10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2017

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 Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ☒  Yes     ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer     ☒    Accelerated filer     ☐
Non-accelerated filer     ☐  (Do not check if a smaller reporting company)    Smaller reporting company     ☐
     Emerging growth company     ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐  Yes     ☒  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, 102,010,797 shares outstanding as of August 4, 2017.

 

 

 


Table of Contents

POPULAR, INC.

INDEX

 

     Page  

Part I – Financial Information

  

Item 1. Financial Statements

  

Unaudited Consolidated Statements of Financial Condition at June  30, 2017 and December 31, 2016

     5  

Unaudited Consolidated Statements of Operations for the quarters and six months ended June 30, 2017 and 2016

     6  

Unaudited Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30, 2017 and 2016

     7  

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2017 and 2016

     8  

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016

     9  

Notes to Unaudited Consolidated Financial Statements

     10  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     119  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     174  

Item 4. Controls and Procedures

     175  

Part II – Other Information

     175  

Item 1. Legal Proceedings

     175  

Item 1A. Risk Factors

     175  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     175  

Item 3. Defaults Upon Senior

     176  

Item 4. Mine Safety Disclosures

     176  

Item 5. Other information

     176  

Item 6. Exhibits

     176  

Signatures

  
     177  

 

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Forward-Looking Information

The information included in this Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to Popular, Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict.

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 the possibility that these actions may result in credit losses that are higher than currently expected;

 

    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 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, including e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following:

 

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    negative economic conditions that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense;

 

    changes in market rates and prices which may adversely impact the value of financial assets and liabilities;

 

    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 juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

All forward-looking statements included in this Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

 

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POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

     June 30,     December 31,  

(In thousands, except share information)

   2017     2016  

Assets:

    

Cash and due from banks

   $ 405,688     $ 362,394  
  

 

 

   

 

 

 

Money market investments:

    

Securities purchased under agreements to resell

     —         23,637  

Time deposits with other banks

     4,219,630       2,866,580  
  

 

 

   

 

 

 

Total money market investments

     4,219,630       2,890,217  
  

 

 

   

 

 

 

Trading account securities, at fair value:

    

Pledged securities with creditors’ right to repledge

     4,871       11,486  

Other trading securities

     45,422       48,319  

Investment securities available-for-sale, at fair value:

    

Pledged securities with creditors’ right to repledge

     417,303       491,843  

Other investment securities available-for-sale

     8,992,099       7,717,963  

Investment securities held-to-maturity, at amortized cost (fair value 2017 - $81,584; 2016 - $75,576)

     96,286       98,101  

Other investment securities, at lower of cost or realizable value (realizable value 2017 - $173,576; 2016 - $170,890)

     170,177       167,818  

Loans held-for-sale, at lower of cost or fair value

     69,797       88,821  
  

 

 

   

 

 

 

Loans held-in-portfolio:

    

Loans not covered under loss-sharing agreements with the FDIC

     23,046,078       22,895,172  

Loans covered under loss-sharing agreements with the FDIC

     536,341       572,878  

Less – Unearned income

     127,807       121,425  

Allowance for loan losses

     540,014       540,651  
  

 

 

   

 

 

 

Total loans held-in-portfolio, net

     22,914,598       22,805,974  
  

 

 

   

 

 

 

FDIC loss-share asset

     52,583       69,334  

Premises and equipment, net

     546,986       543,981  

Other real estate not covered under loss-sharing agreements with the FDIC

     181,096       180,445  

Other real estate covered under loss-sharing agreements with the FDIC

     25,350       32,128  

Accrued income receivable

     136,104       138,042  

Mortgage servicing assets, at fair value

     188,728       196,889  

Other assets

     2,108,296       2,145,510  

Goodwill

     627,294       627,294  

Other intangible assets

     40,361       45,050  
  

 

 

   

 

 

 

Total assets

   $ 41,242,669     $ 38,661,609  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits:

    

Non-interest bearing

   $ 7,481,732     $ 6,980,443  

Interest bearing

     25,640,301       23,515,781  
  

 

 

   

 

 

 

Total deposits

     33,122,033       30,496,224  
  

 

 

   

 

 

 

Assets sold under agreements to repurchase

     406,385       479,425  

Other short-term borrowings

     1,200       1,200  

Notes payable

     1,560,834       1,574,852  

Other liabilities

     874,172       911,951  
  

 

 

   

 

 

 

Total liabilities

     35,964,624       33,463,652  

Commitments and contingencies (Refer to Note 21)

    

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; 104,154,626 shares issued (2016 - 104,058,684) and 101,986,758 shares outstanding (2016 - 103,790,932)

     1,041       1,040  

Surplus

     4,263,370       4,255,022  

Retained earnings

     1,356,504       1,220,307  

Treasury stock - at cost, 2,167,868 shares (2016 - 267,752)

     (90,087     (8,286

Accumulated other comprehensive loss, net of tax

     (302,943     (320,286
  

 

 

   

 

 

 

Total stockholders’ equity

     5,278,045       5,197,957  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 41,242,669     $ 38,661,609  
  

 

 

   

 

 

 

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 June 30,     Six months ended June 30,  

(In thousands, except per share information)

   2017     2016     2017     2016  

Interest income:

        

Loans

   $ 367,669     $ 369,721     $ 730,805     $ 732,918  

Money market investments

     11,131       3,889       17,704       6,752  

Investment securities

     48,537       36,725       93,423       72,996  

Trading account securities

     1,396       1,875       2,796       3,564  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     428,733       412,210       844,728       816,230  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     34,092       30,599       67,849       60,473  

Short-term borrowings

     1,115       2,058       2,210       3,919  

Long-term debt

     19,047       19,002       38,092       38,875  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     54,254       51,659       108,151       103,267  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     374,479       360,551       736,577       712,963  

Provision for loan losses - non-covered loans

     49,965       39,668       92,022       87,608  

Provision (reversal) for loan losses - covered loans

     2,514       804       1,155       (2,301
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     322,000       320,079       643,400       627,656  
  

 

 

   

 

 

   

 

 

   

 

 

 

Service charges on deposit accounts

     41,073       40,296       80,609       80,158  

Other service fees (Refer to Note 27)

     59,168       56,945       115,343       110,327  

Mortgage banking activities (Refer to Note 10)

     10,741       16,227       22,110       26,778  

Net gain on sale of investment securities

     19       1,583       181       1,583  

Other-than-temporary impairment losses on investment securities

     (8,299     (209     (8,299     (209

Trading account (loss) profit

     (655     1,117       (933     955  

Net loss on sale of loans, including valuation adjustments on loans held-for-sale

     —         —         —         (304

Adjustments (expense) to indemnity reserves on loans sold

     (2,930     (5,746     (4,896     (9,844

FDIC loss-share expense (Refer to Note 28)

     (475     (12,576     (8,732     (15,722

Other operating income

     18,151       12,866       37,279       28,411  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     116,793       110,503       232,662       222,133  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Personnel costs

     118,815       116,708       244,422       243,799  

Net occupancy expenses

     22,265       21,714       43,041       42,144  

Equipment expenses

     16,250       15,261       32,220       29,809  

Other taxes

     10,740       10,170       21,709       20,365  

Professional fees

     72,934       80,625       142,184       156,084  

Communications

     5,899       6,012       11,848       12,332  

Business promotion

     13,366       13,705       24,942       24,815  

FDIC deposit insurance

     6,172       5,362       12,665       12,732  

Other real estate owned (OREO) expenses

     16,670       12,980       29,488       22,121  

Other operating expenses

     21,380       23,515       50,945       40,680  

Amortization of intangibles

     2,344       3,097       4,689       6,211  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     306,835       309,149       618,153       611,092  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax

     131,958       121,433       257,909       238,697  

Income tax expense

     35,732       32,446       68,738       64,711  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 96,226     $ 88,987     $ 189,171     $ 173,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Applicable to Common Stock

   $ 95,295     $ 88,056     $ 187,309     $ 172,124  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income per Common Share – Basic

   $ 0.94     $ 0.85     $ 1.83     $ 1.67  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income per Common Share – Diluted

   $ 0.94     $ 0.85     $ 1.83     $ 1.67  
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends Declared per Common Share

   $ 0.25     $ 0.15     $ 0.50     $ 0.30  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

     Quarters ended,     Six months ended,  
     June 30,     June 30,  

(In thousands)

   2017     2016     2017     2016  

Net income

   $ 96,226     $ 88,987     $ 189,171     $ 173,986  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before tax:

        

Foreign currency translation adjustment

     (1,588     (1,435     (1,449     (2,140

Amortization of net losses of pension and postretirement benefit plans

     5,606       5,487       11,213       10,973  

Amortization of prior service credit of pension and postretirement benefit plans

     (950     (950     (1,900     (1,900

Unrealized holding gains on investments arising during the period

     8,804       38,092       5,897       114,328  

Other-than-temporary impairment included in net income

     8,299       209       8,299       209  

Reclassification adjustment for gains included in net income

     (19     —         (181     —    

Unrealized net losses on cash flow hedges

     (377     (1,539     (1,014     (3,539

Reclassification adjustment for net losses included in net income

     1,035       1,271       1,890       2,816  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income before tax

     20,810       41,135       22,755       120,747  

Income tax expense

     (3,841     (4,997     (5,412     (9,473
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income, net of tax

     16,969       36,138       17,343       111,274  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income, net of tax

   $ 113,195     $ 125,125     $ 206,514     $ 285,260  
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect allocated to each component of other comprehensive income:

 

     Quarters ended     Six months ended,  
     June 30,     June 30,  

(In thousands)

   2017     2016     2017     2016  

Amortization of net losses of pension and postretirement benefit plans

   $ (2,185   $ (2,140   $ (4,371   $ (4,280

Amortization of prior service credit of pension and postretirement benefit plans

     370       370       740       740  

Unrealized holding gains on investments arising during the period

     (214     (3,289     84       (6,174

Other-than-temporary impairment included in net income

     (1,559     (42     (1,559     (42

Reclassification adjustment for gains included in net income

     4       —         36       —    

Unrealized net losses on cash flow hedges

     147       600       395       1,381  

Reclassification adjustment for net losses included in net income

     (404     (496     (737     (1,098
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

   $ (3,841   $ (4,997   $ (5,412   $ (9,473
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

                                     Accumulated        
                                     other        
     Common      Preferred            Retained     Treasury     comprehensive        

(In thousands)

   stock      stock      Surplus     earnings     stock     loss     Total  

Balance at December 31, 2015

   $ 1,038      $ 50,160      $ 4,229,156     $ 1,087,957     $ (6,101   $ (256,886   $ 5,105,324  

Net income

             173,986           173,986  

Issuance of stock

     1           3,708             3,709  

Tax shortfall expense on vesting of restricted stock

           (29           (29

Dividends declared:

                

Common stock

             (31,102         (31,102

Preferred stock

             (1,862         (1,862

Common stock purchases

               (1,476       (1,476

Common stock reissuance

               7         7  

Other comprehensive income, net of tax

                 111,274       111,274  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

   $ 1,039      $ 50,160      $ 4,232,835     $ 1,228,979     $ (7,570   $ (145,612   $ 5,359,831  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

   $ 1,040      $ 50,160      $ 4,255,022     $ 1,220,307     $ (8,286   $ (320,286   $ 5,197,957  

Net income

             189,171           189,171  

Issuance of stock

     1           3,830             3,831  

Dividends declared:

                

Common stock

             (51,112         (51,112

Preferred stock

             (1,862         (1,862

Common stock purchases

           4,518         (81,801       (77,283

Other comprehensive income, net of tax

                 17,343       17,343  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

   $ 1,041      $ 50,160      $ 4,263,370     $ 1,356,504     $ (90,087   $ (302,943   $ 5,278,045  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     June 30,     June 30,  

Disclosure of changes in number of shares:

   2017     2016  

Preferred Stock:

    

Balance at beginning and end of period

     2,006,391       2,006,391  
  

 

 

   

 

 

 

Common Stock – Issued:

    

Balance at beginning of period

     104,058,684       103,816,185  

Issuance of stock

     95,942       136,530  
  

 

 

   

 

 

 

Balance at end of period

     104,154,626       103,952,715  

Treasury stock

     (2,167,868     (249,674
  

 

 

   

 

 

 

Common Stock – Outstanding

     101,986,758       103,703,041  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Six months ended June 30,  

(In thousands)

   2017     2016  

Cash flows from operating activities:

    

Net income

   $ 189,171     $ 173,986  
  

 

 

   

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     93,177       85,307  

Amortization of intangibles

     4,689       6,211  

Depreciation and amortization of premises and equipment

     23,928       23,141  

Net accretion of discounts and amortization of premiums and deferred fees

     (13,510     (24,724

Other-than-temporary impairment on investment securities

     8,299       209  

Fair value adjustments on mortgage servicing rights

     14,000       12,817  

FDIC loss share expense

     8,732       15,722  

Adjustments (expense) to indemnity reserves on loans sold

     4,896       9,844  

Earnings from investments under the equity method

     (21,413     (13,681

Deferred income tax expense

     52,354       49,316  

Loss (gain) on:

    

Disposition of premises and equipment and other productive assets

     5,517       2,424  

Sale and valuation adjustments of investment securities

     (181     (1,583

Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities

     (12,631     (15,577

Sale of foreclosed assets, including write-downs

     13,603       9,571  

Acquisitions of loans held-for-sale

     (153,085     (148,725

Proceeds from sale of loans held-for-sale

     58,857       43,110  

Net originations on loans held-for-sale

     (224,278     (247,287

Net decrease (increase) in:

    

Trading securities

     333,819       393,178  

Accrued income receivable

     1,939       3,255  

Other assets

     7,423       (21,351

Net (decrease) increase in:

    

Interest payable

     (189     (1,208

Pension and other postretirement benefits obligation

     883       2,300  

Other liabilities

     (16,018     6,310  
  

 

 

   

 

 

 

Total adjustments

     190,811       188,579  
  

 

 

   

 

 

 

Net cash provided by operating activities

     379,982       362,565  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Net increase in money market investments

     (1,329,413     (605,407

Purchases of investment securities:

    

Available-for-sale

     (1,738,920     (1,682,199

Other

     (4,900     (70,302

Proceeds from calls, paydowns, maturities and redemptions of investment securities:

    

Available-for-sale

     541,660       632,284  

Held-to-maturity

     2,860       2,209  

Other

     —         47,859  

Proceeds from sale of investment securities:

    

Available-for-sale

     423       —    

Other

     2,541       27,710  

Net repayments (disbursements) on loans

     5,088       (61,199

Proceeds from sale of loans

     —         95,940  

Acquisition of loan portfolios

     (261,987     (308,949

Net payments (to) from FDIC under loss sharing agreements

     (14,819     88,588  

Return of capital from equity method investments

     3,862       324  

Acquisition of premises and equipment

     (29,992     (60,744

Proceeds from sale of:

    

Premises and equipment and other productive assets

     5,186       2,839  

Foreclosed assets

     60,603       28,895  
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,757,808     (1,862,152
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net increase (decrease) in:

    

Deposits

     2,625,731       1,530,091  

Federal funds purchased and assets sold under agreements to repurchase

     (73,040     59,460  

Other short-term borrowings

     —         30,000  

Payments of notes payable

     (35,074     (216,501

Proceeds from issuance of notes payable

     20,000       128,883  

Proceeds from issuance of common stock

     3,831       3,710  

Dividends paid

     (43,045     (32,953

Net payments for repurchase of common stock

     (75,666     (238

Payments related to tax withholding for share-based compensation

     (1,617     (1,231
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,421,120       1,501,221  
  

 

 

   

 

 

 

Net increase in cash and due from banks

     43,294       1,634  

Cash and due from banks at beginning of period

     362,394       363,674  
  

 

 

   

 

 

 

Cash and due from banks at the end of the period

   $ 405,688     $ 365,308  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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Notes to Consolidated Financial

Statements (Unaudited)

 

Note 1 -    Nature of operations    11
Note 2 -    Basis of presentation and summary of significant accounting policies    12
Note 3 -    New accounting pronouncements    13
Note 4 -    Restrictions on cash and due from banks and certain securities    15
Note 5 -    Investment securities available-for-sale    16
Note 6 -    Investment securities held-to-maturity    20
Note 7 -    Loans    22
Note 8 -    Allowance for loan losses    31
Note 9 -    FDIC loss share asset and true-up payment obligation    49
Note 10 -    Mortgage banking activities    51
Note 11 -    Transfers of financial assets and mortgage servicing assets    52
Note 12 -    Other real estate owned    55
Note 13 -    Other assets    56
Note 14 -    Goodwill and other intangible assets    57
Note 15 -    Deposits    59
Note 16 -    Borrowings    60
Note 17 -    Offsetting of financial assets and liabilities    62
Note 18 -    Stockholders’ equity    64
Note 19 -    Other comprehensive loss    65
Note 20 -    Guarantees    67
Note 21 -    Commitments and contingencies    69
Note 22 -    Non-consolidated variable interest entities    76
Note 23 -    Related party transactions    79
Note 24 -    Fair value measurement    84
Note 25 -    Fair value of financial instruments    91
Note 26 -    Net income per common share    95
Note 27 -    Other service fees    96
Note 28 -    FDIC loss share expense    97
Note 29 -    Pension and postretirement benefits    98
Note 30 -    Stock-based compensation    99
Note 31 -    Income taxes    101
Note 32 -    Supplemental disclosure on the consolidated statements of cash flows    104
Note 33 -    Segment reporting    105
Note 34 -    Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities    110

 

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Table of Contents

Note 1 – Nature of operations

Popular, Inc. (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 and the Caribbean. 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 Banco Popular North America (“BPNA”). BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, New Jersey and South Florida under the name of Popular Community Bank.

 

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Table of Contents

Note 2 – 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, 2016 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2016, included in the Corporation’s 2016 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

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Table of Contents

Note 3 – New accounting pronouncements

Recently Issued Accounting Standards Updates

FASB Accounting Standards Update (“ASU”) 2017-11, Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part I: Accounting for Certain Financial Instruments with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

The FASB issued ASU 2017-11 in July 2017, which changes the classification analysis of certain equity-linked financial instruments with down round features. 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 instrument 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.

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 may be applied using either a modified retrospective approach or a full retrospective approach.

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 does not have any outstanding equity-linked financial instruments with a down round feature.

FASB Accounting Standards Update (“ASU”) 2017-09, Compensation– Stock Compensation (Topic 718): Scope of Modification Accounting

The FASB issued ASU 2017-09 in May 2017, which clarifies that modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.

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 (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

The FASB issued ASU 2017-08 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 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 the premium of purchased callable debt securities is not significant.

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 ASU 2017-07 in March 2017, which requires that an employer disaggregate the service cost component from the other components of net benefit cost. 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.

 

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Table of Contents

The amendments in this Update 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.

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.

FASB Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The Corporation has continued its evaluation and implementation efforts for ASU 2016-13, 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.

The Corporation plans to adopt ASU 2016-13 on January 1, 2020 using a modified retrospective approach. Although early adoption is permitted beginning in the first quarter of 2019, the Corporation does not expect to make that election. The Corporation expects an increase in its allowance for loan and lease losses due to the consideration of lifetime credit losses as part of the calculation. For additional information on ASU 2016-13 and other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2016 Form 10-K.

FASB Accounting Standards Updates (“ASUs”), Revenue from Contracts with Customers (Topic 606)

The Corporation’s implementation efforts regarding ASU 2014-09, Revenue from Contracts with Customers, have included a scoping analysis of revenue streams and related costs, reviewing the associated contracts, evaluating the timing of when revenues are currently being recognized in light of when the performance obligations are fulfilled 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, the Corporation continues to evaluate certain costs, including card interchange fees and certain broker-dealer activities, to determine if these would require changes from a net presentation within revenues to a gross basis. The Corporation plans to adopt this guidance on January 1, 2018 using the modified retrospective approach.

 

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Table of Contents

Note 4 - Restrictions on cash and due from banks and certain securities

The Corporation’s banking subsidiaries, BPPR and BPNA, 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 billion at June 30, 2017 (December 31, 2016 - $ 1.2 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At June 30, 2017, the Corporation held $90 million in restricted assets in the form of funds deposited in money market accounts, trading account securities and investment securities available for sale (December 31, 2016 - $31 million). The amounts held in trading account securities and investment securities available for sale consist primarily of restricted assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

 

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Table of Contents

Note 5 – Investment securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at June 30, 2017 and December 31, 2016.

 

     At June 30, 2017  

(In thousands)

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair value      Weighted
average
yield
 

U.S. Treasury securities

              

Within 1 year

   $ 1,084,686      $ 31      $ 826      $ 1,083,891        1.00

After 1 to 5 years

     1,846,416        1,603        9,145        1,838,874        1.27  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. Treasury securities

     2,931,102        1,634        9,971        2,922,765        1.17  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of U.S. Government sponsored entities

              

Within 1 year

     126,014        5        132        125,887        1.04  

After 1 to 5 years

     537,162        478        1,757        535,883        1.42  

After 5 to 10 years

     200        1        —          201        5.64  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of U.S. Government sponsored entities

     663,376        484        1,889        661,971        1.35  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of Puerto Rico, States and political subdivisions

              

After 1 to 5 years

     6,542        —          76        6,466        2.65  

After 5 to 10 years

     2,988        —          —          2,988        1.22  

After 10 years

     11,352        —          —          11,352        1.44  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     20,882        —          76        20,806        1.79  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

Within 1 year

     142        —          —          142        2.94  

After 1 to 5 years

     17,607        328        38        17,897        2.88  

After 5 to 10 years

     31,542        205        39        31,708        2.69  

After 10 years

     1,051,189        4,898        20,995        1,035,092        2.03  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     1,100,480        5,431        21,072        1,084,839        2.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage-backed securities

              

Within 1 year

     29        —          —          29        4.45  

After 1 to 5 years

     16,764        350        53        17,061        3.70  

After 5 to 10 years

     313,735        2,882        2,238        314,379        2.23  

After 10 years

     4,408,536        26,964        59,081        4,376,419        2.48  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed securities

     4,739,064        30,196        61,372        4,707,888        2.46  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities (without contractual maturity)

     1,008        860        —          1,868        8.17  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     8,351        5        —          8,356        2.16  

After 5 to 10 years

     887        22        —          909        3.62  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     9,238        27        —          9,265        2.30  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale[1]

   $ 9,465,150      $ 38,632      $ 94,380      $ 9,409,402        1.94
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $6.2 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $5.4 billion serve as collateral for public funds.

 

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Table of Contents
     At December 31, 2016  

(In thousands)

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair
value
     Weighted
average
yield
 

U.S. Treasury securities

              

Within 1 year

   $ 844,002      $ 1,254      $ 28      $ 845,228        1.00

After 1 to 5 years

     1,300,729        214        9,551        1,291,392        1.11  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. Treasury securities

     2,144,731        1,468        9,579        2,136,620        1.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of U.S. Government sponsored entities

              

Within 1 year

     100,050        102        —          100,152        0.98  

After 1 to 5 years

     613,293        710        2,505        611,498        1.38  

After 5 to 10 years

     200        —          —          200        5.64  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of U.S. Government sponsored entities

     713,543        812        2,505        711,850        1.32  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of Puerto Rico, States and political subdivisions

              

After 1 to 5 years

     6,419        —          161        6,258        2.89  

After 5 to 10 years

     5,000        —          1,550        3,450        3.80  

After 10 years

     17,605        —          4,542        13,063        7.09  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     29,024        —          6,253        22,771        5.60  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

Within 1 year

     13        —          —          13        1.23  

After 1 to 5 years

     18,524        429        28        18,925        2.89  

After 5 to 10 years

     39,178        428        61        39,545        2.68  

After 10 years

     1,180,686        6,313        23,956        1,163,043        1.99  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     1,238,401        7,170        24,045        1,221,526        2.02  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage-backed securities

              

Within 1 year

     55        1        —          56        4.76  

After 1 to 5 years

     19,960        537        43        20,454        3.86  

After 5 to 10 years

     317,185        3,701        1,721        319,165        2.29  

After 10 years

     3,805,675        28,772        68,790        3,765,657        2.47  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed securities

     4,142,875        33,011        70,554        4,105,332        2.46  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities (without contractual maturity)

     1,246        876        —          2,122        7.94  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     8,539        11        —          8,550        1.78  

After 5 to 10 years

     1,004        31        —          1,035        3.62  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     9,543        42        —          9,585        1.97  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale[1]

   $ 8,279,363      $ 43,379      $ 112,936      $ 8,209,806        1.94
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $4.1 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $3.4 billion serve as collateral for public funds.

The weighted average yield on investment securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

During the six months ended June 30, 2017, the Corporation sold equity securities with a realized gain of $181 thousand. The proceeds from these sales were $ 423 thousand. There were no securities sold during the six months ended June 30, 2016.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2017 and December 31, 2016.

 

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Table of Contents
     At June 30, 2017  
     Less than 12 months      12 months or more      Total  

(In thousands)

   Fair
value
     Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
     Fair
value
     Gross
unrealized
losses
 

U.S. Treasury securities

   $ 2,095,200      $ 9,971      $ —        $ —        $ 2,095,200      $ 9,971  

Obligations of U.S. Government sponsored entities

     525,694        1,763        24,952        126        550,646        1,889  

Obligations of Puerto Rico, States and political subdivisions

     6,466        76        —          —          6,466        76  

Collateralized mortgage obligations - federal agencies

     459,463        7,491        312,521        13,581        771,984        21,072  

Mortgage-backed securities

     3,641,726        59,757        72,282        1,615        3,714,008        61,372  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale in an unrealized loss position

   $ 6,728,549      $ 79,058      $ 409,755      $ 15,322      $ 7,138,304      $ 94,380  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2016  
     Less than 12 months      12 months or more      Total  

(In thousands)

   Fair
value
     Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
     Fair
value
     Gross
unrealized
losses
 

U.S. Treasury securities

   $ 1,162,110      $ 9,579      $ —        $ —        $ 1,162,110      $ 9,579  

Obligations of U.S. Government sponsored entities

     430,273        2,426        3,126        79        433,399        2,505  

Obligations of Puerto Rico, States and political subdivisions

     6,258        161        16,512        6,092        22,770        6,253  

Collateralized mortgage obligations - federal agencies

     505,503        8,112        339,236        15,933        844,739        24,045  

Mortgage-backed securities

     3,537,606        70,173        15,113        381        3,552,719        70,554  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale in an unrealized loss position

   $ 5,641,750      $ 90,451      $ 373,987      $ 22,485      $ 6,015,737      $ 112,936  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2017, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $94 million, driven by Mortgage backed securities and Collateralized mortgage obligations.

Management evaluates investment 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 second quarter of 2017, the Corporation recognized an other-than-temporary impairment charge of $8.3 million on senior Puerto Rico Sales Tax Financing Corporation (“COFINA”) bonds classified as available-for-sale. On May 5, 2017, the federally-appointed Puerto Rico Management and Oversight Board filed, at the request of the Commonwealth, a petition pursuant to the Title III of PROMESA with respect to COFINA. On May 30, 2017, the U.S. District Court directed that funds held by the Bank of New York Mellon (“BONY”), as trustee for the COFINA bonds, be escrowed pending resolution of certain legal disputes. The withholding of COFINA funds ordered by the Court during June 2017 resulted in the first missed interest payment on COFINA bonds. As such, the Corporation determined the entire unrealized loss on these securities to be other-than-temporary.

At June 30, 2017, 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 investments securities prior to recovery of their amortized cost basis. Notwithstanding the above, the Corporation sold all senior COFINA bonds held as available-for-sale in July 2017.

 

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Table of Contents

During the second quarter of 2016, the Corporation recognized an other-than-temporary impairment charge of $209 thousand on an investment security available-for-sale classified as obligations from the Puerto Rico government and its political subdivisions. The Corporation determined that the entire balance of the unrealized loss carried by this security was attributed to estimated credit losses. Accordingly, an other-than-temporary impairment was recognized in its entirety in the consolidated statement of operations and no amount remained recognized in the statement of other comprehensive income related to this specific security. The security, for which an other-than-temporary impairment was recorded, 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 securities of such issuer (includes available-for-sale and held-to-maturity securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes 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.

 

     June 30, 2017      December 31, 2016  

(In thousands)

   Amortized cost      Fair value      Amortized cost      Fair value  

FNMA

   $ 3,541,838      $ 3,505,997      $ 3,255,844      $ 3,211,443  

Freddie Mac

     1,463,278        1,446,857        1,381,197        1,361,933  

 

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Table of Contents

Note 6 – Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity at June 30, 2017 and December 31, 2016.

 

     At June 30, 2017  

(In thousands)

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair value      Weighted
average
yield
 

Obligations of Puerto Rico, States and political subdivisions

              

Within 1 year

   $ 3,235      $ —        $ 936      $ 2,299        5.94

After 1 to 5 years

     15,200        —          5,522        9,678        6.03  

After 5 to 10 years

     17,485        —          5,527        11,958        6.24  

After 10 years

     58,296        3,327        6,020        55,603        1.79  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     94,216        3,327        18,005        79,538        3.44  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 5 to 10 years

     70        4        —          74        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     70        4        —          74        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     1,250        —          19        1,231        1.40  

After 1 to 5 years

     750        —          9        741        2.79  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     2,000        —          28        1,972        1.92  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity[1]

   $ 96,286      $ 3,331      $ 18,033      $ 81,584        3.41
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $94.2 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

 

     At December 31, 2016  

(In thousands)

   Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Fair value      Weighted
average
yield
 

Obligations of Puerto Rico, States and political subdivisions

              

Within 1 year

   $ 3,105      $ —        $ 1,240      $ 1,865        5.90

After 1 to 5 years

     14,540        —          5,957        8,583        6.02  

After 5 to 10 years

     18,635        —          7,766        10,869        6.20  

After 10 years

     59,747        1,368        8,892        52,223        1.91  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     96,027        1,368        23,855        73,540        3.49  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 5 to 10 years

     74        4        —          78        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     74        4        —          78        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     1,000        —          3        997        1.65  

After 1 to 5 years

     1,000        —          39        961        2.44  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     2,000        —          42        1,958        2.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity[1]

   $ 98,101      $ 1,372      $ 23,897      $ 75,576        3.46
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $53.1 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

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 investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2017 and December 31, 2016.

 

20


Table of Contents
     At June 30, 2017  
     Less than 12 months      12 months or more      Total  

(In thousands)

   Fair
value
     Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
 

Obligations of Puerto Rico, States and political subdivisions

   $ 6,925      $ 98      $ 33,083      $ 17,907      $ 40,008      $ 18,005  

Other

     491        9        1,231        19        1,722        28  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity in an unrealized loss position

   $ 7,416      $ 107      $ 34,314      $ 17,926      $ 41,730      $ 18,033  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2016  
     Less than 12 months      12 months or more      Total  

(In thousands)

   Fair value      Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
     Fair value      Gross
unrealized
losses
 

Obligations of Puerto Rico, States and political subdivisions

   $ 31,294      $ 1,702      $ 30,947      $ 22,153      $ 62,241      $ 23,855  

Other

     491        9        1,217        33        1,708        42  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity in an unrealized loss position

   $ 31,785      $ 1,711      $ 32,164      $ 22,186      $ 63,949      $ 23,897  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As indicated in Note 5 to these Consolidated Financial Statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at June 30, 2017 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $51 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 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 security held-to-maturity was other-than-temporarily impaired at June 30, 2017. Further deterioration of the fiscal crisis of the Government of Puerto Rico could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell securities held-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 21 for additional information on the Corporation’s exposure to the Puerto Rico Government.

 

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Table of Contents

Note 7 – Loans

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 Subtopic 310-30. Under ASC Subtopic 310-30, 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 Subtopic 310-30 by the Corporation are not considered non-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 Subtopic 310-20, 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 Subtopic 310-20 are placed in non-accrual status when past due in accordance with the Corporation’s non-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 9.

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2—Summary of significant accounting policies of the 2016 Form 10-K.

During the quarter and six months ended June 30, 2017, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $124 million and $260 million, respectively; consumer loans of $108 million and $150 million, respectively; and leases of $2 million, for the six months ended June 30, 2017. During the quarter and six months ended June 30, 2016, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $118 million and $240 million, respectively; consumer loans of $58 million and $164 million, respectively; and commercial loans of $51 million during the six months ended June 30, 2016.

The Corporation performed whole-loan sales involving approximately $26 million and $54 million of residential mortgage loans during the quarter and six months ended June 30, 2017, respectively (June 30, 2016—$19 million and $40 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 $1 million during the six months ended June 30, 2016. Also, the Corporation securitized approximately $ 136 million and $ 283 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2017, respectively (June 30, 2016—$ 170 million and $ 304 million, respectively). Furthermore, the Corporation securitized approximately $ 37 million and $ 65 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2017, respectively (June 30, 2016 - $ 43 million and $ 79 million, respectively).

Non-covered loans

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, by past due status at June 30, 2017 and December 31, 2016, including loans previously covered by the commercial FDIC loss sharing agreements.

 

22


Table of Contents
June 30, 2017
Puerto Rico
     Past due             Non-covered  

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total
past due
     Current      loans HIP
Puerto Rico
 

Commercial multi-family

   $ 199      $ 603      $ 561      $ 1,363      $ 146,928      $ 148,291  

Commercial real estate non-owner occupied

     85,929        12,304        39,102        137,335        2,398,639        2,535,974  

Commercial real estate owner occupied

     13,388        5,928        105,755        125,071        1,561,362        1,686,433  

Commercial and industrial

     3,185        2,559        44,445        50,189        2,735,199        2,785,388  

Construction

     —          —          170        170        96,734        96,904  

Mortgage

     307,222        151,129        743,059        1,201,410        4,616,873        5,818,283  

Leasing

     7,225        1,214        2,065        10,504        733,099        743,603  

Consumer:

                 

Credit cards

     12,067        7,831        19,012        38,910        1,052,164        1,091,074  

Home equity lines of credit

     —          —          926        926        6,574        7,500  

Personal

     13,174        7,903        19,288        40,365        1,131,067        1,171,432  

Auto

     31,917        6,955        10,634        49,506        776,453        825,959  

Other

     681        174        16,764        17,619        148,205        165,824  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 474,987      $ 196,600      $ 1,001,781      $ 1,673,368      $ 15,403,297      $ 17,076,665  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

June 30, 2017  
U.S. mainland  
     Past due                

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total
past due
     Current      Loans HIP
U.S. mainland
 

Commercial multi-family

   $ —        $ —        $ 503      $ 503      $ 1,145,927      $ 1,146,430  

Commercial real estate non-owner occupied

     1,489        1,029        1,778        4,296        1,492,403        1,496,699  

Commercial real estate owner occupied

     2,926        —          487        3,413        248,560        251,973  

Commercial and industrial

     3,232        6,863        87,468        97,563        898,608        996,171  

Construction

     —          —          —          —          687,485        687,485  

Mortgage

     1,188        5,888        12,280        19,356        715,157        734,513  

Legacy

     594        309        3,360        4,263        34,804        39,067  

Consumer:

                 

Credit cards

     17        —          2        19        124        143  

Home equity lines of credit

     5,007        2,600        7,922        15,529        197,796        213,325  

Personal

     1,950        1,524        2,179        5,653        269,963        275,616  

Auto

     —          —          —          —          5        5  

Other

     —          21        3        24        155        179  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,403      $ 18,234      $ 115,982      $ 150,619      $ 5,690,987      $ 5,841,606  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
June 30, 2017  
Popular, Inc.  
     Past due             Non-covered  

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total
past due
     Current      loans HIP
Popular, Inc.[1] [2]
 

Commercial multi-family

   $ 199      $ 603      $ 1,064      $ 1,866      $ 1,292,855      $ 1,294,721  

Commercial real estate non-owner occupied

     87,418        13,333        40,880        141,631        3,891,042        4,032,673  

Commercial real estate owner occupied

     16,314        5,928        106,242        128,484        1,809,922        1,938,406  

Commercial and industrial

     6,417        9,422        131,913        147,752        3,633,807        3,781,559  

Construction

     —          —          170        170        784,219        784,389  

Mortgage

     308,410        157,017        755,339        1,220,766        5,332,030        6,552,796  

Leasing

     7,225        1,214        2,065        10,504        733,099        743,603  

Legacy[3]

     594        309        3,360        4,263        34,804        39,067  

Consumer:

                 

Credit cards

     12,084        7,831        19,014        38,929        1,052,288        1,091,217  

Home equity lines of credit

     5,007        2,600        8,848        16,455        204,370        220,825  

Personal

     15,124        9,427        21,467        46,018        1,401,030        1,447,048  

Auto

     31,917        6,955        10,634        49,506        776,458        825,964  

Other

     681        195        16,767        17,643        148,360        166,003  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 491,390      $ 214,834      $ 1,117,763      $ 1,823,987      $ 21,094,284      $ 22,918,271  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Non-covered loans held-in-portfolio are net of $128 million in unearned income and exclude $70 million in loans held-for-sale.
[2] Includes $7.4 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.6 billion were pledged at the Federal Home Loan Bank (“FHLB”) as collateral for borrowings, $2.3 billion at the Federal Reserve Bank (“FRB”) for discount window borrowings and $0.5 billion serve as collateral for public funds.
[3] 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 BPNA segment.

 

December 31, 2016  
Puerto Rico  
     Past due             Non-covered  

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total
past due
     Current      loans HIP
Puerto Rico
 

Commercial multi-family

   $ 232      $ —        $ 664      $ 896      $ 173,644      $ 174,540  

Commercial real estate non-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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 484,707      $ 174,597      $ 1,074,451      $ 1,733,755      $ 15,434,669      $ 17,168,424  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents
December 31, 2016  
U.S. mainland  
     Past due                

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total
past due
     Current      Loans HIP
U.S. mainland
 

Commercial multi-family

   $ 5,952      $ —        $ 206      $ 6,158      $ 1,058,138      $ 1,064,296  

Commercial real estate non-owner occupied

     1,992        379        1,195        3,566        1,353,750        1,357,316  

Commercial real estate owner occupied

     2,116        540        472        3,128        240,617        243,745  

Commercial and industrial

     960        610        101,257        102,827        828,106        930,933  

Construction

     —          —          —          —          690,742        690,742  

Mortgage

     15,974        5,272        11,713        32,959        746,902        779,861  

Legacy

     833        346        3,337        4,516        40,777        45,293  

Consumer:

                 

Credit cards

     8        28        30        66        92        158  

Home equity lines of credit

     2,908        1,055        4,762        8,725        243,450        252,175  

Personal

     2,547        1,675        1,864        6,086        234,521        240,607  

Auto

     —          —          —          —          9        9  

Other

     —          —          8        8        180        188  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 33,290      $ 9,905      $ 124,844      $ 168,039      $ 5,437,284      $ 5,605,323  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2016
Popular, Inc.
     Past due             Non-covered  

(In thousands)

   30-59 days      60-89 days      90 days
or more
     Total
past due
     Current      loans HIP
Popular, Inc.[1] [2]
 

Commercial multi-family

   $ 6,184      $ —        $ 870      $ 7,054      $ 1,231,782      $ 1,238,836  

Commercial real estate non-owner occupied

     100,596        5,164        52,630        158,390        3,763,211        3,921,601  

Commercial real estate owner occupied

     15,083        5,554        113,469        134,106        1,901,114        2,035,220  

Commercial and industrial

     20,116        3,248        133,404        156,768        3,446,082        3,602,850  

Construction

     —          —          1,668        1,668        774,632        776,300  

Mortgage

     305,609        141,830        812,964        1,260,403        5,435,958        6,696,361  

Leasing

     6,619        1,356        3,062        11,037        691,856        702,893  

Legacy[3]

     833        346        3,337        4,516        40,777        45,293  

Consumer:

                 

Credit cards

     11,654        8,780        18,755        39,189        1,061,576        1,100,765  

Home equity lines of credit

     2,908        1,120        4,947        8,975        251,551        260,526  

Personal

     14,695        9,593        22,550        46,838        1,343,946        1,390,784  

Auto

     32,441        7,217        12,320        51,978        774,623        826,601  

Other

     1,259        294        19,319        20,872        154,845        175,717  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 517,997      $ 184,502      $ 1,199,295      $ 1,901,794      $ 20,871,953      $ 22,773,747  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Non-covered loans held-in-portfolio are net of $121 million in unearned income and exclude $89 million in loans held-for-sale.
[2] Includes $7.3 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.5 billion were pledged at the FHLB as collateral for borrowings, $2.3 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds.
[3] 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 BPNA segment.

The following tables present non-covered loans held-in-portfolio by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at June 30, 2017 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’s buy-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.

 

25


Table of Contents
At June 30, 2017  
     Puerto Rico      U.S. mainland      Popular, Inc.  

(In thousands)

   Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
     Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
     Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
 

Commercial multi-family

   $ 561      $ —        $ 503      $ —        $ 1,064      $ —    

Commercial real estate non-owner occupied

     23,107        —          1,778        —          24,885        —    

Commercial real estate owner occupied

     94,979        —          487        —          95,466        —    

Commercial and industrial

     44,216        229        1,233        —          45,449        229  

Mortgage[3]

     306,642        370,756        12,280        —          318,922        370,756  

Leasing

     2,065        —          —          —          2,065        —    

Legacy

     —          —          3,360        —          3,360        —    

Consumer:

                 

Credit cards

     —          19,012        2        —          2        19,012  

Home equity lines of credit

     —          926        7,922        —          7,922        926  

Personal

     19,049        11        2,179        —          21,228        11  

Auto

     10,634        —          —          —          10,634        —    

Other

     16,129        635        3        —          16,132        635  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total[2]

   $ 517,382      $ 391,569      $ 29,747      $ —        $ 547,129      $ 391,569  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Non-covered loans of $179 million accounted for under ASC Subtopic 310-30 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.
[2] For purposes of this table non-performing loans exclude non-performing loans held-for-sale.
[3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $160 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2017. Furthermore, the Corporation has approximately $57 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

 

At December 31, 2016  
     Puerto Rico      U.S. mainland      Popular, Inc.  

(In thousands)

   Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
     Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
     Non-accrual
loans
     Accruing loans
past-due 90
days or more [1]
 

Commercial multi-family

   $ 664      $ —        $ 206      $ —        $ 870      $ —    

Commercial real estate non-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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total[2]

   $ 532,508      $ 426,652      $ 25,407      $ —        $ 557,915      $ 426,652  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Non-covered loans by $215 million accounted for under ASC Subtopic 310-30 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.
[2] For purposes of this table non-performing loans exclude non-performing loans held-for-sale.
[3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $181 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2016. Furthermore, the Corporation has approximately $68 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

 

26


Table of Contents

Covered loans

The following tables present the composition of loans by past due status at June 30, 2017 and December 31, 2016 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.

 

June 30, 2017  
     Past due                

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total past
due
     Current      Covered
loans HIP [1]
 

Mortgage

   $ 24,506      $ 12,270      $ 56,079      $ 92,855      $ 428,211      $ 521,066  

Consumer

     650        305        851        1,806        13,469        15,275  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 25,156      $ 12,575      $ 56,930      $ 94,661      $ 441,680      $ 536,341  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $314 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

 

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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 26,257      $ 13,149      $ 70,930      $ 110,336      $ 462,542      $ 572,878  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Includes $337 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at June 30, 2017 and December 31, 2016.

 

     June 30, 2017      December 31, 2016  
     Non-accrual      Accruing loans past      Non-accrual      Accruing loans past  

(In thousands)

   loans      due 90 days or more      loans      due 90 days or more  

Mortgage

   $ 3,866      $ —        $ 3,794      $ —    

Consumer

     160        —          121        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total[1]

   $ 4,026      $ —        $ 3,915      $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] Covered loans accounted for under ASC Subtopic 310-30 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 Subtopic 310-20, 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 Subtopic 310-20 amounted to $10 million at June 30, 2017 (December 31, 2016—$10 million).

Loans acquired with deteriorated credit quality accounted for under ASC 310-30

The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC 310-30.

Loans acquired from Westernbank as part of an FDIC-assisted transaction

The carrying amount of the Westernbank loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic 310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic 310-30 (“non-credit impaired loans”), as detailed in the following table.

 

27


Table of Contents
     June 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

   $ 908,923     $ 14,764     $ 923,687     $ 985,181     $ 14,440     $ 999,621  

Commercial and industrial

     96,795       —         96,795       103,476       —         103,476  

Construction

     —         170       170       —         1,668       1,668  

Mortgage

     555,771       22,822       578,593       587,949       25,781       613,730  

Consumer

     17,707       835       18,542       18,775       1,059       19,834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount [1]

     1,579,196       38,591       1,617,787       1,695,381       42,948       1,738,329  

Allowance for loan losses

     (59,165     (6,509     (65,674     (61,855     (7,022     (68,877
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount, net of allowance

   $ 1,520,031     $ 32,082     $ 1,552,113     $ 1,633,526     $ 35,926     $ 1,669,452  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remains subject to the loss sharing agreement with the FDIC amounted to approximately $526 million as of June 30, 2017 and $563 million as of December 31, 2016.

The outstanding principal balance of Westernbank loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.0 billion at June 30, 2017 (December 31, 2016 - $2.1 billion). At June 30, 2017, none of the acquired loans from the Westernbank FDIC-assisted transaction accounted for under ASC Subtopic 310-30 were considered non-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 Subtopic 310-30, for the quarters and six months ended June 30, 2017 and 2016, were as follows:

 

     Activity in the accretable yield  
     Westernbank loans ASC 310-30  
     For the quarters ended  
     June 30, 2017     June 30, 2016  
     Non-credit     Credit           Non-credit     Credit        

(In thousands)

   impaired loans     impaired loans     Total     impaired loans     impaired loans     Total  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Beginning balance

   $ 973,681     $ 7,525     $ 981,206     $ 1,118,276     $ 10,532     $ 1,128,808  

Accretion

     (35,679     (809     (36,488     (45,137     (3,339     (48,476

Change in expected cash flows

     (1,798     (252     (2,050     (11,168     2,516       (8,652
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 936,204     $ 6,464     $ 942,668     $ 1,061,971     $ 9,709     $ 1,071,680  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents
     Activity in the accretable yield  
     Westernbank loans ASC 310-30  
     For the six months ended  
     June 30, 2017     June 30, 2016  
     Non-credit     Credit           Non-credit     Credit        
     impaired     impaired           impaired     impaired        

(In thousands)

   loans     loans     Total     loans     loans     Total  

Beginning balance

   $ 1,001,908     $ 8,179     $ 1,010,087     $ 1,105,732     $ 6,726     $ 1,112,458  

Accretion

     (71,695     (1,685     (73,380     (87,137     (4,872     (92,009

Change in expected cash flows

     5,991       (30     5,961       43,376       7,855       51,231  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 936,204     $ 6,464     $ 942,668     $ 1,061,971     $ 9,709     $ 1,071,680  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30  
     For the quarters ended  
     June 30, 2017     June 30, 2016  
     Non-credit     Credit           Non-credit     Credit        

(In thousands)

   impaired
loans
    impaired
loans
    Total     impaired
loans
    impaired
loans
    Total  

Beginning balance

   $ 1,648,328     $ 40,572     $ 1,688,900     $ 1,865,940     $ 69,501     $ 1,935,441  

Accretion

     35,679       809       36,488       45,137       3,339       48,476  

Collections / loan sales / charge-offs[1]

     (104,811     (2,790     (107,601     (156,464     (27,510     (183,974
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance[2]

   $ 1,579,196     $ 38,591     $ 1,617,787     $ 1,754,613     $ 45,330     $ 1,799,943  

Allowance for loan losses ASC 310-30 Westernbank loans

     (59,165     (6,509     (65,674     (57,895     (9,100     (66,995
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 1,520,031     $ 32,082     $ 1,552,113     $ 1,696,718     $ 36,230     $ 1,732,948  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] For the quarter ended June 30, 2016, includes the impact of the bulk sale of loans with a carrying value of approximately $99 million.
[2] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $ 526 million as of June 30, 2017 (June 30, 2016- $597 million).

 

     Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30  
     For the six months ended  
     June 30, 2017     June 30, 2016  
     Non-credit     Credit           Non-credit     Credit        
     impaired     impaired           impaired     impaired        

(In thousands)

   loans     loans     Total     loans     loans     Total  

Beginning balance

   $ 1,695,381     $ 42,948     $ 1,738,329     $ 1,898,146     $ 76,355     $ 1,974,501  

Accretion

     71,695       1,685       73,380       87,137       4,872       92,009  

Collections / loan sales / charge-offs[1]

     (187,880     (6,042     (193,922     (230,670     (35,897     (266,567
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance[2]

   $ 1,579,196     $ 38,591     $ 1,617,787     $ 1,754,613     $ 45,330     $ 1,799,943  

Allowance for loan losses ASC 310-30 Westernbank loans

     (59,165     (6,509     (65,674     (57,895     (9,100     (66,995
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 1,520,031     $ 32,082     $ 1,552,113     $ 1,696,718     $ 36,230     $ 1,732,948  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] For the quarter ended June 30, 2016, includes the impact of the bulk sale of loans with a carrying value of approximately $99 million.
[2] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $526 million as of June 30, 2017 (June 30, 2016- $597 million).

Other loans acquired with deteriorated credit quality

The outstanding principal balance of other acquired loans accounted pursuant to ASC Subtopic 310-30, amounted to $679 million at June 30, 2017 (December 31, 2016 - $700 million). At June 30, 2017, none of the other acquired loans accounted under ASC Subtopic 310-30 were considered non-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.

 

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Table of Contents

Changes in the carrying amount and the accretable yield for the other acquired loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended June 30, 2017 and 2016 were as follows:

 

Activity in the accretable yield - other acquired loans ASC 310-30

 

(In thousands)

   For the quarter ended
June 30, 2017
     For the quarter ended
June 30, 2016
 

Beginning balance

   $ 309,778      $ 267,768  

Additions

     2,601        4,171  

Accretion

     (8,422      (8,730

Change in expected cash flows

     (953      9,400  
  

 

 

    

 

 

 

Ending balance

   $ 303,004      $ 272,609  
  

 

 

    

 

 

 

Activity in the accretable yield - other acquired loans ASC 310-30

 

(In thousands)

   For the six months ended
June 30, 2017
     For the six months ended
June 30, 2016
 

Beginning balance

   $ 278,896      $ 221,128  

Additions

     5,855        8,511  

Accretion

     (17,258      (17,285

Change in expected cash flows

     35,511        60,255  
  

 

 

    

 

 

 

Ending balance

   $ 303,004      $ 272,609  
  

 

 

    

 

 

 

Carrying amount of other acquired loans accounted for pursuant to ASC 310-30

 

(In thousands)

   For the quarter ended
June 30, 2017
     For the quarter ended
June 30, 2016
 

Beginning balance

   $ 556,724        562,723  

Additions

     4,298        8,354  

Accretion

     8,422        8,730  

Collections and charge-offs

     (18,567      (17,062
  

 

 

    

 

 

 

Ending balance

   $ 550,877      $ 562,745  

Allowance for loan losses ASC 310-30 other acquired loans

     (37,923      (16,059
  

 

 

    

 

 

 

Ending balance, net of ALLL

   $ 512,954      $ 546,686  
  

 

 

    

 

 

 

Carrying amount of other acquired loans accounted for pursuant to ASC 310-30

 

(In thousands)

   For the six months ended
June 30, 2017
     For the six months ended
June 30, 2016
 

Beginning balance

   $ 562,695      $ 564,050  

Purchase accounting adjustments related to the Doral Bank Transaction (Refer to Note 14)

     —          (4,707

Additions

     9,879        18,405  

Accretion

     17,258        17,285  

Collections and charge-offs

     (38,955      (32,288
  

 

 

    

 

 

 

Ending balance

   $ 550,877      $ 562,745  

Allowance for loan losses ASC 310-30 other acquired loans

     (37,923      (16,059
  

 

 

    

 

 

 

Ending balance, net of ALLL

   $ 512,954      $ 546,686  
  

 

 

    

 

 

 

 

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Table of Contents

Note 8 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses 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.

The Corporation’s assessment of the allowance for loan losses is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the allowance for loan losses on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30, 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 losses includes the following principal factors:

 

    Base net loss rates, which are based on the moving average of annualized net loss rates computed over a 5-year historical loss period for the commercial and construction loan portfolios, and an 18-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 a 12-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 June 30, 2017, 39% (June 30, 2016—51%) of the ALLL for non-covered BPPR 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 mainly concentrated in the personal, other consumer and commercial and industrial portfolios for 2017 and in the other consumer, mortgage, commercial multi-family and commercial and industrial loan portfolios for 2016.

For the period ended June 30, 2017, 2% (June 30, 2016—1 %) of our BPNA 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 commercial multifamily loan and legacy portfolios for 2017 and in the consumer loan portfolio for 2016.

 

    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 reserve of the allowance for loan losses.

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 six months ended June 30, 2017 and 2016.

 

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Table of Contents

For the quarter ended June 30, 2017

 

Puerto Rico - Non-covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 187,631     $ 1,961     $ 144,937     $ 7,897     $ 124,091     $ 466,517  

Provision (reversal of provision)

     (1,697     (2,858     23,682       1,544       21,502       42,173  

Charge-offs

     (21,575     (68     (21,493     (1,956     (28,002     (73,094

Recoveries

     9,830       2,438       740       518       5,313       18,839  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 174,189     $ 1,473     $ 147,866     $ 8,003     $ 122,904     $ 454,435  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Specific ALLL

   $ 41,982     $ —       $ 47,954     $ 487     $ 21,999     $ 112,422  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General ALLL

   $ 132,207     $ 1,473     $ 99,912     $ 7,516     $ 100,905     $ 342,013  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans held-in-portfolio:

            

Impaired non-covered loans

   $ 333,936     $ —       $ 505,244     $ 1,668     $ 103,798     $ 944,646  

Non-covered loans held-in-portfolio excluding impaired loans

     6,822,150       96,904       5,313,039       741,935       3,157,991       16,132,019  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-covered loans held-in-portfolio

   $ 7,156,086     $ 96,904     $ 5,818,283     $ 743,603     $ 3,261,789     $ 17,076,665  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the quarter ended June 30, 2017

 

Puerto Rico - Covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ —       $ —       $ 27,341     $ —       $ 430     $ 27,771  

Provision (reversal of provision)

     —         —         2,405       —         109       2,514  

Charge-offs

     —         —         (606     —         (17     (623

Recoveries

     —         —         1,144       —         2       1,146  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ —       $ —       $ 30,284     $ —       $ 524     $ 30,808  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Specific ALLL

   $ —       $ —       $ —       $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General ALLL

   $ —       $ —       $ 30,284     $ —       $ 524     $ 30,808  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans held-in-portfolio:

            

Impaired covered loans

   $ —       $ —       $ —       $ —       $ —       $ —    

Covered loans held-in-portfolio excluding impaired loans

     —         —         521,066       —         15,275       536,341  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total covered loans held-in-portfolio

   $ —       $ —       $ 521,066     $ —       $ 15,275     $ 536,341  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the quarter ended June 30, 2017

 

U.S. Mainland

 

(In thousands)

   Commercial     Construction     Mortgage     Legacy     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 21,053     $ 8,036     $ 4,282     $ 1,166     $ 15,671     $ 50,208  

Provision (reversal of provision)

     6,623       (1,508     302       (471     2,846       7,792  

Charge-offs

     (151     —         (845     (542     (4,786     (6,324

Recoveries

     794       —         383       840       1,078       3,095  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 28,319     $ 6,528     $ 4,122     $ 993     $ 14,809     $ 54,771  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Specific ALLL

   $ —       $ —       $ 2,194     $ —       $ 694     $ 2,888  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General ALLL

   $ 28,319     $ 6,528     $ 1,928     $ 993     $ 14,115     $ 51,883  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans held-in-portfolio:

            

Impaired loans

   $ —       $ —       $ 8,896     $ —       $ 3,229     $ 12,125  

Loans held-in-portfolio excluding impaired loans

     3,891,273       687,485       725,617       39,067       486,039       5,829,481  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans held-in-portfolio

   $ 3,891,273     $ 687,485     $ 734,513     $ 39,067     $ 489,268     $ 5,841,606  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

For the quarter ended June 30, 2017

 

Popular, Inc.

 

(In thousands)

   Commercial     Construction     Mortgage     Legacy     Leasing     Consumer     Total  

Allowance for credit losses:

              

Beginning balance

   $ 208,684     $ 9,997     $ 176,560     $ 1,166     $ 7,897     $ 140,192     $ 544,496  

Provision (reversal of provision)

     4,926       (4,366     26,389       (471     1,544       24,457       52,479  

Charge-offs

     (21,726     (68     (22,944     (542     (1,956     (32,805     (80,041

Recoveries

     10,624       2,438       2,267       840       518       6,393       23,080  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 202,508     $ 8,001     $ 182,272     $ 993     $ 8,003     $ 138,237     $ 540,014  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Specific ALLL

   $ 41,982     $ —       $ 50,148     $ —       $ 487     $ 22,693     $ 115,310  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General ALLL

   $ 160,526     $ 8,001     $ 132,124     $ 993     $ 7,516     $ 115,544     $ 424,704  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans held-in-portfolio:

              

Impaired loans

   $ 333,936     $ —       $ 514,140     $ —       $ 1,668     $ 107,027     $ 956,771  

Loans held-in-portfolio excluding impaired loans

     10,713,423       784,389       6,559,722       39,067       741,935       3,659,305       22,497,841  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans held-in-portfolio

   $ 11,047,359     $ 784,389     $ 7,073,862     $ 39,067     $ 743,603     $ 3,766,332     $ 23,454,612  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

For the six months ended June 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)

     (1,114     (2,394     38,854       2,592       35,713       73,651  

Charge-offs

     (32,646     (3,655     (36,476     (3,297     (49,814     (125,888

Recoveries

     18,263       6,169       2,168       1,046       11,042       38,688  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 174,189     $ 1,473     $ 147,866     $ 8,003     $ 122,904     $ 454,435  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Specific ALLL

   $ 41,982     $ —       $ 47,954     $ 487     $ 21,999     $ 112,422  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

General ALLL

   $ 132,207     $ 1,473     $ 99,912     $ 7,516     $ 100,905     $ 342,013  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans held-in-portfolio:

            

Impaired non-covered loans

   $ 333,936     $ —       $ 505,244     $ 1,668     $ 103,798     $ 944,646  

Non-covered loans held-in-portfolio excluding impaired loans

     6,822,150       96,904       5,313,039       741,935       3,157,991       16,132,019  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-covered loans held-in-portfolio

   $ 7,156,086     $ 96,904     $ 5,818,283     $ 743,603     $ 3,261,789     $ 17,076,665  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the six months ended June 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 (reversal of provision)

     —         —         715       —         440       1,155