EDGAR 10-K Filing

Company CIK: 763901
Filing Year: 2024
Filename: 763901_10-K_2024_0001193125-24-053017.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
General
Popular
is
a diversified,
publicly-owned financial
holding company,
registered under
the Bank
Holding Company
Act
of
1956, as
amended (the “BHC Act”), and subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”). Popular was incorporated in 1984 under the laws of the Commonwealth of Puerto Rico and is the
largest
financial institution
based in Puerto
Rico, with
consolidated assets of
$70.8 billion, total
deposits of
$63.6 billion
and stockholders’
equity of $5.1 billion at
December 31, 2023. At December 31,
2023, we ranked among the
50 largest U.S. bank holding companies
based on total assets according to information gathered
and disclosed by the Federal Reserve Board.
We operate in two principal markets:
●
Puerto Rico:
We
provide retail,
mortgage and
commercial banking
services through
our principal
banking subsidiary,
Banco
Popular
de
Puerto
Rico
(“Banco
Popular”
or
“BPPR”),
as
well
as
auto
and
equipment
leasing
and
financing,
investment
banking,
broker-dealer
and
insurance
services
through
specialized
subsidiaries.
BPPR’s
deposits
are
insured
under
the
Deposit Insurance
Fund (“DIF”)
of the
Federal Deposit
Insurance Corporation (“FDIC”).
The banking
operations of
BPPR are
primarily based in Puerto Rico, where BPPR has the
largest retail banking franchise.
●
Mainland
United
States:
We
provide
retail,
mortgage
and
commercial
banking
services
through
our
New
York-chartered
banking subsidiary,
Popular Bank (“PB” or
“Popular U.S.”), which has
branches in New York,
New Jersey and Florida;
as well
as investment and
insurance services, and commercial
direct financing leases through
specialized subsidiaries. PB’s deposits
are insured under the DIF of the FDIC.
●
BPPR
also
conducts
banking
operations
in
the
U.S.
Virgin
Islands,
the
British
Virgin
Islands
and
New
York.
In
addition
to
BPPR’s commercial
banking operations
in New
York
that include
direct loan
origination and
participating loans
originated by
PB,
BPPR
offers
or
holds
financial
products
on
a
National
scale
in
the
U.S.
market,
including
personal
loans
previously
originated under
the E-Loan
brand, purchased
personal loans
originated by
third parties,
and
gathering insured
institutional
deposits via online deposit gathering platforms. In the U.S. and British
Virgin Islands, BPPR offers a range of banking products,
including loans and deposits to both retail and
commercial customers.
For further information about the Corporation’s results segregated by
its reportable segments, see “Reportable Segment Results” in
the Management’s Discussion
and Analysis of
Financial Condition and Results
of Operations section
(“MD&A”) and Note
37 to the
Consolidated Financial Statements included in this Form
10-K.
Transformation Initiative:
The
Corporation
launched
a
significant,
multi-year,
broad-based
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, compelling us
to make important investments in our technological infrastructure and adopt more agile practices. We
believe these investments will
result in an enhanced digital experience for our clients, as
well as better technology and more efficient processes for our employees,
and 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.
Our technology and business transformation
will be a significant
priority for the Corporation over
the next three years
and beyond. Refer to the Overview section
of Management’s Discussion and Analysis included in
this Form 10-K for information on
recent significant events that have impacted or will
impact our current and future operations.
Lending Activities
We concentrate our lending activities in the following areas:
(1) Commercial.
Commercial loans are comprised of (i) commercial and industrial (“C&I”) loans and leases to commercial customers
for
use
in
normal
business
operations
and
to
finance
working
capital
needs,
equipment
purchases
or
other
projects,
and
(ii)
commercial real
estate (“CRE”) loans
(excluding construction loans)
for income-producing real
estate properties as
well as
owner-
occupied properties. C&I
loans are underwritten
individually and usually
secured with the
assets of the
company and the
personal
guarantee
of
the
business
owners. CRE
loans consist
of
loans
for
income-producing real
estate
properties and
the financing
of
owner-occupied facilities
if there
is real
estate as
collateral. Non-owner-occupied
CRE loans
are generally
made to
finance office
and
industrial buildings,
healthcare facilities,
multifamily buildings
and
retail shopping
centers
and are
repaid through
cash
flows
related to the operation, sale or refinancing of the
property.
(2) Mortgage. Mortgage
loans include residential
mortgage loans to
consumers for the
purchase or refinancing
of a
residence and
also include residential construction loans made
to individuals for the construction of refurbishment
of their residence.
(3) Consumer.
Consumer loans
are mainly
comprised of
unsecured personal
loans, credit
cards, and
automobile loans,
and to
a
lesser extent home equity lines of credit (“HELOCs”)
and other loans made by banks to individual
borrowers.
(4) Construction.
Construction loans are CRE loans to companies,
community or homeowners’ associations, or developers used for
the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of
the property.
Our construction loan
portfolio primarily consists
of retail, residential
(land and condominiums),
office and warehouse
product types.
(5) Lease Financings. Lease financings are offered by
BPPR and are primarily comprised of automobile loans/leases made through
automotive dealerships.
Business Concentration
Since our
business activities
are currently concentrated
primarily in
Puerto Rico,
our results
of operations
and financial
condition are dependent upon the general trends of
the Puerto Rico economy and, in particular,
the residential and commercial real
estate markets. The concentration of our
operations in Puerto Rico exposes us
to greater risk than other
banking companies with a
wider
geographic
base.
Our
asset
and
revenue
composition
by
geographical
area
is
presented
in
“Financial
Information
about
Geographic Areas” below and in Note 37 to the
Consolidated Financial Statements included in this
Form 10-K.
Our loan portfolio is diversified by loan category.
However, approximately 55% of our loan portfolio at December 31, 2023 consisted
of real estate-related
loans, including residential
mortgage loans, construction
loans and commercial
loans secured by
commercial
real estate. The table below presents the distribution
of our loan portfolio by loan category at
December 31, 2023.
Loan category
(Dollars in millions)
BPPR
%
PB
%
POPULAR
%
C&I
$4,796
$2,330
$7,126
CRE
4,695
5,888
10,583
Construction
Leasing
1,732
-
-
1,732
Consumer
6,726
6,969
Mortgage
6,392
1,304
7,696
Total
$24,511
$10,554
$35,065
Except for
the Corporation’s
exposure to
the Puerto
Rico Government
sector,
no individual
or single
group of
related accounts
is
considered material
in relation
to our
total assets
or deposits,
or in
relation to
our overall
business.
For a
discussion of
our loan
portfolio, our
deposits portfolio
and our
exposure to
the Government
of Puerto
Rico, see
“Financial Condition
- Loans”,
“Financial
Condition
-
Deposits”
and
“Credit
Risk
-
Geographical and
Government
Risk” in
the
MD&A
and
to
Note
-
Commitment and
Contingencies to the Consolidated Financial Statements
included in this Form 10-K.
Credit
Administration
and
Credit
Policies
Interest
from our
loan portfolios
is our
principal source
of revenue.
Whenever we
make loans,
we expose
ourselves
to
credit
risk.
Credit
risk
is
controlled
and
monitored
through
active
asset
quality
management,
including
the
use
of
lending
standards,
thorough
review
of
potential
borrowers
and through
active
asset quality
administration.
Business
activities
that
expose
us to
credit
risk are
managed
within
the
Board
of Director’s
Risk Management policy,
and the Credit Risk Tolerance
Limits policy,
which establishes
limits
that
consider
factors
such
as maintainin
g
a prudent
balance
of risk-taking
across
diversified
risk types
and business
units,
compliance
with regulator
y
guidance,
and
controlling
the
exposure
to lower
credit
quality
assets.
We maintain
comprehensive
credit policies
for all lines of
business in order
to mitigate credit
risk. Our credit
policies
are
approved by
our Board
of Directors.
These policies set
forth,
among
other
things,
the objectives, scope and
responsibilities of the
credit
management cycle.
Our
internal
written
procedures
establish
underwriting
standards
and
procedures
for
monitoring
and
evaluating
loan
portfolio
quality
and
require
prompt
identificatio
n
and
quantificatio
n
of
asset
quality
deterioration
or
potential
loss
to
ensure
the
adequacy
of
the
allowance
for
credit
losses.
These
written
procedures
establish
various
approval
and
lending
limit
levels,
ranging
from
bank
branch
or
department
officers
to
managerial
and
senior
management
levels.
Approval
levels are
primarily
determined
by the
amount,
type
of loan
and risk
characteristics
of the credit
facility.
Our
credit
policies
and
procedures
establish
documentation
requirements
for
each
loan
and
related
collateral
type,
when
applicable,
during
the
underwriting,
closing
and
monitoring
phases.
For
commercial
and
construction
loans,
during
the
initial
loan
underwriting
process,
the
credit
policies
require,
at
a
minimum,
historical
financial
statements
or
tax
returns
of
the
borrower,
an analysis
of financial
information
contained
in
a
credit
approval
package,
a
risk
rating
determination
and
reports
from
credit
agencies
and appraisal
s
for
real
estate-related
loans when applicable
.
The credit
policies
also
set
forth
the
required
closing
documentation
depending
on the
loan
and the
collateral
type.
Although
we originat
e
most
of our
loans
internally
in both
the
Puerto
Rico
and mainlan
d
United
States
markets,
we
occasionally
purchase
or
participate
in
loans
originated
by
other
financial
institutions.
When
we
purchase
or
participate
in
loans
originated
by
others,
we
conduct
the
same
underwriting
analysis
of
the borrower
s
and apply
the
same
criteria
as we do
for
loans
originated
by us. This also
includes
a review
of the
applicable
legal
documentation.
Refer
to
the
Credit
Risk
section
of
the
MD&A
included
in
this
Form
10-K
for
information
related
to
management
committees and divisions with responsibilities for establishing
policies and monitoring the Corporation’s credit risk.
Loan
extensions
,
renewals
and restructurings
Loans with
satisfactory
credit profiles
can be
extended, renewed
or restructured
.
Some commercia
l
loan facilities
are
structured
as lines
of credit, which
are mainly
one year
in term
and therefore
are required
to be renewed
annually.
Other
facilities
may be restructure
d
or extended
from time
to time based
upon changes
in the
borrower’s
business
needs,
use
of
funds,
timing
of
completion
of
projects
and
other
factors.
If
the
borrower
is
not
deemed
to
have
financial
difficulties
,
extensions,
renewals
and restructurings
are done
in the
normal
course
of busines
s
and the
loans
continue
to be recorde
d
as performing.
We
evaluate
various
factors
to
determine
if
a
borrower
is
experiencing
financial
difficulties.
Indicators
that
the
borrower
is
experiencing
financial difficultie
s
include,
for example:
(i)
the borrower
is currently
in default on
any of its debt
or it is
probable tha
t
the borrower
would be
in payment
default on
any of
its debt
in th
e
foreseeable
future
without
the modification
;
(ii)
the
borrower
has declare
d
or is in
the
process
of declarin
g
bankruptcy;
(iii)
there
is significan
t
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 threa
t
of bein
g
delisted
from
an exchange
;
(v) based
on estimates
and projection
s
that
only
encompass
the
current
business
capabilities
,
the
borrower
forecasts
that
its
entity-specifi
c
cash
flows
will
be
insufficien
t
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.
We
have
specialized
workout
officers
who
handle
the majority
of
commercial
loans
that
are
past
due
days
and
over,
borrowers
experiencing
financial
difficulties
,
and loans
that
are considere
d
problem
loans
based
on their
risk profile
.
As a
general
policy,
we
do
not
advance
additional
money
to
borrowers
who
have
loans
that
are
days
past
due
or
over.
In
commercial
and
construction
loans,
certain
exceptions
may
be approve
d
under
certain
circumstances,
including
(i) when
past
due
status
is administrativ
e
in nature,
such
as expiration
of a loan
facility
before
the
new documentatio
n
is executed,
and not as
a result
of paymen
t
or credit
issues;
(ii) to
improve
our collateral
position
or
otherwise
maximize
recovery
or
mitigate
potential
future
losses;
and
(iii)
with
respect
to
certain
entities
that,
although
related
through
common
ownership,
are
not
cross
defaulted
nor
cross-collateralized
and
are
performing
satisfactorily
under
their
respective
loan
facilities.
Such
advances
are
underwritten
and
approved
following
our
credit
policy
guidelines
and
limits,
which
are
dependent
on
the
borrower’s
financial
condition,
collateral
and guarantee,
among
others.
In addition
to the legal
lending limit
established under
applicable
state banking
law, discusse
d
in detail
below,
business
activities
that
expose the
Corporation to
credit
risk
are managed
within
guidelines described
in the
Credit
Risk Tolerance
Limits
policy.
Limits are defined for
loss and credit
performance metrics, portfolio composition and
concentration, and industry and
name-
level,
which
monitors
lending
concentration
to
a
single
borrower
or
a
group
of
related
borrowers,
including
specific
lending
limits
based
on industr
y
or other
criteria,
such
as a percentage
of the
banks’
capital.
Refer to Note 2 and Note 9 to the Consolidated Financial Statements included
in this Form 10-K, for additional information
on loan modifications to borrowers with financial difficulties.
Competition
The
financial
services
industry
in
which
we
operate
is
highly
competitive.
In
Puerto
Rico,
our
primary
market,
the
banking
business
is
highly
competitive
with
respect
to
originatin
g
loans,
acquiring
deposits
and
providing
other
banking
services.
Most
of
our
direct
competitio
n
for
our
products
and
services
comes
from
commercial
banks and
credit unions.
The
principal
competitors
for
BPPR
include
locally
based
commercial
banks
and
a
few
large
U.S.
and
foreign
banks
with
operations in
Puerto Rico.
While
the
number of
banking competitors
in Puerto
Rico
has been
reduced
in
recent years
as
a
result
of
consolidations,
these
transactions
have
allowed
some
of
our
competitors
to
gain
greater
resources,
such
as
a
broader range of products
and services.
We
also
compete
with
specialized
players
in th
e
local
financial
industry
that
are
not subjec
t
to
the
same
regulatory
restrictions
as domestic
banks
and bank holdin
g
companies.
Those
competitors
include
brokerage
firms,
mortgage
companies,
insurance
companies,
automobile
and
equipment
finance
companies,
local
and
federal
credit
unions
(locally
known
as
“cooperativas”),
credit car
d
companies,
consumer
finance
companies,
institutional
lenders
and other
financial
and non-financia
l
institutions
and
entities.
Credit
unions
generally
provide
basic
consumer
financial
services.
These
competitors
collectively
represent a significant
portion of the
market and have
a lower cost structure
and fewer regulatory
constraints.
In
the
United
States
we
continue
to
face
substantial
competitive
pressure
as
our
footprint
resides
in
the
two
large,
metropolitan markets of
New York
City / Northern
New Jersey and
the greater Miami
area.
There is a
large number of
community
and
regional
banks
along
with
national
banking
institutions
present
in
both
markets,
many
of
which
have
a
larger
amount
of
resources than us.
In both
Puerto Rico
and the
United States,
the primary
factors in
competing
for business
include
pricing,
convenience
of branch
locations
and other
delivery
methods,
range of
products offered,
and the
level of
service delivered.
We must
compete
effectively
along
all
these
parameters
to
be
successful.
We
experience
pricing
pressure
as
some
of
our
competitors
seek
to
increase
market
share
by
reducing
prices
for
services
or
the
rates
charged
on
loans,
increasing
the
interest
rates
offered
on
deposits
or offering
more flexible
terms. Increased
competition
could require
that we
increase
the rates
offered
on deposits
and
lower the rates
charged on loans,
which could adversely
affect our profitability.
Economic
factors,
along
with
legislative
and
technological
changes,
have
an
ongoing
impact
on
the
competitive
environment
within
the financia
l
services
industry.
We work
to anticipat
e
and adap
t
to dynamic
competitive
conditions
whether
through developing
and marketing
innovative
products
and services,
adopting
or developin
g
new technologie
s
that
differentiat
e
our products
and
services,
cross-marketing,
or
providing
personalized
banking
services.
We
strive
to
distinguish
ourselves
from
other
banks
and
financial
services
providers
in our
marketplace
by providin
g
a high
level
of service
to enhance
customer
loyalty
and to attrac
t
and retain
business.
However,
we can
provide
no assurance
as
to
the
effectiveness
of
these
efforts
on
our
future
business
or
results
of
operations,
and
as
to
our
continued
ability
to
anticipate
and
adapt
to
changing
conditions,
and
to
sufficientl
y
improve
our
services
and/or
banking
products,
in
order
to
successfully
compete
in
our
primary
service
areas.
Human Capital Management
Popular
seeks
to
embody
our
purpose
of “putting
people
at the
center
of progress”
throughout
its human
capital
management.
Attracting,
developing
and
retaining
top
talent
in
an
environment
that
promotes
wellness,
diversity,
inclusion,
learning
and
transparency
are
fundamental
pillars
of
our
long-term
strategy.
As
of
December
31,
2023,
Popular
has
approximately
9,237
employees,
none of whom
are represented
by a collective
bargaining group.
Nurturing Well-Being: Employee Health & Financial
Security
Popular believes
that the
health and
financial
wellness of
Popular’s employees
is essential
to enable
Popular to
effectively
serve
its customers
and contribute
positively
to the
communities
where it
operates.
Our health
and wellness
program includes
health,
pharmacy,
vision and
dental insurance,
as well
as other
wellness
initiatives.
Our programs
seek to
ensure that
healthcare
being
both accessible
and affordable
for our
employees,
with Popular
covering
up to
90% of
health
insurance
premiums,
a figure
that
surpasses
regional
benchmarks.
In
2023,
we
launched
a
leadership
guide
on
mental
health
to
support
leaders
in
promoting
emotional
wellness
within
their
teams
and
engaging
with
team
members
who
may
be
facing
mental
health
challenges.
Additionally,
the Corporation
promotes employee
health and
wellbeing by
encouraging
annual physical
exams and
maintaining
a
health
and
wellness
center
at
its
Puerto
Rico-based
corporate
offices
staffed
with
healthcare
providers,
where
employees
can
complete
their
physical
exam,
receive
acute
care
or visit
a nutritionist
or
psychologist
free
of charge.
Our
health
and
wellness
center received
over 15,680 visits
from employees
during 2023.
Popular
also seeks
to foster
work-life
balance by
providing
paid time
off benefits
to our
employees,
including community
service
leave,
paid
parental
leave
and
flexible
work
arrangements.
Our
hybrid
work
model,
accessible
to
approximately
half
of
our
workforce,
underscores our
commitment to
flexible work
environments.
Moreover,
we continuously
offer activities
and workshops
centered on
physical fitness
and personal financial
management.
Popular
further
provides
a 401(k)
savings
and investment
plan, in
which
98% of
employees
participate.
Popular
matches
$0.50
for every
dollar
the employee
contributes
to the
401(k)
plan,
up to
8% of
their
salary.
Moreover,
Popular
offers
a profit
-sharing
plan,
contingent
upon
the
achievement
of
pre-set
financial
goals,
to
further
align
employee
compensation
with
its
collective
success.
The
profit-sharing
plan
allows
employees
to
receive
up to
8%
of
their
eligible
compensation
(capped
at
$70,000),
of
which
the
first
4%
is
paid
in
cash
and
anything
beyond
such
percent
is
paid
to
the
employee’s
Savings
and
Investment
Plan
account. Popular
regularly
evaluates employees’
base compensation
to better
compete with
the salaries
paid in similar
positions
in
other
companies.
Our
ongoing
enhancements
to
our
employees’
compensation
includes
market-aligned
salary
adjustments,
merit increases
and raising
our hourly
pay rates to
$15 per hour
in Puerto Rico
and $16 per
hour in the Virgin
Islands as
of 2023,
and $17
per hour
in Florida
and $20 per
hour in
New York
and New Jersey
as of 2022.
In 2023,
we invested
more than
$22.5M
in enhancing
our employees’
compensation.
Empowering Growth: Our Commitment to Talent Development
We
are
committed
to
fostering
the
continuous
development
and
upskilling
of
our
employees
and
believe
it
is
fundamental
to
maintaining
our
competitive
edge.
Towards
that
end,
Popular
provides
development
opportunities
aimed
at
strengthening
our
employees’
knowledge,
abilities
and skills
to support
their
personal
growth which,
in turn,
seeks
to enhance
Popular’s
business
strategies
and
organizational
competencies.
Our
40,000
square
foot
Development
Center
in
San
Juan,
Puerto
Rico
and
our
satellite
facilities
in New
York,
South Florida,
and the Virgin
Islands offer
year-round
training sessions,
activities
and workshops.
In 2023,
we transitioned
back to
in-person
sessions,
but also
continued
offering
virtual
training
programs.
Our seven
corporate
academies
had
more
than
8,000
registrations
from
our
employees
during
2023,
approximately
1,600
more
than
in
2022.
Our
commitment
to continuous
learning
is further
supported
by offering
our employees
access to
LinkedIn
Learning,
which provides
an extensive
library
of over
16,000
e-learning
courses.
In 2023,
users
totaled
61% of
our employees,
an increase
of 24%
from
2022, for a
total of 17,006
hours logged
during the year.
Our
focus
on
training
and
development
has
provided
internal
growth
opportunities
to
our
workforce.
As
a
result,
the
Corporation’s
internal mobility
rate in 2023
was 36%. This
included employees
who applied
or were selected
for vacancies,
were
promoted,
or
had
lateral
movements.
Additionally,
we
invested
in
the
education
of
over
practitioners
through
Accelerated
Development
Programs
focused
on
data
science,
analytics,
process
excellence,
and
program
management.
The
Corporation
also
offered
its
employees
advanced
training
in
software
engineering,
including,
but
not
limited
to,
coding
and
software
development.
Leadership
development
remains
a
priority
at
Popular,
as
we
believe
it
is
vital
for
driving
results,
maintaining
employee
engagement
and achieving
our strategic
objectives.
With this
in mind,
we launched
a new
leadership
program
in 2023
focused
on
exploring
the
role
Popular’s
leaders
play
in
creating
the
right
environment
for
our
culture
to
thrive.
Our
organizational
development
strategy
aims
to
enhance
both
organizational
and
leadership
effectiveness
by
preparing
us
to
meet
future
challenges.
In
2023,
we
facilitated
organizational
development
interventions
that
focused
on
change
management,
team
alignment, and
leader effectiveness.
Enhancing Leadership Continuity through Strategic
Succession Planning
Popular’s business
strategy further
takes into
account succession
planning to
ensure effective
leadership transitions.
Succession
plans for
senior management
are developed
by the CEO
and presented
to the Board
of Directors.
Popular’s succession
planning
also
leverages
our
Executive
Talent
Management
Program
(the
“Program”)
that
seeks
to
identify
high-potential
and
high-
performing
managers,
which
are
provided
with
learning
opportunities
to
enhance
their
skills
and
prepare
them
for
senior
management positions.
Diversity, Equity and Inclusion
Popular
is
committed
to
fostering
a
diverse,
equitable
and
inclusive
workplace.
As
of
December
31,
2023,
64.5%
of
the
Corporation’s
employees were
female, and
35.5% were male.
Women accounted
for 63% of first
and mid-level
management and
36.6%
of
executive-level
management
as
of
such
date.
We
have
recently
enriched
our
talent
pool
with
the
inclusion
of
professionals
from Latin America,
thereby enhancing
multicultural
diversity
within our organization.
Central to
our diversity
efforts
is our
multidisciplinary
Diversity,
Equity and
Inclusion
(“DEI”)
Council,
which is
overseen
by our
Corporate
Diversity
Officer.
Our
DEI Policy
is committed
to attracting,
retaining
and developing
a diverse
employment
population;
fostering
a work
environment
where
employees
are
treated
equitably
and
with
respect;
and
seeking,
creating,
and
maintaining
business
relationships
with
diverse suppliers.
We
are
committed
to
fair
pay
and
conduct
related
pay
analyses
on
an
annual
basis.
The
results
for
revealed
a
1.8
percentage
point
improvement
in
Puerto
Rico
and
the
Virgin
Islands
and
a
6.4
percentage
point
improvement
in
the
United
States
in
our
gender-related
pay
differences
compared
to
the
end
of
2022.
Our
commitment
to
gender
equality
has
been
recognized
in the Bloomberg
Gender Equality
Index for two
consecutive
years (2021-2022
and 2022-2023).
Our
Employee
Resource
Groups
(“ERGs”)
are
key
resources
that
support
our
DEI
strategy.
In
2023,
our
existing
ERGs
witnessed
substantial
growth
in
membership.
Popular
Pride,
our
ERG
focused
on
the
LGBTQ+
community,
seeks
to
enhance
organizational
awareness
and engagement
of LGBTQ
issues.
Network
of Women
in Popular,
focused
on empowering
women,
and
Popular
Embrace,
focused
on
functional
diversity,
also
achieved
notable
milestones,
including
partnering
with
our
human
resources
division
to
educate
and
promote
specific
wellness
initiatives
and
efforts.
Additionally,
during
we
established
a
Black/African
American ERG in
the US.
Popular also
supports victims
of gender-based
violence and
provides a
special leave
of 15 days
eligible to
employees
located in
Puerto Rico
in order to
handle situations
related to gender
violence, domestic
violence or
stalking.
Employee Experience
Popular
aims
to
provide
an
exceptional
employee
experience
that
inspires
its
employees
to
deliver
outstanding
service
to
customers
and communities.
We
recognize
the
dynamic
nature
of employee
needs
and
expectations
and
have implemented
a
more
robust
approach
to measure
and
understand
the
employee’s
journey.
In
2023,
we revised
our
comprehensive
Employee
Engagement
&
Experience
Survey
program
to
(i)
increase
our
assessments
from
biennial
to
quarterly
and
annually
and
(ii)
include
additional
surveys
that
measure
the
end-to-end
employee
journey
from
recruiting
and
onboarding
to
offboarding.
We
believe that
the insights
received from
these surveys
have allowed
us to
introduce
people initiatives
that have
helped us
reduce
our turnover
rate to 7.9%
as of the
end of 2023,
a 2.9 percentage
point improvement
from 2022.
Our voluntary
turnover rate
also
saw a notable
decrease to
6.4%, down
2.4 percentage
points from
the previous
year.
Furthermore,
the survey
has enabled
us to
monitor
our employee
loyalty
score
and identify
initiatives
to maintain
or enhance
our current
score
of 84%,
which positions
us
within the 75th
percentile of
the Qualtrics
global benchmark
and above the
average benchmark
of the financial
industry.
Board Oversight in Human Capital
The
Talent
and
Compensation
Committee
of
the
Corporation’s
Board
of
Directors
has
oversight
responsibility
for
the
Corporation’s
human capital
management.
As part
of its
responsibilities,
the Talent
and Compensation
Committee
reviews and
advises
management
on the
Corporation’s
general
compensation
philosophy,
programs
and policies,
and
on the
Corporation’s
talent
acquisition
and development,
workforce
engagement,
succession
planning,
culture,
diversity,
equity
(including
pay equity)
and inclusion,
among other human
capital topics.
We
encourage
you
to
review
our Corporate
Sustainability
Report
published
on www.popular.com
for more
detailed
information
regarding
the Corporation’s
human capital
management
programs
and initiatives.
The information
on the
Corporation’s
website,
including
the
Corporation’s
Corporate
Sustainability
Report,
is
not,
and
will
not
be
deemed
to
be,
a
part
of
this
Form
10-K
or
incorporated
into any of the
Corporation’s
filings with
the SEC.
Regulation and Supervision
Described below are the material elements of selected laws and regulations applicable to Popular, Popular North America
(“PNA”)
and
their
respective
subsidiaries.
Such
laws
and
regulations
are
continually
under
review
by
Congress
and
state
legislatures
and
federal
and
state
regulatory
agencies.
Any
change
in
the
laws
and
regulations
applicable
to
Popular
and
its
subsidiaries could have a material effect on the
business of Popular and its subsidiaries. We will continue to
assess our businesses
and risk management and compliance practices
to conform to developments in the regulatory
environment.
General
Popular and PNA are bank holding companies subject to consolidated supervision
and regulation by the Federal Reserve
Board under
the Bank
Holding Company Act
of 1956
(as amended, the
“BHC Act”). BPPR
and PB
are subject to
supervision and
examination by applicable
federal and state
banking agencies including,
in the
case of BPPR,
the Federal Reserve
Board and the
Office of
the Commissioner
of Financial
Institutions of
Puerto Rico
(the “Office
of the
Commissioner”), and, in
the case
of PB,
the
Federal
Reserve
Board
and
the
New
York
State
Department
of
Financial
Services
(the
“NYSDFS”).
Popular’s
broker-dealer
/
investment adviser
subsidiary,
Popular Securities,
LLC (“PS”)
and investment
advisor subsidiary
Popular Asset
Management LLC
(“PAM”)
are subject
to
regulation by
the SEC,
the Financial
Industry
Regulatory Authority
(“FINRA”), and
the Securities
Investor
Protection Corporation, among others. Other of our non-bank subsidiaries conduct reinsurance and
insurance producer and agency
activities, which are
subject to other
federal, state and
Puerto Rico laws
and regulations as
well as licensing
and regulation by
the
Puerto Rico Office of the Commissioner of Insurance and,
for one insurance agency subsidiary, the NYSDFS.
Enhanced Prudential Standards
Under
the
Dodd-Frank
Wall
Street
Reform
and
Consumer
Protection
Act
(the
“Dodd-Frank
Act”),
as
modified
by
the
Economic
Growth,
Regulatory
Relief,
and
Consumer
Protection
Act
and
the
federal
banking
regulators’
“Tailoring
Rules,”
banking
organizations are
categorized based
on status
as
a U.S.
G-SIB,
size
and four
other risk-based
indicators. Among
bank
holding companies with $100
billion or more in
total consolidated assets, the
most stringent standards apply
to U.S. G-SIBs,
which
are subject to Category I standards and the
least stringent standards apply to Category IV organizations, which have between $100
billion and $250 billion in total consolidated assets and less than $75 billion in all four other risk-based indicators and
which are also
not U.S. G-SIBs. Bank holding companies with total consolidated assets of $50 billion or more are subject to risk committee and risk
management requirements. As of December 31, 2023,
Popular had total consolidated assets of $70.8 billion.
Transactions with Affiliates
BPPR
and
PB
are
subject
to
restrictions
that
limit
the
amount
of
extensions
of
credit
and
certain
other
“covered
transactions” (as defined in Section
23A of the Federal
Reserve Act) between BPPR or
PB, on the
one hand, and Popular,
PNA or
any
of
our
other
non-banking
subsidiaries,
on
the
other
hand,
and
that
impose
collateralization
requirements
on
such
credit
extensions. A bank may not engage in any covered transaction if the aggregate amount of the bank’s covered transactions with that
affiliate would exceed 10% of
the bank’s capital stock and
surplus or the aggregate amount of
the bank’s covered transactions with
all affiliates would exceed 20% of the bank’s capital stock and surplus. In addition,
any transaction between BPPR or PB, on the one
hand, and Popular, PNA
or any of our other non-banking
subsidiaries, on the other,
is required to be carried out
on an arm’s length
basis.
Source of Financial Strength
The
Dodd-Frank Act
requires bank
holding companies,
such
as Popular
and
PNA, to
act
as
a source
of
financial
and
managerial strength to their subsidiary banks. Popular
and PNA are expected to commit resources
to support their subsidiary banks,
including at times when Popular
and PNA may not be
in a financial position to
provide such resources. Any capital loans
by a bank
holding company
to any
of its
subsidiary depository
institutions are
subordinated in
right of
payment to
depositors and
to certain
other indebtedness of such subsidiary depository institution. In the
event of a bank holding company’s bankruptcy,
any commitment
by
the
bank
holding
company
to
a
federal
banking
agency
to
maintain
the
capital
of
a
subsidiary
depository
institution
will
be
assumed by
the bankruptcy
trustee and
entitled to
a priority
of payment.
BPPR and
PB are
currently the
only insured
depository
institution subsidiaries of Popular and PNA.
Resolution Planning and Resolution-Related Requirements
A
bank holding
company with
$250 billion
or more
in total
consolidated assets
(or that
is a
Category III
firm based
on
certain risk-based indicators described in the Tailoring
Rules) is required to report periodically to the FDIC
and the Federal Reserve
Board
such
company’s
plan
for
its
rapid
and
orderly
resolution
in
the
event
of
material
financial
distress
or
failure.
In
addition,
insured depository institutions with total
assets of $50 billion or
more are required to
submit to the FDIC
periodic contingency plans
for
resolution
in
the
event
of
the
institution’s
failure.
In
2018,
the
FDIC
issued
a
moratorium
on
resolution
plans
for
insured
depository institutions
with more
than $50
billion in
assets. The
moratorium is
still in
effect for
insured depository
institutions with
more than
$50 billion
but less
than $100
billion in
assets. On
August 29,
2023, the
FDIC proposed
amendments to
the resolution
planning requirements
for insured
depository institutions
with $50
billion or
more in
total assets.
The amendments
would require
insured depository institutions with between $50 billion and
$100 billion in assets to submit informational filings on
a two-year cycle,
with an interim supplement updating key information
submitted in the off years.
On August
29, 2023,
the Federal
Reserve Board,
FDIC and
Office of
the Comptroller
of the
Currency (“OCC”)
issued a
proposed
rule
that
would
require
bank
holding
companies
and
insured
depository
institutions
with
$100
billion
or
more
in
consolidated assets (as well as their insured depository institution affiliates) to maintain minimum
amounts of eligible long-term debt
(generally, debt
that is unsecured, has
a maturity greater than one
year from issuance and satisfies
additional criteria), subject to a
three-year phase-in
period. The
proposal would
also apply
“clean holding
company” requirements
to Category
II through
IV bank
holding companies, which would, among other things, prohibit
entering into derivatives and certain other
financial contracts with third
parties.
As of December 31, 2023, Popular,
PNA, BPPR and PB’s total assets were below
the thresholds for applicability of these
rules, except that BPPR would be subject to the
FDIC’s proposed amendments to its resolution planning requirements applicable to
insured depository institutions
with more than
$50 billion but
less than $100
billion in assets
(if those amendments
are adopted as
proposed).
FDIC Insurance
Substantially all the deposits of BPPR and PB are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of
the
FDIC,
and
BPPR
and
PB
are
subject
to
FDIC
deposit
insurance
assessments
to
maintain
the
DIF.
Deposit
insurance
assessments are
based on
the average
consolidated total
assets of
the insured
depository institution
minus the
average tangible
equity of the institution during the assessment period. For larger
depository institutions with over $10 billion in assets,
such as BPPR
and PB, the FDIC uses a “scorecard” methodology, which considers CAMELS ratings, among
other measures, that seeks to capture
both the probability that an individual large institution will
fail and the magnitude of the impact on the DIF
if such a failure occurs. The
FDIC has the ability
to make discretionary adjustments to the
total score based upon significant
risk factors that are not
adequately
captured in the calculations. The initial base deposit insurance assessment rate for larger depository institutions ranges from 3 to 30
basis points on an annualized basis.
After the effect of
potential base-rate adjustments, the total base assessment rate could
range
from 1.5 to 40 basis points on an annualized
basis.
In
October
2022,
the
FDIC
finalized
a
rule
that
increased
initial
base
deposit
insurance
assessment
rates
by
basis
points, beginning with the first quarterly assessment period of 2023. The FDIC, as required under the Federal Deposit Insurance Act
(“FDIA”), established
a plan
in September
2020 to
restore the
DIF reserve
ratio to
meet or
exceed the
statutory minimum
of 1.35
percent within
eight years. The
increased assessment is
intended to improve
the likelihood that
the DIF
reserve ratio would
reach
the required minimum by the statutory deadline
of September 30, 2028.
As
of
December
31,
2023,
we
had
a
DIF
average
total
asset
less
average
tangible
equity
assessment
base
of
approximately $66 billion.
On
November 16,
2023,
the
FDIC finalized
a
rule
that
imposes
a special
assessment to
recover the
costs to
the
DIF
resulting
from
the
FDIC’s
use,
in
March
2023,
of
the
systemic
risk
exception to
the
least-cost resolution
test
under the
FDIA
in
connection with the
receiverships of Silicon
Valley Bank
and Signature Bank.
The FDIC estimated
in approving the
rule that those
assessed losses
total approximately $16.3
billion. The
rule provides
that this
loss estimate
will be
periodically adjusted, which
will
affect
the
amount
of
the
special assessment.
Under the
rule, the
assessment
base
is
the
estimated uninsured
deposits that
an
insured depository
institution reported
in its
Consolidated Reports of
Condition and Income
(“Call Report”)
at December
31, 2022,
excluding the
first
$5 billion
in estimated
uninsured deposits.
For a
holding company
that
has more
than one
insured depository
institution
subsidiary,
such
as
Popular,
the
$5
billion
exclusion
is
allocated
among
the
company’s
insured
depository
institution
subsidiaries in
proportion to
each insured
depository institution’s
estimated uninsured
deposits. The
special
assessments will
be
collected at
an annual
rate of
approximately 13.4 basis
points per year
(3.36 basis
points per
quarter) over eight
quarters in
and 2025,
with the
first assessment
period beginning
January 1,
2024. Because
the estimated
loss pursuant
to the
systemic risk
determination
will
be
periodically adjusted,
the
FDIC
retains the
ability to
cease
collection
early,
extend the
special
assessment
collection period and
impose a final
shortfall special assessment
on a one-time
basis. Popular expects the
special assessments to
be
tax
deductible. The
total
of
the assessments
for Popular
is
estimated at
$71.4 million
and such
amount
was recorded
as
an
expense in
the quarter
of adoption
(the quarter
ended December
31, 2023).
As of
December 31,
2023, the
FDIC’s loss
estimate
described in the final rule
had increased by approximately $4.1 billion to $20.4
billion, or approximately 25%. If such increase
in the
FDIC’s
loss
estimate
remains
unchanged and
is
assessed
in
the
same
manner,
the
Corporation estimates
that
the
incremental
expense for the special assessments could be approximately
$18 million.
Brokered Deposits
The FDIA
and regulations
adopted thereunder
restrict the
use of
brokered deposits
and the
rate of
interest payable
on
deposits for institutions
that are less
than well capitalized.
Popular does not
believe the brokered
deposits regulations have
had or
will have a material effect on the funding or liquidity
of BPPR and PB.
Capital Adequacy
Popular, PNA,
BPPR and PB are
each required to comply
with applicable capital adequacy standards
established by the
federal
banking
agencies
(the
“Capital
Rules”),
which
implement
the
Basel
III
framework
set
forth
by
the
Basel
Committee
on
Banking Supervision (the “Basel Committee”) as
well as certain provisions of the Dodd-Frank
Act.
Among other
matters, the
Capital Rules:
(i) impose
a capital
measure called
“Common Equity
Tier
1” (“CET1”)
and the
related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1
capital” instruments meeting
certain revised requirements;
and (iii) mandate
that most deductions/adjustments to
regulatory capital
measures be made
to CET1
and not to
the other components
of capital.
Under the Capital
Rules, for most
banking organizations,
including
Popular,
the
most
common
form
of
Additional
Tier
capital
is
non-cumulative
perpetual preferred
stock
and
the
most
common form of Tier
2 capital is subordinated notes and
a portion of the
allocation for loan and lease losses,
in each case, subject
to the Capital Rules’ specific requirements.
Pursuant to the Capital Rules, the minimum
capital ratios are:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted
assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4% Tier 1 capital to average consolidated assets as reported
on consolidated financial statements (known as the
“leverage ratio”).
The Capital Rules also impose
a “capital conservation buffer,”
composed entirely of CET1, on top
of these minimum risk-
weighted
asset
ratios. 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 and
eligible retained
income
(that is,
four quarter trailing
net income, net
of distributions
and tax
effects not
reflected in net
income). Thus, Popular,
BPPR and
PB are required to maintain such additional capital conservation buffer of 2.5% of CET1, effectively 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%.
In addition, under
prior risk-based capital rules,
the effects of
accumulated other comprehensive income
or loss (“AOCI”)
items included in stockholders’
equity (for example, marks-to-market of securities
held in the available
for sale portfolio) under
U.S.
GAAP were reversed
for the
purposes of determining
regulatory capital ratios.
Pursuant to the
Capital Rules, the
effects of certain
AOCI
items
are
not
excluded;
however,
banking
organizations
that
are
not
subject
to
Categories
I
or
II
standards
under
the
framework for
banking organizations
with $100
billion or
more in
assets, including
Popular,
BPPR and
PB, may
make a
one-time
permanent election to continue to
exclude these items. Popular,
BPPR and PB have
made this election in order
to avoid significant
variations in
the level
of capital
depending upon
the impact
of interest
rate fluctuations
on the
fair value
of their
available for
sale
securities portfolios.
The
Capital
Rules
preclude certain
hybrid
securities, such
as
trust
preferred
securities, from
inclusion
in
bank
holding
companies’ Tier 1 capital. Trust preferred securities no
longer included in Popular’s Tier 1 capital may nonetheless be included as a
component of
Tier 2 capital.
Popular has
not issued
any trust
preferred securities since
May 19,
2010. As
of December
31, 2023,
Popular has
$193 million
of trust
preferred securities
outstanding which
no longer
qualify for
Tier
1 capital
treatment, but
instead
qualify for Tier 2 capital treatment.
The Capital Rules also provide for a number of deductions
from and adjustments to CET1.
Banking organizations that are
not subject to Category
I or II standards
are subject to rules that
provide for simplified capital requirements relating
to the threshold
deductions
for
certain
mortgage
servicing
assets,
deferred
tax
assets,
investments
in
the
capital
of
unconsolidated
financial
institutions and inclusion of minority interests
in regulatory capital.
Failure
to
meet
capital
guidelines
could
subject
Popular
and
its
depository
institution
subsidiaries
to
a
variety
of
enforcement remedies, including the termination of deposit insurance by the FDIC
and to certain restrictions on our business. Refer
to “Prompt Corrective Action” below for further
discussion.
In
December 2017,
the Basel
Committee published
standards that
it
described as
the finalization
of the
Basel III
post-
crisis regulatory
reforms. Among other
things, these
standards revise
the Basel
Committee’s standardized approach
for credit
risk
(including
by
recalibrating
risk
weights
and
introducing
new
capital
requirements
for
certain
“unconditionally
cancellable
commitments,” such
as
unused credit
card
lines of
credit) and
provide
a new
standardized approach
for operational
risk capital.
Under the
current U.S.
capital rules,
operational risk
capital requirements
and a
capital floor
apply only
to advanced
approaches
institutions, and not to Popular, BPPR and PB.
On
July
27,
2023,
the
federal
banking
regulators
proposed
revisions
to
the
Capital
Rules
to
implement
the
Basel
Committee’s
standards
and
make
other
changes
to
the
Capital
Rules,
including
the
ability
of
banking
organizations
in
Categories III and
IV to
elect not to
recognize most elements
of AOCI in
regulatory capital. The
proposal introduces revised
credit
risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes. However,
the
revised capital requirements of the proposed rule would not apply to Popular, BPPR, or PB because
they have less than $100 billion
in total consolidated assets and trading assets and
liabilities below the threshold for market risk
requirements.
In
December
2018,
the
federal
banking
agencies
approved
a
final
rule
modifying
their
regulatory
capital
rules
and
providing an
option to
phase in
over a
period of
three years
the day-one
regulatory capital
effects of
the Current
Expected Credit
Loss (“CECL”) model
of ASU 2016-13.
The final
rule also revised
the agencies’
other rules to
reflect the update
to the
accounting
standards. Popular has availed itself
of the option to
phase in over a period
of three years the
day one effects on
regulatory capital
from the
adoption of
CECL. In
2020, federal
bank regulators
adopted a
rule that
allowed banking
organizations to
elect to
delay
temporarily
the
estimated
effects
of
adopting
CECL
on
regulatory
capital
until
January
and
subsequently
to
phase
in
the
effects through January 2025.
Refer to the Consolidated Financial Statements in this Form 10-K., Note 21 and Table 9 of
Management’s Discussion and
Analysis for the capital ratios of Popular, BPPR and PB under Basel III. Refer
to the Consolidated Financial Statements in this Form
10-K Note 2 for more information regarding CECL.
Prompt Corrective Action
The
FDIA
requires,
among
other
things,
the
federal
banking
agencies
to
take
prompt
corrective
action
in
respect
of
insured
depository
institutions
that
do
not
meet
minimum
capital
requirements.
The
FDIA
establishes
five
capital
tiers:
“well
capitalized,”
“adequately
capitalized,”
“undercapitalized,”
“significantly
undercapitalized,”
and
“critically
undercapitalized”.
A
depository institution’s capital tier will depend upon how its
capital levels compare with various relevant capital
measures and certain
other factors.
An insured
depository institution will
be deemed
to be
(i) “well
capitalized” if
the institution
has a
total risk-based
capital
ratio of 10.0% or greater, a CET1 capital ratio of 6.5%
or greater, a Tier 1
risk-based capital ratio of 8.0% or greater, and a leverage
ratio of 5.0% or
greater, and is
not subject to any order
or written directive by
any such regulatory authority to
meet and maintain a
specific capital level for any capital
measure; (ii) “adequately capitalized” if the institution
has a total risk-based capital ratio
of 8.0%
or greater, a
CET1 capital ratio of 4.5%
or greater, a
Tier 1 risk-based capital
ratio of 6.0% or greater,
and a leverage ratio of
4.0%
or greater
and is
not “well
capitalized”; (iii)
“undercapitalized” if
the institution
has a
total risk-based
capital ratio
that is
less than
8.0%, a CET1 capital
ratio less than 4.5%,
a Tier 1
risk-based capital ratio of
less than 6.0% or
a leverage ratio of
less than 4.0%;
(iv) “significantly
undercapitalized” if
the institution
has a
total risk-based
capital ratio
of less
than 6.0%,
a CET1
capital ratio
less
than 3%, a Tier
1 risk-based capital ratio of less than 4.0% or
a leverage ratio of less than 3.0%;
and (v) “critically undercapitalized”
if
the
institution’s
tangible
equity
is
equal
to
or
less
than
2.0%
of
average
quarterly
tangible
assets.
An
institution
may
be
downgraded to, or deemed
to be in, a
capital category that is
lower than indicated by
its capital ratios if
it is determined to
be in an
unsafe
or
unsound
condition
or
if
it
receives
an
unsatisfactory
examination
rating
with
respect
to
certain
matters.
An
insured
depository institution’s capital category is determined solely for the purpose of applying prompt corrective action
regulations, and the
capital category
may not
constitute an
accurate representation
of the
institution’s overall
financial condition
or prospects
for other
purposes.
The FDIA generally prohibits an insured depository institution from making any capital
distribution (including payment of a
dividend) or
paying any
management fee to
its holding
company, if
the depository
institution would thereafter
be undercapitalized.
Undercapitalized
depository
institutions
are
subject
to
restrictions
on
borrowing
from
the
Federal
Reserve
System.
In
addition,
undercapitalized
depository
institutions
are
subject
to
growth
limitations
and
are
required
to
submit
capital
restoration
plans.
A
depository institution’s
holding company must
guarantee the capital
restoration plan, up
to an
amount equal to
the lesser
of 5%
of
the
depository
institution’s
assets
at
the
time
it
becomes
undercapitalized
or
the
amount
of
the
capital
deficiency,
when
the
institution fails to comply with the
plan. The federal banking agencies may not
accept a capital restoration plan without determining,
among other things,
that the plan
is based
on realistic assumptions
and is
likely to succeed
in restoring the
depository institution’s
capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly
undercapitalized
depository
institutions
may
be
subject
to
a
number
of
requirements
and
restrictions,
including orders to
sell sufficient voting
stock to become
adequately capitalized, requirements to
reduce total assets
and cessation
of receipt
of deposits
from correspondent
banks. Critically
undercapitalized depository
institutions are
subject to
appointment of
a
receiver or conservator.
The capital-based prompt
corrective action provisions
of the FDIA
apply to
the FDIC-insured depository
institutions such
as
BPPR
and
PB,
but
they
are
not
directly
applicable
to
holding
companies
such
as
Popular
and
PNA,
which
control
such
institutions. As of December 31, 2023,
both BPPR and PB met the quantitative requirements
for ‘well capitalized’ status.
Restrictions on Dividends and Repurchases
The
principal
sources
of
funding
for
Popular
and
PNA
have
included
dividends
received
from
their
banking
and
non-
banking subsidiaries, asset sales
and proceeds from
the issuance of
debt and equity.
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, 2023, BPPR declared
cash dividends of $200
million, a portion of
which was
used by Popular for the payments of the cash dividends on its
outstanding common stock. At December 31, 2023, BPPR needed to
obtain prior approval of the Federal Reserve Board before declaring a dividend
in excess of $387 million due to its
retained income,
declared dividend activity and transfers to statutory reserves over the
three year’s ended December 31, 2023. 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.
During the year
ended December 31,
2023, PB
declared cash dividends
of $50
million, a portion
of which
was used
by
Popular for the payments of the cash dividends on
its outstanding common stock.
It is Federal Reserve Board policy that bank holding companies generally should pay dividends on common
stock only out
of net
income available to
common shareholders
over the past
year and
only if
the prospective rate
of earnings retention
appears
consistent with the organization’s current and
expected future capital needs, asset quality
and overall financial condition. Moreover,
under Federal Reserve Board policy, a bank
holding company should not maintain dividend levels that place undue pressure on the
capital of depository
institution subsidiaries or that
may undermine the bank
holding company’s ability to
be a source
of strength to
its
banking subsidiaries.
Federal Reserve
policy
also
provides that
a
bank
holding company
should
inform
the
Federal
Reserve
reasonably in advance of declaring or paying a dividend that
exceeds earnings for the period for which the dividend is
being paid or
that could result in a material adverse change
to the bank holding company’s capital structure.
The
Federal Reserve
Board
also restricts
the
ability of
banking
organizations to
conduct stock
repurchases. In
certain
circumstances, a banking organization’s repurchases
of its common stock may
be subject to a
prior approval or notice requirement
under other regulations or policies of the Federal Reserve. Any redemption or
repurchase of preferred stock or subordinated debt is
subject to the prior approval of the Federal Reserve.
Subject to compliance with certain conditions, distributions of U.S. sourced dividends to a corporation
organized under the
laws
of the
Commonwealth of
Puerto Rico
are subject
to
a withholding
tax
of 10%
instead of
the 30%
applied to
other “foreign”
corporations. Accordingly, dividends from current or accumulated earnings and profits
paid by PNA to Popular, Inc. sourced from the
U.S. operations of PB are subject to a 10%
tax withholding.
Refer to
Part II,
Item 5,
“Market for
Registrant’s Common
Equity,
Related Stockholder
Matters and
Issuer Purchases
of
Equity Securities” for further information on Popular’s
distribution of dividends and repurchases of equity
securities.
See
“Puerto
Rico
Regulation”
below
for
a
description
of
certain
restrictions
on
BPPR’s
ability
to
pay
dividends
under
Puerto Rico law.
Interstate Branching
The Dodd-Frank
Act amended
the Riegle-Neal
Interstate Banking
and Branching
Efficiency Act
of 1994
(the “Interstate
Banking
Act”)
to
authorize
national
banks
and
state
banks
to
branch
interstate
through
de
novo
branches. For
purposes
of
the
Interstate Banking Act, BPPR is treated as a state bank and is subject to the same restrictions on interstate branching as other state
banks.
Activities and Acquisitions
In general, the BHC Act limits the activities
permissible for bank holding companies to the business of banking, managing
or controlling banks and such other activities as the Federal Reserve Board has determined to be so closely related to banking as to
be
properly
incidental
thereto.
A
company
who
meets
management
and
capital
standards
and
whose
subsidiary
depository
institutions meet management,
capital and
Community Reinvestment Act
(“CRA”) standards may
elect to
be treated
as a
financial
holding company
and engage
in a
substantially broader
range of
nonbanking financial
activities, including
securities underwriting
and dealing, insurance underwriting and making
merchant banking investments in nonfinancial
companies.
In order for a bank holding company to elect to be treated as a financial
holding company, (i) all of its depository institution
subsidiaries
must
be
well capitalized
(as described
above)
and
well managed
and
(ii)
it
must
file a
declaration with
the Federal
Reserve Board that it elects to be a “financial holding
company.” As noted above, a bank
holding company electing to be a financial
holding company must itself be and remain
well capitalized and well managed. The Federal Reserve Board’s
regulations applicable
to bank holding companies separately define
“well capitalized” for bank holding companies,
such as Popular,
to require maintaining
a tier 1 capital
ratio of at least
6% and a total capital
ratio of at least 10%.
Popular and PNA have elected
to be treated as
financial
holding
companies.
A
depository
institution
is
deemed
to
be
“well
managed”
if,
at
its
most
recent
inspection,
examination
or
subsequent review
by the
appropriate federal banking
agency (or
the appropriate state
banking agency), the
depository institution
received
at
least
a
“satisfactory”
composite
rating
and
at
least
a
“satisfactory”
rating
for
the
management
component
of
the
composite
rating.
If,
after
becoming
a
financial
holding
company,
the
company
fails
to
continue
to
meet
any
of
the
capital
or
management requirements
for financial
holding company
status, the
company
must
enter into
a confidential
agreement with
the
Federal
Reserve
Board
to
comply
with
all
applicable capital
and
management
requirements.
If
the
company
does
not
return
to
compliance
within
days,
the
Federal
Reserve
Board
may
extend
the
agreement
or
may
order
the
company
to
divest
its
subsidiary banks or the
company may discontinue, or
divest investments in companies
engaged in, activities permissible only
for a
bank holding company that has elected to be treated as a financial
holding company. In addition, if a depository institution subsidiary
controlled by a financial holding company does not
maintain a CRA rating of at least “satisfactory,” the financial holding company
will
be subject to restrictions on certain new activities
and acquisitions.
The Federal Reserve Board
may in certain circumstances limit
our ability to conduct
activities and make acquisitions that
would otherwise be permissible for
a financial holding company.
Furthermore, a financial holding company must obtain
prior written
approval from the Federal Reserve Board before acquiring a nonbank company with $10 billion or more in total consolidated assets.
In addition, we
are required to
obtain prior Federal
Reserve Board approval
before engaging in
certain banking and
other financial
activities both in the United States and abroad.
The “Volcker
Rule” adopted
as part
of the
Dodd-Frank Act
restricts the
ability of
Popular and
its subsidiaries,
including
BPPR and PB as
well as non-banking subsidiaries, to
sponsor or invest in
“covered funds,” including private funds,
or to engage in
certain types
of proprietary
trading. Popular
and its
subsidiaries generally
do not
engage in
the businesses
subject to
the Volcker
Rule; therefore, the Volcker Rule does not have a material effect on our
operations.
Anti-Money Laundering Initiative and the USA PATRIOT Act
A major focus of governmental policy relating to financial institutions in
recent years has been aimed at combating money
laundering and
terrorist financing.
The USA
PATRIOT
Act of
2001 (the
“USA PATRIOT
Act”) strengthened
the ability
of the
U.S.
government to help prevent, detect and prosecute international money
laundering and the financing of terrorism. Title
III of the USA
PATRIOT
Act imposed
significant compliance
and due
diligence obligations,
created new
crimes and
penalties and
expanded the
extra-territorial jurisdiction of the United States. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements
could have serious legal and reputational consequences
for the institution.
The
Anti-Money
Laundering
Act
of
(“AMLA”),
which
amended
the
Bank
Secrecy
Act
(the
“BSA”),
is
intended
to
comprehensively
reform
and
modernize
U.S.
anti-money
laundering
laws.
Among
other
things,
the
AMLA
codifies
a
risk-based
approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to
promulgate
priorities
for
anti-money
laundering
and
countering
the
financing
of
terrorism
policy;
requires
the
development
of
standards
for
testing technology and
internal processes for BSA
compliance; expands enforcement-
and investigation-related authority,
including
a
significant
expansion
in
the
available
sanctions
for
certain
BSA
violations;
and
expands
BSA
whistleblower
incentives
and
protections. Many of
the statutory provisions
in the AMLA
will require additional
rulemakings, reports and
other measures, and
the
impact
of
the
AMLA
will
depend on,
among
other
things,
rulemaking and
implementation guidance.
In
June
2021,
the
Financial
Crimes Enforcement Network, a bureau of
the U.S. Department of the
Treasury,
issued the priorities for anti-money laundering
and
countering the
financing of
terrorism policy
required under AMLA.
The priorities
include: corruption, cybercrime,
terrorist financing,
fraud, transnational crime, drug trafficking, human trafficking and
proliferation financing.
Federal regulators
regularly examine BSA/Anti-Money
Laundering and sanctions
compliance to
enhance their
adequacy
and effectiveness, and the frequency and extent of such examinations
and related remedial actions have been
increasing.
Community Reinvestment Act
The
CRA
requires
banks
to
help
serve
the
credit
needs
of
their
communities,
including
extending
credit
to
low-
and
moderate-income individuals
and geographies.
Should
Popular
or our
bank
subsidiaries
fail
to
serve
adequately
the community,
potential penalties may include regulatory denials of applications to expand branches, relocate offices or branches, add subsidiaries
and affiliates, expand
into new financial activities
and merge with or
purchase other financial institutions.
On October 24, 2023,
the
OCC,
the
Federal
Reserve
Board,
and
the
FDIC
jointly
issued
a
final
rule
to
modernize
the
federal
banking
agencies’
CRA
regulations and respond to changes in the
banking industry. Among other
items, the final rule introduces new tests
under which the
performance of banks will
be assessed and includes
data collection and reporting requirements,
many of which are
applicable only
to banks with over
$10 billion in assets, such
as BPPR and PB.
The effective date of
the final rule is
April 1, 2024; however,
banks
will not be required to begin complying with certain provisions
of the final rule until January 1, 2026, with data reporting requirements
becoming applicable on January 1, 2027.
Interchange Fees Regulation
The Federal Reserve Board
has established standards for
debit card interchange fees
and prohibited network exclusivity
arrangements and routing restrictions. The
maximum permissible interchange fee that
an issuer may receive
for an electronic debit
transaction is
the sum
of
21 cents
per transaction
and 5
basis points
multiplied by
the value
of
the transaction.
Additionally,
the
Federal Reserve
Board allows
for an
upward adjustment
of
no more
than 1
cent
to
an issuer’s
debit card
interchange fee
if the
issuer develops and implements policies and procedures
reasonably designed to achieve certain fraud-prevention
standards.
In
October
2023,
the
Federal
Reserve
Board
proposed
amendments
to
its
rules
on
interchange
fees.
The
proposed
changes would establish a
maximum permissible interchange fee of
no more than
14.4 cents per transaction
plus four basis points
multiplied by
the value
of the
transaction. The
fraud prevention
adjustment would
be increased
to 1.3
cents per
transaction. The
proposed rule would also establish an automatic update of the interchange fee cap every other year based on a survey of debit card
issuers.
Consumer Financial Protection Act of 2010
The Consumer
Financial Protection
Bureau (the
“CFPB”) supervises
“covered persons”
(broadly defined
to include
any
person offering or
providing a consumer financial
product or service and
any affiliated service
provider) for compliance with
federal
consumer financial laws. The CFPB
also has the broad power
to prescribe rules applicable to
a covered person or service
provider
identifying
as
unlawful,
unfair,
deceptive,
or
abusive
acts
or
practices
in
connection
with
any
transaction
with
a
consumer
for
a
consumer financial product or service, or the offering of
a consumer financial product or service. We are subject to examination and
regulation by the CFPB.
On October
19, 2023,
the CFPB
proposed a
new rule
to implement
Section 1033
of the
Consumer Financial
Protection
Act
that
would require
a provider
of
payment accounts
or
products, such
as a
bank, to
make data
available to
consumers upon
request regarding the products or services they obtain from the provider. Any such data
provider would also have to make such data
available to third
parties, with the consumer’s
express authorization and through
an interface that satisfies
formatting, performance
and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by
the
consumer.
Data
that
would
be
required
to
be
made
available under
the
rule
would
include
transaction
information,
account
balance, account
and routing
numbers, terms and
conditions, upcoming bill
information, and certain
account verification data.
The
proposed
rule
is
intended
to
give
consumers
control
over
their
financial
data,
including
with
whom
it
is
shared,
and
encourage
competition in the provision of consumer financial products or services. For banks with at least $850 million and less than $50 billion
in
total
assets,
compliance
with
the
proposed
rule’s
requirements
would
be
required
approximately
two
and
a
half
years
after
adoption of the final rule. For
banks with at least $50 billion and
less than $500 billion in total
assets, compliance with the proposed
rule’s requirements would be required approximately
one year after adoption of the final rule.
On
January
17,
2024,
the
CFPB
proposed
a
rule
that
would
significantly
reform
the
regulatory
framework
governing
overdraft practices applicable
to banks such
as BPPR and
PB that have
more than $10
billion in assets.
The proposed rule
would
modify
or
eliminate
several
long-standing
exclusions
from
requirements
generally
applicable
to
consumer
credit
that
previously
exempted certain overdraft practices.
The proposal would also generally require banks to restructure many overdraft fees, overdraft
lines
of credit,
and other
overdraft practices
as separate
consumer credit
accounts that
would be
subject to
those requirements.
These changes
to the
regulatory framework could
result in
BPPR and
PB, among
other things,
facing higher
compliance costs
in
charging
overdraft
fees,
experiencing
a
decreased
ability
to
recover
amounts
extended
as
overdraft
protection,
reducing
the
availability of overdraft protection, and/or charging lower
overdraft fees.
Office of Foreign Assets Control Regulation
The
U.S.
Treasury
Department
Office
of
Foreign
Assets
Control
(“OFAC”)
administers
economic
sanctions
that
affect
transactions
with
designated
foreign
countries,
nationals
and
others.
The
OFAC-administered
sanctions
targeting
countries
take
many
different
forms.
Generally,
however,
they
contain
one
or
more
of
the
following
elements:
(i)
restrictions
on
trade
with
or
investment in a sanctioned country; and (ii) a blocking
of assets in which the government of the
sanctioned country or other specially
designated nationals have an interest, by prohibiting
transfers of property subject to U.S. jurisdiction (including
property in the United
States or the possession or control of U.S.
persons outside of the United States). Blocked assets (e.g., property
and bank deposits)
cannot
be
paid
out,
withdrawn, set
off
or
transferred
in
any
manner without
a
license
from
OFAC.
Failure
to
comply
with these
sanctions could have serious legal and reputational
consequences.
Protection of Customer Personal Information and
Cybersecurity
The privacy
provisions of
the Gramm-Leach-Bliley Act
of 1999
generally prohibit financial
institutions, including
us, from
disclosing nonpublic personal financial information of consumer customers to third
parties for certain purposes (primarily marketing)
unless
customers
have
the
opportunity
to
opt
out
of
the
disclosure.
The
Fair
Credit
Reporting
Act
restricts
information
sharing
among affiliates for marketing purposes and governs
the use and provision of information to consumer
reporting agencies.
The federal
banking regulators have
also issued guidance
and proposed rules
regarding cybersecurity that
are intended
to
enhance cyber
risk management
standards among
financial institutions.
A
financial institution
is expected
to
establish lines
of
defense
and
to
maintain
risk
management
processes
that
are
designed
to
address
the
risk
posed
by
compromised
customer
credentials. A
financial institution’s
management is
expected to
maintain sufficient
business continuity
planning processes
for the
rapid
recovery,
resumption
and
maintenance
of
the
institution’s
operations
after
a
cyber-attack
involving
destructive
malware.
A
financial
institution
is
also
expected
to
develop
appropriate
processes
to
enable
recovery
of
data
and
business
operations
and
address rebuilding
network capabilities
and restoring
data if
the institution
or its
critical service
providers fall
victim to
this type
of
cyber-attack. If
we fail
to observe
the regulatory
guidance, we
could be
subject to
various regulatory
sanctions, including financial
penalties. In November 2021, the U.S. federal bank regulatory
agencies issued a final rule requiring banking
organizations, including
Popular,
PNA,
BPPR and
PB,
to
notify their
primary federal
banking regulator
within
36 hours
of
determining that
a “notification
incident”
has
occurred.
A
notification
incident
is
a
“computer-security
incident”
that
has
materially
disrupted
or
degraded,
or
is
reasonably likely
to materially
disrupt or
degrade, the
banking organization’s
ability to
deliver services
to
a material
portion of
its
customer base,
jeopardize the viability
of key
operations of the
banking organization, or
impact the stability
of the
financial sector.
The final rule also requires specific and immediate
notifications by bank service providers that
become aware of similar incidents.
State and foreign regulators
have also been increasingly active
in implementing privacy and cybersecurity
standards and
regulations. Several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and
providing detailed requirements with respect to these
programs, including data encryption requirements. In New York,
the NYSDFS
requires
financial
institutions
regulated
by
the
NYSDFS,
including
PB,
to,
among
other
things,
(i)
establish
and
maintain
a
cybersecurity program designed
to enhance the
confidentiality, integrity
and availability of
their information systems;
(ii) implement
and maintain a written
cyber security policy setting forth
policies and procedures for the
protection of their information systems
and
nonpublic
information;
and
(iii)
designate
a
Chief
Information
Security
Officer.
On
November
1,
2023,
the
NYSDFS
adopted
amendments to
its
cybersecurity regulations
that
represent
a
significant
update
to
the
regulation of
cybersecurity practices.
The
amendments
generally
fall
within
the
following
five
categories:
(i)
increased
mandatory
controls
associated
with
common
attack
vectors,
(ii)
enhanced
requirements
for
privileged
accounts,
(iii)
enhanced
notification
obligations,
(iv)
expansion
of
cyber
governance
practices
and
(v)
additional cybersecurity
requirements for
larger companies.
Most
of
the
amendments
will
become
effective 180 days after adoption.
On
July
6,
2023,
the
SEC
adopted
new
rules
that
would
require
registrants,
such
as
Popular,
to
(i)
report
material
cybersecurity incidents
on Form
8-K and,
(ii) disclose
in Annual
Report on
Form 10-K
cybersecurity policies
and procedures
and
governance practices, including at the board and
management levels.
Many states and foreign
governments have also recently implemented or
modified their data breach notification
and data
privacy
requirements. The
California Consumer
Privacy Act
(“CCPA”)
imposes privacy
compliance obligations
with regard
to
the
collection,
use
and
disclosure of
personal
information of
California residents,
and the
November 2020
amendment to
the
CCPA
creates the California Privacy Protection Agency, a watchdog privacy agency, and further expands the scope of businesses covered
by the law
and certain rights relating
to personal information. The
substantive obligations under the
2020 amendment to the
CCPA
became effective
on January
1, 2023.
In European
Union, the
General Data
Protection Regulation heightens
privacy compliance
obligations
and
imposes
strict
standards
for
reporting
data
breaches.
We
expect
this
trend
to
continue
and
are
continually
monitoring developments in the jurisdictions in which
we operate.
See
“Puerto
Rico
Regulation”
below
for
a
description
of
legislations
and
regulations
on
information
privacy
and
cybersecurity in Puerto Rico.
Climate-Related and ESG Developments
In
recent
years,
federal,
state
and
international
lawmakers
and
regulators
have
increased
their
focus
on
financial
institutions’
and
other
companies’
risk
oversight,
disclosures
and
practices
in
connection
with
climate
change
and
other
environmental, social and
governance (“ESG”) matters.
For example,
on October
24, 2023, the
Federal Reserve, FDIC,
and OCC
finalized
interagency
guidance
on
principles
for
climate-related
financial
risk
management
applicable
to
regulated
financial
institutions with more
than $100 billion
in total consolidated
assets. The principles
are intended to
support efforts by
large financial
institutions to
focus on key
aspects of climate-related
financial risk management
and cover six
areas: (1)
governance; (2) policies,
procedures,
and
limits; (3)
strategic planning;
(4)
risk
management; (5)
data,
risk measurement,
and reporting;
and
(6)
scenario
analysis.
On
December
21,
2022,
the
NYSDFS
proposed
guidance
on
climate-related
financial
risk
management
applicable
to
NYSDFS-regulated banking
and mortgage
organizations, including
PB.
The
proposed guidance
would address
material financial
risks related to
climate change faced
by these organizations in
the context of
risk assessment, risk management,
and risk appetite
setting. On March 21, 2022, the SEC issued a proposed rule on the enhancement and
standardization of climate-related disclosures
for investors. The
proposed rule would
require public issuers,
including the Company,
to significantly expand
the scope of
climate-
related disclosures in
their SEC filings.
The SEC
also announced plans
to propose rules
to require enhanced
disclosure regarding
human capital management and board diversity for
public issuers.
Incentive Compensation
The Federal Reserve Board reviews, as
part of its regular,
risk-focused examination process, the incentive compensation
arrangements of
banking organizations, such
as Popular,
that are
not “large,
complex banking
organizations.” Deficiencies will
be
incorporated into
the
organization’s supervisory
ratings, which
can
affect
the
organization’s ability
to
make
acquisitions and
take
other
actions. Enforcement
actions may
be taken
against
a
banking
organization if
its
incentive compensation
arrangements, or
related
risk-management
control
or
governance
processes,
pose
a
risk
to
the
organization’s
safety
and
soundness
and
the
organization is not taking prompt and effective measures
to correct the deficiencies.
The
Federal
Reserve
Board,
OCC
and
FDIC
have
issued
comprehensive
final
guidance
on
incentive
compensation
policies intended to discourage excessive risk-taking in
the incentive compensation policies of banking organizations
in order to not
undermine
the
safety
and
soundness
of
such
organizations.
The
guidance,
which
covers
all
employees
that
have
the
ability
to
materially affect
the risk
profile of an
organization, either individually
or as
part of
a group,
is based
upon the key
principles that
a
banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond
the
organization’s
ability
to
effectively
identify
and
manage
risks,
(ii)
be
compatible
with
effective
internal
controls
and
risk
management, and (iii)
be supported by
strong corporate governance,
including active and
effective oversight
by the
organization’s
board of directors.
The Dodd-Frank Act requires the U.S. financial regulators, including the Federal Reserve Board, the other federal banking
agencies
and
the
SEC,
to
adopt
rules
prohibiting
incentive-based
payment
arrangements that
encourage
inappropriate
risks
by
providing excessive
compensation or
that could
lead to
a material
financial loss
at specified
regulated entities
having at
least $1
billion in total
assets (including Popular,
PNA, BPPR and
PB). The U.S.
financial regulators proposed revised
rules in 2016,
which
have not been finalized.
In October
2022, the SEC
adopted a final
rule requiring securities
exchanges to adopt
rules mandating, in
the case of
a
restatement, the
recovery or
“clawback” of
excess incentive-based
compensation paid
to current
or former
executive officers
and
requiring listed
issuers to
disclose any
recovery analysis where
recovery is
triggered by
a restatement.
The excess
compensation
would be based
on the amount
the executive officer
would have received
had the incentive-based
compensation been determined
using the restated
financials. The Nasdaq
Stock Market’s listing
standards pursuant to the
SEC’s rule became
effective October 2,
2023. Popular’s clawback policy adopted in accordance
with these listing standards is included as
Exhibit 97.1.
Regulation of Broker-Dealers
Our subsidiary,
PS, is a
registered broker-dealer with the
SEC and subject to
regulation and examination by
the SEC as
well
as
FINRA
and
other
self-regulatory
organizations.
These
regulations
cover
a
broad
range
of
issues,
including
capital
requirements;
sales
and
trading
practices;
use
of
client
funds
and
securities;
the
conduct
of
directors,
officers
and
employees;
record-keeping and recording;
supervisory procedures to
prevent improper trading
on material
non-public information; qualification
and
licensing
of
sales
personnel;
and
limitations
on
the
extension
of
credit
in
securities
transactions.
In
addition
to
federal
registration, state securities
commissions require the
registration of certain
broker-dealers. PS is
registered with 35
U.S. state and
territory securities commissions.
Regulation of Reinsurers, Insurance Producers and Agents
Popular’s subsidiaries that are engaged in
insurance agency and producer activities are
subject to regulatory supervision
by the Puerto
Rico Office of
the Commissioner of Insurance
and to insurance laws
and regulations requiring licensing
of insurance
producers and
agents. Popular’s
reinsurance subsidiaries
are subject
to
licensure and
regulatory supervision
by the
Puerto Rico
Office of the Commissioner of Insurance and
to insurance laws and regulations requiring, among
other things, minimum capital and
solvency standards, financial reporting, restrictions on
the amount of dividends payable, record
keeping and examinations.
Puerto Rico Regulation
As
a
commercial
bank
organized
under
the
laws
of
Puerto
Rico,
BPPR
is
subject
to
supervision,
examination
and
regulation by the Office of the Commissioner of Financial Institutions, pursuant to the Puerto Rico Banking Act of 1933, as amended
(the “Banking Law”).
Section 27
of the
Banking Law
requires that
at
least ten
percent (10%)
of the
yearly net
income of
BPPR be
credited
annually to a reserve
fund. The apportionment must be
done every year until the
reserve fund is equal to
the total of paid-in
capital
on common and preferred stock. During 2023, $44.5
million was transferred to the statutory reserve
account.
Section
of
the
Banking
Law
also
provides that
when
the
expenditures
of
a
bank
are
greater
than
its
receipts, the
excess of the
former over the latter
must be charged against
the undistributed profits of
the bank, and the
balance, if any,
must be
charged against
the reserve
fund.
If the
reserve fund
is
not sufficient
to
cover such
balance in
whole or
in part,
the outstanding
amount must be charged against
the capital account and no
dividend may be declared until capital
has been restored to its
original
amount and the reserve fund to 20% of the original
capital.
Section 16 of the
Banking Law requires every
bank to maintain a
legal reserve that, except
as otherwise provided by
the
Office of
the Commissioner,
may not be
less than 20%
of its
demand liabilities, excluding
government deposits (federal,
state and
municipal) that
are secured
by collateral.
If a
bank is
authorized to
establish one
or more
bank branches
in a
state of
the United
States or in a foreign country, where such branches are subject to the reserve requirements of that state
or country, the Office of the
Commissioner
may
exempt
said
branch
or
branches
from
the
reserve
requirements
of
Section
16.
Pursuant
to
an
order
of
the
Federal
Reserve
Board
dated
November
24,
1982,
BPPR
has
been
exempted
from
the
reserve
requirements
of
the
Federal
Reserve
System
with
respect
to
deposits
payable
in
Puerto
Rico.
Accordingly,
BPPR
is
subject
to
the
reserve
requirement
prescribed by the Banking Law. During 2023, BPPR was in compliance
with the statutory reserve requirement.
Section 17 of the Banking Law permits a bank to make loans to
any one person, firm, partnership or corporation, up to an
aggregate amount of
fifteen percent (15%)
of the paid-in
capital and reserve fund
of the bank.
As of December
31, 2023, the
legal
lending limit
for BPPR
under this
provision was
approximately $341
million. In
the case
of loans
which are
secured by
collateral
worth at
least 25% more
than the amount
of the
loan, the
maximum aggregate amount
of such secured
loans is
increased to
one
third of
the paid-in capital
of the bank,
plus its reserve
fund. In no
event may the
total of unsecured
and secured loans
to any one
person, firm, partnership or corporation exceed an aggregate amount of 33 1/3% of the paid-in capital and reserve fund of the bank.
If the institution is well capitalized and had been rated
1 in the last examination performed by the Office
of the Commissioner or any
regulatory agency,
its legal
lending limit
shall also
include 15%
of 50%
of its
undivided profits
and for
loans secured
by collateral
worth at
least 25%
more than
the amount
of the
loan, the
capital of
the bank
shall also
include 33
1/3% of
50% of
its undivided
profits. Institutions rated 2
in their last
regulatory examination may include this
additional component in their
legal lending limit
only
with the previous authorization of the Office of the Commissioner. There are no restrictions under Section 17 on the amount of loans
that are wholly secured
by bonds, securities and
other evidence of indebtedness
of the Government of
the United States or
Puerto
Rico,
or
by
current
debt
bonds,
not
in
default,
of
municipalities
or
instrumentalities
of
Puerto
Rico.
During
2023,
BPPR
was
in
compliance with the lending limit requirements of Section
17 of the Banking Law.
Section
of
the
Banking Law
authorizes a
bank to
conduct certain
financial
and
related
activities directly
or
through
subsidiaries, including finance leasing of personal property and originating and servicing
mortgage loans. BPPR engages in finance
leasing through
its wholly-owned
subsidiary,
Popular Auto,
LLC, which
is organized
and operates
in Puerto
Rico. The
origination
and servicing of mortgage loans is conducted by
Popular Mortgage, a division of BPPR.
With
respect to
information privacy,
Puerto
Rico
law
requires businesses
to
implement information
security
controls to
protect
consumers’
personal
information
from
breaches,
as
well
as
to
provide
notice
of
any
breach
to
affected
customers.
In
addition, as
noted above
in “Regulation
of
Reinsurers, Insurance
Producers and
Agents”, Popular’s
reinsurance subsidiaries
are
subject to
licensure and regulatory
supervision by the
Puerto Rico Office
of the
Commissioner of Insurance
and to insurance
laws
and regulations.
Available Information
We maintain an
Internet website at www.popular.com.
Via the “Investor
Relations” link at our
website, our annual reports
on
Form 10-K,
quarterly reports
on
Form 10-Q,
current
reports on
Form 8-K
and amendments
to
such
reports filed
or furnished
pursuant to Section 13(a) or
15(d) of the Securities Exchange Act
of 1934, as amended (the
“Exchange Act”), are available, free
of
charge, as
soon as
reasonably practicable
after such
forms are
electronically filed
with, or
furnished to,
the SEC.
The SEC
also
maintains an
internet website at
http://www.sec.gov that
contains reports, proxy
and information statements,
and other information
regarding issuers that file electronically with the
SEC. You may obtain copies of our filings on the SEC site.
We have
adopted a
written code
of ethics
that applies
to all
directors, officers
and employees
of Popular,
including our
principal executive officer
and senior financial
officers, in accordance
with Section 406
of the Sarbanes-Oxley
Act of 2002
and the
rules
of
the
SEC
promulgated
thereunder.
Our
Code
of
Ethics
is
available
on
our
corporate
website,
www.popular.com,
in
the
section entitled “Corporate Governance.” In the event that we make changes to, or provide waivers from, the provisions of this Code
of Ethics that
the SEC requires
us to disclose,
we intend to
disclose these events
on our corporate
website in such
section. In
the
Corporate Governance
section
of our
corporate
website,
we
have also
posted the
charters
for
our Audit
Committee, Talent
and
Compensation
Committee,
Risk
Management
Committee,
Corporate
Governance
and
Nominating
Committee
and
Technology
Committee, as well as our Corporate Governance Guidelines. In addition, information concerning
purchases and sales of our equity
securities by our executive officers and directors is
posted on our website.
All
website
addresses
given
in
this
document
are
for
information
only
and
are
not
intended
to
be
active
links
or
to
incorporate any website information into this Form
10-K.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
We, like
other financial institutions,
face risks
inherent to
our business,
financial condition, liquidity,
results of
operations
and
capital
position.
These
risks
could
cause
our
actual
results
to
differ
materially
from
our
historical
results
or
the
results
contemplated by the forward-looking statements contained
in this report.
The risks described in
this report are not the
only risks we face. Additional
risks and uncertainties not currently
known by
us
or
that
we
currently
deem
to
be
immaterial,
or
that
are
generally
applicable
to
all
financial
institutions,
may
also
materially
adversely affect our business, financial condition, liquidity, results of operations or capital
position.
ECONOMIC AND MARKET RISKS
Weakness in
the economy,
particularly in
Puerto Rico,
where a
significant portion
of our
business is
concentrated, has
adversely impacted us in the past and may adversely
impact us in the future.
We have been, and will continue to be, impacted by global and local
economic and market conditions, including weakness
in the
economy,
disruptions and
volatility in
the financial
markets, inflation,
monetary and
fiscal policies,
public policy,
geopolitical
conflicts, business and consumer sentiment and unemployment. A significant portion of our business is concentrated
in Puerto Rico,
which accounted for approximately 77% of
our assets and 81% of
our deposits as of December 31,
2023 and 78% of our
revenues
for the
year ended
December 31,
2023. As
a result,
our financial
condition and
results of
operations are
highly dependent
on the
general
trends
of
the
Puerto
Rico
economy
and
other
conditions
affecting
Puerto
Rico
consumers
and
businesses.
The
concentration of
our operations in
Puerto Rico
exposes us to
greater risks than
other banking companies
with a
wider geographic
base.
Puerto Rico
has faced significant
economic and fiscal
challenges in the
past, including a
severe recession that
began in
2007 and
persisted for
over a
decade and
an acute
fiscal crisis
that led
the Puerto
Rico government
to file
for a
form
of federal
bankruptcy protection
in 2017.
Puerto Rico’s
fiscal and
economic challenges
have in
the past
adversely affected
our customers,
resulting
in
higher
delinquencies,
charge-offs
and
increased
losses
for
us.
While
Puerto
Rico’s
economy
has
been
gradually
recovering
and
the
Puerto
Rico
government
emerged
from
bankruptcy
in
2022,
Puerto
Rico
still
faces
economic
and
fiscal
challenges.
Moreover,
Puerto
Rico
has
historically
received
a
significant
amount
of
federal
funds
through
non-recurring
appropriations, particularly to cover costs associated with its health insurance program, and Puerto Rico’s recent economic recovery
has
been partially
driven by
significant federal
disaster relief
and stimulus
funding. Therefore,
the Puerto
Rico economy
is highly
susceptible
to
changes
in
federal
public
policy
towards
Puerto
Rico.
Public
policy
changes
that
result
in
a
reduction
of
federal
funding for Puerto
Rico, or in
delays in the
receipt of such funding,
could significantly impact Puerto
Rico’s economy.
A weakening
of the Puerto
Rico economy or other
adverse economic conditions affecting
Puerto Rico consumers and
businesses could result in
decreased demand
for our
products or services,
deterioration in the
credit quality
of our
customers, higher
delinquencies, charge-
offs or increased losses, all of which could adversely affect
our financial condition and results of operations.
We are
also exposed
to risks
related to
the state
of the
local economies
of the
other markets
in which
we do
business,
such as New York and Florida, and to the state of the global and U.S. economy and financial
markets. Global financial markets have
recently
experienced periods
of
extraordinary disruption
and volatility,
exacerbated by
geopolitical conflicts,
the
U.S.
debt-ceiling
situation,
high
levels
of
inflation
and
rapid
increases
in
interest
rates.
Inflationary
pressures
increased
certain
of
our
expenses
(including our
personnel expenses)
and adversely
affected consumer
sentiment. Central
bank responses
to inflationary
pressures
led to higher
market interest rates
and, in turn,
lower activity levels across
U.S. and global financial
markets. These circumstances
resulted in,
and could
continue to
result in,
reductions in
the value
of
our investments.
If these
conditions persist
or worsen,
our
results of operations, financial position and liquidity
could be materially and adversely affected.
Changes
in
interest
rates
and
credit
spreads
can
adversely
impact
our
financial
condition,
including
our
investment
portfolio,
since
a
significant
portion
of
our
business involves
borrowing
and
lending
money,
and
investing in
financial
instruments.
Our business
and financial
performance are
impacted by
market interest
rates and
movements in
those rates.
Since a
high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes
in interest rates, in the shape of the yield curve or in spreads between different types of rates, have had and could in the future have
a material impact on our results
of operations and the values of our
assets and liabilities, including our investment portfolio.
Interest
rates are
highly sensitive
to many
factors over
which we
have no
control and
which we
may not
be able
to anticipate
adequately,
including general
economic conditions
and the
monetary and
tax policies
of various
governmental bodies,
particularly the
Federal
Reserve Board.
Increasing levels of inflation, driven
by pent-up demand and supply-chain disruptions caused
by the COVID-19 pandemic
and the war in Ukraine, led
the Federal Market Committee of the Federal Reserve Board
(the “FOMC”) to execute a series of sharp
benchmark interest
rate increases
beginning in
the first
quarter of
2022. While
the
FOMC has
indicated that
it
may conclude
its
interest rate hike cycle, the amount and pace of any reduction in interest rates remains uncertain. Higher interest rates could lead to
fewer originations of
commercial and residential
real estate loans,
loss of deposits,
a misalignment in
the pricing of
short-term and
long-term
borrowings,
less
liquidity
in
the
financial
markets
and
higher
funding
costs.
Furthermore,
higher
interest
rates
could
negatively affect
the payment
performance on
loans linked
to variable
interest rates
to the
extent borrowers
are unable
to afford
higher interest
payments, which
could result
in higher
delinquencies. Inflationary
pressure arising
from increases
in interest
rates
may also affect
borrowers’ financial condition and
their ability to
pay their debts
when due. Additionally,
if the interest
rates we pay
on
our
deposits
and
other
borrowings
were
to
increase
at
a
faster
rate
than
the
interest
rates
we
receive
on
loans
and
other
investments,
our
net
interest
income,
and,
therefore,
our
earnings,
could
be
adversely
affected.
All
of
these
outcomes
could
adversely affect our earnings, liquidity and capital levels.
The
rapid
rise
in
interest
rates
in
resulted
in
approximately
$2.5
billion
in
unrealized
mark-to-market
losses
on
available-for-sale securities held in our investment securities portfolio. In October 2022, we transferred U.S. Treasury securities with
a fair value of approximately $6.5 billion (par value of
$7.4 billion), and with accumulated unrealized losses of $873 million, from our
available-for-sale portfolio to
our held-to-maturity portfolio.
While the size
of our unrealized
mark-to-market losses on
available-for-
sale
securities
had
been
reduced
to
$1.4
billion
as
of
December
31,
2023,
if
interest
rates
were
to
again
rise
rapidly
or
for
a
prolonged period, we may accumulate significant additional mark-to-market
losses on investment securities in our available-for-sale
portfolio, which may adversely affect our tangible capital
and impact our ability to return capital to our
stockholders.
For a discussion of the Corporation’s
interest rate sensitivity, please refer
to the “Risk Management” section of the MD&A
in this Form 10-K.
BUSINESS RISKS
Negative
changes
in
the
financial
condition
of
our
clients
have
adversely
impacted
us
in
the
past
and
may
adversely
impact us in the future.
A significant portion of
our business involves lending money,
which exposes us to
credit risk and
risk of loss if
borrowers
do
not
repay
their
loans,
leases, credit
cards
or
other
credit
obligations.
The
performance of
these
credit
portfolios
significantly
affects our
financial condition
and results
of operations.
We have
in the
past been
adversely affected
by negative
changes in
the
financial condition of our clients due to weakness in
the Puerto Rico and U.S. economy. If the current economic environment were to
deteriorate, more customers may have difficulty in repaying their credit obligations, which may result in higher levels
of credit losses
and reserves for credit losses.
We are exposed to
increased credit risks and credit losses
to the extent our clients are
concentrated by industry segment
or type of client.
Our credit risk and credit
losses can increase to the extent
our loans are concentrated in borrowers engaged in
the same
or similar
activities or
in borrowers
who as
a group
may be
uniquely or
disproportionately affected
by certain
economic or
market
conditions. We have significant
exposure to borrowers in certain
economic sectors, such as residential
and commercial real estate,
hospitality and healthcare. Challenging economic or market conditions that affect
the industries or types of clients to
which we have
significant exposure could result in higher credit
losses and adversely affect our financial condition
and results of operations.
We also
have direct
lending and
investment exposure
to Puerto
Rico government
entities, which
have faced
significant
fiscal challenges.
At December
31, 2023,
our exposure
to the
Puerto Rico
government consisted
of $362
million in
direct lending
exposure to Puerto
Rico municipalities and
$238 million in
loans insured or
securities issued by
Puerto Rico governmental
entities
but for
which the
principal source
of repayment
is non-governmental.
We also
have indirect
lending exposure
to the
Puerto Rico
government in the
form of loans
to private borrowers
who are service
providers, lessors, suppliers
or have other
relationships with
the Puerto Rico government. While the overall fiscal situation
of the Puerto Rico government has improved in recent years,
including
as
result
of
the
government
and
certain
of
its
instrumentalities
having
restructured
their
debt
obligations,
some
Puerto
Rico
government entities, including certain municipalities, still face significant
fiscal challenges. A deterioration in the fiscal situation of the
Puerto Rico
government and its
instrumentalities, and in
particular in the
fiscal situation
of the
Puerto Rico
municipalities to
which
we have direct lending exposure, could result in
higher credit losses and reserves for credit losses. For
a discussion of risks related
to the Corporation’s credit exposure to the Puerto Rico
and USVI governments, see the Geographic and
Government Risk section in
the MD&A section of this Form 10-K.
Deterioration in the
values of real
properties securing our commercial, mortgage
loan and construction portfolios
have in
the past resulted, and may in the future result,
in increased credit losses and harm our results
of operations.
As of
December 31,
2023, approximately
55% of
our loan
portfolio consisted
of loans
secured by
real estate
collateral
(comprised of 30% in commercial loans, 22% in residential
mortgage loans and 3% in construction loans). The
value of the collateral
securing such loans is dependent upon economic conditions in the area in which the collateral is located. Weakness in the economy
of some of the
markets we serve has in
the past resulted in significant
declines in the value of
the real properties securing our
loan
portfolio, leading to increased credit losses. If the value of
the real estate properties securing our loan portfolio declines again in
the
future, we may be
required to increase our
provisions for loan losses
and allowance for loan
losses. Any such increase could
have
an adverse effect on
our financial condition and results of
operations. For more information on the credit
quality of our construction,
commercial and mortgage portfolio, see the Credit
Risk section of the MD&A included in this
Form 10-K.
We
are
exposed
to
credit
risk
from
mortgage
loans
that
have
been
sold
or
are
being
serviced
subject
to
recourse
arrangements.
Popular
is
generally
at
risk
for
mortgage
loan
defaults
from
the
time
it
funds
a
loan
until
the
time
the
loan
is
sold
or
securitized into a
mortgage-backed security.
However, we
have retained part
of the credit
risk on sales
of mortgage loans
through
recourse
arrangements,
and
we
also
service
certain
mortgage
loan
portfolios
with
recourse.
At
December
31,
2023,
we
were
exposed to credit risk with respect to $0.6 billion in residential mortgage loans sold
or serviced subject to credit recourse provisions,
consisting principally of loans associated with the Fannie Mae and
Freddie Mac programs. Pursuant to such recourse provisions,
we
are required to repurchase the loan or reimburse the third-party investor for the incurred loss in the event of a customer default. The
maximum potential amount of future payments that
we would be required to make
under the recourse arrangements in the event
of
nonperformance
by
the
borrowers
is
equivalent
to
the
total
outstanding balance
of
the
residential mortgage
loans
serviced
with
recourse
and
interest, if
applicable. In
the
event
of
nonperformance by
the borrower,
we
have
rights
to
the
underlying collateral
securing the
mortgage loan.
During 2023,
we repurchased
approximately $2
million in
mortgage loans
subject to
credit recourse
provisions. As
of December
31, 2023,
our liability
established to
cover the
estimated credit
loss exposure
related to
loans sold
or
serviced with credit recourse amounted to $4 million. We may suffer losses on these loans if the proceeds from a foreclosure sale of
the property underlying
a defaulted mortgage
loan are less
than the outstanding
principal balance of
the loan plus
any uncollected
interest advanced and the costs of holding and disposing
of the related property.
Defective and repurchased loans may harm our business
and financial condition.
In
connection
with
the
sale
and
securitization
of
mortgage
loans,
we
are
required
to
make
a
variety
of
customary
representations
and
warranties regarding
Popular
and
the
loans
being
sold
or
securitized.
Our
obligations with
respect to
these
representations and warranties are generally outstanding for the
life of the loan, and they
relate to, among other things, compliance
with
laws
and
regulations,
underwriting
standards,
the
accuracy
of
information
in
the
loan
documents
and
loan
file
and
the
characteristics
and
enforceability of
the
loan.
A
loan
that
does
not
comply
with
the
secondary
market’s
requirements
may
take
longer to
sell, impact
our ability
to securitize
the loans
or pledge
the loans
as collateral
for borrowings,
or be
unsalable or
salable
only
at
a
significant
discount.
Moreover,
if
any
such
loan
is
sold
before
we
detect
non-compliance,
we
may
be
obligated
to
repurchase the loan and bear any associated loss directly,
or we may be obligated to indemnify the purchaser against any loss.
We
seek to
minimize repurchases and
losses from defective
loans by correcting
flaws, if possible,
and selling or
re-selling such loans.
However,
if
we
were
to
suffer
significant
losses
from
defective
and
repurchased
loans,
our
results
of
operations
and
financial
condition could be materially impacted.
If we are
unable to maintain
or grow our
deposits, we may
be subject to
paying higher funding costs
and our net
interest
income may decrease.
We rely primarily
on bank deposits as
a low cost and
stable source of funding
for our lending activities
and the operation
of
our
business.
Therefore,
our
funding
costs
are
largely
dependent
on
our
ability
to
maintain
and
grow
our
deposits.
As
our
competitors have raised the
interest rates they pay
on deposits, our
funding costs have increased,
as we have
needed to increase
the rates we
pay to our depositors
to avoid losing deposits
and to procure new
ones. Rising interest rates
have also led customers
to move their funds to alternative investments that
pay higher interest rates.
Additionally, periods of market stress
or lack of market
or customer confidence in financial institutions may result in
a loss of customer deposits, especially to the
extent those deposits are
in excess of the FDIC-insured limit of $250,000. As of
December 31, 2023, we had $14.6 billion of deposits (other
than collateralized
public funds, which represent public deposit balances from governmental entities in the U.S. and its territories, including Puerto Rico
and the United States Virgin Islands, that are collateralized based on such jurisdictions’
applicable collateral requirements) in excess
of the FDIC-insured limit. As deposits decrease, we
may need to rely on more
expensive sources of funding. Furthermore, we have
a
significant
amount
of
deposits
from
the
Puerto
Rico
government,
its
instrumentalities
and
municipalities
($18.1
billion,
or
approximately 28% of our
total deposits, as of
December 31, 2023), and
the amount of these
deposits may fluctuate depending on
the financial
condition and
liquidity of
these entities,
as well
as on
our ability
to maintain
these customer
relationships. Under
the
terms of
BPPR’s deposit
pricing agreement
with Puerto
Rico public
sector,
public fund
deposit rates
are market
linked with
a lag
minus a
specified spread.
Therefore, as
market rates
rise, we
are required
to sequentially
increase the
rates we
pay our
public
deposits. If
we are unable
to maintain or
grow our deposits
for any
reason, we may
be subject to
paying higher funding
costs and
our net interest income may decrease.
OPERATIONAL RISKS
We
and our
third-party providers
have been,
and expect
in the
future to
continue to
be, subject
to cyber-attacks,
which
could cause substantial harm and have an adverse
effect on our business and results of operations.
Cybersecurity
risks
for
large
financial
institutions
such
as
Popular
have
increased
significantly
in
recent
years
in
part
because of
the proliferation
of new
technologies, such
as mobile
banking, artificial
intelligence and
the ability
to conduct
instant
financial transactions anywhere
globally, growing
geo-political threats, such
as the ongoing
wars in Ukraine
and in the
Gaza Strip,
and the increased sophistication and activities of
organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In
the ordinary
course of
business, we
rely on
electronic communications
and information
systems to
conduct our
operations and
to
transmit
and
store
sensitive
data.
We
employ
a
layered
defensive approach
that
employs
people, processes
and
technology
to
manage and
maintain cybersecurity
controls through
a variety
of preventative
and detective
tools that
monitor, block,
and provide
alerts
regarding suspicious
activity
and
identify suspected
advanced persistent
threats.
Notwithstanding our
defensive measures
and
the
significant
resources
we
devote
to
protect
the
security
of
our
systems,
there
is
no
assurance
that
all
of
our
security
measures will be effective at all times, especially as the threats from cyber-attacks are continuous and severe. The risk of a security
breach due
to a
cyber-attack could
increase in
the future
as we
continue to
expand our
mobile banking
and other
internet-based
product
offerings,
the
use
of
the
cloud
for
system
development
and
hosting
and
internal
use
of
internet-based
products
and
applications.
We
continue to
detect and
identify attacks
that are
becoming more
sophisticated and
increasing in
volume, as
well as
attackers
that
respond
rapidly
to
changes
in
defensive
countermeasures. The
most
significant
cyber-attack
risks
that
we
or
our
critical service providers may face include, but are not limited to,
e-fraud, denial-of-service (DDoS), ransomware, computer intrusion
and
the
exploitation of
software zero-day
vulnerabilities that
might result
in
disruption of
services
and in
the
exposure or
loss of
customer
or
proprietary
data.
Loss
from
e-fraud
occurs
when
cybercriminals
compromise
our
systems
or
the
systems
of
our
customers and extract
funds from customer’s
credit cards or
bank accounts, including
through brute force,
password spraying and
credential
stuffing
attacks
directed
at
gaining
unauthorized
access
to
individual
accounts.
Denial-of-service
attacks
intentionally
disrupt
the
ability
of
legitimate
users,
including
customers
and
employees,
to
access
networks,
websites
and
online
resources.
Computer intrusion attempts either direct or through social engineering (pretext calls), supply chain compromise, email, text or voice
messages, including using brand impersonation (regularly referred
to as phishing, vishing, smishing
and quishing), have resulted in
and may continue to result in the compromise of sensitive customer data, such as account numbers, credit cards and social security
numbers,
and
could
present
significant
reputational, legal
and
regulatory costs
to
Popular
if
successful.
The
emergence of
new
technologies such as artificial intelligence and quantum
computing are further expected to exacerbate
the risk of cyber-attacks.
Our
customer-facing
platforms
are
also
routinely
attacked
by
threat
actors
aiming
to
gain
unauthorized
access
to
our
clients’ accounts.
Popular has
recently implemented
certain defensive
measures in
response to
brute force
attacks on
one of
our
platforms which resulted in certain
of our customers log-in credentials
and information being exposed. As
a result, Popular notified,
as required
or otherwise
deemed appropriate,
customers identified
as affected
by the
incident. We
have to
date not
experienced
material losses in connection with these attacks. Cyber-security risks have also been recently exacerbated by the discovery of zero-
day vulnerabilities in widely distributed third party software,
such as the vulnerability identified in the Apache
log4j in December 2021
and in the MOVEit file transfer application in
May 2023, which could affect Popular’s or any
of its service provider’s systems.
The
increased
use
of
remote
access
and
third-party
video
conferencing
solutions
to
enable
work-from-home
arrangements for employees and facilitate
the use of digital
channels by our customers,
has also increased our
exposure to cyber-
attacks. In
addition, a
third party
could misappropriate
confidential information
obtained by
intercepting signals
or communications
from mobile devices
used by Popular’s customers
or employees. Recent events,
including the wars
in Ukraine and
the Gaza Strip,
have also
illustrated increased
geo-political factors
and the
risks related
to supply-chain
compromises and
de-stabilizing activities
linked to
nation-state sponsored
activity as
an increasing
trend to
monitor actively.
Risks and
exposures related
to cyber
security
attacks are expected to remain high for the foreseeable future due to
the rapidly evolving nature and sophistication of these threats,
including the
rise in
the use
of cyber-attacks
as geopolitical
weapons. Although
we are
regularly targeted
by unauthorized
threat-
actor activity, including denial-of-service attacks, we have not, to date, experienced
any material losses as a result of cyber-attacks.
A material compromise or circumvention of the security of our systems could
have serious negative consequences for us,
including
significant
disruption
of
our
operations
and
those
of
our
clients,
customers
and
counterparties,
misappropriation
of
confidential information
of us
or that
of our
clients, customers,
counterparties or
employees, or
damage to
computers or
systems
used
by
us
or
by
our
clients,
customers
and
counterparties,
and
could
result
in
violations
of
applicable
privacy
and
other
laws,
financial loss
to us
or to
our customers,
loss of
confidence in
our security
measures, customer
dissatisfaction, significant litigation
exposure and harm to
our reputation, all of
which could have a
material adverse effect
on us. For example,
if personal, non-public,
confidential
or
proprietary
information
in
our
possession
were
to
be
mishandled,
misused
or
stolen,
we
could
suffer
significant
regulatory consequences, reputational damage
and financial loss.
Such mishandling, misuse
or misappropriation could include,
for
example, if such information
were provided to parties
who are not permitted
to have the
information, either by fault
of our systems,
by our employees
or counterparties, or
where such information
is intercepted or
otherwise inappropriately taken by
our employees
or third parties.
The
extent
of
a
particular
cyber-attack
and
the
steps
that
we
may
need
to
take
to
investigate
the
attack
may
not
be
immediately
clear,
and
it
may
take
a
significant
amount
of
time
before
such
an
investigation
can
be
completed.
While
such
an
investigation is ongoing, Popular may not necessarily know the full extent
of the harm caused by the cyber-attack, and that
damage
may continue to spread.
These factors may inhibit
our ability to provide
rapid, full and reliable
information about the cyber-attack to
our clients,
customers, counterparties
and regulators,
as well
as the
public. Moreover,
new regulations may
require us
to disclose
information about a cybersecurity event before
it has been resolved or
fully investigated. Furthermore, it may not
be clear how best
to
contain
and
remediate
the
potential
harm
caused
by
the
cyber-attack,
and
certain
errors
or
actions
could
be
repeated
or
compounded before they are discovered and remediated. Cyber-attacks could cause interruptions
in our operations and result in the
incurrence
of
significant
costs,
including those
related
to
forensic analysis
and
legal counsel,
each of
which may
be
required to
ascertain the extent
of any potential
harm to our
customers, or employees, or
damage to our information
systems and any
legal or
regulatory obligations that
may result therefrom.
Any cyber incidents
could also result
in, among other
things, increased regulatory
scrutiny
and adverse
regulatory or
civil
litigation consequences.
For a
discussion of
the guidance
and rules
that federal
banking
regulators
have
released
or
proposed
regarding
cybersecurity
and
cyber
risk
management
standards,
see
“Regulation
and
Supervision” in
Part
I,
Item
1 -
Business,
included in
the
Form 10-K
for the
year
ended December
31,
2023. Any
or
all
of
the
foregoing factors could further increase the impact
of the incident and thereby the costs and consequences
of a cyber-attack.
We also
rely on
third parties
for the
performance of
a significant
portion of
our information
technology functions and
the
provision of information security,
technology and business process services. As a result, a
successful compromise or circumvention
of
the security
of
the systems
of these
third-party service
providers could
have serious
negative consequences
for us,
including
compromise
of
our
systems,
misappropriation of
our
confidential
information
or
that
of
our
clients,
customers,
counterparties
or
employees,
or
other
negative
implications
identified
above
with
respect
to
a
cyber-attack
on
our
systems,
which
could
have
a
material
adverse effect
on
us.
Cyber-attacks at
third-party service
providers
are
also
becoming increasingly
common,
and,
as
a
result, cybersecurity risks relating to our vendors have
increased. The most important of these third-party service providers
for us is
Evertec. Certain risks particular to Evertec and
our dependence on third parties are discussed
under “We rely on other companies to
provide key components of our business infrastructure, including certain of our core financial transaction processing and information
technology and
security services, which
exposes us
to a
number of operational
risks that
could have
a material
adverse effect
on
us”
in
the
Operational
Risks
section
of
Item
1A
in
this
Form
10-K.
During
2021,
we
determined
that,
as
a
result
of
the
widely
reported breach of
Accellion, Inc.’s File
Transfer Appliance tool,
which was being
used at the time
of such breach
by a U.S.-based
third-party advisory services vendor of
Popular, personal information of
certain Popular customers was compromised. During
2023,
personal information of Popular customer data was compromised in a data breach incident that impacted MOVEit, the third-party file
transfer
platform
used
by
one
of
our
services
providers.
In
both
instances,
Popular
notified,
as
required
or
otherwise
deemed
appropriate, customers identified
as affected
by the incident.
Although these incidents
did not have
a material effect
on Popular or
its financial condition,
our networks and
systems were not
impacted, and our third-party
service providers agreed to
cover external
remediation
costs
associated
therewith,
a
compromise
of
the
personal
information
of
our
customers
maintained
by
third
party
vendors
could
result
in
significant
regulatory
consequences,
reputational
damage
and
financial
loss
to
us.The
success
of
our
business depends
in part
on the
continuing ability
of these
(and other)
third parties
to perform
these functions
and services
in a
timely
and
satisfactory
manner,
which
performance
could
be
disrupted
or
otherwise
adversely
affected
due
to
failures
or
other
information security
events originating at
the third
parties or at
the third parties’
suppliers or vendors
(so-called “fourth party
risk”).
We
may
not
be
able
to
effectively
directly
monitor
or
mitigate
fourth-party
risk,
in
particular
as
it
relates
to
the
use
of
common
suppliers or vendors by the third parties that perform
functions and services for us.
As
cyber
threats
continue
to
evolve,
we
expect
to
expend
significant
additional
resources
to
continue
to
modify
or
enhance our
layers of
defense or
to investigate
and remediate
additional information
security vulnerabilities
or incidents.
System
enhancements and
updates also
create risks
associated with
implementing new
systems and
integrating them
with existing
ones,
including risks associated with supply chain compromises
and the software development lifecycle of the
systems used by us and our
service providers. Due
to the complexity
and interconnectedness of information
technology systems, the
process of enhancing
our
layers
of
defense can
itself
create
a
risk
of
systems
disruptions
and
security
issues.
In
addition,
addressing
certain
information
security vulnerabilities, such as
hardware-based vulnerabilities, may affect
the performance of our
information technology systems.
The ability of our
hardware and software providers to deliver
patches and updates to mitigate vulnerabilities
in a timely manner
can
introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. Moreover,
our efforts to timely
mitigate vulnerabilities and
manage such risks,
given the rise
in number and
urgency of
required patches and
third-party software,
including “zero-day vulnerabilities”, as
well as the obsolescence
in some of our
hardware and software, may
impact our day-to-day
operations,
the
availability
of
our
systems
and
delay
the
deployment
of
technology
enhancements
and
innovation.
The
obsolescence in any of our hardware or
software may limit our ability to mitigate vulnerabilities.
If Popular’s operational systems,
or those of
external parties on which
Popular’s businesses depend, are
unable to meet
the requirements of our
businesses and operations or bank
regulatory standards, or if they
fail, have other significant
shortcomings
or are impacted by cyber-attacks, Popular could
be materially and adversely affected.
Unforeseen or
catastrophic events,
including
extreme weather
events and
other natural
disasters, man-made
disasters,
acts of violence or
war, or the
emergence of pandemics or epidemics, could
cause a disruption in our
operations or other
consequences that could have a material adverse
effect on our financial condition and results
of operations.
A
significant
portion
of
our
operations
are
located
in
the
Caribbean
and
Florida,
a
region
susceptible
to
hurricanes,
earthquakes and other
similar events. In
2017, Puerto Rico,
USVI and BVI
were severely impacted
by Hurricanes Irma
and María,
which resulted in significant disruption to our operations and adversely affected
our clients in these markets, and in 2022, Hurricane
Fiona impacted the
southwest area of
Puerto Rico,
adversely affecting our
customers in
that region. Other
types of
unforeseen or
catastrophic events, including
pandemics, epidemics, man-made
disasters, or acts
of violence or
war, or
the fear that
such events
could
occur,
could
also
adversely
impact
our
operations
and
financial
results.
For
example,
in
2020,
the
COVID-19
pandemic
severely
impacted
global
health,
financial
markets,
consumer
spending
and
global
economic
conditions,
and
caused
significant
disruption
to
businesses worldwide,
including
our
business
and
those
of
our
customers, service
providers
and
suppliers.
Future
unforeseen or
catastrophic events,
including new
pandemic events, and
actions taken
by governmental authorities
and other third
parties in
response to such
events, could again
adversely affect
our operations, cause
economic and market
disruption, adversely
impact the ability of borrowers to
timely repay their loans, or affect
the value of any collateral
held by us, any of which
could have a
material adverse
effect on
our business,
financial condition
or results
of operations.
The frequency,
severity and
impact of
future
unforeseen or catastrophic events is difficult to
predict. While we maintain insurance against natural disasters and other unforeseen
events, including coverage
for business interruption,
the insurance may
not be sufficient
to cover all
of the
damage from any
such
event, and there is no insurance against the disruption that a catastrophic event could produce to the markets that we serve and the
potential negative impact to economic activity.
Climate change could have a material adverse
impact on our business operations and that
of our clients and customers.
Our business and
the activities and
operations of our
clients and customers
may be disrupted
by global climate
change.
Potential physical risks
from climate change
include the increase
in the
frequency and severity
of weather
events, such as
storms
and
hurricanes,
and
long-term
shifts
in
climate
patterns, such
as
sustained
higher
and
lower
temperatures,
sea
level
rise,
heat
waves
and
droughts,
among
others.
Our
geographic
concentration
in
localities,
including
Puerto
Rico,
the
U.S.V.I.,
B.V.I.
and
Florida, particularly
susceptible to
risks arising
from climate
change, including
severe hurricanes
and sea
level rise,
heighten the
threat we
face from
climate change. Additionally,
the impact
of climate
change in
the markets
that we
operate and
in other
global
markets may
have the
effect of
increasing the
costs or
reducing the
availability of
insurance needed
for our
business operations.
Climate change may also create transitional risks resulting from a shift to a low-carbon economy.
These transition risks may include
changes in the legal and regulatory landscape, technology, consumer sentiment and preferences, and market demands that seek to
mitigate the
effects
of climate
change. Changes
in the
legal
and regulatory
landscape may
additionally increase
our compliance
costs.
These
climate-driven
changes
could
have
a
material
adverse
impact
on
asset
values
and
on
our
business
and
financial
performance and those of our clients and customers.
We
rely
on
other
companies
to
provide
key
components
of
our
business
infrastructure,
including
certain
of
our
core
financial
transaction
processing
and
information
technology
and
security
services,
which
exposes
us
to
a
number
of
operational risks that could have a material
adverse effect on us.
Third parties provide key components of our business operations, such
as data processing, information security, recording
and monitoring transactions,
online banking interfaces and
services, Internet connections and
network access. The most
important
of these third-party
service providers for
us is Evertec.
Although the Evertec
Business Acquisition Transaction
narrowed the scope
of
services
which
we
are
dependent
on
Evertec to
obtain
and
released
us
from
exclusivity
restrictions
that
limited
our
ability
to
engage other third-party
providers of financial
technology services, we
are still dependent
on Evertec for
the provision of
essential
services
to
our
business,
including
certain
of
our
core
financial
transaction
processing
and
information
technology
and
security
services. As
a
result, we
are
particularly exposed
to
the operational
risks
of Evertec,
including those
relating to
a
breakdown or
failure of Evertec’s systems or internal controls environment. Over the course of
our relationship with Evertec, we have experienced
interruptions
and
delays
in
key
services
provided
by
Evertec,
as
well
as
cyber
events,
as
a
result
of
system
breakdowns,
misconfigurations,
human
error,
application
obsolescence
and
dependency
on
shared
infrastructure
components,
which
have
in
certain cases
also
led to
exposure of
BPPR customer
information. Our
ability to
cure
legacy obsolescence
in the
hardware and
software we
procure from
Evertec, as
well as
to effect
the segregation
of our
shared infrastructure,
is expected
to be
lengthy and
complex,
which
exacerbates
our
exposure
to
resulting
operational,
including
cybersecurity,
risks.
See
“The
transition
to
new
financial services
technology providers,
and the
replacement of
services currently
provided to
us
by Evertec,
will be
lengthy and
complex” in the Operational Risks section of Item 1A
in this Form 10-K below.
While we
select third-party
vendors carefully
and have
increased our
oversight of
these relationships,
we do
not control
the
actions
of
our
vendors.
Any
problems
caused
by
these
vendors,
including
those
resulting
from
disruptions
in
the
services
provided, vulnerabilities in or breaches
of the vendor’s systems, failure of
the vendor to handle
current or higher volumes,
failure of
the vendor
to provide services
for any
reason or
poor performance of
services, or
failure of
the vendor to
notify us of
a reportable
event in a timely manner,
could adversely affect our ability to deliver products and services to
our customers and otherwise conduct
our
business,
result in
potential liability
to
clients
and customers,
result in
the
imposition of
fines,
penalties or
judgments by
our
regulators, lead to
exposure of BPPR
customer information or
harm to our
reputation, any of
which could materially
and adversely
affect us.
The inability
of our
third-party service
providers to
timely address
evolving cybersecurity threats
may further
exacerbate
these risks. Financial or operational difficulties of a third-party vendor could also
hurt our operations if those difficulties interfere with
the vendor’s ability to serve us. Replacing these
third-party vendors, when possible, could also create significant
delay and expense.
Accordingly, the use of third parties creates an unavoidable inherent risk to
our business operations.
The transition to new financial services technology providers, and the replacement of services currently provided to
us by
Evertec, will be lengthy and complex.
Switching from
one vendor
of core
bank processing
and related
technology and
security services
to
one
or more
new
vendors
is
a
complex
process
that
carries
business
and
financial
risks.
The
implementation
cycle
for
such
a
transition
can
be
lengthy and require significant financial and
management resources from us. Such
a transition can also expose us,
and our clients,
to
increased
costs
(including
conversion
costs),
business
disruption,
as
well
as
operational
and
cybersecurity
risks.
Upon
the
transition of all or
a portion of existing services
provided by Evertec to a
new financial services technology provider,
either (i) at the
end of the term of the Second Amended and Restated
Master Services Agreement (the “MSA”) and related
agreements or (ii) earlier
upon the
termination of any
service for
convenience under the
MSA, these transition
risks could result
in an
adverse effect
on our
business, financial condition and results of operations. Although Evertec
has agreed to provide certain transition assistance to
us in
connection with
the termination of
the MSA,
we are
ultimately dependent on
their ability
to provide
those services
in a
responsive
and competent manner. Furthermore, we
may require transition assistance from Evertec beyond the term of
the MSA, delaying and
lengthening any transition process away from Evertec
while increasing related costs.
Under the
MSA, we
are able
to terminate
services for
convenience with
180 days’
prior notice.
We expect
to exercise
during the
term of
the MSA
the right
to terminate
certain services
for convenience
and to
transition such
services to
other service
providers prior to the expiration
of the MSA, subject to
complying with the revenue minimums contemplated in
the MSA and certain
other conditions. In
practice, in order
to switch
to a
new provider for
a particular service,
we will have
to commence procuring
and
working on
a transition
process for
such service
significantly in
advance of
its termination
and, in
any case,
much earlier
than the
automatic renewal notice date or the expiration date of
the MSA, and such process may extend beyond the current
term of the MSA.
Furthermore, if
we
are
unsuccessful or
decide not
to
complete
the transition
after
expending significant
funds
and
management
resources, it could also result in an adverse
effect on our business, financial condition and results
of operations.
LEGAL AND REGULATORY RISKS
Our
businesses
are
highly
regulated,
and
the
laws
and
regulations
that
apply
to
us
have
a
significant
impact
on
our
business and operations.
We are subject to extensive and evolving
regulation under U.S. federal, state and Puerto Rico laws that
govern almost all
aspects of our operations and
limit the businesses in which
we may be engaged,
including regulation, supervision and examination
by federal, state
and foreign banking
authorities. These laws
and regulations have
expanded significantly over an
extended period
of
time
and
are
primarily
intended
for
the
protection
of
consumers,
borrowers
and
depositors.
Compliance
with
these
laws
and
regulations has resulted, and will continue to
result, in significant costs.
Additional
laws
and
regulations
may
be
enacted
or
adopted
in
the
future
that
could
significantly
affect
our
powers,
authority
and
operations and
which could
have a
material adverse
effect
on
our
financial condition
and
results
of
operations. In
particular,
we
could
be
adversely
impacted
by
changes
in
laws
and
regulations,
or
changes
in
the
application,
interpretation
or
enforcement of
laws and
regulations, that proscribe
or institute more
stringent restrictions on
certain financial
services activities
or
impose new
requirements relating to
the impact of
business activities on
ESG concerns, the
management of
risks associated with
those concerns and
the offering of
products intended to achieve
ESG-related objectives. In
addition, new laws or
regulations could
require
significant
system
and
process
changes
that
require
systems
upgrades
and
could
limit
our
ability
to
meet
adoption
timeframes or pursue our
innovation roadmap. If we
do not appropriately comply
with current or future
laws or regulations, we
may
be subject to
fines, penalties or
judgements, or to
material regulatory restrictions
on our
business, which could
also materially and
adversely affect our financial condition and results of operations.
In 2023, the federal
banking regulators proposed revisions to the
U.S. capital rules and new
long-term debt requirements
for banking organizations with $100 billion or more in
assets.
If finalized as proposed, the revisions to the capital
rules and the new
long-term
debt
requirements
are
expected
to
generally
increase
capital
requirements
and
expenses,
including
interest
and
noninterest expense, for large banking organizations.
In addition, during 2023, the federal banking regulators
indicated that they are
considering revisions to liquidity requirements applicable to
banking organizations with $100 billion or
more in light of
the failures of
three large banks in March and May 2023.
Any such revisions could require large banks to change the
size and composition of their
liquidity portfolios, which could have adverse effects on
net interest income and net interest margin.
The
pending
and
anticipated
proposals
reflect
a
trend
of
increasingly
stringent
regulatory
requirements
for
banking
organizations
with assets
of
$100
billion
or
more,
relative
to
smaller
banking
organizations, as
well
as
less differentiation
in
the
requirements applicable among banking organizations with $100 billion or more in assets.
Although Popular currently has less than
$100
billion
in
assets,
actual, anticipated
or
potential changes
in
regulatory requirements
for
banking organizations
with at
least
$100 billion in assets could
result in Popular deciding not to
pursue growth opportunities that would result
in its assets approaching
or exceeding
that threshold,
or if
Popular’s assets
do exceed
that threshold,
a need
for Popular
to increase
its regulatory
capital,
issue
substantial
amounts
of
long-term
debt
or
incur
other
significant
expenses
in
order
to
satisfy
applicable
regulatory
requirements.
Our participation
(or lack
of participation)
in certain
governmental programs,
such as
the Paycheck
Protection Program
(“PPP”) enacted
in response
to the
COVID-19 pandemic,
also exposes
us to
increased legal
and regulatory
risks. We
have also
been and could continue to
be exposed to adverse
action for the violation of
applicable legal requirements or the improper
conduct
of our employees in connection with such loans. For example, on January 24, 2023, Popular Bank consented to the imposition of an
order from
the Federal
Reserve Board
requiring it
to
pay a
$2.3 million
civil money
penalty to
settle certain
findings arising
from
Popular Bank’s approval of six Payment Protection Program
loans.
We
are from
time to
time subject
to information
requests, investigations
and other
regulatory enforcement
proceedings
from departments and agencies of the U.S. and Puerto Rico
governments, including those that investigate compliance
with
U.S. sanctions and consumer protection laws and regulations, which may
expose us to significant penalties and collateral
consequences, and could result in higher compliance
costs or restrictions on our operations.
We
from
time-to-time
self-report
compliance
matters
to,
or
receive
requests
for
information
from,
departments
and
agencies
of
the
U.S.
and
Puerto
Rico
governments,
including
with
respect
to
compliance
with
consumer
protection
laws
and
regulations.
For
example,
BPPR
has
in
the
past
received
requests
for
information,
such
as
subpoenas
and
civil
investigative
demands
from
U.S.
government
regulators,
including
concerning
add-ons
on
consumer
products,
real
estate
appraisals
and
residential and
construction loans
in Puerto
Rico. BPPR
has also
self-identified and
reported to
applicable regulators
compliance
matters related to U.S. sanctions, as well as mortgage,
credit reporting and other consumer lending practices.
Incidents of this nature and investigations or examinations by governmental authorities have resulted in the past, and may
in the
future result, in
judgments, settlements, fines,
enforcement actions, penalties
or other sanctions
adverse to the
Corporation,
which could materially and adversely affect the
Corporation’s business, financial condition or results of operations, or cause
serious
reputational
harm.
Any
such
settlements
or
orders
that
we
enter
into,
or
that
regulatory
authorities
impose
on
us
could
require
enhancements
to
our
procedures
and
controls
and
entail
significant
operational
and
compliance
costs.
Furthermore,
issues
or
delays in
satisfying the
requirements of
a regulatory
settlement or
action on
a timely
basis could
result in
additional penalties
and
enforcement actions, which could be significant. In connection with the resolution of regulatory proceedings, enforcement authorities
may seek admissions of wrongdoing and, in some cases, criminal pleas, which
could lead to increased exposure to private litigation,
loss of clients or customers, and restrictions on offering certain products or
services. In addition, responding to information-gathering
requests,
investigations
and
other
regulatory
proceedings,
regardless
of
the
ultimate
outcome
of
the
matter,
could
be
time-
consuming, expensive and divert management attention
from our business.
Financial services
institutions such
as Popular
have been
subject to
heightened expectations
and regulatory
scrutiny in
recent years.
Our regulators’
oversight is
not limited
to banking
and financial
services laws
but extends
to other
significant laws
such as those related to anti
money laundering, anti-bribery and anti-corruption laws. Further,
regulators in the performance of their
supervisory and enforcement
duties, have significant
discretion and power
to prevent or
remedy what they
deem to be
unsafe and
unsound
practices
or
violations
of
laws
by
banks
and
bank
holding
companies.
Therefore,
the
outcome
of
any
investigative
or
enforcement action, which may take years and be
material to Popular, may be difficult to predict or estimate.
Complying with economic and trade sanctions programs
and anti-money laundering laws and regulations
can increase our
operational
and
compliance
costs
and
risks.
If
we,
and
our
subsidiaries,
affiliates
or
third-party
service
providers,
are
found to
have failed
to comply
with applicable
economic and
trade sanctions
programs and
anti-money laundering
laws
and
regulations,
we
could
be
exposed
to
fines,
sanctions
and
penalties,
and
other
regulatory
actions,
as
well
as
governmental investigations.
As
a
federally
regulated
financial
institution,
we
must
comply
with
regulations
and
economic
and
trade
sanctions
and
embargo
programs
administered by
the
Office
of
Foreign
Assets
Control
(“OFAC”)
of
the
U.S.
Treasury,
as
well
as
anti-money
laundering laws and regulations, including those under
the Bank Secrecy Act.
Economic and trade sanctions regulations and programs administered by OFAC prohibit U.S.-based entities from entering
into or facilitating
unlicensed transactions with, for
the benefit of,
or in some
cases involving the
property and property interests
of,
persons,
governments or
countries
designated by
the
U.S.
government under
one
or
more
sanctions
regimes,
and
also
prohibit
transactions
that
provide
a
benefit
that
is
received in
a
country
designated
under
one
or
more
sanctions
regimes.
We
are
also
subject to
a variety
of reporting
and other
requirements under
the Bank
Secrecy Act,
including the
requirement to
file suspicious
activity and currency
transaction reports, that
are designed to
assist in
the detection
and prevention of
money laundering, terrorist
financing
and
other
criminal
activities.
In
addition,
as
a
financial
institution
we
are
required
to,
among
other
things,
identify
our
customers, adopt formal
and comprehensive anti-money
laundering programs, scrutinize
or altogether prohibit
certain transactions
of special concern, and be prepared to respond to inquiries from U.S.
law enforcement agencies concerning our customers and
their
transactions. Failure
by the
Corporation, its
subsidiaries, affiliates
or
third-party service
providers to
comply with
these
laws
and
regulations
could
have
serious
legal
and
reputational
consequences
for
the
Corporation,
including
the
possibility
of
regulatory
enforcement
or
other
legal
action,
including
significant
civil
and
criminal
penalties.
We
also
incur
higher
costs
and
face
greater
compliance risks in
structuring and operating
our businesses to comply
with these requirements. The
markets in which
we operate
heighten these costs and risks.
We have established risk-based policies and procedures and employed software designed to
assist us and our personnel
in complying
with these
applicable laws
and regulations.
Even if
the appropriate
controls are
in place,
there can
be no
assurance
that
our
policies
and
procedures will
prevent
us
from
blocking
and
rejecting
all
applicable
transactions
of
our
customers
or
our
customers’ customers
that may
involve a
sanctioned person,
government or
country.
Any failure
to detect
and prevent
any such
transaction
could
result
in
a
violation
of
applicable
laws
and
regulations
and
adversely
affect
our
reputation,
business,
financial
condition and results of operations.
From time
to time
we have
identified and
voluntarily self-disclosed
to OFAC
transactions that
were not
timely identified,
blocked
or
rejected
by
our
policies,
controls
and
procedures
for
screening
transactions
that
might
violate
the
regulations
and
economic and
trade sanctions
programs administered
by OFAC.
For example,
during the
second quarter
of 2022,
BPPR entered
into
a
settlement
agreement
with
OFAC
with
respect
to
certain
transactions
processed
on
behalf
of
two
employees
of
the
Government
of
Venezuela,
in
apparent
violation
of
U.S.
sanctions
against
Venezuela.
Popular
agreed
to
pay
approximately
$256,000 to settle the
apparent violations, which had been
self-disclosed to OFAC.
There can be no
assurances that any failure
to
comply with
U.S. sanctions
and embargoes,
or
with anti-money
laundering laws
and
regulations, will
not result
in material
fines,
sanctions or other penalties being imposed on us.
Furthermore, if
the policies,
controls, and
procedures of
one of
the Corporation’s
third-party service
providers, together
with our
third-party oversight
of such
providers, do
not prevent
it from
violating applicable
laws and
regulations in
transactions in
which it engages, such violations could adversely affect its
ability to provide services to us.
We are
subject to
regulatory capital
adequacy requirements, and
if we
fail to
meet these
requirements our
business and
financial condition will be adversely affected.
Under regulatory capital adequacy requirements, and other
regulatory requirements, Popular and our banking
subsidiaries
must
meet
requirements
that
include
quantitative
measures
of
assets,
liabilities
and
certain
off-balance
sheet
items,
subject
to
qualitative
judgments
by
regulators
regarding
components,
risk
weightings
and
other
factors.
If
we
fail
to
meet
these
minimum
capital
requirements
and
other
regulatory
requirements,
our
business
and
financial
condition
will
be
materially
and
adversely
affected. If
a financial
holding company
fails to
maintain well-capitalized
status under
the regulatory
framework, or
is deemed
not
well managed
under regulatory
exam procedures, or
if it
experiences certain
regulatory violations, its
status as
a financial
holding
company and its
related eligibility for
a streamlined review
process for acquisition
proposals, and its
ability to offer
certain financial
products, may be
compromised and its
financial condition and
results of operations
could be adversely
affected. The failure
of any
depository
institution
subsidiary
of
a
financial
holding
company
to
maintain
well-capitalized
or
well-managed
status
could
have
similar consequences.
In
addition, federal
regulators
have proposed
revisions to
increase capital
requirements for
banking organizations
with
$100 billion or more in assets. If adopted, such standards may in the future affect us. See “Our businesses are highly regulated, and
the laws
and regulations
that apply
to us
have a
significant impact
on our
business and
operations” in
the Legal
and Regulatory
Risks section of Item 1A in this Form 10-K.
Increases in FDIC insurance premiums may
have a material adverse effect on our earnings.
Substantially
all
the
deposits
of
BPPR
and
PB
are
subject
to
insurance
up
to
applicable
limits
by
the
FDIC’s
deposit
insurance fund
(“DIF”) and, as
a result, BPPR
and PB
are subject to
FDIC deposit
insurance assessments. On
October 18, 2022,
the FDIC
finalized a
rule that
increased initial
base deposit
insurance assessment
rates by
2 basis
points, beginning
with the
first
quarterly assessment period of 2023. In addition, in November 2023, the FDIC finalized a rule that imposes a special assessment to
recover the costs to the DIF resulting from the FDIC’s
use, in March 2023, of the systemic risk exception to
the least-cost resolution
test
under
the
FDIA
in
connection
with
the
receiverships
of
Silicon
Valley
Bank
and
Signature
Bank.
The
exact
amount
of
this
assessment will be determined when the FDIC terminates
the related receiverships considered in the final
rule. Accordingly, the final
special assessment
amount and collection
period may change
as the
estimated cost
is periodically adjusted
or if
the total
amount
collected varies.
We
are generally
unable to
control the
amount of
premiums or
additional assessments
that we
are required
to pay
for
FDIC insurance. If there
are additional bank or financial
institution failures, our level of
non-performing assets increases, or our
risk
profile changes
or our
capital position
is impaired,
we may
be required
to pay
even higher
FDIC premiums.
Any future
additional
increases in
FDIC premiums,
assessment rates
or special
assessments may
materially adversely
affect our
results of
operations.
See the “Supervision
and Regulation-FDIC Insurance” discussion
in Item 1.
Business of this
Form 10-K for
additional information
related to the FDIC’s deposit insurance assessments applicable
to BPPR and PB.
The
resolution
of
pending
litigation
and
regulatory
proceedings,
if
unfavorable,
could
have
material
adverse
financial
effects or cause significant reputational harm to
us, which, in turn, could seriously harm
our business prospects.
We
face
legal
risks
in
our
businesses,
and
the
volume
of
claims
and
amount
of
damages
and
penalties
claimed
in
litigation
and
regulatory
proceedings
against
financial
institutions
remains
high.
Substantial
legal
liability
or
significant
regulatory
action
against
us
could
have
material adverse
financial
effects
or
cause
significant
reputational harm
to
us,
which
in
turn
could
seriously
harm
our
business
prospects.
For
further
information
relating
to
our
legal
risk,
see
Note
-
“Commitments
&
Contingencies”, to the Consolidated Financial Statements
in this Form 10-K.
LIQUIDITY RISKS
We
are subject
to liquidity
risks arising
from market
events or
disruptions and
instances of
low
investor and
depositor
confidence. Furthermore, actions by the rating agencies
or decreases in our capital levels may have adverse
effects on our
liquidity and business, including by raising the
cost of our obligations or affecting our ability
to borrow.
We must
maintain adequate liquidity
and funding sources
to support
our operations, fund
customer deposit withdrawals,
repay
borrowings
and
debt,
comply
with
our
financial
obligations,
fund
planned
capital
distributions
and
meet
regulatory
requirements.
The
Corporation’s
most
significant
source
of
funds
are
bank
deposits,
including
customer
deposits
and
brokered
deposits.
In
addition
to
deposits,
sources
of
liquidity
include
secured
borrowing
arrangements,
such
as
those
with
the
Federal
Reserve Bank of
New York
and the Federal
Home Loan Bank
of New York
(“FHLBNY”), unpledged securities from
our investment
portfolio, the capital markets and proceeds from loan
sales or securitizations.
Popular’s
liquidity
and
ability
to
fund
and
operate
its
business
could
be
materially
adversely
affected
by
a
variety
of
conditions and
factors, some
of which
are out
of Popular’s control.
For example,
market events
or disruptions,
such as
periods of
market stress and
low investor confidence in
financial institutions could result
in deposit withdrawals,
especially to the
extent those
deposits are in excess of the FDIC-insured limit of $250,000.
As of December 31, 2023, we had $14.6 billion of deposits (other than
collateralized
public
funds,
which
represent
public
deposit
balances
from
governmental
entities
in
the
U.S.
and
its
territories,
including Puerto Rico
and the
United States Virgin
Islands, that are
collateralized based on
such jurisdictions’
applicable collateral
requirements) in excess of
the FDIC-insured limit. We
may also suffer outflows
of customer deposits due
to competition from
other
banks or
alternative investments.
In addition, in
periods of stress,
we may
not be able
to access existing
funding sources, access
the capital markets or to sell or securitize loans or
other assets, or to access such sources or to
sell or securitize assets on favorable
terms.
In addition, actions
by the rating agencies
could raise the cost
of our borrowings, since
lower rated securities are
usually
required by the
market to pay
higher rates than
obligations of higher credit
quality. Our
credit ratings were
reduced substantially in
2009 and, although one of
the three major rating agencies upgraded our
senior unsecured rating back to
“investment grade” during
2021,
the
remaining
two
rating
agencies
have
not
upgraded
their
current
“non-investment
grade”
rating.
The
market
for
non-
investment
grade securities
is
much
smaller
and
less
liquid than
for investment
grade securities.
If
we
were to
attempt
to
issue
preferred stock
or debt
securities into
the capital
markets, it
is possible
that there
would not
be sufficient
demand to
complete a
transaction or
that the
cost could
be substantially
higher than
for more
highly rated
securities. If
Popular is
unable to
access the
capital markets on favorable terms, our liquidity
may be adversely affected.
Changes in our ratings and capital levels could affect our
relationships with some creditors and limit our
access to funding.
For example,
having negative
tangible capital
may impact
our ability
to
access some
sources of
wholesale funding.
The Federal
Housing Finance
Agency restricts the
FHLBNY from
lending to
members of
the FHLBNY
with negative
tangible capital
unless the
member’s primary banking regulator makes a written request to the
FHLBNY to maintain access to borrowings. Both BPPR
and PB
have secured borrowing facilities with the FHLBNY
and had outstanding exposures of $2.5 billion and
$1.7 billion respectively as of
December 31, 2023. Losing
access to the FHLBNY
borrowing facilities could adversely impact
liquidity at the banking
subsidiaries.
Additionally, if
BPPR or PB
cease to be
well-capitalized, the FDIA and
regulations adopted thereunder would
restrict their ability
to
accept brokered deposits and limit the rate of
interest payable on deposits.
Our banking
subsidiaries also
have recourse
obligations under certain
agreements with
third parties,
including servicing
and custodial agreements, that include ratings covenants. Upon failure to maintain the required credit ratings,
the third parties could
have
the
right
to
require
us
to
engage
a
substitute
fund
custodian
and
increase
collateral
levels
securing
recourse
obligations.
Collateral
pledged by
us
to
secure
recourse
obligations approximated
$27.1 million
on
December 31,
2023.
While management
expects that we would be able to meet any additional
collateral requirements if and when needed, the requirements
to post collateral
under certain agreements or the loss of custodian
funds could reduce our liquidity resources and
impact our results of operations.
As a holding company, we depend on dividends and distributions from our
subsidiaries for liquidity.
As a bank holding company,
we depend primarily on dividends from
our banking and other operating subsidiaries
to fund
our cash needs, including to capitalize our subsidiaries. Our banking subsidiaries, BPPR and PB, are limited by law in their ability to
make dividend
payments and other
distributions to
us based
on their earnings,
dividend history,
and capital
position. Based on
its
current financial condition,
PB may
not declare or
pay a
dividend without the
prior approval of
the Federal Reserve
Board and
the
NYSDFS. A
failure by
our banking subsidiaries
to generate
sufficient income
and free
cash flow to
make dividend
payments to
us
may
affect
our
ability to
fund
our cash
needs, which
could have
a negative
impact on
our financial
condition, liquidity,
results
of
operation or capital position. Such failure could also affect
our ability to pay dividends to our stockholders and to
repurchase shares
of our common stock. We have in the past suspended dividend payments
on our common stock and preferred stock during times of
economic uncertainty,
and there
can be
no assurance
that we
will be
able to
continue to
declare dividends to
our stockholders
in
any future periods.
An
impact
on
the
tangible
capital
levels
of
our
operating
subsidiaries,
could
also
limit
the
amount
of
capital
we
may
upstream to the holding company. Tangible
capital levels have in the past been, and may in the
future be, adversely affected by the
impact of
rapidly rising interest
rates on investment
securities in our
available-for-sale portfolio. For
a discussion of
risks related to
changes in interest
rates, see “Changes
in interest rates
and credit spreads
can adversely impact
our financial condition,
including
our investment portfolio, since a significant portion of
our business involves borrowing and lending money,
and investing in financial
instruments” in Item 1A of this Form 10-K.
We also depend
on dividends from our
banking and other operating subsidiaries
to pay debt service
on outstanding debt
and to repay maturing debt. Our ability to
declare such dividends would be subject to regulatory requirements and could
require the
prior approval of the Federal Reserve Board.
STRATEGIC RISKS
Potential acquisitions of businesses or
loan portfolios could increase some
of the risks that
we face, and may
be delayed
or prohibited due to regulatory constraints.
To
the extent
permitted by
our applicable
regulators, we
may pursue
strategic acquisition
opportunities. Acquiring
other
businesses, however, involves various risks,
including potential exposure to unknown or contingent liabilities of the
target company,
exposure
to
potential
asset
quality
issues
of
the
target
company,
potential
disruption
to
our
business,
the
possible
loss
of
key
employees and customers of
the target company,
and difficulty in
estimating the value of
the target company.
If we pay
a premium
over book or
market value in
connection with an
acquisition, some dilution of
our tangible book
value and net
income per common
share
may
occur
in
connection with
any
future
transaction. Furthermore,
failure
to
realize the
expected
revenue increases,
cost
savings, increases in geographic or product presence, or other projected benefits from an acquisition could have a material adverse
effect on our business, financial condition and results of
operations.
Similarly,
acquiring
loan
portfolios
involves
various
risks.
When
acquiring
loan
portfolios,
management
makes
assumptions and
judgments about
the collectability
of the
loans, including
the creditworthiness
of borrowers
and the
value of
the
real
estate and
other assets
serving
as collateral
for the
repayment of
secured loans.
In
estimating the
extent of
the losses,
we
analyze
the
loan
portfolio
based
on
historical
loss
experience,
volume
and
classification
of
loans,
volume
and
trends
in
delinquencies
and
nonaccruals,
local
economic
conditions,
and
other
pertinent
information.
If
our
assumptions
are
incorrect,
however,
our actual
losses could
be higher
than estimated
and increased
loss reserves
may be
required, which
would negatively
affect our results of operations.
Finally, certain
acquisitions by financial institutions,
including us, are
subject to approval
by a variety
of federal and
state
regulatory agencies.
Regulatory approvals
could be
delayed, impeded,
restrictively conditioned
or denied.
We may
fail to
pursue,
evaluate
or
complete
strategic
and
competitively
significant
acquisition
opportunities
as
a
result
of
our
inability,
or
perceived
or
anticipated inability,
to obtain regulatory
approvals in a
timely manner,
under reasonable conditions or
at all. Difficulties
associated
with
potential
acquisitions
that
may
result
from
these
factors
could
have
a
material
adverse
effect
on
our
business,
financial
condition and results of operations.
We
have
embarked
on
a
broad-based
multi-year,
technological
and
business
process
transformation.
The
failure
to
achieve
the
goals
of
the
transformation
project,
the
inability
to
maintain
project
expenses
within
current
estimates
or
delays in
executing our plans
to implement the
transformation project, may
materially and adversely
affect our business,
financial condition, results of operations, or
cause reputational harm.
The
Corporation
has
embarked
on
a
broad-based
multi-year,
technological
and
business
process
transformation.
Our
technology and
business transformation
will be
a significant
priority for
the Corporation
over the
next two
years and
beyond. We
expect the
expenses tied
to this
transformation project,
which will
continue through
at least
2025, to
result in
an enhanced
digital
experience for our clients, as well as better technology
and more efficient processes for our employees.
To
execute the
transformation project,
we plan
to expand
our digital
capabilities, modernize
our technology
foundation,
and
implement
agile
and
efficient
business
processes
across
the
entire
company.
We
may
not
succeed
in
executing
the
transformation project, may fail
to properly estimate cost
of the same, or
may experience delays in
executing our plans, which
may
in turn
cause the
Corporation to
incur costs
exceeding our
current estimates
or disrupt
our operations,
including our
technological
services to our customers, or fall short
of our projected earnings targets driven by these
efforts. To
the extent that these disruptions
persist over time and/or recur, this could negatively impact our competitive
position, require additional expenditures, and/or harm
our
relationships
with
our
customers
and
thus
may
materially
and
adversely
affect
our
business,
financial
condition,
results
of
operations, or cause reputational harm.
We face significant and increasing competition in the
rapidly evolving financial services industry.
We
operate
in
a
highly competitive
environment, in
which we
compete
on
the
basis
of
a
number of
factors,
including
customer
service,
quality
and
variety
of
products
and
services,
price,
interest
rates
on
loans
and
deposits, innovation,
technology,
ease of
use, reputation,
and transaction
execution. While
our main
competition continues
to come
from other
Puerto
Rico banks and financial institutions, we face increased competition from non-Puerto Rico institutions as emerging technologies and
the growth
of e-commerce
have significantly
reduced geographic
barriers.
These technologies
have also
made it
easier for
non-
depositary institutions
to offer
products and
services that
traditionally were
banking products
and allowed
non-traditional financial
service
providers and
technology companies
to
provide electronic
and
internet-based financial
solutions
and services.
Increased
competition could create pressure to lower prices, fees, commissions or
credit standards on our products and services, which could
adversely affect our
financial condition and results
of operations. Increased competition could
also create pressure to
raise interest
rates on deposits, which could also impact our
financial condition and results of operations.
If we are unable to
meet constant technological changes and react quickly to
meet new industry standards, including as a
result
of our
continued dependence
on
Evertec, we
may
be unable
to
enhance our
current services
and introduce
new
products and
services in
a timely
and cost-effective
manner,
placing us
at a
competitive disadvantage
and significantly
affecting our business, financial condition and
results of operations.
To compete effectively,
we need to constantly enhance and modify our products and services and introduce new products
and
services
to
attract
and
retain
clients
or
to
match
products
and
services
offered
by
our
competitors,
including
technology
companies and
other nonbank
firms that
are engaged
in providing
similar products
and services.
Although the
Evertec Business
Acquisition Transaction eliminated certain
provisions of a previous Master Services
Agreement with Evertec that required
us to use
Evertec exclusively to develop and implement new or
enhanced products and services, and is expected to
improve Popular’s ability
to manage and control the development of the customer channels supported by the assets acquired as part of the Evertec Business
Acquisition Transaction (the
“Acquired Assets”), Popular expects that
it will continue to
depend on Evertec’s technology services
to
operate and
control current
products and services
and to
implement future products
and services, making
our success dependent
on
Evertec’s
ability
to
timely
complete
and
introduce
these
enhancements
and
new
products
and
services
in
a
cost-effective
manner.
Our
ability
to
enhance
our
customer
channels
is
also
dependent
on
Evertec
timely
delivering
the
core
application
programming interfaces
(“Core APIs”)
that meet
BPPR’s requirements,
which Evertec
has committed
to develop
under the
MSA.
The
Core
APIs
are
necessary
for
BPPR
to
connect
future
enhancements
to
the
Acquired
Assets
to
existing
Evertec
core
applications.
Some
of
our
competitors
rely
on
financial
services
technology
and
outsourcing
companies
that
are
much
larger
than
Evertec, serve a
greater number of
clients than Evertec,
and may have
better technological capabilities and
product offerings than
Evertec.
Furthermore,
financial
services
technology
companies
typically
make
capital
investments
to
develop
and
modify
their
product
and
service
offerings
to
facilitate
their
customers’
compliance
with
the
extensive
and
evolving
regulatory
and
industry
requirements,
and
in
most cases
such
costs
are
borne
by
the
technology provider.
Because
of
our
contractual
relationship with
Evertec, and because Popular is the
sole customer of certain of
Evertec’s services and products, we
have in the past borne
the full
cost of such developments and modifications and
may be required to do so in the future, subject
to the terms of the MSA.
Moreover,
the terms,
speed, scalability,
and functionality
of certain
of Evertec’s
technology services
are not
competitive
when compared
to offerings
from its
competitors. Evertec’s
failure to
sufficiently invest
in and
upscale its
technology and
services
infrastructure to
meet the
rapidly changing
technology demands
of our
industry may
result in
us being
unable to
meet
customer
expectations and
attract or
retain customers.
Furthermore, Evertec’s
strategy and
investments may
also be
refocused away
from
Popular towards
other strategic
initiatives as
a result
of the
Evertec Business
Acquisition Transaction.
Any such
impact could,
in
turn, reduce Popular’s revenues, place us in a competitive
disadvantage and significantly affect our business, financial
condition and
results of
operations. While the
closing of
the Evertec
Business Acquisition Transaction
narrowed the scope
of services
which we
are dependent on
Evertec to
obtain and released
us from
exclusivity restrictions that
limited our
ability to
engage other third-party
providers of financial technology services, it also resulted in extensions of certain existing commercial agreements with Evertec and,
as a result, have prolonged the duration of our exposure
to the risks presented by Evertec’s technological capabilities and
its failures
to enhance its products and services and otherwise meet evolving demands. We may also be exposed to heightened business risks
in connection with our dependency on Evertec with respect to BPPR’s merchant acquiring business, which exclusivity was extended
until 2035,
and with
respect to the
ATH
Network, which commitment
BPPR extended until
2030, in
light of the
pace of technology
changes and competition in the payments industry.
The ability to attract and retain qualified employees
is critical to our success.
Our
success
depends,
in
large
part,
on
our
ability
to
attract
and
retain
qualified
employees.
Competition
for
qualified
candidates is intense and has
increased recently as a result
of a tighter labor market. Increased
competition may lead to difficulties
in
attracting
or
retaining qualified
employees, which
may,
in turn,
lead to
significant challenges
in the
execution
of
our
business
strategies and
have an
adverse effect
on the
quality of the
service we
provide to
the customers
and communities we
serve. Such
challenges could
adversely affect
our business,
operations and
financial condition.
In addition,
increased competition
may lead
to
higher compensation
packages and
more flexible
work arrangements.
We may
also be
required to
hire employees
outside of
our
market
areas
for
certain
positions
that
require
specific
expertise,
which
could
result
in
employment
and
tax
compliance-related
expenses, challenges and
risks. In
addition, flexible
work arrangements, such
as remote
or hybrid
work models, have
led to
other
workplace
challenges,
including fewer
opportunities
for
face-to-face interactions
or
to
promote
a
cohesive
corporate
culture
and
heightened cybersecurity, information security and other operational risks.
Our
ability
to
attract
and
retain
qualified
employees
is
also
impacted
by
regulatory
limitations
on
our
compensation
practices, such as clawback requirements of incentive compensation, which may not affect other institutions with which we compete
for talent.
The scope
and content of
regulators’ policies
on executive compensation
continue to
develop and are
likely to
continue
evolving. Such policies and limitations on our compensation
practices could adversely affect our ability to attract, retain and motivate
talented senior leaders in support of our long-term
strategy.
OTHER RISKS
An impairment
of our
goodwill, deferred
tax assets
or amortizable
intangible assets
could adversely
affect our
financial
condition and results of operations.
As of
December 31,
2023, we
had approximately
$804 million,
$1 billion
and $102
million, respectively,
of goodwill,
net
deferred tax assets and amortizable intangible assets,
including capitalized software costs, recorded on our
balance sheet.
Under
GAAP,
goodwill
is
tested
for
impairment
at
least
annually
and
amortizable
intangible
assets
are
tested
for
impairment
when
events
or
changes
in
circumstances indicate
the
carrying value
may
not
be
recoverable. Factors
that
may
be
considered a change in circumstances, indicating that the carrying value of the goodwill or amortizable intangible assets may not be
recoverable, include
a decline in
Popular’s stock price
related to
a deterioration in
global or
local economic conditions,
declines in
our market capitalization, reduced future earnings estimates, and interest rate changes. The goodwill impairment evaluation process
requires
us
to
make
estimates
and
assumptions
with
regards
to
the
fair
value
of
our
reporting
units.
Actual
values
may
differ
significantly
from
these
estimates.
Such
differences
could
result
in
future
impairment
of
goodwill
that
would,
in
turn,
negatively
impact our results of operations and the reporting
unit where the goodwill is recorded.
The
determination
of
whether
a
deferred
tax
asset
is
realizable
is
based
on
weighting
all
available
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
analysis considers all
sources of
taxable income
available to
realize the
deferred tax
asset, including
the future
reversal of
existing taxable
temporary differences,
future taxable income
exclusive of reversing temporary
differences and carryforwards,
taxable income in
prior carryback years
and
tax-planning strategies. Changes in these
factors may affect
the realizability of our
deferred tax assets in
our Puerto Rico and
U.S.
operations.
If our
goodwill, deferred
tax assets
or amortizable
intangible assets
become impaired,
we may
be required
to record
a
significant charge to earnings, which could adversely
affect our financial condition and results of operations.
We could experience unexpected
losses if the estimates
or assumptions we use
in preparing our financial
statements are
incorrect or differ materially from actual results.
In preparing
our financial
statements pursuant to
U.S. GAAP,
we are
required to
make estimates
and assumptions
that
are often based
on subjective and
complex judgments about
matters that are
inherently uncertain. For example,
we use estimates
and assumptions to determine our allowance for credit losses, our
liability for contingent litigation losses, and the fair value of certain
of our
assets and
liabilities, such
as debt
securities, loans
held for
sale, MSRs,
intangible assets
and deferred
tax assets.
If such
estimates
or
assumptions are
incorrect
or
differ
materially
from
actual
results,
we
could
experience
unexpected
losses
or
other
adverse impacts, some of which could be significant.
For further information of other risks faced by
Popular please refer to the MD&A section of
this Form 10-K.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
As of December 31, 2023, BPPR operated 162 branches, of which 68 were owned and 94 were leased premises, and PB
operated 40 branches
of which 3
were owned and
37 were on
leased premises. Also,
the Corporation had
576 ATMs
operating in
Puerto
Rico,
in
the
Virgin
Islands
and
in
the
U.S.
Mainland.
The
principal
properties
owned
by
Popular
for
banking
operations
and
other services
are
described
below.
Our
management believes
that
each
of
our
facilities
is
well
maintained
and
suitable for its purpose.
Puerto Rico
Popular Center, the twenty-story Popular and BPPR headquarters building, located
at 209 Muñoz Rivera Avenue, Hato Rey,
Puerto
Rico.
Popular Center North Building, a three-story building, on
the same block as Popular Center.
Popular Street Building, a parking and office building located
at Ponce de León Avenue and Popular Street, Hato
Rey, Puerto Rico.
Cupey Center
Complex,
one building, three-stories
high, two
buildings, two-stories high
each, and
two buildings three-stories
high
each located in Cupey, Río Piedras, Puerto Rico.
Old San Juan Building, a twelve-story structure
located in Old San Juan, Puerto Rico.
Guaynabo Corporate Office Park Building, a two-story building
located in Guaynabo, Puerto Rico.
Altamira Building,
a nine-story office building located in Guaynabo,
Puerto Rico.
El Señorial Center, a four-story office building and a two-story branch building
located in Río Piedras, Puerto Rico.
Ponce de León 167 Building, a five-story office building
located in Hato Rey, Puerto Rico.
U.S. & British Virgin Islands
BPPR Virgin Islands Center, a three-story building located in St. Thomas,
U.S. Virgin Islands.
Popular Center -Tortola,
a four-story building located in Tortola, British Virgin Islands.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
For a discussion
of Legal proceedings,
see Note 24,
“Commitments and Contingencies”, to
the Consolidated Financial Statements
in this Form 10-K.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM
5.
MARKET
FOR
REGISTRANT’S
COMMON
EQUITY,
RELATED
STOCKHOLDER
MATTERS
AND
ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock
Popular’s Common Stock is traded on
the Nasdaq Global Select Market under the symbol “BPOP”.
During 2023, the Corporation declared cash dividends in the total
amount of $2.27 per common share outstanding,
for an
aggregate amount of $163.7 million. The Common Stock ranks junior to all series of
Preferred Stock as to dividend rights and rights
on liquidation,
dissolution or
winding up
of Popular.
Our ability
to declare
or pay
dividends on,
or purchase,
redeem or
otherwise
acquire, the Common
Stock is subject
to certain restrictions
in the event
that Popular fails
to pay or
set aside full
dividends on the
Preferred Stock for the latest dividend period.
On July 12, 2022, the Corporation completed an accelerated share repurchase (“ASR”) program for the repurchase of an
aggregate $400
million of
Popular’s common stock
for which
an initial
delivery of
3,483,942 shares
were delivered
in March
(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 Agreement”). 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.
Additional information concerning legal or
regulatory restrictions on the payment
of dividends by Popular,
BPPR and PB
is contained under the caption “Regulation and Supervision”
in Item 1 herein.
As
of
February
27,
2024,
Popular
had
6,564
stockholders
of
record
of
the
Common
Stock,
not
including
beneficial
owners whose shares
are held in
record names
of brokers
or other
nominees. The last
sales price
for the
Common Stock
on that
date was $84.07 per share.
Preferred Stock
Popular has 30,000,000 shares of
authorized Preferred Stock that may
be issued in one
or more series, and the
shares
of each series
shall have such
rights and preferences as
shall be fixed
by the Board
of Directors when authorizing
the issuance of
that particular series. Popular’s Preferred Stock
issued and outstanding at December 31, 2023
consisted of:
●
885,726 shares of 6.375% non-cumulative monthly income Preferred Stock, Series A, no par value, liquidation preference
value of $25 per share.
All series of
Preferred Stock are pari
passu. Dividends on each
series of Preferred Stock
are payable if declared
by our
Board
of
Directors.
Our
ability
to
declare
and
pay
dividends
on
the
Preferred
Stock
is
dependent
on
certain
Federal
regulatory
considerations,
including
the
guidelines
of
the
Federal
Reserve
Board
regarding
capital
adequacy
and
dividends.
The
Board
of
Directors is not obligated to declare dividends and
dividends do not accumulate in the event
they are not paid.
Monthly
dividends
on
the
Preferred
Stock
amounted
to
a
total
of
$1.4
million
for
the
year
2023.
There
can
be
no
assurance that any dividends will be declared on
the Preferred Stock in any future periods.
Dividend Reinvestment and Stock Purchase Plan
Popular offers
a dividend
reinvestment and
stock purchase
plan for
our stockholders
that allows
them to
reinvest their
dividends in
shares of
the Common Stock
at a
5% discount
from the
average market
price at
the time
of the
issuance, as well
as
purchase shares of Common Stock directly from Popular
by making optional cash payments at prevailing
market prices.
Equity Based Plans
On May
12, 2020, the
stockholders of
the Corporation
approved the Popular,
Inc. 2020
Omnibus Incentive Plan,
which
permits the
Corporation to issue
several types of
stock-based compensation to
employees and directors
of the Corporation
and/or
any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan,
which was in
effect prior to
the adoption of the
2020 Incentive Plan.
As of December 31,
2023, the maximum number of
shares of
common stock remaining available for future issuance under this plan was 3,144,461. For information about
the securities remaining
available for issuance under our equity-based plans,
refer to Part III, Item 12.
Purchases of Equity Securities
The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended December 31,
2023:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid
per Share
Total Number of
Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs
October 1 - October 31
$62.92
-
-
November 1 - November 30
-
-
-
-
December 1 - December 31
67.95
-
-
Total December 31, 2023
$66.65
-
-
[1] Includes 174 and 498 shares of the Corporation's
common stock acquired by the Corporation during
October and December 2023,
respectively, in connection with the satisfaction of tax withholding obligations on
vested awards of restricted stock or restricted stock
units granted to directors and certain employees
under the Corporation’s Omnibus Incentive Plan. The
acquired shares of common
stock were added back to treasury stock.
Equity Compensation Plans
For information about our equity compensation plans,
refer to Part III, Item 12.
Stock Performance Graph (1)
The graph
below compares
the cumulative
total stockholder
return during
the measurement
period with
the cumulative
total return, assuming reinvestment of dividends, of
the Nasdaq Bank Index and the Nasdaq Composite
Index.
The
cumulative
total
stockholder
return
was
obtained
by
dividing
(i)
the
cumulative
amount
of
dividends
per
share,
assuming dividend reinvestment since the measurement point, December 31, 2018, plus (ii) the change
in the per share price since
the measurement date, by the share price at
the measurement date.
Comparison of Five-Year Cumulative Total Return (TSR)
Assumes all dividends were reinvested
Base Year:
December 31,
2018 = $100
(1) Unless Popular specifically states otherwise, this Stock Performance Graph shall not be deemed to be incorporated by
reference
and
shall
not
constitute
soliciting
material
or
otherwise
be
considered
filed
under
the
Securities
Act
of
or
the
Securities Exchange Act of 1934.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is included in
this Form 10-K, commencing on page 54.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The information regarding the
market risk of our
investments appears under the caption
“Risk Management”, on page
within Management’s Discussion and Analysis of Financial
Condition and Results of Operations in this
Form 10-K.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears under the caption “Statistical Summaries” on pages 111
to 113 of this Form
10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our
management,
with
the
participation
of
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
has
evaluated
the
effectiveness
of
our
disclosure
controls
and
procedures
(as
such
term
is
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange Act) as
of the end
of the period covered
by this report.
Based on such
evaluation, our Chief Executive
Officer and Chief
Financial
Officer
have
concluded
that,
as
of
the
end
of
such
period,
our
disclosure
controls
and
procedures
are
effective
in
recording, processing, summarizing and
reporting, on a timely
basis, information required to
be disclosed by Popular
in the reports
that
we
file
or
submit
under
the
Exchange
Act
and
such
information
is
accumulated
and
communicated
to
management,
as
appropriate, to allow timely decisions regarding required
disclosures.
Assessment on Internal Control over Financial Reporting
Information relating to our assessment on
internal control over financial reporting is presented under the
captions “Report
of
Management
on
Internal
Control
Over
Financial
Reporting”
and
“Report
of
Independent
Registered
Public
Accounting
Firm”
located on pages 114 and 115 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There have
been no
changes in
our internal
control over
financial reporting
(as such
term is
defined in
Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2023, that have materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Plans or Other Preplanned Trading Arrangements
Certain of
our officers
or directors have
made and
may from time
to time
make elections to
participate in
, and
are participating in,
our dividend reinvestment and purchase plan, the
Company stock fund associated with our 401(k)
plans and/or the Company stock
fund associated with
our non-qualified deferred compensation
plans and have shares
withheld to cover
withholding taxes upon the
vesting of
equity awards, which
may be
designed to satisfy
the affirmative defense
conditions of Rule
10b5-1 under the
Exchange
Act or may constitute non-Rule 10b5-1
trading arrangements
(as defined in Item 408(c) of Regulation
S-K).

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information
contained
under
the
captions
“Security
Ownership
of
Certain
Beneficial
Owners
and
Management”,
“Delinquent Section
16(a) Reports”,
“Corporate Governance”, “Nominees
for Election
as Directors”
and “Executive
Officers” in
the
Proxy Statement
are incorporated herein
by reference.
Information about our
Code of
Ethics, which
applies to
our senior
financial
officers, is included in “Business - Available Information” in Part
I of this Form 10-K.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The
information
in
the
Proxy
Statement
under
the
caption
“Executive
and
Director
Compensation,”
including
the
“Compensation
Discussion
and
Analysis,”
the
“2023
Executive
Compensation
Tables
and
Compensation
Information”
and
the
“Compensation
of
Non-Employee
Directors,”
and
under
the
caption
“Committees
of
the
Board
-
Talent
and
Compensation
Committee - Talent and Compensation Committee Interlocks and Insider Participation” is
incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM
12.
SECURITY
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
AND
MANAGEMENT
AND
RELATED
STOCKHOLDERS MATTERS
The information under
the captions “Principal Shareholders”
and “Shares Beneficially Owned
by Directors and
Executive
Officers” in the Proxy Statement is incorporated herein by
reference.
The following tables sets forth information as
of December 31, 2023 regarding securities remaining available for issuance
to directors and eligible employees under our
equity-based compensation plans.
Plan Category
Plan
Number of Securities
Remaining Available
for Future Issuance
Under Equity Compensation
Plan
Equity compensation plan approved by security holders
2020 Omnibus Incentive Plan
3,144,461
Total
3,144,461

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information
under
the
caption
“Board
of
Directors
and
Nominees’
Independence”
and
“Certain
Relationships
and
Transactions” in the Proxy Statement is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is set forth under Proposal 3 - Ratification of Appointment of
Independent Registered Public Accounting Firm in
the Proxy Statement, which is incorporated herein
by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a). The following financial statements and reports are
included on pages 115 through 268 in this Form10K.
(1)
Financial Statements
Report of Independent Registered Public Accounting
Firm (
PCAOB ID
)
Consolidated Statements of Financial Condition as of
December 31, 2023 and 2022
Consolidated Statements of Operations for each of
the years in the three-year period ended December
31, 2023
Consolidated
Statements
of
Comprehensive
Income
(Loss)
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2023
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2023
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 2023
Notes to Consolidated Financial Statements
(2)
Financial
Statement
Schedules:
No
schedules
are
presented
because
the
information
is
not
applicable
or
is
included
in
the
Consolidated Financial Statements described in (a) (1)
above or in the notes thereto.
(3) Exhibits