• Net income of $136.6 million in Q3 2023, including an after-tax goodwill impairment charge in our U.S. based equipment leasing subsidiary of $16.4 million, compared to net income of $151.2 million in Q2 2023.
• Net interest income amounted to $534.0 million, an increase of $2.4 million compared to Q2 2023.
• Net interest margin of 3.07% in Q3 2023, compared to 3.14% in Q2 2023; net interest margin on a taxable equivalent basis of 3.24% in Q3 2023, compared to 3.29% in Q2 2023.
• Non-interest income of $159.5 million, or $1.0 million lower than in Q2 2023.
• Operating expenses amounted to $466.0 million, an increase of $5.7 million compared to Q2 2023, including a non-cash goodwill impairment of $23.0 million.
• Credit Quality:
  • Non-performing loans held-in-portfolio (“NPLs”) decreased by $24.0 million from Q2 2023; NPLs to loans ratio at 1.1% vs. 1.2% in Q2 2023;
  • Net charge-offs (“NCOs”) increased by $8.7 million from Q2 2023; annualized NCOs at 0.39% of average loans held-in-portfolio vs. 0.29% in Q2 2023;
  • Allowance for credit losses (“ACL”) to loans held-in-portfolio at 2.09% vs. 2.12% in Q2 2023; and
  • ACL to NPLs at 196.7% vs. 181.6% in Q2 2023.
• Loans increased by $998.4 million and by $764.4 million in average quarterly balances, from Q2 2023.
• Ending deposit balances decreased by $667.2 million while average quarterly balances increased by $1.4 billion, from Q2 2023.
• Common Equity Tier 1 ratio of 16.81%, Common Equity per Share of $61.49 and Tangible Book Value per Share of $50.20 at September 30, 2023.

Popular, Inc. (the “Corporation,” “Popular,” “we,” “us,” “our”) (NASDAQ:BPOP) reported net income of $136.6 million for the quarter ended September 30, 2023, including an after-tax goodwill impairment charge in our U.S. based equipment leasing subsidiary of $16.4 million, compared to net income of $151.2 million for the quarter ended June 30, 2023.

Ignacio Alvarez, President and Chief Executive Officer, said: “We are pleased to report another strong quarter. Net income totaled $137 million, which includes a $16 million after-tax goodwill impairment in our U.S. based equipment leasing subsidiary. Excluding this impact, net income would have been $153 million, $2 million higher than the previous quarter.

Our positive results were driven by higher revenues and lower operating expenses, excluding the non-cash goodwill impairment, partially offset by a higher provision for loan losses. We grew our loan portfolio by $1 billion, which contributed to an increase in net interest income despite higher deposit costs. Approximately $600 million of the increase took place in Puerto Rico, reflecting strong economic activity. During the quarter, we crossed a significant milestone, reaching more than 2 million unique customers in Puerto Rico.

Our achievements are made possible by a dedicated team of more than 9,000 colleagues and further strengthen our commitment to our customers, communities and shareholders. Earlier this month we celebrated our 130th anniversary and our team’s energy was palpable. We are proud of our history, which has made us a strong organization with deep-rooted values, and are excited about the opportunities that lie ahead.”

Net interest income on a taxable equivalent basis – Non-GAAP financial measure

Net interest income, on a taxable equivalent basis, is presented with its different components in Tables D and E for the quarter ended September 30, 2023 and Table F for the nine-month periods ended September 30, 2023 and 2022. Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources.

Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

Net interest income for the quarter ended September 30, 2023 was $534.0 million, an increase of $2.4 million when compared to the previous quarter. Net interest income on a taxable equivalent basis for the third quarter of 2023 was $563.7 million, compared to $558.4 million in the previous quarter, an increase of $5.3 million. The increase in taxable equivalent net interest income results from a higher volume of exempt investments, partially offset by a higher disallowed interest expense in the Puerto Rico tax computation driven by the increase in deposit volume and cost. Refer to the income taxes discussion for further information.

Net interest margin decreased seven basis points to 3.07%. On a taxable equivalent basis, net interest margin for the third quarter of 2023 was 3.24%, compared to 3.29% for the prior quarter, or a five basis points decrease. The lower reduction in the taxable equivalent rate results from a higher benefit of a higher volume of exempt investment securities in Puerto Rico. The main variances in net interest income on a taxable equivalent basis were:

• Higher interest income from investment securities, trading and money market investments by $27.4 million driven mainly by higher volume of U.S. Treasury bills, partially offset by a lower volume of money market investments. Both asset classes reflect the effect of the two 25 basis points increases in market rates that occurred at the end of July and at the beginning of May;
• Higher interest income from loans by $26.3 million resulting from an increase in average loans by $770 million, reflecting increases in Banco Popular de Puerto Rico (“BPPR”) by $427 million and an increase in Popular Bank (“PB”) by $343 million. All major loan segments increased in BPPR while at PB the increase was mainly in the commercial and construction portfolios. Loan originations in a higher interest rate environment and the repricing of adjustable-rate loans resulted in a higher yield on loans by nine basis points; most of the categories resulted in a higher yield quarter over quarter; and
• Lower interest expense on other debt upon the previously announced redemption, during the quarter of the $300 million Senior Notes due September 2023;

partially offset by:

• Higher interest expense on deposits by $34.4 million, mainly from the increase in volume and cost of Puerto Rico government deposits and a higher cost in most deposit categories in both BPPR and PB, reflective of the increase in rates.

Net interest income for the BPPR segment amounted to $453.9 million for the third quarter of 2023, flat when compared to $453.1 million in net interest income during the second quarter of 2023. Net interest margin for the BPPR segment decreased by seven basis points to 3.14%. The decrease in net interest margin is related to a higher average volume of deposits, mainly higher cost Puerto Rico government deposits. Earning assets yield improved 17 basis points from the prior quarter to 4.74%. The average volume of earning assets increased by $861 million, while average total deposits increased by $904 million, mainly in P.R. government deposits, which were $1.4 billion higher on average than during Q2 2023, partially offset by a decrease in non-interest-bearing deposits. The cost of interest-bearing deposits increased by 30 basis points to 2.25% from 1.95% the previous quarter. The increase in the cost of deposits mainly resulted from the repricing of public funds and management actions to increase deposit interest rates for certain corporate clients. Total deposit cost in the third quarter of 2023 was 1.68%, compared to 1.44% in the quarter ended June 30, 2023.

Net interest income for PB was $87.4 million for the quarter ended September 30, 2023, unchanged when compared to $87.5 million in net interest income during the previous quarter. Net interest margin decreased by 11 basis points in the quarter to 2.90%, compared to 3.01% in the second quarter of 2023. The decrease in net interest margin was mostly driven by a higher cost of deposits, partially offset by a higher volume of loans and the repricing of adjustable-rate loans in the current interest rates environment. The cost of interest-bearing deposits was 3.31%, compared to 3.02% for the second quarter, or an increase of 29 basis points, while total deposit cost was 2.84% compared to 2.55% in the previous quarter.

Non-interest income

Non-interest income amounted to $159.5 million for the quarter ended September 30, 2023, a decrease of $1.0 million when compared to $160.5 million for the quarter ended June 30, 2023. Fee and transactional-based revenues were slightly lower quarter-over-quarter with the overall results impacted by an unfavorable variance in profit (losses) from equity securities by $2.7 million, mainly related to the fair value of securities held for deferred benefit plans, which have an offsetting effect in personnel costs. The lower fee and transactional-based revenues were partially offset by higher income from mortgage banking activities by $3.1 million, mainly due to a favorable variance of $3.4 million related to the fair value adjustments of mortgage servicing rights (“MSRs”).

Refer to Table B for further details.

Operating expenses

Operating expenses for the third quarter of 2023 totaled $466.0 million, an increase of $5.7 million when compared to the second quarter of 2023. The variance in operating expenses was driven primarily by:

• higher personnel cost by $1.7 million mainly due to higher salaries by $2.9 million as a result of the annual merit increase effective during the third quarter of 2023; partially offset by a decrease in other personnel costs by $1.2 million;
• higher credit card processing expenses by $2.2 million mainly due to a volume growth incentive received during the second quarter of 2023 which was recorded as a reduction of expenses;
• higher FDIC deposit insurance expense by $2.1 million mainly due to an accrual adjustment recorded during the second quarter of 2023 related to a decrease in the assessment rate; and
• a non-cash goodwill impairment of $23.0 million in our U.S. based equipment leasing subsidiary due to lower forecasted cash flows and an increase in the rate used to discount cash flows.

partially offset by:

• lower other taxes expense by $7.8 million mainly due to the reversal of an accrual related to regulatory examination fees in BPPR by $8.2 million;
• lower professional fees by $11.6 million mainly due to lower advisory expenses by $7.1 million arising from corporate initiatives related to regulatory and compliance efforts, as well as those related to the Corporation's transformation initiative, incurred during the second quarter of 2023;
• lower business promotion expense by $2.0 million mainly due to lower advertising and credit cards rewards expenses; and
• higher other real estate owned (“OREO”) benefit by $1.9 million mainly due to an increase in the fair value of mortgage properties transferred to OREO.

Full-time equivalent employees were 9,063 as of September 30, 2023, compared to 9,124 as of June 30, 2023.

For a breakdown of operating expenses by category refer to Table B.

Income taxes

For the quarter ended September 30, 2023, the Corporation recorded an income tax expense of $45.9 million compared to $43.5 million for the previous quarter. The increase in income tax expense was mainly attributable to certain tax benefits recorded in the second quarter, partially offset by lower income before tax. The effective tax rate (“ETR”) for the third quarter of 2023 was 25.1% while the ETR for the second quarter was 22.4%.

The ETR of the Corporation is impacted by the composition and source of its taxable income. The Corporation expects the ETR for the year 2023 to be within a range from 22% to 25%.

Credit Quality

During the third quarter of 2023, the Corporation continued to reflect stable credit quality metrics. Non-performing loans (“NPLs”) and net charge offs (“NCOs”) continued below historical pre-pandemic averages. Consumer portfolios, however, reflected increased delinquencies and NCOs for the quarter primarily due to the expected continued credit normalization. We continue to closely monitor changes in the macroeconomic environment and on borrower performance, especially our unsecured consumer loans, given higher interest rates and inflationary pressures. However, management believes that the improvements over recent years in risk management practices and the risk profile of the Corporation’s loan portfolios positions Popular to continue to operate successfully under the current environment.

The following presents credit quality results for the third quarter of 2023:

• At September 30, 2023, total NPLs held-in-portfolio decreased by $24.0 million from June 30, 2023. BPPR’s NPLs decreased by $18.5 million, mostly driven by lower commercial and mortgage NPLs by $16.5 million and $6.8 million, respectively, in part offset by higher consumer NPLs by $5.4 million. The commercial NPLs decrease was mostly driven by loan payoffs. PB’s NPLs decreased by $5.5 million quarter-over-quarter, due to lower commercial and mortgage NPLs by $3.0 million and $2.6 million, respectively. At September 30, 2023, the ratio of NPLs to total loans held-in-portfolio was 1.1%, compared to 1.2% in the second quarter of 2023.
• Inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by $5.9 million quarter-over-quarter. In BPPR, total inflows decreased by $2.6 million due to lower construction inflows by $9.3 million due to a single relationship that entered non-accrual during the second quarter, in part offset by higher mortgage inflows by $7.1 million. PB inflows decreased by $3.3 million, driven by lower commercial inflows.
• NCOs amounted to $32.7 million, increasing by $8.7 million when compared to the second quarter of 2023. BPPR’s NCOs increased by $6.9 million quarter-over-quarter, mainly driven by higher consumer NCOs by $14.1 million, of which $7.2 million and $4.7 million are related to the auto and personal loans portfolios, respectively. This increase was in part offset by a $10.8 million recovery from a commercial loan pay-off, as mentioned above. PB’s NCOs increased by $1.8 million quarter-over-quarter, mainly driven by higher consumer NCOs. During the third quarter of 2023, the Corporation’s ratio of annualized NCOs to average loans held-in-portfolio was 0.39%, compared to 0.29% in the second quarter of 2023. Refer to Table N for further information on NCOs and related ratios.
• At September 30, 2023, the allowance for credit losses (“ACL”) increased by $10.9 million from the second quarter of 2023 to $711.1 million. In BPPR, the ACL increased by $28.4 million, primarily driven by higher reserves for the auto and personal loans portfolios attributable to credit normalization, changes in macroeconomic scenarios and loan growth. In PB, the ACL decreased by $17.6 million due to the implementation of a new model for the U.S. commercial real estate portfolio. The new model is based on more granular regional information for the Corporation’s portfolio and accounted for $15 million of PB’s reduction in ACL.
• The ACL incorporated updated macroeconomic scenarios for Puerto Rico and the United States. Given that any one economic outlook is inherently uncertain, the Corporation leverages multiple scenarios to estimate its ACL. The baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario, and then the optimistic scenario.
• The 2023 annualized GDP growth in the baseline scenario improved to 1.7% and 2.0% for Puerto Rico and the United States, respectively, compared to 1.5% and 1.6% in the previous quarter. The 2023 forecasted average unemployment rate for Puerto Rico improved to 6.1% from 6.3% in the previous forecast, while in the United States unemployment levels remained at 3.6%, stable when compared to the previous forecast.
• GDP growth is expected to slow down during 2024 for both regions, when compared to 2023, as a result of the Fed’s monetary policy. The 2024 GDP growth is expected to be 0.90% for Puerto Rico and 1.25% for the United States. The average 2024 unemployment rate is expected to increase to 6.80% in Puerto Rico and 4.03% in the United States.
• The Corporation’s ratio of the ACL to loans held-in-portfolio was 2.09% in the third quarter of 2023, compared to 2.12% in the previous quarter. The ratio of the ACL to NPLs held-in-portfolio stood at 196.7%, compared to 181.6% in the previous quarter.
• The provision for credit losses for the loan portfolios for the third quarter of 2023 was $43.5 million, compared to $35.7 million in the previous quarter, reflecting the previously mentioned changes in the allowance for credit losses. The provision for the BPPR segment was $54.0 million, compared to $28.4 million in the previous quarter, while the provision for PB was a benefit of $10.5 million, compared to an expense of $7.3 million in the previous quarter.
• The provision for unfunded loan commitments, provision for credit losses on our loan and lease portfolios and provision for credit losses on our investment portfolio are aggregated and presented in the provision for credit losses caption in our Consolidated Statement of Operations. For the third quarter, these combined concepts resulted in a provision expense of $45.1 million, compared to $37.2 million last quarter.

Total assets amounted to $69.7 billion at September 30, 2023, a decrease of $1.1 billion from the second quarter of 2023, driven by:

• a decrease in money market investments of $2.2 billion due to lower deposits and increased loan balances as discussed below;
• a decrease in securities available-for-sale (“AFS”) of $112.4 million, mainly due to repayments, maturities and unfavorable changes in fair value, offset in part by the purchase of U.S. Treasury securities; and
• a decrease in securities held-to-maturity (“HTM”) of $108.4 million driven by a decrease in U.S. Treasury securities mainly as a result of maturities;

partially offset by:

• an increase in loans held-in-portfolio of $998.4 million reflected across all portfolios in BPPR, except the construction portfolio, and an increase in commercial and construction loans at PB; and
• an increase in other assets of $328.9 million driven by unsettled trade receivables related to proceeds from maturities of U.S. Treasury Notes and interest payments which were received in the fourth quarter.

Total liabilities decreased by $993.9 million from the second quarter of 2023, driven by:

• a decrease of $667.2 million in deposits, mainly in Puerto Rico public sector accounts partially offset by an increase in time deposits and savings accounts at PB; and
• a decrease of $299.4 million in notes payable due to the redemption of $300.0 million in aggregate principal amount of the Senior Notes due September 2023.

Stockholders' equity decreased by $107.4 million from the second quarter of 2023, principally due to the after-tax impact of the increase in net unrealized losses in the portfolio of AFS securities of $242.6 million and to common and preferred dividends declared during the quarter, partially offset by the net income for the quarter of $136.6 million and the amortization of unrealized losses from securities previously reclassified to HTM of $35.0 million.

The Corporation is in the process of completing its annual goodwill impairment test, using July 31, 2023 as the evaluation date. During the third quarter, an impairment charge of $23.0 million related to our U.S. based equipment leasing subsidiary was recognized. The Corporation expects to finalize its evaluation prior to the filing of its Form 10-Q for the quarter ended September 30, 2023 with the Securities and Exchange Commission. Any further impairment of goodwill would result in a non-cash expense, net of tax impact. A charge to earnings related to a goodwill impairment would not materially impact regulatory capital and tangible capital calculations.

Common Equity Tier 1 ratio (“CET1”), common equity per share and tangible book value per share were 16.81%, $61.49 and $50.20, respectively, at September 30, 2023, compared to 16.87%, $63.00 and $51.37, respectively, at June 30, 2023. Refer to Table A for capital ratios.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including without limitation those regarding Popular’s business, financial condition, results of operations, plans, objectives and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include, without limitation, the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital market conditions, capital adequacy and liquidity, the effect of legal and regulatory proceedings, new accounting standards on the Corporation’s financial condition and results of operations, the scope and duration of the COVID-19 pandemic (including the appearance of new strains of the virus), actions taken by governmental authorities in response thereto, and the direct and indirect impact of the pandemic on Popular, our customers, service providers and third parties. Other potential factors include Popular’s ability to successfully execute its transformation initiative, including, but not limited to, achieving projected earnings, efficiencies and return on tangible common equity and accurately anticipating costs and expenses associated therewith, imposition of FDIC special assessments, changes to regulatory capital, liquidity and resolution-related requirements applicable to financial institutions in response to recent developments affecting the banking sector and the impact of bank failures or adverse developments at other banks and related negative media coverage of the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks. All statements contained herein that are not clearly historical in nature, are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions, and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, are generally intended to identify forward-looking statements.

More information on the risks and important factors that could affect the Corporation’s future results and financial condition is included in our Form 10-K for the year ended December 31, 2022, in our Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023, and in our Form 10-Q for the quarter ended September 30, 2023 to be filed with the Securities and Exchange Commission. Our filings are available on the Corporation’s website (www.popular.com) and on the Securities and Exchange Commission website (www.sec.gov). The Corporation assumes no obligation to update or revise any forward-looking statements or information which speak as of their respective dates.

About Popular, Inc.

Popular, Inc. (NASDAQ: BPOP) is the leading financial institution in Puerto Rico, by both assets and deposits, and ranks among the top 50 U.S. bank holding companies by assets. Founded in 1893, Banco Popular de Puerto Rico, Popular’s principal subsidiary, provides retail, mortgage and commercial banking services in Puerto Rico and the U.S. Virgin Islands. Popular also offers in Puerto Rico 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.

Conference Call

Popular will hold a conference call to discuss its financial results today, Thursday, October 26, 2023 at 11:00 a.m. Eastern Time. The call will be broadcast live over the Internet and can be accessed through the Investor Relations section of the Corporation’s website: www.popular.com.

Listeners are recommended to go to the website at least 15 minutes prior to the call to download and install any necessary audio software. The call may also be accessed through a dial-in telephone number 1-833-470-1428 (Toll Free) or 1-404-975-4839 (Local). The dial-in access code is 260746.

A replay of the webcast will be archived in Popular’s website. A telephone replay will be available one hour after the end of the conference call through Monday, November 27, 2023. The replay dial in is: 1-866-813-9403 or 1-929-458-6194. The replay passcode is 546020.

An electronic version of this press release can be found at the Corporation’s website: www.popular.com.