10-Q 1 d816896d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

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

For the quarterly period ended September 30, 2014

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.    x  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).    x  Yes    ¨  No

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 103,460,785 shares outstanding as of November 3, 2014.

 

 

 


Table of Contents

POPULAR, INC.

INDEX

 

Part I – Financial Information

   Page  

Item 1. Financial Statements

  

Unaudited Consolidated Statements of Financial Condition at September 30, 2014 and December 31, 2013

     4   

Unaudited Consolidated Statements of Operations for the quarters and nine months ended September  30, 2014 and 2013

     5   

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2014 and 2013

     6   

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2014 and 2013

     7   

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013

     8   

Notes to Unaudited Consolidated Financial Statements

     9   

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

     144   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     217   

Item 4. Controls and Procedures

     217   

Part II – Other Information

      

Item 1. Legal Proceedings

     217   

Item 1A. Risk Factors

     217   

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

     219   

Item 6. Exhibits

     220   

Signatures

     221   

 

2


Table of Contents

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;

 

    changes in interest rates, as well as the magnitude of such changes;

 

    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; and

 

    possible legislative, tax or regulatory changes.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions 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 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; 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, 2013 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 document are based upon information available to the Corporation as of the date of this document, 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.

 

3


Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

(In thousands, except share information)

   September 30,
2014
    December 31,
2013
 

Assets:

    

Cash and due from banks

   $ 321,914     $ 423,211  
  

 

 

   

 

 

 

Money market investments:

    

Federal funds sold

     —         5,055  

Securities purchased under agreements to resell

     146,634       175,965  

Time deposits with other banks

     906,487       677,433  
  

 

 

   

 

 

 

Total money market investments

     1,053,121       858,453  
  

 

 

   

 

 

 

Trading account securities, at fair value:

    

Pledged securities with creditors’ right to repledge

     122,483       308,978  

Other trading securities

     22,860       30,765  

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

    

Pledged securities with creditors’ right to repledge

     1,515,639       1,286,839  

Other investment securities available-for-sale

     4,212,127       4,007,961  

Investment securities held-to-maturity, at amortized cost (fair value 2014 - $103,120; 2013 - $120,688)

     112,893       140,496  

Other investment securities, at lower of cost or realizable value (realizable value 2014 - $163,775; 2013 - $184,526)

     161,168       181,752  

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

     178,008       110,426  
  

 

 

   

 

 

 

Loans held-in-portfolio:

    

Loans not covered under loss sharing agreements with the FDIC

     19,450,677       21,704,010  

Loans covered under loss sharing agreements with the FDIC

     2,654,263       2,984,427  

Less – Unearned income

     91,461       92,144  

Allowance for loan losses

     611,375       640,555  
  

 

 

   

 

 

 

Total loans held-in-portfolio, net

     21,402,104       23,955,738  
  

 

 

   

 

 

 

FDIC loss share asset

     681,106       948,608  

Premises and equipment, net

     497,111       519,516  

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

     135,256       135,501  

Other real estate covered under loss sharing agreements with the FDIC

     151,382       168,007  

Accrued income receivable

     116,746       131,536  

Mortgage servicing assets, at fair value

     152,282       161,099  

Other assets

     1,634,819       1,687,558  

Goodwill

     461,246       647,757  

Other intangible assets

     37,777       45,132  

Assets from discontinued operations (Refer to Note 3)

     1,129,053       —    
  

 

 

   

 

 

 

Total assets

   $ 34,099,095     $ 35,749,333  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Deposits:

    

Non-interest bearing

   $ 5,521,415     $ 5,922,682  

Interest bearing

     18,944,690       20,788,463  
  

 

 

   

 

 

 

Total deposits

     24,466,105       26,711,145  
  

 

 

   

 

 

 

Federal funds purchased and assets sold under agreements to repurchase

     1,650,712       1,659,292  

Other short-term borrowings

     1,200       401,200  

Notes payable

     1,723,573       1,584,754  

Other liabilities

     852,351       766,792  

Liabilities from discontinued operations (Refer to Note 3)

     1,106,762       —    
  

 

 

   

 

 

 

Total liabilities

     29,800,703       31,123,183  
  

 

 

   

 

 

 

Commitments and contingencies (Refer to Note 24)

    

Stockholders’ equity:

    

Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and

    

outstanding

     50,160       50,160  

Common stock, $0.01 par value; 170,000,000 shares authorized;

    

103,579,912 shares issued (2013 – 103,435,967) and 103,448,206 shares outstanding (2013 – 103,397,699)

     1,036       1,034  

Surplus

     4,171,890       4,170,152  

Retained earnings

     229,306       594,430  

Treasury stock – at cost, 131,706 shares (2013 – 38,268)

     (3,933     (881

Accumulated other comprehensive loss, net of tax

     (150,067     (188,745
  

 

 

   

 

 

 

Total stockholders’ equity

     4,298,392       4,626,150  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 34,099,095     $ 35,749,333  
  

 

 

   

 

 

 

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

 

4


Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

     Quarters ended
September 30,
    Nine months ended
September 30,
 

(In thousands, except per share information)

   2014     2013     2014     2013  

Interest income:

        

Loans

   $ 362,592     $ 366,267     $ 1,121,180     $ 1,097,081  

Money market investments

     1,007       848       3,111       2,632  

Investment securities

     33,154       33,561       102,270       107,490  

Trading account securities

     4,446       5,242       15,047       16,212  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     401,199       405,918       1,241,608       1,223,415  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

        

Deposits

     26,533       29,115       79,614       96,176  

Short-term borrowings

     28,955       9,563       46,887       29,111  

Long-term debt

     19,290       36,228       496,896       108,061  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     74,778       74,906       623,397       233,348  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     326,421       331,012       618,211       990,067  

Provision for loan losses - non-covered loans

     68,166       48,715       172,362       486,783  

Provision for loan losses - covered loans

     12,463       17,433       49,781       60,489  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     245,792       264,864       396,068       442,795  
  

 

 

   

 

 

   

 

 

   

 

 

 

Service charges on deposit accounts

     40,585       40,517       119,181       123,056  

Other service fees (Refer to Note 30)

     54,839       57,041       164,125       169,264  

Mortgage banking activities (Refer to Note 12)

     14,402       18,892       21,868       57,270  

Net gain and valuation adjustments on investment securities

     (1,763     —         (1,763     5,856  

Trading account profit (loss)

     740       (6,607     3,772       (11,936

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

     15,593       2,374       29,645       (56,054

Adjustments (expense) to indemnity reserves on loans sold

     (9,480     (2,387     (27,281     (30,162

FDIC loss share expense (Refer to Note 31)

     (4,864     (14,866     (84,331     (44,887

Other operating income

     14,278       191,745       57,935       393,330  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-interest income

     124,330       286,709       283,151       605,737  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Personnel costs

     104,542       108,352       307,943       322,292  

Net occupancy expenses

     21,203       21,386       62,830       62,937  

Equipment expenses

     12,370       11,387       35,826       34,492  

Other taxes

     15,369       17,680       42,575       44,433  

Professional fees

     67,649       69,237       201,672       203,989  

Communications

     6,455       6,290       19,565       19,236  

Business promotion

     13,062       14,809       40,486       42,751  

FDIC deposit insurance

     9,511       15,143       30,969       42,056  

Loss on early extinguishment of debt

     —         3,388       —         3,388  

Other real estate owned (OREO) expenses

     19,745       16,632       29,595       70,156  

Other operating expenses

     30,418       21,998       73,276       65,682  

Amortization of intangibles

     2,026       1,990       6,077       5,969  

Restructuring costs (Refer to Note 4)

     8,290       —         12,864       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     310,640       308,292       863,678       917,381  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income tax

     59,482       243,281       (184,459     131,151  

Income tax expense (benefit)

     26,667       17,768       45,807       (276,489
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     32,815       225,513       (230,266     407,640  

Income (loss) from discontinued operations, net of tax (Refer to Note 3)

     29,758       3,622       (132,066     28,656  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

   $ 62,573     $ 229,135     $ (362,332   $ 436,296  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) Applicable to Common Stock

   $ 61,643     $ 228,204     $ (365,124   $ 433,504  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per Common Share – Basic

        

Net income (loss) from continuing operations

   $ 0.31       2.18       (2.27     3.94  

Net income (loss) from discontinued operations

     0.29       0.04       (1.28     0.28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per Common Share – Basic

   $ 0.60     $ 2.22     $ (3.55   $ 4.22  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per Common Share – Diluted

        

Net income (loss) from continuing operations

   $ 0.31       2.18       (2.27     3.93  

Net income (loss) from discontinued operations

     0.29       0.04       (1.28     0.28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) per Common Share – Diluted

   $ 0.60     $ 2.22     $ (3.55   $ 4.21  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

     Quarters ended,
September 30,
    Nine months ended,
September 30,
 

(In thousands)

   2014     2013     2014     2013  

Net income (loss)

   $ 62,573     $ 229,135     $ (362,332   $ 436,296  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before tax:

        

Foreign currency translation adjustment

     98       (2,013     (2,620     (3,942

Reclassification adjustment for losses included in net income

     —         —         7,718       —    

Amortization of net losses of pension and postretirement benefit plans

     2,127       6,168       6,379       18,506  

Amortization of prior service cost of pension and postretirement benefit plans

     (950     —         (2,850     —    

Unrealized holding (losses) gains on investments arising during the period

     (20,081     (33,091     34,585       (177,560

Reclassification adjustment for losses included in net income

     (1,763     —         (1,763     —    

Unrealized net (losses) gains on cash flow hedges

     (684     (3,496     (4,957     2,286  

Reclassification adjustment for net losses (gains) included in net income

     1,120       (1,456     4,745       (4,652
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income before tax

     (20,133     (33,888     41,237       (165,362

Income tax benefit (expense)

     357       2,921       (2,559     11,224  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income , net of tax

     (19,776     (30,967     38,678       (154,138
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) , net of tax

   $ 42,797     $ 198,168     $ (323,654   $ 282,158  
  

 

 

   

 

 

   

 

 

   

 

 

 

Tax effect allocated to each component of other comprehensive loss:

     Quarters ended
September 30,
    Nine months ended,
September 30,
 

(In thousands)

   2014     2013     2014     2013  

Amortization of net losses of pension and postretirement benefit plans

   $ (829   $ (2,406   $ (2,488   $ (7,219

Amortization of prior service cost of pension and postretirement benefit plans

     370       —         1,112       —    

Unrealized holding (losses) gains on investments arising during the period

     986       3,588       (1,265     17,479  

Unrealized net (losses) gains on cash flow hedges

     267       1,171       1,933       (850

Reclassification adjustment for net losses (gains) included in net income

     (437     568       (1,851     1,814  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax benefit (expense)

   $ 357     $ 2,921     $ (2,559   $ 11,224  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6


Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

(In thousands)

   Common
stock
     Preferred
stock
     Surplus     Retained
earnings
    Treasury
stock
    Accumulated
other
comprehensive
loss
    Total  

Balance at December 31, 2012

   $ 1,032      $ 50,160      $ 4,150,294     $ 11,826     $ (444   $ (102,868   $ 4,110,000  

Net income

             436,296           436,296  

Issuance of stock

     2           4,950             4,952  

Dividends declared:

                

Preferred stock

             (2,792         (2,792

Common stock purchases

               (466       (466

Common stock reissuance

               33         33  

Other comprehensive loss, net of tax

                 (154,138     (154,138
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 1,034      $ 50,160      $ 4,155,244     $ 445,330     $ (877   $ (257,006   $ 4,393,885  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ 1,034      $ 50,160      $ 4,170,152     $ 594,430     $ (881   $ (188,745   $ 4,626,150  

Net loss

             (362,332         (362,332

Issuance of stock

     2           4,321             4,323  

Tax windfall benefit on vesting of restricted stock

           417             417  

Repurchase of TARP-related warrants

           (3,000           (3,000

Dividends declared:

                

Preferred stock

             (2,792         (2,792

Common stock purchases

               (3,063       (3,063

Common stock reissuance

               11         11  

Other comprehensive income, net of tax

                 38,678       38,678  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ 1,036      $ 50,160      $ 4,171,890     $ 229,306     $ (3,933   $ (150,067   $ 4,298,392  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Disclosure of changes in number of shares:

   September 30,
2014
    September 30,
2013
 

Preferred Stock:

    

Balance at beginning and end of period

     2,006,391       2,006,391  
  

 

 

   

 

 

 

Common Stock – Issued:

    

Balance at beginning of period

     103,435,967       103,193,303  

Issuance of stock

     143,945       117,849  
  

 

 

   

 

 

 

Balance at end of the period

     103,579,912       103,311,152  

Treasury stock

     (131,706     (35,021
  

 

 

   

 

 

 

Common Stock – Outstanding

     103,448,206       103,276,131  
  

 

 

   

 

 

 

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

 

7


Table of Contents

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Nine months ended
September 30,
 

(In thousands)

   2014     2013  

Cash flows from operating activities:

    

Net (loss) income

   $ (362,332   $ 436,296  
  

 

 

   

 

 

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

    

Provision for loan losses

     215,378       545,927  

Goodwill impairment losses

     186,511       —    

Amortization of intangibles

     7,351       7,403  

Depreciation and amortization of premises and equipment

     35,407       37,056  

Net accretion of discounts and amortization of premiums and deferred fees

     298,318       (48,195

Fair value adjustments on mortgage servicing rights

     18,424       6,862  

FDIC loss share expense

     84,331       44,887  

Adjustments (expense) to indemnity reserves on loans sold

     27,281       30,162  

Earnings from investments under the equity method

     (31,930     (42,740

Deferred income tax expense (benefit)

     34,175       (303,038

Loss (gain) on:

    

Disposition of premises and equipment

     (2,578     (3,060

Sale and valuation adjustments of investment securities

     1,763       —    

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

     (69,391     37,564  

Sale of stock in equity method investee

     —         (312,589

Sale of foreclosed assets, including write-downs

     13,147       45,045  

Disposal of discontinued business

     (28,025     —    

Acquisitions of loans held-for-sale

     (232,430     (15,335

Proceeds from sale of loans held-for-sale

     97,638       168,046  

Net originations on loans held-for-sale

     (512,521     (1,169,094

Net (increase) decrease in:

    

Trading securities

     883,035       1,193,265  

Accrued income receivable

     11,437       2,847  

Other assets

     124,669        (610

Net increase (decrease) in:

    

Interest payable

     (11,747     (9,480

Pension and other postretirement benefit obligation

     (4,478     6,459  

Other liabilities

     33,821        (22,590
  

 

 

   

 

 

 

Total adjustments

     1,179,586        198,792  
  

 

 

   

 

 

 

Net cash provided by operating activities

     817,254        635,088  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Net (increase) decrease in money market investments

     (194,668     123,792  

Purchases of investment securities:

    

Available-for-sale

     (1,825,654     (1,661,080

Held-to-maturity

     (1,000     (250

Other

     (97,301     (145,691

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

     —         —    

Available-for-sale

     1,327,672       1,576,112  

Held-to-maturity

     29,834       4,278  

Other

     90,530       132,270  

Available-for-sale

     91,298       —    

Other

     27,356       —    

Net repayments on loans

     628,571        1,014,907  

Proceeds from sale of loans

     233,527        310,767  

Acquisition of loan portfolios

     (356,710     (1,727,454

Net payments from FDIC under loss sharing agreements

     179,250       52,758  

Return of capital from equity method investments

     —         438  

Proceeds from sale of stock in equity method investee

     —         363,492  

Net cash disbursed from disposal of discontinued business

     (233,967     —    

Mortgage servicing rights purchased

     —         (45

Acquisition of premises and equipment

     (39,604     (27,214

Premises and equipment

     12,144        9,438  

Foreclosed assets

     110,677       200,546  
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (18,045     227,064  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net increase (decrease) in:

    

Deposits

     (212,264     (642,427

Federal funds purchased and assets sold under agreements to repurchase

     (8,580     (223,544

Other short-term borrowings

     (400,000     190,000  

Payments of notes payable

     (1,047,546     (331,835

Proceeds from issuance of notes payable

     781,905       73,154  

Proceeds from issuance of common stock

     4,323       4,952  

Dividends paid

     (2,792     (2,792

Repurchase of TARP-related warrants

     (3,000     —    

Net payments for repurchase of common stock

     (3,052     (433
  

 

 

   

 

 

 

Net cash used in financing activities

     (891,006     (932,925
  

 

 

   

 

 

 

Net decrease in cash and due from banks

     (91,797     (70,773

Cash and due from banks at beginning of period

     423,211       439,363  
  

 

 

   

 

 

 

Cash and due from banks at end of period, including discontinued operations

     331,414       368,590  

Less: cash from discontinued operations

     9,500       —    
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 321,914     $ 368,590  
  

 

 

   

 

 

 

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

The Consolidated Statements of Cash Flows for the periods ended September 30, 2014 and 2013 include the cash flows from operating, investing and financing activities associated with discontinued operations.

 

8


Table of Contents

Notes to Consolidated Financial

Statements (Unaudited)

 

Note 1 - Organization, consolidation and basis of presentation

     10   

Note 2 - New accounting pronouncements

     11   

Note 3 - Discontinued operations

     15   

Note 4 - Restructuring plan

     17   

Note 5 - Restrictions on cash and due from banks and certain securities

     18   

Note 6 - Pledged assets

     19   

Note 7 - Investment securities available-for-sale

     20   

Note 8 - Investment securities held-to-maturity

     24   

Note 9 - Loans

     26   

Note 10 - Allowance for loan losses

     36   

Note 11 - FDIC loss share asset and true-up payment obligation

     63   

Note 12 - Mortgage banking activities

     65   

Note 13 - Transfers of financial assets and mortgage servicing assets

     66   

Note 14 - Other real estate owned

     70   

Note 15 - Other assets

     71   

Note 16 - Goodwill and other intangible assets

     72   

Note 17 - Deposits

     76   

Note 18 - Borrowings

     77   

Note 19 - Offsetting of financial assets and liabilities

     79   

Note 20 - Trust preferred securities

     81   

Note 21 - Stockholders’ equity

     83   

Note 22 - Other comprehensive loss

     84   

Note 23 - Guarantees

     86   

Note 24 - Commitments and contingencies

     89   

Note 25 - Non-consolidated variable interest entities

     94   

Note 26 - Related party transactions with affiliated company / joint venture

     98   

Note 27 - Fair value measurement

     102   

Note 28 - Fair value of financial instruments

     109   

Note 29 - Net income (loss) per common share

     116   

Note 30 - Other service fees

     117   

Note 31 - FDIC loss share (expense) income

     118   

Note 32 - Pension and postretirement benefits

     119   

Note 33 - Stock-based compensation

     120   

Note 34 - Income taxes

     123   

Note 35 - Supplemental disclosure on the consolidated statements of cash flows

     127   

Note 36 - Segment reporting

     128   

Note 37 - Subsequent events

     134   

Note 38 - Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities

     135   

 

9


Table of Contents

Note 1 – Organization, consolidation and basis of presentation

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, including mortgage loan originations, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary E-LOAN. BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, California, New Jersey and South Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA. Refer to Note 3, for discussion of the sales of the Illinois and Central Florida regional operations during the third quarter of 2014. The BPNA branches operate under the name of Popular Community Bank. Note 36 to the consolidated financial statements presents information about the Corporation’s business segments. Refer to Note 37 for a discussion of the sale by BPNA of its regional operations in California, which closed on November 8, 2014.

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, 2013 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain reclassifications have been made to the 2013 consolidated financial statements and notes to the financial statements to conform with the 2014 presentation. As discussed in Note 3, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of BPNA’s assets and liabilities to discontinued operations.

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, 2013, included in the Corporation’s 2013 Annual Report (the “2013 Annual Report”). 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.

During the third quarter of 2014, the Corporation recorded an out-of-period adjustment to correct an error in the amortization expense of the FDIC indemnification asset recorded during the years 2012, 2013 and the six months period ended June 30, 2014. The FDIC indemnity asset amortization for the third quarter of 2014 included a benefit of approximately $15.0 million to reverse the impact of accelerated amortization expense recorded during prior periods. This amount will be recognized as expense over the remaining portion of the Loss Sharing Agreement that expires in the quarter ending June 30, 2015. After evaluating the quantitative and qualitative aspects of the error and the out-of-period adjustment to the Corporation’s financial results, management has determined that the misstatement and the out-of-period adjustment are not material to the 2012, 2013 and 2014 financial statements, respectively.

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.

 

10


Table of Contents

Note 2 – New accounting pronouncements

FASB Accounting Standards Update 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (“ASU 2014-14”)

The FASB issued ASU 2014-14 in August 2014, which intends to resolve the diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to receivables. This ASU address the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs.

The amendments of the ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

 

  1- The loan has a government guarantee that is not separable from the loan before foreclosure.

 

  2- At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

 

  3- At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

The amendments in the ASU are effective for annual periods, and interim periods within those annual periods, beginning in the first quarter of 2015. The amendments of this ASU can be applied using either a prospective transition method or a modified retrospective transition method. For prospective transition, an entity should apply the amendments in this Update to foreclosures that occur after the date of adoption. For modified retrospective transition, an entity should apply the amendments in this Update by means of a cumulative-effect adjustment as of the beginning of the annual period of adoption. Prior periods should not be adjusted. However, a reporting entity must apply the same method of transition as elected under ASU 2014-04.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financial Entity (“ASU 2014-13”)

The FASB issued ASU 2014-13 in August 2014, which intends to clarify that when a reporting entity that consolidates a collateralized financing entity may elect to measure the financial assets and the financial liabilities of that collateralized financing entity using either the measurement alternative included in this Update or Topic 820 on fair value measurement. When the measurement alternative is not elected, the amendments of this Update clarify that the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and any differences in the fair value of the financial assets and the fair value of the financial liabilities of that entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income.

When a reporting entity elects the measurement alternative included in this Update for a collateralized financing entity, the reporting entity should measure both the financial assets and the financial liabilities of that entity in its consolidated financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted as of the beginning of an annual period. The amendments of this ASU can be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. A reporting entity also may apply the amendments retrospectively to all relevant prior periods beginning with the annual period in which the amendments of ASU 2009-17 were initially adopted.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”)

 

11


Table of Contents

The FASB issued ASU 2014-12 in June 2014, which intends to resolve the diverse accounting treatment of awards with a performance target that could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved.

The amendments of the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award.

Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted. The amendments of this ASU can be applied (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets outstanding at the beginning of the period of adoption and to all new or modified awards thereafter.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (“ASU 2014-11”)

The FASB issued ASU 2014-11 in June 2014, which requires two accounting changes. First, the amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.

The amendments in this Update require disclosures for certain transactions comprising (1) a transfer of a financial asset accounted for as a sale and (2) an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction.

The accounting changes in this ASU are effective in the first quarter of 2015. Early application is prohibited. An entity is required to present changes in accounting for transactions outstanding on the effective date as 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 guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606); (“ASU 2014-09”)

The FASB issued ASU 2014-09 in May 2014, which clarifies the principles for recognizing revenue and develop a common revenue standard that would (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statement through improved disclosure requirements and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 amends the ASC Codification and creates a new Topic 606, Revenue from Contracts with Customers.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In addition, the new guidance requires disclosures to enable users of financial statements to understand the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contract with customers, significant judgments and changes in judgments, and assets recognized from the cost to obtain or fulfill a contract.

The amendments in this ASU are effective in the first quarter of 2017. Early adoption is not permitted.

 

12


Table of Contents

The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its consolidated financial statements.

FASB Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposal of Components of an Entity (“ASU 2014-08”)

The FASB issued ASU 2014-08 in April 2014, which changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity investment.

In addition, the new guidance requires expanded disclosures about discontinued operations that will include more information about the assets, liabilities, income, and expenses of discontinued operations.

The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide information about the ongoing trends in the reporting organization’s results from continuing operations.

The amendments in the ASU are effective in the first quarter of 2015. Early adoption is permitted.

The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its consolidated financial statements.

FASB Accounting Standards Update 2014-04, Receivables-Troubled Debt Restructuring by Creditors (SubTopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (“ASU 2014-04”)

The FASB issued ASU 2014-04 in January 2014 which clarifies when a creditor should be considered to have received physical possession of a residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

The amendments of this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

The amendment of this guidance requires interim and annual disclosures of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

ASU 2014-04 is effective for annual periods, and interim periods within those years, beginning after December 15, 2014. The amendments in this ASU can be elected using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”)

The FASB issued ASU 2013-11 in July 2013 which requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. When a net operating loss, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. Currently, there is no explicit guidance under U.S. GAAP on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment of this guidance does not require new recurring disclosures.

 

13


Table of Contents

ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

The Corporation adopted this guidance in the first quarter of 2014 and it did not have a material effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”)

The FASB issued ASU 2013-05 in March 2013 which clarifies the applicable guidance for the release of the cumulative translation adjustment. When a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in ASC subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets has resided.

For an equity method investment that is a foreign entity, the partial sale guidance in ASC Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

Additionally, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.

ASU 2013-05 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted.

The Corporation adopted this guidance on the first quarter of 2014 and recognized a loss of approximately $7.7 million resulting from the reclassification from other comprehensive loss into earnings of the cumulative foreign translation adjustment related to the dilution on its equity investment in BHD. Refer to note 15 for additional information.

 

14


Table of Contents

Note 3 – Discontinued operations

On April 22, 2014, BPNA, the Corporation’s U.S. mainland banking subsidiary, entered into definitive agreements to sell its California, Illinois and Central Florida regional operations to three different buyers.

On August 8, 2014, BPNA completed the sale of its Illinois regional operations. As part of the transaction, BPNA sold its 12 branches in the Chicago metropolitan area, including $562 million in loans, and $726 million in deposits, each as of July 31, 2014. The transaction resulted in a net gain of $24.6 million.

On September 15, 2014, BPNA completed the sale of its Central Florida regional operations. As part of the transaction, BPNA sold its 9 branches in the Central Florida area, including $104 million in loans and $217 million in deposits, each as of August 31, 2014. The transaction resulted in a net gain of $1.2 million.

On November 8, 2014, the Corporation completed the sale of the California regional operations. The Corporation sold 20 branches and transferred $1.1 billion in loans and $1.1 billion in deposits to Banc of California National Association, a wholly owned subsidiary of Banc of California, Inc. The transaction is expected to result in a net premium estimated at approximately $4 million, before customary transaction costs. The Corporation agreed to provide, subject to certain limitations, customary indemnification to the purchaser, including with respect to certain pre-closing liabilities and violations of representations and warranties. The Corporation also agreed to indemnify the purchaser for up to 1.5% of credit losses on transferred loans for a period of two years after the closing. Pursuant to this indemnification provision, the Corporation’s maximum exposure is approximately $16 million.

The regional operations sold constituted a business, as defined in ASC 805-10-55. Accordingly, the decision to sell these businesses resulted in the discontinuance of each of these respective operations and classification as held-for-sale. For financial reporting purposes, the results of the discontinued operations are presented as “Assets / Liabilities from discontinued operations” in the consolidated statement of condition and “(Loss) income from discontinued operations, net of tax” in the consolidated statement of operations. As required by ASC 205-20, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of these assets and liabilities to discontinued operations.

During the quarter ended June 30, 2014, the Corporation recorded non-cash goodwill impairment charge of $186.5 million, related to the goodwill allocated, on a relative fair value basis, to these operations. However, this non-cash charge had no impact on the Corporation’s tangible capital or regulatory capital ratios. Refer to Note 16, for additional information on the goodwill impairment charge.

In connection with these transactions, the Corporation is centralizing certain back office operations in Puerto Rico and New York. The Corporation incurred $8.3 million in restructuring charges during the third quarter of 2014. Over the course of the fourth quarter of 2014 and early 2015, an additional $41 million in restructuring charges are expected to be incurred, comprised of $22 million in severance and retention payments and $19 million in operational set-up costs and lease cancelations. Refer to Note 4, for restructuring charges incurred during the second and third quarter of 2014.

Assets and liabilities of discontinued operations are detailed below:

 

(In thousands)

   September 30,
2014
 

Cash

   $ 9,500  

Loans held-for-sale

     1,099,673  

Premises and equipment, net

     8,596  

Other assets

     11,284  
  

 

 

 

Total assets

   $ 1,129,053  
  

 

 

 

Deposits

   $ 1,089,046  

Other liabilities

     17,716  
  

 

 

 

Total liabilities

   $ 1,106,762  
  

 

 

 

Net assets

   $ 22,291  
  

 

 

 

 

15


Table of Contents

The following table provides the components of net income (loss) from the discontinued operations for the quarters and nine months ended September 30, 2014 and 2013.

 

     Quarters ended
September 30,
     Nine months ended
September 30,
 

(In thousands)

   2014     2013      2014     2013  

Net interest income

   $ 16,022     $ 23,195      $ 56,911     $ 66,172  

Provision (reversal) for loan losses

     —         6,515        (6,764     (1,345

Net gain on sale of regions

     25,775       —          25,775       —    

Other non-interest income

     6,567       5,250        26,488       13,642  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-interest income

     32,342        5,250        52,263       13,642   
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating expenses:

         

Personnel costs

     11,941       8,487        32,910       25,215  

Net occupancy expenses

     (1,305     3,325        5,871       9,355  

Professional fees

     4,916       2,802        13,612       8,511  

Goodwill impairment charge

     —         —          186,511       —    

Other operating expenses

     3,054       3,694        9,100       9,422  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     18,606        18,308         248,004        52,503   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) from discontinued operations

   $ 29,758     $ 3,622      $ (132,066   $ 28,656  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

16


Table of Contents

Note 4 – Restructuring plan

As discussed in Note 3, in connection with the sale of the operations of the California, Illinois and Central Florida regions, the Corporation is centralizing certain back office operations, previously conducted in these regions, to Puerto Rico and New York. The Corporation has undertaken a restructuring plan (the “PCB Restructuring Plan”) to eliminate and re-locate employment positions, terminate contracts and incur other costs associated with moving the operations to Puerto Rico and New York. The Corporation estimates that it will incur restructuring charges of approximately $54 million, comprised of $32 million in severance and retention payments and $22 million in operational set-up costs and lease cancelations, of which approximately $13 million were incurred during the second and third quarters of 2014. The remaining costs will be recognized during the fourth quarter of 2014 and early 2015.

Full-time equivalent employees at the California, Illinois and Central Florida regions were 218 as of September 30, 2014, compared with 365 as of December 31, 2013. Some of the employees at these regions will be transferred to the acquiring entities. The remaining employees at these regions are expected to be transferred to other of the Corporation’s U.S. mainland or Puerto Rico operations or depart by mid-2015.

The following table details the expenses recorded by the Corporation that were associated with the PCB Restructuring Plan:

 

     Quarter
ended
     Nine
months
ended
 

(In thousands)

   30-Sep-14      30-Sep-14  

Personnel costs

   $ 6,194      $ 9,824  

Net occupancy expenses

     152        423  

Equipment expenses

     141        331  

Professional fees

     1,431        1,879  

Other operating expenses

     372        407  
  

 

 

    

 

 

 

Total restructuring costs

   $ 8,290      $ 12,864  
  

 

 

    

 

 

 

The following table presents the activity in the reserve for the restructuring costs associated with the PCB Restructuring Plan:

 

(In thousands)

      

Balance at July 1, 2014

   $ 3,481  

Charges expensed during the period

     5,964  

Payments made during the period

     (20
  

 

 

 

Balance as of September 30, 2014

   $ 9,425  
  

 

 

 

 

17


Table of Contents

Note 5 - 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 $ 970 million at September 30, 2014 (December 31, 2013 - $992 million). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

At September 30, 2014, the Corporation held $43 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, 2013 - $44 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.

 

18


Table of Contents

Note 6 – Pledged assets

Certain securities and loans were pledged to secure public and trust deposits, assets sold under agreements to repurchase, other borrowings and credit facilities available, derivative positions, and loan servicing agreements. The classification and carrying amount of the Corporation’s pledged assets, in which the secured parties are not permitted to sell or repledge the collateral, were as follows:

 

(In thousands)

   September 30,
2014
     December 31,
2013
 

Investment securities available-for-sale, at fair value

   $ 1,985,427      $ 1,638,558  

Investment securities held-to-maturity, at amortized cost

     10,000        35,000  

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

     884        363  

Loans held-in-portfolio covered under loss sharing agreements with the FDIC

     514,578        407,257  

Loans held-in-portfolio not covered under loss sharing agreements with the FDIC

     8,516,488        9,108,984  
  

 

 

    

 

 

 

Total pledged assets

   $ 11,027,377      $ 11,190,162  
  

 

 

    

 

 

 

Pledged assets from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

Pledged securities that the creditor has the right by custom or contract to repledge are presented separately on the consolidated statements of financial condition.

At September 30, 2014, the Corporation had $ 1.1 billion in investment securities available-for-sale and $ 0.6 billion in loans that served as collateral to secure public funds (December 31, 2013 - $ 1.0 billion and $ 0.5 billion, respectively).

At September 30, 2014, the Corporation’s banking subsidiaries had short-term and long-term credit facilities authorized with the Federal Home Loan Bank system (the “FHLB”) aggregating to $3.3 billion (December 31, 2013 - $3.0 billion). Refer to Note 18 to the consolidated financial statements for borrowings outstanding under these credit facilities. At September 30, 2014, the credit facilities authorized with the FHLB were collateralized by $ 4.0 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). Also, at September 30, 2014, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $2.1 billion, which remained unused as of such date ( December 31, 2013 - $3.4 billion). The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At September 30, 2014, the credit facilities with the Fed discount window were collateralized by $ 4.4 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statements of financial condition.

In addition, at September 30, 2014, trade receivables from brokers and counterparties amounting to $19 million were pledged to secure repurchase agreements (December 31, 2013 - $69 million).

 

19


Table of Contents

Note 7 – 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 September 30, 2014 and December 31, 2013.

 

     At September 30, 2014  

(In thousands)

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

U.S. Treasury securities

              

After 1 to 5 years

   $ 591,928      $ 1,567      $ 685      $ 592,810        1.15 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. Treasury securities

     591,928        1,567        685        592,810        1.15  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of U.S. Government sponsored entities

              

Within 1 year

     32,119        417        —          32,536        1.61  

After 1 to 5 years

     1,785,955        1,125        12,997        1,774,083        1.22  

After 5 to 10 years

     150,621        80        6,124        144,577        1.53  

After 10 years

     23,000        —          791        22,209        3.16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of U.S. Government sponsored entities

     1,991,695        1,622        19,912        1,973,405        1.27  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of Puerto Rico, States and political subdivisions

              

Within 1 year

     1,755        6        —          1,761        5.41  

After 1 to 5 years

     3,790        41        16        3,815        4.96  

After 5 to 10 years

     22,452        1        1,728        20,725        5.83  

After 10 years

     48,830        55        9,068        39,817        6.23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     76,827        103        10,812        66,118        6.03  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 1 to 5 years

     4,235        114        —          4,349        2.62  

After 5 to 10 years

     26,540        1,020        7        27,553        2.90  

After 10 years

     2,148,305        14,198        59,331        2,103,172        2.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     2,179,080        15,332        59,338        2,135,074        2.07  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - private label

              

After 10 years

     6        —          —          6        0.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - private label

     6        —          —          6        0.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage-backed securities

              

After 1 to 5 years

     30,049        1,674        —          31,723        4.69  

After 5 to 10 years

     180,944        8,262        377        188,829        3.41  

After 10 years

     680,211        45,664        1,858        724,017        4.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed securities

     891,204        55,600        2,235        944,569        3.95  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities (without contractual maturity)

     3,178        1,220        157        4,241        6.01  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

After 1 to 5 years

     9,368        —          51        9,317        1.69  

After 5 to 10 years

     2,151        75        —          2,226        3.63  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     11,519        75        51        11,543        2.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 5,745,437      $ 75,519      $ 93,190      $ 5,727,766        2.04 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents
     At December 31, 2013  

(In thousands)

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

U.S. Treasury securities

              

After 1 to 5 years

   $ 26,474      $ 2,008      $ —        $ 28,482        3.85 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total U.S. Treasury securities

     26,474        2,008        —          28,482        3.85  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of U.S. Government sponsored entities

              

Within 1 year

     25,021        39        —          25,060        1.85  

After 1 to 5 years

     1,087,453        1,678        12,715        1,076,416        1.26  

After 5 to 10 years

     528,611        100        21,742        506,969        1.52  

After 10 years

     23,000        —          2,240        20,760        3.12  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of U.S. Government sponsored entities

     1,664,085        1,817        36,697        1,629,205        1.38  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations of Puerto Rico, States and political subdivisions

              

After 1 to 5 years

     6,228        45        85        6,188        4.64  

After 5 to 10 years

     23,147        —          1,978        21,169        6.33  

After 10 years

     48,803        29        9,812        39,020        5.84  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     78,178        74        11,875        66,377        5.89  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 1 to 5 years

     5,131        101        —          5,232        1.79  

After 5 to 10 years

     31,613        921        —          32,534        2.98  

After 10 years

     2,438,021        18,532        76,023        2,380,530        2.05  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     2,474,765        19,554        76,023        2,418,296        2.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - private label

              

After 10 years

     509        4        —          513        3.78  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - private label

     509        4        —          513        3.78  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mortgage-backed securities

              

Within 1 year

     419        24        —          443        3.14  

After 1 to 5 years

     15,921        833        —          16,754        4.50  

After 5 to 10 years

     62,373        3,058        1,214        64,217        4.12  

After 10 years

     1,007,733        50,807        4,313        1,054,227        3.93  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total mortgage-backed securities

     1,086,446        54,722        5,527        1,135,641        3.95  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities (without contractual maturity)

     3,178        1,109        171        4,116        4.06  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

After 1 to 5 years

     9,638        —          141        9,497        1.68  

After 10 years

     2,604        69        —          2,673        3.61  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     12,242        69        141        12,170        2.09  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available-for-sale

   $ 5,345,877      $ 79,357      $ 130,434      $ 5,294,800        2.30 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 quarter ended September 30, 2014, the Corporation sold approximately $94.2 million in mortgage backed securities and collateralized mortgage obligations investment securities available-for-sale at the BPNA segment. The proceeds from this sale were $ 91.3 million. The Corporation realized a loss of $1.8 million on this transaction. There were no sales of investment securities available-for-sale during the nine months ended September 30, 2013.

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 September 30, 2014 and December 31, 2013.

 

21


Table of Contents
     At September 30, 2014  
     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

   $ 315,946      $ 685      $ —        $ —        $ 315,946      $ 685  

Obligations of U.S. Government sponsored entities

     1,103,884        10,762        466,218        9,150        1,570,102        19,912  

Obligations of Puerto Rico, States and political subdivisions

     25,773        2,254        35,107        8,558        60,880        10,812  

Collateralized mortgage obligations - federal agencies

     767,902        24,824        748,428        34,514        1,516,330        59,338  

Mortgage-backed securities

     10,230        42        49,805        2,193        60,035        2,235  

Equity securities

     —          —          1,671        157        1,671        157  

Other

     —          —          9,317        51        9,317        51  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 2,223,735      $ 38,567      $ 1,310,546      $ 54,623      $ 3,534,281      $ 93,190  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2013  
     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 U.S. Government sponsored entities

   $ 1,326,866      $ 32,457      $ 69,257      $ 4,240      $ 1,396,123      $ 36,697  

Obligations of Puerto Rico, States and political subdivisions

     54,256        11,685        8,330        190        62,586        11,875  

Collateralized mortgage obligations - federal agencies

     1,567,654        70,378        96,676        5,645        1,664,330        76,023  

Mortgage-backed securities

     105,455        4,762        7,225        765        112,680        5,527  

Equity securities

     1,657        171        —          —          1,657        171  

Other

     —          —          9,497        141        9,497        141  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 3,055,888      $ 119,453      $ 190,985      $ 10,981      $ 3,246,873      $ 130,434  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2014, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $93 million, driven by U.S. Agency Collateralized Mortgage Obligations, obligations from the U.S. Government sponsored entities, and obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all US Agencies’ securities, management considers the U.S. Agency guarantee.

In February 2014, the three principal nationally recognized rating agencies (Moody’s Investor Services, Standard and Poor’s and Fitch Ratings) downgraded the general-obligation bonds of the Commonwealth and other obligations of Puerto Rico instrumentalities to non-investment grade categories, citing concerns about financial flexibility and a reduced capacity to borrow in the financial markets. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain Puerto Rico public corporations to restructure their debt. The portfolio of obligations of the Puerto Rico Government is comprised of securities with specific sources of income or revenues identified for repayments. The Corporation performs periodic credit quality reviews on these issuers.

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,

 

22


Table of Contents

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.

At September 30, 2014, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At September 30, 2014, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis.

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.

 

     September 30, 2014      December 31, 2013  

(In thousands)

   Amortized
cost
     Fair value      Amortized
cost
     Fair value  

FNMA

   $ 1,883,634      $ 1,853,487      $ 2,318,171      $ 2,266,610  

FHLB

     887,135        880,513        336,933        326,220  

Freddie Mac

     1,292,586        1,282,920        1,434,346        1,418,216  

 

23


Table of Contents

Note 8 – 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 September 30, 2014 and December 31, 2013.

 

     At September 30, 2014  

(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

   $ 12,740      $ —        $ 5      $ 12,735        2.11

After 1 to 5 years

     12,830        —          412        12,418        5.95  

After 5 to 10 years

     21,325        —          5,240        16,085        6.09  

After 10 years

     64,397        1,376        5,498        60,275        2.22  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     111,292        1,376        11,155        101,513        3.38  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 5 to 10 years

     101        6        —          107        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     101        6        —          107        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     250        —          —          250        1.20  

After 1 to 5 years

     1,250        —          —          1,250        1.12  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     1,500        —          —          1,500        1.13  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 112,893      $ 1,382      $ 11,155      $ 103,120        3.35
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     At December 31, 2013  

(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

   $ 12,570      $ —        $ 12      $ 12,558        2.06

After 1 to 5 years

     12,060        —          984        11,076        5.91  

After 5 to 10 years

     20,015        —          5,251        14,764        6.06  

After 10 years

     69,236        257        13,179        56,314        2.43  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations of Puerto Rico, States and political subdivisions

     113,881        257        19,426        94,712        3.40  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Collateralized mortgage obligations - federal agencies

              

After 10 years

     115        7        —          122        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total collateralized mortgage obligations - federal agencies

     115        7        —          122        5.45  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Within 1 year

     26,000        —          645        25,355        3.41  

After 1 to 5 years

     500        —          1        499        1.33  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     26,500        —          646        25,854        3.37  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities held-to-maturity

   $ 140,496      $ 264      $ 20,072      $ 120,688        3.40
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 September 30, 2014 and December 31, 2013.

 

     At September 30, 2014  
     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

   $ —        $ —        $ 71,397      $ 11,155      $ 71,397      $ 11,155  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ —        $ —        $ 71,397      $ 11,155      $ 71,397      $ 11,155  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents
     At December 31, 2013  
     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

   $ 60,028      $ 12,180      $ 13,044      $ 7,246      $ 73,072      $ 19,426  

Other

     24,604        646        —          —          24,604        646  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 84,632      $ 12,826      $ 13,044      $ 7,246      $ 97,676      $ 20,072  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As indicated in Note 7 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 September 30, 2014 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $61 million of securities issued by three municipalities of Puerto Rico that are payable from the real and personal property taxes collected within such municipalities. These bonds have seniority to the payment of operating cost and expenses of the municipality. The portfolio also includes approximately $41 million in securities for which the underlying source of payment is not the central government, but in which it provides a guarantee in the event of default. In February 2014, the three principal nationally recognized rating agencies (Moody’s Investor Services, Standard and Poor’s and Fitch Ratings) downgraded the general-obligation bonds of the Commonwealth and other obligations of Puerto Rico instrumentalities to non-investment grade categories, citing concerns about financial flexibility and a reduced capacity to borrow in the financial markets. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain Puerto Rico public corporations to restructure their debt. The Corporation performs periodic credit quality reviews on these issuers. The Corporation does not have the intent to sell securities held-to-maturity and it is not more likely than not that the Corporation will have to sell these investment securities prior to recovery of their amortized cost basis.

 

25


Table of Contents

Note 9 – Loans

Covered 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 covered 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 expires at the end of the quarter ending June 30, 2015 for commercial (including construction) and consumer loans, and at the end of the quarter ending June 30, 2020 for single-family residential mortgage loans, as explained in Note 11.

For a summary of the accounting policy related to loans, interest recognition and allowance for loan losses refer to the summary of significant accounting policies included in Note 2 to the consolidated financial statements included in 2013 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at September 30, 2014 and December 31, 2013.

 

(In thousands)

   September 30,
2014
     December 31,
2013
 

Commercial multi-family

   $ 477,986      $ 1,175,937  

Commercial real estate non-owner occupied

     2,447,457        2,970,505  

Commercial real estate owner occupied

     1,726,134        2,166,545  

Commercial and industrial

     3,407,137        3,724,197  

Construction

     211,850        206,084  

Mortgage

     6,555,337        6,681,476  

Leasing

     550,514        543,761  

Legacy[2]

     91,015        211,135  

Consumer:

     

Credit cards

     1,155,949        1,185,272  

Home equity lines of credit

     371,807        478,211  

Personal

     1,398,557        1,349,119  

Auto

     755,971        699,980  

Other

     209,502        219,644  
  

 

 

    

 

 

 

Total loans held-in-portfolio[1]

   $ 19,359,216      $ 21,611,866  
  

 

 

    

 

 

 

 

[1] Non-covered loans held-in-portfolio at September 30, 2014 are net of $91 million in unearned income and exclude $178 million in loans held-for-sale (December 31, 2013 - $92 million in unearned income and $110 million in loans held-for-sale).
[2] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the BPNA segment.

 

26


Table of Contents

The following table presents the composition of covered loans at September 30, 2014 and December 31, 2013.

 

(In thousands)

   September 30,
2014
     December 31,
2013
 

Commercial real estate

   $ 1,591,718      $ 1,710,229  

Commercial and industrial

     104,933        102,575  

Construction

     74,468        190,127  

Mortgage

     846,472        934,373  

Consumer

     36,672        47,123  
  

 

 

    

 

 

 

Total loans held-in-portfolio

   $ 2,654,263      $ 2,984,427  
  

 

 

    

 

 

 

The following table provides a breakdown of loans held-for-sale (“LHFS”) at September 30, 2014 and December 31, 2013 by main categories.

 

(In thousands)

   September 30,
2014 [1]
     December 31,
2013
 

Commercial

   $ 38,072      $ 603  

Legacy

     27,409        —    

Mortgage

     106,832        109,823  

Consumer

     5,695        —    
  

 

 

    

 

 

 

Total loans held-for-sale

   $ 178,008      $ 110,426  
  

 

 

    

 

 

 

 

[1] Loans held-for-sale from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

During the quarter and nine months ended September 30, 2014, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $139 million and $470 million, respectively (September 30, 2013 - $199 million and $1.7 billion, respectively). Also, the Corporation recorded purchases of $92 million in consumer loans during the nine months ended September 30, 2014 (September 30, 2013 - $42 million). In addition, during the nine months ended September 30, 2014, the Corporation recorded purchases of commercial loans amounting $21 million (during the quarter and nine months ended September 30, 2013 - $5 million and $8 million, respectively).

The Corporation sold approximately $56 million and $126 million of residential mortgage loans (on a whole loan basis) during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $60 million and $614 million, respectively). During the third quarter of 2014, BPNA sold approximately $115.7 million and reclassified to held-for-sale approximately $105.0 million in classified and legacy residential mortgage and commercial loans. These sales included $435 million from the bulk sale of non-performing mortgage loans, completed during the quarter ended June 30, 2013. Also, the Corporation securitized approximately $172 million and $522 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $200 million and $767 million, respectively). Furthermore, the Corporation securitized approximately $51 million and $174 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $102 million and $354 million, respectively). The Corporation did not securitize mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and nine months ended September 30, 2014 (September 30, 2013 - $1 million and $28 million, respectively). The Corporation sold commercial and construction loans with a book value of approximately $96 million and $157 million during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $6 million and $413 million, respectively). These sales for 2013 included $401 million from the bulk sale of non-performing commercial and construction loans during the quarter ended March 31, 2013.

Non-covered loans

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 September 30, 2014 and December 31, 2013. Accruing loans past due 90 days or more consist primarily of credit cards, FHA / 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

 

27


Table of Contents

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. Also, accruing loans past due 90 days or more include residential conventional loans purchased from another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.

 

At September 30, 2014

 
     Puerto Rico      U.S. mainland      Popular, Inc.  

(In thousands)

   Non-accrual
loans
     Accruing
loans
past-due
90 days or
more
     Non-accrual
loans
     Accruing
loans
past-due
90 days
or more
     Non-accrual
loans
     Accruing
loans
past-due
90 days or
more
 

Commercial multi-family

   $ 2,529      $ —        $ 2,101      $ —        $ 4,630      $ —    

Commercial real estate non-owner occupied

     49,421        —          1,167        —          50,588        —    

Commercial real estate owner occupied

     125,656        —          2,155        —          127,811        —    

Commercial and industrial

     66,819        370        2,483        —          69,302        370  

Construction

     19,148        —          —          —          19,148        —    

Mortgage[2][3]

     283,433        406,673        11,692        —          295,125        406,673  

Leasing

     3,168        —          —          —          3,168        —    

Legacy

     —          —          5,648        —          5,648        —    

Consumer:

                 

Credit cards

     —          18,772        490        —          490        18,772  

Home equity lines of credit

     —          —          3,069        —          3,069        —    

Personal

     26,207        —          911        —          27,118        —    

Auto

     12,179        —          —          —          12,179        —    

Other

     3,669        614        —          —          3,669        614  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total[1]

   $ 592,229      $ 426,429      $ 29,716      $ —        $ 621,945      $ 426,429  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] For purposes of this table non-performing loans exclude $ 20 million in non-performing loans held-for-sale.
[2] Non-covered loans of $57 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.
[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 $125 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2014. Furthermore, the Corporation has approximately $64 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.

 

28


Table of Contents

At December 31, 2013

 
     Puerto Rico      U.S. mainland      Popular, Inc.  

(In thousands)

   Non-accrual
loans
     Accruing
loans
past-due 90
days or
more
     Non-accrual
loans
     Accruing
loans
past-due
90 days
or more
     Non-accrual
loans
     Accruing
loans
past-due
90 days or
more
 

Commercial multi-family

   $ 4,944      $ —        $ 20,894      $ —        $ 25,838      $ —    

Commercial real estate non-owner occupied

     41,959        —          42,413        —          84,372        —    

Commercial real estate owner occupied

     83,441        —          23,507        —          106,948        —    

Commercial and industrial

     55,753        556        6,142        —          61,895        556  

Construction

     18,108        —          5,663        —          23,771        —    

Mortgage[2][3]

     206,389        395,645        26,292        —          232,681        395,645  

Leasing

     3,495        —          —          —          3,495        —    

Legacy

     —          —          15,050        —          15,050        —    

Consumer:

                 

Credit cards

     —          20,313        486        —          486        20,313  

Home equity lines of credit

     —          147        8,632        —          8,632        147  

Personal

     17,054        54        1,591        —          18,645        54  

Auto

     10,562        —          2        —          10,564        —    

Other

     5,550        585        21        —          5,571        585  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total[1]

   $ 447,255      $ 417,300      $ 150,693      $ —        $ 597,948      $ 417,300  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

[1] For purposes of this table non-performing loans exclude $ 1 million in non-performing loans held-for-sale.
[2] Non-covered loans by $43 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.
[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 $115 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, 2013. Furthermore, the Corporation has approximately $50 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.

The following tables present loans by past due status at September 30, 2014 and December 31, 2013 for non-covered loans held-in-portfolio (net of unearned income).

 

September 30, 2014

 

Puerto Rico

 
     Past due      Current      Non-covered
loans HIP
Puerto Rico
 

(In thousands)

   30-59 days      60-89 days      90 days
or more
     Total
past due
       

Commercial multi-family

   $ 100      $ 82      $ 2,529      $ 2,711      $ 57,207      $ 59,918  

Commercial real estate non-owner occupied

     3,977        1,710        49,421        55,108        1,898,793        1,953,901  

Commercial real estate owner occupied

     8,204        1,583        125,656        135,443        1,391,453        1,526,896  

Commercial and industrial

     6,871        2,452        67,189        76,512        2,652,495        2,729,007  

Construction

     251        —          19,148        19,399        129,384        148,783  

Mortgage

     317,835        168,750        746,882        1,233,467        4,219,655        5,453,122  

Leasing

     7,134        781        3,168        11,083        539,431        550,514  

Consumer:

                 

Credit cards

     13,375        8,914        18,772        41,061        1,099,769        1,140,830  

Home equity lines of credit

     199        —          —          199        13,948        14,147  

Personal

     14,304        7,192        26,207        47,703        1,233,859        1,281,562  

Auto

     37,092        8,393        12,179        57,664        698,030        755,694  

Other

     1,222        241        4,283        5,746        203,363        209,109  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 410,564      $ 200,098      $ 1,075,434      $ 1,686,096      $ 14,137,387      $ 15,823,483  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

September 30, 2014

 

U.S. mainland

 
     Past due      Current      Loans HIP
U.S.
mainland
 

(In thousands)

   30-59
days
     60-89
days
     90 days
or more
     Total past
due
       

Commercial multi-family

   $ 4,728      $ —        $ 2,101      $ 6,829      $ 411,239      $ 418,068  

Commercial real estate non-owner occupied

     —          —          1,167        1,167        492,389        493,556  

Commercial real estate owner occupied

     —          473        2,155        2,628        196,610        199,238  

Commercial and industrial

     2,863        280        2,483        5,626        672,504        678,130  

Construction

     —          —          —          —          63,067        63,067  

Mortgage

     1,317        6,808        11,692        19,817        1,082,398        1,102,215  

Legacy

     373        893        5,648        6,914        84,101        91,015  

Consumer:

                 

Credit cards

     270        173        490        933        14,186        15,119  

Home equity lines of credit

     3,315        1,292        3,069        7,676        349,984        357,660  

Personal

     656        1,269        911        2,836        114,159        116,995  

Auto

     3        —          —          3        274        277  

Other

     —          —          —          —          393        393  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,525      $ 11,188      $ 29,716      $ 54,429      $ 3,481,304      $ 3,535,733  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

September 30, 2014

 

Popular, Inc.

 
     Past due      Current      Non-covered
loans HIP
Popular, Inc.
 

(In thousands)

   30-59 days      60-89 days      90 days or
more
     Total past
due
       

Commercial multi-family

   $ 4,828      $ 82      $ 4,630      $ 9,540      $ 468,446      $ 477,986  

Commercial real estate non-owner occupied

     3,977        1,710        50,588        56,275        2,391,182        2,447,457  

Commercial real estate owner occupied

     8,204        2,056        127,811        138,071        1,588,063        1,726,134  

Commercial and industrial

     9,734        2,732        69,672        82,138        3,324,999        3,407,137  

Construction

     251        —          19,148        19,399        192,451        211,850  

Mortgage

     319,152        175,558        758,574        1,253,284        5,302,053        6,555,337  

Leasing

     7,134        781        3,168        11,083        539,431        550,514  

Legacy

     373        893        5,648        6,914        84,101        91,015  

Consumer:

                 

Credit cards

     13,645        9,087        19,262        41,994        1,113,955        1,155,949  

Home equity lines of credit

     3,514        1,292        3,069        7,875        363,932        371,807  

Personal

     14,960        8,461        27,118        50,539        1,348,018        1,398,557  

Auto

     37,095        8,393        12,179        57,667        698,304        755,971  

Other

     1,222        241        4,283        5,746        203,756        209,502  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 424,089      $ 211,286      $ 1,105,150      $ 1,740,525      $ 17,618,691      $ 19,359,216  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2013

 

Puerto Rico

 
     Past due      Current      Non-covered
loans HIP
Puerto Rico
 

(In thousands)

   30-59 days      60-89 days      90 days or
more
     Total past
due
       

Commercial multi-family

   $ 446      $ —        $ 4,944      $ 5,390      $ 77,013      $ 82,403  

Commercial real estate non-owner occupied

     13,889        349        41,959        56,197        1,808,021        1,864,218  

Commercial real estate owner occupied

     13,725        8,318        83,441        105,484        1,501,019        1,606,503  

Commercial and industrial

     9,960        4,463        56,309        70,732        2,841,734        2,912,466  

Construction

     2,329        —          18,108        20,437        140,734        161,171  

Mortgage

     316,663        154,882        645,444        1,116,989        4,283,690        5,400,679  

Leasing

     7,457        1,607        3,495        12,559        531,202        543,761  

Consumer:

                 

Credit cards

     13,797        9,991        20,313        44,101        1,125,520        1,169,621  

Home equity lines of credit

     133        53        147        333        14,845        15,178  

Personal

     12,897        6,794        17,108        36,799        1,177,085        1,213,884  

Auto

     31,340        9,361        10,562        51,263        648,228        699,491  

Other

     1,834        859        6,135        8,828        209,636        218,464  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 424,470      $ 196,677      $ 907,965      $ 1,529,112      $ 14,358,727      $ 15,887,839  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents

December 31, 2013

 

U.S. mainland

 
     Past due      Current      Loans HIP
U.S.
mainland
 

(In thousands)

   30-59
days
     60-89
days
     90 days or
more
     Total past
due
       

Commercial multi-family

   $ 3,621      $ 1,675      $ 20,894      $ 26,190      $ 1,067,344      $ 1,093,534  

Commercial real estate non-owner occupied

     4,255        —          42,413        46,668        1,059,619        1,106,287  

Commercial real estate owner occupied

     657        8,452        23,507        32,616        527,426        560,042  

Commercial and industrial

     2,331        2,019        6,142        10,492        801,239        811,731  

Construction

     —          —          5,663        5,663        39,250        44,913  

Mortgage

     30,713        9,630        26,292        66,635        1,214,162        1,280,797  

Legacy

     9,079        2,098        15,050        26,227        184,908        211,135  

Consumer:

                 

Credit cards

     285        200        486        971        14,680        15,651  

Home equity lines of credit

     2,794        2,198        8,632        13,624        449,409        463,033  

Personal

     3,196        826        1,591        5,613        129,622        135,235  

Auto

     11        —          2        13        476        489  

Other

     43        50        21        114        1,066        1,180  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 56,985      $ 27,148      $ 150,693      $ 234,826      $ 5,489,201      $ 5,724,027  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2013

 

Popular, Inc.

 
     Past due      Current      Non-covered
loans HIP
Popular, Inc.
 

(In thousands)

   30-59 days      60-89 days      90 days or
more
     Total past
due
       

Commercial multi-family

   $ 4,067      $ 1,675      $ 25,838      $ 31,580      $ 1,144,357      $ 1,175,937  

Commercial real estate non-owner occupied

     18,144        349        84,372        102,865        2,867,640        2,970,505  

Commercial real estate owner occupied

     14,382        16,770        106,948        138,100        2,028,445        2,166,545  

Commercial and industrial

     12,291        6,482        62,451        81,224        3,642,973        3,724,197  

Construction

     2,329        —          23,771        26,100        179,984        206,084  

Mortgage

     347,376        164,512        671,736        1,183,624        5,497,852        6,681,476  

Leasing

     7,457        1,607        3,495        12,559        531,202        543,761  

Legacy

     9,079        2,098        15,050        26,227        184,908        211,135  

Consumer:

                 

Credit cards

     14,082        10,191        20,799        45,072        1,140,200        1,185,272  

Home equity lines of credit

     2,927        2,251        8,779        13,957        464,254        478,211  

Personal

     16,093        7,620        18,699        42,412        1,306,707        1,349,119  

Auto

     31,351        9,361        10,564        51,276        648,704        699,980  

Other

     1,877        909        6,156        8,942        210,702        219,644  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 481,455      $ 223,825      $ 1,058,658      $ 1,763,938      $ 19,847,928      $ 21,611,866  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at September 30, 2014 and December 31, 2013 by main categories.

 

(In thousands)

   September 30,
2014
     December 31,
2013
 

Commercial

   $ 427      $ 603  

Legacy

     10        —    

Mortgage

     14,669        489  

Consumer

     4,623        —    
  

 

 

    

 

 

 

Total

   $ 19,729      $ 1,092  
  

 

 

    

 

 

 

 

31


Table of Contents

The outstanding principal balance of non-covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $236 million at September 30, 2014 (December 31, 2013 - $197 million). At September 30, 2014, none of the acquired non-covered 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.

Changes in the carrying amount and the accretable yield for the non-covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarters and nine months ended September 30, 2014 and 2013 were as follows:

 

Activity in the accretable discount - Non-covered loans ASC 310-30

 

(In thousands)

   For the
quarter ended
September 30,
2014
    For the
quarter ended
September 30,
2013
 

Beginning balance

   $ 76,827     $ 49,213  

Additions

     3,761       6,732  

Accretion

     (2,594     (2,417

Change in expected cash flows

     23,191       (6,247
  

 

 

   

 

 

 

Ending balance

   $ 101,185     $ 47,281  
  

 

 

   

 

 

 

 

Activity in the accretable discount - Non-covered loans ASC 310-30

 

(In thousands)

   For the nine
months ended
September 30,
2014
    For the nine
months ended
September 30,
2013
 

Beginning balance

   $ 49,398     $ —    

Additions

     14,904       54,074  

Accretion

     (7,520     (5,029

Change in expected cash flows

     44,403       (1,764
  

 

 

   

 

 

 

Ending balance

   $ 101,185     $ 47,281  
  

 

 

   

 

 

 

 

Carrying amount of non-covered loans accounted for pursuant to ASC 310-30

 

(In thousands)

   For the
quarter ended
September 30,
2014
    For the
quarter ended
September 30,
2013
 

Beginning balance

   $ 199,041       138,632  

Additions

     12,985       18,789  

Accretion

     2,595       2,417  

Collections and charge-offs

     (7,151     (4,213
  

 

 

   

 

 

 

Ending balance

   $ 207,470     $ 155,625  

Allowance for loan losses ASC 310-30 non-covered loans

     (16,256     (3,511
  

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 191,214     $ 152,114  
  

 

 

   

 

 

 

 

Carrying amount of non-covered loans accounted for pursuant to ASC 310-30

 

(In thousands)

   For the nine
months ended
September 30,
2014
    For the nine
months ended
September 30,
2013
 

Beginning balance

   $ 173,659     $ —    

Additions

     46,165       175,100  

Accretion

     7,520       5,029  

Collections and charge-offs

     (19,874     (24,504
  

 

 

   

 

 

 

Ending balance

   $ 207,470     $ 155,625  

Allowance for loan losses ASC 310-30 non-covered loans

     (16,256     (3,511
  

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 191,214     $ 152,114  
  

 

 

   

 

 

 

 

32


Table of Contents

Covered loans

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at September 30, 2014 and December 31, 2013.

 

     September 30, 2014      December 31, 2013  

(In thousands)

   Non-accrual
loans
     Accruing
loans
past due
90 days
or more
     Non-accrual
loans
     Accruing
loans
past due
90 days
or more
 

Commercial real estate

   $ 6,658      $ —        $ 8,345      $ —    

Commercial and industrial

     565        —          7,335        456  

Construction

     2,784        —          11,872        —    

Mortgage

     4,671        30        1,739        69  

Consumer

     473        —          90        112  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total[1]

   $ 15,151      $ 30      $ 29,381      $ 637  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

[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 following tables present loans by past due status at September 30, 2014 and December 31, 2013 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.

 

September 30, 2014

 
     Past due      Current      Covered
loans HIP
 

(In thousands)

   30-59
days
     60-89
days
     90 days or
more
     Total past
due
       

Commercial real estate

   $ 25,957      $ 17,189      $ 308,179      $ 351,325      $ 1,240,393      $ 1,591,718  

Commercial and industrial

     596        441        7,528        8,565        96,368        104,933  

Construction

     2,461        —          62,731        65,192        9,276        74,468  

Mortgage

     45,980        26,465        146,335        218,780        627,692        846,472  

Consumer

     2,144        783        2,859        5,786        30,886        36,672  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 77,138      $ 44,878      $ 527,632      $ 649,648      $ 2,004,615      $ 2,654,263  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2013

 
     Past due      Current      Covered
loans HIP
 

(In thousands)

   30-59
days
     60-89
days
     90 days or
more
     Total past
due
       

Commercial real estate

   $ 42,898      $ 8,745      $ 374,301      $ 425,944      $ 1,284,285      $ 1,710,229  

Commercial and industrial

     1,584        349        16,318        18,251        84,324        102,575  

Construction

     399        —          178,007        178,406        11,721        190,127  

Mortgage

     50,222        23,384        165,030        238,636        695,737        934,373  

Consumer

     2,588        1,328        4,200        8,116        39,007        47,123  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 97,691      $ 33,806      $ 737,856      $ 869,353      $ 2,115,074      $ 2,984,427  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The carrying amount of the covered 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.

 

33


Table of Contents
     September 30, 2014     December 31, 2013  
     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

   $ 1,425,288     $ 115,327     $ 1,540,615     $ 1,483,331     $ 149,341     $ 1,632,672  

Commercial and industrial

     54,325       2,260       56,585       55,192       3,069       58,261  

Construction

     35,020       34,384       69,404       71,864       104,356       176,220  

Mortgage

     784,898       48,319       833,217       862,878       59,483       922,361  

Consumer

     27,073       1,539       28,612       35,810       2,623       38,433  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount

     2,326,604       201,829       2,528,433       2,509,075       318,872       2,827,947  

Allowance for loan losses

     (52,812     (32,828     (85,640     (57,594     (36,321     (93,915
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount, net of allowance

   $ 2,273,792     $ 169,001     $ 2,442,793     $ 2,451,481     $ 282,551     $ 2,734,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The outstanding principal balance of covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $3.2 billion at September 30, 2014 (December 31, 2013 - $3.8 billion). At September 30, 2014, 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 covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended September 30, 2014 and 2013, were as follows:

 

     Activity in the accretable yield  
     Covered loans ASC 310-30  
     For the quarters ended  
     September 30, 2014     September 30, 2013  

(In thousands)

   Non-credit
impaired
loans
    Credit
impaired
loans
    Total     Non-credit
impaired
loans
    Credit
impaired
loans
    Total  

Beginning balance

   $ 1,271,202     $ 9,556     $ 1,280,758     $ 1,365,670     $ 13,942     $ 1,379,612  

Accretion

     (62,958     (3,059     (66,017     (69,146     617       (68,529

Change in expected cash flows

     95,920       1,860       97,780       4,879       (6,344     (1,465
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,304,164     $ 8,357     $ 1,312,521     $ 1,301,403     $ 8,215     $ 1,309,618  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Activity in the accretable yield  
     Covered loans ASC 310-30  
     For the nine months ended  
     September 30, 2014     September 30, 2013  

(In thousands)

   Non-credit
impaired
loans
    Credit
impaired
loans
    Total     Non-credit
impaired
loans
    Credit
impaired
loans
    Total  

Beginning balance

   $ 1,297,725     $ 11,480     $ 1,309,205     $ 1,446,381     $ 5,288     $ 1,451,669  

Accretion

     (212,826     (12,172     (224,998     (190,607     (5,448     (196,055

Change in expected cash flows

     219,265       9,049       228,314       45,629       8,375       54,004  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,304,164     $ 8,357     $ 1,312,521     $ 1,301,403     $ 8,215     $ 1,309,618  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents
     Carrying amount of covered loans accounted for pursuant to ASC 310-30  
     For the quarters ended  
     September 30, 2014     September 30, 2013  

(In thousands)

   Non-credit
impaired
loans
    Credit
impaired
loans
    Total     Non-credit
impaired
loans
    Credit
impaired
loans
    Total  

Beginning balance

   $ 2,387,911     $ 222,753     $ 2,610,664     $ 2,653,071     $ 359,795     $ 3,012,866  

Accretion

     62,958       3,059       66,017       69,146       (617     68,529  

Collections and charge-offs

     (124,265     (23,983     (148,248     (166,611     (23,735     (190,346
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,326,604     $ 201,829     $ 2,528,433     $ 2,555,606     $ 335,443     $ 2,891,049  

Allowance for loan losses

            

ASC 310-30 covered loans

     (52,812     (32,828     (85,640     (49,744     (59,130     (108,874
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 2,273,792     $ 169,001     $ 2,442,793     $ 2,505,862     $ 276,313     $ 2,782,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Carrying amount of loans accounted for pursuant to ASC 310-30  
     For the nine months ended  
     September 30, 2014     September 30, 2013  

(In thousands)

   Non-credit
impaired
loans
    Credit
impaired
loans
    Total     Non-credit
impaired
loans
    Credit
impaired
loans
    Total  

Beginning balance

   $ 2,509,075     $ 318,872     $ 2,827,947     $ 3,051,964     $ 439,795     $ 3,491,759  

Accretion

     212,826       12,172       224,998       190,607       5,448       196,055  

Collections and charge offs

     (395,297     (129,215     (524,512     (686,965     (109,800     (796,765
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,326,604     $ 201,829     $ 2,528,433     $ 2,555,606     $ 335,443     $ 2,891,049  

Allowance for loan losses

            

ASC 310-30 covered loans

     (52,812     (32,828     (85,640     (49,744     (59,130     (108,874
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance, net of ALLL

   $ 2,273,792     $ 169,001     $ 2,442,793     $ 2,505,862     $ 276,313     $ 2,782,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 $0.1 billion at September 30, 2014 (December 31, 2013 - $0.2 billion).

 

35


Table of Contents

Note 10 – 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 analogy, 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 3-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. As part of the annual review of the components of the ALLL models, as discussed in the following paragraphs and implemented as of June 30, 2014, the Corporation eliminated the use of caps in the recent loss trend adjustment for the consumer and mortgage portfolios, among other enhancements. For the period ended December 31, 2013, the recent loss trend adjustment caps for the consumer and mortgage portfolios were triggered in only one portfolio segment within the Puerto Rico consumer portfolio. Management assessed the impact of the applicable cap through a review of qualitative factors that specifically considered the drivers of recent loss trends and changes to the portfolio composition. The related effect of the aforementioned cap was immaterial for the overall level of the Allowance for Loan and Lease Losses for the Puerto Rico Consumer portfolio.

For the period ended September 30, 2014, 33% (September 30, 2013 - 12%) of the ALLL for BPPR non-covered 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 commercial multi-family, commercial and industrial, personal and auto loan portfolios for 2014, and in the commercial multi-family, mortgage, and leasing portfolios for 2013.

For the period ended September 30, 2014, 12% (September 30, 2013 - 23%) of the ALLL for BPNA 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 commercial multi-family, commercial and industrial and legacy loan portfolios for 2014 and in the commercial multi-family, commercial real estate non-owner occupied and commercial and industrial portfolios for 2013.

For the period ended December 31, 2013, 27% (December 31, 2012 - 32%) of the ALLL for BPPR non-covered 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 commercial multi-family, leasing, and auto loan portfolios for 2013.

For the period ended December 31, 2013, 29% (December 31, 2012 – 8%) of the ALLL for BPNA 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 commercial multi-family, commercial real estate non-owner occupied, commercial and industrial and legacy loan portfolios for 2013.

 

    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.

 

36


Table of Contents

During the second quarter of 2014, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics and revised certain components related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These enhancements to the ALLL methodology, which are described in the paragraphs below, were implemented as of June 30, 2014 and resulted in a net decrease to the allowance for loan losses of $18.7 million for the non-covered portfolio and a net increase to the allowance for loan losses of $0.8 million for the covered portfolio.

Management made the following principal enhancements to the methodology during the second quarter of 2014:

 

    Annual review and recalibration of the environmental factors adjustment. The environmental factor adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the second quarter of 2014, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends. Management also revised the application of environmental factors to the historical loss rates to consider last 12 month trends of the applicable credit and macroeconomic indicators applied as an incremental adjustment to account for emerging risks not necessarily considered in the historical loss rates.

The combined effect of the aforementioned recalibration and enhancements to the environmental factors adjustment resulted in a decrease to the allowance for loan losses of $17 million at June 30, 2014, of which $14.1 million related to the non-covered BPPR segment and $3.7 million related to the BPNA segment, offset in part by a $0.8 million increase in the BPPR covered segment.

 

    Increased the historical look-back period for determining the recent loss trend adjustment for consumer and mortgage loans. The Corporation increased the look-back period for assessing recent trends applicable to the determination of consumer and mortgage loan net charge-offs from 6 months to 12 months and eliminated the use of caps. Previously, the Corporation used a recent loss trend adjustment based on 6 months of net charge-offs up to a determined cap. Given the current overall consumer and mortgage credit quality improvements, management concluded that a 12-month look-back period for the recent loss trend adjustment aligns the Corporation’s allowance for loan losses methodology to current credit quality trends while limiting excessive pro-cyclicality given the longer look-back period analysis, thus, eliminating the aforementioned caps.

The combined effect of the aforementioned enhancements to the recent loss trend adjustment resulted in a decrease to the allowance for loan losses of $1 million at June 30, 2014, of which $0.9 million related to the non-covered BPPR segment and $0.1 million related to the BPNA segment.

The following tables present the changes in the allowance for loan losses for the quarters ended September 30, 2014 and 2013.

 

For the quarter ended September 30, 2014

 

Puerto Rico - Non-covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 184,235     $ 5,191     $ 120,399     $ 5,959     $ 150,482     $ 466,266  

Provision (reversal of provision)

     22,432       (761     12,150       2,822       25,225       61,868  

Charge-offs

     (12,050     (985     (13,701     (1,876     (30,896     (59,508

Recoveries

     11,039       2,222       371       466       6,728       20,826  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 205,656     $ 5,667     $ 119,219     $ 7,371     $ 151,539     $ 489,452  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

For the quarter ended September 30, 2014

 

Puerto Rico - Covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 46,693     $ 8,996     $ 38,941     $ —       $ 4,035     $ 98,665  

Provision (reversal of provision)

     6,312       2,263       5,392       (1     (1,503     12,463  

Charge-offs

     (16,290     (5,075     (2,163     —         943       (22,585

Recoveries

     (300     1,009       354       1       81       1,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 36,415     $ 7,193     $ 42,524     $ —       $ 3,556     $ 89,688  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

For the quarter ended September 30, 2014

 

U.S. Mainland - Continuing Operations

 

(In thousands)

   Commercial     Construction      Mortgage     Legacy     Consumer     Total  

Allowance for credit losses:

             

Beginning balance

   $ 18,274     $ 151      $ 17,529     $ 9,343     $ 14,683     $ 59,980  

Provision (reversal of provision)

     6,992       631        (6,901     3,340       2,236       6,298  

Charge-offs

     (3,715     —          (853     (2,570     (3,630     (10,768

Recoveries

     4,608       59        827       2,349       1,138       8,981  

Net (write-down) recovery related to loans transferred to LHFS

     (15,384     —          (8,300     (8,461     (111     (32,256
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 10,775     $ 841      $ 2,302     $ 4,001     $ 14,316     $ 32,235  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

For the quarter ended September 30, 2014

 

U.S. Mainland - Discontinued Operations

 

(In thousands)

   Commercial      Construction      Mortgage      Legacy      Consumer      Total  

Allowance for credit losses:

                 

Beginning balance

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

Net write-downs related to loans transferred to discontinued operations

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

For the quarter ended September 30, 2014

 

Popular, Inc.

 

(In thousands)

   Commercial     Construction     Mortgage     Legacy     Leasing     Consumer     Total  

Allowance for credit losses:

              

Beginning balance

   $ 249,202     $ 14,338     $ 176,869     $ 9,343     $ 5,959     $ 169,200     $ 624,911  

Provision (reversal of provision)

     35,736       2,133       10,641       3,340       2,821       25,958       80,629  

Charge-offs

     (32,055     (6,060     (16,717     (2,570     (1,876     (33,583     (92,861

Recoveries

     15,347       3,290       1,552       2,349       467       7,947       30,952  

Net write-down related to loans sold

     (15,384     —         (8,300     (8,461     —         (111     (32,256

Net write-downs related to loans transferred to discontinued operations

     —         —         —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 252,846     $ 13,701     $ 164,045     $ 4,001     $ 7,371     $ 169,411     $ 611,375  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

38


Table of Contents

For the nine months ended September 30, 2014

 

Puerto Rico - Non-covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 128,150     $ 5,095     $ 130,330     $ 10,622     $ 152,578     $ 426,775  

Provision (reversal of provision)

     102,998       (2,658     20,661       (41     69,683       190,643  

Charge-offs

     (50,384     (1,443     (32,510     (4,597     (90,033     (178,967

Recoveries

     24,892       4,673       738       1,387       19,311       51,001  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 205,656     $ 5,667     $ 119,219     $ 7,371     $ 151,539     $ 489,452  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

For the nine months ended September 30, 2014

 

Puerto Rico - Covered loans

 

(In thousands)

   Commercial     Construction     Mortgage     Leasing     Consumer     Total  

Allowance for credit losses:

            

Beginning balance

   $ 42,198     $ 19,491     $ 36,006     $ —       $ 4,397     $ 102,092