Stock-based compensation

3 Months Ended

Mar. 31, 2020

Disclosure Text Block

Stock-based Compensation

Note 30 - Stock-based compensation

The Popular, Inc. 2004 Omnibus Incentive Plan (the “Incentive Plan”) permits the issuance of several types of stock based compensation for employees and directors of the Corporation and/or any of its subsidiaries. Participants in the Incentive Plan are designated by the Compensation Committee of the Board of Directors (or its delegate as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stocks and performance shares for its employees and restricted stocks and restricted stock units (“RSU”), to its directors.

The restricted stocks for employees will become vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service (“the retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service. The vesting schedule for restricted shares granted on or after 2014 was modified as follows, the graduated vesting portion is vested ratably over four years commencing at the date of the grant and the retirement vesting portion is vested at termination of employment after attainment of the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.

The performance share awards consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Earnings per Share (“EPS”) goals. For grants issued on 2020 and thereafter, the EPS goal is substituted by the Absolute Return on Average Assets (“ROA”) goal. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The EPS and ROA metrics are considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS or ROA goal as of each reporting period. The TSR and EPS or ROA metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS and ROA) conditions. The performance shares vest at the end of the three-year performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.

The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.

(Not in thousands)	Shares		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2018	382,186	$	36.41
Granted	218,169		55.55
Performance Shares Quantity Adjustment	15,061		55.72
Vested	(270,051)		44.73
Non-vested at December 31, 2019	345,365	$	41.68
Granted	152,521		47.68
Performance Shares Quantity Adjustment	(7)		48.79
Vested	(160,333)		44.17
Non-vested at March 31, 2020	337,546	$	42.83

During the quarter ended March 31, 2020, 87,706 shares of restricted stock (March 31, 2019 - 84,590) and 64,815 performance shares (March 31, 2019 - 65,369) were awarded to management under the Incentive Plan.

During the quarter ended March 31, 2020, the Corporation recognized $3.6 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.4 million (March 31, 2019 - $3.8 million, with a tax benefit of $0.4 million). For

the quarter ended March 31, 2020, the fair market value of the restricted stock and performance shares vested was $7 million at grant date and $8.7 million at vesting date. This differential triggers a windfall, of $0.6 million that was recorded as a reduction in income tax expense. For the quarter ended March 31, 2020, the Corporation recognized $2.5 million of performance shares expense, with a tax benefit of $0.2 million (March 31, 2019 - $3.6 million, with a tax benefit of $0.3 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31, 2020 was $9.8 million and is expected to be recognized over a weighted-average period of 2.28 years.

The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:

(Not in thousands)	Restricted Stock shares		Weighted-Average Grant Date Fair Value per Share	Restricted Stock units		Weighted-Average Grant Date Fair Value per Unit
Non-vested at December 31, 2018	-	$	-	-	$	-
Granted	1,052		49.25	27,449		57.64
Vested	(1,052)		49.25	(27,449)		57.64
Forfeited	-		-	-		-
Non-vested at December 31, 2019	-	$	-	-	$	-
Granted	-		-	298		59.29
Vested	-		-	(298)		59.29
Forfeited	-		-	-		-
Non-vested at March 31, 2020	-	$	-	-	$	-

Effective on May 2019, all equity awards granted to the directors may be paid in either restricted stocks or RSU, at the directors’ election. For the year 2019, all directors elected RSU. The directors’ equity awards will vest and become non-forfeitable on the grant date of such award. At the director’s option, the shares of common stocks underlying the RSU award shall be delivered to the director after its retirement, either on a fix date or in annual installments. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the director will receive an additional number of RSU that reflect reinvested dividend equivalent.During the quarter ended March 31, 2020, no shares of restricted stock were granted to members of the Board of Directors of Popular, Inc. (March 31, 2019 - 1,052) and 298 RSU were granted to members of the Board of Directors of Popular, Inc. During this period, the Corporation did not recognized any expense related to these restricted stock shares, (March 31, 2019 - $0.1 million, with a tax benefit of $6 thousand) and recognized $ 18 thousand of restricted stock expense related to these RSU, with a tax benefit of $2 thousand. The fair value at vesting date of the RSU vested during the quarter ended March 31, 2020 for directors was $18 thousand