Commitments and contingencies	9 Months Ended
Commitments and contingencies	Sep. 30, 2024
Commitments and Contingencies Disclosure
Commitments And Contingencies	Note 20 – Commitments and contingencies Off-balance sheet risk The Corporation is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments, letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the consolidated statements of financial condition. Financial instruments with off-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows: (In thousands) September 30, 2024 December 31, 2023 Commitments to extend credit: Credit card lines $ 5,582,089 $ 6,108,939 Commercial lines of credit 3,874,209 3,626,269 Construction lines of credit 1,234,365 1,287,679 Other consumer unused credit commitments 261,470 256,610 Commercial letters of credit 2,157 1,404 Standby letters of credit 123,685 80,889 Commitments to originate or fund mortgage loans 23,217 32,968 Once At September 30, 2024 and December 31, 2023, the Corporation maintained a reserve of approximately $ 18 million and $ 17 million, respectively, for potential losses associated with unfunded loan commitments related to commercial and construction lines of credit. Other commitments At September 30, 2024 and December 31, 2023, the Corporation also maintained other non-credit commitments for approximately $ 2.0 million and $ 3.3 million, respectively, primarily for the acquisition of other investments. Business concentration Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 32 to the Consolidated Financial Statements. Puerto Rico has faced significant fiscal and economic challenges for over a decade. In response to such challenges, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established the Oversight Board and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have availed themselves of debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA. At September 30, 2024, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $ 336 million, of which $ 336 million were outstanding ($ 362 million and $ 333 million at December 31, 2023). Of the amount outstanding, $ 323 million consists of loans and $ 13 million are securities ($ 314 million and $ 19 million at December 31, 2023). Substantially all of the amount outstanding at September 30, 2024 and December 31, 2023 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At September 30, 2024, 80 % of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Caguas. In July 2024, the Corporation received scheduled principal payments amounting to $ 40 million from various obligations from Puerto Rico municipalities. The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities as of September 30, 2024 : (In thousands) Investment Portfolio Loans Total Outstanding Total Exposure Central Government Within 1 year 3 - 3 3 After 5 to 10 years 1 - 1 1 After 10 years 42 - 42 42 Total Central Government 46 - 46 46 Municipalities Within 1 year 2,440 12,764 15,204 15,204 After 1 to 5 years 9,520 147,033 156,553 156,553 After 5 to 10 years 655 119,073 119,728 119,728 After 10 years - 44,582 44,582 44,582 Total Municipalities 12,615 323,452 336,067 336,067 Total Direct Government Exposure $ 12,661 $ 323,452 $ 336,113 $ 336,113 In addition, at September 30, 2024, the Corporation had $ 225 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($ 238 million at December 31, 2023). These included $ 179 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2023 - $ 191 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had at September 30, 2024, $ 38 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default and upon the satisfaction of certain other conditions (December 31, 2023 - $ 40 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof. BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits. In addition, $ 2.0 billion of residential mortgages and $ 88.4 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2024 (compared to $ 1.9 billion and $ 89.2 million, respectively, at December 31, 2023). The Corporation also had U.S. Treasury and obligations from the U.S. Government, its agencies or government sponsored entities within the portfolio of available-for-sale and held-to-maturity securities as described in Note 5 and 6 to the Consolidated Financial Statements. At September 30, 2024, the Corporation had operations in the United States Virgin Islands (the “USVI”) and had approximately $ 28 million in direct exposure to USVI government entities (December 31, 2023 - $ 28 million). The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. At September 30, 2024, the Corporation had operations in the British Virgin Islands (“BVI”) and it had a loan portfolio amounting to approximately $ 200 million comprised of various retail and commercial clients, compared to a loan portfolio of $ 205 million at December 31, 2023. At September 30, 2024, the Corporation had no significant exposure to a single borrower in the BVI. FDIC Special Assessment On November 16, 2023, the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule that imposes a special assessment (the “FDIC Special Assessment”) to recover the losses to the deposit insurance fund resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of several failed banks. In connection with this assessment, the Corporation recorded an expense of $ 71.4 million, $ 45.3 million net of tax, in the fourth quarter of 2023, representing the full amount of the assessment. During the first quarter of 2024, the Corporation recorded an additional expense of $ 14.3 million, $ 9.1 million net of tax, to reflect the FDIC's higher loss estimate which increased from $ 16.3 billion, when approved, to $ 20.4 billion during the quarter. The special assessment amount and collection period may change as the estimated loss is periodically adjusted or if the total amount collected varies. Legal Proceedings The nature of Popular’s business ordinarily generates claims, litigation, regulatory and governmental investigations, and legal and administrative cases and proceedings (collectively, “Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of the Corporation and its stockholders to do so. On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the most current information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis to reflect any relevant developments, as appropriate. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established. In certain cases, exposure to loss exists in excess of any accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the range of reasonably possible losses (with respect to those matters where such limits may be determined in excess of amounts accrued) for current Legal Proceedings ranged from $ 0 to approximately $ 6.49 million as of September 30, 2024. In certain cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the Legal Proceedings, and the inherent uncertainty of the various potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate. While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, management believes that the amount it has already accrued is adequate and any incremental liability arising from the Legal Proceedings in matters in which a loss amount can be reasonably estimated will not have a material adverse effect on the Corporation’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters in a reporting period, if unfavorable, could have a material adverse effect on the Corporation’s consolidated financial position for that period. Set forth below is a description of the Corporation’s significant Legal Proceedings. Insufficient Funds and Overdraft Fees Class Actions Popular, Inc. (“Popular”) was named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. originally filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff alleged breach of contract, violation of the covenant of good faith and fair dealing, unjust enrichment and violation of New York consumer protection law due to Popular’s purported practice of charging overdraft fees (“OD Fees”) on transactions that, under plaintiffs’ theory, do not overdraw the account. In October 2022, the parties reached a settlement in principle on a class-wide basis subject to final court approval. On July 9, 2024, the court granted final approval to the settlement agreement. This matter is now closed. Popular was named as a defendant on a putative class action complaint captioned Lipsett v. Popular, Inc. d/b/a Banco Popular, filed on January 31, 2022 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Similar to the claims set forth in the aforementioned Golden complaint, Plaintiff alleged breach of contract, violations of the covenant of good faith and fair dealing and unjust enrichment, as a result of Popular’s purported practice of charging OD Fees on transactions that, under plaintiffs’ theory, do not overdraw the account. The complaint further alleged that Popular assessed OD Fees over authorized transactions for which sufficient funds are held for settlement. On May 2, 2024, the parties reached a settlement in principle on a class-wide basis. On July 25, 2024, the parties filed before the Court a motion for preliminary approval of the settlement agreement, and, on July 26, 2024, the Court issued an order granting preliminary approval of the settlement agreement. The Court scheduled the final approval hearing of the settlement agreement for January 27, 2025.