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Commitments and contingencies
 3 Months Ended
Mar. 31, 2024
Commitments and Contingencies Disclosure  
Commitments And Contingencies
Note 20 – Commitments and contingencies
Off-balance sheet risk
The Corporation
 
is a
 
party to
 
financial instruments
 
with off-balance
 
sheet credit
 
risk in
 
the normal
 
course of
 
business to
 
meet the
financial needs of its customers. These financial instruments
 
include loan commitments, letters of credit and standby
 
letters of credit.
These instruments involve,
 
to varying
 
degrees, elements of
 
credit and
 
interest rate
 
risk in
 
excess of
 
the amount
 
recognized in
 
the
consolidated statements of financial condition.
The
 
Corporation’s
 
exposure
 
to
 
credit
 
loss
 
in
 
the
 
event
 
of
 
nonperformance
 
by
 
the
 
other
 
party
 
to
 
the
 
financial
 
instrument
 
for
commitments to extend credit, standby
 
letters of credit and financial
 
guarantees is represented by the
 
contractual notional amounts
of those instruments. The
 
Corporation uses the same
 
credit policies in
 
making these commitments and conditional
 
obligations as it
does for those reflected on the consolidated statements
 
of financial condition.
Financial instruments with
 
off-balance sheet credit
 
risk, whose contract
 
amounts represent potential credit
 
risk as of
 
the end of
 
the
periods presented were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
March 31, 2024
December 31, 2023
Commitments to extend credit:
Credit card lines
$
6,130,148
$
6,108,939
Commercial lines of credit
3,661,556
3,626,269
Construction lines of credit
1,212,596
1,287,679
Other consumer unused credit commitments
 
257,059
256,610
Commercial letters of credit
1,234
1,404
Standby letters of credit
115,808
80,889
Commitments to originate or fund mortgage loans
29,524
32,968
At March
 
31, 2024
 
and December 31,
 
2023, the
 
Corporation maintained a
 
reserve of
 
approximately $
16.8
 
million and
 
$
17
 
million,
respectively, for potential losses associated with unfunded loan commitments
 
related to commercial
 
and construction lines of credit.
Other commitments
At March 31,
 
2024 and December 31,
 
2023, the Corporation also
 
maintained other non-credit commitments for
 
approximately $
3.3
million, primarily for the acquisition of other investments.
 
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition
are dependent
 
upon the
 
general trends
 
of the
 
Puerto Rico
 
economy and,
 
in particular,
 
the residential
 
and commercial
 
real estate
markets. The concentration
 
of the Corporation’s
 
operations in Puerto Rico
 
exposes it to
 
greater risk than other
 
banking companies
with a wider geographic base. Its
 
asset and revenue composition by geographical area
 
is presented in Note 32
 
to the Consolidated
Financial Statements.
 
Puerto
 
Rico
 
has
 
faced
 
significant
 
fiscal
 
and
 
economic
 
challenges
 
for
 
over
 
a
 
decade.
 
In
 
response
 
to
 
such
 
challenges,
 
the
 
U.S.
Congress enacted the
 
Puerto Rico Oversight
 
Management and Economic Stability
 
Act (“PROMESA”) in
 
2016, which, among
 
other
things,
 
established
 
the
 
Oversight
 
Board
 
and
 
a
 
framework
 
for
 
the
 
restructuring
 
of
 
the
 
debts
 
of
 
the
 
Commonwealth,
 
its
instrumentalities and
 
municipalities.
 
The
 
Commonwealth and
 
several
 
of
 
its
 
instrumentalities have
 
commenced
 
debt
 
restructuring
proceedings under
 
PROMESA. As
 
of the
 
date of
 
this report,
 
while municipalities
 
have been
 
designated as
 
covered entities
 
under
PROMESA,
 
no
 
municipality
 
has
 
commenced,
 
or
 
has
 
been
 
authorized
 
by
 
the
 
Oversight
 
Board
 
to
 
commence,
 
any
 
such
 
debt
restructuring proceeding under PROMESA.
At
 
March 31,
 
2024, the
 
Corporation’s direct
 
exposure to
 
the Puerto
 
Rico
 
government and
 
its
 
instrumentalities and
 
municipalities
totaled $
388
 
million, of which
 
$
363
 
million were outstanding
 
($
362
 
million and $
333
 
million at December
 
31, 2023). Of
 
the amount
outstanding,
 
$
348
 
million
 
consists
 
of
 
loans
 
and
 
$
16
 
million
 
are
 
securities
 
($
314
 
million
 
and
 
$
19
 
million
 
at
 
December 31,
 
2023).
Substantially all
 
of the
 
amount outstanding
 
at March
 
31, 2024
 
and December
 
31, 2023
 
were obligations from
 
various Puerto
 
Rico
municipalities. In most cases, these were “general obligations” of a municipality, to which
 
the applicable municipality has pledged its
good
 
faith,
 
credit
 
and
 
unlimited taxing
 
power,
 
or
 
“special
 
obligations”
 
of
 
a
 
municipality,
 
to
 
which
 
the
 
applicable
 
municipality
 
has
pledged other revenues. At March 31, 2024,
78
% of the Corporation’s exposure to municipal loans and securities
 
was concentrated
in the municipalities of San Juan, Guaynabo, Carolina
 
and Caguas.
The following table details the loans and investments representing the Corporation’s direct exposure to
 
the Puerto Rico government
according to their maturities as of March 31, 2024:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
3
$
-
$
3
$
3
After 5 to 10 years
1
-
1
1
After 10 years
42
-
42
42
Total Central
 
Government
46
-
46
46
Municipalities
Within 1 year
3,055
13,218
16,273
41,273
After 1 to 5 years
11,620
141,519
153,139
153,139
After 5 to 10 years
845
145,965
146,810
146,810
After 10 years
-
46,823
46,823
46,823
Total Municipalities
15,520
347,525
363,045
388,045
Total Direct Government
 
Exposure
$
15,566
$
347,525
$
363,091
$
388,091
In addition, at March
 
31, 2024, the Corporation had
 
$
233
 
million in loans insured
 
or securities issued by
 
Puerto Rico governmental
entities but for
 
which the principal
 
source of
 
repayment is non-governmental
 
($
238
 
million at December
 
31, 2023). These
 
included
$
187
 
million
 
in
 
residential
 
mortgage
 
loans
 
insured
 
by
 
the
 
Puerto
 
Rico
 
Housing
 
Finance
 
Authority
 
(“HFA”),
 
a
 
governmental
instrumentality
 
that
 
has
 
been
 
designated
 
as
 
a
 
covered
 
entity
 
under
 
PROMESA
 
(December
 
31,
 
2023
 
-
 
$
191
 
million).
 
These
mortgage loans
 
are secured
 
by first
 
mortgages on
 
Puerto Rico
 
residential properties
 
and the
 
HFA
 
insurance covers
 
losses in
 
the
event of a
 
borrower default and upon the
 
satisfaction of certain other
 
conditions. The Corporation also
 
had at March
 
31, 2024, $
39
million in
 
bonds issued by
 
HFA which
 
are secured by
 
second mortgage loans
 
on Puerto Rico
 
residential properties, and
 
for which
HFA also provides
 
insurance to cover losses in the
 
event of a borrower default and
 
upon the satisfaction of certain other
 
conditions
(December 31,
 
2023 -
 
$
40
 
million). In
 
the event
 
that the
 
mortgage loans
 
insured by
 
HFA
 
and held
 
by the
 
Corporation directly
 
or
those serving
 
as collateral
 
for the
 
HFA
 
bonds default
 
and the
 
collateral is
 
insufficient to
 
satisfy the
 
outstanding balance
 
of these
loans,
 
HFA’s
 
ability
 
to
 
honor
 
its
 
insurance
 
will
 
depend, among
 
other factors,
 
on
 
the
 
financial
 
condition
 
of
 
HFA
 
at
 
the
 
time
 
such
obligations
 
become
 
due
 
and
 
payable. The
 
Corporation does
 
not consider
 
the
 
government guarantee
 
when
 
estimating the
 
credit
losses
 
associated
 
with
 
this
 
portfolio.
 
Although
 
the
 
Governor
 
is
 
currently
 
authorized
 
by
 
local
 
legislation
 
to
 
impose
 
a
 
temporary
moratorium on the financial obligations of the HFA, a moratorium on
 
such obligations has not been imposed as of
 
the date hereof.
 
BPPR’s
 
commercial loan
 
portfolio also
 
includes loans
 
to
 
private borrowers
 
who
 
are service
 
providers, lessors,
 
suppliers or
 
have
other relationships with the government. These
 
borrowers could be negatively affected by
 
the Commonwealth’s fiscal crisis and
 
the
ongoing
 
Title
 
III
 
proceedings
 
under
 
PROMESA.
 
Similarly,
 
BPPR’s
 
mortgage
 
and
 
consumer
 
loan
 
portfolios
 
include
 
loans
 
to
government
 
employees
 
and
 
retirees,
 
which
 
could
 
also
 
be
 
negatively
 
affected
 
by
 
fiscal
 
measures
 
such
 
as
 
employee
 
layoffs
 
or
furloughs or reductions in pension benefits.
 
In
 
addition,
 
$
1.9
 
billion
 
of
 
residential
 
mortgages
 
and
 
$
92.4
 
million
 
commercial
 
loans
 
were
 
insured
 
or
 
guaranteed
 
by
 
the
 
U.S.
Government or
 
its agencies
 
at March
 
31, 2024
 
(compared to
 
$
1.9
 
billion and
 
$
89.2
 
million, respectively,
 
at December
 
31, 2023).
The Corporation also had
 
U.S. Treasury and
 
obligations from the U.S.
 
Government, its agencies or
 
government sponsored entities
within the
 
portfolio of
 
available-for-sale and
 
held-to-maturity securities as
 
described in
 
Note 5
 
and 6
 
to the
 
Consolidated Financial
Statements.
At
 
March
 
31,
 
2024,
 
the
 
Corporation had
 
operations
 
in
 
the
 
United States
 
Virgin
 
Islands
 
(the
 
“USVI”) and
 
has
 
approximately $
28
million
 
in
 
direct
 
exposure
 
to
 
USVI
 
government
 
entities
 
(December
 
31,
 
2023
 
-
 
$
28
 
million).
 
The
 
USVI
 
has
 
been
 
experiencing
 
a
number of
 
fiscal and
 
economic challenges
 
that could
 
adversely affect
 
the ability
 
of its
 
public corporations
 
and instrumentalities
 
to
service their outstanding debt obligations.
 
At March 31, 2024, the Corporation had operations in the British Virgin Islands (“BVI”), which
 
islands were negatively affected by the
COVID-19 pandemic, particularly due to a reduction in
 
the tourism activity which accounts for a significant
 
portion of their economy.
Although the
 
Corporation has
 
no significant
 
exposure to
 
a single
 
borrower in
 
the BVI,
 
at
 
March 31,
 
2024,
 
it
 
had a
 
loan portfolio
amounting to
 
approximately $
208
 
million comprised
 
of various
 
retail and
 
commercial clients,
 
compared to
 
a loan
 
portfolio of
 
$
205
million at December 31, 2023.
FDIC Special Assessment
 
On
 
November
 
16,
 
2023,
 
the
 
Federal
 
Deposit
 
Insurance
 
Corporation
 
(“FDIC”)
 
approved
 
a
 
final
 
rule
 
that
 
imposes
 
a
 
special
assessment (the “FDIC
 
Special Assessment”) to recover
 
the losses to
 
the deposit insurance
 
fund resulting from
 
the FDIC’s use,
 
in
March 2023,
 
of the systemic
 
risk exception to
 
the least-cost resolution
 
test under the
 
Federal Deposit Insurance
 
Act in
 
connection
with the
 
receiverships of
 
several failed
 
banks. In
 
connection with
 
this assessment,
 
the Corporation
 
recorded an
 
expense of
 
$
71.4
million, $
45.3
 
million net of tax, in the fourth quarter
 
of 2023, representing the full amount of the
 
assessment.
During the quarter ended March 31, 2024, the Corporation
 
recorded an additional expense of $
14.3
 
million, $
9.1
 
million net of tax, to
reflect the
 
FDIC's higher loss
 
estimate which increased
 
from $
16.3
 
billion, when
 
approved, to
 
$
20.4
 
billion during
 
the quarter.
 
The
special assessment
 
amount and
 
collection period
 
may change
 
as the
 
estimated loss
 
is periodically
 
adjusted or
 
if the
 
total amount
collected varies.
Legal Proceedings
The
 
nature
 
of
 
Popular’s
 
business
 
ordinarily
 
generates
 
claims,
 
litigation,
 
investigations,
 
and
 
legal
 
and
 
administrative
 
cases
 
and
proceedings
 
(collectively,
 
“Legal Proceedings”).
 
When the
 
Corporation determines
 
that
 
it
 
has
 
meritorious
 
defenses to
 
the
 
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment, it
 
is in the best
 
interest of the Corporation and
 
its stockholders to do so.
 
On at least a
quarterly basis, Popular assesses its liabilities and contingencies relating
 
to outstanding Legal Proceedings utilizing the most current
information
 
available.
 
For
 
matters
 
where
 
it
 
is
 
probable
 
that
 
the
 
Corporation
 
will
 
incur
 
a
 
material
 
loss
 
and
 
the
 
amount
 
can
 
be
reasonably estimated,
 
the Corporation
 
establishes an
 
accrual for
 
the loss.
 
Once established,
 
the accrual
 
is adjusted
 
on at
 
least a
quarterly
 
basis
 
to
 
reflect
 
any
 
relevant
 
developments,
 
as
 
appropriate.
 
For
 
matters
 
where
 
a
 
material
 
loss
 
is
 
not
 
probable,
 
or
 
the
amount of the loss cannot be reasonably estimated,
 
no accrual is established.
 
In certain cases,
 
exposure to loss
 
exists in
 
excess of any
 
accrual to the
 
extent such loss
 
is reasonably possible,
 
but not
 
probable.
Management believes and
 
estimates that the
 
range of reasonably
 
possible losses (with
 
respect to those
 
matters where such
 
limits
may be determined, in excess of amounts accrued)
 
for current Legal Proceedings ranged from $
0
 
to approximately $
15.8
 
million as
of March 31,
 
2024. In certain cases,
 
management cannot reasonably estimate the
 
possible loss at this
 
time. Any estimate involves
significant
 
judgment,
 
given
 
the
 
varying
 
stages
 
of
 
the
 
Legal
 
Proceedings
 
(including
 
the
 
fact
 
that
 
many
 
of
 
them
 
are
 
currently
 
in
preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet
to be
 
determined, the
 
numerous unresolved issues
 
in many
 
of the
 
Legal Proceedings,
 
and the
 
inherent uncertainty
 
of the
 
various
potential
 
outcomes
 
of
 
such
 
Legal
 
Proceedings.
 
Accordingly,
 
management’s
 
estimate
 
will
 
change
 
from
 
time-to-time,
 
and
 
actual
losses may be more or less than the current estimate.
 
While the
 
outcome of
 
Legal Proceedings
 
is inherently
 
uncertain, based
 
on information
 
currently available,
 
advice of
 
counsel, and
available
 
insurance
 
coverage,
 
management
 
believes
 
that
 
the
 
amount
 
it
 
has
 
already
 
accrued
 
is
 
adequate
 
and
 
any
 
incremental
liability arising from
 
the Legal Proceedings
 
in matters in
 
which a loss
 
amount can be
 
reasonably estimated will not
 
have a material
adverse effect
 
on the Corporation’s
 
consolidated financial position.
 
However, in
 
the event
 
of unexpected future
 
developments, it is
possible that
 
the ultimate
 
resolution of
 
these matters
 
in a
 
reporting period, if
 
unfavorable, could have
 
a material
 
adverse effect
 
on
the Corporation’s consolidated financial position for that period.
 
Set forth below is a description of the Corporation’s
 
significant Legal Proceedings.
Insufficient Funds and Overdraft Fees Class Actions
Popular, Inc. was
 
named as a defendant on a
 
putative class action complaint captioned Golden v.
 
Popular, Inc. filed
 
in March 2020
before
 
the
 
U.S.
 
District
 
Court
 
for
 
the
 
Southern
 
District
 
of
 
New
 
York,
 
seeking
 
damages,
 
restitution
 
and
 
injunctive
 
relief.
 
Plaintiff
alleged breach
 
of contract,
 
violation
 
of
 
the covenant
 
of
 
good faith
 
and
 
fair
 
dealing, unjust
 
enrichment and
 
violation
 
of
 
New York
consumer
 
protection law
 
due
 
to
 
Popular’s purported
 
practice of
 
charging
 
overdraft fees
 
(“OD
 
Fees”) on
 
transactions that,
 
under
plaintiffs’ theory,
 
do not
 
overdraw the
 
account. Plaintiff
 
described Popular’s purported
 
practice of
 
charging OD
 
Fees as
 
“Authorize
Positive,
 
Purportedly
 
Settle
 
Negative”
 
(“APPSN”)
 
transactions
 
and
 
alleged
 
that
 
Popular
 
assesses
 
OD
 
Fees
 
over
 
authorized
transactions
 
for
 
which
 
sufficient
 
funds
 
are
 
held
 
for
 
settlement.
 
In
 
August
 
2020,
 
Popular
 
filed
 
a
 
Motion
 
to
 
Dismiss
 
on
 
several
grounds,
 
including
 
failure
 
to
 
state
 
a
 
claim
 
against
 
Popular,
 
Inc.
 
and
 
improper
 
venue.
 
In
 
October
 
2020,
 
Plaintiff
 
filed
 
a
 
Notice
 
of
Voluntary
 
Dismissal
 
before
 
the
 
U.S.
 
District
 
Court
 
for
 
the
 
Southern
 
District
 
of
 
New
 
York
 
and,
 
simultaneously,
 
filed
 
an
 
identical
complaint in
 
the U.S.
 
District Court for
 
the District
 
of the
 
Virgin Islands
 
against Popular,
 
Inc., Popular Bank
 
and Banco Popular
 
de
Puerto
 
Rico
 
(“BPPR”). In
 
November 2020,
 
Plaintiff
 
filed
 
a
 
Notice of
 
Voluntary
 
Dismissal against
 
Popular,
 
Inc.
 
and Popular
 
Bank
following a Motion to
 
Dismiss filed on behalf
 
of such entities, which argued
 
failure to state
 
a claim and lack
 
of minimum contacts of
such parties with the U.S.V.I.
 
district court jurisdiction. BPPR, the only defendant remaining in
 
the case, was served with process in
November 2020 and filed a Motion to Dismiss
 
in January 2021.
In October 2022, the parties reached a settlement in principle on a class-wide basis subject to final court approval. In January 2023,
the parties filed
 
before the Court a
 
motion for preliminary approval
 
of the settlement
 
agreement and, on March
 
31, 2023, the Court
issued
 
an
 
order
 
granting
 
preliminary
 
approval
 
of
 
the
 
settlement
 
agreement.
 
The
 
Court
 
scheduled
 
the
 
final
 
approval
 
hearing
 
for
September 8, 2023.
On
 
September
 
8,
 
2023,
 
the
 
Court
 
held
 
a
 
hearing
 
to
 
consider
 
the
 
final
 
approval
 
of
 
the
 
class
 
settlement
 
agreement,
 
and,
 
on
September 29, 2023, the Court issued an Opinion and Order granting final approval
 
to the settlement agreement.
 
On December 19,
2023, the Court
 
issued an Order staying
 
all deadlines in the
 
settlement agreement regarding payment
 
of benefit until further
 
notice
after
 
the
 
parties
 
informed
 
the
 
Court
 
that
 
the
 
settlement
 
administrator
 
had
 
mistakenly
 
failed
 
to
 
send
 
the
 
settlement
 
notice
 
to
approximately
 
3,000
 
class
 
members.
 
On
 
February
 
20,
 
2024,
 
the
 
parties
 
filed
 
a
 
Joint
 
Motion
 
for
 
Supplemental
 
Notice
 
that
 
was
approved by the Court on February 20, 2024.
 
The Court scheduled a supplemental fairness hearing
 
for July 8, 2024.
On January
 
31, 2022,
 
Popular was
 
also named
 
as a
 
defendant on a
 
putative class
 
action complaint captioned
 
Lipsett v.
 
Popular,
Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District
 
of New York, seeking damages, restitution and
injunctive relief. Similar to the claims set forth in the
 
aforementioned Golden complaint, Plaintiff alleges breach of contract, including
violations of the covenant of good faith and
 
fair dealing, as a result of Popular’s purported practice
 
of charging OD Fees for APPSN
transactions. The complaint
 
further alleged that
 
Popular assesses OD
 
Fees over
 
authorized transactions for
 
which sufficient funds
are held for settlement. Popular waived service of process
 
and filed a Motion to Compel Arbitration. In response to Popular’s
 
motion,
Plaintiff filed a Notice of Voluntary Dismissal in April 2022.
 
On May
 
13, 2022,
 
Plaintiff in
 
the Lipsett
 
complaint filed
 
a new
 
complaint captioned
 
Lipsett v.
 
Banco Popular
 
North America
 
d/b/a
Popular Community
 
Bank with
 
the same
 
allegations of
 
his previous
 
complaint against
 
Popular.
 
In September
 
2022, after
 
serving
Plaintiff
 
with a
 
written notice
 
of
 
election to
 
arbitrate the
 
claims
 
asserted in
 
the complaint
 
which went
 
unanswered, Popular
 
Bank
(“PB”) filed a new Motion to Compel Arbitration.
On December 9, 2022, the
 
Court issued a Decision and
 
Order denying PB’s Motion to
 
Compel Arbitration. On December 20, 2022,
PB filed a Notice of Appeal with the United
 
States Court of Appeals for the Second Circuit.
 
On January
 
10, 2024,
 
the Court
 
of
 
Appeals entered
 
judgment affirming
 
the trial
 
court’s
 
decision denying
 
PB’s
 
Motion to
 
Compel
Arbitration. After remand to the U.S. District Court, on March 19, 2024, the court issued an Order adjourning all dates and deadlines
including the
 
initial pretrial conference
 
after the
 
parties informed that
 
they have agreed
 
to mediate
 
the matter.
 
During a mediation
hearing held on May 2, 2024, the parties reached
 
a settlement in principle on a class-wide basis
 
subject to final court approval.