8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  May 22, 2018

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico	001-34084	66-0667416
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification Number)

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) 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

	☐	Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 1.02. Termination of a Material Definitive Agreement.

On May 22, 2018, Banco Popular de Puerto Rico (“Banco Popular”), the Puerto Rico banking subsidiary of Popular, Inc. (the “Corporation”), entered into a Termination Agreement (the “Termination Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”) to provide for the early termination of the Single Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement (collectively, the “Shared-Loss Agreements”) executed by and between Banco Popular and the FDIC in connection to Banco Popular’s acquisition on April 30, 2010 of certain assets and assumption of certain liabilities of Westernbank Puerto Rico through an FDIC-assisted transaction (the “FDIC Transaction”).

Under the terms of the Shared-Loss Agreements, the FDIC would reimburse Banco Popular for 80% of losses with respect to assets covered by such agreements, and Banco Popular would reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC reimbursed Banco Popular under the Shared-Loss Agreements. The Single Family Shared-Loss Agreement provided for FDIC loss sharing and Banco Popular’s reimbursement to the FDIC for a term of ten years expiring on June 30, 2020.  The loss-share component of the Commercial Shared-Loss Agreement expired during the quarter ended June 30, 2015, but the agreement provided for reimbursement of recoveries to the FDIC to continue through the quarter ending June 30, 2018.

As a result of entering into the Termination Agreement, assets that were covered by the Shared-Loss Agreements, including covered loans in the amount of approximately $514.6 million and covered real estate owned assets in the amount of approximately $15.3 million as of March 31, 2018, will be reclassified as non-covered. Banco Popular will now recognize entirely all future credit losses, expenses, gains, and recoveries related to the formerly covered assets with no offset due to or from the FDIC.

 As of March 31, 2018, the Corporation had an FDIC Loss Share Asset in its financial statements of $44.5 million related to the covered assets. Additionally, as part of the Shared-Loss Agreements, Banco Popular also had agreed to make a true-up payment to the FDIC on the date that is 45 days following the last day of the final shared-loss month, or upon the final disposition of all covered assets under the Shared-Loss Agreements, in the event losses on the Shared-Loss Agreements failed to reach expected levels. The estimated fair value of such true-up payment obligation at March 31, 2018 was approximately $171.0 million.

Under the terms of the Termination Agreement, Banco Popular made a payment of approximately $23.7 million to the FDIC (the “Termination Payment”) as consideration for the termination of the Shared-Loss Agreements.  The Corporation expects to record a pre-tax gain of approximately $95.0 million, as a result of the Termination Agreement, calculated based on the difference between the Termination Payment and the net amount of the true-up payment obligation and the FDIC Loss Share Asset, less related professional and advisory fees associated with the Termination Agreement. Net of income tax expense of $45.2 million, the Termination Agreement will result in a contribution of $49.8 million to net income. Pursuant to the Termination Agreement, all rights and obligations of Banco Popular and the FDIC under the Shared-Loss Agreements, including the true-up payment obligation, terminated as of May 22, 2018.

In June 2012, the Puerto Rico Department of the Treasury and the Corporation entered into a Tax Closing Agreement (the “Tax Closing Agreement”) to clarify the tax treatment related to the loans acquired in the FDIC Transaction in accordance with the provisions of the Puerto Rico Tax Code. The Tax Closing Agreement provides that these loans are capital assets and any principal amount collected in excess of the amount paid for such loans will be taxed as a capital gain. The Tax Closing Agreement further provides that the Corporation’s tax liability upon the termination of the Shared-Loss Agreements be calculated based on the “deemed sale” of the underlying loans. As a result, the Corporation expects to recognize an approximate income tax benefit of $111.4 million. This income tax benefit is composed of an increase in the deferred tax asset balance of $160.3 million related to the increase in tax basis as a result of the “deemed sale”, net of the additional income tax expense of $48.9 million associated with the “deemed sale” incremental tax liability at the capital gains rate per the Tax Closing Agreement.

The combined effect of the Termination Agreement and the Tax Closing Agreement is a contribution of $161.2 million to net income, as shown in the following table:

(Unaudited)
($'s in thousands)	Termination Agreement		Tax Closing Agreement			Total
FDIC loss-share income	$	102,752		-		$	102,752
Total non-interest income		102,752		-			102,752
Operating expenses:							-
Professional fees		7,791		-			7,791
Total operating expenses		7,791		-			7,791
Income before income tax		94,961		-			94,961
Income tax expense (benefit)		45,187		(111,377	)		(66,190	)
Net income	$	49,774	$	111,377		$	161,151

The foregoing summary of the Termination Agreement is not complete and is qualified in its entirety by reference to the full text of the Termination Agreement, a copy of which is attached hereto as Exhibit 99.1 and incorporated by reference herein.

Item 8.01. Other Events.

On May 23, 2018, the Corporation issued a press release announcing the termination of the Shared-Loss Agreements. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.2.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

99.1 Termination Agreement, dated May 22, 2018, by and among the Federal Deposit Insurance Corporation, as receiver of Westernbank Puerto Rico, the Federal Deposit Insurance Corporation, in its corporate capacity, and Banco Popular de Puerto Rico.

99.2 Press Release dated May 23, 2018.

Exhibit 99.2 shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference into any of the Corporation’s filings under the Securities Act of 1933, as amended, unless otherwise expressly stated in such filing.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	POPULAR, INC.
	(Registrant)
Date: May 23, 2018	By:	/s/ Javier D. Ferrer
		Javier D. Ferrer
		Executive Vice President, General Counsel and Secretary

EX-99.1

Exhibit 99.1

TERMINATION AGREEMENT

AMONG

FEDERAL DEPOSIT INSURANCE CORPORATION

RECEIVER OF WESTERNBANK PUERTO RICO,

MAYAGUEZ, PUERTO RICO

FEDERAL DEPOSIT INSURANCE CORPORATION

and

BANCO POPULAR DE PUERTO RICO

HATO REY, PUERTO RICO

DATED AS OF

MAY 22, 2018

TERMINATION AGREEMENT

THIS TERMINATION AGREEMENT (the “Agreement”), is made and entered into as of the 22^nd day of May, 2018, by and among the FEDERAL DEPOSIT INSURANCE CORPORATION as RECEIVER OF WESTERNBANK, PUERTO RICO (the “Receiver”), BANCO POPULAR DE PUERTO RICO, organized under the  laws of the Commonwealth of Puerto Rico and having its principal place of business in HATO REY, PUERTO RICO (the “Assuming Institution”), and the FEDERAL DEPOSIT INSURANCE CORPORATION, organized under the laws of the United States of America and having its principal office in Washington, D.C., acting in its corporate capacity (the “Corporation”).

RECITALS

A. The Receiver, the Assuming Institution  and the Corporation entered into a Purchase and Assumption Agreement (“P&A Agreement”) dated as of April 30, 2010 which included a Single Family Shared-Loss Agreement as Exhibit 4.15A (“SFSLA”) and a Commercial Shared-Loss Agreement as Exhibit 4.15B (“CSLA”);

B. The Receiver, the Assuming Institution and the Corporation desire to terminate the SFSLA and the CSLA (the “Shared-Loss Agreements”).

NOW, THEREFORE, in consideration of the mutual promises herein set forth and other valuable consideration, the parties hereto agree as follows:

ARTICLE I

CLOSING

Except as noted below in Section 2.1 and subject to the satisfaction, or waiver in writing of the conditions precedent set forth in Article III, the transactions contemplated by this Agreement shall be consummated at a closing (the "Closing") to be held in person or by electronic means, as the Receiver shall direct, on May 22, 2018, or such earlier or later date, or in such other manner, as the parties hereto may agree in writing (the "Closing Date").

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ARTICLE II

PAYMENTS AND TERMINATION

2.1Payment of Termination Amount.   Within two Business Days after the Closing Date, subject to the satisfaction or waiver in writing of the conditions precedent set forth herein, the Assuming Institution shall pay or cause to be paid to the Receiver by wire transfer in immediately available funds Twenty Three Million Seven Hundred Forty Eight Thousand Nine Hundred Thirty One Dollars ($23,748,931) (the "Termination Amount").  The Assuming Institution and the Receiver hereby acknowledge that the amount of shared-loss claims filed by the Assuming Institution but not yet paid by the Receiver were accounted for in the calculation of the Termination Amount.

2.2Termination of the Shared-Loss Agreements.  Upon the occurrence of the Closing and subsequent payment of the Termination Amount all rights and obligations of the parties to make and receive payments pursuant to the Shared-Loss Agreements and all rights and obligations of the parties thereto, shall terminate effective as of the Closing Date.

2.3                Legal Action; Utilization of Special Receivership Powers.  As of the ClosingDate, the Assuming Institution’s right, under Article III of the Shared-Loss Agreements, to request to utilize any special legal power or right which the Assuming Institution derived as a result of having acquired an asset from the Receiver shall terminate; provided, however, any prior requests to utilize such special powers or rights that were granted by the Receiver shall not be affected hereby, and the Assuming Institution may continue to use such special legal rights or powers in the litigation in which the permission to use those special legal powers or rights was given.  Notwithstanding the foregoing, the Assuming Institution shall continue to have all rights and remedies available to it under applicable state and federal laws, which shall not be limited or altered by this Agreement.

ARTICLE III

CONDITIONS PRECEDENT

The obligations of the parties to this Agreement are subject to the Receiver and the Corporation having received at or before the Closing Date evidence reasonably satisfactory to each of any necessary approval, waiver, or other action by any governmental authority, the board of directors of the Assuming Institution, or other third party, with respect to this Agreement and the transactions contemplated hereby, and any agreements, documents, matters or proceedings contemplated hereby or thereby.

ARTICLE IV

MISCELLANEOUS

4.1                No Third Party Beneficiary.   Nothing expressed or referred to in this Agreement is intended or shall be construed to give any Person other than the Receiver, the Corporation and the Assuming Institution (and their respective successors and assigns)  any legal or equitable right, remedy or claim under or with respect to this Agreement or any provisions contained herein, it being the intention of the parties hereto that this Agreement, the obligations and statements of responsibilities hereunder, and all other conditions and provisions hereof are for the sole and exclusive benefit of the Receiver, the Corporation and the Assuming Institution and that there be no other third party beneficiaries. 

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4.2                Rights Cumulative.   Except as otherwise expressly provided herein, the rights of each of the parties under this Agreement are cumulative, may be exercised as often as any party considers appropriate and are in addition to each such party’s rights under this Agreement, any of the agreements related thereto or under applicable law.  Any failure to exercise or any delay in exercising any of such rights, or any partial or defective exercise of such rights, shall not operate as a waiver or variation of that or any other such right, unless expressly otherwise provided.

4.3Entire Agreement.  This Agreement embodies the entire agreement of the parties hereto in relation to the subject matter herein and supersedes all prior understandings or agreements, oral or written, between the parties.

4.4Counterparts.

(a)This Agreement may be executed in any number of counterparts and by the duly authorized representative of a different party hereto on separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement.

(b)Each counterpart of this Agreement will be treated in all manner and respects as an original agreement and will be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No signatory to this Agreement may raise the use of a facsimile machine or other electronic means to deliver an executed document or the fact that any signature or agreement was transmitted or communicated through the use of a facsimile machine or other electronic means as a defense to the formation or enforceability of a contract and each party hereto forever waives any such defense.

4.5                GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE FEDERAL LAW OF THE UNITED STATES OF AMERICA, AND IN THE ABSENCE OF CONTROLLING FEDERAL LAW, IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH IN WHICH THE MAIN OFFICE OF THE FAILED BANK WAS LOCATED.

4.6                Successors.  All terms and conditions of this Agreement shall be binding on the successors and assigns of the Receiver, the Corporation and the Assuming Institution.

4.7Modification.  No amendment or other modification, rescission or release of any part of this Agreement shall be effective except pursuant to a written agreement subscribed by the duly authorized representatives of the parties hereto.

4.8Manner of Payment.  All payments due under this Agreement shall be in lawful money of the United States of America in immediately available funds as party hereto may specify to the other parties; provided that in the event the Receiver or the Corporation is obligated to make any payment hereunder in the amount of $25,000.00 or less, such payment may be made by check.

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4.9Waiver.  Each of the Receiver, the Corporation and the Assuming Institution may waive its respective rights, powers or privileges under this Agreement; provided that such waiver shall be in writing; and further provided that no failure or delay on the part of the Receiver, the Corporation or the Assuming Institution to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor will any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege by the Receiver, the Corporation, or the Assuming Institution under this Agreement, nor will any such waiver operate or be construed as a future waiver of such right, power or privilege under this Agreement.

4.10              Severability.  If any provision of this Agreement is declared invalid or unenforceable, then, to the extent possible, all of the remaining provisions of this Agreement shall remain in full force and effect and shall be binding upon the parties hereto.

4.11             Survival of Covenants.  The covenants, representations, and warranties in this Agreement shall survive the execution of this Agreement and the consummation of the transactions contemplated hereunder.

4.12             Capitalized Terms. Capitalized terms not otherwise defined herein shall have the meanings given such terms in the P&A Agreement or the Shared-Loss Agreements, as applicable.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by themselves or their respective officers, as the case may be, as of the day and year first above written.

	FEDERAL DEPOSIT INSURANCE CORPORATION,
	RECEIVER OF WESTERNBANK PUERTO RICO
	BY:	/s/ Robert N. Stoner, Jr.
	NAME:	Robert N. Stoner, Jr.
	TITLE:	Assistant Director, DRR
Attest:
/s/ Sherry J. Chen
	FEDERAL DEPOSIT INSURANCE CORPORATION
	BY:	/s/ Robert N. Stoner, Jr.
	NAME:	Robert N. Stoner, Jr.
	TITLE:	Assistant Director, DRR
Attest:
/s/ Sherry J. Chen
	BANCO POPULAR DE PUERTO RICO
	BY:	/s/ Lidio V. Soriano
	NAME:	Lidio V. Soriano
	TITLE:	Executive Vice President & Chief Risk Officer
Attest:
/s/ Javier D. Ferrer
Javier D. Ferrer
Executive Vice President & Chief Legal Officer

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EX-99.2

Exhibit 99.2

Popular Announces Early Termination of FDIC Shared-Loss Agreements

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--May 23, 2018--Popular, Inc. (“Popular") (NASDAQ:BPOP), parent company for Banco Popular de Puerto Rico (“Banco Popular”), announced today that, on May 22, 2018, Banco Popular entered into a Termination Agreement (the “Termination Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”) to terminate all Shared-Loss Agreements in connection with the acquisition of certain assets and assumption of certain liabilities of Westernbank Puerto Rico through an FDIC-assisted transaction in 2010 (the “FDIC Transaction”).

As a result of the Termination Agreement, assets that were covered by the Shared-Loss Agreements, including covered loans in the amount of approximately $514.6 million and covered real estate owned assets in the amount of approximately $15.3 million as of March 31, 2018, will be reclassified as non-covered. Banco Popular will now recognize entirely all future credit losses, expenses, gains, and recoveries related to the formerly covered assets with no offset due to or from the FDIC.

Under the terms of the Termination Agreement, Banco Popular made a payment of approximately $23.7 million to the FDIC as consideration for the termination of the Shared-Loss Agreements. Popular is expected to record a pre-tax gain of approximately $95.0 million, calculated based on the difference between the Termination Payment and the estimated net obligation due to the FDIC as of March 31, 2018. Net of income tax expense of $45.2 million, the Termination Agreement will contribute $49.8 million to net income.

“We are pleased to have successfully negotiated the early termination of our shared-loss agreements with the FDIC,” said Ignacio Alvarez, President and Chief Executive Officer of Popular. “We are now focused on realizing the expected benefits of this transaction, which include lower operating expenses, greater flexibility to manage these assets and simpler financial reporting.”

In June 2012, the Puerto Rico Department of the Treasury and Popular entered into a Tax Closing Agreement (the “Tax Closing Agreement”) to clarify the tax treatment related to the loans acquired in the FDIC Transaction. The Tax Closing Agreement provides that any principal amount collected in excess of the amount paid for such loans will be taxed as a capital gain and that, Popular’s tax liability upon termination of the Shared-Loss Agreements, be calculated based on the “deemed sale” of the underlying loans. Popular expects to recognize an income tax benefit of approximately $111.4 million, composed of an increase in the deferred tax asset balance of $160.3 million due to the increase in tax basis as a result of the “deemed sale”, net of the additional income tax expense of $48.9 million associated with the incremental tax liability at the capital gains rate per the Tax Closing Agreement.

The combined effect of the Termination Agreement and the Tax Closing Agreement is a contribution of $161.2 million to net income.

Founded in 1893, Popular, Inc. is the leading banking institution by both assets and deposits in Puerto Rico and ranks among the top 50 U.S. banks by assets. In Puerto Rico and the U.S. Virgin Islands, Popular provides retail, mortgage and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico, as well as auto and equipment leasing and financing, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the mainland United States, Popular provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank, which has branches located in New York, New Jersey and Florida.

CONTACT:
Popular, Inc.
Media Relations:
Teruca Rullán, 917-679-3596 or 787-281-5170
or
Investor Relations:
Brett Scheiner, 212-417-6721