EDGAR 10-K Filing

Company CIK: 763901
Filing Year: 2023
Filename: 763901_10-K_2023_0001193125-23-056454.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
$67.6 billion, total
deposits of
$61.2 billion
and stockholders’
equity of $4.1 billion at
December 31, 2022. At December 31,
2022, 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 commercial
direct financing
leases through
a specialized
subsidiary,
Popular Equipment
Finance LLC
in Minnesota.
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,
issuing
co-branded
credit
cards
offerings
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
this transformation initiative and other 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 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
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 and equipment lease financings.
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 57% of our loan portfolio at December 31, 2022 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, 2022.
Loan category
(Dollars in millions)
BPPR
%
PB
%
POPULAR
%
C&I
$3,796
$2,043
$5,839
CRE
4,627
5,273
9,900
Construction
Leasing
1,586
-
-
1,586
Consumer
6,281
6,598
Mortgage
6,110
1,287
7,397
Total
$22,547
$9,531
$32,078
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 establishe
s
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
.
Many 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 restructuring
s
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 modificatio
n;
(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 estimate
s
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-trouble
d
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 troubled debt restructuring (“TDRs”).
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 subje
ct
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 product
s
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 assuranc
e
as
to
the
effectivenes
s
of
these
effort
s
on
our
future
busines
s
or
results
of
operations
,
and
as
to
our
continue
d
ability
to
anticipat
e
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
Attracting, developing, and retaining top
talent in an environment that
promotes wellness, inclusion, learning, and transparency
is a
fundamental pillar of our long-term strategy.
As of December 31, 2022, Popular
employed approximately 8,900 employees, none of
whom are represented by a collective bargaining group
.
Employee Well-Being & Safety
We are
cognizant that
our journey
to become
a better
organization is
dependent on
fostering our
employees’ health
and financial
wellbeing. The health and wellness of our employees are the foundation of our ability to support our customers and the communities
we serve. The
Corporation offers our employees
a comprehensive benefits package, including,
but not limited to,
health insurance,
paid time off,
and wellness initiatives. Our full
and part-time employees have access
to affordable healthcare with Popular
covering
up
to
90%
of
the
premium. Additionally,
the
Corporation promotes
employee
health
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 and eligible dependents can complete their physical exam,
receive acute care or visit a nutritionist or psychologist free of
charge. The
Health and
Wellness Center
received more
than 18,600
in-person and
virtual visits
from employees
during 2022
and
acted as a key component to effectively manage the
challenges imposed by the COVID-19 pandemic.
The
Corporation
also
provides
targeted
benefits
aimed
at
promoting
work-life
balance.
For
example,
the
Corporation’s
time
off
program includes
community service
leave, paid
parental leave
(including for
childbirth, adoption,
and bonding
time)
and flexible
work arrangements. In
addition, the Corporation
implemented a hybrid
work model, for
which 49%
of our
population is eligible.
To
support
our
employees’
emotional
well-being
during
the
pandemic,
we
have
continued
enhancing
our
Well-Being
Academy
by
adapting our Employee Assistance Program to offer virtual mental health sessions geared at managing work and
life challenges.
In
addition,
the
Corporation
offers
physical
fitness
events
and
breaks,
as
well
as
employee
workshops
on
personal
financial
management.
Popular also
offers a
401(k) savings and
investment plan. Popular
matches $0.50 for
every dollar the
employee contributes to
the
401(k) plan, up to 8%
of their salary.
Moreover, the organization offers
a profit-sharing plan, which depends on the
achievement of
certain
predetermined
financial
goals,
through
which
employees
may
receive
up
to
8%
of
eligible
compensation
(capped
at
$70,000), partially
in cash
and partially
as a
401(k) contribution.
Furthermore, since
2017 we
have invested
in our
compensation
strategy,
introducing a
job leveling
framework, adjusting
salaries to
better compete
with the
market, offering
merit increases,
and
raising our base salary to $13
per hour in Puerto Rico, $15
per hour in the Virgin Islands,
$17 per hour in Florida, and $20
per hour
in New York
and New Jersey.
During January 2023, there
was an additional
increase to $15
per hour for
Puerto Rico and
$16 per
hour in the Virgin Islands.
Talent Development
Popular strives
to develop
the skills
of its
employees and
leaders to
sustain the
Corporation’s competitive
advantage. Employees
are subject to
mandatory trainings in
connection with regulatory compliance
matters and other
key topics throughout
the year.
Our
40,000 square
foot Development
Center in
San Juan,
Puerto Rico
offers training
sessions, activities,
and workshops
year-round.
During
2022,
the
Corporation
continued
offering
virtual
training
after
effectively
transitioning
most
sessions
provided
in
the
Development Center to a virtual setting to continue impacting employee growth despite the pandemic. More than 300 sessions were
delivered,
with
around
6,500
participating
employees.
Our
English
Program
helps
employees
whose
first
language
is
Spanish
strengthen
their
English
language
skills
and
feel
confident
speaking,
reading,
and
writing
in
business
or
personal
settings.
Additionally, the
English Placement Test
revealed that in 2022
the number of
intermediate learners increased from 4%
to 17% and
advanced learners
from 45%
to 53%,
compared to
2021.
Popular also
continues to
promote the
use of
LinkedIn Learning,
which
features over 16,000 on-demand e-learning courses
available anytime and anywhere, to strengthen
and advance the Corporation’s
development
strategies
for
all
its
employees.The
organization’s
strong
training
and
development
framework
has
contributed
to
internal growth opportunities for our employees. As
a result, the Corporation’s internal mobility
rate in 2022 was 33%. This
included
employees who applied or were selected for
vacancies, were promoted, or had lateral movements.
Popular received
the BAI
Innovation in
Learning &
Development Award for
being a
Talent
Lab &
Skills Accelerator.
This year,
we
performed an internal talent
and skills inventory of
83% of employees to
reveal underutilized skills and
education. The organization
invested in
the development
of 126
practitioners who
went through
Accelerated Development
Programs focused
on data
science
and analytics, process excellence and program management,
among other topics.
Recognizing that leadership development is crucial to driving
results, keeping employees engaged, and achieving the Corporation’s
strategic
goals, Popular
has
implemented programs
aimed
at
strengthening and
developing leadership
skills
and
effective
talent
management. As part of the Corporation’s Executive Leadership Development
strategy, readiness courses are offered to employees
in topics such as change management, conscious inclusion, leading
hybrid teams, and better conversations focused on the return to
office scenarios.
Our
organizational
development
strategy
is
aimed
at
creating
organizational
and
leadership
effectiveness,
while
advancing
organizational readiness
to succeed
based on
our future
needs. There
were more
than 80
organizational development
and team
interventions
and
exercises
facilitated
during
2022,
spanning
the
areas
of
change
management,
team
alignment
and
leader
effectiveness.
Diversity, Equity, and Inclusion
At Popular,
we value our
differences and strive
to improve the
workplace experience for
all. As of
December 31, 2022, 65%
of the
Corporation’s employees
were female,
while 35%
were male.
Women accounted
for 64%
of first
and mid-level
management and
33%
of
executive-level management
as
of such
date. The
Corporation also
maintains
a multidisciplinary
council,
headed by
our
Corporate
Diversity
Officer,
which
helps
develop
and
implement
initiatives
to
support
the
Corporation’s
Diversity,
Equity,
and
Inclusion (DE&I)
policy and
strategy.
The Corporation’s
DE&I strategy
seeks to
broaden the
inclusion, employment
advancement
and development
of underrepresented
communities in
the workplace,
as well
as the
utilization of
suppliers owned,
controlled, or
operated by
women or
diverse racial
or ethnic
groups. In
addition, this
strategy seeks
to prepare
the Corporation’s
employees to
recognize and value the differences of those we
serve.
We are
committed to
fair pay
and conduct
analyses on
such matter
on an
annual basis.
The 2022
company-wide market
salary
adjustments resulted
in an
overall improvement
to our
gender gap
of +1.5
percentage points,
compared to
the end
of 2021.
Our
gender
pay
gap
continues
to
narrow
improving
3.1
percentage
points
over
the
last
five
years.
Additionally,
for
the
second
consecutive year (2022-2023), Popular was honored to
be included in the Bloomberg Gender Equality
Index (GEI).
The Corporation has
also expressed public
support for
movements advocating for
equality such as
Pride Month.
In 2021,
Popular
established its first Employee Resource Group (ERG) for
our LGBTQ+ employees to better serve the interests of
the community and
create awareness
and engagement
among employees.
During 2022, this
group was composed
of 245
members and
performed 6
activities
within
the
organization
and
community.
Furthermore,
during
the
following
two
additional
ERGs
were
launched:
Women’s
and
Functional
Diversity.
Popular
also
supports
victims
of
gender-based
violence
and
has
a
Gender
and
Domestic
Violence Policy, which grants a paid 15-day leave due to gender or domestic
violence, stalking and sexual harassment.
Employee Experience
Popular aims to
provide an excellent
employee experience that
inspires its employees to
provide customers and
communities with
the best
service. To
understand its
employees’ experience, the
Corporation conducts
anonymous pulse
and engagement
surveys
(including the
Great Place
to
Work survey)
as well
as
an exit
survey to
identify areas
of
opportunity and
set
and monitor
action
plans.
The
employee satisfaction
scores
increased 2
points from
and
points
since
2016.
We
seek
to
continuously
measure and improve the employee experience with aims to increase employee productivity while contributing to enhance customer
satisfaction and improve business results.
The
Corporation
capitalizes
on
an
interactive
dashboard
that
encompasses
data
surrounding
different
people-related
topics
to
support
the
people
strategy,
data-driven
decision-making
and
environmental,
social
and
governance
(“ESG”)
monitoring.
The
dashboard provides
senior management
with visibility
over people
metrics such
as workforce
demographics, hiring,
turnover,
and
Diversity, Equity, and Inclusion.
As of year-end 2022, our turnover rate was 10.8%, improving 1.9 percentage points since 2021. Additionally, voluntary turnover rate
was 8.8%, improving 2.3 percentage points since 2021.Throughout 2022, the Corporation saw
a stabilization in turnover, which
had
been
increasing
for
the
past
seven
quarters.
The
dashboard
metrics,
such
as
turnover,
help
shape
our
attraction
and
retention
strategy.
Board Oversight
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
(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, 2022, Popular
had total consolidated assets of $67.6 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
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
June 2021,
the FDIC
issued a
Statement on
Resolution Plans
for Insured
Depository Institutions,
which, among
other things,
establishes a three-year
filing cycle
for banks
with $100
billion or
more in
total
assets and provides details regarding the content
that filers will be expected to prepare.
As of December 31, 2022, Popular,
PNA, BPPR and PB’s total assets were below
the thresholds for applicability of these
rules.
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.
On October 18,
2022, the FDIC finalized
a rule that
would increase initial
base deposit insurance assessment
rates by 2
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
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,
2022,
we
had
a
DIF
average
total
asset
less
average
tangible
equity
assessment
base
of
approximately $65 billion.
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.
There are
no such
restrictions on
a bank
that
is well
capitalized (see
“Prompt
Corrective
Action”
below
for
a
description
of
the
standard
of
“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, Popular,
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
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,
non-advanced approaches
banking organizations,
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
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, 2022,
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.
Non-advanced approaches
banking organizations
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. The
Basel framework
contemplates that
these standards
will generally be
effective on
January 1,
2023, with
an aggregate
output floor
phasing in through January 1, 2028. The federal
bank regulators have not yet proposed rules implementing these standards. 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. The impact
of these standards
on us
will depend on
the manner
in which they
are
implemented by the federal bank regulators.
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. Under the rule, during 2020 and
2021, the adjustment to CET1 capital reflects the change in retained
earnings upon
adoption of CECL
at January
1, 2020, plus
25% of the
increase in
the allowance for
credit losses since
January 1,
2020.
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 3 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 FDIC 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, 2022,
both BPPR and PB were well capitalized.
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, 2022, BPPR declared
cash dividends of $450 million,
a portion of which was
used by
Popular for
the payments
of the
cash dividends
on its
outstanding common
stock and
$231 million
in accelerated
stock
repurchases.
At
December
31,
2022,
BPPR
needed
to
obtain
prior
approval
of
the
Federal
Reserve
Board
before
declaring
a
dividend in excess of $53 million due to its declared
dividend activity and transfers to statutory reserves over the three year’s ended
December 31, 2022. In
addition, a member bank
may not declare
or pay a
dividend in an
amount greater than its
undivided profits
as
reported
in
its
Report of
Condition and
Income,
unless the
member
bank
has
received the
approval
of
the
Federal
Reserve
Board. A
member bank
also may
not permit
any portion
of its
permanent capital to
be withdrawn
unless the
withdrawal has
been
approved by
the Federal
Reserve Board. Pursuant
to these
requirements, PB may
not declare
or pay
a dividend
without the
prior
approval of the Federal Reserve Board and
the NYSDFS.
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. In May 2022, the
Office of
the Comptroller
of the
Currency (“OCC”),
the Federal
Reserve Board,
and the
FDIC jointly
issued a
proposed rule
to
modernize
federal banking
agencies’ CRA
regulations. The
proposed rule
would adjust
CRA evaluations
based on
bank size
and type,
with
many of the proposed changes applying only to banks
with over $2 billion in assets and several applying
only to banks with over $10
billion in assets,
such as Popular.
The effects on
Popular of any
potential change to the
CRA rules will
depend on the final
form of
any Federal Reserve rulemaking.
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.
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.
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.
In
March
2022,
the
SEC
proposed
new
rules
that
would
require
registrants,
such
as
Popular,
to
(i)
report
material
cybersecurity incidents on
Form 8-K,
(ii) include updated
disclosure in Forms
10-K and
10-Q of
previously disclosed cybersecurity
incidents,
and
disclose
previously
undisclosed,
individually
immaterial
incidents
when
a
determination
is
made
that
they
have
become material on an aggregated basis, (iii) disclose cybersecurity policies and procedures and governance practices, including at
the board and management levels, in Form 10-K
and (iv) disclose the board of directors’
cybersecurity expertise.
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 Financial Risks
State
and
federal
banking
regulators
have
become
increasingly
focused
on
matters
regarding climate
change
and
its
associated risks.
In 2021, the
OCC proposed principles to
provide for a framework
for the management of
climate-related risks for
financial institutions and in 2022, the FDIC, the Federal Reserve Board and the NYSDFS each proposed principles or guidance with
respect to
the management
of climate-related
risks for
financial institutions. Additionally,
in 2022,
the SEC
proposed rule
changes
that
would
require
registrants,
such
as
Popular,
to
disclose
information
about
climate-related
risks
and
certain
climate-related
financial statement metrics.
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
final rule
requires the securities
exchanges to propose
conforming listing standards
by February
26,
and
requires
the
standards
to
become
effective
no
later
than
November
28,
2023.
Each
listed
issuer,
which
includes
Popular as a
listed issuer on
the Nasdaq Stock
Market, would then
be required to
adopt a clawback
policy within 60
days after
its
exchange’s
listing standard
has
become
effective.
Popular
will
work
to
implement these
new
requirements
as
the
rule
becomes
effective.
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 2022, $76.9
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 2022, 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, 2022, the
legal
lending limit
for BPPR
under this
provision was
approximately $334
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
2022,
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,
changing
monetary
and
fiscal
policies,
geopolitical
conflicts, consumer and changes
in business sentiment and
unemployment. A significant portion of
our business is concentrated in
Puerto Rico, which
accounted for approximately 79% of
our assets and 84%
of our deposits
as of December 31,
2022 and 82%
of
our
revenues
for
the
year
ended
December
31,
2022.
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
has
recently
emerged from
bankruptcy,
Puerto
Rico
still
faces
economic
and
fiscal
challenges and could face additional economic or fiscal challenges in the
future, including as a result of weakness or volatility in
the
global economy
and financial
markets. 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 the
COVID-19 pandemic, the war
in Ukraine, supply-
chain disruptions, high levels of, and rapid increases in, inflation,
and increasing and high interest rates. Inflationary pressures have
increased certain
of our
expenses (including
our personnel
expenses) and
adversely affected
consumer sentiment.
Central bank
responses to inflationary pressures have led to
higher market interest rates and, in turn,
lower activity levels across U.S. and global
financial markets. These circumstances have 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 Reserve Board to execute a series of sharp benchmark interest rate increases over the past
year.
While the
pace at
which inflation
is increasing
has slowed
down in
recent months,
following a
mid-2022 peak,
the Federal
Reserve Board has signaled
that it may increase
interest rates further to
continue to control and
bring down inflation. If
the interest
rates we
pay on
our deposits and
other borrowings 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. Higher interest rates could also 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. Additionally,
inflationary
pressure arising
from
increases in
interest rates may also affect borrowers’ financial condition and their ability to pay their debts when due. 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 to reduce the
impact of further increases in interest rates on
accumulated
other comprehensive
income and
tangible capital.
However,
if interest
rates continue
to rise
rapidly or
for a
prolonged period,
we
may accumulate significant additional mark-to-market losses
on other 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.
We are
also subject
to risks
related to
the transition
away from
the London
Interbank Offered
Rate (“LIBOR”)
upon the
cessation in
the publication
of the
remaining principal
tenors of
U.S. dollar
LIBOR, which
is scheduled
for June
30, 2023. These
risks were significantly reduced following the enactment by the U.S.
Congress of the Adjustable Interest Rate (LIBOR) Act in the first
quarter
of
2022,
which
provides
a
framework
for
replacing
LIBOR
with
new
benchmark
rates
based
on
the
Secured
Overnight
Financing Rate (“SOFR”)
in loans that
do not have
effective alternate interest
rate provisions. However,
there is no
assurance that
the new SOFR-based benchmarks will be similar to,
or produce the economic equivalent of, LIBOR, and the
transition to these new
benchmark rates could result in operational, systems or
other practical challenges, litigation or
other adverse consequences.
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.
Fiscal challenges facing the U.S. government could negatively impact financial markets, which in turn could have
an adverse effect on our financial position or
results of operations.
In
January
2023,
the
outstanding
debt
of
the
U.S.
reached
its
statutory
limit
and
the
U.S.
Treasury
Department
commenced taking
extraordinary measures
to
prevent the
U.S. from
defaulting on
its obligations.
If Congress
does not
raise the
debt
ceiling,
the
U.S.
could
default
on
its
obligations,
including
U.S.
Treasury
securities,
which
play
an
integral
role
in
financial
markets. Many
of the
investment securities
held in
our portfolio
are issued
by the
U.S. government
and government
agencies. A
U.S.
government
debt
default,
threatened
debt
default
or
downgrade
of
the
sovereign
credit
ratings
of
the
U.S.
by
credit
rating
agencies
could
have
a
significant
adverse
impact
on
market
volatility
and
illiquidity,
lead
to
further
increases
in
interest
rates,
heighten
operational
risks
relating
to
the
clearance
and
settlement
of
transactions,
and
result
in
a
significant
deterioration
in
economic conditions in
the U.S. and
worldwide. Even if
the U.S. does
not default, continued
uncertainty relating to
the debt ceiling
could
result in
downgrades of
the U.S.
credit
rating, which
could adversely
affect
market conditions,
lead
to
further increases
in
interest rates
and borrowing
costs or
necessitate significant
operational changes
among market
participants if
the liquidity
or fair
value of U.S. Treasury and/or agency securities decreases. Further, the fair value, liquidity and credit ratings of securities issued by,
or other obligations of, agencies of the U.S.
government as well as municipal bonds could be
similarly adversely affected.
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, 2022,
our exposure
to the
Puerto Rico
government consisted
of $374
million in
direct lending
exposure to Puerto
Rico municipalities and
$251 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,
2022, approximately
56% of
our loan
portfolio consisted
of loans
secured by
real estate
collateral
(comprised of 29% in commercial loans, 25% in residential
mortgage loans and 2% 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,
2022,
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 2022,
we repurchased
approximately $7
million in
mortgage loans
subject to
credit recourse
provisions. As
of December
31, 2022,
our liability
established
to cover
the estimated
credit loss
exposure related
to loans
sold or
serviced with credit recourse amounted
to $7 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 must maintain adequate liquidity and funding sources
to support our operations, comply with our financial
obligations,
finance our transformation initiative, fund
planned capital distributions and meet
regulatory requirements. 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. We
may also
need to
rely on
more expensive
sources of
funding if
deposits decrease. Rising
interest rates
have
also
led
customers
to
move
their
funds
to
alternative
investments
that
pay
higher
interest
rates.
Furthermore,
we
have
a
significant
amount
of
deposits
from
the
Puerto
Rico
government,
its
instrumentalities
and
municipalities
($15.2
billion,
or
approximately 25% of our
total deposits, as of
December 31, 2022), 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.
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.
Information security 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
Internet
and
mobile
banking
to
conduct
instant
financial
transactions
anywhere globally,
growing geo-political threats,
such as the
ongoing Russian conflict
in Ukraine, 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
may face
are 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, supply chain compromise, email, text or voice messages, including
using brand impersonation (regularly referred to as
phishing, vishing and smishing), might
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.
We are
the target of
phishing, smishing and vishing
attacks targeting both
our customers and
employees through brand,
email, text and
voicemail impersonation, that
have compromised the
email accounts of
certain of our
customers and employees
or
have
resulted
in
our
customers
being
deceived
into
revealing
their
sensitive
information
to
threat
actors.
There
can
be
no
assurances that there will not be further compromises of sensitive customer information in the future. 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
December
in
the
Apache
log4j,
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
facilitating the
use
of
digital channels
by
our
customers,
has
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 Russian conflict in Ukraine, 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,
we have not, to date, experienced any material
losses as a result of any 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, potential
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,
2022. 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
misappropriation of
confidential information
of us
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, and
certain risks
particular to
Evertec are
discussed under
“Operational Risks
- We
are subject
to additional
risks relating
to the
Evertec Business
Acquisition
Transaction”. 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.
As
a
result,
Popular
notified,
as
required
or
otherwise
deemed
appropriate, customers identified as affected by the incident. Although we are not aware of fraudulent activity
in connection with this
incident,
Popular’s
networks
and
systems
were
not
impacted,
and
our
third-party
service
provider
agreed
to
cover
external
remediation costs associated with the incident. 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.
For
a
discussion of
the
risks
related
to
our
dependence
on
third
parties,
including
Evertec,
see
“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.
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 ability
to timely
mitigate
vulnerabilities
and
manage
such
risks,
given
the
rise
in
number
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.
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
the
appearance
of
new
strains
of
the
COVID-19
virus,
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. 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
breaches,
as
a
result
of
system
breakdowns,
misconfigurations
and
instances
of
application
obsolescence,
which
have
in
certain
cases
led
to
exposure
of
BPPR
customer
information.
For
a
discussion
of
the
Evertec
Business
Acquisition
Transaction,
please
refer
to
the
Year
Significant Events
section of the MD&A.
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 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.
We are subject to additional risks relating to the
Evertec Business Acquisition Transaction.
There are numerous additional risks and uncertainties
associated with the Evertec Business Acquisition
Transaction, including:
●
unforeseen events may materially diminish the expected
benefits of the Evertec Business Acquisition Transaction;
●
we have devoted, and will continue to, devote significant attention and resources to post closing implementation efforts, which
will involve a significant degree of technological complexity
and reliance on Evertec and other third parties;
●
we may be
unable to retain the
employees and third-party contractors hired or
engaged by us in connection
with the Evertec
Business Acquisition
Transaction and who are
necessary to operate and integrate the
assets acquired as part of
the Evertec
Business Acquisition
Transaction (the “Acquired Assets”);
●
we may
be subject
to incremental
operational and
security risks
arising from
the transfer
of the
Acquired Assets
to BPPR,
including those risks arising from, among
other things, the activities required to
execute network segmentation, the possibility
of misconfiguration of access or security services during
the transition period and during the implementation
of new processes
or
security
controls,
the
possibility
of
mismanagement
of
security
services
during
the
transition
phase,
and
the
need
to
develop a robust internal control framework;
●
the anticipated benefits of the Evertec Business Acquisition
Transaction could be limited if Evertec fails to
deliver to BPPR, in
a timely manner and in a manner that meets BPPR’s requirements, the core
application programming interfaces (“Core APIs”)
that Evertec has committed
to develop in
order for BPPR to
connect future enhancements to the
Acquired Assets to existing
Evertec core applications;
●
we may be exposed to heightened business risks
as a result of the extension until
2035 of BPPR’s exclusivity with Evertec in
connection with
its merchant
acquiring business, as
well as
the extension
until 2030
of BPPR’s
commitment with respect
to
the ATH Network, in light of the pace of technology changes and competition
in the payments industry; and
●
Evertec’s strategy and investments after the
closing of the Evertec Business
Acquisition
Transaction may be refocused away
from Popular towards other strategic initiatives.
Any of the foregoing risks and uncertainties could have a
material adverse effect on our earnings, cash flows, financial
condition,
and/or stock price.
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 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. 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.
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 (6) Payment Protection Program loans. We may also have credit risk with respect to PPP loans if the
SBA determines that
there have been
deficiencies in the
way a PPP
loan was originated,
funded, or serviced
by us and
denies its
liability under the guaranty,
reduces the amount of the
guaranty or, if
it has already paid
under the guaranty,
seeks recovery of any
loss related to the deficiency.
We
are from
time to
time subject
to information
requests, investigations
and other
regulatory enforcement
proceedings
from departments
of the
U.S. and
Puerto Rico
governments, including
those that
investigate compliance
with 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 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
subpoenas and
other requests
for information
from the
departments of
the U.S.
government that
investigate
mortgage-related conduct,
mainly
concerning
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 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.
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 and
expensive. 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. The exercise of this regulatory discretion
and power could have a negative impact
on Popular.
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 designed to assist us
and our personnel in complying with these
applicable laws and
regulations. With respect
to OFAC
regulations and economic
and trade sanction
programs, these policies
and
procedures employ software to screen transactions for
evidence of sanctioned-country and person’s involvement. Consistent with
a
risk-based approach and the
difficulties in identifying and
where applicable, blocking and rejecting
transactions of our customers
or
our customers’ customers that may involve a sanctioned
person, government or country, there can be no assurance that our policies
and
procedures
will
prevent
us
from
violating
applicable
laws
and
regulations
in
transactions
in
which
we
engage,
and
such
violations could 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,
the Basel
Committee on
Banking Supervision
published a
set of
standards to
finalize Basel
III in
December
2017. These standards significantly revise the Basel capital framework, which could heighten regulatory capital standards if adopted
in the U.S. The federal bank regulators
have not yet proposed rules to implement these
revisions,
and the impact on us will depend
on the way
the revisions are implemented
in the U.S.
See the “Supervision and
Regulation - Capital Adequacy”
discussion in Item
1. Business of this Form 10-K for additional information
related to the Basel III Capital Rules and
Basel III finalization.
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 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 would
increase initial
base deposit insurance
assessment rates by
2 basis
points, beginning with
the first
quarterly assessment period
of
2023.
We
are
generally
unable to
control the
amount
of
premiums 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 increases
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 risks
related to our
own credit rating
and capital levels.
Actions by the
rating agencies or
decreases in
our capital
levels may
have adverse effects
on our
business, including by
raising the cost
of our
obligations or affecting
our ability to borrow.
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.
In
addition,
changes
in
our
ratings
and
capital
levels
could
affect
our
relationships
with
some
creditors
and
business
counterparties. For example, having
negative tangible capital may
impact our ability to
access some sources of
wholesale funding.
The Federal Housing Finance Agency
restricts the Federal Home
Loan Bank of New
York
(“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 $1.9
billion and $1.4 million
respectively as of December 31,
2022. 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
limits
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 $29
million at December
31, 2022. 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,
however,
could reduce
our liquidity
resources and
impact our
results of operations. The termination of those agreements or the
inability to realize servicing income for our businesses could have
an
adverse
effect
on
those
businesses.
Other
counterparties
are
also
sensitive
to
the
risk
of
a
ratings
downgrade
and
the
implications
for
our
businesses,
and
may
be
less
likely
to
engage
in
transactions
with
us,
or
may
only
engage
in
them
at
a
substantially higher cost, if our ratings remain below
investment grade.
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, and may continue to
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. We
have $300
million of
notes that
mature on
September 14,
2023. If
we were
unable to
refinance
these
notes, we
could
have to
declare extraordinary
dividends from
our
banking
and
other
operating subsidiaries
to
repay such
notes. Our ability to
declare such dividends 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 three 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
may
face
increased
competition
from
other
institutions
in
the
future
as
emerging
technologies
and
the
growth of e-commerce have significantly reduced geographic barriers, 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 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 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.
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.
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 a s 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,
2022, we had approximately $827
million, $954 million and
$94 million, respectively,
of goodwill, net
deferred tax assets and amortizable intangible assets
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,
2022, BPPR operated
168 branches,
of which 65
were owned and
103 were
leased premises, and
PB operated 39 branches of
which 3 were owned and
36 were on leased premises. Also,
the Corporation had 584 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 2022, the Corporation declared cash dividends in the
total amount of $2.20 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.
On September 9, 2021, the Corporation completed an accelerated share repurchase (“ASR”) program
for the repurchase
of
an
aggregate $350
million
of Popular’s
common
stock.
Under the
terms
of
the
accelerated share
repurchase
agreement (the
“ASR
Agreement”),
on
May
4,
2021,
the
Corporation made
an
initial
payment
of
$350
million
and
received
an
initial
delivery
of
3,785,831
shares
of
Popular’s
Common
Stock
(the
“Initial
Shares”).
The
transaction
was
accounted
for
as
a
treasury
stock
transaction. As
a result
of the
receipt of
the Initial
Shares, the
Corporation recognized in
shareholders’ equity
approximately $280
million
in treasury
stock
and
$70
million
as
a
reduction in
capital surplus.
Upon the
final
settlement of
the
ASR
Agreement, the
Corporation received an additional 828,965 shares and recognized $61 million as treasury stock with a corresponding increase in its
capital surplus account. The Corporation repurchased a total of 4,614,796 shares at an average purchase price of $75.84
under the
ASR Agreement.
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
24,
2023,
Popular
had
6,612
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 $71.27 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, 2022
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
2022.
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,
2022, the maximum number
of shares of
common stock remaining available for future issuance under this plan was 3,444,778. 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,
2022:
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 [2]
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs
October 1 - October 31
-
$-
-
-
November 1 - November 30
-
-
-
-
December 1 - December 31
840,064
70.80
840,024
-
Total December 31, 2022
840,064
$70.80
840,024
-
[1] Includes 40 shares of common stock acquired
by the Corporation during December 2022,
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.
[2] On August 24, 2022, the Corporation entered into
an accelerated repurchase program for the repurchase
of an aggregate $231
million of Popular's common stock, which was completed
on December 7, 2022. Upon the final
settlement, the Corporation received
840,024 shares of common 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, 2017, 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,
2017 = $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 50.

---

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 106 to 108 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 109 and 110 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, 2022, 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
None

---

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
“2022
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 Stockholders” 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, 2022 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
3,444,778
Total
3,444,778

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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’ Independence” and “Certain Relationships and Transactions” in the
Proxy Statement is incorporated herein by reference.

---

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 110 through 260 in this Form10K.
(1)
Financial Statements
Report of Independent Registered Public Accounting
Firm (
PCAOB ID
)
Consolidated Statements of Financial Condition as of
December 31, 2022 and 2021
Consolidated Statements of Operations for each of
the years in the three-year period ended December 31, 2022
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended December
31, 2022
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2022
Consolidated Statements of
Comprehensive Income for
each of
the years
in the
three-year period
ended December 31,
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