# EDGAR Filing Document

**Accession Number:** 0000763901
**File Stem:** 0001193125-23-083243
**Filing Date:** 2023-3
**Character Count:** 413175
**Document Hash:** 1d9cdde9e155d87467f3dd3547e07d94
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-083243.hdr.sgml**: 20230329

**ACCESSION NUMBER**: 0001193125-23-083243

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230329

**DATE AS OF CHANGE**: 20230329

**EFFECTIVENESS DATE**: 20230329

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** POPULAR, INC.
- **CENTRAL INDEX KEY:** 0000763901
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **IRS NUMBER:** 660667416
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-34084
- **FILM NUMBER:** 23772992

**BUSINESS ADDRESS:**
- **STREET 1:** 209 MUNOZ RIVERA AVE
- **STREET 2:** POPULAR CENTER BUILDING
- **CITY:** HATO REY
- **STATE:** PR
- **ZIP:** 00918
- **BUSINESS PHONE:** 7877659800

**MAIL ADDRESS:**
- **STREET 1:** P.O. BOX 362708
- **CITY:** SAN JUAN
- **STATE:** PR
- **ZIP:** 00936-2708

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** POPULAR INC
- **DATE OF NAME CHANGE:** 19970428

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** BANPONCE CORP
- **DATE OF NAME CHANGE:** 19920703

### Attached PDF Documents

**Attachment 1:** `d408943dars.pdf`

2022

# ANNUAL REPORT
INFORME ANUAL

POPULAR

![img-0.jpeg](img-0.jpeg)

2022

# ANNUAL REPORT
INFORME ANUAL

POPULAR

![img-1.jpeg](img-1.jpeg)

# Contents
*Índice*

Letter From The President &
Chief Executive Officer 3

25-Year Historical Financial Summary 6

Management & Board Of Directors 8

Popular, Inc. (NASDAQ: BPOP) is the leading financial institution by both assets and deposits in Puerto Rico 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.

## Corporate Information

Independent Registered Public Accounting Firm:
PricewaterhouseCoopers LLP. The company's annual report and proxy statement are available on popular.com/en/investor-relations/annual-reports/

## Annual Meeting

The Annual Stockholders' Meeting of Popular, Inc. will be held on Thursday, May 11, 2023 at 9:00 a.m. AST at the penthouse of the Popular Center Building, San Juan, Puerto Rico.

Carta Del Presidente y
Principal Oficial Ejecutivo 11

Resumen Financiero Histórico (25 Años) 14

Gerencia y Junta de Directores 16

Popular, Inc. (NASDAQ: BPOP) es la institución bancaria líder en depósitos y activos en Puerto Rico y se encuentra entre las primeras 50 entidades tenedoras de instituciones bancarias por número de activos. Fundado en 1893, Banco Popular de Puerto Rico, la principal subsidiaria de Popular, brinda servicios de banca individual, hipotecas y banca comercial en Puerto Rico e Islas Vírgenes estadounidenses. Popular también ofrece en Puerto Rico servicios de financiamiento de autos y equipo, inversiones y seguros a través de subsidiarias especializadas. En Estados Unidos, Popular provee servicios de banca individual, hipotecas y banca comercial a través de su filial bancaria en Nueva York, Popular Bank, la cual cuenta con sucursales localizadas en Nueva York, Nueva Jersey y Florida.

## Información Corporativa

Firma registrada de Contabilidad Pública Independiente: PricewaterhouseCoopers LLP
El informe anual y el proxy están disponibles en popular.com/accionistas/informe-anual/

## Reunión Anual

La Reunión Anual de Accionistas de Popular, Inc. se celebrará el jueves 11 de mayo de 2023 a las 9:00 a.m. AST en el piso PH de Popular Center, San Juan, Puerto Rico.

2 | Popular, Inc.

# Popular, Inc.
## Year In Review

Dear Shareholders:

2022 was, in many ways, a great year for Popular. Financially, it was our best year ever. We achieved considerable loan growth while maintaining strong credit quality, continued expanding our customer base, executed significant transactions, completed capital actions and made several strategic decisions important to our future success.

Our Performance

Our record annual net income of $1.1 billion was $168 million higher than 2021. The increase was largely driven by the benefit of a series of transactions related to Evertec, one of our main technology providers, which resulted in an aggregate after-tax gain of $227 million, and a tax benefit of $68 million related to the partial reversal of the deferred tax asset valuation allowance of our U.S. operations. Our results also reflected higher net interest income, partially offset by higher operating expenses and a higher provision expense. In 2022, we recorded a provision for credit losses expense of $83 million, compared to a provision benefit of $193 million in the previous year.

We grew our loan portfolio by $2.8 billion or 10%. We are particularly pleased with the contribution of our U.S. operation, which increased its portfolio by $1.2 billion or 14%, driven by commercial real estate loans and our community association banking and healthcare lending niche businesses.

Credit quality was strong throughout 2022. Our portfolios continued to perform well, with net charge offs well below historical levels and a lower level of non-performing loans.

We continued to return capital to our shareholders, repurchasing 8.25 million shares of common stock totaling $631 million. We also increased our quarterly common stock dividend to $0.55 per share, representing nearly $164 million in dividends paid during the year. Our capital levels remained robust, with a year-end Common Equity Tier 1 ratio of 16.4%. Our tangible book value per share ended the year at $44.97, a 31% decrease from 2021, primarily driven by unrealized losses on investment securities due to the effects of the rise in interest rates. We expect that these unrealized losses are temporary. Our investment portfolio is made up mostly of U.S. Treasuries and other U.S. Government guaranteed fixed-rate debt securities. The prices of these securities move inversely to changes in market interest rates. We expect to collect our entire investment over time as these bonds mature.

Our shares closed 2022 at $66.32, 19% lower than the previous year. The stock underperformed the KBW Nasdaq Regional Bank Index and the Nasdaq Bank Price Return Index, which declined by 10% and 18%, respectively. While the regional bank sector traded lower in absolute terms in 2022, it outperformed the broader market. Our focus has been, and will continue to be, on running and investing in a strong operation, confident that it will result in long-term value for our shareholders.

![img-2.jpeg](img-2.jpeg)

2022 was, in many ways, a great year for Popular. Financially, it was our best year ever. We achieved considerable loan growth while maintaining strong credit quality, continued expanding our customer base, executed significant transactions, completed capital actions and made several strategic decisions important to our future success.

2022 Annual Report | 3

## 2022 Strategic Highlights

### Sustainable and Profitable Growth

- Grew total loans by $2.8 billion or 10%. The most significant increases in Puerto Rico were in commercial loans and in the auto business. In the United States, the increase was driven by commercial real estate loans and the community association and healthcare lending businesses.

### Simplicity

- Redefined relationship with Evertec, providing us greater optionality to develop and enhance technology platforms and more flexibility to select and partner with new service vendors.

### Customer Focus

- Acquired from Evertec certain critical channels, including BPPR's retail and business digital banking and commercial cash management applications to more quickly enhance the services that we offer through our digital platforms and provide an omnichannel experience that meets our clients' needs and expectations.
- Implemented significant changes to our overdraft practices, including eliminating the charge for insufficient funds for returned transactions.
- Continued expanding our customer base in Puerto Rico, which now reaches 1.98 million.
- In Puerto Rico, active users on our digital platform exceeded 1.1 million. We captured 64% of deposit transactions through digital channels.

### Fit for the Future

- Increased the base salary in all markets and implemented market and merit adjustments as part of a concerted strategy to attract and retain the best talent in an increasingly competitive market.
- Continued strengthening our compliance and cybersecurity programs.

### Strategic Initiatives

On the strategic front, we took important steps to be more agile and provide an excellent customer experience in a rapidly changing environment.

We embarked on a broad-based technological and business process Transformation. The needs and expectations of our clients and colleagues, as well as the competitive landscape, have evolved, compelling us to make important investments in our technological infrastructure and adopt more agile practices. Our Transformation is and will continue to be a significant priority for the corporation over the next three years and beyond. We believe that there continues to be opportunity for growth in Puerto Rico, our primary market, as well as within our existing customer base. These efforts will help us capitalize upon that opportunity. We believe these investments will make us a more efficient and profitable company, allowing us to achieve a 14% return on tangible common equity target by the end of 2025.

In July 2022, we completed a transaction that will be key to the success of our Transformation. We acquired key customer-facing channels from Evertec and made important changes to our contractual relationship with them. Evertec will continue to provide various information technology and transaction processing services to Popular, but we will have greater ability to manage our channels and increased flexibility to choose the best technology partners. This will allow us to increase the speed at which we enhance the products and services that we offer through our digital platforms, as well as accelerate our technological modernization. As a result of the transaction, we also sold our remaining ownership stake in Evertec.

### Our Organization

Our accomplishments during the year reflect the efforts of the approximately 8,900 colleagues that are part of the Popular family. I am proud of their talent and dedication, which became evident once again in challenging times, such as the aftermath of Hurricanes Ian and Fiona. Their performance during these types of events demonstrates Popular's unwavering commitment to all the important stakeholders we serve.

I am grateful for the support of our Senior Management Team, whose leadership inspires all of us to go the extra mile. On behalf of all of Popular, I want to extend a special thank you to Juan Guerrero who, after 36 years of dedicated service, will retire at the end of April. Juan has been key in the development of our securities and insurance businesses and has always distinguished himself for his customer-centric approach and efforts to promote collaboration to provide better service to our clients. We are grateful

4 | Popular, Inc.

for his important contributions throughout the decades and for developing an excellent group of leaders that will continue to evolve these businesses in the coming years. As part of our Transformation, we will reorganize our businesses in Puerto Rico into three groups: Commercial Credit & Services, Retail & Business Solutions, and Specialized Businesses, which includes our mortgage, auto, and insurance segments. The new structure will allow us to better understand our customers' current and future needs, personalize their experience and deliver outstanding service.

I would also like to thank our Board of Directors, a diverse group of highly experienced and committed individuals, for their invaluable counsel and support.

### Positioned for Continued Success

We are pleased to start 2023 on a strong footing and with a clear strategy. While aware of the macroeconomic headwinds related to inflation, interest rates and geopolitical risks, we are confident on our ability to manage through these and other challenges that may arise. We are optimistic about the economic outlook in Puerto Rico, our primary market which, given the amount of stimulative support from federal recovery funds, we expect will continue its growth path, albeit perhaps at a slower pace.

The new year marks Popular's 130th anniversary. Since 1893, we have successfully adapted and led throughout changing conditions. We are proud of our history and the legacy that made Popular what it is today - a strong, vibrant organization, with deep-rooted values.

We recently broke ground on a project that will expand our headquarters in Puerto Rico and further transform our surrounding areas. The new state-of-the-art facilities will allow a greater number of our colleagues to work together, generating efficiencies, and provide an environment where learning, collaboration and innovation are continuously encouraged.

Leveraging these strengths, we will continue to transform our organization to ensure its success for many years to come. We are committed to meeting the rapidly changing needs of our customers, providing our colleagues a workplace where they can thrive, promoting progress in the communities we serve and generating sustainable value for our shareholders.

IGNACIO ALVAREZ
President and Chief Executive Officer
Popular, Inc.

![img-3.jpeg](img-3.jpeg)

### ESG

Having a positive impact on the lives of our customers, colleagues, communities and shareholders is central to what we do and how we do it. During 2022, we continued advancing our ESG strategy:

- Following Hurricane Fiona's impact on Puerto Rico, provided immediate relief to affected communities, waived several fees for a period of time, offered assistance to farmers and small businesses through partner non-profit organizations and leveraged the employee emergency fund to support impacted colleagues.
- Launched the Popular Impact Fund, with an initial allocation of $15 million, to promote the growth of companies that present innovative solutions to social and economic challenges.
- In addition to our existing LGBTQ+ and Multicultural Employee Resources Groups (ERGs), launched ERGs for employees with functional diversity and women.
- Popular was included as part of the Bloomberg Gender Equality Index in 2022, which monitors the performance of public companies committed to disclosing their efforts to support gender equality.

2022 Annual Report | 5

# 25-Year Historical Financial Summary

| (Dollars in millions, except per share data) |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
| Selected Financial Information |  |  |  |  |  |  |  |  |  |  |  |
| Net Income (Loss) | $232.3 | $257.6 | $276.1 | $304.5 | $351.9 | $470.9 | $489.9 | $540.7 | $357.7 | $(64.5) | $(1,243.9) |
| Assets | 23,160.4 | 25,460.5 | 28,057.1 | 30,744.7 | 33,660.4 | 36,434.7 | 44,401.6 | 48,623.7 | 47,404.0 | 44,411.4 | 38,882.8 |
| Gross Loans | 13,078.8 | 14,907.8 | 16,057.1 | 18,168.6 | 19,582.1 | 22,602.2 | 28,742.3 | 31,710.2 | 32,736.9 | 29,911.0 | 26,268.9 |
| Deposits | 13,672.2 | 14,173.7 | 14,804.9 | 16,370.0 | 17,614.7 | 18,097.8 | 20,593.2 | 22,638.0 | 24,438.3 | 28,334.4 | 27,550.2 |
| Stockholders' Equity | 1,709.1 | 1,661.0 | 1,993.6 | 2,272.8 | 2,410.9 | 2,754.4 | 3,104.6 | 3,449.2 | 3,620.3 | 3,581.9 | 3,268.4 |
| Market Capitalization | $4,611.7 | $3,790.2 | $3,578.1 | $3,965.4 | $4,476.4 | $5,960.2 | $7,685.6 | $5,836.5 | $5,003.4 | $2,968.3 | $1,455.1 |
| Return on Average Assets (ROAA) | 1.14% | 1.08% | 1.04% | 1.09% | 1.11% | 1.36% | 1.23% | 1.17% | 0.74% | -0.14% | -3.04% |
| Return on Average Common Equity (ROACE) | 15.41% | 15.45% | 15.00% | 14.84% | 16.29% | 19.30% | 17.60% | 17.12% | 9.73% | -2.08% | -44.47% |
| Per Common Share 1 |  |  |  |  |  |  |  |  |  |  |  |
| Net Income (Loss) - Basic | $8.26 | $9.19 | $9.85 | $10.87 | $13.05 | $17.36 | $17.95 | $19.78 | $12.41 | $(2.73) | $(45.51) |
| Net Income (Loss) - Diluted | 8.26 | 9.19 | 9.85 | 10.87 | 13.05 | 17.36 | 17.92 | 19.74 | 12.41 | (2.73) | (45.51) |
| Dividends (Declared) | 2.50 | 3.00 | 3.20 | 3.80 | 4.00 | 5.05 | 6.20 | 6.40 | 6.40 | 6.40 | 4.80 |
| Book Value | 59.32 | 57.54 | 69.62 | 79.67 | 91.02 | 96.60 | 109.45 | 118.22 | 123.18 | 121.24 | 63.29 |
| Market Price | 170.00 | 139.69 | 131.56 | 145.40 | 169.00 | 224.25 | 288.30 | 211.50 | 179.50 | 106.00 | 51.60 |
| Assets by Geographical Area |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 71% | 71% | 72% | 68% | 66% | 62% | 55% | 53% | 52% | 59% | 64% |
| United States | 25% | 25% | 26% | 30% | 32% | 36% | 43% | 45% | 45% | 38% | 33% |
| Caribbean and Latin America | 4% | 4% | 2% | 2% | 2% | 2% | 2% | 2% | 3% | 3% | 3% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
| Traditional Delivery System |  |  |  |  |  |  |  |  |  |  |  |
| Banking Branches |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 198 | 199 | 199 | 196 | 195 | 193 | 192 | 194 | 191 | 196 | 179 |
| Virgin Islands | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 |
| United States 2 | 89 | 91 | 95 | 96 | 96 | 97 | 128 | 136 | 142 | 147 | 139 |
| Subtotal | 295 | 298 | 302 | 300 | 299 | 298 | 328 | 338 | 341 | 351 | 326 |
| Non-Banking Offices |  |  |  |  |  |  |  |  |  |  |  |
| Popular Financial Holdings | 128 | 137 | 136 | 149 | 153 | 181 | 183 | 212 | 158 | 134 | 2 |
| Popular Cash Express | 51 | 102 | 132 | 154 | 195 | 129 | 114 | 4 |  |  |  |
| Popular Finance | 48 | 47 | 61 | 55 | 36 | 43 | 43 | 49 | 52 | 51 | 9 |
| Popular Auto (including Reliable) | 10 | 12 | 12 | 20 | 18 | 18 | 18 | 17 | 15 | 12 | 12 |
| Popular Leasing, U.S.A. | 8 | 10 | 11 | 13 | 13 | 11 | 15 | 14 | 11 | 24 | 22 |
| Popular Mortgage | 11 | 13 | 21 | 25 | 29 | 32 | 30 | 33 | 32 | 32 | 32 |
| Popular Securities | 2 | 2 | 3 | 4 | 7 | 8 | 9 | 12 | 12 | 13 | 7 |
| Popular One |  |  |  |  |  |  |  |  |  |  |  |
| Popular Insurance and Popular Risk Services |  |  | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 1 |
| Popular Insurance Agency, U.S.A. |  |  |  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| Popular Insurance V.I. |  |  |  |  | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| E-LOAN |  |  |  |  |  |  |  | 1 | 1 | 1 | 1 |
| Popular Equipment Finance |  |  |  |  |  |  |  |  |  |  |  |
| EVERTEC |  | 4 | 4 | 4 | 5 | 5 | 5 | 5 | 7 | 9 | 9 |
| Subtotal | 258 | 327 | 382 | 427 | 460 | 431 | 421 | 351 | 292 | 280 | 97 |
| Total | 553 | 625 | 684 | 727 | 759 | 729 | 749 | 689 | 633 | 631 | 423 |
| Electronic Delivery System |  |  |  |  |  |  |  |  |  |  |  |
| ATMs Owned |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 421 | 442 | 478 | 524 | 539 | 557 | 568 | 583 | 605 | 615 | 605 |
| Virgin Islands | 59 | 68 | 37 | 39 | 53 | 57 | 59 | 61 | 65 | 69 | 74 |
| United States | 94 | 99 | 109 | 118 | 131 | 129 | 163 | 181 | 192 | 187 | 176 |
| Total | 574 | 609 | 624 | 681 | 723 | 743 | 790 | 825 | 862 | 871 | 855 |
| Employees (full-time equivalent) | 10,549 | 11,501 | 10,651 | 11,334 | 11,037 | 11,474 | 12,139 | 13,210 | 12,508 | 12,303 | 10,587 |

6 | Popular, Inc.

|  | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | $(573.9) | $137.4 | $151.3 | $245.3 | $599.3 | $(313.5) | $895.3 | $216.7 | $107.7 | $618.2 | $671.1 | $506.6 | $934.9 | $1,102.6 |
|  | 34,736.3 | 38,815.0 | 37,348.4 | 36,506.9 | 35,748.8 | 33,086.8 | 35,761.7 | 38,661.6 | 44,277.3 | 47,604.6 | 52,115.3 | 65,926.0 | 75,097.9 | 67,637.9 |
|  | 23,803.9 | 26,458.9 | 25,314.4 | 25,093.6 | 24,706.7 | 22,053.2 | 23,129.2 | 23,435.4 | 24,942.5 | 26,559.3 | 27,466.1 | 29,484.7 | 29,299.7 | 32,083.2 |
|  | 25,924.9 | 26,762.2 | 27,942.1 | 27,000.6 | 26,711.1 | 24,807.5 | 27,209.7 | 30,496.2 | 35,453.5 | 39,710.0 | 43,758.6 | 56,866.3 | 67,005.1 | 61,227.2 |
|  | 2,538.8 | 3,800.5 | 3,918.8 | 4,110.0 | 4,626.2 | 4,267.4 | 5,105.3 | 5,198.0 | 5,103.9 | 5,435.1 | 6,016.8 | 6,028.7 | 5,969.4 | 4,093.4 |
|  | $1,445.4 | $3,211.4 | $1,426.0 | $2,144.9 | $2,970.6 | $3,523.4 | $2,936.6 | $4,548.1 | $3,622.4 | $4,719.3 | $5,615.9 | $4,744.6 | $6,551.0 | $4,765.0 |
|  | -1.57% | 0.36% | 0.40% | 0.68% | 1.65% | -0.89% | 2.54% | 0.58% | 0.26% | 1.33% | 1.33% | 0.85% | 1.31% | 1.51% |
|  | -32.95% | 4.37% | 4.01% | 6.37% | 14.43% | -7.04% | 19.16% | 4.07% | 1.96% | 11.39% | 11.78% | 9.36% | 16.22% | 18.39% |
|  | $2.39 | $(0.62) | $1.44 | $2.36 | $5.80 | $(3.08) | $8.66 | $2.06 | $1.02 | $6.07 | $6.89 | $5.88 | $11.49 | $14.65 |
|  | 2.39 | (0.62) | 1.44 | 2.35 | 5.78 | (3.08) | 8.65 | 2.06 | 1.02 | 6.06 | 6.88 | 5.87 | 11.46 | 14.63 |
|  | 0.20 | - | - | - | - | - | 0.30 | 0.60 | 1.00 | 1.00 | 1.20 | 1.60 | 1.75 | 2.20 |
|  | 38.91 | 36.67 | 37.71 | 39.35 | 44.26 | 40.76 | 48.79 | 49.60 | 49.51 | 53.88 | 62.42 | 71.30 | 74.48 | 56.66 |
|  | 22.60 | 31.40 | 13.90 | 20.79 | 28.73 | 34.05 | 28.34 | 43.82 | 35.49 | 47.22 | 58.75 | 56.32 | 82.04 | 66.32 |
|  | 65% | 74% | 74% | 73% | 72% | 80% | 75% | 75% | 76% | 77% | 78% | 82% | 84% | 79% |
|  | 32% | 23% | 23% | 24% | 25% | 17% | 22% | 23% | 22% | 21% | 20% | 17% | 15% | 19% |
|  | 3% | 3% | 3% | 3% | 3% | 3% | 3% | 2% | 2% | 2% | 2% | 1% | 1% | 2% |
|  | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
|  | 173 | 185 | 183 | 175 | 171 | 168 | 173 | 171 | 168 | 163 | 164 | 162 | 159 | 158 |
|  | 8 | 8 | 9 | 9 | 9 | 9 | 9 | 9 | 9 | 9 | 10 | 10 | 10 | 10 |
|  | 101 | 96 | 94 | 92 | 90 | 47 | 50 | 51 | 51 | 51 | 51 | 50 | 39 | 39 |
|  | 282 | 289 | 286 | 276 | 270 | 224 | 232 | 231 | 228 | 223 | 225 | 222 | 208 | 207 |
|  | 10 | 10 | 10 | 10 | 9 | 9 | 9 | 9 | 9 | 12 | 12 | 11 | 11 | 11 |
|  | 33 | 36 | 37 | 37 | 38 | 25 | 24 | 17 | 14 | 14 | 14 | 15 | 15 | 14 |
|  | 6 | 6 | 4 | 4 | 3 | 3 | 3 | 2 | 2 | 2 | 2 | 2 | 2 | 1 |
|  |  |  | 4 | 5 | 6 | 6 | 6 | 5 | 5 | 5 | 5 | 6 | 7 | 7 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |  |  |  |  |  |
|  | 9 |  |  |  |  |  |  |  |  |  |  |  | 1 | 1 |
|  | 61 | 55 | 58 | 59 | 59 | 46 | 46 | 37 | 34 | 36 | 36 | 37 | 39 | 37 |
|  | 343 | 344 | 344 | 335 | 329 | 270 | 278 | 268 | 262 | 259 | 261 | 259 | 247 | 244 |
|  | 571 | 624 | 613 | 597 | 599 | 602 | 622 | 635 | 633 | 619 | 622 | 619 | 616 | 584 |
|  | 77 | 17 | 20 | 20 | 22 | 21 | 21 | 20 | 22 | 22 | 23 | 23 | 23 | 23 |
|  | 136 | 138 | 135 | 134 | 132 | 83 | 87 | 101 | 110 | 115 | 119 | 118 | 91 | 94 |
|  | 784 | 779 | 768 | 751 | 753 | 706 | 730 | 756 | 765 | 756 | 764 | 760 | 730 | 701 |
|  | 9,407 | 8,277 | 8,329 | 8,072 | 8,059 | 7,752 | 7,810 | 7,828 | 7,784 | 8,474 | 8,560 | 8,522 | 8,351 | 8,813 |

$^{1}$ Per common share data adjusted for stock splits and reverse stock split executed in May 2012.

$^{2}$ Excludes a Banco Popular de Puerto Rico branch operating in New York.

2022 Annual Report | 7

# Popular, Inc.
## Management & Board Of Directors

### Senior Management Team

![img-4.jpeg](img-4.jpeg)

**IGNACIO ALVAREZ**

President &
Chief Executive Officer
Popular, Inc.

![img-5.jpeg](img-5.jpeg)

**CAMILLE BURCKHART**

Executive Vice President
Chief Information & Digital Strategy Officer
Innovation, Technology & Operations Group
Popular, Inc.

![img-6.jpeg](img-6.jpeg)

**BEATRIZ CASTELLVÍ**

Executive Vice President &
Chief Security Officer
Corporate Security Group
Popular, Inc.

![img-7.jpeg](img-7.jpeg)

**LUIS E. CESTERO**

Executive Vice President
Retail Banking Group
Banco Popular de Puerto Rico

![img-8.jpeg](img-8.jpeg)

**MANUEL CHINEA**

Executive Vice President
Popular, Inc.
Chief Operating Officer
Popular Bank

![img-9.jpeg](img-9.jpeg)

**JOSÉ R. COLEMAN TIÓ**

Executive Vice President &
Chief Legal Officer
General Counsel & Corporate Matters Group
Popular, Inc.

![img-10.jpeg](img-10.jpeg)

**JAVIER D. FERRER**

Executive Vice President
Chief Operating Officer
Head of Business Strategy and Corporate Secretary
COO & Corporate Business Strategy Group
Popular, Inc.

![img-11.jpeg](img-11.jpeg)

**MARÍA CRISTINA (MC) GONZÁLEZ**

Executive Vice President
Chief Communications and Public Affairs Officer
Corporate Communications & Public Affairs Group
Popular, Inc.

![img-12.jpeg](img-12.jpeg)

**JUAN O. GUERRERO**

Executive Vice President
Financial & Insurance Services Group
Banco Popular de Puerto Rico

![img-13.jpeg](img-13.jpeg)

**GILBERTO MONZÓN**

Executive Vice President
Individual Credit Group
Banco Popular de Puerto Rico

![img-14.jpeg](img-14.jpeg)

**EDUARDO J. NEGRÓN**

Executive Vice President &
Chief Administration Officer
Administration Group
Popular, Inc.

![img-15.jpeg](img-15.jpeg)

**ELI S. SEPÚLVEDA**

Executive Vice President
Commercial Credit Group
Banco Popular de Puerto Rico

![img-16.jpeg](img-16.jpeg)

**LIDIO V. SORIANO**

Executive Vice President &
Chief Risk Officer
Corporate Risk Management Group
Popular, Inc.

![img-17.jpeg](img-17.jpeg)

**CARLOS J. VÁZQUEZ**

Executive Vice President &
Chief Financial Officer
Corporate Finance Group
Popular, Inc.

8 | Popular, Inc.

## Board of Directors

![img-0.jpeg](img-0.jpeg)

**RICHARD L. CARRIÓN**

Chairman of the Board of Directors
Popular, Inc.

![img-1.jpeg](img-1.jpeg)

**IGNACIO ALVAREZ**

President &
Chief Executive Officer
Popular, Inc.

![img-2.jpeg](img-2.jpeg)

**JOAQUÍN E. BACARDÍ, III**

President and Chairman
Edmundo B. Fernández, Inc.

![img-3.jpeg](img-3.jpeg)

**ALEJANDRO M. BALLESTER**

President
Ballester Hermanos, Inc.

![img-4.jpeg](img-4.jpeg)

**ROBERT CARRADY**

President
Caribbean Cinemas

![img-5.jpeg](img-5.jpeg)

**BETTY DEVITA**

Chief Business Officer
FinConecta

![img-6.jpeg](img-6.jpeg)

**JOHN W. DIERCKSEN**

Principal
Greycrest, LLC

![img-7.jpeg](img-7.jpeg)

**MARÍA LUISA FERRÉ RANGEL**

Chief Executive Officer
FRG, LLC

![img-8.jpeg](img-8.jpeg)

**C. KIM GOODWIN**

Private Investor

![img-9.jpeg](img-9.jpeg)

**JOSÉ R. RODRÍGUEZ**

Chairman of the Board of Directors
CareMax, Inc.

![img-10.jpeg](img-10.jpeg)

**MYRNA M. SOTO**

Chief Executive Officer & Founder
Apogee Executive Advisors, LLC

![img-11.jpeg](img-11.jpeg)

**CARLOS A. UNANUE**

President
Goya de Puerto Rico, Inc.

2022 Annual Report | 9

# Popular, Inc.
## Resumen del año

### Estimados Accionistas:

De muchas formas, el 2022 fue un gran año para Popular. Financieramente, ha sido el mejor año que jamás hemos tenido. Logramos un crecimiento considerable en préstamos, a la vez que mantuvimos una calidad de crédito fuerte, continuamos expandiendo nuestra base de clientes, ejecutamos transacciones significativas, completamos acciones de capital y tomamos varias decisiones estratégicas importantes para nuestro éxito futuro.

### Nuestro desempeño

Nuestro ingreso neto anual récord de $1,100 millones fue $168 millones más alto que en 2021. El aumento se debió mayormente al beneficio de una serie de transacciones relacionadas con Evertec, uno de nuestros proveedores principales de tecnología, que resultó en una ganancia agregada luego de impuestos de $227 millones. Tuvimos, además, un beneficio contributivo de $68 millones por una reversión parcial de nuestra la para nuestro activo de contribuciones diferidas relacionado a nuestras operaciones en los Estados Unidos. Nuestros resultados también reflejan un ingreso neto más alto por intereses, parcialmente contrarrestado por aumento en gastos operacionales y en la provisión. En 2022, registramos un gasto de provisión para pérdidas de crédito de $83 millones, comparado con un beneficio de provisión de $193 millones el año anterior.

Aumentamos nuestra cartera de préstamos por $2,800 millones o 10%. Estamos particularmente complacidos con la contribución de nuestra operación en los Estados Unidos, que creció su cartera por $1,200 millones o 14%, principalmente en préstamos para bienes raíces comerciales y en nuestros negocios especializados de asociaciones de condominios y préstamos al sector de salud.

La calidad del crédito se mantuvo fuerte a través de 2022. Nuestras carteras continúan desempeñándose bien, con pérdidas netas en préstamos muy por debajo de los niveles históricos y un nivel más bajo de préstamos no acumulativos.

Continuamos devolviendo capital a los accionistas, recomprando 8.25 millones de acciones comunes por un total de $631 millones. También aumentamos nuestro dividendo trimestral de acciones comunes a $0.55 por acción, representando cerca de $164 millones en dividendos pagados durante el año. Nuestros niveles de capital permanecieron robustos, con una relación de capital "Tier 1 Common" de 16.4% a final del año. Nuestro valor en los libros cerró el año en $44.97 por acción, una baja de 31% del 2021, debido principalmente a pérdidas no realizadas sobre inversiones de valores debido a los efectos del alza en las tasas de interés. Consideramos que estas pérdidas no realizadas van a ser temporales. Nuestra cartera de inversión se compone mayormente de valores de los Estados Unidos y otros valores de deuda a tasas fijas garantizadas por el gobierno estadounidense. Los precios de estos valores se mueven inversamente a los cambios en las tasas de interés del mercado. Esperamos recuperar toda nuestra inversión con el tiempo cuando estos bonos venzan.

Nuestra acción cerró 2022 en $66.32, 19% más bajo que el año anterior. El desempeño de la acción estuvo por debajo del KBW Nasdaq Regional Bank Index y el Nasdaq Bank Price Return Index, que experimentaron una reducción de 10% y 18%, respectivamente. Aunque el sector de bancos regionales traficó a un nivel más bajo en términos absolutos en 2022, se desempeñó mejor que el mercado más amplio. Nuestro enfoque ha sido, y

![img-12.jpeg](img-12.jpeg)

De muchas formas, el 2022 fue un gran año para Popular. Financieramente, ha sido el mejor año que jamás hemos tenido. Logramos un crecimiento considerable en préstamos, a la vez que mantuvimos una calidad de crédito fuerte, continuamos expandiendo nuestra base de clientes, ejecutamos transacciones significativas, completamos acciones de capital y tomamos varias decisiones estratégicas importantes para nuestro éxito futuro.

Informe Anual 2022 | 11

# Aspectos destacados del negocio

## Crecimiento rentable y sostenible

- El total de préstamos aumentó por $2,800 millones o 10%. Los aumentos más significativos en Puerto Rico fueron en préstamos comerciales y en el negocio de autos. En los Estados Unidos, el aumento fue impulsado por préstamos para bienes raíces comerciales, préstamos al sector de salud y el negocios con asociaciones de condominios.

## Simplicidad

- Se redefinió la relación con Evertec, proveyéndonos más opciones para desarrollar y mejorar las plataformas tecnológicas y mayor flexibilidad para seleccionar y asociarnos con nuevos proveedores de servicios.

## Customer Focus

- Adquirimos de Evertec ciertos canales fundamentales, incluyendo los de banca digital para individuos y negocios y el de manejo de efectivo comercial, para mejorar con mayor rapidez los servicios que ofrecemos a través de nuestras plataformas digitales y proveer una experiencia omnicanal que satisfaga las necesidades y expectativas de nuestros clientes.
- Implementamos cambios significativos en nuestras prácticas relacionadas con sobregiros, incluyendo la eliminación del cargo por fondos insuficientes debido a transacciones devueltas.
- Continuamos expandiendo nuestra base de clientes en Puerto Rico, que ahora alcanza 1.98 millones.
- En Puerto Rico, los usuarios activos en nuestra plataforma digital excedieron 1.1 millones. Capturamos el 64% de transacciones de depósitos mediante canales digitales.

## Preparados para el futuro

- Aumentamos el salario básico en todos los mercados e implementamos ajustes de mercado y por mérito como parte de una estrategia concertada para atraer y retener el mejor talento en un mercado cada vez más competitivo.
- Continuamos fortaleciendo nuestros programas de cumplimiento y ciberseguridad.

continuará siendo, gerenciar e invertir en una operación fuerte, confiados en que esto resultará en valor a largo plazo para nuestros accionistas.

## Iniciativas estratégicas

En el frente estratégico, tomamos pasos importantes para ser más ágiles y proveer una experiencia excelente para el cliente en un ambiente que cambia de forma rápida.

Iniciamos un proceso de Transformación tecnológica y de negocio de base amplia. Las necesidades y expectativas de nuestros clientes y compañeros, así como nuestro ambiente competitivo, han evolucionado, lo que nos ha llevado a realizar inversiones importantes en nuestra infraestructura tecnológica y a adoptar prácticas más ágiles. Nuestra Transformación es, y continuará siendo, una prioridad significativa para la corporación durante los próximos tres años y más allá de ellos. Consideramos que todavía hay oportunidad de crecimiento en Puerto Rico, nuestro mercado primario, así como dentro de nuestra base actual de clientes. Estos esfuerzos nos ayudarán a capitalizar en esa oportunidad. Consideramos que estas inversiones harán nuestra compañía más eficiente y rentable, permitiéndonos alcanzar un rendimiento de capital común tangible de 14% para fines de 2025.

En julio de 2022, completamos una transacción que será clave para el éxito de nuestra Transformación. Adquirimos de Evertec canales clave de servicio al cliente y realizamos cambios importantes en nuestra relación contractual con ellos. Evertec continuará proveyendo a Popular diversos servicios de tecnología de información y de procesamiento de transacciones, pero tendremos mayor habilidad de manejar nuestros canales y más flexibilidad para escoger los mejores proveedores de tecnología. Esto nos permitirá aumentar la rapidez con la cual mejoramos los productos y servicios que ofrecemos mediante nuestras plataformas digitales, así como acelerar nuestra modernización tecnológica. Como resultado de esta transacción, también vendimos la participación propietaria que todavía teníamos en Evertec.

## Nuestra organización

Nuestros logros durante el año reflejan los esfuerzos de aproximadamente 8,900 compañeros y compañeras que forman parte de la familia Popular. Me enorgullece su talento y dedicación, que se hicieron evidentes nuevamente en tiempos retantes, como en la secuela de los huracanes Ian y Fiona. Su desempeño durante estos tipos de sucesos demuestra el compromiso inquebrantable de Popular con todos los que servimos.

Agradezco el respaldo de nuestro Consejo Gerencial, cuyo liderazgo nos inspira a todos a dar la milla extra. A nombre de todo Popular, quiero extender un agradecimiento especial a Juan Guerrero, quien, luego de 36 años de servicio dedicado, se retirará a fines de abril. Juan ha sido clave en el desarrollo de nuestros negocios de valores y seguros y siempre se ha distinguido por su enfoque centrado en el cliente y sus esfuerzos por promover la colaboración para

12 | Popular, Inc.

proveer un mejor servicio. Estamos agradecidos por sus aportaciones importantes a través de las décadas y por desarrollar un excelente grupo de líderes que continuarán evolucionando estos negocios en los años venideros. Como parte de nuestra Transformación, reorganizaremos nuestros negocios en Puerto Rico en tres grupos: Crédito Comercial y Servicios, Soluciones para Individuos y Negocios, y Negocios Especializados, que incluye nuestros segmentos de hipotecas, financiamiento de autos y seguros. La nueva estructura nos permitirá entender mejor las necesidades actuales y futuras de nuestros clientes, personalizar su experiencia y proveerles un servicio sobresaliente.

También quiero agradecer a nuestra Junta de Directores, un grupo diverso de personas altamente experimentadas y comprometidas, por su valioso asesoramiento y apoyo.

### Posicionados para el éxito continuo

Nos place comenzar el 2023 con base sólida y una estrategia clara. Aunque estamos conscientes del panorama macroeconómico relacionado con la inflación, las tasas de interés y los riesgos geopolíticos, confiamos en nuestra habilidad de manejar estos y otros retos que pudieran surgir. Estamos optimistas sobre el panorama económico en Puerto Rico, nuestro mercado principal, que, dado el estímulo de fondos federales de recuperación, esperamos continúe en una trayectoria de crecimiento, aunque posiblemente a un paso más desacelerado.

En este nuevo año, Popular conmemora su 130mo aniversario. Desde 1893, nos hemos adaptado y hemos sido líderes a través de condiciones cambiantes. Estamos orgullosos de nuestra historia y el legado que han convertido a Popular en lo que es actualmente - una organización fuerte, vibrante y con valores muy arraigados.

Recientemente dimos comienzo a un proyecto para expandir nuestras oficinas centrales en Puerto Rico y transformar más nuestras áreas circundantes. Las nuevas y modernas instalaciones permitirán que un número mayor de nuestros compañeros trabajen juntos, generando así eficiencias, y proveyendo un ambiente donde el aprendizaje, la colaboración y la innovación se fomenten continuamente.

Aprovechando estas fortalezas, continuaremos transformando nuestra organización para asegurar su éxito por muchos años más. Estamos comprometidos a atender las necesidades rápidamente cambiantes de nuestros clientes, proveer a nuestros compañeros un lugar de trabajo en el que puedan prosperar, promover el progreso en las comunidades que servimos y generar valor sostenido para nuestros accionistas.

IGNACIO ALVAREZ
Presidente y Principal Oficial Ejecutivo
Popular, Inc.

![img-13.jpeg](img-13.jpeg)

### ESG

El tener un impacto positivo en las vidas de nuestros clientes, compañeros, comunidades y accionistas es parte esencial de lo que hacemos y cómo lo hacemos. Durante 2022, continuamos adelantando nuestra estrategia de ESG:

- Luego del impacto del huracán Fiona en Puerto Rico, proveimos alivio inmediato a comunidades afectadas, suspendimos ciertos cargos por un tiempo, ofrecemos asistencia a agricultores y pequeños negocios a través de organizaciones sin fines de lucro y apalancamos el fondo de emergencia de empleados para respaldar a compañeros que fueron impactados.
- Lanzamos el Popular Impact Fund con una asignación inicial de $15 millones para promover el crecimiento de compañías que presentan soluciones innovadoras para retos sociales y económicos.
- Además de nuestros existentes Grupos de Recursos de Empleados (ERGs) LGBTQ+ y Multicultural, lanzamos recursos ERG para empleados con diversidad funcional y mujeres.
- Popular fue incluido como parte del Bloomberg Gender Equality Index en 2022, que monitorea el desempeño de compañías públicas comprometidas con divulgar sus esfuerzos en respaldo de la igualdad de género.

Informe Anual 2022 | 13

## Resumen Financiero Histórico

| (Dólares en millones, excepto información por acción) |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
| Información Financiera Seleccionada |  |  |  |  |  |  |  |  |  |  |  |
| Ingreso neto (Pérdida Neta) | $232.3 | $257.6 | $276.1 | $304.5 | $351.9 | $470.9 | $489.9 | $540.7 | $357.7 | $(64.5) | $(1,243.9) |
| Activos | 23,160.4 | 25,460.5 | 28,057.1 | 30,744.7 | 33,660.4 | 36,434.7 | 44,401.6 | 48,623.7 | 47,404.0 | 44,411.4 | 38,882.8 |
| Préstamos Brutos | 13,078.8 | 14,907.8 | 16,057.1 | 18,168.6 | 19,582.1 | 22,602.2 | 28,742.3 | 31,710.2 | 32,736.9 | 29,911.0 | 26,268.9 |
| Depósitos | 13,672.2 | 14,173.7 | 14,804.9 | 16,370.0 | 17,614.7 | 18,097.8 | 20,593.2 | 22,638.0 | 24,438.3 | 28,334.4 | 27,550.2 |
| Capital de Accionistas | 1,709.1 | 1,661.0 | 1,993.6 | 2,272.8 | 2,410.9 | 2,754.4 | 3,104.6 | 3,449.2 | 3,620.3 | 3,581.9 | 3,268.4 |
| Valor agregado en el mercado | $4,611.7 | $3,790.2 | $3,578.1 | $3,965.4 | $4,476.4 | $5,960.2 | $7,685.6 | $5,836.5 | $5,003.4 | $2,968.3 | $1,455.1 |
| Rendimiento de Activos Promedio (ROAA) | 1.14% | 1.08% | 1.04% | 1.09% | 1.11% | 1.36% | 1.23% | 1.17% | 0.74% | -0.14% | -3.04% |
| Rendimiento de Capital Común Promedio (ROACE) | 15.41% | 15.45% | 15.00% | 14.84% | 16.29% | 19.30% | 17.60% | 17.12% | 9.73% | -2.08% | -44.47% |
| Por Acción Común 1 |  |  |  |  |  |  |  |  |  |  |  |
| Ingreso neto (Pérdida Neta) - Básico | $8.26 | $9.19 | $9.85 | $10.87 | $13.05 | $17.36 | $17.95 | $19.78 | $12.41 | $(2.73) | $(45.51) |
| Ingreso neto (Pérdida Neta) - Diluido | 8.26 | 9.19 | 9.85 | 10.87 | 13.05 | 17.36 | 17.92 | 19.74 | 12.41 | (2.73) | (45.51) |
| Dividendos (Declarados) | 2.50 | 3.00 | 3.20 | 3.80 | 4.00 | 5.05 | 6.20 | 6.40 | 6.40 | 6.40 | 4.80 |
| Valor en los Libros | 59.32 | 57.54 | 69.62 | 79.67 | 91.02 | 96.60 | 109.45 | 118.22 | 123.18 | 121.24 | 63.29 |
| Precio en el Mercado | 170.00 | 139.69 | 131.56 | 145.40 | 169.00 | 224.25 | 288.30 | 211.50 | 179.50 | 106.00 | 51.60 |
| Activos por Área Geográfica |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 71% | 71% | 72% | 68% | 66% | 62% | 55% | 53% | 52% | 59% | 64% |
| Estados Unidos | 25% | 25% | 26% | 30% | 32% | 36% | 43% | 45% | 45% | 38% | 33% |
| Caribe y Latinoamérica | 4% | 4% | 2% | 2% | 2% | 2% | 2% | 2% | 3% | 3% | 3% |
| Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
| Sistema de Distribución Tradicional |  |  |  |  |  |  |  |  |  |  |  |
| Sucursales Bancarias |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 198 | 199 | 199 | 196 | 195 | 193 | 192 | 194 | 191 | 196 | 179 |
| Islas Vírgenes | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 | 8 |
| Estados Unidos 2 | 89 | 91 | 95 | 96 | 96 | 97 | 128 | 136 | 142 | 147 | 139 |
| Subtotal | 295 | 298 | 302 | 300 | 299 | 298 | 328 | 338 | 341 | 351 | 326 |
| Oficinas No Bancarias |  |  |  |  |  |  |  |  |  |  |  |
| Popular Financial Holdings | 128 | 137 | 136 | 149 | 153 | 181 | 183 | 212 | 158 | 134 | 2 |
| Popular Cash Express | 51 | 102 | 132 | 154 | 195 | 129 | 114 | 4 |  |  |  |
| Popular Finance | 48 | 47 | 61 | 55 | 36 | 43 | 43 | 49 | 52 | 51 | 9 |
| Popular Auto (incluyendo Reliable) | 10 | 12 | 12 | 20 | 18 | 18 | 18 | 17 | 15 | 12 | 12 |
| Popular Leasing, U.S.A. | 8 | 10 | 11 | 13 | 13 | 11 | 15 | 14 | 11 | 24 | 22 |
| Popular Mortgage | 11 | 13 | 21 | 25 | 29 | 32 | 30 | 33 | 32 | 32 | 32 |
| Popular Securities | 2 | 2 | 3 | 4 | 7 | 8 | 9 | 12 | 12 | 13 | 7 |
| Popular One |  |  |  |  |  |  |  |  |  |  |  |
| Popular Insurance y Popular Risk Services |  |  | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 1 |
| Popular Insurance Agency, U.S.A. |  |  |  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| Popular Insurance V.I. |  |  |  |  | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| E-LOAN |  |  |  |  |  |  |  | 1 | 1 | 1 | 1 |
| Popular Equipment Finance |  |  |  |  |  |  |  |  |  |  |  |
| EVERTEC |  | 4 | 4 | 4 | 5 | 5 | 5 | 5 | 7 | 9 | 9 |
| Subtotal | 258 | 327 | 382 | 427 | 460 | 431 | 421 | 351 | 292 | 280 | 97 |
| Total | 553 | 625 | 684 | 727 | 759 | 729 | 749 | 689 | 633 | 631 | 423 |
| Sistema Electrónico de Distribución |  |  |  |  |  |  |  |  |  |  |  |
| Cajeros Autonáticos |  |  |  |  |  |  |  |  |  |  |  |
| Propios y Administrados |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico | 421 | 442 | 478 | 524 | 539 | 557 | 568 | 583 | 605 | 615 | 605 |
| Islas Vírgenes | 59 | 68 | 37 | 39 | 53 | 57 | 59 | 61 | 65 | 69 | 74 |
| Estados Unidos | 94 | 99 | 109 | 118 | 131 | 129 | 163 | 181 | 192 | 187 | 176 |
| Total | 574 | 609 | 624 | 681 | 723 | 743 | 790 | 825 | 862 | 871 | 855 |
| Empleados (equivalente a tiempo completo) | 10,549 | 11,501 | 10,651 | 11,334 | 11,037 | 11,474 | 12,139 | 13,210 | 12,508 | 12,303 | 10,587 |

14 | Popular, Inc.

|  | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | $(573.9) | $137.4 | $151.3 | $245.3 | $599.3 | $(313.5) | $895.3 | $216.7 | $107.7 | $618.2 | $671.1 | $506.6 | $934.9 | $1,102.6 |
|  | 34,736.3 | 38,815.0 | 37,348.4 | 36,506.9 | 35,748.8 | 33,086.8 | 35,761.7 | 38,661.6 | 44,277.3 | 47,604.6 | 52,115.3 | 65,926.0 | 75,097.9 | 67,637.9 |
|  | 23,803.9 | 26,458.9 | 25,314.4 | 25,093.6 | 24,706.7 | 22,053.2 | 23,129.2 | 23,435.4 | 24,942.5 | 26,559.3 | 27,466.1 | 29,484.7 | 29,299.7 | 32,083.2 |
|  | 25,924.9 | 26,762.2 | 27,942.1 | 27,000.6 | 26,711.1 | 24,807.5 | 27,209.7 | 30,496.2 | 35,453.5 | 39,710.0 | 43,758.6 | 56,866.3 | 67,005.1 | 61,227.2 |
|  | 2,538.8 | 3,800.5 | 3,918.8 | 4,110.0 | 4,626.2 | 4,267.4 | 5,105.3 | 5,198.0 | 5,103.9 | 5,435.1 | 6,016.8 | 6,028.7 | 5,969.4 | 4,093.4 |
|  | $1,445.4 | $3,211.4 | $1,426.0 | $2,144.9 | $2,970.6 | $3,523.4 | $2,936.6 | $4,548.1 | $3,622.4 | $4,719.3 | $5,615.9 | $4,744.6 | $6,551.0 | $4,765.0 |
|  | -1.57% | 0.36% | 0.40% | 0.68% | 1.65% | -0.89% | 2.54% | 0.58% | 0.26% | 1.33% | 1.33% | 0.85% | 1.31% | 1.51% |
|  | -32.95% | 4.37% | 4.01% | 6.37% | 14.43% | -7.04% | 19.16% | 4.07% | 1.96% | 11.39% | 11.78% | 9.36% | 16.22% | 18.39% |
|  | $2.39 | $(0.62) | $1.44 | $2.36 | $5.80 | $(3.08) | $8.66 | $2.06 | $1.02 | $6.07 | $6.89 | $5.88 | $11.49 | $14.65 |
|  | 2.39 | (0.62) | 1.44 | 2.35 | 5.78 | (3.08) | 8.65 | 2.06 | 1.02 | 6.06 | 6.88 | 5.87 | 11.46 | 14.63 |
|  | 0.20 | - | - | - | - | - | 0.30 | 0.60 | 1.00 | 1.00 | 1.20 | 1.60 | 1.75 | 2.20 |
|  | 38.91 | 36.67 | 37.71 | 39.35 | 44.26 | 40.76 | 48.79 | 49.60 | 49.51 | 53.88 | 62.42 | 71.30 | 74.48 | 56.66 |
|  | 22.60 | 31.40 | 13.90 | 20.79 | 28.73 | 34.05 | 28.34 | 43.82 | 35.49 | 47.22 | 58.75 | 56.32 | 82.04 | 66.32 |
|  | 65% | 74% | 74% | 73% | 72% | 80% | 75% | 75% | 76% | 77% | 78% | 82% | 84% | 79% |
|  | 32% | 23% | 23% | 24% | 25% | 17% | 22% | 23% | 22% | 21% | 20% | 17% | 15% | 19% |
|  | 3% | 3% | 3% | 3% | 3% | 3% | 3% | 2% | 2% | 2% | 2% | 1% | 1% | 2% |
|  | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
|  | 173 | 185 | 183 | 175 | 171 | 168 | 173 | 171 | 168 | 163 | 164 | 162 | 159 | 158 |
|  | 8 | 8 | 9 | 9 | 9 | 9 | 9 | 9 | 9 | 9 | 10 | 10 | 10 | 10 |
|  | 101 | 96 | 94 | 92 | 90 | 47 | 50 | 51 | 51 | 51 | 51 | 50 | 39 | 39 |
|  | 282 | 289 | 286 | 276 | 270 | 224 | 232 | 231 | 228 | 223 | 225 | 222 | 208 | 207 |
|  | 10 | 10 | 10 | 10 | 9 | 9 | 9 | 9 | 9 | 12 | 12 | 11 | 11 | 11 |
|  | 33 | 36 | 37 | 37 | 38 | 25 | 24 | 17 | 14 | 14 | 14 | 15 | 15 | 14 |
|  | 6 | 6 | 4 | 4 | 3 | 3 | 3 | 2 | 2 | 2 | 2 | 2 | 2 | 1 |
|  |  |  | 4 | 5 | 6 | 6 | 6 | 5 | 5 | 5 | 5 | 6 | 7 | 7 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
|  | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |  |  |  |  |  |
|  | 9 |  |  |  |  |  |  |  |  |  |  |  | 1 | 1 |
|  | 61 | 55 | 58 | 59 | 59 | 46 | 46 | 37 | 34 | 36 | 36 | 37 | 39 | 37 |
|  | 343 | 344 | 344 | 335 | 329 | 270 | 278 | 268 | 262 | 259 | 261 | 259 | 247 | 244 |
|  | 571 | 624 | 613 | 597 | 599 | 602 | 622 | 635 | 633 | 619 | 622 | 619 | 616 | 584 |
|  | 77 | 17 | 20 | 20 | 22 | 21 | 21 | 20 | 22 | 22 | 23 | 23 | 23 | 23 |
|  | 136 | 138 | 135 | 134 | 132 | 83 | 87 | 101 | 110 | 115 | 119 | 118 | 91 | 94 |
|  | 784 | 779 | 768 | 751 | 753 | 706 | 730 | 756 | 765 | 756 | 764 | 760 | 730 | 701 |
|  | 9,407 | 8,277 | 8,329 | 8,072 | 8,059 | 7,752 | 7,810 | 7,828 | 7,784 | 8,474 | 8,560 | 8,522 | 8,351 | 8,813 |

$^{1}$Los datos de las acciones comunes han sido ajustados por las divisiones en acciones y la división de acciones a la inversa realizada en mayo 2012.

$^{2}$Excluye una sucursal de Banco Popular de Puerto Rico en Nueva York.

Informe Anual 2022 | 15

# Popular, Inc.
## Gerencia y Junta de Directores

### Gerencia

![img-14.jpeg](img-14.jpeg)

**IGNACIO ÁLVAREZ**

Presidente y
Principal Oficial Ejecutivo
Popular, Inc.

![img-15.jpeg](img-15.jpeg)

**CAMILLE BURCKHART**

Vicepresidenta Ejecutiva, Principal Oficial
de Informática y Tecnología Digital
Grupo de Innovación, Tecnología y Operaciones
Popular, Inc.

![img-16.jpeg](img-16.jpeg)

**BEATRIZ CASTELLVÍ**

Vicepresidenta Ejecutiva y
Principal Oficial de Seguridad
Grupo de Seguridad Corporativa
Popular, Inc.

![img-17.jpeg](img-17.jpeg)

**LUIS E. CESTERO**

Vicepresidente Ejecutivo
Grupo de Banca Individual
Banco Popular de Puerto Rico

![img-18.jpeg](img-18.jpeg)

**MANUEL CHINEA**

Vicepresidente Ejecutivo
Popular, Inc.
Principal Oficial de Operaciones
Popular Bank

![img-19.jpeg](img-19.jpeg)

**JOSÉ R. COLEMAN TIÓ**

Vicepresidente Ejecutivo y
Principal Oficial Legal
Grupo del Asesor General y Asuntos Corporativos
Popular, Inc.

![img-20.jpeg](img-20.jpeg)

**JAVIER D. FERRER**

Vicepresidente Ejecutivo
Principal Oficial de Operaciones
Principal Oficial de Estrategia y Secretario Corporativo
Grupo de Estrategia Corporativa y POO
Popular, Inc.

![img-21.jpeg](img-21.jpeg)

**MARÍA CRISTINA (MC) GONZÁLEZ**

Vicepresidenta Ejecutiva y
Principal Oficial de Comunicaciones y Asuntos Públicos
Grupo de Comunicaciones Corporativas y Asuntos Públicos
Popular, Inc.

![img-22.jpeg](img-22.jpeg)

**JUAN O. GUERRERO**

Vicepresidente Ejecutivo
Grupo de Servicios Financieros y Seguros
Banco Popular de Puerto Rico

![img-23.jpeg](img-23.jpeg)

**GILBERTO MONZÓN**

Vicepresidente Ejecutivo
Grupo de Crédito a Individuo
Banco Popular de Puerto Rico

![img-24.jpeg](img-24.jpeg)

**EDUARDO J. NEGRÓN**

Vicepresidente Ejecutivo y
Principal Oficial de Administración
Grupo de Administración
Popular, Inc.

![img-25.jpeg](img-25.jpeg)

**ELI S. SEPÚLVEDA**

Vicepresidente Ejecutivo
Grupo de Crédito Comercial
Banco Popular de Puerto Rico

![img-26.jpeg](img-26.jpeg)

**LIDIO V. SORIANO**

Vicepresidente Ejecutivo y
Principal Oficial de Riesgo
Grupo Corporativo de Manejo de Riesgo
Popular, Inc.

![img-27.jpeg](img-27.jpeg)

**CARLOS J. VÁZQUEZ**

Vicepresidente Ejecutivo y
Principal Oficial Financiero
Grupo de Finanzas Corporativas
Popular, Inc.

16 | POPULAR, INC.

## Junta De Directores

![img-28.jpeg](img-28.jpeg)

**RICHARD L. CARRIÓN**

Presidente de la
Junta de Directores
Popular, Inc.

![img-29.jpeg](img-29.jpeg)

**IGNACIO ÁLVAREZ**

Presidente y
Principal Oficial Ejecutivo
Popular, Inc.

![img-30.jpeg](img-30.jpeg)

**JOAQUÍN E. BACARDÍ, III**

Presidente
Edmundo B. Fernández, Inc.

![img-31.jpeg](img-31.jpeg)

**ALEJANDRO M. BALLESTER**

Presidente
Ballester Hermanos, Inc.

![img-32.jpeg](img-32.jpeg)

**ROBERT CARRADY**

Presidente
Caribbean Cinemas

![img-33.jpeg](img-33.jpeg)

**BETTY DEVITA**

Principal Oficial de Negocios
FinConecta

![img-34.jpeg](img-34.jpeg)

**JOHN W. DIERCKSEN**

Principal
Greycrest, LLC

![img-35.jpeg](img-35.jpeg)

**MARÍA LUISA FERRÉ RANGEL**

Principal Oficial Ejecutiva
FRG, LLC

![img-36.jpeg](img-36.jpeg)

**C. KIM GOODWIN**

Inversionista Privada

![img-37.jpeg](img-37.jpeg)

**JOSÉ R. RODRÍGUEZ**

Presidente de la Junta de Directores
CareMax, Inc.

![img-38.jpeg](img-38.jpeg)

**MYRNA M. SOTO**

Principal Oficial Ejecutiva y Fundadora
Apogee Executive Advisors, LLC

![img-39.jpeg](img-39.jpeg)

**CARLOS A. UNANUE**

Presidente
Goya de Puerto Rico, Inc.

Informe Anual 2022 | 17

# Financial Review and
Supplementary Information

| Management's Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| --- | --- |
| Statistical Summaries | 49 |
| Report of Management on Internal Control Over Financial Reporting | 52 |
| Report of Independent Registered Public Accounting Firm | 53 |
| Consolidated Statements of Financial Condition as of December 31, 2022 and 2021 | 56 |
| Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 | 57 |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 | 58 |
| Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2022, 2021 and 2020 | 59 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 | 60 |
| Notes to Consolidated Financial Statements | 61 |

POPULAR, INC. 2022 ANNUAL REPORT 1

# Management's Discussion and Analysis of Financial Condition and Results of Operations

| Forward-Looking Statements | 3 |
| --- | --- |
| Overview | 4 |
| Critical Accounting Policies / Estimates | 9 |
| Statement of Operations Analysis | 13 |
| Net Interest Income | 13 |
| Provision for Credit Losses | 16 |
| Non-Interest Income | 16 |
| Operating Expenses | 17 |
| Income Taxes | 19 |
| Fourth Quarter Results | 19 |
| Reportable Segment Results | 20 |
| Statement of Financial Condition Analysis | 21 |
| Assets | 21 |
| Liabilities | 23 |
| Stockholders' Equity | 24 |
| Regulatory Capital | 24 |
| Risk Management | 27 |
| Market / Interest Rate Risk | 27 |
| Liquidity | 32 |
| Enterprise Risk Management | 47 |
| Adoption of New Accounting Standards and Issued but Not Yet Effective Accounting Standards | 48 |
| Statistical Summaries |  |
| Statements of Financial Condition | 49 |
| Statements of Operations | 50 |
| Average Balance Sheet and Summary of Net Interest Income | 51 |

2 POPULAR, INC. 2022 ANNUAL REPORT

## FORWARD-LOOKING STATEMENTS

This Form 10-K contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements about Popular, Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) 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 markets conditions, capital adequacy and liquidity, and 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.

Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the rate of growth or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated; adverse economic conditions, including high levels of and ongoing increases in inflation rates, that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect in turn, among other things, our level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources, reduce loan originations, affect our ability to originate and distribute financial products in the primary and secondary markets and impact the value of our investment portfolio and our ability to return capital to our shareholders; the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business; the impact of the pending debt restructuring proceedings under Title III of the Puerto Rico

Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action; the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure of such funds, as well as the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities; unforeseen or catastrophic events, including extreme weather events, including hurricanes, other natural disasters, man-made disasters, acts of violence or war or pandemics, epidemics and other health-related crises, including any resurgence of COVID-19, or the fear of any such event occurring, any of which could cause adverse consequences for our business, including, but not limited to, disruptions in our operations; our ability to achieve the expected benefits from our transformation initiative, including our ability to achieve our targeted sustainable return on tangible common equity of 14% by the end of 2025; risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc. to service certain of Banco Popular de Puerto Rico’s key channels, as well as the entry into amended and restated commercial agreements (the “Evertec Business Acquisition Transaction”), including Popular’s ability to successfully transition and integrate the assets acquired as part of the Evertec Business Acquisition Transaction, as well as related operations, employees and third party contractors; unexpected costs, including, without limitation, costs due to exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Evertec Business Acquisition Transaction or that are not subject to indemnification or reimbursement by Evertec, Inc.; and business and other risks arising from the extension of Popular’s current commercial agreements with Evertec, Inc.; the fiscal and monetary policies of the federal government and its agencies; changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios; additional Federal Deposit Insurance Corporation (“FDIC”) assessments; regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions, such as acquisitions and dispositions; the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which our borrowers are located; the performance of the stock and bond markets; competition in the financial services industry;

POPULAR, INC. 2022 ANNUAL REPORT 3

possible legislative, tax or regulatory changes; a failure in or breach of our operational or security systems or infrastructure or those of Evertec, Inc., our provider of core financial transaction processing and information technology services, or of third parties providing services to us, including as a result of cyberattacks, e-fraud, denial-of-services and computer intrusion, that might result in, among other things, loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; potential judgments, claims, damages, penalties, fines, enforcement actions and reputational damage resulting from pending or future litigation and regulatory or government investigations or actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic; changes in accounting standards, rules and interpretations; our ability to grow our core businesses; decisions to downsize, sell or close branches or business units or otherwise change our business mix; and management's ability to identify and manage these and other risks.

Moreover, the outcome of legal and regulatory proceedings, as discussed in 'Part I, Item 3. Legal Proceedings,' is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to 'Part I, Item 1A' of this Form 10-K for a discussion of certain risks and uncertainties to which the Corporation is subject.

All forward-looking statements included in this Form 10-K are based upon information available to Popular as of the date of this Form 10-K, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

## OVERVIEW

The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States ('U.S.') mainland, and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico ('BPPR'), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the U.S. mainland, the Corporation provides retail, mortgage, commercial banking services, as well as equipment leasing and financing, through its New York-chartered banking subsidiary, Popular Bank ('PB' or 'Popular U.S.') which has branches located in New York, New Jersey and Florida. Note 37 to the Consolidated Financial Statements

presents information about the Corporation's business segments.

## YEAR 2022 SIGNIFICANT EVENTS

### *Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec*

On July 1, 2022, BPPR completed the announced acquisition of certain assets from Evertec Group, LLC ('Evertec Group'), a wholly owned subsidiary of Evertec, Inc. ('Evertec') (NYSE: EVTC), to service certain BPPR channels (the 'Business Acquisition Transaction').

As a result of the closing of the Business Acquisition Transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR's retail and business digital banking and commercial cash management applications. In connection with the Business Acquisition Transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.

Under the amended service agreements, Evertec Group no longer has exclusive rights to provide certain of Popular's technology services. The amended service agreements include discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec also entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. Under the terms of the amended and restated Master Service Agreement ('MSA'), Evertec will be entitled to receive monthly payments from the Corporation to the extent that Evertec's revenues, covered under the MSA, fall below certain agreed annualized minimum amounts.

As consideration for the Business Acquisition Transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169.2 million (based on Evertec's stock price on June 30, 2022 of $36.88). A total of $144.8 million of the consideration for the transaction was attributed to the acquisition of the critical channels of which $28.7 million were attributed to software intangible assets and $116.1 million were attributed to goodwill. The transaction was accounted for as a business combination. The remaining $24.2 million was attributed to the renegotiation of the MSA with Evertec and was recorded as an expense. The Corporation also recorded a credit of $6.9 million in Evertec billings under the MSA during the third quarter of 2022 as a result of the Business Acquisition Transaction, resulting in a net expense charge for the quarter of $17.3 million.

On August 15, 2022, the Corporation completed the sale of its remaining 7,065,634 shares of common stock of Evertec (the 'Evertec Stock Sale', and collectively with the Business Acquisition Transaction, the 'Evertec Transactions').

4 POPULAR, INC. 2022 ANNUAL REPORT

Following the Evertec Stock Sale, Popular no longer owns any Evertec common stock. The impact of the gain on the sale of Evertec shares used as consideration for the Business Acquisition Transaction in exchange for the acquired applications on July 1, 2022 and the net expense associated with the renegotiation of the MSA resulted in an after-tax gain of $97.9 million, while the Evertec Stock Sale and the related accounting adjustments resulted in an after-tax gain of $128.8 million, recorded during the third quarter of 2022, for an aggregate after-tax gain of $226.6 million.

#### ***Transformation Initiative:***

Leveraging the completion of the Evertec Transactions, the Corporation embarked on a broad-based multi-year, technological and business process transformation during the second half of 2022. The needs and expectations of our clients, as well as the competitive landscape, have evolved, requiring us to make important investments in our technological infrastructure and adopt more agile practices. Our technology and business transformation will be a significant priority for the company over the next three years and beyond.

Through December 31, 2022, excluding compensation costs of our employees involved in the initiative, we expensed $24 million toward this effort, primarily in professional fees and technology related expenses. As part of this transformation, we aim to expand our digital capabilities, modernize our technology platform, and implement agile and efficient business processes across the entire company. In 2023, we plan an expense of approximately $50 million toward this effort, excluding employee compensation and capitalized costs. We expect the expenses tied to this transformation initiative, which will continue through 2025 to result in an enhanced digital experience for our clients, as well as better technology and more efficient processes for our employees. We expect this effort to contribute to better efficiency and higher earnings, resulting in a targeted sustainable return on tangible common equity of 14% by the end of 2025.

To facilitate the transparency of the progress with these efforts, effective in the fourth quarter of 2022, the Corporation has separated technology, professional fees and transactional activities as standalone expense categories in the accompanying Consolidated Statement of Operations. Refer to additional information in the Operating expenses section of this MD&A.

#### ***Capital Actions***

On July 12, 2022, the Corporation completed an accelerated share repurchase (“ASR”) program for the repurchase of $400 million of Popular’s common stock for which an initial delivery of 3,483,942 shares were delivered in March 2022 (the “March ASR Agreement”). Upon the final settlement of the March ASR Agreement, the Corporation received an additional 1,582,922 shares of common stock. The Corporation repurchased a total of 5,066,864 shares at an average purchase

price of $78.9443, which were recorded as treasury stock by $440 million under the March ASR Agreement.

On December 7, 2022, the Corporation completed the settlement of another ASR agreement (the “August ASR Agreement”) for the repurchase of $231 million of Popular’s common stock, for which an initial 2,339,241 shares were delivered on August 26, 2022. Upon the final settlement of the August ASR Agreement, the Corporation received an additional 840,024 shares of common stock. The Corporation repurchased a total of 3,179,265 shares at an average purchase price of $72.66, which were recorded as treasury stock by $245 million under the August ASR Agreement.

#### ***Hurricanes Fiona and Ian***

On September 18, 2022, Hurricane Fiona made landfall in the southwest area of Puerto Rico as a Category 1 hurricane, bringing record rainfall and flooding throughout the island and affecting communities where BPPR does business. Hurricane Fiona’s rain and winds caused a complete blackout on the island and caused considerable damage to certain sectors in the southwest region. President Biden issued a disaster declaration for the island. While the impact to BPPR’s operation was not material, certain customers, highly concentrated in certain municipalities, were impacted by the disaster.

As part of hurricane relief efforts on the island, the Corporation waived late-payment fees on individual lending products from September 16 through October 31, 2022. Popular also waived, through September 30, withdrawal fees payable by our customers at ATMs outside of the Popular network and fees payable by customers of other banking institutions at Popular’s ATMs. In addition, the Corporation offered to clients impacted by the hurricane a moratorium of up to three monthly payments, up to December 31, 2022, on personal and commercial credit cards, auto loans, leases and personal loans, subject to certain eligibility requirements. Mortgage clients may also benefit from different payment relief alternatives available, depending on their type of loan. Loan relief options for commercial clients are reviewed on a case-by-case basis.

Separately, on September 28, 2022, Hurricane Ian made a landfall on the west coast of central Florida as a Category 4 hurricane, causing extensive floods and destruction in the impacted areas in Florida. President Biden made a major disaster declaration for certain counties in central Florida. PB and BPPR do not have significant operations in the area but have some limited retail and commercial clients who reside or have business activities in the impacted areas.

For clients impacted by the hurricane that reside in counties in Florida declared as disaster zones by President Biden, Popular offered a moratorium for up to three payments, up to January 31, 2023, subject to certain eligibility requirements. As in the case of Puerto Rico, relief options for commercial clients are reviewed on a case-by-case basis.

POPULAR, INC. 2022 ANNUAL REPORT 5

Refer to the Credit Risk section of this MD&A for additional information of the loan moratorium offered to clients.

#### **Transfer of Securities from Available-for Sale to Held-To-Maturity**

In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. Management changed its intent, given its ability to hold these securities to maturity due to the Corporation's liquidity position and its intention to reduce the impact on accumulated other comprehensive income (loss) ('AOCI') and tangible capital of further increases in interest rates.

The securities were reclassified at fair value at the time of the transfer. At the date of the transfer, these securities had pre-tax unrealized losses of $873.0 million recorded in AOCI. This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting each other through the remaining life of the securities. There were no realized gains or losses recorded as a result of this transfer.

While changes in the amount of unrealized gains and losses in AOCI have an impact on the Corporation's and its wholly-owned banking subsidiaries' tangible capital ratios, they do not impact regulatory capital ratios, in accordance with the

regulatory framework. Refer to Note 7 to the Consolidated Financial Statements which presents information about the Corporation's Debt Securities Held-to-Maturity for additional details

#### **Partial Release of the Deferred Tax Asset Valuation Allowance**

During the fourth quarter of 2022, the Corporation recorded a partial reversal of the deferred tax asset valuation allowance of the U.S. operations of $68.2 million. As of December 31, 2022, the deferred tax asset ('DTA') for the U.S. operations, mainly related to net operating losses ('NOLs'), was valued at $278 million, net of the corresponding valuation allowance of $402 million. The reversal during the fourth quarter was determined based on management's expectation of the realization of additional amounts of federal and state NOLs over their remaining carryover period. The determination was based on the U.S. operations' sustained profitability during the years ended December 31, 2021 and 2022, together with evidence of stable credit metrics and the length of the expiration of the net operating losses. As of December 31, 2022, the Corporation had approximately $525 million in DTA related to federal NOLs with expiration dates between 2028 and 2033 and approximately $135 million in DTA related to state NOLs with expiration dates between 2030 and 2036.

6 POPULAR, INC. 2022 ANNUAL REPORT

**Table 1 - Selected Financial Data**

|  | Years ended December 31, |  |  |
| --- | --- | --- | --- |
| (Dollars in thousands, except per common share data) | 2022 | 2021 | 2020 |
| CONDENSED STATEMENTS OF OPERATIONS |  |  |  |
| Interest income | $2,465,911 | $2,122,637 | $2,091,551 |
| Interest expense | 298,552 | 165,047 | 234,938 |
| Net interest income | 2,167,359 | 1,957,590 | 1,856,613 |
| Provision for credit losses (benefit) | 83,030 | (193,464) | 292,536 |
| Non-interest income | 897,062 | 642,128 | 512,312 |
| Operating expenses | 1,746,420 | 1,549,275 | 1,457,829 |
| Income tax expense | 132,330 | 309,018 | 111,938 |
| Net income | $1,102,641 | $934,889 | $506,622 |
| Net income applicable to common stock | $1,101,229 | $933,477 | $504,864 |
| PER COMMON SHARE DATA |  |  |  |
| Net income per common share - basic | $14.65 | $11.49 | $5.88 |
| Net income per common share - diluted | 14.63 | 11.46 | 5.87 |
| Dividends declared | 2.20 | 1.75 | 1.60 |
| Common equity per share | 56.66 | 74.48 | 71.30 |
| Market value per common share | 66.32 | 82.04 | 56.32 |
| Outstanding shares: |  |  |  |
| Average - basic | 75,147,263 | 81,263,027 | 85,882,371 |
| Average - assuming dilution | 75,274,003 | 81,420,154 | 85,975,259 |
| End of period | 71,853,720 | 79,851,169 | 84,244,235 |
| AVERAGE BALANCES |  |  |  |
| Net loans [1] | $30,405,281 | $29,074,036 | $28,384,981 |
| Earning assets | 69,729,933 | 68,088,675 | 56,404,607 |
| Total assets | 72,808,604 | 71,168,650 | 59,583,455 |
| Deposits | 64,716,404 | 63,102,916 | 51,585,779 |
| Borrowings | 1,119,878 | 1,255,495 | 1,321,772 |
| Total stockholders' equity | 6,009,225 | 5,777,652 | 5,419,938 |
| PERIOD END BALANCE |  |  |  |
| Net loans [1] | $32,083,150 | $29,299,725 | $29,484,651 |
| Allowance for credit losses - loans portfolio | 720,302 | 695,366 | 896,250 |
| Earning assets | 64,251,062 | 72,103,862 | 62,989,715 |
| Total assets | 67,637,917 | 75,097,899 | 65,926,000 |
| Deposits | 61,227,227 | 67,005,088 | 56,866,340 |
| Borrowings | 1,400,319 | 1,155,166 | 1,346,284 |
| Total stockholders' equity | 4,093,425 | 5,969,397 | 6,028,687 |
| SELECTED RATIOS |  |  |  |
| Net interest margin (non-taxable equivalent basis) | 3.11% | 2.88% | 3.29% |
| Net interest margin (taxable equivalent basis) -Non-GAAP | 3.46 | 3.19 | 3.62 |
| Return on assets | 1.51 | 1.31 | 0.85 |
| Return on common equity | 18.39 | 16.22 | 9.36 |
| Tier I capital | 16.45 | 17.49 | 16.33 |
| Total capital | 18.26 | 19.35 | 18.81 |

[1] Includes loans held-for-sale.

# **Non-GAAP financial measures**

# *Net interest income on a taxable equivalent basis*

Net interest income, on a taxable equivalent basis, is presented with its different components in Table 3 for the year ended December 31, 2022 as compared with the same period in 2021, segregated by major categories of interest earning assets and interest-bearing liabilities.

The interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, and certain obligations of the Commonwealth of Puerto Rico and its agencies and assets held by the Corporation's international banking entities. To facilitate

POPULAR, INC. 2022 ANNUAL REPORT 7

the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by the Puerto Rico tax law. Under Puerto Rico tax law, the exempt interest can be deducted up to the amount of taxable income. 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 exempt sources.

Net interest income, on a taxable equivalent basis, as used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

### Financial highlights for the year ended December 31, 2022

The Corporation's net income for the year ended December 31, 2022 amounted to $1.1 billion, compared to a net income of $934.9 million for 2021.

The discussion that follows provides highlights of the Corporation's results of operations for the year ended December 31, 2022 compared to the results of operations of 2021. It also provides some highlights with respect to the Corporation's financial condition, credit quality, capital and liquidity. Table 2 presents a three-year summary of the components of net income as a percentage of average total assets. For a discussion of our 2021 results of operations compared with 2020, see 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in our Annual Report on Form 10-K for the year ended December 31, 2021.

**Table 2 - Components of Net Income as a Percentage of Average Total Assets**

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Net interest income | 2.98% | 2.75% | 3.12% |
| Provision for credit (losses) benefit | (0.11) | 0.27 | (0.49) |
| Mortgage banking activities | 0.06 | 0.07 | 0.02 |
| Net (loss) gain and valuation adjustments on investment securities | (0.01) | - | 0.01 |
| Other non-interest income | 1.18 | 0.83 | 0.83 |
| Total net interest income and non-interest income, net of provision for credit losses | 4.10 | 3.92 | 3.49 |
| Operating expenses | (2.40) | (2.18) | (2.45) |
| Income before income tax | 1.70 | 1.74 | 1.04 |
| Income tax expense | (0.19) | (0.43) | (0.19) |
| Net income | 1.51% | 1.31% | 0.85% |

Net interest income for the year ended December 31, 2022 was $2.2 billion, an increase of $209.8 million when compared to 2021. The increase in net interest income was mainly driven by higher interest income from money market investments due to higher interest rates, higher income from investment securities and higher interest income from commercial and consumer loans due to higher volumes and yields. The net interest margin for the year ended December 31, 2022 was 3.11% compared to 2.88% for the same period in 2021, driven by higher average volume of earning assets and higher interest rates as the Federal Reserve increased the Federal Funds Rate during 2022. On a taxable equivalent basis, net interest margin was 3.46% in 2022, compared to 3.19% in 2021. Refer to the Net Interest Income section of this MD&A for additional information.

The Corporation's total provision for credit losses reflected an expense of $83.0 million for the year ended December 31, 2022, compared to a reserve release of $193.5 million for 2021. The expense for the year 2022 was mostly driven by changes in the economic scenario, higher loan volumes and changes in credit quality. The Corporation continued to exhibit favorable credit quality trends with low levels of net charge-offs and

decreasing non-performing loans. Non-performing assets totaled $528.6 million at December 31, 2022, reflecting a decrease of $104.4 million when compared to December 31, 2021. Refer to the Provision for Credit Losses and Credit Risk sections of this MD&A for information on the allowance for credit losses, non-performing assets, troubled debt restructurings, net charge-offs and credit quality metrics.

Non-interest income for the year ended December 31, 2022 amounted to $897.1 million, an increase of $254.9 million, when compared with 2021, mostly due to: the $257.7 million gain related to the Evertec Transactions and related accounting adjustments and higher service fees due to higher credit card fees and merchant network business fees as a result of the revenue sharing agreement entered into in connection with the Evertec Transactions. Refer to the Non-Interest Income section of this MD&A for additional information on the major variances of the different categories of non-interest income.

Total operating expenses amounted to $1.7 billion for the year 2022, reflecting an increase of $197.1 million, when compared to the same period in 2021, mainly due to higher personnel costs reflecting salary increases and a higher headcount, professional fees, technology and software expenses,

8 POPULAR, INC. 2022 ANNUAL REPORT

reflecting the impact of the investment in the transformation initiative, higher business promotions expense driven by customer loyalty programs and a $17.3 million expense associated with the Evertec Transactions. Refer to the Operating Expenses section of this MD&A for additional information.

Income tax expense amounted to $132.3 million for the year ended December 31, 2022, compared with an income tax expense of $309.0 million for the previous year. The decrease in income tax expense for the year is mainly due to the impact of the partial reversal of the deferred tax asset valuation allowance of the U.S. Operations and, higher taxable income that was exempt or subject to preferential tax rates. Refer to the Income Taxes section in this MD&A and Note 35 to the Consolidated Financial Statements for additional information on income taxes.

At December 31, 2022, the Corporation's total assets were $67.6 billion, compared with $75.1 billion at December 31, 2021. The decrease of $7.5 billion is mainly driven by lower money market investments due to a decrease in deposits mainly in the Puerto Rico public sector, partially offset by an increase in loans held-in-portfolio mainly in the commercial and consumer portfolios. Refer to the Statement of Financial Condition Analysis section of this MD&A for additional information.

Deposits amounted to $61.2 billion at December 31, 2022, compared with $67.0 billion at December 31, 2021. Table 8 presents a breakdown of deposits by major categories. The decrease in deposits was mainly due to lower Puerto Rico public sector deposits. The Corporation's borrowings amounted to $1.4 billion at December 31, 2022, compared to $1.2 billion at December 31, 2021. Refer to Note 17 to the Consolidated Financial Statements for detailed information on the Corporation's borrowings.

Refer to Table 7 in the Statement of Financial Condition Analysis section of this MD&A for the percentage allocation of the composition of the Corporation's financing to total assets.

Stockholders' equity amounted to $4.1 billion at December 31, 2022, compared to $6.0 billion at December 31, 2021. The decrease was principally due to higher accumulated unrealized losses on debt securities available-for-sale and the impact of two accelerated share repurchase transactions completed during 2022, declared dividends, partially offset by net income for the year. The Corporation and its banking subsidiaries continue to be well-capitalized at December 31, 2022. The Common Equity Tier 1 Capital ratio at December 31, 2022 was 16.39%, compared to 17.42% at December 31, 2021.

For further discussion of operating results, financial condition and business risks refer to the narrative and tables included herein.

The shares of the Corporation's common stock are traded on the Nasdaq Global Select Market under the symbol BPOP.

## CRITICAL ACCOUNTING POLICIES / ESTIMATES

The accounting and reporting policies followed by the Corporation and its subsidiaries conform with generally accepted accounting principles in the United States of America ('GAAP') and general practices within the financial services industry. The Corporation's significant accounting policies are described in detail in Note 2 to the Consolidated Financial Statements and should be read in conjunction with this section.

Critical accounting policies require management to make estimates and assumptions, which involve significant judgment about the effect of matters that are inherently uncertain and that involve a high degree of subjectivity. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates. The following MD&A section is a summary of what management considers the Corporation's critical accounting policies and estimates.

### Fair Value Measurement of Financial Instruments

The Corporation currently measures at fair value on a recurring basis its trading debt securities, debt securities available-for-sale, certain equity securities, derivatives and mortgage servicing rights. Occasionally, the Corporation is required to record at fair value other assets on a nonrecurring basis, such as loans held-for-sale, loans held-in-portfolio that are collateral dependent and certain other assets. These nonrecurring fair value adjustments typically result from the application of lower of cost or fair value accounting or write-downs of individual assets.

The Corporation categorizes its assets and liabilities measured at fair value under the three-level hierarchy. The level within the hierarchy is based on whether the inputs to the valuation methodology used for fair value measurement are observable.

The Corporation requires the use of observable inputs when available, in order to minimize the use of unobservable inputs to determine fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The amount of judgment involved in estimating the fair value of a financial instrument depends upon the availability of quoted market prices or observable market parameters. In addition, it may be affected by other factors such as the type of instrument, the liquidity of the market for the instrument, transparency around the inputs to the valuation, as well as the contractual characteristics of the instrument. Broker quotes used for fair value measurements inherently reflect any lack of liquidity in the market since they represent an exit price from the perspective of the market participants.

POPULAR, INC. 2022 ANNUAL REPORT 9

### Trading Debt Securities and Debt Securities Available-for-Sale

The majority of the values for trading debt securities and debt securities available-for-sale are obtained from third-party pricing services and are validated with alternate pricing sources when available. Securities not priced by a secondary pricing source are documented and validated internally according to their significance to the Corporation's financial statements. Management has established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained from the primary pricing service provider and the secondary pricing source used as support for the valuation results.

Inputs are evaluated to ascertain that they consider current market conditions, including the relative liquidity of the market. When a market quote for a specific security is not available, the pricing service provider generally uses observable data to derive an exit price for the instrument, such as benchmark yield curves and trade data for similar products. To the extent trading data is not available, the pricing service provider relies on specific information including dialogue with brokers, buy side clients, credit ratings, spreads to established benchmarks and transactions on similar securities, to draw correlations based on the characteristics of the evaluated instrument. If for any reason the pricing service provider cannot observe data required to feed its model, it discontinues pricing the instrument.

Furthermore, management assesses the fair value of its portfolio of investment securities at least on a quarterly basis. Securities are classified in the fair value hierarchy according to product type, characteristics and market liquidity. At the end of each period, management assesses the valuation hierarchy for each asset or liability measured. The fair value measurement analysis performed by the Corporation includes validation procedures and review of market changes, pricing methodology, assumption and level hierarchy changes, and evaluation of distressed transactions.

Refer to Note 28 to the Consolidated Financial Statements for a description of the Corporation's valuation methodologies used for the assets and liabilities measured at fair value.

### Loans and Allowance for Credit Losses

Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding.

Non-accrual loans are those loans on which the accrual of interest is discontinued. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is charged against interest income and the loan is accounted for either on a cash-basis method or on the cost-recovery method. Loans designated as non-accruing are returned to accrual status when the Corporation expects repayment of the remaining contractual principal and interest. The determination as to the ultimate collectability of the loan's balance may involve

management's judgment in the evaluation of the borrower's financial condition and prospects for repayment.

Refer to the MD&A section titled Credit Risk, particularly the Non-performing assets sub-section, for a detailed description of the Corporation's non-accruing and charge-off policies by major loan categories.

One of the most critical and complex accounting estimates is associated with the determination of the allowance for credit losses ('ACL'). The Corporation establishes an ACL for its loan portfolio based on its estimate of credit losses over the remaining contractual term of the loans, adjusted for expected prepayments, in accordance with Accounting Standards Codification ('ASC') Topic 326. An ACL is recognized for all loans including originated and purchased loans, since inception, with a corresponding charge to the provision for credit losses, except for purchased credit deteriorated ('PCD') loans as explained below. The Corporation follows a methodology to establish the ACL which includes a reasonable and supportable forecast period for estimating credit losses, considering quantitative and qualitative factors as well as the economic outlook. As part of this methodology, management evaluates various macroeconomic scenarios provided by third parties. At December 31, 2022, management applied probability weights to the outcome of the selected scenarios.

The Corporation has designated as collateral dependent loans secured by collateral when foreclosure is probable or when foreclosure is not probable but the practical expedient is used. The practical expedient is used when repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The ACL of collateral dependent loans is measured based on the fair value of the collateral less costs to sell. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. In addition, refer to the Credit Risk section of this MD&A for detailed information on the Corporation's collateral value estimation for other real estate.

A restructuring constitutes a TDR when the Corporation separately concludes that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. For information on the Corporation's TDR policy, refer to Note 2 to the Consolidated Financial Statements. The established framework captures the impact of concessions through discounting modified contractual cash flows, both principal and interest, at the loan's original effective rate. The impact of these concessions is combined with the expected credit losses generated by the quantitative loss models in order to arrive at the ACL.

10 POPULAR, INC. 2022 ANNUAL REPORT

### **Loans Acquired with Deteriorated Credit Quality**

PCD loans are defined as those with evidence of a more-than-insignificant deterioration in credit quality since origination. PCD loans are initially recorded at its purchase price plus an estimated ACL. Upon the acquisition of a PCD loan, the Corporation recognizes the estimate of the expected credit losses over the remaining contractual term of each individual loan as an ACL with a corresponding addition to the loan purchase price. The amount of the purchased premium or discount which is not related to credit risk is amortized over the life of the loan through net interest income using the effective interest method or a method that approximates the effective interest method. Changes in expected credit losses are recorded as an increase or decrease to the ACL with a corresponding charge (reverse) to the provision for credit losses in the Consolidated Statements of Operations. These loans follow the same nonaccrual policies as non-PCD loans. Modifications of PCD loans that meet the definition of a TDR are accounted and reported as such following the same processes as non-PCD loans.

### **Income Taxes**

Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.

The calculation of periodic income taxes is complex and requires the use of estimates and judgments. The Corporation has recorded two accruals for income taxes: (i) the net estimated amount currently due or to be received from taxing jurisdictions, including any reserve for potential examination issues, and (ii) a deferred income tax that represents the estimated impact of temporary differences between how the Corporation recognizes assets and liabilities under accounting principles generally accepted in the United States (GAAP), and how such assets and liabilities are recognized under the tax code. Differences in the actual outcome of these future tax consequences could impact the Corporation's financial position or its results of operations. In estimating taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into consideration statutory, judicial and regulatory guidance.

A deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some

portion or the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The realization of deferred tax assets requires the consideration of all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies.

Management evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. mainland operations are evaluated as a whole since a consolidated income tax return is filed; on the other hand, the deferred tax asset related to the Puerto Rico operations is evaluated on an entity by entity basis, since no consolidation is allowed in the income tax filing. Accordingly, this evaluation is composed of three major components: U.S. mainland operations, Puerto Rico banking operations and Holding Company.

For the evaluation of the realization of the deferred tax asset by taxing jurisdiction, refer to Note 35 to the Consolidated Financial Statements.

Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns. The Code provides a dividends-received deduction of 100% on dividends received from 'controlled' subsidiaries subject to taxation in Puerto Rico and 85% on dividends received from other taxable domestic corporations.

Changes in the Corporation's estimates can occur due to changes in tax rates, new business strategies, newly enacted guidance, and resolution of issues with taxing authorities regarding previously taken tax positions. Such changes could affect the amount of accrued taxes. The Corporation has made tax payments in accordance with estimated tax payments rules. Any remaining payment will not have any significant impact on liquidity and capital resources.

The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the financial statements or tax returns and future profitability. The accounting for deferred tax consequences represents management's best estimate of those future events. Changes in management's current estimates, due to unanticipated events, could have a material impact on the Corporation's financial condition and results of operations.

The Corporation establishes tax liabilities or reduces tax assets for uncertain tax positions when, despite its assessment

POPULAR, INC. 2022 ANNUAL REPORT 11

that the tax return positions are appropriate and supportable under local tax law, the Corporation believes it may not succeed in realizing the tax benefit of certain positions if challenged. In evaluating a tax position, the Corporation determines whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Corporation's estimate of the ultimate tax liability contains assumptions based on past experiences, and judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by taxing jurisdictions. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Corporation evaluates these uncertain tax positions each quarter and adjusts the related tax liabilities or assets in light of changing facts and circumstances, such as the progress of a tax audit or the expiration of a statute of limitations. The Corporation believes the estimates and assumptions used to support its evaluation of uncertain tax positions are reasonable.

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management's judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. Although the outcome of tax audits is uncertain, the Corporation believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result from open years. From time to time, the Corporation is audited by various federal, state and local authorities regarding income tax matters. Although management believes its approach in determining the appropriate tax treatment is supportable and in accordance with the accounting standards, it is possible that the final tax authority will take a tax position that is different than the tax position reflected in the Corporation's income tax provision and other tax reserves. As each audit is conducted, adjustments, if any, are appropriately recorded in the consolidated financial statement in the period determined. Such differences could have an adverse effect on the Corporation's income tax provision or benefit, or other tax reserves, in the reporting period in which such determination is made and, consequently, on the Corporation's results of operations, financial position and / or cash flows for such period.

#### **Goodwill and Other Intangible Assets**

The Corporation's goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment. Intangibles with indefinite lives are evaluated for impairment at least annually, and on a more frequent basis, if events or circumstances indicate impairment could have taken place.

Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit. Other identifiable intangible assets with a finite useful life are evaluated periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Goodwill impairment is recognized when the carrying amount of any of the reporting units exceeds its fair value up to the amount of the goodwill. The Corporation estimates the fair value of each reporting unit, consistent with the requirements of the fair value measurements accounting standard, generally using a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analyses. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards. For a detailed description of the annual goodwill impairment evaluation performed by the Corporation during the third quarter of 2022, refer to Note 15 to the Consolidated Financial Statements.

#### **Pension and Postretirement Benefit Obligations**

The Corporation provides pension and restoration benefit plans for certain employees of various subsidiaries. The Corporation also provides certain health care benefits for retired employees of BPPR. The non-contributory defined pension and benefit restoration plans ('the Pension Plans') are frozen with regards to all future benefit accruals.

The estimated benefit costs and obligations of the Pension Plans and Postretirement Health Care Benefit Plan ('OPEB Plan') are impacted by the use of subjective assumptions, which can materially affect recorded amounts, including expected returns on plan assets, discount rates, termination rates, retirement rates and health care trend rates. Management applies judgment in the determination of these factors, which normally undergo evaluation against current industry practice and the actual experience of the Corporation. The Corporation uses an independent actuarial firm for assistance in the determination of the Pension Plans and OPEB Plan costs and obligations. Detailed information on the Plans and related valuation assumptions are included in Note 30 to the Consolidated Financial Statements.

The Corporation periodically reviews its assumption for the long-term expected return on Pension Plans assets. The Pension Plans' assets fair value at December 31, 2022 was $619.9 million. The expected return on plan assets is determined by considering various factors, including a total fund return estimate based on a weighted-average of estimated returns for each asset class in each plan. Asset class returns are estimated using current and projected economic and market factors such as real rates of return, inflation, credit spreads, equity risk premiums and excess return expectations.

12 POPULAR, INC. 2022 ANNUAL REPORT

As part of the review, the Corporation's independent consulting actuaries performed an analysis of expected returns based on each plan's expected asset allocation for the year 2023 using the Willis Towers Watson US Expected Return Estimator. This analysis is reviewed by the Corporation and used as a tool to develop expected rates of return, together with other data. This forecast reflects the actuarial firm's view of expected long-term rates of return for each significant asset class or economic indicator as of January 1, 2023; for example, 8.5% for large cap stocks, 8.8% for small cap stocks, 9.0% for international stocks, 6.1% for long corporate bonds and 4.9% for long Treasury bonds. A range of expected investment returns is developed, and this range relies both on forecasts and on broad-market historical benchmarks for expected returns, correlations, and volatilities for each asset class.

As a consequence of recent reviews, the Corporation increased its expected return on plan assets for year 2023 to 5.9% and 6.5% for the Pension Plans. Expected rates of return of 4.3% and 5.4% had been used for 2022 and 4.6% and 5.5% had been used for 2021 for the Pension Plans. Since the expected return assumption is on a long-term basis, it is not materially impacted by the yearly fluctuations (either positive or negative) in the actual return on assets. The expected return can be materially impacted by a change in the plan's asset allocation.

Net Periodic Benefit Cost ('pension expense') for the Pension Plans amounted to a net benefit of $0.5 million in 2022. The total pension expense included a benefit of $35.4 million for the expected return on assets.

Pension expense is sensitive to changes in the expected return on assets. For example, decreasing the expected rate of return for 2022 from 5.9% to 5.65% would increase the projected 2023 pension expense for the Banco Popular de Puerto Rico Retirement Plan, the Corporation's largest plan, by approximately $1.4 million.

If the projected benefit obligation exceeds the fair value of plan assets, the Corporation shall recognize a liability equal to the unfunded projected benefit obligation and vice versa, if the fair value of plan assets exceeds the projected benefit obligation, the Corporation recognizes an asset equal to the overfunded projected benefit obligation. This asset or liability may result in a taxable or deductible temporary difference and its tax effect shall be recognized as an income tax expense or benefit which shall be allocated to various components of the financial statements, including other comprehensive income. The determination of the fair value of pension plan obligations involves judgment, and any changes in those estimates could impact the Corporation's Consolidated Statements of Financial Condition. Management believes that the fair value estimates of the Pension Plans assets are reasonable given the valuation methodologies used to measure the investments at fair value as described in Note 28 to the Consolidated Financial Statements. Also, the compositions of the plan assets are primarily in equity

and debt securities, which have readily determinable quoted market prices. The Corporation had recorded a pension liability of $8.3 million at December 31, 2022.

The Corporation uses the spot rate yield curve from the Willis Towers Watson RATE: Link (10/90) Model to discount the expected projected cash flows of the plans. The equivalent single weighted average discount rate ranged from 5.34% to 5.37% for the Pension Plans and 5.42% for the OPEB Plan to determine the benefit obligations at December 31, 2022.

A 50 basis point decrease to each of the rates in the December 31, 2022 Willis Towers Watson RATE: Link (10/90) Model would increase the projected 2023 expense for the Banco Popular de Puerto Rico Retirement Plan by approximately $1.8 million. The change would not affect the minimum required contribution to the Pension Plans.

The OPEB Plan was unfunded (no assets were held by the plan) at December 31, 2022. The Corporation had recorded a liability for the underfunded postretirement benefit obligation of $118.3 million at December 31, 2022.

## STATEMENT OF OPERATIONS ANALYSIS

### Net Interest Income

Net interest income is the interest earned from loans, debt securities and money market investments, including loan fees, minus the interest cost of deposits and borrowed money. Various risk factors affect net interest income including the economic environment in which we operate, market related events, the mix and size of the earning assets and related funding, changes in volumes, repricing characteristics, loan fees collected, moratoriums granted on loan payments and delay charges, interest collected on nonaccrual loans, as well as strategic decisions made by the Corporation's management.

Net interest income for the year ended December 31, 2022 was $2.2 billion or $209.8 million higher than in 2021. Net interest income, on a taxable equivalent basis, for the year ended December 31, 2022 was $2.4 billion compared to $2.2 billion in 2021.

The average key index rates for the years 2022 and 2021 were as follows:

|  | 2022 | 2021 |
| --- | --- | --- |
| Prime rate | 4.86% | 3.25% |
| Fed funds rate | 1.86 | 0.25 |
| 3-month Treasury Bill | 2.01 | 0.03 |
| 10-year Treasury | 2.95 | 1.44 |
| FNMA 30-year | 4.26 | 1.84 |

Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities. Non-accrual loans have been included in the respective average loans and leases categories. Loan fees collected, and costs incurred in the origination of loans are deferred and amortized over the term of the loan as an

POPULAR, INC. 2022 ANNUAL REPORT 13

adjustment to interest yield. Prepayment penalties, late fees collected and the amortization of premiums / discounts on purchased loans, including the discount accretion on purchased credit deteriorated loans (“PCD”), are also included as part of the loan yield. Interest income for the period ended December 31, 2022, included $44.6 million related to those items, compared to $131.5 million for the same period in 2021. The year over year decrease is related to lower amortized fees resulting from the forgiveness of PPP loans by $55.7 million, lower discount amortization on commercial loans by $16.3 million mainly driven by lower interest from cancellation of PCD loans and $6.6 million lower amortization of the fair value discount of the auto portfolios acquired in previous years.

Table 3 presents the different components of the Corporation’s net interest income, on a taxable equivalent basis, for the year ended December 31, 2022, as compared with the same period in 2021, segregated by major categories of interest earning assets and interest-bearing liabilities. Net interest margin was 3.11% in 2022 or 23 basis points higher than the 2.88% reported in 2021. The higher net interest margin for the year is driven by $1.6 billion higher average volume of earning assets and higher interest rates as the Federal Reserve increased the Federal Funds Rate by 425 basis points during 2022. On a taxable equivalent basis, net interest margin was 3.46% in 2022, compared to 3.19% in 2021, an increase of 27 basis points. The main drivers for the increase in net interest income on a taxable equivalent basis were:

Positive variances:

- Higher interest income from money market investments by $96.9 million due to higher interest rates by 111 basis points, partially offset by lower volume by $6.5 billion, as part of the liquidity was deployed to purchase investment securities and fund loan growth;

- Higher interest income from investment securities by $156.1 million due to a higher volume by $6.8 million;
- Higher interest income from loans by $130.1 million due to:
  - Increase in commercial loan Interest income by $71.4 million driven by a higher average volume of loans by $1.1 billion and higher yield by 7 basis points as the origination of loans occurs in a higher interest rate scenario and the positive impact on the repricing of adjustable-rate loans, partially offset by lower amortized fees resulting from the forgiveness of PPP loans by $55.7 million and lower discount amortization on commercial loans by $16.3 million mainly from cancellation of PCD loans;
  - Higher interest income from consumer loans by $44.8 million resulting from a higher volume by $280 million and higher yield by 49 basis points, driven by the increase in personal loans year over year and increase in credit cards volume.

Partially offset by:

- Higher interest expense on deposits by $141.2 million due to the increase in interest cost by 29 basis points resulting mainly from a higher cost of the fully indexed Puerto Rico government deposits and the increase in cost of Popular U.S. deposits. Under the terms of BPPR’s deposit pricing agreement with Puerto Rico public sector, public funds rates are market linked with a lag minus a specified spread. As such, if short-term interest rates continue to increase, we would expect the costs of public funds to continue to increase. This source of funding still results in an attractive spread under market rates.

14 POPULAR, INC. 2022 ANNUAL REPORT

**Table 3 - Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP)**

| Year ended December 31, |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Average Volume |  |  | Average Yields / Costs |  |  |  | Interest |  |  | Variance Attributable to |  |
| 2022 | 2021 | Variance | 2022 | 2021 | Variance |  | 2022 | 2021 | Variance | Rate | Volume |
| (In millions) |  |  |  |  |  | (In thousands) |  |  |  |  |  |
| $9,531 | $16,000 | $(6,469) | 1.24% | 0.13% | 1.11% | Money market investments | $118,079 | $21,147 | $96,932 | $108,780 | $(11,848) |
| 29,743 | 22,931 | 6,812 | 2.23 | 2.22 | 0.01 | Investment securities [1] | 664,278 | 508,131 | 156,147 | 16,116 | 140,031 |
| 51 | 84 | (33) | 5.94 | 5.16 | 0.78 | Trading securities | 3,049 | 4,339 | (1,290) | 600 | (1,890) |
| 39,325 | 39,015 | 310 | 2.00 | 1.37 | 0.63 | Total money market, investment and trading securities | 785,406 | 533,617 | 251,789 | 125,496 | 126,293 |
|  |  |  |  |  |  | Loans: |  |  |  |  |  |
| 14,562 | 13,455 | 1,107 | 5.46 | 5.39 | 0.07 | Commercial | 795,115 | 723,765 | 71,350 | 10,997 | 60,353 |
| 778 | 849 | (71) | 6.29 | 5.41 | 0.88 | Construction | 48,920 | 45,821 | 3,099 | 7,172 | (4,073) |
| 1,475 | 1,289 | 186 | 5.92 | 6.00 | (0.08) | Leasing | 87,274 | 77,356 | 9,918 | (1,093) | 11,011 |
| 7,322 | 7,696 | (374) | 5.34 | 5.09 | 0.25 | Mortgage | 391,133 | 392,047 | (914) | 18,584 | (19,498) |
| 2,743 | 2,463 | 280 | 11.66 | 11.17 | 0.49 | Consumer | 319,920 | 275,078 | 44,842 | 11,546 | 33,296 |
| 3,525 | 3,322 | 203 | 8.02 | 8.47 | (0.45) | Auto | 282,533 | 280,722 | 1,811 | (14,833) | 16,644 |
| 30,405 | 29,074 | 1,331 | 6.33 | 6.19 | 0.14 | Total loans | 1,924,895 | 1,794,789 | 130,106 | 32,373 | 97,733 |
| $69,730 | $68,089 | $1,641 | 3.89% | 3.43% | 0.46% | Total earning assets | $2,710,301 | $2,328,406 | $381,895 | $157,869 | $224,026 |
|  |  |  |  |  |  | Interest bearing deposits: |  |  |  |  |  |
| $25,884 | $25,959 | $(75) | 0.61% | 0.12% | 0.49% | NOW and money market [2] | $158,664 | $31,911 | $126,753 | $127,953 | $(1,200) |
| 15,886 | 15,429 | 457 | 0.20 | 0.18 | 0.02 | Savings | 32,400 | 27,123 | 5,277 | 4,983 | 294 |
| 6,853 | 7,028 | (175) | 0.90 | 0.75 | 0.15 | Time deposits | 61,781 | 52,587 | 9,194 | 10,241 | (1,047) |
| 48,623 | 48,416 | 207 | 0.52 | 0.23 | 0.29 | Total interest bearing deposits | 252,845 | 111,621 | 141,224 | 143,177 | (1,953) |
| 206 | 92 | 114 | 2.78 | 0.35 | 2.43 | Short-term borrowings | 5,737 | 318 | 5,419 | 2,030 | 3,389 |
| 939 | 1,185 | (246) | 4.26 | 4.49 | (0.23) | Other medium and long-term debt | 39,970 | 53,107 | (13,137) | 63 | (13,200) |
| 49,768 | 49,693 | 75 | 0.60 | 0.33 | 0.27 | Total interest bearing liabilities | 298,552 | 165,046 | 133,506 | 145,270 | (11,764) |
| 16,094 | 14,687 | 1,407 |  |  |  | Demand deposits |  |  |  |  |  |
| 3,868 | 3,709 | 159 |  |  |  | Other sources of funds |  |  |  |  |  |
| $69,730 | $68,089 | $1,641 | 0.43% | 0.24% | 0.19% | Total source of funds | 298,552 | 165,046 | 133,506 | 145,270 | (11,764) |
|  |  |  |  |  |  | Net interest margin/ income on a taxable equivalent basis (Non-GAAP) | 2,411,749 | 2,163,360 | 248,389 | $12,599 | $235,790 |
|  |  |  | 3.46% | 3.19% | 0.27% | Net interest spread |  |  |  |  |  |
|  |  |  | 3.29% | 3.10% | 0.19% | Taxable equivalent adjustment | 244,390 | 205,770 | 38,620 |  |  |
|  |  |  |  |  |  | Net interest margin/ income non-taxable equivalent basis (GAAP) | $2,167,359 | $1,957,590 | $209,769 |  |  |
|  |  |  | 3.11% | 2.88% | 0.23% |  |  |  |  |  |  |

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale and the unrealized loss related to certain securities transferred from available-for-sale to held-to-maturity.

[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

POPULAR, INC. 2022 ANNUAL REPORT 15

### **Provision for Credit Losses - Loans Held-in-Portfolio and Unfunded Commitments**

For the year ended December 31, 2022, the Corporation recorded an expense of $84.2 million for its allowance for credit losses (“ACL”) related to loans held-in-portfolio and unfunded commitments, compared with a reserve release of $191.3 million for the year ended December 31, 2021. The provision expense related to the loans-held-in-portfolio for the year 2022 was $83.3 million, compared to a reserve release of $183.3 million for the year 2021. The reserve increase is mostly driven by changes in the economic scenario, higher loan volumes and changes in credit quality. The updated economic scenarios used to estimate the ACL on December 31, 2022 considered an expected slowdown in the economy as a result of tight monetary policy, weaker job growth and persistent inflation. The reserve release recorded in 2021 was driven by the release of Covid-related reserves recorded in 2020. The provision for unfunded commitments for the year 2022 reflected an expense of $0.9 million, compared to a reserve release of $8.0 million for the same period of 2021.

The provision expense related to loans held-in-portfolio for the BPPR segment was $69.5 million for the year ended December 31, 2022, compared to a reserve release of $129.0 million for the year ended December 31, 2021, an unfavorable variance of $198.6 million. The provision expense related to loans held-in-portfolio for the Popular U.S. segment was $13.8 million for the year 2022, an unfavorable variance of $68.1 million, compared to a reserve release of $54.3 million for the year 2021.

At December 31, 2022, the total allowance for credit losses for loans held-in-portfolio amounted to $720.3 million, compared to $695.4 million as of December 31, 2021. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.25% at December 31, 2022, compared to 2.38% at December 31, 2021. Refer to Note 9 to the Consolidated Financial Statements, for additional information on the Corporation’s methodology to estimate its ACL. As discussed therein, within the process to estimate its ACL, the Corporation applies probability weights to the outcomes of simulations using Moody’s Analytics’ Baseline, S3 (pessimistic) and S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic scenario. In addition, refer to the Credit Risk section of this MD&A for a detailed analysis of net charge-offs, non-performing assets, the allowance for credit losses and selected loan losses statistics.

### **Provision for Credit Losses - Investment Securities**

The Corporation’s provision for credit losses related to its investment securities held-to-maturity is related to the portfolio of obligations from the Government of Puerto Rico, states and political subdivisions. For the year ended December 31, 2022, the Corporation recorded a reserve release of $1.2 million, compared to a reserve release of $2.2 million for the year ended

December 31, 2021. At December 31, 2022, the total allowance for credit losses for this portfolio amounted to $6.9 million, compared to $8.1 million as of December 31, 2021. Refer to Note 7 to the Consolidated Financial Statements for additional information on the ACL for this portfolio.

### **Non-Interest Income**

For the year ended December 31, 2022, non-interest income increased by $254.9 million, when compared with the previous year. The results for the year 2022 included a $257.7 million gain related to the Evertec Transactions and related accounting adjustments. Other factors that contributed to the variance in non-interest income were:

- higher other service fees by $22.8 million, principally at the BPPR segment, due to higher credit card fees by $18.9 million mainly in interchange income resulting from higher customer purchase activity and higher fees from the merchant network business by $6.7 million due to the revenue sharing agreement entered into in connection with the Evertec Transactions;
- a favorable adjustment of $9.2 million in the fair value of the contingent consideration related to purchase price adjustments for the acquisition of the K2 Capital Group LLC business in 2021 (“K2 Acquisition”), as the Corporation updated its estimates related to the ability to realize the earnings targets for the contingent payment; and
- a gain of $8.2 million from the sale of an investment which had been previously written off;

partially offset by:

- lower service charges on deposit accounts by $5.5 million, mainly at BPPR, due to lower overdraft related charges, in part due to the Corporation’s determination of eliminating insufficient funds fees and modifying overdraft fees effective on the third quarter of 2022 and lower cash management service charges from commercial clients due to higher earnings credits on transactional accounts driven by the current interest rate environment;
- lower income from mortgage banking activities by 7.7 million mainly due to lower gains from loan securitization and valuation adjustments on loans held for sale by $21.9 million, impacted by the Corporation’s determination in the third quarter of 2022 to retain certain guaranteed loans as held for investment; partially offset by a favorable variance of $10.4 million in the fair value adjustments for mortgage servicing rights driven by slower projected prepayments in the serviced portfolio and higher gains from closed derivative positions by $5.3 million;

16 POPULAR, INC. 2022 ANNUAL REPORT

- an unfavorable variance of $7.5 million on the fair value adjustments to the portfolio of equity securities related to deferred benefit plans, which have an offsetting effect recorded as lower personnel costs; and

- the gain of $7.0 million recognized in the third quarter of 2021 by BPPR as a result of the sale and partial leaseback of two corporate office buildings.

### Operating Expenses

As discussed in the significant events section of this MD&A, to facilitate the transparency of the progress with the transformation initiative and to better portray the level of technology related expenses categorized by the nature of the expense, effective in the fourth quarter of 2022, the Corporation has separated technology, professional fees and

transactional activities as standalone expense categories in the accompanying Consolidated Statements of Operations. There were no changes to the total operating expenses presented. Prior periods amount in the financial statements and related disclosures have been reclassified to conform to the current presentation.

Table 4 provides the detail of the reclassifications for each respective year.

**Table 4 - Operating Expenses Reclassification**

| Financial statement line item | 2021 |  |  | 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As reported | Adjustments | Adjusted | As reported | Adjustments | Adjusted |
| Equipment expenses | $92,097 | $(59,178) | $32,919 | $88,932 | $(56,418) | $32,514 |
| Professional services | 410,865 | (284,144) | 126,721 | 394,122 | (261,708) | 132,414 |
| Technology and software expenses | - | 277,979 | 277,979 | - | 263,886 | 263,886 |
| Processing and transactional services | - | 121,367 | 121,367 | - | 112,039 | 112,039 |
| Communications | 25,234 | (11,205) | 14,029 | 23,496 | (10,266) | 13,230 |
| Other expenses | 136,988 | (44,819) | 92,169 | 128,882 | (47,533) | 81,349 |
| Net effect on operating expenses | $665,184 | $ - | $665,184 | $635,432 | $ - | $635,432 |

POPULAR, INC. 2022 ANNUAL REPORT 17

Table 5 provides a breakdown of operating expenses by major categories.

**Table 5 - Operating Expenses**

| (In thousands) | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Personnel costs: |  |  |  |
| Salaries | $432,910 | $371,644 | $370,179 |
| Commissions, incentives and other bonuses | 155,889 | 142,212 | 78,582 |
| Pension, postretirement and medical insurance | 56,085 | 52,077 | 44,123 |
| Other personnel costs, including payroll taxes | 74,880 | 65,869 | 71,321 |
| Total personnel costs | 719,764 | 631,802 | 564,205 |
| Net occupancy expenses | 106,169 | 102,226 | 119,345 |
| Equipment expenses | 35,626 | 32,919 | 32,514 |
| Other taxes | 63,603 | 56,783 | 54,454 |
| Professional fees | 172,043 | 126,721 | 132,414 |
| Technology and software expenses | 291,902 | 277,979 | 263,886 |
| Processing and transactional services: |  |  |  |
| Credit and debit cards | 45,455 | 40,383 | 40,903 |
| Other processing and transactional services | 81,690 | 80,984 | 71,136 |
| Total processing and transactional services | 127,145 | 121,367 | 112,039 |
| Communications | 14,885 | 14,029 | 13,230 |
| Business promotion: |  |  |  |
| Rewards and customer loyalty programs | 51,832 | 38,919 | 30,380 |
| Other business promotion | 37,086 | 34,062 | 27,228 |
| Total business promotion | 88,918 | 72,981 | 57,608 |
| FDIC deposit insurance | 26,787 | 25,579 | 23,868 |
| Other real estate owned (OREO) income | (22,143) | (14,414) | (3,480) |
| Other operating expenses: |  |  |  |
| Operational losses | 32,049 | 38,391 | 26,331 |
| All other | 77,397 | 53,778 | 55,018 |
| Total other operating expenses | 109,446 | 92,169 | 81,349 |
| Amortization of intangibles | 3,275 | 9,134 | 6,397 |
| Goodwill impairment charge | 9,000 | - | - |
| Total operating expenses | $1,746,420 | $1,549,275 | $1,457,829 |
| Personnel costs to average assets | 0.99% | 0.89% | 0.95% |
| Operating expenses to average assets | 2.40 | 2.18 | 2.45 |
| Employees (full-time equivalent) | 8,813 | 8,351 | 8,522 |
| Average assets per employee (in millions) | $8.26 | $8.52 | $6.99 |

Operating expenses for the year ended December 31, 2022 increased by $197.1 million, when compared with the previous year. The increase in operating expenses was driven primarily by:

- Higher personnel costs by $88.0 million mainly due to higher salaries expense by $61.3 million as a result of market adjustments, annual salary revisions and an increase in headcount, higher commission and incentives by $13.7 million, due to higher headcount, salary revisions and, in part, profit-sharing expense and higher payroll taxes and fringe benefits, including health and retirement benefits, reflecting the overall increase in salary base;
- Higher net occupancy expense by $3.9 million mainly due to BPPR's lower rental income due to the sale of two corporate office buildings during the third quarter of 2021, coupled with higher rent expense related to the space remaining occupied by BPPR;
- Higher other taxes by $6.8 million mainly due to an increase in personal property tax expense and a higher base used to estimate an annual Puerto Rico regulatory license fee;
- Higher professional fees by $45.3 million primarily due to Corporate initiatives including $22 million related to a multi-year corporate transformation initiative to expand

18 POPULAR, INC. 2022 ANNUAL REPORT

the Corporation's digital capabilities, modernize its technology platform and implement agile and efficient business processes;

- Higher technology and software expenses by $13.9 million mainly due to higher software amortization expense by $10.3 million, including $2.4 million related to the software intangible assets acquired as part of the Evertec Transactions, and higher IT professional fees and network management expense by $15.5 million due to various ongoing technology projects; partially offset by a decrease in charges related to internet banking of $9.6 million and lower application hosting expense reflecting savings as a result of the Evertec Transactions;
- Higher processing and transactional services by $5.8 million mainly due to higher credit and debit card processing expense as a result of higher transactional volumes, reflecting an increase in customer purchase activity; partially offset by lower merchant processing due to higher incentives received during the year related to the ATH Network Participation Agreement entered into in connection with the Evertec Transactions;
- Higher business promotion expense by $15.9 million mainly due to higher customer reward program expense in our credit card business by $12.9 million, reflecting an increase in customer purchase activity, higher sponsorship expense by $1.5 million and higher donations by $1.2 million, including hurricane related donations;
- Higher total other operating expenses, including operational losses, by $17.3 million mainly due to the $17.3 million expense related to the Evertec Transactions; net of $6.9 million in credits received in connection with this transaction and higher gain on sale of foreclosed auto units by $6.6 million; offset by $6.5 million of lower sundry losses; and
- a goodwill impairment charge of $9.0 million due to a decrease in Popular Equipment Finance's (PEF) projected earnings considered as part of the Corporation's annual goodwill impairment analysis.

These variances were partially offset by:

- Higher other real estate owned (OREO) income by $7.7 million mainly due to higher gain on sale of commercial properties; and
- Lower amortization of intangibles by $5.9 million due to an impairment write-down of $5.4 million of a trademark during 2021.

# Income Taxes

For the year ended December 31, 2022, the Corporation recorded an income tax expense of $132.3 million, compared to

$309.0 million for the same period of 2021. The income tax expense for the year ended December 31, 2022, reflects the impact of the reversal of a portion of the deferred tax asset valuation allowance of the U. S. Operations amounting to $68.2 million, higher taxable income subject to preferential tax rates, primarily attributed to the gain from the sale of Evertec shares, and higher tax exempt income recorded during this year.

At December 31, 2022, the Corporation had a net deferred tax asset amounting to $1 billion, net of a valuation allowance of $0.5 billion. The net deferred tax asset related to the U.S. operations was $0.3 billion, net of a valuation allowance of $0.4 billion.

The Inflation Reduction Act of 2022 imposes a new corporate alternative minimum tax ("AMT"), effective for taxable year 2023, to corporations that meet a dual three-year average adjusted financial statement income ("AFSI") threshold of $1 billion on a worldwide basis and $100 million for its U.S. operations. The AFSI is, in general, the GAAP net income per financial statements with certain adjustments, including foreign taxes and tax depreciation. The Corporation is still evaluating the application of these adjustments that could be decisive in whether Popular is subject to the corporate AMT. If it is determined that the Corporation is subject to the corporate AMT, it is not expected to have a material impact on the financial statements of the Corporation.

Refer to Note 35 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on the income tax expense and deferred tax asset balances.

# Fourth Quarter Results

The Corporation recognized net income of $257.1 million for the quarter ended December 31, 2022, compared with a net income of $206.1 million for the same quarter of 2021.

Net interest income for the fourth quarter of 2022 amounted to $559.6 million, compared with $501.3 million for the fourth quarter of 2021, an increase of $58.3 million. The increase in net interest income was mainly due higher interest rates as the Federal Reserve increased the Federal Funds Rate by 425 basis points during 2022 and higher average balance of loans resulting from the growth during 2022 at both BPPR and PB. The net interest margin increased by 50 basis points to 3.28% due to an increase in market rates and the earning assets mix, that had a higher concentration on loans which carry a higher yield than money market and investment securities. On a taxable equivalent basis, the net interest margin for the fourth quarter of 2022 was 3.64%, compared to 3.02% for the fourth quarter of 2021.

The provision for credit losses was a $49.5 million for the fourth quarter of 2022, compared to a reserve release benefit of $33.1 million for the fourth quarter of 2021. The provision expense recorded in the fourth quarter or 2022 reflects changes

POPULAR, INC. 2022 ANNUAL REPORT 19

in credit metrics, portfolio growth as well as changes in the macroeconomic outlook and considers an expected slowdown in the economy during 2023, as a result of weaker job growth, monetary policy and the persistent inflation. The benefit recorded in the fourth quarter of 2021 was reflective of improvements in the credit metrics and the macroeconomic outlook as well as releases in qualitative reserves.

Non-interest income amounted to $158.5 million for the quarter ended December 31, 2022, compared with $164.7 million for the same quarter in 2021. The decrease of $6.2 million was mainly due lower income from mortgage banking activities by $10.5 million due to an unfavorable variance of $4.1 million in the fair value adjustments of mortgage servicing rights and lower gains from the sale and securitization of mortgage loans as the Corporation made the determination to retain certain guaranteed loans as held for investment. In addition, service charges on deposit accounts were lower by $6.9 million, due to lower overdraft related charges, in part due to the Corporation's determination of eliminating insufficient funds fees and modifying overdraft fees effective on the third quarter of 2022 and lower cash management service charges from commercial clients due to higher earnings credits on transactional accounts.

Operating expenses totaled $461.7 million for the quarter ended December 31, 2022, compared with $417.4 million for the same quarter in the previous year. The increase of $44.3 million is mainly related to higher personnel costs by $29.7 million, due to a higher headcount and market and annual salary revisions as well as higher incentives and commissions; higher professional services expense by $16.6 million due to various corporate projects, including the transformation initiative; higher technology and software expenses by $7.3 million due to various ongoing technology projects and software amortization, including from the assets acquired from Evertec; partially offset by higher benefit from OREO related activity by $5.3 million due to gains on sale of foreclosed properties; lower operational losses by $7.8 million and lower amortization of intangibles by $5.3 million due to an impairment write-down of $5.4 million of a trademark during 2021.

For the quarter ended December 31, 2022, the Corporation recorded an income tax benefit of $50.3 million, compared with income tax expense of $75.6 million for the same quarter of 2021. The favorable variance in income tax expense was mainly attributable to a partial reversal of the deferred tax asset valuation allowance of the U.S. operation during the fourth quarter of 2022 of $68.2 million and lower income before tax, higher benefit from tax-exempt income, including true-up adjustment of $9.5 million in relation to the fiscal year 2021 tax returns for the P.R. subsidiaries filed in the fourth quarter and related year-to-date adjustments for the same concept.

## REPORTABLE SEGMENT RESULTS

The Corporation's reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. A Corporate group has been defined to support the reportable segments.

For a description of the Corporation's reportable segments, including additional financial information and the underlying management accounting process, refer to Note 37 to the Consolidated Financial Statements.

The Corporate group reported a net income of $150.1 million for the year ended December 31, 2022, compared with a net income of $13.4 million for the previous year. The increase in net income was mainly attributed to the $128.8 million in after-tax gains recognized by the Corporation as a result of the Evertec Stock Sale and related accounting adjustments; lower interest expense by $10.4 million from the redemption in the fourth quarter of 2021 of $186.7 million in Trust Preferred Securities issued by Popular Capital Trust I; and higher earnings from equity method investments.

Highlights on the earnings results for the reportable segments are discussed below:

### Banco Popular de Puerto Rico

The Banco Popular de Puerto Rico reportable segment's net income amounted to $782.0 million for the year ended December 31, 2022, compared with $787.5 million for the year ended December 31, 2021. The principal factors that contributed to the variance in the financial results included the following:

- Higher net interest income by $148.9 million due to higher income from money market and investment securities by $218.3 million mainly due to higher yields driven by the increase in rates by the Federal Reserve and higher average balances of U.S. Treasury securities; higher interest income from loans by $54.7 million, mainly due to higher average balances from consumer, leasing and commercial loans; partially offset by higher interest expense on deposits by $123.7 million mainly due to higher costs on the market- indexed Puerto Rico government deposits, NOW accounts and time deposits. The BPPR segment's net interest margin was 3.05% for 2022 compared with 2.86% for the same period in 2021.
- A provision for loan losses expenses of $70.3 million in 2022, compared to a reserve release of $136.4 million for the year ended 2021, or an unfavorable variance of $206.7 million. The provision for loan losses for 2022 reflects an expected slowdown in the economy in 2023. During 2021, BPPR recorded a reserve for credit losses release of $136.4 million due to improved credit metrics and Covid-related macroeconomic outlook and changes in qualitative reserves;

20 POPULAR, INC. 2022 ANNUAL REPORT

• Higher non-interest income by $115.0 million mainly due to:
  • Higher other operating income by $112.0 million mostly due to the benefit related to the Evertec Business Acquisition Transaction,
  • Higher other service fees by $21.3 million due to higher merchant acquiring fees related to the revenue sharing agreement entered in connection with the Evertec Transactions and higher credit card fees as a result of higher interchange transaction volumes.
• Higher operating expenses by $167.8 million, mainly due to:
  • Higher other expenses by $75.5 million mainly due to higher allocations from the Corporate group by $56.0 million, mainly advisory and other professional services, and a $17.3 million expense related to Evertec Transactions;
  • Higher personnel costs by $71.8 million driven by higher salaries and benefits due to market salary adjustments and annual salary revisions and a higher headcount; higher incentive compensation, higher profit sharing expenses and higher fringe benefits;
  • Higher business promotions by $15.6 million mainly due to higher customer rewards expense related to higher transactional volumes and higher sponsorships and donations, including hurricane related assistance;
  • Higher technology and software expenses by $5.7 million including $2.4 million related to the software intangible assets acquired as part of the Evertec Transactions, and costs associated with several ongoing projects;
  • Higher processing and transactional services by $5.8 million mainly due to higher credit and debit card processing expense as a result of higher transactional volumes, reflecting an increase in customer purchase activity; partially offset by lower merchant processing due to higher incentives received during the year related to the ATH Network Participation Agreement entered into in connection with the Evertec Transactions;

Partially offset by:

• Higher OREO income by $7.4 million mainly due to higher gain on sale of OREO of $5.9 million.
• Lower professional fees by $3.8 million mainly due to lower consulting fees related to ongoing projects.

• Lower income tax expense by $105.1 million due to lower income before tax and higher income that was exempt or subject to preferential tax rates.

# Popular U.S.

For the year ended December 31, 2022, the reportable segment of Popular U.S. reported net income of $170.3 million, compared with a net income of $134.1 million for the year ended December 31, 2021. The principal factors that contributed to the variance in the financial results included the following:

• Higher net interest income by $51.8 million mainly due to higher interest income from loans by $74.2 million mainly due to higher average balances from commercial loans as well as higher yields due to increase in rates; and higher interest income from money market investment securities by $2.9 million due to higher rates, partially offset by lower income from debt securities by $1.6 million and higher cost of deposits by $22.9 million due to higher interest rates. The Popular U.S. reportable segment's net interest margin was 3.68% for 2022 compared with 3.39% for the same period in 2021;
• An unfavorable variance of $69.3 million on the provision for loan losses and unfunded commitments, due to the reserve release of $56.9 million in 2021, which reflected improvements in credit metrics and Covid-related economic outlook, compared to a provision expense of $12.5 million recorded in 2022 which reflected an expected economic slowdown in 2023;
• Higher non-interest income by $7.4 million mainly due to the positive adjustment of $9.2 million on the contingent liability related to the K-2 Acquisition;
• Higher operating expenses by $35.4 million mainly due to:
  • Higher personnel costs by $10.2 million due to salary market and annual adjustments;
  • Higher other expenses by $7.4 million due to higher charges allocated from the Corporate segment, mainly professional fees; and
  • The goodwill impairment charge of $9.0 million recorded at PEF.
• Lower income tax expense by $81.7 million due mainly to a lower income before tax and the partial reversal of the deferred tax asset valuation allowance recorded during the fourth quarter of 2022 of $68.2 million.

# STATEMENT OF FINANCIAL CONDITION ANALYSIS

# Assets

The Corporation's total assets were $67.6 billion at December 31, 2022, compared to $75.1 billion at December 31,

POPULAR, INC. 2022 ANNUAL REPORT 21

2021. Refer to the Corporation's Consolidated Statements of Financial Condition at December 31, 2022 and 2021 included in this 2022 Form 10-K. Also, refer to the Statistical Summary 2022-2021 in this MD&A for Condensed Statements of Financial Condition.

#### **Money market investments and debt securities**

Money market investments decreased by $11.9 billion at December 31, 2022, when compared to December 31, 2021. This was impacted by the decrease in deposits of $5.8 billion, mainly in the Puerto Rico Public sector, and the deployment of liquidity to purchase debt securities. Debt securities available-for-sale decreased by $7.2 billion, while debt securities held-to-maturity increased by $8.4 billion. As previously mentioned, during 2022 the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. Refer to Notes 6 and 7 to the Consolidated Financial Statements for additional information with respect to the Corporation's debt securities available-for-sale and held-to-maturity.

#### **Loans**

Refer to Table 6 for a breakdown of the Corporation's loan portfolio. Also, refer to Note 8 to the Consolidated Financial Statements for detailed information about the Corporation's loan portfolio composition and loan purchases and sales.

Loans held-in-portfolio increased by $2.8 billion to $32.1 billion at December 31, 2022, mainly due to growth in the commercial portfolio of $2.0 billion, reflected at both BPPR and PB by approximately $1.0 billion, at each segment and consumer loans at BPPR. The commercial loans growth includes U.S. region loans participated between BPPR and PB. During the year ended December 31, 2022, BPPR participated in loans originated by PB totaling $184 million. Consumer loans at BPPR increased by $532.4 million in the aggregate including credit cards, personal loans and auto loans. The increase in BPPR's consumer portfolio is aligned with the increase in retail sales and consumer spending in Puerto Rico during 2022 and the purchase of national consumer loans through its U.S. branch. The auto loans portfolio at BPPR benefited from the sustained level of auto sales, which although lower than 2021, remained a higher than 2020. In addition, though mortgage loans declined by $29.7 million from the previous year, this was impacted by management's determination to retain certain guaranteed loans in the portfolio, which reduced the portfolio attrition.

The allowance for credit losses for the loan portfolio increased by $24.9 million mainly due to changes in the macroeconomic outlook, credit quality metrics and portfolio growth. Refer to the Credit Quality section of the MD&A for additional information on the Allowance for credit losses for the loan portfolio.

**Table 6 - Loans Ending Balances**

| (In thousands) | At December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Loans held-in-portfolio: |  |  |
| Commercial | $15,739,132 | $13,732,701 |
| Construction | 757,984 | 716,220 |
| Leasing | 1,585,739 | 1,381,319 |
| Mortgage | 7,397,471 | 7,427,196 |
| Auto | 3,512,530 | 3,412,187 |
| Consumer | 3,084,913 | 2,570,934 |
| Total loans held-in-portfolio | $32,077,769 | $29,240,557 |
| Loans held-for-sale: |  |  |
| Mortgage | $5,381 | $59,168 |
| Total loans held-for-sale | $5,381 | $59,168 |
| Total loans | $32,083,150 | $29,299,725 |

#### **Other assets**

Other assets amounted to $1.8 billion at December 31, 2022, an increase of $0.2 billion when compared to December 31, 2021. At December 31, 2022, this includes $125 million in cash receivable from the maturities of investment securities near the end of the year and $28.7 million in software intangibles

acquired as part of the Evertec Transactions. Refer to Note 14 to the Consolidated Financial Statements for a breakdown of the principal categories that comprise the caption of 'Other Assets' in the Consolidated Statements of Financial Condition at December 31, 2022 and 2021.

22 POPULAR, INC. 2022 ANNUAL REPORT

## Liabilities

The Corporation's total liabilities were $63.5 billion at December 31, 2022, a decrease of $5.6 billion compared to $69.1 billion at December 31, 2021, mainly due to a decrease in deposits as discussed below. Refer to the Corporation's Consolidated Statements of Financial Condition included in this Form 10-K.

## Deposits and Borrowings

The composition of the Corporation's financing to total assets at December 31, 2022 and 2021 is included in Table 7.

**Table 7 - Financing to Total Assets**

| (In millions) | December 31, 2022 | December 31, 2021 | % increase (decrease) from 2021 to 2022 | % of total assets |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 | 2021 |
| Non-interest bearing deposits | $15,960 | $15,684 | 1.8% | 23.6% | 20.9% |
| Interest-bearing core deposits | 41,600 | 47,954 | (13.3) | 61.5 | 63.9 |
| Other interest-bearing deposits | 3,667 | 3,367 | 8.9 | 5.4 | 4.5 |
| Repurchase agreements | 149 | 92 | 62.0 | 0.2 | 0.1 |
| Other short-term borrowings | 365 | 75 | N.M. | 0.5 | 0.1 |
| Notes payable | 887 | 989 | (10.3) | 1.3 | 1.3 |
| Other liabilities | 917 | 968 | (5.3) | 1.4 | 1.3 |
| Stockholders' equity | 4,093 | 5,969 | (31.4) | 6.1 | 7.9 |

## Deposits

The Corporation's deposits totaled $61.2 billion at December 31, 2022, compared to $67.0 billion at December 31, 2021. The deposits decrease of $5.8 billion was mainly due to lower Puerto Rico public sector deposits by $5.2 billion. Public sector deposit balances amounted to $15.2 billion at December 31, 2022. The receipt by the Puerto Rico Government of additional Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. However, the rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which federal assistance is distributed, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation of fiscal and debt adjustment plans approved pursuant to PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the 'Oversight Board').

Approximately 25% of the Corporation's deposits are public fund deposits from the Government of Puerto Rico, municipalities and government instrumentalities and corporations ('public funds'). These public funds deposits are indexed to short term market rates and fluctuate in cost with changes in those rates with a one-quarter lag, in accordance with contractual terms. As a result, these public funds deposits' costs have generally lagged variable asset repricing. During 2022, the deposit costs for public funds increased by 61% when compared to 2021. We expect these costs to continue to increase if short-term rates continue their recent trend. For example, we expect an increase in costs on these public funds by approximately 120 basis points in the first quarter of 2023 when compared to the last quarter in 2022.

Refer to Table 8 for a breakdown of the Corporation's deposits at December 31, 2022 and 2021.

**Table 8 - Deposits Ending Balances**

| (In thousands) | 2022 | 2021 |
| --- | --- | --- |
| Demand deposits [1] | $26,382,605 | $25,889,732 |
| Savings, NOW and money market deposits (non-brokered) | 27,265,156 | 33,674,134 |
| Savings, NOW and money market deposits (brokered) | 798,064 | 729,073 |
| Time deposits (non-brokered) | 6,442,886 | 6,685,938 |
| Time deposits (brokered CDs) | 338,516 | 26,211 |
| Total deposits | $61,227,227 | $67,005,088 |

[1] Includes interest and non-interest bearing demand deposits.

POPULAR, INC. 2022 ANNUAL REPORT 23

### **Borrowings**

The Corporation's borrowings amounted to $1.4 billion at December 31, 2022, compared to $1.2 billion at December 31, 2021. Refer to Note 17 to the Consolidated Financial Statements for detailed information on the Corporation's borrowings. Also, refer to the Liquidity section in this MD&A for additional information on the Corporation's funding sources.

### **Other liabilities**

The Corporation's other liabilities amounted to $1.0 billion at December 31, 2022, a decrease of $51.3 million when compared to December 31, 2021.

### **Stockholders' Equity**

Stockholders' equity totaled $4.1 billion at December 31, 2022, a decrease of $1.9 billion when compared to December 31, 2021. The decrease was principally due to higher accumulated unrealized losses on debt securities available-for-sale by $2.2 billion and the impact of $631.0 million from the two accelerated share repurchase transactions completed during 2022, declared dividends of $163.7 million on common stock and $1.4 million in dividends on preferred stock, partially offset by net income for the year ended December 31, 2022 of $1.1 billion. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders' Equity for information on the composition of stockholders' equity. Also, refer to Note 22 to the Consolidated Financial Statements for a detail of accumulated other comprehensive loss (income), an integral component of stockholders' equity.

### **REGULATORY CAPITAL**

The Corporation and its bank subsidiaries are subject to capital adequacy standards established by the Federal Reserve Board.

The risk-based capital standards applicable to Popular, Inc. and the Banks, BPPR and PB, are based on the final capital framework of Basel III. The capital rules of Basel III include a 'Common Equity Tier 1' ('CET1') capital measure and specifies that Tier 1 capital consist of CET1 and 'Additional Tier 1 Capital' instruments meeting specified requirements. Note 21 to the Consolidated Financial Statements presents further information on the Corporation's regulatory capital requirements, including the regulatory capital ratios of its depository institutions, BPPR and PB.

An institution is considered 'well-capitalized' if it maintains a total capital ratio of 10%, a Tier 1 capital ratio of 8%, a CET1 capital ratio of 6.5% and a leverage ratio of 5%. The Corporation's ratios presented in Table 9 show that the Corporation was 'well capitalized' for regulatory purposes, the highest classification, under Basel III for years 2022 and 2021. BPPR and PB were also well-capitalized for all years presented.

The Basel III Capital Rules also require an additional 2.5% 'capital conservation buffer', composed entirely of CET1, on top of these minimum risk-weighted asset ratios, which excludes the leverage ratio. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. Popular, BPPR and PB are required to maintain this additional capital conservation buffer of 2.5% of CET1, resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.

24 POPULAR, INC. 2022 ANNUAL REPORT

Table 9 presents the Corporation's capital adequacy information for the years 2022 and 2021.

**Table 9 - Capital Adequacy Data**

| (Dollars in thousands) | At December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Risk-based capital: |  |  |
| Common Equity Tier 1 capital | $5,639,686 | $5,476,031 |
| Additional Tier 1 Capital | 22,143 | 22,143 |
| Tier 1 capital | $5,661,829 | $5,498,174 |
| Supplementary (Tier 2) capital | 623,818 | 585,931 |
| Total capital | $6,285,647 | $6,084,105 |
| Total risk-weighted assets | $34,415,889 | $31,441,224 |
| Adjusted average quarterly assets | $70,287,610 | $74,238,367 |
| Ratios: |  |  |
| Common Equity Tier 1 capital | 16.39% | 17.42% |
| Tier 1 capital | 16.45 | 17.49 |
| Total capital | 18.26 | 19.35 |
| Leverage ratio | 8.06 | 7.41 |
| Average equity to assets | 8.25 | 8.12 |
| Average tangible equity to assets | 7.27 | 7.20 |
| Average equity to loans | 19.76 | 19.87 |

On April 1, 2020, the Corporation adopted the final rule issued by the federal banking regulatory agencies pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 that simplified several requirements in the agencies' regulatory capital rules. These rules simplified the regulatory capital requirement for mortgage servicing assets (MSAs), deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions by raising the CET1 deduction threshold from 10% to 25%. The 15% CET1 deduction threshold which applies to the aggregate amount of such items was eliminated. The rule also requires, among other changes, increasing from 100% to 250% the risk weight to MSAs and temporary difference deferred tax asset not deducted from capital. For investments in the capital of unconsolidated financial institutions, the risk weight would be based on the exposure category of the investment.

The decrease in the CET1 capital ratio, Tier 1 capital ratio and, total capital ratio as of December 31, 2022, compared to December 31, 2021, was mostly due to an increase in risk weighted assets driven by the growth in the commercial and consumer loan portfolios, partially offset by the annual earnings net of the accelerated share repurchase agreements to repurchase an aggregate of $400 million and $231 million of Popular's common stock. The increase in leverage capital ratio was mainly due to the decrease in average total assets, driven by the reduction in zero-risk weighted investments in money market FED accounts and zero or low-risk weighted debt securities, that therefore did not have a significant impact on the risk-weighted assets.

Pursuant to the adoption of CECL on January 1, 2020, the Corporation elected to use the five-year transition period option

as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefits provided during the initial two-year delay. As of December 31, 2022, the Corporation had phased-in 25% of the cumulative CECL deferral with the remaining impact to be recognized over the remaining two years. In the first quarter of 2023, the Corporation will phase in a cumulative 50% of the deferral.

On August 26, 2020, federal banking regulators issued a final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program ('PPP') established under the Coronavirus Aid, Relief and Economic Security Act (the 'CARES Act') to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the 'PPPL Facility'), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation's Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of December 31, 2022, the Corporation has $38 million in PPP loans and no loans were pledged as collateral for PPPL Facilities.

POPULAR, INC. 2022 ANNUAL REPORT 25

Table 10 reconciles the Corporation's total common stockholders' equity to common equity Tier 1 capital.

**Table 10 - Reconciliation Common Equity Tier 1 Capital**

| (In thousands) | At December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Common stockholders' equity | $4,198,409 | $6,116,756 |
| AOCI related adjustments due to opt-out election | 2,468,193 | 257,762 |
| Goodwill, net of associated deferred tax liability (DTL) | (691,560) | (591,703) |
| Intangible assets, net of associated DTLs | (12,944) | (16,219) |
| Deferred tax assets and other deductions | (322,412) | (290,565) |
| Common equity tier 1 capital | $5,639,686 | $5,476,031 |
| Common equity tier 1 capital to risk-weighted assets | 16.39% | 17.42% |

# **Non-GAAP financial measures**

The tangible common equity ratio and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders' equity, total assets or any other measure calculated in accordance with generally accepted accounting principles in the United States of America ('GAAP'). Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

The decrease in the Tangible common equity to tangible assets ratio during 2022 was mainly related to the decrease in the fair value of the Corporation's fixed rate available for sale debt securities portfolio and its impact on the unrealized loss component of accumulated other comprehensive income (loss) ('AOCI'). Given its ability due to the Corporation's liquidity position and its intention to reduce the impact on AOCI and tangible capital of further increases in interest rates, management changed its intent to hold certain securities to maturity. Therefore, in October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio.

The securities were reclassified at fair value at the time of the transfer. At the date of the transfer, these securities had pre-tax unrealized losses of $873.0 million recorded in AOCI. This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting each other through the remaining life of the securities. There were no realized gains or losses recorded as a result of this transfer.

While changes in the amount of unrealized gains and losses in AOCI have an impact on the Corporation's and its wholly-owned banking subsidiaries' tangible capital ratios, they do not impact regulatory capital ratios, in accordance with the regulatory framework. Refer to Note 7 to the Consolidated Financial Statements which presents information about the Corporation's Debt Securities Held-to-Maturity for additional details.

Table 11 provides a reconciliation of total stockholders' equity to tangible common equity and total assets to tangible assets at December 31, 2022 and 2021.

**Table 11 - Reconciliation of Tangible Common Equity and Tangible Assets**

| (In thousands, except share or per share information) | At December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Total stockholders' equity | $4,093,425 | $5,969,397 |
| Less: Preferred stock | (22,143) | (22,143) |
| Less: Goodwill | (827,428) | (720,293) |
| Less: Other intangibles | (12,944) | (16,219) |
| Total tangible common equity | $3,230,910 | $5,210,742 |
| Total assets | $67,637,917 | $75,097,899 |
| Less: Goodwill | (827,428) | (720,293) |
| Less: Other intangibles | (12,944) | (16,219) |
| Total tangible assets | $66,797,545 | $74,361,387 |
| Tangible common equity to tangible assets | 4.84% | 7.01% |
| Common shares outstanding at end of period | 71,853,720 | 79,851,169 |
| Tangible book value per common share | $44.97 | $65.26 |
|  | Year-to-date average |  |
| Total stockholders' equity [1] | $6,009,225 | $5,777,652 |
| Less: Preferred Stock | (22,143) | (22,143) |
| Less: Goodwill | (757,133) | (679,959) |
| Less: Other intangibles | (17,113) | (20,861) |
| Total tangible common equity | $5,212,836 | $5,054,689 |
| Average return on tangible common equity | 21.13% | 18.47% |

[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale and unrealized losses on debt securities transfer to held-to-maturities.

26 POPULAR, INC. 2022 ANNUAL REPORT

## RISK MANAGEMENT

### Market / Interest Rate Risk

The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks.

Market risk refers to the risk of a reduction in the Corporation's capital due to changes in the market valuation of its assets and/or liabilities.

Most of the assets subject to market valuation risk are debt securities classified as available-for-sale. Refer to Notes 6 and 7 to the Consolidated Financial Statements for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $17.8 billion as of December 31, 2022. Other assets subject to market risk include loans held-for-sale, which amounted to $5 million, mortgage servicing rights ('MSRs') which amounted to $128 million and securities classified as 'trading', which amounted to $28 million, as of December 31, 2022.

### Interest Rate Risk ('IRR')

The Corporation's net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. In managing interest rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market expectations and policy constraints.

Management utilizes various tools to assess IRR, including Net Interest Income ('NII') simulation modeling, static gap analysis, and Economic Value of Equity ('EVE'). The three methodologies complement each other and are used jointly in the evaluation of the Corporation's IRR. NII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides management a better view of long-term IRR.

Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the

Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs.

Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat rates, implied forwards, and parallel and non-parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.

The asset and liability management group performs validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy.

The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same magnitude (parallel shifts). The rate scenarios considered in these market risk simulations reflect instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. Additionally, the Corporation is also subject to basis risk in the repricing of its assets and liabilities, including the basis related to using different rate indexes for the repricing of assets and liabilities, as well as the effect of pricing lags which may be contractual or due to historical differences in the timing of management responses to changes in the rate environment. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at December 31, 2022 and December 31, 2021, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

POPULAR, INC. 2022 ANNUAL REPORT 27

**Table 12 - Net Interest Income Sensitivity (One Year Projection)**

| (Dollars in thousands) | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Amount Change | Percent Change | Amount Change | Percent Change |
| Change in interest rate |  |  |  |  |
| +400 basis points | $(38,548) | (1.75)% | $257,223 | 13.21% |
| +200 basis points | (18,078) | (0.82) | 197,354 | 10.14 |
| +100 basis points | (7,787) | (0.35) | 166,920 | 8.57 |
| -100 basis points | 41,763 | 1.90 | (78,408) | (4.03) |
| -200 basis points | 78,381 | 3.56 | (120,661) | (6.20) |

As of December 31, 2022, NII simulations show the Corporation has a neutral to slightly liability sensitive position driven by the rapid increase in short-term interest rates throughout the year and its impact on Puerto Rico public sector deposits which are indexed to market rates, as well as the deployment of cash to fund loan growth and purchase investments. These results suggest that changes in net interest income are driven by changes in liability costs, primarily Puerto Rico public sector deposits. In declining rate scenarios net interest income would increase as the decline in the cost of these deposits generates a greater benefit than the changes in asset yields. In rising rate scenarios Popular's sensitivity profile is also impacted by its large proportion of Puerto Rico public sector deposits which are indexed to market rates. As short-term rates have risen, the cost of these deposits now increases in sync with market rates and therefore reduce the benefit banks typically have in rising rate environments. As of December 31, 2022, Popular has a more neutral position as

compared to a substantially asset sensitive position as of December 31, 2021. The primary reasons for the reduction in sensitivity are i) the realization of much of the expected benefit in net interest income given the higher interest rates observed during 2022, ii) a decrease in cash balances (which reprice instantaneously) via the deployment into longer term investments and loans, and iii) the market indexed nature of Puerto Rico public sector deposits which represented $15.2 billion or 25% of deposits as of December 31, 2022.

The Corporation's loan and investment portfolios are subject to prepayment risk, which results from the ability of a third-party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed securities and collateralized mortgage obligations since prepayments could shorten (or lower prepayments could extend) the weighted average life of these portfolios.

28 POPULAR, INC. 2022 ANNUAL REPORT

**Table 13 - Interest Rate Sensitivity**

| (Dollars in thousands) | At December 31, 2022 |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | By repricing dates |  |  |  |  |  |  |  |  |
|  | 0-30 days | Within 31 - 90 days | After three months but within six months | After six months but within nine months | After nine months but within one year | After one year but within two years | After two years | Non-interest bearing assets / liabilities | Total |
| Assets: |  |  |  |  |  |  |  |  |  |
| Money market investments | $5,614,595 | $ - | $ - | $ - | $ - | $ - | $ - | $ - | $5,614,595 |
| Investment and trading securities | 2,085,332 | 750,646 | 1,026,603 | 1,076,243 | 1,116,553 | 4,590,807 | 16,292,815 | (392,593) | 26,546,406 |
| Loans | 5,090,409 | 2,875,448 | 1,436,637 | 1,248,850 | 1,256,549 | 4,559,631 | 15,718,001 | (102,375) | 32,083,150 |
| Other assets | - | - | - | - | - | - | - | 3,393,766 | 3,393,766 |
| Total | 12,790,336 | 3,626,094 | 2,463,240 | 2,325,093 | 2,373,102 | 9,150,438 | 32,010,816 | 2,898,798 | 67,637,917 |
| Liabilities and stockholders' equity: |  |  |  |  |  |  |  |  |  |
| Savings, NOW and money market and other interest bearing demand deposits | 17,880,089 | 794,797 | 1,115,771 | 1,031,454 | 954,856 | 3,178,624 | 13,529,678 | - | 38,485,269 |
| Certificates of deposit | 1,921,505 | 468,312 | 640,081 | 452,482 | 496,747 | 1,194,998 | 1,607,276 | - | 6,781,401 |
| Federal funds purchased and assets sold under agreements to repurchase | 99,558 | 31,530 | 17,521 | - | - | - | - | - | 148,609 |
| Other short-term borrowings | 365,000 | - | - | - | - | - | - | - | 365,000 |
| Notes payable | 1,000 | - | 20,000 | 299,109 | 22,261 | 91,943 | 452,397 | - | 886,710 |
| Non-interest bearing deposits | - | - | - | - | - | - | - | 15,960,557 | 15,960,557 |
| Other non-interest bearing liabilities | - | - | - | - | - | - | - | 916,946 | 916,946 |
| Stockholders' equity | - | - | - | - | - | - | - | 4,093,425 | 4,093,425 |
| Total | $20,267,152 | $1,294,639 | $1,793,373 | $1,783,045 | $1,473,864 | $4,465,565 | $15,589,351 | $20,970,928 | $67,637,917 |
| Interest rate sensitive gap | (7,476,816) | 2,331,455 | 669,867 | 542,048 | 899,238 | 4,684,873 | 16,421,465 | (18,072,130) | - |
| Cumulative interest rate sensitive gap | (7,476,816) | (5,145,361) | (4,475,494) | (3,933,446) | (3,034,208) | 1,650,665 | 18,072,130 | - | - |
| Cumulative interest rate sensitive gap to earning assets | (11.55)% | (7.95)% | (6.91)% | (6.08)% | (4.69)% | 2.55% | 27.92% | - | - |

POPULAR, INC. 2022 ANNUAL REPORT 29

Table 14, which presents the maturity distribution of earning assets, takes into consideration prepayment assumptions.

**Table 14 - Maturity Distribution of Earning Assets**

| (In thousands) | As of December 31, 2022 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Maturities |  |  |  |  |  |  |  |
|  | One year or less | After one year through five years |  | After five years through fifteen years |  | After fifteen years |  | Total |
|  |  | Fixed interest rates | Variable interest rates | Fixed interest rates | Variable interest rates | Fixed interest rates | Variable interest rates |  |
| Money market securities | $5,614,595 | $ - | $ - | $ - | $ - | $ - | $ - | $5,614,595 |
| Investment and trading securities | 5,972,315 | 15,917,065 | 12,593 | 4,474,589 | 3,287 | - | - | 26,379,849 |
| Loans: |  |  |  |  |  |  |  |  |
| Commercial | 4,609,900 | 5,335,022 | 3,628,170 | 1,092,038 | 930,166 | 45,176 | 98,659 | 15,739,132 |
| Construction | 469,212 | 45,911 | 193,334 | 8,261 | 34,232 | - | 7,033 | 757,984 |
| Leasing | 426,138 | 1,127,923 | - | 31,678 | - | - | - | 1,585,739 |
| Consumer | 1,845,426 | 3,584,443 | 298,977 | 187,647 | 595,179 | 85,770 | - | 6,597,443 |
| Mortgage | 581,384 | 2,074,029 | 107,067 | 3,759,026 | 54,812 | 826,508 | 26 | 7,402,852 |
| Subtotal loans | 7,932,060 | 12,167,328 | 4,227,549 | 5,078,651 | 1,614,390 | 957,454 | 105,718 | 32,083,150 |
| Total earning assets | $19,518,969 | $28,084,393 | $4,240,142 | $9,553,241 | $1,617,677 | $957,454 | $105,718 | $64,077,594 |

Note: Equity securities available-for-sale and other investment securities, including Federal Reserve Bank stock and Federal Home Loan Bank stock held by the Corporation, are not included in this table. Loans held-for-sale have been allocated according to the expected sale date.

### Trading

The Corporation engages in trading activities in the ordinary course of business at its subsidiaries, BPPR and Popular Securities. Popular Securities' trading activities consist primarily of market-making activities to meet expected customers' needs related to its retail brokerage business, and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR's trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as "trading" and hedging the related market risk with "TBA" (to-be-announced) market transactions. The objective is to derive spread income from the portfolio and not to benefit from short-term market movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline.

At December 31, 2022, the Corporation held trading securities with a fair value of $28 million, representing approximately 0.04% of the Corporation's total assets, compared with $30 million and 0.04%, respectively, at December 31, 2021. As shown in Table 15, the trading portfolio consists principally of mortgage-backed securities and U.S. Treasuries, which at December 31, 2022 were investment grade securities. As of December 31, 2022 and December 31, 2021, the trading portfolio also included $0.1 million in Puerto Rico government obligations. Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized net trading account loss of $784 thousand and a net trading account loss of $389 thousand, respectively, for the years ended December 31, 2022 and 2021.

30 POPULAR, INC. 2022 ANNUAL REPORT

**Table 15 - Trading Portfolio**

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Amount | Weighted Average Yield [1] | Amount | Weighted Average Yield [1] |
| (Dollars in thousands) |  |  |  |  |
| Mortgage-backed securities | $14,223 | 5.79% | $22,559 | 5.12% |
| U.S. Treasury securities | 13,069 | 3.26 | 6,530 | 0.03 |
| Collateralized mortgage obligations | 160 | 5.51 | 257 | 5.61 |
| Puerto Rico government obligations | 64 | 0.45 | 85 | 0.47 |
| Interest-only strips | 207 | 12.00 | 280 | 12.00 |
| Total | $27,723 | 4.63% | $29,711 | 4.06% |

[1] Not on a taxable equivalent basis.

The Corporation's trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk ('VAR'), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability.

The Corporation's trading portfolio had a 5-day VAR of approximately $0.2 million for the last week in December 31, 2022. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation.

### **Derivatives**

Derivatives may be used by the Corporation as part of its overall interest rate risk management strategy to minimize significant unexpected fluctuations in earnings and cash flows that are caused by interest rate volatility. Derivative instruments that the Corporation may use include, among others, interest rate caps, indexed options, and forward contracts. The Corporation does not use highly leveraged derivative instruments in its interest rate risk management strategy. Credit risk embedded in these transactions is reduced by requiring appropriate collateral from counterparties and entering into netting agreements whenever possible. All outstanding derivatives are recognized in the Corporation's Consolidated Statements of Condition at their fair value. Refer to Note 26 to the Consolidated Financial Statements for further information on the Corporation's involvement in derivative instruments and hedging activities.

### **Cash Flow Hedges**

The Corporation manages the variability of cash payments due to interest rate fluctuations by the effective use of derivatives designated as cash flow hedges and that are linked to specified

hedged assets and liabilities. The cash flow hedges relate to forward contracts or TBA mortgage-backed securities that are sold and bought for future settlement to hedge mortgage-backed securities and loans prior to securitization. The seller agrees to deliver on a specified future date a specified instrument at a specified price or yield. These securities are hedging a forecasted transaction and are designated for cash flow hedge accounting. The notional amount of derivatives designated as cash flow hedges at December 31, 2022 amounted to $15 million (2021 - $88 million). Refer to Note 26 to the Consolidated Financial Statements for additional quantitative information on these derivative contracts.

### **Fair Value Hedges**

The Corporation did not have any derivatives designated as fair value hedges during the years ended December 31, 2022 and 2021.

### **Trading and Non-Hedging Derivative Activities**

The Corporation enters into derivative positions based on market expectations or to benefit from price differentials between financial instruments and markets mostly to economically hedge a related asset or liability. The Corporation also enters into various derivatives to provide these types of derivative products to customers. These free-standing derivatives are carried at fair value with changes in fair value recorded as part of the results of operations for the period.

Following is a description of the most significant of the Corporation's derivative activities that are not designated for hedge accounting.

The Corporation has over-the-counter option contracts which are utilized in order to limit the Corporation's exposure on customer deposits whose returns are tied to the S&P 500 or to certain other equity securities or commodity indexes. In these certificates, the customer's principal is guaranteed by the Corporation and insured by the FDIC to the maximum extent permitted by law. The instruments pay a return based on the increase of these indexes, as applicable, during the term of the instrument. Accordingly, this product gives customers the

POPULAR, INC. 2022 ANNUAL REPORT 31

opportunity to invest in a product that protects the principal invested but allows the customer the potential to earn a return based on the performance of the indexes. The risk of issuing certificates of deposit with returns tied to the applicable indexes is economically hedged by the Corporation. Indexed options are purchased from financial institutions with strong credit standings, whose return is designed to match the return payable on the certificates of deposit issued. By hedging the risk in this manner, the effective cost of these deposits is fixed. The contracts have a maturity and an index equal to the terms of the pool of retail deposits that they are economically hedging.

The purchased indexed options are used to economically hedge the bifurcated embedded option. These option contracts do not qualify for hedge accounting, and therefore, cannot be designated as accounting hedges. At December 31, 2022, the notional amount of the indexed options on deposits approximated $85 million (2021 - $79 million) with a fair value of $18 million (asset) (2021 - $26 million) while the embedded options had a notional value of $79 million (2021 - $72 million) with a fair value of $16 million (liability) (2021 - $23 million).

Refer to Note 26 to the Consolidated Financial Statements for a description of other non-hedging derivative activities utilized by the Corporation during 2022 and 2021.

#### Foreign Exchange

The Corporation holds an interest in BHD León in the Dominican Republic, which is an investment accounted for under the equity method. The Corporation's carrying value of the equity interest in BHD León approximated $199.8 million at December 31, 2022. This business is conducted in the country's foreign currency. The resulting foreign currency translation adjustment, from operations for which the functional currency is other than the U.S. dollar, is reported in accumulated other comprehensive loss in the consolidated statements of condition, except for highly-inflationary environments in which the effects would be included in the consolidated statements of operations. At December 31, 2022, the Corporation had approximately $57 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive income (loss), compared with an unfavorable adjustment of $67 million at December 31, 2021 and $71 million at December 31, 2020.

#### Liquidity

The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth, fund planned capital distributions and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board of Directors is responsible for establishing the Corporation's tolerance for liquidity risk, including approving relevant risk limits and policies. The Board

of Directors has delegated the monitoring of these risks to the Board's Risk Management Committee and the Asset/Liability Management Committee. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation's Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board of Directors and for monitoring the Corporation's liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies.

An institution's liquidity may be pressured if, for example, it experiences a sudden and unexpected substantial cash outflow due to exogenous events such as the COVID-19 pandemic, its credit rating is downgraded, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.

Liquidity is managed by the Corporation at the level of the holding companies that own the banking and non-banking subsidiaries. It is also managed at the level of the banking and non-banking subsidiaries. As further explained below, a principal source of liquidity for the bank holding companies (the 'BHCs') are dividends received from banking and non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation's liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 91% of the Corporation's total assets at December 31, 2022 and 89% at December 31, 2021. The ratio of total ending loans to deposits was 52% at December 31, 2022, compared to 44% at December 31, 2021. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.4 billion in outstanding balances at December 31, 2022 (December 31, 2021 - $1.2 billion). A detailed description of the Corporation's borrowings, including their terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial

32 POPULAR, INC. 2022 ANNUAL REPORT

Statements provide information on the Corporation's cash inflows and outflows.

On July 12, 2022, the Corporation completed an ASR program for the repurchase of an aggregate $400 million of Popular's common stock, for which an initial 3,483,942 shares were delivered in March 2022 (the 'March ASR Agreement'). Upon the final settlement of the March ASR Agreement, the Corporation received an additional 1,582,922 shares of common stock. The Corporation repurchased a total of 5,066,864 shares at an average purchase price of $78.9443, which were recorded as treasury stock by $440 million under the March ASR Agreement.

On December 7, 2022, the Corporation completed the settlement of another ASR Agreement for the repurchase of an aggregate $231 million of Popular's common stock, for which an initial 2,339,241 shares were delivered on August 26, 2022 (the 'August ASR'). Upon the final settlement of the ASR Agreement, the Corporation received an additional 840,024 shares of common stock. The Corporation repurchased a total of 3,179,265 shares at an average purchase price of $72.66, which were recorded as treasury stock by $245 million under the August ASR Agreement. Refer to Note 20 to the Consolidated Financial Statements for additional information.

The following sections provide further information on the Corporation's major funding activities and needs, as well as the risks involved in these activities.

### Banking Subsidiaries

Primary sources of funding for the Corporation's banking subsidiaries (BPPR and PB or, collectively, 'the banking subsidiaries') include retail, commercial and public sector deposits, brokered deposits, unpledged investment securities, mortgage loan securitization and, to a lesser extent, loan sales. In addition, the Corporation maintains borrowing facilities with the FHLB and at the discount window of the Federal Reserve Bank of New York (the 'FRB') and has a considerable amount of collateral pledged that can be used to raise funds under these facilities.

Refer to Note 17 to the Consolidated Financial Statements, for additional information of the Corporation's borrowing facilities available through its banking subsidiaries.

The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases and repurchases, repayment of outstanding

obligations (including deposits), advances on certain serviced portfolios and operational expenses. Also, the banking subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with contractual commitments, recourse provisions, servicing advances, derivatives and credit card licensing agreements.

The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.

The Corporation's ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation's banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation's banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.

Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 8 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $250,000, excluding brokered deposits with denominations under $250,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $57.6 billion, or 94% of total deposits, at December 31, 2022, compared with $63.6 billion, or 95% of total deposits, at December 31, 2021. Core deposits financed 90% of the Corporation's earning assets at December 31, 2022, compared with 88% at December 31, 2021.

The distribution by maturity of certificates of deposits with denominations of $250,000 and over at December 31, 2022 is presented in the table that follows:

**Table 16 - Distribution by Maturity of Certificate of Deposits of $250,000 and Over**

| (In thousands) |  |
| --- | --- |
| 3 months or less | $1,809,781 |
| Over 3 to 12 months | 333,648 |
| Over 1 year to 3 years | 282,506 |
| Over 3 years | 119,815 |
| Total | $2,545,750 |

POPULAR, INC. 2022 ANNUAL REPORT 33

For the years ended December 31, 2022 and 2021, average deposits, including brokered deposits, represented 93% of average earning assets. Table 17 summarizes average deposits for the past three years.

**Table 17 - Average Total Deposits**

| (In thousands) | For the years ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Non-interest bearing demand deposits | $16,093,704 | $14,687,093 |
| Savings accounts | 16,242,457 | 15,753,630 |
| NOW, money market and other interest bearing demand accounts | 25,539,909 | 25,648,707 |
| Certificates of deposit | 6,840,334 | 7,013,486 |
| Total interest bearing deposits | 48,622,700 | 48,415,823 |
| Total average deposits | $64,716,404 | $63,102,916 |

The Corporation had $1.1 billion in brokered deposits at December 31, 2022, which financed approximately 2% of its total assets (December 31, 2021 - $0.8 billion and 1%, respectively). In the event that any of the Corporation's banking subsidiaries' regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation's ability to effectively compete in its retail markets and could affect its deposit raising efforts.

Deposits from the public sector represent an important source of funds for the Corporation. As of December 31, 2022, total public sector deposits were $15.2 billion, compared to $20.3 billion at December 31, 2021. Generally, these deposits require that the bank pledge high credit quality securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower given that the bank receives its collateral in return. This, now unpledged, collateral can either be financed via repurchase agreements or sold for cash. However, there are some timing differences between the time the deposit outflow occurs and when the bank receives its collateral. Additionally, the Corporation mainly utilizes fixed-rate U.S. Treasury debt securities as collateral. While these securities have limited credit risk, they are subject to market value risk based on changes in the interest rate environment. When interest rates increase, the value of this collateral decreases and could result in the Corporation having to provide additional collateral to cover the same amount of deposit liabilities. This additional collateral could reduce unpledged securities otherwise available as liquidity sources to the Corporation.

At December 31, 2022, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking

subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation's financial condition or general market conditions were to deteriorate. The Corporation's financial flexibility will be severely constrained if the banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements on repurchase agreements and other collateralized borrowing facilities. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.

#### **Bank Holding Companies**

The principal sources of funding for the BHCs, which are Popular, Inc. (holding company only) and PNA, include cash on hand, investment securities, dividends received from banking and non-banking subsidiaries, asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings. Dividends from banking and non-banking subsidiaries are subject to various regulatory limits and authorization requirements that are further described below and that may limit the ability of those subsidiaries to act as a source of funding to the BHCs.

The principal use of these funds includes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities), the payment of dividends to common stockholders, repurchases of the Corporation's securities and capitalizing its banking subsidiaries.

34 POPULAR, INC. 2022 ANNUAL REPORT

The outstanding balance of notes payable at the BHCs amounted to $497 million at December 31, 2022 and $496 million at December 31, 2021.

The contractual maturities of the BHCs notes payable at December 31, 2022 are presented in Table 18.

**Table 18 - Distribution of BHC's Notes Payable by Contractual Maturity**

| Year | (In thousands) |
| --- | --- |
| 2023 | $299,109 |
| Later years | 198,319 |
| Total | $497,428 |

The Corporation's 6.125% unsecured senior debt securities mature in the September of 2023. Annual debt service at the BHCs is approximately $32 million, and the Corporation's latest quarterly dividend was $0.55 per share or approximately $40 million per quarter. As of December 31, 2022, the BHCs had cash and money markets investments totaling $203 million and borrowing potential of $169 million from its secured facility with BPPR. The BHCs' liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all interest payments and dividend obligations during the foreseeable future. The Corporation intends to refinance the 6.125% unsecured senior debt prior to its maturity in September. If we are unable to refinance these notes, we could have to declare extraordinary dividends from our banking and other operating subsidiaries to repay such notes. Our ability to declare such dividends could be subject to approval of the Federal Reserve Board.

The BHCs have in the past borrowed in the corporate debt market primarily to finance their non-banking subsidiaries and refinance debt obligations. These sources of funding are more costly due to the fact that two out of the three principal credit rating agencies rate the Corporation below 'investment grade', which affects the Corporation's cost and ability to raise funds in the capital markets. Factors that the Corporation does not control, such as the economic outlook, interest rate volatility, inflation, disruptions in the debt market, among others, could also affect its ability to obtain funding. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.

On July 1, 2022, the Corporation exchanged a portion of Evertec shares as part of a transaction in which it acquired certain critical channels from Evertec and renegotiated several service agreements. The Corporation completed the sale of its remaining shares of Evertec on August 15, 2022. Following the Evertec Stock Sale, Popular no longer owns any Evertec common stock.

### Non-Banking Subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. During the period ended December 31, 2022, Popular, Inc. made capital contributions to its wholly owned subsidiaries of $25 million to Popular Re, Inc., $10 million to Popular Securities, LLC and $3 million to Popular Impact Fund, LLC.

### Dividends

During the year ended December 31, 2022, the Corporation declared cash dividends of $2.20 per common share outstanding ($163.7 million in the aggregate). The dividends for the Corporation's Series A preferred stock amounted to $1.4 million. During the year ended December 31, 2022, the BHCs received dividends amounting to $450 million from BPPR, $54 million from PNA, $19 million from PIBI, $8 million in dividends from its non-banking subsidiaries and $2 million in dividends from Evertec. In addition, during the year ended December 31, 2022, Popular International Bank Inc., a wholly owned subsidiary of Popular, Inc., received $16 million in dividends from its investment in BHD. Dividends from BPPR constitute Popular, Inc.'s primary source of liquidity.

### Other Funding Sources and Capital

The debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation's debt securities portfolio consists primarily of liquid U.S. government debt securities, U.S. government sponsored agency debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation's unpledged debt securities amounted to $8.0 billion at December 31, 2022 and $3.0 billion at December 31, 2021. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources.

Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular,

POPULAR, INC. 2022 ANNUAL REPORT 35

mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.

#### **Off-Balance Sheet arrangements and other commitments**

In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Refer to Note 24 to the Consolidated Financial Statements for information on the Corporation's commitments to extent credit and other non-credit commitments.

Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives, operating leases and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 33 to the Consolidated Financial Statements for information on operating leases and to Note 23 to the Consolidated Financial Statements for a detailed discussion related to the Corporation's obligations under credit recourse and representation and warranties arrangements.

The Corporation monitors its cash requirements, including its contractual obligations and debt commitments. As discussed above, liquidity is managed by the Corporation in order to meet its short- and long-term cash obligations. Note 17 to the Consolidated Financial Statements has information on the Corporation's borrowings by maturity, which amounted to $1.4 billion at December 31, 2022 (December 31, 2021 - $1.2 billion).

#### **Financial information of guarantor and issuers of registered guaranteed securities**

The Corporation (not including any of its subsidiaries, 'PIHC') is the parent holding company of Popular North America 'PNA' and has other subsidiaries through which it conducts its financial services operations. PNA is an operating, 100% subsidiary of Popular, Inc. Holding Company ('PIHC') and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and PB, including PB's wholly-owned subsidiaries Popular Equipment Finance, LLC, Popular Insurance Agency, U.S.A., and E-LOAN, Inc.

PNA has issued junior subordinated debentures guaranteed by PIHC (together with PNA, the 'obligor group') purchased by statutory trusts established by the Corporation. These debentures were purchased by the statutory trust using the proceeds from trust preferred securities issued to the public (referred to as 'capital securities'), together with the proceeds of the related issuances of common securities of the trusts.

PIHC fully and unconditionally guarantees the junior subordinated debentures issued by PNA. PIHC's obligation to make a guarantee payment may be satisfied by direct payment of the required amounts to the holders of the applicable capital securities or by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions by the applicable trust except to the extent such trust has funds available for such payments. If PIHC does not make interest payments on the debentures held by such trust, such trust will not pay distributions on the applicable capital securities and will not have funds available for such payments. PIHC's guarantee of PNA's junior subordinated debentures is unsecured and ranks subordinate and junior in right of payment to all the PIHC's other liabilities in the same manner as the applicable debentures as set forth in the applicable indentures; and equally with all other guarantees that the PIHC issues. The guarantee constitutes a guarantee of payment and not of collection, which means that the guaranteed party may sue the guarantor to enforce its rights under the respective guarantee without suing any other person or entity.

The principal sources of funding for PIHC and PNA have included dividends received from their banking and non-banking subsidiaries, asset sales and proceeds from the issuance of debt and equity. As further described below, in the Risk to Liquidity section, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval.

The following summarized financial information presents the financial position of the obligor group, on a combined basis at December 31, 2022 and December 31, 2021, and the results of their operations for the period ended December 31, 2022 and December 31, 2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded.

The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group's amounts due from, amounts due to and transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately.

36 POPULAR, INC. 2022 ANNUAL REPORT

**Table 19 - Summarized Statement of Condition**

| (In thousands) | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Assets |  |  |
| Cash and money market investments | $203,083 | $291,540 |
| Investment securities | 24,815 | 25,691 |
| Accounts receivables from non-obligor subsidiaries | 16,853 | 17,634 |
| Other loans (net of allowance for credit losses of $370 (2021 - $96)) | 27,826 | 29,349 |
| Investment in equity method investees | 5,350 | 114,955 |
| Other assets | 45,278 | 42,251 |
| Total assets | $323,205 | $521,420 |
| Liabilities and Stockholders' deficit |  |  |
| Accounts payable to non-obligor subsidiaries | $3,709 | $6,481 |
| Accounts payable to affiliates and related parties | - | 1,254 |
| Notes payable | 497,428 | 496,134 |
| Other liabilities | 112,847 | 97,172 |
| Stockholders' deficit | (290,779) | (79,621) |
| Total liabilities and stockholders' deficit | $323,205 | $521,420 |

**Table 20 - Summarized Statement of Operations**

| (In thousands) | For the years ended |  |
| --- | --- | --- |
|  | December 31, 2022 | December 31, 2021 |
| Income: |  |  |
| Dividends from non-obligor subsidiaries | $458,000 | $792,000 |
| Interest income from non-obligor subsidiaries and affiliates | 705 | 848 |
| Earnings from investments in equity method investees | 15,688 | 29,387 |
| Other operating income | 145,295 | 3,136 |
| Total income | $619,688 | $825,371 |
| Expenses: |  |  |
| Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of $222,935 (2021 - $162,019)) | $18,467 | $13,594 |
| Other operating expenses | 23,607 | 33,524 |
| Total expenses | $42,074 | $47,118 |
| Net income (loss) | $577,614 | $778,253 |

During the year ended December 31, 2022, the Obligor group recorded $1.5 million of dividend distributions from its direct equity method investees, and $72.0 million of dividend distributions from non-obligor subsidiaries which were recorded as a reduction to the investments. During the year ended December 31, 2021, the Obligor group recorded $3.0 million of distributions from its direct equity method investees, of which $2.3 million were related to dividend distributions.

In addition, during the year ending December 31, 2022, the Obligor group recorded $228.1 million in proceeds from the sale of two of its direct equity method investees (2021- $0).

#### **Risks to Liquidity**

Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.

The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.

Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB. The Corporation is subject to positive tangible capital requirements to utilize secured loan facilities with the FHLB that could result in a limitation of borrowing amounts or maturity terms, even if the Corporation exceeds well-capitalized regulatory capital levels.

The credit ratings of Popular's debt obligations are a relevant factor for liquidity because they impact the Corporation's ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level

POPULAR, INC. 2022 ANNUAL REPORT 37

and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation's ability to access a broad array of wholesale funding sources, among other factors.

Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, after considering those years' dividend activity, less any required transfers to surplus or to a fund for the retirement of any preferred stock. During the year ended December 31, 2022, BPPR declared cash dividends of $450 million, a portion of which was used by Popular for the payments of the cash dividends on its outstanding common stock and $231 million in accelerated stock repurchases. At December 31, 2022, BPPR needed to obtain prior approval of the Federal Reserve Board before declaring a dividend in excess of $53 million due to its declared dividend activity and transfers to statutory reserves over the three years ended December 31, 2022. In addition, a member bank may not declare or pay a dividend in an amount greater than its undivided profits as reported in its Report of Condition and Income, unless the member bank has received the approval of the Federal Reserve Board. A member bank also may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve Board. Pursuant to these requirements, PB may not declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary to up-stream dividends to its BHC could thus be impacted by its financial performance and capital, including tangible and regulatory capital, thus potentially limiting the amount of cash moving up to the BHCs from the banking subsidiaries. This could, in turn, affect the BHCs ability to declare dividends on its outstanding common and preferred stock, repurchase its securities or meet its debt obligations, for example.

The Corporation's banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation's overall credit ratings.

#### **Obligations Subject to Rating Triggers or Collateral Requirements**

The Corporation's banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits at December 31, 2022 that are subject to rating triggers.

In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 23 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution's required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $29 million at December 31, 2022. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation's liquidity resources and impact its operating results.

#### **Credit Risk**

##### **Geographic and Government Risk**

The Corporation is exposed to geographic and government risk. The Corporation's assets and revenue composition by geographical area and by business segment reporting are presented in Note 37 to the Consolidated Financial Statements.

##### **Commonwealth of Puerto Rico**

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico ('Puerto Rico'), which has faced severe economic and fiscal challenges in the past and may face additional challenges in the future.

##### **Economic Performance.**

Puerto Rico's economy suffered a severe and prolonged recession from 2007 to 2017, with real gross national product ('GNP') contracting approximately 15% during this period. In 2017, Hurricane María caused significant damage and destruction across the island, resulting in further economic contraction. Puerto Rico's economy has been gradually recovering since 2018, in part aided by the large amount of federal disaster relief and recovery assistance funds injected into the Puerto Rico economy in connection with Hurricane María and other recent natural disasters. This growth was interrupted by the economic shock caused by the COVID-19 pandemic in 2020, but has since resumed, in part aided by additional federal assistance from pandemic-related stimulus measures.

The latest Puerto Rico Economic Activity Index, published by the Economic Development Bank for Puerto Rico (the 'Economic Activity Index'), reflected a 0.6% increase in

38 POPULAR, INC. 2022 ANNUAL REPORT

December 2022, compared to December 2021. During calendar year 2022, the Economic Activity Index increased by 1.8%, compared to the same period in calendar year 2021. The Economic Activity Index is a coincident indicator of ongoing economic activity but not a direct measurement of real GNP. According to the Puerto Rico Planning Board's latest economic forecast (dated August 2021), Puerto Rico's real GNP is projected to increase 1.7% during the current fiscal year (July 2022-June 2023).

While the Puerto Rico economy has not directly tracked the United States economy in recent years, many of the external factors that impact the Puerto Rico economy are affected by the policies and performance of the United States economy. These external factors include the level of interest rates and the rate of inflation. Inflation in the United States, as measured by the United States Consumer Price Index (published by the U.S. Bureau of Labor Statistics), increased 6.5% in calendar year 2022, mainly driven by pent-up demand and supply-chain disruptions caused by the pandemic. During the same period, inflation in Puerto Rico, as measured by the Puerto Rico Consumer Price Index (published by the Department of Labor and Human Resources of Puerto Rico), increased 6.1% for similar reasons. The rate of inflation has slowed down in recent months, following a mid-2022 peak, as the Federal Reserve has implemented a series of benchmark interest rate increases. The speed and scope of the inflation slowdown will inform if and how much interest rates will continue to increase, as well how these changes will impact the United States and Puerto Rico economies.

#### Fiscal Challenges.

As the Puerto Rico economy contracted, the government's public debt rose rapidly, in part from borrowing to cover deficits to pay debt service, pension benefits and other government expenditures. By 2016, the Puerto Rico government had over $120 billion in combined debt and unfunded pension liabilities, had lost access to the capital markets, and was in the midst of a fiscal crisis.

Puerto Rico's escalating fiscal and economic challenges and imminent widespread defaults in its public debt prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act ('PROMESA') in June 2016. PROMESA created the 'Oversight Board' with ample powers over Puerto Rico's fiscal and economic affairs and those of its public corporations, instrumentalities and municipalities (collectively, 'PR Government Entities'). Pursuant to PROMESA, the Oversight Board will be in place until market access is restored and balanced budgets are produced for at least four consecutive years. PROMESA also established two mechanisms for the restructuring of the obligations of PR Government Entities: (a) Title III, which provides an in-court process that incorporates many of the powers and provisions of the U.S. Bankruptcy Code and permits adjustment of a broad

range of obligations, and (b) Title VI, which provides for a largely out-of-court process through which modifications to financial debt can be accepted by a supermajority of creditors and bind holdouts.

Since 2017, Puerto Rico and several of its instrumentalities have availed themselves of the debt restructuring mechanisms of Titles III and VI of PROMESA. The Puerto Rico government emerged from Title III of PROMESA in March 2022. Several instrumentalities, including Government Development Bank for Puerto Rico, the Puerto Rico Sales Tax Financing Corporation, and the Puerto Rico Highways and Transportation Authority, have also completed debt restructurings under Titles III or VI of PROMESA. While the majority of the debt has already been restructured, some PR Government Entities still face significant fiscal challenges. For example, the Puerto Rico Electric Power Authority is still in the process of restructuring its debts under Title III of PROMESA and other PR Government Entities, such as the Puerto Rico Industrial Development Company, have defaulted on their bonds but have not commenced debt restructuring proceedings under PROMESA.

#### Municipalities.

Puerto Rico's fiscal and economic challenges have also adversely impacted its municipalities. Budgetary subsidies to municipalities have gradually declined in recent years and are scheduled to be ultimately eliminated by fiscal year 2025 as part of the fiscal measures required by the Oversight Board. According to the latest Puerto Rico fiscal plan certified by the Oversight Board, municipalities have made little to no progress towards implementing the fiscal discipline required to reduce reliance on these budgetary appropriations and this lack of fiscal management may threaten the ability of certain municipalities to provide necessary services, such as health, sanitation, public safety and emergency services to their residents, forcing them to prioritize expenditures. Municipalities are subject to PROMESA and, at the Oversight Board's request, are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. With the Oversight Board's approval, municipalities are also eligible to avail themselves of the debt restructuring processes provided by PROMESA. To date, however, no municipality has been subject to any such debt restructuring process.

#### Exposure of the Corporation

The credit quality of BPPR's loan portfolio reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. Deterioration in the Puerto Rico economy has resulted in the past, and could result in the future, in higher delinquencies, greater charge-offs and increased losses, which

POPULAR, INC. 2022 ANNUAL REPORT 39

could materially affect our financial condition and results of operations.

At December 31, 2022, the Corporation's direct exposure to PR Government Entities totaled $374 million, of which $327 million were outstanding, compared to $367 million at December 31, 2021, of which $349 million were outstanding. A deterioration in Puerto Rico's fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $302 million consists of loans and $25 million are securities ($319 million and $30 million, respectively, at December 31, 2021). All of the Corporation's direct exposure outstanding at December 31, 2022 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 basic property tax or sales tax revenues. At December 31, 2022, 73% of the Corporation's exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. For additional discussion of the Corporation's direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 24 - Commitments and Contingencies to the Consolidated Financial Statements.

In addition, at December 31, 2022, the Corporation had $251 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($275 million at December 31, 2021). These included $209 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority ('HFA'), a PR Government Entity (December 31, 2021 - $232 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 December 31, 2022, $42 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, 2021 - $43 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.

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 a deterioration in the fiscal and economic situation of PR Government Entities. 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, if the fiscal and economic situation deteriorates.

As of December 31, 2022, BPPR had $15.2 billion in deposits from the Puerto Rico government, its instrumentalities, and municipalities. The rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which federal assistance is distributed and the financial condition, liquidity and cash management practices of such entities, as well as on the ability of BPPR to maintain these customer relationships.

The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 24 to the Consolidated Financial Statements.

#### **United States Virgin Islands**

The Corporation has operations in the United States Virgin Islands (the 'USVI') and has credit exposure to USVI government entities.

The USVI has been experiencing a number of fiscal and economic challenges, which could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.

To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

At December 31, 2022, the Corporation had approximately $28 million in direct exposure to USVI government entities (December 31, 2021 - $70 million).

#### **British Virgin Islands**

The Corporation has operations in the British Virgin Islands ('BVI'), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a

40 POPULAR, INC. 2022 ANNUAL REPORT

single borrower in the BVI, at December 31, 2022 it has a loan portfolio amounting to approximately $214 million comprised of various retail and commercial clients, compared to a loan portfolio of $221 million at December 31, 2021.

### **U.S. Government**

As further detailed in Notes 6 and 7 to the Consolidated Financial Statements, a substantial portion of the Corporation's investment securities represented exposure to the U.S. Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $1.6 billion of residential mortgages, $38 million of SBA loans under the Paycheck Protection Program ('PPP') and $72 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at December 31, 2022 (compared to $1.6 billion, $353 million and $67 million, respectively, at December 31, 2021).

### **Non-Performing Assets**

Non-performing assets ('NPAs') include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 21.

During 2022, the Corporation showed favorable credit quality trends with low levels of NCOs and decreasing NPLs. We continue to closely monitor changes in the macroeconomic environment and borrower performance, given inflationary pressures and geopolitical uncertainty. However, management believes that the improvement over recent years in the risk profile of the Corporation's loan portfolios positions Popular to operate successfully under the current environment.

Total NPAs decreased by $104 million when compared with December 31, 2021. Total non-performing loans held-in-portfolio ('NPLs') decreased by $108 million from December 31, 2021. BPPR's NPLs decreased by $112 million, mainly driven by lower mortgage and commercial NPLs by $91 million and $38 million, respectively, in part offset by higher auto NPLs by $18 million. The mortgage NPLs decrease was mainly due to the combined effects of collection efforts, increased foreclosure activity and lower inflows compared with pre-pandemic trends. Popular U.S. NPLs increased by $4 million from December 31, 2021, mainly in the commercial portfolio, in part due to an $11 million commercial borrower

within the healthcare industry that was placed in non-accrual status and for which a partial charge-off of $8.7 million was recognized during the fourth quarter of 2022. At December 31, 2022, the ratio of NPLs to total loans held-in-portfolio was 1.4% compared to 1.9%, at December 31, 2021. Other real estate owned loans ('OREOs') increased by $4 million. At December 31, 2022, NPLs secured by real estate amounted to $303 million in the Puerto Rico operations and $33 million in Popular U.S. These figures were $428 million and $31 million, respectively, at December 31, 2021.

The Corporation's commercial loan portfolio secured by real estate ('CRE') amounted to $9.9 billion at December 31, 2022, of which $3.1 billion was secured with owner occupied properties, compared with $8.4 billion and $1.8 billion, respectively, at December 31, 2021. During the first quarter of 2022, the Corporation reclassified $0.9 billion of loans from the Commercial Real Estate ('CRE') Non-Owner-Occupied category to the CRE Owner-Occupied category. The selected loans are primarily to skilled and assisted living nursing homes where the majority of the revenues, which are the basis for the repayment of the loans, are generated from medical and related operational activities. These loans meet the type of business and source requirements as defined in the regulatory guidance allowing this classification. CRE NPLs amounted to $54 million at December 31, 2022, compared with $77 million at December 31, 2021. The CRE NPL ratios for the BPPR and Popular U.S. segments were 1.04% and 0.12%, respectively, at December 31, 2021, compared with 1.95% and 0.04%, respectively, at December 31, 2021.

In addition to the NPLs included in Table 21, at December 31, 2022, there were $374 million of performing loans, mostly commercial loans, which in management's opinion, are currently subject to potential future classification as non-performing (December 31, 2021 - $214 million).

For the year ended December 31, 2022, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $74 million, when compared to the inflows for the same period in 2021. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $76 million compared to the same period in 2021, driven by lower mortgage and commercial inflows by $38 million each. Inflows of NPLs held-in-portfolio at the Popular U.S. segment increased by $2 million from the same period in 2021.

POPULAR, INC. 2022 ANNUAL REPORT 41

**Table 21 - Non-Performing Assets**

| (Dollars in thousands) | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. | BPPR | Popular U.S. | Popular, Inc. |
| Non-accrual loans: |  |  |  |  |  |  |
| Commercial | $82,171 | $10,868 | $93,039 | $120,047 | $5,532 | $125,579 |
| Construction | - | - | - | 485 | - | 485 |
| Leasing | 5,941 | - | 5,941 | 3,102 | - | 3,102 |
| Mortgage | 242,391 | 20,488 | 262,879 | 333,887 | 21,969 | 355,856 |
| Auto | 40,978 | - | 40,978 | 23,085 | - | 23,085 |
| Consumer | 30,528 | 6,076 | 36,604 | 33,683 | 6,087 | 39,770 |
| Total non-performing loans held-in-portfolio | 402,009 | 37,432 | 439,441 | 514,289 | 33,588 | 547,877 |
| Other real estate owned (“OREO”) | 88,773 | 353 | 89,126 | 83,618 | 1,459 | 85,077 |
| Total non-performing assets | $490,782 | $37,785 | $528,567 | $597,907 | $35,047 | $632,954 |
| Accruing loans past-due 90 days or more [2] | $351,248 | $366 | $351,614 | $480,649 | $118 | $480,767 |
| Non-performing loans to loans held-in-portfolio |  |  | 1.37% |  |  | 1.87% |
| Interest lost |  |  | $27,920 |  |  | $38,123 |

[1] There were no non-performing loans held-for-sale as of December 31, 2022 and 2021.

[2] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $14 million at December 31, 2022 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below (December 31, 2021 - $13 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. These balances include $190 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2022 (December 31, 2021 - $304 million). Furthermore, the Corporation has approximately $42 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2021 - $50 million).

**Table 22 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)**

| (In thousands) | For the year ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance | $454,419 | $27,501 | $481,920 |
| Plus: |  |  |  |
| New non-performing loans | 158,128 | 50,754 | 208,882 |
| Advances on existing non-performing loans | - | 2,825 | 2,825 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (38,580) | (85) | (38,665) |
| Non-performing loans charged-off | (7,413) | (9,062) | (16,475) |
| Loans returned to accrual status / loan collections | (241,992) | (40,577) | (282,569) |
| Ending balance NPLs | $324,562 | $31,356 | $355,918 |

42 POPULAR, INC. 2022 ANNUAL REPORT

**Table 23 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)**

| (In thousands) | For the year ended December 31, 2021 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance | $639,932 | $28,412 | $668,344 |
| Plus: |  |  |  |
| New non-performing loans | 234,258 | 51,494 | 285,752 |
| Advances on existing non-performing loans | - | 84 | 84 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (34,419) | - | (34,419) |
| Non-performing loans charged-off | (35,963) | (1,592) | (37,555) |
| Loans returned to accrual status / loan collections | (349,389) | (42,124) | (391,513) |
| Loans transferred to held-for-sale | - | (8,773) | (8,773) |
| Ending balance NPLs | $454,419 | $27,501 | $481,920 |

**Table 24 - Activity in Non-Performing Commercial Loans Held-In-Portfolio**

| (In thousands) | For the year ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $120,047 | $5,532 | $125,579 |
| Plus: |  |  |  |
| New non-performing loans | 19,476 | 33,861 | 53,337 |
| Advances on existing non-performing loans | - | 2,525 | 2,525 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (4,763) | - | (4,763) |
| Non-performing loans charged-off | (5,872) | (8,935) | (14,807) |
| Loans returned to accrual status / loan collections | (46,717) | (22,115) | (68,832) |
| Ending balance - NPLs | $82,171 | $10,868 | $93,039 |

**Table 25 - Activity in Non-Performing Commercial Loans Held-in-Portfolio**

| (In thousands) | For the year ended December 31, 2021 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $204,092 | $5,988 | $210,080 |
| Plus: |  |  |  |
| New non-performing loans | 57,132 | 13,510 | 70,642 |
| Advances on existing non-performing loans | - | 52 | 52 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (9,261) | - | (9,261) |
| Non-performing loans charged-off | (14,935) | (1,042) | (15,977) |
| Loans returned to accrual status / loan collections | (116,981) | (11,203) | (128,184) |
| Loans transferred to held-for-sale | - | (1,773) | (1,773) |
| Ending balance - NPLs | $120,047 | $5,532 | $125,579 |

**Table 26 - Activity in Non-Performing Construction Loans Held-In-Portfolio**

| (In thousands) | For the year ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $485 | $- | $485 |
| Less: |  |  |  |
| Loans returned to accrual status / loan collections | (485) | - | (485) |
| Ending balance - NPLs | $ - | $- | $ - |

POPULAR, INC. 2022 ANNUAL REPORT 43

**Table 27 - Activity in Non-Performing Construction Loans Held-in-Portfolio**

| (In thousands) | For the year ended December 31, 2021 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $21,497 | $7,560 | $29,057 |
| Plus: |  |  |  |
| New non-performing loans | 481 | 12,141 | 12,622 |
| Less: |  |  |  |
| Non-performing loans charged-off | (6,620) | (523) | (7,143) |
| Loans returned to accrual status / loan collections | (14,873) | (12,178) | (27,051) |
| Loans in accrual status transfer to held-for-sale | - | (7,000) | (7,000) |
| Ending balance - NPLs | $485 | $ - | $485 |

**Table 28 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio**

| (In thousands) | For the year ended December 31, 2022 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $333,887 | $21,969 | $355,856 |
| Plus: |  |  |  |
| New non-performing loans | 138,652 | 16,893 | 155,545 |
| Advances on existing non-performing loans | - | 300 | 300 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (33,817) | (85) | (33,902) |
| Non-performing loans charged-off | (1,541) | (127) | (1,668) |
| Loans returned to accrual status / loan collections | (194,790) | (18,462) | (213,252) |
| Ending balance - NPLs | $242,391 | $20,488 | $262,879 |

**Table 29 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio**

| (In thousands) | For the year ended December 31, 2021 |  |  |
| --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular, Inc. |
| Beginning balance - NPLs | $414,343 | $14,864 | $429,207 |
| Plus: |  |  |  |
| New non-performing loans | 176,645 | 25,843 | 202,488 |
| Advances on existing non-performing loans | - | 32 | 32 |
| Less: |  |  |  |
| Non-performing loans transferred to OREO | (25,158) | - | (25,158) |
| Non-performing loans charged-off | (14,408) | (27) | (14,435) |
| Loans returned to accrual status / loan collections | (217,535) | (18,743) | (236,278) |
| Ending balance - NPLs | $333,887 | $21,969 | $355,856 |

44 POPULAR, INC. 2022 ANNUAL REPORT

## Loan Delinquencies

Another key measure used to evaluate and monitor the Corporation's asset quality is loan delinquencies. Loans delinquent 30 days or more and delinquencies, as a percentage of their related portfolio category at December 31, 2022 and 2021, are presented below.

**Table 30 - Loan Delinquencies**

| (Dollars in thousands) | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Loans delinquent 30 days or more | Total loans | Total delinquencies as a percentage of total loans | Loans delinquent 30 days or more | Total loans | Total delinquencies as a percentage of total loans |
| Commercial | $119,476 | $15,739,132 | 0.76% | $161,251 | $13,732,701 | 1.17% |
| Construction | - | 757,984 | - | 485 | 716,220 | 0.07 |
| Leasing | 21,487 | 1,585,739 | 1.36 | 14,379 | 1,381,319 | 1.04 |
| Mortgage [1] | 937,253 | 7,397,471 | 12.67 | 1,141,082 | 7,427,196 | 15.36 |
| Consumer | 216,401 | 6,597,443 | 3.28 | 173,896 | 5,983,121 | 2.91 |
| Loans held-for-sale | - | 5,381 | - | - | 59,168 | - |
| Total | $1,294,617 | $32,083,150 | 4.04% | $1,491,093 | $29,299,725 | 5.09% |

[1] Loans delinquent 30 days or more includes $0.5 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of December 31, 2021 (December 31, 2020 - $0.6 billion). Refer to Note 8 to the Consolidated Financial Statements for additional information of guaranteed loans.

## Allowance for Credit Losses ('ACL')

The Corporation adopted the new CECL accounting standard effective on January 1, 2020. The allowance for credit losses ('ACL'), represents management's estimate of expected credit losses through the remaining contractual life of the different loan segments, impacted by expected prepayments. The ACL is maintained at a sufficient level to provide for estimated credit losses on collateral dependent loans as well as troubled debt restructurings separately from the remainder of the loan portfolio. The Corporation's management evaluates the adequacy of the ACL on a quarterly basis. In this evaluation, management considers current conditions, macroeconomic economic expectations through a reasonable and supportable period, historical loss experience, portfolio composition by loan type and risk characteristics, results of periodic credit reviews of individual loans, and regulatory requirements, amongst other factors.

The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries, or markets. Other factors that can affect management's estimates are recalibration of statistical models used to calculate lifetime expected losses, changes in underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the financial condition of individual borrowers, in economic conditions, and in the condition of the various markets in which collateral may be sold, may also affect the required level of the allowance for credit losses. Consequently, the business financial condition, liquidity, capital, and results of operations could also be affected.

At December 31, 2022, the allowance for credit losses amounted to $720 million, an increase of $25 million, when

compared with December 31, 2021. 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. The Corporation evaluates, at least on an annual basis, the assumptions tied to the CECL accounting framework. These include the reasonable and supportable period as well as the reversion window. During the third quarter of 2022, as part of its evaluation procedures, the Corporation decided to extend the reversion window from 1 year to 3 years. The extension in the reversion window results in a better representation of historical movements for key macroeconomic variables that impact the ACL. This change in assumptions contributed to a reduction of $11 million in the ACL. The reasonable and supportable period assumptions remained unchanged at 2-years.

The baseline scenario assumes a 2023 annualized GDP growth for Puerto Rico and the United States of 1.3% and 0.7%. For 2022, annualized expected growth was 2.6% and 1.8% for Puerto Rico and United States, respectively. The reduction in 2023 is due to the expected slowdown in the economy as a result of tight monetary policy, weaker job growth and persistent inflation. The 2023 average unemployment rate is forecasted at 7.8% and 4.0% for Puerto Rico and United States, respectively, compared to 2022 average levels of 6.4% for Puerto Rico and 3.7% for the United States. In 2023, weaker job growth due to the expected slowdown in the economy will contribute to the increase in unemployment rate.

The ACL for BPPR increased by $21 million to $616 million, when compared to December 31, 2021, mostly driven by changes in the economic scenario, higher loan volumes and changes in credit quality. The ACL for Popular U.S. increased by $4 million to $105 million, when compared to December 31, 2021.

POPULAR, INC. 2022 ANNUAL REPORT 45

The provision for credit losses for the year ended December 31, 2022, amounted to an expense of $83.3 million, compared to a benefit of $183.3 million for the year ended December 31, 2021, as the prior year included reductions in reserves due to post-pandemic improvements in the macroeconomic outlook and lower NCOs. Refer to Note 9

- Allowance for credit losses - loans held-in-portfolio to the Consolidated Financial Statements, and to the Provision for Credit Losses section of this MD&A for additional information.

The following table presents net charge-offs to average loans held-in-portfolio (“HIP”) ratios by loan category for the years ended December 31, 2022 and 2021:

**Table 31 - Net Charge-Offs (Recoveries) to Average Loans HIP**

|  | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | BPPR | Popular U.S. | Popular Inc. | BPPR | Popular U.S. | Popular Inc. |
| Commercial | (0.14)% | 0.11% | (0.02)% | (0.24)% | (0.02)% | (0.15)% |
| Construction | (0.48) | (0.19) | (0.25) | 1.27 | (0.02) | 0.19 |
| Mortgage | (0.26) | - | (0.22) | 0.04 | - | 0.04 |
| Leasing | 0.26 | - | 0.26 | 0.11 | - | 0.11 |
| Consumer | 1.22 | 1.33 | 1.22 | 0.58 | 0.99 | 0.60 |
| Total | 0.23% | 0.12% | 0.20% | 0.09% | 0.01% | 0.07% |

NCOs for the year ended December 31, 2022 amounted to $59.3 million, increasing by $38.6 million when compared to the same period in 2021. The BPPR segment increased by $29.4 million mainly driven by higher consumer NCOs by $40.5 million, mostly auto loans, in part offset by lower mortgage NCOs by $18.5 million. The increase in the consumer

NCOs was mostly related to post-pandemic normalization, as NCOs continue at historical low levels. The PB segment NCOs increased by $9.2 million, mainly driven by higher commercial NCOs by $8.6 million, due to the $8.7 million charge-off during the fourth quarter of 2022 on the above-mentioned healthcare NPL.

**Table 32 - Allowance for Credit Losses - Loan Portfolios**

| (Dollars in thousands) | December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Commercial | Construction | Mortgage | Leasing | Consumer | Total |
| Total ACL | $235,376 | $4,246 | $135,254 | $20,618 | $324,808 | $720,302 |
| Total loans held-in-portfolio | $15,739,132 | $757,984 | $7,397,471 | $1,585,739 | $6,597,443 | $32,077,769 |
| ACL to loans held-in-portfolio | 1.50% | 0.56% | 1.83% | 1.30% | 4.92% | 2.25% |
| Total Non-performing loans held-in-portfolio | $93,039 | $ - | $262,879 | $5,941 | $77,582 | $439,441 |
| ACL to non-performing loans held-in-portfolio | 252.99% | N.M. | 51.45% | 347.05% | 418.66% | 163.91% |

N.M. - Not meaningful.

**Table 33 - Allowance for Credit Losses - Loan Portfolios**

| (Dollars in thousands) | December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Commercial | Construction | Mortgage | Leasing | Consumer | Total |
| Total ACL | $215,805 | $6,363 | $154,478 | $17,578 | $301,142 | $695,366 |
| Total loans held-in-portfolio | $13,732,701 | $716,220 | $7,427,196 | $1,381,319 | $5,983,121 | $29,240,557 |
| ACL to loans held-in-portfolio | 1.57% | 0.89% | 2.08% | 1.27% | 5.03% | 2.38% |
| Total Non-performing loans held-in-portfolio | $125,579 | $485 | $355,856 | $3,102 | $62,855 | $547,877 |
| ACL to non-performing loans held-in-portfolio | 171.85% | N.M. | 43.41% | 566.67% | 479.11% | 126.92% |

N.M. - Not meaningful.

46 POPULAR, INC. 2022 ANNUAL REPORT

Table 34 details the breakdown of the allowance for credit losses by loan categories. The breakdown is made for analytical purposes, and it is not necessarily indicative of the categories in which future loan losses may occur.

**Table 34 - Allocation of the Allowance for Credit Losses - Loans**

|  | At December 31, |  |  |  |
| --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 |  |
|  | ACL | % of loans in each category to total loans | ACL | % of loans in each category to total loans |
| (Dollars in millions) |  |  |  |  |
| Commercial | $235.4 | 49.1% | $215.8 | 47.0% |
| Construction | 4.2 | 2.4 | 6.4 | 2.4 |
| Mortgage | 135.3 | 23.1 | 154.5 | 25.4 |
| Leasing | 20.6 | 4.9 | 17.6 | 4.7 |
| Consumer | 324.8 | 20.5 | 301.1 | 20.5 |
| Total [1] | $720.3 | 100.0% | $695.4 | 100.0% |

[1] Note: For purposes of this table the term loans refers to loans held-in-portfolio excluding loans held-for-sale.

### Troubled debt restructurings

The Corporation's troubled debt restructurings ('TDRs') loans amounted to $1.6 billion at December 31, 2022, decreasing by $12 million, from December 31, 2021. A total of $725 million of these TDRs are related to guaranteed loans, which are in accruing status. The Corporation has offered to clients impacted by the hurricanes Fiona and Ian a moratorium of up to three monthly payments on personal and commercial credit cards, auto loans, leases, and personal loans, subject to certain eligibility requirements. Mortgage clients also benefited from different payment relief alternatives available, depending on their type of loan. Loan relief options for commercial clients were reviewed on a case-by-case basis. As of December 31, 2022, approximately 2,428 loans with a $94.8 million amortized cost were granted a moratorium of which 218 loans with a $7.7 million amortized cost have been classified as TDR.

TDRs in the BPPR segment amounted to $1.6 billion, a decrease of $12 million, mostly related to lower consumer TDRs by $11 million. The Popular U.S. segment TDRs have remained essentially flat since December 31, 2021. TDRs in accruing status increased by $26 million from December 31, 2021, mostly related to an increase of $26 million in BPPR's mortgage TDRs, while non-accruing TDRs decreased by $39 million, mostly related to lower mortgage and commercial TDRs by $26 million and $10 million, respectively.

Refer to Note 9 to the Consolidated Financial Statements for additional information on modifications considered TDRs, including certain qualitative and quantitative data about TDRs performed in the past twelve months.

### Enterprise Risk Management

The Corporation's Board of Directors has established a Risk Management Committee ('RMC') to, among other things,

assist the Board in its (i) oversight of the Corporation's overall risk framework and (ii) to monitor, review, and approve policies to measure, limit and manage the Corporation's risks.

The Corporation has established a three lines of defense framework: (a) business line management constitutes the first line of defense by identifying and managing the risks associated with business activities, (b) components of the Risk Management Group and the Corporate Security Group, among others, act as the second line of defense by, among other things, measuring and reporting on the Corporation's risk activities, and (c) the Corporate Auditing Division, as the third line of defense, reporting directly to the Audit Committee of the Board, by independently providing assurance regarding the effectiveness of the risk framework.

The Enterprise Risk Management Committee (the 'ERM Committee') is a management committee whose purpose is to: (a) monitor the principal risks as defined in the Risk Appetite Statement ('RAS') of the Risk Management Policy affecting our business and within the Corporation's Enterprise Risk Management ('ERM') framework, (b) review key risk indicators and related developments at the business level consistent with the RAS, and (c) lead the incorporation of a uniform Governance, Risk and Compliance framework across the Corporation. The ERM Committee and the Enterprise Risk Management Department in the Financial and Operational Risk Management Division (the 'FORM Division'), in coordination with the Chief Risk Officer, create the framework to identify and manage multiple and cross-enterprise risks, and to articulate the RAS and supporting metrics. Our risk management program monitors the following principal risks: credit, interest rate, market, liquidity, operational, cyber and information security, climate, legal, regulatory affairs, regulatory and financial compliance, BSA/ AML & sanctions, strategic and reputational.

POPULAR, INC. 2022 ANNUAL REPORT 47

The Enterprise Risk Management Department has established a process to ensure that an appropriate standard readiness assessment is performed before we launch a new product or service. Similar procedures are followed with the Treasury Division for transactions involving the purchase and sale of assets, and by the Mergers and Acquisitions Division for acquisition transactions.

The Asset/Liability Committee (“ALCO”), composed of senior management representatives from the business lines and corporate functions, and the Corporate Finance Group, are responsible for planning and executing the Corporation’s market, interest rate risk, funding activities and strategy, as well as for implementing approved policies and procedures. The ALCO also reviews the Corporation’s capital policy and the attainment of the capital management objectives. In addition, the Financial Risk, Corporate Insurance Advisory Department independently measures, monitors and reports compliance with liquidity and market risk policies, and oversees controls surrounding interest risk measurements.

The Corporate Compliance Committee, comprised of senior management team members and representatives from the Regulatory and Financial Compliance Division and the Financial Crimes Compliance Division, among others, are responsible for overseeing and assessing the adequacy of the risk management processes that underlie Popular’s compliance program for identifying, assessing, measuring, monitoring, testing, mitigating, and reporting compliance risks. They also supervise Popular’s reporting obligations under the compliance program so as to ensure the adequacy, consistency and timeliness of the reporting of compliance-related risks across the Corporation.

The Regulatory Affairs team is responsible for maintaining an open dialog with the banking regulatory agencies in order to ensure regulatory risks are properly identified, measured, monitored, as well as communicated to the appropriate regulatory agency as necessary to keep them apprised of material matters within the purview of these agencies.

The Credit Strategy Committee, composed of senior level management representatives from the business lines and corporate functions, and the Corporate Credit Risk Management Division, are responsible for managing the Corporation’s overall credit exposure by establishing policies, standards and guidelines that define, quantify and monitor credit risk and assessing the adequacy of the allowance for credit losses.

The Corporation’s Operational Risk Committee (“ORCO”) and the Cyber Security Committee, which are composed of senior level management representatives from the business lines and corporate functions, provide executive oversight to facilitate consistency of effective policies, best practices, controls and monitoring tools for managing and assessing all types of operational risks across the Corporation. The FORM Division, within the Risk Management Group, serves as ORCO’s operating arm and is responsible for establishing baseline processes to measure, monitor, limit and manage operational risk.

The Corporate Security Group (“CSG”), under the direction of the Chief Security Officer, leads all efforts pertaining to cybersecurity, enterprise fraud and data privacy, including developing strategies and oversight processes with policies and programs that mitigate compliance, operational, strategic, financial and reputational risks associated with the Corporation’s and our customers’ data and assets. The CSG also leads the Cyber Security Committee.

The Corporate Legal Division, in this context, has the responsibility of assessing, monitoring, managing and reporting with respect to legal risks, including those related to litigation, investigations and other material legal matters.

The Corporation has also established an ESG Committee whose purpose and responsibility is to oversee the Corporation’s ESG strategies and support the development and consistent application of policies, processes and procedures that measure, limit and manage ESG matters and risks. The ESG Committee also assesses ESG-related considerations in the credit approval process of commercial credit applications.

The processes of strategic risk planning and the evaluation of reputational risk are on-going processes through which continuous data gathering and analysis are performed. In order to ensure strategic risks are properly identified and monitored, the Corporate Strategy and Transformation Division, which reports to the Corporation’s Chief Operations Officer, performs periodic assessments regarding corporate strategic priority initiatives, such as the Corporation’s transformation initiative and other emerging issues. The Acquisitions and Corporate Investments Division continuously assesses potential strategic transactions. The Corporate Communications Division is responsible for the monitoring, management and implementation of action plans with respect to reputational risk issues.

Popular’s capital planning process integrates the Corporation’s risk profile as well as its strategic focus, operating environment, and other factors that could materially affect capital adequacy in hypothetical highly-stressed business scenarios. Capital ratio targets and triggers take into consideration the different risks evaluated under Popular’s risk management framework.

In addition to establishing a formal process to manage risk, our corporate culture is also critical to an effective risk management function. Through our Code of Ethics, the Corporation provides a framework for all our employees to conduct themselves with the highest integrity.

#### **ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS**

Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements.

48 POPULAR, INC. 2022 ANNUAL REPORT

## Statistical Summary 2022-2021
Statements of Financial Condition

|  | At December 31, |  |
| --- | --- | --- |
| (In thousands) | 2022 | 2021 |
| Assets: |  |  |
| Cash and due from banks | $469,501 | $428,433 |
| Money market investments: |  |  |
| Time deposits with other banks | 5,614,595 | 17,536,719 |
| Total money market investments | 5,614,595 | 17,536,719 |
| Trading account debt securities, at fair value | 27,723 | 29,711 |
| Debt securities available-for-sale, at fair value | 17,804,374 | 24,968,269 |
| Debt securities held-to-maturity, at amortized cost | 8,525,366 | 79,461 |
| Less - Allowance for credit losses | 6,911 | 8,096 |
| Debt securities held-to-maturity, net | 8,518,455 | 71,365 |
| Equity securities | 195,854 | 189,977 |
| Loans held-for-sale, at lower of cost or fair value | 5,381 | 59,168 |
| Loans held-in-portfolio: |  |  |
| Loans held-in-portfolio | 32,372,925 | 29,506,225 |
| Less - Unearned income | 295,156 | 265,668 |
| Allowance for credit losses | 720,302 | 695,366 |
| Total loans held-in-portfolio, net | 31,357,467 | 28,545,191 |
| Premises and equipment, net | 498,711 | 494,240 |
| Other real estate | 89,126 | 85,077 |
| Accrued income receivable | 240,195 | 203,096 |
| Mortgage servicing rights, at fair value | 128,350 | 121,570 |
| Other assets | 1,847,813 | 1,628,571 |
| Goodwill | 827,428 | 720,293 |
| Other intangible assets | 12,944 | 16,219 |
| Total assets | $67,637,917 | $75,097,899 |
| Liabilities and Stockholders' Equity |  |  |
| Liabilities: |  |  |
| Deposits: |  |  |
| Non-interest bearing | $15,960,557 | $15,684,482 |
| Interest bearing | 45,266,670 | 51,320,606 |
| Total deposits | 61,227,227 | 67,005,088 |
| Assets sold under agreements to repurchase | 148,609 | 91,603 |
| Other short-term borrowings | 365,000 | 75,000 |
| Notes payable | 886,710 | 988,563 |
| Other liabilities | 916,946 | 968,248 |
| Total liabilities | 63,544,492 | 69,128,502 |
| Stockholders' equity: |  |  |
| Preferred stock | 22,143 | 22,143 |
| Common stock | 1,047 | 1,046 |
| Surplus | 4,790,993 | 4,650,182 |
| Retained earnings | 3,834,348 | 2,973,745 |
| Treasury stock - at cost | (2,030,178) | (1,352,650) |
| Accumulated other comprehensive loss, net of tax | (2,524,928) | (325,069) |
| Total stockholders' equity | 4,093,425 | 5,969,397 |
| Total liabilities and stockholders' equity | $67,637,917 | $75,097,899 |

POPULAR, INC. 2022 ANNUAL REPORT 49

# Statistical Summary 2020-2022
Statements of Operations

| (In thousands) | For the years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Interest income: |  |  |  |
| Loans | $1,876,166 | $1,747,827 | $1,742,390 |
| Money market investments | 118,080 | 21,147 | 19,721 |
| Investment securities | 471,665 | 353,663 | 329,440 |
| Total interest income | 2,465,911 | 2,122,637 | 2,091,551 |
| Less - Interest expense | 298,552 | 165,047 | 234,938 |
| Net interest income | 2,167,359 | 1,957,590 | 1,856,613 |
| Provision for credit losses (benefit) | 83,030 | (193,464) | 292,536 |
| Net interest income after provision for credit losses | 2,084,329 | 2,151,054 | 1,564,077 |
| Mortgage banking activities | 42,450 | 50,133 | 10,401 |
| Net gain on sale of debt securities | - | 23 | 41 |
| Net (loss) gain, including impairment, on equity securities | (7,334) | 131 | 6,279 |
| Net (loss) gain on trading account debt securities | (784) | (389) | 1,033 |
| Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale | - | (73) | 1,234 |
| Adjustment to indemnity reserves on loans sold | 919 | 4,406 | 390 |
| Other non-interest income | 861,811 | 587,897 | 492,934 |
| Total non-interest income | 897,062 | 642,128 | 512,312 |
| Operating expenses: |  |  |  |
| Personnel costs | 719,764 | 631,802 | 564,205 |
| All other operating expenses | 1,026,656 | 917,473 | 893,624 |
| Total operating expenses | 1,746,420 | 1,549,275 | 1,457,829 |
| Income before income tax | 1,234,971 | 1,243,907 | 618,560 |
| Income tax expense | 132,330 | 309,018 | 111,938 |
| Net Income | $1,102,641 | $934,889 | $506,622 |
| Net Income Applicable to Common Stock | $1,101,229 | $933,477 | $504,864 |

50 POPULAR, INC. 2022 ANNUAL REPORT

## Average Balance Sheet and Summary of Net Interest Income

On a Taxable Equivalent Basis\*

| (Dollars in thousands) | 2022 |  |  | 2021 |  |  | 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate |
| Assets |  |  |  |  |  |  |  |  |  |
| Interest earning assets: |  |  |  |  |  |  |  |  |  |
| Money market investments | $9,530,698 | $118,079 | 1.24% | $15,999,741 | $21,147 | 0.13% | $8,597,652 | $19,723 | 0.23% |
| U.S. Treasury securities | 21,141,431 | 448,961 | 2.12 | 12,396,773 | 266,670 | 2.16 | 12,107,819 | 257,308 | 2.13 |
| Obligations of U.S. Government sponsored entities | 41 | 2 | 5.66 | 7,972 | 120 | 1.50 | 70,424 | 2,818 | 4.00 |
| Obligations of Puerto Rico, States and political subdivisions | 67,965 | 7,824 | 11.51 | 75,607 | 7,608 | 10.06 | 82,051 | 5,705 | 6.95 |
| Collateralized mortgage obligations and mortgage-backed securities | 8,342,672 | 198,566 | 2.38 | 10,255,525 | 224,706 | 2.19 | 6,913,416 | 194,794 | 2.82 |
| Other | 190,489 | 8,925 | 4.68 | 194,640 | 9,027 | 4.64 | 178,818 | 7,369 | 4.12 |
| Total investment securities | 29,742,598 | 664,278 | 2.23 | 22,930,517 | 508,131 | 2.22 | 19,352,528 | 467,994 | 2.42 |
| Trading account securities | 51,357 | 3,049 | 5.94 | 84,380 | 4,339 | 5.16 | 69,446 | 4,165 | 6.00 |
| Loans (net of unearned income) | 30,405,280 | 1,924,895 | 6.33 | 29,074,036 | 1,794,789 | 6.19 | 28,384,981 | 1,785,022 | 6.29 |
| Total interest earning assets/Interest income | $69,729,933 | $2,710,301 | 3.89% | $68,088,674 | $2,328,406 | 3.43% | $56,404,607 | $2,276,904 | 4.04% |
| Total non-interest earning assets | 3,078,671 |  |  | 3,079,976 |  |  | 3,178,848 |  |  |
| Total assets | $72,808,604 |  |  | $71,168,650 |  |  | $59,583,455 |  |  |
| Liabilities and Stockholders' Equity |  |  |  |  |  |  |  |  |  |
| Interest bearing liabilities: |  |  |  |  |  |  |  |  |  |
| Savings, NOW, money market and other interest bearing demand accounts | $41,769,576 | $191,064 | 0.46% | $41,387,504 | $59,034 | 0.15% | $32,077,578 | $92,417 | 0.29% |
| Time deposits | 6,853,127 | 61,781 | 0.90 | 7,028,334 | 52,587 | 0.75 | 7,970,474 | 83,438 | 1.05 |
| Federal funds purchased | 7 | - | 3.92 | 1 | - | 0.25 | 342 | 1 | 0.25 |
| Securities purchased under agreement to resell | 107,305 | 2,309 | 2.15 | 91,394 | 317 | 0.35 | 143,718 | 2,336 | 1.63 |
| Other short-term borrowings | 99,083 | 3,428 | 3.46 | 343 | 1 | 0.35 | 21,557 | 120 | 0.56 |
| Notes payable | 938,778 | 39,970 | 4.26 | 1,184,737 | 53,107 | 4.49 | 1,178,169 | 56,626 | 4.81 |
| Total interest bearing liabilities/Interest expense | 49,767,876 | 298,552 | 0.60 | 49,692,313 | 165,046 | 0.33 | 41,391,838 | 234,938 | 0.57 |
| Total non-interest bearing liabilities | 17,031,503 |  |  | 15,698,685 |  |  | 12,771,679 |  |  |
| Total liabilities | 66,799,379 |  |  | 65,390,998 |  |  | 54,163,517 |  |  |
| Stockholders' equity | 6,009,225 |  |  | 5,777,652 |  |  | 5,419,938 |  |  |
| Total liabilities and stockholders' equity | $72,808,604 |  |  | $71,168,650 |  |  | $59,583,455 |  |  |
| Net interest income on a taxable equivalent basis |  | $2,411,749 |  |  | $2,163,360 |  |  | $2,041,966 |  |
| Cost of funding earning assets |  |  | 0.43% |  |  | 0.24% |  |  | 0.42% |
| Net interest margin |  |  | 3.46% |  |  | 3.19% |  |  | 3.62% |
| Effect of the taxable equivalent adjustment |  | 244,390 |  |  | 205,770 |  |  | 185,353 |  |
| Net interest income per books |  | $2,167,359 |  |  | $1,957,590 |  |  | $1,856,613 |  |

\* Shows the effect of the tax exempt status of some loans and investments on their yield, using the applicable statutory income tax rates. The computation considers the interest expense disallowance required by the Puerto Rico Internal Revenue Code. This adjustment is shown in order to compare the yields of the tax exempt and taxable assets on a taxable basis.

Note: Average loan balances include the average balance of non-accruing loans. No interest income is recognized for these loans in accordance with the Corporation's policy.

POPULAR, INC. 2022 ANNUAL REPORT 51

POPULAR

# Report of Management on Internal Control Over Financial Reporting

The management of Popular, Inc. (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a - 15(f) and 15d - 15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, and includes controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The Corporation’s internal control over financial reporting includes those policies and procedures that:

- (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;
- (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and
- (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management of Popular, Inc. has assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on our assessment, management concluded that the Corporation maintained effective internal control over financial reporting as of December 31, 2022 based on the criteria referred to above.

The Corporation’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2022, as stated in their report dated March 1, 2023 which appears herein.

Ignacio Alvarez
President and
Chief Executive Officer

Carlos J. Vázquez
Executive Vice President
and Chief Financial Officer

52 POPULAR, INC. 2022 ANNUAL REPORT

![img-0.jpeg](img-0.jpeg)

# Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Popular, Inc.

## *Opinions on the Financial Statements and Internal Control over Financial Reporting*

We have audited the accompanying consolidated statements of financial condition of Popular, Inc. and its subsidiaries (the “Corporation”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

## *Change in Accounting Principle*

As discussed in Note 3 to the consolidated financial statements, the Corporation changed the manner in which it accounts for its allowance for credit losses in 2020.

## *Basis for Opinions*

The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Corporation’s consolidated financial statements and on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

POPULAR, INC. 2022 ANNUAL REPORT 53

### ***Definition and Limitations of Internal Control over Financial Reporting***

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management's assessment and our audit of Popular, Inc.'s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

### ***Critical Audit Matters***

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

#### ***Allowance for Credit Losses on Loans Held-in-Portfolio - Quantitative Models, and Qualitative Adjustments to the Puerto Rico Portfolios***

As described in Notes 2 and 9 to the consolidated financial statements, the Corporation follows the current expected credit loss ('CECL') model, to establish and evaluate the adequacy of the allowance for credit losses ('ACL') to provide for expected losses in the loan portfolio. As of December 31, 2022, the allowance for credit losses was $720 million on total loans of $32 billion. This CECL model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets. The quantitative modeling framework includes competing risk models to generate lifetime defaults and prepayments, and other loan level modeling techniques to estimate loss severity. As part of this methodology, management evaluates various macroeconomic scenarios, and may apply probability weights to the outcome of the selected scenarios. The ACL also includes a qualitative framework that addresses losses that are expected but not captured within the quantitative modeling framework. In order to identify potential losses that are not captured through the models, management evaluated model limitations as well as the different risks covered by the variables used in each quantitative model. To complement the analysis, management also evaluated sectors that have low levels of historical defaults, but current conditions show the potential for future losses.

The principal considerations for our determination that performing procedures relating to the allowance for credit losses on loans held-in-portfolio quantitative models, and qualitative adjustments to the Puerto Rico portfolios is a critical audit matter are (i) the significant judgment by management in determining the allowance for credit losses, including qualitative adjustments to the Puerto Rico portfolios, which in turn led to a high degree of auditor effort, judgment, and subjectivity in performing procedures and evaluating audit evidence relating to the allowance for credit losses, including management's selection of macroeconomic scenarios and probability weights applied; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for credit losses for loans held-in-portfolio, including qualitative adjustments to the Puerto Rico portfolios. These procedures also included, among others, testing management's process for estimating the allowance for credit losses by (i) evaluating the appropriateness of the methodology, including models used for estimating the ACL; (ii) evaluating the reasonableness of management's selection of various macroeconomic scenarios including probability weights applied to the expected loss outcome of the selected macroeconomic scenarios; (iii) evaluating the reasonableness of the qualitative adjustments to Puerto Rico portfolios allowance for credit losses; and (iv) testing the data used in the allowance for credit losses. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the methodology and models, the

54 POPULAR, INC. 2022 ANNUAL REPORT

reasonableness of management's selection and weighting of macroeconomic scenarios used to estimate current expected credit losses and reasonableness of the qualitative adjustments to Puerto Rico portfolios allowance for credit losses.

# *Goodwill Annual Impairment Assessment - Banco Popular de Puerto Rico and Popular Bank Reporting Units*

As described in Note 15 to the consolidated financial statements, the Corporation's consolidated goodwill balance was $827 million as of December 31, 2022, of which a significant portion relates to the Banco Popular de Puerto Rico ('BPPR') and Popular Bank ('PB') reporting units. Management conducts an impairment test as of July 31 of each year and on a more frequent basis if events or circumstances indicate an impairment could have taken place. In determining the fair value of each reporting unit, management generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Management evaluates the particular circumstances of each reporting unit in order to determine the most appropriate valuation methodology and the weights applied to each valuation methodology, as applicable. The computations require management to make estimates, assumptions and calculations related to: (i) a selection of comparable publicly traded companies, based on the nature of business, location and size; (ii) a selection of comparable acquisitions, (iii) calculation of average price multiples of relevant value drivers from a group of selected comparable companies and acquisitions; (iv) the discount rate applied to future earnings, based on an estimate of the cost of equity; (v) the potential future earnings of the reporting units; and (vi) the market growth and new business assumptions. Furthermore, as part of the analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of the Corporation concluding that the fair value results determined for the reporting units were reasonable.

The principal considerations for our determination that performing procedures relating to goodwill annual impairment assessments of the Banco Popular de Puerto Rico and Popular Bank reporting units is a critical audit matter are (i) the significant judgment by management when determining the fair value measurements of the reporting units, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to the calculation of average price multiples of relevant value drivers from a group of selected comparable companies and acquisitions; the potential future earnings of the reporting unit; the estimated cost of equity; and the market growth and new business assumptions; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's goodwill impairment assessment process, including controls over the valuation of Banco Popular de Puerto Rico and Popular Bank reporting units. These procedures also included, among others, (i) testing management's process for determining the fair value estimates of Banco Popular de Puerto Rico and Popular Bank reporting units; (ii) evaluating the appropriateness of the discounted cash flow analyses and guideline public companies methodologies including the weights applied to each valuation method; (iii) testing the underlying data used in the estimates; (iv) evaluating the appropriateness of the calculation of average price multiples of relevant value drivers from a group of selected comparable companies and acquisitions; and (v) evaluating the potential future earnings of the reporting units; the estimated cost of equity; and the market growth and new business assumptions, including whether the assumptions used by management were reasonable considering, as applicable, (i) the current and past performance of the reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the methods and the reasonableness of certain significant assumptions.

San Juan, Puerto Rico March 1, 2023

We have served as the Corporation's auditor since 1971, which includes periods before the Corporation became subject to SEC reporting requirements.

CERTIFIED PUBLIC ACCOUNTANTS  
(OF PUERTO RICO)  
License No. LLP-216 Expires Dec. 1, 2025  
Stamp E497972 of the P.R. Society of  
Certified Public Accountants has been  
affixed to the file copy of this report

POPULAR, INC. 2022 ANNUAL REPORT 55

# POPULAR, INC.
## CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share information)

|  | December 31, 2022 | December 31, 2021 |
| --- | --- | --- |
| Assets: |  |  |
| Cash and due from banks | $469,501 | $428,433 |
| Money market investments: |  |  |
| Time deposits with other banks | 5,614,595 | 17,536,719 |
| Total money market investments | 5,614,595 | 17,536,719 |
| Trading account debt securities, at fair value: |  |  |
| Other trading account debt securities | 27,723 | 29,711 |
| Debt securities available-for-sale, at fair value: |  |  |
| Pledged securities with creditors' right to repledge | 129,203 | 93,330 |
| Other debt securities available-for-sale | 17,675,171 | 24,874,939 |
| Debt securities held-to-maturity, at amortized cost (fair value 2022 - $8,440,196; 2021 - $83,368) | 8,525,366 | 79,461 |
| Less - Allowance for credit losses | 6,911 | 8,096 |
| Debt securities held-to-maturity, net | 8,518,455 | 71,365 |
| Equity securities (realizable value 2022 - $196,665; 2021 - $192,345) | 195,854 | 189,977 |
| Loans held-for-sale, at lower of cost or fair value | 5,381 | 59,168 |
| Loans held-in-portfolio | 32,372,925 | 29,506,225 |
| Less - Unearned income | 295,156 | 265,668 |
| Allowance for credit losses | 720,302 | 695,366 |
| Total loans held-in-portfolio, net | 31,357,467 | 28,545,191 |
| Premises and equipment, net | 498,711 | 494,240 |
| Other real estate | 89,126 | 85,077 |
| Accrued income receivable | 240,195 | 203,096 |
| Mortgage servicing rights, at fair value | 128,350 | 121,570 |
| Other assets | 1,847,813 | 1,628,571 |
| Goodwill | 827,428 | 720,293 |
| Other intangible assets | 12,944 | 16,219 |
| Total assets | $67,637,917 | $75,097,899 |
| Liabilities and Stockholders' Equity |  |  |
| Liabilities: |  |  |
| Deposits: |  |  |
| Non-interest bearing | $15,960,557 | $15,684,482 |
| Interest bearing | 45,266,670 | 51,320,606 |
| Total deposits | 61,227,227 | 67,005,088 |
| Assets sold under agreements to repurchase | 148,609 | 91,603 |
| Other short-term borrowings | 365,000 | 75,000 |
| Notes payable | 886,710 | 988,563 |
| Other liabilities | 916,946 | 968,248 |
| Total liabilities | 63,544,492 | 69,128,502 |
| Commitments and contingencies (Refer to Note 24) |  |  |
| Stockholders' equity: |  |  |
| Preferred stock, 30,000,000 shares authorized; 885,726 shares issued and outstanding (2021 - 885,726) | 22,143 | 22,143 |
| Common stock, $0.01 par value; 170,000,000 shares authorized; 104,657,522 shares issued (2021 - 104,579,334) and 71,853,720 shares outstanding (2021 - 79,851,169) | 1,047 | 1,046 |
| Surplus | 4,790,993 | 4,650,182 |
| Retained earnings | 3,834,348 | 2,973,745 |
| Treasury stock - at cost, 32,803,802 shares (2021 - 24,728,165) | (2,030,178) | (1,352,650) |
| Accumulated other comprehensive loss, net of tax | (2,524,928) | (325,069) |
| Total stockholders' equity | 4,093,425 | 5,969,397 |
| Total liabilities and stockholders' equity | $67,637,917 | $75,097,899 |

The accompanying notes are an integral part of these Consolidated Financial Statements.

56 POPULAR, INC. 2022 ANNUAL REPORT

# POPULAR, INC.
## CONSOLIDATED STATEMENTS OF OPERATIONS

| (In thousands, except per share information) | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Interest income: |  |  |  |
| Loans | $1,876,166 | $1,747,827 | $1,742,390 |
| Money market investments | 118,080 | 21,147 | 19,721 |
| Investment securities | 471,665 | 353,663 | 329,440 |
| Total interest income | 2,465,911 | 2,122,637 | 2,091,551 |
| Interest expense: |  |  |  |
| Deposits | 252,845 | 111,621 | 175,855 |
| Short-term borrowings | 5,737 | 319 | 2,457 |
| Long-term debt | 39,970 | 53,107 | 56,626 |
| Total interest expense | 298,552 | 165,047 | 234,938 |
| Net interest income | 2,167,359 | 1,957,590 | 1,856,613 |
| Provision for credit losses (benefit) | 83,030 | (193,464) | 292,536 |
| Net interest income after provision for credit losses (benefit) | 2,084,329 | 2,151,054 | 1,564,077 |
| Service charges on deposit accounts | 157,210 | 162,698 | 147,823 |
| Other service fees | 334,009 | 311,248 | 257,892 |
| Mortgage banking activities (Refer to Note 10) | 42,450 | 50,133 | 10,401 |
| Net gain on sale of debt securities | - | 23 | 41 |
| Net (loss) gain, including impairment on equity securities | (7,334) | 131 | 6,279 |
| Net (loss) profit on trading account debt securities | (784) | (389) | 1,033 |
| Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale | - | (73) | 1,234 |
| Adjustments to indemnity reserves on loans sold | 919 | 4,406 | 390 |
| Other operating income | 370,592 | 113,951 | 87,219 |
| Total non-interest income | 897,062 | 642,128 | 512,312 |
| Operating expenses: |  |  |  |
| Personnel costs | 719,764 | 631,802 | 564,205 |
| Net occupancy expenses | 106,169 | 102,226 | 119,345 |
| Equipment expenses | 35,626 | 32,919 | 32,514 |
| Other taxes | 63,603 | 56,783 | 54,454 |
| Professional fees | 172,043 | 126,721 | 132,414 |
| Technology and software expenses | 291,902 | 277,979 | 263,886 |
| Processing and transactional services | 127,145 | 121,367 | 112,039 |
| Communications | 14,885 | 14,029 | 13,230 |
| Business promotion | 88,918 | 72,981 | 57,608 |
| FDIC deposit insurance | 26,787 | 25,579 | 23,868 |
| Other real estate owned (OREO) income | (22,143) | (14,414) | (3,480) |
| Other operating expenses | 109,446 | 92,169 | 81,349 |
| Amortization of intangibles | 3,275 | 9,134 | 6,397 |
| Goodwill impairment charge | 9,000 | - | - |
| Total operating expenses | 1,746,420 | 1,549,275 | 1,457,829 |
| Income before income tax | 1,234,971 | 1,243,907 | 618,560 |
| Income tax expense | 132,330 | 309,018 | 111,938 |
| Net Income | $1,102,641 | $934,889 | $506,622 |
| Net Income Applicable to Common Stock | $1,101,229 | $933,477 | $504,864 |
| Net Income per Common Share - Basic | $14.65 | $11.49 | $5.88 |
| Net Income per Common Share - Diluted | $14.63 | $11.46 | $5.87 |

The accompanying notes are an integral part of these consolidated financial statements.

POPULAR, INC. 2022 ANNUAL REPORT 57

## CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

| (In thousands) | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Net income | $1,102,641 | $934,889 | $506,622 |
| Other comprehensive (loss) income before tax: |  |  |  |
| Foreign currency translation adjustment | 10,572 | 3,947 | (14,471) |
| Adjustment of pension and postretirement benefit plans | 7,811 | 36,950 | (9,032) |
| Amortization of net losses | 15,644 | 20,749 | 21,447 |
| Unrealized net holding (losses) gains on debt securities arising during the period | (2,539,421) | (619,470) | 419,993 |
| Reclassification adjustment for gains included in net income | - | (23) | (41) |
| Amortization of unrealized losses of debt securities transfer from available-for-sale to held-to-maturity [1] | 41,642 | - | - |
| Unrealized net gains (losses) on cash flow hedges | 3,719 | 539 | (8,872) |
| Reclassification adjustment for net (gains) losses included in net income | (960) | 1,847 | 6,379 |
| Other comprehensive (loss) income before tax | (2,460,993) | (555,461) | 415,403 |
| Income tax benefit (expense) | 261,134 | 40,401 | (55,474) |
| Total other comprehensive (loss) income, net of tax | (2,199,859) | (515,060) | 359,929 |
| Comprehensive (loss) income, net of tax | $(1,097,218) | $419,829 | $866,551 |

### Tax effect allocated to each component of other comprehensive (loss) income:

| (In thousands) | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Adjustment of pension and postretirement benefit plans | $(2,929) | $(13,856) | $3,387 |
| Amortization of net losses | (5,867) | (7,781) | (8,042) |
| Unrealized net holding (losses) gains on debt securities arising during the period | 278,324 | 62,468 | (51,213) |
| Reclassification adjustment for gains included in net income | - | 5 | 6 |
| Amortization of unrealized losses of debt securities transferred from available-for-sale to held-to-maturity [1] | (8,328) | - | - |
| Unrealized net gains (losses) on cash flow hedges | (612) | (172) | 2,472 |
| Reclassification adjustment for net (gains) losses included in net income | 546 | (263) | (2,084) |
| Income tax benefit (expense) | $261,134 | $40,401 | $(55,474) |

[1] In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. Refer to Note 7 to the Consolidated Financial Statements for additional information.

*The accompanying notes are an integral part of these consolidated financial statements.*

58 POPULAR, INC. 2022 ANNUAL REPORT

# POPULAR, INC.
## CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

| (In thousands) | Common stock | Preferred stock | Surplus | Retained earnings | Treasury stock | Accumulated other comprehensive (loss) income | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at December 31, 2019 | $1,044 | $50,160 | $4,447,412 | $2,147,915 | $(459,814) | $(169,938) | $6,016,779 |
| Cumulative effect of accounting change |  |  |  | (205,842) |  |  | (205,842) |
| Net income |  |  |  | 506,622 |  |  | 506,622 |
| Issuance of stock | 1 |  | 4,262 |  |  |  | 4,263 |
| Dividends declared: |  |  |  |  |  |  |  |
| Common stock [1] |  |  |  | (136,561) |  |  | (136,561) |
| Preferred stock |  |  |  | (1,758) |  |  | (1,758) |
| Common stock purchases [2] |  |  | 76,335 |  | (580,507) |  | (504,172) |
| Common stock reissuance |  |  | (1,192) |  | 6,022 |  | 4,830 |
| Preferred Stock, Redemption Amount [3] |  | (28,017) |  |  |  |  | (28,017) |
| Stock based compensation |  |  | (4,731) |  | 17,345 |  | 12,614 |
| Other comprehensive income, net of tax |  |  |  |  |  | 359,929 | 359,929 |
| Transfer to statutory reserve |  |  | 49,448 | (49,448) |  |  | - |
| Balance at December 31, 2020 | $1,045 | $22,143 | $4,571,534 | $2,260,928 | $(1,016,954) | $189,991 | $6,028,687 |
| Net income |  |  |  | 934,889 |  |  | 934,889 |
| Issuance of stock | 1 |  | 4,673 |  |  |  | 4,674 |
| Dividends declared: |  |  |  |  |  |  |  |
| Common stock [1] |  |  |  | (142,290) |  |  | (142,290) |
| Preferred stock |  |  |  | (1,412) |  |  | (1,412) |
| Common stock purchases [4] |  |  | (8,557) |  | (347,093) |  | (355,650) |
| Stock based compensation |  |  | 4,162 |  | 11,397 |  | 15,559 |
| Other comprehensive loss, net of tax |  |  |  |  |  | (515,060) | (515,060) |
| Transfer to statutory reserve |  |  | 78,370 | (78,370) |  |  | - |
| Balance at December 31, 2021 | $1,046 | $22,143 | $4,650,182 | $2,973,745 | $(1,352,650) | $(325,069) | $5,969,397 |
| Net income |  |  |  | 1,102,641 |  |  | 1,102,641 |
| Issuance of stock | 1 |  | 5,836 |  |  |  | 5,837 |
| Dividends declared: |  |  |  |  |  |  |  |
| Common stock [1] |  |  |  | (163,693) |  |  | (163,693) |
| Preferred stock |  |  |  | (1,412) |  |  | (1,412) |
| Common stock purchases [5] |  |  | 53,592 |  | (691,256) |  | (637,664) |
| Stock based compensation |  |  | 4,450 |  | 13,728 |  | 18,178 |
| Other comprehensive loss, net of tax |  |  |  |  |  | (2,199,859) | (2,199,859) |
| Transfer to statutory reserve |  |  | 76,933 | (76,933) |  |  | - |
| Balance at December 31, 2022 | $1,047 | $22,143 | $4,790,993 | $3,834,348 | $(2,030,178) | $(2,524,928) | $4,093,425 |

[1] Dividends declared per common share during the year ended December 31, 2022 - $2.20 (2021 - $1.75; 2020 - $1.60).

[2] During the year ended December 31, 2020, the Corporation completed a $500 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 20 for additional information.

[3] On February 24, 2020, the Corporation redeemed all the outstanding shares of 2008 Series B Preferred Stock. Refer to Note 20 for additional information.

[4] During the year ended December 31, 2021, the Corporation completed a $350 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 20 for additional information.

[5] During the year ended December 31, 2022, the Corporation completed two accelerated share repurchase transaction with respect to its common stock, which were accounted for as a treasury stock transactions. The aggregate amount of both transactions was $631 million. Refer to Note 20 for additional information.

|  | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Disclosure of changes in number of shares: |  |  |  |
| Preferred Stock: |  |  |  |
| Balance at beginning of year | 885,726 | 885,726 | 2,006,391 |
| Redemption of stocks | - | - | (1,120,665) |
| Balance at end of year | 885,726 | 885,726 | 885,726 |
| Common Stock: |  |  |  |
| Balance at beginning of year | 104,579,334 | 104,508,290 | 104,392,222 |
| Issuance of stock | 78,188 | 71,044 | 116,068 |
| Balance at end of year | 104,657,522 | 104,579,334 | 104,508,290 |
| Treasury stock | (32,803,802) | (24,728,165) | (20,264,055) |
| Common Stock - Outstanding | 71,853,720 | 79,851,169 | 84,244,235 |

The accompanying notes are an integral part of these consolidated financial statements.

POPULAR, INC. 2022 ANNUAL REPORT 59

# POPULAR, INC.
## CONSOLIDATED STATEMENTS OF CASH FLOWS

| (In thousands) | Years ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Cash flows from operating activities: |  |  |  |
| Net income | $1,102,641 | $934,889 | $506,622 |
| Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| Provision for credit losses (benefit) | 83,030 | (193,464) | 292,536 |
| Goodwill impairment losses | 9,000 | - | - |
| Amortization of intangibles | 3,275 | 9,134 | 6,397 |
| Depreciation and amortization of premises and equipment | 55,107 | 55,104 | 58,452 |
| Net accretion of discounts and amortization of premiums and deferred fees | 29,120 | (21,962) | (63,300) |
| Interest capitalized on loans subject to the temporary payment moratorium or loss mitigation alternatives | (11,521) | (15,567) | (95,212) |
| Share-based compensation | 16,727 | 17,774 | 8,254 |
| Impairment losses on right-of-use and long-lived assets | 2,233 | 5,320 | 18,004 |
| Fair value adjustments on mortgage servicing rights | (166) | 10,206 | 42,055 |
| Fair value adjustment for contingent consideration | (9,241) | - | - |
| Adjustments to indemnity reserves on loans sold | (919) | (4,406) | (390) |
| Earnings from investments under the equity method, net of dividends or distributions | (29,522) | (50,942) | (27,738) |
| Deferred income tax (benefit) expense | (33,129) | 229,371 | 75,044 |
| (Gain) loss on: |  |  |  |
| Disposition of premises and equipment and other productive assets | (9,453) | (18,393) | (11,561) |
| Proceeds from insurance claims | - | - | (366) |
| Sale of debt securities | - | (23) | (41) |
| Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities | 252 | (21,611) | (32,449) |
| Sale of equity method investment | (8,198) | - | - |
| Disposition of stock as part of the Evertec Transactions | (240,412) | - | - |
| Sale of foreclosed assets, including write-downs | (33,008) | (30,098) | (19,958) |
| Acquisitions of loans held-for-sale | (122,363) | (251,336) | (227,697) |
| Proceeds from sale of loans held-for-sale | 64,542 | 95,100 | 83,456 |
| Net originations on loans held-for-sale | (202,913) | (527,585) | (391,537) |
| Net decrease (increase) in: |  |  |  |
| Trading debt securities | 353,301 | 741,465 | 493,993 |
| Equity securities | 54 | (2,336) | (8,263) |
| Accrued income receivable | (62,932) | 6,193 | (55,616) |
| Other assets | 76,589 | 25,022 | 114,329 |
| Net increase (decrease) in: |  |  |  |
| Interest payable | 6,061 | (5,395) | (5,404) |
| Pension and other postretirement benefits obligation | (2,893) | (4,104) | 5,898 |
| Other liabilities | (20,724) | 22,802 | (106,736) |
| Total adjustments | (88,103) | 70,269 | 172,150 |
| Net cash provided by operating activities | 1,014,538 | 1,005,158 | 678,772 |
| Cash flows from investing activities: |  |  |  |
| Net decrease (increase) in money market investments | 11,922,703 | (5,895,789) | (8,378,577) |
| Purchases of investment securities: |  |  |  |
| Available-for-sale | (22,232,278) | (14,672,856) | (21,033,807) |
| Held-to-maturity | (1,879,443) | - | - |
| Equity | (48,921) | (16,196) | (30,794) |
| Proceeds from calls, paydowns, maturities and redemptions of investment securities: |  |  |  |
| Available-for-sale | 20,143,921 | 9,602,430 | 18,224,362 |
| Held-to-maturity | 9,826 | 15,700 | 6,733 |
| Proceeds from sale of investment securities: |  |  |  |
| Available-for-sale | - | 235,992 | 5,103 |
| Equity | 42,990 | 2,904 | 25,206 |
| Net (disbursements) repayments on loans | (2,237,084) | 469,268 | (875,941) |
| Proceeds from sale of loans | 141,314 | 203,179 | 84,385 |
| Acquisition of loan portfolios | (753,684) | (348,179) | (1,138,276) |
| Payments to acquire other intangible | - | (905) | (83) |
| Payments to acquire businesses, net of cash acquired | - | (155,828) | - |
| Return of capital from equity method investments | 681 | 6,362 | 959 |
| Payments to acquire equity method investments | (1,625) | (375) | (1,778) |
| Proceeds from sale of equity method investment | 8,198 | - | - |
| Proceeds from the Evertec stock sale | 219,883 | - | - |
| Acquisition of premises and equipment | (103,789) | (72,781) | (60,073) |
| Proceeds from insurance claims | - | - | 366 |
| Proceeds from sale of: |  |  |  |
| Premises and equipment and other productive assets | 10,305 | 21,482 | 26,548 |
| Foreclosed assets | 107,203 | 86,942 | 77,521 |
| Net cash provided by (used in) investing activities | 5,350,200 | (10,518,650) | (13,068,146) |
| Cash flows from financing activities: |  |  |  |
| Net (decrease) increase in: |  |  |  |
| Deposits | (5,770,261) | 10,138,617 | 13,102,028 |
| Assets sold under agreements to repurchase | 57,006 | (29,700) | (72,076) |
| Other short-term borrowings | 290,000 | 75,000 | - |
| Payments of notes payable | (103,147) | (237,713) | (139,920) |
| Principal payments of finance leases | (3,346) | (2,852) | (3,145) |
| Proceeds from issuance of notes payable | - | - | 261,999 |
| Proceeds from issuance of common stock | 5,837 | 4,674 | 9,093 |
| Payments for repurchase of redeemable preferred stock | - | - | (28,017) |
| Dividends paid | (161,516) | (141,466) | (133,645) |
| Net payments for repurchase of common stock | (631,893) | (350,535) | (500,479) |
| Payments related to tax withholding for share-based compensation | (5,771) | (5,115) | (3,693) |
| Net cash (used in) provided by financing activities | (6,323,091) | 9,450,910 | 12,492,145 |
| Net increase (decrease) in cash and due from banks, and restricted cash | 41,647 | (62,582) | 102,771 |
| Cash and due from banks, and restricted cash at beginning of period | 434,512 | 497,094 | 394,323 |
| Cash and due from banks, and restricted cash at end of period | $476,159 | $434,512 | $497,094 |

The accompanying notes are an integral part of these consolidated financial statements.

60 POPULAR, INC. 2022 ANNUAL REPORT

# Notes to Consolidated Financial Statements

| Note 1 - Nature of Operations and Basis of Presentation | 62 |
| --- | --- |
| Note 2 - Summary of Significant Accounting Policies | 62 |
| Note 3 - New Accounting Pronouncements | 72 |
| Note 4 - Business Combination | 75 |
| Note 5 - Restrictions on Cash and Due from Banks and Certain Securities | 77 |
| Note 6 - Debt Securities Available-For-Sale | 77 |
| Note 7 - Debt Securities Held-to-Maturity | 80 |
| Note 8 - Loans | 82 |
| Note 9 - Allowance for Credit Losses - Loans Held-In-Portfolio | 89 |
| Note 10 - Mortgage Banking Activities | 111 |
| Note 11 - Transfers of Financial Assets and Mortgage Servicing Assets | 111 |
| Note 12 - Premises and Equipment | 114 |
| Note 13 - Other Real Estate Owned | 114 |
| Note 14 - Other Assets | 115 |
| Note 15 - Goodwill and Other Intangible Assets | 116 |
| Note 16 - Deposits | 118 |
| Note 17 - Borrowings | 119 |
| Note 18 - Trust Preferred Securities | 121 |
| Note 19 - Other Liabilities | 122 |
| Note 20 - Stockholders' Equity | 122 |
| Note 21 - Regulatory Capital Requirements | 123 |
| Note 22 - Other Comprehensive (Loss) Income | 125 |
| Note 23 - Guarantees | 126 |
| Note 24 - Commitments and Contingencies | 128 |
| Note 25 - Non-consolidated Variable Interest Entities | 135 |
| Note 26 - Derivative Instruments and Hedging Activities | 135 |
| Note 27 - Related Party Transactions | 138 |
| Note 28 - Fair Value Measurement | 140 |
| Note 29 - Fair Value of Financial Instruments | 147 |
| Note 30 - Employee Benefits | 150 |
| Note 31 - Net Income per Common Share | 155 |
| Note 32 - Revenue from Contracts with Customers | 156 |
| Note 33 - Leases | 157 |
| Note 34 - Stock-Based Compensation | 159 |
| Note 35 - Income Taxes | 160 |
| Note 36 - Supplemental Disclosure on the Consolidated Statements of Cash Flows | 164 |
| Note 37 - Segment Reporting | 164 |
| Note 38 - Popular, Inc. (Holding company only) Financial Information | 166 |

POPULAR, INC. 2022 ANNUAL REPORT 61

## Note 1 - Nature of Operations and basis of Presentation

### Nature of Operations

Popular, Inc. (the “Corporation” or “Popular”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the mainland United States (“U.S.”) and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services, through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the mainland U.S., the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB” or “Popular U.S.”), which has branches located in New York, New Jersey and Florida, and equipment leasing and financing services through Popular Equipment Finance (“PEF”), a wholly owned subsidiary of PB based in Minnesota.

### Basis of Presentation

Leveraging the completion of the Evertec Transactions, as defined in Note 4 to the Consolidated Financial Statements, the

Corporation embarked on a broad-based multi-year, technological and business process transformation during the second half of 2022. The needs and expectations of our clients, as well as the competitive landscape, have evolved, requiring us to make important investments in our technological infrastructure and adopt more agile practices. Our technology and business transformation will be a significant priority for the Corporation over the next three years and beyond.

As part of this transformation, we aim to expand our digital capabilities, modernize our technology platform, and implement agile and efficient business processes across the entire Corporation. To facilitate the transparency of the progress with the transformation initiative and to better portray the level of technology related expenses categorized by the nature of the expense, effective in the fourth quarter of 2022, the Corporation has separated technology, professional fees and transactional and items processing related expenses as standalone expense categories in the accompanying Consolidated statement of operations. There were no changes to the total operating expenses presented. Prior periods amount in the financial statements and related disclosures have been reclassified to conform to the current presentation.

The following table provides the detail of the reclassifications for each respective year:

| Financial statement line item | 2021 |  |  | 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | As reported | Adjustments | Adjusted | As reported | Adjustments | Adjusted |
| Equipment expenses | $92,097 | $(59,178) | $32,919 | $88,932 | $(56,418) | $32,514 |
| Professional services | 410,865 | (284,144) | 126,721 | 394,122 | (261,708) | 132,414 |
| Technology and software expenses | - | 277,979 | 277,979 | - | 263,886 | 263,886 |
| Processing and transactional services | - | 121,367 | 121,367 | - | 112,039 | 112,039 |
| Communications | 25,234 | (11,205) | 14,029 | 23,496 | (10,266) | 13,230 |
| Other expenses | 136,988 | (44,819) | 92,169 | 128,882 | (47,533) | 81,349 |
| Net effect on operating expenses | $665,184 | $ - | $665,184 | $635,432 | $ - | $635,432 |

## Note 2 - Summary of significant accounting policies

The accounting and financial reporting policies of Popular, Inc. and its subsidiaries (the “Corporation”) conform with accounting principles generally accepted in the United States of America and with prevailing practices within the financial services industry.

The following is a description of the most significant of these policies:

### Principles of consolidation

The consolidated financial statements include the accounts of Popular, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In accordance with the consolidation guidance for variable interest entities, the Corporation would also consolidate any variable

interest entities (“VIEs”) for which it has a controlling financial interest; and therefore, it is the primary beneficiary. Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the Consolidated Statements of Financial Condition.

Unconsolidated investments, in which there is at least 20% ownership and / or the Corporation exercises significant influence, are generally accounted for by the equity method with earnings recorded in other operating income. Limited partnerships are also accounted for by the equity method unless the investor’s interest is so “minor” that the limited partner may have virtually no influence over partnership operating and financial policies. These investments are included in other assets and the Corporation’s proportionate share of income or loss is included in other operating income.

62 POPULAR, INC. 2022 ANNUAL REPORT

Statutory business trusts that are wholly-owned by the Corporation and are issuers of trust preferred securities are not consolidated in the Corporation's Consolidated Financial Statements.

#### **Business combinations**

Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date are measured at their fair values as of the acquisition date. The acquisition date is the date the acquirer obtains control. Transaction costs are expensed as incurred. Contingent consideration classified as an asset or a liability is remeasured to fair value at each reporting date until the contingency is resolved. The changes in fair value of the contingent consideration are recognized in earnings unless the arrangement is a hedging instrument for which changes are initially recognized in other comprehensive income. Refer to Note 4 for information of business combinations completed by the Corporation for the years presented.

#### **Use of estimates in the preparation of financial statements**

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

#### **Fair value measurements**

The Corporation determines the fair values of its financial instruments based on the fair value framework established in the guidance for Fair Value Measurements in ASC Subtopic 820-10, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value which are (1) quoted market prices for identical assets or liabilities in active markets, (2) observable market-based inputs or unobservable inputs that are corroborated by market data, and (3) unobservable inputs that are not corroborated by market data. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.

The guidance in ASC Subtopic 820-10 also addresses measuring fair value in situations where markets are inactive and transactions are not orderly. Transactions or quoted prices

for assets and liabilities may not be determinative of fair value when transactions are not orderly, and thus, may require adjustments to estimate fair value. Price quotes based on transactions that are not orderly should be given little, if any, weight in measuring fair value. Price quotes based on transactions that are orderly shall be considered in determining fair value, and the weight given is based on facts and circumstances. If sufficient information is not available to determine if price quotes are based on orderly transactions, less weight should be given to the price quote relative to other transactions that are known to be orderly.

#### **Investment securities**

Investment securities are classified in four categories and accounted for as follows:

- Debt securities that the Corporation has the intent and ability to hold to maturity are classified as debt securities held-to-maturity and reported at amortized cost. An ACL is established for the expected credit losses over the remaining term of debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which considers qualitative factors, including internal credit ratings and the underlying source of repayment in determining the amount of expected credit losses. Debt securities held-to-maturity are written-off through the ACL when a portion or the entire amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of the asset. The ACL is estimated by leveraging the expected loss framework for mortgages in the case of securities collateralized by 2nd lien loans and the commercial C&I models for municipal bonds. As part of this framework, internal factors are stressed, as a qualitative adjustment, to reflect current conditions that are not necessarily captured within the historical loss experience. The modeling framework includes a 2-year reasonable and supportable period gradually reverting, over a 3-years horizon, to historical information at the model input level. The Corporation may not sell or transfer held-to-maturity securities without calling into question its intent to hold other debt securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has occurred.
- Debt securities classified as trading securities are reported at fair value, with unrealized and realized gains and losses included in non-interest income.
- Debt securities classified as available-for-sale are reported at fair value. Declines in fair value below the securities' amortized cost which are not related to estimated credit losses are recorded through other comprehensive income or loss, net of taxes. If the Corporation intends to sell or believes it is more likely than not that it will be required

POPULAR, INC. 2022 ANNUAL REPORT 63

to sell the debt security, it is written down to fair value through earnings. Credit losses relating to available-for-sale debt securities are recorded through an ACL, which are limited to the difference between the amortized cost and the fair value of the asset. The ACL is established for the expected credit losses over the remaining term of debt security. The Corporation's portfolio of available-for-sale securities is comprised mainly of U.S. Treasury notes and obligations from the U.S. Government. These securities have an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established. The Corporation monitors its securities portfolio composition and credit performance on a quarterly basis to determine if any allowance is considered necessary. Debt securities available-for-sale are written-off when a portion or the entire amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of the asset. The specific identification method is used to determine realized gains and losses on debt securities available-for-sale, which are included in net (loss) gain on sale of debt securities in the Consolidated Statements of Operations.

- Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily available fair values are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Stock that is owned by the Corporation to comply with regulatory requirements, such as Federal Reserve Bank and Federal Home Loan Bank ('FHLB') stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in the Consolidated Statements of Operations. Dividend income from investments in equity securities is included in interest income.

The amortization of premiums is deducted and the accretion of discounts is added to net interest income based on the interest method over the outstanding period of the related securities. Purchases and sales of securities are recognized on a trade date basis.

#### ***Derivative financial instruments***

All derivatives are recognized on the Statements of Financial Condition at fair value. The Corporation's policy is not to offset the fair value amounts recognized for multiple derivative

instruments executed with the same counterparty under a master netting arrangement nor to offset the fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments.

For a cash flow hedge, changes in the fair value of the derivative instrument are recorded net of taxes in accumulated other comprehensive income/(loss) and subsequently reclassified to net income (loss) in the same period(s) that the hedged transaction impacts earnings. For free-standing derivative instruments, changes in fair values are reported in current period earnings.

Prior to entering a hedge transaction, the Corporation formally documents the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments to specific assets and liabilities on the Statements of Financial Condition or to specific forecasted transactions or firm commitments along with a formal assessment, at both inception of the hedge and on an ongoing basis, as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. Hedge accounting is discontinued when the derivative instrument is not highly effective as a hedge, a derivative expires, is sold, terminated, when it is unlikely that a forecasted transaction will occur or when it is determined that it is no longer appropriate. When hedge accounting is discontinued the derivative continues to be carried at fair value with changes in fair value included in earnings.

For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.

The fair value of derivative instruments considers the risk of non-performance by the counterparty or the Corporation, as applicable.

The Corporation obtains or pledges collateral in connection with its derivative activities when applicable under the agreement.

#### ***Loans***

Loans are classified as loans held-in-portfolio when management has the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. The foreseeable future is a management judgment which is determined based upon the type of loan, business strategies, current market conditions, balance sheet management and liquidity needs. Management's view of the foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that was not originated or initially acquired

64 POPULAR, INC. 2022 ANNUAL REPORT

with the intent to sell or securitize, the loan is reclassified from held-in-portfolio into held-for-sale. Due to changing market conditions or other strategic initiatives, management's intent with respect to the disposition of the loan may change, and accordingly, loans previously classified as held-for-sale may be reclassified into held-in-portfolio. Loans transferred between loans held-for-sale and held-in-portfolio classifications are recorded at the lower of cost or fair value at the date of transfer.

Purchased loans with no evidence of credit deterioration since origination are recorded at fair value upon acquisition. Credit discounts are included in the determination of fair value.

Loans held-for-sale are stated at the lower of cost or fair value, cost being determined based on the outstanding loan balance less unearned income, and fair value determined, generally in the aggregate. Fair value is measured based on current market prices for similar loans, outstanding investor commitments, prices of recent sales or discounted cash flow analyses which utilize inputs and assumptions which are believed to be consistent with market participants' views. The cost basis also includes consideration of deferred origination fees and costs, which are recognized in earnings at the time of sale. Upon reclassification to held-for-sale, credit related fair value adjustments are recorded as a reduction in the ACL. To the extent that the loan's reduction in value has not already been provided for in the ACL, an additional provision for credit losses is recorded. Subsequent to reclassification to held-for-sale, the amount, by which cost exceeds fair value, if any, is accounted for as a valuation allowance with changes therein included in the determination of net income (loss) for the period in which the change occurs.

Loans held-in-portfolio are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Fees collected and costs incurred in the origination of new loans are deferred and amortized using the interest method or a method which approximates the interest method over the term of the loan as an adjustment to interest yield.

The past due status of a loan is determined in accordance with its contractual repayment terms. Furthermore, loans are reported as past due when either interest or principal remains unpaid for 30 days or more in accordance with its contractual repayment terms.

Non-accrual loans are those loans on which the accrual of interest is discontinued. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is charged against interest income and the loan is accounted for either on a cash-basis method or on the cost-recovery method. Loans designated as non-accruing are returned to accrual status when the Corporation expects repayment of the remaining contractual principal and interest.

Recognition of interest income on commercial and construction loans is discontinued when the loans are 90 days

or more in arrears on payments of principal or interest or when other factors indicate that the collection of principal and interest is doubtful. The portion of a secured loan deemed uncollectible is charged-off no later than 365 days past due. However, in the case of a collateral dependent loan, the excess of the recorded investment over the fair value of the collateral (portion deemed uncollectible) is generally promptly charged-off, but in any event, not later than the quarter following the quarter in which such excess was first recognized. Commercial unsecured loans are charged-off no later than 180 days past due. Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The portion of a mortgage loan deemed uncollectible is charged-off when the loan is 180 days past due. The Corporation discontinues the recognition of interest on residential mortgage loans insured by the Federal Housing Administration ('FHA') or guaranteed by the U.S. Department of Veterans Affairs ('VA') when 15-months delinquent as to principal or interest. The principal repayment on these loans is insured. Recognition of interest income on closed-end consumer loans and home equity lines of credit is discontinued when the loans are 90 days or more in arrears on payments of principal or interest. Income is generally recognized on open-end consumer loans, except for home equity lines of credit, until the loans are charged-off. Recognition of interest income for lease financing is ceased when loans are 90 days or more in arrears. Closed-end consumer loans and leases are charged-off when they are 120 days in arrears. Open-end (revolving credit) consumer loans are charged-off when 180 days in arrears. Commercial and consumer overdrafts are generally charged-off no later than 60 days past their due date.

A loan classified as a troubled debt restructuring ('TDR') is typically in non-accrual status at the time of the modification. The TDR loan continues in non-accrual status until the borrower has demonstrated a willingness and ability to make the restructured loan payments (at least six months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and management has concluded that it is probable that the borrower would not be in payment default in the foreseeable future.

### ***Lease financing***

The Corporation leases passenger and commercial vehicles and equipment to individual and corporate customers. The finance method of accounting is used to recognize revenue on lease contracts that meet the criteria specified in the guidance for leases in ASC Topic 842. Aggregate rentals due over the term of the leases less unearned income are included in finance lease contracts receivable. Unearned income is amortized using a method which results in approximate level rates of return on the principal amounts outstanding. Finance lease origination

POPULAR, INC. 2022 ANNUAL REPORT 65

fees and costs are deferred and amortized over the average life of the lease as an adjustment to the interest yield.

Revenue for other leases is recognized as it becomes due under the terms of the agreement.

#### ***Loans acquired with deteriorated credit quality***

Purchased credit deteriorated (“PCD”) loans are defined as those with evidence of a more-than-insignificant deterioration in credit quality since origination. PCD loans are initially recorded at its purchase price plus an estimated allowance for credit losses (“ACL”). Upon the acquisition of a PCD loan, the Corporation makes an estimate of the expected credit losses over the remaining contractual term of each individual loan. The estimated credit losses over the life of the loan are recorded as an ACL with a corresponding addition to the loan purchase price. The amount of the purchased premium or discount which is not related to credit risk is amortized over the life of the loan through net interest income using the effective interest method or a method that approximates the effective interest method. Changes in expected credit losses are recorded as an increase or decrease to the ACL with a corresponding charge (reverse) to the provision for credit losses in the Consolidated Statement of Operations. These loans follow the same nonaccrual policies as non-PCD loans. Modifications of PCD loans that meet the definition of a TDR are accounted and reported as such following the same processes as non-PCD loans.

Refer to Note 8 to the Consolidated Financial Statements for additional information with respect to loans acquired with deteriorated credit quality.

#### ***Accrued interest receivable***

The amortized basis for loans and investments in debt securities is presented exclusive of accrued interest receivable. The Corporation has elected not to establish an ACL for accrued interest receivable for loans and investments in debt securities, given the Corporation’s non-accrual policies, in which accrual of interest is discontinued and reversed based on the asset’s delinquency status.

#### ***Allowance for credit losses - loans portfolio***

The Corporation establishes an ACL for its loan portfolio based on its estimate of credit losses over the remaining contractual term of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since inception, with a corresponding charge to the provision for credit losses, except for PCD loans for which the ACL at acquisition is recorded as an addition to the purchase price with subsequent changes recorded in earnings. Loan losses are charged and recoveries are credited to the ACL.

The Corporation follows a methodology to estimate the ACL which includes a reasonable and supportable forecast period for estimating credit losses, considering quantitative and qualitative

factors as well as the economic outlook. As part of this methodology, management evaluates various macroeconomic scenarios provided by third parties. At December 31, 2022, management applied probability weights to the outcome of the selected scenarios. This evaluation includes benchmarking procedures as well as careful analysis of the underlying assumptions used to build the scenarios. The application of probability weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The Corporation considers additional macroeconomic scenarios as part of its qualitative adjustment framework.

The macroeconomic variables chosen to estimate credit losses were selected by combining quantitative procedures with expert judgment. These variables were determined to be the best predictors of expected credit losses within the Corporation’s loan portfolios and include drivers such as unemployment rate, different measures of employment levels, house prices, gross domestic product and measures of disposable income, amongst others. The loss estimation framework includes a reasonable and supportable period of 2 years for PR portfolios, gradually reverting, over a 3-years horizon, to historical macroeconomic variables at the model input level. For the US portfolio the reasonable and supportable period considers the contractual life of the asset, impacted by prepayments, except for the US CRE portfolio. The US CRE portfolio utilizes a 2-year reasonable and supportable period gradually reverting, over a 3-years horizon, to historical information at the output level.

The Corporation developed loan level quantitative models distributed by geography and loan type. This segmentation was determined by evaluating their risk characteristics, which include default patterns, source of repayment, type of collateral, and lending channels, amongst others. The modeling framework includes competing risk models to generate lifetime defaults and prepayments, and other loan level modeling techniques to estimate loss severity. Recoveries on future losses are contemplated as part of the loss severity modeling. These parameters are estimated by combining internal risk factors with macroeconomic expectations. In order to generate the expected credit losses, the output of these models is combined with loan level repayment information. The internal risk factors contemplated within the models may include borrowers’ credit scores, loan-to-value, delinquency status, risk ratings, interest rate, loan term, loan age and type of collateral, amongst others.

The ACL also includes a qualitative framework that addresses two main components: losses that are expected but not captured within the quantitative modeling framework, and model imprecision. In order to identify potential losses that are not captured through the models, management evaluates model limitations as well as the different risks covered by the variables used in each quantitative model. The Corporation considers additional macroeconomic scenarios to address these risks. This

66 POPULAR, INC. 2022 ANNUAL REPORT

assessment takes into consideration factors listed as part of ASC 326-20-55-4. To complement the analysis, management also evaluates whether there are sectors that have low levels of historical defaults, but current conditions show the potential for future losses. This type of qualitative adjustment is more prevalent in the commercial portfolios. The model imprecision component of the qualitative adjustments is determined after evaluating model performance for these portfolios through different time periods. This type of qualitative adjustment mainly impacts consumer portfolios.

The Corporation has designated as collateral dependent loans secured by collateral when foreclosure is probable or when foreclosure is not probable but the practical expedient is used. The practical expedient is used when repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The ACL of collateral dependent loans is measured based on the fair value of the collateral less costs to sell. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date.

In the case of troubled debt restructurings ('TDRs'), the established framework captures the impact of concessions through discounting modified contractual cash flows, both principal and interest, at the loan's original effective rate. The impact of these concessions is combined with the expected credit losses generated by the quantitative loss models in order to arrive at the ACL. As a result, the ACL related to TDRs is impacted by the expected macroeconomic conditions.

The Credit Cards portfolio, due to its revolving nature, does not have a specified maturity date. To estimate the average remaining term of this segment, management evaluated the portfolios payment behavior based on internal historical data. These payment behaviors were further classified into sub-categories that accounted for delinquency history and differences between transactors, revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without any finance charge in the last 6 months. The paydown curves generated for each sub-category are applied to the outstanding exposure at the measurement date using the first-in first-out (FIFO) methodology. These amortization patterns are combined with loan level default and loss severity modeling to arrive at the ACL.

#### ***Troubled debt restructurings***

A restructuring constitutes a TDR when the Corporation separately concludes that both of the following conditions exist: 1) the restructuring constitute a concession and 2) the debtor is experiencing financial difficulties. The concessions stem from an agreement between the Corporation and the debtor or are

imposed by law or a court. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. A concession has been granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest accrued at the original contract rate. If the payment of principal is dependent on the value of collateral, the current value of the collateral is taken into consideration in determining the amount of principal to be collected; therefore, all factors that changed are considered to determine if a concession was granted, including the change in the fair value of the underlying collateral that may be used to repay the loan. Classification of loan modifications as TDRs involves a degree of judgment. Indicators that the debtor is experiencing financial difficulties which are considered include: (i) the borrower is currently in default on any of its debt or it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification; (ii) the borrower has declared or is in the process of declaring bankruptcy; (iii) there is significant doubt as to whether the borrower will continue to be a going concern; (iv) the borrower has securities that have been delisted, are in the process of being delisted, or are under threat of being delisted from an exchange; (v) based on estimates and projections that only encompass the borrower's current business capabilities, it is forecasted that the entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the contractual terms of the existing agreement through maturity; and (vi) absent the current modification, the borrower cannot obtain funds from sources other than the existing creditors at an effective interest rate equal to the current market interest rate for similar debt for a non-troubled debtor. The identification of TDRs is critical in the determination of the adequacy of the ACL.

A loan may be restructured in a troubled debt restructuring into two (or more) loan agreements, for example, Note A and Note B. Note A represents the portion of the original loan principal amount that is expected to be fully collected along with contractual interest. Note B represents the portion of the original loan that may be considered uncollectible and charged-off, but the obligation is not forgiven to the borrower. Note A may be returned to accrual status provided all of the conditions for a TDR to be returned to accrual status are met. The modified loans are considered TDRs.

Refer to Note 9 to the Consolidated Financial Statements for additional qualitative information on TDRs and the Corporation's determination of the ACL.

#### ***Reserve for unfunded commitments***

The Corporation establishes a reserve for unfunded commitments, based on the estimated losses over the remaining term of the facility. An allowance is not established for

POPULAR, INC. 2022 ANNUAL REPORT 67

commitments that are unconditionally cancellable by the Corporation. Accordingly, no reserve is established for unfunded commitments related to its credit cards portfolio. Reserve for the unfunded portion of credit commitments is presented within other liabilities in the Consolidated Statements of Financial Condition. Net adjustments to the reserve for unfunded commitments are reflected in the Consolidated Statements of Operations as provision for credit losses for the years ended December 31, 2022 and 2021.

### ***Transfers and servicing of financial assets***

The transfer of an entire financial asset, a group of entire financial assets, or a participating interest in an entire financial asset in which the Corporation surrenders control over the assets is accounted for as a sale if all of the following conditions set forth in ASC Topic 860 are met: (1) the assets must be isolated from creditors of the transferor, (2) the transferee must obtain the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the transferor cannot maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. When the Corporation transfers financial assets and the transfer fails any one of these criteria, the Corporation is prevented from derecognizing the transferred financial assets and the transaction is accounted for as a secured borrowing. For federal and Puerto Rico income tax purposes, the Corporation treats the transfers of loans which do not qualify as “true sales” under the applicable accounting guidance, as sales, recognizing a deferred tax asset or liability on the transaction.

For transfers of financial assets that satisfy the conditions to be accounted for as sales, the Corporation derecognizes all assets sold; recognizes all assets obtained and liabilities incurred in consideration as proceeds of the sale, including servicing assets and servicing liabilities, if applicable; initially measures at fair value assets obtained and liabilities incurred in a sale; and recognizes in earnings any gain or loss on the sale.

The guidance on transfer of financial assets requires a true sale analysis of the treatment of the transfer under state law as if the Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a true sale is never absolute and unconditional, but contains qualifications based on the inherent equitable powers of a bankruptcy court, as well as the unsettled state of the common law. Once the legal isolation test has been met, other factors concerning the nature and extent of the transferor’s control over the transferred assets are taken into account in order to determine whether derecognition of assets is warranted.

The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”) in the normal course

of business and retains the servicing rights. The GNMA programs under which the loans are sold allow the Corporation to repurchase individual delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may repurchase the delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. Once the Corporation has the unconditional ability to repurchase the delinquent loan, the Corporation is deemed to have regained effective control over the loan and recognizes the loan on its balance sheet as well as an offsetting liability, regardless of the Corporation’s intent to repurchase the loan.

### ***Servicing assets***

The Corporation periodically sells or securitizes loans while retaining the obligation to perform the servicing of such loans. In addition, the Corporation may purchase or assume the right to service loans originated by others. Whenever the Corporation undertakes an obligation to service a loan, management assesses whether a servicing asset or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate the servicer for performing the servicing. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate the Corporation for its expected cost. Mortgage servicing assets recorded at fair value are separately presented on the Consolidated Statements of Financial Condition.

All separately recognized servicing assets are initially recognized at fair value. For subsequent measurement of servicing rights, the Corporation has elected the fair value method for mortgage loans servicing rights (“MSRs”). Under the fair value measurement method, MSRs are recorded at fair value each reporting period, and changes in fair value are reported in mortgage banking activities in the Consolidated Statement of Operations. Contractual servicing fees including ancillary income and late fees, as well as fair value adjustments, are reported in mortgage banking activities in the Consolidated Statement of Operations. Loan servicing fees, which are based on a percentage of the principal balances of the loans serviced, are credited to income as loan payments are collected.

The fair value of servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

### ***Premises and equipment***

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful life of each type of

68 POPULAR, INC. 2022 ANNUAL REPORT

asset. Amortization of leasehold improvements is computed over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs of maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of renewals and betterments are capitalized. When assets are disposed of, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings as realized or incurred, respectively.

The Corporation capitalizes interest cost incurred in the construction of significant real estate projects, which consist primarily of facilities for its own use or intended for lease. The amount of interest cost capitalized is to be an allocation of the interest cost incurred during the period required to substantially complete the asset. The interest rate for capitalization purposes is to be based on a weighted average rate on the Corporation's outstanding borrowings, unless there is a specific new borrowing associated with the asset. Interest cost capitalized for the years ended December 31, 2022, 2021 and 2020 was not significant.

The Corporation recognizes right-of-use assets ('ROU assets') and lease liabilities relating to operating and finance lease arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance leases, interest is recognized on the lease liability separately from the amortization of the ROU asset, whereas for operating leases a single lease cost is recognized so that the cost of the lease is allocated over the lease term on a straight-line basis. Impairments on ROU assets are evaluated under the guidance for impairment or disposal of long-lived assets. The Corporation recognizes gains on sale and leaseback transactions in earnings when the transfer constitutes a sale, and the transaction was at fair value. Refer to Note 33 to the Consolidated Financial Statements for additional information on operating and finance lease arrangements.

#### ***Impairment of long-lived assets***

The Corporation evaluates for impairment its long-lived assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and records a write down for the difference between the carrying amount and the fair value less costs to sell.

#### ***Other real estate***

Other real estate, received in satisfaction of a loan, is recorded at fair value less estimated costs of disposal. The difference between the carrying amount of the loan and the fair value less cost to sell is recorded as an adjustment to the ACL. Subsequent to foreclosure, any losses in the carrying value arising from periodic re-evaluations of the properties, and any gains or losses on the sale of these properties are credited or charged to expense in the period incurred and are included as OREO

expenses. The cost of maintaining and operating such properties is expensed as incurred.

Updated appraisals are obtained to adjust the value of the other real estate assets. The frequency depends on the loan type and total credit exposure. The appraisal for a commercial or construction other real estate property with a book value equal to or greater than $1 million is updated annually and if lower than $1 million it is updated every two years. For residential mortgage properties, the Corporation requests appraisals annually.

Appraisals may be adjusted due to age, collateral inspections, property profiles, or general market conditions. The adjustments applied are based upon internal information such as other appraisals for the type of properties and/or loss severity information that can provide historical trends in the real estate market and may change from time to time based on market conditions.

#### ***Goodwill and other intangible assets***

Goodwill is recognized when the purchase price is higher than the fair value of net assets acquired in business combinations under the purchase method of accounting. Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or circumstances indicate possible impairment. If the carrying amount of any of the reporting units exceeds its fair value, the Corporation would be required to record an impairment charge for the difference up to the amount of the goodwill. In determining the fair value of each reporting unit, the Corporation generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Goodwill impairment losses are recorded as part of operating expenses in the Consolidated Statements of Operations.

Other intangible assets deemed to have an indefinite life are not amortized but are tested for impairment using a one-step process which compares the fair value with the carrying amount of the asset. In determining that an intangible asset has an indefinite life, the Corporation considers expected cash inflows and legal, regulatory, contractual, competitive, economic and other factors, which could limit the intangible asset's useful life.

Other identifiable intangible assets with a finite useful life, mainly core deposits, are amortized using various methods over the periods benefited, which range from 5 to 10 years. These intangibles are evaluated periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments on intangible assets with a finite useful life are evaluated under the guidance for impairment or disposal of long-lived assets.

POPULAR, INC. 2022 ANNUAL REPORT 69

### **Assets sold / purchased under agreements to repurchase / resell**

Repurchase and resell agreements are treated as collateralized financing transactions and are carried at the amounts at which the assets will be subsequently reacquired or resold as specified in the respective agreements.

It is the Corporation's policy to take possession of securities purchased under agreements to resell. However, the counterparties to such agreements maintain effective control over such securities, and accordingly those securities are not reflected in the Corporation's Consolidated Statements of Financial Condition. The Corporation monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest.

It is the Corporation's policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the Consolidated Statements of Financial Condition.

The Corporation may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.

### **Software**

Capitalized software is stated at cost, less accumulated amortization. Capitalized software includes purchased software and capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line method, is charged to operations over the estimated useful life of the software. Capitalized software is included in 'Other assets' in the Consolidated Statement of Financial Condition.

### **Guarantees, including indirect guarantees of indebtedness to others**

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 considers current conditions, macroeconomic expectations through a 2-years reasonable and supportable period, gradually reverting over a 3-years horizon to historical loss experience, portfolio composition by risk characteristics, amongst other factors. 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 reserve for the estimated losses under the credit recourse arrangements is presented separately within other liabilities in the Consolidated Statements of Financial Condition. Refer to

Note 23 to the Consolidated Financial Statements for further disclosures on guarantees.

### **Treasury stock**

Treasury stock is recorded at cost and is carried as a reduction of stockholders' equity in the Consolidated Statements of Financial Condition. At the date of retirement or subsequent reissue, the treasury stock account is reduced by the cost of such stock. At retirement, the excess of the cost of the treasury stock over its par value is recorded entirely to surplus. At reissuance, the difference between the consideration received upon issuance and the specific cost is charged or credited to surplus.

### **Revenues from contract with customers**

Refer to Note 32 for a detailed description of the Corporation's policies on the recognition and presentation of revenues from contract with customers.

### **Foreign exchange**

Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using prevailing rates of exchange at the end of the period. Revenues, expenses, gains and losses are translated using weighted average rates for the period. The resulting foreign currency translation adjustment from operations for which the functional currency is other than the U.S. dollar is reported in accumulated other comprehensive loss, except for highly inflationary environments in which the effects are included in other operating expenses.

The Corporation holds interests in Centro Financiero BHD León, S.A. ('BHD León') in the Dominican Republic. The business of BHD León is mainly conducted in their country's foreign currency. The resulting foreign currency translation adjustment from these operations is reported in accumulated other comprehensive loss.

Refer to the disclosure of accumulated other comprehensive income (loss) included in Note 22.

### **Income taxes**

The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns. Deferred income tax assets and liabilities are determined for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in which the temporary differences are expected to be recovered or settled.

The guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50 percent) that such assets will not be realized. Accordingly, the need to

70 POPULAR, INC. 2022 ANNUAL REPORT

establish valuation allowances for deferred tax assets is assessed periodically by the Corporation based on the more likely than not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among others, all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, the future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified.

The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Corporation's financial statements or tax returns and future profitability. The Corporation's accounting for deferred tax consequences represents management's best estimate of those future events.

Positions taken in the Corporation's tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not (greater than 50%) that the position will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts. The amount of unrecognized tax benefit may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statute of limitations, changes in management's judgment about the level of uncertainty, including addition or elimination of uncertain tax positions, status of examinations, litigation, settlements with tax authorities and legislative activity.

The Corporation accounts for the taxes collected from customers and remitted to governmental authorities on a net basis (excluded from revenues).

Income tax expense or benefit for the year is allocated among continuing operations, discontinued operations, and other comprehensive income, as applicable. The amount allocated to continuing operations is the tax effect of the pre-tax income or loss from continuing operations that occurred during the year, plus or minus income tax effects of (a) changes in circumstances that cause a change in judgment about the realization of deferred tax assets in future years, (b) changes in tax laws or rates, (c) changes in tax status, and (d) tax-deductible dividends paid to stockholders, subject to certain exceptions.

#### ***Employees' retirement and other postretirement benefit plans***

Pension costs are computed on the basis of accepted actuarial methods and are charged to current operations. Net pension costs are based on various actuarial assumptions regarding

future experience under the plan, which include costs for services rendered during the period, interest costs and return on plan assets, as well as deferral and amortization of certain items such as actuarial gains or losses.

The funding policy is to contribute to the plan, as necessary, to provide for services to date and for those expected to be earned in the future. To the extent that these requirements are fully covered by assets in the plan, a contribution may not be made in a particular year.

The cost of postretirement benefits, which is determined based on actuarial assumptions and estimates of the costs of providing these benefits in the future, is accrued during the years that the employee renders the required service.

The guidance for compensation retirement benefits of ASC Topic 715 requires the recognition of the funded status of each defined pension benefit plan, retiree health care and other postretirement benefit plans on the Consolidated Statements of Financial Condition.

#### ***Stock-based compensation***

The Corporation opted to use the fair value method of recording stock-based compensation as described in the guidance for employee share plans in ASC Subtopic 718-50.

#### ***Comprehensive income***

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) is separately presented in the Consolidated Statements of Comprehensive Income.

#### ***Net income per common share***

Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or unpaid dividends if cumulative, and charges or credits related to the extinguishment of preferred stock or induced conversions of preferred stock, by the weighted average number of common shares outstanding during the year. Diluted income per common share takes into consideration the weighted average common shares adjusted for the effect of stock options, restricted stock, performance shares and warrants, if any, using the treasury stock method.

#### ***Statement of cash flows***

For purposes of reporting cash flows, cash includes cash on hand and amounts due from banks, including restricted cash.

POPULAR, INC. 2022 ANNUAL REPORT 71

# **Note 3 - New accounting pronouncements**  
 **Recently Adopted Accounting Standards Updates**

| Standard | Description | Date of adoption | Effect on the financial statements |
| --- | --- | --- | --- |
| FASB ASU 2022-06, Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848 | The FASB issued Accounting Standards Update (“ASU”) 2022-06 in December 2022, which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. Topic 848 provided optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. | December 21, 2022 | The Corporation was not impacted by the adoption of ASU 2022-06 during the fourth quarter of 2022 since it had adopted FASB ASU 2020-04, Reference Rate Reform (Topic 848) in December 2021, as disclosed in Note 2 to the Consolidated Financial Statements included in Form 10-K for the year ended December 31, 2021. The Corporation ceased originating LIBOR-based contracts in December 2021. |
| FASB ASU 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments | The FASB issued ASU 2021-05 in July 2021, which amends ASC Topic 842 so that lessors can classify as operating leases those leases with variable lease payments that, prior to these amendments, would have been classified as a sales-type or direct financing lease and at inception a loss would have been recognized. | January 1, 2022 | The Corporation was not impacted by the adoption of ASU 2021-05 during the first quarter of 2022 since it does not hold direct financing leases with variable lease payments. |
| FASB ASU 2021-04, Earnings per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) | The FASB issued ASU 2021-04 in May 2021, which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity. | January 1, 2022 | The Corporation was not impacted by the adoption of ASU 2021-04 during the first quarter of 2022 since it does not hold freestanding equity-classified written call options under the scope of this guidance. |
| FASB ASU 2020-06, Debt - Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity | The FASB issued ASU 2020-06 in August 2020 which, among other things, simplifies the accounting for convertible instruments and contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. | January 1, 2022 | The Corporation adopted ASU 2020-06 during the first quarter of 2022. There was no material impact upon the adoption in the analysis of the accelerated share repurchase transaction discussed in Note 17, which was classified as an equity instrument and the related potential shares were considered in its dilutive earnings per share calculation. |

72 POPULAR, INC. 2022 ANNUAL REPORT

# **FASB ASUs Financial Instruments - Credit Losses (Topic 326)**

The CECL model applies to financial assets measured at amortized cost that are subject to credit losses and certain off-balance sheet exposures. CECL establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired or originated. Under the revised methodology, credit losses are measured based on past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. CECL also revises the approach to recognizing credit losses for available-for-sale securities by replacing the direct write-down approach with the allowance approach and limiting the allowance to the amount at which the security's fair value is less than the amortized cost. In addition, CECL provides that the initial allowance for credit losses on purchased credit deteriorated ('PCD') financial assets will be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. The standards also expand credit quality disclosures. These accounting standards updates were effective on January 1, 2020. Prior to the adoption of CECL, the Corporation followed a systematic methodology to establish and evaluate the adequacy of the allowance for credit losses to provide for probable losses in the loan portfolio.

As a result of the adoption, the Corporation recorded an increase in its allowance for credit losses related to its loan portfolio of $315 million, and a decrease of $9 million in the allowance for credit losses for unfunded commitments and credit recourse guarantees which is recorded in Other Liabilities. The Corporation also recognized an allowance for credit losses of approximately $13 million related to its held-to-maturity debt securities portfolio. The adoption of CECL was recognized under the modified retrospective approach. Therefore, the adjustments to record the increase in the allowance for credit losses was recorded as a decrease to the opening balance of retained earnings of the year of implementation, net of income taxes, except for approximately $17 million related to loans previously accounted under ASC Subtopic 310-30, which resulted in a reclassification between certain contra loan balance accounts to the allowance for credit losses. The total impact to retained earnings, net of tax, related to the adoption of CECL was of $205.8 million. As part of the adoption of CECL, the Corporation made the election to break the existing pools of purchased credit impaired ('PCI') loans and, as such, these loans are no longer excluded from non-performing status.

# **Accounting Standards Updates Not Yet Adopted**

| Standard | Description | Date of adoption | Effect on the financial statements |
| --- | --- | --- | --- |
| FASB ASU 2022-05, Financial Services - Insurance (Topic 944) Transition for Sold Contracts | The FASB issued ASU 2022-05 in December 2022, which allows an insurance entity to make an accounting policy election of applying the Long-Duration Contracts (LDTI) transition guidance on a transaction-by-transaction basis if the contracts have been derecognized because of a sale or disposal and the insurance entity has no significant continuing involvement with the derecognized contract. | January 1, 2023 | The Corporation does not expect to be impacted by the adoption of this standard since it does not holds Long-Duration Contracts (LDTI). |
| FASB ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations | The FASB issued ASU 2022-04 in September 2022, which requires to disclose information about the use of supplier finance programs in connection with the purchase of goods and services. | January 1, 2023 | The Corporation does not expect to be impacted by the adoption of this standard since it does not use supplier finance programs. |
| FASB ASU 2022-03, Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction | The FASB issued ASU 2022-03 in June 2022, which clarifies that a contractual restriction that prohibits the sale of an equity security is not considered part of the unit of account of the equity security, therefore, is not considered in measuring its fair value. The ASU also provides enhanced disclosures for equity securities subject to a contractual sale restriction. | January 1, 2024 | The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect in its consolidated statement of financial condition and results of operations. |

POPULAR, INC. 2022 ANNUAL REPORT 73

| Standard | Description | Date of adoption | Effect on the financial statements |
| --- | --- | --- | --- |
| FASB ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures | The FASB issued ASU 2022-02 in March 2022, which eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 Receivables - Troubled Debt Restructurings by Creditors and requires creditors to apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. In addition, the ASU enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty and enhances the vintage disclosure by requiring the disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases. | January 1, 2023 | The adoption of this standard will result in enhanced disclosure for loans modified to borrowers with financial difficulties and the disclosure of gross charge offs by vintage year. The Corporation anticipates that there will be loans subject to disclosure under the new standard that did not qualify under the prior guidance given the removal of the concession requirement for such disclosures. The amended guidance eliminates the requirement to measure the effect of the concession from a loan modification, for which the Corporation used a discounted cash flow (“DCF”) model. The Corporation preliminarily estimates that the impact of discontinuing the use of the DCF model to measure the concession will result in a release of the ACL of approximately $45 million, mainly related to mortgage loans for which modifications mostly included a reduction in contractual interest rates and given the extended maturity term of these loans, this resulted in an increase in the ACL in the period of modification. The Corporation has elected to apply the modified retrospective approach for the adoption of this standard. Accordingly, this will be presented as an adjustment increase, net of tax effect, to the beginning balance of retained earnings upon adoption on January 1, 2023. |
| FASB ASU 2022-01, Derivatives and Hedging (Topic 815) - Fair Value Hedging - Portfolio Layer Method | The FASB issued ASU 2022-01 in March 2022, which amends ASC Topic 815 by allowing non prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. This amendment permits an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable and non-prepayable financial assets without considering prepayment risk or credit risk when measuring those assets. | January 1, 2023 | The Corporation does not expect to be impacted by the adoption of this standard since it does not hold derivatives designated as fair value hedges. |
| FASB ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | The FASB issued ASU 2021-08 in October 2021, which amends ASC Topic 805 by requiring contract assets and contract liabilities arising from revenue contract with customers to be recognized in accordance with ASC Topic 606 on the acquisition date instead of fair value. | January 1, 2023 | Upon adoption of this ASU, The Corporation will consider this guidance for revenue contracts with customers recognized as part of business combinations entered into on or after the effective date. |

74 POPULAR, INC. 2022 ANNUAL REPORT

#### Note 4 - Business combinations

#### Acquisition of key customer channels and business from Evertec

On July 1, 2022, BPPR completed its previously announced acquisition of certain assets used by Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”), to service certain BPPR channels (“Business Acquisition Transaction”).

As a result of the closing of the Business Acquisition Transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. In connection with the Business Acquisition Transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.

Under the amended service agreements, Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. The amended service agreements include discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec also entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. Under the terms of the amended and restated Master Service Agreement (“MSA”), Evertec will be entitled to receive monthly payments from the Corporation to the extent that Evertec’s revenues, covered under the MSA, fall below certain agreed annualized minimum amounts.

As consideration for the Business Acquisition Transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169.2 million (based on Evertec’s stock price on June 30, 2022 of $36.88). A total of $144.8 million of the consideration for the transaction was attributed to the acquisition of the critical channels of which $28.7 million were attributed to Software Intangible Assets and $116.1 million were attributed to goodwill. The transaction was accounted for as a business combination. The remaining $24.2 million was attributed to the renegotiation of the MSA with Evertec and was recorded as an expense. The Corporation also recorded a credit of $6.9 million in Evertec billings under the MSA during the third quarter of 2022 as a result of the Business Acquisition Transaction, resulting in a net expense charge of $17.3 million.

On August 15, 2022, the Corporation completed the sale of its remaining 7,065,634 shares of common stock of Evertec (the “Evertec Stock Sale”, and collectively with the Business Acquisition Transaction, the “Evertec Transactions”). Following the Evertec Stock Sale, Popular no longer owns any Evertec common stock. The impact of the gain on the sale of Evertec shares used as consideration for the Business Acquisition Transaction in exchange for the acquired applications on July 1, 2022 and the net expense associated

with the renegotiation of the MSA, together with the Evertec Stock Sale and the related accounting adjustments of the Evertec Transactions, resulted in an aggregate after-tax gain of $226.6 million, recorded during the third quarter of 2022.

The following table presents the fair values of the consideration and major classes of identifiable assets acquired by BPPR as of July 1, 2022.

| (In thousands) | Fair Value |
| --- | --- |
| Stock consideration | $144,785 |
| Total consideration | $144,785 |
| Assets: |  |
| Developed technology - Software intangible assets | $28,650 |
| Total assets | $28,650 |
| Net assets acquired | $28,650 |
| Goodwill on acquisition | $116,135 |

The fair value initially assigned to the assets acquired is preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair value becomes available. As the Corporation finalizes its analysis, there may continue to be adjustments to the recorded carrying values, and thus the recognized goodwill may increase or decrease.

The following is a description of the methods used to determine the fair values of significant assets acquired in the Business Acquisition Transaction:

#### *Developed technology - Software intangible assets*

In order to determine the fair value of the developed technology acquired, the Corporation considered the guidance in ASC Topic 820, Fair Value Measurements. The Corporation used the cost replacement methodology and estimated the cost that would be incurred in developing the acquired technology as the assets’ fair value. In developing this estimate, the Corporation considered the historical direct costs as well as indirect costs and applied an inflation factor to arrive at what would be the current replacement cost. To this estimated cost, the Corporation applied an obsolescence factor to arrive at the estimated fair value of the acquired technology. The obsolescence factor considered the estimated remaining useful life of the acquired software, considering existing and upcoming technology changes, as well as the scalability of the system architecture for further developments. This software acquired for internal use is recorded within Other Assets in the accompanying Consolidated Financial Statements and will be amortized over its current estimated remaining useful life of 5 years.

#### *Goodwill*

The goodwill is the residual difference between the consideration transferred to Evertec and the fair value of the

POPULAR, INC. 2022 ANNUAL REPORT 75

assets acquired, net of the liabilities assumed, if any. The entire amount of goodwill is deductible for income tax purposes pursuant to P.R. Internal Revenue Code (“IRC”) section 1033.07 over a 15-year period.

The Corporation believes that given the amount of assets acquired and the size of the operations acquired in relation to Popular’s operations, the historical results of Evertec are not material to Popular’s results, and thus no pro forma information is presented.

### **Acquisition of K2 Capital Group LLC’s equipment leasing and financing business**

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 K2 Capital Group LLC’s (“K2”) equipment leasing and financing business based in Minnesota (the “Acquired Business”). Commercial loans acquired by PEF as part of this transaction consisted of $105 million in commercial direct financing leases and $14 million in working capital lines.

Specializing in the healthcare industry, the Acquired Business provided a variety of lease products, including operating and finance 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 health care lending business.

The following table presents the fair values of the consideration and major classes of identifiable assets acquired and liabilities assumed by PEF as of October 15, 2021.

| (In thousands) | Fair Value |
| --- | --- |
| Cash consideration | $156,628 |
| Contingent consideration | 9,241 |
| Total consideration | $165,869 |
| Assets: |  |
| Cash and due from banks | $800 |
| Commercial loans | 115,575 |
| Premises and equipment | 8,996 |
| Accrued income receivable | 57 |
| Other assets | 2,822 |
| Other intangible assets | 2,887 |
| Total assets | $131,137 |
| Other liabilities | 14,439 |
| Total liabilities | $14,439 |
| Net assets acquired | $116,698 |
| Goodwill on acquisition | $49,171 |

The fair value initially assigned to the assets acquired is preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative

to closing date fair value becomes available. As the Corporation finalizes its analysis, there may continue to be adjustments to the recorded carrying values, and thus the recognized goodwill may increase or decrease.

Following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed on the K2 Transaction:

#### ***Commercial Loans***

In determining the fair value of commercial direct financing leases, the specific terms and conditions of each lease agreement were considered. The fair values for commercial direct financing leases were calculated based on the fair value of the underlying collateral, or from the cash flows expected to be collected discounted at a market rate commensurate with the credit risk profile of the lessee at origination in instances where there was a purchase option at the end of the lease term with a stated guaranteed residual value. Fair values for commercial working capital lines were calculated based on the present value of remaining contractual payments discounted at a market rate commensurate with the credit risk profile of the borrower at origination. These commercial loans were accounted for under ASC Subtopic 310-20. As of October 15, 2021, the gross contractual receivable for commercial loans amounted to $125 million. An allowance for credit losses of $1 million was recognized as of October 15, 2021 with an offset to provision for credit losses, which represents the estimate of contractual cash flows not expected to be collected.

#### ***Goodwill***

The amount of goodwill is the residual difference between the consideration transferred to K2 and the fair value of the assets acquired, net of the liabilities assumed. The entire amount of goodwill is deductible for income tax purposes pursuant to U.S. Internal Revenue Code (“IRC”) section 197 over a 15-year period.

During the third quarter of 2022, the Corporation revised its projected earnings related to this Acquired Business, and accordingly, recorded a goodwill impairment charge of $9.0 million.

#### ***Contingent consideration***

The fair value of the contingent consideration, which related to approximately $29 million in earnout payments that could be payable to K2 over a three-year period, was calculated based on a Montecarlo Simulation model.

During the third quarter of 2022, the Corporation updated its estimates related to the ability to realize the earnings targets for the contingent payment, and accordingly, recorded a positive adjustment of $9.2 million related this liability.

The Corporation believes that given the amount of assets and liabilities assumed and the size of the operations acquired in relation to Popular’s operations, the historical results of K2 are not significant to Popular’s results, and thus no pro forma information is presented.

76 POPULAR, INC. 2022 ANNUAL REPORT

#### Note 5 - Restrictions on cash and due from banks and certain securities

BPPR is required by regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $2.8 billion at December 31, 2022 (December 31, 2021 - $2.7 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At December 31, 2022, the Corporation held $80 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2021 - $50 million). The restricted assets held in debt securities available for sale and equity securities consist primarily of assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

#### Note 6 - Debt securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities available-for-sale at December 31, 2022 and December 31, 2021.

| (In thousands) | At December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield |
| U.S. Treasury securities |  |  |  |  |  |
| Within 1 year | $4,576,127 | $506 | $47,156 | $4,529,477 | 2.42% |
| After 1 to 5 years | 6,793,739 | - | 410,858 | 6,382,881 | 1.35 |
| After 5 to 10 years | 308,854 | - | 40,264 | 268,590 | 1.63 |
| Total U.S. Treasury securities | 11,678,720 | 506 | 498,278 | 11,180,948 | 1.78 |
| Collateralized mortgage obligations - federal agencies |  |  |  |  |  |
| After 1 to 5 years | 3,914 | - | 213 | 3,701 | 1.77 |
| After 5 to 10 years | 47,979 | - | 3,428 | 44,551 | 1.73 |
| After 10 years | 127,639 | 24 | 10,719 | 116,944 | 2.53 |
| Total collateralized mortgage obligations - federal agencies | 179,532 | 24 | 14,360 | 165,196 | 2.30 |
| Mortgage-backed securities |  |  |  |  |  |
| After 1 to 5 years | 74,328 | 11 | 3,428 | 70,911 | 2.33 |
| After 5 to 10 years | 866,757 | 43 | 58,997 | 807,803 | 2.16 |
| After 10 years | 6,762,150 | 932 | 1,184,626 | 5,578,456 | 1.61 |
| Total mortgage-backed securities | 7,703,235 | 986 | 1,247,051 | 6,457,170 | 1.68 |
| Other |  |  |  |  |  |
| After 1 to 5 years | 1,062 | - | 2 | 1,060 | 3.98 |
| Total other | 1,062 | - | 2 | 1,060 | 3.98 |
| Total debt securities available-for-sale [1] | $19,562,549 | $1,516 | $1,759,691 | $17,804,374 | 1.75% |

[1] Includes $11.3 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $10.3 billion serve as collateral for public funds.

POPULAR, INC. 2022 ANNUAL REPORT 77

At December 31, 2021

| (In thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield |
| --- | --- | --- | --- | --- | --- |
| U.S. Treasury securities |  |  |  |  |  |
| Within 1 year | $1,225,558 | $13,556 | $69 | $1,239,045 | 2.33% |
| After 1 to 5 years | 10,059,163 | 98,808 | 65,186 | 10,092,785 | 1.18 |
| After 5 to 10 years | 4,563,265 | 739 | 36,804 | 4,527,200 | 1.22 |
| Total U.S. Treasury securities | 15,847,986 | 113,103 | 102,059 | 15,859,030 | 1.27 |
| Obligations of U.S. Government sponsored entities |  |  |  |  |  |
| Within 1 year | 70 | - | - | 70 | 5.63 |
| Total obligations of U.S. Government sponsored entities | 70 | - | - | 70 | 5.63 |
| Collateralized mortgage obligations - federal agencies |  |  |  |  |  |
| After 1 to 5 years | 2,433 | 42 | - | 2,475 | 2.16 |
| After 5 to 10 years | 43,241 | 295 | 6 | 43,530 | 1.54 |
| After 10 years | 172,176 | 3,441 | 357 | 175,260 | 2.13 |
| Total collateralized mortgage obligations - federal agencies | 217,850 | 3,778 | 363 | 221,265 | 2.01 |
| Mortgage-backed securities |  |  |  |  |  |
| Within 1 year | 11 | 1 | - | 12 | 4.79 |
| After 1 to 5 years | 65,749 | 2,380 | 11 | 68,118 | 2.23 |
| After 5 to 10 years | 665,600 | 17,998 | 5 | 683,593 | 1.97 |
| After 10 years | 8,263,835 | 68,128 | 195,910 | 8,136,053 | 1.67 |
| Total mortgage-backed securities | 8,995,195 | 88,507 | 195,926 | 8,887,776 | 1.69 |
| Other |  |  |  |  |  |
| After 1 to 5 years | 123 | 5 | - | 128 | 3.62 |
| Total other | 123 | 5 | - | 128 | 3.62 |
| Total debt securities available-for-sale [1] | $25,061,224 | $205,393 | $298,348 | $24,968,269 | 1.42% |

[1] Includes $22.0 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $20.9 billion serve as collateral for public funds.

The weighted average yield on debt securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following table presents the aggregate amortized cost and fair value of debt securities available-for-sale at December 31, 2022 by contractual maturity.

| (In thousands) | Amortized cost | Fair value |
| --- | --- | --- |
| Within 1 year | $4,576,127 | $4,529,477 |
| After 1 to 5 years | 6,873,043 | 6,458,553 |
| After 5 to 10 years | 1,223,590 | 1,120,944 |
| After 10 years | 6,889,789 | 5,695,400 |
| Total debt securities available-for-sale | $19,562,549 | $17,804,374 |

There were no debt securities available-for-sale sold during the year ended December 31, 2022. During the year ended December 31, 2021, the Corporation sold U.S. Treasury Notes. The proceeds from these sales were $236 million. Gross realized gains and losses on the sale of debt securities available-for-sale for the years ended December 31, 2022, 2021 and 2020 were as follows:

| (In thousands) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Gross realized gains | $ - | $695 | $41 |
| Gross realized losses | - | (672) | - |
| Net realized gains (losses) on sale of debt securities available-for-sale | $ - | $23 | $41 |

78 POPULAR, INC. 2022 ANNUAL REPORT

The following tables present the Corporation's fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2022 and 2021.

|  | At December 31, 2022 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Less than 12 months |  | 12 months or more |  | Total |  |
|  | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses |
| (In thousands) |  |  |  |  |  |  |
| U.S. Treasury securities | $6,027,786 | $288,582 | $3,244,572 | $209,696 | $9,272,358 | $498,278 |
| Collateralized mortgage obligations - federal agencies | 139,845 | 10,655 | 22,661 | 3,705 | 162,506 | 14,360 |
| Mortgage-backed securities | 1,740,214 | 138,071 | 4,662,195 | 1,108,980 | 6,402,409 | 1,247,051 |
| Other | 60 | 2 | - | - | 60 | 2 |
| Total debt securities available-for-sale in an unrealized loss position | $7,907,905 | $437,310 | $7,929,428 | $1,322,381 | $15,837,333 | $1,759,691 |

|  | At December 31, 2021 |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Less than 12 months |  | 12 months or more |  | Total |  |
|  | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses |
| (In thousands) |  |  |  |  |  |  |
| U.S. Treasury securities | $9,590,448 | $102,059 | $ - | $ - | $9,590,448 | $102,059 |
| Collateralized mortgage obligations - federal agencies | 35,533 | 334 | 1,084 | 29 | 36,617 | 363 |
| Mortgage-backed securities | 5,767,556 | 170,614 | 595,051 | 25,312 | 6,362,607 | 195,926 |
| Total debt securities available-for-sale in an unrealized loss position | $15,393,537 | $273,007 | $596,135 | $25,341 | $15,989,672 | $298,348 |

As of December 31, 2022, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $1.8 billion, driven mainly by fixed-rate U.S. Treasury Securities and mortgage-backed securities, which have been impacted by a decline in fair value as a result of the rising interest rate environment. The portfolio of available-for-sale debt securities is comprised mainly of U.S Treasuries and obligations from the U.S. Government, its agencies or government sponsored entities, including FNMA, FHMLC and GNMA. As discussed in Note 2 to the Consolidated Financial Statements, these securities carry an explicit or implicit guarantee from the U.S. Government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established.

In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. Management changed its intent, given its ability to hold these securities to maturity due to the Corporation's liquidity position and its intention to reduce the impact on accumulated other comprehensive income (loss) ('AOCI') and tangible capital of further increases in interest rates. The securities were reclassified at fair value at the time of the transfer. At the date of the transfer, these securities had pre-tax unrealized losses of $873.0 million recorded in AOCI. This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting each other through the remaining life of the securities. There were no realized gains or losses recorded as a result of this transfer.

POPULAR, INC. 2022 ANNUAL REPORT 79

## Note 7 - Debt securities held-to-maturity

The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at December 31, 2022 and 2021.

| (In thousands) | At December 31, 2022 |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Amortized cost | Book [1] Value | Allowance for Credit Losses | Carrying Value Net of Allowance | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield |
| U.S. Treasury securities |  |  |  |  |  |  |  |  |
| Within 1 year | $499,034 | $499,034 | $ - | $499,034 | $ - | $6,203 | $492,831 | 2.83% |
| After 1 to 5 years | 6,147,568 | 5,640,767 | - | 5,640,767 | - | 59,806 | 5,580,961 | 1.49 |
| After 5 to 10 years | 2,638,238 | 2,313,666 | - | 2,313,666 | - | 14,857 | 2,298,809 | 1.41 |
| Total U.S. Treasury securities | 9,284,840 | 8,453,467 | - | 8,453,467 | - | 80,866 | 8,372,601 | 1.54 |
| Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |
| Within 1 year | 4,530 | 4,530 | 8 | 4,522 | 5 | - | 4,527 | 6.08 |
| After 1 to 5 years | 19,105 | 19,105 | 234 | 18,871 | 150 | 82 | 18,939 | 4.24 |
| After 5 to 10 years | 1,025 | 1,025 | 34 | 991 | 34 | - | 1,025 | 5.80 |
| After 10 years | 41,261 | 41,261 | 6,635 | 34,626 | 4,729 | 2,229 | 37,126 | 1.40 |
| Total obligations of Puerto Rico, States and political subdivisions | 65,921 | 65,921 | 6,911 | 59,010 | 4,918 | 2,311 | 61,617 | 2.61 |
| Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |
| After 1 to 5 years | 19 | 19 | - | 19 | - | - | 19 | 6.44 |
| Total collateralized mortgage obligations - federal agencies | 19 | 19 | - | 19 | - | - | 19 | 6.44 |
| Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |  |
| After 10 years | 5,959 | 5,959 | - | 5,959 | - | - | 5,959 | 6.33 |
| Total securities in wholly owned statutory business trusts | 5,959 | 5,959 | - | 5,959 | - | - | 5,959 | 6.33 |
| Total debt securities held-to-maturity [2] | $9,356,739 | $8,525,366 | $6,911 | $8,518,455 | $4,918 | $83,177 | $8,440,196 | 1.55% |

[1] Book value includes $831 million of net unrealized loss which remains in Accumulated other comprehensive income (AOCI) related to certain securities transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio as discussed in Note 6.

[2] Includes $6.9 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

| (In thousands) | At December 31, 2021 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Amortized cost | Allowance for Credit Losses | Net of Allowance | Gross unrealized gains | Gross unrealized losses | Fair value | Weighted average yield |
| Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |
| Within 1 year | $4,240 | $7 | $4,233 | $4 | $ - | $4,237 | 6.07% |
| After 1 to 5 years | 14,395 | 148 | 14,247 | 149 | - | 14,396 | 6.23 |
| After 5 to 10 years | 11,280 | 122 | 11,158 | 104 | - | 11,262 | 2.18 |
| After 10 years | 43,561 | 7,819 | 35,742 | 11,746 | - | 47,488 | 1.50 |
| Total obligations of Puerto Rico, States and political subdivisions | 73,476 | 8,096 | 65,380 | 12,003 | - | 77,383 | 2.79 |
| Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |
| After 1 to 5 years | 25 | - | 25 | - | - | 25 | 6.44 |
| Total collateralized mortgage obligations - federal agencies | 25 | - | 25 | - | - | 25 | 6.44 |
| Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |
| After 10 years | 5,960 | - | 5,960 | - | - | 5,960 | 6.33 |
| Total securities in wholly owned statutory business trusts | 5,960 | - | 5,960 | - | - | 5,960 | 6.33 |
| Total debt securities held-to-maturity | $79,461 | $8,096 | $71,365 | $12,003 | $ - | $83,368 | 3.06% |

80 POPULAR, INC. 2022 ANNUAL REPORT

**Time limit hit – remaining pages or documents were skipped.**