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Guarantees
 12 Months Ended
Dec. 31, 2022
Guarantees  
Guarantees
Note 23 – Guarantees
The Corporation
 
has obligations
 
upon the
 
occurrence of
 
certain events
 
under financial
 
guarantees provided
 
in certain
 
contractual
agreements as summarized below.
The
 
Corporation
 
issues
 
financial
 
standby
 
letters
 
of
 
credit
 
and
 
has
 
risk
 
participation
 
in
 
standby
 
letters
 
of
 
credit
 
issued
 
by
 
other
financial institutions, in each case to guarantee the performance of various
 
customers to third parties. If the customers failed to meet
its financial
 
or performance
 
obligation to
 
the third
 
party under
 
the terms
 
of the
 
contract, then,
 
upon their
 
request, the
 
Corporation
would be obligated to make the payment to the guaranteed party. At December 31, 2022, the Corporation recorded a liability of $
0.3
million (December
 
31, 2021
 
- $
0.2
 
million), which
 
represents the
 
unamortized balance of
 
the obligations undertaken
 
in issuing
 
the
guarantees under the standby
 
letters of credit.
 
In accordance with the
 
provisions of ASC Topic
 
460, the Corporation recognizes at
fair value the obligation at
 
inception of the standby letters
 
of credit. The fair value
 
approximates the fee received from the
 
customer
for issuing such commitments. These fees are deferred and are recognized over the commitment period. The contracted amounts
 
in
standby letters of
 
credit outstanding at
 
December 31, 2022
 
and 2021, shown
 
in Note 24,
 
represent the maximum
 
potential amount
of future
 
payments that
 
the Corporation
 
could be
 
required to
 
make under
 
the guarantees
 
in the
 
event of
 
nonperformance by
 
the
customers. These
 
standby letters
 
of credit
 
are used
 
by the
 
customers as
 
a credit
 
enhancement and
 
typically expire
 
without being
drawn
 
upon.
 
The
 
Corporation’s
 
standby
 
letters
 
of
 
credit
 
are
 
generally
 
secured,
 
and
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
customers, the Corporation has rights to the underlying
 
collateral provided, which normally includes cash,
 
marketable securities, real
estate, receivables, and others. Management does
 
not anticipate any material losses related to these
 
instruments.
Also, from
 
time to
 
time, the
 
Corporation securitized mortgage
 
loans into
 
guaranteed mortgage-backed securities
 
subject in
 
certain
instances, to lifetime
 
credit recourse on
 
the loans that
 
serve as collateral
 
for the
 
mortgage-backed securities. The Corporation
 
has
not sold
 
any mortgage
 
loans subject
 
to credit
 
recourse since
 
2009. Also,
 
from time
 
to time,
 
the Corporation
 
may sell,
 
in bulk
 
sale
transactions, residential mortgage loans
 
and Small Business Administration
 
(“SBA”) commercial loans subject
 
to credit recourse
 
or
to certain representations
 
and warranties from the
 
Corporation to the purchaser.
 
These representations and warranties
 
may relate,
for example, to borrower creditworthiness, loan documentation, collateral, prepayment and early payment defaults.
 
The Corporation
may be required to repurchase the loans under
 
the credit recourse agreements or representation
 
and warranties.
At
 
December
 
31,
 
2022,
 
the
 
Corporation
 
serviced
 
$
0.6
 
billion
 
(December
 
31,
 
2021
 
-
 
$
0.7
 
billion)
 
in
 
residential
 
mortgage
 
loans
subject to
 
credit recourse
 
provisions, principally loans
 
associated with
 
FNMA and
 
FHLMC residential
 
mortgage loan
 
securitization
programs. In the event
 
of any customer default, pursuant to
 
the credit recourse provided, the
 
Corporation is required to repurchase
the
 
loan
 
or
 
reimburse
 
the
 
third
 
party
 
investor
 
for
 
the
 
incurred
 
loss.
 
The
 
maximum
 
potential
 
amount of
 
future
 
payments
 
that
 
the
Corporation
 
would
 
be
 
required
 
to
 
make
 
under
 
the
 
recourse
 
arrangements
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
borrowers
 
is
equivalent
 
to
 
the
 
total
 
outstanding
 
balance
 
of
 
the
 
residential
 
mortgage
 
loans
 
serviced
 
with
 
recourse
 
and
 
interest,
 
if
 
applicable.
During 2022,
 
the Corporation
 
repurchased approximately
 
$
7
 
million of
 
unpaid principal
 
balance in
 
mortgage loans
 
subject to
 
the
credit recourse
 
provisions (2021
 
- $
19
 
million). In
 
the event
 
of nonperformance
 
by the
 
borrower, the
 
Corporation has
 
rights to
 
the
underlying
 
collateral
 
securing
 
the
 
mortgage
 
loan.
 
The
 
Corporation
 
suffers
 
losses
 
on
 
these
 
loans
 
when
 
the
 
proceeds
 
from
 
a
foreclosure sale
 
of the
 
property underlying
 
a defaulted
 
mortgage loan
 
are less
 
than the
 
outstanding principal
 
balance of
 
the loan
plus any
 
uncollected interest
 
advanced and
 
the costs
 
of holding
 
and disposing
 
the related
 
property.
 
At
 
December 31,
 
2022, the
Corporation’s liability
 
established to cover
 
the estimated credit
 
loss exposure
 
related to loans
 
sold or serviced
 
with credit
 
recourse
amounted to
 
$
7
 
million (December
 
31, 2021
 
- $
12
 
million).
The following
 
table shows
 
the changes
 
in the
 
Corporation’s liability
 
of
estimated losses from
 
these credit recourses agreements,
 
included in the
 
consolidated statements of financial
 
condition during the
years ended December 31, 2022 and 2021.
Years ended December
 
31,
(In thousands)
2022
2021
Balance as of beginning of period
$
11,800
$
22,484
Provision (benefit) for recourse liability
(1,715)
(2,948)
Net charge-offs
(3,188)
(7,736)
Balance as of end of period
$
6,897
$
11,800
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 is a
 
function of the
 
recourse arrangements
given and
 
considers a
 
variety of
 
factors, which
 
include actual
 
defaults and
 
historical loss
 
experience, foreclosure
 
rate, estimated
future defaults
 
and the
 
probability that
 
a loan
 
would be
 
delinquent. 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 probability of default represents the probability that
 
a
loan in
 
good standing
 
would become
 
90 days
 
delinquent within
 
the following
 
twelve-month period.
 
Regression analysis
 
quantifies
the relationship
 
between the
 
default event
 
and loan-specific
 
characteristics, including
 
credit scores,
 
loan-to-value ratios,
 
and loan
aging, among others.
 
When the
 
Corporation sells or
 
securitizes mortgage loans,
 
it generally makes
 
customary representations and
 
warranties regarding
the characteristics
 
of the
 
loans sold. The
 
Corporation’s mortgage operations
 
in Puerto
 
Rico group conforming
 
mortgage loans into
pools which are
 
exchanged for FNMA and
 
GNMA mortgage-backed securities, which are
 
generally sold to
 
private investors, or are
sold directly
 
to FNMA
 
for cash.
 
As required
 
under the
 
government agency
 
programs, quality
 
review procedures
 
are performed
 
by
the Corporation to
 
ensure that asset
 
guideline qualifications are met.
 
To
 
the extent the
 
loans do not
 
meet specified characteristics,
the
 
Corporation may
 
be required
 
to
 
repurchase such
 
loans or
 
indemnify for
 
losses and
 
bear any
 
subsequent loss
 
related to
 
the
loans.
 
During
 
the
 
year
 
ended
 
December
 
31,
 
2022,
 
the
 
Corporation
 
purchased
 
$
1
 
million
 
under
 
representation
 
and
 
warranty
arrangements.
 
There
 
were
no
 
repurchases
 
under
 
BPPR’s
 
representation
 
and
 
warranty
 
arrangements
 
during
 
the
 
year
 
ended
December 31, 2021.
 
A substantial amount
 
of these loans
 
reinstate to performing
 
status or
 
have mortgage insurance,
 
and thus the
ultimate losses on the loans are not deemed
 
significant.
From
 
time
 
to
 
time, the
 
Corporation sells
 
loans and
 
agrees to
 
indemnify the
 
purchaser for
 
credit
 
losses
 
or
 
any
 
breach
 
of
 
certain
representations and
 
warranties made
 
in connection
 
with the
 
sale. At
 
December 31,
 
2022, the
 
Corporation’s liability
 
for estimated
losses associated with indemnifications and representations and warranties related to loans sold by BPPR
 
amounted to $
0.6
 
million
(December 31, 2021 - $
0.8
 
million).
Servicing agreements
 
relating to
 
the mortgage-backed
 
securities
 
programs of
 
FNMA and
 
GNMA, and
 
to
 
mortgage loans
 
sold
 
or
serviced to
 
certain other
 
investors, including
 
FHLMC, require
 
the Corporation
 
to
 
advance funds
 
to make
 
scheduled payments
 
of
principal, interest, taxes
 
and insurance,
 
if such
 
payments have not
 
been received
 
from the
 
borrowers. At
 
December 31,
 
2022, the
Corporation serviced
 
$
11.1
 
billion in
 
mortgage loans
 
for third-parties,
 
including the
 
loans serviced
 
with credit
 
recourse (December
31, 2021
 
- $
12.1
 
billion). The
 
Corporation generally
 
recovers funds
 
advanced pursuant
 
to these
 
arrangements from
 
the mortgage
owner, from
 
liquidation proceeds when the
 
mortgage loan is foreclosed
 
or, in
 
the case of
 
FHA/VA loans,
 
under the applicable FHA
and
 
VA
 
insurance
 
and
 
guarantees
 
programs.
 
However,
 
in
 
the
 
meantime,
 
the
 
Corporation
 
must
 
absorb
 
the
 
cost
 
of
 
the
 
funds
 
it
advances
 
during
 
the
 
time
 
the
 
advance
 
is
 
outstanding.
 
The
 
Corporation
 
must
 
also
 
bear
 
the
 
costs
 
of
 
attempting
 
to
 
collect
 
on
delinquent and defaulted mortgage loans. In
 
addition, if a defaulted loan
 
is not cured, the mortgage
 
loan would be canceled as
 
part
of
 
the
 
foreclosure
 
proceedings
 
and
 
the
 
Corporation would
 
not
 
receive
 
any
 
future
 
servicing
 
income
 
with
 
respect
 
to
 
that
 
loan.
 
At
December
 
31,
 
2022,
 
the
 
outstanding
 
balance
 
of
 
funds
 
advanced
 
by
 
the
 
Corporation
 
under
 
such
 
mortgage
 
loan
 
servicing
agreements
 
was approximately
 
$
42
 
million
 
(December 31,
 
2021
 
- $
54
 
million).
 
To
 
the extent
 
the mortgage
 
loans underlying
 
the
Corporation’s servicing portfolio experience increased delinquencies, the
 
Corporation would be required to dedicate
 
additional cash
resources
 
to
 
comply
 
with
 
its
 
obligation to
 
advance
 
funds
 
as
 
well as
 
incur
 
additional
 
administrative costs
 
related
 
to
 
increases
 
in
collection efforts.
 
Popular,
 
Inc. Holding
 
Company (“PIHC”) fully
 
and unconditionally guarantees
 
certain borrowing
 
obligations issued by
 
certain of
 
its
100
% owned consolidated subsidiaries amounting to
 
$
94
 
million at both December 31,
 
2022 and December 31, 2021, respectively.
In addition, at both December 31, 2022 and December 31, 2021, PIHC
 
fully and unconditionally guaranteed on a subordinated basis
$
193
 
million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the
applicable
 
guarantee
 
agreement.
 
Refer
 
to
 
Note
 
18
 
to
 
the
 
consolidated
 
financial
 
statements
 
for
 
further
 
information
 
on
 
the
 
trust
preferred securities.