Popular, Inc. Announces First Quarter 2019 Financial Results

• Net income of $167.9 million in Q1 2019, compared to net income of
  $106.4 million and adjusted net income of $134.1 million in Q4 2018.
• Net interest margin of 4.20% in Q1 2019, compared to 4.25% in Q4
  2018.
• Credit Quality:
  • Non-performing loans held-in-portfolio (“NPLs”) decreased by
    $24.9 million from Q4 2018; NPLs to loans ratio at 2.2% vs. 2.3%
    in Q4 2018;
  • Net charge-offs (“NCOs”) decreased by $46.4 million from Q4
    2018; NCOs at 0.92% of average loans held-in-portfolio vs. 1.63%
    in Q4 2018;
  • Allowance for loan losses to loans held-in-portfolio at 2.07%
    vs. 2.15% in Q4 2018; and
  • Allowance for loan losses to NPLs at 93.9% vs. 93.2% in Q4 2018.
• Common Equity Tier 1 ratio of 16.39%, Common Equity per Share of
  $55.78 and Tangible Book Value per Share of $48.58 at March 31, 2019.

SAN JUAN, Puerto Rico–(BUSINESS WIRE)–Popular, Inc. (the “Corporation,” “Popular,” “we,” “us,” “our”)
(NASDAQ:BPOP) reported net income of $167.9 million for the first
quarter ended March 31, 2019, compared to net income of $106.4 million
and adjusted net income of $134.1 million for the fourth quarter ended
December 31, 2018.

Ignacio Alvarez, President and Chief Executive Officer, said: “The first
quarter was a great start to 2019 and places us on a solid footing for
the remainder of the year. Credit quality metrics were positive, and we
achieved loan growth in Puerto Rico for the second quarter in a row, led
by our auto finance business. Our unique franchise puts us in a
privileged position to take advantage of opportunities that will arise
as Puerto Rico’s recovery continues. We continued to make progress in
our U.S. mainland operations, which remain an important source of
revenue diversification. Loan balances for the quarter were flat, but we
are optimistic that loan growth will pick up as the year progresses.”

Earnings Highlights
(Unaudited)				Quarters ended
(Dollars in thousands, except per share information)				31-Mar-19				31-Dec-18				31-Mar-18
Net interest income				$	470,963			$	476,225			$	393,047
Provision for loan losses – non-covered loans					41,825				42,568				69,333
Provision for loan losses – covered loans [1]					–				–				1,730
Net interest income after provision for loan losses					429,138				433,657				321,984
FDIC loss-share expense					–				–				(8,027	)
Other non-interest income					136,430				153,167				121,524
Operating expenses					347,420				396,455				322,002
Income before income tax					218,148				190,369				113,479
Income tax expense					50,223				83,966				22,155
Net income				$	167,925			$	106,403			$	91,324
Net income applicable to common stock				$	166,994			$	105,472			$	90,393
Net income per common share – Basic				$	1.69			$	1.06			$	0.89
Net income per common share – Diluted				$	1.69			$	1.05			$	0.89
[1] Covered loans represent loans acquired in the Westernbank FDIC-assisted transaction that were covered under the terminated FDIC loss sharing agreements.

Significant Events

Accelerated share repurchase transaction

On February 28, 2019, the Corporation entered into an accelerated share
repurchase (“ASR”) transaction of $250 million with respect to its
common stock, which was accounted for as a treasury stock transaction.
Accordingly, as a result of the receipt of the initial shares, the
Corporation recognized in shareholders’ equity approximately $200
million in treasury stock and $50 million as a reduction in capital
surplus. The Corporation expects to further adjust its treasury stock
and capital surplus accounts to reflect the delivery or receipt of cash
or shares upon the termination of the ASR agreement, which will depend
on the average price of the Corporation’s shares during the term of the
ASR.

Increase in quarterly common stock dividend

As part of its capital plan for 2019, on January 23, 2019, the
Corporation announced an increase in its quarterly common stock dividend
from $0.25 per share to $0.30 per share, payable commencing in the
second quarter of 2019. On February 15, 2019, the Corporation’s Board of
Directors approved the first quarterly cash dividend of $0.30 per share
on its outstanding common stock, which was paid on April 1, 2019 to
shareholders of record at the close of business on March 8, 2019.

Adjusted results – Non-GAAP

The Corporation prepares its Consolidated Financial Statement using
accounting principles generally accepted in the U.S. (“U.S. GAAP” or the
“reported basis”). In addition to analyzing the Corporation’s results on
the reported basis, management monitors the “Adjusted net income” of the
Corporation and excludes from such calculation the impact of certain
transactions on the results of its operations. Management believes that
“Adjusted net income” provides meaningful information to investors about
the underlying performance of the Corporation’s ongoing operations.
“Adjusted net income” is a non-GAAP financial measure.

The table below describes adjustments to net income for the quarter
ended December 31, 2018. No adjustments to net income are reflected for
the quarter ended March 31, 2019.

(Unaudited)
				Quarter ended
(In thousands)				31-Dec-18
				Pre-tax			Income tax effect			Impact on net income
U.S. GAAP Net income										$	106,403
Non-GAAP Adjustments:
Impact of Law Act No.257[1]				–			27,686				27,686
Adjusted net income (Non-GAAP)										$	134,089
[1]On December 10, 2018, the Governor of Puerto Rico signed into law Act No.257 of 2018, which amended the Puerto Rico Internal Revenue Code, to among other things, reduce the Puerto Rico corporate tax rate from 39% to 37.5%. The resulting adjustments reduced the DTA related to the Corporation’s P.R. operations as a result of a lower realizable benefit at the lower tax rate.

Net interest income

Net interest income for the quarter ended March 31, 2019 was $471.0
million, compared to $476.2 million for the previous quarter. The net
interest margin was 4.20% for the quarter, compared to 4.25% for the
previous quarter.

The decrease of $5.2 million in net interest income is mainly the result
of the following:

• Lower income from the commercial loan portfolio by $3.8 million, or 5
  basis points, mainly at Popular Bank (“Popular U.S.” or “PB”) due to
  lower prepayment penalties collected on cancelled loans and the impact
  of two fewer days in the quarter. The results for the fourth quarter
  of 2018 for Banco Popular de Puerto Rico (“BPPR”) benefited from a
  positive adjustment of $5.7 million to interest income due to the
  prepayment of a commercial loan accounted for under ASC 310-30;
• Lower income from construction loans by $1.6 million, or 20 basis
  points, mainly at Popular Bank due to lower average balance of the
  portfolio;
• Lower income from the auto loans portfolio by $3.0 million, or 77
  basis points, driven by $4.5 million lower amortization of the fair
  value discount of the portfolio acquired from Wells Fargo during the
  third quarter of 2018 and the impact of two fewer days in the quarter,
  partially offset by higher average volume of loans by $141 million; and
• Higher cost of interest-bearing deposits by $5.6 million, or 8 basis
  points, was mainly due to higher average balances in NOW and money
  market and savings accounts, driven by public sector deposits at BPPR,
  coupled with the impact of the increase in short-term rates at the end
  of the fourth quarter of 2018. Popular Bank reflected an increase in
  the cost of time deposits, mainly related to its digital deposit
  channel.

Partially offset by:

• Higher income from money market, trading and investments by $6
  million, or 10 basis points, as a result of higher yields during the
  quarter, including the impact of the increase in the Fed Funds rate by
  25 basis points in December 2018 as well as higher average balance of
  money market investment and debt securities; and
• Lower borrowing costs by $1.9 million, or 6 basis points, due mainly
  to lower rates on borrowings as a result of the Corporation having
  redeemed during the fourth quarter of 2018 $450 million, 7% Senior
  Notes and issued during the third quarter of 2018 $300 million of its
  6.125% Senior Notes due 2023.

BPPR’s net interest income amounted to $407.4 million for the quarter
ended March 31, 2019, compared to $408.7 million in the previous
quarter. The decrease of $1.3 million in net interest income was mainly
due to higher cost and higher average deposit balances, principally from
the public sector. Also, lower income from the auto loans portfolio
driven by lower amortization of the fair value discount portfolio
acquired from Wells Fargo, partially offset by higher interest income
from money market and investment securities, as mentioned above. The net
interest margin for the first quarter of 2019 was 4.49%, a decrease of 2
basis points when compared to 4.51% for the previous quarter. The
decrease in net interest margin was due to higher cost of deposits and
lower yield on the auto portfolio. BPPR’s earning assets yielded 5.07%,
compared to 5.04% in the previous quarter, while the cost of
interest-bearing deposits was 0.79%, or 6 basis points higher than the
0.73% reported in the previous quarter. Total cost of deposits for the
quarter was 0.60%. The impact of 2 fewer days in the quarter represented
approximately $6.3 million in BPPR’s net interest income.

Net interest income for Popular U.S. was $72.8 million, for the quarter
ended March 31, 2019, compared to $77.9 million during the previous
quarter. The decrease of $5.1 million in net interest income was
primarily due to lower income from commercial and construction loans,
lower fees earned on the cancellation of loans and higher cost of
deposits, as discussed above. Net interest margin for the quarter
decreased 21 basis points to 3.40%, compared to 3.61% for the previous
quarter. Earning assets yielded 4.61%, compared to 4.74% in the previous
quarter, while the cost of interest-bearing deposits was 1.51%, compared
to 1.38% in the previous quarter. The impact of 2 fewer days in the
quarter represented approximately $1.3 million in Popular U.S. ‘s net
interest income.

Non-interest income

Non-interest income decreased by $16.7 million to $136.4 million for the
quarter ended March 31, 2019, compared to $153.2 million for the
previous quarter. The reduction in non-interest income was primarily
driven by:

• Lower other service fees by $5.9 million due to lower credit card and
  debit fees by $1.5 million and $0.7 million, respectively, as a result
  of lower interchange fees due to lower seasonal transaction volumes.
  Also, lower insurance fees by $1.6 million due to contingent
  commissions, which are typically recognized during the fourth quarter;
• lower income on mortgage banking activities by $9.5 million, mainly
  due to a variance in the fair value of mortgage servicing rights that
  included an $8.7 million positive adjustment during the fourth quarter
  of 2018; and
• lower other operating income by $11.1 million, principally due to $9.5
  million in recoveries for hurricane-related claims recognized in the
  previous quarter and lower modification fees received for the
  successful completion of loss mitigation alternatives by $1.3 million.

These variances were partially offset by:

• Higher unrealized net gains on equity securities by $3.5 million
  mainly on deferred compensation plans that have an offsetting expense
  in personnel costs; and
• favorable variance in adjustments to indemnity reserves of $6.4
  million related to loans previously sold with credit recourse at BPPR.

Refer to Table B for further details.

Operating expenses

Operating expenses for the first quarter of 2019 amounted to $347.4
million, a decrease of $49.0 million when compared to the fourth quarter
of 2018. The decrease in operating expenses was driven primarily by:

• Lower personnel costs by $29.9 million, as a result of $17.2 million
  recognized during the fourth quarter of 2018 in connection with the
  implementation of the Voluntary Retirement Program (“VRP”) and $13.9
  million related to annual incentives tied to the Corporation’s
  profit-sharing plans;

• lower business promotion expenses by $7.0 million due to lower
  seasonal advertising costs and lower consumer reward program expense;
  and
• favorable variance of $12.5 million, resulting from the recognition of
  a loss in the fourth quarter of 2018 in connection with the early
  extinguishment of $450 million in 7% Senior Notes, which were due in
  2019.

Full-time equivalent employees were 8,242 as of March 31, 2019, compared
to 8,474 as of December 31, 2018. The decrease in headcount is mainly
related to the net impact of the VRP.

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

Income taxes

For the quarter ended March 31, 2019, the Corporation recorded an income
tax expense of $50.2 million, compared to $84.0 million for the previous
quarter. As previously disclosed, during the fourth quarter of 2018 the
Corporation recognized a non-cash income tax expense of $27.7 million
resulting from adjustments to the DTA related to its Puerto Rico
operations due to the enactment of Act No. 257 of 2018, which amended
the Puerto Rico Internal Revenue Code to, among other things, reduce the
corporate income tax rate from 39% to 37.5%.

The effective tax rate for the first quarter of 2019 was 23%. Excluding
the impact of the above mentioned adjustment, the effective tax rate for
the fourth quarter of 2018 was 30% as more income was recognized at the
39% marginal tax rate in Puerto Rico and the debt extinguishment
expenses of $12.5 million recorded during that quarter were not subject
to a tax benefit. The effective tax rate of the Corporation is impacted
by the composition and source of its taxable income. For the year 2019,
the Corporation expects its consolidated effective tax rate to be within
a range from 22-25%.

Credit Quality

During the first quarter of 2019, the Puerto Rico segment continued to
reflect positive credit quality trends. Mortgage delinquencies continued
to improve, and net charge-offs were at 0.71% on that portfolio. The
Corporation continues to be attentive to the performance of its
portfolios and related credit metrics. The credit quality metrics of our
U.S. operation also remained favorable. The following presents credit
quality results for the first quarter of 2019.

• Inflows of NPLs held-in-portfolio, excluding consumer loans, decreased
  by $13.1 million quarter-over-quarter, primarily related to lower P.R.
  commercial inflows. P.R. mortgage inflows for the quarter remained
  stable, mainly driven by lower early delinquencies.
• Total non-performing loans held-in-portfolio decreased by $24.9
  million from the fourth quarter of 2018, mainly driven by lower P.R.
  commercial NPLs of $16.7 million, primarily related to a $12.0 million
  charge-off on a previously reserved loan. P.R. mortgage NPLs continued
  to gradually improve, decreasing by $5.7 million from the fourth
  quarter of 2018. At March 31, 2019, the ratio of NPLs to total loans
  held-in-portfolio was 2.2%, compared to 2.3% in the fourth quarter of
  2018.
• Net charge-offs decreased by $46.4 million from the fourth quarter of
  2018, primarily driven by lower P.R. commercial NCOs of $35.1 million,
  as the prior quarter included charge-offs from two large
  relationships. In addition, P.R. mortgage NCOs decreased by $6.9
  million from the prior quarter. The Corporation’s ratio of annualized
  net charge-offs to average loans held-in-portfolio was 0.92%, compared
  to 1.63% in the fourth quarter of 2018. Refer to Table J for further
  information on net charge-offs and related ratios.
• The allowance for loan and lease losses (“ALLL”) decreased by $18.7
  million from the fourth quarter of 2018 to $550.6 million. The P.R.
  segment ALLL decreased by $22.8 million, principally due to
  charge-offs from impaired loans, most significantly the abovementioned
  $12.0 million charge-off, coupled with improvements in loss trends in
  the mortgage portfolio.
• The general and specific reserves totaled $448.7 million and $101.9
  million, respectively, at quarter-end, compared with $449.7 million
  and $119.7 million, respectively, as of December 31, 2018. The ratio
  of the allowance for loan losses to loans held-in-portfolio was 2.07%
  in the first quarter of 2019, compared to 2.15% in the previous
  quarter. The ratio of the allowance for loan losses to NPLs
  held-in-portfolio stood at 93.9% compared to 93.2% in the previous
  quarter.
• The provision for loan losses for the first quarter of 2019 remained
  essentially flat at $41.8 million. The P.R. segment provision
  decreased by $12.0 million, while the U.S. segment increased by $11.3
  million, primarily driven by the commercial portfolios. The provision
  to net charge-offs ratio was 69.1% in the first quarter of 2019,
  compared to 39.8% in the previous quarter.

Non-Performing Assets
(Unaudited)
(In thousands)				31-Mar-19					31-Dec-18					31-Mar-18
Total non-performing loans held-in-portfolio, excluding covered loans				$	586,202				$	611,087				$	606,796
Other real estate owned (“OREO”), excluding covered OREO					125,478					136,705					153,061
Total non-performing assets, excluding covered assets					711,680					747,792					759,857
Covered loans and OREO					–					–					18,928
Total non-performing assets				$	711,680				$	747,792				$	778,785
Net charge-offs for the quarter (excluding covered loans)				$	60,545				$	106,938				$	52,547
Ratios (excluding covered loans):
Non-covered loans held-in-portfolio				$	26,647,708				$	26,507,889				$	24,087,937
Non-performing loans held-in-portfolio to loans held-in-portfolio					2.20	%				2.31	%				2.52	%
Allowance for loan losses to loans held-in-portfolio					2.07					2.15					2.52
Allowance for loan losses to non-performing loans, excluding loans held-for-sale					93.93					93.17					100.03
Refer to Table H for additional information.

Provision for Loan Losses
(Unaudited)				Quarters ended
(In thousands)				31-Mar-19				31-Dec-18					31-Mar-18
Provision (reversal) for loan losses:
BPPR				$	31,454			$	43,461				$	56,718
Popular U.S.					10,371				(893	)				12,615
Total provision for loan losses – non-covered loans				$	41,825			$	42,568				$	69,333
Provision for loan losses – covered loans					–				–					1,730
Total provision for loan losses				$	41,825			$	42,568				$	71,063

Credit Quality by Segment
(Unaudited)
(In thousands)				Quarters ended
BPPR				31-Mar-19					31-Dec-18					31-Mar-18
Provision for loan losses				$	31,454				$	43,461				$	56,718
Net charge-offs					54,229					96,479					41,227
Total non-performing loans held-in-portfolio, excluding covered loans					544,992					568,098					573,516
Allowance / non-covered loans held-in-portfolio					2.42	%				2.55	%				3.01	%
				Quarters ended
Popular U.S.				31-Mar-19					31-Dec-18					31-Mar-18
Provision (reversal) for loan losses				$	10,371				$	(893	)			$	12,615
Net charge-offs					6,316					10,459					11,320
Total non-performing loans held-in-portfolio					41,210					42,989					33,280
Allowance / non-covered loans held-in-portfolio					1.00	%				0.94	%				1.16	%

Financial Condition Highlights
(Unaudited)
(In thousands)				31-Mar-19				31-Dec-18				31-Mar-18
Cash and money market investments				$	5,190,692			$	4,565,083			$	7,264,086
Investment securities					13,839,874				13,595,130				10,733,010
Loans not covered under loss-sharing agreements with the FDIC					26,647,708				26,507,889				24,087,937
Loans covered under loss-sharing agreements with the FDIC					–				–				514,611
Total assets					48,680,607				47,604,577				45,756,761
Deposits					40,879,838				39,710,039				37,134,093
Borrowings					1,377,401				1,537,673				2,130,465
Total liabilities					43,240,547				42,169,520				40,691,852
Stockholders’ equity					5,440,060				5,435,057				5,064,909

Total assets increased by $1.1 billion from the fourth quarter of 2018,
driven by:

• An increase of $0.6 billion in cash and money market investments,
  mainly due to an increase in public sector deposits at BPPR, partially
  offset by purchases of mortgage-backed securities;
• An increase of $0.2 billion in debt securities available-for-sale
  mainly due to purchases of mortgage-backed securities at BPPR and PB,
  partially offset by maturities of U.S. Treasury securities at BPPR;
• An increase of $0.1 billion in loans held-in-portfolio, mainly driven
  by growth of auto loans and leases at the BPPR segment; and
• An increase of $0.1 billion in other assets due to the recognition of
  right-of-use assets as a result of the implementation of the new lease
  accounting standard, which required balance sheet recognition of
  operating lease contracts.

Total liabilities increased by $1.1 billion from the fourth quarter of
2018, mainly due to:

• An increase of $1.2 billion in deposits due to an increase of $0.8
  billion and $0.1 billion, respectively, in Puerto Rico public sector
  deposits and private savings deposits at BPPR and $0.2 billion in
  non-brokered time deposits at PB; and
• An increase of $0.1 billion in other liabilities due to the
  recognition of operating lease liabilities, as discussed above.

Partially offset by:

• A decrease of $0.2 billion in borrowings due to a decrease in assets
  sold under agreements to repurchase and Federal Home Loan Bank
  advances mainly at PB.

Stockholders’ equity increased by approximately $5.0 million from the
fourth quarter of 2018, principally due to the net income for the
quarter of $167.9 million and lower unrealized losses on debt securities
available-for-sale by $101.4 million, offset by other adjustments
including the impact of the $250 million accelerated share repurchase
transaction and declared dividends on common and preferred stock.

Common equity tier-1 ratio (“CET1”), common equity per share and
tangible book value per share were 16.39%, $55.78 and $48.58,
respectively, at March 31, 2019, compared to 16.90%, $53.88 and $46.90
at December 31, 2018. 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 about 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 and new accounting standards
on the Corporation’s financial condition and results of operations. 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 Annual Report on Form 10-K for the year ended December 31, 2018, and
in our Form 10-Q for the first quarter ended March 31, 2019 to be filed
with the SEC. 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.

Contacts

Popular, Inc.
Investor Relations:
Paul Cardillo,
212-417-6721
Senior Vice President, Investor Relations Officer
or
Media
Relations:
Teruca Rullán, 787-281-5170 or 917-679-3596 (mobile)
Senior
Vice President, Corporate Communications

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