Popular, Inc. Announces Third Quarter 2021 Financial Results

   -- Net income of $248.1 million in Q3 2021, compared to net income of $218.1 
      million in Q2 2021. 
   -- Net interest margin of 2.77% in Q3 2021, compared to 2.91% in Q2 2021; 
      net interest margin on a taxable equivalent basis of 3.04% in Q3 2021, 
      compared to 3.22% in Q2 2021. 
   -- Credit Quality: 
          -- Non-performing loans held-in-portfolio ("NPLs") decreased by $52.3 
             million from Q2 2021; NPLs to loans ratio at 2.2% vs. 2.4% in Q2 
             2021; 
          -- Net charge-offs ("NCOs") increased by $10.1 million from Q2 2021; 
             NCOs at 0.12% of average loans held-in-portfolio vs. (0.02%) in Q2 
             2021; 
          -- Allowance for credit losses ("ACL") to loans held-in-portfolio at 
             2.49% vs. 2.70% in Q2 2021; and 
          -- ACL to NPLs at 113.6% vs. 114.7% in Q2 2021. 
   -- Common Equity Tier 1 ratio of 17.36%, Common Equity per Share of $74.66 
      and Tangible Book Value per Share of $66.01 at September 30, 2021. 
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--October 20, 2021-- 

Popular, Inc. (the "Corporation," "Popular," "we," "us," "our") (NASDAQ:BPOP) reported net income of $248.1 million for the quarter ended September 30, 2021, compared to net income of $218.1 million for the quarter ended June 30, 2021.

Ignacio Alvarez, President and Chief Executive Officer, said: "The third quarter was another strong quarter. We achieved net income of $248.1 million, driven by a reserve release of $61 million. The release reflects strong credit quality performance as well as a positive economic outlook. We continued to see higher credit and debit card spending, strong auto and mortgage originations as well as higher deposits. During the quarter we also continued to return capital to our shareholders, completing our $350 million accelerated repurchase program and announcing the redemption of $187 million in high-cost trust preferred securities. On October 15, 2021 we also completed a bolt-on acquisition of a national equipment leasing platform that complements our existing healthcare lending vertical. I am extremely proud of the work our team has accomplished during 2021 as we continue to serve our clients and communities."

Significant Events

Financial Highlights

For the third quarter of 2021, the Corporation recorded net income of $248.1 million, compared to a net income of $218.1 million for the previous quarter. The third quarter's results include a release in the allowance for credit losses of $61.2 million driven by improving credit quality and the improved macroeconomic outlook. Net Interest income was $489.4 million, an increase of $1.6 million compared to the previous quarter, mainly due to higher average earning assets and higher income from the loans issued under the U.S. Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), offset in part by a lower discount amortization of purchased credit deteriorated ("PCD") loans. Net interest margin decreased 14 basis points to 2.77%. Total assets grew by $1.5 billion from the previous quarter, reflecting an increase in deposits across various sectors, principally from the Puerto Rico public sector.

Acquisition of K2 Capital Group LLC

On October 15, 2021, Popular Equipment Finance, LLC ("PEF"), a newly-formed wholly-owned subsidiary of Popular Bank ("PB"), completed the acquisition of certain assets and the assumption of certain liabilities of Minnesota-based K2 Capital Group LLC's ("K2") equipment leasing and financing business (the "Acquired Business"). PEF made a payment to K2 at closing of approximately $159 million in cash, representing a premium of approximately $40 million over the book value of K2's net assets. An additional approximately $29 million in earnout payments could be payable to K2 over the next three years, contingent upon the achievement of certain agreed-upon financial targets during such period.

Specializing in the healthcare industry, the Acquired Business provides a variety of lease products, including operating and capital leases, and also offers private label vendor finance programs to equipment manufacturers and healthcare organizations. The acquisition provides PB with a national equipment leasing platform that complements its existing healthcare lending business.

As part of the transaction, PEF acquired approximately $119 million in net assets that consisted mainly of capital leases. All of K2's former employees, including its management team, became PEF employees at the closing of the transaction. The transaction will be accounted for as a business combination.

Capital Actions

Accelerated Share Repurchase

On September 9, 2021, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $350 million of Popular's common stock. Under the terms of the accelerated share repurchase agreement (the "ASR Agreement"), on May 4, 2021, the Corporation made an initial payment of $350 million and received an initial delivery of 3,785,831 shares of Popular's Common Stock (the "Initial Shares"). The transaction was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in shareholders' equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation received an additional 828,965 shares and recognized $61 million as treasury stock with a corresponding increase in its capital surplus account. The Corporation repurchased a total of 4,614,796 shares at an average purchase price of $75.84 under the ASR Agreement.

Redemption of Trust Preferred Securities

On September 30, 2021, the Corporation announced that it had sent a redemption notice to The Bank of New York Mellon, the Property Trustee for Popular Capital Trust I (the "Trust"), to redeem, on November 1, 2021, all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities (the "Capital Securities") issued by the Trust (liquidation amount of $25 per security and amounting to $186,663,800 (or $181,063,250 after excluding Popular's participation in the Trust of $5,600,550) in the aggregate). The redemption price for the Capital Securities will be equal to $25 per security plus accrued and unpaid distributions up to and excluding the redemption date in the amount of $0.139583 per security, for a total payment per security in the amount of $25.139583. Upon redemption, Popular intends to apply for delisting of the Popular Capital Trust I (NASDAQ: BPOPN) from the Nasdaq Global Select Market.

Earnings Highlights 
(Unaudited)                      Quarters ended              Nine months ended 
-----------------------  -------------------------------  ----------------------- 
(Dollars in thousands, 
except per share 
information)             30-Sep-21  30-Jun-21  30-Sep-20    30-Sep-21   30-Sep-20 
-----------------------  ---------  ---------  ---------  -----------  ---------- 
Net interest income      $489,393   $487,802    $461,021  $1,456,307   $1,384,997 
Provision for credit 
 losses (benefit)         (61,173)   (17,015)     19,138    (160,414)     271,318 
-----------------------  --------   --------   ---------  ----------   ---------- 
Net interest income 
 after provision for 
 credit losses 
 (benefit)                550,566    504,817     441,883   1,616,721    1,113,679 
Other non-interest 
 income                   169,258    154,540     128,767     477,451      367,465 
Operating expenses        388,168    368,185     361,066   1,131,881    1,081,905 
-----------------------  --------   --------   ---------  ----------   ---------- 
Income before income 
 tax                      331,656    291,172     209,584     962,291      399,239 
Income tax expense         83,542     73,093      41,168     233,466       68,893 
-----------------------  --------   --------   ---------  ----------   ---------- 
Net income               $248,114   $218,079    $168,416    $728,825     $330,346 
-----------------------  --------   --------   ---------  ----------   ---------- 
Net income applicable 
 to common stock         $247,761   $217,726    $168,064    $727,766     $328,941 
-----------------------  --------   --------   ---------  ----------   ---------- 
Net income per common 
 share-basic                $3.09      $2.67       $2.01       $8.89        $3.80 
-----------------------  --------   --------   ---------  ----------   ---------- 
Net income per common 
 share-diluted              $3.09      $2.66       $2.00       $8.87        $3.80 
-----------------------  --------   --------   ---------  ----------   ---------- 

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 Table D and E for the quarter and nine months ended September 30, 2021, and comparable periods. 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.