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Summary of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2024
Accounting Policies  
Summary of significant accounting policies
Note 2 – Summary of significant accounting
 
policies
The
 
accounting
 
and
 
financial
 
reporting
 
policies
 
of
 
Popular,
 
Inc.
 
and
 
its
 
subsidiaries
 
(the
 
“Corporation”) conform
 
with
 
accounting
principles generally accepted in the United States
 
of America and with prevailing practices within
 
the financial services industry.
 
The following is a description of the most significant
 
of these policies:
Principles of consolidation
The
 
consolidated
 
financial
 
statements
 
include
 
the
 
accounts
 
of
 
Popular,
 
Inc.
 
and
 
its
 
subsidiaries.
 
Intercompany
 
accounts
 
and
transactions have been
 
eliminated in consolidation. In
 
accordance with the
 
consolidation guidance for variable
 
interest entities, the
Corporation
 
would
 
also
 
consolidate
 
any
 
variable
 
interest
 
entities
 
(“VIEs”)
 
for
 
which
 
it
 
has
 
a
 
controlling
 
financial
 
interest;
 
and
therefore, it is the primary beneficiary. Assets
 
held in a fiduciary capacity are not assets of the Corporation and, accordingly,
 
are not
included in the Consolidated Statements of Financial
 
Condition.
Unconsolidated investments, in
 
which there is
 
at least
 
20% ownership and
 
/ or
 
the Corporation exercises
 
significant influence, are
generally
 
accounted
 
for
 
by
 
the
 
equity
 
method
 
with
 
earnings
 
recorded
 
in
 
other
 
operating
 
income.
 
Limited
 
partnerships
 
are
 
also
accounted for by the equity method unless the investor’s
 
interest is so “minor” that the limited partner may have
 
virtually no influence
over
 
partnership
 
operating
 
and
 
financial
 
policies.
 
These
 
investments
 
are
 
included
 
in
 
other
 
assets
 
and
 
the
 
Corporation’s
proportionate share of income or loss is included
 
in other operating income.
 
Statutory business trusts that are wholly-owned by the Corporation and are
 
issuers of trust preferred securities are not consolidated
in the Corporation’s Consolidated Financial Statements.
Business combinations
Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and
any noncontrolling
 
interest in
 
the acquiree
 
at the
 
acquisition date
 
are measured
 
at their
 
fair values
 
as of
 
the acquisition
 
date. The
acquisition
 
date
 
is
 
the
 
date
 
the
 
acquirer
 
obtains
 
control.
 
Transaction
 
costs
 
are
 
expensed
 
as
 
incurred.
 
Contingent
 
consideration
classified as an asset
 
or a liability is remeasured to
 
fair value at each reporting
 
date until the contingency is
 
resolved. The changes
in fair
 
value of
 
the contingent
 
consideration are
 
recognized in
 
earnings unless
 
the arrangement
 
is a
 
hedging instrument
 
for which
changes are initially recognized in other comprehensive income (loss). The Corporation did not engage
 
in any business combination
activities during the years ended December 31,
 
2024 and 2023.
 
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.
Fair value measurements
The Corporation determines the fair values of its financial
 
instruments based on the fair value framework established
 
in the guidance
for Fair Value
 
Measurements in Accounting
 
Standards Codification (“ASC”)
 
Subtopic 820-10, which
 
requires an entity
 
to maximize
the use
 
of observable inputs
 
and minimize the
 
use of
 
unobservable inputs when
 
measuring fair value.
 
Fair value is
 
defined as the
exchange price that would be received for an asset or paid to transfer a liability
 
(an exit price) in the principal or most advantageous
market
 
for
 
the
 
asset
 
or
 
liability
 
in
 
an
 
orderly
 
transaction
 
between
 
market
 
participants
 
on
 
the
 
measurement
 
date.
 
The
 
standard
describes three
 
levels of
 
inputs that
 
may be
 
used to
 
measure fair
 
value which
 
are (1)
 
quoted market
 
prices for
 
identical assets
 
or
liabilities in active markets, (2) observable market-based
 
inputs or unobservable inputs that are corroborated
 
by market data, and (3)
unobservable
 
inputs
 
that
 
are
 
not
 
corroborated
 
by
 
market
 
data.
 
The
 
fair
 
value
 
hierarchy
 
ranks
 
the
 
quality
 
and
 
reliability
 
of
 
the
information used to determine fair values.
 
The
 
guidance
 
in
 
ASC
 
Subtopic
 
820-10
 
also
 
addresses
 
measuring
 
fair
 
value
 
in
 
situations
 
where
 
markets
 
are
 
inactive
 
and
transactions are
 
not orderly.
 
Transactions
 
or quoted
 
prices for
 
assets and
 
liabilities may
 
not be
 
determinative of
 
fair value
 
when
transactions are not
 
orderly, and
 
thus, may require
 
adjustments to estimate fair
 
value. Price quotes
 
based on transactions
 
that are
not orderly should be given
 
little, if any,
 
weight in measuring fair value. Price
 
quotes based on transactions that are
 
orderly shall be
considered
 
in
 
determining
 
fair
 
value,
 
and
 
the
 
weight
 
given
 
is
 
based
 
on
 
facts
 
and
 
circumstances.
 
If
 
sufficient
 
information
 
is
 
not
available to
 
determine if
 
price quotes
 
are based
 
on orderly
 
transactions, less
 
weight should
 
be given to
 
the price
 
quote relative
 
to
other transactions that are known to be orderly.
 
Investment securities
Investment securities are classified in four categories and
 
accounted for as follows:
●
 
Debt securities that
 
the Corporation has
 
the intent and
 
ability to hold
 
to maturity are
 
classified as debt
 
securities held-to-
maturity and reported
 
at amortized cost. An
 
ACL is established
 
for the expected credit
 
losses over the remaining
 
term of
debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which
 
considers
qualitative factors,
 
including internal credit
 
ratings and
 
the underlying source
 
of repayment
 
in determining
 
the amount
 
of
expected
 
credit
 
losses.
 
Debt
 
securities
 
held-to-maturity
 
are
 
written-off
 
through
 
the
 
ACL
 
when
 
a
 
portion
 
or
 
the
 
entire
amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of
the
 
asset.
 
The
 
ACL
 
is
 
estimated
 
by
 
leveraging
 
the
 
expected
 
loss
 
framework
 
for
 
mortgages
 
in
 
the
 
case
 
of
 
securities
collateralized by
 
2
nd
 
lien loans
 
and the
 
commercial C&I
 
models for
 
municipal bonds.
 
As part
 
of this
 
framework, internal
factors are stressed,
 
as a qualitative
 
adjustment, to reflect current
 
conditions that are
 
not necessarily captured within
 
the
historical
 
loss
 
experience.
 
The
 
modeling
 
framework
 
includes
 
a
 
2-year
 
reasonable
 
and
 
supportable
 
period
 
gradually
reverting, over a
 
3-years horizon, to
 
historical information at
 
the model input
 
level. The Corporation’s
 
portfolio of held-to-
maturity
 
securities
 
includes
 
U.S. Treasury
 
notes
 
and
 
obligations from
 
the
 
U.S.
 
Government. These
 
securities
 
have
 
an
explicit or implicit guarantee from the U.S. government, are highly rated by major
 
rating agencies, and have a long history
of no
 
credit losses.
 
Accordingly,
 
the Corporation
 
applies a
 
zero-credit loss
 
assumption and
 
no ACL
 
for these
 
securities
has been established. The
 
Corporation may not sell
 
or transfer held-to-maturity securities without
 
calling into question its
intent
 
to
 
hold
 
other
 
debt
 
securities
 
to
 
maturity,
 
unless
 
a
 
nonrecurring
 
or
 
unusual
 
event
 
that
 
could
 
not
 
have
 
been
reasonably anticipated has occurred.
●
 
Debt securities
 
classified as
 
trading securities
 
are reported
 
at fair
 
value, with
 
unrealized and
 
realized gains
 
and losses
included in non-interest income.
●
 
Debt
 
securities
 
classified
 
as
 
available-for-sale
 
are
 
reported
 
at
 
fair
 
value.
 
Declines
 
in
 
fair
 
value
 
below
 
the
 
securities’
amortized cost which are
 
not related to estimated credit losses
 
are recorded through other comprehensive income
 
(loss),
net of
 
taxes. If
 
the Corporation intends
 
to sell
 
or believes
 
it is
 
more likely than
 
not that it
 
will be
 
required to sell
 
the debt
security,
 
it is
 
written down
 
to
 
fair value
 
through earnings.
 
Credit losses
 
relating to
 
available-for-sale debt
 
securities are
recorded through an
 
ACL, which are
 
limited to the
 
difference between the
 
amortized cost and the
 
fair value of
 
the asset.
The ACL is established for the expected credit losses over the remaining term of debt security. The Corporation’s portfolio
of
 
available-for-sale securities
 
is comprised
 
mainly
 
of
 
U.S. Treasury
 
notes
 
and
 
obligations from
 
the
 
U.S.
 
Government.
These
 
securities
 
have
 
an
 
explicit
 
or
 
implicit
 
guarantee
 
from
 
the
 
U.S.
 
government,
 
are
 
highly
 
rated
 
by
 
major
 
rating
agencies, and have a
 
long history of no
 
credit losses. Accordingly,
 
the Corporation applies a
 
zero-credit loss assumption
and no
 
ACL for
 
these securities
 
has been
 
established. The Corporation
 
monitors its securities
 
portfolio composition and
credit performance on a
 
quarterly basis to determine if
 
any allowance is considered necessary.
 
Debt securities available-
for-sale are written-off when
 
a portion or
 
the entire amount is
 
deemed uncollectible, based on the
 
information considered
to
 
develop expected
 
credit losses
 
through the
 
life of
 
the asset.
 
The specific
 
identification method
 
is used
 
to
 
determine
realized
 
gains
 
and
 
losses
 
on
 
debt
 
securities
 
available-for-sale,
 
which
 
are
 
included
 
in
 
net
 
(loss)
 
gain
 
on
 
sale
 
of
 
debt
securities in the Consolidated Statements of Operations.
●
 
Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily
available fair
 
values are
 
measured at
 
cost, less
 
any impairment,
 
plus or
 
minus changes
 
resulting from
 
observable price
changes in
 
orderly transactions
 
for the
 
identical or
 
a similar
 
investment of
 
the same
 
issuer.
 
Stock that
 
is owned
 
by the
Corporation
 
to
 
comply
 
with
 
regulatory
 
requirements,
 
such
 
as
 
Federal
 
Reserve
 
Bank
 
and
 
Federal
 
Home
 
Loan
 
Bank
(“FHLB”) stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and
losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in
the Consolidated Statements
 
of Operations. Dividend income
 
from investments in
 
equity securities is included
 
in interest
income.
The
 
amortization
 
of
 
premiums is
 
deducted
 
and
 
the
 
accretion of
 
discounts is
 
added to
 
net
 
interest income
 
based on
 
the
 
interest
method
 
over the
 
outstanding period
 
of
 
the
 
related
 
securities.
 
Purchases and
 
sales
 
of
 
securities
 
are
 
recognized
 
on
 
a
 
trade
 
date
basis.
Derivative financial instruments
All derivatives are recognized on the Statements of Financial Condition at
 
fair value. The Corporation’s policy is not to
 
offset the fair
value
 
amounts
 
recognized
 
for
 
multiple
 
derivative
 
instruments
 
executed
 
with
 
the
 
same
 
counterparty
 
under
 
a
 
master
 
netting
arrangement nor to offset the fair value amounts recognized for the
 
right to reclaim cash collateral (a receivable) or the obligation
 
to
return cash collateral (a payable) arising from the
 
same master netting arrangement as the derivative
 
instruments.
For
 
a
 
cash
 
flow
 
hedge,
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
derivative
 
instrument
 
are
 
recorded
 
net
 
of
 
taxes
 
in
 
accumulated
 
other
comprehensive income (loss) and subsequently reclassified
 
to net income in the same period(s) that the hedged
 
transaction impacts
earnings. For free-standing derivative instruments,
 
changes in fair values are reported in current
 
period earnings.
Prior
 
to
 
entering
 
a
 
hedge
 
transaction,
 
the
 
Corporation
 
formally
 
documents
 
the
 
relationship
 
between
 
hedging
 
instruments
 
and
hedged
 
items,
 
as
 
well
 
as
 
the
 
risk
 
management objective
 
and
 
strategy for
 
undertaking various
 
hedge
 
transactions.
 
This
 
process
includes
 
linking all
 
derivative instruments
 
to
 
specific assets
 
and
 
liabilities on
 
the Statements
 
of
 
Financial Condition
 
or to
 
specific
forecasted transactions
 
or firm
 
commitments along
 
with a
 
formal assessment,
 
at both
 
inception of
 
the hedge
 
and on
 
an ongoing
basis,
 
as
 
to
 
the
 
effectiveness
 
of the
 
derivative instrument
 
in
 
offsetting
 
changes
 
in
 
fair
 
values
 
or
 
cash
 
flows
 
of
 
the
 
hedged
 
item.
Hedge accounting
 
is discontinued
 
when the
 
derivative instrument
 
is not
 
highly effective
 
as a
 
hedge, a
 
derivative expires,
 
is sold,
terminated, when it is unlikely that a forecasted transaction will
 
occur or when it is determined that it is
 
no longer appropriate. When
hedge accounting is discontinued the derivative continues
 
to be carried at fair value with changes in fair
 
value included in earnings.
 
The Corporation
 
utilizes forward
 
contracts to
 
hedge the
 
sale
 
of mortgage-backed
 
securities with
 
duration terms
 
over one
 
month.
Interest rate forwards are contracts for the delayed delivery of securities,
 
which the seller agrees to deliver on a specified future date
at
 
a
 
specified
 
price
 
or
 
yield.
 
Based
 
on
 
the
 
election
 
to
 
apply
 
fair
 
value
 
accounting
 
for
 
its
 
mortgage
 
loans
 
held
 
for
 
sale,
 
hedge
accounting
 
is
 
not
 
used
 
for
 
these
 
forward
 
contracts
 
and
 
changes
 
in
 
the
 
fair
 
value
 
of
 
the
 
loans
 
are
 
expected
 
to
 
be
 
offset
 
by
 
the
changes in the fair value of the forward
 
contract, both of which are recorded through net
 
income (loss).
For non-exchange
 
traded contracts,
 
fair value
 
is based
 
on dealer
 
quotes, pricing
 
models, discounted
 
cash flow
 
methodologies or
similar techniques for which the determination of
 
fair value may require significant management judgment
 
or estimation.
 
The fair value of derivative instruments considers
 
the risk of non-performance by the counterparty
 
or the Corporation, as applicable.
 
The Corporation obtains or pledges collateral in
 
connection with its derivative activities when applicable
 
under the agreement.
Loans
 
Loans
 
are
 
classified
 
as
 
loans
 
held-in-portfolio when
 
management has
 
the
 
intent
 
and
 
ability
 
to
 
hold
 
the
 
loan
 
for
 
the
 
foreseeable
future, or
 
until maturity
 
or payoff.
 
The foreseeable
 
future is
 
a management
 
judgment which
 
is determined
 
based upon
 
the type
 
of
loan,
 
business strategies,
 
current market
 
conditions, balance
 
sheet
 
management and
 
liquidity needs.
 
Management’s view
 
of
 
the
foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that
 
was
not originated or
 
initially acquired with the
 
intent to sell
 
or securitize, the loan
 
is reclassified from held-in-portfolio
 
into held-for-sale.
Due to changing market conditions or other strategic
 
initiatives, management’s intent with respect to the disposition of
 
the loan may
change,
 
and
 
accordingly,
 
loans
 
previously classified
 
as
 
held-for-sale may
 
be
 
reclassified into
 
held-in-portfolio. Loans
 
transferred
between loans held-for-sale and held-in-portfolio
 
classifications are recorded at the lower of cost or
 
fair value at the date of transfer.
 
Purchased
 
loans
 
with
 
no
 
evidence
 
of
 
credit
 
deterioration
 
since
 
origination
 
are
 
recorded
 
at
 
fair
 
value
 
upon
 
acquisition.
 
Credit
discounts are included in the determination of fair
 
value.
 
Loans held-in-portfolio
 
are reported
 
at their
 
outstanding principal
 
balances net
 
of any
 
unearned income,
 
charge-offs, unamortized
deferred fees and
 
costs on originated
 
loans, and premiums
 
or discounts on
 
purchased loans. Fees
 
collected and costs
 
incurred in
the
 
origination of
 
new
 
loans are
 
deferred and
 
amortized using
 
the interest
 
method or
 
a method
 
which approximates
 
the interest
method over the term of the loan as an adjustment
 
to interest yield.
Loans held-for-sale,
 
except for
 
mortgage loans
 
originated as
 
held-for-sale, are
 
stated at
 
the lower
 
of cost
 
or fair
 
value, cost
 
being
determined based
 
on the
 
outstanding loan
 
balance less
 
unearned income,
 
and fair
 
value determined,
 
generally in
 
the aggregate.
Fair value is measured based on current market prices for similar loans, outstanding investor commitments, prices
 
of recent sales or
discounted cash
 
flow analyses
 
which utilize
 
inputs and
 
assumptions which
 
are believed
 
to be
 
consistent with
 
market participants’
views. The
 
cost basis
 
also includes
 
consideration of
 
deferred origination
 
fees and
 
costs, which
 
are recognized
 
in earnings
 
at the
time of sale.
 
Upon reclassification to held-for-sale,
 
credit related fair
 
value adjustments are recorded
 
as a reduction
 
in the ACL.
 
To
the extent that the loan's reduction in value
 
has not already been provided for in the ACL,
 
an additional provision for credit losses is
recorded. Subsequent to reclassification to held-for-sale, the amount, by
 
which cost exceeds fair value, if any,
 
is accounted for as a
valuation allowance
 
with changes
 
therein included
 
in the
 
determination of
 
net income
 
for the
 
period in
 
which the
 
change occurs.
Newly originated mortgage loans held-for-sale are reported
 
at fair value, with changes recorded through
 
earnings.
The past due status of a loan is determined in accordance with its
 
contractual repayment terms. Furthermore, loans are reported as
past due when either interest or principal remains
 
unpaid for 30 days or more in accordance
 
with its contractual repayment terms.
Non-accrual loans are those loans on which the
 
accrual of interest is discontinued. When a loan is
 
placed on non-accrual status, all
previously
 
accrued
 
and
 
unpaid interest
 
is
 
charged against
 
interest
 
income
 
and
 
the
 
loan
 
is
 
accounted for
 
either
 
on
 
a cash-basis
method or
 
on the
 
cost-recovery method.
 
Loans designated
 
as non-accruing
 
are returned
 
to accrual
 
status when
 
the Corporation
expects repayment of the remaining contractual principal
 
and interest.
 
Recognition of interest income on commercial and construction loans is discontinued when the loans are 90 days or more in arrears
on payments of principal or interest or when other factors indicate that the collection of principal and interest is
 
doubtful. The portion
of
 
a
 
secured
 
loan
 
deemed
 
uncollectible
 
is
 
charged-off
 
no
 
later
 
than
 
365
 
days
 
past
 
due.
 
However,
 
in
 
the
 
case
 
of
 
a
 
collateral
dependent
 
loan,
 
the
 
excess
 
of
 
the
 
recorded
 
investment
 
over
 
the
 
fair
 
value
 
of
 
the
 
collateral
 
(portion
 
deemed
 
uncollectible)
 
is
generally
 
promptly charged-off,
 
but
 
in
 
any
 
event,
 
not
 
later
 
than
 
the
 
quarter
 
following
 
the
 
quarter
 
in
 
which
 
such
 
excess was
 
first
recognized.
 
Commercial
 
unsecured
 
loans
 
are
 
charged-off
 
no
 
later
 
than
 
180
 
days
 
past
 
due.
 
Recognition
 
of
 
interest
 
income
 
on
mortgage
 
loans
 
is
 
generally
 
discontinued
 
when
 
loans
 
are
 
90
 
days
 
or
 
more
 
in
 
arrears
 
on
 
payments
 
of
 
principal
 
or
 
interest.
 
The
portion of a
 
mortgage loan deemed
 
uncollectible is charged-off
 
when the loan
 
is 180 days
 
past due. The
 
Corporation discontinues
the recognition
 
of interest
 
on residential
 
mortgage loans
 
insured by
 
the Federal
 
Housing Administration
 
(“FHA”) or
 
guaranteed by
the U.S.
 
Department of Veterans
 
Affairs (“VA”)
 
when 15-months
 
delinquent as
 
to principal
 
or interest.
 
The principal
 
repayment on
these loans is insured. Recognition of interest income on closed-end consumer loans and home equity lines of credit is discontinued
when the
 
loans are
 
90 days
 
or more
 
in arrears
 
on payments
 
of principal
 
or interest.
 
Income is
 
generally recognized
 
on open-end
consumer loans,
 
except for
 
home equity
 
lines
 
of
 
credit,
 
until
 
the
 
loans are
 
charged-off.
 
Recognition of
 
interest
 
income
 
for
 
lease
financing is ceased when
 
loans are 90 days
 
or more in arrears.
 
Closed-end consumer loans and leases
 
are charged-off when they
are 120
 
days in
 
arrears. Open-end
 
(revolving credit)
 
consumer loans
 
are charged-off
 
when 180
 
days in
 
arrears. Commercial
 
and
consumer overdrafts are generally charged-off no later than
 
60 days past their due date.
A loan
 
modified with
 
financial difficulties
 
is typically
 
in non-accrual
 
status at
 
the time
 
of the
 
modification. These
 
loans continue
 
in
non-accrual status until the borrower has demonstrated a willingness
 
and ability to make the restructured loan payments (at
 
least six
months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and
management has concluded that it is probable
 
that the borrower would not be in payment
 
default in the foreseeable future.
Loan modifications
A modification
 
is subject to
 
disclosure under ASC
 
Topic
 
326 when the
 
Corporation separately concludes
 
that both
 
of the
 
following
conditions exist: 1) the
 
debtor is experiencing financial difficulties
 
and 2) the modification
 
constitutes a reduction in
 
the interest rate
on the
 
loan, a
 
payment extension,
 
a forgiveness
 
of principal,
 
a more-than-insignificant
 
payment delay,
 
or a
 
combination of
 
these.
Determination
 
that
 
a
 
borrower
 
is
 
experiencing
 
financial
 
difficulties
 
involves
 
a
 
degree
 
of
 
judgment.
 
The
 
identification
 
of
 
loan
modifications to debtors with financial difficulties is critical
 
in the determination of the adequacy of
 
the ACL.
 
Refer
 
to
 
Note
 
9
 
to
 
the
 
Consolidated
 
Financial
 
Statements
 
for
 
additional
 
qualitative
 
information
 
on
 
loan
 
modifications
 
and
 
the
Corporation’s determination of the ACL.
Lease financing
The
 
Corporation leases
 
passenger and
 
commercial
 
vehicles
 
and
 
equipment
 
to
 
individual
 
and
 
corporate
 
customers.
 
The
 
finance
method of accounting
 
is used to
 
recognize revenue on lease
 
contracts that meet
 
the criteria specified in
 
the guidance for leases
 
in
ASC Topic
 
842. Aggregate
 
rentals due
 
over the
 
term of
 
the leases
 
less unearned
 
income are
 
included in
 
finance lease
 
contracts
receivable.
 
Unearned
 
income
 
is
 
amortized
 
using
 
a
 
method
 
which
 
results
 
in
 
approximate
 
level
 
rates
 
of
 
return
 
on
 
the
 
principal
amounts outstanding. Finance lease origination
 
fees and costs
 
are deferred and amortized
 
over the average life
 
of the lease as
 
an
adjustment to the interest yield.
Revenue for other leases is recognized as it becomes
 
due under the terms of the agreement.
Loans acquired with deteriorated credit quality
 
Purchased credit
 
deteriorated (“PCD”) loans
 
are defined
 
as those
 
with evidence
 
of a
 
more-than-insignificant deterioration in
 
credit
quality since origination.
 
PCD loans are initially recorded at its purchase price plus an
 
estimated allowance for credit losses (“ACL”).
Upon the acquisition of a PCD loan, the Corporation makes an estimate
 
of the expected credit losses over the remaining contractual
term
 
of
 
each individual
 
loan. The
 
estimated credit
 
losses over
 
the life
 
of the
 
loan are
 
recorded as
 
an ACL
 
with a
 
corresponding
addition to the loan purchase price. The amount of the purchased
 
premium or discount which is not related to credit risk
 
is amortized
over the life of
 
the loan through net
 
interest income using the
 
effective interest method or
 
a method that approximates the
 
effective
interest
 
method.
 
Changes
 
in
 
expected
 
credit
 
losses
 
are
 
recorded as
 
an
 
increase
 
or
 
decrease
 
to
 
the
 
ACL
 
with
 
a
 
corresponding
charge
 
(reverse)
 
to
 
the
 
provision
 
for
 
credit
 
losses
 
in
 
the
 
Consolidated
 
Statement
 
of
 
Operations.
 
These
 
loans
 
follow
 
the
 
same
nonaccrual policies as non-PCD loans.
Refer to Note 7
to the Consolidated Financial Statements
 
for additional information with respect
 
to loans acquired with
 
deteriorated
credit quality.
Accrued interest receivable
The
 
amortized
 
basis
 
for
 
loans
 
and
 
investments
 
in
 
debt
 
securities
 
is
 
presented
 
exclusive
 
of
 
accrued
 
interest
 
receivable.
 
The
Corporation has elected
 
not to establish
 
an ACL for
 
accrued interest receivable for
 
loans and investments
 
in debt securities,
 
given
the Corporation’s
 
non-accrual policies, in
 
which accrual
 
of interest is
 
discontinued and reversed
 
based on the
 
asset’s delinquency
status.
 
Allowance for credit losses – loans portfolio
The Corporation establishes an ACL
 
for its loan
 
portfolio based on its
 
estimate of credit losses
 
over the remaining contractual
 
term
of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since
inception, with
 
a corresponding charge
 
to the
 
provision for
 
credit losses,
 
except for
 
PCD loans
 
for which
 
the ACL
 
at acquisition
 
is
recorded
 
as
 
an
 
addition
 
to
 
the
 
purchase
 
price
 
with
 
subsequent
 
changes
 
recorded
 
in
 
earnings.
 
Loan
 
losses
 
are
 
charged
 
and
recoveries are credited to the ACL.
The
 
Corporation
 
follows
 
a
 
methodology
 
to
 
estimate
 
the
 
ACL
 
which
 
includes
 
a
 
reasonable
 
and
 
supportable
 
forecast
 
period
 
for
estimating
 
credit
 
losses,
 
considering
 
quantitative
 
and
 
qualitative
 
factors
 
as
 
well
 
as
 
the
 
economic
 
outlook.
 
As
 
part
 
of
 
this
methodology,
 
management
 
evaluates
 
various
 
macroeconomic
 
scenarios
 
provided
 
by
 
third
 
parties.
 
At
 
December
 
31,
 
2024,
management
 
applied
 
probability
 
weights
 
to
 
the
 
outcome
 
of
 
the
 
selected
 
scenarios.
 
This
 
evaluation
 
includes
 
benchmarking
procedures
 
as
 
well
 
as
 
careful
 
analysis of
 
the
 
underlying assumptions
 
used to
 
build the
 
scenarios. The
 
application of
 
probability
weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as
part
 
of
 
the
 
ACL’s
 
governance
 
process. The
 
Corporation considers
 
additional
 
macroeconomic scenarios
 
as
 
part
 
of
 
its
 
qualitative
adjustment framework.
 
The
 
macroeconomic variables
 
chosen
 
to
 
estimate credit
 
losses
 
were selected
 
by
 
combining
 
quantitative
 
procedures with
 
expert
judgment.
 
These
 
variables
 
were
 
determined
 
to
 
be
 
the
 
best
 
predictors
 
of
 
expected
 
credit
 
losses
 
within
 
the
 
Corporation’s
 
loan
portfolios and
 
include drivers such
 
as unemployment rate,
 
different measures
 
of employment levels,
 
house prices,
 
gross domestic
product
 
and
 
measures
 
of
 
disposable
 
income,
 
amongst
 
others.
 
The
 
loss
 
estimation
 
framework
 
includes
 
a
 
reasonable
 
and
supportable period of
 
2 years for
 
PR portfolios, gradually
 
reverting over a
 
3-years horizon to
 
historical macroeconomic variables at
the
 
model
 
input
 
level.
 
For
 
the
 
U.S.
 
portfolio,
 
the
 
reasonable
 
and
 
supportable
 
period
 
considers
 
the
 
contractual
 
life
 
of
 
the
 
asset,
impacted by
 
prepayments, except for
 
the U.S.
 
CRE portfolio. The
 
U.S. CRE portfolio
 
utilizes a 2-year
 
reasonable and supportable
period gradually reverting, over a 3-years horizon,
 
to historical information at the output level.
 
The
 
Corporation
 
developed
 
loan
 
level
 
quantitative
 
models
 
distributed
 
by
 
geography
 
and
 
loan
 
type.
 
This
 
segmentation
 
was
determined
 
by
 
evaluating
 
their
 
risk
 
characteristics,
 
which
 
include
 
default
 
patterns,
 
source
 
of
 
repayment,
 
type
 
of
 
collateral,
 
and
lending
 
channels,
 
amongst
 
others.
 
The
 
modeling
 
framework
 
includes
 
competing
 
risk
 
models
 
to
 
generate
 
lifetime
 
defaults
 
and
prepayments, and other loan
 
level modeling techniques to estimate
 
loss severity.
 
Recoveries on future losses
 
are contemplated as
part
 
of
 
the
 
loss
 
severity
 
modeling.
 
These
 
parameters
 
are
 
estimated
 
by
 
combining
 
internal
 
risk
 
factors
 
with
 
macroeconomic
expectations. In
 
order to
 
generate the
 
expected credit
 
losses, the
 
output of
 
these models
 
is combined
 
with loan
 
level repayment
information.
 
The
 
internal
 
risk
 
factors
 
contemplated
 
within
 
the
 
models
 
may
 
include
 
borrowers’
 
credit
 
scores,
 
loan-to-value,
delinquency status, risk ratings, interest rate, loan
 
term, loan age and type of collateral, amongst
 
others.
 
The ACL
 
also includes
 
a qualitative
 
framework that
 
addresses two
 
main components:
 
losses that
 
are expected
 
but not
 
captured
within the quantitative modeling framework and model imprecision. In order to identify potential losses that
 
are not captured through
the
 
models,
 
management
 
evaluates
 
model
 
limitations
 
as
 
well
 
as
 
the
 
different
 
risks
 
covered
 
by
 
the
 
variables
 
used
 
in
 
each
quantitative model. The
 
Corporation considers additional macroeconomic
 
scenarios to address
 
these risks. This
 
assessment takes
into
 
consideration factors
 
listed
 
as
 
part
 
of
 
ASC
 
326-20-55-4. To
 
complement
 
the
 
analysis, management
 
also
 
evaluates
 
whether
there are sectors
 
that have low
 
levels of historical
 
defaults, but current
 
conditions show the
 
potential for future
 
losses. This type
 
of
qualitative
 
adjustment
 
is
 
more
 
prevalent
 
in
 
the
 
commercial
 
portfolios.
 
The
 
model
 
imprecision
 
component
 
of
 
the
 
qualitative
adjustments
 
is
 
determined
 
after
 
evaluating
 
model
 
performance
 
for
 
these
 
portfolios
 
through
 
different
 
time
 
periods.
 
This
 
type
 
of
qualitative adjustment mainly impacts consumer portfolios.
The
 
Corporation
 
has
 
designated
 
as
 
collateral
 
dependent
 
loans
 
secured
 
by
 
collateral
 
when
 
foreclosure
 
is
 
probable
 
or
 
when
foreclosure is
 
not probable but
 
the practical expedient
 
is used.
 
The practical expedient
 
is used
 
when repayment is
 
expected to
 
be
provided
 
substantially
 
by
 
the
 
sale
 
or
 
operation
 
of
 
the
 
collateral
 
and
 
the
 
borrower is
 
experiencing financial
 
difficulty.
 
The
 
ACL
 
of
collateral dependent loans
 
is measured based
 
on the fair
 
value of the
 
collateral less costs
 
to sell. The
 
fair value of
 
the collateral is
based on appraisals, which may be adjusted due to their
 
age, and the type, location, and condition of the
 
property or area or general
market conditions to reflect the expected change in
 
value between the effective date of the appraisal
 
and the measurement date.
 
The Credit Cards
 
portfolio, due to
 
its revolving nature,
 
does not have
 
a specified maturity date.
 
To
 
estimate the average remaining
term
 
of
 
this
 
segment,
 
management evaluated
 
the
 
portfolios
 
payment
 
behavior
 
based
 
on
 
internal
 
historical data.
 
These payment
behaviors were
 
further classified
 
into sub-categories
 
that accounted
 
for delinquency
 
history and
 
differences between
 
transactors,
revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without
any
 
finance
 
charge
 
in
 
the
 
last
 
6
 
months.
 
The
 
paydown
 
curves
 
generated
 
for
 
each
 
sub-category
 
are
 
applied
 
to
 
the
 
outstanding
exposure at
 
the measurement
 
date using
 
the first-in
 
first-out (FIFO)
 
methodology.
 
These amortization
 
patterns are
 
combined with
loan level default and loss severity modeling to arrive
 
at the ACL.
Reserve for unfunded commitments
The Corporation
 
establishes a
 
reserve for
 
unfunded commitments,
 
based on
 
the estimated
 
losses over
 
the remaining
 
term of
 
the
facility.
 
An allowance
 
is not
 
established for
 
commitments that
 
are unconditionally
 
cancellable by
 
the Corporation.
 
Accordingly,
 
no
reserve
 
is
 
established
 
for
 
unfunded commitments
 
related to
 
its
 
credit
 
cards
 
portfolio.
 
Reserve for
 
the
 
unfunded
 
portion
 
of
 
credit
commitments
 
is
 
presented
 
within
 
other
 
liabilities
 
in
 
the
 
Consolidated Statements
 
of
 
Financial
 
Condition.
 
Net
 
adjustments
 
to
 
the
reserve for unfunded commitments are
 
reflected in the Consolidated Statements
 
of Operations as provision for credit
 
losses for the
years ended December 31, 2024, 2023, and 2022.
Transfers and servicing of financial assets
The transfer
 
of an
 
entire financial
 
asset, a
 
group of
 
entire financial
 
assets, or
 
a participating interest
 
in an
 
entire financial
 
asset in
which the Corporation surrenders control over the assets is accounted
 
for as a sale
 
if all of the following conditions set forth in
 
ASC
Topic
 
860 are met:
 
(1) the assets
 
must be isolated
 
from creditors of
 
the transferor,
 
(2) the transferee
 
must obtain the
 
right (free of
conditions that constrain it
 
from taking advantage
 
of that right)
 
to pledge or
 
exchange the transferred assets,
 
and (3) the
 
transferor
cannot maintain effective control over
 
the transferred assets through an agreement
 
to repurchase them before their
 
maturity. When
the
 
Corporation
 
transfers
 
financial
 
assets
 
and
 
the
 
transfer
 
fails
 
any
 
one
 
of
 
these
 
criteria,
 
the
 
Corporation
 
is
 
prevented
 
from
derecognizing the transferred financial
 
assets and the
 
transaction is accounted for
 
as a secured
 
borrowing. For federal and
 
Puerto
Rico income
 
tax purposes,
 
the Corporation
 
treats the
 
transfers of
 
loans which
 
do not
 
qualify as
 
“true sales”
 
under the
 
applicable
accounting guidance, as sales, recognizing a deferred
 
tax asset or liability on the transaction.
 
For transfers
 
of financial
 
assets that
 
satisfy the
 
conditions to
 
be accounted
 
for as
 
sales, the
 
Corporation derecognizes
 
all assets
sold; recognizes all
 
assets obtained and liabilities
 
incurred in consideration as
 
proceeds of the
 
sale, including servicing
 
assets and
servicing liabilities, if
 
applicable; initially measures
 
at fair
 
value assets obtained
 
and liabilities incurred
 
in a
 
sale; and
 
recognizes in
earnings any gain or loss on the sale.
 
The guidance
 
on transfer
 
of financial
 
assets requires a
 
true sale
 
analysis of
 
the treatment
 
of the
 
transfer under state
 
law as
 
if the
Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the
nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a
true sale
 
is never
 
absolute and
 
unconditional, but
 
contains qualifications
 
based on
 
the inherent
 
equitable powers
 
of a
 
bankruptcy
court, as
 
well as
 
the unsettled
 
state of
 
the common
 
law.
 
Once the
 
legal isolation
 
test has
 
been met,
 
other factors
 
concerning the
nature
 
and
 
extent
 
of
 
the
 
transferor’s
 
control
 
over
 
the
 
transferred
 
assets
 
are
 
taken
 
into
 
account
 
in
 
order
 
to
 
determine
 
whether
derecognition of assets is warranted.
 
The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”)
 
in the normal course of business
and retains the servicing rights. The GNMA programs under which the loans
 
are sold allow the Corporation to repurchase individual
delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may
repurchase the delinquent
 
loan for an
 
amount equal to
 
100% of the
 
remaining principal balance
 
of the loan.
 
Once the Corporation
has the
 
unconditional ability
 
to repurchase
 
the delinquent
 
loan, the
 
Corporation is
 
deemed to
 
have regained
 
effective control
 
over
the
 
loan
 
and
 
recognizes
 
the
 
loan
 
on
 
its
 
balance
 
sheet
 
as
 
well
 
as
 
an
 
offsetting
 
liability,
 
regardless of
 
the
 
Corporation’s
 
intent
 
to
repurchase the loan.
Servicing assets
The
 
Corporation
 
periodically
 
sells
 
or
 
securitizes
 
loans
 
while
 
retaining
 
the
 
obligation
 
to
 
perform
 
the
 
servicing
 
of
 
such
 
loans.
 
In
addition,
 
the
 
Corporation
 
may
 
purchase
 
or
 
assume
 
the
 
right
 
to
 
service
 
loans
 
originated
 
by
 
others.
 
Whenever
 
the
 
Corporation
undertakes an
 
obligation to
 
service a
 
loan, management
 
assesses whether
 
a servicing
 
asset or
 
liability should
 
be recognized.
 
A
servicing
 
asset
 
is
 
recognized
 
whenever
 
the
 
compensation
 
for
 
servicing
 
is
 
expected
 
to
 
more
 
than
 
adequately
 
compensate
 
the
servicer
 
for
 
performing
 
the
 
servicing.
 
Likewise,
 
a
 
servicing
 
liability
 
would
 
be
 
recognized
 
in
 
the
 
event
 
that
 
servicing
 
fees
 
to
 
be
received are not
 
expected to adequately
 
compensate the Corporation
 
for its
 
expected cost. Mortgage servicing
 
assets recorded at
fair value are separately presented on the Consolidated
 
Statements of Financial Condition.
 
All separately recognized servicing assets are initially recognized at fair value. For subsequent measurement of
 
servicing rights, the
Corporation
 
has
 
elected
 
the
 
fair
 
value
 
method
 
for
 
mortgage
 
loans
 
servicing
 
rights
 
(“MSRs”).
 
Under
 
the
 
fair
 
value
 
measurement
method,
 
MSRs
 
are
 
recorded
 
at
 
fair
 
value
 
each
 
reporting
 
period,
 
and
 
changes
 
in
 
fair
 
value
 
are
 
reported
 
in
 
mortgage
 
banking
activities in the Consolidated Statement of Operations. Contractual
 
servicing fees including ancillary income and late
 
fees, as well as
fair
 
value
 
adjustments, are
 
reported in
 
mortgage
 
banking
 
activities in
 
the
 
Consolidated Statement
 
of
 
Operations. Loan
 
servicing
fees, which are based on a percentage of the principal balances of the
 
loans serviced, are credited to income as loan payments are
collected.
 
The fair value
 
of servicing rights is
 
estimated by using a
 
cash flow valuation model
 
which calculates the present value
 
of estimated
future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount
 
rates, servicing costs,
and other economic factors, which are determined
 
based on current market conditions.
Premises and equipment
 
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a
 
straight-
line basis over
 
the estimated useful
 
life of each
 
type of asset.
 
Amortization of leasehold
 
improvements is computed
 
over the fixed,
non-cancelable terms
 
of the
 
respective lease
 
contracts or
 
the
 
estimated useful
 
lives
 
of the
 
asset, whichever
 
is shorter.
 
Costs of
maintenance
 
and
 
repairs
 
which
 
do
 
not
 
improve
 
or
 
extend
 
the
 
life
 
of
 
the
 
respective
 
assets
 
are
 
expensed
 
as
 
incurred.
 
Costs
 
of
renewals
 
and
 
betterments
 
are
 
capitalized.
 
When
 
assets
 
are
 
disposed
 
of,
 
their
 
cost
 
and
 
related
 
accumulated
 
depreciation
 
are
removed from the accounts and any gain or loss
 
is reflected in earnings as realized or incurred,
 
respectively.
The
 
Corporation
 
recognizes
 
right-of-use
 
assets
 
(“ROU
 
assets”)
 
and
 
lease
 
liabilities
 
relating
 
to
 
operating
 
and
 
finance
 
lease
arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance
leases, interest is recognized on the
 
lease liability separately from the amortization
 
of the ROU asset, whereas for
 
operating leases
a single lease cost
 
is recognized so that
 
the cost of the
 
lease is allocated over
 
the lease term on
 
a straight-line basis. Impairments
on ROU assets are evaluated under the guidance for impairment
 
or disposal of long-lived assets.
 
The Corporation recognizes gains
on sale and
 
leaseback transactions in earnings when
 
the transfer constitutes a
 
sale, and the transaction
 
was at fair value.
 
Refer to
Note 32 to the Consolidated Financial Statements
 
for additional information on operating and finance
 
lease arrangements.
Impairment of long-lived assets
The
 
Corporation
 
evaluates
 
for
 
impairment
 
its
 
long-lived
 
assets
 
to
 
be
 
held
 
and
 
used,
 
and
 
long-lived
 
assets
 
to
 
be
 
disposed
 
of,
whenever events or changes
 
in circumstances indicate that the
 
carrying amount of an
 
asset may not be recoverable
 
and records a
write down for the difference between the carrying amount
 
and the fair value less costs to sell.
 
Other real estate
Other
 
real
 
estate,
 
received
 
in
 
satisfaction
 
of
 
a
 
loan,
 
is
 
recorded
 
at
 
fair
 
value
 
less
 
estimated
 
costs
 
of
 
disposal.
 
The
 
difference
between the carrying amount of the loan and the fair value less cost to
 
sell is recorded as an adjustment to the ACL. Subsequent to
foreclosure, any
 
losses in
 
the carrying
 
value arising
 
from periodic
 
re-evaluations of the
 
properties, and any
 
gains or
 
losses on
 
the
sale of these properties are credited or charged to expense in the period incurred and are included as OREO expenses. The cost of
maintaining and operating such properties is expensed
 
as incurred.
Updated appraisals
 
are obtained
 
to adjust
 
the value
 
of the
 
other real
 
estate assets.
 
The frequency
 
depends on
 
the loan
 
type and
total credit exposure. The appraisal for a commercial or construction other real estate property with a book value
 
equal to or greater
than $1 million is updated annually and if lower
 
than $1 million it is updated every two years.
 
For residential mortgage properties, the
Corporation requests appraisals annually.
 
Appraisals
 
may
 
be
 
adjusted
 
due
 
to
 
age,
 
collateral
 
inspections,
 
property
 
profiles,
 
or
 
general
 
market
 
conditions.
 
The
 
adjustments
applied are based upon
 
internal information such
 
as other appraisals for
 
the type of
 
properties and/or loss severity
 
information that
can provide historical trends in the real estate market
 
and may change from time to time based
 
on market conditions.
Goodwill and other intangible assets
Goodwill is recognized when the purchase price
 
is higher than the fair value
 
of net assets acquired in business combinations
 
under
the purchase
 
method of
 
accounting. Goodwill
 
is not
 
amortized but
 
is tested
 
for impairment
 
at least
 
annually or
 
more frequently
 
if
events or circumstances indicate possible impairment. If the
 
carrying amount of any of the
 
reporting units exceeds its fair value, the
Corporation would be required to record an impairment
 
charge for the difference up to the amount of the goodwill. In determining
 
the
fair
 
value
 
of
 
each
 
reporting
 
unit,
 
the
 
Corporation
 
generally
 
uses
 
a
 
combination
 
of
 
methods,
 
including
 
market
 
price
 
multiples
 
of
comparable companies and transactions, as well as discounted cash flow analysis. Goodwill impairment
 
losses are recorded as part
of operating expenses in the Consolidated Statements
 
of Operations.
 
Other intangible assets deemed
 
to have an
 
indefinite life are
 
not amortized but are
 
tested for impairment using
 
a one-step process
which compares the fair value with the carrying amount of the asset.
 
In determining that an intangible asset has an indefinite life, the
Corporation
 
considers
 
expected
 
cash
 
inflows
 
and
 
legal,
 
regulatory,
 
contractual,
 
competitive,
 
economic
 
and
 
other
 
factors,
 
which
could limit the intangible asset’s useful life.
 
Other
 
identifiable
 
intangible
 
assets
 
with
 
a
 
finite
 
useful
 
life,
 
mainly
 
core
 
deposits,
 
are
 
amortized
 
using
 
various
 
methods
 
over
 
the
periods
 
benefited,
 
which
 
range
 
from
 
5
 
to
 
10
 
years.
 
These
 
intangibles are
 
evaluated
 
periodically for
 
impairment
 
when
 
events
 
or
changes in circumstances
 
indicate that the carrying
 
amount may not
 
be recoverable. Impairments on
 
intangible assets with
 
a finite
useful life are evaluated under the guidance for
 
impairment or disposal of long-lived assets.
 
Assets sold / purchased under agreements to repurchase
 
/ resell
Repurchase and resell agreements
 
are treated as collateralized
 
financing transactions and are
 
carried at the
 
amounts at which the
assets will be subsequently reacquired or resold as
 
specified in the respective agreements.
It is the
 
Corporation’s policy to take possession
 
of securities purchased under agreements to
 
resell. However, the counterparties
 
to
such
 
agreements
 
maintain
 
effective
 
control
 
over
 
such
 
securities,
 
and
 
accordingly
 
those
 
securities
 
are
 
not
 
reflected
 
in
 
the
Corporation’s Consolidated Statements
 
of Financial
 
Condition. The Corporation
 
monitors the
 
fair value of
 
the underlying
 
securities
as compared to the related receivable, including accrued
 
interest.
 
It
 
is
 
the
 
Corporation’s
 
policy
 
to
 
maintain
 
effective
 
control
 
over
 
assets
 
sold
 
under
 
agreements
 
to
 
repurchase;
 
accordingly,
 
such
securities continue to be carried on the Consolidated
 
Statements of Financial Condition.
The Corporation may require counterparties to deposit
 
additional collateral or return collateral pledged,
 
when appropriate.
Software
Capitalized
 
software
 
is
 
stated
 
at
 
cost,
 
less
 
accumulated
 
amortization.
 
Capitalized
 
software
 
includes
 
purchased
 
software
 
and
capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line
method, is charged to operations
 
over the estimated useful life
 
of the software. Capitalized software is
 
included in “Other assets” in
the Consolidated Statement of Financial Condition.
Guarantees, including indirect guarantees of indebtedness
 
to others
The estimated losses to be absorbed under the credit
 
recourse arrangements are recorded as a liability when
 
the loans are sold and
are updated by
 
accruing or reversing expense
 
(categorized in the line
 
item “Adjustments (expense) to
 
indemnity reserves on loans
sold”
 
in
 
the
 
Consolidated
 
Statements
 
of
 
Operations)
 
throughout
 
the
 
life
 
of
 
the
 
loan,
 
as
 
necessary,
 
when
 
additional
 
relevant
information
 
becomes
 
available.
 
The
 
methodology
 
used
 
to
 
estimate
 
the
 
recourse
 
liability
 
considers
 
current
 
conditions,
macroeconomic expectations through a 2-years reasonable and supportable period, gradually reverting to historical macroeconomic
variables at the model input level over a 3-year period, portfolio
 
composition by risk characteristics, amongst other factors. Statistical
methods are used
 
to estimate the
 
recourse liability.
 
Expected loss rates
 
are applied to
 
different loan segmentations.
 
The expected
loss, which
 
represents the
 
amount expected
 
to be
 
lost on
 
a given
 
loan, considers
 
the probability
 
of default
 
and loss
 
severity.
 
The
reserve
 
for
 
the
 
estimated
 
losses
 
under
 
the
 
credit
 
recourse
 
arrangements
 
is
 
presented
 
separately
 
within
 
other
 
liabilities
 
in
 
the
Consolidated Statements of
 
Financial Condition. Refer
 
to Note
 
22 to
 
the Consolidated Financial
 
Statements for further
 
disclosures
on guarantees.
Treasury stock
Treasury stock is
 
recorded at cost and
 
is carried as a
 
reduction of stockholders’ equity in
 
the Consolidated Statements of Financial
Condition.
 
At the
 
date of
 
retirement or
 
subsequent reissue,
 
the treasury
 
stock account
 
is reduced
 
by
 
the cost
 
of such
 
stock.
 
At
retirement, the excess of the cost of the treasury stock over
 
its par value is recorded entirely to surplus. At reissuance,
 
the difference
between the consideration received upon issuance and
 
the specific cost is charged or credited to surplus.
 
Revenues from contract with customers
Refer
 
to
 
Note
 
31
 
for
 
a
 
detailed
 
description
 
of
 
the
 
Corporation’s
 
policies
 
on
 
the
 
recognition
 
and
 
presentation
 
of
 
revenues
 
from
contract with customers.
Foreign exchange
Assets and liabilities
 
denominated in foreign currencies
 
are translated to U.S.
 
dollars using prevailing rates
 
of exchange at
 
the end
of
 
the
 
period.
 
Revenues, expenses,
 
gains
 
and
 
losses
 
are
 
translated using
 
weighted
 
average
 
rates
 
for
 
the
 
period.
 
The
 
resulting
foreign currency translation adjustment
 
from operations for which
 
the functional currency is
 
other than the U.S.
 
dollar is reported in
accumulated
 
other comprehensive
 
income
 
(loss), except
 
for
 
highly inflationary
 
environments in
 
which the
 
effects
 
are
 
included
 
in
other operating expenses.
The Corporation
 
holds interests
 
in Centro
 
Financiero BHD
 
León, S.A.
 
(“BHD León”)
 
in the
 
Dominican Republic.
 
The business
 
of
BHD León is
 
mainly conducted in their
 
country’s foreign currency.
 
The resulting foreign currency
 
translation adjustment from these
operations is reported in accumulated other comprehensive
 
income (loss).
 
Refer to the disclosure of accumulated other comprehensive
 
income (loss) included in Note 21.
Income taxes
The Corporation
 
recognizes deferred tax
 
assets and
 
liabilities for
 
the expected
 
future tax
 
consequences of
 
events that
 
have been
recognized in
 
the Corporation’s
 
financial statements
 
or tax
 
returns. Deferred
 
income tax
 
assets and
 
liabilities are
 
determined for
differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible
 
amounts in the
future.
 
The
 
computation
 
is
 
based
 
on
 
enacted
 
tax
 
laws
 
and
 
rates
 
applicable
 
to
 
periods
 
in
 
which
 
the
 
temporary
 
differences
 
are
expected to be recovered or settled.
 
The
 
guidance for
 
income
 
taxes
 
requires a
 
reduction of
 
the
 
carrying
 
amounts
 
of
 
deferred tax
 
assets
 
by
 
a valuation
 
allowance if,
based on the available evidence, it is more likely
 
than not (defined as a likelihood of more
 
than 50 percent) that such assets will not
be
 
realized.
 
Accordingly,
 
the
 
need
 
to
 
establish
 
valuation
 
allowances
 
for
 
deferred
 
tax
 
assets
 
is
 
assessed
 
periodically
 
by
 
the
Corporation
 
based
 
on
 
the
 
more
 
likely
 
than
 
not
 
realization
 
threshold
 
criterion.
 
In
 
the
 
assessment
 
for
 
a
 
valuation
 
allowance,
appropriate consideration
 
is given
 
to all
 
positive and
 
negative evidence
 
related to
 
the realization
 
of the
 
deferred tax
 
assets. This
assessment considers, among others,
 
all sources of
 
taxable income available to
 
realize the deferred tax
 
asset, including the future
reversal of existing temporary differences, the future taxable income
 
exclusive of reversing temporary differences and carryforwards,
taxable income in carryback years and tax-planning strategies. In making such
 
assessments, significant weight is given to evidence
that can be objectively verified.
 
The valuation
 
of deferred
 
tax assets
 
requires judgment
 
in assessing
 
the likely
 
future tax
 
consequences of
 
events that
 
have been
recognized in the Corporation’s financial statements or tax returns and future profitability.
 
The Corporation’s accounting for deferred
tax consequences represents management’s best estimate
 
of those future events.
 
Positions taken in
 
the Corporation’s
 
tax returns may
 
be subject to
 
challenge by the
 
taxing authorities upon
 
examination. Uncertain
tax positions
 
are initially
 
recognized in the
 
financial statements when
 
it is
 
more likely than
 
not (greater than
 
50%) that
 
the position
will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts.
 
The amount
of unrecognized tax benefit may increase or decrease in
 
the future for various reasons including adding amounts for
 
current tax year
positions,
expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level
of
 
uncertainty,
 
including
 
addition
 
or
 
elimination
 
of
 
uncertain
 
tax
 
positions,
 
status
 
of
 
examinations, litigation,
 
settlements
 
with
 
tax
authorities and legislative activity.
The Corporation accounts for the taxes collected from customers
 
and remitted to governmental authorities on a net
 
basis (excluded
from revenues).
Income
 
tax
 
expense
 
or
 
benefit
 
for
 
the
 
year
 
is
 
allocated
 
among
 
continuing
 
operations,
 
discontinued
 
operations,
 
and
 
other
comprehensive income (loss), as applicable. The amount allocated to continuing operations is the tax effect of the pre-tax income or
loss from continuing operations that occurred during the year, plus or minus
 
income tax effects of (a) changes in circumstances that
cause
 
a
 
change
 
in
 
judgment
 
about
 
the
 
realization
 
of
 
deferred
 
tax
 
assets
 
in
 
future
 
years,
 
(b)
 
changes
 
in
 
tax
 
laws
 
or
 
rates,
 
(c)
changes in tax status, and (d) tax-deductible
 
dividends paid to stockholders, subject to certain
 
exceptions.
Employees’ retirement and other postretirement benefit
 
plans
Pension costs are
 
computed on the
 
basis of accepted
 
actuarial methods and are
 
charged to current
 
operations. Net pension costs
are based
 
on various actuarial
 
assumptions regarding future
 
experience under the
 
plan, which include
 
costs for services
 
rendered
during the
 
period, interest
 
costs and
 
return on
 
plan assets,
 
as well
 
as deferral
 
and amortization
 
of certain
 
items such
 
as actuarial
gains or losses.
 
The funding policy is
 
to contribute to the
 
plan, as necessary,
 
to provide for services
 
to date and for
 
those expected to be
 
earned in
the
 
future.
 
To
 
the
 
extent
 
that
 
these
 
requirements
 
are
 
fully
 
covered
 
by
 
assets
 
in
 
the
 
plan,
 
a
 
contribution
 
may
 
not
 
be
 
made
 
in
 
a
particular year.
The cost
 
of postretirement
 
benefits, which
 
is determined
 
based on
 
actuarial assumptions
 
and estimates
 
of the
 
costs of
 
providing
these benefits in the future, is accrued during
 
the years that the employee renders the required
 
service.
The guidance for compensation
 
retirement benefits of ASC
 
Topic
 
715 requires the recognition
 
of the funded status
 
of each defined
pension
 
benefit
 
plan,
 
retiree
 
health
 
care
 
and
 
other
 
postretirement
 
benefit
 
plans
 
on
 
the
 
Consolidated
 
Statements
 
of
 
Financial
Condition.
 
Stock-based compensation
The
 
Corporation
 
opted
 
to
 
use
 
the
 
fair
 
value
 
method
 
of
 
recording
 
stock-based
 
compensation
 
as
 
described
 
in
 
the
 
guidance
 
for
employee share plans in ASC Subtopic 718-50.
Comprehensive income
 
Comprehensive income
 
(loss) is
 
defined as
 
the change
 
in equity
 
of
 
a business
 
enterprise during
 
a period
 
from
 
transactions and
other events
 
and circumstances,
 
except those
 
resulting from
 
investments by
 
owners and
 
distributions to
 
owners. Comprehensive
income (loss) is separately presented in the Consolidated
 
Statements of Comprehensive Income.
Net income per common share
Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or
unpaid dividends
 
if cumulative,
 
and charges
 
or credits
 
related to
 
the extinguishment
 
of preferred
 
stock or
 
induced conversions
 
of
preferred stock, by the weighted average number of
 
common shares outstanding during the year. Diluted income per common
 
share
takes into consideration the weighted average common shares adjusted for the effect of stock options, restricted stock, performance
shares and warrants, if any, using the treasury stock method.
Statement of cash flows
For purposes of reporting cash flows, cash includes
 
cash on hand and amounts due from banks, including
 
restricted cash.