Stock-based compensation

3 Months Ended

Mar. 31, 2021

Disclosure Text Block Abstract

Stock-based Compensation

Note 29 - Stock-based compensation

On May 12, 2020, the stockholders of the Corporation approved the Popular, Inc. 2020 Omnibus Incentive Plan, which permits the Corporation to issue several types of stock-based compensation to employees and directors of the Corporation and/or any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan, which was in effect prior to the adoption of the 2020 Incentive Plan (the “2004 Incentive Plan” and, together with the 2020 Incentive Plan, the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares for its employees and restricted stock and restricted stock units (“RSU”) to its directors.

The restricted stock granted under the Incentive Plan to employees becomes 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 is 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. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending on the classification of the employee.

The performance share award granted under the Incentive Plan 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 2021, the EPS goal is substituted by the Absolute Return on Average Assets (“ROA”) goal and the Absolute Return on Average Tangible Common Equity (“ROATCE”) respectively. 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, ROA and ROATCE metrics are considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS, ROA or ROATCE goal as of each reporting period. The TSR and EPS, ROA or ROATCE 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, ROA and ROATCE) 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, 2019	345,365	$	41.68
Granted	253,943		42.49
Performance Shares Quantity Adjustment	(7)		48.79
Vested	(234,421)		42.64
Forfeited	(6,368)		44.26
Non-vested at December 31, 2020	358,512	$	41.23
Granted	124,613		66.84
Performance Shares Quantity Adjustment	46,704		51.48
Vested	(193,946)		57.16
Non-vested at March 31, 2021	335,883	$	42.96

During the quarter ended March 31, 2021, 53,239 shares of restricted stock (March 31, 2020 - 87,706) and 71,374 performance shares (March 31, 2020 - 64,815) were awarded to management under the Incentive Plan.

During the quarter ended March 31, 2021, the Corporation recognized $3.9 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.5 million (March 31, 2020 - $3.6 million, with a tax benefit of $0.4 million). For the quarter ended March 31, 2021, the fair market value of the restricted stock and performance shares vested was $3.2 million at grant date and $4.3 million at vesting date. This differential triggers a windfall, of $1.7 million that was recorded as a reduction in income tax expense. For the quarter ended March 31, 2021, the Corporation recognized $4.3 million of performance shares expense, with a tax benefit of $0.4 million (March 31, 2020 - $2.5 million, with a tax benefit of $0.2 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31, 2021 was $9.9 million and is expected to be recognized over a weighted-average period of 2.21 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 units		Weighted-Average Grant Date Fair Value per Unit
Non-vested at December 31, 2019	$	-	$	-
Granted		43,866		35.47
Vested		(43,866)		35.47
Forfeited		-		-
Non-vested at December 31, 2020	$	-	$	-
Granted		524		55.23
Vested		(524)		55.23
Forfeited		-		-
Non-vested at March 31, 2021	$	-	$	-

The equity awards granted to members of the Board of Directors of Popular, Inc. (the “Directors”) will vest and become non-forfeitable on the grant date of such award. Effective on May 2019 all equity awards granted to the Directors may be paid in either restricted stocks or RSU, at the Directors’ election. If RSU are elected the Directors may defer the delivery of the shares of common stocks underlying the RSU award after their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the Directors will receive an additional number of RSU that reflect reinvested dividend equivalent.

For 2020 and 2021, all Directors elected RSU. During the quarter ended March 31, 2021, 524 RSU were granted to the Directors (March 31, 2020 - 298). During this period, the Corporation recognized $29 thousand of restricted stock expense related to these RSU, with a tax benefit of $5 thousand (March 31, 2020 - $18 thousand, with a tax benefit of $2 thousand). The fair value at vesting date of the RSU vested during the quarter ended March 31, 2021 for directors was $29 thousand