | 6,775 | $ | 11,264 | $ | 68 | $ | 936,967 | $ | 6,843 | ||||||||||||||||||||||||||||||||||||
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For the nine months ended September 30, 2017 (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Popular, Inc. For the nine months ended September 30, 2016 (In thousands) Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Popular, Inc. Puerto Rico U.S. Mainland Popular, Inc. Average Interest Average Interest Average Interest recorded income recorded income recorded income investment recognized investment recognized investment recognized $ 111 $ 4 $ — $ — $ 111 $ 4 118,243 3,997 — — 118,243 3,997 158,046 4,640 — — 158,046 4,640 61,072 1,682 — — 61,072 1,682 503,628 11,394 8,947 156 512,575 11,550 1,689 — — — 1,689 — 36,718 — — — 36,718 — — — 2,632 — 2,632 — 64,962 — 440 — 65,402 — 2,079 — — — 2,079 — 891 — — — 891 — $ 947,439 $ 21,717 $ 12,019 $ 156 $ 959,458 $ 21,873 Puerto Rico U.S. Mainland Popular, Inc. Average Interest Average Interest Average Interest recorded income recorded income recorded income investment recognized investment recognized investment recognized 21 4 — — 21 4 $ 129,372 $ 3,971 $ — $ — $ 129,372 $ 3,971 147,305 4,349 — — 147,305 4,349 58,518 1,466 — — 58,518 1,466 1,384 — — — 1,384 — 475,108 10,311 8,046 133 483,154 10,444 2,201 — — — 2,201 — 38,344 — — — 38,344 — — — 1,741 — 1,741 — 67,624 — 632 — 68,256 — 2,689 — — — 2,689 — 606 — — — 606 — $ 923,172 $ 20,101 $ 10,419 $ 133 $ 933,591 $ 20,234
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||
Puerto Rico | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||
recorded | income | recorded | income | recorded | income | |||||||||||||||||||
(In thousands) | investment | recognized | investment | recognized | investment | recognized | ||||||||||||||||||
Commercial multi-family | $ | 634 | $ | 28 | $ | — | $ | — | $ | 634 | $ | 28 | ||||||||||||
Commercial real estatenon-owner occupied | 128,143 | 4,278 | — | — | 128,143 | 4,278 | ||||||||||||||||||
Commercial real estate owner occupied | 151,192 | 4,786 | — | — | 151,192 | 4,786 | ||||||||||||||||||
Commercial and industrial | 67,775 | 2,793 | — | — | 67,775 | 2,793 | ||||||||||||||||||
Construction | 2,170 | 25 | 8,942 | — | 11,112 | 25 | ||||||||||||||||||
Mortgage | 508,930 | 13,790 | 9,217 | 130 | 518,147 | 13,920 | ||||||||||||||||||
Leasing | 1,220 | — | — | — | 1,220 | — | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Credit cards | 32,734 | — | — | — | 32,734 | — | ||||||||||||||||||
HELOCs | — | — | 5,446 | — | 5,446 | — | ||||||||||||||||||
Personal | 67,049 | 320 | 769 | — | 67,818 | 320 | ||||||||||||||||||
Auto | 1,476 | — | — | — | 1,476 | — | ||||||||||||||||||
Other | 1,246 | — | — | — | 1,246 | — | ||||||||||||||||||
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Total Popular, Inc. | $ | 962,569 | $ | 26,020 | $ | 24,374 | $ | 130 | $ | 986,943 | $ | 26,150 | ||||||||||||
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For the nine months ended September 30, 2017 | ||||||||||||||||||||||||
Puerto Rico | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||
Average | Interest | Average | Interest | Average | Interest | |||||||||||||||||||
recorded | income | recorded | income | recorded | income | |||||||||||||||||||
(In thousands) | investment | recognized | investment | recognized | investment | recognized | ||||||||||||||||||
Commercial multi-family | $ | 111 | $ | 4 | $ | — | $ | — | $ | 111 | $ | 4 | ||||||||||||
Commercial real estatenon-owner occupied | 118,243 | 3,997 | — | — | 118,243 | 3,997 | ||||||||||||||||||
Commercial real estate owner occupied | 158,046 | 4,640 | — | — | 158,046 | 4,640 | ||||||||||||||||||
Commercial and industrial | 61,072 | 1,682 | — | — | 61,072 | 1,682 | ||||||||||||||||||
Mortgage | 503,628 | 11,394 | 8,947 | 156 | 512,575 | 11,550 | ||||||||||||||||||
Leasing | 1,689 | — | — | — | 1,689 | — | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Credit cards | 36,718 | — | — | — | 36,718 | — | ||||||||||||||||||
HELOCs | — | — | 2,632 | — | 2,632 | — | ||||||||||||||||||
Personal | 64,962 | — | 440 | — | 65,402 | — | ||||||||||||||||||
Auto | 2,079 | — | — | — | 2,079 | — | ||||||||||||||||||
Other | 891 | — | — | — | 891 | — | ||||||||||||||||||
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Total Popular, Inc. | $ | 947,439 | $ | 21,717 | $ | 12,019 | $ | 156 | $ | 959,458 | $ | 21,873 | ||||||||||||
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Modifications
Troubled debt restructurings (“TDRs”) related tonon-covered loan portfolios amounted to $ 1.3 billion at September 30, 2017 (December 31, 2016 - $ 1.2 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings amounted $8 million related to the commercial loan portfolio at September 30, 2017 (December 31, 2016 - $8 million).
At September 30, 2017, the mortgage loan TDRs include $444 million guaranteed by U.S. sponsored entities at BPPR, compared to $407 million at December 31, 2016.
A modification of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to TDRs,troubled debt restructurings (“TDRs’), refer to the summarySummary of significant accounting policiesSignificant Accounting Policies included in Note 2 of3 to the 20162017 Form10-K.
TDRs amounted to $1.4 billion at September 30, 2018 (December 31, 2017—$1.3 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $17 million related to the commercial loan portfolio at September 30, 2018 (December 31, 2017—$8 million).
At September 30, 2018, the mortgage loan TDRs include $503 million guaranteed by U.S. sponsored entities at BPPR, compared to $449 million at December 31, 2017.
The following tables presenttable presents thenon-covered and covered loans classified as TDRs according to their accruing status and the related allowance at September 30, 20172018 and December 31, 2016.2017.
(In thousands) Commercial Mortgage Leases Consumer Total (In thousands) Mortgage Total Popular, Inc. Non-Covered Loans September 30, 2017 December 31, 2016 Accruing Non-Accruing Total Related
Allowance Accruing Non-Accruing Total Related
Allowance $ 163,349 $ 66,492 $ 229,841 $ 37,471 $ 176,887 $ 83,157 $ 260,044 $ 40,810 793,478 131,424 924,902 51,421 744,926 127,071 871,997 44,610 963 370 1,333 450 1,383 434 1,817 535 95,795 12,004 107,799 22,457 100,277 12,442 112,719 23,857 $ 1,053,585 $ 210,290 $ 1,263,875 $ 111,799 $ 1,023,473 $ 223,104 $ 1,246,577 $ 109,812 Popular, Inc. Covered Loans September 30, 2017 December 31, 2016 Accruing Non-Accruing Total Related
Allowance Accruing Non-Accruing Total Related
Allowance $ 3,320 $ 2,617 $ 5,937 $ — $ 2,950 $ 2,580 $ 5,530 $ — $ 3,320 $ 2,617 $ 5,937 $ — $ 2,950 $ 2,580 $ 5,530 $ —
Popular, Inc. | ||||||||||||||||||||||||||||||||
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||
(In thousands) | Accruing | Non- Accruing | Total | Related Allowance | Accruing | Non- Accruing | Total | Related Allowance | ||||||||||||||||||||||||
Non-covered loansheld-in-portfolio: |
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Commercial | $ | 200,196 | $ | 119,250 | $ | 319,446 | $ | 46,694 | $ | 161,220 | $ | 59,626 | $ | 220,846 | $ | 32,472 | ||||||||||||||||
Construction | — | 1,829 | 1,829 | 5,530 | — | — | — | — | ||||||||||||||||||||||||
Mortgage | 863,654 | 133,708 | 997,362 | 46,205 | 803,278 | 126,798 | 930,076 | 48,832 | ||||||||||||||||||||||||
Leases | 772 | 220 | 992 | 297 | 863 | 393 | 1,256 | 475 | ||||||||||||||||||||||||
Consumer | 96,279 | 15,104 | 111,383 | 25,354 | 93,916 | 12,233 | 106,149 | 22,802 | ||||||||||||||||||||||||
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Non-covered loansheld-in-portfolio | 1,160,901 | $ | 270,111 | $ | 1,431,012 | $ | 124,080 | $ | 1,059,277 | $ | 199,050 | $ | 1,258,327 | $ | 104,581 | |||||||||||||||||
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Covered loansheld-in-portfolio: |
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Mortgage | $ | — | $ | — | $ | — | $ | — | $ | 2,658 | $ | 3,227 | $ | 5,885 | $ | — | ||||||||||||||||
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Covered loansheld-in-portfolio | $ | — | $ | — | $ | — | $ | — | $ | 2,658 | $ | 3,227 | $ | 5,885 | $ | — | ||||||||||||||||
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The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters and nine months ended September 30, 20172018 and 2016.2017. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.
Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the quarter ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial multi-family | — | 1 | — | — | — | 2 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estatenon-owner occupied | — | — | — | — | 4 | 1 | — | — | 1 | 3 | — | — | 3 | 14 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate owner occupied | — | 3 | — | — | 3 | 12 | — | — | 1 | 12 | — | — | 4 | 54 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 1 | 15 | — | — | 3 | 36 | — | — | 2 | 25 | — | — | 6 | 75 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Construction | — | — | — | — | 1 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage | 13 | 14 | 83 | 16 | 45 | 35 | 301 | 116 | 28 | 7 | 70 | 11 | 73 | 17 | 173 | 56 | ||||||||||||||||||||||||||||||||||||||||||||||||
Leasing | — | — | 1 | — | — | 1 | 6 | — | — | — | 3 | — | — | — | 4 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit cards | 140 | — | 4 | 114 | 425 | — | 5 | 424 | 115 | — | — | 72 | 426 | — | 3 | 382 | ||||||||||||||||||||||||||||||||||||||||||||||||
HELOCs | — | — | 2 | — | — | 1 | 3 | — | — | 8 | 1 | 1 | — | 20 | 8 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||
Personal | 187 | 2 | 1 | 2 | 699 | 6 | 1 | 3 | 511 | 1 | — | — | 1,139 | 4 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Auto | — | 1 | 2 | — | — | 5 | 4 | 1 | — | 4 | 1 | — | — | 6 | 2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Other | 11 | — | — | — | 27 | 1 | — | 1 | 1 | — | 1 | — | 21 | — | 2 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total | 352 | 35 | 93 | 132 | 1,206 | 98 | 320 | 545 | 659 | 61 | 76 | 84 | 1,673 | 192 | 192 | 439 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Popular, Inc. Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total For the quarter ended September 30, 2016 For the nine months ended September 30, 2016 Reduction in
interest rate Extension of
maturity date Combination of
reduction in
interest rate and
extension of
maturity date Other Reduction in
interest rate Extension of
maturity date Combination of
reduction in
interest rate and
extension of
maturity date Other 3 — — — 5 1 — — 9 — — — 38 5 — — 8 — — — 22 1 — — 17 24 134 43 55 58 376 133 — 1 — — — 1 — — 218 — 1 158 603 — 1 531 — — — — — — 2 1 241 6 1 — 761 16 1 1 — 4 4 2 — 11 8 2 6 — — — 27 — — — 502 35 140 203 1,511 93 388 668
Popular, Inc. | ||||||||||||||||||||||||||||||||
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||
Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other | |||||||||||||||||||||||||
Commercial real estatenon-owner occupied | — | — | — | — | 4 | 1 | — | — | ||||||||||||||||||||||||
Commercial real estate owner occupied | — | 3 | — | — | 3 | 12 | — | — | ||||||||||||||||||||||||
Commercial and industrial | 1 | 15 | — | — | 3 | 36 | — | — | ||||||||||||||||||||||||
Mortgage | 13 | 14 | 83 | 16 | 45 | 35 | 301 | 116 | ||||||||||||||||||||||||
Leasing | — | — | 1 | — | — | 1 | 6 | — | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 140 | — | 4 | 114 | 425 | — | 5 | 424 | ||||||||||||||||||||||||
HELOCs | — | — | 2 | — | — | 1 | 3 | — | ||||||||||||||||||||||||
Personal | 187 | 2 | 1 | 2 | 699 | 6 | 1 | 3 | ||||||||||||||||||||||||
Auto | — | 1 | 2 | — | — | 5 | 4 | 1 | ||||||||||||||||||||||||
Other | 11 | — | — | — | 27 | 1 | — | 1 | ||||||||||||||||||||||||
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Total | 352 | 35 | 93 | 132 | 1,206 | 98 | 320 | 545 | ||||||||||||||||||||||||
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The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and nine months ended September 30, 20172018 and 2016.2017.
Popular, Inc. | Popular, Inc. | |||||||||||||||||||||||||||||||
For the quarter ended September 30, 2018 | For the quarter ended September 30, 2018 | |||||||||||||||||||||||||||||||
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification | ||||||||||||||||||||||||||||
Commercial multi-family | 1 | $ | 810 | $ | 808 | $ | 63 | |||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 4 | 1,523 | 1,521 | 100 | ||||||||||||||||||||||||||||
Commercial real estate owner occupied | 13 | 7,578 | 7,525 | 160 | ||||||||||||||||||||||||||||
Commercial and industrial | 27 | 2,411 | 2,388 | 139 | ||||||||||||||||||||||||||||
Mortgage | 116 | 15,143 | 13,507 | 640 | ||||||||||||||||||||||||||||
Leasing | 3 | 75 | 73 | 23 | ||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 187 | 1,693 | 1,838 | 234 | ||||||||||||||||||||||||||||
HELOCs | 10 | 913 | 906 | 66 | ||||||||||||||||||||||||||||
Personal | 512 | 8,026 | 8,025 | 2,660 | ||||||||||||||||||||||||||||
Auto | 5 | 63 | 63 | 11 | ||||||||||||||||||||||||||||
Other | 2 | 392 | 392 | 67 | ||||||||||||||||||||||||||||
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Total | 880 | $ | 38,627 | $ | 37,046 | $ | 4,163 | |||||||||||||||||||||||||
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Popular, Inc. | Popular, Inc. | Popular, Inc. | ||||||||||||||||||||||||||||||
For the quarter ended September 30, 2017 | For the quarter ended September 30, 2017 | For the quarter ended September 30, 2017 | ||||||||||||||||||||||||||||||
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification | 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 owner occupied | 3 | $ | 272 | $ | 269 | $ | 29 | 3 | $ | 272 | $ | 269 | $ | 29 | ||||||||||||||||||
Commercial and industrial | 16 | 1,022 | 1,044 | 111 | 16 | 1,022 | 1,044 | 111 | ||||||||||||||||||||||||
Mortgage | 126 | 17,692 | 16,633 | 1,103 | 126 | 17,692 | 16,633 | 1,103 | ||||||||||||||||||||||||
Leasing | 1 | 27 | 27 | 8 | 1 | 27 | 27 | 8 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 258 | 2,881 | 3,114 | 375 | 258 | 2,881 | 3,114 | 375 | ||||||||||||||||||||||||
HELOCs | 2 | 203 | 203 | 23 | 2 | 203 | 203 | 23 | ||||||||||||||||||||||||
Personal | 192 | 2,945 | 2,944 | 673 | 192 | 2,945 | 2,944 | 673 | ||||||||||||||||||||||||
Auto | 3 | 42 | 42 | 8 | 3 | 42 | 42 | 8 | ||||||||||||||||||||||||
Other | 11 | 46 | 46 | 6 | 11 | 46 | 46 | 6 | ||||||||||||||||||||||||
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Total | 612 | $ | 25,130 | $ | 24,322 | $ | 2,336 | 612 | $ | 25,130 | $ | 24,322 | $ | 2,336 | ||||||||||||||||||
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Popular, Inc. | ||||||||||||||||||||||||||||||||
For the quarter ended September 30, 2016 | ||||||||||||||||||||||||||||||||
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification | ||||||||||||||||||||||||||||
Commercial real estatenon-owner occupied | 3 | $ | 469 | $ | 3,085 | $ | 860 | |||||||||||||||||||||||||
Commercial real estate owner occupied | 9 | 773 | 1,874 | 136 | ||||||||||||||||||||||||||||
Commercial and industrial | 8 | 246 | 301 | 21 | ||||||||||||||||||||||||||||
Mortgage | 218 | 25,255 | 24,681 | 1,780 | ||||||||||||||||||||||||||||
Leasing | 1 | 15 | 15 | 3 | ||||||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | 377 | 3,321 | 3,715 | 450 | ||||||||||||||||||||||||||||
Personal | 248 | 4,481 | 4,547 | 853 | ||||||||||||||||||||||||||||
Auto | 10 | 123 | 134 | 27 | ||||||||||||||||||||||||||||
Other | 6 | 23 | 23 | 4 | ||||||||||||||||||||||||||||
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Total | 880 | $ | 34,706 | $ | 38,375 | $ | 4,134 | |||||||||||||||||||||||||
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Popular, Inc. For the nine months ended September 30, 2017 (Dollars in thousands) Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Popular, Inc. For the nine months ended September 30, 2016 (Dollars in thousands) Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total 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 5 $ 2,069 $ 1,901 $ 145 15 2,975 2,951 172 39 1,850 3,967 579 497 58,777 54,965 3,343 7 263 262 74 854 7,785 8,514 1,019 4 689 686 36 709 11,979 11,982 2,704 10 2,043 1,999 362 29 2,002 2,002 70 2,169 $ 90,432 $ 89,229 $ 8,504 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 6 $ 6,989 $ 9,589 $ 5,029 43 11,623 11,648 473 23 3,832 3,884 1 622 69,591 67,702 5,407 1 15 15 3 1,135 10,352 11,768 1,677 3 355 398 216 779 13,089 13,195 2,784 21 256 274 52 27 78 80 14 2,660 $ 116,180 $ 118,553 $ 15,656
Popular, Inc. | ||||||||||||||||
For the nine months ended September 30, 2018 | ||||||||||||||||
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification | ||||||||||||
Commercial multi-family | 2 | $ | 1,377 | $ | 1,375 | $ | 106 | |||||||||
Commercial real estatenon-owner occupied | 17 | 28,969 | 28,908 | 6,854 | ||||||||||||
Commercial real estate owner occupied | 58 | 27,648 | 26,433 | 1,143 | ||||||||||||
Commercial and industrial | 81 | 49,633 | 48,882 | 13,963 | ||||||||||||
Construction | 1 | 4,210 | 4,293 | 474 | ||||||||||||
Mortgage | 319 | 40,741 | 36,442 | 1,874 | ||||||||||||
Leasing | 4 | 98 | 96 | 30 | ||||||||||||
Consumer: | ||||||||||||||||
Credit cards | 811 | 8,097 | 8,642 | 1,086 | ||||||||||||
HELOCs | 29 | 2,638 | 2,579 | 440 | ||||||||||||
Personal | 1,143 | 18,351 | 18,346 | 5,390 | ||||||||||||
Auto | 8 | 139 | 122 | 21 | ||||||||||||
Other | 23 | 595 | 593 | 98 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,496 | $ | 182,496 | $ | 176,711 | $ | 31,479 | |||||||||
|
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|
| |||||||||
Popular, Inc. | ||||||||||||||||
For the nine months ended September 30, 2017 | ||||||||||||||||
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for loan losses as a result of modification | ||||||||||||
Commercial real estatenon-owner occupied | 5 | $ | 2,069 | $ | 1,901 | $ | 145 | |||||||||
Commercial real estate owner occupied | 15 | 2,975 | 2,951 | 172 | ||||||||||||
Commercial and industrial | 39 | 1,850 | 3,967 | 579 | ||||||||||||
Mortgage | 497 | 58,777 | 54,965 | 3,343 | ||||||||||||
Leasing | 7 | 263 | 262 | 74 | ||||||||||||
Consumer: | ||||||||||||||||
Credit cards | 854 | 7,785 | 8,514 | 1,019 | ||||||||||||
HELOCs | 4 | 689 | 686 | 36 | ||||||||||||
Personal | 709 | 11,979 | 11,982 | 2,704 | ||||||||||||
Auto | 10 | 2,043 | 1,999 | 362 | ||||||||||||
Other | 29 | 2,002 | 2,002 | 70 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,169 | $ | 90,432 | $ | 89,229 | $ | 8,504 | |||||||||
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|
|
The following tables present by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed orcharged-off, whichever occurs first. The recorded investment at September 30, 20172018 is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down,charged-off or foreclosed upon by period end are not reported.
Popular, Inc. (Dollars in thousands) Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Consumer: Credit cards HELOCs Personal Auto Other Total Popular, Inc. (Dollars in thousands) Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards Personal Auto Other Total Defaulted during the quarter ended September
30, 2017 Defaulted during the nine months ended September
30, 2017 Loan count Recorded
investment as of
first default date Loan count Recorded
investment as of
first default date — $ — 2 $ 457 — — 3 1,749 1 36 4 601 48 4,216 110 10,112 135 1,212 274 2,661 — — 1 97 67 1,222 138 3,230 1 19 5 99 — — 1 9 252 $ 6,705 538 $ 19,015 Defaulted during the quarter ended September
30, 2016 Defaulted during the nine months ended September
30, 2016 Loan count Recorded investment as
of first default date Loan count Recorded investment as of
first default date — $ — 2 $ 327 3 773 10 3,276 3 758 5 785 52 5,409 132 14,132 — — 4 29 109 1,084 221 2,259 34 623 93 2,375 3 63 6 111 5 10 5 10 209 $ 8,720 478 $ 23,304
Popular, Inc. | ||||||||||||||||
Defaulted during the quarter ended September 30, 2018 | Defaulted during the nine months ended September 30, 2018 | |||||||||||||||
(Dollars in thousands) | Loan count | Recorded investment as of first default date | Loan count | Recorded investment as of first default date | ||||||||||||
Commercial real estatenon-owner occupied | — | $ | — | 1 | $ | 17 | ||||||||||
Commercial real estate owner occupied | 1 | 255 | 4 | 392 | ||||||||||||
Commercial and industrial | 1 | 5 | 7 | 81 | ||||||||||||
Mortgage | 42 | 5,280 | 74 | 9,520 | ||||||||||||
Consumer: | ||||||||||||||||
Credit cards | 86 | 707 | 150 | 2,301 | ||||||||||||
HELOCs | 1 | 144 | 1 | 144 | ||||||||||||
Personal | 27 | 362 | 67 | 1,656 | ||||||||||||
Auto | — | — | 3 | 79 | ||||||||||||
Other | 1 | 3 | 2 | 10 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 159 | $ | 6,756 | 309 | $ | 14,200 | ||||||||||
|
|
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|
|
| |||||||||
Popular, Inc. | ||||||||||||||||
Defaulted during the quarter ended September 30, 2017 | Defaulted during the nine months ended September 30, 2017 | |||||||||||||||
(Dollars in thousands) | Loan count | Recorded investment as of first default date | Loan count | Recorded investment as of first default date | ||||||||||||
Commercial real estatenon-owner occupied | — | $ | — | 2 | $ | 457 | ||||||||||
Commercial real estate owner occupied | — | — | 3 | 1,749 | ||||||||||||
Commercial and industrial | 1 | 36 | 4 | 601 | ||||||||||||
Mortgage | 48 | 4,216 | 110 | 10,112 | ||||||||||||
Consumer: | ||||||||||||||||
Credit cards | 135 | 1,212 | 274 | 2,661 | ||||||||||||
HELOCs | — | — | 1 | 97 | ||||||||||||
Personal | 67 | 1,222 | 138 | 3,230 | ||||||||||||
Auto | 1 | 19 | 5 | 99 | ||||||||||||
Other | — | — | 1 | 9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 252 | $ | 6,705 | 538 | $ | 19,015 | ||||||||||
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|
Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The allowance for loan losses may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.
Credit Quality
The following table presents the outstanding balance, net of unearned income, ofnon-covered loansheld-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at September 30, 20172018 and December 31, 2016.2017. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 10 to the Consolidated Financial Statements included in the Corporation’s Form 10K for the year ended December 31, 2017.
September 30, 2017 (In thousands) Puerto Rico[1] Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total Puerto Rico U.S. mainland Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Legacy Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total U.S. mainland Popular, Inc. Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Legacy Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total Popular, Inc. Special Pass/ Watch Mention Substandard Doubtful Loss Sub-total Unrated Total $ 1,477 $ 968 $ 6,315 $ — $ — $ 8,760 $ 137,791 $ 146,551 375,756 329,210 321,592 — — 1,026,558 1,498,237 2,524,795 252,655 141,304 333,947 2,248 — 730,154 942,119 1,672,273 268,283 124,237 217,459 473 51 610,503 2,215,489 2,825,992 898,171 595,719 879,313 2,721 51 2,375,975 4,793,636 7,169,611 75 5,353 269 — — 5,697 82,008 87,705 2,637 3,277 193,127 — — 199,041 5,616,464 5,815,505 — — 2,649 — 35 2,684 752,197 754,881 — — 20,626 — — 20,626 1,062,620 1,083,246 — — 48 — — 48 6,076 6,124 333 653 21,107 — — 22,093 1,192,238 1,214,331 — — 12,244 — 16 12,260 809,744 822,004 — — 16,079 — 396 16,475 148,190 164,665 333 653 70,104 — 412 71,502 3,218,868 3,290,370 $ 901,216 $ 605,002 $ 1,145,462 $ 2,721 $ 498 $ 2,654,899 $ 14,463,173 $ 17,118,072 $ 15,688 $ 6,387 $ 5,962 $ — $ — $ 28,037 $ 1,153,150 $ 1,181,187 43,205 44,483 37,493 — — 125,181 1,444,014 1,569,195 25,840 3,451 8,916 — — 38,207 250,577 288,784 3,480 554 156,947 — — 160,981 857,337 1,018,318 88,213 54,875 209,318 — — 352,406 3,705,078 4,057,484 30,681 2,391 50,574 — — 83,646 651,974 735,620 — — 14,347 — — 14,347 699,383 713,730 731 467 3,690 — — 4,888 32,620 37,508 — — 13 — — 13 67 80 — — 7,565 — 4,395 11,960 184,858 196,818 — — 1,624 — 717 2,341 311,502 313,843 — — — — — — 3 3 — — 21 — — 21 271 292 — — 9,223 — 5,112 14,335 496,701 511,036 $ 119,625 $ 57,733 $ 287,152 $ — $ 5,112 $ 469,622 $ 5,585,756 $ 6,055,378 $ 17,165 $ 7,355 $ 12,277 $ — $ — $ 36,797 $ 1,290,941 $ 1,327,738 418,961 373,693 359,085 — — 1,151,739 2,942,251 4,093,990 278,495 144,755 342,863 2,248 — 768,361 1,192,696 1,961,057 271,763 124,791 374,406 473 51 771,484 3,072,826 3,844,310 986,384 650,594 1,088,631 2,721 51 2,728,381 8,498,714 11,227,095 30,756 7,744 50,843 — — 89,343 733,982 823,325 2,637 3,277 207,474 — — 213,388 6,315,847 6,529,235 731 467 3,690 — — 4,888 32,620 37,508 — — 2,649 — 35 2,684 752,197 754,881 — — 20,639 — — 20,639 1,062,687 1,083,326 — — 7,613 — 4,395 12,008 190,934 202,942 333 653 22,731 — 717 24,434 1,503,740 1,528,174 — — 12,244 — 16 12,260 809,747 822,007 — — 16,100 — 396 16,496 148,461 164,957 333 653 79,327 — 5,524 85,837 3,715,569 3,801,406 $ 1,020,841 $ 662,735 $ 1,432,614 $ 2,721 $ 5,610 $ 3,124,521 $ 20,048,929 $ 23,173,450
September 30, 2018 | ||||||||||||||||||||||||||||||||
(In thousands) | Watch | Special Mention | Substandard | Doubtful | Loss | Sub-total | Pass/ Unrated | Total | ||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 2,137 | $ | 4,605 | $ | 4,223 | $ | — | $ | — | $ | 10,965 | $ | 137,263 | $ | 148,228 | ||||||||||||||||
Commercial real estatenon-owner occupied | 494,377 | 237,756 | 413,077 | — | — | 1,145,210 | 1,212,121 | 2,357,331 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 323,248 | 129,932 | 381,435 | 2,192 | — | 836,807 | 898,698 | 1,735,505 | ||||||||||||||||||||||||
Commercial and industrial | 787,901 | 145,193 | 178,806 | 198 | 157 | 1,112,255 | 2,054,157 | 3,166,412 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Commercial | 1,607,663 | 517,486 | 977,541 | 2,390 | 157 | 3,105,237 | 4,302,239 | 7,407,476 | ||||||||||||||||||||||||
Construction | — | 889 | 1,829 | — | — | 2,718 | 75,075 | 77,793 | ||||||||||||||||||||||||
Mortgage | 3,475 | 1,994 | 169,236 | — | — | 174,705 | 6,356,571 | 6,531,276 | ||||||||||||||||||||||||
Leasing | — | — | 2,928 | — | 81 | 3,009 | 900,531 | 903,540 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 16,768 | — | — | 16,768 | 1,021,065 | 1,037,833 | ||||||||||||||||||||||||
HELOCs | — | — | 108 | — | — | 108 | 5,373 | 5,481 | ||||||||||||||||||||||||
Personal | 636 | 160 | 19,854 | — | — | 20,650 | 1,222,746 | 1,243,396 | ||||||||||||||||||||||||
Auto | — | — | 22,003 | — | 162 | 22,165 | 2,446,445 | 2,468,610 | ||||||||||||||||||||||||
Other | 102 | — | 15,222 | — | 158 | 15,482 | 132,466 | 147,948 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Consumer | 738 | 160 | 73,955 | — | 320 | 75,173 | 4,828,095 | 4,903,268 | ||||||||||||||||||||||||
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|
|
|
|
|
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| |||||||||||||||||
Total Puerto Rico | $ | 1,611,876 | $ | 520,529 | $ | 1,225,489 | $ | 2,390 | $ | 558 | $ | 3,360,842 | $ | 16,462,511 | $ | 19,823,353 | ||||||||||||||||
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|
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|
|
| |||||||||||||||||
Popular U.S. | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 52,062 | $ | 8,010 | $ | 6,048 | $ | — | $ | — | $ | 66,120 | $ | 1,262,452 | $ | 1,328,572 | ||||||||||||||||
Commercial real estatenon-owner occupied | 79,381 | 9,027 | 36,692 | — | — | 125,100 | 1,774,293 | 1,899,393 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 46,366 | 7,624 | 8,955 | — | — | 62,945 | 225,460 | 288,405 | ||||||||||||||||||||||||
Commercial and industrial | 5,437 | 117 | 89,879 | — | — | 95,433 | 974,428 | 1,069,861 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Commercial | 183,246 | 24,778 | 141,574 | — | — | 349,598 | 4,236,633 | 4,586,231 | ||||||||||||||||||||||||
Construction | 69,547 | 15,698 | 64,493 | — | — | 149,738 | 715,834 | 865,572 | ||||||||||||||||||||||||
Mortgage | — | — | 12,306 | — | — | 12,306 | 760,588 | 772,894 | ||||||||||||||||||||||||
Legacy | 565 | 228 | 2,495 | — | — | 3,288 | 24,278 | 27,566 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 4 | — | — | 4 | 59 | 63 | ||||||||||||||||||||||||
HELOCs | — | — | 2,049 | — | 11,889 | 13,938 | 131,607 | 145,545 | ||||||||||||||||||||||||
Personal | — | — | 1,864 | — | 888 | 2,752 | 287,909 | 290,661 | ||||||||||||||||||||||||
Other | — | — | — | — | — | — | 283 | 283 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Consumer | — | — | 3,917 | — | 12,777 | 16,694 | 419,858 | 436,552 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Popular U.S. | $ | 253,358 | $ | 40,704 | $ | 224,785 | $ | — | $ | 12,777 | $ | 531,624 | $ | 6,157,191 | $ | 6,688,815 | ||||||||||||||||
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|
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|
| |||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 54,199 | $ | 12,615 | $ | 10,271 | $ | — | $ | — | $ | 77,085 | $ | 1,399,715 | $ | 1,476,800 | ||||||||||||||||
Commercial real estatenon-owner occupied | 573,758 | 246,783 | 449,769 | — | — | 1,270,310 | 2,986,414 | 4,256,724 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 369,614 | 137,556 | 390,390 | 2,192 | — | 899,752 | 1,124,158 | 2,023,910 | ||||||||||||||||||||||||
Commercial and industrial | 793,338 | 145,310 | 268,685 | 198 | 157 | 1,207,688 | 3,028,585 | 4,236,273 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Commercial | 1,790,909 | 542,264 | 1,119,115 | 2,390 | 157 | 3,454,835 | 8,538,872 | 11,993,707 | ||||||||||||||||||||||||
Construction | 69,547 | 16,587 | 66,322 | — | — | 152,456 | 790,909 | 943,365 | ||||||||||||||||||||||||
Mortgage | 3,475 | 1,994 | 181,542 | — | — | 187,011 | 7,117,159 | 7,304,170 | ||||||||||||||||||||||||
Legacy | 565 | 228 | 2,495 | — | — | 3,288 | 24,278 | 27,566 | ||||||||||||||||||||||||
Leasing | — | — | 2,928 | — | 81 | 3,009 | 900,531 | 903,540 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 16,772 | — | — | 16,772 | 1,021,124 | 1,037,896 | ||||||||||||||||||||||||
HELOCs | — | — | 2,157 | — | 11,889 | 14,046 | 136,980 | 151,026 | ||||||||||||||||||||||||
Personal | 636 | 160 | 21,718 | — | 888 | 23,402 | 1,510,655 | 1,534,057 | ||||||||||||||||||||||||
Auto | — | — | 22,003 | — | 162 | 22,165 | 2,446,445 | 2,468,610 | ||||||||||||||||||||||||
Other | 102 | — | 15,222 | — | 158 | 15,482 | 132,749 | 148,231 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total Consumer | 738 | 160 | 77,872 | — | 13,097 | 91,867 | 5,247,953 | 5,339,820 | ||||||||||||||||||||||||
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|
|
|
|
|
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|
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|
|
|
|
|
|
| |||||||||||||||||
Total Popular, Inc. | $ | 1,865,234 | $ | 561,233 | $ | 1,450,274 | $ | 2,390 | $ | 13,335 | $ | 3,892,466 | $ | 22,619,702 | $ | 26,512,168 | ||||||||||||||||
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|
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|
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|
|
The following table presents the weighted average obligor risk rating at September 30, 20172018 for those classifications that consider a range of rating scales.
Weighted average obligor risk rating | (Scales 11 and 12) | (Scales 1 through 8) | ||||||
Puerto Rico:[1] | Substandard | Pass | ||||||
Commercial multi-family | 11.18 | 5.98 | ||||||
Commercial real estatenon-owner occupied | 11.07 | 7.01 | ||||||
Commercial real estate owner occupied | 11.25 | 7.16 | ||||||
Commercial and industrial | 11.21 | 7.19 | ||||||
|
|
|
| |||||
Total Commercial | 11.18 | 7.11 | ||||||
|
|
|
| |||||
Construction | 11.37 | 7.73 | ||||||
|
|
|
| |||||
U.S. mainland: | Substandard | Pass | ||||||
Commercial multi-family | 11.00 | 7.24 | ||||||
Commercial real estatenon-owner occupied | 11.21 | 6.68 | ||||||
Commercial real estate owner occupied | 11.05 | 7.14 | ||||||
Commercial and industrial | 11.60 | 6.15 | ||||||
|
|
|
| |||||
Total Commercial | 11.49 | 6.76 | ||||||
|
|
|
| |||||
Construction | 11.00 | 7.68 | ||||||
|
|
|
| |||||
Legacy | 11.12 | 7.93 | ||||||
|
|
|
|
Weighted average obligor risk rating | (Scales 11 and 12) | (Scales 1 through 8) | ||||||
Substandard | Pass | |||||||
Puerto Rico: | ||||||||
Commercial multi-family | 11.18 | 5.73 | ||||||
Commercial real estatenon-owner occupied | 11.07 | 6.91 | ||||||
Commercial real estate owner occupied | 11.23 | 7.16 | ||||||
Commercial and industrial | 11.27 | 7.05 | ||||||
|
|
|
| |||||
Total Commercial | 11.17 | 7.01 | ||||||
|
|
|
| |||||
Construction | 12.00 | 7.55 | ||||||
|
|
|
| |||||
Substandard | Pass | |||||||
Popular U.S. : | ||||||||
Commercial multi-family | 11.00 | 7.35 | ||||||
Commercial real estatenon-owner occupied | 11.01 | 6.77 | ||||||
Commercial real estate owner occupied | 11.04 | 7.50 | ||||||
Commercial and industrial | 11.97 | 6.49 | ||||||
|
|
|
| |||||
Total Commercial | 11.62 | 6.91 | ||||||
|
|
|
| |||||
Construction | 11.28 | 7.77 | ||||||
|
|
|
| |||||
Legacy | 11.16 | 7.94 | ||||||
|
|
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December 31, 2016 (In thousands) Puerto Rico[1] Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total Puerto Rico U.S. mainland Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Legacy Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total U.S. mainland Popular, Inc. Commercial multi-family Commercial real estatenon-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Legacy Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Consumer Total Popular, Inc. Special Pass/ Watch Mention Substandard Doubtful Loss Sub-total Unrated Total $ 2,016 $ 383 $ 6,108 $ — $ — $ 8,507 $ 166,033 $ 174,540 310,510 377,858 342,054 155 — 1,030,577 1,533,708 2,564,285 310,484 109,873 360,941 17,788 — 799,086 992,389 1,791,475 136,091 133,270 227,360 11,514 12 508,247 2,163,670 2,671,917 759,101 621,384 936,463 29,457 12 2,346,417 4,855,800 7,202,217 50 1,705 1,668 — — 3,423 82,135 85,558 4,407 1,987 190,090 — — 196,484 5,720,016 5,916,500 — — 3,062 — — 3,062 699,831 702,893 — — 18,725 — — 18,725 1,081,882 1,100,607 — — 185 — — 185 8,166 8,351 1,068 812 21,496 — — 23,376 1,126,801 1,150,177 — — 12,321 — — 12,321 814,271 826,592 — — 19,311 — — 19,311 156,218 175,529 1,068 812 72,038 — — 73,918 3,187,338 3,261,256 $ 764,626 $ 625,888 $ 1,203,321 $ 29,457 $ 12 $ 2,623,304 $ 14,545,120 $ 17,168,424 $ 13,537 $ 7,796 $ 658 $ — $ — $ 21,991 $ 1,042,305 $ 1,064,296 57,111 9,778 1,720 — — 68,609 1,288,707 1,357,316 9,271 — 9,119 — — 18,390 225,355 243,745 3,048 937 153,793 — — 157,778 773,155 930,933 82,967 18,511 165,290 — — 266,768 3,329,522 3,596,290 3,000 8,153 16,950 — — 28,103 662,639 690,742 — — 11,711 — — 11,711 768,150 779,861 921 786 4,400 — — 6,107 39,186 45,293 — — 30 — — 30 128 158 — — 1,923 — 2,839 4,762 247,413 252,175 — — 1,252 — 609 1,861 238,746 240,607 — — — — — — 9 9 — — 8 — — 8 180 188 — — 3,213 — 3,448 6,661 486,476 493,137 $ 86,888 $ 27,450 $ 201,564 $ — $ 3,448 $ 319,350 $ 5,285,973 $ 5,605,323 $ 15,553 $ 8,179 $ 6,766 $ — $ — $ 30,498 $ 1,208,338 $ 1,238,836 367,621 387,636 343,774 155 — 1,099,186 2,822,415 3,921,601 319,755 109,873 370,060 17,788 — 817,476 1,217,744 2,035,220 139,139 134,207 381,153 11,514 12 666,025 2,936,825 3,602,850 842,068 639,895 1,101,753 29,457 12 2,613,185 8,185,322 10,798,507 3,050 9,858 18,618 — — 31,526 744,774 776,300 4,407 1,987 201,801 — — 208,195 6,488,166 6,696,361 921 786 4,400 — — 6,107 39,186 45,293 — — 3,062 — — 3,062 699,831 702,893 — — 18,755 — — 18,755 1,082,010 1,100,765 — — 2,108 — 2,839 4,947 255,579 260,526 1,068 812 22,748 — 609 25,237 1,365,547 1,390,784 — — 12,321 — — 12,321 814,280 826,601 — — 19,319 — — 19,319 156,398 175,717 1,068 812 75,251 — 3,448 80,579 3,673,814 3,754,393 $ 851,514 $ 653,338 $ 1,404,885 $ 29,457 $ 3,460 $ 2,942,654 $ 19,831,093 $ 22,773,747
December 31, 2017 | ||||||||||||||||||||||||||||||||
(In thousands) | Watch | Special Mention | Substandard | Doubtful | Loss | Sub-total | Pass/ Unrated | Total | ||||||||||||||||||||||||
Puerto Rico[1] | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 1,387 | $ | 1,708 | $ | 6,831 | $ | — | $ | — | $ | 9,926 | $ | 136,473 | $ | 146,399 | ||||||||||||||||
Commercial real estatenon-owner occupied | 327,811 | 335,011 | 307,579 | — | — | 970,401 | 1,434,158 | 2,404,559 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 243,966 | 215,652 | 354,990 | 2,124 | — | 816,732 | 1,006,882 | 1,823,614 | ||||||||||||||||||||||||
Commercial and industrial | 453,546 | 108,554 | 241,695 | 471 | 126 | 804,392 | 2,086,935 | 2,891,327 | ||||||||||||||||||||||||
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Total Commercial | 1,026,710 | 660,925 | 911,095 | 2,595 | 126 | 2,601,451 | 4,664,448 | 7,265,899 | ||||||||||||||||||||||||
Construction | 110 | 4,122 | 1,545 | — | — | 5,777 | 89,592 | 95,369 | ||||||||||||||||||||||||
Mortgage | 2,748 | 3,564 | 155,074 | — | — | 161,386 | 6,415,393 | 6,576,779 | ||||||||||||||||||||||||
Leasing | — | — | 1,926 | — | 1,048 | 2,974 | 807,016 | 809,990 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 18,227 | — | — | 18,227 | 1,074,994 | 1,093,221 | ||||||||||||||||||||||||
HELOCs | — | — | 257 | — | — | 257 | 5,830 | 6,087 | ||||||||||||||||||||||||
Personal | 429 | 659 | 20,790 | — | — | 21,878 | 1,200,434 | 1,222,312 | ||||||||||||||||||||||||
Auto | — | — | 5,446 | — | 20 | 5,466 | 845,347 | 850,813 | ||||||||||||||||||||||||
Other | — | — | 16,324 | — | 440 | 16,764 | 140,824 | 157,588 | ||||||||||||||||||||||||
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Total Consumer | 429 | 659 | 61,044 | — | 460 | 62,592 | 3,267,429 | 3,330,021 | ||||||||||||||||||||||||
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Total Puerto Rico | $ | 1,029,997 | $ | 669,270 | $ | 1,130,684 | $ | 2,595 | $ | 1,634 | $ | 2,834,180 | $ | 15,243,878 | $ | 18,078,058 | ||||||||||||||||
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Popular U.S. | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 11,808 | $ | 6,345 | $ | 7,936 | $ | — | $ | — | $ | 26,089 | $ | 1,184,604 | $ | 1,210,693 | ||||||||||||||||
Commercial real estatenon-owner occupied | 46,523 | 16,561 | 37,178 | — | — | 100,262 | 1,588,049 | 1,688,311 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 28,183 | 30,893 | 8,590 | — | — | 67,666 | 251,309 | 318,975 | ||||||||||||||||||||||||
Commercial and industrial | 4,019 | 603 | 123,935 | — | — | 128,557 | 876,426 | 1,004,983 | ||||||||||||||||||||||||
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Total Commercial | 90,533 | 54,402 | 177,639 | — | — | 322,574 | 3,900,388 | 4,222,962 | ||||||||||||||||||||||||
Construction | 36,858 | 8,294 | 54,276 | — | — | 99,428 | 685,232 | 784,660 | ||||||||||||||||||||||||
Mortgage | — | — | 14,852 | — | — | 14,852 | 678,776 | 693,628 | ||||||||||||||||||||||||
Legacy | 688 | 426 | 3,302 | — | — | 4,416 | 28,564 | 32,980 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 11 | — | — | 11 | 89 | 100 | ||||||||||||||||||||||||
HELOCs | — | — | 6,084 | — | 8,914 | 14,998 | 167,087 | 182,085 | ||||||||||||||||||||||||
Personal | — | — | 2,069 | — | 704 | 2,773 | 295,229 | 298,002 | ||||||||||||||||||||||||
Other | — | — | — | — | — | — | 319 | 319 | ||||||||||||||||||||||||
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Total Consumer | — | — | 8,164 | — | 9,618 | 17,782 | 462,724 | 480,506 | ||||||||||||||||||||||||
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Total Popular U.S. | $ | 128,079 | $ | 63,122 | $ | 258,233 | $ | — | $ | 9,618 | $ | 459,052 | $ | 5,755,684 | $ | 6,214,736 | ||||||||||||||||
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Popular, Inc. | ||||||||||||||||||||||||||||||||
Commercial multi-family | $ | 13,195 | $ | 8,053 | $ | 14,767 | $ | — | $ | — | $ | 36,015 | $ | 1,321,077 | $ | 1,357,092 | ||||||||||||||||
Commercial real estatenon-owner occupied | 374,334 | 351,572 | 344,757 | — | — | 1,070,663 | 3,022,207 | 4,092,870 | ||||||||||||||||||||||||
Commercial real estate owner occupied | 272,149 | 246,545 | 363,580 | 2,124 | — | 884,398 | 1,258,191 | 2,142,589 | ||||||||||||||||||||||||
Commercial and industrial | 457,565 | 109,157 | 365,630 | 471 | 126 | 932,949 | 2,963,361 | 3,896,310 | ||||||||||||||||||||||||
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Total Commercial | 1,117,243 | 715,327 | 1,088,734 | 2,595 | 126 | 2,924,025 | 8,564,836 | 11,488,861 | ||||||||||||||||||||||||
Construction | 36,968 | 12,416 | 55,821 | — | — | 105,205 | 774,824 | 880,029 | ||||||||||||||||||||||||
Mortgage | 2,748 | 3,564 | 169,926 | — | — | 176,238 | 7,094,169 | 7,270,407 | ||||||||||||||||||||||||
Legacy | 688 | 426 | 3,302 | — | — | 4,416 | 28,564 | 32,980 | ||||||||||||||||||||||||
Leasing | — | — | 1,926 | — | 1,048 | 2,974 | 807,016 | 809,990 | ||||||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||||||
Credit cards | — | — | 18,238 | — | — | 18,238 | 1,075,083 | 1,093,321 | ||||||||||||||||||||||||
HELOCs | — | — | 6,341 | — | 8,914 | 15,255 | 172,917 | 188,172 | ||||||||||||||||||||||||
Personal | 429 | 659 | 22,859 | — | 704 | 24,651 | 1,495,663 | 1,520,314 | ||||||||||||||||||||||||
Auto | — | — | 5,446 | — | 20 | 5,466 | 845,347 | 850,813 | ||||||||||||||||||||||||
Other | — | — | 16,324 | — | 440 | 16,764 | 141,143 | 157,907 | ||||||||||||||||||||||||
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Total Consumer | 429 | 659 | 69,208 | — | 10,078 | 80,374 | 3,730,153 | 3,810,527 | ||||||||||||||||||||||||
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Total Popular, Inc. | $ | 1,158,076 | $ | 732,392 | $ | 1,388,917 | $ | 2,595 | $ | 11,252 | $ | 3,293,232 | $ | 20,999,562 | $ | 24,292,794 | ||||||||||||||||
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The following table presents the weighted average obligor risk rating at December 31, 20162017 for those classifications that consider a range of rating scales.
Weighted average obligor risk rating | (Scales 11 and 12) | (Scales 1 through 8) | (Scales 11 and 12) | (Scales 1 through 8) | ||||||||||||
Substandard | Pass | |||||||||||||||
Puerto Rico:[1] | Substandard | Pass | ||||||||||||||
Commercial multi-family | 11.12 | 5.95 | 11.16 | 5.89 | ||||||||||||
Commercial real estatenon-owner occupied | 11.07 | 6.91 | 11.06 | 6.99 | ||||||||||||
Commercial real estate owner occupied | 11.23 | 7.09 | 11.28 | 7.14 | ||||||||||||
Commercial and industrial | 11.09 | 7.19 | 11.16 | 7.11 | ||||||||||||
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Total Commercial | 11.14 | 7.06 | 11.17 | 7.06 | ||||||||||||
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Construction | 11.00 | 7.67 | 11.00 | 7.76 | ||||||||||||
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U.S. mainland: | Substandard | Pass | ||||||||||||||
Substandard | Pass | |||||||||||||||
Popular U.S.: | ||||||||||||||||
Commercial multi-family | 11.31 | 7.26 | 11.00 | 7.28 | ||||||||||||
Commercial real estatenon-owner occupied | 11.70 | 6.67 | 11.04 | 6.74 | ||||||||||||
Commercial real estate owner occupied | 11.05 | 7.32 | 11.10 | 7.14 | ||||||||||||
Commercial and industrial | 11.65 | 6.15 | 11.82 | 6.17 | ||||||||||||
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Total Commercial | 11.62 | 6.78 | 11.59 | 6.80 | ||||||||||||
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Construction | 11.00 | 7.67 | 11.00 | 7.70 | ||||||||||||
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Legacy | 11.10 | 7.91 | 11.11 | 7.93 | ||||||||||||
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[1] | Excludes covered loans acquired in the Westernbank FDIC-assisted transaction. |
The increase in the Watch category for Puerto Rico commercial loans of $581 million, from December 31, 2017, is impacted by the $341 million auto-related commercial loan portfolio acquired as part of the Reliable Transaction. These loans were placed in Watch status until the Corporation completes its internal review process.
Note 10 – FDIC loss-share asset andtrue-up payment obligation
In connection with the Westernbank FDIC-assisted transaction, BPPR entered into loss-share arrangements with the FDIC with respect to the covered loans and other real estate owned. Pursuant to the terms of the loss-share arrangements, the FDIC’s obligation to reimburse BPPR for losses with respect to covered assets beginsbegan with the first dollar of loss incurred. The FDIC reimbursesreimbursed BPPR for 80% of losses with respect to covered assets, and BPPR reimbursesreimbursed the FDIC for 80% of recoveries with respect to losses for which the FDIC paid reimbursement under loss-share arrangements. The loss-share agreement applicable to single-family residential mortgage loans provides for FDIC loss and recoveries sharing for ten years expiring at the end of the quarter ending June 30, 2020.
The following table sets forth the activity in the FDIC loss-share asset for the periods presented.
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance at beginning of period | $ | 53,070 | $ | 218,122 | $ | 69,334 | $ | 310,221 | ||||||||
Accretion (amortization) | 567 | (1,259 | ) | (62 | ) | (9,337 | ) | |||||||||
Credit impairment losses (reversal) to be covered under loss-sharing agreements | (329 | ) | 659 | 1,945 | (959 | ) | ||||||||||
Reimbursable expenses | 588 | 853 | 2,232 | 7,038 | ||||||||||||
Net payments from FDIC under loss-sharing agreements | (4,502 | ) | (10,897 | ) | (18,505 | ) | (99,485 | ) | ||||||||
Arbitration award expense | — | (54,924 | ) | — | (54,924 | ) | ||||||||||
Other adjustments attributable to FDIC loss-sharing agreements | — | (87 | ) | (5,550 | ) | (87 | ) | |||||||||
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Balance at end of period | $ | 49,394 | $ | 152,467 | $ | 49,394 | $ | 152,467 | ||||||||
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Balance due to the FDIC for recoveries on covered assets [1] | (924 | ) | (7,080 | ) | (924 | ) | (7,080 | ) | ||||||||
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Balance at end of period | $ | 48,470 | $ | 145,387 | $ | 48,470 | $ | 145,387 | ||||||||
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The loss-share component of the arrangements applicable to commercial (including construction) and consumer loans expired during the quarter ended June 30, 2015. The agreement provides2015, but the arrangement provided for reimbursement of recoveries to the FDIC to continue through the quarter ending June 30, 2018, and for the single family mortgage loss-share component of such agreement to expire on Aprilin the quarter ended June 30, 2020.
The weighted average lifeAs of March 31, 2018, the single family loan portfolio accounted for under ASC310-30 subjectCorporation had an FDIC loss share asset of $45.6 million, net of amounts owed to the FDIC loss-sharing agreement at September 30, 2017 is 7.1 years.
of $1.1 million, related to the covered assets. As part of the loss-share agreements, BPPR hashad agreed to make atrue-up payment to the FDIC on the date that is 45 days following the last day (such day, the“true-up measurement date”) of the final shared-loss month, or upon the final disposition of all covered assets under the loss-share agreements, in the event losses on the loss-share agreements fail to reach expected levels. The estimated fair value of suchtrue-up payment obligation is recordedat March 31, 2018 was approximately $171 million (December 31, 2017 - $165 million) and was included as a contingent consideration which is included inwithin the caption of other liabilities in the consolidated statementsConsolidated Statements of financial condition.Financial Condition.
On May 22, 2018, the Corporation entered into a Termination Agreement (the “Termination Agreement”) with the FDIC to terminate all loss-share arrangements in connection with the Westernbank FDIC-assisted transaction. Under the loss sharing agreements,terms of the Termination Agreement, BPPR will paymade a payment of approximately $23.7 million (the “Termination Payment”) to the FDIC 50%as consideration for the termination of the excess, if any, of: (i) 20%loss-share agreements. Popular recorded a gain of $102.8 million within the intrinsicFDIC loss estimate of $4.6 billion (or $925 million) (as determined by the FDIC) less (ii) the sum of: (A) 25% of the asset discount (per bid) (or ($1.1 billion)); plus (B) 25% of the cumulative shared-loss payments (defined as the aggregate of all of the payments made or payable to BPPR minus the aggregate of all of the payments made or payable to the FDIC); plus (C) the sum of the period servicing amounts for every consecutive twelve-month period prior to and ending on thetrue-up measurement date in respect of each of the loss-sharing agreements during which the loss-sharing provisions of the applicable loss-sharing agreement is in effect (defined as the product of the simple average of the principal amount of shared- loss loans and shared-loss assets at the beginning and end of such period times 1%).
Of the four components used to estimate thetrue-up payment obligation (intrinsic loss estimate, asset discount, cumulative shared-loss payments, and period servicing amounts) only the cumulative shared-loss payments and the period servicing amounts will change on a quarterly basis. These two variables are the main drivers of changesshare (expense) income caption in the undiscountedtrue-up payment obligation. In
order to estimate thetrue-up obligation, actual and expected portfolio performance for loans under both the commercial and residential loss sharing agreement are contemplated. The cumulative shared loss payments and cumulative servicing amounts are derived from our quarterly loss reassessment process for covered loans accounted for under ASC310-30.
Once the undiscountedtrue-up payment obligation is determined, the fair value is estimatedConsolidated Statements of Operations calculated based on the contractual remaining term to settledifference between the obligationTermination Payment and a discount rate that is composed of the sum of the interpolated U.S. Treasury Note (“T Note”), defined by the remaining termnet amount of thetrue-up payment obligation and a risk premium determined by the spread of the Corporation’s outstanding senior unsecured debt over the equivalent T Note.FDIC loss share asset.
The following table providessets forth the fair value andactivity in the undiscounted amount ofFDIC loss-share asset for thetrue-up payment obligation at September 30, 2017 and December 31, 2016. periods presented.
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Carrying amount (fair value) | $ | 166,876 | $ | 153,158 | ||||
Undiscounted amount | $ | 188,660 | $ | 188,258 |
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Balance at beginning of period | $ | — | $ | 53,070 | $ | 46,316 | $ | 69,334 | ||||||||
FDIC loss-share Termination Agreement | — | — | (45,659 | ) | — | |||||||||||
Accretion (amortization) | — | 567 | (934 | ) | (62 | ) | ||||||||||
Credit impairment losses (reversal) to be covered under loss-sharing agreements | — | (329 | ) | 104 | 1,945 | |||||||||||
Reimbursable expenses | — | 588 | 537 | 2,232 | ||||||||||||
Net payments from FDIC under loss-sharing agreements | — | (4,502 | ) | (364 | ) | (18,505 | ) | |||||||||
Other adjustments attributable to FDIC loss-sharing agreements | — | — | — | (5,550 | ) | |||||||||||
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Balance at end of period | $ | — | $ | 49,394 | $ | — | $ | 49,394 | ||||||||
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Balance due to the FDIC for recoveries on covered assets | — | (924 | ) | — | (924 | ) | ||||||||||
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Balance at end of period | $ | — | $ | 48,470 | $ | — | $ | 48,470 | ||||||||
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The increase in
As a result of the fair value of thetrue-up payment obligation was principally driven by a decrease in the discount rate from 5.97% in 2016 to 4.47% in 2017 due to a lower risk premium. The estimated fair value of thetrue-up payment obligation corresponds to the difference between the initial estimated losses to be reimbursedTermination Agreement, assets that were covered by the FDIC and the revised estimate of reimbursable losses. Asloss share agreement, including covered loans in the amount of estimated reimbursable losses decreases, the value of thetrue-up payment obligation increases.
As described above, the estimate of thetrue-up payment obligation is determined by applying the provisions of the loss sharing agreementsapproximately $514.6 million and will change on a quarterly basis. The amount of the estimate of thetrue-up payment obligation is expected to change in future periods and may be subject to the interpretation of provisions of the loss sharing agreements.
The loss-share agreements contain specific terms and conditions regarding the management of the covered assets that BPPR must follow in order to receive reimbursement on losses from the FDIC. Under the loss-share agreements, BPPR must:
Note 11 – 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 and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition,lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.
The following table presents the components of mortgage banking activities:
Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Mortgage servicing fees, net of fair value adjustments: | ||||||||||||||||||||||||||||||||
Mortgage servicing fees | $ | 12,012 | $ | 14,520 | $ | 38,485 | $ | 43,997 | $ | 12,324 | $ | 12,012 | $ | 37,205 | $ | 38,485 | ||||||||||||||||
Mortgage servicing rights fair value adjustments | (10,262 | ) | (6,062 | ) | (24,262 | ) | (18,879 | ) | (4,194 | ) | (10,262 | ) | (13,123 | ) | (24,262 | ) | ||||||||||||||||
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Total mortgage servicing fees, net of fair value adjustments | 1,750 | 8,458 | 14,223 | 25,118 | 8,130 | 1,750 | 24,082 | 14,223 | ||||||||||||||||||||||||
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Net gain on sale of loans, including valuation on loansheld-for-sale | 4,244 | 8,857 | 16,875 | 24,441 | 3,014 | 4,244 | 6,531 | 16,875 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Trading account loss: | ||||||||||||||||||||||||||||||||
Unrealized (losses) gains on outstanding derivative positions | (147 | ) | 95 | (104 | ) | (44 | ) | |||||||||||||||||||||||||
Realized losses on closed derivative positions | (608 | ) | (2,138 | ) | (3,645 | ) | (7,465 | ) | ||||||||||||||||||||||||
Trading account profit (loss): | ||||||||||||||||||||||||||||||||
Unrealized gains (losses) on outstanding derivative positions | 45 | (147 | ) | (131 | ) | (104 | ) | |||||||||||||||||||||||||
Realized gains (losses) on closed derivative positions | 80 | (608 | ) | 2,926 | (3,645 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total trading account loss | (755 | ) | (2,043 | ) | (3,749 | ) | (7,509 | ) | ||||||||||||||||||||||||
Total trading account profit (loss) | 125 | (755 | ) | 2,795 | (3,749 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total mortgage banking activities | $ | 5,239 | $ | 15,272 | $ | 27,349 | $ | 42,050 | $ | 11,269 | $ | 5,239 | $ | 33,408 | $ | 27,349 | ||||||||||||||||
|
|
|
|
|
|
|
|
Note 12 – Transfers of financial assets and mortgage servicing assets
The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA and FNMA 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 21 to the consolidated financial statementsConsolidated Financial Statements for a description of such arrangements.
No liabilities were incurred as a result of these securitizations during the quarters and nine months ended September 30, 20172018 and 20162017 because they did not contain any credit recourse arrangements. During the quarter and nine months ended September 30, 2017,2018, the Corporation recorded a net gain of $3.9$2.9 million and $6.2 million, respectively (September 30, 2016 - $8.4 million) related to the residential mortgage loans securitized. During the nine months ended September 30, 2017, the Corporation recorded a net gain of2017—$3.9 million and $15.0 million, (September 30, 2016 - $22.6 million)respectively) related to the residential mortgage loans securitized.
The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and nine months ended September 30, 20172018 and 2016:2017:
Proceeds Obtained During the Quarter Ended September 30, 2017 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Investments securities available for sale: | ||||||||||||||||
Mortgage-backed securities—FNMA | $ | — | $ | 4,329 | $ | — | $ | 4,329 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total investment securitiesavailable-for-sale | $ | — | $ | 4,329 | $ | — | $ | 4,329 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account securities: | ||||||||||||||||
Mortgage-backed securities—GNMA | $ | — | $ | 85,722 | $ | — | $ | 85,722 | ||||||||
Mortgage-backed securities—FNMA | — | 16,452 | — | 16,452 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account securities | $ | — | $ | 102,174 | $ | — | $ | 102,174 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 1,588 | $ | 1,588 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 106,503 | $ | 1,588 | $ | 108,091 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Proceeds Obtained During the Nine Months Ended September 30, 2017 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Investments securities available for sale: | ||||||||||||||||
Mortgage-backed securities—FNMA | $ | — | $ | 16,049 | $ | — | $ | 16,049 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total investment securitiesavailable-for-sale | $ | — | $ | 16,049 | $ | — | $ | 16,049 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account securities: | ||||||||||||||||
Mortgage-backed securities—GNMA | $ | — | $ | 368,660 | $ | — | $ | 368,660 | ||||||||
Mortgage-backed securities—FNMA | — | 69,798 | — | 69,798 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account securities | $ | — | $ | 438,458 | $ | — | $ | 438,458 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 6,766 | $ | 6,766 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 454,507 | $ | 6,766 | $ | 461,273 | ||||||||
|
|
|
|
|
|
|
|
Proceeds Obtained During the Quarter Ended September 30, 2018 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||
Mortgage-backed securities - FNMA | $ | — | $ | 2,498 | $ | — | $ | 2,498 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securitiesavailable-for-sale | $ | — | $ | 2,498 | $ | — | $ | 2,498 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account debt securities: | ||||||||||||||||
Mortgage-backed securities - GNMA | $ | — | $ | 109,911 | $ | — | $ | 109,911 | ||||||||
Mortgage-backed securities - FNMA | — | 23,625 | — | 23,625 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account debt securities | $ | — | $ | 133,536 | $ | — | $ | 133,536 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 2,625 | $ | 2,625 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 136,034 | $ | 2,625 | $ | 138,659 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Proceeds Obtained During the Nine Months Ended September 30, 2018 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||
Mortgage-backed securities - FNMA | $ | — | $ | 9,458 | $ | — | $ | 9,458 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securitiesavailable-for-sale | $ | — | $ | 9,458 | $ | — | $ | 9,458 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account debt securities: | ||||||||||||||||
Mortgage-backed securities - GNMA | $ | — | $ | 319,769 | $ | — | $ | 319,769 | ||||||||
Mortgage-backed securities - FNMA | — | 62,853 | — | 62,853 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account debt securities | $ | — | $ | 382,622 | $ | — | $ | 382,622 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 7,198 | $ | 7,198 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 392,080 | $ | 7,198 | $ | 399,278 | ||||||||
|
|
|
|
|
|
|
|
(In thousands) Assets Investments securities available for sale: Mortgage-backed securities—GNMA Mortgage-backed securities—FNMA Total investment securitiesavailable-for-sale Trading account securities: Mortgage-backed securities—GNMA Mortgage-backed securities—FNMA Total trading account securities Mortgage servicing rights Total (In thousands) Assets Investments securities available for sale: Mortgage-backed securities—GNMA Mortgage-backed securities—FNMA Total investment securitiesavailable-for-sale Trading account securities: Mortgage-backed securities—GNMA Mortgage-backed securities—FNMA Total trading account securities Mortgage servicing rights Total Proceeds Obtained During the Quarter Ended September 30, 2016 Level 1 Level 2 Level 3 Initial Fair Value $ — $ 20,686 $ — $ 20,686 — 5,138 — 5,138 $ — $ 25,824 $ — $ 25,824 $ — $ 140,255 $ — $ 140,255 — 44,574 — 44,574 $ — $ 184,829 $ — $ 184,829 $ — $ — $ 2,695 $ 2,695 $ — $ 210,653 $ 2,695 $ 213,348 Proceeds Obtained During the Nine Months Ended September 30, 2016 Level 1 Level 2 Level 3 Initial Fair Value $ — $ 20,686 $ — $ 20,686 — 5,138 — 5,138 $ — $ 25,824 $ — $ 25,824 $ — $ 444,382 $ — $ 444,382 — 123,888 — 123,888 $ — $ 568,270 $ — $ 568,270 $ — $ — $ 7,235 $ 7,235 $ — $ 594,094 $ 7,235 $ 601,329
Proceeds Obtained During the Quarter Ended September 30, 2017 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||
Mortgage-backed securities - FNMA | $ | — | $ | 4,329 | $ | — | $ | 4,329 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securitiesavailable-for-sale | $ | — | $ | 4,329 | $ | — | $ | 4,329 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account debt securities: | ||||||||||||||||
Mortgage-backed securities - GNMA | $ | — | $ | 85,722 | $ | — | $ | 85,722 | ||||||||
Mortgage-backed securities - FNMA | — | 16,452 | — | 16,452 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account debt securities | $ | — | $ | 102,174 | $ | — | $ | 102,174 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 1,588 | $ | 1,588 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 106,503 | $ | 1,588 | $ | 108,091 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Proceeds Obtained During the Nine Months Ended September 30, 2017 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value | ||||||||||||
Assets | ||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||
Mortgage-backed securities - FNMA | $ | — | $ | 16,049 | $ | — | $ | 16,049 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securitiesavailable-for-sale | $ | — | $ | 16,049 | $ | — | $ | 16,049 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account debt securities: | ||||||||||||||||
Mortgage-backed securities - GNMA | $ | — | $ | 368,660 | $ | — | $ | 368,660 | ||||||||
Mortgage-backed securities - FNMA | — | 69,798 | — | 69,798 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account debt securities | $ | — | $ | 438,458 | $ | — | $ | 438,458 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 6,766 | $ | 6,766 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 454,507 | $ | 6,766 | $ | 461,273 | ||||||||
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2017,2018, the Corporation retained servicing rights on whole loan sales involving approximately $49$43 million in principal balance outstanding (September 30, 2016 - $462017—$49 million), with realized gains of approximately $1.8$0.6 million (September 30, 2016 - 2017—gains of $1.9$1.8 million). All loan sales performed during the nine months ended September 30, 20172018 and 20162017 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”MSR”) 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 Corporation’s loan characteristics and portfolio behavior.
The following table presents the changes in MSRs measured using the fair value method for the nine months ended September 30, 20172018 and 2016.2017.
Residential MSRs (In thousands) Fair value at beginning of period Additions Changes due to payments on loans[1] Reduction due to loan repurchases Changes in fair value due to changes in valuation model inputs or assumptions Other disposals Fair value at end of period September 30, 2017 September 30, 2016 $ 196,889 $ 211,405 7,530 7,843 (12,794 ) (13,381 ) (1,605 ) (1,183 ) (9,863 ) (4,315 ) — (15 ) $ 180,157 $ 200,354
Residential MSRs | ||||||||
(In thousands) | September 30, 2018 | September 30, 2017 | ||||||
Fair value at beginning of period | $ | 168,031 | $ | 196,889 | ||||
Additions | 7,871 | 7,530 | ||||||
Changes due to payments on loans[1] | (10,194 | ) | (12,794 | ) | ||||
Reduction due to loan repurchases | (2,929 | ) | (1,605 | ) | ||||
Changes in fair value due to changes in valuation model inputs or assumptions | — | (9,863 | ) | |||||
|
|
|
| |||||
Fair value at end of period | $ | 162,779 | $ | 180,157 | ||||
|
|
|
|
[1] | Represents |
Residential mortgage loans serviced for others were $17.1$15.9 billion at September 30, 20172018 (December 31, 2016 - $18.02017 -$16.1 billion).
Net mortgage servicing fees, a component of mortgage banking activities in the consolidated statementsConsolidated Statements of operations,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 recognized ascredited to income when they are collected. At September 30, 2017,2018, those weighted average mortgage servicing fees were 0.29%0.30% (September 30, 2016 – 2017—0.29%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.
The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased.
Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters and nine months ended September 30, 20172018 and 20162017 were as follows:
Quarters ended | Nine months ended | Quarters ended | Nine months ended | |||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||
Prepayment speed | 4.9% | 4.6% | 4.3% | 5.2% | 4.4 | % | 4.9 | % | 4.4 | % | 4.3 | % | ||||||||||||||||||||
Weighted average life | 10.5 years | 10.6 years | 10.9 years | 10.1 years | ||||||||||||||||||||||||||||
Weighted average life (in years) | 11.4 | 10.5 | 11.4 | 10.9 | ||||||||||||||||||||||||||||
Discount rate (annual rate) | 10.9% | 11.0% | 10.9% | 11.0% | 11.0 | % | 10.9 | % | 11.1 | % | 10.9 | % |
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 | Originated MSRs | Purchased MSRs | |||||||||||||||||||||||||||||
September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | December 31, | |||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Fair value of servicing rights | $ | 77,786 | $ | 88,056 | $ | 102,371 | $ | 108,833 | $ | 67,545 | $ | 73,951 | $ | 95,234 | $ | 94,080 | ||||||||||||||||
Weighted average life (in years) | 7.2 | 7.8 | 6.4 | 6.9 | 7.2 | 7.3 | 6.7 | 6.5 | ||||||||||||||||||||||||
Weighted average prepayment speed (annual rate) | 5.4 | % | 4.6 | % | 6.0 | % | 4.8 | % | 5.0 | % | 5.1 | % | 5.4 | % | 5.7 | % | ||||||||||||||||
Impact on fair value of 10% adverse change | $ | (1,931 | ) | $ | (1,668 | ) | $ | (2,637 | ) | $ | (2,051 | ) | $ | (1,371 | ) | $ | (1,503 | ) | $ | (2,023 | ) | $ | (2,070 | ) | ||||||||
Impact on fair value of 20% adverse change | $ | (3,796 | ) | $ | (3,590 | ) | $ | (5,172 | ) | $ | (4,400 | ) | $ | (2,702 | ) | $ | (2,976 | ) | $ | (3,982 | ) | $ | (3,999 | ) | ||||||||
Weighted average discount rate (annual rate) | 11.5 | % | 11.5 | % | 11.0 | % | 11.0 | % | 11.5 | % | 11.5 | % | 11.0 | % | 11.0 | % | ||||||||||||||||
Impact on fair value of 10% adverse change | $ | (3,626 | ) | $ | (3,851 | ) | $ | (4,484 | ) | $ | (4,369 | ) | $ | (3,005 | ) | $ | (3,091 | ) | $ | (4,071 | ) | $ | (3,785 | ) | ||||||||
Impact on fair value of 20% adverse change | $ | (6,982 | ) | $ | (7,699 | ) | $ | (8,640 | ) | $ | (8,778 | ) | $ | (5,789 | ) | $ | (5,971 | ) | $ | (7,850 | ) | $ | (7,235 | ) |
The sensitivity analyses presented in the tables 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 September 30, 2017,2018, the Corporation serviced $1.5$1.4 billion (December 31, 2016 - $1.72017—$1.5 billion) in residential mortgage loans with credit recourse to the Corporation.
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 September 30, 2017,2018, the Corporation had recorded $92$195 million in mortgage loans on its Consolidated Statements of Financial Condition related to thisbuy-back option program (December 31, 2016 - $492017—$840 million). 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 nine months ended September 30, 2017,2018, the Corporation repurchased approximately $ 113$264 million (September 30, 2016 - $672017—$113 million) of mortgage loans under the GNMAbuy-back option program. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. Furthermore, due to their guaranteed nature, the risk associated with the loans is minimal. The Corporation places these loans under its loss mitigation programs and once brought back to current status, these may be either retained in portfolio orre-sold in the secondary market.
Note 13 – Other real estate owned
The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and nine months ended September 30, 20172018 and 2016.2017.
For the quarter ended September 30, 2017 | For the quarter ended September 30, 2018 | |||||||||||||||||||||||||||
Non-covered | Non-covered | Covered | Non-covered | Non-covered | ||||||||||||||||||||||||
OREO | OREO | OREO | OREO | OREO | ||||||||||||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | Commercial/Construction | Mortgage | Total | |||||||||||||||||||||
Balance at beginning of period | $ | 23,949 | $ | 157,147 | $ | 25,350 | $ | 206,446 | $ | 25,262 | $ | 116,801 | $ | 142,063 | ||||||||||||||
Write-downs in value | (2,702 | ) | (2,856 | ) | (234 | ) | (5,792 | ) | (487 | ) | (2,584 | ) | (3,071 | ) | ||||||||||||||
Additions | 982 | 18,669 | 1,560 | 21,211 | 2,006 | 11,517 | 13,523 | |||||||||||||||||||||
Sales | (743 | ) | (18,185 | ) | (4,395 | ) | (23,323 | ) | (1,309 | ) | (17,296 | ) | (18,605 | ) | ||||||||||||||
Other adjustments | — | 467 | (736 | ) | (269 | ) | — | (130 | ) | (130 | ) | |||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
Ending balance | $ | 21,486 | $ | 155,242 | $ | 21,545 | $ | 198,273 | $ | 25,472 | $ | 108,308 | $ | 133,780 | ||||||||||||||
|
|
|
|
|
|
|
For the nine months ended September 30, 2018 | ||||||||||||||||
Non-covered | Non-covered | Covered | ||||||||||||||
OREO | OREO | OREO | ||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | ||||||||||||
Balance at beginning of period | $ | 21,411 | $ | 147,849 | $ | 19,595 | $ | 188,855 | ||||||||
Write-downs in value | (1,889 | ) | (9,123 | ) | (287 | ) | (11,299 | ) | ||||||||
Additions | 9,047 | 17,047 | — | 26,094 | ||||||||||||
Sales | (3,932 | ) | (62,051 | ) | (3,282 | ) | (69,265 | ) | ||||||||
Other adjustments | 835 | (747 | ) | (693 | ) | (605 | ) | |||||||||
Transfer tonon-covered status[1] | — | 15,333 | (15,333 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | $ | 25,472 | $ | 108,308 | $ | — | $ | 133,780 | ||||||||
|
|
|
|
|
|
|
|
Represents the reclassification of OREOs to thenon-covered category, pursuant to the Termination Agreement of all shared-loss agreements with the Federal Deposit Insurance Corporation related to loans acquired from Westernbank, that was completed on May 22, 2018. |
For the quarter ended September 30, 2017 | ||||||||||||||||
Non-covered | Non-covered | Covered | ||||||||||||||
OREO | OREO | OREO | ||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | ||||||||||||
Balance at beginning of period | $ | 23,949 | $ | 157,147 | $ | 25,350 | $ | 206,446 | ||||||||
Write-downs in value[1] | (2,702 | ) | (2,856 | ) | (234 | ) | (5,792 | ) | ||||||||
Additions | 982 | 18,669 | 1,560 | 21,211 | ||||||||||||
Sales | (743 | ) | (18,185 | ) | (4,395 | ) | (23,323 | ) | ||||||||
Other adjustments | — | 467 | (736 | ) | (269 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | $ | 21,486 | $ | 155,242 | $ | 21,545 | $ | 198,273 | ||||||||
|
|
|
|
|
|
|
|
[1] | Includes $2.7 million related to the damages from Hurricane Maria, of which $1.3 million were for commercial and $1.4 million for residential. |
For the nine months ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||
Non-covered | Non-covered | Covered | Non-covered | Non-covered | Covered | |||||||||||||||||||||||||||
OREO | OREO | OREO | OREO | OREO | OREO | |||||||||||||||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | Commercial/Construction | Mortgage | Mortgage | Total | ||||||||||||||||||||||||
Balance at beginning of period | $ | 20,401 | $ | 160,044 | $ | 32,128 | $ | 212,573 | $ | 20,401 | $ | 160,044 | $ | 32,128 | $ | 212,573 | ||||||||||||||||
Write-downs in value(1) | (4,681 | ) | (14,715 | ) | (2,980 | ) | (22,376 | ) | ||||||||||||||||||||||||
Write-downs in value[1] | (4,681 | ) | (14,715 | ) | (2,980 | ) | (22,376 | ) | ||||||||||||||||||||||||
Additions | 8,604 | 69,585 | 9,775 | 87,964 | 8,604 | 69,585 | 9,775 | 87,964 | ||||||||||||||||||||||||
Sales | (2,707 | ) | (61,068 | ) | (15,184 | ) | (78,959 | ) | (2,707 | ) | (61,068 | ) | (15,184 | ) | (78,959 | ) | ||||||||||||||||
Other adjustments | (131 | ) | 1,396 | (2,194 | ) | (929 | ) | (131 | ) | 1,396 | (2,194 | ) | (929 | ) | ||||||||||||||||||
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Ending balance | $ | 21,486 | $ | 155,242 | $ | 21,545 | $ | 198,273 | $ | 21,486 | $ | 155,242 | $ | 21,545 | $ | 198,273 | ||||||||||||||||
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Includes $2.7 million related to the damages from Hurricane Maria, of which $1.3 million were for commercial and $1.4 million for residential. |
For the quarter ended September 30, 2016 | ||||||||||||||||
Non-covered | Non-covered | Covered | ||||||||||||||
OREO | OREO | OREO | ||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | ||||||||||||
Balance at beginning of period | $ | 24,110 | $ | 152,915 | $ | 37,984 | $ | 215,009 | ||||||||
Write-downs in value | (255 | ) | (2,859 | ) | (667 | ) | (3,781 | ) | ||||||||
Additions | 2,388 | 27,355 | 4,212 | 33,955 | ||||||||||||
Sales | (5,052 | ) | (13,866 | ) | (3,803 | ) | (22,721 | ) | ||||||||
Other adjustments | — | 92 | (312 | ) | (220 | ) | ||||||||||
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Ending balance | $ | 21,191 | $ | 163,637 | $ | 37,414 | $ | 222,242 | ||||||||
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For the nine months ended September 30, 2016 | ||||||||||||||||
Non-covered | Non-covered | Covered | ||||||||||||||
OREO | OREO | OREO | ||||||||||||||
(In thousands) | Commercial/Construction | Mortgage | Mortgage | Total | ||||||||||||
Balance at beginning of period | $ | 32,471 | $ | 122,760 | $ | 36,685 | $ | 191,916 | ||||||||
Write-downs in value | (2,533 | ) | (6,489 | ) | (1,533 | ) | (10,555 | ) | ||||||||
Additions | 5,500 | 83,255 | 13,935 | 102,690 | ||||||||||||
Sales | (13,632 | ) | (34,769 | ) | (10,759 | ) | (59,160 | ) | ||||||||
Other adjustments | (615 | ) | (1,120 | ) | (914 | ) | (2,649 | ) | ||||||||
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Ending balance | $ | 21,191 | $ | 163,637 | $ | 37,414 | $ | 222,242 | ||||||||
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The caption of other assets in the consolidated statements of financial condition consists of the following major categories:
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Net deferred tax assets (net of valuation allowance) | $ | 1,207,597 | $ | 1,243,668 | $ | 1,144,417 | $ | 1,035,110 | ||||||||
Investments under the equity method | 210,067 | 218,062 | 223,222 | 215,349 | ||||||||||||
Prepaid taxes | 164,531 | 172,550 | 34,859 | 168,852 | ||||||||||||
Other prepaid expenses | 87,136 | 90,320 | 80,131 | 84,771 | ||||||||||||
Derivative assets | 14,234 | 14,085 | 18,977 | 16,539 | ||||||||||||
Trades receivable from brokers and counterparties | 999 | 46,630 | 57,290 | 7,514 | ||||||||||||
Receivables from investments maturities | 270,000 | — | 51,000 | 70,000 | ||||||||||||
Principal, interest and escrow servicing advances | 71,167 | 69,711 | 94,298 | 107,299 | ||||||||||||
Guaranteed mortgage loan claims receivable | 174,964 | 152,403 | 77,704 | 163,819 | ||||||||||||
Others | 129,232 | 138,081 | 118,952 | 122,070 | ||||||||||||
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Total other assets | $ | 2,329,927 | $ | 2,145,510 | $ | 1,900,850 | $ | 1,991,323 | ||||||||
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Note 15 – Goodwill and other intangible assets
Goodwill
There were no changes in the carrying amount of goodwill for the quarter and nine months ended September 30, 2017. The changes in the carrying amount of goodwill for the nine months ended September 30, 2016,2018, allocated by reportable segments, were as follows (refer to Note 34 for the definition of the Corporation’s reportable segments):
2016 | ||||||||||||||||||||||||||||||||||||||||
2018 | 2018 | |||||||||||||||||||||||||||||||||||||||
Purchase | Purchase | |||||||||||||||||||||||||||||||||||||||
Balance at | Goodwill on | accounting | Goodwill | Balance at | Balance at | Goodwill on | accounting | Goodwill | Balance at | |||||||||||||||||||||||||||||||
(In thousands) | January 1, 2016 | acquisition | adjustments | impairment | September 30, 2016 | January 1, 2018 | acquisition | adjustments | impairment | September 30,2018 | ||||||||||||||||||||||||||||||
Banco Popular de Puerto Rico | $ | 280,221 | $ | — | $ | — | $ | (3,801 | ) | $ | 276,420 | $ | 276,420 | $ | 60,242 | $ | — | $ | — | $ | 336,662 | |||||||||||||||||||
Banco Popular North America | 346,167 | — | 4,707 | — | 350,874 | |||||||||||||||||||||||||||||||||||
Popular U.S. | 350,874 | — | — | — | 350,874 | |||||||||||||||||||||||||||||||||||
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Total Popular, Inc. | $ | 626,388 | $ | — | $ | 4,707 | $ | (3,801 | ) | $ | 627,294 | $ | 627,294 | $ | 60,242 | $ | — | $ | — | $ | 687,536 | |||||||||||||||||||
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On February 27, 2015, BPPR, in alliance with otherco-bidders, including BPNA, acquired certain assets and all deposits (other than certain brokered deposits) of former Doral Bank, from the Federal Deposit Insurance Corporation (“FDIC”) as receiver (the “Doral Bank Transaction”). DuringThe goodwill recognized during the quarter ended JuneSeptember 30, 2016,2018 in the Corporation recorded purchase accounting adjustmentsreportable segment of $4.7Banco Popular de Puerto Rico of $60.2 million resulting in a total goodwill of $167.8 million recognizedwas related to the Doral BankReliable Transaction. Refer to Note 4, Business combination, for additional information.
There were no changes in the carrying amount of goodwill for the nine months ended September 30, 2017.
Other Intangible Assets
At September 30, 20172018 and December 31, 2016,2017, the Corporation had $ 6.1$6.1 million of identifiable intangible assets with indefinite useful lives, mostly associated with theE-LOAN trademark.
The following table reflects the components of other intangible assets subject to amortization:
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
(In thousands) | Amount | Amortization | Value | Amount | Amortization | Value | ||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
September 30, 2018 | ||||||||||||||||||||||||
Core deposits | $ | 37,224 | $ | 25,139 | $ | 12,085 | ||||||||||||||||||
Other customer relationships | 35,632 | 25,182 | 10,450 | |||||||||||||||||||||
Trademark | 488 | 17 | 471 | |||||||||||||||||||||
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Total other intangible assets | $ | 73,344 | $ | 50,338 | $ | 23,006 | ||||||||||||||||||
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| ||||||||||||||||||||||
December 31, 2017 | ||||||||||||||||||||||||
Core deposits | $ | 37,224 | $ | 21,416 | $ | 15,808 | $ | 37,224 | $ | 22,347 | $ | 14,877 | ||||||||||||
Other customer relationships | 36,449 | 20,404 | 16,045 | 35,683 | 21,051 | 14,632 | ||||||||||||||||||
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Total other intangible assets | $ | 73,673 | $ | 41,820 | $ | 31,853 | $ | 72,907 | $ | 43,398 | $ | 29,509 | ||||||||||||
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December 31, 2016 | ||||||||||||||||||||||||
Core deposits | $ | 37,274 | $ | 18,624 | $ | 18,650 | ||||||||||||||||||
Other customer relationships | 36,449 | 16,162 | 20,287 | |||||||||||||||||||||
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| ||||||||||||||||||||||
Total other intangible assets | $ | 73,723 | $ | 34,786 | $ | 38,937 | ||||||||||||||||||
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The trademark recognized during the quarter ended September 30, 2018 of $0.5 million was related to the Reliable Transaction. Refer to Note 4, Business combination, for additional information.
During the quarter ended September 30, 2017,2018, the Corporation recognized $ 2.3$2.3 million in amortization expense related to other intangible assets with definite useful lives (September 30, 2016 - 2017—$ 3.12.3 million). During the nine months ended September 30, 2017,2018, the Corporation recognized $ 7.0$7.0 million in amortization related to other intangible assets with definite useful lives (September 30, 2016 - 2017—$ 9.37.0 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 2017 | $ | 2,344 | ||
Year 2018 | 9,286 | |||
Year 2019 | 9,042 | |||
Year 2020 | 4,967 | |||
Year 2021 | 2,157 | |||
Year 2022 | 1,281 | |||
Later years | 2,776 |
(In thousands) | ||||
Remaining 2018 | $ | 2,337 | ||
Year 2019 | 9,140 | |||
Year 2020 | 5,065 | |||
Year 2021 | 2,254 | |||
Year 2022 | 1,378 | |||
Year 2023 | 1,338 | |||
Later years | 1,494 |
Results of the Annual Goodwill Impairment Test
The Corporation’s goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment, at least annually and on a more frequent basis if events or circumstances indicate impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit.
Under applicable accounting standards, goodwill impairment analysis is atwo-step test. The first step of the goodwill impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles (including any unrecognized intangible assets, such as unrecognized core deposits and trademark) as if the reporting unit was being acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The Corporation estimates the fair values of the assets and liabilities of a reporting unit, consistent with the requirements of the fair value measurements accounting standard, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of the assets and liabilities reflects market conditions, thus volatility in prices could have a material impact on the determination of the implied fair value of the reporting unit goodwill at the impairment test date. The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the consolidated statement of condition. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards.
The Corporation performed the annual goodwill impairment evaluation for the entire organization during the third quarter of 20172018 using July 31, 20172018 as the annual evaluation date. The reporting units utilized for this evaluation were those that are one level below the business segments, which are the legal entities within the reportable segment. The Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units when carrying out a business combination.
In determining the fair value of a reporting unit, the Corporation generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Management evaluates the particular circumstances of each reporting unit in order to determine the most appropriate valuation methodology. The Corporation evaluates the results obtained under each valuation methodology to identify and understand the key value drivers in order to ascertain that the results obtained are reasonable and appropriate under the circumstances. Elements considered include current market and economic conditions, developments in specific lines of business, and any particular features in the individual reporting units.
The computations require management to make estimates and assumptions. Critical assumptions that are used as part of these evaluations include:
a selection of comparable publicly traded companies, based on nature of business, location and size;
the discount rate applied to future earnings, based on an estimate of the cost of equity;
the potential future earnings of the reporting unit; and
the market growth and new business assumptions.
For purposes of the market comparable approach, valuations were determined by calculating average price multiples of relevant value drivers from a group of companies that are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of the reporting unit. Multiples used are minority based multiples and thus, no control premium adjustment is made to the comparable companies market multiples. While the market price multiple is not an assumption, a presumption that it provides an indicator of the value of the reporting unit is inherent in the valuation. The determination of the market comparables also involves a degree of judgment.
For purposes of the discounted cash flows (“DCF”) approach, the valuation is based on estimated future cash flows. The financial projections used in the DCF valuation analysis for each reporting unit are based on the most recent (as of the valuation date) financial projections presented to the Corporation’s Asset / Liability Management Committee (“ALCO”). The growth assumptions included in these projections are based on management’s expectations for each reporting unit’s financial prospects considering economic and industry conditions as well as particular plans of each entity (i.e. restructuring plans,de-leveraging, etc.). The cost of equity used to discount the cash flows was calculated using the IbbotsonBuild-Up Method and ranged from 11.58%11.42% to 14.49%13.93% for the 20172018 analysis. The IbbotsonBuild-Up Method builds up a cost of equity starting with the rate of return of a “risk-free” asset(20-year U.S. Treasury note) and adds to it additional risk elements such as equity risk premium, size premium and industry risk premium. The resulting discount rates were analyzed in terms of reasonability given the current market conditions and adjustments were made when necessary.
BPPR passed Step 1 in the annual test as of July 31, 2017.2018. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded BPPR’s equity value by approximately $871 million$2.4 billion or 26%77%. Accordingly, there was no indication of impairment on the goodwill recorded in BPPR at July 31, 20172018 and there was no need for a Step 2 analysis. As indicated in Note 2, during the month of September Hurricanes Irma and Maria made landfall and subsequently caused extensive destruction in the U.S. and British Virgin Islands and Puerto Rico, disrupting the markets in which BPPR does business. The hurricanes have and may continue to impact the Corporation’s financial results, as detailed in Note 2, which may have an effect on BPPR’s estimated fair value. However, given the excess of BPPR’s fair value over its carrying amount, the Corporation has determined, based on the information currently available, that there is no indication of impairment of goodwill. The Corporation will continue monitoring the impact of the hurricanes as new information becomes available.
BPNAPB passed Step 1 in the annual test as of July 31, 2017.2018. The results indicated that the average estimated fair value calculated in Step 1 using all valuation methodologies exceeded BPNA’sPB’s equity value by approximately $183$407 million or 11%28%. Accordingly, there was no indication of impairment on the goodwill recorded in BPNAPB at July 31, 20172018 and there was no need for a Step 2 analysis.
The goodwill balance of BPPR and BPNA,PB, as legal entities, represented approximately 98% of the Corporation’s total goodwill balance as of the July 31, 20172018 valuation date.
Furthermore, as part of the analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of Popular, Inc.the Corporation concluding that the fair value results determined for the reporting units in the July 31, 20172018 annual assessment were reasonable.
The goodwill impairment evaluation process requires the Corporation to make estimates and assumptions with regard to the fair value of the reporting units. Actual values may differ significantly from these estimates. Such differences could result in future impairment of goodwill that would, in turn, negatively impact the Corporation’s results of operations and the reporting units where the goodwill is recorded. Declines in the Corporation’s market capitalization could increase the risk of goodwill impairment in the future.
Management monitors events or changes in circumstances between annual tests to determine if these events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments.
September 30, 2018 | ||||||||||||||||||||||||
Balance at | Balance at | Balance at | Balance at | |||||||||||||||||||||
January 1, | Accumulated | January 1, | September 30, | Accumulated | September 30, | |||||||||||||||||||
2018 | impairment | 2018 | 2018 | impairment | 2018 | |||||||||||||||||||
(In thousands) | (gross amounts) | losses | (net amounts) | (gross amounts) | losses | (net amounts) | ||||||||||||||||||
Banco Popular de Puerto Rico | $ | 280,221 | $ | 3,801 | $ | 276,420 | $ | 340,463 | $ | 3,801 | $ | 336,662 | ||||||||||||
Popular U.S. | 515,285 | 164,411 | 350,874 | 515,285 | 164,411 | 350,874 | ||||||||||||||||||
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Total Popular, Inc. | $ | 795,506 | $ | 168,212 | $ | 627,294 | $ | 855,748 | $ | 168,212 | $ | 687,536 | ||||||||||||
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December 31, 2017 | ||||||||||||||||||||||||
Balance at | Balance at | Balance at | Balance at | |||||||||||||||||||||
January 1, | Accumulated | January 1, | December 31, | Accumulated | December 31, | |||||||||||||||||||
2017 | impairment | 2017 | 2017 | impairment | 2017 | |||||||||||||||||||
(In thousands) | (gross amounts) | losses | (net amounts) | (gross amounts) | losses | (net amounts) | ||||||||||||||||||
Banco Popular de Puerto Rico | $ | 280,221 | $ | 3,801 | $ | 276,420 | $ | 280,221 | $ | 3,801 | $ | 276,420 | ||||||||||||
Popular U.S. | 515,285 | 164,411 | 350,874 | 515,285 | 164,411 | 350,874 | ||||||||||||||||||
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Total Popular, Inc. | $ | 795,506 | $ | 168,212 | $ | 627,294 | $ | 795,506 | $ | 168,212 | $ | 627,294 | ||||||||||||
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September 30, 2017 (In thousands) Banco Popular de Puerto Rico Banco Popular North America Total Popular, Inc. December 31, 2016 (In thousands) Banco Popular de Puerto Rico Banco Popular North America Total Popular, Inc. Balance at Balance at Balance at Balance at January 1, Accumulated January 1, September 30, Accumulated September 30, 2017 impairment 2017 2017 impairment 2017 (gross amounts) losses (net amounts) (gross amounts) losses (net amounts) $ 280,221 $ 3,801 $ 276,420 $ 280,221 $ 3,801 $ 276,420 515,285 164,411 350,874 515,285 164,411 350,874 $ 795,506 $ 168,212 $ 627,294 $ 795,506 $ 168,212 $ 627,294 Balance at Balance at Balance at Balance at January 1, Accumulated January 1, December 31, Accumulated December 31, 2016 impairment 2016 2016 impairment 2016 (gross amounts) losses (net amounts) (gross amounts) losses (net amounts) $ 280,221 $ — $ 280,221 $ 280,221 $ 3,801 $ 276,420 510,578 164,411 346,167 515,285 164,411 350,874 $ 790,799 $ 164,411 $ 626,388 $ 795,506 $ 168,212 $ 627,294
Total interest bearing deposits as of the end of the periods presented consisted of:
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Savings accounts | $ | 8,348,091 | $ | 7,793,533 | $ | 9,711,063 | $ | 8,561,718 | ||||||||
NOW, money market and other interest bearing demand deposits | 10,838,465 | 8,012,706 | 13,721,732 | 10,885,967 | ||||||||||||
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Total savings, NOW, money market and other interest bearing demand deposits | 19,186,556 | 15,806,239 | 23,432,795 | 19,447,685 | ||||||||||||
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Certificates of deposit: | ||||||||||||||||
Under $100,000 | 3,549,599 | 3,570,956 | 3,346,204 | 3,446,575 | ||||||||||||
$100,000 and over | 4,062,924 | 4,138,586 | 4,066,076 | 4,068,303 | ||||||||||||
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Total certificates of deposit | 7,612,523 | 7,709,542 | 7,412,280 | 7,514,878 | ||||||||||||
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Total interest bearing deposits | $ | 26,799,079 | $ | 23,515,781 | $ | 30,845,075 | $ | 26,962,563 | ||||||||
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A summary of certificates of deposit by maturity at September 30, 20172018 follows:
(In thousands) | ||||||||
2017 | $ | 1,784,658 | ||||||
2018 | 2,421,822 | $ | 1,969,701 | |||||
2019 | 1,047,982 | 2,233,844 | ||||||
2020 | 1,079,172 | 1,361,441 | ||||||
2021 | 727,779 | 829,654 | ||||||
2022 and thereafter | 551,110 | |||||||
2022 | 513,048 | |||||||
2023 and thereafter | 504,592 | |||||||
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Total certificates of deposit | $ | 7,612,523 | $ | 7,412,280 | ||||
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At September 30, 2017,2018, the Corporation had brokered deposits amounting to $ 0.6$0.5 billion (December 31, 2016 - 2017—$ 0.60.5 billion).
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $16$3 million at September 30, 20172018 (December 31, 2016 - $62017—$4 million).
The following table presents the compositionbalances of assets sold under agreements to repurchase at September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Assets sold under agreements to repurchase | $ | 374,405 | $ | 479,425 | $ | 300,116 | $ | 390,921 | ||||||||
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Total assets sold under agreements to repurchase | $ | 374,405 | $ | 479,425 | $ | 300,116 | $ | 390,921 | ||||||||
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The Corporation’s repurchase transactions are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right ofset-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default each party has a right ofset-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.
The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with investmentdebt securitiesavailable-for-sale, other assetsheld-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 statementsConsolidated Statements of financial condition.Financial Condition.
Repurchase agreements accounted for as secured borrowings
September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||
(In thousands) | Repurchase liability | Repurchase liability | Repurchase liability | Repurchase liability | ||||||||||||
U.S. Treasury Securities | ||||||||||||||||
U.S. Treasury securities | ||||||||||||||||
Within 30 days | $ | 69,030 | $ | 32,700 | $ | 93,129 | $ | 148,516 | ||||||||
After 30 to 90 days | 53,781 | — | 19,831 | 87,357 | ||||||||||||
After 90 days | 142,306 | 19,819 | 159,292 | 43,500 | ||||||||||||
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Total U.S. Treasury Securities | 265,117 | 52,519 | ||||||||||||||
Total U.S. Treasury securities | 272,252 | 279,373 | ||||||||||||||
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Obligations of U.S. government sponsored entities | ||||||||||||||||
Within 30 days | — | 95,720 | — | 30,656 | ||||||||||||
After 30 to 90 days | 30,835 | 142,299 | — | 19,463 | ||||||||||||
After 90 days | 35,400 | 25,380 | 6,055 | 15,937 | ||||||||||||
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Total obligations of U.S. government sponsored entities | 66,235 | 263,399 | 6,055 | 66,056 | ||||||||||||
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Mortgage-backed securities | ||||||||||||||||
Within 30 days | — | 39,108 | 12,228 | 31,383 | ||||||||||||
After 30 to 90 days | — | 58,552 | ||||||||||||||
After 90 days | 31,383 | 54,560 | ||||||||||||||
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| |||||||||||||
Total mortgage-backed securities | 31,383 | 152,220 | 12,228 | 31,383 | ||||||||||||
|
|
|
| |||||||||||||
Collateralized mortgage obligations | ||||||||||||||||
Within 30 days | 11,670 | 11,287 | 9,581 | 14,109 | ||||||||||||
|
|
|
| |||||||||||||
Total collateralized mortgage obligations | 11,670 | 11,287 | 9,581 | 14,109 | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 374,405 | $ | 479,425 | $ | 300,116 | $ | 390,921 | ||||||||
|
|
|
|
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.
The following table presents information related to the Corporation’s other short-term borrowings for the periods ended September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Advances with the FHLB paying interest at maturity with fixed rates ranging from 1.32% to 1.44% | $ | 239,398 | $ | — | ||||
Others | 1,200 | 1,200 | ||||||
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|
|
| |||||
Total other short-term borrowings | $ | 240,598 | $ | 1,200 | ||||
|
|
|
|
(In thousands) | September 30, 2018 | December 31, 2017 | ||||||
Advances with the FHLB | $ | — | $ | 95,000 | ||||
Others | 1,200 | 1,208 | ||||||
|
|
|
| |||||
Total other short-term borrowings | $ | 1,200 | $ | 96,208 | ||||
|
|
|
|
Note: Refer to the Corporation’s 20162017 Form10-K for rates information at December 31, 2016.
During the quarter ended September 30, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, redeemed all outstanding capital securities issued by BanPonce Trust I (the “Trust”), a statutory trust established by PNA, along with the common securities issued by the Trust, which resulted in the concurrent extinguishment of the related junior subordinated debentures with an aggregate book value of $55 million. Refer to Note 18 for additional information on the redemption of these trust preferred securities.
Also, during the quarter ended September 30, 2018, the Corporation issued an aggregate of $300 million principal amount of its 6.125% senior notes due 2023 and recorded debt issuance costs of $6.3 million. On October 15, 2018, the Corporation used the net proceeds, together with available cash, to redeem $450 million of its outstanding 7.00% senior notes due 2019.
The following table presents the composition of notes payable at September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Advances with the FHLB with maturities ranging from 2017 through 2029 paying interest at monthly fixed rates ranging from 0.81% to 4.19 % | $ | 569,889 | $ | 608,193 | ||||
Advances with the FHLB with maturities ranging from 2018 through 2019 paying interest monthly at a floating rate ranging from 0.22% to 0.34% over the 1 month LIBOR | 34,164 | 34,164 | ||||||
Advances with the FHLB with maturities ranging from 2018 through 2019 paying interest quarterly at a floating rate from 0.09% to 0.24% over the 3 month LIBOR | 25,019 | 30,313 | ||||||
Unsecured senior debt securities maturing on 2019 paying interest semiannually at a fixed rate of 7.00%, net of debt issuance costs of $3,648 (2016 - $5,212) | 446,351 | 444,788 | ||||||
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2027 to 2034 with fixed interest rates ranging from 6.125% to 8.327%, net of debt issuance costs of $456 (2016 - $476) | 439,344 | 439,323 | ||||||
Others | 17,294 | 18,071 | ||||||
|
|
|
| |||||
Total notes payable | $ | 1,532,061 | $ | 1,574,852 | ||||
|
|
|
|
(In thousands) | September 30, 2018 | December 31, 2017 | ||||||
Advances with the FHLB with maturities ranging from 2018 through 2029 paying interest at monthly fixed rates ranging from 0.89% to 4.19 % | $ | 567,031 | $ | 572,307 | ||||
Advances with the FHLB with maturing in 2019 paying interest monthly at a floating rate of 0.34% over the 1 month LIBOR | 13,000 | 34,164 | ||||||
Advances with the FHLB with maturing in 2019 paying interest quarterly at a floating rate from 0.12% to 0.24% over the 3 month LIBOR | 19,724 | 25,019 | ||||||
Unsecured senior debt securities with maturities ranging from 2019 through 2023 paying interest semiannually at fixed rates ranging from of 6.125% to 7.00%, net of debt issuance costs of $7,841 | 742,159 | 446,873 | ||||||
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2033 to 2034 with fixed interest rates ranging from 6.125% to 6.7%, net of debt issuance costs of $429 | 384,869 | 439,351 | ||||||
Others | 17,904 | 18,642 | ||||||
|
|
|
| |||||
Total notes payable | $ | 1,744,687 | $ | 1,536,356 | ||||
|
|
|
|
Note: Refer to the Corporation’s 20162017 Form10-K for rates information at December 31, 2016.2017.
A breakdown of borrowings by contractual maturities at September 30, 20172018 is included in the table below.
Assets sold under | Short-term | |||||||||||||||||||||||||||||||
(In thousands) | agreements to repurchase | borrowings | Notes payable | Total | Assets sold under agreements to repurchase | Short-term borrowings | Notes payable | Total | ||||||||||||||||||||||||
Year 2017 | $ | 165,315 | $ | 205,598 | $ | 32,536 | $ | 403,449 | ||||||||||||||||||||||||
2018 | 209,090 | 35,000 | 220,086 | 464,176 | $ | 134,769 | $ | 1,200 | $ | 83,103 | $ | 219,072 | ||||||||||||||||||||
2019 | — | — | 608,530 | 608,530 | 165,347 | — | 650,159 | [1] | 815,506 | |||||||||||||||||||||||
2020 | — | — | 112,088 | 112,088 | — | — | 111,960 | 111,960 | ||||||||||||||||||||||||
2021 | — | — | 21,694 | 21,694 | — | — | 21,877 | 21,877 | ||||||||||||||||||||||||
2022 | — | — | 105,175 | 105,175 | ||||||||||||||||||||||||||||
Later years | — | — | 537,127 | 537,127 | — | — | 772,413 | 772,413 | ||||||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||
Total borrowings | $ | 374,405 | $ | 240,598 | $ | 1,532,061 | $ | 2,147,064 | $ | 300,116 | $ | 1,200 | $ | 1,744,687 | $ | 2,046,003 | ||||||||||||||||
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|
|
[1] | On October 15, 2018, the Corporation redeemed $450 million principal amount of its senior notes due on 2019. |
At September 30, 20172018 and December 31, 2016,2017, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $3.9$3.4 billion and $3.8$3.9 billion, respectively, of which $868$600 million and $673$726 million, respectively, were used. In addition, at September 30, 20172018 and December 31, 2016,2017, the Corporation had placed $200$1.1 billion and $260 million, respectively, of the available FHLB credit facility as collateral for a municipal letter of credit to secure deposits. The FHLB borrowing facilities are collateralized with loansheld-in-portfolio, and do not have restrictive covenants or callable features.
Also, at September 30, 2017,2018, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.2 billion (2016 - $1.2(2017—$1.1 billion), which remained unused at September 30, 20172018 and December 31, 2016.2017. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.
Note 18 – OffsettingTrust preferred securities
Statutory trusts established by the Corporation (BanPonce Trust I, Popular Capital Trust I, Popular North America Capital Trust I and Popular Capital Trust II) had issued trust preferred securities (also referred to as “capital securities”) to the public. The proceeds from such issuances, together with the proceeds of financialthe related issuances of common securities of the trusts (the “common securities”), were used by the trusts to purchase junior subordinated deferrable interest debentures (the “junior subordinated debentures”) issued by the Corporation.
The sole assets of the trusts consisted of the junior subordinated debentures of the Corporation and liabilitiesthe related accrued interest receivable. These trusts are not consolidated by the Corporation pursuant to accounting principles generally accepted in the United States of America.
The junior subordinated debentures are included by the Corporation as notes payable in the Consolidated Statements of Financial Condition, while the common securities issued by the issuer trusts are included as other investment securities. The common securities of each trust are wholly-owned, or indirectly wholly-owned, by the Corporation.
During the quarter ended September 30, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, redeemed all outstanding capital securities issued by BanPonce Trust I (the “Trust”), a statutory trust established by PNA, with an aggregate book value of $53 million, along with the common securities issued by the Trust, which resulted in the concurrent extinguishment of the related junior subordinated debentures amounting to $55 million, as discussed in Note 17.
The following tables present financial data pertaining to the potential effect of rights of setoff associated with the Corporation’s recognized financial assets and liabilitiesdifferent trusts at September 30, 20172018 and December 31, 2016.2017.
As of September 30, 2017 | ||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statement of Financial Position | ||||||||||||||||||||||||||||
(In thousands) | Gross Amount of Recognized Assets | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets Presented in the Statement of Financial Position | Financial Instruments | Securities Collateral Received | Cash Collateral Received | Net Amount | |||||||||||||||||||||
Derivatives | $ | 14,234 | $ | — | $ | 14,234 | $ | 33 | $ | — | $ | — | $ | 14,201 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 14,234 | $ | — | $ | 14,234 | $ | 33 | $ | — | $ | — | $ | 14,201 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statement of Financial Position | ||||||||||||||||||||||||||||
(In thousands) | Gross Amount of Recognized Liabilities | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Liabilities Presented in the Statement of Financial Position | Financial Instruments | Securities Collateral Pledged | Cash Collateral Pledged | Net Amount | |||||||||||||||||||||
Derivatives | $ | 12,841 | $ | — | $ | 12,841 | $ | 33 | $ | 16 | $ | — | $ | 12,792 | ||||||||||||||
Repurchase agreements | 374,405 | — | 374,405 | — | 374,405 | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 387,246 | $ | — | $ | 387,246 | $ | 33 | $ | 374,421 | $ | — | $ | 12,792 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statement of Financial Position | ||||||||||||||||||||||||||||
(In thousands) | Gross Amount of Recognized Assets | Gross Amounts Offset in the Statement of Financial Position | Net Amounts of Assets Presented in the Statement of Financial Position | Financial Instruments | Securities Collateral Received | Cash Collateral Received | Net Amount | |||||||||||||||||||||
Derivatives | $ | 14,094 | $ | — | $ | 14,094 | $ | 551 | $ | — | $ | — | $ | 13,543 | ||||||||||||||
Reverse repurchase agreements | 23,637 | — | 23,637 | — | 23,637 | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 37,731 | $ | — | $ | 37,731 | $ | 551 | $ | 23,637 | $ | — | $ | 13,543 | ||||||||||||||
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|
|
|
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|
|
(Dollars in thousands) | As of September 30, 2018 | |||||||||||
Issuer | Popular Capital Trust I | Popular North America Capital Trust I | Popular Capital Trust Il | |||||||||
Capital securities | $ | 181,063 | $ | 91,651 | $ | 101,023 | ||||||
Distribution rate | 6.700 | % | 6.564 | % | 6.125 | % | ||||||
Common securities | $ | 5,601 | $ | 2,835 | $ | 3,125 | ||||||
Junior subordinated debentures aggregate liquidation amount | $ | 186,664 | $ | 94,486 | $ | 104,148 | ||||||
Stated maturity date | | November 2033 | | | September 2034 | | | December 2034 | | |||
Reference notes | [2],[4],[5] | [1],[3],[5] | [2],[4],[5] |
[1] | Statutory business trust that is wholly-owned by PNA and indirectly wholly-owned by the Corporation. |
[2] | Statutory business trust that is wholly-owned by the Corporation. |
[3] | The obligations of PNA under the junior subordinated debentures and its guarantees of the capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement. |
[4] | These capital securities are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement. |
[5] | The Corporation has the right, subject to any required prior approval from the Federal Reserve, to redeem after certain dates or upon the occurrence of certain events mentioned below, the junior subordinated debentures at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption. The maturity of the junior subordinated debentures may be shortened at the option of the Corporation prior to their stated maturity dates (i) on or after the stated optional redemption dates stipulated in the agreements, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the capital securities, in each case subject to regulatory approval. |
As of December 31, 2016 (In thousands) Derivatives Repurchase agreements Total Gross Amounts Not Offset in the Statement of
Financial Position Gross Amount
of Recognized
Liabilities Gross Amounts
Offset in the
Statement of
Financial
Position Net Amounts of
Liabilities
Presented in the
Statement of
Financial
Position Financial
Instruments Securities
Collateral
Pledged Cash
Collateral
Received Net Amount $ 12,842 $ — $ 12,842 $ 551 $ 747 $ — $ 11,544 479,425 — 479,425 — 479,425 — — $ 492,267 $ — $ 492,267 $ 551 $ 480,172 $ — $ 11,544
(Dollars in thousands) | As of December 31, 2017 | |||||||||||||||
Issuer | BanPonce Trust I | Popular Capital Trust I | Popular North America Capital Trust I | Popular Capital Trust Il | ||||||||||||
Capital securities | $ | 52,865 | $ | 181,063 | $ | 91,651 | $ | 101,023 | ||||||||
Distribution rate | 8.327 | % | 6.700 | % | 6.564 | % | 6.125 | % | ||||||||
Common securities | $ | 1,637 | $ | 5,601 | $ | 2,835 | $ | 3,125 | ||||||||
Junior subordinated debentures aggregate liquidation amount | $ | 54,502 | $ | 186,664 | $ | 94,486 | $ | 104,148 | ||||||||
Stated maturity date | | February 2027 | | | November 2033 | | | September 2034 | | | December 2034 | | ||||
Reference notes | [1],[3],[6] | [2],[4],[5] | [1],[3],[5] | [2],[4],[5] |
The Corporation’s derivatives
[1] | Statutory business trust that is wholly-owned by PNA and indirectly wholly-owned by the Corporation. |
[2] | Statutory business trust that is wholly-owned by the Corporation. |
[3] | The obligations of PNA under the junior subordinated debentures and its guarantees of the capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement. |
[4] | These capital securities are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the applicable guarantee agreement. |
[5] | The Corporation has the right, subject to any required prior approval from the Federal Reserve, to redeem after certain dates or upon the occurrence of certain events mentioned below, the junior subordinated debentures at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption. The maturity of the junior subordinated debentures may be shortened at the option of the Corporation prior to their stated maturity dates (i) on or after the stated optional redemption dates stipulated in the agreements, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the capital securities, in each case subject to regulatory approval. |
[6] | Same as [5] above, except that the investment company event does not apply for early redemption. |
At September 30, 2018, the Corporation had $374 million in trust preferred securities outstanding which do not qualify for Tier 1 capital treatment, but instead qualify for Tier 2 capital treatment, compared to agreements which allow$427 million at December 31, 2017, as a right ofset-off with each respective counterparty. In addition, the Corporation’s Repurchase Agreements and Reverse Repurchase Agreements have a right ofset-off with the respective counterparty under the supplemental termsresult of the Master Repurchase Agreements. In an event of default each party has a right ofset-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.previously mentioned redemption by PNA.
Note 19 – Stockholders’ equity
On January 23, 2017, the Corporation’s BoardAs of Directors approved an increase in the Company’s quarterly common stock dividend from $0.15 per share to $0.25 per share.September 30, 2018, stockholder’s equity totaled $5.2 billion. During the nine months ended September 30, 2017,2018, the Corporation declared dividends on its common stock of $ 76.676.2 million. The quarterly dividend declared to shareholders of record as of the close of business on September 14, 2017,August 23, 2018, which amounted to $25.5$25.1 million, was paid on October 2, 2017. Also, during1, 2018. Dividends per share declared for the first quarter of 2017,and nine months ended September 30, 2018 were $0.25 and $0.75, respectively (2017 - $0.25 and $0.75, respectively).
During the quarter ended September 30, 2018, the Corporation completedentered into a $75$125 million privately negotiated accelerated share repurchase transaction (“ASR”). and, in connection therewith, received an initial delivery of 2,000,000 shares of common stock (the “Initial Shares”), which was accounted for as a treasury stock transaction. As parta result of this transaction,the receipt of the Initial Shares, the Corporation received 1,847,372 shares and recognized $79.5in shareholders’ equity approximately $102 million in treasury stock basedand $23 million as a reduction of capital surplus. During the fourth quarter of 2018, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the delivery or receipt of cash or shares upon the termination of the ASR agreement, which will depend on the stock’s spotaverage price offset by a $4.5 million adjustment to capital surplus, resulting from the decline inof the Corporation’s stock priceshares during the term of the ASR.
BPPR statutory reserve
The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of 10% of BPPR’s net income for the year be transferred to a statutory reserve account until such statutory reserve equals the total ofpaid-in capital on common and preferred stock. Any losses incurred by a bank must first be charged to retained earnings and then to the reserve fund. Amounts credited to the reserve fund may not be used to pay dividends without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The failure to maintain sufficient statutory reserves would preclude BPPR from paying dividends. BPPR’s statutory reserve fund amounted to $513 million at September 30, 2017 (December 31, 2016 - $513 million). There were no transfers between the statutory reserve account and the retained earnings account during the quarters and nine months ended September 30, 2017 and September 30, 2016.
Note 20 – Other comprehensive loss
The following table presents changes in accumulated other comprehensive loss by component for the quarters and nine months ended September 30, 20172018 and 2016.2017.
Changes in Accumulated Other Comprehensive Loss by Component [1] | ||||||||||||||||||||||||||||||||||||
Quarters ended | Nine months ended | Changes in Accumulated Other Comprehensive Loss by Component [1] | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||
Foreign currency translation | Beginning Balance | $ | (41,405 | ) | $ | (38,070 | ) | $ | (39,956 | ) | $ | (35,930 | ) | Beginning Balance | $ | (46,397 | ) | $ | (41,405 | ) | $ | (43,034 | ) | $ | (39,956 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Other comprehensive loss | (390 | ) | (325 | ) | (1,839 | ) | (2,465 | ) | Other comprehensive loss | (605 | ) | (390 | ) | (3,968 | ) | (1,839 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Net change | (390 | ) | (325 | ) | (1,839 | ) | (2,465 | ) | Net change | (605 | ) | (390 | ) | (3,968 | ) | (1,839 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Ending balance | $ | (41,795 | ) | $ | (38,395 | ) | $ | (41,795 | ) | $ | (38,395 | ) | Ending balance | $ | (47,002 | ) | $ | (41,795 | ) | $ | (47,002 | ) | $ | (41,795 | ) | |||||||||||
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|
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|
|
| |||||||||||||||||||||||||||||
Adjustment of pension and postretirement benefit plans | Beginning Balance | $ | (205,928 | ) | $ | (205,743 | ) | $ | (211,610 | ) | $ | (211,276 | ) | Beginning Balance | $ | (199,895 | ) | $ | (205,928 | ) | $ | (205,408 | ) | $ | (211,610 | ) | ||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss for amortization of net losses | 3,421 | 3,348 | 10,263 | 10,041 | Amounts reclassified from accumulated other comprehensive loss for amortization of net losses | 3,285 | 3,421 | 9,856 | 10,263 | |||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit | (580 | ) | (580 | ) | (1,740 | ) | (1,740 | ) | Amounts reclassified from accumulated other comprehensive loss for amortization of prior service credit | (529 | ) | (580 | ) | (1,587 | ) | (1,740 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Net change | 2,841 | 2,768 | 8,523 | 8,301 | Net change | 2,756 | 2,841 | 8,269 | 8,523 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Ending balance | $ | (203,087 | ) | $ | (202,975 | ) | $ | (203,087 | ) | $ | (202,975 | ) | Ending balance | $ | (197,139 | ) | $ | (203,087 | ) | $ | (197,139 | ) | $ | (203,087 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Unrealized holding gains (losses) on investments | Beginning Balance | $ | (55,742 | ) | $ | 98,761 | $ | (68,318 | ) | $ | (9,560 | ) | ||||||||||||||||||||||||
Unrealized net holding losses on debt securities | Beginning Balance | $ | (250,422 | ) | $ | (56,414 | ) | $ | (102,775 | ) | $ | (69,003 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 9,350 | (14,131 | ) | 15,331 | 94,023 | Other comprehensive (loss) income before reclassifications | (39,845 | ) | 9,302 | (187,492 | ) | 15,151 | ||||||||||||||||||||||||
Other-than-temporary impairment amount reclassified from accumulated other comprehensive (loss) income | — | — | 6,740 | 167 | Other-than-temporary impairment amount reclassified from accumulated other comprehensive loss | — | — | — | 6,740 | |||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive (loss) income for gains on securities | (82 | ) | (316 | ) | (227 | ) | (316 | ) | Amounts reclassified from accumulated other comprehensive loss for gains on securities | — | (66 | ) | — | (66 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Net change | 9,268 | (14,447 | ) | 21,844 | 93,874 | Net change | (39,845 | ) | 9,236 | (187,492 | ) | 21,825 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Ending balance | $ | (46,474 | ) | $ | 84,314 | $ | (46,474 | ) | $ | 84,314 | Ending balance | $ | (290,267 | ) | $ | (47,178 | ) | $ | (290,267 | ) | $ | (47,178 | ) | |||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||
Unrealized net losses on cash flow hedges | Beginning Balance | $ | 132 | $ | (560 | ) | $ | (402 | ) | $ | (120 | ) | ||||||||||||||||||||||||
Unrealized holding gains on equity securities | Beginning Balance | $ | — | $ | 672 | $ | 605 | $ | 685 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Other comprehensive loss before reclassifications | (250 | ) | (685 | ) | (869 | ) | (2,843 | ) | Reclassification to retained earnings due to cumulative effect adjustment of accounting change | — | — | (605 | ) | — | ||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | 142 | 1,006 | 1,295 | 2,724 | Other comprehensive income before reclassifications | — | 48 | — | 180 | |||||||||||||||||||||||||||
|
|
|
| Amounts reclassified from accumulated other comprehensive income for gains on securities | — | (16 | ) | — | (161 | ) | ||||||||||||||||||||||||||
Net change | (108 | ) | 321 | 426 | (119 | ) |
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|
|
| Net change | — | 32 | (605 | ) | 19 | |||||||||||||||||||||||||||
Ending balance | $ | 24 | $ | (239 | ) | $ | 24 | $ | (239 | ) |
|
|
|
| ||||||||||||||||||||||
|
|
|
| Ending balance | $ | — | $ | 704 | $ | — | $ | 704 | ||||||||||||||||||||||||
Total | $ | (291,332 | ) | $ | (157,295 | ) | $ | (291,332 | ) | $ | (157,295 | ) |
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| ||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||||||
Unrealized net (losses) gains |
on cash flow hedges | Beginning Balance | $ | (78 | ) | $ | 132 | $ | (40 | ) | $ | (402 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) before reclassifications | 208 | (250 | ) | 790 | (869 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive (loss) income | 89 | 142 | (531 | ) | 1,295 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net change | 297 | (108 | ) | 259 | 426 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Ending balance | $ | 219 | $ | 24 | $ | 219 | $ | 24 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | $ | (534,189 | ) | $ | (291,332 | ) | $ | (534,189 | ) | $ | (291,332 | ) | ||||||
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|
|
[1] | All amounts presented are net of tax. |
The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss during the quarters and nine months ended September 30, 20172018 and 2016.2017.
Reclassifications Out of Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||||
Quarters ended | Nine months ended | Reclassifications Out of Accumulated Other Comprehensive Loss | ||||||||||||||||||||||||||||||||||
Affected Line Item in the | September 30, | September 30, | Affected Line Item in the | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
(In thousands) | Consolidated Statements of Operations | 2017 | 2016 | 2017 | 2016 | Consolidated Statements of Operations | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||
Adjustment of pension and postretirement benefit plans | ||||||||||||||||||||||||||||||||||||
Amortization of net losses | Personnel costs | $ | (5,606 | ) | $ | (5,488 | ) | $ | (16,819 | ) | $ | (16,461 | ) | Personnel costs | $ | (5,386 | ) | $ | (5,606 | ) | $ | (16,157 | ) | $ | (16,819 | ) | ||||||||||
Amortization of prior service credit | Personnel costs | 950 | 950 | 2,850 | 2,850 | Personnel costs | 868 | 950 | 2,603 | 2,850 | ||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||
Total before tax | (4,656 | ) | (4,538 | ) | (13,969 | ) | (13,611 | ) | Total before tax | (4,518 | ) | (4,656 | ) | (13,554 | ) | (13,969 | ) | |||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||
Income tax benefit | 1,815 | 1,770 | 5,446 | 5,310 | Income tax benefit | 1,762 | 1,815 | 5,285 | 5,446 | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total net of tax | $ | (2,841 | ) | $ | (2,768 | ) | $ | (8,523 | ) | $ | (8,301 | ) | Total net of tax | $ | (2,756 | ) | $ | (2,841 | ) | $ | (8,269 | ) | $ | (8,523 | ) | |||||||||||
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| |||||||||||||||||||||||||||||
Unrealized holding gains (losses) on investments | ||||||||||||||||||||||||||||||||||||
Unrealized holding losses on debt securities | ||||||||||||||||||||||||||||||||||||
Other-than-temporary impairment | Other-than-temporary impairment losses onavailable-for-sale debt securities | $ | — | $ | — | $ | (8,299 | ) | $ | (209 | ) | Other-than-temporary impairment losses onavailable-for-sale debt securities | $ | — | $ | — | $ | — | $ | (8,299 | ) | |||||||||||||||
Realized gains on sale of securities | Net gain on sale of investment securities | 103 | 349 | 284 | 349 | |||||||||||||||||||||||||||||||
Realized gains on sale of debt securities | Net gain on sale of debt securities | — | 83 | — | 83 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total before tax | 103 | 349 | (8,015 | ) | 140 | Total before tax | — | 83 | — | (8,216 | ) | |||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Income tax (expense) benefit | (21 | ) | (33 | ) | 1,502 | 9 | Income tax (expense) benefit | — | (17 | ) | — | 1,542 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total net of tax | $ | 82 | $ | 316 | $ | (6,513 | ) | $ | 149 | Total net of tax | $ | — | $ | 66 | $ | — | $ | (6,674 | ) | |||||||||||||||||
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| |||||||||||||||||||||||||||||
Unrealized net losses on cash flow hedges | ||||||||||||||||||||||||||||||||||||
Unrealized holding gains on equity securities | ||||||||||||||||||||||||||||||||||||
Realized gain on sale of equity securities | Net gain on equity securities | $ | — | $ | 20 | $ | — | $ | 201 | |||||||||||||||||||||||||||
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Total before tax | — | 20 | — | 201 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Income tax expense | — | (4 | ) | — | (40 | ) | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||
Total net of tax | $ | — | $ | 16 | $ | — | $ | 161 | ||||||||||||||||||||||||||||
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Unrealized net (losses) gains on cash flow hedges | ||||||||||||||||||||||||||||||||||||
Forward contracts | Mortgage banking activities | $ | (232 | ) | $ | (1,650 | ) | $ | (2,122 | ) | $ | (4,466 | ) | Mortgage banking activities | $ | (147 | ) | $ | (232 | ) | $ | 870 | $ | (2,122 | ) | |||||||||||
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| |||||||||||||||||||||||||||||
Total before tax | (232 | ) | (1,650 | ) | (2,122 | ) | (4,466 | ) | Total before tax | (147 | ) | (232 | ) | 870 | (2,122 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Income tax benefit | 90 | 644 | 827 | 1,742 | Income tax benefit (expense) | 58 | 90 | (339 | ) | 827 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Total net of tax | $ | (142 | ) | $ | (1,006 | ) | $ | (1,295 | ) | $ | (2,724 | ) | Total net of tax | $ | (89 | ) | $ | (142 | ) | $ | 531 | $ | (1,295 | ) | ||||||||||||
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| |||||||||||||||||||||||||||||
Total reclassification adjustments, net of tax | $ | (2,901 | ) | $ | (3,458 | ) | $ | (16,331 | ) | $ | (10,876 | ) | Total reclassification adjustments, net of tax | $ | (2,845 | ) | $ | (2,901 | ) | $ | (7,738 | ) | $ | (16,331 | ) | |||||||||||
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At September 30, 2017,2018, the Corporation recorded a liability of $0.3 million (December 31, 2016—2017—$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 September 30, 2017,2018, the Corporation serviced $ 1.5$1.4 billion (December 31, 2016 - 2017—$ 1.71.5 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter and nine months ended September 30, 2017,2018, the Corporation repurchased approximately $ 7$4 million and $ 22$13 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (September 30, 20162017-$ 117 million and $ 34$22 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At September 30, 2017,2018, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $ 52$58 million (December 31, 2016 - 2017—$ 5459 million).
The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters and nine months ended September 30, 20172018 and 2016.2017.
Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Balance as of beginning of period | $ | 49,395 | $ | 56,931 | $ | 54,489 | $ | 58,663 | $ | 57,425 | $ | 49,395 | $ | 58,820 | $ | 54,489 | ||||||||||||||||
Provision for recourse liability | 6,375 | 4,086 | 11,104 | 11,613 | 3,000 | 6,375 | 5,991 | 11,104 | ||||||||||||||||||||||||
Net charge-offs | (3,718 | ) | (4,737 | ) | (13,541 | ) | (13,996 | ) | (2,678 | ) | (3,718 | ) | (7,064 | ) | (13,541 | ) | ||||||||||||||||
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| |||||||||||||||||||||||||
Balance as of end of period | $ | 52,052 | $ | 56,280 | $ | 52,052 | $ | 56,280 | $ | 57,747 | $ | 52,052 | $ | 57,747 | $ | 52,052 | ||||||||||||||||
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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 and nine months ended September 30, 20172018, BPPR repurchased $2 million and 2016, BPPR did not repurchase$12 million, respectively, in loans under representation and warranty arrangements.arrangements (there were no loan repurchases during the same period of the prior year). 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. The following table presents the changes in the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR for the quarters and nine months ended September 30, 20172018 and 2016.2017.
(In thousands) Balance as of beginning of period Provision (reversal) for representation and warranties Net charge-offs Balance as of end of period Quarters ended September 30, Nine months ended September 30, 2017 2016 2017 2016 $ 10,545 $ 10,702 $ 10,936 $ 8,087 (140 ) (34 ) (521 ) 2,767 — (27 ) (10 ) (213 ) $ 10,405 $ 10,641 $ 10,405 $ 10,641
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Balance as of beginning of period | $ | 11,153 | $ | 10,545 | $ | 11,742 | $ | 10,936 | ||||||||
Provision (reversal) for representation and warranties | (104 | ) | (140 | ) | 194 | (521 | ) | |||||||||
Net charge-offs | (39 | ) | — | (926 | ) | (10 | ) | |||||||||
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| |||||||||
Balance as of end of period | $ | 11,010 | $ | 10,405 | $ | 11,010 | $ | 10,405 | ||||||||
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Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At September 30, 2017,2018, the Corporation serviced $17.1$15.9 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2016 - $18.02017—$16.1 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, the Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Corporation would not receive any future servicing income with respect to that loan. At September 30, 2017,2018, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $71$94 million including advances on the portfolio acquired from Doral Bank (December 31, 2016 - $702017—$107 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 wholly-owned consolidated subsidiaries amounting to $ 149$94 million and $149 million, respectively, at September 30, 20172018 and December 31, 2016.2017. In addition, at September 30, 20172018 and December 31, 2016,2017, PIHC fully and unconditionally guaranteed on a subordinated basis $ 427$374 million and $427 million, respectively, 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 2318 to the Consolidated Financial Statements in the 2016 Form10-K for further information on the trust preferred securities.
Note 22 – Commitments and contingencies
Off-balance sheet risk
The Corporation is a party to financial instruments withoff-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 withoff-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows:
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Commitments to extend credit: | ||||||||||||||||
Credit card lines | $ | 4,311,987 | $ | 4,562,981 | $ | 4,462,603 | $ | 4,303,256 | ||||||||
Commercial and construction lines of credit | 2,723,002 | 2,966,656 | 2,772,111 | 3,011,673 | ||||||||||||
Other consumer unused credit commitments | 250,565 | 261,856 | 255,798 | 250,029 | ||||||||||||
Commercial letters of credit | 2,288 | 1,490 | 2,561 | 2,116 | ||||||||||||
Standby letters of credit | 31,287 | 34,644 | 30,036 | 33,633 | ||||||||||||
Commitments to originate or fund mortgage loans | 9,706 | 25,622 | 23,724 | 15,297 |
At September 30, 20172018 and December 31, 2016,2017, the Corporation maintained a reserve of approximately $9$8 million and $10 million, respectively, for potential losses associated with unfunded loan commitments related to commercial and consumer lines of credit.
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 34 to the Consolidated Financial Statements.
Puerto Rico is in the midst of a profound fiscal and economic crisis. In response to such crisis, was recently significantly impacted by two major hurricanes and has commenced several proceedings underthe U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) to restructurein 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its outstanding obligationsinstrumentalities and those of certainmunicipalities. The Commonwealth and several of its instrumentalities.
In September 2017, Puerto Rico was impacted by Hurricanes Irma and Maria. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services were severely curtailed and the government imposed a mandatory curfew.instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, most businesses and homes in Puerto Rico remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are operating partiallyno municipality has commenced, or remain closed. While it is too early to assess and quantify the full extent of the damage caused by the hurricanes, as well as their long-term impact on economic activity, the damages are substantial and have, at least in the short-term, had a material adverse impact on economic activity. For a discussion of the impact of the hurricanes on the Corporation’s operations and financial results during the third quarter of 2017, refer to Note 2 - Hurricanes impact.
The U.S. Congress enacted PROMESA on June 30, 2016 in response to the Commonwealth’s ongoing fiscal and economic crisis. PROMESA, among other things, (i) established a seven-member oversight board (the “Oversight Board”) with broad powers over the finances of the Commonwealth and its instrumentalities, (ii) established an automatic stay on litigation, which expired on May 1,
2017, that applied to all financial obligations of the Commonwealth, its instrumentalities and municipalities (including to all municipal obligations owned by the Corporation), (iii) required the Commonwealth (and any instrumentality thereof designated as a “covered entity” under PROMESA) to submit its budgets, and if the Oversight Board so requests, a fiscal plan for certificationhas been authorized by the Oversight Board and (iv) established two separate processes for theto commence, any such debt restructuring of the outstanding liabilities of the Commonwealth, its instrumentalities and municipalities: (a) Title VI, a largelyout-of-court process through which a government entity and its financial creditors can agree on terms to restructure such entity’s debts, and (b) Title III, a court-supervised process for a comprehensive restructuring similar to Chapter 9 of the U.S. Bankruptcy Code.
The Oversight Board has designated a number of entities as “covered entities”proceeding under PROMESA, including the Commonwealth, all of its public corporations (including COFINA) and retirement systems, and all affiliates and subsidiaries of the foregoing. While the Oversight Board has the power to designate any of the Commonwealth’s municipalities as covered entities under PROMESA, it has not done so as of the date hereof. The Oversight Board has further approved fiscal plans for certain of these “covered entities,” including the Commonwealth, the Government Development Bank for Puerto Rico (“GDB”) and several other public corporations. The Commonwealth’s fiscal plan covers various public instrumentalities with outstanding debts payable from taxes, fees or other government revenues, including COFINA. The fiscal plans were prepared and approved prior to the impact of Hurricanes Irma and Maria and are thus based onpre-hurricane assumptions of government revenues, economic activity and outmigration. The approved fiscal plans indicate based on such assumptions that the applicable government entities are unable to pay their outstanding obligations as currently scheduled, thus recognizing a need for a significant debt restructuring. On October 31, 2017, the Oversight Board requested revised fiscal plans for the Commonwealth and various public corporations to take into account the impact of Hurricanes Irma and Maria. The Oversight Board expects that the revised fiscal plans would be certified by January or February 2018.
On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court for the District of Puerto Rico to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to COFINA, the Employees Retirement System, the Puerto Rico Highways and Transportation Authority and the Puerto Rico Electric Power Authority. The Oversight Board has also authorized GDB to pursue a restructuring of its financial indebtedness under Title VI of PROMESA. Although as of the date hereof, these entities are the only entities for which the Oversight Board has sought to use the restructuring authority provided by PROMESA, the Oversight Board may use the restructuring authority of Title III or Title VI of PROMESA for other Commonwealth instrumentalities, including its municipalities, in the future.
At September 30, 2017,2018, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities amounted to $ 484$458 million, which was fully outstanding atquarter-end (compared to a direct exposure of approximately $484 million, which approximately $ 482 million iswas fully outstanding ($584 million and $ 529 million, respectively, at December 31, 2016)2017). Of thethis amount, outstanding, $ 433$413 million consists of loans and $ 49$45 million are securities ($ 459435 million and $ 70$49 million at December 31, 2016)2017). All of amount outstanding ($ 512 millionSubstantially all of the total amount outstanding at December 31, 2016) representsSeptember 30, 2018 consisted of obligations from various municipalities in Puerto Rico for which, inmunicipalities. In most cases, these are “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 been pledged other revenues. At September 30, 2018, 75% of the Corporation’s exposure to their repayment. Such general obligation bondsmunicipal loans and notes are payable primarily from, and have a lien on, certain special property taxes, which each municipality is required by law to levy in an amount sufficient for the payment of its outstanding general obligation bonds and notes. Those special property taxes are collected by the Municipal Revenue Collection Center (“CRIM”), or directly by some municipalities, and deposited into the Municipal Public Debt Redemption Fund (a trust for which GDB acts as trustee and which is currently held in various accounts and subaccounts at BPPR (except for the portion corresponding to repayment of municipal general obligation bonds held by GDB, whichsecurities was deposited at GDB until April 2016)). Fundsconcentrated in the Redemption Fund are required to be used for the paymentmunicipalities of the municipality’s general obligation bondsSan Juan, Guaynabo, Carolina and notes. To the extent that a municipality’s funds in the Redemption Fund are insufficient to pay the obligations in full, CRIM is required to transfer to such Redemption Fund other property tax revenues of the applicable municipality to satisfy the insufficiency.
During the third quarter of 2017,Bayamón. On July 2, 2018 the Corporation sold all of its COFINA bonds at a gain of approximately $0.1 million. The Corporation had recorded an other-than-temporary impairment charge of $8.3received principal payments amounting to $23 million in respect of those bonds during the second quarter of 2017 as a result of the filing of the Title III proceeding in respect of COFINA and thenon-payment of interest on the COFINA bonds in June 2017, pursuant to a court order issued in such proceeding.from various obligations from Puerto Rico municipalities.
The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities:
(In thousands) | Investment Portfolio | Loans | Total Outstanding | Total Exposure | Investment Portfolio | Loans | Total Outstanding | Total Exposure | ||||||||||||||||||||||||
Central Government | ||||||||||||||||||||||||||||||||
After 1 to 5 years | $ | 5 | $ | — | $ | 5 | $ | 5 | $ | 6 | $ | — | $ | 6 | $ | 6 | ||||||||||||||||
After 5 to 10 years | 12 | — | 12 | 12 | 43 | — | 43 | 43 | ||||||||||||||||||||||||
After 10 years | 30 | — | 30 | 30 | 27 | — | 27 | 27 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Total Central Government | 47 | — | 47 | 47 | 76 | — | 76 | 76 | ||||||||||||||||||||||||
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Government Development Bank (GDB) | ||||||||||||||||||||||||||||||||
After 1 to 5 years | 3 | — | 3 | 3 | ||||||||||||||||||||||||||||
Within 1 year | 4 | — | 4 | 4 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||
Total Government Development Bank (GDB) | 3 | — | 3 | 3 | 4 | — | 4 | 4 | ||||||||||||||||||||||||
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Puerto Rico Highways and Transportation Authority | ||||||||||||||||||||||||||||||||
After 5 to 10 years | 4 | — | 4 | 4 | 5 | — | 5 | 5 | ||||||||||||||||||||||||
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Total Puerto Rico Highways and Transportation Authority | 4 | — | 4 | 4 | 5 | — | 5 | 5 | ||||||||||||||||||||||||
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Municipalities | ||||||||||||||||||||||||||||||||
Within 1 year | 3,295 | 11,341 | 14,636 | 16,478 | 3,510 | 15,265 | 18,775 | 18,775 | ||||||||||||||||||||||||
After 1 to 5 years | 15,485 | 192,904 | 208,389 | 208,389 | 16,505 | 198,022 | 214,527 | 214,527 | ||||||||||||||||||||||||
After 5 to 10 years | 29,240 | 106,368 | 135,608 | 135,608 | 23,885 | 101,693 | 125,578 | 125,578 | ||||||||||||||||||||||||
After 10 years | 1,025 | 122,038 | 123,063 | 123,063 | 845 | 98,185 | 99,030 | 99,030 | ||||||||||||||||||||||||
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Total Municipalities | 49,045 | 432,651 | 481,696 | 483,538 | 44,745 | 413,165 | 457,910 | 457,910 | ||||||||||||||||||||||||
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Total Direct Government Exposure | $ | 49,099 | $ | 432,651 | $ | 481,750 | $ | 483,592 | $ | 44,830 | $ | 413,165 | $ | 457,995 | $ | 457,995 | ||||||||||||||||
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In addition, at September 30, 2017,2018, the Corporation had $391$374 million in indirect exposure to loans or securities issued or guaranteed by Puerto Rico governmental entities but whose principal source of repayment are non-governmental entities.isnon-governmental. In such obligations, the Puerto Rico government entity guarantees any shortfall in collateral in the event of borrower default ($406386 million at December 31, 2016)2017). These included $313$299 million in residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority (“HFA”), an entity that has been designated as a covered entity under PROMESA (December 31, 2016 - $3262017—$310 million). These mortgage loans are secured by the underlying properties and the HFA guarantee servesserve to cover shortfalls in collateral in the event of a borrower default. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, he has not exercised this power as of the date hereof. Also, at September 30, 2018 and December 31, 2017, the Corporation had $43$44 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6and for which HFA also provides a guarantee to cover shortfalls, $7 million in pass-through securities issued by HFA that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and $29$24 million of commercial real estate notes issued by government entities, but payable from rent paid by third parties ($43 million, $6 million and $31 million at DecemberSeptember 30, 2018 (December 31, 2016, respectively)2017—$25 million).
BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the fiscal measures to be implemented to address the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA described above. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees which could also be negatively affected by fiscal measures such as employee layoffs or furloughs.
The Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $82$78 million in direct exposure to USVI government entities. 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. In addition, in September 2017, the USVI was also severely impacted by Hurricanes Irma and Maria, which will pose additional challenges to the USVI government and could further materially adversely affect the USVI economy.
Other contingencies
As indicated in Note 10 to the Consolidated Financial Statements, as part of the loss sharing agreements related to the Westernbank FDIC-assisted transaction, the Corporation agreed to make atrue-up payment to the FDIC on the date that is 45 days following the last day of the final shared loss month, or upon the final disposition of all covered assets under the loss sharing agreements in the event losses on the loss sharing agreements fail to reach expected levels. The fair value of thetrue-up payment obligation was estimated at $ 167 million at September 30, 2017 (December 31, 2016 - $ 153 million). For additional information refer to Note 10.
Legal Proceedings
The nature of Popular’s business ordinarily results in a certain number of claims, litigation, investigations, and legal and administrative cases and proceedings (“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 both the Corporation and its shareholders to do so.
On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the latest
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 as appropriate to reflect any relevant developments. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established.
In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the aggregate 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 ranges from $0 to approximately $27.8$24.4 million as of September 30, 2017.2018. For certain other 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 fromtime-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 Corporation’s 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, may becould have a material toadverse effect on the Corporation’s consolidated financial position in afor that particular period.
Set forth below is a description of the Corporation’s significant legal proceedings.Legal Proceedings.
BANCO POPULAR DE PUERTO RICO
Hazard Insurance Commission-Related Litigation
Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a putative class action complaint captionedPerez Pérez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs essentially allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $400 million plus legal interest, for the “good experience” commissions allegedly paid by the Defendant Insurance Companies during the relevant time period, as well as injunctive relief seeking to enjoin the Defendant Insurance Companies from paying commissions to the insurance agent/mortgagee and ordering them to pay those fees directly to the insured. A hearing on the request for preliminary injunction and other matters was held on February 15, 2017, as a result of which plaintiffs withdrew their request for preliminary injunctive relief. A motion for dismissal on the merits, which the Defendant Insurance Companies filed shortly before hearing, was denied with a right to replead following limited targeted discovery. On March 24, 2017, the Popular Defendants filed a certiorari petition with the Puerto
Rico Court of Appeals seeking a review of the lower court’s denial of the motion to dismiss. The Court of Appeals denied the Popular Defendant’s request, and the Popular Defendants appealed this determination to the Puerto Rico Supreme Court, which declined review. A motion for reconsideration is pending resolution.On December 21, 2017, plaintiffs sought to amend the complaint and, on January 2018, defendants filed an answer thereto. Separately, a class certification hearing was held in June and the Court requested post-hearing briefs on this issue. On October 26, 2017, the Court entered an order whereby it broadly certified the class.class; the Popular Defendants filed a certiorari petition before the Puerto Rico Court of Appeals in relation to the class certification, but on March 4, 2018, the Court of Appeals declined to entertain such petition. At a hearing held on November 2, 2017, the Court encouraged the parties to reach agreement on discovery and class notification procedures. The Court further allowed defendants until January 4, 2018Although the case is still in discovery stage, the parties have not yet reached an agreement as to answer the complaint. Afollow-up hearing was set for March 6, 2018. BPPR is currently evaluating its next steps, which may include filing an interlocutory appeal of the class certification order.notification procedures.
BPPR has separately been named a defendant in a putative class action complaint captionedRamirez Ramírez Torres, et al. v. Banco Popular de Puerto Rico, et al, filed before the Puerto Rico Court of First Instance, San Juan Part.Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against the same Popular Defendants, as well as other financial institutions with insurance brokerage subsidiaries in Puerto Rico. Plaintiffs essentially contend that in November 2015, Antilles
Insurance Company obtained approval from the Puerto Rico Insurance Commissioner to market an endorsement that allowed its customers to obtain reimbursement on their insurance deductible for good experience, but that defendants failed to offer this product or disclose its existence to their customers, favoring other products instead, in violation of their duties as insurance brokers. Plaintiffs seek a determination that defendants unlawfully failed to comply with their duty to disclose the existence of this new insurance product, as well as double or treble damages (the latter subject to a determination that defendants engaged in anti-monopolistic practices in failing to offer this product). Between late March and early April,co-defendants filed motions to dismiss the complaint and opposed the request for preliminary injunctive relief. Aco-defendant filed a third-party Complaint against Antilles Insurance Company. A preliminary injunction and class certification hearing originally scheduled for April 6th6, 2017 was subsequently postponed, pending resolution of the motions to dismiss. On July 31, 2017, the Court dismissed the complaint with prejudice. In August 2017, plaintiffs appealed this judgment.
A third putative class action also tangentially relatedjudgment and, on March 21, 2018, the Court of Appeals reversed the Court of First Instance’s dismissal. On May 18, 2018, defendants each filed Petitions of Certiorari to hazard insurance policies and captionedMorales v. Banco Popular dethe Puerto Rico et al., was filed in May 2017. Plaintiffs aver that BPPR forced-placed hazard insuranceSupreme Court. The Petitions of Certiorari were all denied on their mortgaged properties in violation of Puerto Rico’s implied covenant of good faith, BPPR’s alleged fiduciary duties as the escrow account manager of their mortgage loans, the Truth in Lending Act (TILA)June 26, 2018 and the Racketeer Influenced and Corrupt Organizations Act (RICO). Plaintiffs seek class certification, an order enjoining BPPR and other unnamed defendants from maintaining their allegedly fraudulent practices concerning forced-placed hazard insurance, unspecified compensatory damages, costs and attorneys’ fees. On July 19, 2017,all parties but BPPR filed a motiontimely Motion for summary judgment,Reconsideration of such denial. Those Motions for Reconsideration were denied and one defendant filed a Second Motion for Reconsideration to the Puerto Rico Supreme Court, which is pending resolution.still pending.
Mortgage-Related Litigation and Claims
BPPR has been named a defendant in a putative class action captioned Lilliam González Camacho, et al. v. Banco Popular de Puerto Rico, et al., filed before the United States District Court for the District of Puerto Rico on behalf of mortgage-holders who have allegedly been subjected to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs essentially contendmaintain 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.parallel (or dual tracking). Plaintiffs assert that such actions violate HAMP, HARPthe Home Affordable Modification Program (“HAMP”), the Home Affordable Refinance Program (“HARP”) and other federally sponsored loan modification programs, as well as the Puerto Rico Mortgage Debtor Assistance Act and TILA.the Truth in Lending Act (“TILA”). For the alleged violations stated above, Plaintiffsplaintiffs request that all Defendantsdefendants (over 20, separate defendants have been named, including all local banks), be held jointly and severally respondliable in an amount of no less than $400 million. BPPR waived service of process in June 2017 and filed a motion to dismiss in August 2017, as did mostco-defendants. On March 28, 2018, the Court dismissed the complaint in its entirety. On April 9, 2018, plaintiffs filed a motion for reconsideration of such dismissal, which was denied on August 17, 2018. On August 29, 2018, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. Plaintiffs’ appellate brief is pending resolution.due on December 3, 2018 and Defendants’ response brief will be due 30 days thereafter.
BPPR has also been named a defendant in two separateanother putative class actionsaction captionedCosta Dorada Apartment Corp., et al. v. Banco Popular de Puerto Rico, et al., andYiries Josef Saad Maura v. Banco Popular, et al.al., filed by the same counsel who filed theGonzález Camacho action referenced above, on behalf of commercial and residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs essentiallyAs in González Camacho, 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, (dual tracking), all in violation of 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. They demand approximately $1 billion (inCosta Dorada) and unspecifiedPlaintiffs did not include a specific amount of damages (inSaad Maura)in their complaint. On January 3, 2018, plaintiffs requested that BPPR waive service of process, which it agreed to do on February 1, 2018. BPPR subsequently filed a motion to dismiss the complaint on the same grounds as those asserted in the González Camacho action (as did mostco-defendants, separately). Banco Popular has not yet been served with summons in relationBPPR further filed a motion to either matter.oppose class certification, which the Court granted, denying the motion for class certification on September 26, 2018. On October 8, 2018, plaintiffs filed a Motion for Reconsideration of such denial, which BPPR opposed on October 22, 2018. Those motions are still pending.
BPPR has been named a defendant in a complaint for damages and breach of contract captionedHéctor Robles Rodriguez et al. v. Municipio de Ceiba, et al.al. Plaintiffs are residents of a development called Hacienda Las Lomas. Through the Doral Bank-FDIC assisted transaction, BPPR acquired a significant number of mortgage loans within in this development and is currently the primary creditormortgage lender in the project. Plaintiffs claim damages against the developer, contractor, the relevant insurance companies, and most recently, their mortgage lenders, as a resultbecause of a landslide that occurred in October 2015, affecting various streets and houses within the development. Plaintiffs specifically allege that the mortgage lenders, including BPPR, should be deemed liable for their alleged failure to properly inspect the subject properties. Plaintiffs demand in excess of $30 million in damages plus attorney’s fees, costs and the annulment of their mortgage deeds.mortgages. BPPR has recentlyextended plaintiffs four consecutivesix-month payment forbearances, the last of which is still in effect, and it is engaged in preliminary settlement discussions with plaintiffs. In November 2017, the FDIC notified BPPR that it had agreed to indemnify the Bank in connection with its Doral Bank-related exposure, pursuant to the terms of the relevant Purchase and Assumption Agreement
with the FDIC. The FDIC filed a Notice of Removal to the United States District Court for the District of Puerto Rico (“USDC”) on March 27, 2018 and, on April 11 2018, the state court stayed the proceedings in response thereto. On April 13, 2018, the FDIC requested the USDC to stay the proceedings until plaintiffs have exhausted administrative remedies. This motion is still pending, along with several motions for remand to state court filed by plaintiffs.
Mortgage-Related Investigations
The Corporation and its subsidiaries from time to time receive requests for information from departments of the U.S. government that investigate mortgage-related conduct. In particular, BPPR has received subpoenas and other requests for information from the Federal Housing Finance Agency’s Office of the Inspector General, the Civil Division of the Department of Justice, the Special Inspector General for the Troubled Asset Relief Program and the Federal Department of Housing and Urban Development’s Office of the Inspector General mainly concerning real estate appraisals and residential and construction loans in Puerto Rico. The Corporation is cooperating with these requests and is in discussions with the relevant U.S. government departments regarding the resolution of such matters. There can be no assurances as to the outcome of those discussions.
Separately, it has come to the attention ofin July 2017, management learned that certain letters generated by the Corporation to comply with Consumer Financial Protection Bureau (“CFPB”) rules requiring written notification to borrowers who have submitted a loss mitigation application were not mailed to borrowers over a period of up to approximately three-years due to a systems interface error. Loss mitigation is a process whereby creditors work with mortgage loan borrowers who are having difficulties making their loan payments on their debt. The loss mitigation process applies both to mortgage loans held by the Corporation and to mortgage loans serviced by the Corporation for third parties. The Corporation has corrected the systems interface error that caused the letters not to be sent.
The Corporation has notified applicable regulators and is conductingconducted a review of its mortgage files to assess the scope of potential customer impact. Based on currently available information, we believeThe review, which has been completed, found that althoughwhile the mailing error extended to approximately 20,00023,000 residential mortgage loans (approximately 50% of which are serviced by the Corporation for third parties), the number of borrowers actually affectedharmed by the mailing error was substantially lowerlower. This was due to, among other things, the fact that more than half of all borrowers potentially subject to such error closed on a permanent loss mitigation alternative and the fact that the Corporation regularly uses means other than the mail to communicate with borrowers, including email and hand delivery of written notices at our mortgage servicing centers or bank branches. Importantly, more than half of all borrowers potentially subject to such error actually closed on a loss mitigation alternative.
TheDuring the fourth quarter of 2017, the Corporation will beginbegan outreach to potentially affected borrowers with outstanding loans that have not closed on a permanent loss mitigation alternative during the fourth quarter of 2017 and expects that it will be able to make a final determinationloans. These efforts are substantially complete. The Corporation is engaged in ongoing dialogue with applicable regulators with respect to the action it will take regarding all potentially impacted borrowers by the first quarterthis matter. The Corporation has also engaged in remediation with respect to, and notified regulators of, 2018.other printing and mailings incidents in its mortgage servicing operation that occurred after Hurricane Maria. At this point, we are not able to estimate the financial impact of the failure to print and mail the loss mitigation notices.letters to mortgage borrowers.
Other Significant Proceedings
In June 2017, a syndicate comprised of BPPR and other local banks (the “Lenders”) filed an involuntary Chapter 11 bankruptcy proceeding against Betteroads Asphalt and Betterecycling Corporation (the “Involuntary Debtors”). This filing followed attempts by the Lenders to restructure and resolve the Involuntary Debtors’ obligations and outstanding defaults under a certain credit agreement, first through good faith negotiations and subsequently, through the filing of a collection action against the Involuntary Debtors in local court. The involuntary debtors subsequently counterclaimed, asserting damages in excess of $900 million. The Lenders ultimately joined in the commencement of these involuntary bankruptcy proceedings against the Debtors in order to preserve and recover the Involuntary Debtors’ assets, having confirmed that the Involuntary Debtors were transferring assets out of their estate for little or no consideration. The Involuntary Debtors subsequently filed a motion to dismiss the proceedings and for damages against the syndicate, arguing both that this petition was filed in bad faith and that there was a bona fide dispute as to the petitioners’ claims, as set forth in the counterclaim filed by the Involuntary Debtors in local court. The court allowed limited discovery to take place prior to an evidentiary hearing (still unscheduled and to be held after the discoverycut-off date) to determine the merits of debtors’ motion to dismiss. A separateAt a hearing will be heardheld in November 2017, the Court determined that it was inclined to entertain creditors’rule against the dismissal of the complaint but requested that the parties submit supplemental briefs on the subject, which the parties did; however, no decision has been rendered to date. On September 17, 2018, the Lenders filed a motion requesting the Court to appoint a trustee.expedite its determination on the motion for Summary Judgment filed by the Lenders on November 2017, since there were continuing acts by Involuntary Debtor insiders to transfer all revenues and assets to such insiders and shield such revenues and assets from the Lenders and other legitimate creditors. This motion is still pending.
POPULAR SECURITIES
Puerto Rico Bonds andClosed-End Investment Funds
The volatility in prices and declines in value that Puerto Rico municipal bonds andclosed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and is named as a respondent (among other broker-dealers) in 86152 arbitration proceedings with aggregate claimed amounts of approximately $209$260 million, including one arbitration with claimed damages of approximately $78 million in which another Puerto Rico broker-dealer is aco-defendant. 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 suchcertain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults andnon-payment of its various debt obligations, as well as the Commonwealth government’sCommonwealth’s and the Financial Oversight Management Board’s (the “Oversight Board”) decision to pursue restructurings under Title III and Title VI of PROMESA, have increased and may continue to increase the number of customer complaints (and claimed damages) filed against Popular Securities concerning Puerto Rico bonds, including bonds issued by COFINA and GDB, andclosed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the mattersarbitration proceedings described above, or a significant increase in customer complaints, could have a material adverse effect on Popular.
Subpoenas for Production of Documents in connection withrelation to PROMESA Title III Proceedings
Popular Securities has, together with Popular, Inc. and BPPR (collectively, the “Popular Companies”) recently filed an appearance in connection with the Commonwealth of Puerto Rico’s pending Title III bankruptcy proceeding. Its appearance was prompted by a request by the Commonwealth’s Unsecured Creditors’ Committee (“UCC”) to allow a broad discovery program under Rule 2004 to investigate, among other things, the causes of the Puerto Rico financial crisis. The Rule 2004 request seekssought broad discovery not only from the Popular Companies, but also from Banco Santander de Puerto Rico (“Santander”) and others, spanning in excess of eleven (11) years. In their respective objections, bothThe Oversight Board, as well as the Popular Companies and Santander argued that these requests go substantially beyond the permissible scope of Rule 2004 discovery programs and should either be denied outright or substantially modified. A hearing before Magistrate Judge Gail Dein was held on August 9, 2017. At the hearing, the Court requested that the UCC and the Oversight Board, whoothers, opposed the UCC’s request. Magistrate Dein denied the UCC’s request submit further briefingwithout prejudice and allowed the law firm of Kobre & Kim to carry out its own independent investigation on this subject. The parties are to argue their respective positions atbehalf of the upcoming omnibus hearing, to be held on November 15, 2017.Oversight Board.
Since the August 2017 hearing, theThe Popular Companies have separately been served with additional requests for the preservation and voluntary production of certain COFINA-related documents and witnesses from the UCC and the COFINA AgentAgents in connection with the COFINA-Commonwealth adversary complaint, as well as from the Oversight Board’s Independent Investigator, Kobre & Kim. BPPR is cooperatingKim, with respect to its independent investigation. The Popular Companies cooperated with all such requests but hasand asked that such requests be submitted in the form of a subpoena to address privacy and confidentiality considerations pertaining to some of the documents involved in the production.
On August 20, 2018, Kobre & Kim issued its Final Report, which contained various references to the Popular Companies, including allegations that Popular Securities participated as an underwriter in Commonwealth’s 2014 issuance of government obligation bonds notwithstanding having allegedly advised against it. The report discussed that such allegation could give rise to an unjust enrichment claim against the Popular Companies and could also serve as a basis to equitably subordinate any claim it files in the Title III proceeding to other claims.
POPULAR COMMUNITY BANK
Josefina Valle v. Popular Community Bank (now Popular Bank)
PCBPB has been named a defendant in a putative class action complaint captionedJosefina Valle, et al. v. Popular Community Bank,filed in November 2012 in the New York State Supreme Court (New York County). Plaintiffs, PCBPB customers, allegealleged among other things that PCB hasPB engaged in unfair and deceptive acts and trade practices in connection with the assessment of overdraft fees and payment processing on consumer deposit accounts. The complaint further allegesalleged that PCBPB improperly disclosed its consumer overdraft policies and that the overdraft rates and fees assessed by PCBPB violate New York’s usury laws. Plaintiffs seeksought unspecified damages, including punitive damages, interest, disbursements, and attorneys’ fees and costs.
A
After several procedural steps that included a ruling partially granting PB’s motion to dismiss was filed on September 9, 2013. On October 25, 2013, plaintiffs filedand the filing of an amended complaint seeking to limit the putative class to New York account holders. A motion to dismiss the amended complaintthat was filed in February 2014. In August 2014, the Court entered an order granting in part PCB’s motion to dismiss. The sole surviving claim relates to PCB’s item processing policy. On September 10, 2014, plaintiffs filed a motion for leave to file a second amended complaint to correct certain deficiencies noted in the court’s decision and order. PCB subsequently filed a motion in opposition to plaintiff’s motion for leave to amend and further sought to compel arbitration. In June 2015, this matter was reassigned to a new judge andalso partially dismissed, on July 22, 2015, such Court denied PCB’s motion to compel arbitration and granted plaintiffs’ motion for leave to amend the complaint to replead certain claims based on item processing reordering, misstatement of balance information and failure to notify customers in advance of potential overdrafts. The Court did not, however, allow plaintiffs to replead their claim for the alleged breach of the implied
covenant of good faith and fair dealing. On August 12, 2015, Plaintiffsplaintiffs filed a second amended complaint. On August 24, 2015, PCB filed a Notice of Appeal as to the order granting leave to file the second amended complaint and on September 17, 2015, itPB filed a motion to dismiss the second amended complaint. Oncomplaint and on February 18, 2016, the Court granted it in part and denied it in part, PCB’s pending motion to dismiss. The Court dismisseddismissing plaintiffs’ unfair and deceptive acts and trade practices claim to the extent it sought to recover overdraft fees incurred prior to September 2011. On March 28, 2016, PCBPB filed an answer to the second amended complaint and, on April 7, 2016, it filed a noticeNovember 13, 2017, the parties reached an agreement in principle. Under this agreement, an amount up to $5.2 million would be paid to qualified claimants. In March 2018, the Court entered an order for the preliminary approval of appealthe settlement. On July 23, 2018, the claims process closed and, on August 6, 2018, the partial denialCourt granted its final approval of PCB’s motion to dismiss. A mediation session heldthe settlement agreement, entering such final order on August 13, 2018. The settlement became final and unappealable on September 21, 2016 proved unsuccessful. On January 3, 2017, PCB filed a brief with the Appellate Division in support of its appeal of the lower Court’s prior order that granted in part and denied in part PCB’s motion to dismiss plaintiffs’ second amended complaint. Oral argument was held on April 4, 2017. On April 25, 2017, the Court issued an order denying PCB’s appeal from the partial denial of our motion to dismiss. The parties have since, been engaged in settlement discussions, which are currently at an advanced stage.12, 2018.
Note 23 –Non-consolidated variable interest entities
The Corporation is involved with fourthree 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. 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 asavailable-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 agency collateralized mortgage obligations and private labelagency collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 25 to the Consolidated Financial Statements for additional information on the debt securities outstanding at September 30, 20172018 and December 31, 2016,2017, which are classified asavailable-for-sale and trading securities in the Corporation’s consolidated statementsConsolidated Statements of financial condition.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 innon-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Assets | ||||||||||||||||
Servicing assets: | ||||||||||||||||
Mortgage servicing rights | $ | 152,072 | $ | 158,562 | $ | 130,454 | $ | 132,692 | ||||||||
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Total servicing assets | $ | 152,072 | $ | 158,562 | $ | 130,454 | $ | 132,692 | ||||||||
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Other assets: | ||||||||||||||||
Servicing advances | $ | 22,955 | $ | 20,787 | $ | 37,548 | $ | 47,742 | ||||||||
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Total other assets | $ | 22,955 | $ | 20,787 | $ | 37,548 | $ | 47,742 | ||||||||
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Total assets | $ | 175,027 | $ | 179,349 | $ | 168,002 | $ | 180,434 | ||||||||
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Maximum exposure to loss | $ | 175,027 | $ | 179,349 | $ | 168,002 | $ | 180,434 | ||||||||
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The size of thenon-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 $11.9$10.7 billion at September 30, 20172018 (December 31, 2016—2017—$12.311.7 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 September 30, 20172018 and December 31, 2016,2017, 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.
In September of 2011, BPPR sold construction and commercial real estate loans to a newly created joint venture, PRLP 2011 Holdings, LLC. In March of 2013, BPPR completed a sale of commercial and construction loans, and commercial and single family real estate owned to a newly created joint venture, PR Asset Portfolio2013-1 International, LLC.
These joint ventures were created for the limited purpose of acquiring the loans from BPPR; servicing the loans through a third-party servicer; ultimately working out, resolving and/or foreclosing the loans; and indirectly owning, operating, constructing, developing, leasing and selling any real properties acquired by the joint ventures through deed in lieu of foreclosure, foreclosure, or by resolution of any loan.
BPPR provided financing to PRLP 2011 Holdings, LLC and PR Asset Portfolio2013-1 International, LLC for the acquisition of the assets in an amount equal to the acquisition loan of $86 million and $182 million, respectively. The acquisition loans havehad a5-year maturity and bear a variable interest at30-day LIBOR plus 300 basis points and are secured by a pledge of all of the acquiring entity’s assets. In addition, BPPR provided these joint ventures with anon-revolving advance facility (the “advance facility”) of $69 million and $35 million, respectively, to cover unfunded commitments andcosts-to-complete related to certain construction projects, and a revolving working capital line (the “working capital line”) of $20 million and $30 million, respectively, to fund certain operating expenses of the joint venture. As part of these transactions, BPPR received $ 48 million and $92 million, respectively, in cash and a 24.9% equity interest in each joint venture. The Corporation is not required to provide any other financial support to these joint ventures.
BPPR accounted for both transactions as a true sale pursuant to ASC Subtopic860-10.
The Corporation has determined that PRLP 2011 Holdings, LLC and PR Asset Portfolio2013-1 International, LLC are VIEs but it is not the primary beneficiary. All decisions are made by Caribbean Property Group (“CPG”) (or an affiliate thereof) (the “Manager”), except for certain limited material decisions which would require the unanimous consent of all members. The Manager is authorized to execute and deliver on behalf of the joint ventures any and all documents, contracts, certificates, agreements and instruments, and to take any action deemed necessary in the benefit of the joint ventures.
The Corporation holds variable interests in these VIEs in the form of the 24.9% equity interests and the financing provided to these joint ventures. The equity interest is accounted for under the equity method of accounting pursuant to ASC Subtopic323-10.
The following tables present the carrying amount and classification of the assets and liabilities related to the Corporation’s variable interests in thenon-consolidated VIEs, PRLP 2011 Holdings, LLC and PR Asset Portfolio2013-1 International, LLC, and their maximum exposure to loss at September 30, 20172018 and December 31, 2016.
PRLP 2011 Holdings, LLC | PR Asset Portfolio 2013-1 International, LLC | PRLP 2011 Holdings, LLC | PR Asset Portfolio 2013-1 International, LLC | |||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||||||
Advances under the working capital line | $ | — | $ | — | $ | — | $ | 1,391 | ||||||||||||||||||||||||
Advances under the advance facility | — | — | — | 2,475 | ||||||||||||||||||||||||||||
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Total loansheld-in-portfolio | $ | — | $ | — | $ | — | $ | 3,866 | ||||||||||||||||||||||||
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Accrued interest receivable | $ | — | $ | — | $ | — | $ | 19 | ||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||
Equity investment | $ | 7,362 | $ | 9,167 | $ | 14,167 | $ | 22,378 | $ | 6,942 | $ | 7,199 | $ | 5,569 | $ | 12,874 | ||||||||||||||||
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Total assets | $ | 7,362 | $ | 9,167 | $ | 14,167 | $ | 26,263 | $ | 6,942 | $ | 7,199 | $ | 5,569 | $ | 12,874 | ||||||||||||||||
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Liabilities | ||||||||||||||||||||||||||||||||
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Deposits | $ | (480 | ) | $ | (1,127 | ) | $ | (16,900 | ) | $ | (9,692 | ) | $ | (280 | ) | $ | (20 | ) | $ | (8,433 | ) | $ | (10,501 | ) | ||||||||
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Total liabilities | $ | (480 | ) | $ | (1,127 | ) | $ | (16,900 | ) | $ | (9,692 | ) | $ | (280 | ) | $ | (20 | ) | $ | (8,433 | ) | $ | (10,501 | ) | ||||||||
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Total net assets | $ | 6,882 | $ | 8,040 | $ | (2,733 | ) | $ | 16,571 | $ | 6,662 | $ | 7,179 | $ | (2,864 | ) | $ | 2,373 | ||||||||||||||
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Maximum exposure to loss | $ | 6,882 | $ | 8,040 | $ | — | $ | 16,571 | $ | 6,662 | $ | 7,179 | $ | — | $ | 2,373 | ||||||||||||||||
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The Corporation determined that the maximum exposure to loss under a worst case scenario at September 30, 20172018 would be not recovering the net assets held by the Corporation as of the reporting date.
ASU2009-17 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 thesenon-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 September 30, 2017.2018.
Note 24 – Related party transactions
The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.
EVERTEC
The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of September 30, 2017,2018, the Corporation’sCorporation held 11,654,803 shares of EVERTEC, an ownership stake in EVERTEC was 16.10%.Theof 16.03%. The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.
The Corporation received $ 3.50.6 million in dividend distributions during the nine months ended September 30, 20172018, from its investments in EVERTEC’s holding company (September 30, 2016—2017—$ 3.5 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Equity investment in EVERTEC | $ | 45,810 | $ | 38,904 | $ | 57,839 | $ | 47,532 | ||||||||
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The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, 20172018 and December 31, 2016.2017. Items that represent liabilities to the Corporation are presented with parenthesis.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Accounts receivable (Other assets) | $ | 5,221 | $ | 6,394 | $ | 6,233 | $ | 6,830 | ||||||||
Deposits | (20,712 | ) | (14,899 | ) | (52,339 | ) | (22,284 | ) | ||||||||
Accounts payable (Other liabilities) | (4,070 | ) | (20,372 | ) | (4,326 | ) | (2,040 | ) | ||||||||
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Net total | $ | (19,561 | ) | $ | (28,877 | ) | $ | (50,432 | ) | $ | (17,494 | ) | ||||
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The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income (loss) and changes in stockholders’ equity for the quarters and nine months ended September 30, 20172018 and 2016.2017.
(In thousands) | Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||||
Share of income from the investment in EVERTEC | $ | 1,200 | $ | 8,143 | ||||||||||||
Share of other changes in EVERTEC’s stockholders’ equity | 366 | 2,034 | ||||||||||||||
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Share of EVERTEC’s changes in equity recognized in income | $ | 1,566 | $ | 10,177 | ||||||||||||
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Quarter ended | Nine months ended | |||||||||||||||
(In thousands) | Quarter ended September 30, 2016 | Nine months ended September 30, 2016 | September 30, 2018 | September 30, 2018 | ||||||||||||
Share of income from the investment in EVERTEC | $ | 3,198 | $ | 9,397 | $ | 3,682 | $ | 10,586 | ||||||||
Share of other changes in EVERTEC’s stockholders’ equity | 426 | (899 | ) | (34 | ) | 601 | ||||||||||
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Share of EVERTEC’s changes in equity recognized in income | $ | 3,624 | $ | 8,498 | $ | 3,648 | $ | 11,187 | ||||||||
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Quarter ended | Nine months ended | |||||||
(In thousands) | September 30, 2017 | September 30, 2017 | ||||||
Share of income from the investment in EVERTEC | $ | 1,200 | $ | 8,143 | ||||
Share of other changes in EVERTEC’s stockholders’ equity | 366 | 2,034 | ||||||
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Share of EVERTEC’s changes in equity recognized in income | $ | 1,566 | $ | 10,177 | ||||
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The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and nine months ended September 30, 20172018 and 2016.2017. Items that represent expenses to the Corporation are presented with parenthesis.
(In thousands) Interest expense on deposits ATH and credit cards interchange income from services to EVERTEC Rental income charged to EVERTEC Processing fees on services provided by EVERTEC Other services provided to EVERTEC Total (In thousands) Interest expense on deposits ATH and credit cards interchange income from services to EVERTEC Rental income charged to EVERTEC Processing fees on services provided by EVERTEC Other services provided to EVERTEC Total Quarter ended
September 30, 2017 Nine months ended
September 30, 2017 Category $ (12 ) $ (33 ) Interest expense 7,061 22,656 Other service fees 1,737 5,119 Net occupancy (43,855 ) (132,289 ) Professional fees 291 900 Other operating expenses $ (34,778 ) $ (103,647 ) Quarter ended
September 30, 2016 Nine months ended
September 30, 2016 Category $ (15 ) $ (51 ) Interest expense 7,533 21,948 Other service fees 1,760 5,232 Net occupancy (44,923 ) (131,701 ) Professional fees 269 783 Other operating expenses $ (35,376 ) $ (103,789 )
Quarter ended | Nine months ended | |||||||||||
(In thousands) | September 30, 2018 | September 30, 2018 | Category | |||||||||
Interest expense on deposits | $ | (21 | ) | $ | (46 | ) | Interest expense | |||||
ATH and credit cards interchange income from services to EVERTEC | 8,486 | 24,940 | Other service fees | |||||||||
Rental income charged to EVERTEC | 1,781 | 5,297 | Net occupancy | |||||||||
Processing fees on services provided by EVERTEC | (48,360 | ) | (142,443 | ) | Professional fees | |||||||
Other services provided to EVERTEC | 279 | 884 | Other operating expenses | |||||||||
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Total | $ | (37,835 | ) | $ | (111,368 | ) | ||||||
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Quarter ended | Nine months ended | |||||||||||
(In thousands) | September 30, 2017 | September 30, 2017 | Category | |||||||||
Interest expense on deposits | $ | (12 | ) | $ | (33 | ) | Interest expense | |||||
ATH and credit cards interchange income from services to EVERTEC | 7,061 | 22,656 | Other service fees | |||||||||
Rental income charged to EVERTEC | 1,737 | 5,119 | Net occupancy | |||||||||
Processing fees on services provided by EVERTEC | (43,855 | ) | (132,289 | ) | Professional fees | |||||||
Other services provided to EVERTEC | 291 | 900 | Other operating expenses | |||||||||
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Total | $ | (34,778 | ) | $ | (103,647 | ) | ||||||
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PRLP 2011 Holdings LLC
As indicated in Note 23 to the consolidated financial statements,Consolidated Financial Statements, the Corporation holds a 24.9% equity interest in PRLP 2011 Holdings LLC and currently holds certain deposits from the entity.
The Corporation’s equity in PRLP 2011 Holdings, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Equity investment in PRLP 2011 Holdings, LLC | $ | 7,362 | $ | 9,167 | $ | 6,942 | $ | 7,199 | ||||||||
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The Corporation had the following financial condition balances outstanding with PRLP 2011 Holdings, LLC at September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Deposits(non-interest bearing) | $ | (480 | ) | $ | (1,127 | ) | $ | (280 | ) | $ | (20 | ) | ||||
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The Corporation’s proportionate share of income or loss from PRLP 2011 Holdings, LLC is included in other operating income in the Consolidated Statements of Operations. The following table presents the Corporation’s proportionate share of loss from PRLP 2011 Holdings, LLC for the quarters and nine months ended September 30, 20172018 and 2016.2017.
(In thousands) Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC (In thousands) Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC Quarter ended
September 30,
2017 Nine months ended
September 30,
2017 $ 101 $ (808 ) Quarter ended
September 30,
2016 Nine months ended
September 30,
2016 $ 511 $ (83 )
Quarter ended | Nine months ended | |||||||
(In thousands) | September 30, 2018 | September 30, 2018 | ||||||
Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC | $ | 55 | $ | (257 | ) | |||
Quarter ended | Nine months ended | |||||||
(In thousands) | September 30, 2017 | September 30, 2017 | ||||||
Share of income (loss) from the equity investment in PRLP 2011 Holdings, LLC | $ | 101 | $ | (808 | ) |
During the nine months ended September 30, 2017,No capital distributions were received by the Corporation received $ 1.0 million in capital distributions from its investment in PRLP 2011 Holdings, LLC during the nine months ended September 30, 2018 (September 30, 2016—2017—$ 3.41.0 million). The following table presentsThere were no transactions between the Corporation and PRLP 2011 Holdings, LLC and their impact onduring the Corporation’s results of operations for the quarter and nine monthsquarters ended September 30, 2016.2018 and 2017.
(In thousands) | Quarter ended September 30, 2016 | Nine months ended September 30, 2016 | Category | |||||||||
Interest income on loan to PRLP 2011 Holdings, LLC | $ | — | $ | 11 | Interest income | |||||||
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PR Asset Portfolio2013-1 International, LLC
As indicated in Note 23 to the Consolidated Financial Statements, effective March 2013 the Corporation holds a 24.9% equity interest in PR Asset Portfolio2013-1 International, LLC and currently provides certain financing to the joint venture as well as holds certain deposits from the entity.
The Corporation’s equity in PR Asset Portfolio2013-1 International, LLC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Equity investment in PR Asset Portfolio2013-1 International, LLC | $ | 14,167 | $ | 22,378 | $ | 5,569 | $ | 12,874 | ||||||||
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The Corporation had the following financial condition balances outstanding with PR Asset Portfolio2013-1 International, LLC at September 30, 20172018 and December 31, 2016.2017.
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Loans | $ | — | $ | 3,866 | ||||
Accrued interest receivable | — | 19 | ||||||
Deposits | (16,900 | ) | (9,692 | ) | ||||
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Net total | $ | (16,900 | ) | $ | (5,807 | ) | ||
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(In thousands) | September 30, 2018 | December 31, 2017 | ||||||
Deposits | $ | (8,433 | ) | $ | (10,501 | ) |
The Corporation’s proportionate share of income or loss from PR Asset Portfolio2013-1 International, LLC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of income (loss) from PR Asset Portfolio2013-1 International, LLC for the quarters and nine months ended September 30, 20172018 and 2016.
(In thousands) | Quarter ended September 30, 2018 | Nine months ended September 30, 2018 | ||||||||||||||
Share of income (loss) from the equity investment in PR Asset Portfolio2013-1 International, LLC | $ | 112 | $ | (5,297 | ) | |||||||||||
(In thousands) | Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||
Share of loss from the equity investment in PR Asset Portfolio2013-1 International, LLC | $ | (1,299 | ) | $ | (1,150 | ) | $ | (1,299 | ) | $ | (1,150 | ) | ||||
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(In thousands) | Quarter ended September 30, 2016 | Nine months ended September 30, 2016 | ||||||||||||||
Share of loss from the equity investment in PR Asset Portfolio2013-1 International, LLC | $ | (587 | ) | $ | (910 | ) | ||||||||||
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During the nine months ended September 30, 2017,2018, the Corporation received $ 7.12.0 million in capital distributiondistributions from its investment in PR Asset Portfolio2013-1 International, LLC. No capital distribution wasLLC (September 30, 2017—$ 7.1 million). The Corporation received by the Corporation$0.7 million in dividend distributions during the nine months ended September 30, 2017, which were declared by PR Asset Portfolio2013-1 International, LLC during the quarter ended December 31, 2016. The following table presents transactions between the Corporation and PR Asset
Portfolio2013-1 International, LLC and their impact on the Corporation’s results of operations for the quarters and nine months ended September 30, 20172018 and 2016.2017.
Quarter ended | Nine months ended | |||||||||||||||||||||||
(In thousands) | Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | Category | September 30, 2018 | September 30, 2018 | Category | ||||||||||||||||||
Interest income on loan to PR Asset Portfolio2013-1 International, LLC | $ | — | $ | 9 | Interest income | |||||||||||||||||||
Interest expense on deposits | (8 | ) | (23 | ) | Interest expense | $ | (5 | ) | $ | (16 | ) | Interest expense | ||||||||||||
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Total | $ | (8 | ) | $ | (14 | ) | ||||||||||||||||||
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Quarter ended | Nine months ended | |||||||||||||||||||||||
(In thousands) | Quarter ended September 30, 2016 | Nine months ended September 30, 2016 | Category | September 30, 2017 | September 30, 2017 | Category | ||||||||||||||||||
Interest income on loan to PR Asset Portfolio2013-1 International, LLC | $ | 189 | $ | 923 | Interest income | $ | — | $ | 9 | Interest income | ||||||||||||||
Interest expense on deposits | (1 | ) | (3 | ) | Interest expense | (8 | ) | (23 | ) | Interest expense | ||||||||||||||
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Total | $ | 188 | $ | 920 | $ | (8 | ) | $ | (14 | ) | ||||||||||||||
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Centro Financiero BHD LeóLeón
At September 30, 2017,2018, the Corporation had a 15.84% stake in Centro Financiero BHD Leon, S.A. (“BHD Leon”), one of the largest banking and financial services groups in the Dominican Republic. During the nine months ended September 30, 2017,2018, the Corporation recorded $ 17.322.1 million in earnings from its investment in BHD Leon (2016 - (September 30, 2017—$ 18.517.3 million), which had a carrying amount of $ 129.1140.4 million at September 30, 20172018 (December 31, 2016 - 2017—$ 125.5135.0 million). As of December 31, 2016, BPPR had extended a credit facility of $ 50 million to BHD León with an outstanding balance of $ 25 million. This credit facility was repaid and expired during March 2017. On December 2017, BPPR extended a credit facility of $ 40 million to BHD León. This credit facility was repaid during the quarter ended March 31, 2018. The Corporation received $ 11.812.6 million in dividend distributions during the nine months ended September 30, 20172018 from its investment in BHD Leon (September 30, 2016 - 2017—$ 12.111.8 million).
On June 30, 2017, BPPR extended an $8 million credit facility to Grupo Financiero Leon, S.A. Panamá (“GFL”), a shareholder of BHD Leon. The sources of repayment for this loan arewere the dividends to be received by GFL from its investment in BHD Leon. BPPR’s credit facility ranksranked pari passu with another $8 million credit facility extended to GFL by BHD International Panama, an affiliate of BHD Leon. This credit facility was repaid during the quarter ended June 30, 2018.
Puerto Rico Investment Companies
The Corporation provides advisory services to several Puerto Rico investment companies in exchange for a fee. The Corporation also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.
For the nine months ended September 30, 20172018 administrative fees charged to these investment companies amounted to $ 5.85.1 million (2016- (September 30, 2017—$ 6.05.8 million) and waived fees amounted to $ 1.71.6 million (2016 - $ 2.1(September 30, 2017 —$ 1.7 million), for a net fee of $ 4.13.5 million (2016 - (September 30, 2017—$ 3.94.1 million).
The Corporation, through its subsidiary Banco Popular de Puerto Rico, has also entered into lines of credit facilities with these companies. As of September 30, 2017,2018, the available lines of credit facilities amounted to $357$337 million (December 31, 2016—2017—$357356 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those Puerto Rico investment companies for which BPPR acts as investment advisor orco-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital.
Other Related Party Transactions
In April 2010, in connection with the acquisition of the Westernbank assets from the FDIC, as receiver, BPPR acquired a term loan to a corporate borrower partially owned by an investment corporation in which the Corporation’s Executive Chairman, at that time the Chief Executive Officer, as well as certain of his family members, hold an ownership interest. At the time the loan was acquired by BPPR, it had an unpaid principal balance of $40.2 million.
In May 2017, this loan was sold by BPPR to Popular, Inc., holding company (“PIHC”). At the time of sale, the loan had an unpaid principal balance of $37.9 million. PIHC paid $37.9 million to BPPR for the loan, of which $6.0 million was recognized by BPPR as a capital contribution representing the difference between the fair value and the book value of the loan at the time of transfer. Immediately upon being acquired by BHC, the loan’s maturity was extended by 90 days (under the same terms as originally contracted) to provide the BHC additional time to evaluate a refinancing or long-term extension of the loan. In August 2017, the credit facility was refinanced with a stated maturity in February 2019. As of September 30, 2017, the unpaid principal2018 there was no outstanding balance amounted to $37.7 million.for these credit facilities.
Note 25 – Fair value measurement
ASC Subtopic820-10 “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 |
• | Level 2 |
• | Level 3 |
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 20162017 Form10-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 September 30, 20172018 and December 31, 2016:2017:
At September 30, 2017 | ||||||||||||||||||||||||||||||||
At September 30, 2018 | At September 30, 2018 | |||||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
RECURRING FAIR VALUE MEASUREMENTS | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Investment securitiesavailable-for-sale: | ||||||||||||||||||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | — | $ | 2,764,863 | $ | — | $ | 2,764,863 | $ | 2,496,517 | $ | 5,365,445 | $ | — | $ | 7,861,962 | ||||||||||||||||
Obligations of U.S. Government sponsored entities | — | 611,646 | — | 611,646 | — | 403,794 | — | 403,794 | ||||||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | — | 6,615 | — | 6,615 | — | 6,679 | — | 6,679 | ||||||||||||||||||||||||
Collateralized mortgage obligations—federal agencies | — | 1,015,597 | — | 1,015,597 | ||||||||||||||||||||||||||||
Collateralized mortgage obligations — federal agencies | — | 758,612 | — | 758,612 | ||||||||||||||||||||||||||||
Mortgage-backed securities | — | 4,658,238 | 1,288 | 4,659,526 | — | 4,014,750 | 1,263 | 4,016,013 | ||||||||||||||||||||||||
Equity securities | — | 1,885 | — | 1,885 | ||||||||||||||||||||||||||||
Other | — | 869 | — | 869 | — | 557 | — | 557 | ||||||||||||||||||||||||
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Total investment securitiesavailable-for-sale | $ | — | $ | 9,059,713 | $ | 1,288 | $ | 9,061,001 | ||||||||||||||||||||||||
Total debt securitiesavailable-for-sale | $ | 2,496,517 | $ | 10,549,837 | $ | 1,263 | $ | 13,047,617 | ||||||||||||||||||||||||
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Trading account securities, excluding derivatives: | ||||||||||||||||||||||||||||||||
Trading account debt securities, excluding derivatives: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 5,183 | $ | — | $ | — | $ | 5,183 | ||||||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | $ | — | $ | 172 | $ | — | $ | 172 | — | 143 | — | 143 | ||||||||||||||||||||
Collateralized mortgage obligations | — | 276 | 572 | 848 | — | 48 | 644 | 692 | ||||||||||||||||||||||||
Mortgage-backed securities—federal agencies | — | 32,709 | 43 | 32,752 | ||||||||||||||||||||||||||||
Mortgage-backed securities | — | 28,194 | 43 | 28,237 | ||||||||||||||||||||||||||||
Other | — | 11,630 | 549 | 12,179 | — | 2,978 | 498 | 3,476 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total trading account securities, excluding derivatives | $ | — | $ | 44,787 | $ | 1,164 | $ | 45,951 | ||||||||||||||||||||||||
Total trading account debt securities, excluding derivatives | $ | 5,183 | $ | 31,363 | $ | 1,185 | $ | 37,731 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Equity securities | $ | — | $ | 14,154 | $ | — | $ | 14,154 | ||||||||||||||||||||||||
Mortgage servicing rights | $ | — | $ | — | $ | 180,157 | $ | 180,157 | — | — | 162,779 | 162,779 | ||||||||||||||||||||
Derivatives | — | 14,234 | — | 14,234 | — | 18,977 | — | 18,977 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total assets measured at fair value on a recurring basis | $ | — | $ | 9,118,734 | $ | 182,609 | $ | 9,301,343 | $ | 2,501,700 | $ | 10,614,331 | $ | 165,227 | $ | 13,281,258 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivatives | $ | — | $ | (12,841 | ) | $ | — | $ | (12,841 | ) | $ | — | $ | (16,554 | ) | $ | — | $ | (16,554 | ) | ||||||||||||
Contingent consideration | — | — | (166,876 | ) | (166,876 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total liabilities measured at fair value on a recurring basis | $ | — | $ | (12,841 | ) | $ | (166,876 | ) | $ | (179,717 | ) | $ | — | $ | (16,554 | ) | $ | — | $ | (16,554 | ) | |||||||||||
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At December 31, 2016 (In thousands) RECURRING FAIR VALUE MEASUREMENTS Assets Investment securitiesavailable-for-sale: U.S. Treasury securities Obligations of U.S. Government sponsored entities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations—federal agencies Mortgage-backed securities Equity securities Other Total investment securitiesavailable-for-sale Trading account securities, excluding derivatives: Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations Mortgage-backed securities—federal agencies Other Total trading account securities, excluding derivatives Mortgage servicing rights Derivatives Total assets measured at fair value on a recurring basis Liabilities Derivatives Contingent consideration Total liabilities measured at fair value on a recurring basis Level 1 Level 2 Level 3 Total $ — $ 2,136,620 $ — $ 2,136,620 — 711,850 — 711,850 — 22,771 — 22,771 — 1,221,526 — 1,221,526 — 4,103,940 1,392 4,105,332 — 2,122 — 2,122 — 9,585 — 9,585 $ — $ 8,208,414 $ 1,392 $ 8,209,806 $ — $ 1,164 $ — $ 1,164 — — 1,321 1,321 — 37,991 4,755 42,746 — 13,963 602 14,565 $ — $ 53,118 $ 6,678 $ 59,796 $ — $ — $ 196,889 $ 196,889 — 14,094 — 14,094 $ — $ 8,275,626 $ 204,959 $ 8,480,585 $ — $ (12,842 ) $ — $ (12,842 ) — — (153,158 ) (153,158 ) $ — $ (12,842 ) $ (153,158 ) $ (166,000 )
At December 31, 2017 | ||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
RECURRING FAIR VALUE MEASUREMENTS | ||||||||||||||||
Assets | ||||||||||||||||
Debt securitiesavailable-for-sale: | ||||||||||||||||
U.S. Treasury securities | $ | 503,385 | $ | 3,424,779 | $ | — | $ | 3,928,164 | ||||||||
Obligations of U.S. Government sponsored entities | — | 608,933 | — | 608,933 | ||||||||||||
Obligations of Puerto Rico, States and political subdivisions | — | 6,609 | — | 6,609 | ||||||||||||
Collateralized mortgage obligations - federal agencies | — | 943,753 | — | 943,753 | ||||||||||||
Mortgage-backed securities | — | 4,687,374 | 1,288 | 4,688,662 | ||||||||||||
Other | — | 802 | — | 802 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total debt securitiesavailable-for-sale | $ | 503,385 | $ | 9,672,250 | $ | 1,288 | $ | 10,176,923 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trading account debt securities, excluding derivatives: | ||||||||||||||||
U.S. Treasury securities | $ | 261 | $ | — | $ | — | $ | 261 | ||||||||
Obligations of Puerto Rico, States and political subdivisions | — | 159 | — | 159 | ||||||||||||
Collateralized mortgage obligations | — | — | 529 | 529 | ||||||||||||
Mortgage-backed securities | — | 29,237 | 43 | 29,280 | ||||||||||||
Other | — | 2,988 | 529 | 3,517 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total trading account debt securities, excluding derivatives | $ | 261 | $ | 32,384 | $ | 1,101 | $ | 33,746 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Equity securities | $ | — | $ | 11,076 | $ | — | $ | 11,076 | ||||||||
Mortgage servicing rights | — | — | 168,031 | 168,031 | ||||||||||||
Derivatives | — | 16,719 | — | 16,719 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets measured at fair value on a recurring basis | $ | 503,646 | $ | 9,732,429 | $ | 170,420 | $ | 10,406,495 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Derivatives | $ | — | $ | (14,431 | ) | $ | — | $ | (14,431 | ) | ||||||
Contingent consideration | — | — | (164,858 | ) | (164,858 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities measured at fair value on a recurring basis | $ | — | $ | (14,431 | ) | $ | (164,858 | ) | $ | (179,289 | ) | |||||
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|
The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters and nine months ended September 30, 20172018 and 20162017 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.
Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2018 | Nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||
NONRECURRING FAIR VALUE MEASUREMENTS | ||||||||||||||||||||||||||||||||||||||||
Assets | Write-downs | | Write- downs | |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||
Loans[1] | $ | — | $ | — | $ | 66,221 | $ | 66,221 | $ | (16,282 | ) | $ | — | $ | — | $ | 79,347 | $ | 79,347 | $ | (28,769 | ) | ||||||||||||||||||
Other real estate owned[2] [3] | — | — | 89,825 | 89,825 | (17,405 | ) | ||||||||||||||||||||||||||||||||||
Other real estate owned[2] | — | — | 42,572 | 42,572 | (8,744 | ) | ||||||||||||||||||||||||||||||||||
Other foreclosed assets[2] | — | — | 2,223 | 2,223 | (475 | ) | — | — | 2,596 | 2,596 | (957 | ) | ||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets measured at fair value on a nonrecurring basis | $ | — | $ | — | $ | 158,269 | $ | 158,269 | $ | (34,162 | ) | $ | — | $ | — | $ | 124,515 | $ | 124,515 | $ | (38,470 | ) | ||||||||||||||||||
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|
|
[1] | Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASCSection 310-10-35. 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. |
Nine months ended September 30, 2016 (In thousands) NONRECURRING FAIR VALUE MEASUREMENTS Assets Loans[1] Other real estate owned[2] Other foreclosed assets[2] Total assets measured at fair value on a nonrecurring basis Level 1 Level 2 Level 3 Total Write-downs $ — $ — $ 61,309 $ 61,309 $ (31,097 ) — — 39,996 39,996 (8,482 ) — — 46 46 (2 ) $ — $ — $ 101,351 $ 101,351 $ (39,581 )
Nine moths ended September 30, 2017 | ||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
NONRECURRING FAIR VALUE MEASUREMENTS | ||||||||||||||||||||
Assets | | Write- downs | ||||||||||||||||||
|
| |||||||||||||||||||
Loans[1] | $ | — | $ | — | $ | 66,221 | $ | 66,221 | $ | (16,282 | ) | |||||||||
Other real estate owned[2] [3] | — | — | 89,825 | 89,825 | (17,405 | ) | ||||||||||||||
Other foreclosed assets[2] | — | — | 2,223 | 2,223 | (475 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total assets measured at fair value on a nonrecurring basis | $ | — | $ | — | $ | 158,269 | $ | 158,269 | $ | (34,162 | ) | |||||||||
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|
|
|
|
|
|
|
[1] | Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASCSection 310-10-35. Costs to sell are excluded from the reported fair value amount. |
[2] | Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. |
[3] | Write-downs include $2.7 million related to estimated damages caused by Hurricanes Irma and Maria based on the sample of properties examined. |
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and nine months ended September 30, 20172018 and 2016.2017.
Quarter ended September 30, 2017 | ||||||||||||||||||||||||||||||||
MBS | Other | |||||||||||||||||||||||||||||||
classified | CMOs | securities | ||||||||||||||||||||||||||||||
as investment | classified | MBS | classified | |||||||||||||||||||||||||||||
securities | as trading | classified as | as trading | Mortgage | ||||||||||||||||||||||||||||
available- | account | trading account | account | servicing | Total | Contingent | Total | |||||||||||||||||||||||||
(In thousands) | for-sale | securities | securities | securities | rights | assets | consideration | liabilities | ||||||||||||||||||||||||
Balance at June 30, 2017 | $ | 1,289 | $ | 858 | $ | 4,334 | $ | 557 | $ | 188,728 | $ | 195,766 | $ | (163,668 | ) | $ | (163,668 | ) | ||||||||||||||
Gains (losses) included in earnings | — | 5 | (77 | ) | (8 | ) | (10,262 | ) | (10,342 | ) | (3,208 | ) | (3,208 | ) | ||||||||||||||||||
Gains (losses) included in OCI | (1 | ) | — | — | — | — | (1 | ) | — | — | ||||||||||||||||||||||
Additions | — | 31 | — | — | 1,691 | 1,722 | — | — | ||||||||||||||||||||||||
Settlements | — | (46 | ) | (326 | ) | — | — | (372 | ) | — | — | |||||||||||||||||||||
Transfers out of Level 3 | — | (276 | ) | (3,888 | ) | — | — | (4,164 | ) | — | — | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at September 30, 2017 | $ | 1,288 | $ | 572 | $ | 43 | $ | 549 | $ | 180,157 | $ | 182,609 | $ | (166,876 | ) | $ | (166,876 | ) | ||||||||||||||
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|
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| |||||||||||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017 | $ | — | $ | 1 | $ | — | $ | 1 | $ | (6,241 | ) | $ | (6,239 | ) | $ | (3,208 | ) | $ | (3,208 | ) | ||||||||||||
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| |||||||||||||||||
Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
MBS | Other | |||||||||||||||||||||||||||||||
classified | CMOs | securities | ||||||||||||||||||||||||||||||
as investment | classified | MBS | classified | |||||||||||||||||||||||||||||
securities | as trading | classified as | as trading | Mortgage | ||||||||||||||||||||||||||||
available- | account | trading account | account | servicing | Total | Contingent | Total | |||||||||||||||||||||||||
(In thousands) | for-sale | securities | securities | securities | rights | assets | consideration | liabilities | ||||||||||||||||||||||||
Balance at January 1, 2017 | $ | 1,392 | $ | 1,321 | $ | 4,755 | $ | 602 | $ | 196,889 | $ | 204,959 | $ | (153,158 | ) | $ | (153,158 | ) | ||||||||||||||
Gains (losses) included in earnings | — | — | (124 | ) | (53 | ) | (24,262 | ) | (24,439 | ) | (13,718 | ) | (13,718 | ) | ||||||||||||||||||
Gains (losses) included in OCI | 9 | — | — | — | — | 9 | — | — | ||||||||||||||||||||||||
Additions | — | 39 | 332 | — | 7,530 | 7,901 | — | — | ||||||||||||||||||||||||
Sales | — | (365 | ) | (156 | ) | — | — | (521 | ) | — | — | |||||||||||||||||||||
Settlements | (25 | ) | (147 | ) | (876 | ) | — | — | (1,048 | ) | — | — | ||||||||||||||||||||
Transfers out of Level 3 | (88 | ) | (276 | ) | (3,888 | ) | — | — | (4,252 | ) | — | — | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at September 30, 2017 | $ | 1,288 | $ | 572 | $ | 43 | $ | 549 | $ | 180,157 | $ | 182,609 | $ | (166,876 | ) | $ | (166,876 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017 | $ | — | $ | (5 | ) | $ | (23 | ) | $ | 22 | $ | (9,863 | ) | $ | (9,869 | ) | $ | (13,718 | ) | $ | (13,718 | ) | ||||||||||
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Quarter ended September 30, 2018 | ||||||||||||||||||||||||
MBS | CMOs | Other | ||||||||||||||||||||||
classified | classified | securities | ||||||||||||||||||||||
as debt | as trading | MBS | classified | |||||||||||||||||||||
securities | account | classified as | as trading | Mortgage | ||||||||||||||||||||
available- | debt | trading account | account debt | servicing | Total | |||||||||||||||||||
(In thousands) | for-sale | securities | debt securities | securities | rights | assets | ||||||||||||||||||
Balance at June 30, 2018 | $ | 1,264 | $ | 670 | $ | 43 | $ | 506 | $ | 164,025 | $ | 166,508 | ||||||||||||
Gains (losses) included in earnings | — | — | — | (8 | ) | (4,194 | ) | (4,202 | ) | |||||||||||||||
Gains (losses) included in OCI | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Additions | — | 7 | — | — | 2,946 | 2,953 | ||||||||||||||||||
Settlements | — | (33 | ) | — | — | — | (33 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at September 30, 2018 | $ | 1,263 | $ | 644 | $ | 43 | $ | 498 | $ | 162,777 | $ | 165,225 | ||||||||||||
|
|
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|
|
|
|
|
|
|
|
| |||||||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018 | $ | — | $ | — | $ | — | $ | 3 | $ | — | $ | 3 | ||||||||||||
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Nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||
(In thousands) | MBS classified as investment securities available- for-sale | CMOs classified as trading account securities | MBS classified as trading account securities | Other securities classified as trading account securities | Mortgage servicing rights | Total assets | Contingent consideration[1] | Total liabilities | ||||||||||||||||||||||||
Balance at January 1, 2018 | $ | 1,288 | $ | 529 | $ | 43 | $ | 529 | $ | 168,031 | $ | 170,420 | $ | (164,858 | ) | $ | (164,858 | ) | ||||||||||||||
Gains (losses) included in earnings | — | 6 | — | (31 | ) | (13,123 | ) | (13,148 | ) | (6,112 | ) | (6,112 | ) | |||||||||||||||||||
Gains (losses) included in OCI | 1 | — | — | — | — | 1 | — | — | ||||||||||||||||||||||||
Additions | — | 260 | — | — | 7,869 | 8,129 | — | — | ||||||||||||||||||||||||
Settlements | (26 | ) | (151 | ) | — | — | — | (177 | ) | 170,970 | 170,970 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at September 30, 2018 | $ | 1,263 | $ | 644 | $ | 43 | $ | 498 | $ | 162,777 | $ | 165,225 | $ | — | $ | — | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2018 | $ | — | $ | 6 | $ | — | $ | 14 | $ | — | $ | 20 | $ | — | $ | — | ||||||||||||||||
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[1] | Effective May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate the Corporation’s loss share arrangement ahead of their contractual maturities. Refer to Note 10 for additional information. |
Quarter ended September 30, 2016 (In thousands) Balance at June 30, 2016 Gains (losses) included in earnings Gains (losses) included in OCI Additions Sales Settlements Balance at September 30, 2016 Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2016 Nine months ended September 30, 2016 (In thousands) Balance at January 1, 2016 Gains (losses) included in earnings Gains (losses) included in OCI Additions Sales Settlements Balance at September 30, 2016 Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2016 MBS Other classified CMOs securities as investment classified MBS classified securities as trading classified as as trading Mortgage available- account trading account account servicing Total Contingent Total for-sale securities securities securities rights assets consideration liabilities $ 1,398 $ 1,399 $ 5,364 $ 640 $ 203,577 $ 212,378 $ (128,511 ) $ (128,511 ) — 10 (32 ) (17 ) (6,062 ) (6,101 ) (6,611 ) (6,611 ) (1 ) — — — — (1 ) — — — 5 128 — 2,854 2,987 — — — — (110 ) — — (110 ) — — — (43 ) (100 ) — (15 ) (158 ) — — $ 1,397 $ 1,371 $ 5,250 $ 623 $ 200,354 $ 208,995 $ (135,122 ) $ (135,122 ) $ — $ 10 $ (29 ) $ 8 $ (1,082 ) $ (1,093 ) $ (6,611 ) $ (6,611 ) MBS Other classified CMOs securities as investment classified MBS classified securities as trading classified as as trading Mortgage available- account trading account account servicing Total Contingent Total for-sale securities securities securities rights assets consideration liabilities $ 1,434 $ 1,831 $ 6,454 $ 687 $ 211,405 $ 221,811 $ (120,380 ) $ (120,380 ) (2 ) (3 ) 85 (64 ) (18,879 ) (18,863 ) (14,742 ) (14,742 ) 15 — — — — 15 — — — 214 1,076 — 7,843 9,133 — — — (308 ) (1,826 ) — — (2,134 ) — — (50 ) (363 ) (539 ) — (15 ) (967 ) — — $ 1,397 $ 1,371 $ 5,250 $ 623 $ 200,354 $ 208,995 $ (135,122 ) $ (135,122 ) $ — $ 4 $ 74 $ 29 $ (4,315 ) $ (4,208 ) $ (14,742 ) $ (14,742 )
Quarter ended September 30, 2017 | ||||||||||||||||||||||||||||||||
(In thousands) | MBS classified as debt securities available- for-sale | CMOs classified as trading account debt securities | MBS classified as trading account debt securities | Other securities classified as trading account debt securities | Mortgage servicing rights | Total assets | Contingent consideration | Total liabilities | ||||||||||||||||||||||||
Balance at June 30, 2017 | $ | 1,289 | $ | 858 | $ | 4,334 | $ | 557 | $ | 188,728 | $ | 195,766 | $ | (163,668 | ) | $ | (163,668 | ) | ||||||||||||||
Gains (losses) included in earnings | — | 5 | (77 | ) | (8 | ) | (10,262 | ) | (10,342 | ) | (3,208 | ) | (3,208 | ) | ||||||||||||||||||
Gains (losses) included in OCI | (1 | ) | — | — | — | — | (1 | ) | — | — | ||||||||||||||||||||||
Additions | — | 31 | — | — | 1,691 | 1,722 | — | — | ||||||||||||||||||||||||
Settlements | — | (46 | ) | (326 | ) | — | — | (372 | ) | — | — | |||||||||||||||||||||
Transfers out of Level 3 | — | (276 | ) | (3,888 | ) | — | — | (4,164 | ) | — | — | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at September 30, 2017 | $ | 1,288 | $ | 572 | $ | 43 | $ | 549 | $ | 180,157 | $ | 182,609 | $ | (166,876 | ) | $ | (166,876 | ) | ||||||||||||||
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|
|
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|
|
|
|
|
|
|
|
| |||||||||||||||||
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017 | $ | — | $ | 1 | $ | — | $ | 1 | $ | (6,241 | ) | $ | (6,239 | ) | $ | (3,208 | ) | $ | (3,208 | ) | ||||||||||||
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Nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||
(In thousands) | MBS classified as investment securities available- for-sale | CMOs classified as trading account securities | MBS classified as trading account securities | Other securities classified as trading account securities | Mortgage servicing rights | Total assets | Contingent consideration | Total liabilities | ||||||||||||||||||||||||
Balance at January 1, 2017 | $ | 1,392 | $ | 1,321 | $ | 4,755 | $ | 602 | $ | 196,889 | $ | 204,959 | $ | (153,158 | ) | $ | (153,158 | ) | ||||||||||||||
Gains (losses) included in earnings | — | — | (124 | ) | (53 | ) | (24,262 | ) | (24,439 | ) | (13,718 | ) | (13,718 | ) | ||||||||||||||||||
Gains (losses) included in OCI | 9 | — | — | — | — | 9 | — | — | ||||||||||||||||||||||||
Additions | — | 39 | 332 | — | 7,530 | 7,901 | — | — | ||||||||||||||||||||||||
Sales | — | (365 | ) | (156 | ) | — | — | (521 | ) | — | — | |||||||||||||||||||||
Settlements | (25 | ) | (147 | ) | (876 | ) | — | — | (1,048 | ) | — | — | ||||||||||||||||||||
Transfers out of Level 3 | (88 | ) | (276 | ) | (3,888 | ) | — | — | (4,252 | ) | — | — | ||||||||||||||||||||
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Balance at September 30, 2017 | $ | 1,288 | $ | 572 | $ | 43 | $ | 549 | $ | 180,157 | $ | 182,609 | $ | (166,876 | ) | $ | (166,876 | ) | ||||||||||||||
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Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2017 | $ | — | $ | (5 | ) | $ | (23 | ) | $ | 22 | $ | (9,863 | ) | $ | (9,869 | ) | $ | (13,718 | ) | $ | (13,718 | ) | ||||||||||
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There were no transfers in and / or out of Level 1, Level 2, or Level 3 for financial instruments measured at fair value on a recurring basis during the quarter and nine months ended September 30, 2018. During the quarter and nine months ended September 30, 2017, certain MBS and CMO’s amounting to $4.2 million and $4.3 million, respectively, were transferred from Level 3 to Level 2 due to a change in valuation technique from an internally-prepared pricing matrix and discounteddiscontinued cash flow model, respectively, to a bond’s theoretical value. There were no transfers in and / or out of Level 1, Level 2, or Level 3 for financial instruments measured at fair value on a recurring basis during the quarter and nine months ended September 30, 2016.
Gains and losses (realized and unrealized) included in earnings for the quarters and nine months ended September 30, 20172018 and 20162017 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:
Quarter ended September 30, 2018 | Nine months ended September 30, 2018 | |||||||||||||||
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 | ||||||||||||
FDIC loss share expense | $ | — | $ | — | $ | (6,112 | ) | $ | — | |||||||
Mortgage banking activities | (4,194 | ) | — | (13,123 | ) | — | ||||||||||
Trading account profit (loss) | (8 | ) | 3 | (25 | ) | 20 | ||||||||||
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Total | $ | (4,202 | ) | $ | 3 | $ | (19,260 | ) | $ | 20 | ||||||
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Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | |||||||||||||||
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 | ||||||||||||
FDIC loss share expense | $ | (3,208 | ) | $ | (3,208 | ) | $ | (13,718 | ) | $ | (13,718 | ) | ||||
Mortgage banking activities | (10,262 | ) | (6,241 | ) | (24,262 | ) | (9,863 | ) | ||||||||
Trading account profit (loss) | (80 | ) | 2 | (177 | ) | (6 | ) | |||||||||
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Total | $ | (13,550 | ) | $ | (9,447 | ) | $ | (38,157 | ) | $ | (23,587 | ) | ||||
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Quarter ended September 30, 2017 | Nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||
Changes in unrealized | Changes in unrealized | |||||||||||||||||||||||||||||||
Total gains | gains (losses) relating to | Total gains | gains (losses) relating to | |||||||||||||||||||||||||||||
Quarter ended September 30, 2016 | Nine months ended September 30, 2016 | (losses) included | assets still held at | (losses) included | assets still held at | |||||||||||||||||||||||||||
(In thousands) | Total gains (losses) included in earnings | Changes in unrealized gains (losses) relating to assets still held at reporting date | Total gains (losses) included in earnings | Changes in unrealized gains (losses) relating to assets still held at reporting date | in earnings | reporting date | in earnings | reporting date | ||||||||||||||||||||||||
Interest income | $ | — | $ | — | $ | (2 | ) | $ | — | |||||||||||||||||||||||
FDIC loss share expense | (6,611 | ) | (6,611 | ) | (14,742 | ) | (14,742 | ) | $ | (3,208 | ) | $ | (3,208 | ) | $ | (13,718 | ) | $ | (13,718 | ) | ||||||||||||
Mortgage banking activities | (6,062 | ) | (1,082 | ) | (18,879 | ) | (4,315 | ) | (10,262 | ) | (6,241 | ) | (24,262 | ) | (9,863 | ) | ||||||||||||||||
Trading account profit (loss) | (39 | ) | (11 | ) | 18 | 107 | (80 | ) | 2 | (177 | ) | (6 | ) | |||||||||||||||||||
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Total | $ | (12,712 | ) | $ | (7,704 | ) | $ | (33,605 | ) | $ | (18,950 | ) | $ | (13,550 | ) | $ | (9,447 | ) | $ | (38,157 | ) | $ | (23,587 | ) | ||||||||
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The following table includes 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.
Fair value | ||||||||||||||||||||||||||||||
at September 30, | ||||||||||||||||||||||||||||||
(In thousands) | Fair value at September 30, 2017 | Valuation technique | Unobservable inputs | Weighted average (range) | 2018 | Valuation technique | Unobservable inputs | Weighted average (range) | ||||||||||||||||||||||
CMO’s - trading | $ | 572 | Discounted cash flow model | Weighted average life | 2.1 years (1.6 - 2.2 years) | $ | 644 | Discounted cash flow model | Weighted average life | 1.9 years (1.3 - 2.2 years) | ||||||||||||||||||||
Yield | 3.9% (3.7% - 4.2%) | Yield | 3.8% (3.7% - 4.2%) | |||||||||||||||||||||||||||
Prepayment speed | 21.2% (20.2% - 22.9%) | Prepayment speed | 18.9% (16.3% -20.8%) | |||||||||||||||||||||||||||
Other - trading | $ | 549 | Discounted cash flow model | Weighted average life | 5.3 years | $ | 498 | Discounted cash flow model | Weighted average life | 5.2 years | ||||||||||||||||||||
Yield | 12.5% | Yield | 12.0% | |||||||||||||||||||||||||||
Prepayment speed | 10.8% | Prepayment speed | 10.8% | |||||||||||||||||||||||||||
Mortgage servicing rights | $ | 180,157 | Discounted cash flow model | Prepayment speed | 5.8% (0.3% - 18.0%) | $ | 162,779 | Discounted cash flow model | Prepayment speed | 5.3% (0.1% - 16.9%) | ||||||||||||||||||||
Weighted average life | 6.7 years (0.1 - 15.6 years) | Weighted average life | 8.0 years (0.1 - 16.0 years) | |||||||||||||||||||||||||||
Discount rate | 11.2% (9.5% - 15.0%) | Discount rate | 11.2% (9.5% - 15.0%) | |||||||||||||||||||||||||||
Contingent consideration | $ | (166,876 | ) | Discounted cash flow model | Credit loss rate on covered loans | 3.9% (0.0% - 100.0%) | ||||||||||||||||||||||||
Risk premium component | ||||||||||||||||||||||||||||||
of discount rate | 2.9% | |||||||||||||||||||||||||||||
Loansheld-in-portfolio | $ | 66,221 | [1] | External appraisal | Haircut applied on | $ | 66,710 | [1] | External appraisal | Haircut applied on | ||||||||||||||||||||
external appraisals | 25.0% (11.6% - 54.1%) | external appraisals | 10.2% (10.0%-11.8%) | |||||||||||||||||||||||||||
Other real estate owned | $ | 83,870 | [2] | External appraisal | Haircut applied on | $ | 36,989 | [2] | External appraisal | Haircut applied on | ||||||||||||||||||||
external appraisals | 21.3% (20.0% - 30.0%) | external appraisals | 23.8% (15.0% -30.0%) |
[1] | Loansheld-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table. |
[2] | Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table. |
The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield, constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield. These particular financial instruments are valued internally by the Corporation’s investment banking and broker-dealer unit utilizing internal valuation techniques. The unobservable inputs incorporated into the internal discounted cash flow models used to derive the fair value of collateralized mortgage obligations
and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are reviewed by the Corporation’s Corporate Treasury unit on a quarterly basis. In the case of Level 3 financial instruments which fair value is based on broker quotes, the Corporation’s Corporate Treasury unit reviews the inputs used by the broker-dealers for reasonableness utilizing information available from other published sources and validates that the fair value measurements were developed in accordance with ASC Topic 820. The Corporate Treasury unit also substantiates the inputs used by validating the prices with other broker-dealers, whenever possible.
The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement.
The Corporation’s Corporate Comptroller’s unit is responsible for determining the fair value of MSRs, which is based on discounted cash flow methods based on assumptions developed by an external service provider, except for prepayment speeds, which are adjusted internally for the local market based on historical experience. The Corporation’s Corporate Treasury unit validates the economic assumptions developed by the external service provider on a quarterly basis. In addition, an analytical review of prepayment speeds is performed quarterly by the Corporate Comptroller’s unit. The Corporation’s MSR Committee analyzes changes in fair value measurements of MSRs and approves the valuation assumptions at each reporting period. Changes in valuation assumptions must also be approved by the MSR Committee. The fair value of MSRs are compared with those of the external service provider on a quarterly basis in order to validate if the fair values are within the materiality thresholds established by management to monitor and investigate material deviations. Back-testing is performed to compare projected cash flows with actual historical data to ascertain the reasonability of the projected net cash flow results.
Note 26 – 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 September 30, 20172018 and December 31, 2016,2017, 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, but for which the fair value is disclosed from those disclosed in the 20162017 Form10-K.
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.
September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
September 30, 2017 | Carrying | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Carrying amount | Level 1 | Level 2 | Level 3 | Fair value | amount | Level 1 | Level 2 | Level 3 | Fair value | ||||||||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 517,437 | $ | 517,437 | $ | — | $ | — | $ | 517,437 | $ | 400,949 | $ | 400,949 | $ | — | $ | — | $ | 400,949 | ||||||||||||||||||||
Money market investments | 5,488,212 | 5,479,268 | 8,944 | — | 5,488,212 | 4,609,061 | 4,597,827 | 11,234 | — | 4,609,061 | ||||||||||||||||||||||||||||||
Trading account securities, excluding derivatives[1] | 45,951 | — | 44,787 | 1,164 | 45,951 | |||||||||||||||||||||||||||||||||||
Investment securitiesavailable-for-sale[1] | 9,061,001 | — | 9,059,713 | 1,288 | 9,061,001 | |||||||||||||||||||||||||||||||||||
Investment securitiesheld-to-maturity: | ||||||||||||||||||||||||||||||||||||||||
Trading account debt securities, excluding derivatives[1] | 37,731 | 5,183 | 31,363 | 1,185 | 37,731 | |||||||||||||||||||||||||||||||||||
Debt securitiesavailable-for-sale[1] | 13,047,617 | 2,496,517 | 10,549,837 | 1,263 | 13,047,617 | |||||||||||||||||||||||||||||||||||
Debt securitiesheld-to-maturity: | ||||||||||||||||||||||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | $ | 92,369 | $ | — | $ | — | $ | 73,460 | $ | 73,460 | $ | 89,121 | $ | — | $ | — | $ | 92,959 | $ | 92,959 | ||||||||||||||||||||
Collateralized mortgage obligation-federal agency | 69 | — | — | 73 | 73 | 56 | — | — | 59 | 59 | ||||||||||||||||||||||||||||||
Trust preferred securities | 11,561 | — | 11,561 | — | 11,561 | |||||||||||||||||||||||||||||||||||
Other | 1,000 | — | 742 | 237 | 979 | 500 | — | 495 | — | 495 | ||||||||||||||||||||||||||||||
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Total investment securitiesheld-to-maturity | $ | 93,438 | $ | — | $ | 742 | $ | 73,770 | $ | 74,512 | ||||||||||||||||||||||||||||||
Total debt securitiesheld-to-maturity | $ | 101,238 | $ | — | $ | 12,056 | $ | 93,018 | $ | 105,074 | ||||||||||||||||||||||||||||||
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Other investment securities: | ||||||||||||||||||||||||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||||||||||
FHLB stock | $ | 64,208 | $ | — | $ | 64,208 | $ | — | $ | 64,208 | $ | 53,562 | $ | — | $ | 53,562 | $ | — | $ | 53,562 | ||||||||||||||||||||
FRB stock | 94,644 | — | 94,644 | — | 94,644 | 88,945 | — | 88,945 | — | 88,945 | ||||||||||||||||||||||||||||||
Trust preferred securities | 13,198 | — | 13,198 | — | 13,198 | |||||||||||||||||||||||||||||||||||
Other investments | 1,915 | — | — | 5,091 | 5,091 | 15,455 | — | 14,152 | 6,082 | 20,234 | ||||||||||||||||||||||||||||||
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Total other investment securities | $ | 173,965 | $ | — | $ | 172,050 | $ | 5,091 | $ | 177,141 | ||||||||||||||||||||||||||||||
Total equity securities | $ | 157,962 | $ | — | $ | 156,659 | $ | 6,082 | $ | 162,741 | ||||||||||||||||||||||||||||||
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Loansheld-for-sale | $ | 68,864 | $ | — | $ | — | $ | 70,499 | $ | 70,499 | $ | 51,742 | $ | — | $ | — | $ | 52,151 | $ | 52,151 | ||||||||||||||||||||
Loans not covered under loss sharing agreement with the FDIC | 22,559,594 | — | — | 20,896,277 | 20,896,277 | 25,878,450 | — | — | 23,709,245 | 23,709,245 | ||||||||||||||||||||||||||||||
Loans covered under loss sharing agreements with the FDIC | 491,797 | — | — | 483,155 | 483,155 | |||||||||||||||||||||||||||||||||||
FDIC loss share asset | 48,470 | — | — | 37,703 | 37,703 | |||||||||||||||||||||||||||||||||||
Mortgage servicing rights | 180,157 | — | — | 180,157 | 180,157 | 162,779 | — | — | 162,779 | 162,779 | ||||||||||||||||||||||||||||||
Derivatives | 14,234 | — | 14,234 | — | 14,234 | 18,977 | — | 18,977 | — | 18,977 | ||||||||||||||||||||||||||||||
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(In thousands) Deposits: Demand deposits Time deposits Total deposits Assets sold under agreements to repurchase Other short-term borrowings[2] Notes payable: FHLB advances Unsecured senior debt securities Junior subordinated deferrable interest debentures (related to trust preferred securities) Others Total notes payable Derivatives Contingent consideration September 30, 2017 Carrying
amount Level 1 Level 2 Level 3 Fair value Financial Liabilities: $ 26,636,413 $ — $ 26,636,413 $ — $ 26,636,413 7,612,523 — 7,504,546 — 7,504,546 $ 34,248,936 $ — $ 34,140,959 $ — $ 34,140,959 $ 374,405 $ — $ 374,377 $ — $ 374,377 $ 240,598 $ — $ 240,598 $ — $ 240,598 $ 629,072 $ — $ 629,538 $ — $ 629,538 446,351 — 470,043 — 470,043 439,344 — 411,776 — 411,776 17,294 — — 17,294 17,294 $ 1,532,061 $ — $ 1,511,357 $ 17,294 $ 1,528,651 $ 12,841 $ — $ 12,841 $ — $ 12,841 $ 166,876 $ — $ — $ 166,876 $ 166,876
September 30, 2018 | ||||||||||||||||||||
Carrying | ||||||||||||||||||||
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Demand deposits | $ | 32,236,547 | $ | — | $ | 32,236,547 | $ | — | $ | 32,236,547 | ||||||||||
Time deposits | 7,412,280 | — | 7,187,889 | — | 7,187,889 | |||||||||||||||
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Total deposits | $ | 39,648,827 | $ | — | $ | 39,424,436 | $ | — | $ | 39,424,436 | ||||||||||
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Assets sold under agreements to repurchase | $ | 300,116 | $ | — | $ | 300,150 | $ | — | $ | 300,150 | ||||||||||
Other short-term borrowings[2] | $ | 1,200 | $ | — | $ | 1,200 | $ | — | $ | 1,200 | ||||||||||
Notes payable: | ||||||||||||||||||||
FHLB advances | $ | 599,755 | $ | — | $ | 591,397 | $ | — | $ | 591,397 | ||||||||||
Unsecured senior debt securities | 742,159 | — | 763,863 | — | 763,863 | |||||||||||||||
Junior subordinated deferrable interest debentures (related to trust preferred securities) | 384,869 | — | 371,913 | — | 371,913 | |||||||||||||||
Others | 17,904 | — | — | 17,904 | 17,904 | |||||||||||||||
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Total notes payable | $ | 1,744,687 | $ | — | $ | 1,727,173 | $ | 17,904 | $ | 1,745,077 | ||||||||||
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Derivatives | $ | 16,554 | $ | — | $ | 16,554 | $ | — | $ | 16,554 | ||||||||||
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[1] | Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. |
[2] | Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings. |
(In thousands) Financial Assets: Cash and due from banks Money market investments Trading account securities, excluding derivatives[1] Investment securitiesavailable-for-sale[1] Investment securitiesheld-to-maturity: Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligation-federal agency Other Total investment securitiesheld-to-maturity Other investment securities: FHLB stock FRB stock Trust preferred securities Other investments Total other investment securities Loansheld-for-sale Loans not covered under loss sharing agreement with the FDIC Loans covered under loss sharing agreements with the FDIC FDIC loss share asset Mortgage servicing rights Derivatives (In thousands) Financial Liabilities: Deposits: Demand deposits Time deposits Total deposits Assets sold under agreements to repurchase Other short-term borrowings[2] Notes payable: FHLB advances Unsecured senior debt Junior subordinated deferrable interest debentures (related to trust preferred securities) Others Total notes payable Derivatives Contingent consideration December 31, 2016 Carrying
amount Level 1 Level 2 Level 3 Fair value $ 362,394 $ 362,394 $ — $ — $ 362,394 2,890,217 2,854,777 35,440 — 2,890,217 59,796 — 53,118 6,678 59,796 8,209,806 — 8,208,414 1,392 8,209,806 $ 96,027 $ — $ — $ 73,540 $ 73,540 74 — — 78 78 2,000 — 1,738 220 1,958 $ 98,101 $ — $ 1,738 $ 73,838 $ 75,576 $ 58,033 $ — $ 58,033 $ — $ 58,033 94,672 — 94,672 — 94,672 13,198 — 13,198 — 13,198 1,915 — — 4,987 4,987 $ 167,818 $ — $ 165,903 $ 4,987 $ 170,890 $ 88,821 $ — $ 504 $ 89,509 $ 90,013 22,263,446 — — 20,578,904 20,578,904 542,528 — — 515,808 515,808 69,334 — — 63,187 63,187 196,889 — — 196,889 196,889 14,094 — 14,094 — 14,094 December 31, 2016 Carrying
amount Level 1 Level 2 Level 3 Fair value $ 22,786,682 $ — $ 22,786,682 $ — $ 22,786,682 7,709,542 — 7,708,724 — 7,708,724 $ 30,496,224 $ — $ 30,495,406 $ — $ 30,495,406 $ 479,425 $ — $ 479,439 $ — $ 479,439 $ 1,200 $ — $ 1,200 $ — $ 1,200 $ 672,670 $ — $ 671,872 $ — $ 671,872 444,788 — 466,263 — 466,263 439,323 — 399,370 — 399,370 18,071 — — 18,071 18,071 $ 1,574,852 $ — $ 1,537,505 $ 18,071 $ 1,555,576 $ 12,842 $ — $ 12,842 $ — $ 12,842 $ 153,158 $ — $ — $ 153,158 $ 153,158
December 31, 2017 | ||||||||||||||||||||
Carrying | ||||||||||||||||||||
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | |||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and due from banks | $ | 402,857 | $ | 402,857 | $ | — | $ | — | $ | 402,857 | ||||||||||
Money market investments | 5,255,119 | 5,245,346 | 9,773 | — | 5,255,119 | |||||||||||||||
Trading account debt securities, excluding derivatives[1] | 33,746 | 261 | 32,384 | 1,101 | 33,746 | |||||||||||||||
Debt securitiesavailable-for-sale[1] | 10,176,923 | 503,385 | 9,672,250 | 1,288 | 10,176,923 | |||||||||||||||
Debt securitiesheld-to-maturity: | ||||||||||||||||||||
Obligations of Puerto Rico, States and political subdivisions | $ | 92,754 | $ | — | $ | — | $ | 83,239 | $ | 83,239 | ||||||||||
Collateralized mortgage obligation-federal agency | 67 | — | — | 71 | 71 | |||||||||||||||
Trust preferred securities | 13,198 | — | 13,198 | — | 13,198 | |||||||||||||||
Other | 1,000 | — | 750 | 243 | 993 | |||||||||||||||
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Total debt securitiesheld-to-maturity | $ | 107,019 | $ | — | $ | 13,948 | $ | 83,553 | $ | 97,501 | ||||||||||
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Equity securities: | ||||||||||||||||||||
FHLB stock | $ | 57,819 | $ | — | $ | 57,819 | $ | — | $ | 57,819 | ||||||||||
FRB stock | 94,308 | — | 94,308 | — | 94,308 | |||||||||||||||
Other investments | 12,976 | — | 11,076 | 5,214 | 16,290 | |||||||||||||||
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Total equity securities | $ | 165,103 | $ | — | $ | 163,203 | $ | 5,214 | $ | 168,417 | ||||||||||
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Loansheld-for-sale | $ | 132,395 | $ | — | $ | — | $ | 134,839 | $ | 134,839 | ||||||||||
Loans not covered under loss sharing agreement with the FDIC | 23,702,612 | — | — | 21,883,003 | 21,883,003 | |||||||||||||||
Loans covered under loss sharing agreements with the FDIC | 484,030 | — | — | 465,893 | 465,893 | |||||||||||||||
FDIC loss share asset | 45,192 | — | — | 33,323 | 33,323 | |||||||||||||||
Mortgage servicing rights | 168,031 | — | — | 168,031 | 168,031 | |||||||||||||||
Derivatives | 16,719 | — | 16,719 | — | 16,719 | |||||||||||||||
December 31, 2017 | ||||||||||||||||||||
Carrying | ||||||||||||||||||||
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | |||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Demand deposits | $ | 27,938,630 | $ | — | $ | 27,938,630 | $ | — | $ | 27,938,630 | ||||||||||
Time deposits | 7,514,878 | — | 7,381,232 | — | 7,381,232 | |||||||||||||||
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Total deposits | $ | 35,453,508 | $ | — | $ | 35,319,862 | $ | — | $ | 35,319,862 | ||||||||||
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Assets sold under agreements to repurchase | $ | 390,921 | $ | — | $ | 390,752 | $ | — | $ | 390,752 | ||||||||||
Other short-term borrowings[2] | $ | 96,208 | $ | — | $ | 96,208 | $ | — | $ | 96,208 | ||||||||||
Notes payable: | ||||||||||||||||||||
FHLB advances | $ | 631,490 | $ | — | $ | 628,839 | $ | — | $ | 628,839 | ||||||||||
Unsecured senior debt | 446,873 | — | 463,554 | — | 463,554 | |||||||||||||||
Junior subordinated deferrable interest debentures (related to trust preferred securities) | 439,351 | — | 406,883 | — | 406,883 | |||||||||||||||
Others | 18,642 | — | — | 18,642 | 18,642 | |||||||||||||||
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Total notes payable | $ | 1,536,356 | $ | — | $ | 1,499,276 | $ | 18,642 | $ | 1,517,918 | ||||||||||
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Derivatives | $ | 14,431 | $ | — | $ | 14,431 | $ | — | $ | 14,431 | ||||||||||
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Contingent consideration | $ | 164,858 | $ | — | $ | — | $ | 164,858 | $ | 164,858 | ||||||||||
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[1] | Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. |
[2] | Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings. |
The notional amount of commitments to extend credit at September 30, 20172018 and December 31, 20162017 is $ 7.37.5 billion and $ 7.87.6 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 20172018 and December 31, 20162017 is $ 3433 million and $ 36 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.
Note 27 – Net income per common share
The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters and nine months ended September 30, 20172018 and 2016:2017:
Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
(In thousands, except per share information) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net income | $ | 20,664 | $ | 46,810 | $ | 209,835 | $ | 220,796 | $ | 140,648 | $ | 20,664 | $ | 511,755 | $ | 209,835 | ||||||||||||||||
Preferred stock dividends | (930 | ) | (930 | ) | (2,792 | ) | (2,792 | ) | (930 | ) | (930 | ) | (2,792 | ) | (2,792 | ) | ||||||||||||||||
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Net income applicable to common stock | $ | 19,734 | $ | 45,880 | $ | 207,043 | $ | 218,004 | $ | 139,718 | $ | 19,734 | $ | 508,963 | $ | 207,043 | ||||||||||||||||
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Average common shares outstanding | 101,652,352 | 103,296,443 | 102,057,607 | 103,243,851 | 101,067,300 | 101,652,352 | 101,549,711 | 102,057,607 | ||||||||||||||||||||||||
Average potential dilutive common shares | 111,520 | 168,942 | 127,937 | 140,098 | 181,854 | 111,520 | 182,219 | 127,937 | ||||||||||||||||||||||||
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Average common shares outstanding— assuming dilution | 101,763,872 | 103,465,385 | 102,185,544 | 103,383,949 | ||||||||||||||||||||||||||||
Average common shares outstanding—assuming dilution | 101,249,154 | 101,763,872 | 101,731,930 | 102,185,544 | ||||||||||||||||||||||||||||
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Basic EPS | $ | 0.19 | $ | 0.44 | $ | 2.03 | $ | 2.11 | $ | 1.38 | $ | 0.19 | $ | 5.01 | $ | 2.03 | ||||||||||||||||
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Diluted EPS | $ | 0.19 | $ | 0.44 | $ | 2.03 | $ | 2.11 | $ | 1.38 | $ | 0.19 | $ | 5.00 | $ | 2.03 | ||||||||||||||||
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As disclosed in Note 19, during the quarter ended March 31, 2017,September 30, 2018, the Corporation completedentered into a $75$125 million privately negotiated accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 2,000,000 shares of common stock. The initial share delivery was accounted for as a treasury stock transaction. As part of this transaction, the Corporation entered into a forward contract, inwhich remains outstanding as of September 30, 2018, for which the final number ofCorporation expects to receive additional shares delivered at settlement was based on the average daily volume weighted average price (“VWAP”) of its common stock, net of a discount, during the termupon termination of the ASR. Based onASR agreement. The diluted earnings per share computation for the discounted VWAP of $40.60,quarter and nine months ended September 30, 2018 excludes 476,749 antidilutive shares related to the Corporation received 1,847,372 shares of its outstanding common stock.ASR.
For the quarter and nine months ended September 30, 2017,2018, 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, 2016.2017. For a discussion of the calculation under the treasury stock method, refer to Note 3534 of the consolidated financial statementsConsolidated Financial Statements included in the 20162017 Form10-K.
For
Note 28 – Revenue from contracts with customers
The following tables present the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters and nine months ended September 30, 20172018 and 2016, there were2017:
Quarter ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2018 | 2018 | ||||||||||||||
BPPR | Popular U.S. | BPPR | Popular U.S. | |||||||||||||
Service charges on deposit accounts | $ | 34,869 | $ | 3,278 | $ | 101,824 | $ | 9,880 | ||||||||
Other service fees: | ||||||||||||||||
Debit card fees | 10,723 | 261 | 33,543 | 763 | ||||||||||||
Insurance fees, excluding reinsurance | 8,210 | 1,187 | 24,097 | 2,642 | ||||||||||||
Credit card fees, excluding late fees and membership fees | 19,029 | 221 | 54,513 | 698 | ||||||||||||
Sale and administration of investment products | 5,696 | — | 16,071 | — | ||||||||||||
Trust fees | 5,034 | — | 15,593 | — | ||||||||||||
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Total revenue from contracts with customers [1] | $ | 83,561 | $ | 4,947 | $ | 245,641 | $ | 13,983 | ||||||||
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[1] | The amounts include intersegment transactions of $0.2 million and $1.9 million, respectively, for the quarter and nine months ended September 30, 2018. |
Quarter ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2017 | ||||||||||||||
BPPR | Popular U.S. | BPPR | Popular U.S. | |||||||||||||
Service charges on deposit accounts | $ | 35,920 | $ | 3,353 | $ | 109,926 | $ | 9,956 | ||||||||
Other service fees: | ||||||||||||||||
Debit card fees | 10,148 | 211 | 32,831 | 647 | ||||||||||||
Insurance fees, excluding reinsurance | 7,512 | 785 | 23,827 | 2,227 | ||||||||||||
Credit card fees, excluding late fees and membership fees | 13,516 | 223 | 43,380 | 655 | ||||||||||||
Sale and administration of investment products | 5,496 | — | 16,377 | — | ||||||||||||
Trust fees | 4,887 | — | 15,035 | — | ||||||||||||
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Total revenue from contracts with customers [1] | $ | 77,479 | $ | 4,572 | $ | 241,376 | $ | 13,485 | ||||||||
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[1] | The amounts include intersegment transactions of $0.2 million and $1.9 million, respectively, for the quarter and nine months ended September 30, 2017. |
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 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 stock options outstanding.
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.
Note 2829 – Other service feesFDIC loss share (expense) income
The caption of other services feesFDIC loss-share (expense) income in the consolidated statementsConsolidated Statements of operationsOperations consists of the following major categories:
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Debit card fees | $ | 10,359 | $ | 11,483 | $ | 33,478 | $ | 34,153 | ||||||||
Insurance fees | 13,076 | 15,943 | 39,410 | 42,678 | ||||||||||||
Credit card fees | 16,699 | 17,644 | 54,280 | 52,202 | ||||||||||||
Sale and administration of investment products | 5,496 | 5,542 | 16,377 | 15,798 | ||||||||||||
Trust fees | 4,817 | 4,968 | 14,675 | 14,029 | ||||||||||||
Other fees | 3,034 | 3,589 | 10,604 | 10,636 | ||||||||||||
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Total other services fees | $ | 53,481 | $ | 59,169 | $ | 168,824 | $ | 169,496 | ||||||||
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Note 29 – FDIC loss share expense
The caption of FDIC loss-share expense in the consolidated statements of operations consists of the following major categories:
Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Accretion (amortization) | $ | 567 | $ | (1,259 | ) | $ | (62 | ) | $ | (9,337 | ) | $ | — | $ | 567 | $ | (934 | ) | $ | (62 | ) | |||||||||||
80% mirror accounting on credit impairment losses (reversal)[1] | (329 | ) | 659 | 1,945 | (959 | ) | ||||||||||||||||||||||||||
80% mirror accounting on credit impairment losses (reversal) | — | (329 | ) | 104 | 1,945 | |||||||||||||||||||||||||||
80% mirror accounting on reimbursable expenses | 588 | 853 | 2,232 | 7,038 | — | 588 | 537 | 2,232 | ||||||||||||||||||||||||
80% mirror accounting on recoveries on covered assets, including rental income on OREOs, subject to reimbursement to the FDIC | (1,601 | ) | (522 | ) | 2,832 | (5,123 | ) | — | (1,601 | ) | (1,658 | ) | 2,832 | |||||||||||||||||||
Change intrue-up payment obligation | (3,208 | ) | (6,611 | ) | (13,718 | ) | (14,742 | ) | — | (3,208 | ) | (6,112 | ) | (13,718 | ) | |||||||||||||||||
Arbitration award expense | — | (54,924 | ) | — | (54,924 | ) | ||||||||||||||||||||||||||
Gain on FDIC loss-share Termination Agreement[1] | — | — | 102,752 | — | ||||||||||||||||||||||||||||
Other | 35 | 81 | (5,909 | ) | 602 | — | 35 | 36 | (5,909 | ) | ||||||||||||||||||||||
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Total FDIC loss-share expense | $ | (3,948 | ) | $ | (61,723 | ) | $ | (12,680 | ) | $ | (77,445 | ) | ||||||||||||||||||||
Total FDIC loss-share (expense) income | $ | — | $ | (3,948 | ) | $ | 94,725 | $ | (12,680 | ) | ||||||||||||||||||||||
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[1] | Refer to Note 10 for |
Note 30 – Pension and postretirement benefits
The Corporation has anon-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries. The accrual of benefits under the plans is frozen to all participants.
The components of net periodic pension cost for the periods presented were as follows:
Pension Plan | Benefit Restoration Plans | |||||||||||||||
Quarters ended September 30, | Quarters ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest cost | $ | 6,120 | $ | 6,291 | $ | 352 | $ | 348 | ||||||||
Expected return on plan assets | (10,186 | ) | (9,623 | ) | (502 | ) | (538 | ) | ||||||||
Amortization of net loss | 5,053 | 4,881 | 411 | 332 | ||||||||||||
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Total net periodic pension cost (benefit) | $ | 987 | $ | 1,549 | $ | 261 | $ | 142 | ||||||||
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Pension Plans | Benefit Restoration Plans | Pension Plan | Benefit Restoration Plans | |||||||||||||||||||||||||||||
Nine months ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Quarters ended September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Interest Cost | $ | 18,359 | $ | 18,873 | $ | 1,057 | $ | 1,044 | ||||||||||||||||||||||||
Other operating expenses: | ||||||||||||||||||||||||||||||||
Interest cost | $ | 6,029 | $ | 6,120 | $ | 344 | $ | 352 | ||||||||||||||||||||||||
Expected return on plan assets | (30,557 | ) | (28,869 | ) | (1,508 | ) | (1,614 | ) | (9,551 | ) | (10,186 | ) | (509 | ) | (502 | ) | ||||||||||||||||
Amortization of net loss | 15,160 | 14,640 | 1,233 | 996 | 4,716 | 5,053 | 349 | 411 | ||||||||||||||||||||||||
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Total net periodic pension cost (benefit) | $ | 2,962 | $ | 4,644 | $ | 782 | $ | 426 | $ | 1,194 | $ | 987 | $ | 184 | $ | 261 | ||||||||||||||||
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Pension Plans | Benefit Restoration Plans | |||||||||||||||||||||||||||||||
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
(In thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||||||
Other operating expenses: | ||||||||||||||||||||||||||||||||
Interest cost | $ | 18,086 | $ | 18,359 | $ | 1,033 | $ | 1,057 | ||||||||||||||||||||||||
Expected return on plan assets | (28,653 | ) | (30,557 | ) | (1,527 | ) | (1,508 | ) | ||||||||||||||||||||||||
Amortization of net loss | 14,147 | 15,160 | 1,048 | 1,233 | ||||||||||||||||||||||||||||
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Total net periodic pension cost (benefit) | $ | 3,580 | $ | 2,962 | $ | 554 | $ | 782 | ||||||||||||||||||||||||
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During the quarter ended September 30, 20172018 the Corporation made a contribution to the pension and benefit restoration plans of $16.1 million.$59 thousand. The total contributions expected to be paid during the year 20172018 for the pension and benefit restoration plans amount to approximately $16.2 million.$235 thousand.
During the quarters ended September 30, 2018 and 2017, there is no service cost recognized as part of the net periodic pension cost since the accrual of benefits for all participants has been frozen. As part of the implementation of ASU2017-07, the other components of net periodic pension cost were reclassified from “Personnel costs” to “Other operating expenses” in the consolidated statement of operations in the amount of $1.2 million for the quarter ended September 30, 2017 and $3.7 million for the nine months ended September 30, 2017.
The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries. The table that follows presents the components of net periodic postretirement benefit cost.
Postretirement Benefit Plan | Postretirement Benefit Plan | |||||||||||||||||||||||||||||||
Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Personnel Costs: | ||||||||||||||||||||||||||||||||
Service cost | $ | 256 | $ | 289 | $ | 769 | $ | 867 | $ | 257 | $ | 256 | $ | 771 | $ | 769 | ||||||||||||||||
Other operating expenses: | ||||||||||||||||||||||||||||||||
Interest cost | 1,426 | 1,505 | 4,277 | 4,515 | 1,390 | 1,426 | 4,171 | 4,277 | ||||||||||||||||||||||||
Amortization of prior service cost | (950 | ) | (950 | ) | (2,850 | ) | (2,850 | ) | (868 | ) | (950 | ) | (2,603 | ) | (2,850 | ) | ||||||||||||||||
Amortization of net loss | 142 | 275 | 426 | 825 | 321 | 142 | 962 | 426 | ||||||||||||||||||||||||
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Total net periodic postretirement benefit cost | $ | 874 | $ | 1,119 | $ | 2,622 | $ | 3,357 | ||||||||||||||||||||||||
Total postretirement cost | $ | 1,100 | $ | 874 | $ | 3,301 | $ | 2,622 | ||||||||||||||||||||||||
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Contributions made to the postretirement benefit plan for the quarter ended September 30, 20172018 amounted to approximately $1.4 million. The total contributions expected to be paid during the year 20172018 for the postretirement benefit plan amount to approximately $6.4$6.3 million.
As part of the implementation of ASU2017-07, the other components of net periodic postretirement benefit cost other than the service cost components were reclassified from “Personnel costs” to “Other operating expenses” in the consolidated statement of operations in the amount of $0.6 million for the quarter ended September 30, 2017 and $1.9 million for the nine months ended September 30, 2017.
Note 31 - 31—Stock-based compensation
Incentive Plan
In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”). The Incentive Plan permits the granting of incentive awards in the form of Annual Incentive Awards, Long-term Performance Unit Awards, Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Units or Performance Shares. Participants in the Incentive Plan are designated by the Compensation Committee of the Board of Directors (or its delegate as determined by the Board). Employees and directors of the Corporation and/or any of its subsidiaries are eligible to participate in the Incentive Plan.
Under the Incentive Plan, the Corporation has issued restricted shares, which become 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 is determined based on atwo-prong vesting schedule. The first part is vested ratably over five 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 (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service. The vesting schedule for restricted shares granted on or after 2014 was modified as follows, the first part is vested ratably over four years commencing at the date of the grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attainment of the earlier 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.
The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.
(Not in thousands) | Shares | Weighted-Average Grant Date Fair Value | ||||||
Non-vested at December 31, 2015 | 495,731 | $ | 28.25 | |||||
Granted | 344,488 | 25.86 | ||||||
Quantity adjusted by TSR factor | 39,566 | 24.37 | ||||||
Vested | (487,784 | ) | 27.72 | |||||
Forfeited | (8,019 | ) | 29.13 | |||||
|
|
|
| |||||
Non-vested at December 31, 2016 | 383,982 | $ | 26.35 | |||||
Granted | 212,200 | 42.57 | ||||||
Quantity adjusted by TSR factor | (39,414 | ) | 33.77 | |||||
Vested | (188,399 | ) | 35.47 | |||||
|
|
|
| |||||
Non-vested at September 30, 2017 | 368,369 | $ | 30.24 | |||||
|
|
|
|
During the quarter ended September 30, 2017 and 2016, no shares of restricted stock were awarded to management under the Incentive Plan. For the nine months ended September 30, 2017, 138,516 shares of restricted stock (September 30, 2016 – 279,890) were awarded to management under the Incentive Plan.
Beginning in 2015, the Corporation authorized the issuance of performance shares, in addition to restricted shares, under the Incentive Plan. The performance share awards 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 Earnings per Share (“EPS”) goals. 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 EPS performance metric is considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS goal as of each reporting period. The TSR and EPS metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS) conditions. The performance shares vest at the end of the three-year performance cycle. The vesting 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 following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.
(Not in thousands) | Shares | Weighted-Average Grant Date Fair Value | ||||||
Non-vested at December 31, 2016 | 383,982 | $ | 26.35 | |||||
Granted | 212,200 | 42.57 | ||||||
Performance Shares Quantity Adjustment | (232,989 | ) | 29.10 | |||||
Vested | (67,853 | ) | 48.54 | |||||
|
|
|
| |||||
Non-vested at December 31, 2017 | 295,340 | $ | 30.75 | |||||
Granted | 236,115 | 45.69 | ||||||
Performance Shares Quantity Adjustment | 182,813 | 30.58 | ||||||
Vested | (293,707 | ) | 34.40 | |||||
Forfeited | (6,652 | ) | 33.14 | |||||
|
|
|
| |||||
Non-vested at September 30, 2018 | 413,909 | $ | 36.57 | |||||
|
|
|
|
During the quarter ended September 30, 2018, 8,395 shares of restricted stock were awarded to management under the Incentive Plan. No shares of restricted stock were awarded to management for the quarter ended September 30, 2017. During the quarters ended September 30, 20172018 and 20162017, no performance shares were granted.awarded to management under the Incentive Plan. For the nine months ended September 30, 2017, 73,6842018, 163,701 shares of restricted stock (September 30, 2016—64,598)2017 – 138,516) and 72,414 performance shares (September 30, 2017— 73,684) were grantedawarded to management under thisthe incentive plan.
During the quarter ended September 30, 2017,2018, the Corporation recognized $ 1.0$1.1 million of restricted stock expense related to management incentive awards, with a tax benefit of $ 0.2$0.2 million (September 30, 2016—2017—$1.0 million, with a tax benefit of $ 0.2$0.2 million). For the nine months ended September 30, 2017,2018, the Corporation recognized $ 4.8$5.9 million of restricted stock expense related to management incentive awards, with a tax benefit of $ 0.9$0.9 million (September 30, 2016—2017—$ 6.64.8 million, with a tax benefit of $ 1.2$0.9 million). For the nine months ended September 30, 2017,2018, the fair market value of the restricted stock and performance shares vested was $4.4$6 million at grant date and $6.4$8 million at vesting date. This triggers a windfall of $0.8$0.7 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, 20172018 the Corporation recognized $0.3$0.6 million of performance shares expense, with a tax benefit of $42$12 thousand (September 30, 2016—2017—$0.10.3 million, with a tax benefit of $11$42 thousand). For the nine months ended September 30, 2017,2018, the Corporation recognized $2.4$3.8 million of performance shares expense, with a tax benefit of $0.2$0.3 million (September 30, 2016—2017—$1.32.4 million, with a tax benefit of $0.1$0.2 million). The total unrecognized compensation cost related tonon-vested restricted stock awards and performance shares to members of management at September 30, 20172018 was $ 7.9$8.3 million and is expected to be recognized over a weighted-average period of 2.52.6 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 | Weighted-Average Grant Date Fair Value | Restricted Stock | Weighted-Average Grant Date Fair Value | ||||||||||||
Non-vested at December 31, 2015 | — | $ | — | |||||||||||||
Granted | 40,517 | 29.77 | ||||||||||||||
Vested | (40,517 | ) | 29.77 | |||||||||||||
Forfeited | — | — | ||||||||||||||
|
| |||||||||||||||
Non-vested at December 31, 2016 | — | $ | — | — | $ | — | ||||||||||
Granted | 25,771 | 38.42 | 25,771 | 38.42 | ||||||||||||
Vested | (25,771 | ) | 38.42 | (25,771 | ) | 38.42 | ||||||||||
Forfeited | — | — | — | — | ||||||||||||
|
|
|
| |||||||||||||
Non-vested at September 30, 2017 | — | $ | — | |||||||||||||
Non-vested at December 31, 2017 | — | $ | — | |||||||||||||
Granted | 25,159 | 46.71 | ||||||||||||||
Vested | (25,159 | ) | 46.71 | |||||||||||||
Forfeited | — | — | ||||||||||||||
|
|
|
| |||||||||||||
Non-vested at September 30, 2018 | — | $ | — | |||||||||||||
|
|
During the quartersquarter ended September 30, 2017 and 2016,2018, the Corporation granted no2,765 shares of restricted stock to members of the Board of Directors of Popular, Inc. No shares of restricted stock were recognized to the members of the Board of Directors of Popular, Inc. for the quarter ended September 30, 2017. During this period, the Corporation recognized $0.3$0.1 million of restricted stock expense related to these restricted stock grants, with a tax benefit of $39$16 thousand (September 30, 2016—2017—$0.3 million, with a tax benefit of $31$39 thousand). For the nine months ended September 30, 2017,2018, the Corporation granted 25,77125,159 shares of restricted stock to members of the Board of Directors of Popular, Inc., which became vested at grant date (September 30, 20162017 – 40,517)25,771). During this period, the Corporation recognized $ 1.0$1.6 million of restricted stock expense related to these restricted stock grants, with a tax benefit of $0.1$0.2 million (September 30, 2016 - $0.82017—$1.0 million, with a tax benefit of $84 thousand)$0.1 million). The fair value at vesting date of the restricted stock vested during the nine months ended September 30, 20172018 for directors was $ 1.0$1.2 million.
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 | Quarters ended | |||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||
(In thousands) | Amount | % of pre-tax income | Amount | % of pre-tax income | Amount | % of pre-tax income | Amount | % of pre-tax income | ||||||||||||||||||||||||
Computed income tax expense at statutory rates | $ | 272 | 39 | % | $ | 24,434 | 39 | % | $ | 71,240 | 39 | % | $ | 272 | 39 | % | ||||||||||||||||
Net benefit of tax exempt interest income | (19,563 | ) | (2,803 | ) | (15,620 | ) | (25 | ) | (24,941 | ) | (14 | ) | (19,563 | ) | (2,803 | ) | ||||||||||||||||
Deferred tax asset valuation allowance | 5,142 | 737 | 5,698 | 9 | 5,606 | 3 | 5,142 | 737 | ||||||||||||||||||||||||
Difference in tax rates due to multiple jurisdictions | 189 | 27 | (897 | ) | (1 | ) | (5,203 | ) | (3 | ) | 189 | 27 | ||||||||||||||||||||
Effect of income subject to preferential tax rate | (3,313 | ) | (475 | ) | 6,364 | 10 | (2,031 | ) | (1 | ) | (3,313 | ) | (475 | ) | ||||||||||||||||||
Unrecognized tax benefits | (1,185 | ) | (170 | ) | (4,442 | ) | (7 | ) | (1,621 | ) | (1 | ) | (1,185 | ) | (170 | ) | ||||||||||||||||
State and local taxes | (64 | ) | (9 | ) | 1,557 | 2 | 3,115 | 2 | (64 | ) | (9 | ) | ||||||||||||||||||||
Others | (1,444 | ) | (207 | ) | (1,255 | ) | (2 | ) | (4,147 | ) | (2 | ) | (1,444 | ) | (207 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income tax (benefit) expense | $ | (19,966 | ) | (2,861 | )% | $ | 15,839 | 25 | % | $ | 42,018 | 23 | % | $ | (19,966 | ) | (2,861 | )% | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Nine months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||
(In thousands) | Amount | % of pre-tax income | Amount | % ofpre-tax income | Amount | % ofpre-tax income | Amount | % ofpre-tax income | ||||||||||||||||||||||||
Computed income tax expense at statutory rates | $ | 100,857 | 39 | % | $ | 117,525 | 39 | % | $ | 213,474 | 39 | % | $ | 100,857 | 39 | % | ||||||||||||||||
Net benefit of tax exempt interest income | (56,408 | ) | (22 | ) | (47,094 | ) | (16 | ) | (70,341 | ) | (13 | ) | (56,408 | ) | (22 | ) | ||||||||||||||||
Deferred tax asset valuation allowance | 15,262 | 6 | 14,407 | 5 | 17,018 | 3 | 15,262 | 6 | ||||||||||||||||||||||||
Difference in tax rates due to multiple jurisdictions | (1,601 | ) | (1 | ) | (2,874 | ) | (1 | ) | (10,400 | ) | (2 | ) | (1,601 | ) | (1 | ) | ||||||||||||||||
Effect of income subject to preferential tax rate | (9,825 | ) | (4 | ) | (1,772 | ) | (1 | ) | ||||||||||||||||||||||||
Effect of income subject to preferential tax rate[1] | (108,087 | ) | (20 | ) | (9,825 | ) | (4 | ) | ||||||||||||||||||||||||
Unrecognized tax benefits | (1,185 | ) | — | (4,442 | ) | (1 | ) | (1,621 | ) | — | (1,185 | ) | — | |||||||||||||||||||
State and local taxes | 2,800 | 1 | 6,642 | 2 | 6,196 | 1 | 2,800 | 1 | ||||||||||||||||||||||||
Others | (1,128 | ) | — | (1,842 | ) | (1 | ) | (10,626 | ) | (2 | ) | (1,128 | ) | — | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income tax expense | $ | 48,772 | 19 | % | $ | 80,550 | 26 | % | ||||||||||||||||||||||||
Income tax (benefit) expense | $ | 35,613 | 6 | % | $ | 48,772 | 19 | % | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
[1] | For the nine months ended September 30, 2018, includes the impact of the Tax Closing Agreement entered into in connection with the Westernbank FDIC-assisted Transaction. |
Income tax benefit amounted to $20expense of $35.6 million for the quarternine months ended September 30, 2017, compared2018 reflects the impact of the Termination Agreement with the FDIC, discussed in Note 10. In June 2012, the Puerto Rico Department of the Treasury and the Corporation entered into a Tax Closing Agreement (the “Tax Closing Agreement”) to clarify the tax treatment related to the loans acquired in the FDIC Transaction in accordance with the provisions of the Puerto Rico Tax Code. The Tax Closing Agreement provides that these loans are capital assets and any principal amount collected in excess of the amount paid for such loans will be taxed as a capital gain. The Tax Closing Agreement further provides that the Corporation’s tax liability upon the termination of the Shared-Loss Agreements be calculated based on the “deemed sale” of the underlying loans. As a result, in connection with the Termination Agreement with the FDIC, the Corporation recognized an additional income tax expense of $49.8 million associated with the “deemed sale” incremental tax liability at the capital gains rate per the Tax Closing Agreement. In addition, the Corporation recognized an income tax benefit of $158.7 million related to the increase in deferred tax assets due to increase in the tax basis of the loans as a result of the “deemed sale” for a net tax benefit of $108.9 million. Also, the Corporation recorded an income tax expense of $15.8$45.0 million forrelated to the same quartergain resulting from the Termination Agreement, mainly related to the reversal of 2016. The reduction in incomenet deferred tax expense was primarily due to lower taxable income before taxliability of thetrue-up payment obligation and higher tax benefit on net exempt interest income.
For the nine months period ended September 30,2017, income tax expense amounted to $48.8 million compared to $80.5 million for the nine months period ended September 30,2016. The reduction in income tax expense was primarily due to lower income before tax and higher tax benefit on net exempt interest income.FDIC Loss Share Asset.
The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.
September 30, 2017 | ||||||||||||
(In thousands) | PR | US | Total | |||||||||
Deferred tax assets: | ||||||||||||
Tax credits available for carryforward | $ | 16,069 | $ | 1,958 | $ | 18,027 | ||||||
Net operating loss and other carryforward available | 117,273 | 1,106,550 | 1,223,823 | |||||||||
Postretirement and pension benefits | 83,925 | — | 83,925 | |||||||||
Deferred loan origination fees | 3,768 | 1,480 | 5,248 | |||||||||
Allowance for loan losses | 616,572 | 38,524 | 655,096 | |||||||||
Deferred gains | — | 4,262 | 4,262 | |||||||||
Accelerated depreciation | 1,325 | 10,280 | 11,605 | |||||||||
Intercompany deferred (loss) gains | (31 | ) | — | (31 | ) | |||||||
Difference between the assigned values and the tax basis of assets and liabilities recognized in purchase business combinations | 17,107 | — | 17,107 | |||||||||
Other temporary differences | 22,750 | 13,512 | 36,262 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax assets | 878,758 | 1,176,566 | 2,055,324 | |||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities: | ||||||||||||
FDIC-assisted transaction | 58,009 | — | 58,009 | |||||||||
Indefinite-lived intangibles | 31,083 | 48,414 | 79,497 | |||||||||
Unrealized net gain on trading andavailable-for-sale securities | 31,127 | (7,537 | ) | 23,590 | ||||||||
Other temporary differences | 9,429 | 585 | 10,014 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax liabilities | 129,648 | 41,462 | 171,110 | |||||||||
|
|
|
|
|
| |||||||
Valuation allowance | 62,213 | 615,873 | 678,086 | |||||||||
|
|
|
|
|
| |||||||
Net deferred tax asset | $ | 686,897 | $ | 519,231 | $ | 1,206,128 | ||||||
|
|
|
|
|
| |||||||
December 31, 2016 | ||||||||||||
(In thousands) | PR | US | Total | |||||||||
Deferred tax assets: | ||||||||||||
Tax credits available for carryforward | $ | 16,552 | $ | 1,958 | $ | 18,510 | ||||||
Net operating loss and other carryforward available | 112,929 | 1,125,293 | 1,238,222 | |||||||||
Postretirement and pension benefits | 94,741 | — | 94,741 | |||||||||
Deferred loan origination fees | 4,335 | 2,287 | 6,622 | |||||||||
Allowance for loan losses | 628,127 | 20,980 | 649,107 | |||||||||
Deferred gains | — | 4,884 | 4,884 | |||||||||
Accelerated depreciation | 605 | 9,223 | 9,828 | |||||||||
Intercompany deferred (loss) gains | 2,496 | — | 2,496 | |||||||||
Difference between the assigned values and the tax basis of assets and liabilities recognized in purchase business combinations | 13,160 | — | 13,160 | |||||||||
Other temporary differences | 16,417 | 14,710 | 31,127 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax assets | 889,362 | 1,179,335 | 2,068,697 | |||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities: | ||||||||||||
FDIC-assisted transaction | 58,363 | — | 58,363 | |||||||||
Indefinite-lived intangibles | 28,412 | 45,562 | 73,974 | |||||||||
Unrealized net gain on trading andavailable-for-sale securities | 30,334 | (8,999 | ) | 21,335 | ||||||||
Other temporary differences | 7,892 | 585 | 8,477 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax liabilities | 125,001 | 37,148 | 162,149 | |||||||||
|
|
|
|
|
| |||||||
Valuation allowance | 46,951 | 617,336 | 664,287 | |||||||||
|
|
|
|
|
| |||||||
Net deferred tax asset | $ | 717,410 | $ | 524,851 | $ | 1,242,261 | ||||||
|
|
|
|
|
|
September 30, 2018 | ||||||||||||
(In thousands) | PR | US | Total | |||||||||
Deferred tax assets: | ||||||||||||
Tax credits available for carryforward | $ | 16,500 | $ | 7,859 | $ | 24,359 | ||||||
Net operating loss and other carryforward available | 114,193 | 734,822 | 849,015 | |||||||||
Postretirement and pension benefits | 81,525 | — | 81,525 | |||||||||
Deferred loan origination fees | 3,258 | (996 | ) | 2,262 | ||||||||
Allowance for loan losses | 569,336 | 21,922 | 591,258 | |||||||||
Deferred gains | — | 2,653 | 2,653 | |||||||||
Accelerated depreciation | 1,300 | 7,076 | 8,376 | |||||||||
FDIC-assisted transaction | 105,249 | — | 105,249 | |||||||||
Intercompany deferred (loss) gains | 1,284 | — | 1,284 | |||||||||
Difference in outside basis from pass-through entities | 25,495 | — | 25,495 | |||||||||
Other temporary differences | 28,387 | 7,513 | 35,900 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax assets | 946,527 | 780,849 | 1,727,376 | |||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities: | ||||||||||||
Indefinite-lived intangibles | 34,579 | 39,419 | 73,998 | |||||||||
Unrealized net gain (loss) on trading andavailable-for-sale securities | 11,609 | (18,615 | ) | (7,006 | ) | |||||||
Other temporary differences | 11,302 | 845 | 12,147 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax liabilities | 57,490 | 21,649 | 79,139 | |||||||||
|
|
|
|
|
| |||||||
Valuation allowance | 84,282 | 421,162 | 505,444 | |||||||||
|
|
|
|
|
| |||||||
Net deferred tax asset | $ | 804,755 | $ | 338,038 | $ | 1,142,793 | ||||||
|
|
|
|
|
| |||||||
December 31, 2017 | ||||||||||||
(In thousands) | PR | US | Total | |||||||||
Deferred tax assets: | ||||||||||||
Tax credits available for carryforward | $ | 16,069 | $ | 7,979 | $ | 24,048 | ||||||
Net operating loss and other carryforward available | 115,512 | 708,158 | 823,670 | |||||||||
Postretirement and pension benefits | 85,488 | — | 85,488 | |||||||||
Deferred loan origination fees | 3,669 | 958 | 4,627 | |||||||||
Allowance for loan losses | 603,462 | 20,708 | 624,170 | |||||||||
Deferred gains | — | 2,670 | 2,670 | |||||||||
Accelerated depreciation | 1,300 | 7,083 | 8,383 | |||||||||
Intercompany deferred (loss) gains | 224 | — | 224 | |||||||||
Difference in outside basis from pass-through entities | 30,424 | — | 30,424 | |||||||||
Other temporary differences | 25,084 | 6,901 | 31,985 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax assets | 881,232 | 754,457 | 1,635,689 | |||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities: | ||||||||||||
FDIC-assisted transaction | 60,402 | — | 60,402 | |||||||||
Indefinite-lived intangibles | 31,973 | 33,009 | 64,982 | |||||||||
Unrealized net gain (loss) on trading andavailable-for-sale securities | 26,364 | (7,961 | ) | 18,403 | ||||||||
Other temporary differences | 9,876 | 386 | 10,262 | |||||||||
|
|
|
|
|
| |||||||
Total gross deferred tax liabilities | 128,615 | 25,434 | 154,049 | |||||||||
|
|
|
|
|
| |||||||
Valuation allowance | 67,263 | 380,561 | 447,824 | |||||||||
|
|
|
|
|
| |||||||
Net deferred tax asset | $ | 685,354 | $ | 348,462 | $ | 1,033,816 | ||||||
|
|
|
|
|
|
The net deferred tax asset shown in the table above at September 30, 20172018 is reflected in the consolidated statements of financial condition as $1.2$1.1 billion in net deferred tax assets in the “Other assets” caption (December 31, 2016—2017—$1.21.0 billion) and $1.4$1.6 million in deferred tax liabilities in the “Other liabilities” caption (December 31, 2016—2017—$1.41.3 million), reflecting the aggregate deferred tax assets or liabilities of individualtax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.
A deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The analysis considers all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback years andtax-planning strategies.
At September 30, 20172018 the net deferred tax asset of the U.S. operations amounted to $1.1 billion$759 million with a valuation allowance of approximately $616$421 million, for a net deferred tax asset of approximately $519$338 million. As of September 30, 2017,2018, management estimated that the U.S. operations would earn enoughpre-tax Income during the carryover period to realize the total amount of net deferred tax asset after valuation allowance. After weighting all available positive and negative evidence, management concluded that is more likely than not that a portion of the deferred tax asset from the U.S. operation, amounting to approximately $519$338 million, will be realized. Management will continue to evaluate the realization of the deferred tax asset each quarter and adjust as any changes arises.
At September 30, 2017,2018, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $687$805 million.
The Corporation’s Puerto Rico Banking operation is not in a cumulative three year loss position and has sustained profitability for the three year period ended September 30, 2017.2018. This is considered a strong piece of objectively verifiable positive evidence that outweights 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 Popular, Inc., holding company (“PIHC”) operation is in a cumulative loss position taking into account taxable income exclusive of reversing temporary differences, for the three year period ended September 30, 2017.2018. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management as strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the PIHC will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, a full valuation allowance is recorded on the deferred tax asset at the PIHC, which amounted to $62$84 million as of September 30, 2017.2018.
The reconciliation of unrecognized tax benefits, excluding interest, was as follows:
(In millions) | 2017 | 2016 | 2018 | 2017 | ||||||||||||
Balance at January 1 | $ | 7.4 | $ | 9.0 | $ | 7.3 | $ | 7.4 | ||||||||
Additions for tax positions - January through March | 0.2 | 0.2 | 0.2 | 0.2 | ||||||||||||
Additions for tax positions taken in prior years - January through March | — | 0.2 | ||||||||||||||
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Balance at March 31 | $ | 7.6 | $ | 9.4 | $ | 7.5 | $ | 7.6 | ||||||||
Additions for tax positions - April through June | 0.3 | 0.3 | 0.3 | 0.3 | ||||||||||||
Reduction as a result of settlements - April through June | (0.3 | ) | — | — | (0.3 | ) | ||||||||||
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Balance at June 30 | $ | 7.6 | $ | 9.7 | $ | 7.8 | $ | 7.6 | ||||||||
Additions for tax positions - July through September | 0.3 | 0.3 | 0.3 | 0.3 | ||||||||||||
Additions for tax positions taken in prior years - July through September | — | 0.1 | ||||||||||||||
Reduction as a result of lapse of statute of limitations - July through September | (0.9 | ) | (3.0 | ) | (1.2 | ) | (0.9 | ) | ||||||||
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Balance at September 30 | $ | 7.0 | $ | 7.1 | $ | 6.9 | $ | 7.0 | ||||||||
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At September 30, 2017,2018, the total amount of accrued interest recognized in the statement of financial condition approximated $2.6$2.7 million (December 31, 2016—2017—$2.92.7 million). The total interest expense recognized at September 30, 20172018 was $458$477 thousand net of a reduction of $505 thousand due to settlement and $353$483 thousand due to the expiration of the statute of limitation (December 31, 2016—$1.2 million)limitations (September 30, 2017 - $458 thousand). Management determined that at September 30, 20172018 and December 31, 20162017 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, whileswhile 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 $8.5$8.9 million at September 30, 20172018 (December 31, 2016—$9.02017 - $9.0 million).
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.
The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At September 30, 2017,2018, the following years remain subject to examination in the U.S. Federal jurisdiction: 20142015 and thereafter; and in the Puerto Rico jurisdiction, 20132014 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $4.5$4.6 million.
Note 33 – Supplemental disclosure on the consolidated statements of cash flows
Additional disclosures on cash flow information andnon-cash activities for the nine months ended September 30, 20172018 and September 30, 20162017 are listed in the following table:
(In thousands) | September 30, 2017 | September 30, 2016 | September 30, 2018 | September 30, 2017 | ||||||||||||
Non-cash activities: | ||||||||||||||||
Loans transferred to other real estate | $ | 80,992 | $ | 93,412 | $ | 23,188 | $ | 80,992 | ||||||||
Loans transferred to other property | 22,987 | 22,408 | 30,973 | 22,987 | ||||||||||||
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Total loans transferred to foreclosed assets | 103,979 | 115,820 | 54,161 | 103,979 | ||||||||||||
Loans transferred to other assets | 11,218 | 4,519 | ||||||||||||||
Financed sales of other real estate assets | 10,621 | 11,861 | 11,962 | 10,621 | ||||||||||||
Financed sales of other foreclosed assets | 5,964 | 13,426 | 12,347 | 5,964 | ||||||||||||
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Total financed sales of foreclosed assets | 16,585 | 25,287 | 24,309 | 16,585 | ||||||||||||
Transfers from loans held-for-sale to loans held-in-portfolio | 1,705 | 5,947 | 20,063 | 1,705 | ||||||||||||
Loans securitized into investment securities[1] | 454,507 | 594,094 | 392,080 | 454,507 | ||||||||||||
Trades receivable from brokers and counterparties | 999 | 80,125 | 57,290 | 999 | ||||||||||||
Trades payable to brokers and counterparties | 999 | 22,174 | 22,244 | 999 | ||||||||||||
Receivables from investments maturities | 270,000 | — | 19,000 | 270,000 | ||||||||||||
Recognition of mortgage servicing rights on securitizations or asset transfers | 7,530 | 7,886 | 7,871 | 7,530 | ||||||||||||
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Interest capitalized on loans subject to the temporary payment moratorium | 481 | — | ||||||||||||||
Loans booked under the GNMAbuy-back option | 380,329 | 43,783 | ||||||||||||||
Gain from the FDIC Termination Agreement | 102,752 | — | ||||||||||||||
Payable to Wells Fargo related to auto finance business acquisition | 13,193 | — |
[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) | September 30, 2018 | September 30, 2017 | ||||||
Cash and due from banks | $ | 382,892 | $ | 500,513 | ||||
Restricted cash and due from banks | 18,057 | 16,924 | ||||||
Restricted cash in money market investments | 11,234 | 8,944 | ||||||
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Total cash and due from banks, and restricted cash[2] | $ | 412,183 | $ | 526,381 | ||||
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[2] | Refer to Note 5—Restrictions on cash and due from banks and certain securities for nature of restrictions. |
The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Banco Popular North America.U.S. These reportable segments pertain only to the continuing operations of Popular, Inc.
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:
Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at September 30, 2017,2018, additional disclosures are provided for the business areas included in this reportable segment, as described below:
Commercial banking represents the Corporation’s banking operations conducted at BPPR, which are targeted mainly to corporate, small and middle size businesses. It includes aspects of the lending and depository businesses, as well as other finance and advisory services. BPPR allocates funds across business areas based on duration matched transfer pricing at market rates. This area also incorporates income related with the investment of excess funds, as well as a proportionate share of the investment function of BPPR.
Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.
Other financial services include the trust and asset management service units of BPPR, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Insurance V.I., Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.
Banco Popular North America:U.S.:
Banco Popular North America’sU.S. reportable segment consists of the banking operations of BPNA,PB,E-LOAN, Inc., Popular Equipment Finance, Inc. and Popular Insurance Agency, U.S.A. BPNAPB operates through a retail branch network in the U.S. mainland under the name of Popular, Community Bank, whileE-LOAN, Inc. supported BPNA’sPB’s deposit gathering through its online platform until March 31, 2017, when said operations were transferred to Popular Direct, a division of BPNA.PB. During 2017, theE-LOAN brand was transferred to Popular Inc. and is being used by BPPR to offer personal loans through an online platform. Popular Equipment Finance, Inc. also holds arunning-off loan portfolio as this subsidiary ceased originating loans during 2009. Popular Insurance Agency, U.S.A. offers investment and insurance services across the BPNAPB branch network.
The Corporate group consists primarily of the holding companies:companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, Leon. The Corporate group also includes the expenses of certain corporate areas that are identified as critical to the organization:organization including: Finance, Risk Management and Legal.
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:
2017
2018 | ||||||||||||
For the quarter ended September 30, 2018 | ||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Popular Bank | Intersegment Eliminations | |||||||||
Net interest income | $ | 388,533 | $ | 76,184 | $ | 3 | ||||||
Provision for loan losses | 51,911 | 2,510 | — | |||||||||
Non-interest income | 135,762 | 5,530 | (141 | ) | ||||||||
Amortization of intangibles | 2,157 | 167 | — | |||||||||
Depreciation expense | 11,135 | 2,185 | — | |||||||||
Other operating expenses | 282,124 | 44,279 | (136 | ) | ||||||||
Income tax expense | 39,421 | 10,439 | — | |||||||||
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Net income | $ | 137,547 | $ | 22,134 | $ | (2 | ) | |||||
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Segment assets | $ | 38,338,571 | $ | 9,388,787 | $ | (112,222 | ) | |||||
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For the quarter ended September 30, 2017 | ||||||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Banco Popular North America | Intersegment Eliminations | |||||||||||||
Net interest income | $ | 321,145 | $ | 71,453 | $ | 7 | ||||||||||
Provision for loan losses | 118,177 | 42,544 | — | |||||||||||||
Non-interest income | 88,170 | 5,124 | (141 | ) | ||||||||||||
Amortization of intangibles | 2,178 | 167 | — | |||||||||||||
Depreciation expense | 9,751 | 2,128 | — | |||||||||||||
Other operating expenses | 243,564 | 41,960 | (138 | ) | ||||||||||||
Income tax benefit | (8,704 | ) | (4,117 | ) | — | |||||||||||
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Net income (loss) | $ | 44,349 | $ | (6,105 | ) | $ | 4 | |||||||||
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Segment assets | $ | 33,031,839 | $ | 9,323,647 | $ | (24,615 | ) | |||||||||
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For the quarter ended September 30, 2017 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 392,605 | $ | (14,434 | ) | $ | — | $ | 378,171 | |||||||
Provision for loan losses | 160,721 | 38 | — | 160,759 | ||||||||||||
Non-interest income | 93,153 | 7,277 | (56 | ) | 100,374 | |||||||||||
Amortization of intangibles | 2,345 | — | — | 2,345 | ||||||||||||
Depreciation expense | 11,879 | 159 | — | 12,038 | ||||||||||||
Other operating expenses | 285,386 | 17,944 | (625 | ) | 302,705 | |||||||||||
Income tax benefit | (12,821 | ) | (7,360 | ) | 215 | (19,966 | ) | |||||||||
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Net income (loss) | $ | 38,248 | $ | (17,938 | ) | $ | 354 | $ | 20,664 | |||||||
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Segment assets | $ | 42,330,871 | $ | 5,003,304 | $ | (4,732,908 | ) | $ | 42,601,267 | |||||||
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For the nine months ended September 30, 2017 | ||||||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Banco Popular North America | Intersegment Eliminations | |||||||||||||
Net interest income | $ | 951,024 | $ | 208,274 | $ | (207 | ) | |||||||||
Provision for loan losses | 198,668 | 60,915 | — | |||||||||||||
Non-interest income | 290,042 | 15,259 | (431 | ) | ||||||||||||
Amortization of intangibles | 6,535 | 499 | — | |||||||||||||
Depreciation expense | 29,296 | 6,191 | — | |||||||||||||
Other operating expenses | 713,594 | 123,940 | (414 | ) | ||||||||||||
Income tax expense | 56,946 | 13,202 | (93 | ) | ||||||||||||
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Net income | $ | 236,027 | $ | 18,786 | $ | (131 | ) | |||||||||
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Segment assets | $ | 33,031,839 | $ | 9,323,647 | $ | (24,615 | ) | |||||||||
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For the nine months ended September 30, 2017 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 1,159,091 | $ | (44,343 | ) | $ | — | $ | 1,114,748 | |||||||
Provision for loan losses | 259,583 | 308 | (5,955 | ) | 253,936 | |||||||||||
Non-interest income | 304,870 | 29,616 | (1,450 | ) | 333,036 | |||||||||||
Amortization of intangibles | 7,034 | — | — | 7,034 | ||||||||||||
Depreciation expense | 35,487 | 479 | — | 35,966 | ||||||||||||
Other operating expenses | 837,120 | 57,145 | (2,024 | ) | 892,241 | |||||||||||
Income tax expense (benefit) | 70,055 | (23,819 | ) | 2,536 | 48,772 | |||||||||||
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Net income (loss) | $ | 254,682 | $ | (48,840 | ) | $ | 3,993 | $ | 209,835 | |||||||
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Segment assets | $ | 42,330,871 | $ | 5,003,304 | $ | (4,732,908 | ) | $ | 42,601,267 | |||||||
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2016
For the quarter ended September 30, 2018 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 464,720 | $ | (13,251 | ) | $ | — | $ | 451,469 | |||||||
Provision (reversal) for loan losses | 54,421 | (34 | ) | — | 54,387 | |||||||||||
Non-interest income | 141,151 | 9,960 | (90 | ) | 151,021 | |||||||||||
Amortization of intangibles | 2,324 | — | — | 2,324 | ||||||||||||
Depreciation expense | 13,320 | 188 | — | 13,508 | ||||||||||||
Other operating expenses | 326,267 | 23,995 | (657 | ) | 349,605 | |||||||||||
Income tax expense (benefit) | 49,860 | (8,070 | ) | 228 | 42,018 | |||||||||||
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Net income (loss) | $ | 159,679 | $ | (19,370 | ) | $ | 339 | $ | 140,648 | |||||||
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Segment assets | $ | 47,615,136 | $ | 5,478,884 | $ | (5,174,592 | ) | $ | 47,919,428 | |||||||
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For the quarter ended September 30, 2016 | ||||||||||||||||||||||||||||
For the nine months ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Banco Popular North America | Intersegment Eliminations | Banco Popular de Puerto Rico | Popular Bank | Intersegment Eliminations | ||||||||||||||||||||||
Net interest income | $ | 303,656 | $ | 65,339 | $ | (281 | ) | $ | 1,073,522 | $ | 226,654 | $ | 5 | |||||||||||||||
Provision for loan losses | 37,064 | 6,313 | — | 154,805 | 30,774 | — | ||||||||||||||||||||||
Non-interest income | 60,453 | 5,381 | 28 | 452,577 | 15,010 | (420 | ) | |||||||||||||||||||||
Amortization of intangibles | 2,931 | 166 | — | 6,474 | 499 | — | ||||||||||||||||||||||
Goodwill impairment charge | 3,801 | — | — | |||||||||||||||||||||||||
Depreciation expense | 9,774 | 1,666 | — | 32,069 | 6,466 | — | ||||||||||||||||||||||
Other operating expenses | 246,451 | 47,374 | (639 | ) | 777,574 | 135,305 | (409 | ) | ||||||||||||||||||||
Income tax expense | 14,479 | 6,037 | 162 | 41,088 | 15,759 | — | ||||||||||||||||||||||
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Net income | $ | 49,609 | $ | 9,164 | $ | 224 | $ | 514,089 | $ | 52,861 | $ | (6 | ) | |||||||||||||||
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Segment assets | $ | 30,403,259 | $ | 8,450,901 | $ | (16,818 | ) | $ | 38,338,571 | $ | 9,388,787 | $ | (112,222 | ) | ||||||||||||||
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For the quarter ended September 30, 2016 | ||||||||||||||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||||||||||||||
Net interest income (expense) | $ | 368,714 | $ | (15,140 | ) | $ | 113 | $ | 353,687 | |||||||||||||||||||
Provision (reversal) for loan losses | 43,377 | (33 | ) | — | 43,344 | |||||||||||||||||||||||
Non-interest income | 65,862 | 10,468 | (352 | ) | 75,978 | |||||||||||||||||||||||
Amortization of intangibles | 3,097 | — | — | 3,097 | ||||||||||||||||||||||||
Goodwill impairment charge | 3,801 | — | — | 3,801 | ||||||||||||||||||||||||
Depreciation expense | 11,440 | 144 | — | 11,584 | ||||||||||||||||||||||||
Other operating expenses | 293,186 | 12,164 | (160 | ) | 305,190 | |||||||||||||||||||||||
Income tax expense (benefit) | 20,678 | (4,807 | ) | (32 | ) | 15,839 | ||||||||||||||||||||||
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Net income (loss) | $ | 58,997 | $ | (12,140 | ) | $ | (47 | ) | $ | 46,810 | ||||||||||||||||||
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Segment assets | $ | 38,837,342 | $ | 4,949,819 | $ | (4,732,865 | ) | $ | 39,054,296 | |||||||||||||||||||
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For the nine months ended September 30, 2018 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 1,300,181 | $ | (41,529 | ) | $ | — | $ | 1,258,652 | |||||||
Provision (reversal) for loan losses | 185,579 | (75 | ) | — | 185,504 | |||||||||||
Non-interest income | 467,167 | 33,698 | (1,538 | ) | 499,327 | |||||||||||
Amortization of intangibles | 6,973 | — | — | 6,973 | ||||||||||||
Depreciation expense | 38,535 | 548 | — | 39,083 | ||||||||||||
Other operating expenses | 912,470 | 68,766 | (2,185 | ) | 979,051 | |||||||||||
Income tax expense (benefit) | 56,847 | (21,505 | ) | 271 | 35,613 | |||||||||||
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Net income (loss) | $ | 566,944 | $ | (55,565 | ) | $ | 376 | $ | 511,755 | |||||||
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Segment assets | $ | 47,615,136 | $ | 5,478,884 | $ | (5,174,592 | ) | $ | 47,919,428 | |||||||
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For the nine months ended September 30, 2016 (In thousands) Net interest income Provision for loan losses Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense Net income Segment assets For the nine months ended September 30, 2016 (In thousands) Net interest income (expense) Provision (reversal) for loan losses Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense (benefit) Net income (loss) Segment assets Banco Popular
de Puerto Rico Banco Popular
North America Intersegment
Eliminations $ 919,366 $ 193,102 $ (281 ) 116,987 11,699 — 257,260 15,581 28 8,809 499 — 3,801 — — 29,885 4,343 — 705,825 133,101 (639 ) 77,651 25,597 162 $ 233,668 $ 33,444 $ 224 $ 30,403,259 $ 8,450,901 $ (16,818 ) Reportable
Segments Corporate Eliminations Total Popular,
Inc. $ 1,112,187 $ (45,537 ) $ — $ 1,066,650 128,686 (35 ) — 128,651 272,869 26,707 (1,465 ) 298,111 9,308 — — 9,308 3,801 — — 3,801 34,228 497 — 34,725 838,287 50,613 (1,970 ) 886,930 103,410 (23,068 ) 208 80,550 $ 267,336 $ (46,837 ) $ 297 $ 220,796 $ 38,837,342 $ 4,949,819 $ (4,732,865 ) $ 39,054,296
2017 | ||||||||||||
For the quarter ended September 30, 2017 | ||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Popular Bank | Intersegment Eliminations | |||||||||
Net interest income | $ | 321,145 | $ | 71,453 | $ | 7 | ||||||
Provision for loan losses | 118,177 | 42,544 | — | |||||||||
Non-interest income | 88,170 | 5,124 | (141 | ) | ||||||||
Amortization of intangibles | 2,178 | 167 | — | |||||||||
Depreciation expense | 9,751 | 2,128 | — | |||||||||
Other operating expenses | 243,564 | 41,960 | (138 | ) | ||||||||
Income tax benefit | (8,704 | ) | (4,117 | ) | — | |||||||
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Net income (loss) | $ | 44,349 | $ | (6,105 | ) | $ | 4 | |||||
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Segment assets | $ | 33,031,839 | $ | 9,323,647 | $ | (24,615 | ) | |||||
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For the quarter ended September 30, 2017 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 392,605 | $ | (14,434 | ) | $ | — | $ | 378,171 | |||||||
Provision for loan losses | 160,721 | 38 | — | 160,759 | ||||||||||||
Non-interest income | 93,153 | 7,277 | (56 | ) | 100,374 | |||||||||||
Amortization of intangibles | 2,345 | — | — | 2,345 | ||||||||||||
Depreciation expense | 11,879 | 159 | — | 12,038 | ||||||||||||
Other operating expenses | 285,386 | 17,944 | (625 | ) | 302,705 | |||||||||||
Income tax benefit | (12,821 | ) | (7,360 | ) | 215 | (19,966 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 38,248 | $ | (17,938 | ) | $ | 354 | $ | 20,664 | |||||||
|
|
|
|
|
|
|
| |||||||||
Segment assets | $ | 42,330,871 | $ | 5,003,304 | $ | (4,732,908 | ) | $ | 42,601,267 | |||||||
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2017 | ||||||||||||
(In thousands) | Banco Popular de Puerto Rico | Popular Bank | Intersegment Eliminations | |||||||||
Net interest income | $ | 951,024 | $ | 208,274 | $ | (207 | ) | |||||
Provision for loan losses | 198,668 | 60,915 | — | |||||||||
Non-interest income | 290,042 | 15,259 | (431 | ) | ||||||||
Amortization of intangibles | 6,535 | 499 | — | |||||||||
Depreciation expense | 29,296 | 6,191 | — | |||||||||
Other operating expenses | 713,594 | 123,940 | (414 | ) | ||||||||
Income tax expense | 56,946 | 13,202 | (93 | ) | ||||||||
|
|
|
|
|
| |||||||
Net income | $ | 236,027 | $ | 18,786 | $ | (131 | ) | |||||
|
|
|
|
|
| |||||||
Segment assets | $ | 33,031,839 | $ | 9,323,647 | $ | (24,615 | ) | |||||
|
|
|
|
|
|
For the nine months ended September 30, 2017 | ||||||||||||||||
(In thousands) | Reportable Segments | Corporate | Eliminations | Total Popular, Inc. | ||||||||||||
Net interest income (expense) | $ | 1,159,091 | $ | (44,343 | ) | $ | — | $ | 1,114,748 | |||||||
Provision for loan losses | 259,583 | 308 | (5,955 | ) | 253,936 | |||||||||||
Non-interest income | 304,870 | 29,616 | (1,450 | ) | 333,036 | |||||||||||
Amortization of intangibles | 7,034 | — | — | 7,034 | ||||||||||||
Depreciation expense | 35,487 | 479 | — | 35,966 | ||||||||||||
Other operating expenses | 837,120 | 57,145 | (2,024 | ) | 892,241 | |||||||||||
Income tax expense (benefit) | 70,055 | (23,819 | ) | 2,536 | 48,772 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 254,682 | $ | (48,840 | ) | $ | 3,993 | $ | 209,835 | |||||||
|
|
|
|
|
|
|
| |||||||||
Segment assets | $ | 42,330,871 | $ | 5,003,304 | $ | (4,732,908 | ) | $ | 42,601,267 | |||||||
|
|
|
|
|
|
|
|
Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as follows:
2017
2018 | ||||||||||||||||||||
For the quarter ended September 30, 2018 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations and Other Adjustments [1] | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 145,397 | $ | 241,920 | $ | 1,232 | $ | (16 | ) | $ | 388,533 | |||||||||
Provision for loan losses | 25,580 | 26,331 | — | — | 51,911 | |||||||||||||||
Non-interest income | 23,630 | 88,866 | 23,663 | (397 | ) | 135,762 | ||||||||||||||
Amortization of intangibles | 50 | 1,069 | 1,038 | — | 2,157 | |||||||||||||||
Depreciation expense | 4,697 | 6,287 | 151 | — | 11,135 | |||||||||||||||
Other operating expenses | 78,628 | 183,626 | 20,279 | (409 | ) | 282,124 | ||||||||||||||
Income tax expense | 11,068 | 27,436 | 917 | — | 39,421 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 49,004 | $ | 86,037 | $ | 2,510 | $ | (4 | ) | $ | 137,547 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 28,247,478 | $ | 22,672,941 | $ | 336,311 | $ | (12,918,159 | ) | $ | 38,338,571 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 30, 2017 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 132,101 | $ | 186,827 | $ | 2,213 | $ | 4 | $ | 321,145 | ||||||||||
Provision for loan losses | 27,647 | 90,530 | — | — | 118,177 | |||||||||||||||
Non-interest income | 19,733 | 46,022 | 22,473 | (58 | ) | 88,170 | ||||||||||||||
Amortization of intangibles | 54 | 1,066 | 1,058 | — | 2,178 | |||||||||||||||
Depreciation expense | 4,386 | 5,207 | 158 | — | 9,751 | |||||||||||||||
Other operating expenses | 61,843 | 164,981 | 16,809 | (69 | ) | 243,564 | ||||||||||||||
Income tax (benefit) expense | 11,925 | (22,811 | ) | 2,182 | — | (8,704 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 45,979 | $ | (6,124 | ) | $ | 4,479 | $ | 15 | $ | 44,349 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 21,258,790 | $ | 18,501,519 | $ | 522,008 | $ | (7,250,478 | ) | $ | 33,031,839 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2017 Banco Popular de Puerto Rico (In thousands) Net interest income Provision for loan losses Non-interest income Amortization of intangibles Depreciation expense Other operating expenses Income tax expense (benefit) Net income Segment assets Commercial
Banking Consumer
and Retail
Banking Other
Financial
Services Eliminations Total Banco
Popular de
Puerto Rico $ 380,761 $ 564,956 $ 5,295 $ 12 $ 951,024 27,970 170,698 — — 198,668 60,496 162,613 67,130 (197 ) 290,042 158 3,206 3,171 — 6,535 12,994 15,759 543 — 29,296 177,278 492,939 43,606 (229 ) 713,594 60,780 (12,760 ) 8,926 — 56,946 $ 162,077 $ 57,727 $ 16,179 $ 44 $ 236,027 $ 21,258,790 $ 18,501,519 $ 522,008 $ (7,250,478 ) $ 33,031,839
2016
For the quarter ended September 30, 2016 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 116,362 | $ | 186,445 | $ | 1,379 | $ | (530 | ) | $ | 303,656 | |||||||||
Provision for loan losses | 13,213 | 23,851 | — | — | 37,064 | |||||||||||||||
Non-interest (expense) income | (24,191 | ) | 59,284 | 25,444 | (84 | ) | 60,453 | |||||||||||||
Amortization of intangibles | 22 | 1,838 | 1,071 | — | 2,931 | |||||||||||||||
Goodwill impairment charge | — | — | 3,801 | — | 3,801 | |||||||||||||||
Depreciation expense | 4,188 | 5,380 | 206 | — | 9,774 | |||||||||||||||
Other operating expenses | 60,630 | 165,124 | 20,781 | (84 | ) | 246,451 | ||||||||||||||
Income tax expense | 7,542 | 6,894 | 43 | — | 14,479 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 6,576 | $ | 42,642 | $ | 921 | $ | (530 | ) | $ | 49,609 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 16,032,323 | $ | 17,753,118 | $ | 371,027 | $ | (3,753,209 | ) | $ | 30,403,259 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2016 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 355,061 | $ | 557,489 | $ | 4,674 | $ | 2,142 | $ | 919,366 | ||||||||||
Provision for loan losses | 26,969 | 90,018 | — | — | 116,987 | |||||||||||||||
Non-interest income | 16,776 | 168,860 | 71,883 | (259 | ) | 257,260 | ||||||||||||||
Amortization of intangibles | 92 | 5,484 | 3,233 | — | 8,809 | |||||||||||||||
Goodwill impairment charge | — | — | 3,801 | — | 3,801 | |||||||||||||||
Depreciation expense | 12,735 | 16,491 | 659 | — | 29,885 | |||||||||||||||
Other operating expenses | 183,706 | 467,448 | 54,930 | (259 | ) | 705,825 | ||||||||||||||
Income tax expense | 48,939 | 24,410 | 4,302 | — | 77,651 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 99,396 | $ | 122,498 | $ | 9,632 | $ | 2,142 | $ | 233,668 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 16,032,323 | $ | 17,753,118 | $ | 371,027 | $ | (3,753,209 | ) | $ | 30,403,259 | |||||||||
|
|
|
|
|
|
|
|
|
|
Geographic Information
Quarter ended | Nine months ended | |||||||||||||||
(in thousands) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | ||||||||||||
Revenues: | ||||||||||||||||
Puerto Rico | $ | 378,790 | $ | 333,006 | $ | 1,157,324 | $ | 1,097,944 | ||||||||
United States | 81,652 | 77,816 | 234,778 | 209,999 | ||||||||||||
Other | 18,103 | 18,843 | 55,682 | 56,818 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total consolidated revenues | $ | 478,545 | $ | 429,665 | $ | 1,447,784 | $ | 1,364,761 | ||||||||
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2018 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations and Other Adjustments [1] | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 430,341 | $ | 639,149 | $ | 4,066 | $ | (34 | ) | $ | 1,073,522 | |||||||||
Provision for loan losses | 56,027 | 98,778 | — | — | 154,805 | |||||||||||||||
Non-interest income | 60,122 | 220,690 | 69,876 | 101,889 | 452,577 | |||||||||||||||
Amortization of intangibles | 153 | 3,209 | 3,112 | — | 6,474 | |||||||||||||||
Depreciation expense | 13,327 | 18,284 | 458 | — | 32,069 | |||||||||||||||
Other operating expenses | 199,528 | 518,147 | 52,679 | 7,220 | 777,574 | |||||||||||||||
Income tax expense | 52,640 | 46,625 | 5,711 | (63,888 | ) | 41,088 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 168,788 | $ | 174,796 | $ | 11,982 | $ | 158,523 | $ | 514,089 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 28,247,478 | $ | 22,672,941 | $ | 336,311 | $ | (12,918,159 | ) | $ | 38,338,571 | |||||||||
|
|
|
|
|
|
|
|
|
|
[1] | Includes the impact of the Termination Agreement with the FDIC and the Tax Closing Agreement entered into in connection with the FDIC transaction. These transactions resulted in a gain of $102.8 million reported in thenon-interest income line, other operating expenses of $8.1 million and a net tax benefit of $63.9 million. Refer to Notes 10 and 32 to the Consolidated Financial Statements for additional information. |
2017 | ||||||||||||||||||||
For the quarter ended September 30, 2017 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 132,101 | $ | 186,827 | $ | 2,213 | $ | 4 | $ | 321,145 | ||||||||||
Provision for loan losses | 27,647 | 90,530 | — | — | 118,177 | |||||||||||||||
Non-interest income | 19,733 | 46,022 | 22,473 | (58 | ) | 88,170 | ||||||||||||||
Amortization of intangibles | 54 | 1,066 | 1,058 | — | 2,178 | |||||||||||||||
Depreciation expense | 4,386 | 5,207 | 158 | — | 9,751 | |||||||||||||||
Other operating expenses | 61,843 | 164,981 | 16,809 | (69 | ) | 243,564 | ||||||||||||||
Income tax expense (benefit) | 11,925 | (22,811 | ) | 2,182 | — | (8,704 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 45,979 | $ | (6,124 | ) | $ | 4,479 | $ | 15 | $ | 44,349 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 21,258,790 | $ | 18,501,519 | $ | 522,008 | $ | (7,250,478 | ) | $ | 33,031,839 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2017 | ||||||||||||||||||||
Banco Popular de Puerto Rico | ||||||||||||||||||||
(In thousands) | Commercial Banking | Consumer and Retail Banking | Other Financial Services | Eliminations | Total Banco Popular de Puerto Rico | |||||||||||||||
Net interest income | $ | 380,761 | $ | 564,956 | $ | 5,295 | $ | 12 | $ | 951,024 | ||||||||||
Provision for loan losses | 27,970 | 170,698 | — | — | 198,668 | |||||||||||||||
Non-interest income | 60,496 | 162,613 | 67,130 | (197 | ) | 290,042 | ||||||||||||||
Amortization of intangibles | 158 | 3,206 | 3,171 | — | 6,535 | |||||||||||||||
Depreciation expense | 12,994 | 15,759 | 543 | — | 29,296 | |||||||||||||||
Other operating expenses | 177,278 | 492,939 | 43,606 | (229 | ) | 713,594 | ||||||||||||||
Income tax expense (benefit) | 60,780 | (12,760 | ) | 8,926 | — | 56,946 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 162,077 | $ | 57,727 | $ | 16,179 | $ | 44 | $ | 236,027 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment assets | $ | 21,258,790 | $ | 18,501,519 | $ | 522,008 | $ | (7,250,478 | ) | $ | 33,031,839 | |||||||||
|
|
|
|
|
|
|
|
|
|
Geographic Information
Quarter ended | Nine months ended | |||||||||||||||
(in thousands) | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Revenues: | ||||||||||||||||
Puerto Rico | $ | 493,512 | $ | 378,790 | $ | 1,435,099 | $ | 1,157,324 | ||||||||
United States | 90,659 | 81,652 | 264,232 | 234,778 | ||||||||||||
Other | 18,319 | 18,103 | 58,648 | 55,682 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total consolidated revenues | $ | 602,490 | $ | 478,545 | $ | 1,757,979 | $ | 1,447,784 | ||||||||
|
|
|
|
|
|
|
|
[1] | Total revenues include net interest income (expense), service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss) and valuation adjustments on investment securities, trading account (loss) profit, net (loss) gain on sale of loans and valuation adjustments on loansheld-for-sale, adjustments to indemnity reserves on loans sold, FDIC loss share (expense) income and other operating income. |
Selected Balance Sheet Information:
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Puerto Rico | ||||||||||||||||
Total assets | $ | 31,901,778 | $ | 28,813,289 | $ | 37,167,038 | $ | 33,705,624 | ||||||||
Loans | 16,589,392 | 16,880,868 | 18,782,224 | 17,591,078 | ||||||||||||
Deposits | 26,729,468 | 23,185,551 | 31,171,092 | 27,575,292 | ||||||||||||
United States | ||||||||||||||||
Total assets | $ | 9,788,336 | $ | 8,928,475 | $ | 9,855,363 | $ | 9,648,865 | ||||||||
Loans | 6,433,673 | 5,799,562 | 7,085,761 | 6,608,056 | ||||||||||||
Deposits | 6,508,324 | 6,266,473 | 6,956,336 | 6,635,153 | ||||||||||||
Other | ||||||||||||||||
Total assets | $ | 911,153 | $ | 919,845 | $ | 897,027 | $ | 922,848 | ||||||||
Loans | 744,103 | 755,017 | 695,925 | 743,329 | ||||||||||||
Deposits[1] | 1,011,144 | 1,044,200 | 1,521,399 | 1,243,063 |
[1] | Represents deposits from BPPR operations located in the U.S. and British Virgin Islands. |
Note 35 – Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities
The following condensed consolidating financial information presents the financial position of Popular, Inc. Holding Company (“PIHC”) (parent only), Popular North America, Inc. (“PNA”) and all other subsidiaries of the Corporation at September 30, 20172018 and December 31, 2016,2017, and the results of their operations and cash flows for periods ended September 30, 20172018 and 2016.2017.
PNA is an operating, wholly-owned subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and Banco Popular North AmericaBank (“BPNA”PB”), including BPNA’sPB’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., andE-LOAN, Inc.
PIHC fully and unconditionally guarantees all registered debt securities issued by PNA.
Condensed Consolidating Statement of Financial Condition (Unaudited)
At September 30, 2017 | At September 30, 2018 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 44,155 | $ | 462 | $ | 517,440 | $ | (44,620 | ) | $ | 517,437 | $ | 49,058 | $ | — | $ | 400,951 | $ | (49,060 | ) | $ | 400,949 | ||||||||||||||||||
Money market investments | 238,696 | 2,771 | 5,487,783 | (241,038 | ) | 5,488,212 | 641,393 | 10,037 | 4,608,668 | (651,037 | ) | 4,609,061 | ||||||||||||||||||||||||||||
Trading account securities, at fair value | 3,600 | — | 42,459 | (108 | ) | 45,951 | ||||||||||||||||||||||||||||||||||
Investment securitiesavailable-for-sale, at fair value | — | — | 9,061,001 | — | 9,061,001 | |||||||||||||||||||||||||||||||||||
Investment securitiesheld-to-maturity, at amortized cost | — | — | 93,438 | — | 93,438 | |||||||||||||||||||||||||||||||||||
Other investment securities, at lower of cost or realizable value | 9,850 | 4,492 | 159,623 | — | 173,965 | |||||||||||||||||||||||||||||||||||
Trading account debt securities, at fair value | — | — | 37,731 | — | 37,731 | |||||||||||||||||||||||||||||||||||
Debt securitiesavailable-for-sale, at fair value | — | — | 13,047,617 | — | 13,047,617 | |||||||||||||||||||||||||||||||||||
Debt securitiesheld-to-maturity, at amortized cost | 8,725 | 2,835 | 89,678 | — | 101,238 | |||||||||||||||||||||||||||||||||||
Equity securities | 6,889 | 20 | 151,206 | (153 | ) | 157,962 | ||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 5,673,204 | 1,825,240 | — | (7,498,444 | ) | — | 5,514,865 | 1,657,977 | — | (7,172,842 | ) | — | ||||||||||||||||||||||||||||
Loansheld-for-sale, at lower of cost or fair value | — | — | 68,864 | — | 68,864 | — | — | 51,742 | — | 51,742 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||||||||||||||
Loans not covered under loss-sharing agreements with the FDIC | 32,877 | — | 23,263,215 | 5,955 | 23,302,047 | 32,819 | — | 26,623,177 | 5,955 | 26,661,951 | ||||||||||||||||||||||||||||||
Loans covered under loss-sharing agreements with the FDIC | — | — | 524,854 | — | 524,854 | |||||||||||||||||||||||||||||||||||
Less - Unearned income | — | — | 128,597 | — | 128,597 | |||||||||||||||||||||||||||||||||||
Less—Unearned income | — | — | 149,783 | — | 149,783 | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | 311 | — | 646,602 | — | 646,913 | 192 | — | 633,526 | — | 633,718 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total loansheld-in-portfolio, net | 32,566 | — | 23,012,870 | 5,955 | 23,051,391 | 32,627 | — | 25,839,868 | 5,955 | 25,878,450 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
FDIC loss-share asset | — | — | 48,470 | — | 48,470 | |||||||||||||||||||||||||||||||||||
Premises and equipment, net | 3,174 | — | 529,358 | — | 532,532 | 3,253 | — | 553,851 | — | 557,104 | ||||||||||||||||||||||||||||||
Other real estate not covered under loss-sharing agreements with the FDIC | — | — | 176,728 | — | 176,728 | 7 | — | 133,773 | — | 133,780 | ||||||||||||||||||||||||||||||
Other real estate covered under loss-sharing agreements with the FDIC | — | — | 21,545 | — | 21,545 | |||||||||||||||||||||||||||||||||||
Accrued income receivable | 227 | 31 | 146,157 | (76 | ) | 146,339 | 781 | 22 | 163,261 | (621 | ) | 163,443 | ||||||||||||||||||||||||||||
Mortgage servicing assets, at fair value | — | — | 180,157 | — | 180,157 | — | — | 162,779 | — | 162,779 | ||||||||||||||||||||||||||||||
Other assets | 70,896 | 28,490 | 2,256,415 | (25,874 | ) | 2,329,927 | 74,623 | 35,494 | 1,805,267 | (14,534 | ) | 1,900,850 | ||||||||||||||||||||||||||||
Goodwill | — | — | 627,294 | — | 627,294 | — | — | 687,536 | — | 687,536 | ||||||||||||||||||||||||||||||
Other intangible assets | 6,114 | — | 31,902 | — | 38,016 | 6,113 | — | 23,073 | — | 29,186 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 6,082,482 | $ | 1,861,486 | $ | 42,461,504 | $ | (7,804,205 | ) | $ | 42,601,267 | $ | 6,338,334 | $ | 1,706,385 | $ | 47,757,001 | $ | (7,882,292 | ) | $ | 47,919,428 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity |
| ||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||||||
Non-interest bearing | $ | — | $ | — | $ | 7,494,477 | $ | (44,620 | ) | $ | 7,449,857 | $ | — | $ | — | $ | 8,852,812 | $ | (49,060 | ) | $ | 8,803,752 | ||||||||||||||||||
Interest bearing | — | — | 27,040,117 | (241,038 | ) | 26,799,079 | — | — | 31,496,112 | (651,037 | ) | 30,845,075 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total deposits | — | — | 34,534,594 | (285,658 | ) | 34,248,936 | — | — | 40,348,924 | (700,097 | ) | 39,648,827 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Assets sold under agreements to repurchase | — | — | 374,405 | — | 374,405 | — | — | 300,116 | — | 300,116 | ||||||||||||||||||||||||||||||
Other short-term borrowings | — | — | 240,598 | — | 240,598 | — | — | 1,200 | — | 1,200 | ||||||||||||||||||||||||||||||
Notes payable | 737,163 | 148,532 | 646,366 | — | 1,532,061 | 1,032,971 | 94,057 | 617,659 | — | 1,744,687 | ||||||||||||||||||||||||||||||
Other liabilities | 59,799 | 2,589 | 881,605 | (24,157 | ) | 919,836 | 60,927 | 1,844 | 933,167 | (15,689 | ) | 980,249 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 796,962 | 151,121 | 36,677,568 | (309,815 | ) | 37,315,836 | 1,093,898 | 95,901 | 42,201,066 | (715,786 | ) | 42,675,079 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||||
Preferred stock | 50,160 | — | — | — | 50,160 | 50,160 | — | — | — | 50,160 | ||||||||||||||||||||||||||||||
Common stock | 1,042 | 2 | 56,307 | (56,309 | ) | 1,042 | 1,043 | 2 | 56,307 | (56,309 | ) | 1,043 | ||||||||||||||||||||||||||||
Surplus | 4,256,526 | 4,100,807 | 5,700,621 | (9,792,901 | ) | 4,265,053 | 4,272,988 | 4,172,920 | 5,726,616 | (9,891,009 | ) | 4,281,515 | ||||||||||||||||||||||||||||
Retained earnings (accumulated deficit) | 1,359,257 | (2,372,062 | ) | 316,220 | 2,047,315 | 1,350,730 | 1,638,219 | (2,498,798 | ) | 305,100 | 2,185,171 | 1,629,692 | ||||||||||||||||||||||||||||
Treasury stock, at cost | (90,133 | ) | — | — | (89 | ) | (90,222 | ) | (183,785 | ) | — | — | (87 | ) | (183,872 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive loss, net of tax | (291,332 | ) | (18,382 | ) | (289,212 | ) | 307,594 | (291,332 | ) | (534,189 | ) | (63,640 | ) | (532,088 | ) | 595,728 | (534,189 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total stockholders’ equity | 5,285,520 | 1,710,365 | 5,783,936 | (7,494,390 | ) | 5,285,431 | 5,244,436 | 1,610,484 | 5,555,935 | (7,166,506 | ) | 5,244,349 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 6,082,482 | $ | 1,861,486 | $ | 42,461,504 | $ | (7,804,205 | ) | $ | 42,601,267 | $ | 6,338,334 | $ | 1,706,385 | $ | 47,757,001 | $ | (7,882,292 | ) | $ | 47,919,428 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Financial Condition (Unaudited)
At December 31, 2016 | At December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | 47,783 | $ | 591 | $ | 362,101 | $ | (48,081 | ) | $ | 362,394 | $ | 47,663 | $ | 462 | $ | 402,910 | $ | (48,178 | ) | $ | 402,857 | ||||||||||||||||||
Money market investments | 252,347 | 13,263 | 2,891,670 | (267,063 | ) | 2,890,217 | 246,457 | 2,807 | 5,254,662 | (248,807 | ) | 5,255,119 | ||||||||||||||||||||||||||||
Trading account securities, at fair value | 2,640 | — | 57,297 | (132 | ) | 59,805 | ||||||||||||||||||||||||||||||||||
Investment securitiesavailable-for-sale, at fair value | — | — | 8,209,806 | — | 8,209,806 | |||||||||||||||||||||||||||||||||||
Investment securitiesheld-to-maturity, at amortized cost | — | — | 98,101 | — | 98,101 | |||||||||||||||||||||||||||||||||||
Other investment securities, at lower of cost or realizable value | 9,850 | 4,492 | 153,476 | — | 167,818 | |||||||||||||||||||||||||||||||||||
Trading account debt securities, at fair value | — | — | 33,926 | — | 33,926 | |||||||||||||||||||||||||||||||||||
Debt securitiesavailable-for-sale, at fair value | — | — | 10,176,923 | — | 10,176,923 | |||||||||||||||||||||||||||||||||||
Debt securitiesheld-to-maturity, at amortized cost | 8,726 | 4,472 | 93,821 | — | 107,019 | |||||||||||||||||||||||||||||||||||
Equity securities | 5,109 | 20 | 160,075 | (101 | ) | 165,103 | ||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 5,609,611 | 1,818,127 | — | (7,427,738 | ) | — | 5,494,410 | 1,646,287 | — | (7,140,697 | ) | — | ||||||||||||||||||||||||||||
Loansheld-for-sale, at lower of cost or fair value | — | — | 88,821 | — | 88,821 | — | — | 132,395 | — | 132,395 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Loansheld-in-portfolio: | ||||||||||||||||||||||||||||||||||||||||
Loans not covered under loss-sharing agreements with the FDIC | 1,142 | — | 22,894,030 | — | 22,895,172 | 33,221 | — | 24,384,251 | 5,955 | 24,423,427 | ||||||||||||||||||||||||||||||
Loans covered under loss-sharing agreements with the FDIC | — | — | 572,878 | — | 572,878 | — | — | 517,274 | — | 517,274 | ||||||||||||||||||||||||||||||
Less - Unearned income | — | — | 121,425 | — | 121,425 | |||||||||||||||||||||||||||||||||||
Less—Unearned income | — | — | 130,633 | — | 130,633 | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | 2 | — | 540,649 | — | 540,651 | 266 | — | 623,160 | — | 623,426 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total loansheld-in-portfolio, net | 1,140 | — | 22,804,834 | — | 22,805,974 | 32,955 | — | 24,147,732 | 5,955 | 24,186,642 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
FDIC loss-share asset | — | — | 69,334 | — | 69,334 | — | — | 45,192 | — | 45,192 | ||||||||||||||||||||||||||||||
Premises and equipment, net | 3,067 | — | 540,914 | — | 543,981 | 3,365 | — | 543,777 | — | 547,142 | ||||||||||||||||||||||||||||||
Other real estate not covered under loss-sharing agreements with the FDIC | 81 | — | 180,364 | — | 180,445 | — | — | 169,260 | — | 169,260 | ||||||||||||||||||||||||||||||
Other real estate covered under loss-sharing agreements with the FDIC | — | — | 32,128 | — | 32,128 | — | — | 19,595 | — | 19,595 | ||||||||||||||||||||||||||||||
Accrued income receivable | 112 | 138 | 137,882 | (90 | ) | 138,042 | 369 | 112 | 213,574 | (211 | ) | 213,844 | ||||||||||||||||||||||||||||
Mortgage servicing assets, at fair value | — | — | 196,889 | — | 196,889 | — | — | 168,031 | — | 168,031 | ||||||||||||||||||||||||||||||
Other assets | 61,770 | 25,146 | 2,073,562 | (14,968 | ) | 2,145,510 | 61,319 | 34,312 | 1,912,727 | (17,035 | ) | 1,991,323 | ||||||||||||||||||||||||||||
Goodwill | — | — | 627,294 | — | 627,294 | — | — | 627,294 | — | 627,294 | ||||||||||||||||||||||||||||||
Other intangible assets | 553 | — | 44,497 | — | 45,050 | 6,114 | — | 29,558 | — | 35,672 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 5,988,954 | $ | 1,861,757 | $ | 38,568,970 | $ | (7,758,072 | ) | $ | 38,661,609 | $ | 5,906,487 | $ | 1,688,472 | $ | 44,131,452 | $ | (7,449,074 | ) | $ | 44,277,337 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity |
| ||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||||||
Non-interest bearing | $ | — | $ | — | $ | 7,028,524 | $ | (48,081 | ) | $ | 6,980,443 | $ | — | $ | — | $ | 8,539,123 | $ | (48,178 | ) | $ | 8,490,945 | ||||||||||||||||||
Interest bearing | — | — | 23,782,844 | (267,063 | ) | 23,515,781 | — | — | 27,211,370 | (248,807 | ) | 26,962,563 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total deposits | — | — | 30,811,368 | (315,144 | ) | 30,496,224 | — | — | 35,750,493 | (296,985 | ) | 35,453,508 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Assets sold under agreements to repurchase | — | — | 479,425 | — | 479,425 | — | — | 390,921 | — | 390,921 | ||||||||||||||||||||||||||||||
Other short-term borrowings | — | — | 1,200 | — | 1,200 | — | — | 96,208 | — | 96,208 | ||||||||||||||||||||||||||||||
Notes payable | 735,600 | 148,512 | 690,740 | — | 1,574,852 | 737,685 | 148,539 | 650,132 | — | 1,536,356 | ||||||||||||||||||||||||||||||
Other liabilities | 55,309 | 6,034 | 865,861 | (15,253 | ) | 911,951 | 64,813 | 5,276 | 1,641,383 | (15,033 | ) | 1,696,439 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 790,909 | 154,546 | 32,848,594 | (330,397 | ) | 33,463,652 | 802,498 | 153,815 | 38,529,137 | (312,018 | ) | 39,173,432 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||||||||||||||||||
Preferred stock | 50,160 | — | — | — | 50,160 | 50,160 | — | — | — | 50,160 | ||||||||||||||||||||||||||||||
Common stock | 1,040 | 2 | 56,307 | (56,309 | ) | 1,040 | 1,042 | 2 | 56,307 | (56,309 | ) | 1,042 | ||||||||||||||||||||||||||||
Surplus | 4,246,495 | 4,111,207 | 5,717,066 | (9,819,746 | ) | 4,255,022 | 4,289,976 | 4,100,848 | 5,728,978 | (9,821,299 | ) | 4,298,503 | ||||||||||||||||||||||||||||
Retained earnings (accumulated deficit) | 1,228,834 | (2,382,049 | ) | 264,944 | 2,108,578 | 1,220,307 | 1,203,521 | (2,536,707 | ) | 165,878 | 2,362,302 | 1,194,994 | ||||||||||||||||||||||||||||
Treasury stock, at cost | (8,198 | ) | — | — | (88 | ) | (8,286 | ) | (90,058 | ) | — | — | (84 | ) | (90,142 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive loss, net of tax | (320,286 | ) | (21,949 | ) | (317,941 | ) | 339,890 | (320,286 | ) | (350,652 | ) | (29,486 | ) | (348,848 | ) | 378,334 | (350,652 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total stockholders’ equity | 5,198,045 | 1,707,211 | 5,720,376 | (7,427,675 | ) | 5,197,957 | 5,103,989 | 1,534,657 | 5,602,315 | (7,137,056 | ) | 5,103,905 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 5,988,954 | $ | 1,861,757 | $ | 38,568,970 | $ | (7,758,072 | ) | $ | 38,661,609 | $ | 5,906,487 | $ | 1,688,472 | $ | 44,131,452 | $ | (7,449,074 | ) | $ | 44,277,337 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations (Unaudited)
Quarter ended September 30, 2017 | Quarter ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||||||||||
Dividend income from subsidiaries | $ | 27,500 | $ | — | $ | — | $ | (27,500 | ) | $ | — | $ | 52,000 | $ | — | $ | — | $ | (52,000 | ) | $ | — | ||||||||||||||||||
Loans | 405 | — | 371,574 | — | 371,979 | 537 | — | 430,122 | (22 | ) | 430,637 | |||||||||||||||||||||||||||||
Money market investments | 730 | 13 | 15,529 | (743 | ) | 15,529 | 2,429 | 16 | 27,582 | (2,446 | ) | 27,581 | ||||||||||||||||||||||||||||
Investment securities | 142 | 81 | 47,053 | — | 47,276 | 150 | 72 | 69,925 | — | 70,147 | ||||||||||||||||||||||||||||||
Trading account securities | — | — | 1,099 | — | 1,099 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest and dividend income | 28,777 | 94 | 435,255 | (28,243 | ) | 435,883 | 55,116 | 88 | 527,629 | (54,468 | ) | 528,365 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||||||
Deposits | — | — | 37,801 | (743 | ) | 37,058 | — | — | 57,580 | (2,446 | ) | 55,134 | ||||||||||||||||||||||||||||
Short-term borrowings | — | — | 1,524 | — | 1,524 | — | 22 | 1,622 | (22 | ) | 1,622 | |||||||||||||||||||||||||||||
Long-term debt | 13,118 | 2,693 | 3,319 | — | 19,130 | 14,045 | 2,390 | 3,705 | — | 20,140 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest expense | 13,118 | 2,693 | 42,644 | (743 | ) | 57,712 | 14,045 | 2,412 | 62,907 | (2,468 | ) | 76,896 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) | 15,659 | (2,599 | ) | 392,611 | (27,500 | ) | 378,171 | 41,071 | (2,324 | ) | 464,722 | (52,000 | ) | 451,469 | ||||||||||||||||||||||||||
Provision for loan losses-non-covered loans | 40 | — | 157,619 | — | 157,659 | |||||||||||||||||||||||||||||||||||
Provision for loan losses- covered loans | — | — | 3,100 | — | 3,100 | |||||||||||||||||||||||||||||||||||
Provision (reversal) for loan losses-non-covered loans | (34 | ) | — | 54,421 | — | 54,387 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) after provision for loan losses | 15,619 | (2,599 | ) | 231,892 | (27,500 | ) | 217,412 | |||||||||||||||||||||||||||||||||
Net interest income (expense) after provision (reversal) for loan losses | 41,105 | (2,324 | ) | 410,301 | (52,000 | ) | 397,082 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Service charges on deposit accounts | — | — | 39,273 | — | 39,273 | — | — | 38,147 | — | 38,147 | ||||||||||||||||||||||||||||||
Other service fees | — | — | 53,551 | (70 | ) | 53,481 | — | — | 64,382 | (66 | ) | 64,316 | ||||||||||||||||||||||||||||
Mortgage banking activities | — | — | 5,239 | — | 5,239 | — | — | 11,269 | — | 11,269 | ||||||||||||||||||||||||||||||
Net gain on sale of investment securities | — | — | 103 | — | 103 | |||||||||||||||||||||||||||||||||||
Trading account profit | 137 | — | 98 | 18 | 253 | |||||||||||||||||||||||||||||||||||
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | (420 | ) | — | (420 | ) | |||||||||||||||||||||||||||||||||
Net gain, including impairment on equity securities | 172 | — | 216 | (18 | ) | 370 | ||||||||||||||||||||||||||||||||||
Net profit on trading account debt securities | — | — | (122 | ) | — | (122 | ) | |||||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | (6,406 | ) | — | (6,406 | ) | — | — | (3,029 | ) | — | (3,029 | ) | ||||||||||||||||||||||||||
FDIC loss-share expense | — | — | (3,948 | ) | — | (3,948 | ) | |||||||||||||||||||||||||||||||||
Other operating income | 1,564 | 31 | 11,208 | (4 | ) | 12,799 | ||||||||||||||||||||||||||||||||||
Other operating income (expense) | 3,643 | (118 | ) | 36,551 | (6 | ) | 40,070 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-interest income | 1,701 | 31 | 98,698 | (56 | ) | 100,374 | ||||||||||||||||||||||||||||||||||
Totalnon-interest income (expense) | 3,815 | (118 | ) | 147,414 | (90 | ) | 151,021 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Personnel costs | 11,438 | — | 108,198 | — | 119,636 | 15,803 | — | 123,954 | — | 139,757 | ||||||||||||||||||||||||||||||
Net occupancy expenses | 976 | — | 21,278 | — | 22,254 | 984 | — | 17,618 | — | 18,602 | ||||||||||||||||||||||||||||||
Equipment expenses | 885 | 1 | 15,571 | — | 16,457 | 1,037 | — | 17,266 | — | 18,303 | ||||||||||||||||||||||||||||||
Other taxes | 55 | — | 10,803 | — | 10,858 | 71 | — | 11,852 | — | 11,923 | ||||||||||||||||||||||||||||||
Professional fees | 2,555 | 18 | 68,269 | (70 | ) | 70,772 | 3,889 | 20 | 80,017 | (66 | ) | 83,860 | ||||||||||||||||||||||||||||
Communications | 125 | — | 5,269 | — | 5,394 | 144 | — | 5,910 | — | 6,054 | ||||||||||||||||||||||||||||||
Business promotion | 454 | — | 14,762 | — | 15,216 | 520 | — | 14,958 | — | 15,478 | ||||||||||||||||||||||||||||||
FDIC deposit insurance | — | — | 6,271 | — | 6,271 | — | — | 8,610 | — | 8,610 | ||||||||||||||||||||||||||||||
Other real estate owned (OREO) expenses | 42 | — | 11,682 | — | 11,724 | — | — | 7,950 | — | 7,950 | ||||||||||||||||||||||||||||||
Other operating expenses | (17,572 | ) | 13 | 54,275 | (555 | ) | 36,161 | (23,600 | ) | 13 | 76,754 | (591 | ) | 52,576 | ||||||||||||||||||||||||||
Amortization of intangibles | — | — | 2,345 | — | 2,345 | — | — | 2,324 | — | 2,324 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | (1,042 | ) | 32 | 318,723 | (625 | ) | 317,088 | (1,152 | ) | 33 | 367,213 | (657 | ) | 365,437 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before income tax and equity in earnings (losses) of subsidiaries | 18,362 | (2,600 | ) | 11,867 | (26,931 | ) | 698 | |||||||||||||||||||||||||||||||||
Income tax benefit | — | (910 | ) | (19,271 | ) | 215 | (19,966 | ) | ||||||||||||||||||||||||||||||||
Income (loss) before income tax and equity in earnings of subsidiaries | 46,072 | (2,475 | ) | 190,502 | (51,433 | ) | 182,666 | |||||||||||||||||||||||||||||||||
Income tax (benefit) expense | — | (520 | ) | 42,310 | 228 | 42,018 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before equity in earnings (losses) of subsidiaries | 18,362 | (1,690 | ) | 31,138 | (27,146 | ) | 20,664 | |||||||||||||||||||||||||||||||||
Equity in undistributed earnings (losses) of subsidiaries | 2,302 | (7,681 | ) | — | 5,379 | — | ||||||||||||||||||||||||||||||||||
Income (loss) before equity in earnings of subsidiaries | 46,072 | (1,955 | ) | 148,192 | (51,661 | ) | 140,648 | |||||||||||||||||||||||||||||||||
Equity in undistributed earnings of subsidiaries | 94,576 | 19,722 | — | (114,298 | ) | — | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net Income (Loss) | $ | 20,664 | $ | (9,371 | ) | $ | 31,138 | $ | (21,767 | ) | $ | 20,664 | ||||||||||||||||||||||||||||
Net income | $ | 140,648 | $ | 17,767 | $ | 148,192 | $ | (165,959 | ) | $ | 140,648 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss), net of tax | $ | 32,275 | $ | (7,732 | ) | $ | 42,516 | $ | (34,784 | ) | $ | 32,275 | ||||||||||||||||||||||||||||
Comprehensive income, net of tax | $ | 103,251 | $ | 11,770 | $ | 111,369 | $ | (123,139 | ) | $ | 103,251 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations (Unaudited)
Nine months ended September 30, 2017 | Nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||||||||||
Dividend income from subsidiaries | $ | 184,000 | $ | — | $ | — | $ | (184,000 | ) | $ | — | $ | 402,000 | $ | — | $ | — | $ | (402,000 | ) | $ | — | ||||||||||||||||||
Loans | 534 | — | 1,102,250 | — | 1,102,784 | 1,601 | — | 1,188,946 | (49 | ) | 1,190,498 | |||||||||||||||||||||||||||||
Money market investments | 1,820 | 52 | 33,233 | (1,872 | ) | 33,233 | 4,267 | 18 | 86,258 | (4,285 | ) | 86,258 | ||||||||||||||||||||||||||||
Investment securities | 425 | 242 | 140,032 | — | 140,699 | 447 | 233 | 184,857 | — | 185,537 | ||||||||||||||||||||||||||||||
Trading account securities | — | — | 3,895 | — | 3,895 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest and dividend income | 186,779 | 294 | 1,279,410 | (185,872 | ) | 1,280,611 | 408,315 | 251 | 1,460,061 | (406,334 | ) | 1,462,293 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||||||
Deposits | — | — | 106,779 | (1,872 | ) | 104,907 | — | — | 143,335 | (4,285 | ) | 139,050 | ||||||||||||||||||||||||||||
Short-term borrowings | — | — | 3,734 | — | 3,734 | — | 49 | 5,387 | (49 | ) | 5,387 | |||||||||||||||||||||||||||||
Long-term debt | 39,353 | 8,076 | 9,793 | — | 57,222 | 40,280 | 7,773 | 11,151 | — | 59,204 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest expense | 39,353 | 8,076 | 120,306 | (1,872 | ) | 165,863 | 40,280 | 7,822 | 159,873 | (4,334 | ) | 203,641 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) | 147,426 | (7,782 | ) | 1,159,104 | (184,000 | ) | 1,114,748 | 368,035 | (7,571 | ) | 1,300,188 | (402,000 | ) | 1,258,652 | ||||||||||||||||||||||||||
Provision for loan losses-non-covered loans | 309 | — | 255,327 | (5,955 | ) | 249,681 | ||||||||||||||||||||||||||||||||||
Provision (reversal) for loan losses-non-covered loans | (75 | ) | — | 183,849 | — | 183,774 | ||||||||||||||||||||||||||||||||||
Provision for loan losses- covered loans | — | — | 4,255 | — | 4,255 | — | — | 1,730 | — | 1,730 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) after provision for loan losses | 147,117 | (7,782 | ) | 899,522 | (178,045 | ) | 860,812 | |||||||||||||||||||||||||||||||||
Net interest income (expense) after provision (reversal) for loan losses | 368,110 | (7,571 | ) | 1,114,609 | (402,000 | ) | 1,073,148 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Service charges on deposit accounts | — | — | 119,882 | — | 119,882 | — | — | 111,704 | — | 111,704 | ||||||||||||||||||||||||||||||
Other service fees | — | — | 170,282 | (1,458 | ) | 168,824 | — | — | 189,253 | (1,459 | ) | 187,794 | ||||||||||||||||||||||||||||
Mortgage banking activities | — | — | 27,349 | — | 27,349 | — | — | 33,408 | — | 33,408 | ||||||||||||||||||||||||||||||
Net gain on sale of investment securities | — | — | 284 | — | 284 | |||||||||||||||||||||||||||||||||||
Other-than-temporary impairment losses on investment securities | — | — | (8,299 | ) | — | (8,299 | ) | |||||||||||||||||||||||||||||||||
Trading account profit (loss) | 297 | — | (1,003 | ) | 26 | (680 | ) | |||||||||||||||||||||||||||||||||
Net gain on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | (420 | ) | — | (420 | ) | |||||||||||||||||||||||||||||||||
Net gain (loss), including impairment on equity securities | 176 | — | (170 | ) | (48 | ) | (42 | ) | ||||||||||||||||||||||||||||||||
Net loss on trading account debt securities | — | — | (299 | ) | — | (299 | ) | |||||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | (11,302 | ) | — | (11,302 | ) | — | — | (6,482 | ) | — | (6,482 | ) | ||||||||||||||||||||||||||
FDIC loss-share expense | — | — | (12,680 | ) | — | (12,680 | ) | |||||||||||||||||||||||||||||||||
FDIC loss-share income | — | — | 94,725 | — | 94,725 | |||||||||||||||||||||||||||||||||||
Other operating income | 10,739 | 1,256 | 38,101 | (18 | ) | 50,078 | 11,139 | 278 | 67,133 | (31 | ) | 78,519 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-interest income | 11,036 | 1,256 | 322,194 | (1,450 | ) | 333,036 | 11,315 | 278 | 489,272 | (1,538 | ) | 499,327 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Personnel costs | 37,226 | — | 326,832 | — | 364,058 | 43,365 | — | 346,576 | — | 389,941 | ||||||||||||||||||||||||||||||
Net occupancy expenses | 2,925 | — | 62,370 | — | 65,295 | 3,081 | — | 60,748 | — | 63,829 | ||||||||||||||||||||||||||||||
Equipment expenses | 1,952 | 1 | 46,724 | — | 48,677 | 2,581 | 2 | �� | 50,701 | — | 53,284 | |||||||||||||||||||||||||||||
Other taxes | 147 | — | 32,420 | — | 32,567 | 168 | 1 | 33,532 | — | 33,701 | ||||||||||||||||||||||||||||||
Professional fees | 8,743 | (474 | ) | 205,047 | (360 | ) | 212,956 | 13,245 | 128 | 247,764 | (389 | ) | 260,748 | |||||||||||||||||||||||||||
Communications | 407 | — | 16,835 | — | 17,242 | 380 | — | 16,962 | — | 17,342 | ||||||||||||||||||||||||||||||
Business promotion | 1,413 | — | 38,745 | — | 40,158 | 1,323 | — | 42,942 | — | 44,265 | ||||||||||||||||||||||||||||||
FDIC deposit insurance | — | — | 18,936 | — | 18,936 | — | — | 22,534 | — | 22,534 | ||||||||||||||||||||||||||||||
Other real estate owned (OREO) expenses | 42 | — | 41,170 | — | 41,212 | — | — | 21,028 | — | 21,028 | ||||||||||||||||||||||||||||||
Other operating expenses | (53,227 | ) | 39 | 141,958 | (1,664 | ) | 87,106 | (64,352 | ) | 67 | 177,543 | (1,796 | ) | 111,462 | ||||||||||||||||||||||||||
Amortization of intangibles | — | — | 7,034 | — | 7,034 | — | — | 6,973 | — | 6,973 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | (372 | ) | (434 | ) | 938,071 | (2,024 | ) | 935,241 | (209 | ) | 198 | 1,027,303 | (2,185 | ) | 1,025,107 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before income tax and equity in earnings of subsidiaries | 158,525 | (6,092 | ) | 283,645 | (177,471 | ) | 258,607 | 379,634 | (7,491 | ) | 576,578 | (401,353 | ) | 547,368 | ||||||||||||||||||||||||||
Income tax (benefit) expense | — | (2,132 | ) | 48,368 | 2,536 | 48,772 | ||||||||||||||||||||||||||||||||||
Income tax expense | — | 372 | 34,970 | 271 | 35,613 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before equity in earnings of subsidiaries | 158,525 | (3,960 | ) | 235,277 | (180,007 | ) | 209,835 | 379,634 | (7,863 | ) | 541,608 | (401,624 | ) | 511,755 | ||||||||||||||||||||||||||
Equity in undistributed earnings of subsidiaries | 51,310 | 13,947 | — | (65,257 | ) | — | 132,121 | 45,772 | — | (177,893 | ) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net Income | $ | 209,835 | $ | 9,987 | $ | 235,277 | $ | (245,264 | ) | $ | 209,835 | |||||||||||||||||||||||||||||
Net income | $ | 511,755 | $ | 37,909 | $ | 541,608 | $ | (579,517 | ) | $ | 511,755 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income, net of tax | $ | 238,789 | $ | 13,554 | $ | 264,006 | $ | (277,560 | ) | $ | 238,789 | $ | 328,218 | $ | 3,755 | $ | 358,368 | $ | (362,123 | ) | $ | 328,218 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations (Unaudited)
Quarter ended September 30, 2016 | Quarter ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||||||||||
Dividend income from subsidiaries | $ | 24,200 | $ | — | $ | — | $ | (24,200 | ) | $ | — | $ | 27,500 | $ | — | $ | — | $ | (27,500 | ) | $ | — | ||||||||||||||||||
Loans | 21 | — | 363,529 | — | 363,550 | 405 | — | 371,574 | — | 371,979 | ||||||||||||||||||||||||||||||
Money market investments | 398 | 27 | 4,568 | (425 | ) | 4,568 | 730 | 13 | 15,529 | (743 | ) | 15,529 | ||||||||||||||||||||||||||||
Investment securities | 141 | 81 | 37,510 | — | 37,732 | 142 | 81 | 48,152 | — | 48,375 | ||||||||||||||||||||||||||||||
Trading account securities | — | — | 1,449 | — | 1,449 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest and dividend income | 24,760 | 108 | 407,056 | (24,625 | ) | 407,299 | 28,777 | 94 | 435,255 | (28,243 | ) | 435,883 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||||||
Deposits | — | — | 32,787 | (425 | ) | 32,362 | — | — | 37,801 | (743 | ) | 37,058 | ||||||||||||||||||||||||||||
Short-term borrowings | — | — | 2,132 | — | 2,132 | — | — | 1,524 | — | 1,524 | ||||||||||||||||||||||||||||||
Long-term debt | 13,118 | 2,692 | 3,308 | — | 19,118 | 13,118 | 2,693 | 3,319 | — | 19,130 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total interest expense | 13,118 | 2,692 | 38,227 | (425 | ) | 53,612 | 13,118 | 2,693 | 42,644 | (743 | ) | 57,712 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) | 11,642 | (2,584 | ) | 368,829 | (24,200 | ) | 353,687 | 15,659 | (2,599 | ) | 392,611 | (27,500 | ) | 378,171 | ||||||||||||||||||||||||||
Provision (reversal) for loan losses-non-covered loans | (33 | ) | — | 42,627 | — | 42,594 | ||||||||||||||||||||||||||||||||||
Provision for loan losses-non-covered loans | 40 | — | 157,619 | — | 157,659 | |||||||||||||||||||||||||||||||||||
Provision for loan losses- covered loans | — | — | 750 | — | 750 | — | — | 3,100 | — | 3,100 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net interest income (expense) after provision for loan losses | 11,675 | (2,584 | ) | 325,452 | (24,200 | ) | 310,343 | 15,619 | (2,599 | ) | 231,892 | (27,500 | ) | 217,412 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Service charges on deposit accounts | — | — | 40,776 | — | 40,776 | — | — | 39,273 | — | 39,273 | ||||||||||||||||||||||||||||||
Other service fees | — | — | 59,233 | (64 | ) | 59,169 | — | — | 53,551 | (70 | ) | 53,481 | ||||||||||||||||||||||||||||
Mortgage banking activities | — | — | 15,272 | — | 15,272 | — | — | 5,239 | — | 5,239 | ||||||||||||||||||||||||||||||
Net gain on sale of investment securities | 184 | — | 165 | — | 349 | |||||||||||||||||||||||||||||||||||
Trading account profit (loss) | 77 | — | (163 | ) | (27 | ) | (113 | ) | ||||||||||||||||||||||||||||||||
Net gain on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | 8,549 | — | 8,549 | |||||||||||||||||||||||||||||||||||
Net gain on sale of debt securities | — | — | 83 | — | 83 | |||||||||||||||||||||||||||||||||||
Net gain, including impairment on equity securities | — | — | 20 | — | 20 | |||||||||||||||||||||||||||||||||||
Net profit on trading account debt securities | 137 | — | 98 | 18 | 253 | |||||||||||||||||||||||||||||||||||
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | (420 | ) | — | (420 | ) | |||||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | (4,390 | ) | — | (4,390 | ) | — | — | (6,406 | ) | — | (6,406 | ) | ||||||||||||||||||||||||||
FDIC loss-share expense | — | — | (61,723 | ) | — | (61,723 | ) | — | — | (3,948 | ) | — | (3,948 | ) | ||||||||||||||||||||||||||
Other operating income | 4,002 | 152 | 13,955 | (20 | ) | 18,089 | 1,564 | 31 | 11,208 | (4 | ) | 12,799 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Totalnon-interest income | 4,263 | 152 | 71,674 | (111 | ) | 75,978 | 1,701 | 31 | 98,698 | (56 | ) | 100,374 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Personnel costs | 11,137 | — | 110,087 | — | 121,224 | 11,438 | — | 106,331 | — | 117,769 | ||||||||||||||||||||||||||||||
Net occupancy expenses | 939 | — | 20,687 | — | 21,626 | 976 | — | 21,278 | — | 22,254 | ||||||||||||||||||||||||||||||
Equipment expenses | 776 | 1 | 15,145 | — | 15,922 | 885 | 1 | 15,571 | — | 16,457 | ||||||||||||||||||||||||||||||
Other taxes | 46 | — | 11,278 | — | 11,324 | 55 | — | 10,803 | — | 10,858 | ||||||||||||||||||||||||||||||
Professional fees | 2,642 | 31 | 78,658 | (65 | ) | 81,266 | 2,555 | 18 | 68,269 | (70 | ) | 70,772 | ||||||||||||||||||||||||||||
Communications | 140 | — | 5,645 | — | 5,785 | 125 | — | 5,269 | — | 5,394 | ||||||||||||||||||||||||||||||
Business promotion | 516 | — | 12,210 | — | 12,726 | 454 | — | 14,762 | — | 15,216 | ||||||||||||||||||||||||||||||
FDIC deposit insurance | — | — | 5,854 | — | 5,854 | — | — | 6,271 | — | 6,271 | ||||||||||||||||||||||||||||||
Other real estate owned (OREO) expenses | (16 | ) | — | 11,311 | — | 11,295 | 42 | — | 11,682 | — | 11,724 | |||||||||||||||||||||||||||||
Other operating expenses | (19,795 | ) | 3 | 50,077 | (533 | ) | 29,752 | (17,572 | ) | 13 | 56,142 | (555 | ) | 38,028 | ||||||||||||||||||||||||||
Amortization of intangibles | — | — | 3,097 | — | 3,097 | — | — | 2,345 | — | 2,345 | ||||||||||||||||||||||||||||||
Goodwill impairment charge | — | — | 3,801 | — | 3,801 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total operating expenses | (3,615 | ) | 35 | 327,850 | (598 | ) | 323,672 | (1,042 | ) | 32 | 318,723 | (625 | ) | 317,088 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before income tax and equity in earnings of subsidiaries | 19,553 | (2,467 | ) | 69,276 | (23,713 | ) | 62,649 | |||||||||||||||||||||||||||||||||
Income (loss) before income tax and equity (losses) in earnings of subsidiaries | 18,362 | (2,600 | ) | 11,867 | (26,931 | ) | 698 | |||||||||||||||||||||||||||||||||
Income tax (benefit) expense | (2 | ) | (864 | ) | 16,504 | 201 | 15,839 | — | (910 | ) | (19,271 | ) | 215 | (19,966 | ) | |||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Income (loss) before equity in earnings of subsidiaries | 19,555 | (1,603 | ) | 52,772 | (23,914 | ) | 46,810 | |||||||||||||||||||||||||||||||||
Equity in undistributed earnings of subsidiaries | 27,255 | 9,190 | — | (36,445 | ) | — | ||||||||||||||||||||||||||||||||||
Income (loss) before equity in earnings (losses) of subsidiaries | 18,362 | (1,690 | ) | 31,138 | (27,146 | ) | 20,664 | |||||||||||||||||||||||||||||||||
Equity in undistributed earnings (losses) of subsidiaries | 2,302 | (7,681 | ) | — | 5,379 | — | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Net Income | $ | 46,810 | $ | 7,587 | $ | 52,772 | $ | (60,359 | ) | $ | 46,810 | |||||||||||||||||||||||||||||
Net income (loss) | $ | 20,664 | $ | (9,371 | ) | $ | 31,138 | $ | (21,767 | ) | $ | 20,664 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Comprehensive income, net of tax | $ | 35,127 | $ | 3,426 | $ | 41,429 | $ | (44,855 | ) | $ | 35,127 | |||||||||||||||||||||||||||||
Comprehensive income (loss), net of tax | $ | 32,275 | $ | (7,732 | ) | $ | 42,516 | $ | (34,784 | ) | $ | 32,275 | ||||||||||||||||||||||||||||
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Condensed Consolidating Statement of Operations (Unaudited)
Nine months ended September 30, 2016 | Nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Interest and dividend income: | ||||||||||||||||||||||||||||||||||||||||
Dividend income from subsidiaries | $ | 78,100 | $ | — | $ | — | $ | (78,100 | ) | $ | — | $ | 184,000 | $ | — | $ | — | $ | (184,000 | ) | $ | — | ||||||||||||||||||
Loans | 60 | — | 1,096,408 | — | 1,096,468 | 534 | — | 1,102,250 | — | 1,102,784 | ||||||||||||||||||||||||||||||
Money market investments | 976 | 78 | 11,320 | (1,054 | ) | 11,320 | 1,820 | 52 | 33,233 | (1,872 | ) | 33,233 | ||||||||||||||||||||||||||||
Investment securities | 522 | 242 | 109,964 | — | 110,728 | 425 | 242 | 143,927 | — | 144,594 | ||||||||||||||||||||||||||||||
Trading account securities | — | — | 5,013 | — | 5,013 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total interest and dividend income | 79,658 | 320 | 1,222,705 | (79,154 | ) | 1,223,529 | 186,779 | 294 | 1,279,410 | (185,872 | ) | 1,280,611 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||||||
Deposits | — | — | 93,889 | (1,054 | ) | 92,835 | — | — | 106,779 | (1,872 | ) | 104,907 | ||||||||||||||||||||||||||||
Short-term borrowings | — | — | 6,051 | — | 6,051 | — | — | 3,734 | — | 3,734 | ||||||||||||||||||||||||||||||
Long-term debt | 39,353 | 8,077 | 10,563 | — | 57,993 | 39,353 | 8,076 | 9,793 | — | 57,222 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total interest expense | 39,353 | 8,077 | 110,503 | (1,054 | ) | 156,879 | 39,353 | 8,076 | 120,306 | (1,872 | ) | 165,863 | ||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||
Net interest income (expense) | 40,305 | (7,757 | ) | 1,112,202 | (78,100 | ) | 1,066,650 | 147,426 | (7,782 | ) | 1,159,104 | (184,000 | ) | 1,114,748 | ||||||||||||||||||||||||||
Provision (reversal) for loan losses-non-covered loans | (36 | ) | — | 130,238 | — | 130,202 | ||||||||||||||||||||||||||||||||||
Provision (reversal) for loan losses- covered loans | — | — | (1,551 | ) | — | (1,551 | ) | |||||||||||||||||||||||||||||||||
Provision for loan losses-non-covered loans | 309 | — | 255,327 | (5,955 | ) | 249,681 | ||||||||||||||||||||||||||||||||||
Provision for loan losses- covered loans | — | — | 4,255 | — | 4,255 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Net interest income (expense) after provision for loan losses | 40,341 | (7,757 | ) | 983,515 | (78,100 | ) | 937,999 | 147,117 | (7,782 | ) | 899,522 | (178,045 | ) | 860,812 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Service charges on deposit accounts | — | — | 120,934 | — | 120,934 | — | — | 119,882 | — | 119,882 | ||||||||||||||||||||||||||||||
Other service fees | — | — | 170,896 | (1,400 | ) | 169,496 | — | — | 170,282 | (1,458 | ) | 168,824 | ||||||||||||||||||||||||||||
Mortgage banking activities | — | — | 42,050 | — | 42,050 | — | — | 27,349 | — | 27,349 | ||||||||||||||||||||||||||||||
Net gain on sale of investment securities | 1,767 | — | 165 | — | 1,932 | |||||||||||||||||||||||||||||||||||
Other-than temporary impairment losses on investment securities | — | — | (209 | ) | — | (209 | ) | |||||||||||||||||||||||||||||||||
Trading account profit | 136 | — | 733 | (27 | ) | 842 | ||||||||||||||||||||||||||||||||||
Net gain on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | 8,245 | — | 8,245 | |||||||||||||||||||||||||||||||||||
Net gain on sale of debt securities | — | — | 83 | — | �� | 83 | ||||||||||||||||||||||||||||||||||
Other-than-temporary impairment losses on debt securities | — | — | (8,299 | ) | — | (8,299 | ) | |||||||||||||||||||||||||||||||||
Net gain, including impairment on equity securities | — | — | 201 | — | 201 | |||||||||||||||||||||||||||||||||||
Net profit (loss) on trading account debt securities | 297 | — | (1,003 | ) | 26 | (680 | ) | |||||||||||||||||||||||||||||||||
Net loss on sale of loans, including valuation adjustments on loansheld-for-sale | — | — | (420 | ) | — | (420 | ) | |||||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | (14,234 | ) | — | (14,234 | ) | — | — | (11,302 | ) | — | (11,302 | ) | ||||||||||||||||||||||||||
FDIC loss-share expense | — | — | (77,445 | ) | — | (77,445 | ) | — | — | (12,680 | ) | — | (12,680 | ) | ||||||||||||||||||||||||||
Other operating income (loss) | 9,070 | (2,787 | ) | 40,255 | (38 | ) | 46,500 | |||||||||||||||||||||||||||||||||
Other operating income | 10,739 | 1,256 | 38,101 | (18 | ) | 50,078 | ||||||||||||||||||||||||||||||||||
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|
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|
|
|
|
|
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| |||||||||||||||||||||||||||||||
Totalnon-interest income (expense) | 10,973 | (2,787 | ) | 291,390 | (1,465 | ) | 298,111 | |||||||||||||||||||||||||||||||||
Totalnon-interest income | 11,036 | 1,256 | 322,194 | (1,450 | ) | 333,036 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Personnel costs | 37,192 | — | 327,831 | — | 365,023 | 37,226 | — | 321,231 | — | 358,457 | ||||||||||||||||||||||||||||||
Net occupancy expenses | 2,700 | — | 61,070 | — | 63,770 | 2,925 | — | 62,370 | — | 65,295 | ||||||||||||||||||||||||||||||
Equipment expenses | 1,864 | 1 | 43,866 | — | 45,731 | 1,952 | 1 | 46,724 | — | 48,677 | ||||||||||||||||||||||||||||||
Other taxes | 140 | — | 31,549 | — | 31,689 | 147 | — | 32,420 | — | 32,567 | ||||||||||||||||||||||||||||||
Professional fees | 7,854 | 91 | 229,754 | (349 | ) | 237,350 | 8,743 | (474 | ) | 205,047 | (360 | ) | 212,956 | |||||||||||||||||||||||||||
Communications | 417 | — | 17,700 | — | 18,117 | 407 | — | 16,835 | — | 17,242 | ||||||||||||||||||||||||||||||
Business promotion | 1,467 | — | 36,074 | — | 37,541 | 1,413 | — | 38,745 | — | 40,158 | ||||||||||||||||||||||||||||||
FDIC deposit insurance | — | — | 18,586 | — | 18,586 | — | — | 18,936 | — | 18,936 | ||||||||||||||||||||||||||||||
Other real estate owned (OREO) expenses | 52 | — | 33,364 | — | 33,416 | 42 | — | 41,170 | — | 41,212 | ||||||||||||||||||||||||||||||
Other operating expenses | (56,173 | ) | 46 | 128,181 | (1,622 | ) | 70,432 | (53,227 | ) | 39 | 147,559 | (1,664 | ) | 92,707 | ||||||||||||||||||||||||||
Amortization of intangibles | — | — | 9,308 | — | 9,308 | — | — | 7,034 | — | 7,034 | ||||||||||||||||||||||||||||||
Goodwill impairment charge | — | — | 3,801 | — | 3,801 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total operating expenses | (4,487 | ) | 138 | 941,084 | (1,971 | ) | 934,764 | (372 | ) | (434 | ) | 938,071 | (2,024 | ) | 935,241 | |||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Income (loss) before income tax and equity in earnings of subsidiaries | 55,801 | (10,682 | ) | 333,821 | (77,594 | ) | 301,346 | 158,525 | (6,092 | ) | 283,645 | (177,471 | ) | 258,607 | ||||||||||||||||||||||||||
Income tax expense (benefit) | 1 | (3,739 | ) | 84,080 | 208 | 80,550 | ||||||||||||||||||||||||||||||||||
Income tax (benefit) expense | — | (2,132 | ) | 48,368 | 2,536 | 48,772 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Income (loss) before equity in earnings of subsidiaries | 55,800 | (6,943 | ) | 249,741 | (77,802 | ) | 220,796 | 158,525 | (3,960 | ) | 235,277 | (180,007 | ) | 209,835 | ||||||||||||||||||||||||||
Equity in undistributed earnings of subsidiaries | 164,996 | 30,289 | — | (195,285 | ) | — | 51,310 | 13,947 | — | (65,257 | ) | — | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Net Income | $ | 220,796 | $ | 23,346 | $ | 249,741 | $ | (273,087 | ) | $ | 220,796 | |||||||||||||||||||||||||||||
Net income | $ | 209,835 | $ | 9,987 | $ | 235,277 | $ | (245,264 | ) | $ | 209,835 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Comprehensive income, net of tax | $ | 320,387 | $ | 47,064 | $ | 350,689 | $ | (397,753 | ) | $ | 320,387 | $ | 238,789 | $ | 13,554 | $ | 264,006 | $ | (277,560 | ) | $ | 238,789 | ||||||||||||||||||
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Condensed Consolidating Statement of Cash Flows (Unaudited)
Nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30, 2017 | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | |||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | |||||||||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||||
Net income | $ | 209,835 | $ | 9,987 | $ | 235,277 | $ | (245,264 | ) | $ | 209,835 | $ | 511,755 | $ | 37,909 | $ | 541,608 | $ | (579,517 | ) | $ | 511,755 | ||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries, net of dividends or distributions | (51,310 | ) | (13,947 | ) | — | 65,257 | — | (132,121 | ) | (45,772 | ) | — | 177,893 | — | ||||||||||||||||||||||||||
Provision for loan losses | 309 | — | 253,627 | — | 253,936 | (75 | ) | — | 185,579 | — | 185,504 | |||||||||||||||||||||||||||||
Amortization of intangibles | — | — | 7,034 | — | 7,034 | — | — | 6,973 | — | 6,973 | ||||||||||||||||||||||||||||||
Depreciation and amortization of premises and equipment | 480 | — | 35,486 | — | 35,966 | 548 | — | 38,535 | — | 39,083 | ||||||||||||||||||||||||||||||
Net accretion of discounts and amortization of premiums and deferred fees | 1,565 | — | (18,936 | ) | — | (17,371 | ) | 1,624 | 20 | (45,177 | ) | — | (43,533 | ) | ||||||||||||||||||||||||||
Share-based compensation | 4,149 | — | 1,813 | — | 5,962 | |||||||||||||||||||||||||||||||||||
Impairment losses on long-lived assets | — | — | 11,286 | — | 11,286 | — | — | 272 | — | 272 | ||||||||||||||||||||||||||||||
Other-than-temporary impairment on investment securities | — | — | 8,299 | — | 8,299 | |||||||||||||||||||||||||||||||||||
Fair value adjustments on mortgage servicing rights | — | — | 24,262 | — | 24,262 | — | — | 13,123 | — | 13,123 | ||||||||||||||||||||||||||||||
FDIC loss-share expense | — | — | 12,680 | — | 12,680 | |||||||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | 11,302 | — | 11,302 | |||||||||||||||||||||||||||||||||||
Earnings from investments under the equity method | (10,728 | ) | (1,256 | ) | (15,366 | ) | — | (27,350 | ) | |||||||||||||||||||||||||||||||
Deferred income tax (benefit) expense | — | (2,132 | ) | 32,389 | 214 | 30,471 | ||||||||||||||||||||||||||||||||||
(Gain) loss on: | ||||||||||||||||||||||||||||||||||||||||
FDIC loss-share income | — | — | (94,725 | ) | — | (94,725 | ) | |||||||||||||||||||||||||||||||||
Adjustments to indemnity reserves on loans sold | — | — | 6,482 | — | 6,482 | |||||||||||||||||||||||||||||||||||
Earnings from investments under the equity method, net of dividends or distributions | (10,557 | ) | (278 | ) | (3,937 | ) | — | (14,772 | ) | |||||||||||||||||||||||||||||||
Deferred income tax benefit | — | (1,453 | ) | (96,525 | ) | 270 | (97,708 | ) | ||||||||||||||||||||||||||||||||
Loss (gain) on: | ||||||||||||||||||||||||||||||||||||||||
Disposition of premises and equipment and other productive assets | (17 | ) | — | 5,035 | — | 5,018 | 15 | — | 17,679 | — | 17,694 | |||||||||||||||||||||||||||||
Sale and valuation adjustments of investment securities | — | 21 | (305 | ) | — | (284 | ) | |||||||||||||||||||||||||||||||||
Proceeds from insurance claims | — | — | (14,411 | ) | — | (14,411 | ) | |||||||||||||||||||||||||||||||||
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities | — | — | (16,455 | ) | — | (16,455 | ) | — | — | (6,734 | ) | — | (6,734 | ) | ||||||||||||||||||||||||||
Sale of foreclosed assets, including write-downs | 42 | — | 19,186 | — | 19,228 | — | — | (638 | ) | — | (638 | ) | ||||||||||||||||||||||||||||
Acquisitions of loansheld-for-sale | — | — | (204,813 | ) | — | (204,813 | ) | — | — | (173,644 | ) | — | (173,644 | ) | ||||||||||||||||||||||||||
Proceeds from sale of loansheld-for-sale | — | — | 68,326 | — | 68,326 | — | — | 51,131 | — | 51,131 | ||||||||||||||||||||||||||||||
Net originations on loansheld-for-sale | — | — | (283,709 | ) | — | (283,709 | ) | — | — | (186,063 | ) | — | (186,063 | ) | ||||||||||||||||||||||||||
Net (increase) decrease in: | ||||||||||||||||||||||||||||||||||||||||
Net decrease (increase) in: | ||||||||||||||||||||||||||||||||||||||||
Trading securities | (961 | ) | — | 499,826 | (25 | ) | 498,840 | — | — | 346,556 | (101 | ) | 346,455 | |||||||||||||||||||||||||||
Equity securities | (1,779 | ) | — | (701 | ) | — | (2,480 | ) | ||||||||||||||||||||||||||||||||
Accrued income receivable | (115 | ) | 107 | (8,274 | ) | (15 | ) | (8,297 | ) | (411 | ) | 90 | 51,779 | 410 | 51,868 | |||||||||||||||||||||||||
Other assets | 1,331 | 45 | (3,115 | ) | 15,193 | 13,454 | (2,352 | ) | 52 | 237,585 | (449 | ) | 234,836 | |||||||||||||||||||||||||||
Net (decrease) increase in: | ||||||||||||||||||||||||||||||||||||||||
Interest payable | (7,875 | ) | (2,685 | ) | 1,246 | 15 | (9,299 | ) | (7,007 | ) | (3,441 | ) | 925 | (410 | ) | (9,933 | ) | |||||||||||||||||||||||
Pension and other postretirement benefits obligations | — | — | (13,760 | ) | — | (13,760 | ) | — | — | 3,392 | — | 3,392 | ||||||||||||||||||||||||||||
Other liabilities | 2,115 | (760 | ) | 22,742 | (8,919 | ) | 15,178 | 2,160 | 9 | (198,958 | ) | (246 | ) | (197,035 | ) | |||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total adjustments | (65,164 | ) | (20,607 | ) | 447,993 | 71,720 | 433,942 | (145,806 | ) | (50,773 | ) | 140,311 | 177,367 | 121,099 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | 144,671 | (10,620 | ) | 683,270 | (173,544 | ) | 643,777 | 365,949 | (12,864 | ) | 681,919 | (402,150 | ) | 632,854 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||||
Net (increase) decrease in money market investments | (395,000 | ) | (7,230 | ) | 647,519 | 402,230 | 647,519 | |||||||||||||||||||||||||||||||||
Purchases of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale | — | — | (6,968,920 | ) | — | (6,968,920 | ) | |||||||||||||||||||||||||||||||||
Equity | — | — | (11,456 | ) | 152 | (11,304 | ) | |||||||||||||||||||||||||||||||||
Proceeds from calls, paydowns, maturities and redemptions of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale | — | — | 3,925,362 | — | 3,925,362 | |||||||||||||||||||||||||||||||||||
Held-to-maturity | — | 1,637 | 5,547 | — | 7,184 | |||||||||||||||||||||||||||||||||||
Proceeds from sale of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Equity | — | — | 20,925 | — | 20,925 | |||||||||||||||||||||||||||||||||||
Net repayments (disbursements) on loans | 395 | — | (15,999 | ) | — | (15,604 | ) | |||||||||||||||||||||||||||||||||
Proceeds from sale of loans | — | — | 1,354 | — | 1,354 | |||||||||||||||||||||||||||||||||||
Acquisition of loan portfolios | — | — | (461,117 | ) | — | (461,117 | ) |
Cash flows from investing activities: Net decrease (increase) in money market investments Purchases of investment securities: Available-for-sale Other Proceeds from calls, paydowns, maturities and redemptions of investment securities: Available-for-sale Held-to-maturity Proceeds from sale of investment securities: Available for sale Other Net repayments (disbursements) on loans Proceeds from sale of loans Acquisition of loan portfolios Acquisition of trademark Net payments from FDIC under loss-sharing agreements Return of capital from equity method investments Capital contribution to subsidiary Return of capital from wholly-owned subsidiaries Acquisition of premises and equipment Proceeds from sale of: Premises and equipment and other productive assets Foreclosed assets Net cash (used in) provided by investing activities Cash flows from financing activities: Net increase (decrease) in: Deposits Assets sold under agreements to repurchase Other short-term borrowings Payments of notes payable Proceeds from issuance of notes payable Proceeds from issuance of common stock Dividends paid to parent company Dividends paid Net payments for repurchase of common stock Return of capital to parent company Capital contribution from parent Payments related to tax withholding for share-based compensation Net cash (used in) provided by financing activities Net (decrease) increase in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period 13,651 10,491 (2,596,111 ) (26,025 ) (2,597,994 ) — — (2,356,389 ) — (2,356,389 ) — — (23,822 ) — (23,822 ) — — 1,225,915 — 1,225,915 — — 6,229 — 6,229 — — 14,888 — 14,888 — — 17,675 — 17,675 172 — (77,572 ) — (77,400 ) — — 38,279 (37,864 ) 415 (31,909 ) — (454,076 ) 37,864 (448,121 ) (5,560 ) — 5,560 — — — — (11,520 ) — (11,520 ) 500 — 8,056 — 8,556 (5,955 ) — 5,955 — — 22,400 10,400 40 (32,840 ) — (594 ) — (39,564 ) — (40,158 ) 21 — 6,961 — 6,982 39 — 85,666 — 85,705 (7,235 ) 20,891 (4,143,830 ) (58,865 ) (4,189,039 ) — — 3,721,882 29,485 3,751,367 — — (105,020 ) — (105,020 ) — — 239,398 — 239,398 — — (89,375 ) — (89,375 ) — — 45,000 — 45,000 5,515 — — — 5,515 — — (179,500 ) 179,500 — (69,162 ) — — — (69,162 ) (75,661 ) — (1 ) — (75,662 ) — (10,400 ) 10,400 — — — — 5,955 (5,955 ) — (1,756 ) — (32,840 ) 32,840 (1,756 ) (141,064 ) (10,400 ) 3,615,899 235,870 3,700,305 (3,628 ) (129 ) 155,339 3,461 155,043 47,783 591 362,101 (48,081 ) 362,394 $ 44,155 $ 462 $ 517,440 $ (44,620 ) $ 517,437
During the nine months ended September 30, 2017 there have not been any cash flows associated with discontinued operations.
Net payments (to) from FDIC under loss-sharing agreements | — | — | (25,012 | ) | — | (25,012 | ) | |||||||||||||
Payments to acquire businesses, net of cash acquired | — | — | (1,830,050 | ) | — | (1,830,050 | ) | |||||||||||||
Return of capital from equity method investments | — | 497 | 2,004 | — | 2,501 | |||||||||||||||
Capital contribution to subsidiary | (82,000 | ) | — | — | 82,000 | — | ||||||||||||||
Return of capital from wholly-owned subsidiaries | 13,000 | — | — | (13,000 | ) | — | ||||||||||||||
Acquisition of premises and equipment | (755 | ) | — | (52,389 | ) | — | (53,144 | ) | ||||||||||||
Proceeds from insurance claims | — | — | 14,411 | — | 14,411 | |||||||||||||||
Proceeds from sale of: | ||||||||||||||||||||
Premises and equipment and other productive assets | 195 | — | 6,796 | — | 6,991 | |||||||||||||||
Foreclosed assets | — | — | 85,622 | — | 85,622 | |||||||||||||||
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Net cash used in investing activities | (464,165 | ) | (5,096 | ) | (4,655,403 | ) | 471,382 | (4,653,282 | ) | |||||||||||
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Cash flows from financing activities: | ||||||||||||||||||||
Net increase (decrease) in: | ||||||||||||||||||||
Deposits | — | — | 4,596,970 | (403,111 | ) | 4,193,859 | ||||||||||||||
Assets sold under agreements to repurchase | — | — | (90,805 | ) | — | (90,805 | ) | |||||||||||||
Other short-term borrowings | — | — | (95,008 | ) | — | (95,008 | ) | |||||||||||||
Payments of notes payable | — | (54,502 | ) | (172,474 | ) | — | (226,976 | ) | ||||||||||||
Proceeds from issuance of notes payable | 294,706 | — | 140,000 | — | 434,706 | |||||||||||||||
Proceeds from issuance of common stock | 11,441 | — | (589 | ) | — | 10,852 | ||||||||||||||
Dividends paid to parent company | — | — | (402,000 | ) | 402,000 | — | ||||||||||||||
Dividends paid | (79,115 | ) | — | — | — | (79,115 | ) | |||||||||||||
Net payments for repurchase of common stock | (125,323 | ) | — | — | (3 | ) | (125,326 | ) | ||||||||||||
Return of capital to parent company | — | — | (13,000 | ) | 13,000 | — | ||||||||||||||
Capital contribution from parent | — | 72,000 | 10,000 | (82,000 | ) | — | ||||||||||||||
Payments related to tax withholding for share-based compensation | (2,162 | ) | — | (43 | ) | — | (2,205 | ) | ||||||||||||
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Net cash provided by financing activities | 99,547 | 17,498 | 3,973,051 | (70,114 | ) | 4,019,982 | ||||||||||||||
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Net increase (decrease) in cash and due from banks, and restricted cash | 1,331 | (462 | ) | (433 | ) | (882 | ) | (446 | ) | |||||||||||
Cash and due from banks, and restricted cash at beginning of period | 48,120 | 462 | 412,225 | (48,178 | ) | 412,629 | ||||||||||||||
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Cash and due from banks, and restricted cash at end of period | $ | 49,451 | $ | — | $ | 411,792 | $ | (49,060 | ) | $ | 412,183 | |||||||||
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Condensed Consolidating Statement of Cash Flows (Unaudited)
Nine months ended September 30, 2016 | Nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | Popular, Inc. Holding Co. | PNA Holding Co. | All other subsidiaries and eliminations | Elimination entries | Popular, Inc. Consolidated | ||||||||||||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||||||||||||||||||
Net income | $ | 220,796 | $ | 23,346 | $ | 249,741 | $ | (273,087 | ) | $ | 220,796 | $ | 209,835 | $ | 9,987 | $ | 235,277 | $ | (245,264 | ) | $ | 209,835 | ||||||||||||||||||
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries, net of dividends or distributions | (164,996 | ) | (30,289 | ) | — | 195,285 | — | (51,310 | ) | (13,947 | ) | — | 65,257 | — | ||||||||||||||||||||||||||
Provision (reversal) for loan losses | (36 | ) | — | 128,687 | — | 128,651 | ||||||||||||||||||||||||||||||||||
Goodwill impairment losses | — | — | 3,801 | — | 3,801 | |||||||||||||||||||||||||||||||||||
Provision for loan losses | 309 | — | 253,627 | — | 253,936 | |||||||||||||||||||||||||||||||||||
Amortization of intangibles | — | — | 9,308 | — | 9,308 | — | — | 7,034 | — | 7,034 | ||||||||||||||||||||||||||||||
Depreciation and amortization of premises and equipment | 497 | — | 34,228 | — | 34,725 | 480 | — | 35,486 | — | 35,966 | ||||||||||||||||||||||||||||||
Net accretion of discounts and amortization of premiums and deferred fees | 1,565 | 21 | (38,339 | ) | — | (36,753 | ) | 1,565 | 21 | (18,957 | ) | — | (17,371 | ) | ||||||||||||||||||||||||||
Other-than-temporary impairment on investment securities | — | — | 209 | — | 209 | |||||||||||||||||||||||||||||||||||
Impairment losses on long-lived assets | — | — | 11,286 | — | 11,286 | |||||||||||||||||||||||||||||||||||
Other-than-temporary impairment on debt securities | — | — | 8,299 | — | 8,299 | |||||||||||||||||||||||||||||||||||
Fair value adjustments on mortgage servicing rights | — | — | 18,879 | — | 18,879 | — | — | 24,262 | — | 24,262 | ||||||||||||||||||||||||||||||
FDIC loss-share expense | — | — | 77,445 | — | 77,445 | — | — | 12,680 | — | 12,680 | ||||||||||||||||||||||||||||||
Adjustments (expense) to indemnity reserves on loans sold | — | — | 14,234 | — | 14,234 | — | — | 11,302 | — | 11,302 | ||||||||||||||||||||||||||||||
(Earnings) losses from investments under the equity method | (9,070 | ) | 2,787 | (17,529 | ) | — | (23,812 | ) | ||||||||||||||||||||||||||||||||
Deferred income tax expense (benefit) | 1 | (3,739 | ) | 65,448 | 208 | 61,918 | ||||||||||||||||||||||||||||||||||
Earnings from investments under the equity method, net of dividends or distributions | (6,732 | ) | (1,256 | ) | (3,526 | ) | — | (11,514 | ) | |||||||||||||||||||||||||||||||
Deferred income tax (benefit) expense | — | (2,132 | ) | 32,389 | 214 | 30,471 | ||||||||||||||||||||||||||||||||||
(Gain) loss on: | ||||||||||||||||||||||||||||||||||||||||
Disposition of premises and equipment and other productive assets | (1 | ) | — | 3,604 | — | 3,603 | (17 | ) | — | 5,035 | — | 5,018 | ||||||||||||||||||||||||||||
Sale and valuation adjustments of investment securities | (1,767 | ) | — | (165 | ) | — | (1,932 | ) | — | — | (83 | ) | — | (83 | ) | |||||||||||||||||||||||||
Sale of loans, including valuation adjustments on loans held for sale and mortgage banking activities | — | — | (32,982 | ) | — | (32,982 | ) | — | — | (16,455 | ) | — | (16,455 | ) | ||||||||||||||||||||||||||
Sale of foreclosed assets, including write-downs | 52 | — | 13,108 | — | 13,160 | 42 | — | 19,186 | — | 19,228 | ||||||||||||||||||||||||||||||
Acquisitions of loansheld-for-sale | — | — | (223,189 | ) | — | (223,189 | ) | — | — | (204,813 | ) | — | (204,813 | ) | ||||||||||||||||||||||||||
Proceeds from sale of loansheld-for-sale | — | — | 58,003 | — | 58,003 | — | — | 68,326 | — | 68,326 | ||||||||||||||||||||||||||||||
Net originations on loansheld-for-sale | — | — | (365,353 | ) | — | (365,353 | ) | — | — | (283,709 | ) | — | (283,709 | ) | ||||||||||||||||||||||||||
Net (increase) decrease in: | ||||||||||||||||||||||||||||||||||||||||
Trading securities | (475 | ) | — | 578,487 | 121 | 578,133 | ||||||||||||||||||||||||||||||||||
Net decrease (increase) in: | ||||||||||||||||||||||||||||||||||||||||
Trading debt securities | — | — | 499,714 | — | 499,714 | |||||||||||||||||||||||||||||||||||
Equity securities | (961 | ) | — | 373 | (25 | ) | (613 | ) | ||||||||||||||||||||||||||||||||
Accrued income receivable | (6 | ) | 80 | 4,459 | 10 | 4,543 | (115 | ) | 107 | (8,274 | ) | (15 | ) | (8,297 | ) | |||||||||||||||||||||||||
Other assets | 2,304 | (26 | ) | (26,170 | ) | (4,309 | ) | (28,201 | ) | (2,165 | ) | 45 | (14,955 | ) | 15,193 | (1,882 | ) | |||||||||||||||||||||||
Net (decrease) increase in: | ||||||||||||||||||||||||||||||||||||||||
Interest payable | (7,875 | ) | (2,685 | ) | (983 | ) | (10 | ) | (11,553 | ) | (7,875 | ) | (2,685 | ) | 1,246 | 15 | (9,299 | ) | ||||||||||||||||||||||
Pension and other postretirement benefits obligations | — | — | (56,537 | ) | — | (56,537 | ) | — | — | (13,760 | ) | — | (13,760 | ) | ||||||||||||||||||||||||||
Other liabilities | (5,724 | ) | (543 | ) | (2,801 | ) | 3,776 | (5,292 | ) | 2,115 | (760 | ) | 22,742 | (8,919 | ) | 15,178 | ||||||||||||||||||||||||
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Total adjustments | (185,531 | ) | (34,394 | ) | 245,852 | 195,081 | 221,008 | (64,664 | ) | (20,607 | ) | 448,455 | 71,720 | 434,904 | ||||||||||||||||||||||||||
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Net cash provided by (used in) operating activities | 35,265 | (11,048 | ) | 495,593 | (78,006 | ) | 441,804 | 145,171 | (10,620 | ) | 683,732 | (173,544 | ) | 644,739 | ||||||||||||||||||||||||||
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Cash flows from investing activities: | ||||||||||||||||||||||||||||||||||||||||
Net (increase) decrease in money market investments | (22,111 | ) | 10,835 | (1,785,091 | ) | 12,965 | (1,783,402 | ) | ||||||||||||||||||||||||||||||||
Net decrease (increase) in money market investments | 13,733 | 10,491 | (2,599,052 | ) | (26,025 | ) | (2,600,853 | ) | ||||||||||||||||||||||||||||||||
Purchases of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale | — | — | (2,408,514 | ) | — | (2,408,514 | ) | — | — | (2,356,385 | ) | — | (2,356,385 | ) | ||||||||||||||||||||||||||
Other | — | — | (14,017 | ) | — | (14,017 | ) | |||||||||||||||||||||||||||||||||
Equity | — | — | (23,822 | ) | — | (23,822 | ) | |||||||||||||||||||||||||||||||||
Proceeds from calls, paydowns, maturities and redemptions of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale | — | — | 951,447 | — | 951,447 | — | — | 1,225,915 | — | 1,225,915 | ||||||||||||||||||||||||||||||
Held-to-maturity | — | — | 4,182 | — | 4,182 | — | — | 6,229 | — | 6,229 | ||||||||||||||||||||||||||||||
Other | — | — | 11,051 | — | 11,051 | |||||||||||||||||||||||||||||||||||
Proceeds from sale of investment securities: | ||||||||||||||||||||||||||||||||||||||||
Available for sale | 278 | — | 1,278 | — | 1,556 | — | — | 14,423 | — | 14,423 | ||||||||||||||||||||||||||||||
Other | 1,583 | — | 6,423 | — | 8,006 | |||||||||||||||||||||||||||||||||||
Net repayments (disbursements) on loans | 25 | — | (93,379 | ) | — | (93,354 | ) | |||||||||||||||||||||||||||||||||
Equity | — | — | 17,675 | — | 17,675 | |||||||||||||||||||||||||||||||||||
Net repayments on loans | 172 | — | (77,572 | ) | — | (77,400 | ) |
Proceeds from sale of loans Acquisition of loan portfolios Net payments from FDIC under loss-sharing agreements Return of capital from equity method investments Return of capital from wholly-owned subsidiaries Acquisition of premises and equipment Proceeds from sale of: Premises and equipment and other productive assets Foreclosed assets Net cash (used in) provided by investing activities Cash flows from financing activities: Net increase (decrease) in: Deposits Federal funds purchased and assets sold under agreements to repurchase Payments of notes payable Proceeds from issuance of notes payable Proceeds from issuance of common stock Dividends paid to parent company Dividends paid Net payments for repurchase of common stock Return of capital to parent company Net cash (used in) provided by financing activities Net decrease in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period — — 134,114 — 134,114 — — (355,507 ) — (355,507 ) — — 95,407 — 95,407 118 206 — — 324 14,000 — — (14,000 ) — (794 ) — (77,503 ) — (78,297 ) 56 — 5,463 — 5,519 434 — 54,166 — 54,600 (6,411 ) 11,041 (3,470,480 ) (1,035 ) (3,466,885 ) — — 3,116,067 3,607 3,119,674 — — 3,106 — 3,106 — — (230,608 ) — (230,608 ) — — 165,047 — 165,047 5,718 — — — 5,718 — — (78,100 ) 78,100 — (49,438 ) — — — (49,438 ) (1,453 ) — (1 ) (93 ) (1,547 ) — — (14,000 ) 14,000 — (45,173 ) — 2,961,511 95,614 3,011,952 (16,319 ) (7 ) (13,376 ) 16,573 (13,129 ) 24,298 600 363,620 (24,844 ) 363,674 $ 7,979 $ 593 $ 350,244 $ (8,271 ) $ 350,545
Proceeds from sale of loans | — | — | 38,279 | (37,864 | ) | 415 | ||||||||||||||
Acquisition of loan portfolios | (31,909 | ) | — | (454,076 | ) | 37,864 | (448,121 | ) | ||||||||||||
Acquisition of trademark | (5,560 | ) | — | 5,560 | — | — | ||||||||||||||
Net payments from FDIC under loss-sharing agreements | — | — | (11,520 | ) | — | (11,520 | ) | |||||||||||||
Return of capital from equity method investments | — | — | 8,056 | — | 8,056 | |||||||||||||||
Capital contribution to subsidiary | (5,955 | ) | — | 5,955 | — | — | ||||||||||||||
Return of capital from wholly-owned subsidiaries | 22,400 | 10,400 | 40 | (32,840 | ) | — | ||||||||||||||
Acquisition of premises and equipment | (594 | ) | — | (39,564 | ) | — | (40,158 | ) | ||||||||||||
Proceeds from sale of: | ||||||||||||||||||||
Premises and equipment and other productive assets | 21 | — | 6,961 | — | 6,982 | |||||||||||||||
Foreclosed assets | 39 | — | 85,666 | — | 85,705 | |||||||||||||||
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Net cash (used in) provided by investing activities | (7,653 | ) | 20,891 | (4,147,232 | ) | (58,865 | ) | (4,192,859 | ) | |||||||||||
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Cash flows from financing activities: | ||||||||||||||||||||
Net increase (decrease) in: | ||||||||||||||||||||
Deposits | — | — | 3,721,882 | 29,485 | 3,751,367 | |||||||||||||||
Assets sold under agreements to repurchase | — | — | (105,020 | ) | — | (105,020 | ) | |||||||||||||
Other short-term borrowings | — | — | 239,398 | — | 239,398 | |||||||||||||||
Payments of notes payable | — | — | (89,375 | ) | — | (89,375 | ) | |||||||||||||
Proceeds from issuance of notes payable | — | — | 45,000 | — | 45,000 | |||||||||||||||
Proceeds from issuance of common stock | 5,515 | — | — | — | 5,515 | |||||||||||||||
Dividends paid to parent company | — | — | (179,500 | ) | 179,500 | — | ||||||||||||||
Dividends paid | (69,162 | ) | — | — | — | (69,162 | ) | |||||||||||||
Net payments for repurchase of common stock | (75,661 | ) | — | (1 | ) | — | (75,662 | ) | ||||||||||||
Return of capital to parent company | — | (10,400 | ) | 10,400 | — | — | ||||||||||||||
Capital contribution from parent | — | — | 5,955 | (5,955 | ) | — | ||||||||||||||
Payments related to tax withholding for share-based compensation | (1,756 | ) | — | (32,840 | ) | 32,840 | (1,756 | ) | ||||||||||||
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Net cash (used in) provided by financing activities | (141,064 | ) | (10,400 | ) | 3,615,899 | 235,870 | 3,700,305 | |||||||||||||
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Net (decrease) increase in cash and due from banks | (3,546 | ) | (129 | ) | 152,399 | 3,461 | 152,185 | |||||||||||||
Cash and due from banks, and restricted cash at beginning of period | 48,130 | 591 | 373,556 | (48,081 | ) | 374,196 | ||||||||||||||
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Cash and due from banks, and restricted cash at end of period | $ | 44,584 | $ | 462 | $ | 525,955 | $ | (44,620 | ) | $ | 526,381 | |||||||||
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During the nine months ended September 30, 2017 there have not been any cash flows associated with discontinued operations.
ITEM 2. |
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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. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation operates Bancoprovides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular North America (“BPNA”). The BPNA franchise operates under the name Popular Community Bank (“PCB”PB”). BPNA focuses efforts and resources on the core community banking business. BPNA operates, which has branches located in New York, New Jersey and Southern Florida. Note 34 to the Consolidated Financial Statements presents information about the Corporation’s business segments.
The Corporation has several investments which it accounts for under the equity method. As of September 30, 2017,2018, the Corporation had a 16.10%16.03% interest in the holding company of EVERTEC, which provides transaction processing services throughout the Caribbean and Latin America, including servicingand services many of the Corporation’s system infrastructuressystems infrastructure and transaction processing businesses. During the quarter ended September 30, 2017,2018, the Corporation recorded $ 1.63.6 million in earnings from its investment in EVERTEC, which had a carrying amount of $ 46$58 million as of the end of the quarter. Also, the Corporation had a 15.84% stake in Centro Financiero BHD Leon,León, S.A. (“BHD Leon”León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended September 30, 2017,2018, the Corporation recorded $5.5$6.3 million in earnings from its investment in BHD Leon,León, which had a carrying amount of $129$140 million, as of the end of the quarter.
HURRICANES IRMA AND MARIASIGNIFICANT EVENTS
During September 2017, Hurricanes Irma and Maria (the “hurricanes”), impacted Puerto Rico, the U.S. and British Virgin Islands, causing extensive damage and disrupting the markets in which Banco Popular de Puerto Rico (“BPPR”) does business.
On September 6, 2017, Hurricane Irma made landfall in the USVI and the BVI as a Category 5 hurricane on the Saffir-Simpson scale, causing catastrophic wind and water damage to the islands’ infrastructure, homes and businesses. Hurricane Irma’s winds and resulting flooding also impacted certain municipalitiesAcquisition of Puerto Rico, causing the failure of electricity infrastructure in a significant portion of the island. While hurricane Irma also struck Popular’s operations in Florida, neither our operations nor those of our clients in the region were materially impacted.
Two weeks later, on September 20, 2017, Hurricane Maria, made landfallWells Fargo’s Auto Finance Business in Puerto Rico as a Category 4 hurricane, causing extensive destruction and flooding throughout Puerto Rico. Following
On August 1, 2018, Popular Auto, LLC (“Popular Auto”), BPPR’s auto finance subsidiary, completed the passageacquisition of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailedcertain assets and the government imposed a mandatory curfew. The hurricanes caused a significant disruptionassumption of certain liabilities from Reliable Financial Services, Inc. and Reliable Finance Holding Co. (“Reliable”), subsidiaries of Wells Fargo & Company (“Wells Fargo”) related to the island’s economic activity. Mosttheir auto finance business establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.
Puerto Rico and the USVI were declared disaster zones by President Trump due to the impact of the hurricanes, thus making them eligible for Federal assistance. Notwithstanding the significant recovery operation that is underway by the Federal, state and local governments, as of the date of this report, most businesses and homes in Puerto Rico (the “Reliable Transaction”).
Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. Reliable will continue operating as a Division of Popular Auto in parallel with Popular Auto’s existing operations for a period after closing to provide continuity of service to Reliable customers while allowing Popular to assess best practices before completing the USVI remain without power, other basic utilityintegration of the two operations. Substantially all Reliable employees received and infrastructure remains significantly impacted,accepted offers of employment from Popular Auto.
Wells Fargo retained approximately $398 million in retail auto loans as part of the transaction and many businesses are partiallyhas entered into a loan servicing agreement with Popular Auto with respect to such loans.
During the quarter ended September 30, 2018, the Reliable acquisition contributed approximately $11.7 million to net income, composed of net interest income of $30.7 million, $5.1 million of operating or remain closed. Electronic transactions,income, including servicing fees from the retained Wells Fargo portfolio, and expenses of $8.6 million, including $3.8 million of transaction related expenses.
Common Stock Repurchase Plan
During the quarter ended September 30, 2018, the Corporation entered into a significant source$125 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of revenue2,000,000 shares of the Corporation’s common stock (the “Initial Shares”), which was accounted for the bank, have also declined significantly as a treasury stock transaction. As a result of the lack of power and telecommunication services. Several reports indicate that the hurricanes have also accelerated the outmigration trends that Puerto Rico was experiencing, with many residents moving to the mainland United States, either on a temporary or permanent basis.
While it is too early to assess and quantify the full extentreceipt of the damage caused by the hurricanes, as well as their long-term impact on economic activity, the damages are substantial and have, at least in the short-term, had a material adverse impact on economic activity, as reflected by, among other things, the slowdown in production and sales activity and the reduction in the government’s tax revenues. Employment levels are also expected to decrease at least in the short-term. The speed at which the government is able to restore power and other basic services throughout Puerto Rico, which we are not able to predict, will be a critical variable in determining the extent of the impact on economic activity. Furthermore, the hurricanes severely damaged or destroyed buildings, homes and other structures, impacting the value of such properties, some of which may serve as collateral to our loans. While our collateral is generally insured, the value of such insured structures, as well as other structures unaffected by the hurricanes, may be significantly impacted. Although some of the impact of the hurricanes, including its short-term impact on economic activity, may be offset by recovery and reconstruction activity and the influx of Federal emergency funds and private insurance proceeds, it is too early to know the amount of Federal and private insurance money to be received and whether such transfers will significantly offset the negative economic, fiscal and demographic impact of the hurricanes.
Prior to the hurricanes,Initial Shares, the Corporation had implemented its business continuity action program. Although the Corporation’s business critical systems experienced minimal outagesrecognized in shareholders’ equity approximately $102 million in treasury stock and $23 million as a resultreduction of the storms, the Corporation’s physical operations in Puerto Rico, the USVI and the BVI, including its branch and ATM networks, were materially disrupted by the storms mostly due to lack of electricity and communication as well as limited accessibility. As of November 7, 2017, 85% of BPPR’s bank branches were open and 69% of ATMs were operating. Reconstruction of the island’s electric infrastructure and restoration of the telecommunications network remain the most critical challenges for Puerto Rico’s recovery from the hurricanes.
After the hurricanes, Popular has worked diligently to provide service to the Puerto Rico and Virgin Islands markets, including reopening retail locations and providing assistance to the communities it serves. A priority for Popular has been to maintain cash in its branches and ATM’s and to mobilize its workforce to ensure continuity of service to its customers and that of other financial institutions. Popular has implemented several initiatives to provide assistance to individuals and businesses impacted by the hurricanes. Actions taken by Popular, directly or through its affiliated P.R. and U.S.-based foundations, include:
Payment Moratoriums. Payment moratoriums for eligible customers of up to three months in mortgage, consumer, auto and commercial loans, subject to certain terms and conditions.
Fee Waivers. The waiver of certain fees and service charges, including late-payment charges and ATM transaction fees in hurricane-affected areas.
Employee Relief. Popular increased the Employee Relief Fund to $750,000 to assist affected employees. Popular also assisted employees by providing means to obtain water, food and other supplies, child care services, orientation on how to submit claims to the Federal Emergency Management Agency (“FEMA”) and other special offers.
Other Charitable Initiatives. The Corporation’s philanthropic arms, Fundación Banco Popular and the Popular Community Bank Foundation, launched relief efforts for the victims of hurricane Irma and Maria, through the “Embracing Puerto Rico” and “Embracing the Islands” campaigns, to which Popular has donated $1.1 million. As needs unfold, the Foundations are expected to direct funding to address immediate and long-term needs arising from the impact of the hurricanes. Popular also contributed to “Unidos por Puerto Rico”, a fundraising campaign spearheaded by Puerto Rico’s First Lady and was one of two sponsors of the “Somos Una Voz” concert that has raised over $35 million for earthquake victims in Mexico and hurricane victims in Texas, Florida, Puerto Rico and the Caribbean. Fundación Banco Popular is leveraging the relationships it has developed withnon-profit organizations and community leaders throughout its almost40-year history, delivering assistance directly to those who need it most.
Financial impact of the hurricanes
capital surplus. During the third quarter of 2017, the Corporation recorded $79.4 million inpre-tax hurricane-related expenses, including an incremental provision for loan losses of $69.9 million. These amounts are net of amounts receivable for related insurance claims of $7.5 million related to physical damages to the Corporation’s premises, equipment and other real estate owned (“OREO”).
In addition to the incremental provision and direct operating expenses, results for the three months ended September 30, 2017 were impacted by the hurricanes in the form of a reduction in revenue resulting from reduced merchant transaction activity, the waiver of certain late fees and service charges, including ATM transaction fees, to businesses and consumers in hurricane-affected areas, as well as the economic and operational disruption in the Corporation’s mortgage origination, servicing and loss mitigation activities due to the hurricanes’ operational and economic impact. These revenue captions reflect approximately $11 million in lower income when compared to the previous quarter, primarily driven by the disruption in our operations over the last 10 days of the quarter.
The impact on transactional and collection based revenues has continued into the fourth quarter of 2018, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the amountdelivery or receipt of cash or shares upon the termination of the ASR agreement, which will depend on the speed at which electricity, telecommunicationsaverage price of the Corporation’s shares during the term of the ASR.
Redemption of Trust Preferred Securities
On September 7, 2018, Popular North America, Inc. (“PNA”), a wholly-owned subsidiary of the Corporation, completed the redemption of all outstanding 8.327% Capital Securities, Series A (liquidation amount $1,000 per security and general merchant services can be restored across$52,865,000 in the region.aggregate) issued by BanPonce Trust I, a Delaware statutory trust established by PNA. The redemption price of each security was equal to 100% of the liquidation amount of the securities plus accumulated and unpaid distributions up to and excluding the redemption date.
Hurricanes impact on loan delinquenciesIssuance of Senior Notes
As notedOn September 11, 2018, the Corporation issued $300 million aggregate principal amount of 6.125% Senior Notes due 2023 (the “Notes”) in Note 8an underwritten public offering pursuant to an effective shelf registration statement filed with the Securities and Exchange Commission. On October 15, 2018 ( the “Redemption Date”), the Corporation used the net proceeds of the offering and available cash to redeem $450 million aggregate principal amount of its outstanding 7.00% Senior Notes due 2019 (the “2019 Notes”).
The redemption price of the 2019 Notes was equal to the accompanying Financial Statements,sum of the present values of the remaining scheduled payments of principal and interest on the 2019 Notes that would have been due after the Redemption Date and on or prior to June 1, 2019, discounted to the disruptions caused by Hurricanes Irma and Maria,Redemption Date on a semiannual basis at the Corporation’s payment channels, collection efforts and loss mitigation operations were interrupted and mainly unavailable forTreasury Rate plus 50 basis points, plus unpaid interest accrued to, but not including the last 10 days of the quarter. This disruption contributed to an increase in the level of loan delinquencies as of September 30, 2017, as detailed in following schedule:
Puerto Rico | ||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
Past due | Non-covered | |||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | loans HIP | ||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | Puerto Rico | ||||||||||||||||||
Commercial and construction | $ | 69,175 | $ | 20,641 | $ | 184,935 | $ | 274,751 | $ | 6,982,565 | $ | 7,257,316 | ||||||||||||
Mortgage | 583,383 | 221,646 | 856,307 | 1,661,336 | 4,154,169 | 5,815,505 | ||||||||||||||||||
Consumer | 99,899 | 44,579 | 72,355 | 216,833 | 3,828,418 | 4,045,251 | ||||||||||||||||||
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Total | $ | 752,457 | $ | 286,866 | $ | 1,113,597 | $ | 2,152,920 | $ | 14,965,152 | $ | 17,118,072 | ||||||||||||
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June 30, 2017 | ||||||||||||||||||||||||
Puerto Rico | ||||||||||||||||||||||||
Past due | Non-covered | |||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | loans HIP | ||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | Puerto Rico | ||||||||||||||||||
Commercial and construction | $ | 102,701 | $ | 21,394 | $ | 190,033 | $ | 314,128 | $ | 6,938,862 | $ | 7,252,990 | ||||||||||||
Mortgage | 307,222 | 151,129 | 743,059 | 1,201,410 | 4,616,873 | 5,818,283 | ||||||||||||||||||
Consumer | 65,064 | 24,077 | 68,689 | 157,830 | 3,847,562 | 4,005,392 | ||||||||||||||||||
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Total | $ | 474,987 | $ | 196,600 | $ | 1,001,781 | $ | 1,673,368 | $ | 15,403,297 | $ | 17,076,665 | ||||||||||||
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December 31, 2016 | ||||||||||||||||||||||||
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Past due | Non-covered | |||||||||||||||||||||||
30-59 | 60-89 | 90 days | Total | loans HIP | ||||||||||||||||||||
(In thousands) | days | days | or more | past due | Current | Puerto Rico | ||||||||||||||||||
Commercial and construction | $ | 130,959 | $ | 12,437 | $ | 198,911 | $ | 342,307 | $ | 6,945,468 | $ | 7,287,775 | ||||||||||||
Mortgage | 289,635 | 136,558 | 801,251 | 1,227,444 | 4,689,056 | 5,916,500 | ||||||||||||||||||
Consumer | 64,113 | 25,602 | 74,289 | 164,004 | 3,800,145 | 3,964,149 | ||||||||||||||||||
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Total | $ | 484,707 | $ | 174,597 | $ | 1,074,451 | $ | 1,733,755 | $ | 15,434,669 | $ | 17,168,424 | ||||||||||||
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The disruption in payment channels, particularly our branch network, contributed to the spike in mortgage loans past due 30-89 days. Traditionally, one third of mortgage loan payments are made by our clients directly at our branches, many of which were unavailable for the last 10 days of the quarter. While the aggregate unpaid principal balance of mortgage loans past due 30-89 days increased by approximately $346.7 million at September 30, 2017 when compared to June 30, 2017, borrowers of loans with an aggregate approximate unpaid principal balance of $304.2 million, recorded as 30-89 past due at September 30, 2017, returned to current status as of the end of October. These borrowers made their September loan paymentsRedemption Date. As such, during the monthfourth quarter of October and either also made their scheduled October payment or benefited from2018, the loan payment moratorium extended by Popular.
We expect the hurricanesCorporation expects to continue to impact the Corporation’s earnings for the quarter ending December 31, 2017 and future periods. For additional information of the financial impactrecognize approximately $13 million in expenses associated with the hurricanes, refer to Note 2 toaccelerated amortization of debt issuance costs and the accompanying Financial Statements. Also, refer to the Net Interest Income,Non-Interest Income, Operating Expenses and Credit Quality sections in this MD&A for additional discussionsredemption price of the impact of the hurricanes in the Corporation’s financial statements.2019 Notes.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters and nine months ended September 30, 20172018 and 2016.2017.
Adjusted results of operations –Non-GAAP financial measure
Adjusted net income
The Corporation prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Corporation’s results on a reported basis, management monitors “Adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Adjusted net income is anon-GAAP financial measure. Management believes that Adjusted net income provides meaningful information about the underlying performance of the Corporation’s ongoing operations.
For the quarter and nine months ended September 30, 2017, there were no adjustments identified by management to arrive at an Adjusted net income presentation. Refer to Tables 36 and 37Table 29 for a reconciliation of the reported resultsnet income to the Adjusted net income for the quarter and nine months period ended September 30, 2016.2018. No adjustments are reflected for the third quarter of 2018 and 2017.
Net interest income on a taxable equivalent basis
Net interest income, on a taxable equivalent basis, is presented with its different components in Tables 2 and 3 for the quarterquarters and nine months periods ended September 30, 20172018 as compared with the same period in 2016,2017, segregated by major categories of interest earning assets and interest-bearing liabilities.
The interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources oftax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, and certain obligations of the Commonwealth of Puerto Rico and its agencies and 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 the Puerto Rico tax law. Under this law, the exempt interest can be deducted up to the amount of taxable income. Net interest income on a taxable equivalent basis is anon-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and exempt sources.
Non-GAAP financial measures used by the Corporation may not be comparable to similarly namedNon-GAAP financial measures used by other companies.
Financial highlights for the quarter ended September 30, 20172018
For the quarter ended September 30, 2017,2018, the Corporation recorded net income of $ 20.7140.6 million, compared to net income of $ 46.820.7 million for the same quarter of the previous year. The results for the quarter reflect the estimated impact of the hurricanes, which includespre-tax expenses of $79.4 million, as discussed above.
Total deposits at September 30, 20172018 increased by $3.8$4.2 billion when compared to deposits at December 31, 2016,2017, mainly due to an increase in public, retail and commercial deposits from the Puerto Rico public sector.
Capital ratios continued to be strong. As of September 30, 2017,2018, the Corporation’s Commoncommon equity Tiertier 1 Capitalcapital ratio was 16.63%16.19%, while the Total Capitaltotal capital ratio was 19.62%18.82%. Refer to Table 148 for capital ratios.
Refer to the Operating Results Analysis and Financial Condition Analysis within this MD&A for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.
As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business spending and investment, consumer income, spending and savings, capital market activities, competition, customer preferences, interest rate conditions and prevailing market rates on competing products.
The Corporation 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.
Hurricanes Irma and Maria have had and continue to have an impact on the people and communities in which the Corporation does business. The Corporation will continue to monitor the effects of these hurricanes on its operations and clients. Popular, as the leading financial institution in Puerto Rico, is committed to partnering with our neighbors and communities to aid in the rebuilding process.
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 description of the Corporation’s business contained in Item 1 of the Corporation’s 20162017 Form10-K, while not all inclusive, discusses additional information about the business of the Corporation and risk factors, many beyond the Corporation’s control that, in addition to the other information in this Form10-Q, readers should consider. Also, refer to Item 1A—Risk Factors, of this Form10-Q for additional information.
The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol BPOP.
Table 1—Financial Highlights
Financial Condition Highlights
Ending balances at | Average for the nine months ended | Ending balances at | Average for the nine months ended | |||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | Variance | September 30, 2017 | September 30, 2016 | Variance | September 30, 2018 | December 31, 2017 | Variance | September 30, 2018 | September 30, 2017 | Variance | ||||||||||||||||||||||||||||||||||||
Money market investments | $ | 5,488,212 | $ | 2,890,217 | $ | 2,597,995 | $ | 4,131,750 | $ | 2,911,043 | $ | 1,220,707 | $ | 4,609,061 | $ | 5,255,119 | $ | (646,058 | ) | $ | 6,460,967 | $ | 4,131,750 | $ | 2,329,217 | |||||||||||||||||||||||
Investment and trading securities | 9,374,355 | 8,535,530 | 838,825 | 9,517,128 | 7,224,704 | 2,292,424 | ||||||||||||||||||||||||||||||||||||||||||
Investment securities | 13,344,548 | 10,482,971 | 2,861,577 | 11,729,726 | 9,517,128 | 2,212,598 | ||||||||||||||||||||||||||||||||||||||||||
Loans | 23,767,168 | 23,435,446 | 331,722 | 23,403,999 | 23,057,383 | 346,616 | 26,563,910 | 24,942,463 | 1,621,447 | 24,633,267 | 23,403,999 | 1,229,268 | ||||||||||||||||||||||||||||||||||||
Earning assets | 38,629,735 | 34,861,193 | 3,768,542 | 37,052,877 | 33,193,130 | 3,859,747 | 44,517,519 | 40,680,553 | 3,836,966 | 42,823,960 | 37,052,877 | 5,771,083 | ||||||||||||||||||||||||||||||||||||
Total assets | 42,601,267 | 38,661,609 | 3,939,658 | 40,781,408 | 37,119,732 | 3,661,676 | 47,919,428 | 44,277,337 | 3,642,091 | 46,208,621 | 40,781,408 | 5,427,213 | ||||||||||||||||||||||||||||||||||||
Deposits | 34,248,936 | 30,496,224 | 3,752,712 | 32,602,038 | 28,534,115 | 4,067,923 | 39,648,827 | 35,453,508 | 4,195,319 | 38,014,622 | 32,602,038 | 5,412,584 | ||||||||||||||||||||||||||||||||||||
Borrowings | 2,147,064 | 2,055,477 | 91,587 | 1,981,012 | 2,382,051 | (401,039 | ) | 2,046,003 | 2,023,485 | 22,518 | 2,758,342 | 1,981,012 | 777,330 | |||||||||||||||||||||||||||||||||||
Stockholders’ equity | 5,285,431 | 5,197,957 | 87,474 | 5,333,137 | 5,259,959 | 73,178 | 5,244,349 | 5,103,905 | 140,444 | 5,400,225 | 5,333,137 | 67,088 | ||||||||||||||||||||||||||||||||||||
Liabilities from discontinued operations | — | — | — | — | 1,815 | (1,815 | ) | |||||||||||||||||||||||||||||||||||||||||
Operating Highlights | Quarters ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
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(In thousands, except per share information) | 2017 | 2016 | Variance | 2017 | 2016 | Variance | 2018 | 2017 | Variance | 2018 | 2017 | Variance | ||||||||||||||||||||||||||||||||||||
Net interest income | $ | 378,171 | $ | 353,687 | $ | 24,484 | $ | 1,114,748 | $ | 1,066,650 | $ | 48,098 | $ | 451,469 | $ | 378,171 | $ | 73,298 | $ | 1,258,652 | $ | 1,114,748 | $ | 143,904 | ||||||||||||||||||||||||
Provision for loan losses -non-covered loans | 157,659 | 42,594 | 115,065 | 249,681 | 130,202 | 119,479 | ||||||||||||||||||||||||||||||||||||||||||
Provision (reversal) for loan losses - covered loans | 3,100 | 750 | 2,350 | 4,255 | (1,551 | ) | 5,806 | |||||||||||||||||||||||||||||||||||||||||
Provision for loanlosses—non-covered loans | 54,387 | 157,659 | (103,272 | ) | 183,774 | 249,681 | (65,907 | ) | ||||||||||||||||||||||||||||||||||||||||
Provision for loan losses—covered loans | — | 3,100 | (3,100 | ) | 1,730 | 4,255 | (2,525 | ) | ||||||||||||||||||||||||||||||||||||||||
Non-interest income | 100,374 | 75,978 | 24,396 | 333,036 | 298,111 | 34,925 | 151,021 | 100,374 | 50,647 | 499,327 | 333,036 | 166,291 | ||||||||||||||||||||||||||||||||||||
Operating expenses | 317,088 | 323,672 | (6,584 | ) | 935,241 | 934,764 | 477 | 365,437 | 317,088 | 48,349 | 1,025,107 | 935,241 | 89,866 | |||||||||||||||||||||||||||||||||||
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Income before income tax | 698 | 62,649 | (61,951 | ) | 258,607 | 301,346 | (42,739 | ) | 182,666 | 698 | 181,968 | 547,368 | 258,607 | 288,761 | ||||||||||||||||||||||||||||||||||
Income tax (benefit) expense | (19,966 | ) | 15,839 | (35,805 | ) | 48,772 | 80,550 | (31,778 | ) | |||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 42,018 | (19,966 | ) | 61,984 | 35,613 | 48,772 | (13,159 | ) | ||||||||||||||||||||||||||||||||||||||||
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Net income | $ | 20,664 | $ | 46,810 | $ | (26,146 | ) | $ | 209,835 | $ | 220,796 | $ | (10,961 | ) | $ | 140,648 | $ | 20,664 | $ | 119,984 | $ | 511,755 | $ | 209,835 | $ | 301,920 | ||||||||||||||||||||||
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Net income applicable to common stock | $ | 19,734 | $ | 45,880 | $ | (26,146 | ) | $ | 207,043 | $ | 218,004 | $ | (10,961 | ) | $ | 139,718 | $ | 19,734 | $ | 119,984 | $ | 508,963 | $ | 207,043 | $ | 301,920 | ||||||||||||||||||||||
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Net income per Common Share – Basic | $ | 0.19 | $ | 0.44 | $ | (0.25 | ) | $ | 2.03 | $ | 2.11 | $ | (0.08 | ) | ||||||||||||||||||||||||||||||||||
Net income per common share – Basic | $ | 1.38 | $ | 0.19 | $ | 1.19 | $ | 5.01 | $ | 2.03 | $ | 2.98 | ||||||||||||||||||||||||||||||||||||
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Net income per Common Share – Diluted | $ | 0.19 | $ | 0.44 | $ | (0.25 | ) | $ | 2.03 | $ | 2.11 | $ | (0.08 | ) | ||||||||||||||||||||||||||||||||||
Net income per common share – Diluted | $ | 1.38 | $ | 0.19 | $ | 1.19 | $ | 5.00 | $ | 2.03 | $ | 2.97 | ||||||||||||||||||||||||||||||||||||
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Dividends declared per common share – Basic | $ | 0.25 | $ | 0.15 | $ | 0.10 | $ | 0.75 | $ | 0.45 | $ | 0.30 | ||||||||||||||||||||||||||||||||||||
Dividends declared per common share—Basic | $ | 0.25 | $ | 0.25 | $ | — | $ | 0.75 | $ | 0.75 | $ | — | ||||||||||||||||||||||||||||||||||||
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Quarters ended September 30, | Nine months ended September 30, | Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||
Selected Statistical Information | 2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Common Stock Data | ||||||||||||||||||||||||||||||||
Market price | ||||||||||||||||||||||||||||||||
High | $ | 43.12 | $ | 39.74 | $ | 45.75 | $ | 39.74 | ||||||||||||||||||||||||
Low | 35.27 | 28.00 | 35.27 | 22.62 | ||||||||||||||||||||||||||||
End | 35.94 | 38.22 | 35.94 | 38.22 | ||||||||||||||||||||||||||||
End market price | $ | 51.25 | 35.94 | $ | 51.25 | 35.94 | ||||||||||||||||||||||||||
Book value per common share at period end | 51.31 | 51.85 | 51.31 | 51.85 | 51.77 | 51.31 | 51.77 | 51.31 | ||||||||||||||||||||||||
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Profitability Ratios | ||||||||||||||||||||||||||||||||
Return on assets | 0.20 | % | 0.49 | % | 0.69 | % | 0.79 | % | 1.17 | % | 0.20 | % | 1.48 | % | 0.69 | % | ||||||||||||||||
Return on common equity | 1.47 | 3.46 | 5.24 | 5.59 | 10.10 | 1.47 | 12.72 | 5.24 | ||||||||||||||||||||||||
Net interest spread | 3.75 | 3.90 | 3.81 | 4.06 | 3.81 | 3.75 | 3.69 | 3.81 | ||||||||||||||||||||||||
Net interest spread(taxable equivalent) - Non-GAAP | 4.05 | 4.15 | 4.10 | 4.32 | ||||||||||||||||||||||||||||
Net interest spread (taxableequivalent)—Non-GAAP | 4.14 | 4.05 | 4.01 | 4.10 | ||||||||||||||||||||||||||||
Net interest margin | 3.96 | 4.12 | 4.02 | 4.29 | 4.07 | 3.96 | 3.92 | 4.02 | ||||||||||||||||||||||||
Net interest margin (taxable equivalent) -Non-GAAP | 4.26 | 4.37 | 4.31 | 4.55 | ||||||||||||||||||||||||||||
Net interest margin (taxableequivalent)—Non-GAAP | 4.40 | 4.26 | 4.24 | 4.31 | ||||||||||||||||||||||||||||
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Capitalization Ratios | ||||||||||||||||||||||||||||||||
Average equity to average assets | 11.66 | % | 12.92 | % | 11.69 | % | 13.08 | % | ||||||||||||||||||||||||
Common equity Tier 1 capital | 16.19 | 16.63 | 16.19 | 16.63 | ||||||||||||||||||||||||||||
Tier I capital | 16.19 | 16.63 | 16.19 | 16.63 | ||||||||||||||||||||||||||||
Total capital | 18.42 | 19.62 | 18.42 | 19.62 | ||||||||||||||||||||||||||||
Tier 1 leverage | 9.60 | 10.29 | 9.60 | 10.29 | ||||||||||||||||||||||||||||
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Capitalization Ratios Average equity to average assets Common equity Tier 1 capital Tier I capital Total capital Tier 1 leverage 12.92 % 13.98 % 13.08 % 14.17 % 16.63 16.64 16.63 16.64 16.63 16.64 16.63 16.64 19.62 19.65 19.62 19.65 10.29 11.21 10.29 11.21
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 Loan Losses; (iii) Acquisition Accounting for Loans and Related Indemnification Asset;Loans; (iv) Income Taxes; (v) Goodwill, and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in Popular, Inc.’s 20162017 Form10-K. Also, referRefer to Note 23 to the Consolidated Financial Statements included in the 20162017 Form10-K for a summary of the Corporation’s significant accounting policies.
Duringpolicies and to Note 3 to the third quarter of 2017, the Corporation performed the annual goodwill impairment evaluationConsolidated Financial Statements included in this Form 10Q for the entire organization using July 31, 2017 as the annual evaluation date and determined that there was no indication of impairment on recorded goodwill. For additional information on the results of the goodwill impairment analysis,recently adopted accounting standard updates. Also, refer to Note 15.2 for accounting policies related to business combinations.
OPERATING RESULTS ANALYSIS
NET INTEREST INCOME
Net interest income was $378.2$451.5 million for the third quarter of 2017,2018, an increase of $24.5$73.3 million when compared to $353.7$378.2 million for the same quarter of 2016.2017. Taxable equivalent net interest income was $406.6$488.1 million for the third quarter of 2017,2018, an increase of $31.2$81.5 million when compared to $375.4$406.6 million for the same quarter of 2016.2017. The increase in $8.3 million in the taxable equivalent adjustment is directly related to a higher volume oftax-exempt investments in P.R. Net interest margin for the third quarter of 20172018 was 3.96%4.07%, a decreasean increase of 1611 basis points when compared to 4.12%3.96% for the same quarter of the previous year. Net Interest margin, on a taxable equivalent basis, for the third quarter of 20172018 was 4.26%4.40%, a decreasean increase of 1114 basis points when compared to 4.37%4.26% for the same quarter of 2016. The decrease2017.The increase in net interest margin is mostly related to the changedeployment of excess liquidity to acquire the Reliable portfolio and purchase of approximately $3 billion in asset mix, due to a higher proportion of money market, investment and trading securities, to total earning assets (38% this quarter versus 33% inthereby improving the third quarter of 2016) as compared to the proportion of loans to earning assets which carry a higherafter-tax asset yield. The main reasons fordetailed variances of the increase in net interest income are described below:
Positive variances:
Higher interest income from money market investments due to both an increase in volumehigher yield of funds available to invest, related to an increase in Puerto Rico government deposits, and to recent increases in rates by the U.S. Federal Reserve. Average rate of such portfolios for the quarter increased 7671 basis points when compared to the same period in 2016;2017. Since October 2017 the U.S. Federal Reserve has increased the federal funds rate by 100 basis points. A higher volume of funds available to invest, resulting from the increases in P.R. Government, retail and commercial deposits, also contributed to the increase in interest income;
Higher interest income from investment securities mainly due to higher volumes particularly onfrom U.S. Treasuries and mortgage-backed securities related to recent purchases;purchases, in part to deploy excess liquidity, as mentioned above. Most of the interest income on these securities is exempt from income tax in P.R. therefore improving the return on investment;
Higher income from commercial and construction loans, driven by higher volume of loans, mainly from loans acquired in the Reliable Transaction, higher volume in the U.S. and improved yields in Puerto Rico mostly associatedrelated to the impacteffect on the variable rate portfolio of the above- mentionedabove-mentioned rise in interest rates byand originations in a higher interest rate environment; and
Higher income from consumer loans mostly from the U.S. Federal Reserve.loans acquired in the Reliable Transaction, and the growth of the auto loan business in P.R.
Negative variances:
Lower interest income from mortgage loans due to lower average balances resulting from lower lending activity and portfoliorun-off balance in P.R. and the U.S. and lower yields in P.R. impacted by loan delinquencies as a resultborrowers who did not make payments after the end of the business disruption from Hurricanes Irmamoratorium period and Maria;entered intonon-accrual status; and
Interest income for the quarter ended September 30, 20172018, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $18.7 million in income including $13.4 million of fair value discount amortization related to the Reliable Transaction, compared with $4.7 million compared to $5.1 millionin income for the same period in 2016.2017.
Table 2—Analysis of Levels & Yields on a Taxable Equivalent Basis for Continuing Operations(Non-GAAP)
Quarters ended September 30,
Variance | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Volume | Average Volume | Average Yields / Costs | Interest | Variance Attributable to | Average Volume | Average Yields / Costs | Interest | Attributable to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Variance | 2017 | 2016 | Variance | 2017 | 2016 | Variance | Rate | Volume | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2018 | 2017 | Variance | 2018 | 2017 | Variance | 2018 | 2017 | Variance | Rate | Volume | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | (In thousands) | (In millions) | (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 4,866 | $ | 3,537 | $ | 1,329 | 1.27 | % | 0.51 | % | 0.76 | % | Money market investments | $ | 15,529 | $ | 4,567 | $ | 10,962 | $ | 8,857 | $ | 2,105 | 5,514 | $ | 4,866 | $ | 648 | 1.98 | % | 1.27 | % | 0.71 | % | Money market investments | $ | 27,581 | $ | 15,529 | $ | 12,052 | $ | 9,764 | $ | 2,288 | ||||||||||||||||||||||||||||||||||||||||||||
9,536 | 7,494 | 2,042 | 2.74 | 2.68 | 0.06 | Investment securities | 65,331 | 50,165 | 15,166 | 2,891 | 12,275 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
81 | 128 | (47 | ) | 7.43 | 5.85 | 1.58 | Trading securities | 1,521 | 1,876 | (355 | ) | 433 | (788 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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14,483 | 11,159 | 3,324 | 2.27 | 2.03 | 0.24 | Total money market, investment and trading securities | 82,381 | 56,608 | 25,773 | 12,181 | 13,592 | 12,954 | 9,536 | 3,418 | 2.97 | 2.74 | 0.23 | Investment securities | 96,573 | 65,331 | 31,242 | 10,835 | 20,407 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 79 | 81 | (2 | ) | 7.81 | 7.43 | 0.38 | Trading securities | 1,553 | 1,521 | 32 | 76 | (44 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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10,065 | 9,269 | 796 | 5.26 | 5.05 | 0.21 | Commercial | 133,354 | 117,762 | 15,592 | 5,181 | 10,411 | 18,547 | 14,483 | 4,064 | 2.70 | 2.27 | 0.43 | Total money market, investment and trading securities | 125,707 | 82,381 | 43,326 | 20,675 | 22,651 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
826 | 739 | 87 | 5.77 | 5.44 | 0.33 | Construction | 12,003 | 10,115 | 1,888 | 657 | 1,231 |
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750 | 669 | 81 | 6.37 | 6.72 | (0.35 | ) | Leasing | 11,944 | 11,240 | 704 | (602 | ) | 1,306 | Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,444 | 6,637 | (193 | ) | 5.53 | 5.56 | (0.03 | ) | Mortgage | 89,160 | 92,169 | (3,009 | ) | (347 | ) | (2,662 | ) | 11,814 | 11,131 | 683 | 6.09 | 5.72 | 0.37 | Commercial | 181,228 | 160,442 | 20,786 | 10,649 | 10,137 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,782 | 3,847 | (65 | ) | 10.44 | 10.37 | 0.07 | Consumer | 99,527 | 100,268 | (741 | ) | 189 | (930 | ) | 932 | 826 | 106 | 6.45 | 5.76 | 0.69 | Construction | 15,151 | 11,994 | 3,157 | 1,517 | 1,640 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 885 | 750 | 135 | 5.99 | 6.37 | (0.38 | ) | Leasing | 13,247 | 11,945 | 1,302 | (753 | ) | 2,055 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
21,867 | 21,161 | 706 | 6.29 | 6.24 | 0.05 | Sub-total loans | 345,988 | 331,554 | 14,434 | 5,078 | 9,356 | 7,142 | 7,035 | 107 | 5.29 | 5.44 | (0.15 | ) | Mortgage | 94,439 | 95,703 | (1,264 | ) | (2,710 | ) | 1,446 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,681 | 1,881 | (200 | ) | 8.50 | 8.65 | (0.15 | ) | WB loans | 35,939 | 40,867 | (4,928 | ) | (809 | ) | (4,119 | ) | 4,818 | 3,806 | 1,012 | 11.14 | 10.62 | 0.52 | Consumer | 135,269 | 101,843 | 33,426 | 7,979 | 25,447 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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23,548 | 23,042 | 506 | 6.45 | 6.44 | 0.01 | Total loans | 381,927 | 372,421 | 9,506 | 4,269 | 5,237 | 25,591 | 23,548 | 2,043 | 6.82 | 6.45 | 0.37 | Total loans | 439,334 | 381,927 | 57,407 | 16,682 | 40,725 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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$ | 38,031 | $ | 34,201 | $ | 3,830 | 4.86 | % | 5.00 | % | (0.14 | )% | Total earning assets | $ | 464,308 | $ | 429,029 | $ | 35,279 | $ | 16,450 | $ | 18,829 | 44,138 | $ | 38,031 | $ | 6,107 | 5.09 | % | 4.86 | % | 0.23 | % | Total earning assets | $ | 565,041 | $ | 464,308 | $ | 100,733 | $ | 37,357 | $ | 63,376 | ||||||||||||||||||||||||||||||||||||||||||||
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Interest bearing deposits: | Interest bearing deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 10,465 | $ | 7,326 | $ | 3,139 | 0.39 | % | 0.38 | % | 0.01 | % | NOW and money market [1] | $ | 10,278 | $ | 7,014 | $ | 3,264 | $ | 650 | $ | 2,614 | 13,201 | $ | 10,465 | $ | 2,736 | 0.69 | % | 0.39 | % | 0.30 | % | NOW and money market [1] | $ | 22,974 | $ | 10,278 | $ | 12,696 | $ | 9,319 | $ | 3,377 | ||||||||||||||||||||||||||||||||||||||||||||
8,260 | 7,550 | 710 | 0.24 | 0.24 | — | Savings | 5,025 | 4,613 | 412 | (93 | ) | 505 | 9,797 | 8,260 | 1,537 | 0.37 | 0.24 | 0.13 | Savings | 9,043 | 5,025 | 4,018 | 2,760 | 1,258 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,543 | 7,859 | (316 | ) | 1.14 | 1.05 | 0.09 | Time deposits | 21,756 | 20,735 | 1,021 | 1,744 | (723 | ) | 7,419 | 7,543 | (124 | ) | 1.24 | 1.14 | 0.10 | Time deposits | 23,117 | 21,756 | 1,361 | 2,118 | (757 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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26,268 | 22,735 | 3,533 | 0.56 | 0.57 | (0.01 | ) | Total deposits | 37,059 | 32,362 | 4,697 | 2,301 | 2,396 | 30,417 | 26,268 | 4,149 | 0.72 | 0.56 | 0.16 | Total deposits | 55,134 | 37,059 | 18,075 | 14,197 | 3,878 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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431 | 818 | (387 | ) | 1.40 | 1.04 | 0.36 | Short-term borrowings | 1,523 | 2,131 | (608 | ) | 607 | (1,215 | ) | 298 | 431 | (133 | ) | 2.16 | 1.40 | 0.76 | Short-term borrowings | 1,622 | 1,523 | 99 | 530 | (431 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,551 | 1,580 | (29 | ) | 4.94 | 4.85 | 0.09 | Other medium and long-term debt | 19,130 | 19,118 | 12 | 47 | (35 | ) | 1,563 | 1,551 | 12 | 5.16 | 4.94 | 0.22 | Other medium and long-term debt | 20,140 | 19,130 | 1,010 | 633 | 377 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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28,250 | 25,133 | 3,117 | 0.81 | 0.85 | (0.04 | ) | Total interest bearing liabilities | 57,712 | 53,611 | 4,101 | 2,955 | 1,146 | Total interest bearing | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 32,278 | 28,250 | 4,028 | 0.95 | 0.81 | 0.14 | liabilities | 76,896 | 57,712 | 19,184 | 15,360 | 3,824 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,235 | 6,676 | 559 | Demand deposits |
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2,546 | 2,392 | 154 | Other sources of funds | 8,860 | 7,235 | 1,625 | Demand deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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$ | 38,031 | $ | 34,201 | $ | 3,830 | 0.60 | % | 0.63 | % | (0.03 | )% | Total source of funds | 57,712 | 53,611 | 4,101 | 2,955 | 1,146 | 44,138 | $ | 38,031 | $ | 6,107 | 0.69 | % | 0.60 | % | 0.09 | % | Total source of funds | 76,896 | 57,712 | 19,184 | 15,360 | 3,824 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.26 | % | 4.37 | % | (0.11 | )% | Net interest margin/ income on a taxable equivalent basis(Non-GAAP) | 406,596 | 375,418 | 31,178 | $ | 13,495 | $ | 17,683 | 4.40 | % | 4.26 | % | 0.14 | % | Net interest margin/ income on a taxable equivalent basis(Non-GAAP) | 488,145 | 406,596 | 81,549 | $ | 21,997 | $ | 59,552 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.05 | % | 4.15 | % | (0.10 | )% | Net interest spread Taxable equivalent adjustment | 28,425 | 21,731 | 6,694 | 4.14 | % | 4.05 | % | 0.09 | % | Net interest spread | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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3.96 | % | 4.12 | % | (0.16 | )% | Net interest margin/ incomenon-taxable equivalent basis (GAAP) | $ | 378,171 | $ | 353,687 | $ | 24,484 | Taxable equivalent adjustment | 36,676 | 28,425 | 8,251 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.07 | % | 3.96 | % | 0.11 | % | Net interest margin/ incomenon-taxable equivalent basis (GAAP) | $ | 451,469 | $ | 378,171 | $ | 73,298 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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] | Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico. |
Net interest income for the nine months ended September 30, 20172018 was $1.3 billion compared to $1.1 billion an increase of $48 million fromfor the same period in 2016.of 2017. Taxable equivalent net interest income was $1.2$1.4 billion for the nine months ended September 30, 2017,2018, an increase of $64.0$163.3 million when compared to the $1.2 billion for the same period of 2016. The increase of $16 million on the taxable equivalent adjustment for the period is related to a higher volume of exempt investment securities in the Puerto Rico portfolio.2017. Net interest margin was 4.02%3.92%, a decrease of 2710 basis points when compared to 4.29%4.02% for the same period in 2016.2017. Net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 20172018 was 4.31%4.24%, a decrease of 247 basis points when compared to the 4.55%4.31% for the same period of 2016.2017. The variancesmain drivers of the increase in net interest income for the nine-month period are similar to the quarterly variances described above: positive variances in earning assets due toare: a higher volume of investment securities and money marketsmarket investments driven by the increase in government, commercial and continued growthretail deposits in P.R., the commercial portfolioincrease in the U.S. and the leasing portfolio in Puerto Rico. The negative variances were due to lower volumes from WB loans, mortgagecommercial and consumer loans duemostly associated to lower lending activitythe Reliable Transaction and the amortizationU.S. loan growth. The increase in market rates since March 2017 by 150 basis points was a positive factor in the yield of the portfolios, and themost earning assets, partially offset by an increase in interest expense oncost of P.R. government deposits due to higher volumesand U.S. deposits to fund the loan growthgrowth. The decrease in net interest margin is related to a higher proportion of money market and investment securities to earning assets of 42% as compared to 37% in the U.S. and the increasesame period in Puerto Rico government deposits.2017.
Interest income for the nine months ended September 30, 20172018, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $26.6 million in income including $13.4 million of fair value discount amortization related to the Reliable Transaction, compared with $16.9 million compared to $13.3 millionin income for the same period in 2016.2017.
Table 3—Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations(Non-GAAP)
Nine months ended September 30,
Average Volume | Average Volume | Average Yields / Costs | Interest | Variance Attributable to | Average Volume | Average Yields / Costs | Interest | Variance Attributable to | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | Variance | 2017 | 2016 | Variance | 2017 | 2016 | Variance | Rate | Volume | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2018 | 2017 | Variance | 2018 | 2017 | Variance | 2018 | 2017 | Variance | Rate | Volume | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | (In thousands) | (In millions) | (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 4,132 | $ | 2,911 | $ | 1,221 | 1.08 | % | 0.52 | % | 0.56 | % | Money market investments | $ | 33,234 | $ | 11,320 | $ | 21,914 | $ | 16,110 | $ | 5,804 | 6,461 | $ | 4,132 | $ | 2,329 | 1.78 | % | 1.08 | % | 0.70 | % | Money market investments | $ | 86,258 | $ | 33,234 | $ | 53,024 | $ | 28,604 | $ | 24,420 | ||||||||||||||||||||||||||||||||||||||||||||
9,422 | 7,096 | 2,326 | 2.73 | 2.76 | (0.03 | ) | Investment securities | 192,551 | 146,943 | 45,608 | 2,281 | 43,327 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
95 | 129 | (34 | ) | 7.36 | 6.69 | 0.67 | Trading securities | 5,230 | 6,463 | (1,233 | ) | 596 | (1,829 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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13,649 | 10,136 | 3,513 | 2.26 | 2.17 | 0.09 | Total money market, investment and trading securities | 231,015 | 164,726 | 66,289 | 18,987 | 47,302 | 11,652 | 9,429 | 2,223 | 2.92 | 2.73 | 0.19 | Investment securities | 254,638 | 192,680 | 61,958 | 27,865 | 34,093 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 78 | 88 | (10 | ) | 7.53 | 7.78 | (0.25 | ) | Trading securities | 4,387 | 5,101 | (714 | ) | (162 | ) | (552 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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9,863 | 9,126 | 737 | 5.20 | 5.08 | 0.12 | Commercial | 383,246 | 346,778 | 36,468 | 7,972 | 28,496 | 18,191 | 13,649 | 4,542 | 2.53 | 2.26 | 0.27 | Total money market, investment and trading securities | 345,283 | 231,015 | 114,268 | 56,307 | 57,961 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
819 | 722 | 97 | 5.57 | 5.39 | 0.18 | Construction | 34,154 | 29,150 | 5,004 | 976 | 4,028 |
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729 | 650 | 79 | 6.46 | 6.74 | (0.28 | ) | Leasing | 35,317 | 32,866 | 2,451 | (1,391 | ) | 3,842 | Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,522 | 6,736 | (214 | ) | 5.58 | 5.53 | 0.05 | Mortgage | 272,881 | 279,209 | (6,328 | ) | 2,611 | (8,939 | ) | 11,607 | 10,968 | 639 | 5.97 | 5.70 | 0.27 | Commercial | 518,306 | 467,787 | 50,519 | 22,603 | 27,916 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,728 | 3,839 | (111 | ) | 10.51 | 10.45 | 0.06 | Consumer | 293,079 | 300,416 | (7,337 | ) | (586 | ) | (6,751 | ) | 919 | 820 | 99 | 6.27 | 5.55 | 0.72 | Construction | 43,083 | 34,047 | 9,036 | 4,718 | 4,318 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| 852 | 729 | 123 | 5.99 | 6.46 | (0.47 | ) | Leasing | 38,255 | 35,325 | 2,930 | (2,732 | ) | 5,662 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
21,661 | 21,073 | 588 | 6.28 | 6.26 | 0.02 | Sub-total loans | 1,018,677 | 988,419 | 30,258 | 9,582 | 20,676 | 7,109 | 7,133 | (24 | ) | 5.31 | 5.48 | (0.17 | ) | Mortgage | 283,039 | 293,107 | (10,068 | ) | (9,083 | ) | (985 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,743 | 1,984 | (241 | ) | 8.59 | 9.12 | (0.53 | ) | WB loans | 112,022 | 135,565 | (23,543 | ) | (7,743 | ) | (15,800 | ) | 4,147 | 3,754 | 393 | 10.80 | 10.70 | 0.10 | Consumer | 334,849 | 300,433 | 34,416 | 5,475 | 28,941 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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23,404 | 23,057 | 347 | 6.45 | 6.51 | (0.06 | ) | Total loans | 1,130,699 | 1,123,984 | 6,715 | 1,839 | 4,876 | 24,634 | 23,404 | 1,230 | 6.60 | 6.45 | 0.15 | Total loans | 1,217,532 | 1,130,699 | 86,833 | 20,981 | 65,852 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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$ | 37,053 | $ | 33,193 | $ | 3,860 | 4.91 | % | 5.18 | % | (0.27 | )% | Total earning assets | $ | 1,361,714 | $ | 1,288,710 | $ | 73,004 | $ | 20,826 | $ | 52,178 | 42,825 | $ | 37,053 | $ | 5,772 | 4.88 | % | 4.91 | % | (0.03 | )% | Total earning assets | $ | 1,562,815 | $ | 1,361,714 | $ | 201,101 | $ | 77,288 | $ | 123,813 | ||||||||||||||||||||||||||||||||||||||||||||
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Interest bearing deposits: | Interest bearing deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | 9,647 | $ | 6,689 | $ | 2,958 | 0.38 | % | 0.38 | % | — | % | NOW and money market [1] | $ | 27,690 | $ | 19,217 | $ | 8,473 | $ | 1,501 | $ | 6,972 | 12,298 | $ | 9,809 | $ | 2,489 | 0.55 | % | 0.38 | % | 0.17 | % | NOW and money market [1] | $ | 50,219 | $ | 27,950 | $ | 22,269 | $ | 15,969 | $ | 6,300 | ||||||||||||||||||||||||||||||||||||||||||||
8,146 | 7,438 | 708 | 0.24 | 0.24 | — | Savings | 14,883 | 13,307 | 1,576 | 225 | 1,351 | 9,341 | 7,984 | 1,357 | 0.31 | 0.25 | 0.06 | Savings | 22,006 | 14,883 | 7,123 | 3,585 | 3,538 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,653 | 7,928 | (275 | ) | 1.09 | 1.02 | 0.07 | Time deposits | 62,334 | 60,311 | 2,023 | 4,560 | (2,537 | ) | 7,621 | 7,653 | (32 | ) | 1.17 | 1.09 | 0.08 | Time deposits | 66,825 | 62,074 | 4,751 | 1,001 | 3,750 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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25,446 | 22,055 | 3,391 | 0.55 | 0.56 | (0.01 | ) | Total deposits | 104,907 | 92,835 | 12,072 | 6,286 | 5,786 | 29,260 | 25,446 | 3,814 | 0.64 | 0.55 | 0.09 | Total deposits | 139,050 | 104,907 | 34,143 | 20,555 | 13,588 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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425 | 810 | (385 | ) | 1.17 | 1.00 | 0.17 | Short-term borrowings | 3,734 | 6,050 | (2,316 | ) | 743 | (3,059 | ) | 379 | 425 | (46 | ) | 1.90 | 1.17 | 0.73 | Short-term borrowings | 5,387 | 3,734 | 1,653 | 2,032 | (379 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,556 | 1,572 | (16 | ) | 4.91 | 4.92 | (0.01 | ) | Other medium and long-term debt | 57,222 | 57,993 | (771 | ) | (301 | ) | (470 | ) | 1,575 | 1,556 | 19 | 5.01 | 4.90 | 0.11 | Other medium and long-term debt | 59,204 | 57,222 | 1,982 | 1,444 | 538 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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27,427 | 24,437 | 2,990 | 0.81 | 0.86 | (0.05 | ) | Total interest bearing liabilities | 165,863 | 156,878 | 8,985 | 6,728 | 2,257 | 31,214 | 27,427 | 3,787 | 0.87 | 0.81 | 0.06 | Total interest bearing liabilities | 203,641 | 165,863 | 37,778 | 24,031 | 13,747 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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7,156 | 6,484 | 672 | Demand deposits | 8,755 | 7,156 | 1,599 | Demand deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,470 | 2,272 | 198 | Other sources of funds | 2,856 | 2,470 | 386 | Other sources of funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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$ | 37,053 | $ | 33,193 | $ | 3,860 | 0.60 | % | 0.63 | % | (0.03 | )% | Total source of funds | 165,863 | 156,878 | 8,985 | 6,728 | 2,257 | 42,825 | $ | 37,053 | $ | 5,772 | 0.64 | % | 0.60 | % | 0.04 | % | Total source of funds | 203,641 | 165,863 | 37,778 | 24,031 | 13,747 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.31 | % | 4.55 | % | (0.24 | )% | Net interest margin/ income on a taxable equivalent basis(Non-GAAP) | 1,195,851 | 1,131,832 | 64,019 | $ | 14,098 | $ | 49,921 | 4.24 | % | 4.31 | % | (0.07 | )% | Net interest margin/ income on a taxable equivalent basis(Non-GAAP) | 1,359,174 | 1,195,851 | 163,323 | $ | 53,257 | $ | 110,066 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.10 | % | 4.32 | % | (0.22 | )% | Net interest spread | 4.01 | % | 4.10 | % | (0.09 | )% | Net interest spread | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Taxable equivalent adjustment | 81,102 | 65,182 | 15,920 | Taxable equivalent adjustment | 100,522 | 81,102 | 19,420 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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4.02 | % | 4.29 | % | (0.27 | )% | Net interest margin/ incomenon-taxable equivalent basis (GAAP) | $ | 1,114,749 | $ | 1,066,650 | $ | 48,099 | 3.92 | % | 4.02 | % | (0.10 | )% | Net interest margin/ incomenon-taxable equivalent basis (GAAP) | $ | 1,258,652 | $ | 1,114,749 | $ | 143,903 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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] | Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico. |
Provision for Loan Losses
Damages associated with Hurricanes Irma and Maria impacted certain ofThe following discussion includes the Corporation’s asset quality measures, including higher delinquencies andnon-performing loans. Payment channels, collection efforts and loss mitigation operations were interrupted during the last month of the quarterprovision for loans previously classified as “covered” as a result of the hurricanes. AnShared-Loss Agreements entered into in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico through an FDIC-assisted transaction in 2010 ( the “FDIC transaction”) and terminated during the second quarter of 2018 pursuant to a termination agreement entered into between BPPR and the FDIC (the “Termination Agreement”).
The provision for loan losses for the portfolio previously classified as covered amounted to $1.7 million for the nine months period ended September 30, 2018 and $4.3 million for the same period of prior year.
The Corporation’s total provision for loan losses was $54.4 million for the quarter ended September 30, 2018, compared to $160.8 million for the quarter ended September 30, 2017, a decrease of $106.4 million, mostly related to last year’s incremental provision expense of $69.9 million was made to the allowance for loan losses based on management’s best estimate of the impact of Hurricanes Irma and María (“the hurricaneshurricanes”) on the Corporation’s loan portfolios, ascoupled with an impact of September 30, 2017, and the ability of borrowers to repay their loans, taking into consideration currently available information and the already challenging economic environment in Puerto Rico prior to the hurricanes.
Management has initially estimated$37.2 million during that the effects of the hurricanes could result in loan losses in the range of $70 to $160 million. However, since the Corporation’s base allowance for loan losses already incorporated reserves for environmental factors such as unemployment and deterioration in economic activity of approximately $57.9 million, management increased the environmental factors reserve by $64.3 million to $122.2 million using the nearmid-range of the loan loss estimates as the best estimate. The $69.9 million provision also includes $5.6 million for the portfolio of purchased credit impaired loans, accounted for under ASC310-30, for which the estimated cash flows were adjusted to reflect the three-month payment moratoriums offered to certain eligible borrowers, as discussed above. Since there is significant uncertainty with respect to the full extent of the impact due to the unprecedented nature of Hurricane María, the estimate is judgmental and subject to change as conditions evolve. Management will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and the assessment and review could result in further loan loss provisions in future periods.
The Corporation’s total provision for loan losses was $160.8 million for the quarter ended September 30, 2017, compared to $43.3 million for the quarter ended September 30, 2016, an increase of $117.5 million, mainly related to the $69.9 million hurricanes impact and a provision of $37.0 million on thePopular U.S. segment for the taxi medallion portfolio.
The provision for loan losses for thenon-covered loan portfolio totaled $157.7Puerto Rico was $51.9 million, compared to $42.6$115.1 million for the same quarter in 2016, an increase2017, a decrease of $115.1$63.2 million, mostly related to the same factors previously described. The incremental provision related to the hurricanes for thenon-covered loans amounted to $66.4 million. Also, totalnon-covered net charge-offs increased by $17.9 million when compared with the same quarter in 2016, mainly in the mortgage and consumer portfolios at BPPR.
The provision for loan losses for thenon-covered loan portfolio at the BPPR segment totaled $115.1 million, compared to $36.3 million for the same quarter in 2016. The increase was mainly related to last year’s incremental provision resulting from the previously described hurricanes, impact of $66.4 million. Also, net charge-offs reflected an increase of $12.3 million, driven by higher consumer net charge-offs of $14.4 million, in part dueas mentioned above.
The Popular U.S. segment continued to a $7.1 million recoveryreflect strong growth and favorable credit quality metrics, except in the third quartercase of 2016 related to the sale of previouslycharged-off credit cards and personal loans.
The provision for loan losses for the BPNA segment amounted to $42.5 million, compared to $6.3 million for the same quarter in 2016. The provision increase of $36.2 million was mainly due to a provision of $37.0 million for the taxi medallion portfolio acquired from the FDIC in the sale of Doral Bank, transaction, accounted under ASC310-30. As of September 30, 2017,which continues to reflect the taxipressure on medallion portfolio had an unpaid principal balance of $233 million. Net of reserves,collateral values, particularly in the carrying value of this portfolio is $93 million or approximately 40% of its unpaid principal balance, representing less than 1% of the Corporation’s total loan portfolio. This portfolio is mainly concentrated in New York City which accountsmetro area. The provision for 95% ofloan losses for the portfolio balance, with an average carrying loan value of $261 thousand per medallion. Credit trends at BPNA continuedPopular U.S. segment amounted to be favorable, excluding the taxi medallions portfolio, with low levels ofnon-performing loans and net charge-offs. Net charge-offs remain stable when compared to the quarter ended September 30, 2016, reflecting a slight increase of $5.5 million.
For the third quarter of 2017, the covered loan portfolio reflected a provision expense of $3.1$2.5 million, compared to $750 thousand provision$42.5 million for the same quarter in 2016. This increase2017, a decrease of $40.0 million, mainly related to a lower provision for the taxi medallion portfolio.
The Corporation’s total provision for loan losses was mainly due to adjustments in the estimated cash flows of purchased credit impaired loans accounted$183.8 million for under ASC310-10 to reflect the three-month payment moratoriums offered to certain eligible borrowers.
For the nine months ended September 30, 2017, the Corporation’s total provision for loan losses totaled $253.9 million, compared with $128.7 million for the same period in 2016, increasing by $125.2 million. For the nine months ended September 30, 2017, the provision for loan losses for thenon-covered loan portfolio increased by $119.5 million when2018, compared to the same period of 2016. The provision for the covered portfolio increased by $5.8$249.7 million for the nine months ended September 30, 2017, whena decrease of $65.9 million.
The provision for loan losses for Puerto Rico totaled $153.0 million for the nine months ended September 30, 2018, compared to $188.8 million for the same period in 2017, a decrease of 2016.$35.8 million. As mentioned above, the provision for the same period in 2017 included $69.9 million associated with the hurricane-related reserve. The decrease in the provision for the nine months ended September 30, 2018 includes downward adjustments of $39.2 million to the hurricane-related reserves, as well as the effects of the annual ALLL review and recalibration completed during the third quarter of 2018, resulting in a decrease of $5.9 million. These downward adjustments were partially offset by the effect of management’s review of certain loss estimates prompting an increase in the reserves for the purchased credit impaired loans accounted for under ASC310-30 of $20.5 million.
The provision was mostly driven byfor loan losses for the hurricanes andPopular U.S. segment amounted to $30.8 million for the nine months ended September 30, 2018, compared to $60.9 million for the same period in 2017, a decrease of $30.1 million. The decrease is mainly related to the taxi medallion impacts, as previously described.portfolio, partially offset by management’s review of certain loss assumptions in the consumer portfolio, resulting in a reserve increase of $6.9 million. The effect of the annual recalibration was immaterial to the U.S. portfolio.
Refer to the Credit Risk Management and Loan Quality sectionssection of this MD&A for a detailed analysis of net charge-offs,non-performing assets, the allowance for loan losses and selected loan losses statistics.
NON-INTERESTNon-Interest INCOMEIncome
Non-interest income increased by $24.4amounted to $151.0 million for the quarter ended September 30, 2017,2018, including $9.5 million of insurance recoveries related to Hurricane Maria, compared withto $100.4 million for the same quarter of the previous year. The increaseExcluding the favorable variance on the FDIC loss share (expense) income of $3.9 million, after the termination of the FDIC Shared-Loss Agreements in May 2018,non-interest income was principally due to:increased by $46.7 million primarily driven by:
Higher other service fees by $10.8 million mainly due to higher credit card fees by $4.8 million as a result of a $54.9 million charge related to the arbitration award recorded during the third quarter of 2016 and lower fair value adjustments to thetrue-up payment obligation which were mainly impacted by changes in the discount rate. Refer to Table 4 for a breakdown of FDIC loss share expense by major categories.
This increase was partially offset by:
Higher income from mortgage banking activities by $10.0$6.0 million due to lower net gain on sale of loans mostly due to lower volume from securitization transactions in part due to the business disruption caused by the hurricanes; higher unfavorable fair value adjustments on mortgage servicing rights;rights by $6.1 million and higher realized gains on closed derivatives positions by $0.7 million, partially offset by lower mortgage servicing fees drivengains on securitization transactions by an increase in delinquency, due to the impact of the hurricanes;$1.1 million;
Higher other operating income by $5.3$27.3 million mainly dueresulting from the previously mentioned insurance recoveries of $9.5 million, modification fees received for the successful completion of loss mitigation alternatives related to lower aggregatehurricane relief measures of $8.9 million, higher aggregated net earnings from investments under the equity method.method by $4.0 million, and $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans.
These increases were partially offset by lower service charges on deposit accounts by $1.1 million due to lower fees on transactional cash management services mainly due to higher credits for compensating balances.
Non-interest income increased by $34.9$166.3 million for the nine months ended September 30, 2017,2018, compared with the same period of the previous year. The increase inExcluding the favorable variance on the FDIC loss share (expense) income of $107.4 million,non-interest income was due to:increased by $58.9 million primarily driven by:
Higher other service fees by $19.0 million mostlymainly due to an increase of $2.5 million in the reserve, during the second quarter of 2016, related to the residential mortgage loans bulk sale completed during 2013higher credit card fees by BPPR;
Higher other operating income by $3.6 million due to higher aggregate net earnings from investments under the equity method.
These favorable variances were partially offset by:
The other-than-temporary impairment charge of $8.3 million recorded during the second quarter of 2017 on senior Puerto Rico Sales Tax Financing Corporation (“COFINA”) bonds classified asavailable-for-sale, which were subsequently sold in the third quarter of 2017; and
Favorable variance in adjustments to indemnity reserves of $4.8 million related to loans previously sold with credit recourse at BPPR; and
Higher other operating income by $28.4 million mainly resulting from the previously mentioned insurance recoveries of $9.5 million, modification fees received for the successful completion of loss mitigation alternatives related to hurricane relief measures of $12.7 million, $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans, and higher daily auto rental revenues.
These favorable variances were partially offset by lower service charges on sale of loansdeposit accounts by $8.7$8.2 million principally due to the sale of a nonaccrual public sector credit during the third quarter of 2016.
The following table provides a summary of the revenues and expenses derived from the assets acquired in the Westernbank FDIC-assisted transaction during the quarters and nine months ended September 30, 2017 and 2016.lower fees on transactional cash management services mainly due to higher credits for compensating balances.
Table 4—Financial Information—Westernbank FDIC-Assisted Transaction
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
(In thousands) | 2017 | 2016 | Variance | 2017 | 2016 | Variance | ||||||||||||||||||
Interest income on WB Loans | $ | 35,939 | $ | 40,867 | $ | (4,928 | ) | $ | 112,021 | $ | 135,566 | $ | (23,545 | ) | ||||||||||
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FDIC loss-share expense: | ||||||||||||||||||||||||
Accretion (amortization) of loss-share indemnification asset | 567 | (1,259 | ) | 1,826 | (62 | ) | (9,337 | ) | 9,275 | |||||||||||||||
80% mirror accounting on credit impairment losses (reversal)[1] | (329 | ) | 659 | (988 | ) | 1,945 | (959 | ) | 2,904 | |||||||||||||||
80% mirror accounting on reimbursable expenses | 588 | 853 | (265 | ) | 2,232 | 7,038 | (4,806 | ) | ||||||||||||||||
80% mirror accounting on recoveries on covered assets, including rental income on OREOs, subject to reimbursement to the FDIC | (1,601 | ) | (522 | ) | (1,079 | ) | 2,832 | (5,123 | ) | 7,955 | ||||||||||||||
Change intrue-up payment obligation | (3,208 | ) | (6,611 | ) | 3,403 | (13,718 | ) | (14,742 | ) | 1,024 | ||||||||||||||
Arbitration award expense[2] | — | (54,924 | ) | 54,924 | — | (54,924 | ) | 54,924 | ||||||||||||||||
Other | 35 | 81 | (46 | ) | (5,909 | ) | 602 | (6,511 | ) | |||||||||||||||
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Total FDIC loss-share expense | (3,948 | ) | (61,723 | ) | 57,775 | (12,680 | ) | (77,445 | ) | 64,765 | ||||||||||||||
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Total revenues | 31,991 | (20,856 | ) | 52,847 | 99,341 | 58,121 | 41,220 | |||||||||||||||||
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Provision (reversal of provision) for loan losses | 14,751 | 6,612 | 8,139 | 13,835 | (1,026 | ) | 14,861 | |||||||||||||||||
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Total revenues less provision (reversal of provision) for loan losses | $ | 17,240 | $ | (27,468 | ) | $ | 44,708 | $ | 85,506 | $ | 59,147 | $ | 26,359 | |||||||||||
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Average balances | ||||||||||||||||||||||||
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
(In millions) | 2017 | 2016 | Variance | 2017 | 2016 | Variance | ||||||||||||||||||
WB Loans | $ | 1,681 | $ | 1,881 | $ | (200 | ) | $ | 1,743 | $ | 1,984 | $ | (241 | ) | ||||||||||
FDIC loss-share asset | 52 | 192 | (140 | ) | 50 | 212 | (162 | ) |
Operating Expenses
Operating expenses decreased by $6.6amounted to $365.4 million for the quarter ended September 30, 2017,2018, including a write-down of $19.6 million of capitalized software costs related to a technology project discontinued by the Corporation. Other variances which contributed to the increase of $48.3 million when compared with the same quarter of the previous year.year are detailed below. Refer to Table 54 for a breakdown of operating expenses by major categories. The decrease in operating expenses was driven primarily by:
Higher personnel cost by $1.6$22.0 million mainlyincluding $3.9 million related to the Reliable acquisition, due to lower pension, postretirementhigher salaries of $4.6 million as result of higher headcount and medical insurance;salary increases; and higher commissions, incentives and other bonuses of $8.5 million. The remaining increase in personnel costs is mainly related to annual incentives tied to the Corporation’s improved performance;
Higher professional fees by $10.5 million mainly due to lower legal fees related to the FDIC arbitration proceedings that were completed in 2016; and
These decreases were partially offset by:
Higher other operating expenses by $6.4$14.5 million due to $3.9 million ofthe above-mentioned capitalized software write-down of premises and equipment related to Hurricanes Irma and Maria and higher credit and debit card processing, volume and interchange expenses mainly due to volume based credits earned during 2016;$19.6 million, partially offset by lower operational losses.reserves for legal contingencies by $5.5 million.
Operating expenses increased by $0.5 millionamounted to $1.0 billion for the nine months ended September 30, 2017, when compared2018, including the above-mentioned capitalized software write-down of $19.6 million. Other variances which contributed to the same period in 2016. The increase of $89.9 million in operating expenses was driven primarily by:were the following:
Higher personnel cost by $31.5 million mainly due to higher salaries of $4.9 million as result of higher headcount and salary increases and higher commissions, incentives and other bonuses of $11.4 million. The remaining increase in personnel costs is mainly related to annual incentives tied to the Corporation’s improved performance and higher cost of fringe benefits impacted by the increase in headcount;
Higher equipment expense by $2.9$4.6 million mainly due to higher software and maintenance expenses;expense;
Higher professional fees by $47.8 million mainly due to professional and advisory expenses associated with the termination of the FDIC Shared-Loss Agreements of $8.1 million; higher advisory services by $15.4 million at BPPR for regulatory related initiatives; higher programming, processing and other technology expenses by $11.7 million and higher legal fees excluding collections fees by $6.4 million; and
Higher business promotion expenses by $2.6$4.1 million due to higher donations, which includes $1.1 million in donations to the hurricane relief effortsadvertising, promotions and higher customer rewardcredit card rewards program expense;
expense.
These increases were partially offset by:
Lower professional feesOREO expenses by $24.4$20.2 million mainly due to lower legal fees related to the FDIC arbitration proceedings, which were resolved during 2016,write-downs on valuation of mortgage, commercial and lower expenses related to programming, processingconstruction properties by $11.0 million and other technology services;
hurricanes related relief efforts.
Table 5—4—Operating Expenses
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
(In thousands) | 2017 | 2016 | Variance | 2017 | 2016 | Variance | ||||||||||||||||||
Personnel costs: | ||||||||||||||||||||||||
Salaries | $ | 78,976 | $ | 77,770 | $ | 1,206 | $ | 235,055 | $ | 230,860 | $ | 4,195 | ||||||||||||
Commissions, incentives and other bonuses | 16,879 | 18,528 | (1,649 | ) | 55,252 | 56,279 | (1,027 | ) | ||||||||||||||||
Pension, postretirement and medical insurance | 11,535 | 13,413 | (1,878 | ) | 35,369 | 38,803 | (3,434 | ) | ||||||||||||||||
Other personnel costs, including payroll taxes | 12,246 | 11,513 | 733 | 38,382 | 39,081 | (699 | ) | |||||||||||||||||
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Total personnel costs | 119,636 | 121,224 | (1,588 | ) | 364,058 | 365,023 | (965 | ) | ||||||||||||||||
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Net occupancy expenses | 22,254 | 21,626 | 628 | 65,295 | 63,770 | 1,525 | ||||||||||||||||||
Equipment expenses | 16,457 | 15,922 | 535 | 48,677 | 45,731 | 2,946 | ||||||||||||||||||
Other taxes | 10,858 | 11,324 | (466 | ) | 32,567 | 31,689 | 878 | |||||||||||||||||
Professional fees: | ||||||||||||||||||||||||
Collections, appraisals and other credit related fees | 3,559 | 4,005 | (446 | ) | 11,161 | 13,479 | (2,318 | ) | ||||||||||||||||
Programming, processing and other technology services | 49,717 | 52,174 | (2,457 | ) | 149,377 | 152,270 | (2,893 | ) | ||||||||||||||||
Legal fees, excluding collections | 2,928 | 11,428 | (8,500 | ) | 8,538 | 27,691 | (19,153 | ) | ||||||||||||||||
Other professional fees | 14,568 | 13,659 | 909 | 43,880 | 43,910 | (30 | ) | |||||||||||||||||
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Total professional fees | 70,772 | 81,266 | (10,494 | ) | 212,956 | 237,350 | (24,394 | ) | ||||||||||||||||
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Communications | 5,394 | 5,785 | (391 | ) | 17,242 | 18,117 | (875 | ) | ||||||||||||||||
Business promotion | 15,216 | 12,726 | 2,490 | 40,158 | 37,541 | 2,617 | ||||||||||||||||||
FDIC deposit insurance | 6,271 | 5,854 | 417 | 18,936 | 18,586 | 350 | ||||||||||||||||||
Other real estate owned (OREO) expenses | 11,724 | 11,295 | 429 | 41,212 | 33,416 | 7,796 | ||||||||||||||||||
Other operating expenses: | ||||||||||||||||||||||||
Credit and debit card processing, volume and interchange expenses | 7,375 | 3,640 | 3,735 | 19,348 | 15,979 | 3,369 | ||||||||||||||||||
Operational losses | 13,222 | 19,609 | (6,387 | ) | 27,973 | 29,416 | (1,443 | ) | ||||||||||||||||
All other | 15,564 | 6,503 | 9,061 | 39,785 | 25,037 | 14,748 | ||||||||||||||||||
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Total other operating expenses | 36,161 | 29,752 | 6,409 | 87,106 | 70,432 | 16,674 | ||||||||||||||||||
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Amortization of intangibles | 2,345 | 3,097 | (752 | ) | 7,034 | 9,308 | (2,274 | ) | ||||||||||||||||
Goodwill impairment charge | — | 3,801 | (3,801 | ) | — | 3,801 | (3,801 | ) | ||||||||||||||||
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Total operating expenses | $ | 317,088 | $ | 323,672 | $ | (6,584 | ) | $ | 935,241 | $ | 934,764 | $ | 477 | |||||||||||
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(In thousands) Personnel costs: Salaries Commissions, incentives and other bonuses Pension, postretirement and medical insurance Other personnel costs, including payroll taxes Total personnel costs Net occupancy expenses Equipment expenses Other taxes Professional fees: Collections, appraisals and other credit related fees Programming, processing and other technology services Legal fees, excluding collections Other professional fees Total professional fees Communications Business promotion FDIC deposit insurance Other real estate owned (OREO) expenses Other operating expenses: Credit and debit card processing, volume and interchange expenses Operational losses All other Total other operating expenses Amortization of intangibles Total operating expenses Quarters ended September 30, Nine months ended September 30, 2018 2017 Variance 2018 2017 Variance $ 83,535 $ 78,976 $ 4,559 $ 239,940 $ 235,055 $ 4,885 25,365 16,879 8,486 66,685 55,252 11,433 8,670 9,668 (998 ) 27,962 29,768 (1,806 ) 22,187 12,246 9,941 55,354 38,382 16,972 139,757 117,769 21,988 389,941 358,457 31,484 18,602 22,254 (3,652 ) 63,829 65,295 (1,466 ) 18,303 16,457 1,846 53,284 48,677 4,607 11,923 10,858 1,065 33,701 32,567 1,134 3,371 3,559 (188 ) 10,657 11,161 (504 ) 55,187 49,717 5,470 161,039 149,377 11,662 4,284 2,928 1,356 14,954 8,538 6,416 21,018 14,568 6,450 74,098 43,880 30,218 83,860 70,772 13,088 260,748 212,956 47,792 6,054 5,394 660 17,342 17,242 100 15,478 15,216 262 44,265 40,158 4,107 8,610 6,271 2,339 22,534 18,936 3,598 7,950 11,724 (3,774 ) 21,028 41,212 (20,184 ) 8,946 7,375 1,571 23,189 19,348 3,841 7,770 13,222 (5,452 ) 26,695 27,973 (1,278 ) 35,860 17,431 18,429 61,578 45,386 16,192 52,576 38,028 14,548 111,462 92,707 18,755 2,324 2,345 (21 ) 6,973 7,034 (61 ) $ 365,437 $ 317,088 $ 48,349 $ 1,025,107 $ 935,241 $ 89,866
INCOME TAXES
For the quarter ended September 30, 2017,2018, the Corporation recorded income tax benefitexpense of $20.0$42.0 million, compared to an income tax expensebenefit of $15.8$20.0 million for the same quarter of the previous year. The increase in income tax benefit forexpense was primarily due to an increase in taxable income during the third quarter reflectsof 2018 compared to the impactsame quarter of 2017 which was impacted by the losses related to the hurricanes which result in a reductionthat took place during the third quarter of taxable income and the related effective tax rate in our Puerto Rico operations, as the level of exempt income increases in proportion to the Corporation’s taxable income.2017.
On November 2,
In December 2017, the House Ways and Means Committee unveiled a bill to reform the U.S. tax code. If theFederal Tax Cuts and Jobs Act (H.R. 1) is(“TCJA”) was enacted, as currently proposed,which reduced the U.S. federal corporate income tax rate from a maximum rate of 35% to a single tax rate of 21%. The Act contains other provisions, which became effective on January 1, 2018 and which may impact the Corporation’s tax calculations and related income tax expense in future years. The effective tax rate reflects the impact to our U.S. operations of the reduction in the federal income tax rate, from 35% to 21%, pursuant to the TCJA.
The Government of Puerto Rico has proposed a tax reform, which is pending approval by the legislative assembly and the Governor, that would reduce the maximum corporate tax rates from a current rate willof 39% to 37.5%. According to the Certified Fiscal Plan (as defined below), any tax reform should be reduced fromrevenue-neutral, with stabilizing mechanisms to offset revenue shortfalls. The PROMESA Oversight Board could also assert the current 35%power to 20%. Thisveto any tax reform legislation that in their view is inconsistent with the Certified Fiscal Plan.
A reduction in corporate tax rates to 37.5%, if approved, would result in a reductionwrite down of the Corporation’s deferred tax asset and the valuation allowance pertaining(“DTA”) related to its P.R. operations of approximately $29.5 million, with a corresponding charge to the U.S. operations with a net impact toCorporation’s income tax expense. If such change hada reduction in the Corporation’s DTA from its P.R. operations would have occurred as of September 30, 2017, the Corporation2018, Common Equity Tier 1 Capital and Total Regulatory Capital would have recognizedbeen reduced by approximately 3 bps. On a one timeforward-looking basis, a reduction of the maximum corporate income tax expense of approximately $190 million. Thisrate to 37.5% could result in a reduction in the tax rate will also result in the decrease of theCorporation’s effective tax rate of the Corporation in future periods. The future impact in earnings of the lower tax rate will dependless than 1% on the sources and mix of the income earned in future periods. The Corporation expects that the changes to the U.S. corporate income tax rate, as currently proposed, will not have a material impact on the total deferred tax asset and the effective tax rate of the Puerto Rico operations.
The reduction in the deferred tax asset of the U.S. operations, as a result of the lower U.S. corporate income tax rate, would not have a significant impact on regulatory capital of the Corporation, since substantially all of U.S. deferred tax asset, net of the valuation allowance, is deducted from the regulatory capital calculation.an annual basis.
At September 30, 2017, Popular2018, the Corporation had a tangible book value per common shareDTA amounting to $1.2 billion, net of $44.79.a valuation allowance of $0.5 billion. The deferred tax asset of the P.R. operations andDTA related to the U.S. operations amounted to $6.73 and $5.09was $0.3 billion, net of the total tangible book value per share, respectively.a valuation allowance of $0.4 billion.
Refer to Note 32 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on income taxes.DTA balances.
REPORTABLE SEGMENT RESULTS
The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. (previously Banco Popular North America.America). A Corporate group has been defined to support the reportable segments. For managerial reporting purposes, the costs incurred by the Corporate group are not allocated to 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 34 to the Consolidated Financial Statements.
The Corporate group reported a net loss of $17.9$19.4 million for the quarter ended September 30, 2017,2018, compared with a net loss of $12.1$17.9 million for the same quarter of the previous year. The change was mostly driven by lowerhigher personnel costs by $4.4 million, mainly due to higher incentives, partially offset by higher net interest income by $1.2 million mainly from equity methodmoney market investments and higher other operating expensesincome by $2.6 million due to a reserve release recorded in the third quarter of 2016, partially offset by a higher income tax benefit. For the nine months ended September 30, 2017, the Corporate group reported a net loss of $48.8 million, compared with a net loss of $46.8 million for the same period of the previous year. The unfavorable variance was mainly driven by higher other operating expenses, partially offset by higher incomeearnings from equity method investments.
Highlights on the earnings results for the reportable segments are discussed below:
Banco Popular de Puerto Rico
The Banco Popular de Puerto Rico reportable segment’s net income amounted to $44.3$137.5 million for the quarter ended September 30, 2017,2018, compared with net income of $49.6$44.3 million for the same quarter of the previous year. The principal factors that contributed to the variance in the financial results included the following:
Higher net interest income by $17.5$67.4 million mostly due to:
higher income from money market and investment securitiesinvestments by $18.3$12.5 million due to an increase in volume of funds available to invest related to higher liquidityaverage balance of deposits, and the increases in interest rates by the Federal Reserve since October 2017, which totaled 100 basis points;
higher interest income from investments in debt securities by $21.9 million driven by higher volume in deposit balances; and yields of U.S. Treasuries;
higher income from commercial loans by $7.3$12.7 million, mostly associatedmainly related to the impact on theportfolio acquired from Reliable and variable rate loans due to the increase in interest rates; and
higher income from consumer loans by $34.8 million mainly related to the portfolio acquired from Reliable and the sustained growth of a higher interest rate environmentthe auto loan business in 2017;P.R.
Partially offset by:
higher cost of public and private deposits by $2.6$15.1 million due to lowerdriven by the increase in average balances and lower yields impacted by loan delinquencies as a resulthigher cost of the business disruption from Hurricanes Irma and Maria;
deposits.
The net interest margin was 4.28% for the quarter ended September 30, 2017,2018 was 4.35% compared to 4.49%4.28% for the same period in 2016.previous year. The increase in net margins is driven by earning assets mix due to the deployment of excess liquidity to acquire the Reliable portfolio and the purchase of investment securities;
The total provision expense for the second quarter of 2018 was $51.9 million, compared $118.2 million for the same quarter of the previous year. The decrease is due mainly to the incremental provision of $69.9 million recorded in the third quarter of 2017 was $118.2 million, an increase of $81.1 million compared to the same periodbased on management’s estimate of the previous year, mainly due to $69.9 million in additional provision reflecting the estimated impact of Hurricanes Irma and Maria and higher net charge-offs principallythe hurricanes in the mortgage and consumer loan portfolios.
Higher other service fees by $10.4 million due to higher credit card fees by $4.8 million as a result of a $54.9 million charge related to the arbitration award recorded during the third quarter of 2016 and lower fair value adjustments to thetrue-up payment obligation;
Partially offset by:
Higher income from mortgage banking activities by $10.1$6.1 million due to lower net gain on sale of loans mostly due to lower volume from securitization transactions in part due to the business disruption caused by the hurricanes; higher unfavorable fair value adjustments on mortgage servicing rights; and lower mortgage servicing fees; and
lower reserves for loans previously sold with credit recourse by $3.4 million;
favorable variance on salethe FDIC loss share (expense) income of loans$3.9 million, after the termination of the FDIC Shared-Loss Agreements in May 2018; and
higher other income by $24.7 million mainly resulting from the insurance recoveries of $9.5 million related to the hurricane, modification fees received for the successful completion of loss mitigation alternatives related to hurricane relief measures of $8.9 million and $2.7 million in other income related to the Reliable operations mostly associated to recoveries of previously charged-off loans.
Higher operating expenses by $39.9 million due to:
higher personnel costs by $12.0 million, including $3.9 million related to the Reliable acquisition, due to higher salaries of $9.0 million mainly dueas result of higher headcount and salary increases; and higher commissions, incentives and other bonuses of $3.0 million, including annual incentives which are tied to the sale of a nonaccrual public sector credit during the third quarter of 2016.Corporation’s improved performance;
a write-down of $3.8$19.6 million, atrelated to a capitalized software cost of a technology project discontinued by the securities subsidiary, recorded as part of the Corporation’s annual goodwill impairment analysis during 2016;Corporation.
Partially offset by:
lower occupancy expensesexpense by $1.1 million due to higher utilities expense and higher maintenance expense;
lower OREO expenses of $4.7 million indue to lower write-downs on valuation of premises and equipmentmortgage properties impacted by lower foreclosure activity during 2018 as a result of foreclosure moratorium related to Hurricane Mariahurricane relief efforts; and higher credit and debit card processing, volume and interchange expenses mainly due to volume based credits earned during 2016, partially offset by lower operational losses.
Higher income tax expense of $14.5by $48.1 million for the same quarter of 2016, reflecting the estimated losses associated with the hurricanes and the benefit associated with exemptmainly related to higher taxable income.
Net income for the nine months ended September 30, 20172018 amounted to $514.1 million, compared to $236.0 million for the same period of the previous year. Excluding the $158.5 million combined positive impact of the Termination Agreement and the Tax Closing Agreement, discussed in Notes 10 and 32, the net income for the BPPR segment for the nine months ended September 30, 2018 was of $355.6 million, an increase of $119.6 million, when compared to $233.7 million for the same period of the previous year. The principal factors that contributed to the variance in the financial results included the following:
Higher net interest income by $31.7$122.5 million, mostly due to:
Partially offset by:
Net interest margin was 4.19% compared to 4.37% for the same period of the previous year. The decrease in net interest margin is related to a higher yields;proportion of money market and
Highernon-interest income of $55.1 million, excluding FDIC loss-share income (expense), due to:
higher other service fees by $18.4 million mainly from credit card activity;
higher mortgage banking activities by $6.2 million mainly due to lower fair value adjustment on mortgage servicing rights;
the other-than-temporary impairment of $8.3 million recorded in 2017 related to P.R. COFINA bonds;
lower indemnity reserves by $4.8 million mainly for loans previously sold with credit recourse; and
higher other operating income by $24.5 million, including the above-mentioned insurance recoveries of $9.5 million and modification fees received for loss mitigation efforts of $12.7 million;
Partially offset by
lower service charges on deposit accounts by $8.1 million, due to lower fees on transactional cash management services due to higher credits for compensating balances.
Higher operating expenses by $66.7 million due to higher personnel costs by $16.0 million due to higher salaries and incentives; higher equipment expense by $4.3 million due to higher depreciation expense on daily rental auto units; higher professional service expenses by $40.8 million due to higher legal expenses and advisory services; and a write-down of $19.6 million related to capitalized software cost for abandoned project ; partially offset by lower OREO expenses by $20.7 million due to lower write-downs on mortgage properties related to lower inflows and a $7.6 million write-down on capitalized software costs recorded in 2017; and
A provision for income tax of $69.9$105.0 million, excluding the net tax benefit of $63.9 million related to the hurricanes, a $6.0 million provision from an inter-company transfer completed in the second quarter of 2017, which is eliminated in the consolidated results,Termination Agreement and higher consumer net charge-offs.
Partially offset by:
Partially offset by:
Banco Popular North AmericaU.S.
For the quarter ended September 30, 2017,2018, the reportable segment of Banco Popular North AmericaU.S. reported a net income of $22.1 million, compared with a net loss of $6.1 million, compared to net income of $9.2 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 $6.1$4.7 million due to:
Partiallygrowth and higher yields, partially offset by:
Net interest margin was 3.50% forFor the third quarter of 2017,2018, the net interest margin for the Popular U.S. segment was 3.50%, flat when compared to 3.61% forwith the same period of the previous year.in 2017;
Lower provision for loan losses by $36.2$40.0 million, when comparedmostly related to the same quarter of the previous year, driven by higherlower impairments on the taxi medallion loan portfolio.portfolio;
Net income for the nine months ended September 30, 20172018 amounted to $18.8$52.9 million, compared to $33.4$18.8 million for the same period of the previous year. The main factors that contributed to the variance in the financial results included the following:
Higher net interest income was $208.3 million, an increase of $15.2 million compared to the same period of the previous year due to:
Partially offset by:
Lower provision for loan losses by $30.1 million mainly related to the taxi medallion portfolio;
Higher operating expenses amounted to $130.6 million, a decrease of $7.3 million compared to the same period in 2016 due to:
Higher provision for income tax by $2.6 million due to provisions for legal settlements recorded in 2016.
FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total assets were $42.6$47.9 billion at September 30, 2017,2018, compared to $38.7$44.3 billion at December 31, 2016.2017. Refer to the Consolidated Statements of Financial Condition included in this report.report for additional information.
Money market investments, trading and investment securities
Money market investments totaled $5.5$4.6 billion at September 30, 2017,2018, compared to $2.9$5.3 billion at December 31, 2016.2017. The increasedecrease was mainly at BPPR due to higher liquidity driven by an increasethe cash consideration of $1.8 billion paid in deposits.connection with the Reliable Transaction and purchases of U.S. Treasury securities.
Trading account debt securities amounted to $46$38 million at September 30, 2017,2018, compared to $60$34 million at December 31, 2016.2017. Refer to the Market Risk section of this MD&A for a table that provides a breakdown of the trading portfolio by security type.
InvestmentDebt securitiesavailable-for-sale andheld-to-maturityamounted to $9.2$13.0 billion at September 30, 2017,2018,compared with $8.3to $10.2 billion at December 31, 2016.2017. The increase of $0.9$2.8 billion was mainly at BPPR due to purchases of U.S. Treasury securities, partially offset bypay-downs of mortgage-backed securities, U.S. agencies and mortgage-backed agency pools driven by an increase in funds availablecollateralized mortgage obligations. Refer to invest from increased liquidity, as discussed above.
TableNote 6 provides a breakdown of the Corporation’s portfolio of investment securitiesavailable-for-sale (“AFS”) andheld-to-maturity (“HTM”) on a combined basis. Also, Notes 6 and 7 to the Consolidated Financial Statements providefor additional information with respect to the Corporation’s investmentdebt securities AFS and HTM.AFS.
Table 6—Breakdown of Investment SecuritiesAvailable-for-Sale andHeld-to-Maturity
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
U.S. Treasury securities | $ | 2,764,863 | $ | 2,136,620 | ||||
Obligations of U.S. Government sponsored entities | 611,646 | 711,850 | ||||||
Obligations of Puerto Rico, States and political subdivisions | 98,984 | 118,798 | ||||||
Collateralized mortgage obligations | 1,015,666 | 1,221,600 | ||||||
Mortgage-backed securities | 4,659,526 | 4,105,332 | ||||||
Equity securities | 1,885 | 2,122 | ||||||
Others | 1,869 | 11,585 | ||||||
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Total investment securities AFS and HTM | $ | 9,154,439 | $ | 8,307,907 | ||||
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Loans
Refer to Table 75 for a breakdown of the Corporation’s loan portfolio, the principal category of earning assets. Loans covered under the FDIC loss sharing agreements are presented separately in Table 7. The risks on covered loans are significantly different as a result of the loss protection provided by the FDIC. The FDIC loss sharing agreements expired on June 30, 2015 for commercial (including construction) and consumer loans, and expires on June 30, 2020 for single-family residential loans. As of September 30, 2017, the Corporation’s covered loans portfolio amounted to $525 million, comprised mainly of residential mortgage loans.
The Corporation’s total loan portfolio amounted to $ 23.8 billion at September 30, 2017, compared to $23.4 billion at December 31, 2016. ReferAlso, refer to Note 8 for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.
Loansheld-in-portfolio increased by $1.7 billion to $ 26.5 billion at September 30, 2018 due to $1.8 billion in retail auto and commercial loans recognized as part of the Reliable Transaction and growth in commercial loans at PB by $0.4 billion, partially offset by a reduction of $0.6 billion in mortgage loans rebooked at BPPR which are subject to the GNMA repurchase option.
The loansheld-for-sale portfolio decreased by $81 million from December 31, 2017 due to a higher volume of securitization activity of mortgage loansheld-for-sale at BPPR.
Table 7—5—Loans Ending Balances
(In thousands) | September 30, 2017 | December 31, 2016 | Variance | September 30, 2018 | December 31, 2017 | Variance | ||||||||||||||||||
Loans not covered under FDIC loss sharing agreements: | ||||||||||||||||||||||||
Commercial | $ | 11,227,095 | $ | 10,798,507 | $ | 428,588 | $ | 11,993,707 | $ | 11,488,861 | $ | 504,846 | ||||||||||||
Construction | 823,325 | 776,300 | 47,025 | 943,365 | 880,029 | 63,336 | ||||||||||||||||||
Legacy[1] | 37,508 | 45,293 | (7,785 | ) | 27,566 | 32,980 | (5,414 | ) | ||||||||||||||||
Lease financing | 754,881 | 702,893 | 51,988 | 903,540 | 809,990 | 93,550 | ||||||||||||||||||
Mortgage | 6,529,235 | 6,696,361 | (167,126 | ) | 7,304,170 | 7,270,407 | 33,763 | |||||||||||||||||
Consumer | 3,801,406 | 3,754,393 | 47,013 | 5,339,820 | 3,810,527 | 1,529,293 | ||||||||||||||||||
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Totalnon-covered loansheld-in-portfolio | 23,173,450 | 22,773,747 | 399,703 | 26,512,168 | 24,292,794 | 2,219,374 | ||||||||||||||||||
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Loans covered under FDIC loss sharing agreements: | ||||||||||||||||||||||||
Mortgage | 510,211 | 556,570 | (46,359 | ) | — | 502,930 | (502,930 | ) | ||||||||||||||||
Consumer | 14,643 | 16,308 | (1,665 | ) | — | 14,344 | (14,344 | ) | ||||||||||||||||
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Total covered loansheld-in-portfolio | 524,854 | 572,878 | (48,024 | ) | — | 517,274 | (517,274 | ) | ||||||||||||||||
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Total loansheld-in-portfolio | 23,698,304 | 23,346,625 | 351,679 | 26,512,168 | 24,810,068 | 1,702,100 | ||||||||||||||||||
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Loansheld-for-sale: | ||||||||||||||||||||||||
Mortgage | 68,864 | 88,821 | (19,957 | ) | 51,742 | 132,395 | (80,653 | ) | ||||||||||||||||
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Total loansheld-for-sale | 68,864 | 88,821 | (19,957 | ) | 51,742 | 132,395 | (80,653 | ) | ||||||||||||||||
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Total loans | $ | 23,767,168 | $ | 23,435,446 | $ | 331,722 | $ | 26,563,910 | $ | 24,942,463 | $ | 1,621,447 | ||||||||||||
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[1] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the |
Non-covered loans
Thenon-covered loansheld-in-portfolio increased by $400 million to $ 23.2 billion at September 30, 2017. The net increase was mainly driven by the growth of commercial loans at BPNA.
The loansheld-for-sale portfolio decreased by $20 million from December 31, 2016, mainly at BPPR due to lower originations of mortgage loansheld-for-sale.
Covered loans
The covered loans portfolio amounted to $525 million at September 30, 2017, compared to $573 million at December 31, 2016. The decrease of $48 million is due to normal portfoliorun-off. Refer to Table 7 for a breakdown of the covered loans by major loan type categories.
Tables 8 and 9 provide the activity in the carrying amount and outstanding discount on the Westernbank loans accounted for under ASC310-30. The outstanding accretable discount is impacted by changes in cash flow expectations on the loan pool based on quarterly revisions of the portfolio. An increase in the accretable discount is recognized as interest income using the effective yield method over the estimated life of each applicable loan pool.
Table 8—Activity in the Carrying Amount of Westernbank Loans Accounted for Under ASC310-30
Quarter ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 1,617,787 | $ | 1,799,943 | $ | 1,738,329 | $ | 1,974,501 | ||||||||
Accretion | 34,790 | 39,590 | 108,170 | 131,599 | ||||||||||||
Collections / loan sales / charge-offs[1] | (64,030 | ) | (71,994 | ) | (257,952 | ) | (338,561 | ) | ||||||||
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| |||||||||
Ending balance[2] | $ | 1,588,547 | $ | 1,767,539 | $ | 1,588,547 | $ | 1,767,539 | ||||||||
Allowance for loan losses (ALLL) | (67,100 | ) | (69,571 | ) | (67,100 | ) | (69,571 | ) | ||||||||
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| |||||||||
Ending balance, net of ALLL | $ | 1,521,447 | $ | 1,697,968 | $ | 1,521,447 | $ | 1,697,968 | ||||||||
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Table 9—Activity in the Accretable Yield on Westernbank Loans Accounted for Under ASC310-30
Quarter ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Beginning balance | $ | 942,668 | $ | 1,071,680 | $ | 1,010,087 | $ | 1,112,458 | ||||||||
Accretion[1] | (34,790 | ) | (39,590 | ) | (108,170 | ) | (131,599 | ) | ||||||||
Change in expected cash flows | 1,451 | 6,602 | 7,412 | 57,833 | ||||||||||||
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| |||||||||
Ending balance | $ | 909,329 | $ | 1,038,692 | $ | 909,329 | $ | 1,038,692 | ||||||||
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FDIC loss share asset
Table 10 sets forth the activity in theThe FDIC loss share asset for the quarters and nine months ended September 30, 2017 and 2016.
Table 10 – Activity of Loss Share Asset
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance at beginning of period | $ | 53,070 | $ | 218,122 | $ | 69,334 | $ | 310,221 | ||||||||
Accretion (amortization) | 567 | (1,259 | ) | (62 | ) | (9,337 | ) | |||||||||
Credit impairment losses (reversal) to be covered under loss-sharing agreements | (329 | ) | 659 | 1,945 | (959 | ) | ||||||||||
Reimbursable expenses | 588 | 853 | 2,232 | 7,038 | ||||||||||||
Net payments from FDIC under loss-sharing agreements | (4,502 | ) | (10,897 | ) | (18,505 | ) | (99,485 | ) | ||||||||
Arbitration award expense | — | (54,924 | ) | — | (54,924 | ) | ||||||||||
Other adjustments attributable to FDIC loss-sharing agreements | — | (87 | ) | (5,550 | ) | (87 | ) | |||||||||
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| |||||||||
Balance at end of period | $ | 49,394 | $ | 152,467 | $ | 49,394 | $ | 152,467 | ||||||||
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| |||||||||
Balance due to the FDIC for recoveries on covered assets [1] | (924 | ) | (7,080 | ) | (924 | ) | (7,080 | ) | ||||||||
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| |||||||||
Balance at end of period | $ | 48,470 | $ | 145,387 | $ | 48,470 | $ | 145,387 | ||||||||
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The FDIC loss share indemnification asset is recognized on the same basis as the assets subject to the loss share protection from the FDIC, except that the amortization / accretion terms differ. The Corporation revises its expected cash flows and estimated credit losses on a quarterly basis. Decreases in expected reimbursements from the FDIC due to improvements in expected cash flows to be received from borrowers, as compared with the initial estimates, are recognized as a reduction tonon-interest income prospectively over the life of the loss share agreements. This is because the indemnification asset balance is reduced to the expected reimbursement amount from the FDIC (amortization). In contrast, an increase tonon-interest income is recognized$45 million was eliminated as a result of increases in expected reimbursements due to higher loss estimates (accretion). Table 11 presents the activity associatedTermination Agreement with the outstanding balance ofFDIC. Refer to Note 10 to the FDIC loss share asset accretion (amortization)Consolidated Financial Statements for additional information on the periods presented.Termination Agreement.
Table 11—Activity in the Remaining FDIC Loss-Share Asset Accretion (Amortization)
Quarters ended September 30, | Nine months ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Balance at beginning of period[1] | $ | (725 | ) | $ | 23,191 | $ | 4,812 | $ | 26,100 | |||||||
Accretion (amortization)[2] | 567 | (1,259 | ) | (62 | ) | (9,337 | ) | |||||||||
Impact of change in projected losses | (2,399 | ) | (14,627 | ) | (7,307 | ) | (9,458 | ) | ||||||||
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| |||||||||
Balance at end of period | $ | (2,557 | ) | $ | 7,305 | $ | (2,557 | ) | $ | 7,305 | ||||||
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Other real estate owned
Other real estate owned (“OREO”) represents real estate property received in satisfaction of debt. At September 30, 2017,2018, OREO decreased to $198$134 million from $213$189 million at December 31, 20162017 mainly due to a decrease in residential properties at BPPR and the write-down of $2.7 million for damages associated with Hurricane Maria.BPPR. Refer to Note 13 to the Consolidated Financial Statements for the activity in other real estate owned. The amounts included
Accrued income receivable
Accrued income receivable decreased by $50 million principally in consumer and mortgage loans due to collections and capitalizations of interest deferred as “covered other real estate” are subject to the FDIC loss sharing agreements.part of hurricane relief loan modification programs.
Other assets
Other assets decreased by $90 million mainly due to a decline in guaranteed mortgage loan claims of $146 million as a result of the foreclosure moratorium onFHA-insured mortgages and a decrease in prepaid taxes of $134 million, partially offset by an increase in net deferred tax assets of $109 million mostly associated to the income tax benefit of $108.9 million recorded during the second quarter related to the Tax Closing Agreement entered into in connection with the FDIC Transaction described in Note 32 and an increase in trades receivable by $50 million. Refer to Note 14 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the consolidated statementsConsolidated Statements of financial conditionFinancial Condition at September 30, 20172018 and December 31, 2016. Other assets2017.
Goodwill
Goodwill increased by $0.2 billion from December 31, 2016$60 million due to September 30, 2017, mainly driven by an increase in accounts receivable related to maturitiesthe goodwill recognized during the third quarter of U.S. Treasury securities pending to be settled.2018 as a result of the Reliable Transaction.
Liabilities
The Corporation’s total liabilities were $37.3$42.7 billion at September 30, 20172018, compared to $33.5$39.2 billion at December 31, 2016. Refer to the Corporation’s Consolidated Statements of Financial Condition included in this Form10-Q.2017.
Deposits and Borrowings
The composition of the Corporation’s financing sources to total assets at September 30, 20172018 and December 31, 20162017 is included in Table 12.6.
Table 12—6—Financing to Total Assets
September 30, | December 31, | % increase (decrease) | % of total assets | September 30, | December 31, | % increase (decrease) | % of total assets | |||||||||||||||||||||||||||||||||
(In millions) | 2017 | 2016 | from 2016 to 2017 | 2017 | 2016 | 2018 | 2017 | from 2017 to 2018 | 2018 | 2017 | ||||||||||||||||||||||||||||||
Non-interest bearing deposits | $ | 7,450 | $ | 6,980 | 6.7 | % | 17.4 | % | 18.0 | % | $ | 8,804 | $ | 8,491 | 3.7 | % | 18.4 | % | 19.2 | % | ||||||||||||||||||||
Interest-bearing core deposits | 22,172 | 18,776 | 18.1 | 52.0 | 48.6 | 26,273 | 22,394 | 17.3 | 54.8 | 50.6 | ||||||||||||||||||||||||||||||
Other interest-bearing deposits | 4,627 | 4,740 | (2.4 | ) | 10.9 | 12.3 | 4,572 | 4,569 | 0.1 | 9.5 | 10.3 | |||||||||||||||||||||||||||||
Repurchase agreements | 374 | 480 | (22.1 | ) | 0.9 | 1.2 | 300 | 391 | (23.3 | ) | 0.6 | 0.9 | ||||||||||||||||||||||||||||
Other short-term borrowings | 241 | 1 | N.M. | 0.6 | — | 1 | 96 | N.M. | — | 0.2 | ||||||||||||||||||||||||||||||
Notes payable | 1,532 | 1,575 | (2.7 | ) | 3.6 | 4.1 | 1,745 | 1,536 | 13.6 | 3.7 | 3.5 | |||||||||||||||||||||||||||||
Other liabilities | 920 | 912 | 0.9 | 2.2 | 2.4 | 980 | 1,696 | (42.2 | ) | 2.1 | 3.8 | |||||||||||||||||||||||||||||
Stockholders’ equity | 5,285 | 5,198 | 1.7 | 12.4 | 13.4 | 5,244 | 5,104 | 2.7 | 10.9 | 11.5 |
N.M.—Not meaningful.
Deposits
The Corporation’s deposits totaled $34.2$39.6 billion at September 30, 20172018, compared to $30.5$35.5 billion at December 31, 2016.2017. The deposits increase of $3.8$4.1 billion was mainly duemostly associated to an increase of $2.9 billion in commercial savings and NOW deposits and demand deposits from the Puerto Rico public sector deposits, and an increase of $0.7 billion in retail and commercial savings deposits at both Popular Bank and BPPR. Refer to Table 137 for a breakdown of the Corporation’s deposits at September 30, 20172018 and December 31, 2016.2017.
Table 13—7—Deposits Ending Balances
(In thousands) | September 30, 2017 | December 31, 2016 | Variance | September 30, 2018 | December 31, 2017 | Variance | ||||||||||||||||||
Demand deposits [1] | $ | 11,576,048 | $ | 9,053,897 | $ | 2,522,151 | $ | 16,120,156 | $ | 12,460,081 | $ | 3,660,075 | ||||||||||||
Savings, NOW and money market deposits(non-brokered) | 14,638,191 | 13,327,298 | 1,310,893 | 15,714,275 | 15,054,242 | 660,033 | ||||||||||||||||||
Savings, NOW and money market deposits (brokered) | 422,174 | 405,487 | 16,687 | 402,116 | 424,307 | (22,191 | ) | |||||||||||||||||
Time deposits(non-brokered) | 7,446,922 | 7,486,717 | (39,795 | ) | 7,280,854 | 7,411,140 | (130,286 | ) | ||||||||||||||||
Time deposits (brokered CDs) | 165,601 | 222,825 | (57,224 | ) | 131,426 | 103,738 | 27,688 | |||||||||||||||||
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Total deposits | $ | 34,248,936 | $ | 30,496,224 | $ | 3,752,712 | $ | 39,648,827 | $ | 35,453,508 | $ | 4,195,319 | ||||||||||||
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[1] | Includes interest andnon-interest bearing demand deposits. |
Borrowings
The Corporation’s borrowings remained flat at $2.1amounted to $2.0 billion at September 30, 2017 and2018, an increase of $22.5 million from December 31, 2016.2017, mostly associated to the issuance of $300 million in senior notes, partially offset by the repayment of $55 million in junior subordinated debentures in connection with the redemption of the capital securities issued by BanPonce Trust I during the third quarter of 2018. This increase was offset by a reduction in assets sold under agreements to repurchase and other short-term borrowings. Refer to Note 17 to the Consolidated Financial Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MD&A for additional information on the Corporation’s funding sources.
Other liabilities
The Corporation’s other liabilities amounted to $1.0 billion at September 30, 2018, a decrease of $0.7 billion when compared to December 31, 2017, due to a decrease in the liability for rebooked GNMA loans sold with an option to repurchase of $0.6 billion and the elimination of thetrue-up payment obligation with the FDIC of $0.2 billion as a result of the Termination Agreement with the FDIC.
Stockholders’ Equity
Stockholders’ equity totaled $5.3$5.2 billion at September 30, 2017, compared with $5.22018, an increase of $140 million from $5.1 billion at December 31, 2016. The increase was related2017, principally due to the Corporation’s net income of $209.8$511.8 million for the nine months ended September 30, 20172018 and a decrease in accumulated other comprehensive loss by $29.0cumulative effect of accounting change of $1.9 million, in part due to the reclassification to earnings of the entire unrealized loss of the COFINA bonds which was deemed other-than-temporary, partially offset by the declarationrecognition of $102.0 million in treasury stock and $23.0 million as a reduction to capital surplus as part of the $125 million accelerated share repurchase transaction, higher unrealized losses on debt securitiesavailable-for-sale by $188.1 million, declared dividends of $ 76.6$76.2 million on common stock ($0.25 per share) and $ 2.8$2.8 million in dividends on preferred stock and the impact of the common stock repurchase plan of $75 million completed during the first quarter of 2017.stock. Refer to the consolidated statementsConsolidated Statements of financial condition, comprehensive incomeFinancial Condition, Comprehensive Income and of changesChanges in stockholders’ equityStockholders’ Equity for information on the composition of stockholders’ equity.
REGULATORY CAPITAL
The Corporation, BPPR and BPNAPB are subject to regulatory capital requirements established by the Federal Reserve Board. The current risk-based capital standards applicable to the Corporation, BPPR and BPNAPB (“Basel III capital rules”), which have been effective since January 1, 2015, 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 September 30, 2017,2018, the Corporation’s, BPPR’s and BPNA’sPB’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 14,8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of September 30, 20172018 and December 31, 2016,2017, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.
.
Table 14 — 8—Capital Adequacy Data
(Dollars in thousands) | September 30, 2017 | December 31, 2016 | ||||||
Common equity tier 1 capital: | ||||||||
Common stockholders equity—GAAP basis | $ | 5,235,271 | $ | 5,147,797 | ||||
AOCI related adjustments due toopt-out election | 249,537 | 280,330 | ||||||
Goodwill, net of associated deferred tax liability (DTL) | (546,745 | ) | (554,614 | ) | ||||
Intangible assets, net of associated DTLs | (30,413 | ) | (25,662 | ) | ||||
Deferred tax assets and other deductions | (743,132 | ) | (726,643 | ) | ||||
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Common equity tier 1 capital | $ | 4,164,518 | $ | 4,121,208 | ||||
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Additional tier 1 capital: | ||||||||
Preferred stock | 50,160 | 50,160 | ||||||
Other additional tier 1 capital deductions | (50,160 | ) | (50,160 | ) | ||||
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| |||||
Additional tier 1 capital | $ | — | $ | — | ||||
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| |||||
Tier 1 capital | $ | 4,164,518 | $ | 4,121,208 | ||||
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| |||||
Tier 2 capital: | ||||||||
Trust preferred securities subject to phase in as tier 2 | 426,602 | 426,602 | ||||||
Other inclusions (deductions), net | 322,145 | 321,405 | ||||||
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| |||||
Tier 2 capital | $ | 748,747 | $ | 748,007 | ||||
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| |||||
Total risk-based capital | $ | 4,913,265 | $ | 4,869,215 | ||||
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| |||||
Minimum total capital requirement to be well capitalized | $ | 2,504,315 | $ | 2,500,133 | ||||
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| |||||
Excess total capital over minimum well capitalized | $ | 2,408,950 | $ | 2,369,082 | ||||
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| |||||
Total risk-weighted assets | $ | 25,043,146 | $ | 25,001,334 | ||||
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| |||||
Total assets for leverage ratio | $ | 40,452,663 | $ | 37,785,070 | ||||
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| |||||
Risk-based capital ratios: | ||||||||
Common equity tier 1 capital | 16.63 | % | 16.48 | % | ||||
Tier 1 capital | 16.63 | 16.48 | ||||||
Total capital | 19.62 | 19.48 | ||||||
Tier 1 leverage | 10.29 | 10.91 |
(Dollars in thousands) | September 30, 2018 | December 31, 2017 | ||||||
Common equity tier 1 capital: | ||||||||
Common stockholders equity—GAAP basis | $ | 5,194,189 | $ | 5,053,745 | ||||
AOCI related adjustments due toopt-out election | 487,187 | 307,618 | ||||||
Goodwill, net of associated deferred tax liability (DTL) | (612,722 | ) | (561,604 | ) | ||||
Intangible assets, net of associated DTLs | (29,186 | ) | (28,538 | ) | ||||
Deferred tax assets and other deductions | (586,808 | ) | (544,702 | ) | ||||
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| |||||
Common equity tier 1 capital | $ | 4,452,660 | $ | 4,226,519 | ||||
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Additional tier 1 capital: | ||||||||
Preferred stock | 50,160 | 50,160 | ||||||
Other additional tier 1 capital deductions | (50,160 | ) | (50,160 | ) | ||||
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| |||||
Additional tier 1 capital | $ | — | $ | — | ||||
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| |||||
Tier 1 capital | $ | 4,452,660 | $ | 4,226,519 | ||||
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| |||||
Tier 2 capital: | ||||||||
Trust preferred securities subject to phase in as tier 2 | 373,737 | 426,602 | ||||||
Other inclusions (deductions), net | 351,915 | 332,144 | ||||||
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| |||||
Tier 2 capital | $ | 725,652 | $ | 758,746 | ||||
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| |||||
Total risk-based capital | $ | 5,178,312 | $ | 4,985,265 | ||||
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| |||||
Minimum total capital requirement to be well capitalized | $ | 2,750,878 | $ | 2,593,570 | ||||
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| |||||
Excess total capital over minimum well capitalized | $ | 2,427,434 | $ | 2,391,695 | ||||
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| |||||
Total risk-weighted assets | $ | 27,508,780 | $ | 25,935,696 | ||||
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Total assets for leverage ratio | $ | 46,364,012 | $ | 42,185,805 | ||||
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Risk-based capital ratios: | ||||||||
Common equity tier 1 capital | 16.19 | % | 16.30 | % | ||||
Tier 1 capital | 16.19 | 16.30 | ||||||
Total capital | 18.82 | 19.22 | ||||||
Tier 1 leverage | 9.60 | 10.02 |
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 September 30, 2017,2018, the Corporation, BPPR and BPNAPB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.
The increasedecrease in the common equity tier I capital ratio, tier I capital ratio, and total capital ratio, and leverage ratio as of September 30, 20172018 as compared to December 31, 20162017 was mainly attributed to higher risk weighted assets driven by the increase in auto loans from the Reliable acquisition and the accelerated share repurchase transaction, partially offset by the nine months period earnings, partially offset by the common stock repurchase of $75 million completed during the first quarter of 2017, the payment of dividends on common and preferred stock and the transition period impact on deferred tax assets. The decrease in the leverage ratio was mainly attributed to the increase in average total assets. Refer to Table 1, Financial Condition Highlights, for information of average assets and to the Financial Condition Analysis section of this MD&A for a discussion of significant variances in assets.earnings.
Non-GAAP financial measures
The tangible common equity ratio, tangible assets and tangible book value per common share, which are presented in the table that follows, arenon-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with 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 159 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of September 30, 2017,2018, and December 31, 2016.2017.
Table 15 — 9—Reconciliation of Tangible Common Equity and Tangible Assets
(In thousands, except share or per share information) | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
Total stockholders’ equity | $ | 5,285,431 | $ | 5,197,957 | ||||||||||||
Less: Preferred stock | (50,160 | ) | (50,160 | ) | ||||||||||||
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$ | 5,235,271 | $ | 5,147,797 | |||||||||||||
Common shares outstanding at end of period | 102,026,417 | 103,790,932 | ||||||||||||||
Common equity per share | $ | 51.31 | $ | 49.60 | ||||||||||||
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Total stockholders’ equity | $ | 5,285,431 | $ | 5,197,957 | $ | 5,244,349 | $ | 5,103,905 | ||||||||
Less: Preferred stock | (50,160 | ) | (50,160 | ) | (50,160 | ) | (50,160 | ) | ||||||||
Less: Goodwill | (627,294 | ) | (627,294 | ) | (687,536 | ) | (627,294 | ) | ||||||||
Less: Other intangibles | (38,016 | ) | (45,050 | ) | (29,186 | ) | (35,672 | ) | ||||||||
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Total tangible common equity | $ | 4,569,961 | $ | 4,475,453 | $ | 4,477,467 | $ | 4,390,779 | ||||||||
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Total assets | $ | 42,601,267 | $ | 38,661,609 | $ | 47,919,428 | $ | 44,277,337 | ||||||||
Less: Goodwill | (627,294 | ) | (627,294 | ) | (687,536 | ) | (627,294 | ) | ||||||||
Less: Other intangibles | (38,016 | ) | (45,050 | ) | (29,186 | ) | (35,672 | ) | ||||||||
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Total tangible assets | $ | 41,935,957 | $ | 37,989,265 | $ | 47,202,706 | $ | 43,614,371 | ||||||||
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Tangible common equity to tangible assets | 10.90 | % | 11.78 | % | 9.49 | % | 10.07 | % | ||||||||
Common shares outstanding at end of period | 102,026,417 | 103,790,932 | 100,336,341 | 102,068,981 | ||||||||||||
Tangible book value per common share | $ | 44.79 | $ | 43.12 | $ | 44.62 | $ | 43.02 | ||||||||
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OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS
In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments withoff-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 foron-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. Other types ofoff-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 21 for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.
Contractual Obligations and Commercial Commitments
The Corporation has various financial obligations, including contractual obligations and commercial commitments, which require future cash payments on debt and lease agreements. Also, in the normal course of business, the Corporation enters into contractual arrangements whereby it commits to future purchases of products or services from third parties. Obligations that are legally binding agreements, whereby the Corporation agrees to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time, are defined as purchase obligations.
Purchase obligations include major legal and binding contractual obligations outstanding at September 30, 2017,2018, primarily for services, equipment and real estate construction projects. Services include software licensing and maintenance, facilities maintenance, supplies purchasing, and other goods or services used in the operation of the business. Generally, these contracts are renewable or cancelable at least annually, although in some cases the Corporation has committed to contracts that may extend for several years to secure favorable pricing concessions. Purchase obligations amounted to $160$355 million at September 30, 20172018 of which approximately 30%27% mature in 2017, 33% in 2018, 21%37% in 2019, 17% in 2020 and 16%19% thereafter.
The Corporation also enters into derivative contracts under which it is required either to receive or pay cash, depending on changes in interest rates. These contracts are carried at fair value on the Consolidated Statement of Financial Condition with the fair value representing the net present value of the expected future cash receipts and payments based on market rates of interest as of the statement of condition date. The fair value of the contract changes daily as interest rates change. The Corporation may also be required to post additional collateral on margin calls on the derivatives and repurchase transactions.
Refer to Note 17 for a breakdown of long-term borrowings by maturity.
The Corporation utilizes lending-related financial instruments in the normal course of business to accommodate the financial needs of its customers. The Corporation’s exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is represented by the contractual notional amount of these instruments. The Corporation uses credit procedures and policies in making those commitments and conditional obligations as it does in extending loans to customers. Since many of the commitments may expire without being drawn upon, the total contractual amounts are not representative of the Corporation’s actual future credit exposure or liquidity requirements for these commitments.
Table 1610 presents the contractual amounts related to the Corporation’soff-balance sheet lending and other activities at September 30, 2017.2018.
Table 16 —10—Off-Balance Sheet Lending and Other Activities
Amount of commitment—Expiration Period | Amount of commitment—Expiration Period | |||||||||||||||||||||||||||||||||||||||
(In thousands) | 2017 | Years 2018 - 2019 | Years 2020 - 2021 | Years 2022 - thereafter | Total | 2018 | Years 2019 - 2020 | Years 2021 - 2022 | Years 2023 - thereafter | Total | ||||||||||||||||||||||||||||||
Commitments to extend credit | $ | 5,181,205 | $ | 1,870,710 | $ | 126,462 | $ | 107,177 | $ | 7,285,554 | $ | 5,731,634 | $ | 1,506,846 | $ | 153,033 | $ | 98,999 | $ | 7,490,512 | ||||||||||||||||||||
Commercial letters of credit | 2,281 | 7 | — | — | 2,288 | 1,183 | 1,378 | — | — | 2,561 | ||||||||||||||||||||||||||||||
Standby letters of credit | 11,828 | 19,459 | — | — | 31,287 | 7,670 | 22,366 | — | — | 30,036 | ||||||||||||||||||||||||||||||
Commitments to originate or fund mortgage loans | 5,468 | 4,238 | — | — | 9,706 | 20,835 | 2,889 | — | — | 23,724 | ||||||||||||||||||||||||||||||
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Total | $ | 5,200,782 | $ | 1,894,414 | $ | 126,462 | $ | 107,177 | $ | 7,328,835 | $ | 5,761,322 | $ | 1,533,479 | $ | 153,033 | $ | 98,999 | $ | 7,546,833 | ||||||||||||||||||||
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At September 30, 20172018 and December 31, 2016,2017, the Corporation maintained a reserve of approximately $9$8 million and $10 million, respectively, for probable losses associated with unfunded loan commitments related to commercial and consumer lines of credit. The estimated reserve is principally based on the expected draws on these facilities using historical trends and the application of the corresponding reserve factors determined under the Corporation’s allowance for loan losses methodology. This reserve for unfunded loan commitments remains separate and distinct from the allowance for loan losses and is reported as part of other liabilities in the consolidated statement of financial condition.
Refer to Note 22 to the Consolidated Financial Statements for additional information on credit commitments and contingencies.
RISK MANAGEMENT
Managing risk is an essential component of the Corporation’s business. Risk identification and monitoring are key elements in the overall risk management. Popular has a strong disciplined risk management culture where risk management is a shared responsibility by all employees.
Risk Management Framework
Popular’s risk management framework seeks to ensure that there is an effective process in place to manage risk across the organization. Popular’s risk management framework incorporates three interconnected dependencies: risk appetite, stress testing, and capital planning. The stress testing process incorporates key risks within the context of the Risk Appetite Statement (RAS)
defined in our Risk Management Policy. The process analyzes and delineates how much risk Popular is prepared to assume in pursuit of its business strategy and how much capital Popular’s activities will consume in light of a forward-looking assessment of the potential impact of adverse economic conditions. The RAS includes risk tolerance, limits, and types of risks the Corporation is willing to accept, as well as processes to maintain compliance with those limits.
Principal Risk Types
Risk Governance
The Corporation’s Board of Directors (the “Board”) has established a Risk Management Committee (“RMC”) to undertake the responsibilities of overseeing and approving the Corporation’s Risk Management Program, as well as the Corporation’s Capital Plan. The Capital Plan is a plan to maintain sufficient regulatory capital at the Corporation, BPPR and BPNA, which considers current and future regulatory capital requirements, expected future profitability and credit trends and, at least, two macroeconomic scenarios, including a base and stress scenario.
The RMC, as an oversight body, monitors and approves corporate policies to identify measure, monitor and control risks while maintaining the effectiveness and efficiency of the business and operational processes. As an approval body for the Corporation, the RMC reviews and approves relevant risk management policies and critical processes. Also, it periodically reports to the Board about its activities.
The Board and RMC have delegated to the Corporation’s management the implementation of the risk management processes. This implementation is split into two separate but coordinated efforts that include (i) business and / or operational units who identify, manage and control the risks resulting from their activities, and (ii) a Risk Management Group (“RMG”). In general, the RMG is mandated with responsibilities such as assessing and reporting to the Corporation’s management and RMC the risk positions of the Corporation; developing and implementing mechanisms, policies and procedures to identify, measure and monitor risks; implementing measurement mechanisms and infrastructure to achieve effective risk monitoring; developing and implementing the necessary management information and reporting mechanisms; and monitoring and testing the adequacy of the Corporation’s policies, strategies and guidelines.
The RMG is responsible for the overall coordination of risk management efforts throughout the Corporation and is composed of three reporting divisions: (i) Credit Risk Management, (ii) Compliance Management, and (iii) Financial and Operational Risk Management. The latter includes an Enterprise Risk Management function that facilitates, among other aspects, the identification, coordination, and management of multiple and cross-enterprise risks. The Corporation’s Model Validation and Loan Review group, which reports directly to the RMC and administratively to the Chief Risk Officer, also provides important risk management functions by validating critical models used in the Corporation and by assessing the adequacy of the Corporation’s lending risk function.
Additionally, the Internal Auditing Division provides an independent assessment of the Corporation’s internal control structure and related systems and processes. The Internal Audit Division also provides an assessment of the effectiveness of the Corporation’s risk management function.
Moreover, management oversight of the Corporation’s risk-taking and risk management activities is conducted through management committees:
There are other management committees such as the Fair Lending, Section 23A & B, New Products, Fiduciary Risk, and the BSA/Anti-Money Laundering Committees, among others, which provide oversight of specific business risks.
Market / Interest Rate Risk
The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks. The ALCO and the Corporate Finance Group are responsible for planning and executing the Corporation’s market, interest rate risk, funding activities and strategy, and for implementing the policies and procedures approved by the RMC and the ALCO. In addition, the Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies to the Risk Management Committee, and enhancing and strengthening controls surrounding interest, liquidity and market risk. The ALCO generally meets on a weekly basis and reviews the Corporation’s current and forecasted asset and liability levels as well as desired pricing strategies and other relevant financial management and interest rate and risk topics. Also, on a monthly basis the ALCO reviews various interest rate risk sensitivity metrics, ratios and portfolio information, including but not limited to, the Corporation’s liquidity positions, projected sources and uses of funds, interest rate risk positions and economic conditions.
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 securities in the investmentdebt securities portfolio classified asavailable-for-sale. Refer to Notes 6 and 7 for further information on the investmentdebt securities available for sale and held to maturity portfolio. InvestmentDebt securities classified asavailable-for-sale amounted to $9.1$13.0 billion as of September 30, 2017.2018. Other assets subject to market risk include loansheld-for-sale, which amounted to $69$52 million, mortgage servicing rights (“MSRs”) which amounted to $180$163 million and securities classified as “trading”, which amounted to $46$38 million, as of September 30, 2017.
Liabilities subject to market risk include the FDIC clawback obligation, which amounted to $ 167 million at September 30, 2017.2018.
Management believes that market risk is currently not a material source of risk at the Corporation. A significant portion of the Corporation’s financial activities is concentrated in Puerto Rico, which has been going through a fiscal and economic crisis and was recently impacted by two major hurricanes. Refer to the Geographic and Government Risk section of this MD&A for highlights on the current status of Puerto Rico’s fiscal and economic condition.
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. SimulationNII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides Managementmanagement a better view of long termlong-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 net interest incomeNII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change over time, the speed of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the year included economic most likely scenarios,quarter include flat rates, yield curve twists,implied forwards, parallel and parallelnon-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 sensitivity analysissimulation 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. Due to the importance of critical assumptions in measuring market risk, the risk models incorporate third-party developed data for critical assumptions such as prepayment speeds on mortgage loans and mortgage-backed securities.
The Corporation processes net interest incomeNII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same amount.amount (parallel shifts). The rate scenarios considered in these market risk simulations reflect parallel changes of-200, +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. 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 September 30, 20172018 and December 31, 2016,2017, assuming a static balance sheet and parallel changes over flat spot rates over aone-year time horizon:
Table 17—11—Net Interest Income Sensitivity (One Year Projection)
September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Amount Change | Percent Change | Amount Change | Percent Change | Amount Change | Percent Change | Amount Change | Percent Change | ||||||||||||||||||||||||
Change in interest rate | — | |||||||||||||||||||||||||||||||
+400 basis points | $ | 400,335 | 25.36 | % | $ | 236,945 | 16.52 | % | $ | 174,738 | 9.42 | % | $ | 227,970 | 14.26 | % | ||||||||||||||||
+200 basis points | 204,155 | 12.93 | 121,181 | 8.45 | 88,492 | 4.77 | 114,943 | 7.19 | ||||||||||||||||||||||||
-200 basis points | (176,049 | ) | (11.15 | ) | (35,314 | ) | (2.46 | ) | (195,892 | ) | (10.56 | ) | (176,095 | ) | (11.01 | ) |
At September 30,The results of the NII simulations at December 31, 2017 in the table above have been adjusted from those reported in the Corporation’s Form10-K to align the assumptions used with respect to interest rates onnon-maturity public funds deposits to contractual terms of their related depository agreements. Previously, in the Corporation’s Form10-K the assumptions with respect to such deposits had been based on the historical behavior of commercial and public deposits in the aggregate and did not consider the fact that contracts governing suchnon-maturity public deposits contained provisions that require BPPR, in certain circumstances, to make adjustments to the interest rate payable on such deposits based upon changes in market interest rates. Although as a result of such adjustment the magnitude of the Corporation’s sensitivity to increases in interest rates became lower at December 31, 2017, the simulations showed that the Corporation maintainsremained in an asset-sensitive position. This is primarilyasset sensitive position due mainly to, among other reasons: (i) a high level of money market investments that are highly sensitive to changes in interest rates, (ii) approximately 31%34% of the Corporation’s loan portfolio beingwas comprised of Prime and Libor-based loans at December 31, 2017 and (iii) low elasticity of the Corporation’s core deposit base.
At September 30, 2018, the simulations showed that the Corporation maintains an asset-sensitive position. The increaseoverall decrease in sensitivity from December 31, 20162017 in the -200, +200 and +400 scenarios is mainly driven by an increase in money market investments of $2.6 billion, from $2.9 billion at December 31, 2016 to $5.5 billion at September 30, 2017, that was due to growth in public fund deposits that have low sensitivity to changes in rates. The increase in sensitivity in the-200 scenario is also driven by the increase in money market investments that reflect full changes in rates across all scenarios, combined with the increases in the Federal Funds Target Rate in March and June of 2017 by the Federal Reserve, which led to an increase in the magnitude of the-200 basis points scenario.
The Corporation maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations ina larger net interest income orbase due to increases in consumer loans, commercial loans and investment securities. These effects were partially offset by increases in interest bearing non-maturity deposits, including more elastic public sector deposits, which are more sensitive to increases in market value that are caused by interest rate volatility. The market value of these derivatives is subject to interest rate fluctuations and counterparty credit risk adjustments which could have a positive or negative effect in the Corporation’s earnings.rates.
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, Banco Popular de Puerto RicoBPPR 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 September 30, 2017,2018, the Corporation held trading securities with a fair value of $46$38 million, representing approximately 0.1% of the Corporation’s total assets, compared with $60$34 million and 0.2%0.1%, respectively, at December 31, 2016.2017. As shown in Table 18,12, the trading portfolio consists principally of mortgage-backed securities relating to BPPR’s mortgage activities described above, which at September 30, 20172018 were investment grade securities. As of September 30, 2017,2018, the trading portfolio also included $1.3$5 million in U.S. Treasury securities and $0.1 million in Puerto Rico government obligations ($0.3 million and shares ofclosed-end funds that invest primarily in Puerto Rico government obligations ($2.6$0.2 million as of December 31, 2016)2017, respectively). 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 a net trading account gainloss of $0.3 million$122 thousand for the quarter ended September 30, 2017, compared to2018 and a lossnet trading account gain of $0.1 million$253 thousand for the quarter ended September 30, 2016. Table 18 provides the composition of the trading portfolio at September 30, 2017 and December 31, 2016.2017.
Table 18—12—Trading Portfolio
September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
(Dollars in thousands) | Amount | Weighted Average Yield [1] | Amount | Weighted Average Yield [1] | Amount | Weighted Average Yield [1] | Amount | Weighted Average Yield [1] | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 32,752 | 5.23 | % | $ | 42,746 | 4.85 | % | $ | 28,237 | 5.37 | % | $ | 29,280 | 5.40 | % | ||||||||||||||||
U.S. Treasury securities | 5,183 | 1.23 | 261 | 1.31 | ||||||||||||||||||||||||||||
Collateralized mortgage obligations | 848 | 5.46 | 1,321 | 5.27 | 692 | 5.64 | 529 | 5.74 | ||||||||||||||||||||||||
Puerto Rico government obligations | 172 | 0.29 | 1,164 | 5.51 | 143 | 0.26 | 159 | 0.28 | ||||||||||||||||||||||||
Interest-only strips | 549 | 12.48 | 602 | 12.35 | 498 | 11.95 | 529 | 12.58 | ||||||||||||||||||||||||
Other[2] | 11,630 | 2.61 | 13,972 | 3.03 | ||||||||||||||||||||||||||||
Other[2] | 2,978 | 3.19 | 3,168 | 2.43 | ||||||||||||||||||||||||||||
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Total | $ | 45,951 | 4.64 | % | $ | 59,805 | 4.52 | % | $ | 37,731 | 4.70 | % | $ | 33,926 | 5.18 | % | ||||||||||||||||
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[1] | Not on a taxable equivalent basis. |
[2] | Includes trading derivatives |
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 the5-day netvalue-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a5-day holding period, given a 99% probability.
The Corporation’s trading portfolio had a5-day VAR of approximately $0.3$0.2 million for the last week in September 2017.2018. 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.
FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
The Corporation currently measures at fair value on a recurring basis its trading assets,debt securities, debt securitiesavailable-for-sale, certain equity securities, derivatives, mortgage servicing rights and contingent consideration. Occasionally, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as loansheld-for-sale, impaired loansheld-in-portfolio that are collateral dependent and certain other assets. These nonrecurring fair value adjustments typically result from the application of lower of cost or fair value accounting or write-downs of individual assets.
The fair value of assets and liabilities may include market or credit related adjustments, where appropriate. During the quarter ended September 30, 2017, inclusion of credit risk in the fair value of the derivatives resulted in a net loss of $38 thousand recorded in the other operating income and interest expense captions of the Consolidated Statement of Operations, which consisted of a loss of $54 thousand resulting from the Corporation’s own credit risk standing adjustment and a gain of $16 thousand from the assessment of the counterparties’ credit risk. During the nine months ended September 30, 2017, inclusion of credit risk in the fair value of the derivatives resulted in a net loss of $140 thousand recorded in the other operating income and interest expense captions of the Consolidated Statement of Operations, which consisted of a loss of $68 thousand resulting from the Corporation’s own credit standing adjustment and a loss of $72 thousand from the assessment of the counterparties’ credit risk.
The Corporation categorizes its assets and liabilities measured at fair value under the three-level hierarchy. The level within the hierarchy is based on whether the inputs to the valuation methodology used for fair value measurement are observable.
Refer to Note 25 to the consolidated financial statementsConsolidated Financial Statements for information on the Corporation’s fair value measurement disclosures required by the applicable accounting standard. At September 30, 2017, approximately $ 9.1 billion, or 98%, of the assets measured at fair value on a recurring basis used market-based or market-derived valuation inputs in their valuation methodology and, therefore, were classified as Level 1 or Level 2. The majority of instruments measured at fair value were classified as Level 2, including U.S. Treasury securities, obligations of U.S. Government sponsored entities, obligations of Puerto Rico, States and political subdivisions, most mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”), and derivative instruments.
Broker quotes used for fair value measurements inherently reflect any lack of liquidity in the market since they represent an exit price from the perspective of the market participants. Financial assets that were fair valued using broker quotes amounted to $ 7 million at September 30, 2017, of which $ 1 million were Level 3 assets and $ 6 million were Level 2 assets. Level 3 assets consisted principally oftax-exempt GNMA mortgage-backed securities. Fair value for these securities was based on an internally-prepared matrix derived from local broker quotes. The main input used in the matrix pricing wasnon-binding local broker quotes obtained from limited trade activity. Therefore, these securities were classified as Level 3.
Refer to Note 34 to the consolidated financial statements in the 2016 Form10-K for aA description of the Corporation’s valuation methodologies used for the assets and liabilities measured at fair value.value is included in Note 31 to the Consolidated Financial Statements in the 2017 Form10-K. Also, refer to the Critical Accounting Policies / Estimates in the 20162017 Form10-K for additional information on the accounting guidance and the Corporation’s policies or procedures related to fair value measurements.
Inputs are evaluated to ascertain that they consider current market conditions, including the relative liquidity of the market. When a market quote for a specific security is not available, the pricing service provider generally uses observable data to derive an exit price for the instrument, such as benchmark yield curves and trade data for similar products. To the extent trading data is not available, the pricing service provider relies on specific information including dialogue with brokers, buy side clients, credit ratings, spreads to established benchmarks and transactions on similar securities to draw correlations based on the characteristics of the evaluated instrument. If for any reason the pricing service provider cannot observe data required to feed its model, it discontinues pricing the instrument. During the quarter and nine months ended September 30, 2017, none of the Corporation’s investment securities were subject to pricing discontinuance by the pricing service providers. The pricing methodology and approach of our primary pricing service providers is concluded to be consistent with the fair value measurement guidance. In addition, during the quarter and nine months ended September 30, 2017, the Corporation did not adjust any prices obtained from pricing service providers or broker dealers for its trading account securities and investment securitiesavailable-for-sale.
Furthermore, management assesses the fair value of its portfolio of investment securities at least on a quarterly basis, which includes analyzing changes in fair value that have resulted in losses that may be considered other-than-temporary. Factors considered include, for example, the nature of the investment, severity and duration of possible impairments, industry reports, sector credit ratings, economic environment, creditworthiness of the issuers and any guarantees.
Securities are classified in the fair value hierarchy according to product type, characteristics and market liquidity. At the end of each period, management assesses the fair value hierarchy for each asset or liability measured. The fair value measurement analysis performed by the Corporation includes validation procedures with alternate pricing sources when available and review of market changes, pricing methodology, assumption and level hierarchy changes, and evaluation of distressed transactions. Management has established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained from the primary pricing service provider and the secondary pricing source used as support for the valuation results.
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 and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board is responsible for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board has delegated the monitoring of these risks to the RMC and the ALCO. The management of liquidity risk, on a long-term andday-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 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, its credit rating is downgraded, it experiences a sudden and unexpected substantial cash outflow, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.
Liquidity is managed by the Corporation at the level of the holding companies that own the banking andnon-banking subsidiaries. It is also managed at the level of the banking andnon-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation’s liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.
On January 23, 2017, the Corporation’s Board of Directors approved an increase in the Company’s quarterly common stock dividend from $0.15 per share to $0.25 per share. During the nine months ended September 30, 2017, the Corporation declared dividends on its common stock of $ 76.6 million and completed a $75 million privately negotiated accelerated share repurchase transaction. Refer to additional information on Note 19 – Stockholder’s equity.
Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 80%83% of the Corporation’s total assets at September 30, 20172018 and 79%80% at December 31, 2016.2017. The ratio of total ending loans to deposits was 69%67% at September 30, 2017,2018, compared to 77%70% at December 31, 2016.2017. In addition to traditional deposits, the Corporation maintains borrowing arrangements. Atarrangements, which amounted to approximately $2.0 billion at September 30, 2017, these borrowings consisted primarily of $ 374 million in assets sold under agreement to repurchase, $868 million in advances with the FHLB, $439 million in junior subordinated deferrable interest debentures (net of debt issuance cost) related to trust preferred securities and $446 million in term notes (net of debt issuance cost) issued to partially fund the repayment of TARP funds.2018. A detailed description of the Corporation’s borrowings, including their terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.
Given the widespread level of disruption to basic infrastructure and commercial activity in the regions impacted by the passage of hurricanes Irma and Maria, BPPR decided to adopt certain measures to assist its customers in affected areas. These measures include the waiver of certain fees and charges, such as late payment charges and ATM transaction fees, and a temporary payment moratorium of three months to eligible borrowers across most loan portfolios during which BPPR will continue to accrue interest on the loans.
These measures, while important to assist in the recovery of our customers post-hurricane, will negatively impact our results of operations and liquidity. For example, the waiver of fees and other charges impacted the Corporation’s revenues for
As previously mentioned, during the third quarter of 2018, the Corporation executed several actions corresponding to its capital and revenuesliquidity strategic plans. These include the redemption by Popular North America of all outstanding 8.327% Capital Securities, Series A issued by BanPonce Trust I, which had an aggregate liquidation amount of $52.9 million; entering into an accelerated share repurchase plan of $125 million; and the issuance of $300 million of 6.125% Senior Notes due 2023, the proceeds of which, along withcash-on-hand, were used to redeem $450 million of 7% Senior Notes due 2019, on October 15, 2018. Refer to additional details of these transactions in the fourth quarter will also be negatively impacted by such waivers. The moratorium measures, whose ultimate effect will depend in part on the numberOverview section of customers who take advantage of such plans, will also impact our liquidity not only duethis MD&A and to principalNotes 17, Borrowings, and interest payments that BPPR will not receive during the period, but also as a result of loans serviced by the Corporation where we are required to advance19, Stockholder’s Equity, to the owners the payment of principal and interest on a scheduled basis even when such payment is not collected from the borrower.
Management believes that the liquidity impact of these measures will not be significant in light of BPPR’s existing liquidity resources and that BPPR has sufficient liquidity to meet anticipated cash flow obligations. Deposits at BPPR as of September 30, 2017 were higher by approximately $1.0 billion than as of the end of the second quarter.accompanying financial statements.
The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities. A detailed description of the Corporation’s borrowings and available lines of credit, including its terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements provides consolidating statements of Cash Flows in the accompanying Consolidated Financial Statements provide information oncondition, of operations and of cash flows which separately presents the Corporation’s cash inflowsbank holding companies and outflows.its subsidiaries as part of the “All other subsidiaries and eliminations” column.
Banking Subsidiaries
Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and BPNA)PB), or “the banking subsidiaries,” include retail and commercial 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 Board (the “FRB”), and has a considerable amount of collateral pledged that can be used to quickly raise funds under these facilities.
Refer to Note 17 to the Consolidated Financial Statements, for additional information of the Corporation’s borrowing facilities available through its banking subsidiaries.
The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases and repurchases, repayment of outstanding obligations (including deposits), and operational expenses. Also, the banking subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with contractual commitments, recourse provisions, servicing advances, derivatives, credit card licensing agreements and support to several mutual funds administered by BPPR.
During the nine months ended September 30, 2017, BPPR declared cash dividends of $169 million, a portion of which was used by Popular, Inc. for the payments of the cash dividends on its outstanding common stock and to complete the repurchase of $75 million in treasury stock as part of the privately negotiated accelerated share repurchase transaction completed during the first quarter of 2017, as mentioned above.
During the nine months ended September 30, 2017, BPNA declared a dividend of $10.4 million to Popular North America, its holding company, who in turn declared a $10.4 million dividend to Popular, Inc.
Note 35 to the Consolidated Financial Statements provides a consolidating statement of cash flows which includes the Corporation’s banking subsidiaries as part of the “All other subsidiaries and eliminations” column.
The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. This capacity is comprised mainly of available liquidity derived from secured funding sources, as well ason-balance sheet liquidity in the form of cash balances maintained at the Fed and unused secured lines held at the FRB and FHLB, in addition to liquid unpledged securities. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.
The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation’s banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.
Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 137 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and institutional customers. Core deposits include allnon-interest bearing deposits, savings deposits and certificates of deposit under $100,000, excluding brokered deposits with denominations under $100,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable andlow-cost funds. Core deposits totaled $ 29.635.1 billion, or 86%88% of total deposits, at September 30, 2017,2018, compared with $25.8$30.9 billion, or 84%87% of total deposits, at December 31, 2016.2017. Core deposits financed 77%79% of the Corporation’s earning assets at September 30, 2017,2018, compared with 76% at December 31, 2016.2017.
Certificates
The distribution by maturity of depositcertificates of deposits with denominations of $100,000 and over at September 30, 2017 totaled $ 4.1 billion, or 12% of total deposits (December 31, 2016—$4.1 billion, or 14% of total deposits). Their distribution by maturity at September 30, 20172018 is presented in the table that follows:
Table 19 — 13—Distribution by Maturity of Certificate of Deposits of $100,000 and Over
(In thousands) | ||||||||
3 months or less | $ | 1,283,156 | $ | 1,269,624 | ||||
3 to 6 months | 312,315 | 397,705 | ||||||
6 to 12 months | 837,864 | 680,958 | ||||||
Over 12 months | 1,629,589 | 1,717,789 | ||||||
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| |||||||
Total | $ | 4,062,924 | $ | 4,066,076 | ||||
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At September 30, 2017 approximately 1% of the Corporation’s assets were financed by brokered deposits (December 31, 2016 – 2%). The Corporation had $ 0.60.5 billion in brokered deposits at September 30, 20172018 and December 31, 2016.2017, which financed approximately 1%, of its total assets. 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.
To the extent that the banking subsidiaries are unable to obtain sufficient liquidity through core deposits, the Corporation may meet its liquidity needs through short-term borrowings by pledging securities for borrowings under repurchase agreements, by pledging additional loans and securities through the available secured lending facilities, or by selling liquid assets. These measures are subject to availability of collateral.
The Corporation’s banking subsidiaries have the ability to borrow funds from the FHLB. At September 30, 2017 and December 31, 2016, the banking subsidiaries had credit facilities authorized with the FHLB aggregating to $3.9 billion, based on assets pledged with the FHLB at those dates. Outstanding borrowings under these credit facilities totaled $868 million at September 30, 2017 and $673 million at December 31, 2016. Such advances are collateralized by loansheld-in-portfolio, do not have restrictive covenants and do not have any callable features. At September 30, 2017 the credit facilities authorized with the FHLB were collateralized by $5.0 billion in loansheld-in-portfolio (December 31, 2016—$4.9 billion). Refer to Note 17 to the Consolidated Financial Statements for additional information on the terms of FHLB advances outstanding.
At September 30, 2017 and December 31, 2016, the Corporation’s borrowing capacity at the Fed’s Discount Window amounted to approximately $1.2 billion, which remained unused as of both dates. The amount available under this borrowing facility is dependent upon the balance of performing loans, securities pledged as collateral and the haircuts assigned to such collateral. At September 30, 2017, this credit facility with the Fed was collateralized by $2.2 billion of loansheld-in-portfolio (December 31, 2016—$2.3 billion).
At September 30, 2017,2018, 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 andoff-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 its banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.
Bank Holding Companies
The principal sources of funding for the bank holding companies (the “BHC’s”), which are Popular, Inc. (holding company only) (“PIHC”) and Popular North America, Inc. (“PNA”),PNA, include cash on hand, investment securities, dividends received from banking andnon-banking subsidiaries (subject to regulatory limits and authorizations) asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings.
The principal use of these funds includeincludes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities) and capitalizing its banking subsidiaries.
During the nine months ended September 30, 2017, PIHC received $169 million in dividends from BPPR, $12 million in dividends from PIBI, $10.4 million in dividends from PNA and $3.5 million in dividends from EVERTEC’s parent company. PIHC also received $0.5 million in distributions from its investment in PRB Investors LP, an equity method investment, and $10.5 million in dividends from itsnon-banking subsidiaries. During the quarter ended September 30, 2017, anon-banking subsidiary declared a dividend of $4.5 million to PIHC. In addition, during the nine months ended September 30, 2017 Popular International Bank received $11.8 million in dividends from its investment in BHD Leon. During the nine months ended September 30, 2017, PNA received $10.4 million in dividends from BPNA.
Another use of liquidity at the parent holding company is the payment of dividends on its outstanding stock. During the nine months ended September 30, 2017, the Corporation declared quarterly dividends on its outstanding common stock of $0.25 per share, for a total of $ 76.6 million and completed a $75 million privately negotiated accelerated share repurchase transaction. Refer to additional information on Note 19 – Stockholder’s equity. The dividends for the Corporation’s Series A and Series B preferred stock amounted to $ 2.8 million for the nine months ended September 30, 2017.
The BHC’s have in the past borrowed in the money markets and in the corporate debt market primarily to finance theirnon-banking subsidiaries, however, the cash needs of the Corporation’snon-banking subsidiaries other than to repay indebtedness and interest
are now minimal. These sources of funding have become more costly due to the reductions in the Corporation’s credit ratings. The Corporation’s principal credit ratings are below “investment grade”, which affects the Corporation’s ability to raise funds in the capital markets. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.
Note 35to the Consolidated Financial Statements provides a statement of condition, of operations and of cash flows for the two BHC’s. The loansheld-in-portfolio in such financial statements is principally associated with intercompany transactions.
The outstanding balance of notes payable at the BHC’s amounted to $886 million$1.1 billion at September 30, 2017,2018, compared with $884$886 million at December 31, 2016.2017. The increase is related to the issuance of $300 million in senior notes, partially offset by repayment of $55 million of junior subordinated debentures in connection with the BHC’s obligations represents a potential cash need which is expected to be met with a combinationredemption of internal liquidity resources stemming mainly from future dividend receipts and new borrowings.the capital securities issued by BanPonce Trust I, as mentioned above.
The contractual maturities of the BHC’s notes payable at September 30, 20172018 are presented in Table 20.14.
Table 20—14—Distribution of BHC’s Notes Payable by Contractual Maturity
Year | (In thousands) | �� | (In thousands) | |||||
2017 | $ | — | ||||||
2018 | — | $ | — | |||||
2019 | 446,351 | 448,436 | ||||||
2020 | — | — | ||||||
2021 | — | — | ||||||
2022 | — | |||||||
Later years | 439,344 | 678,592 | ||||||
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| |||||||
Total | $ | 885,695 | $ | 1,127,028 | ||||
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As indicated previously,On October 15, 2018, the BHC did not issue new registered debt inCorporation redeemed the capital markets during the nine months ended September 30, 2017.outstanding senior notes due on 2019.
The BHCs liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all BHCs obligations during the foreseeable future.
Non-banking subsidiaries
The principal sources of funding for thenon-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injection and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for thenon-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of thenon-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings from their holding companies, BPPR or BPNA.PB.
Dividends
During the nine months ended September 30, 2018, the Corporation declared quarterly dividends on its outstanding common stock of $0.25 per share, for a total of $ 76.2 million. The dividends for the Corporation’s Series A and Series B preferred stock amounted to $ 2.8 million. PIHC received dividends amounting to $396 million from BPPR, $13 million from PNA and $6 million in dividends from itsnon-banking subsidiaries. A portion of these dividends was used by Popular, Inc. for the payments of the cash dividends on its outstanding common stock.
Other Funding Sources and Capital
The investmentdebt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s investmentdebt securities portfolio consists primarily of liquid U.S. government investment securities, sponsored U.S. agency securities, government sponsored mortgage-backed securities, and collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged investment and trading securities, excluding other investmentdebt securities, amounted to $2.1$4.3 billion at September 30, 20172018 and $3.7$3.2 billion at December 31, 2016.2017. A substantial portion of these debt securities could be used to raise financing quickly in the U.S. money markets or from secured lending sources.
Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.
Risks to Liquidity
Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, andoff-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.
The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. The Puerto Rico economy continues to face various challenges, including significant pressures in some sectors of the residential real estate market and the recent impact of two major hurricanes.hurricanes in September 2017. Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.
Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB.
The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation’s ability to access a broad array of wholesale funding sources, among other factors.
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. At the BHCs, the volume of capital market borrowings has declined substantially, as thenon-banking lending businesses that it had historically funded have been shut down and the need to raise unsecured senior debt has been substantially reduced.
Obligations Subject to Rating Triggers or Collateral Requirements
The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $12 million in deposits at September 30, 20172018 that are subject to rating triggers.
Some of the Corporation’s derivative instruments include financial covenants tied to the bank’s well-capitalized status and certain formal regulatory actions. These agreements could require exposure collateralization, early termination or both. The fair value of derivative instruments in a liability position subject to financial covenants approximated $19 thousand at September 30, 2017, with the Corporation providing collateral totaling $95 thousand to cover the net liability position with counterparties on these derivative instruments.
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 21 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 $51$61 million at September 30, 2017.2018. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.
Credit Risk
Geographic and Government Risk
The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 34 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which continues to be in a severe economic and fiscal crisiscrisis.
Economic Performance
The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006, and the Commonwealth’s gross national product (“GNP”) has contracted (in real terms) every fiscal year between 2007 and 2017, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, published in January 2018, the Commonwealth’s real GNP for fiscal years 2016 and 2017 decreased by 1.3% and 2.4%, respectively. The Planning Board’s GNP forecast for fiscal year 2018, which was recently significantly impacted by two major hurricanes.
Hurricanes Impact
Duringreleased in April 2017 and has not been revised, projects a contraction of 1.5%. This analysis does not account for the monthimpact of hurricanes Irma and María in September 2017, Hurricanes Irma and Maria, two major hurricanes, caused extensive destructionwhich is expected to have a materially adverse effect on the Commonwealth’s GNP in Puerto Rico, disruptingfiscal year 2018. Considering the primary market in which BPPR does business. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed and the government imposed a mandatory curfew. The hurricanes caused a significant disruption to the island’sadverse economic activity. Most business establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.
Puerto Rico was declared a disaster zone by President Trump due to the impact of the hurricanes thus making it eligible for Federal assistance. Notwithstandingand the significant recovery operation that is underwayoffsetting effect of certain measures and reforms, proposed by the Federal, state and local governments, as of the date of this report, most businesses and homes in Puerto Rico remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are operating partially or remain closed. Electronic transactions, a significant source of revenue for BPPR, have also declined significantly as a result of the lack of power and telecommunication services. Several reports indicate that the hurricanes have also accelerated the outmigration trends that Puerto Rico was experiencing, with many residents moving to the mainland United States, either on a temporary or permanent basis.
While it is too early to assess and quantify the full extent of the damage caused by the hurricanes,Oversight Board (as hereinafter defined) as well as their long-term impact onof significant amounts of disaster relief funding, the Revised Commonwealth Fiscal Plan (as hereinafter defined) estimates an 8.0% contraction in real GNP in fiscal year 2018. For additional information regarding the economic activity,projections of the damages are substantial and have, at leastRevised Commonwealth Fiscal Plan, see Fiscal Plans,Commonwealth Fiscal Plan, below.
Fiscal Crisis
The Commonwealth is in the short-term, hadmidst of a material adverse impact on economic activity, as reflected by, among other things, the slowdown in production activity and reduction in the government’s tax revenues.
For a discussion of the impact of the hurricanes on the Corporation’s operations and financial results during the third quarter of 2017, refer to Note 2—Hurricanes impact, on the accompanying financial statements. For additional discussion of risk factors related to the impact of the hurricanes, see Item 1A of this report.
Fiscal and Economic Crisis
Even before the hurricanes, the Commonwealth was experiencing a severe economic andprofound fiscal crisis resulting fromaffecting the central government and many of its instrumentalities, public corporations and municipalities. The fiscal crisis is primarily the result of continuing economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations, and lack of access to the capital markets, among other factors. Further,As a result of the crisis, the Commonwealth and severalcertain of its public instrumentalities are currently in the process of restructuringhave been unable to make debt service payments on their outstanding obligations in proceedings under Titles IIIbonds and VI ofnotes since 2016. The escalating fiscal and economic crisis and the imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) enacted in June 2016, bywhich, as further discussed below, established two mechanisms for the U.S. Federal Government.
The Commonwealth’s deficits were historically covered with bond financings, loans from the Government Development Bank for Puerto Rico (“GDB”) and other extraordinaryone-time revenue measures, as well through the defermentrestructuring of the cost of certain legacy obligations such as pensions. The Commonwealth’s structural imbalance between revenue and expenditure and unfunded legacy obligations, coupled with the deterioration of GDB’s liquidity situation and the Commonwealth’s recent inability to access the capital markets, resulted in the government becoming unable to pay scheduled debt payments while continuing to provide government services.
Recent Economic Performance
Puerto Rico entered into recession in the fourth quarter of fiscal year 2006. Puerto Rico’s gross national product (GNP) has thereafter contracted in real terms every year between fiscal year 2007 and fiscal year 2016 (inclusive), with the exception of growth of 0.5% in fiscal year 2012 (likely as a result of the large amount of governmental stimulus and deficit spending in that fiscal year). According to Puerto Rico Planning Board estimates released in March 2017 (before the impact of the hurricanes), gross national
product is projected to further contract by 1.7% and 1.5% during fiscal years 2017 and 2018, respectively. The latest Economic Activity Index issued by GDB, which is an indicator of general economic activity and not a direct measurement of GNP, reflected a 1.49% reduction in the average for fiscal year 2017, compared to the prior fiscal year. During the first month of fiscal year 2018 (July 2017), the Economic Activity Index reflected a 2.1% average reduction compared to the corresponding figure for fiscal year 2017. As discussed above, Hurricanes Irma and Maria have had, at least in the short-term, a material adverse impact on economic activity, that is likely to be reflected in GNP estimates and the Economic Activity Index during fiscal year 2018.
Fiscal and Liquidity Measures
The Commonwealth’s challenges have resulted in a severe fiscal and liquidity crisis, which has forced the government to implement extraordinary measures in order to continue to fundCommonwealth, its operational expenses and provide essential services to its residents. Measures taken by the previous administration to tackle the government’s structural budgetary imbalance included (a) reforming the Commonwealth’s retirement systems, (b) enacting ActNo. 66-2014, as amended (“Act 66”), a fiscal emergency law that, among other things, froze formula appropriations, salaries and benefits under collective bargaining agreements, (c) implementing certain extraordinary revenue raising measures, including an increase in the sales and use tax (“SUT”) rate from 7% to 11.5% and the implementation of a Commonwealth SUT of 4% with respect to certainbusiness-to-business services, (d) requiring the two largest government retirement systems topre-fund the payment of retirement benefits to participants, (e) delaying the payment of third-party payables, income tax refunds and amounts due to public corporations, instrumentalities and (f) enacting Puerto Rico Emergency Moratorium and Rehabilitation Act (the “Moratorium Act”), pursuant to which themunicipalities. The Commonwealth and certainseveral of its instrumentalities suspended the payment of debt service on their respective debts and retained certain revenues assigned to particular public corporations, redirecting the same for the funding of operational expenses. The Moratorium Act also imposed significant constraints on the operations of GDB, including stringent restrictions on the withdrawal of deposits from GDB (including deposits of the Commonwealth’s municipalities).
The Administration of Governor Ricardo Rosselló Nevares, sworn in January 2017, has also implemented various measures to address the Commonwealth’s fiscal crisis and liquidity problems, including enacting legislation to (a) extend until fiscal year 2021 certain of the provisions of Act 66, (b) extend for 10 years the temporary excise tax imposed by ActNo. 154-2010, (c) reduce government expenses (including by reducing payroll related-expenses, such as those related to temporary workers and certain employee benefits), (d) increase government revenues (including by increasing fines and cigarette excise taxes), and (e) authorize the Commonwealth’s central government to use funds from public corporations to cover its liquidity and budgetary needs (including, under certain circumstances, thesales-and-use tax revenue securitized through the Puerto Rico Sales Tax Financing Corporation (“COFINA”)).
On January 29, 2017, the Rosselló Administration enacted ActNo. 5-2017 (“Act 5”), also known as the “Financial Emergency and Fiscal Responsibility Act,” to replace certain provisions of the Moratorium Act. Among other things, Act 5, as amended, extended the Governor’s power to suspend debt service obligations until December 31, 2017 (subject to further extensions through executive orders), by prioritizing the payment of essential services over debt service. Act 5 grandfathers executive orders issued pursuant to the Moratorium Act and stipulates that the same shall continue in full force and effect until amended, rescinded or superseded.
The Government has stated that certain of these emergency liquidity measures are unsustainable and have significant negative economic effects. Also, the Commonwealth and the Oversight Board (defined below) have indicated that they expect that these measures will not be sufficient to address the Commonwealth’s fiscal and liquidity needs and that additional extraordinary fiscal and liquidity measures will need to be implemented, including those outlinedcurrently in the Commonwealth’s fiscal plan (discussed below), to allow the Commonwealth to continue providing essential government services. The Commonwealth and the Oversight Board have indicated that, absentprocess of restructuring their debts through such additional measures, the Commonwealth may experience significant cash shortfalls during fiscal year 2018.
Recent Defaults
The following entities have not made payments of principal and/or interest in full on certain of their respective bonds and notes as of the date of this report: the Commonwealth, GDB, the Puerto Rico Public Buildings Authority, the Puerto Rico Infrastructure Financing Authority, the Puerto Rico Highways and Transportation Authority (“HTA”), the Puerto Rico Public Finance Corporation, the Convention Center District Authority, the Employees Retirement System (“ERS”), the University of Puerto Rico and the Puerto Rico Electric Power Authority (“PREPA”). Further, pursuant to a court order issued in COFINA’s Title III proceeding (discussed below) on May 30, 2017, funds held by the trustee of the COFINA bonds have not been applied for the payment of such bonds pending the resolution of various disputes in respect of such funds.
Enactment of PROMESA
In general terms, PROMESA seeks to provide the Commonwealth with (i) fiscal and economic discipline through the creation ofcreated a seven-member federally-appointed oversight board (the “Oversight Board), (ii) relief from creditor lawsuits throughBoard”) with ample powers over the enactment of a temporary stay on litigation to enforce rights or remedies related to outstanding liabilitiesfiscal and economic affairs of the Commonwealth, and its public corporations, instrumentalities, and municipalities (which expired on May 1, 2017) and (iii) two separate processes for the restructuring of the debt obligations of such entities. PROMESA also includes other miscellaneous provisions, including relief from certain wage and hour laws and regulations and provisions for identification and expedited permitting of critical infrastructure projects.
On August 31, 2016, President Obama appointed the seven voting members of the Oversight Board.municipalities. Pursuant to PROMESA, the Oversight Board shallwill remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years.
The Oversight Board has designated a number of entities as covered entities under PROMESA, including the Commonwealth and all of its public corporations and retirement systems, and all affiliates and subsidiaries of the foregoing. While the Oversight Board has the power to designate anyinstrumentalities as “covered entities” under PROMESA. None of the Commonwealth’s municipalities have been designated as covered entities under PROMESA, it has not done so as of the date hereof. The designation of an entitythis report but may be designated as a covered entity has various implications under PROMESA. First, it means thatsuch in the Governor will havefuture. Covered entities are required to submit such entity’stheir annual budgets and, if the Oversight Board so requests, itstheir fiscal plans, to the Oversight Board for its review and approval. Second, covered territorial instrumentalities may notThey are also required to seek Oversight Board approval to issue, debtguarantee or guarantee, exchange, modify repurchase, redeem, ortheir debts and to enter into similar transactionscontracts with respect to their debts without the prior approvalan aggregate value of the Oversight Board.$10 million or more. Finally, covered entities couldare also potentially be eligible to useavail themselves of the restructuring proceduresprocesses provided by PROMESA. The first,One of such restructuring processes, Title VI, is a largelyout-of-court process through which a government entity and its financial creditors can agree on terms to restructure such entity’s debt. If a supermajority of creditors of a certain category agrees, that agreement can bind all other creditors in such category. The second,other one, Title III, draws on the federal bankruptcy code and provides a court-supervised process for a comprehensive restructuring led by the Oversight Board. Access to either of these procedures is dependent on compliance with certain requirements established in PROMESA, including the approval of the Oversight Board.
The initial stay of litigation imposed by PROMESA expired on May 1, 2017. The automatic stay imposed by PROMESA applied to covered actions against all government instrumentalities in Puerto Rico, even those that may not be immediately within the jurisdiction and purview of the Oversight Board, such as municipalities. An automatic stay is currently in effect, however, with respect to such entities that are subject to ongoing debt restructuring proceedings under Title III of PROMESA.
Fiscal Plans
PROMESA requiresCommonwealth Fiscal Plan. The Oversight Board has certified several versions of fiscal plans for the Commonwealth to submit asince 2017. The most recent fiscal plan tofor the Commonwealth certified by the Oversight Board is dated as of October 23, 2018 (the “Revised Commonwealth Fiscal Plan”). The Revised Commonwealth Fiscal Plan estimates a 16.1% contraction in real GNP in fiscal year 2018, without accounting for the impact of disaster relief funding or the measures and structural reforms contemplated by the plan. Taking into account such factors, the Revised Commonwealth Fiscal Plan estimates an 8.0% contraction in real GNP in fiscal year 2018. It also projects that among other things, (i) providesdisaster relief spending will have a short-term stimulative effect on the economy, which, combined with the estimated effects of the proposed fiscal measures and structural reforms, will result in variable GNP growth from fiscal years 2019 through 2022, followed by GNP contraction in fiscal year 2023 as disaster relief funding drops off considerably. The Commonwealth’s population is estimated to steadily decline at an average rate of 1.12% from fiscal years 2019 through 2023, reaching an approximately 1% annual decline in the long-term.
Before accounting for estimatesthe impact of revenuesthe measures and expendituresstructural reforms contemplated therein, the Revised Commonwealth Fiscal Plan projects apre-contractual debt service surplus in conformance with agreed accounting standards, (ii) ensuresfiscal years 2018 through 2020. This surplus is not projected to continue after fiscal year 2020, as federal disaster relief funding slows down. The Revised Commonwealth Fiscal Plan projects that, without major Government action, the fundingCommonwealth would suffer an annual primary deficit starting in fiscal year 2021. After the application of essential services, (iii) eliminates structural deficits, (iv) provides adequate funding for public pension systems and (v) provides for a debt burden that is sustainable. Furthermore, the fiscal plan must respectmeasures and structural reforms contemplated therein, the relative lawful priorities or lawful liens under local law.
On February 28, 2017, the Rosselló administration submitted its draftRevised Commonwealth Fiscal Plan projects apre-contractual debt service surplus of approximately $17 billion from fiscal plan to the Oversight Board. A revised version of such fiscal plan was submitted to the Oversight Board on March 13, 2017, which the Oversight Board certified on such date,years 2018 through 2023. However, after introducing certain amendments. The Commonwealth’s fiscal plan covers, in addition to the Commonwealth itself, various public instrumentalities with outstanding debts payable from taxes, fees or other government revenues (including COFINA).
The Commonwealth’s fiscal plan, as certified in March 2017, estimates that, absent the revenue enhancing and expense reduction measures set forth therein and assuming the payment of contractual debt service, as contracted, the Commonwealth’s10-year budget gap would reach approximately $66.9 billion. Further,surplus projected for such period drops significantly and annual deficits begin in fiscal year 2027. Moreover, even after
the implementation of the fiscal measures and structural reforms contemplated by the plan and before contractual debt service, the Revised Commonwealth Fiscal Plan projects that, assumingan annual deficit starting in fiscal year 2034. Based on such long-term projections, the successful implementation of all measures set forth therein,Revised Commonwealth Fiscal Plan concludes that the Commonwealth and the entities covered by the Commonwealth’s fiscal plan will only have $7.8 billion available for the paymentcannot afford to meet all of debt service during said10-year period (compared to $35 billion ofits contractual debt service) and thus recognizes the need for debt restructuring by the Commonwealth and the instrumentalities covered by said fiscal plan (including COFINA).obligations.
The Commonwealth’s fiscal planRevised Commonwealth Fiscal Plan does not contemplate a restructuring of the debt of Puerto Rico’sthe Commonwealth’s municipalities. The Commonwealth’s fiscal plan contemplates,It does, however, as part of its expensecontemplate the gradual reduction measures,and the gradualultimate elimination of budgetary subsidies provided by the Commonwealth to municipalities. Those subsidiesmunicipalities, which constitute a material portion of the operating revenues of certain municipalities. Commonwealth appropriations to municipalities were reduced by $150 million in fiscal year 2018 and by an additional $45 million in 2019 (from approximately $370 million in fiscal year 2017 to approximately $220 million in fiscal year 2018 and approximately $175 in fiscal year 2019). The Commonwealth’sRevised Commonwealth Fiscal Plan provides for additional reductions in such appropriations every fiscal plan is publicly availableyear, holding appropriations constant at approximately45-50% of current levels starting in the Oversight Board’s website.fiscal year 2022, before ultimately phasing out all subsidies in fiscal year 2024.
Other Fiscal Plans.Pursuant to PROMESA, in 2017, the Oversight Board has also requested and approvedcertified fiscal plans for (i) GDB, (ii) HTA, (iii) PREPA, (iv)several public corporations and instrumentalities. However, following the hurricanes, the Oversight Board requested that the government submit new fiscal plans for such entities. The Oversight Board certified revised fiscal plans for said entities in 2018, which conclude that such entities cannot afford to meet all of their contractual obligations.
The certified fiscal plan for the Puerto Rico Aqueduct and SewerElectric Power Authority and (v) the Public Corporation for the Supervision and Insurance of Cooperatives. All such fiscal plans reflect that the applicable government entity is unable to pay its financial obligations in full, thus recognizing the need for debt relief. The Oversight Board has also requested fiscal plans from certain other public corporations and instrumentalities, which are subject to ongoing review and have not been approved by the Oversight Board as of the date hereof.
PREPA’s fiscal plan(“PREPA”), Puerto Rico’s electric power utility, assumes changes to the treatment of the municipal contribution in lieu of taxes, which could result in increased electricity expenses for municipalities. GDB’s
The certified fiscal plan for Government Development Bank for Puerto Rico (“GDB”) contemplates the wind-down of GDB’s operationsGDB and the distribution of the cash flows of GDB’s loan portfolio among its creditors (including its municipal depositors). Pursuant to through a debt restructuring proceeding under Title VI of PROMESA, which was recently approved by the Restructuring Support Agreement, dated May 15, 2017, entered into by and among GDB and a significant portionU.S. District Court for the District of its financial creditorsPuerto Rico (the “GDB RSA”), GDB noteholders and municipal depositors would be eligible to exchange their claims against GDB for one of three tranches of bonds to be issued by a new government entity and which would have varied upfront exchange ratios (ranging from 55% to 75%“U.S. District Court”) and coupon rates (ranging from 3.5% to 7.5%). The new bonds would be payable from payments receivedcontemplates significant reductions in respect of certain assets to be transferred by GDB to such new government entity (consisting largely of municipal loans). The legality of the modification of GDB’s financial obligations outlined in the GDB RSA is currently being challenged in court by certain dissenting municipalities with deposits in GDB.
On August 4, 2017, the Board also released its proposal for achieving a reduction in pension benefit outlays of 10% by fiscal year 2020. The proposal, which would be pursued through a court-approved plan of adjustment under Title III of PROMESA (described below), would reduce pension benefit payments in a progressive manner, so that lower income retirees would see a lower or no reduction in benefits while those with higher benefits would see larger reductions. The Oversight Board estimates that under this proposal, 25% of retirees would see no reductions and the median retiree would receive less than a 10% reduction. The Government, however, has stated that it will seek to protect pension benefit payments to retirees in full.
On October 31, 2017, the Oversight Board requested revised fiscal plans for the Commonwealth and various public corporations to take into account the impact of Hurricanes Irma and Maria. The Oversight Board expects that the revised fiscal plans would be certified by January or February 2018.creditor recoveries.
Pending Title III and Title VI Proceedings
On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court for the District of Puerto Rico to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to COFINA, ERS, HTAthe Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, the Puerto Rico Highways and Transportation Authority and PREPA.
On October 19, 2018, the Oversight Board filed a plan of adjustment for COFINA (the “COFINA Plan of Adjustment”), as well as a motion to approve a settlement of certain disputes between the Commonwealth and COFINA regarding the ownership of a portion of the sales and use tax pledged to the payment of COFINA’s bonds (the “COFINA Settlement”). The COFINA Plan of Adjustment, which is still subject to approval through the Title III process, provides for the restructuring of COFINA’s bonds based on the COFINA Settlement, which contemplates that the Commonwealth will receive approximately 46.35% of the yearly revenues previously allocated to COFINA. As of the date of this report, the plans of adjustment for said entities’ debtsthe other Title III debtors have not been filed. Based on the projection of funds available for debt service under the applicable fiscal plans, however, the restructuring is expected to result in significant discounts on creditor recoveries.
On JulySeptember 12, 2017, the Oversight Board conditionally authorized2018, GDB commenced a process to pursue the modification ofrestructure its financial obligations outlined in the GDB RSAdebts pursuant to Title VI of PROMESA.PROMESA in the U.S. District Court. On November 6, 2018, the U.S. District Court approved GDB’s restructuring pursuant to Title VI of PROMESA upon concluding that all applicable requirements of PROMESA had been satisfied. The restructuring transaction is expected to close in the following weeks.
Exposure of the Corporation
The credit quality of BPPR’s loan portfolio necessarily reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. The effects of the prolonged recession are reflected in limited loan demand, an increase in the rate of foreclosures and delinquencies on loans granted in Puerto Rico. While PROMESA provides a process to address the Commonwealth’s fiscal crisis, the length and complexity of the Title III proceedings for the Commonwealth and various of its instrumentalities, the adjustment measures required by the fiscal plans and the impact of Hurricanes Irma and Maria suggest a risk of further significant economic contraction. In addition, the measures taken to address the
fiscal crisis and those that will have to be taken in the near future will likely affect many of our individual customers and customers’ businesses, which could
cause credit losses that adversely affect us and may negatively affect consumer confidence. This, in turn, results in reductions in consumer spending that may also adversely impact our interest andnon-interest revenues. If global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s post-hurricane recovery effortsfiscal andpre-existing fiscal economic crisis, including by consummating an orderly restructuring of its debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict. For additional discussion of risk factors related to the impact of the hurricanes, see Item 1A of this report.
At September 30, 2018 and December 31, 2017, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities amounted to $ 484 million, of which approximately $ 482 million is outstanding ($584$458 million and $529$484 million, respectively which is fully outstanding at September 30, 2018 and December 31, 2016).2017. Deterioration of the Commonwealth’s fiscal and economic situation, including any negative ratings implications, could further adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $ 433$413 million consists of loans and $ 49$45 million are securities ($459435 million and $70$49 million, respectively, at December 31, 2016)2017). AllSubstantially all of the amount outstanding at September 30, 20172018 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 ($512revenues. On July 2, 2018, the Corporation received principal payments amounting to $23 million at December 31, 2016).from various obligations from Puerto Rico municipalities. At September 30, 2017, 74%2018, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. Although the PROMESA Oversight Board has not designated any of the Commonwealth’s 78 municipalities as covered entities under PROMESA, it may decide to do so in the future. For a more detailed description of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 22 – Commitments and contingencies.
During the third quarter of 2017, the Corporation sold all of its COFINA bonds at a gain of approximately $0.1 million. The Corporation had recorded an other-than-temporary impairment charge of $8.3 million in respect of those bonds during the second quarter of 2017 as a result of the filing of the Title III proceeding in respect of COFINA and thenon-payment of interest on the COFINA bonds in June 2017 pursuant to a court order issued in such proceeding.
In addition, at September 30, 2017,2018, the Corporation had $391$374 million in indirect exposure to loans or securities issued or guaranteed by Puerto Rico governmental entities, but whose principal source of repayment arenon-governmental entities. In such obligations, the Puerto Rico governmental entity guarantees any shortfall in collateral in the event of borrower default ($406386 million at December 31, 2016)2017). These included $313$299 million in residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority (“HFA”), an entity that has been designated as a covered entity under PROMESA (December 31, 2016 - $3262017—$310 million). These mortgage loans are secured by the underlying properties and the HFA guarantee serves to cover shortfalls in collateral in the event of a borrower default. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of HFA, he has not exercised this power as of the date hereof. Also, at September 30, 2018, the Corporation had $43$44 million in Puerto Rico housing bonds issued by HFA, which are secured by second mortgage loans on Puerto Rico residential properties, $6and for which HFA also provides a guarantee to cover shortfalls, $7 million in pass-through securities issued by HFA that have been economically defeased and refunded and for which collateral including U.S. agencies and Treasury obligations has been escrowed, and $29$24 million of commercial real estate notes issued by government entities, but payable from rent paid by private parties ($4344 million, $6$7 million and $31$25 million at December 31, 2016,2017, respectively).
BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the fiscal measures to be implemented to address the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA described above. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to current and former government employees which could also be negatively affected by fiscal measures such as employee layoffs or furloughs.furloughs or reductions in pension benefits.
BPPR also has a significant amount of deposits from the Commonwealth, its instrumentalities, and municipalities. The amount of such deposits may fluctuate depending on the financial condition and liquidity of such entities, as well as on the ability of BPPR to maintain these customer relationships.
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 that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations, and was also severely impacted by Hurricanes Irma and María. 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 September 30, 2017,2018, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $82$78 million, of which approximately $74$69 million is outstanding.outstanding (compared to $82 million and $73 million, respectively, at December 31, 2017). Of the amount outstanding, approximately (i) $43$42 million represents loans to the West Indian Company LTD, a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, (ii) $14 million represents loans to the Virgin Islands Water and Power Authority, a public corporation of the USVI that operates USVI’s water production and electric generation plants, and (iii) $17$13 million represents loans to the Virgin Islands Public Finance Authority, a public corporation of the USVI created for the purpose of raising capital for public projects.projects (compared to $43 million, $14 million and $16 million, respectively, at December 31, 2017).
U.S. Government
As further detailed in Notes 65 and 76 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, $896 million$1.2 billion of residential mortgages and $87$78 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2017.2018 (compared to $1.7 billion and $88 million, respectively, at December 31, 2017).
Non-Performing Assets
At theone-year mark after the hurricanes made landfall in Puerto Rico and the USVI, the third quarter results reflect improvements in credit quality, with most of the metrics improving or trending back topre-hurricane levels. The Corporation continues to closely monitor its loan portfolios and related credit metrics given remaining challenges in the Puerto Rico’s fiscal and economic outlook.
When compared topre-hurricane levels, June 30, 2017, loans with a delinquency of 90 days past due have increased by $550 million. From this amount, approximately $362 million represents loans that are still in accruing status, mainly related to the portfolio of mortgage loans insured under FHA or guaranteed by the VA.
Refer to the following table for information on delinquencies:
Table 15—Puerto Rico Loans Delinquency
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[1] | ||||||||||||||||||||||||
September 30, 2018 | ||||||||||||||||||||||||||||||||
Commercial and construction | $ | 58,619 | $ | 5,617 | $ | 259,547 | $ | 323,783 | $ | 7,161,486 | $ | 7,485,269 | $ | 173,100 | $ | 211 | ||||||||||||||||
Mortgage, including GNMA rebooked loans | 285,917 | 136,265 | 1,215,269 | 1,637,451 | 4,893,825 | 6,531,276 | 348,779 | 735,454 | ||||||||||||||||||||||||
Credit cards | 9,515 | 6,178 | 16,768 | 32,461 | 1,005,372 | 1,037,833 | — | 16,768 | ||||||||||||||||||||||||
Auto | 53,347 | 10,783 | 22,165 | 86,295 | 2,382,315 | 2,468,610 | 22,097 | 68 | ||||||||||||||||||||||||
Other consumer (personal, HELOCs, leases) | 20,627 | 9,904 | 38,240 | 68,771 | 2,231,594 | 2,300,365 | 36,827 | 573 | ||||||||||||||||||||||||
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Total | $ | 428,025 | $ | 168,747 | $ | 1,551,989 | $ | 2,148,761 | $ | 17,674,592 | $ | 19,823,353 | $ | 580,803 | $ | 753,074 | ||||||||||||||||
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December 31, 2017 | ||||||||||||||||||||||||||||||||
Commercial and construction | $ | 51,170 | $ | 4,099 | $ | 194,216 | $ | 249,485 | $ | 7,111,783 | $ | 7,361,268 | $ | 161,226 | $ | 685 | ||||||||||||||||
Mortgage, including GNMA rebooked loans | 217,890 | 77,833 | 1,596,763 | 1,892,486 | 4,684,293 | 6,576,779 | 306,697 | 1,204,691 | ||||||||||||||||||||||||
Credit cards | 7,319 | 4,464 | 18,227 | 30,010 | 1,063,211 | 1,093,221 | — | 18,227 | ||||||||||||||||||||||||
Auto | 24,405 | 5,197 | 5,466 | 35,068 | 815,745 | 850,813 | 5,466 | — | ||||||||||||||||||||||||
Other consumer (personal, HELOCs, leases) | 25,124 | 9,186 | 39,977 | 74,287 | 2,121,690 | 2,195,977 | 38,051 | 1,546 | ||||||||||||||||||||||||
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Total | $ | 325,908 | $ | 100,779 | $ | 1,854,649 | $ | 2,281,336 | $ | 15,796,722 | $ | 18,078,058 | $ | 511,440 | $ | 1,225,149 | ||||||||||||||||
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September 30, 2017 | ||||||||||||||||||||||||||||||||
Commercial and construction | $ | 69,175 | $ | 20,641 | $ | 184,935 | $ | 274,751 | $ | 6,982,565 | $ | 7,257,316 | $ | 160,142 | $ | 384 | ||||||||||||||||
Mortgage, including GNMA rebooked loans | 583,383 | 221,646 | 856,307 | 1,661,336 | 4,154,169 | 5,815,505 | 337,967 | 443,377 | ||||||||||||||||||||||||
Credit cards | 17,523 | 9,863 | 20,626 | 48,012 | 1,035,234 | 1,083,246 | — | 20,626 | ||||||||||||||||||||||||
Auto | 44,331 | 18,933 | 12,259 | 75,523 | 746,481 | 822,004 | 12,259 | — | ||||||||||||||||||||||||
Other consumer (personal, HELOCs, leases) | 38,045 | 15,783 | 39,470 | 93,298 | 2,046,703 | 2,140,001 | 38,298 | 740 | ||||||||||||||||||||||||
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Total | $ | 752,457 | $ | 286,866 | $ | 1,113,597 | $ | 2,152,920 | $ | 14,965,152 | $ | 17,118,072 | $ | 548,666 | $ | 465,127 | ||||||||||||||||
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June 30, 2017 | ||||||||||||||||||||||||||||||||
Commercial and construction | $ | 102,701 | $ | 21,394 | $ | 190,033 | $ | 314,128 | $ | 6,938,862 | $ | 7,252,990 | $ | 162,863 | $ | 229 | ||||||||||||||||
Mortgage, including GNMA rebooked loans | 307,222 | 151,129 | 743,059 | 1,201,410 | 4,616,873 | 5,818,283 | 306,642 | 370,756 | ||||||||||||||||||||||||
Credit cards | 12,067 | 7,831 | 19,012 | 38,910 | 1,052,164 | 1,091,074 | — | 19,012 | ||||||||||||||||||||||||
Auto | 31,917 | 6,955 | 10,634 | 49,506 | 776,453 | 825,959 | 10,634 | — | ||||||||||||||||||||||||
Other consumer (personal, HELOCs, leases) | 21,080 | 9,291 | 39,043 | 69,414 | 2,018,945 | 2,088,359 | 37,243 | 1,572 | ||||||||||||||||||||||||
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Total | $ | 474,987 | $ | 196,600 | $ | 1,001,781 | $ | 1,673,368 | $ | 15,403,297 | $ | 17,076,665 | $ | 517,382 | $ | 391,569 | ||||||||||||||||
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[1] | Loans HIP accounted for under ASC Subtopic310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis. These loans amounted to $218 million as of September 30, 2018, $118 million as of December 31, 2017, $100 million as of September 30, 2017 and $93 million as of June 30, 2017. |
The results of the Popular U.S. core operation remained stable with strong growth and favorable credit quality metrics. The U.S. taxi medallion portfolio acquired from the FDIC in the sale of Doral Bank continues to reflect the pressure on medallion collateral values, particularly in the New York City metro area.
As a result of the Reliable Transaction, on August 1, 2018, Popular Auto acquired approximately $1.6 billion in retail auto loans and $341 million in primarily auto-related commercial loans. The following presents asset quality results for the third quarter of 2018, including the Reliable acquired portfolios.
Non-performing assets include primarilypast-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.
On June 30, 2015, the shared-loss arrangement under the commercial loss share agreement16. Total non- performing assets increased by $23 million when compared with the FDIC related to the loans acquired from Westernbank as part of the FDIC assisted transaction in 2010 expired. Loans and OREO’s that remain covered under the terms of the single-family loss share agreement, which expires on June 30, 2020, continue to be presented as covered assets in the accompanying tables and credit metrics as of September 30, 2017.
Because of the application of ASC Subtopic310-30 to the Westernbank acquired loans and the loss protection providedDecember 31, 2017, driven by the FDIC which limits the risks on the covered loans, the Corporation has determined to provide certain quality metrics in this MD&A that exclude such covered loans to facilitate the comparison between loan portfolios and across periods. The Corporation believes the inclusion of these loans in certain asset quality ratios in the numerator or denominator (or both) would result in a distortion to these ratios. In addition, because charge-offs related to the acquired loans are recorded against thenon-accretable balance, the netcharge-off ratio including the acquired loans is lower for the single-family loan portfolios which includes covered loans. The inclusion of these loans in the asset quality ratios could result in a lack of comparability across periods, and could negatively impact comparability with other portfolios that were not impacted by acquisition accounting. The Corporation believes that the presentation of asset quality measures, excluding covered loans and related amounts from both the numerator and denominator, provides a better perspective into underlying trends related to the quality of its loan portfolio.
Certain of the asset quality measures were impacted by the damages caused by the hurricanes, which led to higher delinquencies and nonperforming loans, as payment channels, collection efforts and loss mitigation operations were interrupted and mainly unavailable for the last 10 days of the quarter. A provision was made to the allowance for loans losses based on management’s best estimate of the impact of the hurricanes on the ability of the borrowers to repay their loans, in light of an already fragile economy in Puerto Rico prior to the hurricanes. Management will continue to carefully assess the exposure of the portfolios to hurricane-related factors, economic trends, and their effect on credit quality. The U.S. operations continued to reflect positive results with strong growth and favorable credit quality metrics.
In response to the hurricanes’ effects on its customers, the Corporation implemented a90-day moratorium, equal to three months of suspended payments for consumer and certain commercial borrowers that were current or less than ninety days past due in their payments as of September 30, 2017. As a result of the moratorium, eligible loans for which the borrower takes advantage of the moratorium do not affect the asset quality measures as the suspended payments are not deemed to be delinquent and the Corporation continues to accrue interest on these loans.
Non-performing assets, excluding covered loans and OREO, increased by $24 million from December 31, 2016, mostly related tofollowing variances: (1) higher P.R. mortgage NPLs of $20$42 million, affectedmostly due to loans which failed to make a payment after the end of the moratorium period; (2) higher U.S. construction NPLs of $18 million, driven by disruptions to payment channels, collections and loss mitigation effortsthe classification asnon-performing of a single borrower during the previous quarter; (3) higher P.R. consumer NPLs of $15 million, which includes $9 million related to the Reliable auto business; partially offset by (4) lower P.R. mortgage OREOs of $37 million related to increased sales activity, and lower inflows as a result of the foreclosure moratorium offered as part of the hurricane María. Refer to Table 21relief efforts, which presents the informationwas extended through part ofnon-performing assets. 2018.
At September 30, 2017,2018,non-performing loans secured by real estateheld-in-portfolio, excluding covered loans, amounted to $471$488 million in the Puerto Rico operations and $33$49 million in the U.S. operations. These figures compare to $467$449 million in the Puerto Rico operations and $21$36 million in the U.S. operations at December 31, 2016.2017. In addition to thenon-performing loans included in Table 2116, at September 30, 2017,2018, there were $159$155 million ofnon-covered performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification asnon-performing and are considered impaired compared with $169 million at December(December 31, 2016.2017—$155 million).
Table21—16—Non-Performing Assets
September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | As a % of loans HIP by category [4] | BPPR | BPNA | Popular, Inc. | As a % of loans HIP by category [4] | BPPR | Popular U.S. | Popular, Inc. | As a % of loans HIP by category [4] | BPPR | Popular U.S. | Popular, Inc. | As a % of loans HIP by category [4] | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | $ | 160,043 | $ | 5,309 | $ | 165,352 | 1.5 | % | $ | 159,655 | $ | 3,693 | $ | 163,348 | 1.5 | % | $ | 171,271 | $ | 1,414 | $ | 172,685 | 1.4 | % | $ | 161,226 | $ | 3,839 | $ | 165,065 | 1.4 | % | ||||||||||||||||||||||||||||||||
Construction | 99 | — | 99 | — | — | — | — | — | 1,829 | 17,866 | 19,695 | 2.1 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Legacy[1] | — | 3,268 | 3,268 | 8.7 | — | 3,337 | 3,337 | 7.4 | — | 3,403 | 3,403 | 12.3 | — | 3,039 | 3,039 | 9.2 | ||||||||||||||||||||||||||||||||||||||||||||||||
Leasing | 2,684 | — | 2,684 | 0.4 | 3,062 | — | 3,062 | 0.4 | 3,009 | — | 3,009 | 0.3 | 2,974 | — | 2,974 | 0.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage | 337,967 | 14,348 | 352,315 | 5.4 | 318,194 | 11,713 | 329,907 | 4.9 | 348,779 | 12,306 | 361,085 | 4.9 | 306,697 | 14,852 | 321,549 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||||||||
Consumer | 47,873 | 14,337 | 62,210 | 1.6 | 51,597 | 6,664 | 58,261 | 1.6 | 55,915 | 16,696 | 72,611 | 1.4 | 40,543 | 17,787 | 58,330 | 1.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Totalnon-performing loansheld-in-portfolio, excluding covered loans | 548,666 | 37,262 | 585,928 | 2.5 | % | 532,508 | 25,407 | 557,915 | 2.5 | % | 580,803 | 51,685 | 632,488 | 2.4 | % | 511,440 | 39,517 | 550,957 | 2.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Non-performing loansheld-for-sale[2] | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other real estate owned (“OREO”), excluding covered OREO | 174,406 | 2,322 | 176,728 | 177,412 | 3,033 | 180,445 | 130,631 | 3,149 | 133,780 | 167,253 | 2,007 | 169,260 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Totalnon-performing assets, excluding covered assets | $ | 723,072 | $ | 39,584 | $ | 762,656 | $ | 709,920 | $ | 28,440 | $ | 738,360 | $ | 711,434 | $ | 54,834 | $ | 766,268 | $ | 678,693 | $ | 41,524 | $ | 720,217 | ||||||||||||||||||||||||||||||||||||||||
Covered loans and OREO[3] | 24,951 | — | 24,951 | 36,044 | — | 36,044 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Covered loans and OREO[2] | — | — | — | 22,948 | — | 22,948 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Totalnon-performing assets | $ | 748,023 | $ | 39,584 | $ | 787,607 | $ | 745,964 | $ | 28,440 | $ | 774,404 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Totalnon-performing assets[3] | $ | 711,434 | $ | 54,834 | $ | 766,268 | $ | 701,641 | $ | 41,524 | $ | 743,165 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accruing loans past due 90 days or more[5] [6] | $ | 465,127 | $ | — | $ | 465,127 | $ | 426,652 | $ | — | $ | 426,652 | $ | 753,074 | $ | — | $ | 753,074 | $ | 1,225,149 | $ | — | $ | 1,225,149 | ||||||||||||||||||||||||||||||||||||||||
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Ratios excluding covered loans:[7] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loansheld-in-portfolio to loansheld-in-portfolio | 3.21 | 0.62 | 2.53 | % | 3.10 | 0.45 | 2.45 | % | 2.93 | 0.77 | 2.39 | % | 2.83 | 0.64 | 2.27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to loansheld-in-portfolio | 3.06 | 1.48 | 2.65 | 2.73 | 0.75 | 2.24 | 2.83 | 1.10 | 2.39 | 2.87 | 1.16 | 2.43 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses tonon-performing loans, excludingheld-for-sale | 95.55 | 240.48 | 104.77 | 87.88 | 166.56 | 91.47 | 96.45 | 142.29 | 100.19 | 101.30 | 182.40 | 107.12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Ratios including covered loans: | Ratios including covered loans: |
| Ratios including covered loans: |
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Non-performing assets to total assets | 2.28 | 0.40 | 1.85 | % | 2.51 | 0.32 | 2.00 | % | 1.87 | 0.56 | 1.60 | % | 2.03 | 0.43 | 1.68 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loansheld-in-portfolio to loansheld-in-portfolio | 3.13 | 0.62 | 2.49 | 3.02 | 0.45 | 2.41 | 2.93 | 0.77 | 2.39 | 2.77 | 0.64 | 2.23 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses to loansheld-in-portfolio | 3.16 | 1.48 | 2.73 | 2.81 | 0.75 | 2.32 | 2.83 | 1.10 | 2.39 | 2.96 | 1.16 | 2.51 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses tonon-performing loans, excludingheld-for-sale | 100.95 | 240.48 | 109.77 | 92.90 | 166.56 | 96.23 | 96.45 | 142.29 | 100.19 | 107.10 | 182.40 | 112.47 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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HIP =“held-in-portfolio”
[1] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the |
[2] |
The amount consists of $3 million innon-performing covered loans accounted for under ASC Subtopic310-20 and |
[3] | There were nonon-performing loansheld-for-sale as of September 30, 2018 and December 31, 2017. |
[4] | Loansheld-in-portfolio used in the computation exclude |
[5] | The carrying value of loans accounted for under ASCSub-topic310-30 that are contractually 90 days or more past due was |
[6] | 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 tonon-performing since the principal repayment is insured. These balances include |
[7] | At December 31, 2017 these asset quality ratios have been adjusted to remove the impact of covered loans and covered foreclosed property. Appropriate adjustments to the numerator and denominator have been reflected in the calculation of these ratios. Management believes the inclusion of acquired loans in certain asset quality ratios that includenon-performing assets, past due loans or net charge-offs in the numerator and denominator results in distortions of these ratios and they may not be comparable to other periods presented or to other portfolios that were not impacted by purchase accounting. |
Accruing loans past due 90 days or more are composed primarily of credit cards, residential mortgage loans insured by FHA / VA, and delinquent mortgage loans included in the Corporation’s financial statements pursuant to GNMA’sbuy-back option program. Servicers of loans underlyingUnder the GNMA mortgage-backed securities must reportprogram, issuers such as their own assets the defaulted loans that theyBPPR have the option, but not the obligation, to purchase, even when they elect notrepurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to exercise thatthe repurchase option are required to be reflected on the financial statements of the issuer with an offsetting liability. As of September 30, 2018, and December 31, 2017, loans past due 90 days or more include approximately $195 million and $840 million, respectively, in loans previously pooled into GNMA securities with abuy-back option. While the borrowers for our serviced GNMA portfolio benefited from the loan payment moratorium as part of the hurricane relief efforts, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. Also, accruing loans past due 90 days or more include residential conventional loans purchased from other financial institutions that, although delinquent, the Corporation has received timely payment from the sellers / servicers, and, in some instances, have partial guarantees under recourse agreements.
The Corporation’s commercial loan portfolio secured by real estate (“CRE”), excluding covered loans, amounted to $7.4$7.8 billion at September 30, 2017,2018, of which $2.0 billion was secured with owner occupied properties, compared with $7.2$7.6 billion and $2.0$2.1 billion, respectively, at December 31, 2016.2017. CREnon-performing loans excluding covered loans, amounted to $118$124 million at September 30, 2017,2018, flat when compared with $130 million at December 31, 2016.2017. The CREnon-performing loans ratios for the BPPR and BPNAPopular U.S. segments were 2.63%2.90% and 0.12%0.02%, respectively, at September 30, 2017,2018, compared with 2.83%2.77% and 0.07%0.10%, respectively, at December 31, 2016.2017.
For the quarter ended September 30, 2017,2018, totalnon-performing loan inflows, excluding consumer loans, increaseddecreased by $5$40 million, or 5%35%, when compared to the inflows for the same quarter in 2016.2017. Inflows ofnon-performing loansheld-in-portfolio at the BPPR segment increaseddecreased by $4$37 million, or 4%35%, compared to the inflows for the third quarter of 2016,2017, mostly related to higherlower mortgage inflows of $10$53 million, impactedoffset by Hurricane María.higher P.R. commercial inflows of $16 million. Mortgage inflows for the third quarter of 2017 were affected by the disruption in payment channels due to hurricane damage. On the other hand, higher commercial inflows for the third quarter of 2018 were associated with a $16 million relationship. Inflows ofnon-performing loansheld-in-portfolio at BPNA remained flat when compared tothe Popular U.S. segment decreased by $3 million, or 35%, from the same quarter in 2016.2017, mostly driven by lower commercial inflows of $2 million.
Table 22—17—Activity inNon-Performing LoansHeld-in-Portfolio (Excluding Consumer Loans)
For the quarter ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||
(Dollars in thousands) | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||
Beginning balance | $ | 538,597 | $ | 35,130 | $ | 573,727 | $ | 467,923 | $ | 21,730 | $ | 489,653 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Newnon-performing loans | 68,347 | 6,069 | 74,416 | 353,416 | 33,629 | 387,045 | ||||||||||||||||||
Advances on existingnon-performing loans | — | 58 | 58 | 763 | 64 | 827 | ||||||||||||||||||
Reclassification from covered loans | — | — | — | 3,413 | — | 3,413 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Non-performing loans transferred to OREO | (6,168 | ) | (183 | ) | (6,351 | ) | (14,280 | ) | (183 | ) | (14,463 | ) | ||||||||||||
Non-performing loanscharged-off | (23,769 | ) | (17 | ) | (23,786 | ) | (58,425 | ) | (330 | ) | (58,755 | ) | ||||||||||||
Loans returned to accrual status / loan collections | (55,128 | ) | (6,068 | ) | (61,196 | ) | (230,931 | ) | (19,921 | ) | (250,852 | ) | ||||||||||||
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Ending balance NPLs[1] | $ | 521,879 | $ | 34,989 | $ | 556,868 | $ | 521,879 | $ | 34,989 | $ | 556,868 | ||||||||||||
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[1] | Includes $3.4 million of NPLs related to the legacy portfolio. |
Table 18—Activity inNon-Performing LoansHeld-in-Portfolio (Excluding Consumer and Covered Loans)
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 469,505 | $ | 19,641 | $ | 489,146 | $ | 477,849 | $ | 18,743 | $ | 496,592 | $ | 469,505 | $ | 19,641 | $ | 489,146 | $ | 477,849 | $ | 18,743 | $ | 496,592 | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 105,498 | 9,376 | 114,874 | 316,638 | 21,615 | 338,253 | 105,498 | 9,376 | 114,874 | 316,638 | 21,615 | 338,253 | ||||||||||||||||||||||||||||||||||||
Advances on existingnon-performing loans | — | 64 | 64 | — | 123 | 123 | — | 64 | 64 | — | 123 | 123 | ||||||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans transferred to OREO | (9,484 | ) | — | (9,484 | ) | (38,921 | ) | (46 | ) | (38,967 | ) | (9,484 | ) | — | (9,484 | ) | (38,921 | ) | (46 | ) | (38,967 | ) | ||||||||||||||||||||||||||
Non-performing loanscharged-off | (14,451 | ) | (129 | ) | (14,580 | ) | (62,339 | ) | (859 | ) | (63,198 | ) | (14,451 | ) | (129 | ) | (14,580 | ) | (62,339 | ) | (859 | ) | (63,198 | ) | ||||||||||||||||||||||||
Loans returned to accrual status / loan collections | (52,959 | ) | (6,027 | ) | (58,986 | ) | (195,118 | ) | (16,651 | ) | (211,769 | ) | (52,959 | ) | (6,027 | ) | (58,986 | ) | (195,118 | ) | (16,651 | ) | (211,769 | ) | ||||||||||||||||||||||||
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Ending balance NPLs | $ | 498,109 | $ | 22,925 | $ | 521,034 | $ | 498,109 | $ | 22,925 | $ | 521,034 | ||||||||||||||||||||||||||||||||||||
Ending balance NPLs[1] | $ | 498,109 | $ | 22,925 | $ | 521,034 | $ | 498,109 | $ | 22,925 | $ | 521,034 | ||||||||||||||||||||||||||||||||||||
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[1] | Includes $3.3 million of NPLs related to the legacy portfolio. |
Table 23—19—Activity inNon-Performing Commercial LoansHeld-in-Portfolio (Excluding Consumer and Covered Loans)
For the quarter ended September 30, 2016 | For the nine months ended September 30, 2016 | For the quarter ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 498,665 | $ | 21,360 | $ | 520,025 | $ | 519,385 | $ | 21,101 | $ | 540,486 | $ | 162,781 | $ | 2,168 | $ | 164,949 | $ | 161,226 | $ | 3,839 | $ | 165,065 | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 101,010 | 8,369 | 109,379 | 307,456 | 40,966 | 348,422 | 23,894 | 1,663 | 25,557 | 92,867 | 3,637 | 96,504 | ||||||||||||||||||||||||||||||||||||
Advances on existingnon-performing loans | — | 299 | 299 | — | 310 | 310 | — | — | — | 647 | — | 647 | ||||||||||||||||||||||||||||||||||||
Reclassification from construction loans to commercial loans | 2,436 | — | 2,436 | 2,436 | — | 2,436 | ||||||||||||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans transferred to OREO | (16,621 | ) | (428 | ) | (17,049 | ) | (41,590 | ) | (873 | ) | (42,463 | ) | (1,480 | ) | — | (1,480 | ) | (5,985 | ) | — | (5,985 | ) | ||||||||||||||||||||||||||
Non-performing loanscharged-off | (18,384 | ) | (2,281 | ) | (20,665 | ) | (60,207 | ) | (3,376 | ) | (63,583 | ) | (5,179 | ) | (3 | ) | (5,182 | ) | (19,726 | ) | (234 | ) | (19,960 | ) | ||||||||||||||||||||||||
Loans returned to accrual status / loan collections | (66,277 | ) | (5,915 | ) | (72,192 | ) | (226,651 | ) | (36,724 | ) | (263,375 | ) | (8,745 | ) | (2,414 | ) | (11,159 | ) | (57,758 | ) | (5,828 | ) | (63,586 | ) | ||||||||||||||||||||||||
Reclassification from construction loans to commercial loans | (2,436 | ) | — | (2,436 | ) | (2,436 | ) | — | (2,436 | ) | ||||||||||||||||||||||||||||||||||||||
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Ending balance NPLs | $ | 498,393 | $ | 21,404 | $ | 519,797 | $ | 498,393 | $ | 21,404 | $ | 519,797 | $ | 171,271 | $ | 1,414 | $ | 172,685 | $ | 171,271 | $ | 1,414 | $ | 172,685 | ||||||||||||||||||||||||
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Table 24—20—Activity inNon-Performing Commercial LoansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 162,863 | $ | 4,001 | $ | 166,864 | $ | 159,655 | $ | 3,693 | $ | 163,348 | $ | 162,863 | $ | 4,001 | $ | 166,864 | $ | 159,655 | $ | 3,693 | $ | 163,348 | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 8,085 | 4,027 | 12,112 | 55,494 | 6,409 | 61,903 | 8,085 | 4,027 | 12,112 | 55,494 | 6,409 | 61,903 | ||||||||||||||||||||||||||||||||||||
Advances on existingnon-performing loans | — | — | — | — | 4 | 4 | — | — | — | — | 4 | 4 | ||||||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans transferred to OREO | (76 | ) | — | (76 | ) | (6,028 | ) | — | (6,028 | ) | (76 | ) | — | (76 | ) | (6,028 | ) | — | (6,028 | ) | ||||||||||||||||||||||||||||
Non-performing loanscharged-off | (3,587 | ) | (49 | ) | (3,636 | ) | (27,924 | ) | (117 | ) | (28,041 | ) | (3,587 | ) | (49 | ) | (3,636 | ) | (27,924 | ) | (117 | ) | (28,041 | ) | ||||||||||||||||||||||||
Loans returned to accrual status / loan collections | (7,242 | ) | (2,670 | ) | (9,912 | ) | (21,154 | ) | (4,680 | ) | (25,834 | ) | (7,242 | ) | (2,670 | ) | (9,912 | ) | (21,154 | ) | (4,680 | ) | (25,834 | ) | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Ending balance NPLs | $ | 160,043 | $ | 5,309 | $ | 165,352 | $ | 160,043 | $ | 5,309 | $ | 165,352 | $ | 160,043 | $ | 5,309 | $ | 165,352 | $ | 160,043 | $ | 5,309 | $ | 165,352 | ||||||||||||||||||||||||
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Table 25—21—Activity inNon-Performing CommercialConstruction LoansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2016 | For the nine months ended September 30, 2016 | For the quarter ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 172,584 | $ | 3,031 | $ | 175,615 | $ | 177,902 | $ | 3,914 | $ | 181,816 | $ | 2,559 | $ | 17,901 | $ | 20,460 | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 12,520 | 1,609 | 14,129 | 60,206 | 18,927 | 79,133 | — | — | — | 4,177 | 17,901 | 22,078 | ||||||||||||||||||||||||||||||||||||
Advances on existingnon-performing loans | — | 164 | 164 | — | 173 | 173 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification from construction loans to commercial loans | 2,436 | — | 2,436 | 2,436 | — | 2,436 | ||||||||||||||||||||||||||||||||||||||||||
Advances on existingnon-covered loans | — | — | — | 116 | — | 116 | ||||||||||||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans transferred to OREO | (2,223 | ) | — | (2,223 | ) | (5,141 | ) | — | (5,141 | ) | ||||||||||||||||||||||||||||||||||||||
Non-performing loanscharged-off | (7,918 | ) | (141 | ) | (8,059 | ) | (28,086 | ) | (776 | ) | (28,862 | ) | ||||||||||||||||||||||||||||||||||||
Loans returned to accrual status / loan collections | (10,352 | ) | (1,139 | ) | (11,491 | ) | (40,270 | ) | (18,714 | ) | (58,984 | ) | (730 | ) | (35 | ) | (765 | ) | (2,464 | ) | (35 | ) | (2,499 | ) | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Ending balance NPLs | $ | 167,047 | $ | 3,524 | $ | 170,571 | $ | 167,047 | $ | 3,524 | $ | 170,571 | $ | 1,829 | $ | 17,866 | $ | 19,695 | $ | 1,829 | $ | 17,866 | $ | 19,695 | ||||||||||||||||||||||||
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Table 26—22—Activity inNon-Performing Construction LoansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 99 | — | 99 | 99 | — | 99 | 99 | — | 99 | 99 | — | 99 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Ending balance NPLs | $ | 99 | $ | — | $ | 99 | $ | 99 | $ | — | $ | 99 | $ | 99 | $ | — | $ | 99 | $ | 99 | $ | — | $ | 99 | ||||||||||||||||||||||||
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Table 27—Activity inNon-Performing Construction LoansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2016 | For the nine months ended September 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | ||||||||||||||||||
Beginning balance | $ | 2,423 | $ | 100 | $ | 2,523 | $ | 3,550 | $ | — | $ | 3,550 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Newnon-performing loans | 1,150 | — | 1,150 | 1,543 | 671 | 2,214 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Non-performing loans transferred to OREO | — | — | — | (304 | ) | — | (304 | ) | ||||||||||||||||
Non-performing loanscharged-off | (985 | ) | — | (985 | ) | (1,103 | ) | — | (1,103 | ) | ||||||||||||||
Loans returned to accrual status / loan collections | (152 | ) | (100 | ) | (252 | ) | (1,250 | ) | (671 | ) | (1,921 | ) | ||||||||||||
Reclassification form construction loans to commercial loans | (2,436 | ) | — | (2,436 | ) | (2,436 | ) | — | (2,436 | ) | ||||||||||||||
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| |||||||||||||
Ending balance NPLs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
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Table 28—23—Activity inNon-Performing Mortgage LoansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2017 | For the nine months ended September 30, 2017 | For the quarter ended September 30, 2018 | For the nine months ended September 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. | ||||||||||||||||||||||||||||||||||||
Beginning balance | $ | 306,642 | $ | 12,280 | $ | 318,922 | $ | 318,194 | $ | 11,713 | $ | 329,907 | $ | 373,257 | $ | 11,398 | $ | 384,655 | $ | 306,697 | $ | 14,852 | $ | 321,549 | ||||||||||||||||||||||||
Plus: | ||||||||||||||||||||||||||||||||||||||||||||||||
Newnon-performing loans | 97,314 | 5,349 | 102,663 | 261,045 | 15,092 | 276,137 | 44,453 | 4,406 | 48,859 | 256,372 | 11,019 | 267,391 | ||||||||||||||||||||||||||||||||||||
Advances on existingnon-performing loans | — | 52 | 52 | — | 52 | 52 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification from covered loans | — | — | — | 3,413 | — | 3,413 | ||||||||||||||||||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-performing loans transferred to OREO | (9,408 | ) | — | (9,408 | ) | (32,893 | ) | (46 | ) | (32,939 | ) | (4,688 | ) | (183 | ) | (4,871 | ) | (8,295 | ) | (183 | ) | (8,478 | ) | |||||||||||||||||||||||||
Non-performing loanscharged-off | (10,864 | ) | (66 | ) | (10,930 | ) | (34,415 | ) | (715 | ) | (35,130 | ) | (18,590 | ) | (14 | ) | (18,604 | ) | (38,699 | ) | (96 | ) | (38,795 | ) | ||||||||||||||||||||||||
Loans returned to accrual status / loan collections | (45,717 | ) | (3,215 | ) | (48,932 | ) | (173,964 | ) | (11,696 | ) | (185,660 | ) | (45,653 | ) | (3,353 | ) | (49,006 | ) | (170,709 | ) | (13,338 | ) | (184,047 | ) | ||||||||||||||||||||||||
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|
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|
|
|
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| |||||||||||||||||||||||||||||||||||||
Ending balance NPLs | $ | 337,967 | $ | 14,348 | $ | 352,315 | $ | 337,967 | $ | 14,348 | $ | 352,315 | $ | 348,779 | $ | 12,306 | $ | 361,085 | $ | 348,779 | $ | 12,306 | $ | 361,085 | ||||||||||||||||||||||||
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Table 29—24—Activity inNon-Performing Mortgage loansHeld-in-Portfolio (Excluding Covered Loans)
For the quarter ended September 30, 2016 | For the nine months ended September 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) | BPPR | BPNA | Popular, Inc. | BPPR | BPNA | Popular, Inc. | ||||||||||||||||||
Beginning balance | $ | 323,658 | $ | 14,390 | $ | 338,048 | $ | 337,933 | $ | 13,538 | $ | 351,471 | ||||||||||||
Plus: | ||||||||||||||||||||||||
Newnon-performing loans | 87,340 | 6,715 | 94,055 | 245,707 | 20,167 | 265,874 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
Non-performing loans transferred to OREO | (14,398 | ) | (384 | ) | (14,782 | ) | (36,145 | ) | (829 | ) | (36,974 | ) | ||||||||||||
Non-performing loanscharged-off | (9,481 | ) | (1,994 | ) | (11,475 | ) | (31,018 | ) | (2,400 | ) | (33,418 | ) | ||||||||||||
Loans returned to accrual status / loan collections | (55,773 | ) | (4,297 | ) | (60,070 | ) | (185,131 | ) | (16,046 | ) | (201,177 | ) | ||||||||||||
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| |||||||||||||
Ending balance NPLs | $ | 331,346 | $ | 14,430 | $ | 345,776 | $ | 331,346 | $ | 14,430 | $ | 345,776 | ||||||||||||
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(Dollars in thousands) Beginning balance Plus: Newnon-performing loans Less: Non-performing loans transferred to OREO Non-performing loanscharged-off Loans returned to accrual status / loan collections Ending balance NPLs For the quarter ended September 30, 2017 For the nine months ended September 30, 2017 BPPR Popular
U.S. Popular, Inc. BPPR Popular U.S. Popular, Inc. $ 306,642 $ 12,280 $ 318,922 $ 318,194 $ 11,713 $ 329,907 97,314 5,349 102,663 261,045 15,092 276,137 (9,408 ) — (9,408 ) (32,893 ) (46 ) (32,939 ) (10,864 ) (66 ) (10,930 ) (34,415 ) (715 ) (35,130 ) (45,717 ) (3,215 ) (48,932 ) (173,964 ) (11,696 ) (185,660 ) $ 337,967 $ 14,348 $ 352,315 $ 337,967 $ 14,348 $ 352,315
Allowance for Loan Losses
Non-Covered Loan Portfolio
The allowance for loan losses, which represents management’s estimate of credit losses inherent in the loan portfolio, is maintained at a sufficient level to provide for estimated credit losses on individually evaluated loans as well as estimated credit losses inherent in the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the allowance for loan losses on a quarterly basis. In this evaluation, management considers current economic conditions and the resulting impact on Popular Inc.’s loan portfolio, the composition of the portfolio by loan type and risk characteristics, historical loss experience, results of periodic credit reviews of individual loans, regulatory requirements and loan impairment measurement, among other factors.
The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets. Other factors that can affect management’s estimates are the years of historical data when estimating 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, in historical loss experience and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for loan losses. Consequently, the business financial condition, liquidity, capital and results of operations could also be affected. Refer to Note 9 and the Critical Accounting Policies / Estimates section of this MD&A for a description of the Corporation’s allowance for loans losses methodology.
Refer to the following table for a summary of the activity in
At September 30, 2018, the allowance for loan losses, amounted to $634 million, an increase of $44 million when compared with December 31, 2017, mostly driven by an increase in the BPPR segment of $42 million, principally driven by the reclassification of $34 million allowance from loans previously classified as covered during the previous quarter. During the third quarter of 2018, the annual review and selectedrecalibration of the ALLL models was completed resulting in a decrease of $6 million. The provision for loan losses statisticsfor the third quarter of 2018 amounted to $54.4 million, compared to $157.7 million in the same period in the prior year. The third quarter of 2017 included a charge of $64.3 million related to hurricane María’s estimated impact on the P.R. loan portfolios. Refer to the Provision for Loan Losses section of this MD&A for additional information.
The following table presents annualized net charge-offs to average loansheld-in-portfolio (“HIP”) for thenon-covered portfolio by loan category for the quarters and nine months ended September 30, 20172018 and 2016.
Table 30—Allowance for Loan Losses and Selected Loan Losses Statistics - Quarterly Activity 25—Annualized Net Charge-offs (Recoveries) to AverageNon-covered LoansHeld-in-Portfolio
Quarters ended September 30, | Quarters ended | |||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2017 | 2017 | 2016 | 2016 | 2016 | September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Non-covered loans | Covered loans | Total | Non-covered loans | Covered loans | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | 509,206 | $ | 30,808 | $ | 540,014 | $ | 518,139 | $ | 30,581 | $ | 548,720 | ||||||||||||||||||||||||||||||||||||
Provision for loan losses | 157,659 | 3,100 | 160,759 | 42,594 | 750 | 43,344 | ||||||||||||||||||||||||||||||||||||||||||
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| BPPR | Popular U.S. | Popular Inc. | BPPR | Popular U.S. | Popular Inc. | |||||||||||||||||||||||||||||||||||||
666,865 | 33,908 | 700,773 | 560,733 | 31,331 | 592,064 | |||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Charged-offs: | ||||||||||||||||||||||||||||||||||||||||||||||||
BPPR | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 5,573 | — | 5,573 | 13,799 | — | 13,799 | ||||||||||||||||||||||||||||||||||||||||||
Construction | (9 | ) | — | (9 | ) | 951 | — | 951 | ||||||||||||||||||||||||||||||||||||||||
Leases | 1,733 | — | 1,733 | 1,429 | — | 1,429 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 17,460 | 863 | 18,323 | 16,002 | 973 | 16,975 | ||||||||||||||||||||||||||||||||||||||||||
Consumer | 31,793 | 24 | 31,817 | 25,470 | 411 | 25,881 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total BPPR charged-offs | 56,550 | 887 | 57,437 | 57,651 | 1,384 | 59,035 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
BPNA | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 4,553 | — | 4,553 | 155 | — | 155 | ||||||||||||||||||||||||||||||||||||||||||
Legacy[1] | 86 | — | 86 | 145 | — | 145 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 113 | — | 113 | 2,022 | — | 2,022 | ||||||||||||||||||||||||||||||||||||||||||
Consumer | 4,957 | — | 4,957 | 2,884 | — | 2,884 | ||||||||||||||||||||||||||||||||||||||||||
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|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total BPNA charged-offs | 9,709 | — | 9,709 | 5,206 | — | 5,206 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 10,126 | — | 10,126 | 13,954 | — | 13,954 | 0.13 | % | 0.15 | % | 0.14 | % | (0.02 | )% | 0.43 | % | 0.14 | % | ||||||||||||||||||||||||||||||
Construction | (9 | ) | — | (9 | ) | 951 | — | 951 | (0.63 | ) | — | (0.05 | ) | (0.22 | ) | — | (0.02 | ) | ||||||||||||||||||||||||||||||
Leases | 1,733 | — | 1,733 | 1,429 | — | 1,429 | 0.70 | — | 0.70 | 0.80 | — | 0.80 | ||||||||||||||||||||||||||||||||||||
Legacy | 86 | — | 86 | 145 | — | 145 | — | (9.63 | ) | (9.63 | ) | — | (3.11 | ) | (3.11 | ) | ||||||||||||||||||||||||||||||||
Mortgage | 17,573 | 863 | 18,436 | 18,024 | 973 | 18,997 | 1.38 | — | 1.24 | 1.19 | (0.10 | ) | 1.04 | |||||||||||||||||||||||||||||||||||
Consumer | 36,750 | 24 | 36,774 | 28,354 | 411 | 28,765 | 3.02 | 3.42 | 3.06 | 3.31 | 3.08 | 3.28 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total charge-offs | 66,259 | 887 | 67,146 | 62,857 | 1,384 | 64,241 | ||||||||||||||||||||||||||||||||||||||||||
Total annualized net charge-offs to averagenon-covered loansheld-in-portfolio | 1.24 | % | 0.29 | % | 1.00 | % | 1.07 | % | 0.52 | % | 0.92 | % | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Recoveries: | ||||||||||||||||||||||||||||||||||||||||||||||||
BPPR | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 6,011 | — | 6,011 | 10,600 | — | 10,600 | ||||||||||||||||||||||||||||||||||||||||||
Construction | 41 | — | 41 | 65 | — | 65 | ||||||||||||||||||||||||||||||||||||||||||
Leases | 238 | — | 238 | 613 | — | 613 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 389 | 32 | 421 | 765 | 312 | 1,077 | ||||||||||||||||||||||||||||||||||||||||||
Consumer | 4,570 | 4 | 4,574 | 12,649 | 3 | 12,652 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total BPPR recoveries | 11,249 | 36 | 11,285 | 24,692 | 315 | 25,007 | ||||||||||||||||||||||||||||||||||||||||||
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| Nine months ended | ||||||||||||||||||||||||||||||||||||||||||
BPNA | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 271 | — | 271 | 1,328 | — | 1,328 | ||||||||||||||||||||||||||||||||||||||||||
Legacy[1] | 383 | — | 383 | 665 | — | 665 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage | 287 | — | 287 | 80 | — | 80 | ||||||||||||||||||||||||||||||||||||||||||
Consumer | 1,060 | — | 1,060 | 952 | — | 952 | ||||||||||||||||||||||||||||||||||||||||||
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|
|
| September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||||||||||||||
Total BPNA recoveries | 2,001 | — | 2,001 | 3,025 | — | 3,025 | ||||||||||||||||||||||||||||||||||||||||||
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|
| BPPR | Popular U.S. | Popular Inc. | BPPR | Popular U.S. | Popular Inc. | |||||||||||||||||||||||||||||||||||||
Popular, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||
Commercial | 6,282 | — | 6,282 | 11,928 | — | 11,928 | 0.27 | % | 0.56 | % | 0.38 | % | 0.26 | % | 0.11 | % | 0.21 | % | ||||||||||||||||||||||||||||||
Construction | 41 | — | 41 | 65 | — | 65 | (0.93 | ) | — | (0.09 | ) | (3.77 | ) | — | (0.42 | ) | ||||||||||||||||||||||||||||||||
Leases | 238 | — | 238 | 613 | — | 613 | 0.74 | — | 0.74 | 0.69 | — | 0.69 | ||||||||||||||||||||||||||||||||||||
Legacy | 383 | — | 383 | 665 | — | 665 | — | (5.69 | ) | (5.69 | ) | — | (3.59 | ) | (3.59 | ) | ||||||||||||||||||||||||||||||||
Mortgage | 676 | 32 | 708 | 845 | 312 | 1,157 | 1.01 | (0.05 | ) | 0.90 | 1.18 | 0.03 | 1.05 | |||||||||||||||||||||||||||||||||||
Consumer | 5,630 | 4 | 5,634 | 13,601 | 3 | 13,604 | 2.88 | 3.56 | 2.95 | 2.71 | 3.10 | 2.76 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total recoveries | 13,250 | 36 | 13,286 | 27,717 | 315 | 28,032 | ||||||||||||||||||||||||||||||||||||||||||
Total annualized net charge-offs to averagenon-covered loansheld-in-portfolio | 1.07 | % | 0.61 | % | 0.95 | % | 1.04 | % | 0.31 | % | 0.85 | % | ||||||||||||||||||||||||||||||||||||
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Net charge-offs for the quarter ended September 30, 2018 amounted to $63.7 million, increasing by $10.7 million when compared to the same quarter in 2017, driven by higher BPPR consumer and mortgage net charge-offs, mostly due to post-moratorium effects, accounted for in the hurricane-related reserve.
Net loans charged-offs (recovered): BPPR Commercial Construction Leases Mortgage Consumer Total BPPR net loans charged-offs (recovered) BPNA Commercial Legacy[1] Mortgage Consumer Total BPNA net loans charged-offs (recovered) Popular, Inc. Commercial Construction Leases Legacy Mortgage Consumer Total net loans charged-offs (recovered) Balance at end of period Specific ALLL General ALLL Ratios: Annualized net charge-offs to average loansheld-in-portfolio Provision for loan losses to net charge-offs[3] (438 ) — (438 ) 3,199 — 3,199 (50 ) — (50 ) 886 — 886 1,495 — 1,495 816 — 816 17,071 831 17,902 15,237 661 15,898 27,223 20 27,243 12,821 408 13,229 45,301 851 46,152 32,959 1,069 34,028 4,282 — 4,282 (1,173 ) — (1,173 ) (297 ) — (297 ) (520 ) — (520 ) (174 ) — (174 ) 1,942 — 1,942 3,897 — 3,897 1,932 — 1,932 7,708 — 7,708 2,181 — 2,181 3,844 — 3,844 2,026 — 2,026 (50 ) — (50 ) 886 — 886 1,495 — 1,495 816 — 816 (297 ) — (297 ) (520 ) — (520 ) 16,897 831 17,728 17,179 661 17,840 31,120 20 31,140 14,753 408 15,161 53,009 851 53,860 35,140 1,069 36,209 $ 613,856 $ 33,057 $ 646,913 $ 525,593 $ 30,262 $ 555,855 $ 115,191 $ — $ 115,191 $ 129,057 $ — $ 129,057 $ 498,665 $ 33,057 $ 531,722 $ 396,536 $ 30,262 $ 426,798 0.92 % 0.92 % 0.63 % 0.63 % 2.97 x 2.98 x 1.21 x 1.20 x
Table 26—Composition of ALLL
September 30, 2018 | ||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial | Construction | Legacy [1] | Leasing | Mortgage | Consumer | Total[3] | |||||||||||||||||||||
Specific ALLL | $ | 52,250 | $ | 5,530 | $ | — | $ | 297 | $ | 46,205 | $ | 26,255 | $ | 130,537 | ||||||||||||||
Impaired loans | $ | 356,007 | $ | 19,695 | $ | — | $ | 931 | $ | 517,083 | $ | 114,572 | $ | 1,008,288 | ||||||||||||||
Specific ALLL to impaired loans | 14.68 | % | 28.08 | % | — | % | 31.90 | % | 8.94 | % | 22.92 | % | 12.95 | % | ||||||||||||||
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General ALLL | $ | 192,290 | $ | 9,590 | $ | 377 | $ | 12,009 | $ | 128,382 | $ | 160,533 | $ | 503,181 | ||||||||||||||
Loansheld-in-portfolio, excluding impaired loans | $ | 11,637,700 | $ | 923,670 | $ | 27,566 | $ | 902,609 | $ | 6,787,087 | $ | 5,225,248 | $ | 25,503,880 | ||||||||||||||
General ALLL to loansheld-in-portfolio, excluding impaired loans | 1.65 | % | 1.04 | % | 1.37 | % | 1.33 | % | 1.89 | % | 3.07 | % | 1.97 | % | ||||||||||||||
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Total ALLL | $ | 244,540 | $ | 15,120 | $ | 377 | $ | 12,306 | $ | 174,587 | $ | 186,788 | $ | 633,718 | ||||||||||||||
Total loansheld-in-portfolio | $ | 11,993,707 | $ | 943,365 | $ | 27,566 | $ | 903,540 | $ | 7,304,170 | $ | 5,339,820 | $ | 26,512,168 | ||||||||||||||
ALLL to loansheld-in-portfolio | 2.04 | % | 1.60 | % | 1.37 | % | 1.36 | % | 2.39 | % | 3.50 | % | 2.39 | % | ||||||||||||||
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[1] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the |
Table 31—Allowance for Loan Losses and Selected Loan Losses Statistics -Year-to-date Activity27—Composition of ALLL
Nine months ended September 30, | ||||||||||||||||||||||||
2017 | 2017 | 2017 | 2016 | 2016 | 2016 | |||||||||||||||||||
(Dollars in thousands) | Non-covered loans | Covered loans | Total | Non-covered loans | Covered loans | Total | ||||||||||||||||||
Balance at beginning of period | $ | 510,301 | $ | 30,350 | $ | 540,651 | $ | 502,935 | $ | 34,176 | $ | 537,111 | ||||||||||||
Provision (reversal) for loan losses | 249,681 | 4,255 | 253,936 | 130,202 | (1,551 | ) | 128,651 | |||||||||||||||||
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759,982 | 34,605 | 794,587 | 633,137 | 32,625 | 665,762 | |||||||||||||||||||
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Charged-offs: | ||||||||||||||||||||||||
BPPR | ||||||||||||||||||||||||
Commercial | 38,219 | — | 38,219 | 47,256 | — | 47,256 | ||||||||||||||||||
Construction | 3,646 | — | 3,646 | 3,026 | — | 3,026 | ||||||||||||||||||
Leases | 5,030 | — | 5,030 | 4,435 | — | 4,435 | ||||||||||||||||||
Mortgage | 53,936 | 2,700 | 56,636 | 45,924 | 3,078 | 49,002 | ||||||||||||||||||
Consumer | 81,607 | 134 | 81,741 | 78,860 | 17 | 78,877 | ||||||||||||||||||
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Total BPPR charged-offs | 182,438 | 2,834 | 185,272 | 179,501 | 3,095 | 182,596 | ||||||||||||||||||
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BPNA | ||||||||||||||||||||||||
Commercial | 4,774 | — | 4,774 | 1,040 | — | 1,040 | ||||||||||||||||||
Legacy[1] | 669 | — | 669 | 388 | — | 388 | ||||||||||||||||||
Mortgage | 1,064 | — | 1,064 | 2,595 | — | 2,595 | ||||||||||||||||||
Consumer | 14,476 | — | 14,476 | 8,194 | — | 8,194 | ||||||||||||||||||
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Total BPNA charged-offs | 20,983 | — | 20,983 | 12,217 | — | 12,217 | ||||||||||||||||||
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Popular, Inc. | ||||||||||||||||||||||||
Commercial | 42,993 | — | 42,993 | 48,296 | — | 48,296 | ||||||||||||||||||
Construction | 3,646 | — | 3,646 | 3,026 | — | 3,026 | ||||||||||||||||||
Leases | 5,030 | — | 5,030 | 4,435 | — | 4,435 | ||||||||||||||||||
Legacy | 669 | — | 669 | 388 | — | 388 | ||||||||||||||||||
Mortgage | 55,000 | 2,700 | 57,700 | 48,519 | 3,078 | 51,597 | ||||||||||||||||||
Consumer | 96,083 | 134 | 96,217 | 87,054 | 17 | 87,071 | ||||||||||||||||||
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Total charge-offs | 203,421 | 2,834 | 206,255 | 191,718 | 3,095 | 194,813 | ||||||||||||||||||
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Recoveries: | ||||||||||||||||||||||||
BPPR | ||||||||||||||||||||||||
Commercial | 24,274 | — | 24,274 | 35,706 | — | 35,706 | ||||||||||||||||||
Construction | 6,210 | — | 6,210 | 5,055 | — | 5,055 | ||||||||||||||||||
Leases | 1,284 | — | 1,284 | 1,547 | — | 1,547 | ||||||||||||||||||
Mortgage | 2,557 | 1,279 | 3,836 | 2,527 | 722 | 3,249 | ||||||||||||||||||
Consumer | 15,612 | 7 | 15,619 | 24,838 | 10 | 24,848 | ||||||||||||||||||
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Total BPPR recoveries | 49,937 | 1,286 | 51,223 | 69,673 | 732 | 70,405 | ||||||||||||||||||
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BPNA | ||||||||||||||||||||||||
Commercial | 1,598 | — | 1,598 | 3,273 | — | 3,273 | ||||||||||||||||||
Legacy[1] | 1,752 | — | 1,752 | 2,048 | — | 2,048 | ||||||||||||||||||
Mortgage | 880 | — | 880 | 407 | — | 407 | ||||||||||||||||||
Consumer | 3,128 | — | 3,128 | 3,328 | — | 3,328 | ||||||||||||||||||
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Total BPNA recoveries | 7,358 | — | 7,358 | 9,056 | — | 9,056 | ||||||||||||||||||
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Popular, Inc. | ||||||||||||||||||||||||
Commercial | 25,872 | — | 25,872 | 38,979 | — | 38,979 | ||||||||||||||||||
Construction | 6,210 | — | 6,210 | 5,055 | — | 5,055 | ||||||||||||||||||
Leases | 1,284 | — | 1,284 | 1,547 | — | 1,547 | ||||||||||||||||||
Legacy | 1,752 | — | 1,752 | 2,048 | — | 2,048 | ||||||||||||||||||
Mortgage | 3,437 | 1,279 | 4,716 | 2,934 | 722 | 3,656 | ||||||||||||||||||
Consumer | 18,740 | 7 | 18,747 | 28,166 | 10 | 28,176 | ||||||||||||||||||
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Total recoveries | 57,295 | 1,286 | 58,581 | 78,729 | 732 | 79,461 | ||||||||||||||||||
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Net loans charged-offs (recovered): BPPR Commercial Construction Leases Mortgage Consumer Total BPPR net loans charged-offs (recovered) �� BPNA Commercial Legacy[1] Mortgage Consumer Total BPNA net loans charged-offs (recovered) Popular, Inc. Commercial Construction Leases Legacy Mortgage Consumer Total net loans charged-offs (recovered) Net recoveries[2] Balance at end of period Specific ALLL General ALLL Ratios: Annualized net charge-offs to average loansheld-in-portfolio Provision for loan losses to net charge-offs[3] (Dollars in thousands) Specific ALLLnon-covered loans Impairednon-covered loans Specific ALLL tonon-covered impaired loans General ALLLnon-covered loans Non-covered loansheld-in-portfolio, excluding impaired loans General ALLL tonon-covered loansheld-in-portfolio, excluding impaired loans Total ALLLnon-covered loans Totalnon-covered loansheld-in-portfolio ALLL tonon-covered loansheld-in-portfolio 13,945 — 13,945 11,550 — 11,550 (2,564 ) — (2,564 ) (2,029 ) — (2,029 ) 3,746 — 3,746 2,888 — 2,888 51,379 1,421 52,800 43,397 2,356 45,753 65,995 127 66,122 54,022 7 54,029 132,501 1,548 134,049 109,828 2,363 112,191 3,176 — 3,176 (2,233 ) — (2,233 ) (1,083 ) — (1,083 ) (1,660 ) — (1,660 ) 184 — 184 2,188 — 2,188 11,348 — 11,348 4,866 — 4,866 13,625 — 13,625 3,161 — 3,161 17,121 — 17,121 9,317 — 9,317 (2,564 ) — (2,564 ) (2,029 ) — (2,029 ) 3,746 — 3,746 2,888 — 2,888 (1,083 ) — (1,083 ) (1,660 ) — (1,660 ) 51,563 1,421 52,984 45,585 2,356 47,941 77,343 127 77,470 58,888 7 58,895 146,126 1,548 147,674 112,989 2,363 115,352 — — — 5,445 — 5,445 $ 613,856 $ 33,057 $ 646,913 $ 525,593 $ 30,262 $ 555,855 $ 115,191 $ — $ 115,191 $ 129,057 $ — $ 129,057 $ 498,665 $ 33,057 $ 531,722 $ 396,536 $ 30,262 $ 426,798 0.85 % 0.84 % 0.67 % 0.67 % 1.71 x 1.72 x 1.15 x 1.12 x December 31, 2017 Commercial Construction Legacy[1] Leasing Mortgage Consumer Total $ 36,982 $ — $ — $ 475 $ 48,832 $ 22,802 $ 109,091 $ 323,455 $ — $ — $ 1,456 $ 518,275 $ 104,237 $ 947,423 11.43 % — % — % 32.62 % 9.42 % 21.88 % 11.51 % $ 178,683 $ 8,362 $ 798 $ 11,516 $ 114,790 $ 166,942 $ 481,091 $ 11,165,406 $ 880,029 $ 32,980 $ 808,534 $ 6,752,132 $ 3,706,290 $ 23,345,371 1.60 % 0.95 % 2.42 % 1.42 % 1.70 % 4.50 % 2.06 % $ 215,665 $ 8,362 $ 798 $ 11,991 $ 163,622 $ 189,744 $ 590,182 $ 11,488,861 $ 880,029 $ 32,980 $ 809,990 $ 7,270,407 $ 3,810,527 $ 24,292,794 1.88 % 0.95 % 2.42 % 1.48 % 2.25 % 4.98 % 2.43 %
[1] | The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the |
The following table presents annualized net charge-offs to average loansheld-in-portfolio (“HIP”) for thenon-covered portfolio by loan category for the quarters and nine months ended September 30, 2017 and 2016.
Table 32—Annualized Net Charge-offs (Recoveries) to Average LoansHeld-in-Portfolio(Non-covered loans)
Quarters ended | ||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||
BPPR | BPNA | Popular Inc. | BPPR | BPNA | Popular Inc. | |||||||||||||||||||
Commercial | (0.02 | )% | 0.43 | % | 0.14 | % | 0.18 | % | (0.15 | )% | 0.08 | % | ||||||||||||
Construction | (0.22 | ) | — | (0.02 | ) | 3.34 | — | 0.48 | ||||||||||||||||
Leases | 0.80 | — | 0.80 | 0.49 | — | 0.49 | ||||||||||||||||||
Legacy | — | (3.11 | ) | (3.11 | ) | — | (4.26 | ) | (4.26 | ) | ||||||||||||||
Mortgage | 1.19 | (0.10 | ) | 1.04 | 1.04 | 0.94 | 1.03 | |||||||||||||||||
Consumer | 3.31 | 3.08 | 3.28 | 1.55 | 1.41 | 1.53 | ||||||||||||||||||
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Total annualized net charge-offs to average loansheld-in-portfolio | 1.07 | % | 0.52 | % | 0.92 | % | 0.77 | % | 0.17 | % | 0.63 | % | ||||||||||||
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Nine months ended | ||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||
BPPR | BPNA | Popular Inc. | BPPR | BPNA | Popular Inc. | |||||||||||||||||||
Commercial | 0.26 | % | 0.11 | % | 0.21 | % | 0.21 | % | (0.10 | )% | 0.12 | % | ||||||||||||
Construction | (3.77 | ) | — | (0.42 | ) | (2.52 | ) | — | (0.38 | ) | ||||||||||||||
Leases | 0.69 | — | 0.69 | 0.59 | — | 0.59 | ||||||||||||||||||
Legacy | �� | — | (3.59 | ) | (3.59 | ) | — | (4.11 | ) | (4.11 | ) | |||||||||||||
Mortgage | 1.18 | 0.03 | 1.05 | 0.98 | 0.34 | 0.90 | ||||||||||||||||||
Consumer | 2.71 | 3.10 | 2.76 | 2.17 | 1.21 | 2.04 | ||||||||||||||||||
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Total annualized net charge-offs to average loansheld-in-portfolio | 1.04 | % | 0.31 | % | 0.85 | % | 0.85 | % | 0.08 | % | 0.67 | % | ||||||||||||
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Table 33—Composition of ALLL
September 30, 2017 | ||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial | Construction | Legacy[2] | Leasing | Mortgage | Consumer | Total[3] | |||||||||||||||||||||
Specific ALLL | $ | 40,863 | $ | — | $ | — | $ | 450 | $ | 51,421 | $ | 22,457 | $ | 115,191 | ||||||||||||||
Impaired loans[1] | $ | 328,704 | $ | — | $ | — | $ | 1,468 | $ | 519,228 | $ | 105,387 | $ | 954,787 | ||||||||||||||
Specific ALLL to impaired loans[1] | 12.43 | % | — | % | — | % | 30.65 | % | 9.90 | % | 21.31 | % | 12.06 | % | ||||||||||||||
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General ALLL | $ | 228,106 | $ | 8,822 | $ | 872 | $ | 9,982 | $ | 122,469 | $ | 128,414 | $ | 498,665 | ||||||||||||||
Loansheld-in-portfolio, excluding impaired loans[1] | $ | 10,898,391 | $ | 823,325 | $ | 37,508 | $ | 753,413 | $ | 6,010,007 | $ | 3,696,019 | $ | 22,218,663 | ||||||||||||||
General ALLL to loansheld-in-portfolio, excluding impaired loans[1] | 2.09 | % | 1.07 | % | 2.32 | % | 1.32 | % | 2.04 | % | 3.47 | % | 2.24 | % | ||||||||||||||
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| |||||||||||||||
Total ALLL | $ | 268,969 | $ | 8,822 | $ | 872 | $ | 10,432 | $ | 173,890 | $ | 150,871 | $ | 613,856 | ||||||||||||||
Totalnon-covered loansheld-in-portfolio[1] | $ | 11,227,095 | $ | 823,325 | $ | 37,508 | $ | 754,881 | $ | 6,529,235 | $ | 3,801,406 | $ | 23,173,450 | ||||||||||||||
ALLL to loansheld-in-portfolio[1] | 2.40 | % | 1.07 | % | 2.32 | % | 1.38 | % | 2.66 | % | 3.97 | % | 2.65 | % |
Table 34—Composition of ALLL
December 31, 2016 | ||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial | Construction | Legacy[2] | Leasing | Mortgage | Consumer | Total[3] | |||||||||||||||||||||
Specific ALLL | $ | 42,375 | $ | — | $ | — | $ | 535 | $ | 44,610 | $ | 23,857 | $ | 111,377 | ||||||||||||||
Impaired loans[1] | $ | 338,422 | $ | — | $ | — | $ | 1,817 | $ | 506,364 | $ | 109,454 | $ | 956,057 | ||||||||||||||
Specific ALLL to impaired loans[1] | 12.52 | % | — | % | — | % | 29.44 | % | 8.81 | % | 21.80 | % | 11.65 | % | ||||||||||||||
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General ALLL | $ | 160,279 | $ | 9,525 | $ | 1,343 | $ | 7,127 | $ | 103,324 | $ | 117,326 | $ | 398,924 | ||||||||||||||
Loansheld-in-portfolio, excluding impaired loans[1] | $ | 10,460,085 | $ | 776,300 | $ | 45,293 | $ | 701,076 | $ | 6,189,997 | $ | 3,644,939 | $ | 21,817,690 | ||||||||||||||
General ALLL to loansheld-in-portfolio, excluding impaired loans[1] | 1.53 | % | 1.23 | % | 2.97 | % | 1.02 | % | 1.67 | % | 3.22 | % | 1.83 | % | ||||||||||||||
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Total ALLL | $ | 202,654 | $ | 9,525 | $ | 1,343 | $ | 7,662 | $ | 147,934 | $ | 141,183 | $ | 510,301 | ||||||||||||||
Totalnon-covered loansheld-in-portfolio[1] | $ | 10,798,507 | $ | 776,300 | $ | 45,293 | $ | 702,893 | $ | 6,696,361 | $ | 3,754,393 | $ | 22,773,747 | ||||||||||||||
ALLL to loansheld-in-portfolio[1] | 1.88 | % | 1.23 | % | 2.97 | % | 1.09 | % | 2.21 | % | 3.76 | % | 2.24 | % |
Non-covered loans portfolio
At September 30, 2017, the allowance for loan losses, increased by $104 million when compared with December 31, 2016.
The allowance for loan losses at the BPPR segment increased by $56 million to $524 million, or 3.06% ofnon-covered loansheld-in-portfolio when compared to December 31, 2016. The environmental factors reserve, which considers unemployment and deterioration in economic activity, increased by $64 million to $122 million based on management’s best estimate, including the
hurricanes’ impact on the loan portfolios using currently available information. While the total reserve was increased to $122 million as the nearmid-range loss estimate, management’s loan loss estimate ranged from approximately $70 million to $160 million. Since there is significant uncertainty with respect to the full extent of the impact due to the unprecedented nature of Hurricane Maria, the estimate is judgmental and subject to change as conditions evolve. Management will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality. The ratio of the allowance tonon-performing loansheld-in-portfolio was 95.55% at September 30, 2017, compared with 87.88% at December 31, 2016.
The allowance for loan losses at the BPNA segment increased to $90 million, or 1.48% of loansheld-in-portfolio, compared with $42 million, or 0.75% of loansheld-in-portfolio, at December 31, 2016, driven by higher reserves for the U.S. Taxi Medallion portfolio. The ratio of the allowance tonon-performing loansheld-in-portfolio at the BPNA segment was 240.48% at September 30, 2017, compared with 166.56% at December 31, 2016.
Covered loans portfolio
The Corporation’s allowance for loan losses for the covered loan portfolio acquired in the Westernbank FDIC-assisted transaction amounted to $33 million at September 30, 2017, compared to $30 million at December 31, 2016. This increase was mainly due to adjustments in the estimated cash flows of purchased credit impaired loans accounted for under ASC310-10 to reflect the three-month payment moratorium offered to certain eligible borrowers.
Decreases in expected cash flows after the acquisition date for loans (pools) accounted for under ASC Subtopic310-30 are recognized by recording an allowance for loan losses in the current period. For purposes of loans accounted for under ASC Subtopic310-20 and new loans originated as a result of loan commitments assumed, the Corporation’s assessment of the allowance for loan losses is determined in accordance with the accounting guidance of loss contingencies in ASC Subtopic450-20 (general reserve for inherent losses) and loan impairment guidance in ASCSection 310-10-35 for loans individually evaluated for impairment.
Troubled debt restructurings
The Corporation’s TDR loans excluding covered loans, amounted to $1.3$1.4 billion at September 30, 2017,2018, increasing by $17$173 million, or 1.4%approximately 14%, from December 31, 2016.2017, driven by higher commercial and mortgage TDRs in the BPPR segment of $99 million and $68 million, respectively. TDRs in accruing status increased by $30$102 million from December 31, 2016 to $1.1 billion at September 30, 2017, due to sustained borrower performance, whilenon-accruing TDRs decreasedincreased by $13$71 million.
Refer to Note 9 to the consolidated financial statements for additional information on modifications considered troubled debt restructurings, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.
The following tables that follow present the approximate amount and percentage ofnon-covered commercial impaired loans for which the Corporation relied on appraisals dated more than one year old for purposes of impairment requirements at September 30, 20172018 and December 31, 2016.
Appraisals may be adjusted due to their age and the type, location and condition of the property, area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the impairment measurement date. Refer to the Allowance for Loan Losses section of Note 3, “Summary of significant accounting policies” of the Corporation’s 2017 Form10-K for more information.
Table35—28—Non-Covered Impaired Loans with Appraisals Dated 1 year or Older
September 30, 2017 | ||||||||||||||||||||||||
September 30, 2018 | September 30, 2018 | |||||||||||||||||||||||
Total Impaired Loans – Held-in-portfolio (HIP) | Total Impaired Loans – Held-in-portfolio (HIP) | Impaired Loans with | ||||||||||||||||||||||
(In thousands) | Loan Count | Outstanding Principal Balance | Impaired Loans with Appraisals Over One- Year Old [1] | Loan Count | Outstanding Principal Balance | Appraisals Over One- Year Old [1] | ||||||||||||||||||
Commercial | 115 | $ | 273,925 | 13 | % | 110 | $ | 289,993 | 6 | % | ||||||||||||||
Construction | 1 | 1,829 | — |
[1] | Based on outstanding balance of total impaired loans. |
December 31, 2016 | ||||||||||||||||||||||||
December 31, 2017 | December 31, 2017 | |||||||||||||||||||||||
Total Impaired Loans – Held-in-portfolio (HIP) | Total Impaired Loans – Held-in-portfolio (HIP) | Impaired Loans with | ||||||||||||||||||||||
(In thousands) | Loan Count | Outstanding Principal Balance | Impaired Loans with Appraisals Over One- Year Old [1] | Loan Count | Outstanding Principal Balance | Appraisals Over One- Year Old [1] | ||||||||||||||||||
Commercial | 118 | $ | 283,782 | 8 | % | 112 | $ | 267,302 | 30 | % |
[1] | Based on outstanding balance of total impaired loans. |
ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS
Refer to Note 4,3, “New Accounting Pronouncements” to the Consolidated Financial Statements.
Adjusted net income –Non-GAAP Financial Measure
The Corporation prepares its Consolidated Financial Statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”). In addition to analyzing the Corporation’s results on a reported basis, management monitors the “adjusted net income” of the Corporation and excludes the impact of certain transactions on the results of its operations. Adjusted net income is anon-GAAP financial measure. Management believes that the adjusted net income provides meaningful information to investors about the underlying performance of the Corporation’s ongoing operations.
No adjustments are reflected for the quarter and nine months ended September 30, 2017. Tables 36 and 37 presentTable 29 presents a reconciliation of reported results to Adjusted net income for the quarter and nine months ended September 30, 2016.2018. No adjustments are reflected for the quarter ended September 30, 2018 or September 30,2017 or the nine months ended September 30, 2017.
Table 36—Adjusted Net Income for the Quarter Ended September 30, 2016(Non-GAAP)
(Unaudited) | ||||||||||||
(In thousands) | Pre-tax | Income tax effect | Impact on net income | |||||||||
U.S. GAAP Net income | $ | 46,810 | ||||||||||
Non-GAAP adjustments: | ||||||||||||
FDIC arbitration award[1] | 54,924 | (10,985 | ) | 43,939 | ||||||||
Goodwill impairment charge[2] | 3,801 | — | 3,801 | |||||||||
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| |||||||||||
Adjusted net income(Non-GAAP) | $ | 94,550 | ||||||||||
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Table 37—29—Adjusted Net Income for the Nine Months Ended September 30, 20162018(Non-GAAP)
(Unaudited) | ||||||||||||
(In thousands) | Pre-tax | Income tax effect | Impact on net income | |||||||||
U.S. GAAP Net income | $ | 220,796 | ||||||||||
Non-GAAP Adjustments: | ||||||||||||
Impact of EVERTEC restatement[1] | 2,173 | — | 2,173 | |||||||||
Bulk sale of WB loans and OREO[2] | (891 | ) | 347 | (544 | ) | |||||||
FDIC arbitration award[3] | 54,924 | (10,985 | ) | 43,939 | ||||||||
Goodwill impairment charge[4] | 3,801 | — | 3,801 | |||||||||
|
| |||||||||||
Adjusted net income(Non-GAAP) | $ | 270,165 | ||||||||||
|
|
(Unaudited) | ||||||||||||
(In thousands) | Pre-tax | Income tax effect | Impact on net income | |||||||||
U.S. GAAP Net income | $ | 511,755 | ||||||||||
Non-GAAP adjustments: | ||||||||||||
Termination of FDIC Shared-Loss Agreements[1] | $ | (94,633 | ) | $ | 45,059 | (49,574 | ) | |||||
Tax Closing Agreement[2] | — | (108,946 | ) | (108,946 | ) | |||||||
|
| |||||||||||
Adjusted net income(Non-GAAP) | $ | 353,235 | ||||||||||
|
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[1] | On May 22, 2018, BPPR entered into a Termination Agreement with the FDIC to terminate all Shared-Loss Agreements in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico in 2010. As a result, BPPR recognized apre-tax gain of $94.6 million, net of the |
[2] | Represents the impact of the |
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 20162017 Form10-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 Rules13a-15(e) and15d-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
During the quarter ended September 30, 2017, due to the disruption in power and telecommunications caused by hurricanes Irma and Maria and the resulting inability of certain of the Corporation’s bank branches to communicate electronic data through our network, some automated processes for the recording or capture of certain bank branch transactions were performed manually. Management implemented certain temporary modifications to its internal controls, the effectiveness of which has notThere have been tested, in order to be able to capture and record these transactions. Based on the information currently available, management believes that theseno changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 20172018 that have not materially affected, noror are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Part II - II—Other Information
For a discussion of Legal Proceedings, see Note 22, “CommitmentsCommitments and Contingencies, to the Consolidated Financial Statements.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed below and under “Part I - I—Item 1A - 1A—Risk Factors” in our 20162017 Form10-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 - 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 20162017 Form10-K.
There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s 20162017 Form10-K,10-K. except for the items listed below.
The risks described in our 20162017 Form10-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.
Recent hurricanes caused extensive damage in Puerto Rico, our primary market, and in other markets in which we operate, which could have a material adverse effect on such jurisdictions’ economies and could materially adversely affect us.
During the month of September 2017, Hurricanes Irma and Maria, two major hurricanes, caused extensive destruction in Puerto Rico, the U.S. Virgin Islands (“USVI”) and the British Virgin Islands (“BVI”), disrupting the primary markets in which Banco Popular de Puerto Rico (“BPPR”) does business. Most relevant, Hurricane Maria made landfall on September 20, 2017, causing severe wind and flood damage to infrastructure, homes and businesses throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed and the government imposed a mandatory curfew. The hurricanes caused a significant disruption to the island’s economic activity. Most business establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.
Puerto Rico and the USVI were declared disaster zones by President Trump due to the impact of the hurricanes, thus making them eligible for Federal assistance. Notwithstanding the significant recovery operation that is underway by the Federal, state and local governments, as of the date of this report, most businesses and homes in Puerto Rico and the USVI remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are partially operating or remain closed. Electronic transactions, a significant source of revenue for the bank, have also declined significantly as a result of the lack of power and telecommunication services. Several reports indicate that the hurricanes have also accelerated the outmigration trends that Puerto Rico was experiencing, with many residents moving to the mainland United States, either on a temporary or permanent basis.
While it is too early to assess and quantify the full extent of the damage caused by the hurricanes, as well as their long-term impact on economic activity, the damages are substantial and have, at least in the short-term, had a material adverse impact on economic activity, as reflected by, among other things, the slowdown in production and sales activity and the reduction in the government’s tax revenues. Employment levels are also expected to decrease at least in the short-term. The speed at which the government is able to restore power and other basic services throughout Puerto Rico, which we are not able to predict, will be a critical variable in determining the extent of the impact on economic activity. Furthermore, the hurricanes severely damaged or destroyed buildings, homes and other structures, impacting the value of such properties, some of which may serve as collateral to our loans. While our collateral is generally insured, the value of such insured structures, as well as other structures unaffected by the hurricanes, may be significantly impacted. Although some of the impact of the hurricanes, including its short-term impact on economic activity, may be offset by recovery and reconstruction activity and the influx of Federal emergency funds and private insurance proceeds, it is too early to know the amount of Federal and private insurance money to be received and whether such transfers will significantly offset the negative economic, fiscal and demographic impact of the hurricanes.
Our credit exposure is concentrated in Puerto Rico, which accounted as of September 30, 2017 for approximately 80% of ouryear-to-date revenues, 75% of our total assets and 78% of our deposits. As such, our financial condition and results of operations are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets and asset values in Puerto Rico. The deterioration in economic activity and potential impact on asset values resulting from the hurricanes, when added to Puerto Rico’s ongoing fiscal crisis and recession, could materially adversely affect our business, financial condition, liquidity, results of operations and capital position in a manner greater than estimated by management and reflected in our financial statements for the quarter ended September 30, 2017. To a lesser extent, we are also exposed to other areas that were similarly affected by the hurricanes, such as the US and British Virgin Islands, where as of September 30, 2017 we had 2% of our total assets, 3% of our deposits and accounted for approximately 3% of ouryear-to-date revenues.
Recent hurricanes caused significant disruptions to our BPPR operations and negatively impacted our results of operations as well as certain of the Corporation’s asset quality ratios. Furthermore, while the Corporation has made an allowance for loan losses based on management’s current best estimate of the impact of the hurricanes, there is significant uncertainty with respect to the full extent of the impact of the hurricanes and, as a result, the financial impact on the Corporation’s financial condition and results of operations could be significantly greater.
The recent hurricanes, especially Hurricane Maria, significantly disrupted our operations and negatively impacted certain of the Corporation’s asset quality ratios. Hurricane Maria impacted our branch and ATM network, with certain branches and ATMs still closed to this day. As of November 7, 2017, we have been able to resume operations in approximately 85% of BPPR’s branches and 69% of our ATMs are operational. The lack of power and telecommunications services has also affected the infrastructure necessary to process electronic transactions by our customers. Our ability to reopen our remaining branches and ATMs, as well as the recovery of merchant transaction activity, principally depends on the government’s ability to restore electricity and other basic infrastructure, the timing of which remains uncertain.
These hurricanes adversely affected our operations and financial performance during the third quarter of 2017, resulting in additional operating expenses (net of insurance receivables) of approximately $9.5 million and an incremental provision for loan losses related to the impact of the hurricanes of approximately $69.9 million. In addition, ournon-interest income was lower by $16.4 million when compared to the second quarter of 2017, reflecting, in part, the effect of the disruption caused by the hurricanes in a number of categories, including credit and debit card fees and other service fees and charges.
The effects of the hurricanes continue to adversely affect our operations during the fourth quarter of 2017 as most of the island continues to be without power and our operations, and those of many of our customers, continue to be significantly affected. Although management has made estimates as to the probable losses related to the hurricanes as part of its evaluation of the allowance for loan and lease losses, such estimates involve significant judgment and are made in the context of significant uncertainty as to the impact that the hurricanes will have on the credit quality of our loan portfolios. In affected areas, the value of our loan collateral and the extent to which damages to properties collateralizing loans, among other factors, may further impact those estimates of losses. The extent of the economic impact of the hurricanes is also impossible to determine with certainty at this time as it is partly dependent on the time it takes the government to restore power and other basic infrastructure services and the effects of the potential influx of Federal emergency funds and private insurance proceeds. As management continues to assess the impact of these hurricanes on economic activity, asset values in Puerto Rico, and our customers in particular, our results of operations may continue to be adversely affected, and such adverse impact could be material to us and exceed management’s current estimates.
Measures implemented by Popular to address customer needs as a result of the recent hurricanes, including fee waivers and temporary payment moratorium across most loan portfolios, have had, and are expected to continue to have, a negative impact on results of operations and liquidity.
Given the widespread level of disruption to basic infrastructure and commercial activity in the regions impacted by the passage of hurricanes Irma and Maria, BPPR decided to adopt certain measures to assist its customers in affected areas. These measures include the waiver of certain fees and charges, such as late payment charges and ATM transaction fees and a temporary payment moratorium of three months to eligible borrowers across most loan portfolios during which BPPR will continue to accrue interest on the loans.
These measures, while important to assist in the recovery of our customers post-hurricane, will negatively impact our results of operations and liquidity. For example, the waiver of fees and other charges impacted the Corporation’s revenues for the third quarter and the Corporation estimates that revenues in the fourth quarter will also be negatively impacted by such waivers. The moratorium measures, whose ultimate effect will depend in part on the number of customers who take advantage of such plans, will also impact our liquidity not only due to principal and interest payments that BPPR will not receive during the period, but also as a result of loans serviced by the Corporation where we are required to advance to the owners the payment of principal and interest on a scheduled basis even when such payment is not collected from the borrower.
Management believes that the liquidity impact of these measures will not be significant in light of BPPR’s existing liquidity resources and that BPPR has sufficient liquidity to meet anticipated cash flow obligations. However, no assurance can be given that BPPR will have access to sufficient liquidity sources, or that BPPR may not have to rely on more expensive funding sources, if there were unanticipated demands on its liquidity due to deteriorating market conditions or any future stress event. Furthermore, because of the moratoriums, we will have limited visibility as to the impact of the hurricanes on the financial condition of our retail customers and the credit quality of our loan portfolio until the end of the moratorium period when borrowers have to resume loan repayments.
Recent hurricanes have significantly affected government operations in Puerto Rico and the USVI, which could materially affect the value of our portfolio of government securities and loans to government entities in Puerto Rico and the USVI.
The recent hurricanes have caused significant disruption in economic activity and government operations in Puerto Rico and the USVI. While it is too early to quantify the effects of these hurricanes on the financial condition of the affected government entities, the negative economic and other effects from the hurricanes could result in reduced revenues from taxes and services as well as extraordinary expenses that may not be fully offset by Federal and other extraordinary assistance. We have direct exposure to
various Puerto Rico and USVI government entities, the majority of which consists of loans to various Puerto Rico municipalities that are principally backed by property tax revenues. Further deterioration of the fiscal situation of the Puerto Rico and USVI government entities to which we have exposure could adversely affect the value of our loans and securities that are directly or indirectly payable from or guaranteed by Puerto Rico and USVI government entities, resulting in losses to us. For a discussion of our exposure to the Puerto Rico and USVI government entities, refer to the Geographic and Government Risk section in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this report.
Recent hurricanes have caused significant disruptions in power and telecommunications in Puerto Rico, which have required us to adopt temporary modifications to our internal controls, the effectiveness of which has not been tested by management in connection with our annual Sarbanes-Oxley Act assessment and which, if determined to be ineffective, could materially affect our internal control over financial reporting. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
The loss of power and telecommunications and the resulting inability of certain of the Corporation’s bank branches to communicate electronic data through our network caused some automated processes for the recording or capture of certain bank branch transactions to be performed manually. While management has evaluated and believes that the temporary modifications implemented and mitigating controls in place are adequate to maintain an effective control over financial reporting, management has not yet tested the effectiveness of these modified controls in connection with its annual assessment of the effectiveness of internal control over financial reporting pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act and cannot be certain that the new temporary processes will ensure that we maintain adequate controls over the processing of certain bank transactions. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If these controls were deemed ineffective, management or our outside auditors could conclude that there is a deficiency in our internal control over financial reporting, which, until remediated, could result in misstatements to our interim or annual consolidated financial statements and disclosures that may not be prevented or detected on a timely basis. If such deficiency rises to the level of a material weakness in internal control over financial reporting, it would mean that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Any failure to maintain effective internal controls could also cause us to fail to meet our reporting obligations on a timely basis and cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On July 23, 2018, the Corporation’s Board of Directors approved a common stock repurchase plan of up to $125 million. In August 2018, the Corporation entered into a $125 million accelerated share repurchase transaction. As part of this transaction, the Corporation received an initial delivery of 2,000,000 shares of common stock. Such shares are held as treasury stock.
In April 2004, the Corporation’s shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan. The Corporation has to date used shares purchased in the market to make grants under the Plan. As of September 30, 20172018, the maximum number of shares of common stock that maycould have been granted under this plan was 3,500,000. In September 2018, the Corporation added to treasury stock 850 shares of common stock related to shares that were withheld under Popular’s employee restricted share awards to satisfy tax requirements.
There were noThe following table sets forth the details of purchases of Common Stock during the quarter ended September 30, 2017 under the 2004 Omnibus Incentive Plan.2018:
Issuer Purchases of Equity Securities
Not in thousands | ||||||||||||||||
Period | Total Number of Shares Purchased | 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 | ||||||||||||
July1- July 31 | — | $ | — | — | 125,000,000 | |||||||||||
August1- August 31 | 2,000,000 | 50.99 | 2,000,000 | 23,020,000 | ||||||||||||
September1- September 30 | 850 | 50.34 | — | 23,020,000 | ||||||||||||
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Total September 30, 2018 | 2,000,850 | $ | 50.99 | 2,000,000 | 23,020,000 | |||||||||||
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Item 3.Defaults upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
None.
Exhibit Index
Exhibit No. | Exhibit Description | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) | |
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1) | |
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) | |
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1) | |
101.INS | XBRL Instance Document(1) | |
101.SCH | XBRL Taxonomy Extension Schema Document(1) | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document(1) | |
101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document(1) | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document(1) | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document(1) |
(1) | Included herewith |
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: November | By: | /s/ Carlos J. Vázquez | ||||
Carlos J. Vázquez | ||||||
Executive Vice President & | ||||||
Chief Financial Officer | ||||||
Date: November | By: | /s/ Jorge J. García | ||||
Jorge J. García | ||||||
Senior Vice President & Corporate Comptroller |
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