Popular Inc Annual Report 2023

Plain-text annual report

Contents Índice Letter From The President & Chief Executive Officer 25-Year Historical Financial Summary Management & Board Of Directors 3 6 8 Carta Del Presidente y Principal Oﬁcial Ejecutivo 11 Resumen Financiero Histórico (25 Años) 14 Gerencia y Junta de Directores 16 Popular, Inc. (NASDAQ: BPOP) is the leading ﬁnancial Popular, Inc. (NASDAQ: BPOP) es la institución bancaria institution by both assets and deposits in Puerto Rico and líder en depósitos y activos en Puerto Rico y se ranks among the top 50 U.S. bank holding companies by encuentra entre las primeras 50 entidades tenedoras assets. Founded in 1893, Banco Popular de Puerto Rico, de instituciones bancarias por número de activos. Popular’s principal subsidiary, provides retail, mortgage Fundado en 1893, Banco Popular de Puerto Rico, la and commercial banking services in Puerto Rico and the principal subsidiaria de Popular, brinda servicios de U.S. Virgin Islands. Popular also offers in Puerto Rico banca individual, hipotecas y banca comercial en Puerto auto and equipment leasing and ﬁnancing, investment Rico e Islas Vírgenes estadounidenses. Popular también banking, broker-dealer and insurance services through ofrece en Puerto Rico servicios de ﬁnanciamiento specialized subsidiaries. In the mainland United States, de autos y equipo, inversiones y seguros a través de Popular provides retail, mortgage and commercial banking services through banking subsidiary, Popular Bank, which has branches its New York-chartered subsidiarias especializadas. En Estados Unidos, Popular provee servicios de banca individual, hipotecas y banca comercial a través de su ﬁlial bancaria en Nueva York, located in New York, New Jersey and Florida. Popular Bank, la cual cuenta con sucursales localizadas en Nueva York, Nueva Jersey y Florida. Corporate Information Información Corporativa Independent Registered Public Accounting Firm: PricewaterhouseCoopers LLP. The company’s annual report and proxy statement are available on popular.com/en/investor-relations/annual-reports/ Firma registrada de Contabilidad Pública Independiente: PricewaterhouseCoopers LLP. El informe anual y el proxy están disponibles en popular.com/accionistas/informe-anual/ Annual Meeting Reunión Anual The Annual Stockholders’ Meeting of Popular, Inc. will be held on Thursday, May 9, 2024, at 9:00 a.m. AST at the Conference Hall in the lobby of the Popular Center building, San Juan, Puerto Rico. La Reunión Anual de Accionistas de Popular, Inc. se celebrará el jueves, 9 de mayo de 2024 a las 9:00 a.m. AST en el Conference Hall del vestíbulo del ediﬁcio Popular Center, San Juan, Puerto Rico. 2 | Popular, Inc. Popular, Inc. Year In Review Dear Shareholders, In 2023, Popular delivered solid results despite a challenging environment, which included high interest rates and uncertainty in the banking industry. Our performance reﬂected strong earnings, robust loan growth, stable credit quality and the continued expansion of our customer base. Our Performance Our net income for the year totaled $541 million, compared to approximately $1.1 billion in 2022. Excluding the impact of the FDIC Special Assessment in 2023, as well as the partial reversal of the DTA valuation allowance and the beneﬁt of the Evertec transactions in 2022, adjusted net income was $587 million in 2023, compared with $808 million in the previous year. The variance was mainly driven by a higher provision for credit losses and higher operating expenses. The increase in the provision was due to the release of loan loss reserves in the ﬁrst half of 2022, continued loan growth during 2023 and the normalization of credit quality metrics in our unsecured consumer lending portfolios from historically low levels experienced during the pandemic. The increase in operating expenses reﬂects our investment in our Transformation initiatives and in our people, as well as our efforts to expand our capabilities in cybersecurity, risk management, data and technology. Credit quality remained solid throughout the year, evidenced by a lower level of non-performing loans, although we began to see some normalization in our unsecured consumer portfolios during the second half of the year. We are attentive to the performance of our credit portfolios, but remain conﬁdent that the risk proﬁle of our loan portfolios positions us to operate successfully under the current environment. Our regulatory capital levels are robust, closing the year with a Common Equity Tier 1 ratio of 16.3%. Our tangible book value per share at year-end was $59.74, or 33% higher than 2022, primarily due to lower unrealized losses on investment securities and the year’s earnings. Over the past two years, we have continued to deploy our capital through loan growth, multiple share repurchases and higher dividends. In November, we announced an increase in our quarterly common stock dividend to $0.62 per share, an increase of 13% or $0.07 per share. In 2023, Popular delivered solid results despite a challenging environment, which included high interest rates and uncertainty in the banking industry. Our performance reﬂected strong earnings, robust loan growth, stable credit quality and the continued expansion of our customer base. Annual Report | 3 $3 BILLION YEAR ON YEAR INCREASE IN TOTAL LOANS (A 9% INCREASE OVER 2022) approx. $2.4 BILLION YEAR-OVER-YEAR INCREASE IN DEPOSITS approx. 2 MILLION+ UNIQUE CUSTOMERS IN PUERTO RICO POPULAR, INC. SHARES (BPOP) $82.07 CLOSING PRICE FOR 2023 (A 24% INCREASE OVER 2022) Highlights One of the most signiﬁcant achievements during 2023 was the growth in our loan portfolio, which increased by approximately $3 billion or 9%. Banco Popular de Puerto Rico grew across most business segments, led by commercial loans, reﬂecting the continued strength of the local economy and our diversiﬁed product offerings. Popular Bank achieved growth in commercial and construction loans. Deposits increased by approximately $2.4 billion during the year, primarily driven by increases in public sector deposits in Puerto Rico and higher-cost time and savings deposits from Popular Bank’s online channel. Deposits in Puerto Rico were stable compared to 2022. A higher level of public deposits offset a reduction in customer deposits. A signiﬁcant portion of these customer deposits were in turn transferred to our broker dealer by commercial and high-net-worth customers pursuing higher yields on their excess liquidity. Our diversiﬁed deposit franchise in Puerto Rico continues to be a source of strength. We crossed a signiﬁcant milestone, surpassing two million unique customers in Puerto Rico. It is an honor to serve them, as well as our customers in all our markets, and we value immensely the trust they place in us. We are committed to providing inclusive access to a full range of ﬁnancial products for both individuals and businesses to help them achieve their ﬁnancial goals. In 2022, we announced the launch of a broad-based technological and business process Transformation to be more agile and provide an improved customer experience in a rapidly changing environment. We are conﬁdent that these investments will allow us to capture growth opportunities in our primary market and within our existing customer base. I am pleased to report that, during 2023, our ﬁrst year of the Transformation, we made important progress across many fronts, and some of the initiatives are already producing encouraging and tangible results. Some examples include a review of our fees for commercial services to align our price to value delivered and promote the migration to digital, more cost-efficient channels. In addition, we implemented a simpliﬁed and faster process for commercial loans, which differentiates documentation requirements and review between simple and complex transactions. We are systematically adding initiatives as we move forward and continue working towards our target of a 14% return on tangible common equity by the end of 2025. Popular’s shares closed the year at $82.07, an increase of 24% when compared to the previous year. After declining in March, along with most of the banking sector due to uncertainty around the failure of several banks, our stock recovered signiﬁcant ground in the second half of the year. It ended 2023 in line with the S&P 500 and considerably above general bank indices. While pleased with the performance of our stock, we are focused on running a strong operation to create sustainable value. We continued to invest in our communities through our donations, two corporate foundations, employee participation and programs designed to promote ﬁnancial education and entrepreneurship. The depth of our programs and the relationships we have built with not-for-proﬁt partners amplify the impact of our community investment. 4 | Popular, Inc. Our Organization I would like to express my gratitude and appreciation to our colleagues for their hard work. Each year brings its own set of challenges, and their adaptability and dedication are a constant source of inspiration. We are committed to the development of our people and to providing an environment where they feel valued and engaged. In December, we announced that Carlos J. Vázquez, our Chief Financial Officer, will retire in March of 2024 after 27 years of distinguished service to Popular. In all the senior leadership positions Carlos has held, he has excelled due to his strategic mindset, analytical skills and discipline. He has been an important contributor to our growth and ﬁnancial strength, and we are thankful for his leadership throughout all these years. On a personal note, I am sincerely grateful for his support since I joined Popular, and for his friendship, which began long before. Jorge J. García, our Corporate Comptroller and Chief Accounting Officer, will succeed Carlos as CFO. Jorge, who has worked alongside Carlos for many years to build a strong Finance team, is widely recognized for his strong analytical capabilities, deep understanding of our business and collaborative management style. We are conﬁdent he will do a great job in his new role. I am also grateful for the advice and support of our Board of Directors. I am fortunate to count on a group of diverse, experienced and highly engaged Directors. Last year, we welcomed Alejandro (Alex) Sánchez to our Board. Alex served as President and CEO of the Florida Bankers Association from 1998 until his retirement last December. He brings extensive knowledge of the industry and regulatory environment in which Popular operates. He has been a vocal promoter and advocate for the banking industry, frequently speaking on its strength, resilience and economic importance. We are conﬁdent that the Board and the organization will beneﬁt from his experience. Looking Ahead We are pleased with our results for 2023 and optimistic about our prospects for this year. The Puerto Rico economy continues to perform well, as reﬂected in positive trends in employment and other economic metrics. There is still a considerable amount of recovery funds yet to be disbursed, which are expected to support increased economic activity in the coming years. Our diversiﬁed business model, prudent risk management, robust capital and liquidity levels and, most importantly, the talent of our people, are sources of strength that position us to support the evolving needs of our growing customer base. Last year, we celebrated our 130th anniversary. Many things have changed since 1893, but our commitment to people and communities has always been at the heart of what we do. To capture what drives us, we launched our renewed purpose statement – “Putting people at the center of progress.” It underscores our mission to help customers reach and exceed their ﬁnancial milestones, invigorate the local economies of the markets where we operate, invest in transformative community initiatives and promote the development and well-being of our colleagues. We ﬁrmly believe that all of these will drive long-term value for our shareholders. We started 2024 with strong momentum. The team is energized and looking forward to building on our solid foundation to continue promoting broad-based and sustainable progress. IGNACIO ALVAREZ President and Chief Executive Officer Popular, Inc. 2023 Annual Report | 5 25-Year Historical Financial Summary (Dollars in millions, except per share data) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Selected Financial Information Net Income (Loss) Assets Gross Loans Deposits Stockholders’ Equity Market Capitalization Return on Average Assets (ROAA) Return on Average Common Equity (ROACE) Per Common Share1 Net Income (Loss) - Basic Net Income (Loss) - Diluted Dividends (Declared) Book Value Market Price Assets by Geographical Area Puerto Rico United States Caribbean and Latin America Total Traditional Delivery System Banking Branches Puerto Rico Virgin Islands United States2 Subtotal Non-Banking Offices Popular Financial Holdings Popular Cash Express Popular Finance Popular Auto (including Reliable) Popular Leasing, U.S.A. Popular Mortgage Popular Securities Popular One Popular Insurance and Popular Risk Services Popular Insurance Agency, U.S.A. Popular Insurance V.I. E-LOAN Popular Equipment Finance EVERTEC Subtotal Total Electronic Delivery System ATMs Owned Puerto Rico Virgin Islands United States Total $257.6 $276.1 $304.5 $351.9 $470.9 $489.9 $540.7 $357.7 $(64.5) $(1,243.9) $(573.9) 25,460.5 28,057.1 30,744.7 33,660.4 36,434.7 44,401.6 48,623.7 47,404.0 44,411.4 38,882.8 34,736.3 14,907.8 16,057.1 18,168.6 19,582.1 22,602.2 28,742.3 31,710.2 32,736.9 29,911.0 26,268.9 23,803.9 14,173.7 14,804.9 16,370.0 17,614.7 18,097.8 20,593.2 22,638.0 24,438.3 28,334.4 27,550.2 25,924.9 1,661.0 1,993.6 2,272.8 2,410.9 2,754.4 3,104.6 3,449.2 3,620.3 3,581.9 3,268.4 2,538.8 $3,790.2 $3,578.1 $3,965.4 $4,476.4 $5,960.2 $7,685.6 $5,836.5 $5,003.4 $2,968.3 $1,455.1 $1,445.4 1.08% 1.04% 1.09% 1.11% 1.36% 1.23% 1.17% 0.74% -0.14% -3.04% -1.57% 15.45% 15.00% 14.84% 16.29% 19.30% 17.60% 17.12% 9.73% -2.08% -44.47% -32.95% $9.19 9.19 3.00 57.54 139.69 71% 25% 4% $9.85 $10.87 $13.05 $17.36 $17.95 $19.78 $12.41 $(2.73) $(45.51) 9.85 3.20 69.62 131.56 72% 26% 2% 10.87 3.80 79.67 13.05 4.00 91.02 17.36 5.05 17.92 6.20 96.60 109.45 145.40 169.00 224.25 288.30 68% 30% 2% 66% 32% 2% 62% 36% 2% 55% 43% 2% 19.74 6.40 118.22 211.50 53% 45% 2% 12.41 6.40 123.18 (2.73) 6.40 121.24 179.50 106.00 52% 45% 3% 59% 38% 3% (45.51) 4.80 63.29 51.60 64% 33% 3% $2.39 2.39 0.20 38.91 22.60 65% 32% 3% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 199 8 91 298 137 102 47 12 10 13 2 4 327 625 442 68 99 609 199 8 95 302 136 132 61 12 11 21 3 2 4 382 684 478 37 109 624 196 8 96 300 149 154 55 20 13 25 4 2 1 4 427 727 524 39 118 681 195 8 96 299 153 195 36 18 13 29 7 2 1 1 5 460 759 539 53 131 723 193 8 97 298 181 129 43 18 11 32 8 2 1 1 5 431 729 557 57 129 743 192 8 128 328 183 114 43 18 15 30 9 2 1 1 5 421 749 568 59 163 790 194 8 136 338 212 4 49 17 14 33 12 2 1 1 1 5 191 8 142 341 196 8 147 351 158 134 52 15 11 32 12 2 1 1 1 7 51 12 24 32 13 2 1 1 1 9 351 689 292 633 280 631 583 61 181 825 605 65 192 862 615 69 187 871 179 8 139 326 2 9 12 22 32 7 1 1 1 1 9 97 423 605 74 176 855 173 8 101 282 10 33 6 1 1 1 9 61 343 571 77 136 784 Employees (full-time equivalent) 11,501 10,651 11,334 11,037 11,474 12,139 13,210 12,508 12,303 10,587 9,407 6 | Popular, Inc. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 $137.4 $151.3 $245.3 $599.3 $(313.5) $895.3 $216.7 $107.7 $618.2 $671.1 $506.6 $934.9 $1,102.6 $541.3 38,815.0 37,348.4 36,506.9 35,748.8 33,086.8 35,761.7 38,661.6 44,277.3 47,604.6 52,115.3 65,926.0 75,097.9 67,637.9 70,758.2 26,458.9 25,314.4 25,093.6 24,706.7 22,053.2 23,129.2 23,435.4 24,942.5 26,559.3 27,466.1 29,484.7 29,299.7 32,083.2 35,069.3 26,762.2 27,942.1 27,000.6 26,711.1 24,807.5 27,209.7 30,496.2 35,453.5 39,710.0 43,758.6 56,866.3 67,005.1 61,227.2 63,618.2 3,800.5 3,918.8 4,110.0 4,626.2 4,267.4 5,105.3 5,198.0 5,103.9 5,435.1 6,016.8 6,028.7 5,969.4 4,093.4 5,147.0 $3,21 1.4 $1,426.0 $2,144.9 $2,970.6 $3,523.4 $2,936.6 $4,548.1 $3,622.4 $4,719.3 $5,615.9 $4,744.6 $6,551.0 $4,765.0 $5,921.6 0.36% 0.40% 0.68% 1.65% -0.89% 2.54% 0.58% 0.26% 1.33% 1.33% 0.85% 1.31% 1.51% 0.76% 4.37% 4.01% 6.37% 14.43% -7.04% 19.16% 4.07% 1.96% 11.39% 11.78% 9.36% 16.22% 18.39% 8.21% $(0.62) (0.62) - 36.67 31.40 74% 23% 3% $1.44 1.44 - 37.71 13.90 74% 23% 3% $2.36 2.35 - 39.35 20.79 73% 24% 3% $5.80 $(3.08) $8.66 $2.06 5.78 (3.08) - 44.26 28.73 72% 25% 3% - 40.76 34.05 80% 17% 3% 8.65 0.30 48.79 28.34 75% 22% 3% 2.06 0.60 49.60 43.82 75% 23% 2% $1.02 1.02 1.00 49.51 35.49 76% 22% 2% $6.07 $6.89 $5.88 $11.49 $14.65 $7.53 6.06 1.00 53.88 47.22 77% 21% 2% 6.88 1.20 62.42 58.75 78% 20% 2% 5.87 1.60 71.30 56.32 82% 17% 1% 11.46 1.75 74.48 82.04 84% 15% 1% 14.63 2.20 56.66 66.32 79% 19% 2% 7.52 2.27 71.03 82.07 76% 22% 2% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 185 8 96 183 9 94 175 9 92 171 9 90 289 286 276 270 168 9 47 224 10 36 6 1 1 1 10 37 4 4 1 1 1 10 37 4 5 1 1 1 9 38 3 6 1 1 1 9 25 3 6 1 1 1 173 9 50 232 9 24 3 6 2 1 1 171 9 51 168 9 51 163 9 51 231 228 223 9 17 2 5 2 1 1 9 14 2 5 2 1 1 55 344 58 344 59 335 59 329 46 270 46 278 37 268 34 262 624 17 138 779 613 20 135 768 597 20 134 751 599 22 132 753 602 21 83 706 622 21 87 730 635 20 101 756 633 22 110 765 164 10 51 225 12 14 2 5 2 1 36 261 622 23 119 764 162 10 50 222 11 15 2 6 2 1 37 259 619 23 118 760 159 10 39 208 11 15 2 7 2 1 1 39 247 616 23 91 730 158 10 39 153 9 40 207 202 11 14 1 7 2 1 1 11 14 1 7 2 1 1 37 244 37 239 584 23 94 701 576 23 100 699 12 14 2 5 2 1 36 259 619 22 115 756 8,277 8,329 8,072 8,059 7,752 7,810 7,828 7,784 8,474 8,560 8,522 8,351 8,813 9,088 1 Per common share data adjusted for stock splits and reverse stock split executed in May 2012. 2 Excludes a Banco Popular de Puerto Rico branch operating in New York. 2023 Annual Report | 7 Popular, Inc. Management & Board Of Directors Senior Management Team IGNACIO ALVAREZ President & Chief Executive Officer Popular, Inc. CAMILLE BURCKHART Executive Vice President Chief Information & Digital Strategy Officer Innovation, Technology & Operations Group Popular, Inc. BEATRIZ CASTELLVÍ Executive Vice President & Chief Security Officer Corporate Security Group Popular, Inc. LUIS E. CESTERO Executive Vice President Retail & Business Solutions Group Banco Popular de Puerto Rico MANUEL CHINEA Executive Vice President Popular, Inc. Chief Operating Officer Popular Bank JOSÉ R. COLEMAN TIÓ Executive Vice President & Chief Legal Officer General Counsel & Corporate Matters Group Popular, Inc. JAVIER D. FERRER Executive Vice President Chief Operating Officer Head of Business Strategy and Corporate Secretary COO & Corporate Business Strategy Group Popular, Inc. MARÍA CRISTINA (MC) GONZÁLEZ Executive Vice President Chief Communications and Public Affairs Officer Corporate Communications & Public Affairs Group Popular, Inc. GILBERTO MONZÓN Executive Vice President Specialized Businesses Group Banco Popular de Puerto Rico EDUARDO J. NEGRÓN Executive Vice President & Chief Administration Officer Administration Group Popular, Inc. ELI S. SEPÚLVEDA Executive Vice President Commercial Credit & Services Group Banco Popular de Puerto Rico LIDIO V. SORIANO Executive Vice President & Chief Risk Officer Corporate Risk Management Group Popular, Inc. CARLOS J. VÁZQUEZ Executive Vice President & Chief Financial Officer Corporate Finance Group Popular, Inc. 8 | Popular, Inc. Board of Directors RICHARD L. CARRIÓN Chairman of the Board of Directors Popular, Inc. IGNACIO ALVAREZ President & Chief Executive Officer Popular, Inc. JOAQUÍN E. BACARDÍ, III President and Chairman Edmundo B. Fernández, Inc. ALEJANDRO M. BALLESTER President Ballester Hermanos, Inc. ROBERT CARRADY President and Chief Executive Officer Caribbean Cinemas BETTY DEVITA Chief Business Officer FinConecta JOHN W. DIERCKSEN Principal Greycrest, LLC MARÍA LUISA FERRÉ RANGEL Chief Executive Officer FRG, LLC C. KIM GOODWIN Private Investor JOSÉ R. RODRÍGUEZ Chairman of the Board of Directors CareMax, Inc. ALEJANDRO M. SÁNCHEZ President and Chief Executive Officer Salva Financial Group of Florida MYRNA M. SOTO Chief Executive Officer & Founder Apogee Executive Advisors, LLC CARLOS A. UNANUE President Goya de Puerto Rico, Inc. 2023 Annual Report | 9 Popular, Inc. Resumen del año Estimados Accionistas: En el 2023, obtuvimos resultados sólidos a pesar de un entorno retante que incluyó altas tasas de interés e incertidumbre en el sector bancario. Nuestros resultados reﬂejaron ingresos sólidos, un crecimiento robusto en préstamos, una calidad crediticia estable y una continua expansión de nuestra base de clientes. Nuestro desempeño Nuestro ingreso neto anual fue de $541 millones, en comparación con aproximadamente $1,100 millones en 2022. Excluyendo el impacto de la evaluación especial de la FDIC en 2023, así como la reversión parcial de la reserva para nuestro activo de contribuciones diferidas y el beneﬁcio de las transacciones de Evertec en 2022, el ingreso neto ajustado fue de $587 millones en 2023, comparado con $808 millones en el año anterior. La variación se debió principalmente a un aumento en la provisión para pérdidas de crédito y en los gastos operacionales. El aumento de la provisión se debió a la liberación de reservas para pérdidas crediticias en la primera mitad de 2022, al crecimiento continuo de los préstamos durante 2023 y a la normalización de las métricas de calidad crediticia en nuestras carteras de préstamos de consumo no garantizados desde los niveles históricamente bajos experimentados durante la pandemia. El aumento de los gastos operacionales reﬂeja la inversión en nuestras iniciativas de Transformación y en nuestra gente, así como nuestros esfuerzos por ampliar nuestras capacidades en ciberseguridad, manejo de riesgos, datos y tecnología. La calidad del crédito se mantuvo fuerte a través del año, reﬂejado en un menor nivel de préstamos no acumulativos, aunque empezamos a ver cierta normalización en nuestras carteras de consumo no garantizadas durante la segunda mitad del año. Estamos atentos a la evolución de nuestras carteras de crédito, pero seguimos conﬁados de que el perﬁl de riesgo de nuestras carteras de préstamos nos posiciona para operar con éxito en el ambiente actual. Nuestros niveles de capital reglamentario se mantuvieron fuertes, cerrando el año con una relación de capital “Tier 1 Common” de 16.3%. Nuestro valor tangible en los libros cerró en $59.74, es decir, un 33% más que en 2022, debido principalmente a la reducción de las pérdidas no realizadas sobre inversiones de valores y a las ganancias del año. En los últimos dos años hemos seguido desplegando nuestro capital mediante el crecimiento de los préstamos, la recompra de acciones y el aumento de los dividendos. En noviembre, anunciamos un aumento de nuestro dividendo trimestral en acciones comunes a $0.62 centavos por acción, un incremento del 13% o $0.07 centavos por acción. En el 2023, obtuvimos resultados sólidos a pesar de un entorno retante que incluyó altas tasas de interés e incertidumbre en el sector bancario. Nuestros resultados reﬂejaron ingresos sólidos, un crecimiento robusto en préstamos, una calidad crediticia estable y una continua expansión de nuestra base de clientes. Informe Anual 2023 | 11 $3,000 MILLONES aprox. AUMENTO ANUAL EN TOTAL DE PRÉSTAMOS (AUMENTO DE 9% EN COMPARACIÓN CON 2022) $2,400 MILLONES AUMENTO ANUAL EN DEPÓSITOS aprox. 2 MILLONES+ DE CLIENTES ÚNICOS EN PUERTO RICO ACCIONES DE POPULAR, INC. (BPOP) $82.07 VALOR AL CIERRE DE 2023 (AUMENTO DE 24% EN COMPARACIÓN AL 2022) Logros Uno de los logros más signiﬁcativos durante 2023 fue el crecimiento de nuestra cartera de préstamos, que aumentó en aproximadamente $3,000 millones o 9%. Banco Popular de Puerto Rico creció en la mayoría de los segmentos de negocio, liderando con los préstamos comerciales, lo que reﬂeja la continua fortaleza de la economía local y nuestra oferta diversiﬁcada de productos. Popular Bank logró un crecimiento en los préstamos comerciales y de construcción. Los depósitos aumentaron en aproximadamente $2,400 millones durante el año, impulsados principalmente por el aumento de los depósitos del sector público en Puerto Rico y los depósitos a plazo ﬁjo y de ahorro de alto costo del canal en línea de Popular Bank. Los depósitos en Puerto Rico se mantuvieron estables en comparación con 2022. Un mayor nivel de depósitos públicos contrarrestó una reducción en los depósitos de clientes. Una parte signiﬁcativa de estos depósitos de clientes fueron transferidos a su vez a nuestro corredor de bolsa por clientes comerciales y de alto nivel adquisitivo que buscaban mayores rendimientos en su exceso de liquidez. Nuestra oferta diversiﬁcada de depósitos en Puerto Rico sigue siendo una fuente de fortaleza. Logramos alcanzar un hito muy importante al superar los dos millones de clientes únicos en Puerto Rico. Es un honor servirles, al igual que a nuestros clientes en todos nuestros mercados, y valoramos inmensamente la conﬁanza que ponen en nosotros. Estamos comprometidos a ofrecer un acceso inclusivo a una amplia variedad de productos ﬁnancieros, tanto para individuos como para empresas, con el ﬁn de ayudarles a alcanzar sus objetivos ﬁnancieros. En 2022 anunciamos el lanzamiento de una amplia Transformación tecnológica y empresarial para ser más ágiles y proveer una mejor experiencia al cliente en un entorno que cambia rápidamente. Conﬁamos en que estas inversiones nos permitan aprovechar las oportunidades de crecimiento en nuestro mercado principal y en nuestra base actual de clientes. Me complace informar que, durante el 2023, nuestro primer año de Transformación, realizamos progresos importantes en muchos frentes y algunas de las iniciativas ya están produciendo resultados prometedores y tangibles. Algunos ejemplos incluyen la revisión de nuestras tarifas por servicios comerciales para alinear nuestro precio con el valor ofrecido, y promover la migración a canales digitales más rentables. Además, pusimos en marcha un proceso simpliﬁcado y más rápido para los préstamos comerciales, que diferencia los requisitos de documentación y la revisión entre transacciones sencillas y complejas. Estamos añadiendo sistemáticamente iniciativas a medida que avanzamos y seguimos trabajando para alcanzar nuestro objetivo de una rentabilidad del 14% sobre el capital común tangible a ﬁnales de 2025. Las acciones de Popular cerraron el año en $82.07, un 24% más que el año anterior. Nuestra acción recuperó signiﬁcativamente en la segunda mitad del año tras caer en marzo, como la mayoría del sector bancario, debido a la incertidumbre en torno a la quiebra de varios bancos. El 2023 terminó en línea con el S&P 500 y considerablemente por encima de los índices bancarios generales. Aunque estamos satisfechos con el desempeño de nuestra acción, nos enfocamos en dirigir una operación sólida para crear valor sostenible. Seguimos invirtiendo en nuestras comunidades a través de nuestras donaciones, dos fundaciones corporativas, la participación de los empleados y programas diseñados para promover la educación ﬁnanciera y emprendimiento. La importancia de nuestros programas y las relaciones que hemos establecido con organizaciones sin ﬁnes de lucro, ampliﬁcan el impacto de nuestra inversión en la comunidad. 12 | Popular, Inc. Nuestra empresa Me gustaría expresar mi gratitud y reconocimiento a nuestros colegas por su gran desempeño. Cada año plantea sus propios retos, y su adaptabilidad y dedicación son una fuente constante de inspiración. Estamos comprometidos con el desarrollo de nuestra gente y con ofrecerles un entorno en el que se sientan valorados y comprometidos. En diciembre anunciamos que Carlos J. Vázquez, nuestro principal oﬁcial ﬁnanciero, se retirará en marzo de 2024 tras 27 años de una exitosa trayectoria con Popular. En todos los puestos de liderazgo que ha ocupado, Carlos se ha destacado por su mentalidad estratégica, capacidad analítica y disciplina. Ha sido un contribuyente importante a nuestro crecimiento y fortaleza ﬁnanciera, y estamos agradecidos por su liderazgo a lo largo de todos estos años. De mi parte, estoy sinceramente agradecido por su apoyo desde que me incorporé a Popular, y por su amistad, que comenzó mucho antes. Jorge J. García, nuestro contralor corporativo y principal oﬁcial de contabilidad, sucederá a Carlos como principal oﬁcial ﬁnanciero. Jorge, quien ha trabajado junto a Carlos durante muchos años para construir un equipo sólido de Finanzas, es ampliamente reconocido por su gran capacidad analítica, su profundo conocimiento de nuestro negocio y su estilo colaborativo de gerencia. Estamos seguros de que hará un gran trabajo en su nuevo puesto. También agradezco el asesoramiento y el apoyo de nuestra Junta de Directores. Tengo la suerte de contar con un grupo de directores diversos, experimentados y muy comprometidos. El año pasado dimos la bienvenida a Alejandro (Alex) Sánchez a nuestra Junta. Alex fue presidente y principal oﬁcial ejecutivo de la Asociación de Banqueros de Florida desde 1998 hasta su jubilación el pasado diciembre. Aporta un amplio conocimiento del sector y del entorno reglamentario en el que opera Popular. Ha sido un ﬁrme promotor y defensor del sector bancario, hablando con frecuencia sobre su fortaleza, resistencia e importancia económica. Estamos seguros de que la Junta y la organización se beneﬁciarán de su experiencia. Mirando al futuro Estamos satisfechos con nuestros resultados para 2023 y nos mantenemos optimistas sobre nuestras perspectivas para este año. La economía de Puerto Rico continúa mostrando un buen comportamiento, como reﬂejan las tendencias positivas del empleo y otros indicadores económicos. Todavía queda por desembolsar una cantidad considerable de fondos de recuperación, que se espera que apoyen una mayor actividad económica en los próximos años. Nuestro modelo de negocio diversiﬁcado, gestión prudente del riesgo, niveles sólidos de capital y liquidez y, lo más importante, el talento de nuestra gente, son fuentes de fortaleza que nos posicionan para apoyar las necesidades cambiantes de nuestra creciente base de clientes. El año pasado celebramos nuestro 130 aniversario. Muchas cosas han cambiado desde 1893, pero nuestro compromiso con las personas y las comunidades siempre ha estado en el centro de lo que hacemos. Para captar lo que nos impulsa, lanzamos nuestro propósito renovado: “Ponemos a la gente en el centro del progreso”. Este propósito subraya nuestra misión de ayudar a los clientes a alcanzar y sobrepasar sus metas ﬁnancieras, impulsar las economías locales de los mercados en los que operamos, invertir en iniciativas comunitarias transformadoras y promover el desarrollo y el bienestar de nuestros compañeros. Creemos ﬁrmemente que todo esto generará valor a largo plazo para nuestros accionistas. Empezamos el 2024 con un fuerte impulso. El equipo está lleno de energía y listo para construir sobre nuestros sólidos cimientos para seguir promoviendo un progreso amplio y sostenible. IGNACIO ÁLVAREZ Presidente y Principal Oﬁcial Ejecutivo Popular, Inc. Informe Anual 2023 | 13 25 Años Resumen Financiero Histórico 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 $257.6 $276.1 $304.5 $351.9 $470.9 $489.9 $540.7 $357.7 $(64.5) $(1,243.9) $(573.9) 25,460.5 28,057.1 30,744.7 33,660.4 36,434.7 44,401.6 48,623.7 47,404.0 44,411.4 38,882.8 34,736.3 14,907.8 16,057.1 18,168.6 19,582.1 22,602.2 28,742.3 31,710.2 32,736.9 29,911.0 26,268.9 23,803.9 14,173.7 14,804.9 16,370.0 17,614.7 18,097.8 20,593.2 22,638.0 24,438.3 28,334.4 27,550.2 25,924.9 1,661.0 1,993.6 2,272.8 2,410.9 2,754.4 3,104.6 3,449.2 3,620.3 3,581.9 3,268.4 2,538.8 $3,790.2 $3,578.1 $3,965.4 $4,476.4 $5,960.2 $7,685.6 $5,836.5 $5,003.4 $2,968.3 $1,455.1 $1,445.4 1.08% 1.04% 1.09% 1.11% 1.36% 1.23% 1.17% 0.74% -0.14% -3.04% -1.57% 15.45% 15.00% 14.84% 16.29% 19.30% 17.60% 17.12% 9.73% -2.08% -44.47% -32.95% $9.19 9.19 3.00 57.54 139.69 71% 25% 4% $9.85 $10.87 $13.05 $17.36 $17.95 $19.78 $12.41 $(2.73) $(45.51) 9.85 3.20 69.62 131.56 72% 26% 2% 10.87 3.80 79.67 13.05 4.00 91.02 17.36 5.05 96.60 17.92 6.20 109.45 145.40 169.00 224.25 288.30 68% 30% 2% 66% 32% 2% 62% 36% 2% 55% 43% 2% 19.74 6.40 118.22 211.50 53% 45% 2% 12.41 6.40 123.18 (2.73) 6.40 121.24 179.50 106.00 52% 45% 3% 59% 38% 3% (45.51) 4.80 63.29 51.60 64% 33% 3% $2.39 2.39 0.20 38.91 22.60 65% 32% 3% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 199 8 91 298 137 102 47 12 10 13 2 4 327 625 442 68 99 609 199 8 95 302 136 132 61 12 11 21 3 2 4 382 684 478 37 109 624 196 8 96 300 149 154 55 20 13 25 4 2 1 4 427 727 524 39 118 681 195 8 96 299 153 195 36 18 13 29 7 2 1 1 5 460 759 539 53 131 723 193 8 97 298 181 129 43 18 11 32 8 2 1 1 5 431 729 557 57 129 743 192 8 128 328 183 114 43 18 15 30 9 2 1 1 5 421 749 568 59 163 790 194 8 136 338 212 4 49 17 14 33 12 2 1 1 1 5 351 689 583 61 181 825 191 8 142 341 196 8 147 351 158 134 179 8 139 173 8 101 326 282 2 9 12 22 32 7 1 1 1 1 9 51 12 24 32 13 2 1 1 1 9 280 631 97 423 615 69 187 871 605 74 176 855 52 15 11 32 12 2 1 1 1 7 292 633 605 65 192 862 10 33 6 1 1 1 9 61 343 571 77 136 784 11,501 10,651 11,334 11,037 11,474 12,139 13,210 12,508 12,303 10,587 9,407 (Dólares en millones, excepto información por acción) Información Financiera Seleccionada Ingreso neto (Pérdida Neta) Activos Préstamos Brutos Depósitos Capital de Accionistas Valor agregado en el mercado Rendimiento de Activos Promedio (ROAA) Rendimiento de Capital Común Promedio (ROACE) Por Acción Común1 Ingreso neto (Pérdida Neta) - Básico Ingreso neto (Pérdida Neta) - Diluido Dividendos (Declarados) Valor en los Libros Precio en el Mercado Activos por Área Geográﬁca Puerto Rico Estados Unidos Caribe y Latinoamérica Total Sistema de Distribución Tradicional Sucursales Bancarias Puerto Rico Islas Vírgenes Estados Unidos2 Subtotal Oﬁcinas No Bancarias Popular Financial Holdings Popular Cash Express Popular Finance Popular Auto (incluyendo Reliable) Popular Leasing, U.S.A. Popular Mortgage Popular Securities Popular One Popular Insurance y Popular Risk Services Popular Insurance Agency, U.S.A. Popular Insurance V.I. E-LOAN Popular Equipment Finance EVERTEC Subtotal Total Sistema Electrónico de Distribución Cajeros Automáticos Propios y Administrados Puerto Rico Islas Vírgenes Estados Unidos Total Empleados (equivalente a tiempo completo) 14 | Popular, Inc. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 $137.4 $151.3 $245.3 $599.3 $(313.5) $895.3 $216.7 $107.7 $618.2 $671.1 $506.6 $934.9 $1,102.6 $541.3 38,815.0 37,348.4 36,506.9 35,748.8 33,086.8 35,761.7 38,661.6 44,277.3 47,604.6 52,115.3 65,926.0 75,097.9 67,637.9 70,758.2 26,458.9 25,314.4 25,093.6 24,706.7 22,053.2 23,129.2 23,435.4 24,942.5 26,559.3 27,466.1 29,484.7 29,299.7 32,083.2 35,069.3 26,762.2 27,942.1 27,000.6 26,711.1 24,807.5 27,209.7 30,496.2 35,453.5 39,710.0 43,758.6 56,866.3 67,005.1 61,227.2 63,618.2 3,800.5 3,918.8 4,110.0 4,626.2 4,267.4 5,105.3 5,198.0 5,103.9 5,435.1 6,016.8 6,028.7 5,969.4 4,093.4 5,147.0 $3,21 1.4 $1,426.0 $2,144.9 $2,970.6 $3,523.4 $2,936.6 $4,548.1 $3,622.4 $4,719.3 $5,615.9 $4,744.6 $6,551.0 $4,765.0 $5,921.6 0.36% 0.40% 0.68% 1.65% -0.89% 2.54% 0.58% 0.26% 1.33% 1.33% 0.85% 1.31% 1.51% 0.76% 4.37% 4.01% 6.37% 14.43% -7.04% 19.16% 4.07% 1.96% 11.39% 11.78% 9.36% 16.22% 18.39% 8.21% $(0.62) (0.62) - 36.67 31.40 74% 23% 3% $1.44 1.44 - 37.71 13.90 74% 23% 3% $2.36 2.35 - 39.35 20.79 73% 24% 3% $5.80 $(3.08) $8.66 $2.06 $1.02 $6.07 $6.89 5.78 - 44.26 28.73 72% 25% 3% (3.08) - 40.76 34.05 80% 17% 3% 8.65 0.30 48.79 28.34 75% 22% 3% 2.06 0.60 49.60 43.82 75% 23% 2% 1.02 1.00 49.51 35.49 76% 22% 2% 6.06 1.00 53.88 47.22 77% 21% 2% 6.88 1.20 62.42 58.75 78% 20% 2% $5.88 5.87 1.60 71.30 56.32 82% 17% 1% $11.49 $14.65 $7.53 11.46 1.75 74.48 82.04 84% 15% 1% 14.63 2.20 56.66 66.32 79% 19% 2% 7.52 2.27 71.03 82.07 76% 22% 2% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 185 8 96 289 183 9 94 175 9 92 171 9 90 286 276 270 168 9 47 224 10 36 6 1 1 1 10 37 4 4 1 1 1 10 37 4 5 1 1 1 9 38 3 6 1 1 1 9 25 3 6 1 1 1 173 9 50 232 9 24 3 6 2 1 1 171 9 51 168 9 51 163 9 51 231 228 223 9 17 2 5 2 1 1 9 14 2 5 2 1 1 55 344 58 344 59 335 59 329 46 270 46 278 37 268 34 262 624 17 138 779 613 20 135 768 597 20 134 751 599 22 132 753 602 21 83 706 622 21 87 730 635 20 101 756 633 22 110 765 164 10 51 225 12 14 2 5 2 1 36 261 622 23 119 764 162 10 50 222 159 10 39 158 10 39 153 9 40 208 207 202 11 15 2 6 2 1 37 259 619 23 118 760 11 15 2 7 2 1 1 39 247 616 23 91 730 11 14 1 7 2 1 1 11 14 1 7 2 1 1 37 244 37 239 584 23 94 701 576 23 100 699 12 14 2 5 2 1 36 259 619 22 115 756 8,277 8,329 8,072 8,059 7,752 7,810 7,828 7,784 8,474 8,560 8,522 8,351 8,813 9,088 1Los datos de las acciones comunes han sido ajustados por las divisiones en acciones y la división de acciones a la inversa realizada en mayo 2012. 2Excluye una sucursal de Banco Popular de Puerto Rico en Nueva York. Informe Anual 2023 | 15 Popular, Inc. Gerencia y Junta de Directores Consejo Gerencial IGNACIO ÁLVAREZ Presidente y Principal Oﬁcial Ejecutivo Popular, Inc. CAMILLE BURCKHART Vicepresidenta Ejecutiva, Principal Oﬁcial de Informática y Tecnología Digital Grupo de Innovación, Tecnología y Operaciones Popular, Inc. BEATRIZ CASTELLVÍ Vicepresidenta Ejecutiva y Principal Oﬁcial de Seguridad Grupo de Seguridad Corporativa Popular, Inc. LUIS E. CESTERO Vicepresidente Ejecutivo Grupo de Soluciones Individuales y de Negocio Banco Popular de Puerto Rico MANUEL CHINEA Vicepresidente Ejecutivo Popular, Inc. Principal Oﬁcial de Operaciones Popular Bank JOSÉ R. COLEMAN TIÓ Vicepresidente Ejecutivo y Principal Oﬁcial Legal Grupo del Asesor General y Asuntos Corporativos Popular, Inc. JAVIER D. FERRER Vicepresidente Ejecutivo Principal Oﬁcial de Operaciones, Principal Oﬁcial de Estrategia de Negocios y Secretario Corporativo Grupo de Estrategia Corporativa y POO Popular, Inc. MARÍA CRISTINA (MC) GONZÁLEZ Vicepresidenta Ejecutiva y Principal Oﬁcial de Comunicaciones y Asuntos Públicos Grupo de Comunicaciones Corporativas y Asuntos Públicos Popular, Inc. GILBERTO MONZÓN Vicepresidente Ejecutivo Grupo de Negocios Especializados Banco Popular de Puerto Rico EDUARDO J. NEGRÓN Vicepresidente Ejecutivo y Principal Oﬁcial de Administración Grupo de Administración Popular, Inc. ELI S. SEPÚLVEDA Vicepresidente Ejecutivo Grupo de Crédito y Servicios Comerciales Banco Popular de Puerto Rico LIDIO V. SORIANO Vicepresidente Ejecutivo y Principal Oﬁcial de Riesgo Grupo Corporativo de Manejo de Riesgo Popular, Inc. CARLOS J. VÁZQUEZ Vicepresidente Ejecutivo y Principal Oﬁcial Financiero Grupo de Finanzas Corporativas Popular, Inc. 16 | Popular, Inc. Junta De Directores RICHARD L. CARRIÓN Presidente de la Junta de Directores Popular, Inc. IGNACIO ÁLVAREZ Presidente y Principal Oﬁcial Ejecutivo Popular, Inc. JOAQUÍN E. BACARDÍ, III Presidente Edmundo B. Fernández, Inc. ALEJANDRO M. BALLESTER Presidente Ballester Hermanos, Inc. ROBERT CARRADY Presidente y Principal Oﬁcial Ejecutivo Caribbean Cinemas BETTY DEVITA Principal Oﬁcial de Negocios FinConecta JOHN W. DIERCKSEN Principal Greycrest, LLC MARÍA LUISA FERRÉ RANGEL Principal Oﬁcial Ejecutiva FRG, LLC C. KIM GOODWIN Inversionista Privada JOSÉ R. RODRÍGUEZ Presidente de la Junta de Directores CareMax, Inc. ALEJANDRO M. SÁNCHEZ Presidente y Principal Oﬁcial Ejecutivo Salva Financial Group of Florida MYRNA M. SOTO Principal Oﬁcial Ejecutiva y Fundadora Apogee Executive Advisors, LLC CARLOS A. UNANUE Presidente Goya de Puerto Rico, Inc. Informe Anual 2023 | 17 Financial Review and Supplementary Information Management’s Discussion and Analysis of Financial Condition and Results of Operations Statistical Summaries Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition as of December 31, 2023 and 2022 Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 Notes to Consolidated Financial Statements 2 49 52 53 56 57 58 59 60 61 POPULAR, INC. 2023 ANNUAL REPORT 1 Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Overview Critical Accounting Policies / Estimates Statement of Operations Analysis Net Interest Income Provision for Credit Losses Non-Interest Income Operating Expenses Income Taxes Fourth Quarter Results Reportable Segment Results Statement of Financial Condition Analysis Assets Liabilities Stockholders’ Equity Regulatory Capital Risk Management Market / Interest Rate Risk Liquidity Enterprise Risk Management Adoption of New Accounting Standards and Issued but Not Yet Effective Accounting Standards Statistical Summaries Statements of Financial Condition Statements of Operations Average Balance Sheet and Summary of Net Interest Income 2 POPULAR, INC. 2023 ANNUAL REPORT 3 4 7 11 11 14 14 15 17 17 18 19 19 21 22 22 25 25 29 47 48 49 49 50 51 of are estimates limitation, guarantees including, without risks, uncertainties, future performance, FORWARD-LOOKING STATEMENTS This Form 10-K contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, statements about Inc.’s (the “Corporation,” “Popular,” “we,” “us,” Popular, “our”) business, financial condition, results of operations, plans, objectives and future performance. These statements are not based on management’s current expectations and, by their nature, involve and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward- looking, and the words “anticipate,” “believe,” “continues,” “expect,” similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements. “estimate,” “intend,” “project” and Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the rate of growth or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated; adverse economic conditions, including high levels of inflation, that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect in turn, among other things, our level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources, reduce loan originations, affect our ability to originate and distribute financial products in the primary and secondary markets and impact the value of our investment portfolio and our ability to return capital to our adverse shareholders; developments at other banks and related negative media coverage of the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the impact of bank failures or the from our Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business; the impact of pending debt restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action; the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government and the rate of expenditure of such funds, as well as the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities; unforeseen or catastrophic events, including extreme weather events, including hurricanes, other natural disasters, man-made disasters, acts of violence or war or pandemics, epidemics and other health-related crises, or the fear of any such event occurring, any of which could cause adverse consequences for our business, including, but not limited to, disruptions in our operations; our ability to achieve the expected benefits transformation initiative, including our ability to achieve projected earnings, efficiencies and our targeted sustainable return on tangible common equity of 14% by the end of 2025; risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc. to service certain of Banco Popular de Puerto Rico’s key channels, as well as the entry into amended and restated commercial agreements (the “Evertec Business Acquisition Transaction”); the fiscal and monetary policies of the federal government and its agencies; changes in federal bank regulatory and supervisory policies, including required levels of capital, liquidity, resolution-related requirements and the impact of other proposed capital standards on our capital Insurance Corporation ratios; additional Federal Deposit (“FDIC”) assessment such as assessments, implemented by the FDIC to recover the losses to the deposit insurance fund (“DIF”) resulting from the receiverships of Silicon Valley Bank and Signature Bank; regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions, such as acquisitions and dispositions; the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which our borrowers are located; a deterioration in the credit quality of our clients, customers and counterparties; the performance of the stock and bond markets; competition in the financial services industry; possible legislative, tax or regulatory changes; a failure in or breach of our operational or security systems or infrastructure Inc., our provider of core financial or those of Evertec, transaction processing and information technology services, or special the POPULAR, INC. 2023 ANNUAL REPORT 3 and e-fraud, denial-of-services of third parties providing services to us, including as a result of computer cyberattacks, intrusion, that might result in, among other things, loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular; changes in market rates and prices which may adversely impact the value of financial judgments, claims, damages, assets and liabilities; potential penalties, fines, enforcement actions and reputational damage resulting from pending or future litigation and regulatory or government investigations or actions; changes in accounting standards, rules and interpretations; our ability to grow our core businesses; decisions to downsize, sell or close branches or business units or otherwise change our business mix; and management’s ability to identify and manage these and other risks. Moreover, the outcome of legal and regulatory proceedings, as discussed in “Part I, Item 3. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to “Part I, Item 1A” of this Form 10-K for a discussion of certain risks and uncertainties to which the Corporation is subject. All forward-looking statements included in this Form 10-K are based upon information available to Popular as of the date of this Form 10- K, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward- looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. OVERVIEW The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States (“U.S.”) mainland, and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the U.S. mainland, the Corporation provides retail, mortgage, commercial banking services, as well as equipment through its New York- chartered banking subsidiary, Popular Bank (“PB” or “Popular U.S.”) which has branches located in New York, New Jersey and Florida. Note 37 to the Consolidated Financial Statements presents information about the Corporation’s business segments. leasing and financing, Corporation used a portion of the net proceeds of the 2028 Notes offering to redeem, on August 14, 2023, the outstanding $300 million aggregate principal amount of its 6.125% Senior Notes due September 2023. The redemption price was equal to 100% of the principal amount plus accrued and unpaid interest through the redemption date. the Federal Deposit FDIC Special Assessment On November 16, 2023, Insurance Corporation (“FDIC”) approved a final rule that imposes a special assessment (the “FDIC Special Assessment”) to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of several failed banks. as reported in the Under the final rule, the assessment base for the special assessment is equal to an insured depository institution’s (“IDI”) estimated uninsured deposits, IDI’s December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. For a holding company that has more than one IDI subsidiary, such as Popular, the $5 billion exclusion is allocated among the company’s IDI subsidiaries in proportion to each IDI’s estimated uninsured deposits. The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.35 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. In their December 31, 2022 Call Reports, BPPR and PB reported estimated uninsured deposits of approximately $28.1 billion, including $16.2 billion in fully collateralized public sector deposits, and $3.5 billion, respectively. The Corporation recorded an expense of $71.4 million, in the fourth quarter of 2023, $45.3 million net of representing the full amount of the assessment. tax, By statute, the FDIC is required to recover the loss arising from the use of a systemic risk determination through one or more special assessments. As of December 31, 2023, the FDIC’s loss estimate described in the final rule had increased by approximately $4.1 billion to $20.4 billion, or approximately 25%. The exact amount of losses will be determined when the FDIC terminates the related receiverships considered in the final rule. Accordingly, the special assessment amount and collection period may change as is periodically adjusted or if the total amount collected varies. If increase in the FDIC’s estimate remains the most recent unchanged and is the assessed in the Corporation estimates that the incremental expense for the FDIC Special Assessment could be approximately $18 million. the estimated loss same manner, YEAR 2023 SIGNIFICANT EVENTS Issuance and Redemption of Senior Notes On March 13, 2023, the Corporation issued $400 million aggregate principal amount of 7.25% Senior Notes due 2028 (the “2028 Notes”) in an underwritten public offering. The Increase in quarterly common stock dividends During the fourth quarter of 2023, the Corporation declared a quarterly common stock cash dividend of $0.62 per share, an increase of $0.07, or 13%, compared to the $0.55 per share declared by the Corporation in the third quarter of 2023. 4 POPULAR, INC. 2023 ANNUAL REPORT Table 1 - Selected Financial Data (Dollars in thousands, except per common share data) CONDENSED STATEMENTS OF OPERATIONS Interest income Interest expense Net interest income Provision for credit losses (benefit) Non-interest income Operating expenses Income tax expense Net income Net income applicable to common stock PER COMMON SHARE DATA Net income per common share - basic Net income per common share - diluted Dividends declared Common equity per share Market value per common share Outstanding shares: Average - basic Average - assuming dilution End of period AVERAGE BALANCES Net loans [1] Earning assets Total assets Deposits Borrowings Total stockholders’ equity PERIOD END BALANCE Net loans [1] Allowance for credit losses - loans portfolio Earning assets Total assets Deposits Borrowings Total stockholders’ equity SELECTED RATIOS Net interest margin (non-taxable equivalent basis) Net interest margin (taxable equivalent basis) -Non-GAAP Return on assets Return on common equity Tier I capital Total capital [1] Includes loans held-for-sale. Years ended December 31, 2022 2021 2023 $ 3,245,307 1,113,783 $ 2,465,911 298,552 $ 2,122,637 165,047 2,131,524 2,167,359 1,957,590 208,609 650,724 1,898,100 134,197 83,030 897,062 1,746,420 132,330 541,342 $ 1,102,641 539,930 $ 1,101,229 $ 7.53 7.52 2.27 71.03 82.07 14.65 14.63 2.20 56.66 66.32 $ $ $ (193,464) 642,128 1,549,275 309,018 934,889 933,477 11.49 11.46 1.75 74.48 82.04 $ $ $ 71,710,265 71,791,692 72,153,621 75,147,263 75,274,003 71,853,720 81,263,027 81,420,154 79,851,169 $33,164,960 68,175,022 71,234,236 62,546,480 1,227,094 6,600,603 $35,069,272 729,341 67,216,816 70,758,155 63,618,243 1,078,332 5,146,953 $30,405,281 69,729,933 72,808,604 64,716,404 1,119,878 6,009,225 $32,083,150 720,302 64,251,062 67,637,917 61,227,227 1,400,319 4,093,425 $29,074,036 68,088,675 71,168,650 63,102,916 1,255,495 5,777,652 $29,299,725 695,366 72,103,862 75,097,899 67,005,088 1,155,166 5,969,397 3.13% 3.31 0.76 8.21 16.36 18.13 3.11% 3.46 1.51 18.39 16.45 18.26 2.88% 3.19 1.31 16.22 17.49 19.35 Non-GAAP financial measures Net interest income on a taxable equivalent basis Net interest income, on a taxable equivalent basis, is presented with its different components in Table 3 for the year ended December 31, 2023 as compared with the same period in 2022, segregated by major categories of interest earning assets and interest-bearing liabilities. The interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, and certain obligations of the Commonwealth of Puerto Rico and its agencies and assets held by the Corporation’s international banking entities. To facilitate POPULAR, INC. 2023 ANNUAL REPORT 5 the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by the Puerto Rico tax law. Under Puerto Rico tax law, the exempt interest can be deducted up to the amount of taxable income. Net interest income, on a taxable equivalent basis, is a non-GAAP financial measure. Management believes that this presentation provides meaningful the comparison of revenues arising from taxable and exempt sources. information since facilitates it Financial highlights for the year ended December 31, 2023 the year The discussion that results of operations follows provides highlights of for the Corporation’s ended December 31, 2023 compared to the results of operations of 2022. It also provides some highlights with respect to the Corporation’s financial condition, credit quality, capital and the liquidity. Table 2 presents a three-year summary of components of net income as a percentage of average total assets. For a discussion of our 2022 results of operations compared with 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2022. Net interest income, on a taxable equivalent basis, as used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Table 2 - Components of Net Income as a Percentage of Average Total Assets Net interest income Provision for credit (losses) benefit Mortgage banking activities Net gain (loss) and valuation adjustments on investment securities Other non-interest income Total net interest income and non-interest income, net of provision for credit losses Operating expenses Income before income tax Income tax expense Net income 2023 2022 2021 2.99% 2.98% 2.75% (0.11) (0.29) 0.06 0.03 (0.01) 0.01 1.18 0.87 0.27 0.07 – 0.83 3.61 (2.66) 0.95 (0.19) 4.10 (2.40) 1.70 (0.19) 3.92 (2.18) 1.74 (0.43) 0.76% 1.51% 1.31% The Corporation’s net ended December 31, 2023 amounted to $541.3 million, compared to a net income of $1.1 billion for 2022. income year the for Net interest income for the year ended December 31, 2023 was $2.1 billion, a decrease of $35.8 million when compared to 2022. The decrease in net interest income was mainly driven by higher interest expense from deposits, mainly due to higher cost of the Puerto Rico government deposits and the increase in cost of Popular U.S. deposits. The net interest margin for the year ended December 31, 2023 was 3.13% compared to 3.11% for the same period in 2022, driven by a full year impact, on the cost of deposits, of the increase, in 2022, of 400 basis points in the Federal Funds Rate and an additional 100 basis points in 2023. On a taxable equivalent basis, net interest margin was 3.31% in 2023, compared to 3.46% in 2022. Refer to the Net Interest additional information. this MD&A for section of Income The Corporation’s total provision for credit losses of $208.6 million for the year ended December 31, 2023, compared to $83.0 million for 2022. The higher expense for the year 2023 was driven by higher reserves in our consumer and commercial portfolios mostly due to changes in credit quality 6 POPULAR, INC. 2023 ANNUAL REPORT credit reflected however, portfolios, and higher loan volumes. The Corporation’s consumer loans portfolios continued to experience credit quality normalization. While, non-performing loans (“NPLs”) and net charge offs (“NCOs”) continued below historical pre-pandemic averages, quality consumer deterioration in certain areas, particularly the unsecured personal loans and credit cards portfolios, with delinquencies and NCOs near or exceeding pre-pandemic levels. The auto loans portfolio also showed credit normalization, however, metrics remained below pre-pandemic levels. The commercial and mortgage portfolios continue to operate with historically low levels of NCOs and NPLs. Non-performing assets totaled $438.0 million at December 31, 2023, reflecting a decrease of $90.5 million when compared to December 31, 2022. Refer to the Provision for Credit Losses and Credit Risk sections of this MD&A for information on the allowance for credit losses, non-performing assets, loan modifications to borrowers with financial difficulties, net charge-offs and credit quality metrics. Non-interest income for the year ended December 31, 2023 amounted to $650.7 million, a decrease of $246.3 million, when compared with 2022, mostly due to the $257.7 million gain related to the Evertec Transactions and related accounting adjustments during 2022. Refer to the Non-Interest Income section of this MD&A for additional information on the major variances of the different categories of non-interest income. December 31, 2023. The Common Equity Tier 1 Capital ratio at December 31, 2023 was 16.30%, compared to 16.39% at December 31, 2022. Total operating expenses amounted to $1.9 billion for the year 2023, reflecting an increase of $151.7 million, when compared to the same period in 2022, mainly due to the FDIC Special Assessment of $71.4 million, higher personnel costs reflecting salary increases and a higher headcount, a higher goodwill impairment charge in our U.S. based equipment leasing subsidiary, and higher processing and transactional services expenses. Refer to the Operating Expenses section of this MD&A for additional information. Income tax expense amounted to $134.2 million for the year ended December 31, 2023, compared with an income tax expense of $132.3 million for the previous year. The income tax expense for the year was impacted by the composition and source of taxable income, including lower tax exempt income and lower income subject to preferential tax rates. The income tax expense of year 2022 benefited from the partial reversal of $68.2 million of the deferred tax assets valuation allowance of the U. S. operations, the sale of Evertec shares, taxable at a preferential rate, and a higher tax exempt income net of disallowance. Refer to the Income Taxes section in this MD&A and Note 35 to the Consolidated Financial Statements for additional information on income taxes. At December 31, 2023, the Corporation’s total assets were $70.8 billion, compared with $67.6 billion at December 31, 2022. The increase of $3.1 billion is mainly driven by an increase in loans held-in-portfolio mainly in the commercial, consumer, and mortgage portfolios. Refer to the Statement of Financial Condition Analysis this MD&A for additional information. section of funds Deposits amounted to $63.6 billion at December 31, 2023, compared with $61.2 billion at December 31, 2022. Table 8 presents a breakdown of deposits by major categories. The increase in deposits was mainly due to higher Puerto Rico public at PB. The at BPPR and time deposits Corporation’s borrowings amounted to $1.1 billion at December 31, 2023, compared to $1.4 billion at December 31, to Note 17 to the Consolidated Financial 2022. Refer Statements for detailed information on the Corporation’s borrowings. Refer to Table 7 in the Statement of Financial Condition Analysis section of this MD&A for the percentage allocation of the composition of the Corporation’s financing to total assets. to $5.1 equity billion amounted Stockholders’ at December 31, 2023, compared to $4.1 billion at December 31, 2022. The increase was principally due to lower accumulated unrealized losses on debt securities available-for-sale, lower accumulated unrealized losses on debt securities previously reclassified to held-to-maturity, and the net income for the year, partially offset by declared dividends. The Corporation and its banking subsidiaries continue to be well-capitalized at For financial further discussion of operating results, condition and business risks refer to the narrative and tables included herein. The shares of the Corporation’s common stock are traded on the Nasdaq Global Select Market under the symbol BPOP. CRITICAL ACCOUNTING POLICIES / ESTIMATES followed by the The accounting and reporting policies Corporation and its subsidiaries conform with generally accepted accounting principles in the United States of America (“GAAP”) and general practices within the financial services industry. The Corporation’s significant accounting policies are described in detail in Note 2 to the Consolidated Financial Statements and should be read in conjunction with this section. Critical accounting policies require management to make estimates and assumptions, which involve significant judgment about the effect of matters that are inherently uncertain and that involve a high degree of subjectivity. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates. The following MD&A section is a summary of what management considers the Corporation’s critical accounting policies and estimates. Fair Value Measurement of Financial Instruments The Corporation currently measures at fair value on a recurring basis its trading debt securities, debt securities available-for-sale, certain equity securities, derivatives and mortgage servicing rights. Occasionally, the Corporation is required to record at fair value other assets on a nonrecurring basis, such as loans held-for-sale, loans held-in-portfolio that are collateral dependent and certain other assets. These nonrecurring fair value adjustments typically result from the application of lower of cost or fair value accounting or write- downs of individual assets. its The Corporation categorizes and liabilities measured at fair value under the three-level hierarchy. The level within the hierarchy is based on whether the inputs to the valuation methodology used for fair value measurement are observable. assets The Corporation requires the use of observable inputs when available, in order to minimize the use of unobservable inputs to determine fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The amount of judgment involved in estimating the fair value of a financial instrument depends upon the availability of quoted market prices or observable market parameters. In addition, it may be affected by other factors such as the type of instrument, the liquidity of the market for the instrument, transparency around POPULAR, INC. 2023 ANNUAL REPORT 7 to the valuation, as well as the inputs the contractual characteristics of the instrument. Broker quotes used for fair value measurements inherently reflect any lack of liquidity in the market since they represent an exit price from the perspective of the market participants. Trading Debt Securities and Debt Securities Available-for-Sale The majority of the values for trading debt securities and debt securities available-for-sale are obtained from third-party pricing services and are validated with alternate pricing sources when available. Securities not priced by a secondary pricing source are documented and validated internally according to their significance to the Corporation’s financial statements. Management has established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained from the primary pricing service provider and the secondary pricing source used as support for the valuation results. including the relative liquidity of Inputs are evaluated to ascertain that they consider current market conditions, the market. When a market quote for a specific security is not available, the pricing service provider generally uses observable data to derive an exit price for the instrument, such as benchmark yield curves and trade data for similar products. To the extent trading data is not available, the pricing service provider relies on specific information including dialogue with brokers, buy side clients, credit ratings, spreads to established benchmarks and transactions on similar securities, to draw correlations based on the characteristics of the evaluated instrument. If for any reason the pricing service provider cannot observe data required to feed its model, it discontinues pricing the instrument. Furthermore, management assesses the fair value of its portfolio of investment securities at least on a quarterly basis. Securities are classified in the fair value hierarchy according to product type, characteristics and market liquidity. At the end of each period, management assesses the valuation hierarchy for each asset or liability measured. The fair value measurement analysis performed by the Corporation includes validation procedures pricing review of market methodology, assumption and level hierarchy changes, and evaluation of distressed transactions. changes, and Refer to Note 28 to the Consolidated Financial Statements for a description of the Corporation’s valuation methodologies used for the assets and liabilities measured at fair value. against interest income and the loan is accounted for either on a cash-basis method or on the cost-recovery method. Loans designated as non-accruing are returned to accrual status when the Corporation expects remaining contractual principal and interest. The determination as to the ultimate collectability of the loan’s balance may involve management’s judgment in the evaluation of the borrower’s financial condition and prospects for repayment. repayment the of Refer to the MD&A section titled Credit Risk, particularly the Non-performing a detailed description of the Corporation’s non-accruing and charge-off policies by major loan categories. sub-section, assets for in accordance with Accounting One of the most critical and complex accounting estimates is associated with the determination of the allowance for credit losses (“ACL”). The Corporation establishes an ACL for its loan portfolio based on its estimate of credit losses over the remaining contractual term of the loans, adjusted for expected prepayments, Standards Codification (“ASC”) Topic 326. An ACL is recognized for all loans since including originated and purchased loans, inception, with a corresponding charge to the provision for credit losses, except for purchased credit deteriorated (“PCD”) a loans methodology to establish the ACL which includes a reasonable and supportable forecast period for estimating credit losses, considering quantitative and qualitative factors as well as the economic outlook. As part of this methodology, management evaluates various macroeconomic scenarios provided by third parties. At December 31, 2023, management applied probability weights to the outcome of the selected scenarios. explained below. The Corporation follows as is used when repayment The Corporation has designated as collateral dependent loans secured by collateral when foreclosure is probable or when foreclosure is not probable but the practical expedient is used. The practical expedient is expected to be provided substantially by the sale or operation of is experiencing financial the collateral and the borrower difficulty. The ACL of collateral dependent loans is measured based on the fair value of the collateral less costs to sell. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. In addition, refer to the Credit Risk section of this MD&A for detailed information on the Corporation’s collateral value estimation for other real estate. Loans and Allowance for Credit Losses Interest on loans is accrued and recorded as interest income based upon the principal amount outstanding. Non-accrual loans are those loans on which the accrual of interest is discontinued. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is charged Loans Acquired with Deteriorated Credit Quality PCD loans are defined as those with evidence of a more-than- insignificant deterioration in credit quality since origination. PCD loans are initially recorded at its purchase price plus an the estimated ACL. Upon the acquisition of a PCD loan, Corporation recognizes the estimate of the expected credit 8 POPULAR, INC. 2023 ANNUAL REPORT losses over the remaining contractual term of each individual loan as an ACL with a corresponding addition to the loan purchase price. The amount of the purchased premium or discount which is not related to credit risk is amortized over the life of the loan through net interest income using the effective interest method or a method that approximates the effective interest method. Changes in expected credit losses are recorded as an increase or decrease to the ACL with a corresponding charge (reverse) to the provision for credit losses in the Consolidated Statements of Operations. These loans follow the same nonaccrual policies as non-PCD loans. future recognized based on the Income Taxes Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and attributable to operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. The calculation of periodic income taxes is complex and requires the use of estimates and judgments. The Corporation has recorded two accruals for income taxes: (i) the net estimated amount currently due or to be received from taxing jurisdictions, including any reserve for potential examination issues, and (ii) a deferred income tax that represents the estimated impact of temporary differences between how the Corporation recognizes assets and liabilities under GAAP, and how such assets and liabilities are recognized under the tax code. Differences in the actual outcome of these future tax consequences could impact the Corporation’s financial position or its results of operations. In estimating taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into consideration statutory, judicial and regulatory guidance. A deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The determination of whether a deferred tax asset is realizable is based on weighting all available evidence, including both positive and negative evidence. The realization of deferred tax assets, including carryforwards and deductible temporary differences, depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The realization of deferred tax assets requires the consideration of all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, future taxable reversing temporary differences and income exclusive of carryforwards, and taxable tax-planning strategies. in carryback years income Management evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. mainland operations are evaluated as a whole since a consolidated income tax return is filed; on the other hand, the deferred tax asset related to the Puerto Rico operations is evaluated on an entity by entity basis, since no consolidation is allowed in the income tax filing. Accordingly, three major this evaluation is composed of components: U.S. mainland operations, Puerto Rico banking operations and Holding Company. For the evaluation of the realization of the deferred tax asset by taxing jurisdiction, refer to Note 35 to the Consolidated Financial Statements. Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns. The Code provides a dividends-received deduction of 100% on dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and 85% on dividends received from other taxable domestic corporations. Changes in the Corporation’s estimates can occur due to changes in tax rates, new business strategies, newly enacted guidance, and resolution of issues with taxing authorities regarding previously taken tax positions. Such changes could affect the amount of accrued taxes. The Corporation has made tax payments in accordance with estimated tax payments rules. Any remaining payment will not have any significant impact on liquidity and capital resources. profitability. The The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the financial statements or tax returns and future tax consequences represents management’s best estimate of those future events. Changes in management’s current estimates, due to unanticipated events, could have a material impact on the Corporation’s financial condition and results of operations. accounting deferred for tax law, The Corporation establishes tax liabilities or reduces tax assets for uncertain tax positions when, despite its assessment that the tax return positions are appropriate and supportable under local the Corporation believes it may not succeed in realizing the tax benefit of certain positions if challenged. the Corporation determines whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the ultimate tax liability contains assumptions based on past experiences, and judgments about potential actions by taxing the position. The Corporation’s estimate of In evaluating a tax position, POPULAR, INC. 2023 ANNUAL REPORT 9 jurisdictions as well as judgments about the likely outcome of issues that have been raised by taxing jurisdictions. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Corporation evaluates these uncertain tax positions each quarter and adjusts the related tax liabilities or assets in light of changing facts and circumstances, such as the progress of a tax audit or the expiration of a statute of limitations. The Corporation believes the estimates and assumptions used to support its evaluation of uncertain tax positions are reasonable. the amount of the goodwill. The Corporation estimates the fair value of each reporting unit, consistent with the requirements of the fair value measurements accounting standard, generally using a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analyses. Subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards. For a detailed description of the annual goodwill impairment evaluation performed by the Corporation during the third quarter of 2023, refer to Note 15 to the Consolidated Financial Statements. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. Although the outcome of tax audits is uncertain, the Corporation believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that are expected to result from open years. From time to time, the Corporation is audited by various federal, state and local authorities regarding income tax matters. Although management believes its approach in determining the appropriate tax treatment is supportable and in accordance with the accounting standards, it is possible that the final tax authority will take a tax position that is different than the tax position reflected in the Corporation’s income tax provision and other tax reserves. As each audit is conducted, adjustments, appropriately recorded in the consolidated financial statement in the period determined. Such differences could have an adverse effect on the Corporation’s income tax provision or benefit, or other tax reserves, in the reporting period in which such determination is made and, consequently, on the Corporation’s results of operations, financial position and / or cash flows for such period. any, are if Goodwill and Other Intangible Assets The Corporation’s goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment. Intangibles with indefinite lives are evaluated for impairment at least annually, and on a more frequent basis, if events or circumstances indicate impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit. Other identifiable intangible assets with a finite useful life are evaluated periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is recognized when the carrying amount of any of the reporting units exceeds its fair value up to impairment 10 POPULAR, INC. 2023 ANNUAL REPORT Pension and Postretirement Benefit Obligations The Corporation provides pension and restoration benefit plans for certain employees of various subsidiaries. The Corporation also provides certain health care benefits for retired employees of BPPR. The non-contributory defined pension and benefit restoration plans (“the Pension Plans”) are frozen with regards to all future benefit accruals. recorded amounts, The estimated benefit costs and obligations of the Pension Plans and Postretirement Health Care Benefit Plan (“OPEB Plan”) are impacted by the use of subjective assumptions, including which can materially affect expected returns on plan assets, discount rates, termination rates, retirement rates and health care trend rates. Management applies judgment in the determination of these factors, which normally undergo evaluation against current industry practice and the actual experience of the Corporation. The Corporation uses an independent actuarial firm for assistance in the determination of the Pension Plans and OPEB Plan costs and obligations. Detailed information on the Plans and related valuation assumptions are included in Note 30 to the Consolidated Financial Statements. 31, fair value assets at December The Corporation periodically reviews its assumption for the long-term expected return on Pension Plans assets. The Pension 2023 was Plans’ $652.4 million. The expected return on plan assets is determined by considering various factors, including a total fund return estimate based on a weighted-average of estimated returns for each asset class in each plan. Asset class returns are estimated using current and projected economic and market factors such as real rates of return, inflation, credit spreads, equity risk premiums and excess return expectations. As part of the review, the Corporation’s independent consulting actuaries performed an analysis of expected returns based on each plan’s expected asset allocation for the year 2024 using the Willis Towers Watson US Expected Return Estimator. This analysis is reviewed by the Corporation and used as a tool to develop expected rates of return, together with other data. This forecast reflects the actuarial firm’s view of expected long- term rates of return for each significant asset class or economic indicator as of January 1, 2024; for example, 8.5% for large cap stocks, 8.8% for small cap stocks, 9.0% for international stocks, reviews, 6.0% for long corporate bonds and 5.0% for long Treasury bonds. A range of expected investment returns is developed, and this range relies both on forecasts and on broad-market historical benchmarks for expected returns, correlations, and volatilities for each asset class. As a consequence of the Corporation recent updated its expected return on plan assets for year 2024 to 5.6% and 6.6% for the Pension Plans. Expected rates of return of 5.9% and 6.5% had been used for 2023 and 4.3% and 5.4% had been used for 2022 for the Pension Plans. Since the expected return assumption is on a long-term basis, it is not materially impacted by the yearly fluctuations (either positive or negative) in the actual return on assets. The expected return can be materially impacted by a change in the plan’s asset allocation. Net Periodic Benefit Cost (“pension expense”) for the Pension Plans amounted to $18.6 million in 2023. The total pension expense included a benefit of $34.4 million for the expected return on assets. Pension expense is sensitive to changes in the expected return on assets. For example, decreasing the expected rate of return for 2024 from 5.6% to 5.35% would increase the projected 2024 pension expense for the Banco Popular de Puerto Rico Retirement Plan, the Corporation’s largest plan, by approximately $1.5 million. If the projected benefit obligation exceeds the fair value of plan assets, the Corporation shall recognize a liability equal to the unfunded projected benefit obligation and vice versa, if the fair value of plan assets exceeds the projected benefit obligation, the Corporation recognizes an asset equal to the overfunded projected benefit obligation. This asset or liability may result in a taxable or deductible temporary difference and its tax effect shall be recognized as an income tax expense or benefit which shall be allocated to various components of the financial statements, including other comprehensive income (loss). The determination of the fair value of pension plan obligations involves judgment, and any changes in those estimates the Corporation’s Consolidated Statements of Financial Condition. Management believes that the Pension Plans assets are the fair value estimates of reasonable given the valuation methodologies used to measure the investments at fair value as described in Note 28 to the Consolidated Financial Statements. Also, the compositions of the plan assets are primarily in equity and debt securities, which have readily determinable quoted market prices. The Corporation had recorded a pension asset of $16.6 million at December 31, 2023. could impact The Corporation uses the spot rate yield curve from the Willis Towers Watson RATE: Link (10/90) Model to discount the expected projected cash flows of the plans. The equivalent single weighted average discount rate ranged from 5.02% to 5.05% for the Pension Plans and 5.10% for the OPEB Plan to determine the benefit obligations at December 31, 2023. A 50 basis point decrease to each of the rates in the December 31, 2023 Willis Towers Watson RATE: Link (10/90) Model would increase the projected 2024 expense for the Banco Popular de Puerto Rico Retirement Plan by approximately $2.2 million. The change would not affect the minimum required contribution to the Pension Plans. The OPEB Plan was unfunded (no assets were held by the plan) at December 31, 2023. The Corporation had recorded a liability for the underfunded postretirement benefit obligation of $117.0 million at December 31, 2023. STATEMENT OF OPERATIONS ANALYSIS Net Interest Income Net interest income is the interest earned from loans, debt securities and money market investments, including loan fees, minus the interest cost of deposits and borrowed money. Various risk factors affect net interest income including the economic environment in which we operate, market related events, the mix and size of the earning assets and related funding, changes in volumes, repricing characteristics, loan fees collected, delay charges and interest collected on nonaccrual loans, as well as strategic decisions made by the Corporation’s management. Net interest income for the year ended December 31, 2023 was $2.1 billion or $35.8 million lower than in 2022. Net interest income, on a taxable equivalent basis, for the year ended December 31, 2023 was $2.3 billion compared to $2.4 billion in 2022, a decrease of $154.4 million. The average key index rates for the years 2023 and 2022 were as follows: Prime rate Fed funds rate 3-month Treasury Bill 10-year Treasury FNMA 30-year 2023 2022 8.19% 4.86% 5.20 3.59 3.45 4.94 1.86 2.01 2.95 4.26 Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities. Non-accrual loans have been included in the respective average loans and leases categories. Loan fees collected, and costs incurred in the origination of loans are the loan as an deferred and amortized over the term of adjustment to interest yield. Prepayment penalties, late fees collected and the amortization of premiums / discounts on purchased loans, including the discount accretion on purchased credit deteriorated loans (“PCD”), are also included as part of the the period ended income December 31, 2023, included $21.0 million related to those items, compared to $44.6 million for the same period in 2022. The year over year decrease is related to lower amortized fees resulting from the forgiveness of PPP loans by $16.6 million, loan yield. Interest for POPULAR, INC. 2023 ANNUAL REPORT 11 • Higher interest income from loans by $462.5 million due to: • Increase in commercial loan Interest income by $284.1 million, or 109 basis points as the origination of loans occurs in a higher interest rate scenario and the positive impact on the repricing of adjustable-rate loans, partially offset by lower amortized fees resulting from the forgiveness of PPP loans by $16.6 million and lower discount amortization on commercial loans by $5.4 million mainly from cancellation of PCD loans, • Higher interest income from construction loans by $23.4 million, mainly at Popular Bank, driven by higher yield by 257 basis points and a higher average volume of loans by $38 million, • Higher interest income from auto and lease financing portfolios by $40.2 million driven by higher volume by $175 million in the leasing portfolio and higher yields by 37 basis points in auto loans, the later increase in yield was negatively impacted by lower amortization of the fair value discount of the auto loan portfolios acquired in previous years, • Higher interest income from mortgage loans by $23.9 million driven by higher yield by 21 basis points and a higher average volume by $160 million, • Higher interest income from consumer loans by $91.0 million resulting from a higher volume by $372 million and higher yield by 153 basis points, driven by the increase, mainly in P.R. in personal loans year over year and an increase in credit cards volume. loans components of Table 3 presents amortization on commercial lower discount by $5.4 million mainly driven by lower interest from cancellation of PCD loans and $3.7 million lower amortization of the fair value discount of the auto portfolios acquired in previous years. the the different Corporation’s net interest income, on a taxable equivalent basis, for the year ended December 31, 2023, as compared with the same period in 2022, segregated by major categories of interest earning assets and interest-bearing liabilities. Net interest margin was 3.13% in 2023 or 2 basis points higher than the 3.11% reported in 2022. The higher net interest margin for the year is driven by a full year impact, on deposit costs, of the increase, in 2022, of 425 basis points in the Federal Funds Rate and an additional 100 basis points in 2023. On a taxable interest margin was 3.31% in 2023, equivalent basis, net compared to 3.46% in 2022, a decrease of 15 basis points. The main drivers for the decrease in net interest income on a taxable equivalent basis were: Negative variances: • Lower interest income from investment securities by $48.5 million due to lower volume by $1.8 billion and lower yield by three basis points; • Higher interest expense on deposits by $797.2 million due to an increase in interest cost by 170 basis points resulting mainly from the higher cost of the Puerto Rico government deposits and the increase in cost of Popular U.S. deposits. Under the terms of BPPR’s deposit pricing agreement with the Puerto Rico public sector, public funds rates are market linked with a lag minus a specified spread. This source of funding still results in an attractive spread under market rates. Partially offset by: • Higher interest income from money market investments by $248.5 million due to higher interest rates by 396 basis points, driven by the higher interest rate environment, as explained above, partially offset by lower volume by $2.5 billion, due to lower volume of deposits and loan growth funding; 12 POPULAR, INC. 2023 ANNUAL REPORT Table 3 – Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP) Average Volume Average Yields / Costs 2023 2022 Variance 2023 2022 Variance (In millions) $ 7,052 $ 9,531 $(2,479) (1,817) 29,743 27,926 (19) 51 32 5.20% 1.24% 3.96% Money market investments 2.20 4.32 Investment securities [1] Trading securities (0.03) (1.62) 2.23 5.94 $ 366,625 $ 118,079 $ 248,546 (48,520) (1,673) 664,278 3,049 615,758 1,376 Year ended December 31, 2023 Interest 2022 Variance (In thousands) Variance Attributable to Rate Volume $ 286,646 $ (38,100) (40,247) (973) (8,273) (700) 35,010 39,325 (4,315) 2.81 2.00 0.81 trading securities 983,759 785,406 198,353 277,673 (79,320) Total money market, investment and 16,469 816 1,650 7,482 3,115 3,633 14,562 778 1,475 7,322 2,743 3,525 33,165 30,405 1,907 38 175 160 372 108 2,760 6.55 8.86 6.38 5.55 13.19 8.39 5.46 6.29 5.92 5.34 11.66 8.02 7.20 6.33 1.09 2.57 0.46 0.21 1.53 0.37 0.87 Loans: Commercial Construction Leasing Mortgage Consumer Auto Total loans 1,079,171 72,309 105,309 414,992 410,910 304,660 795,115 48,920 87,274 391,133 319,920 282,533 284,056 23,389 18,035 23,859 90,990 22,127 171,681 20,927 7,203 15,212 43,806 13,257 112,375 2,462 10,832 8,647 47,184 8,870 2,387,351 1,924,895 462,456 272,086 190,370 $68,175 $69,730 $(1,555) 4.94% 3.89% 1.05% Total earning assets $3,371,110 $2,710,301 $ 660,809 $ 549,759 $111,050 $24,563 $25,884 $(1,321) (986) 15,886 14,900 923 6,853 7,776 3.10% 0.61% 2.49% 0.68 2.41 0.48 1.51 0.20 0.90 Interest bearing deposits: NOW and money market [2] Savings Time deposits $ 761,647 $ 158,664 $ 602,983 68,934 125,262 101,334 187,043 32,400 61,781 $ 612,470 $ (9,487) (5,176) 25,219 74,110 100,043 47,239 48,623 (1,384) 2.22 0.52 1.70 Total interest bearing deposits 1,050,024 252,845 797,179 786,623 10,556 15,307 16,094 (787) 62,546 64,717 (2,171) 143 1,109 206 939 (63) 170 1.68 5.12 5.09 0.39 2.78 4.26 1.29 2.34 0.83 Non-interest bearing demand deposits Total deposits 1,050,024 252,845 797,179 786,623 10,556 Short-term borrowings Other medium and long-term debt 7,329 56,430 5,737 39,970 1,592 16,460 4,506 9,458 (2,914) 7,002 48,491 49,768 (1,277) 2.30 0.60 1.70 4,377 3,868 509 Total interest bearing liabilities (excluding demand deposits) Other sources of funds 1,113,783 298,552 815,231 800,587 14,644 $68,175 $69,730 $(1,555) 1.63% 0.43% 1.20% Total source of funds 1,113,783 298,552 815,231 800,587 14,644 3.31% 3.46% (0.15)% Net interest margin/ income on a taxable equivalent basis (Non-GAAP) 2.64% 3.29% (0.65)% Net interest spread 2,257,327 2,411,749 (154,422) $(250,828) $ 96,406 Taxable equivalent adjustment 125,803 244,390 (118,587) 3.13% 3.11% 0.02% non-taxable equivalent basis (GAAP) $2,131,524 $2,167,359 $ (35,835) Net interest margin/ income Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category. [1] Average balances exclude unrealized gains or losses on debt securities available-for-sale and the unrealized loss related to certain securities transferred from available-for-sale to held-to-maturity. POPULAR, INC. 2023 ANNUAL REPORT 13 Provision for Credit Losses - Loans Held-in-Portfolio and Unfunded Commitments For the year ended December 31, 2023, the Corporation recorded an expense of $209.7 million for its allowance for credit losses (“ACL”) related to loans held-in-portfolio and unfunded commitments, compared with an expense of $84.2 million for the year ended December 31, 2022. The provision expense related to the loans-held-in-portfolio for the year 2023 was $201.5 million, compared to an expense of $83.3 million for the year 2022. The increase in provision expense was driven by higher reserves in our consumer and commercial portfolios mostly due to changes in credit quality loan volumes. The provision for unfunded and higher commitments for the year 2023 reflected an expense of $8.2 million, compared to an expense of $0.9 million for the same period of 2022. The provision expense related to loans held-in-portfolio for the BPPR segment was $194.8 million for the year ended December 31, 2023, compared to an expense of $69.5 million for the year ended December 31, 2022, an unfavorable variance of $125.3 million. The provision expense related to loans held- in-portfolio for the Popular U.S. segment was $6.7 million for the year 2023, a favorable variance of $7.1 million, compared to an expense of $13.8 million for the year 2022. As part of the Corporation’s model governance procedures, a new model was implemented for the U.S commercial real estate segment. The new model enhances techniques used to capture default activity within the Corporation’s geographical footprint. As part of the implementation analysis, management evaluated the credit metrics of the portfolio such as risk ratings, delinquency levels, and low exposure to the commercial office sector. Qualitative reserves continue to be maintained to address risks within the real estate segment. The new model, U. S. commercial including qualitative reserve, resulted in a $7.3 million reduction of PB’s ACL. for additional At December 31, 2023, the total allowance for credit losses for loans held-in-portfolio amounted to $729.3 million, compared to $720.3 million as of December 31, 2022. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.08% at December 31, 2023, compared to 2.25% at December 31, 2022. Refer to Note 9 to the Consolidated Financial Statements, information on the Corporation’s methodology to estimate its ACL. As discussed therein, within the Corporation applies the process to estimate its ACL, probability weights to the outcomes of simulations using Moody’s Analytics’ S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic scenario. In addition, refer to the Credit Risk section of this MD&A for a detailed analysis of net charge-offs, non-performing assets, the allowance for credit losses and selected loan losses statistics. (pessimistic) Baseline, and S3 14 POPULAR, INC. 2023 ANNUAL REPORT Provision for Credit Losses - Investment Securities The Corporation’s provision for credit losses related to its investment securities held-to-maturity is related to the portfolio of obligations from the Government of Puerto Rico, states and political subdivisions. For the year ended December 31, 2023, the Corporation recorded a reserve release of $1.1 million, compared to a reserve release of $1.2 million for the year ended December 31, 2022. At December 31, 2023, the total allowance for credit losses for this portfolio amounted to $5.8 million, compared to $6.9 million as of December 31, 2022. Refer to Note 7 to the Consolidated Financial Statements for additional information on the ACL for this portfolio. Non-Interest Income For the year ended December 31, 2023, non-interest income decreased by $246.3 million, when compared with the previous year. Factors that contributed to the variance in non-interest income were: • lower other operating income by $270.3 million mainly due to a $257.7 million gain recognized during the year 2022 due to the Evertec Transactions and related accounting adjustments; • lower income from mortgage banking activities by $21.0 million due to the unfavorable variances of $11.8 million and $3.5 million in the fair value adjustments for mortgage servicing rights and mortgage respectively, driven by serviced loan servicing fees, portfolio runoff due to the Corporation’s determination in the third quarter of 2022 to retain certain guaranteed loans as held for investment, and lower gains from closed derivative positions by $6.0 million; and • lower service charges on deposit accounts by $9.7 million due to lower overdraft related charges, in part due to the Corporation’s determination to eliminate insufficient funds fees and modifying overdraft fees effective in the third quarter of 2022; partially offset by: • higher other service fees by $40.4 million, principally at the BPPR segment, due to higher credit card fees by $16.0 million, mainly due to higher customer purchase activity, higher other fees by $11.1 million, mainly due to higher fees from the merchant network business by $8.3 million due to the revenue sharing agreement entered into in connection with the Evertec Transactions, higher debit card fees by $4.1 million, mainly due to higher volume of transactions, and higher insurance fees by $3.8 million; and • favorable variance of $10.8 million on the fair value adjustments to the portfolio of equity securities mainly related to deferred benefit plans, which have an offsetting effect recorded as higher personnel costs. the transparency Operating Expenses As discussed in the significant events section of this MD&A, to facilitate progress with the transformation initiative and to better portray the level of technology related expenses categorized by the nature of the expense, the Corporation has separated technology, professional fees and fourth quarter of 2022, effective in the the of transactional activities as standalone expense categories in the accompanying Consolidated Statements of Operations. There were no changes to the total operating expenses presented. Prior periods amount in the financial statements and related disclosures have been reclassified to conform to the current presentation. Table provides the detail of the reclassifications for the year. Table 4 - Operating Expenses Reclassification Financial statement line item Equipment expenses Professional fees Technology and software expenses Processing and transactional services Communications Other operating expenses Net effect on operating expenses Year ended December 31, 2021 As reported Adjustments Adjusted $ 92,097 410,865 – – 25,234 136,988 $ (59,178) (284,144) 277,979 121,367 (11,205) (44,819) $ 32,919 126,721 277,979 121,367 14,029 92,169 $665,184 $ – $665,184 POPULAR, INC. 2023 ANNUAL REPORT 15 Table 5 provides a breakdown of operating expenses by major categories. Table 5 - Operating Expenses (In thousands) Personnel costs: Salaries Commissions, incentives and other bonuses Pension, postretirement and medical insurance Other personnel costs, including payroll taxes Total personnel costs Net occupancy expenses Equipment expenses Other taxes Professional fees Technology and software expenses Processing and transactional services: Credit and debit cards Other processing and transactional services Total processing and transactional services Communications Business promotion: Rewards and customer loyalty programs Other business promotion Total business promotion FDIC deposit insurance Other real estate owned (OREO) income Other operating expenses: Operational losses All other Total other operating expenses Amortization of intangibles Goodwill impairment charge Total operating expenses Personnel costs to average assets Operating expenses to average assets Employees (full-time equivalent) Average assets per employee (in millions) Years ended December 31, 2023 2022 2021 $ 505,935 112,657 67,469 91,984 $ 432,910 155,889 56,085 74,880 $ 371,644 142,212 52,077 65,869 778,045 111,586 37,057 55,926 161,142 290,615 44,578 93,492 138,070 16,664 59,092 35,834 94,926 105,985 (15,375) 23,505 73,774 97,279 3,180 23,000 719,764 106,169 35,626 63,603 172,043 291,902 45,455 81,690 127,145 14,885 51,832 37,086 88,918 26,787 (22,143) 32,049 77,397 109,446 3,275 9,000 631,802 102,226 32,919 56,783 126,721 277,979 40,383 80,984 121,367 14,029 38,919 34,062 72,981 25,579 (14,414) 38,391 53,778 92,169 9,134 — $1,898,100 $1,746,420 $1,549,275 1.09% 2.66 9,088 7.84 $ 0.99% 2.40 8,813 8.26 $ 0.89% 2.18 8,351 8.52 $ Operating expenses for the year ended December 31, 2023 totaled $1.9 billion, which included $71.4 million related to the FDIC Special Assessment, an increase of $151.7 million when compared with the previous year. Excluding the effect of the for 2023 were FDIC Special Assessment, $1.8 billion, an increase of $80.2 million, when compared with the previous year. During the year 2023, the Corporation incurred approximately $21.5 million in transformation related costs, compared to $24.6 million incurred during the second half of the year 2022. The other variances in operating expenses for the year were driven primarily by: total expenses • higher personnel costs by $58.3 million mainly due to higher salaries expense by $73.0 million as a result of market adjustments, annual salary revisions and an increase in headcount, an increase in health insurance costs by $11.7 million, higher payroll taxes and other compensation expenses by $17.1 million; partially offset by a decrease in incentive compensation and profit- sharing accrual by $45.3 million; • a higher goodwill impairment expense by $14.0 million, related to our U.S. based leasing subsidiary for which a charge of $23 million was recorded in 2023, due to lower forecasted cash flows and an increase in the rate used to discount cash flows, compared to an impairment of $9 million recorded in 2022 as a result of a decrease in the projected earnings. 16 POPULAR, INC. 2023 ANNUAL REPORT • higher other processing and transactional services expenses by $11.8 million mainly due to broad based retail customers’ debit card replacement costs incurred during the second quarter of 2023, the impact of $3.5 million of incentives received during July 2022 related to the ATH Network Participation Agreement entered into in connection with the Evertec Business Acquisition and an increase by $2.6 million in service charges related to point of sale debit card transactions; • higher customer reward program expense in our credit card business by $7.3 million, reflecting an increase in customer purchase activity; • higher net occupancy expense by $5.4 million mainly due insurance premiums and to an increase in buildings’ higher rent expense related to the space occupied by Popular Bank; and • lower other income by real estate owned (OREO) $6.8 million mainly due to lower gain on sale of mortgage and commercial properties; These variances were partially offset by: • lower other operating expenses by $12.2 million mainly due to the effect of prior year expense related to the Evertec Transactions of $17.3 million, lower sundry losses by $8.5 million, mainly related to mortgage claim reserves, and $2.2 million of impairment of long-lived assets recognized during 2022; partially offset by higher pension plan cost by $19.2 million due to changes in actuarial assumption. • lower professional fees by $10.9 million mainly due to lower legal fees by $2.7 million and lower advisory expenses by $6.8 million from various Corporate projects, including the Corporation’s transformation initiative, for which certain projects are being managed with internal personnel; and • lower other taxes expense by $7.7 million mainly due to related to the reversal during 2023 of an accrual regulatory examination fees in BPPR. Income Taxes For the year ended December 31, 2023, the Corporation recorded an income tax expense of $134.2 million, compared to $132.3 million for the same period of 2022. The net increase of $1.9 million in income tax expense reflects the impact of the composition and source of taxable income between both years. For the year 2023, the income before tax was lower than year 2022, which would have resulted in a lower income tax expense; however, the income tax expense of year 2022 benefited from the reversal of a portion of the deferred tax the U. S. operations, which assets valuation allowance of resulted in an income tax benefit of $68.2 million, the sale of Evertec shares, taxable at a preferential rate, and a higher tax exempt income net of disallowance. At December 31, 2023, the Corporation had a net deferred tax asset amounting to $1 billion, net of a valuation allowance of $0.5 billion. The net deferred tax asset related to the U. S. operations was $0.3 billion, net of a valuation allowance of $0.4 billion. Refer to Note 35 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on the income tax expense and deferred tax asset balances. Fourth Quarter Results The Corporation recognized net income of $94.6 million for the quarter ended December 31, 2023, compared with a net income of $257.1 million for the same quarter of 2022. Net interest income for the fourth quarter of 2023 amounted to $534.1 million, compared with $559.6 million for the fourth quarter of 2022, a decrease of $25.4 million. The decrease in net interest income was mainly due to higher cost on deposits partially offset by an increase in interest income from loans, mainly due to growth at both BPPR and PB and higher rates, and higher income from money market investments due to higher average balances and higher rates. The net interest margin decreased by 20 basis points to 3.08% mainly due to an increase in deposit costs, particularly on Puerto Rico public funds and time deposits at PB. On a taxable equivalent basis, the net interest margin for the fourth quarter of 2023 was 3.26%, compared to 3.64% for the fourth quarter of 2022. The provision for credit losses was $78.7 million for the fourth quarter of 2023, compared to a provision expense of $49.5 million for the fourth quarter of 2022. The increase in provision expense reflects portfolio growth and changes in credit quality. ended December Non-interest income amounted to $168.7 million for the compared with quarter 31, $158.5 million for the same quarter in 2022. The increase of $10.3 million was mainly due to higher other service fees by $7.7 million and higher service charges on deposit accounts by $3.0 million mainly due to higher non-balance compensation. 2023, Operating expenses totaled $531.1 million for the quarter ended December 31, 2023, compared with $461.7 million for the same quarter in the previous year. The increase of $69.4 million is mainly related to the $71.4 million FDIC Special Assessment recognized during the fourth quarter of 2023; partially offset by lower professional fees by $10.1 million mainly related to various corporate projects, including the transformation initiative, for which certain areas are currently being managed by internal personnel. For the quarter ended December 31, 2023, the Corporation recorded an income tax benefit of $1.5 million, compared with an income tax benefit of $50.3 million for the same quarter of 2022. The unfavorable variance of $48.9 million in income tax POPULAR, INC. 2023 ANNUAL REPORT 17 benefit, when compared to the fourth quarter of 2022, was mostly attributed to the reversal of a portion of the deferred tax assets valuation allowance during the fourth quarter of 2022, for which we reported an income tax benefit of $68.2 million. During the fourth quarter of 2023, we reported a lower income before tax, mainly due to the FDIC Special Assessment, which resulted in a lower income tax expense by approximately $42.6 million. We also recorded lower exempt income and other lower tax benefits, both increasing the income tax expense by $15.5 million and 7.2 million, respectively. REPORTABLE SEGMENT RESULTS The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular the U.S. A Corporate group has been defined to support reportable segments. For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 37 to the Consolidated Financial Statements. The Corporate group reported a net income of $13.3 million for the year ended December 31, 2023, compared with a net income of $150.1 million for the previous year. The decrease in net income was mainly attributed to the $128.8 million in after- tax gains recognized by the Corporation as a result of the Evertec Stock Sale, as defined in Note 4 to the Consolidated Financial Statements, and related accounting adjustments during the year ended September 30, 2022. results Highlights on the earnings the reportable for segments are discussed below: Banco Popular de Puerto Rico The Banco Popular de Puerto Rico reportable segment’s net income amounted to $472.0 million for the year ended December 31, 2023, compared with $782.0 million for the year that ended December 31, 2022. The principal contributed to the variance in the financial results included the following: factors interest and the higher • Lower net interest income by $11.9 million due to higher interest expense on deposits by $616.0 million mainly due to higher costs on the market-indexed Puerto Rico government deposits, rate environment’s impact on the cost of NOW accounts, time deposits and savings deposits; partially offset by higher interest income from money market and investment securities by $287.5 million mainly due to higher yields driven by the increase in rates by the Federal Reserve and higher average balances of U.S. Treasury securities; and higher interest income from loans by $317.4 million, mainly due to higher average balances mainly in commercial and consumer loans and higher yields across all the portfolios. The BPPR segment’s net interest margin was 3.20% for 2023 compared with 3.06% for the same period in 2022. 18 POPULAR, INC. 2023 ANNUAL REPORT • A provision for loan losses of $194.3 million in 2023, compared to $70.3 million for the year ended 2022, or an unfavorable variance of $124.0 million, due in part to loan growth; • Lower non-interest income by $93.6 million mainly due to: • Lower other operating income by $109.3 million mostly due to the gain recorded as result of the Evertec Transactions and related accounting adjustments on 2022, • Lower mortgage banking activities by $20.4 million, unfavorable variances in the fair value adjustments for mortgage serving rights and mortgage servicing fees, driven by serviced loan portfolio runoff due to Corporation’s determination in the third quarter of 2022 to retain certain guaranteed loans as held for investment, and lower gains from closed derivative positions; • Lower service accounts by charges on deposit $8.8 million principally due to the change in policy of eliminating insufficient and modifying overdraft fees implemented in the third quarter of 2022. fund fees • Higher operating expenses by $111.5 million, mainly due to: • Higher personnel costs by $37.0 million due to a higher headcount and salaries adjustments, including merit increases, market and minimum salary adjustments and higher pension and health insurance costs; partially offset by a decrease in profit sharing in incentive compensation; • Higher business promotions by $6.1 million mainly due to higher customer rewards expense related to higher transactional volumes; • Higher FDIC deposit by $68.8 million due to the FDIC Special Assessment recorded in 2023; insurance expense • Higher processing and transactional services by $10.8 million mainly due to higher credit and debit card processing expense result of higher transactional volumes, as a • Higher professional fees by $17.8 million mainly due to costs associated with initiatives focused on regulatory, compliance and cyber security efforts as well as the transformation initiative. Partially offset by: • Lower other operating expenses by $26.7 million mainly due to $17.3 million charge related to Evertec Transactions on 2022 and lower mortgage related sundry losses by $5.6 million mainly due to a reserve release adjustment recorded in 2022 and lower charges allocated from the Corporate segment group by $9.1 million mainly from lower personnel costs; partially offset by higher pension plan cost by $19.2 million due to charges in actuarial assumptions; • Lower and software expenses technology by $4.5 million mainly due in part to savings associated with the acquired services from Evertec during 2022; • Lower net recoveries from OREO by $7.4 million mainly due to lower gain on sale of mortgage and commercial properties. • Lower income tax expense by $30.9 million due to lower income before tax and the impact of the composition and sources of taxable income in each year. Popular U.S. For the year ended December 31, 2023, the reportable segment of Popular U.S. reported net income of $56.3 million, compared with a net income of $170.3 million for the year ended December 31, 2022. The principal factors that contributed to the variance in the financial results included the following: • Lower net interest income by $22.3 million mainly due to higher interest expense on deposits by $207.3 million mainly due to higher rates and higher average balance of time deposit primarily gathered through its direct online channel, partially offset by higher interest income from loans by $138.1 million, mainly from growth in the commercial portfolio as well as higher yields due to increases in rates, and higher income from money market and investment securities by $47.4 million due to higher yields and higher average balance. The Popular U.S. reportable segment’s net interest margin was 2.98% for 2023 compared with 3.68% for the same period in 2022; • An unfavorable variance of $2.1 million on the provision for loan losses and unfunded commitments, reflective of the updated macroeconomics scenarios offset by the implementation of the new model for the U.S. commercial real estate loans, which resulted in a reserve release of $14.6 million; • Lower non-interest income by $7.1 million mainly due to the reversal on 2022 of $9.2 million of the contingent liability related to the acquisition of the commercial lease business at Popular Equipment Finance; • Higher operating expenses by $39.0 million mainly due to: • Higher personnel costs by $5.9 million due to salary market and annual adjustments; • Higher occupancy expense by $4.1 million due to higher rental building and an increase in amortization mainly due to early termination of contracts; • Higher FDIC deposit by $10.0 million due to the FDIC Special Assessment recorded in 2023; insurance expense • Higher other expenses by $2.9 million due to higher charges allocated from the Corporate segment by $1.6 million, mainly professional fees; and • The goodwill impairment charge related to our U.S. based leasing subsidiary of $23.0 million recorded in 2023, due to lower forecast cash flows and increase in the rate to discount cash flows, compared to an impairment of $9.0 million recorded in 2022, an unfavorable variance of $14.0 million. • Higher income tax expense by $43.4 million due mainly the deferred tax asset due to the partial reversal of valuation allowance recorded during the fourth quarter of 2022 of $68.2 million. STATEMENT OF FINANCIAL CONDITION ANALYSIS Assets The Corporation’s total assets were $70.8 billion at December 31, 2023, compared to $67.6 billion at December 31, 2022. Refer to the Corporation’s Consolidated Statements of Financial Condition at December 31, 2023 and 2022 included in this Form 10-K. Also, refer to the Statistical Summary 2023-2022 in this MD&A for Condensed Statements of Financial Condition. Money market investments and debt securities Money market increased by $1.4 billion at investments December 31, 2023, when compared to December 31, 2022. This was impacted by the increase in deposits of $2.4 billion, mainly due to higher Puerto Rico public sector deposits at BPPR and time deposit at PB. Debt securities available-for-sale decreased by $1.1 billion, mainly due repayments and maturities, while debt securities held-to-maturity decreased by $329.9 million. Refer to Notes 6 and 7 to the Consolidated Financial Statements for additional information with respect to the Corporation’s and held-to-maturity. available-for-sale securities debt Loans Refer to Table 6 for a breakdown of the Corporation’s loan portfolio. Also, refer to Note 8 to the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales. $3.0 increased by Loans held-in-portfolio billion to $35.1 billion at December 31, 2023, mainly due to growth in the commercial portfolio of $2.0 billion, reflected at both BPPR and PB by approximately $1.1 billion and $0.9 billion, respectively, and consumer loans at BPPR. Consumer loans at BPPR increased by $445.0 million in the aggregate including credit cards, personal loans and auto loans. The increase in BPPR’s consumer portfolio is aligned with the increase in retail sales and consumer spending in POPULAR, INC. 2023 ANNUAL REPORT 19 Puerto Rico during 2023. The auto loans portfolio at BPPR benefited from the sustained level of auto sales activity on the island. In addition, mortgage loans increased by $281.5 million from the previous year, as the Corporation continued to retain, in portfolio, FHA-guaranteed mortgage loans originations. A portion of the Corporation’s $3.0 billion year over year loan growth in 2023 was driven by its non-owner occupied commercial real estate and commercial multi-family portfolios, as detailed in Table 6. Due to market pressures from shifts to hybrid work environments since the pandemic, particularly in the New York Metro area where the Corporation operates, and the effect of the current higher interest rate environment, there has been increased focus about the risks of these categories of loans. The Corporation’s $5.1 billion non-owner occupied commercial real estate portfolio is comprised of $3.0 billion in Puerto Rico and $2.1 billion in the U.S. and is well diversified across a number of tenants in different industries and segments with exposure to retail (35% of non-owner occupied CRE), hotels (20%) and office space (12%) accounting for two thirds of the total exposure. The approximate $639 million office space exposure represents only 1.8% of the total loan portfolio and is comprised mainly of mid-rise properties with diversified tenants with average loan size of $2 million across both the U.S. and Puerto Rico. Table 6 - Loans Ending Balances (In thousands) Loans held-in-portfolio: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer Total loans held-in-portfolio Loans held-for-sale: Mortgage Total loans held-for-sale Total loans 20 POPULAR, INC. 2023 ANNUAL REPORT Popular’s $2.4 billion commercial multi-family portfolio represents approximately 7% of total loans and is concentrated in New York Metro ($1.4 billion), South Florida ($768 million) and Puerto Rico ($185 million). In the New York Metro region, the Corporation has no exposure to rent controlled buildings. The majority of our multi-family loans, are collateralized by underlying buildings that count on a mix of units subject to rent stabilized (subject to annual capped rent increases) and market-rate units. The rent stabilized units represent less than 40% of the total units in the loan portfolio with the majority originated after 2019. The mix of units within a building is common across the New York Metro region due to tax incentives awarded to developers based on rent stabilized units. In 2024, there are approximately $237 million in multi-family loans in our New York Metro portfolio expected to reprice. in that region, Refer to Note 9 to the Consolidated Financial Statements for information on delinquency, asset quality and additional origination vintage information of these loan segments. The allowance for credit losses for the loan portfolio increased by $9.0 million, net of the impact of the adoption of ASU 2022-02 on January 1, 2023 (Troubled Debt Restructuring by Creditors), mainly due to changes in credit quality metrics and portfolio growth. Refer to the Credit Quality section of the MD&A for additional information on the Allowance for credit losses for the loan portfolio. December 31, 2023 2022 $ 2,415,620 5,087,421 3,080,635 7,126,121 17,709,797 959,280 1,731,809 7,695,917 $ 2,321,713 4,499,670 3,078,549 5,839,200 15,739,132 757,984 1,585,739 7,397,471 1,135,747 65,953 1,945,247 3,660,780 160,441 6,968,168 1,041,870 71,916 1,823,579 3,512,530 147,548 6,597,443 $35,064,971 $32,077,769 $ $ 4,301 4,301 $ $ 5,381 5,381 $35,069,272 $32,083,150 Other assets Other assets amounted to $2.0 billion at December 31, 2023, an increase of $166.8 million compared to $1.8 billion at December 31, 2022. At December 31, 2023, this includes $176 million in cash receivable from the maturities of investment securities. Refer to Note 14 to the Consolidated the principal Financial Statements categories that comprise the caption of “Other Assets” in the Consolidated at of December 31, 2023 and 2022. for a breakdown of Statements Condition Financial total Liabilities liabilities were $65.6 billion at The Corporation’s December 31, 2023, an increase of $2.1 billion compared to $63.5 billion at December 31, 2022, mainly due to an increase in deposits as discussed below. Refer to the Corporation’s Consolidated Statements of Financial Condition included in this Form 10-K. Deposits and Borrowings The composition of the Corporation’s financing to total assets at December 31, 2023 and 2022 is included in Table 7. Table 7 - Financing to Total Assets (In millions) Non-interest bearing deposits Interest-bearing core deposits Other interest-bearing deposits Repurchase agreements Other short-term borrowings Notes payable Other liabilities Stockholders’ equity Deposits The Corporation’s deposits totaled $63.6 billion at December 31, 2023, compared to $61.2 billion at December 31, 2022. The deposits increase of $2.4 billion was mainly in Puerto Rico public sector deposits at BPPR and time deposits at PB. Public sector deposit balances amounted to $18.1 billion at December 31, 2023, compared to $15.2 billion at December 31, 2022. The receipt by the Puerto Rico Government of additional federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. However, the rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which federal assistance is distributed, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation to fiscal and debt adjustment plans approved pursuant of Table 8 - Deposits Ending Balances (In thousands) Demand deposits [1] Savings, NOW and money market deposits (non-brokered) Savings, NOW and money market deposits (brokered) Time deposits (non-brokered) Time deposits (brokered CDs) Total deposits [1] Includes interest and non-interest bearing demand deposits. December 31, December 31, % increase (decrease) % of total assets 2022 from 2022 to 2023 2023 2022 2023 $15,420 43,571 4,627 91 – 987 915 5,147 $15,960 41,600 3,667 149 365 887 917 4,093 (3.4)% 4.7 26.2 (38.9) N.M. 11.3 (0.2) 25.8 21.8% 23.6% 61.6 6.5 0.1 – 1.4 1.3 7.3 61.5 5.4 0.2 0.5 1.3 1.4 6.1 government instrumentalities PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”). Approximately 28% of the Corporation’s deposits are public from the Government of Puerto Rico, fund deposits municipalities and and corporations (“public funds’’). These public funds deposits are indexed to short-term market rates and fluctuate in cost with changes in those rates with a one-quarter lag, in accordance with contractual terms. As a result, these deposits’ costs have generally lagged variable asset these the bank pledge high credit quality deposits require that securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower. Refer to the Liquidity section in this MD&A for additional information on the Corporation’s funding sources. repricing. Generally, Refer to Table 8 for a breakdown of the Corporation’s deposits at December 31, 2023 and 2022. 2023 2022 $27,579,054 26,817,844 719,453 7,546,138 955,754 $26,382,605 27,265,156 798,064 6,442,886 338,516 $63,618,243 $61,227,227 POPULAR, INC. 2023 ANNUAL REPORT 21 The risk-based capital standards applicable to Popular, Inc. and the Banks, BPPR and PB, are based on the final capital framework of Basel III. The capital rules of Basel III include a “Common Equity Tier 1” (“CET1”) capital measure and specifies that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements. Note 21 to the Consolidated Financial Statements presents further information on the Corporation’s regulatory capital requirements, its depository institutions, BPPR and PB. including the regulatory capital ratios of An institution is considered “well-capitalized” if it maintains a total capital ratio of 10%, a Tier 1 capital ratio of 8%, a CET1 ratio of 6.5% and a leverage ratio of 5%. The capital the Corporation’s ratios presented in Table 9 show that Corporation was “well capitalized” for regulatory purposes, the highest classification, under Basel III for years 2023 and 2022. BPPR and PB were also well-capitalized for all years presented. these minimum risk-weighted asset The Basel III Capital Rules also require an additional 2.5% “capital conservation buffer”, composed entirely of CET1, on top of ratios, which excludes the leverage ratio. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases, the shortfall. and compensation based on the amount of Popular, BPPR and PB are required to maintain this additional capital conservation buffer of 2.5% of CET1, resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%. Borrowings The Corporation’s borrowings amounted to $1.1 billion at December 31, 2023, compared to $1.4 billion at December 31, to Note 17 to the Consolidated Financial 2022. Refer Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MD&A funding for additional sources. information on the Corporation’s Other liabilities The Corporation’s other liabilities amounted to $0.9 billion at December 31, 2023, consistent with the December 31, 2022 balance. Stockholders’ Equity Stockholders’ equity totaled $5.1 billion at December 31, 2023, an increase of $1.1 billion when compared to December 31, 2022. The increase was principally due to lower accumulated unrealized gain/losses on debt securities available-for-sale by $472.5 million and net income for the year ended December 31, 2023 of $541.3 million, partially offset by declared dividends of $163.7 million and $1.4 million on common stock and to the Consolidated preferred stock, Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity. Also, refer to Note 22 to a detail of the Consolidated Financial accumulated other comprehensive income (loss), an integral component of stockholders’ equity. respectively. Refer Statements for REGULATORY CAPITAL The Corporation and its bank subsidiaries are subject to capital adequacy standards established by the Federal Reserve Board. 22 POPULAR, INC. 2023 ANNUAL REPORT Table 9 presents the Corporation’s capital adequacy information for the years 2023 and 2022. Table 9 - Capital Adequacy Data (Dollars in thousands) Risk-based capital: Common Equity Tier 1 capital Additional Tier 1 Capital Tier 1 capital Supplementary (Tier 2) capital Total capital Total risk-weighted assets Adjusted average quarterly assets Ratios: Common Equity Tier 1 capital Tier 1 capital Total capital Leverage ratio Average equity to assets[1] Average tangible equity to assets[1] At December 31, 2022 2023 $ 6,053,315 22,143 $ 6,075,458 658,507 $ 6,733,965 $ 5,639,686 22,143 $ 5,661,829 623,818 $ 6,285,647 $37,146,330 $34,415,889 $71,353,184 $70,287,610 16.30% 16.36 18.13 8.51 9.27 8.19 16.39% 16.45 18.26 8.06 8.25 7.27 [1] Average balances exclude unrealized gains or losses on debt securities available-for-sale and unrealized losses on debt securities transfer to held-to-maturities in the On April 1, 2020, the Corporation adopted the final rule issued by the federal banking regulatory agencies pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 that simplified several requirements in the agencies’ regulatory capital rules. These rules simplified the regulatory capital requirement for mortgage servicing assets (MSAs), deferred tax assets arising from temporary differences and investments capital of unconsolidated financial institutions by raising the CET1 deduction threshold from 10% to 25%. The 15% CET1 deduction threshold which applies to the aggregate amount of such items was eliminated. The rule also requires, among other changes, increasing from 100% to to MSAs and temporary difference 250% the risk weight deferred tax asset not deducted from capital. For investments in institutions, the risk the capital of unconsolidated financial weight would be based on the exposure category of the investment. The decrease in the CET1 capital ratio, Tier 1 capital ratio and, total capital ratio as of December 31, 2023, compared to December 31, 2022, was mostly due to an increase in risk weighted assets driven by the growth in the commercial and loan portfolios, partially offset by the annual consumer earnings. The increase in the leverage capital ratio was mainly due to the increase in capital driven by the annual earnings, partially offset by a slight increase in average total assets. Pursuant to the adoption of CECL on January 1, 2020, the Corporation elected to use the five-year transition period option as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision two years the estimated impact of CECL on delays for regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefits provided during the initial two-year delay. As of December 31, 2023, the Corporation had phased-in 50% of the cumulative CECL deferral with the remaining impact to be recognized over the remaining two years. the In the first quarter of 2024, Corporation will phase in a cumulative 75% of the deferral. to to the that clarified banking including organizations agencies have On August 26, 2020, federal banking regulators issued a final rule to modify the Basel III regulatory capital rules applicable allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, banking organizations, the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of December 31, 2023, the Corporation has $9 million in PPP loans and no loans were pledged as collateral for PPPL Facilities. POPULAR, INC. 2023 ANNUAL REPORT 23 Table 10 reconciles the Corporation’s total common stockholders’ equity to common equity Tier 1 capital. Table 10 - Reconciliation Common Equity Tier 1 Capital (In thousands) At December 31, 2022 2023 Common stockholders’ equity $5,209,561 $4,198,409 AOCI related adjustments due to opt-out election 1,831,003 2,468,193 Goodwill, net of associated deferred tax liability (DTL) (666,538) (691,560) Intangible assets, net of associated DTLs Deferred tax assets and other deductions (9,764) (12,944) (310,947) (322,412) Common equity tier 1 capital $6,053,315 $5,639,686 Common equity tier 1 capital to risk- weighted assets 16.30% 16.39% The securities were reclassified at fair value at the time of the transfer. At the date of the transfer, these securities had pre-tax unrealized losses of $873.0 million recorded in AOCI. This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting each other the securities. There were no realized gains or losses recorded as a result of this transfer. through the remaining life of regulatory capital While changes in the amount of unrealized gains and losses in AOCI have an impact on the Corporation’s and its wholly- owned banking subsidiaries’ tangible capital ratios, they do not impact in accordance with the ratios, regulatory framework. Refer to Note 7 to the Consolidated Financial Statements which presents information about the Corporation’s Debt Securities Held-to-Maturity for additional details. Table 11 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets at December 31, 2023 and 2022. Non-GAAP financial measures The tangible common equity ratio and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, the purchase accounting method of accounting for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names. typically stemming from the use of The decrease in the Tangible common equity to tangible assets ratio during 2022 was mainly related to the decrease in the fair value of the Corporation’s fixed rate available for sale debt securities portfolio and its impact on the unrealized loss component of accumulated other comprehensive income (loss) (‘’AOCI’’). Given its ability due to the Corporation’s liquidity position and its intention to reduce the impact on AOCI and tangible rates, management changed its intent to hold certain securities to maturity. Therefore, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. in October 2022, in interest capital of increases further Table 11 - Reconciliation of Tangible Common Equity and Tangible Assets (In thousands, except share or per share information) Total stockholders’ equity Less: Preferred stock Less: Goodwill Less: Other intangibles At December 31, 2023 2022 $ 5,146,953 (22,143) (804,428) (9,764) $ 4,093,425 (22,143) (827,428) (12,944) Total tangible common equity $ 4,310,618 $ 3,230,910 Total assets Less: Goodwill Less: Other intangibles Total tangible assets Tangible common equity to tangible assets Common shares outstanding at end $70,758,155 (804,428) (9,764) $67,637,917 (827,428) (12,944) $69,943,963 $66,797,545 6.16% 4.84% of period 72,153,621 71,853,720 Tangible book value per common share Total stockholders’ equity [1] Average unrealized (gains) losses on $ 59.74 $ 44.97 Year-to-date average $ 5,853,276 $ 5,798,407 AFS securities transferred to HTM 747,327 210,818 Adjusted total stockholder’s equity 6,600,603 6,009,225 Less: Preferred Stock Less: Goodwill Less: Other intangibles Total tangible common equity Average return on tangible common equity (22,143) (821,567) (11,473) (22,143) (757,133) (17,113) $ 5,745,420 $ 5,212,836 9.40% 21.13% [1] Average balances exclude unrealized gains or losses on debt securities available-for-sale. 24 POPULAR, INC. 2023 ANNUAL REPORT RISK MANAGEMENT Market / Interest Rate Risk The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks. Market risk refers to the risk of a reduction in the Corporation’s capital due to changes in the market valuation of its assets and/or liabilities. for Statements the Consolidated Financial Most of the assets subject to market valuation risk are debt securities classified as available-for-sale. Refer to Notes 6 and 7 to further securities available-for-sale and information on the debt held-to-maturity portfolios. Debt classified as available-for-sale amounted to $16.7 billion as of December 31, 2023. Other assets subject risk include loans held-for-sale, which amounted to $4 million, mortgage servicing rights (“MSRs”) which amounted to $118 million, and securities to $32 million, as of December 31, 2023. “trading”, which amounted to market securities classified as Interest Rate Risk (“IRR”) The Corporation’s net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives. In managing interest Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market and policy constraints. expectations Management utilizes various tools to assess IRR, including Net Interest Income (“NII”) simulation modeling, static gap analysis, and Economic Value of Equity (“EVE”). The three methodologies complement each other and are used jointly in simulation the evaluation of modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides management a better view of long-term IRR. the Corporation’s IRR. NII Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs. Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat implied forwards, and parallel and non-parallel rate rates, shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures. The asset and liability management group performs validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy. the estimates do not contemplate actions The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same magnitude (parallel shifts). The rate scenarios considered in these market risk simulations include instantaneous parallel changes of -100, -200, +100, and +200 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including that the balance sheet remains flat, the relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. that Further, management could take to respond to changes in interest rates. Additionally, the Corporation is also subject to basis risk in the repricing of its assets and liabilities, including the basis related to using different rate indexes for the repricing of assets and liabilities, as well as the effect of pricing lags which may be contractual or due to historical differences in the timing of management responses to changes in the rate environment. By these forward-looking computations are only their nature, estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at December 31, 2023 and December 31, 2022, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon: POPULAR, INC. 2023 ANNUAL REPORT 25 Table 12 - Net Interest Income Sensitivity (One Year Projection) (Dollars in thousands) Change in interest rate +200 basis points +100 basis points -100 basis points -200 basis points December 31, 2023 December 31, 2022 Amount Change Percent Change Amount Change Percent Change 20,822 11,496 19,589 16,971 0.92 0.51 0.87 0.75 (18,003) (7,748) 8,778 9,296 (0.82) (0.35) 0.40 0.42 increase of combined with the income sensitivity are driven by changes in the composition of the investment portfolio as the term bond portfolio continues to run off and get reinvested in short-term investments such as T-Bills, approximately $3.0 billion in loans held in portfolio. Additionally, variation in liability cost, primarily driven by Puerto Rico public sector deposits that represented $18.1 billion or 28% of deposits as of December 31, 2023, as well as an increase of approximately $1.7 billion in time deposits, also impact the sensitivity profile. In declining rate scenarios net interest income would slightly increase as the decline in the cost of these deposit generates a greater benefit than the changes in assets yields. In rising rate scenarios, Popular’s net interest income is also impacted by its large proportion of Puerto Rico public sector deposit, however the repricing of assets as they either reset or mature lead to an increase in net interest income. The Corporation’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a third- party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed collateralized mortgage lower obligations prepayments could extend) the weighted average life of these portfolios. could shorten (or since prepayments securities and The results of the NII simulations at December 31, 2022 in the table above have been adjusted from those reported in the Corporation’s 2022 Form 10-K to reflect the effect of changes in certain modeling scenario simulations for certain variable rate loans. Specifically, the yield on certain variable rate loans that did not have contractual periodic floors, were not repricing according to the terms of those variable rate loans in the down rate simulations. in down rate assumptions Although the adjustment referred to in the preceding paragraph results in the magnitude of the Corporation’s sensitivity to decreases in interest rates becoming lower, as of December 31, 2022, the adjusted NII simulations continued to show that the Corporation had a neutral to slightly liability sensitive position driven by the rapid increase in short-term interest rates throughout 2022. As of December 31, 2023, NII simulations show the Corporation has a neutral to slightly asset sensitive position as compared to a slightly liability sensitive position as of December 31, 2022. The primary reasons for the variation in sensitivity are changes in balance sheet composition driven by an increase in overnight Fed Funds, short-term U.S Treasury Bills (“T-Bills”) and loan portfolio on the asset side partially offset by higher Puerto Rico public sector deposits which are indexed to market rates and an increase in time deposits. These results suggest that changes in the Corporation’s net interest 26 POPULAR, INC. 2023 ANNUAL REPORT Table 13 - Interest Rate Sensitivity (Dollars in thousands) 0-30 days After three months but within six months Within 31 - 90 days At December 31, 2023 By repricing dates After nine months but within one year After one year but within two years After six months but within nine months After two years Non-interest bearing funds Total Assets: Money market investments $ 6,998,871 $ Investment and trading – $ – $ – $ – $ – $ – $ – $ 6,998,871 securities Loans Other assets Total Liabilities and stockholders’ equity: Savings, NOW and money market and other interest bearing demand deposits Certificates of deposit Federal funds purchased and assets sold under agreements to repurchase Notes payable Non-interest bearing deposits Other non-interest bearing liabilities Stockholders’ equity 1,849,238 5,872,869 (2) 3,329,068 3,321,776 – 1,173,287 1,491,687 – 1,149,164 1,497,123 – 1,096,708 4,383,968 12,478,938 1,434,984 5,044,236 16,487,918 – – – (317,478) 25,142,893 (81,321) 35,069,272 3,547,119 3,547,121 14,720,976 6,650,844 2,664,974 2,646,287 2,531,692 9,428,204 28,966,856 3,148,322 70,758,155 19,996,702 2,145,493 770,508 891,341 1,081,390 941,722 999,305 620,282 924,802 859,114 3,075,028 12,848,992 1,846,089 1,197,851 – 39,696,727 8,501,892 – 44,329 21,000 38,763 – 8,292 25,000 – 23,570 – 22,373 – 144,214 – 750,791 – – 91,384 986,948 – – – – – – – – – – – – – – – – – – – – – 15,419,624 15,419,624 914,627 5,146,953 914,627 5,146,953 Total $22,207,524 $ 1,700,612 $ 2,056,404 $1,643,157 $1,806,289 $4,417,093 $15,445,872 $ 21,481,204 $70,758,155 Interest rate sensitive gap Cumulative interest rate (7,486,548) 4,950,232 608,570 1,003,130 725,403 5,011,111 13,520,984 (18,332,882) sensitive gap (7,486,548) (2,536,316) (1,927,746) (924,616) (199,213) 4,811,898 18,332,882 Cumulative interest rate sensitive gap to earning assets (11.07)% (3.75)% (2.85)% (1.37)% (0.29)% 7.12% 27.12% – – – – – POPULAR, INC. 2023 ANNUAL REPORT 27 Table 14, which presents the maturity distribution of earning assets, takes into consideration prepayment assumptions. Table 14 - Maturity Distribution of Earning Assets As of December 31, 2023 Maturities After one year through five years Fixed interest rates Variable interest rates After five years through fifteen years Variable Fixed interest interest rates rates After fifteen years Variable Fixed interest interest rates rates One year or less $ 6,998,871 $ – $ – $ – $ – $ 8,533,897 14,294,589 9,289 2,145,920 3,431 $ – – – – 5,385,197 566,180 467,644 1,851,329 573,661 6,053,244 64,686 1,235,563 3,830,035 2,158,855 4,051,003 314,445 – 290,048 149,757 1,261,180 6,150 28,602 218,190 3,975,801 846,607 7,819 – 696,132 70,677 53,414 – – 4,743 771,451 59,152 – – 77,691 16 Total $ 6,998,871 24,987,126 17,709,797 959,280 1,731,809 6,968,168 7,700,218 (In thousands) Money market securities Investment and trading securities Loans: Commercial Construction Leasing Consumer Mortgage Subtotal loans 8,844,011 13,342,383 4,805,253 5,489,923 1,621,235 829,608 136,859 35,069,272 Total earning assets $24,376,779 $27,636,972 $4,814,542 $7,635,843 $1,624,666 $829,608 $136,859 $67,055,269 Note: Equity securities available-for-sale and other investment securities, including Federal Reserve Bank stock and Federal Home Loan Bank stock held by the Corporation, are not included in this table. Loans held-for-sale have been allocated according to the expected sale date. trading activities to meet Securities’ Trading The Corporation engages in trading activities in the ordinary its subsidiaries, BPPR and Popular course of business at consist Securities. Popular primarily of market-making activities expected customers’ needs related to its retail brokerage business, and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR’s trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as “trading” and hedging the related market risk with “TBA” (to-be-announced) market transactions. The objective is to derive spread income from the from short-term market portfolio and not to benefit movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline. At December 31, 2023, the Corporation held trading representing securities with a fair value of $32 million, assets, total approximately 0.05% of the Corporation’s compared with $28 million and 0.04%, respectively, at December 31, 2022. As shown in Table 15, the trading portfolio consists principally of mortgage-backed securities and U.S. Treasuries, which at December 31, 2023 were investment grade securities. 28 POPULAR, INC. 2023 ANNUAL REPORT Table 15 - Trading Portfolio (Dollars in thousands) Mortgage-backed securities U.S. Treasury securities Collateralized mortgage obligations Puerto Rico government obligations Interest-only strips Total [1] Not on a taxable equivalent basis. The Corporation’s trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability. are numerous The Corporation’s trading portfolio had a 5-day VAR of approximately $0.3 million for the last week in December 31, and estimates 2023. There associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy. assumptions In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation. Derivatives Derivatives may be used by the Corporation as part of its overall interest rate risk management strategy to minimize significant unexpected fluctuations in earnings and cash flows that are caused by interest rate volatility. Derivative instruments that the Corporation may use include, among others, interest indexed options, and forward contracts. The rate caps, Corporation does not use highly leveraged derivative instruments in its interest rate risk management strategy. Credit risk embedded in these transactions is reduced by requiring appropriate collateral from counterparties and entering into netting outstanding derivatives are recognized in the Corporation’s Consolidated Statements of Condition at their fair value. Refer to Note 26 to the Consolidated Financial Statements for further information on the Corporation’s involvement in derivative instruments and hedging activities. agreements whenever possible. All Foreign Exchange The Corporation holds an interest in BHD León in the Dominican Republic, which is an investment accounted for December 31, 2023 Weighted Average Yield[1] Amount December 31, 2022 Weighted Average Yield[1] Amount $14,373 16,859 98 71 167 $31,568 5.69% $14,223 13,069 4.29 160 5.21 64 0.91 207 12.00 4.96% $27,723 5.79% 3.26 5.51 0.45 12.00 4.63% comprehensive from operations under the equity method. The Corporation’s carrying value of the equity interest in BHD León approximated $ 225.9 million at December 31, 2023. This business is conducted in the country’s foreign currency. The resulting foreign currency for which the translation adjustment, functional currency is other than the U.S. dollar, is reported in accumulated other in the consolidated statements of condition, except for highly- inflationary environments in which the effects would be included in the consolidated statements of operations. At December 31, 2023, the Corporation had approximately $ 65 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive income (loss), compared with an unfavorable adjustment of $ 57 million at December 31, 2022 and $ 67 million at December 31, 2021. income (loss) is responsible finance expected future growth, Liquidity The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, fund planned capital distributions and maintain a reasonable safety margin for cash needs under both normal and stressed market conditions. The Board of Directors for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board of Directors has delegated the monitoring of these risks to the Board’s Risk Management Committee and the Asset/Liability Management Committee. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation’s Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board of Directors and for monitoring the Corporation’s liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational POPULAR, INC. 2023 ANNUAL REPORT 29 Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies. An institution’s liquidity may be pressured if, for example, it experiences a sudden and unexpected substantial cash outflow due deposit outflows, whether due to a loss of confidence by depositors, or other reasons, including exogenous events such as the COVID-19 pandemic, a downgrading of its credit rating, or some other event that causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets, perceptions of the financial services industry and regulatory changes, could also affect its ability to obtain funding. The Corporation has adopted policies and limits to monitor the Corporation’s liquidity position and that of its banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions. Deposits, funds for the Corporation, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funding 90% of the Corporation’s total assets at December 31, 2023 and 91% at December 31, 2022. The ratio of total ending loans to deposits was 55% at December 31, 2023 and 52% at December 31, 2022. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.1 billion in outstanding balances at December 31, 2023 (December 31, 2022 - $1.4 billion). A detailed description of the Corporation’s borrowings, including their terms, is included in Note 17 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows. The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities. Banking Subsidiaries Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and PB or, collectively, “the banking subsidiaries”) include retail, commercial and public sector deposits, brokered deposits, unpledged investment securities, mortgage loan securitization and, to a lesser extent, loan sales. In addition, the Corporation maintains borrowing facilities with the FHLB and at the discount window of the Federal Reserve Bank of New York (the “FRB”) and has a considerable amount of collateral pledged that can be used to raise funds under these facilities. During the fourth quarter of 2023 the Corporation had no material incremental use of its available liquidity sources. At December 31, 2023, the Corporation’s available liquidity increased to $19.5 billion from $17.0 billion on December 31, 2022. The liquidity sources of the Corporation at December 31, 2023 are presented in Table 16: Table 16 - Liquidity Sources (In thousands) Unpledged securities and unused funding sources: Money market (excess funds at the Federal Reserve Bank) Unpledged securities FHLB borrowing capacity Discount window of the Federal Reserve Bank borrowing capacity December 31, 2023 Popular U.S. BPPR Total BPPR December 31, 2022 Popular U.S. Total $ 5,516,636 4,212,480 2,157,685 $1,475,143 347,791 1,341,329 $ 6,991,779 4,560,271 3,499,014 $ 5,240,100 7,494,189 1,389,579 $ 367,966 326,599 722,005 $ 5,608,066 7,820,788 2,111,584 2,605,674 1,818,946 4,424,620 1,090,308 329,385 1,419,693 Total available liquidity $14,492,475 $4,983,209 $19,475,684 $15,214,176 $1,745,955 $16,960,131 Refer to Note 17 to the Consolidated Financial Statements the Corporation’s borrowing for additional facilities available through its banking subsidiaries. information of The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases outstanding obligations (including deposits), advances on certain serviced the banking portfolios and operational expenses. Also, repurchases, repayment and of commitments, subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with servicing contractual advances, derivatives and credit card licensing agreements. The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. The Corporation has established liquidity guidelines that require the banking subsidiaries to recourse provisions, 30 POPULAR, INC. 2023 ANNUAL REPORT have sufficient liquidity to cover all short-term borrowings and a portion of deposits. The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results and financial condition, credit ratings (by nationally recognized credit rating agencies), customer confidence, and importantly, FDIC deposit insurance coverage. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and the is expected to mitigate the potential effect of this aforementioned risks. Deposits are a key source of funding. Refer to Table 8 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include certificate of deposit interest-bearing transactional deposit under $250,000, all accounts, non-interest bearing deposits, and savings deposits. Core deposits exclude brokered deposits and certificates of deposit over $250,000. Core deposits, excluding P.R. public funds that are fully collateralized, have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. P.R. public funds, while linked to market funding with an interest rates, provide a stable source of attractive earnings spread. Core deposits totaled $59.0 billion, or 93% of total deposits, at December 31, 2023, compared with $57.6 billion, or 94% of total deposits, at December 31, 2022. Core deposits financed 88% of the Corporation’s earning assets at December 31, 2023, compared with 90% at December 31, 2022. The distribution by maturity of certificates of deposit with denominations of $250,000 and over at December 31, 2023 is presented in the table that follows: Table 17 - Distribution by Maturity of Certificates of Deposit of $250,000 and Over (In thousands) 3 months or less Over 3 to 12 months Over 1 year to 3 years Over 3 years Total $2,025,571 630,145 225,165 177,949 $3,058,830 For the years ended December 31, 2023 and 2022, average deposits, including brokered deposits, represented 92% of average earning assets. Table 18 summarizes average deposits for the past three years. Table 18 - Average Total Deposits (In thousands) Non-interest bearing demand deposits Savings accounts NOW, money market and other interest bearing demand accounts Certificates of deposit Total interest bearing deposits Total average deposits For the years ended December 31, 2023 2022 $15,307,152 $16,093,704 15,265,784 24,208,570 7,764,974 16,242,457 25,539,909 6,840,334 47,239,328 48,622,700 $62,546,480 $64,716,404 The Corporation had $1.7 billion in brokered deposits at December 31, 2023, which financed approximately 2% of its total assets (December 31, 2022 - $1.1 billion and 2%, respectively). In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts. Deposits from the public sector represent an important source of funds for the Corporation. As of December 31, 2023, total public sector deposits were $18.1 billion, compared to $15.8 billion at December 31, 2022. Generally, these deposits require that the bank pledge high credit quality securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower given that the bank receives its POPULAR, INC. 2023 ANNUAL REPORT 31 collateral in return. This, now unpledged, collateral can either be financed via repurchase agreements or sold for cash. However, there are some timing differences between the time the deposit outflow occurs and when the bank receives its collateral. Additionally, the Corporation mainly utilizes fixed- rate U.S. Treasury debt securities as collateral. While these securities have limited credit risk, they are subject to market value risk based on changes in the interest rate environment. When interest rates increase, this collateral decreases and could result in the Corporation having to provide to cover the same amount of deposit additional collateral liabilities. This additional collateral could reduce unpledged securities otherwise available as to the Corporation. liquidity sources the value of the At December 31, 2023, management believes that banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if the banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to to meet margin deposit other and requirements cash or qualifying agreements repurchase securities on Table 19 - Deposits (Dollars in thousands) Deposits: Deposits balances under $250,000 [1] Transactional deposits balances over $250,000 Time deposits balances over $250,000 Uninsured foreign deposits Collateralized public funds Intercompany deposits Total deposits collateralized borrowing facilities. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected. The Corporation monitors uninsured deposits under the Corporation applicable FDIC regulations. Additionally, monitors accounts with balances over $250,000. While the Corporation has a diverse deposit base from retail, commercial, corporate and government clients, as well as wholesale funding it considers balance in sources such as brokered deposits, excess of $250,000 to have a higher potential liquidity risk. Table 19 reflects the aggregate balance in deposit accounts in excess of $250,000, including collateralized public funds and deposits outside of the U.S. and its territories. Collateralized public funds, as presented in Table 19, represent public deposit balances from governmental entities in the U.S. and its territories, including Puerto Rico and the United States Virgin Islands, that are collateralized based on such jurisdictions’ applicable collateral requirements. On December 31, 2023, deposits with balances in excess of $250,000, excluding foreign deposits in the British Virgin Islands) intercompany deposits and collateralized public funds, were $10.6 billion or 20% at BPPR and $ 2.6 billion or 23% at Popular U.S., compared to available liquidity sources of $14.5 billion at BPPR and $ 5.0 billion at Popular U.S. (mainly deposits 31-Dec-23 BPPR % of Total Popular U.S. % of Total Popular, Inc. (Consolidated) % of Total $23,683,475 8,632,491 1,926,005 418,334 18,313,612 159,163 45% $ 7,760,363 16% 2,230,978 361,315 4% – 1% 291,670 34% 626,312 –% 69% $31,443,838 20% 10,863,469 2,287,320 3% –% 418,334 3% 18,605,282 – 5% 49% 17% 4% 1% 29% –% $53,133,080 100% $11,270,638 100% $63,618,243 100% [1] Includes the first $250,000 in balances of transactional and time deposit accounts with balances in excess of $250,000. 32 POPULAR, INC. 2023 ANNUAL REPORT (Dollars in thousands) Deposits Deposits balances under $250,000 [1] Transactional deposits balances over $250,000 Time deposits balances over $250,000 Uninsured foreign deposits Collateralized public funds Intercompany deposits Total deposits 31-Dec-22 BPPR % of Total Popular U.S. % of Total Popular, Inc. (Consolidated) % of Total $24,505,697 9,957,877 1,920,455 425,855 16,233,342 135,172 46% $5,231,417 19% 2,674,841 167,067 4% 1% – 110,676 31% 482,167 –% 60% $29,737,114 31% 12,632,718 2,087,522 2% –% 425,855 1% 16,344,018 – 6% 49% 21% 3% 1% 27% –% $53,178,398 100% $8,666,168 100% $61,227,227 100% [1] Includes the first $250,000 in balances of transactional and time deposit accounts with balances in excess of $250,000. investment securities, dividends Bank Holding Companies The principal sources of funding for the BHCs, which are Popular, Inc. (holding company only) and PNA, include cash received from on hand, banking and non-banking subsidiaries, asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings. Dividends from banking and non-banking subsidiaries are subject to various regulatory limits and authorization requirements that are further described below and that may limit the ability of those subsidiaries to act as a source of funding to the BHCs. The principal use of these funds includes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities), the payment of dividends to common stockholders, repurchases of the Corporation’s securities and capitalizing its banking subsidiaries. The outstanding balance of notes payable at the BHCs amounted to $592 million at December 31, 2023 and $497 million at December 31, 2022. The contractual maturities of the BHCs notes payable at December 31, 2023 are presented in Table 20. Table 20 - Distribution of BHC’s Notes Payable by Contractual Maturity Year 2028 Later years Total (In thousands) $393,937 198,346 $592,283 As of December 31, 2023, the BHCs had cash and money markets investments totaling $388 million and borrowing potential of $222 million from its secured facility with BPPR. The BHCs’ liquidity position continues to be adequate with investments and other sources of sufficient cash on hand, liquidity which are expected to be enough to meet all interest payments and dividend obligations during the foreseeable future. On March 13, 2023, the Corporation issued $400 million aggregate principal amount of 7.25% Senior Notes due 2028 (the “Notes”) in an underwritten public offering. The Corporation used a portion of the net proceeds of the 2028 Notes to redeem, on August 14, 2023, the outstanding $300 million aggregate principal amount of its outstanding 6.125% Senior Notes which were due on September 2023. Additionally, the Corporation’s latest quarterly dividend was $0.62 per share or approximately $45 million per quarter. The BHCs have in the past borrowed in the corporate debt market primarily to finance their non-banking subsidiaries and refinance debt obligations. These sources of funding are more costly due to the fact that two out of the three principal credit rating agencies rate the Corporation below “investment grade”, which affects the Corporation’s cost and ability to raise funds in the capital markets. Factors that the Corporation does not control, such as the economic outlook, interest rate volatility, inflation, disruptions in the debt market, among others, could also affect its ability to obtain funding. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities. sources of funding for Non-Banking Subsidiaries The principal the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. funds for POPULAR, INC. 2023 ANNUAL REPORT 33 Dividends During the year ended December 31, 2023, the Corporation common share declared cash dividends of $2.27 per outstanding ($163.7 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $1.4 million. During the year ended December 31, 2023, the BHCs received dividends amounting to $200 million from BPPR, $50 million from PNA, $14 million from PIBI and $8 million from its non-banking subsidiaries. In addition, during 31, 2023, Popular International Bank Inc., wholly owned subsidiary of Popular, Inc., received $14.1 million in cash dividends and $2.1 million in stock dividends from its investment in BHD. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity. ended December year the sales, either through securities securities, U.S. government Other Funding Sources and Capital In addition to cash reserves held at the FRB that totaled $ 7.0 billion at December 31, 2023, the debt securities portfolio liquidity, which may be provides an additional source of realized collateralized borrowings or repurchase agreements. The Corporation’s debt securities portfolio consists primarily of liquid U.S. government sponsored agency debt debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. In 2023, BPPR became an approved counterparty in the Federal approved Reserve’s Standing Repo Facility. This counterparties to participate in daily auctions with the Standing Repo Facility for up to $500 billion in aggregate of overnight financing using U.S. Treasuries and Agency MBS as collateral. The Corporation’s unpledged debt securities amounted to $ 4.6 billion at December 31, 2023 and $ 7.8 billion at December 31, 2022. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources, subject to changes in their fair market value and customary adjustments (haircuts). allows Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use. Off-Balance Sheet arrangements and other commitments In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the 34 POPULAR, INC. 2023 ANNUAL REPORT its the financial needs of transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Refer to Note 24 to the Consolidated Financial Statements for information on the Corporation’s commitments to extent credit and other non-credit commitments. Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives, operating leases and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 33 to the Consolidated Financial Statements for information on operating leases and to Note 23 to the Consolidated Financial Statements for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements. The Corporation monitors its cash requirements, including its contractual obligations and debt commitments. the Federal Deposit FDIC Special Assessments On November 16, 2023, Insurance Corporation (“FDIC”) approved a final rule that imposes a special assessment (the “FDIC Special Assessment”) to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of several failed banks. is equal Under the final rule, the assessment base for the special assessment to an insured depository institution’s (“IDI”) estimated uninsured deposits, as reported in the IDI’s December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. For a holding company that has more than one IDI subsidiary, such as Popular, the $5 billion exclusion is allocated among the company’s IDI subsidiaries in proportion to each IDI’s estimated uninsured deposits. The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.35 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. In their December 31, 2022 Call Reports, BPPR and PB reported estimated uninsured deposits of approximately $28.1 billion, including $16.2 billion in fully collateralized public sector deposits, and $3.5 billion, respectively. The Corporation recorded an expense of $71.4 million, $45.3 million net of tax, in the fourth quarter of 2023, representing the full amount of the assessment. final By statute, the FDIC is required to recover the loss arising from the use of a systemic risk determination through one or more special assessments. As of December 31, 2023, the FDIC’s loss estimate described in the rule had increased by approximately $4.1 billion to $20.4 billion, or approximately 25%. The exact amount of losses will be determined when the FDIC terminates the related receiverships considered in the final rule. Accordingly, the special assessment amount and collection period may change as is periodically adjusted or if the total amount collected varies. If increase in the FDIC’s estimate remains the most recent unchanged and is the assessed in the Corporation estimates that the incremental expense for the FDIC Special Assessment could be approximately $18 million. the estimated loss same manner, Financial information of guarantor and issuers of registered guaranteed securities The Corporation (not including any of its subsidiaries, “PIHC”) is the parent holding company of Popular North America “PNA” and has other subsidiaries through which it conducts its financial services operations. PNA is an operating, 100% subsidiary of Popular, Inc. Holding Company (“PIHC”) and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and PB, including PB’s wholly-owned subsidiaries Popular Equipment Finance, LLC, Popular Insurance Agency, U.S.A., and E-LOAN, Inc. PNA has issued junior subordinated debentures guaranteed by PIHC (together with PNA, the “obligor group”) purchased by statutory trusts established by the Corporation. These debentures were purchased by the statutory trust using the proceeds from trust preferred securities issued to the public (referred to as “capital securities”), together with the proceeds of the related issuances of common securities of the trusts. PIHC fully and unconditionally guarantees the junior subordinated debentures issued by PNA. PIHC’s obligation to make a guarantee payment may be satisfied by direct payment of the required amounts to the holders of the applicable capital securities or by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions by the applicable trust except to the extent such trust has funds available for such payments. If PIHC does not make interest payments on the debentures held by such trust, such trust will not pay distributions on the applicable capital securities and will not have funds available for junior subordinated debentures is unsecured and ranks subordinate and junior in right of payment to all the PIHC’s other liabilities in the same manner as the applicable debentures as set forth in the applicable indentures; and equally with all other guarantees that the PIHC issues. The guarantee constitutes a guarantee of such payments. PIHC’s guarantee of PNA’s payment and not of collection, which means the guaranteed party may sue the guarantor to enforce its rights under the respective guarantee without suing any other person or entity. that received dividends from their The principal sources of funding for PIHC and PNA have included and non-banking subsidiaries, asset sales and proceeds from the issuance of debt and equity. As further described below, in the Risk to Liquidity section, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. banking The following summarized financial information presents the financial position of the obligor group, on a combined basis at December 31, 2023 and December 31, 2022, and the results of their operations for the years ended December 31, 2023 and December 31, 2022. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded. The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group’s amounts due from, amounts due to and transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately. Table 21 - Summarized Statement of Condition (In thousands) Assets Cash and money market investments Investment securities Accounts receivables from non-obligor subsidiaries Other loans (net of allowance for December 31, 2023 December 31, 2022 $ 388,025 29,973 $ 203,083 24,815 14,469 16,853 credit losses of $51 (2022 - $370)) 26,906 27,826 Investment in equity method investees Other assets Total assets Liabilities and Stockholders’ deficit Accounts payable to non-obligor subsidiaries Notes payable Other liabilities Stockholders’ deficit 5,265 51,315 5,350 45,278 $ 515,953 $ 323,205 $ 7,023 592,283 114,660 (198,013) $ 3,709 497,428 112,847 (290,779) Total liabilities and stockholders’ deficit $ 515,953 $ 323,205 POPULAR, INC. 2023 ANNUAL REPORT 35 Table 22 - Summarized Statement of Operations (In thousands) Income: Dividends from non-obligor subsidiaries Interest income from non-obligor subsidiaries and affiliates (Losses) earnings from investments in equity method investees Other operating income Total income Expenses: Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of $215,479 (2022 - $222,935)) Other operating expenses Total expenses Net income For the years ended December 31, 2023 December 31, 2022 $208,000 $458,000 15,579 705 (84) 4,664 15,688 145,295 $228,159 $619,688 $ 13,513 34,978 $ 48,491 $179,668 $ 18,467 23,607 $ 42,074 $577,614 During the year ended December 31, 2023, the obligor group recorded in aggregate $64.0 million of dividend distributions from non-obligor subsidiaries which were recorded as a reduction to the investment (2022 - $72.0 million). During the year ended December 31, 2022, the Obligor group recorded $1.5 million of distributions from its direct equity method investees. In addition, during the year ended December 31, 2022, the Obligor group recorded $228.1 million in proceeds from the sale of two of its direct equity method investees. Risks to Liquidity Total lines of credit outstanding, or available borrowing capacity under lines of credit are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, changes to the value of the collateral, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities. the Puerto Rico market the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. The importance of for 36 POPULAR, INC. 2023 ANNUAL REPORT Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis. for that are usually adopted contingency plans Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has raising financing under stress scenarios when important sources of funds temporarily fully are for using alternate funding unavailable. These plans call mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB. The Corporation is subject to positive tangible capital requirements to utilize secured loan facilities with the FHLB that could result in a limitation of borrowing amounts or maturity terms, even if the Corporation exceeds well-capitalized regulatory capital levels. available The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant and the base of Corporation’s ability to access a broad array of wholesale funding sources, among other factors. and commercial deposits, retail core Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, after considering those years’ dividend activity, less any required transfers to surplus or to a fund for the retirement of any preferred stock. During the year ended December 31, 2023, BPPR declared cash dividends of $200 million. At December 31, 2023, BPPR can declare a dividend of approximately $387 million without prior approval of the Federal Reserve Board due to its retained income, declared dividend activity and transfers to statutory reserves over the measurement period. In addition, a member bank may not declare or pay a dividend in an amount greater than its undivided profits as reported in its Report of Condition and Income, unless the member bank has received the approval of the Federal Reserve Board. A member bank also may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve Board. Pursuant to these requirements, PB may not declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary to up-stream dividends to its BHC could thus be impacted by its financial performance and capital, including tangible and regulatory capital, thus potentially limiting the amount of cash moving up to the BHCs from the banking subsidiaries. This could, in turn, affect the BHCs ability to declare dividends on its outstanding common and preferred stock, repurchase its securities or meet its debt obligations, for example. The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings. Obligations Subject to Rating Triggers or Collateral Requirements The Corporation’s banking subsidiaries currently do not issue unsecured senior debt, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $7.8 million in deposits at December 31, 2023 that are subject to rating triggers. In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase levels securing the recourse obligations. Also, as collateral discussed in Note 23 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure amounted to approximately $27.1 million at December 31, 2023. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results. recourse obligations Credit Risk Geographic and Government Risk The Corporation is exposed to geographic and government risk. The Corporation’s composition by geographical area and by business segment reporting are presented in Note 37 to the Consolidated Financial Statements. and revenue assets Commonwealth of Puerto Rico A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (“Puerto Rico”), which has faced severe economic and fiscal challenges in the past and may face additional challenges in the future. caused significant damage Economic Performance. Puerto Rico’s economy suffered a severe and prolonged recession from 2007 to 2017, with real gross national product (“GNP”) contracting approximately 15% during this period. In 2017, Hurricane María and destruction across the island, resulting in further economic economy has been gradually contraction. Puerto Rico’s recovering since 2018, in part aided by the large amount of federal disaster relief and recovery assistance funds injected into the Puerto Rico economy in connection with Hurricane María and other recent natural disasters. This growth was interrupted by the economic shock caused by the COVID-19 pandemic in 2020, but has since resumed, in part aided by additional federal assistance from pandemic-related stimulus measures. The latest Puerto Rico Economic Activity Index, published by the Economic Development Bank for Puerto Rico (the “Economic Activity Index”), reflected a 5.9% year-over-year increase and a 0.2% month-over-month decrease in November 2023. The Economic Activity Index is a coincident indicator of ongoing economic activity but not a direct measurement of real GNP. The Puerto Rico Planning Board estimates that Puerto Rico’s real GNP grew 0.8% during fiscal year 2023 (July 2022- June 2023) and projects 1.8% real GNP growth for fiscal year 2024 (July 2023-June-2024). While the Puerto Rico economy has not directly tracked the United States economy in recent years, many of the external factors that impact the Puerto Rico economy are affected by the policies and performance of the United States economy. These external factors include the level of interest rates and the rate of inflation. Inflation in the United States, as measured by the United States Consumer Price Index (published by the U.S. Bureau of Labor Statistics), increased 3.4% during the 12-month period ended December 2023. Inflation in Puerto Rico, as measured by the Puerto Rico Consumer Price Index (published by the Department of Labor and Human Resources of Puerto Rico), increased 2.0% during the 12-month period ended December 2023. The rate of inflation gradually decreased from a mid-2022 peak, as the Federal Reserve implemented a series of benchmark interest rate increases. Fiscal Challenges. the government’s As the Puerto Rico economy contracted, in part from borrowing to cover public debt rose rapidly, to pay debt service, pension benefits and other deficits government Puerto Rico By government had over $120 billion in combined debt and unfunded pension liabilities, had lost access to the capital markets, and was in the midst of a fiscal crisis. expenditures. 2016, the POPULAR, INC. 2023 ANNUAL REPORT 37 corporations, Puerto Rico’s escalating fiscal and economic challenges and imminent widespread defaults in its public debt prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in June 2016. PROMESA created the “Oversight Board” with ample powers over Puerto Rico’s fiscal and economic affairs and those of its and municipalities instrumentalities public (collectively, to Pursuant “PR Government Entities”). PROMESA, the Oversight Board will be in place until market access is restored and balanced budgets are produced for at least four consecutive years. PROMESA also established two mechanisms for the restructuring of the obligations of PR Government Entities: (a) Title III, which provides an in-court process that incorporates many of the powers and provisions of the U.S. Bankruptcy Code and permits adjustment of a broad range of obligations, and (b) Title VI, which provides for a largely out-of-court process through which modifications to financial debt can be accepted by a supermajority of creditors and bind holdouts. Since 2017, Puerto Rico and several of its instrumentalities have availed themselves of the debt restructuring mechanisms of Titles III and VI of PROMESA. The Puerto Rico government emerged from Title III of PROMESA in March 2022. Several instrumentalities, including Government Development Bank for Puerto Rico, the Puerto Rico Sales Tax Financing Corporation, the Puerto Rico Highways and Transportation Authority, and the Puerto Rico Industrial Development Company, have also completed debt restructurings under Titles III or VI of PROMESA. While the majority of the debt has already been restructured, some PR Government Entities still face significant fiscal challenges. For example, the Puerto Rico Electric Power Authority is still in the process of restructuring its debts under Title III of PROMESA. the decline the past years, Municipalities. fiscal and economic challenges have also Puerto Rico’s adversely impacted its municipalities. Budgetary subsidies to municipalities have gradually declined in recent years and were scheduled to be ultimately eliminated by fiscal year 2025 as part the fiscal measures required by the Oversight Board. of However, over the Oversight Board has authorized and funded new appropriations and investments to offset to municipalities. Beyond those sources of alternate funding, municipalities have also received significant federal disaster and COVID-relief funding in recent years. According to the latest Puerto Rico fiscal plan certified by the Oversight Board, taken together, the funding available to municipalities in the near- term is substantial. The fiscal plan notes, however, that the desired progress to achieve fiscal discipline and implement critical reforms has not been achieved, and that municipalities must work with the Executive branch to analyze the financial needs of each individual municipality and focus on the intergovernmental transfers in 38 POPULAR, INC. 2023 ANNUAL REPORT necessary enhancements in municipal shared services and other municipal and government initiatives. Pursuant to the fiscal plan, once the transformational measures and milestones related to these initiatives are achieved, additional funding from the central government may be made available to municipalities to improve fiscal sustainability. Municipalities are subject the Oversight Board’s request, are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. With the Oversight Board’s approval, municipalities are also eligible to avail themselves of the debt restructuring processes provided by PROMESA. To date, however, no municipality has been subject to any such debt restructuring process. to PROMESA and, at Exposure of the Corporation The credit quality of BPPR’s loan portfolio reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. Deterioration in the Puerto Rico economy has resulted in the past, and could result in the future, in higher delinquencies, greater charge-offs and increased losses, which could materially affect our financial condition and results of operations. At December 31, 2023, the Corporation’s direct exposure to PR Government Entities totaled $362 million, of which $333 million were outstanding, compared to $374 million at December 31, 2022, of which $327 million were outstanding. A deterioration in Puerto Rico’s fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, amount outstanding, $314 million consists of loans and $19 million are securities ($302 million and $25 million, respectively, at resulting in losses to us. Of the “special obligations” of December 31, 2022). All of the Corporation’s direct exposure outstanding at December 31, 2023 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or a municipality, to which the applicable municipality has pledged basic property tax or sales tax revenues. At December 31, 2023, loans and 76% of the Corporation’s exposure to municipal securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Caguas. For additional discussion of the Corporation’s direct to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 24 – Commitments and Contingencies to the Consolidated Financial Statements. exposure In addition, at December 31, 2023, the Corporation had $238 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source is repayment certain other satisfaction of ($251 million of at non-governmental December 31, 2022). These included $191 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a PR Government Entity (December 31, 2022 - $209 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the conditions. The Corporation also had at December 31, 2023, $40 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default, and upon the satisfaction of certain other conditions (December 31, 2022 - $42 million). In the event that insured by HFA and held by the the mortgage loans Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by a deterioration in the fiscal and economic situation of PR Government Entities. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures, such as employee layoffs or furloughs or reductions in pension benefits, if the fiscal and economic situation deteriorates. Rico Puerto from the government, As of December 31, 2023, BPPR had $18.1 billion in deposits its instrumentalities, and municipalities. The rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which federal assistance is distributed and the financial condition, liquidity and cash management practices of such entities, as well as on the ability of BPPR to maintain these customer relationships. The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For such exposure, refer to Note 24 to the Consolidated Financial Statements. information regarding additional United States Virgin Islands The Corporation has operations in the United States Virgin (the “USVI”) and has credit exposure to USVI Islands government entities. The USVI has been experiencing a number of fiscal and economic challenges, which could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities. To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI. At December 31, 2023, the Corporation had approximately $28 million in direct exposure to USVI government entities (December 31, 2022 - $28 million). British Virgin Islands The Corporation has operations in the British Virgin Islands (“BVI”), which was negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, at December 31, 2023, it has a loan portfolio amounting to approximately $205 million comprised of various retail and commercial clients, compared to a loan portfolio of $214 million at December 31, 2022. represented exposure U.S. Government As further detailed in Notes 6 and 7 to the Consolidated Financial Statements, a substantial portion of the Corporation’s to the U.S. securities investment Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $1.9 billion of residential mortgages, $9.2 million of SBA loans under the Paycheck Protection Program (“PPP”) and $80 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at December 31, 2023 (compared to $1.6 billion, $38 million and $72 million, respectively, at December 31, 2022). Non-Performing Assets Non-performing assets (“NPAs”) include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 23. During 2023, the Corporation continued to reflect credit quality normalization. Non-performing loans (“NPLs”) and net charge offs (“NCOs”) continued below historical pre-pandemic averages. Consumer portfolios, however, reflected certain credit quality deterioration, particularly the personal loans and credit cards portfolios, with delinquencies and NCOs near or POPULAR, INC. 2023 ANNUAL REPORT 39 2023, of which $3.1 billion was secured with owner occupied properties, compared with $9.9 billion and $3.1 billion, respectively, at December 31, 2022. CRE NPLs amounted to $48 million at December 31, 2023, compared with $54 million at December 31, 2022. The CRE NPL ratios for the BPPR and Popular U.S. segments were 0.86% and 0.13%, respectively, at December 31, 2023, compared with 1.04% and 0.12%, respectively, at December 31, 2022. In addition to the NPLs included in Table 23, at December 31, 2023, there were $510 million of performing loans, which in management’s loans, mostly commercial opinion, are currently subject to potential future classification as non-performing (December 31, 2022 - $374 million). For the year ended December 31, 2023, total inflows of NPLs held-in-portfolio, excluding consumer loans, remained flat at $213 million, when compared to the inflows for the same period in 2022. Inflows of NPLs held-in-portfolio at the BPPR segment increased by $22 million compared to the same period in 2022, driven by higher commercial and construction inflows by $25 million and $9 million, respectively, in part offset by lower mortgage inflows by $12 million. Commercial increase incudes an $18 million inflow during the fourth quarter of 2023. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $21 million from the same period in 2022, mainly driven by lower commercial inflows. exceeding pre-pandemic levels. The auto loans portfolio also showed credit normalization, however, metrics remained below pre-pandemic levels. The commercial and mortgage portfolios continue to operate with historically low levels of NCOs and NPLs. We continue to closely monitor changes in the macroeconomic environment and on borrower performance given higher interest rates and inflationary pressures. However, management believes that the improvements over recent years in risk management practices and the risk profile of the Corporation’s loan portfolios position Popular to continue to operate successfully under the current environment. 31, 2022. non-performing Total NPAs decreased by $91 million when compared with December loans Total held-in-portfolio (“NPLs”) decreased by $82 million from December 31, 2022. BPPR’s NPLs decreased by $73 million, mainly driven by lower mortgage NPLs by $67 million. Popular U.S. NPLs decreased by $9 million from December 31, 2022, mainly driven by lower mortgage NPLs. At December 31, 2023, the ratio of NPLs to total loans held-in-portfolio was 1.0% compared to 1.4%, at December 31, 2022. Other real estate owned loans (“OREOs”) decreased by $9 million. At December 31, 2023, NPLs secured by real estate amounted to $231 million in the Puerto Rico operations and $24 million in Popular U.S. These figures were $303 million and $33 million, respectively, at December 31, 2022. The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $10.6 billion at December 31, 40 POPULAR, INC. 2023 ANNUAL REPORT Table 23 - Non-Performing Assets (Dollars in thousands) Non-accrual loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage Consumer Home equity lines of credit Personal Auto Other Consumer Total Consumer Total non-performing loans held-in-portfolio Other real estate owned (“OREO”) Total non-performing assets [1] December 31, 2023 Popular U.S. Popular, Inc. BPPR December 31, 2022 Popular U.S. Popular, Inc. BPPR $ 1,991 8,745 29,430 32,826 72,992 6,378 8,632 175,106 – 19,031 45,615 964 65,610 $ – 1,117 6,274 3,772 11,163 – – 11,191 3,733 2,805 – 1 6,539 $ 1,991 9,862 35,704 36,598 84,155 6,378 8,632 186,297 3,733 21,836 45,615 965 72,149 $ 242 23,662 23,990 34,277 82,171 – 5,941 242,391 – 18,082 40,978 12,446 71,506 $ – 1,454 5,095 4,319 10,868 – – 20,488 4,110 1,958 – 8 6,076 $ 242 25,116 29,085 38,596 93,039 – 5,941 262,879 4,110 20,040 40,978 12,454 77,582 328,718 80,176 28,893 240 357,611 80,416 402,009 88,773 37,432 353 439,441 89,126 $408,894 $29,133 $438,027 $490,782 $37,785 $528,567 Accruing loans past due 90 days or more [2] $268,362 $ 109 $268,471 $351,248 $ 366 $351,614 Non-performing loans to loans held-in-portfolio Interest Lost 1.02% 18,697 % 1.37 27,920 [1] There were no non-performing loans held-for-sale as of December 31, 2023 and December 31, 2022. [2] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $106 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2023 (December 31, 2022 - $190 million). Furthermore, at December 31, 2023 the Corporation had approximately $38 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2022 - $42 million). Table 24 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs For the year ended December 31, 2023 Popular U.S. Popular, Inc. BPPR $ 324,562 $ 31,356 $ 355,918 180,426 – (36,684) (10,128) (203,700) 31,484 681 (58) (4,837) (36,272) 211,910 681 (36,742) (14,965) (239,972) $ 254,476 $ 22,354 $ 276,830 POPULAR, INC. 2023 ANNUAL REPORT 41 Table 25 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs Table 26 - Activity in Non-Performing Commercial Loans Held-In-Portfolio (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs Table 27 - Activity in Non-Performing Commercial Loans Held-in-Portfolio (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs Table 28 - Activity in Non-Performing Construction Loans Held-In-Portfolio (In thousands) Beginning balance - NPLs New non-performing loans Less: Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs 42 POPULAR, INC. 2023 ANNUAL REPORT For the year ended December 31, 2022 Popular U.S. Popular, Inc. BPPR $ 454,419 $ 27,501 $ 481,920 158,128 – (38,580) (7,413) (241,992) 50,754 2,825 (85) (9,062) (40,577) 208,882 2,825 (38,665) (16,475) (282,569) $ 324,562 $ 31,356 $ 355,918 For the year ended December 31, 2023 Popular U.S. Popular, Inc. BPPR $ 82,171 $ 10,868 $ 93,039 44,542 – (5,930) (7,664) (40,127) 15,533 550 – (4,837) (10,951) 60,075 550 (5,930) (12,501) (51,078) $ 72,992 $ 11,163 $ 84,155 For the year ended December 31, 2022 Popular U.S. Popular, Inc. BPPR $120,047 5,532 $125,579 19,476 – (4,763) (5,872) (46,717) 33,861 2,525 – (8,935) (22,115) 53,337 2,525 (4,763) (14,807) (68,832) $ 82,171 $ 10,868 $ 93,039 For the year ended December 31, 2023 Popular, Inc. BPPR Popular U.S. $ – 9,284 (2,537) (369) $ 6,378 $– – – – $– $ – 9,284 (2,537) (369) $ 6,378 Table 29 - Activity in Non-Performing Construction Loans Held-in-Portfolio (In thousands) Beginning balance - NPLs Less: Loans returned to accrual status / loan collections Ending balance - NPLs Table 30 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs Table 31 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio (In thousands) Beginning balance - NPLs Plus: New non-performing loans Advances on existing non-performing loans Less: Non-performing loans transferred to OREO Non-performing loans charged-off Loans returned to accrual status / loan collections Ending balance - NPLs For the year ended December 31, 2022 Popular, Inc. BPPR Popular U.S. $ 485 (485) $ – $– – $– $ 485 (485) $ – For the year ended December 31, 2023 Popular U.S. Popular, Inc. BPPR $ 242,391 $ 20,488 $ 262,879 126,600 – (30,754) 73 (163,204) 15,951 131 (58) – (25,321) 142,551 131 (30,812) 73 (188,525) $ 175,106 $ 11,191 $ 186,297 For the year ended December 31, 2022 Popular U.S. Popular, Inc. BPPR $ 333,887 $ 21,969 $ 355,856 138,652 – (33,817) (1,541) (194,790) 16,893 300 (85) (127) (18,462) 155,545 300 (33,902) (1,668) (213,252) $ 242,391 $ 20,488 $ 262,879 POPULAR, INC. 2023 ANNUAL REPORT 43 Loan Delinquencies Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more and delinquencies, as a percentage of their related portfolio category at December 31, 2023 and 2022, are presented below. Table 32 - Loan Delinquencies (Dollars in thousands) 2023 2022 Loans delinquent 30 days or more Total loans Total delinquencies as a percentage of total loans Loans delinquent 30 days or more Total loans Total delinquencies as a percentage of total loans $ 13,657 $ 2,415,620 0.57% $ 2,844 $ 2,321,713 0.12% 17,051 5,087,421 69,239 58,953 158,900 6,378 35,491 859,537 46,436 5,465 59,682 173,119 3,063 287,765 – $1,348,071 3,080,635 7,126,121 17,709,797 959,280 1,731,809 7,695,917 1,135,747 65,953 1,945,247 3,660,780 160,441 6,968,168 4,301 $35,069,272 0.34 2.25 0.83 0.90 0.66 2.05 11.17 4.09 8.29 3.07 4.73 1.91 4.13 – 3.84% 26,969 4,499,670 30,059 59,604 119,476 – 21,487 937,253 24,065 4,684 45,299 129,089 13,264 216,401 – $1,294,617 3,078,549 5,839,200 15,739,132 757,984 1,585,739 7,397,471 1,041,870 71,916 1,823,579 3,512,530 147,548 6,597,443 5,381 $32,083,150 0.60 0.98 1.02 0.76 – 1.36 12.67 2.31 6.51 2.48 3.68 8.99 3.28 – 4.04% Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage [1] Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer Loans held-for-sale Total [1] Loans delinquent 30 days or more includes $0.5 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of December 31, 2023 (December 31, 2022 - $0.5 billion). Refer to Note 8 to the Consolidated Financial Statements for additional information of guaranteed loans. for level credit life of (“ACL”), allowance the different to provide for estimated credit Allowance for Credit Losses (“ACL”) The represents losses management’s estimate of expected credit losses through the loan segments, remaining contractual impacted by expected prepayments. The ACL is maintained at a sufficient losses on loans as well as loans modified for collateral dependent borrowers with financial difficulties separately from the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the ACL on a quarterly basis. In this evaluation, management conditions, macroeconomic economic expectations through a reasonable loss experience, portfolio and supportable period, historical composition by loan type and risk characteristics, results of periodic credit reviews of loans, and regulatory requirements, amongst other factors. individual considers current The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries, or markets. Other factors that can affect management’s estimates are recalibration of statistical models 44 POPULAR, INC. 2023 ANNUAL REPORT lifetime changes expected losses, in used to calculate underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the in economic financial condition of conditions, and in the condition of the various markets in which collateral may be sold, may also affect the required level of the allowance for credit losses. Consequently, the business financial condition, liquidity, capital, and results of operations could also be affected. individual borrowers, At December 31, 2023, the allowance for credit losses amounted to $729 million, an increase of $9 million, when compared with December 31, 2022. The ACL for BPPR increased by $24 million to $640 million, when compared to December 31, 2022, mostly driven by changes in the economic scenario, higher loan volumes and changes in credit quality. The ACL for Popular U.S. decreased by $15 million to $89 million, when compared to December 31, 2022, due to the implementation of a new model for the U.S. commercial real estate portfolio. The new model is based on more granular regional the Corporation’s portfolio and accounted for $15 million of PB’s reduction in ACL. information for Given that any one economic outlook is inherently the Corporation leverages multiple scenarios to uncertain, estimate its ACL. The baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario. The Corporation evaluates, at least on an annual basis, the assumptions tied to the CECL accounting framework. These include the reasonable and supportable period as well as the reversion window. GDP growth is expected to slow during 2024 for both regions, when compared to 2023, as a result of the Fed’s monetary policy. The 2024 GDP growth is expected to be 1.2% for Puerto Rico and 1.7% for the United States. The average Table 33 - Net Charge-Offs (Recoveries) to Average Loans HIP Commercial Construction Mortgage Leasing Consumer Total NCOs for the year ended December 31, 2023 amounted to $146.4 million, increasing by $87.1 million when compared to the same period in 2022. The BPPR segment increased by $78.6 million mainly driven by higher consumer NCOs by $68.3 million, reflective of certain credit quality deterioration, particularly the personal loans and credit cards portfolios, with Table 34 - Allowance for Credit Losses - Loan Portfolios losses The provision for credit 2024 unemployment rate is expected to increase to 6.79% in Puerto Rico and 3.95% in the United States. for the year ended December 31, 2023, amounted to $201.5 million, compared to an expense of $83.3 million for the year ended December 31, 2022, mostly related to higher NCOs. Refer to Note 9 – Allowance for credit losses – loans held-in-portfolio to the Consolidated Financial Statements, and to the Provision for Credit Losses section of this MD&A for additional information. The following table presents net charge-offs to average loans held-in-portfolio (“HIP”) ratios by loan category for the years ended December 31, 2023 and 2022: December 31, 2023 Popular U.S. Popular Inc. December 31, 2022 Popular U.S. Popular Inc. BPPR BPPR (0.10)% 0.02% (0.05)% (0.14)% 0.11% (0.02)% 1.59 (0.22) 0.43 2.18 0.55% 0.19% (0.48) 0.32 (0.26) (0.19) 0.26 0.43 2.35 1.22 0.44% 0.23% 0.12% (0.25) (0.22) 0.26 1.22 0.20% (0.19) – – 1.33 – (0.02) – 6.20 auto delinquencies and NCOs near or exceeding pre-pandemic levels. The credit normalization, however, metrics remained below pre-pandemic levels. The PB segment NCOs increased by $8.5 million, mainly driven by higher consumer NCOs by $13.5 million. portfolio showed loans also (Dollars in thousands) Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage Consumer Credit cards Home equity lines of credit Personal Auto Other Consumer Total Consumer Total N.M - Not meaningful. December 31, 2023 Total ACL Total loans held-in-portfolio ACL to loans held-in-portfolio Total non- performing loans held-in-portfolio ACL to non- performing loans held-in-portfolio $ 13,740 65,453 56,864 122,356 $258,413 12,686 9,708 83,214 80,487 1,978 117,790 157,931 7,134 $365,320 $729,341 $ 2,415,620 5,087,421 3,080,635 7,126,121 $17,709,797 959,280 1,731,809 7,695,917 1,135,747 65,953 1,945,247 3,660,780 160,441 $ 6,968,168 $35,064,971 0.57% 1.29% 1.85% 1.72% 1.46% 1.32% 0.56% 1.08% 7.09% 3.00% 6.06% 4.31% 4.45% 5.24% 2.08% 1,991 9,862 35,704 36,598 84,155 6,378 8,632 186,297 – 3,733 21,836 45,615 965 72,149 357,611 690.11% 663.69% 159.27% 334.32% 307.07% 198.90% 112.47% 44.67% N.M. 52.99% 539.43% 346.23% 739.27% 506.34% 203.95% POPULAR, INC. 2023 ANNUAL REPORT 45 Table 35 - Allowance for Credit Losses - Loan Portfolios (Dollars in thousands) Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage Consumer Credit cards Home equity lines of credit Personal Auto Other Consumer Total Consumer Total N.M - Not meaningful. December 31, 2022 Total ACL Total loans held-in-portfolio ACL to loans held-in-portfolio Total non- performing loans held-in-portfolio ACL to non- performing loans held-in-portfolio $ 26,311 71,540 57,081 80,444 $235,376 4,246 20,618 135,254 58,670 2,542 118,426 129,735 15,435 $324,808 $ 2,321,713 4,499,670 3,078,549 5,839,200 $15,739,132 757,984 1,585,739 7,397,471 1,041,870 71,916 1,823,579 3,512,530 147,548 $ 6,597,443 $720,302 $32,077,769 1.13% 1.59% 1.85% 1.38% 1.50% 0.56% 1.30% 1.83% 5.63% 3.53% 6.49% 3.69% 10.46% 4.92% 2.25% 242 25,116 29,085 38,596 93,039 – 5,941 262,879 – 4,110 20,040 40,978 12,454 77,582 439,441 N.M. 284.84% 196.26% 208.43% 252.99% N.M. 347.05% 51.45% N.M. 61.85% 590.95% 316.60% 123.94% 418.66% 163.91% Table 36 details the breakdown of the allowance for credit losses by loan categories. The breakdown is made for analytical purposes, and it is not necessarily indicative of the categories in which future loan losses may occur. Table 36 - Allocation of the Allowance for Credit Losses - Loans At December 31, (Dollars in millions) Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Leasing Mortgage Consumer Credit cards Home equity lines of credit Personal Auto Other Consumer Total Consumer Total [1] [1] Note: For purposes of this table the term loans refers to loans held-in-portfolio excluding loans held-for-sale. 46 POPULAR, INC. 2023 ANNUAL REPORT 2023 2022 % of loans in each category to total loans ACL 6.9% $ 26.3 71.5 14.5 8.8 57.1 80.5 20.3 50.5% $235.4 2.7 4.2 20.6 5.0 135.3 21.9 58.7 3.2 2.5 0.2 118.4 5.5 129.7 10.4 0.6 15.5 19.9% $324.8 100.0% $720.3 % of loans in each category to total loans 7.2% 14.0 9.6 18.3 49.1% 2.4 4.9 23.1 3.2 0.2 5.7 11.0 0.4 20.5% 100.0% ACL $ 13.7 65.4 56.9 122.4 $258.4 12.7 9.7 83.2 80.5 2.0 117.8 157.9 7.1 $365.3 $729.3 Loan Modifications For the twelve months ended December 31, 2023, modified loans to borrowers with financial difficulty amounted to $466 million, of which $424 million were in accruing status. The BPPR segment’s modifications to borrowers with financial difficulty amounted to $379 million, mainly comprised of loans of $283 million and commercial $91 million, respectively. A total of $60 million of the mortgage modifications were related to government guaranteed loans. The Popular U.S. segment’s modifications to borrowers with financial difficulty amounted to $87 million, of which $75 million were commercial loans. and mortgage Refer to Note 9 to the Consolidated Financial Statements for information on modifications made to borrowers additional experiencing financial difficulties. Enterprise Risk Management The Corporation’s Board of Directors has established a Risk Management Committee (“RMC”) to, among other things, assist the Board in its (i) oversight of the Corporation’s overall risk framework and (ii) to monitor, review, and approve policies to measure, limit and manage the Corporation’s risks. activities, components of The Corporation has established a three lines of defense framework: (a) business line management constitutes the first line of defense by identifying and managing the risks associated with business the Risk (b) Management Group and the Corporate Security Group, among others, act as the second line of defense by, among other things, measuring and reporting on the Corporation’s risk activities, and (c) the Corporate Auditing Division, as the third line of defense, reporting directly to the Audit Committee of the Board, by independently providing assurance regarding the effectiveness of the risk framework. The Enterprise Risk Management Committee (the “ERM Committee”) is a management committee whose purpose is to oversee and monitor Market, Interest, Liquidity, Regulatory and Financial Compliance, BSA/AML & Sanctions, Regulatory, Strategic, Operational (including Fraud and Third Party Risk, among others), Information Technology and Cyber Security, Legal, Credit, Climate and Reputational risks, as defined in the Risk Appetite Statement of the Risk Management Policy and within the Corporation’s Enterprise Risk Management (“ERM”) framework. The ERM Committee and the Enterprise Risk Management Department in the Financial and Operational Risk Management Division (the “FORM Division”), in coordination with the Chief Risk Officer, create the framework to identify and manage multiple and cross-enterprise risks, and to articulate the RAS and supporting metrics. The Enterprise Risk Management Department has established a process to ensure that an appropriate standard readiness assessment is performed before we launch a new product or service. Similar procedures are followed with the Treasury Division for transactions involving the purchase and sale of assets, and by the Mergers and Acquisitions Division for acquisition transactions. The Asset/Liability Committee (“ALCO”), composed of senior management representatives from the business lines and corporate functions, and the Corporate Finance Group, are responsible for planning and executing the Corporation’s market, interest rate risk, funding activities and strategy, as well as for implementing approved policies and procedures. The ALCO also reviews the Corporation’s capital policy and the attainment of the capital management objectives. In addition, Insurance & Advisory the Financial Risk, Corporate independently measures, monitors and reports Department compliance with liquidity and market risk policies, and oversees controls surrounding interest risk measurements. The Corporate Compliance Committee, comprised of senior management team members and representatives from the Regulatory and Financial Compliance Division and the Financial Crimes Compliance Division, among others, are responsible for overseeing and assessing the adequacy of the risk management processes that underlie Popular’s compliance program for identifying, testing, mitigating, and reporting compliance risks. They also supervise Popular’s reporting obligations under the compliance program to ensure the adequacy, consistency and timeliness of the reporting of compliance-related risks across the Corporation. assessing, measuring, monitoring, The Regulatory Affairs team is responsible for maintaining an open dialog with the banking regulatory agencies to ensure regulatory risks are properly identified, measured, monitored, as well as communicated to the appropriate regulatory agency as necessary to keep them apprised of material matters within the purview of these agencies. functions, representatives and The Credit Strategy Committee, composed of senior level from the business lines and management corporate the Corporate Credit Risk Management Division, are responsible for monitoring credit risk management activities both at the corporate level and across all Popular subsidiaries to ensure the development and consistent application of credit risk policies, processes and procedures that measure, limit and manage credit risks, while seeking to maintain the effectiveness and efficiency of the operating and businesses processes. The Corporation’s Operational Risk Committee (“ORCO”) composed of senior level management representatives from the business lines and corporate functions, provide executive oversight of the operational risk management activities of Popular and its subsidiaries to ensure the development and consistent application of operational risk policies, processes, and procedures that measure, limit, and manage operational risks while maintaining the effectiveness and efficiency of the operating and business processes. The FORM Division, within the Risk Management Group, serves as ORCO’s operating arm to and is measure, monitor, limit and manage operational risk. responsible for establishing baseline processes POPULAR, INC. 2023 ANNUAL REPORT 47 continuous data gathering and analysis are performed. In order to ensure strategic risks are properly identified and monitored, the Corporate Strategy and Transformation Division, which reports to the Corporation’s Chief Operations Officer, performs periodic assessments regarding corporate strategic priority initiatives, such as the Corporation’s transformation initiative and other emerging issues. The Acquisitions and Corporate Investments Division continuously assesses potential strategic transactions. The Corporate Communications Division is responsible and implementation of action plans with respect to reputational risk issues. the monitoring, management for capital process planning Popular’s integrates the Corporation’s risk profile as well as its strategic focus, operating environment, and other factors that could materially affect capital adequacy in hypothetical highly-stressed business scenarios. Capital into consideration the different risks evaluated under Popular’s risk management framework. ratio targets and triggers take In addition to establishing a formal process to manage risk, to an effective risk our corporate culture is also critical management the Corporation provides a framework for all our employees to conduct themselves with the highest integrity. function. Through our Code of Ethics, ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements. The Corporate Security Group (“CSG”), under the direction of the Chief Security Officer, leads all efforts pertaining to cybersecurity, enterprise fraud and data privacy, including developing strategies and oversight processes with policies and strategic, that mitigate compliance, operational, programs financial the reputational and Corporation’s and our customers’ data and assets. associated with risks lines and corporate functions, The Information Technology and Cyber Risk Committee, composed of senior management representatives from the business the Information Technology Division and the CSG, are responsible for the oversight and monitoring of information technology and cybersecurity risks, mitigation strategies, actions and controls, key risk metrics, and information technology and cyber in operational, compliance and incidents that may result reputational risks. The Chief Security Officer also co-chairs the Information Technology & Cyber Security Risk Committee along with the Chief Information & Digital Strategy Officer. The Corporate Legal Division, in this context, has the responsibility of assessing, monitoring, managing and reporting with respect to legal risks, including those related to litigation, investigations and other material legal matters. and purpose The Corporation has also established an ESG Committee whose the responsibility Corporation’s ESG strategies and support the development and consistent application of policies, processes and procedures that measure, limit and manage ESG matters and risks. The ESG Committee also assesses ESG-related considerations in the credit approval process of commercial credit applications. oversee to is The processes of strategic risk planning and the evaluation of reputational risk are on-going processes through which 48 POPULAR, INC. 2023 ANNUAL REPORT Statistical Summary 2023-2022 Statements of Financial Condition (In thousands) Assets: Cash and due from banks Money market investments: Time deposits with other banks Total money market investments Trading account debt securities, at fair value Debt securities available-for-sale, at fair value Debt securities held-to-maturity, at amortized cost Less – Allowance for credit losses Debt securities held-to-maturity, net Equity securities Loans held-for-sale, at fair value Loans held-in-portfolio: Loans held-in-portfolio Less – Unearned income Allowance for credit losses Total loans held-in-portfolio, net Premises and equipment, net Other real estate Accrued income receivable Mortgage servicing rights, at fair value Other assets Goodwill Other intangible assets Total assets Liabilities and Stockholders’ Equity Liabilities: Deposits: Non-interest bearing Interest bearing Total deposits Assets sold under agreements to repurchase Other short-term borrowings Notes payable Other liabilities Total liabilities Stockholders’ equity: Preferred stock Common stock Surplus Retained earnings Treasury stock – at cost Accumulated other comprehensive loss, net of tax Total stockholders’ equity Total liabilities and stockholders’ equity At December 31, 2022 2023 $ 420,462 $ 469,501 6,998,871 5,614,595 6,998,871 5,614,595 31,568 16,729,044 8,194,335 5,780 8,188,555 193,726 4,301 27,723 17,804,374 8,525,366 6,911 8,518,455 195,854 5,381 35,420,879 355,908 729,341 32,372,925 295,156 720,302 34,335,630 31,357,467 565,284 80,416 263,433 118,109 2,014,564 804,428 9,764 498,711 89,126 240,195 128,350 1,847,813 827,428 12,944 $70,758,155 $67,637,917 $15,419,624 48,198,619 $15,960,557 45,266,670 63,618,243 61,227,227 91,384 – 986,948 914,627 148,609 365,000 886,710 916,946 65,611,202 63,544,492 22,143 1,048 4,843,399 4,194,851 (2,018,957) (1,895,531) 22,143 1,047 4,790,993 3,834,348 (2,030,178) (2,524,928) 5,146,953 4,093,425 $70,758,155 $67,637,917 POPULAR, INC. 2023 ANNUAL REPORT 49 Statistical Summary 2021-2023 Statements of Operations (In thousands) Interest income: Loans Money market investments Investment securities Total interest income Less - Interest expense Net interest income Provision for credit losses (benefit) Net interest income after provision for credit losses (benefit) Mortgage banking activities Net gain on sale of debt securities Net gain (loss), including impairment, on equity securities Net gain (loss) on trading account debt securities Net loss on sale of loans, including valuation adjustments on loans held-for-sale Adjustment to indemnity reserves on loans sold Other non-interest income Total non-interest income Operating expenses: Personnel costs All other operating expenses Total operating expenses Income before income tax Income tax expense Net Income Net Income Applicable to Common Stock For the years ended December 31, 2021 2022 2023 $2,331,654 366,625 547,028 $1,876,166 118,080 471,665 $1,747,827 21,147 353,663 3,245,307 1,113,783 2,131,524 208,609 2,465,911 298,552 2,167,359 83,030 2,122,637 165,047 1,957,590 (193,464) 1,922,915 2,084,329 2,151,054 21,497 – 3,482 1,382 (115) 2,319 622,159 650,724 42,450 – (7,334) (784) – 919 861,811 897,062 50,133 23 131 (389) (73) 4,406 587,897 642,128 778,045 1,120,055 719,764 1,026,656 631,802 917,473 1,898,100 1,746,420 1,549,275 675,539 134,197 1,234,971 132,330 1,243,907 309,018 $ 541,342 $1,102,641 $ 934,889 $ 539,930 $1,101,229 $ 933,477 50 POPULAR, INC. 2023 ANNUAL REPORT Statistical Summary 2020-2022 Average Balance Sheet and Summary of Net Interest Income On a Taxable Equivalent Basis* Average Balance 2023 Interest Average Rate Average Balance 2022 Interest 2021 Average Rate Average Balance Interest Average Rate $ 7,051,718 $ 366,625 5.20% $ 9,530,698 $ 118,079 448,961 20,305,488 441,179 2.17 21,141,431 1.24% $15,999,741 $ 2.12 12,396,773 21,147 0.13% 266,670 2.16 – – – 41 2 5.66 7,972 120 1.50 64,682 5,863 9.06 67,965 7,824 11.51 75,607 7,608 10.06 7,360,071 196,226 27,926,467 31,876 157,196 2.14 11,519 5.87 615,757 2.20 1,377 4.32 33,164,961 2,387,351 7.20 8,342,672 190,489 29,742,598 51,357 198,566 8,925 664,278 3,049 30,405,280 1,924,895 2.38 4.68 2.23 5.94 6.33 10,255,525 194,640 22,930,517 84,380 224,706 2.19 9,027 4.64 508,131 2.22 4,339 5.16 29,074,036 1,794,789 6.19 $68,175,022 $3,371,110 4.94% $69,729,933 $2,710,301 3.89% $68,088,674 $2,328,406 3.43% 3,059,214 $71,234,236 3,078,671 $72,808,604 3,079,976 $71,168,650 $39,463,481 $ 862,981 2.19% $41,769,576 $ 191,064 61,781 – 187,043 2.41 – 5.25 6,853,127 7 7,775,846 6 0.46% $41,387,504 $ 0.90 3.92 7,028,334 1 59,034 0.15% 52,587 0.75 – 0.25 115,808 27,302 1,109,163 6,019 5.20 1,310 4.80 56,430 5.09 107,305 99,083 938,778 2,309 3,428 39,970 2.15 3.46 4.26 91,394 343 1,184,737 317 0.35 1 0.35 53,107 4.49 (Dollars in thousands) Assets Interest earning assets: Money market investments U.S. Treasury securities Obligations of U.S. Government sponsored entities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations and mortgage-backed securities Other Total investment securities Trading account securities Loans (net of unearned income) Total interest earning assets/Interest income Total non-interest earning assets Total assets Liabilities and Stockholders’ Equity Interest bearing liabilities: Savings, NOW, money market and other interest bearing demand accounts Time deposits Federal funds purchased Securities purchased under agreement to resell Other short-term borrowings Notes payable Total interest bearing liabilities/ Interest expense Total non-interest bearing liabilities Total liabilities Stockholders’ equity 48,491,606 1,113,783 2.30 16,142,027 64,633,633 6,600,603 49,767,876 17,031,503 66,799,379 6,009,225 298,552 0.60 165,046 0.33 49,692,313 15,698,685 65,390,998 5,777,652 $71,168,650 Total liabilities and stockholders’ equity $71,234,236 $72,808,604 Net interest income on a taxable equivalent basis Cost of funding earning assets Net interest margin Effect of the taxable equivalent adjustment Net interest income per books $2,257,327 $2,411,749 $2,163,360 1.63% 3.31% 0.43% 3.46% 0.24% 3.19% 125,803 $2,131,524 244,390 $2,167,359 205,770 $1,957,590 * Shows the effect of the tax exempt status of some loans and investments on their yield, using the applicable statutory income tax rates. The computation considers the interest expense disallowance required by the Puerto Rico Internal Revenue Code. This adjustment is shown in order to compare the yields of the tax exempt and taxable assets on a taxable basis. Note: Average loan balances include the average balance of non-accruing loans. No interest income is recognized for these loans in accordance with the Corporation’s policy. Average balances exclude unrealized gains or losses on debt securities available-for-sale and unrealized losses on debt securities transfer to held-to-maturities. POPULAR, INC. 2023 ANNUAL REPORT 51 Report of Management on Internal Control Over Financial Reporting The management of Popular, Inc. (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a - 15(f) and 15d - 15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, and includes controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The Corporation’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The management of Popular, Inc. has assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management concluded that the Corporation maintained effective internal control over financial reporting as of December 31, 2023 based on the criteria referred to above. The Corporation’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2023, as stated in their report dated February 29, 2024 which appears herein. Ignacio Alvarez President and Chief Executive Officer Carlos J. Vázquez Executive Vice President and Chief Financial Officer 52 POPULAR, INC. 2023 ANNUAL REPORT Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Popular, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial condition of Popular, Inc. and its subsidiaries (the “Corporation”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Corporation’s consolidated financial statements and on the Corporation’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. POPULAR, INC. 2023 ANNUAL REPORT 53 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management’s assessment and our audit of Popular, Inc.’s internal control over financial reporting also included controls over the preparation of financial statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses on Loans Held-in-Portfolio – Quantitative Models, and Qualitative Adjustments to the Puerto Rico Commercial Portfolios As described in Notes 2 and 9 to the consolidated financial statements, the Corporation follows the current expected credit loss (“CECL”) model, to establish and evaluate the adequacy of the allowance for credit losses (“ACL”) to provide for expected losses in the loan portfolio. As of December 31, 2023, the allowance for credit losses was $729 million on total loans of $34 billion. This CECL model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets. The quantitative modeling framework includes competing risk models to generate lifetime defaults and prepayments, and other this methodology, management evaluates various loan level modeling techniques to estimate loss severity. As part of macroeconomic scenarios, and may apply probability weights to the outcome of the selected scenarios. The ACL also includes a qualitative framework that addresses losses that are expected but not captured within the quantitative modeling framework. In order to identify potential losses that are not captured through the models, management evaluated model limitations as well as the different risks covered by the variables used in each quantitative model. To complement the analysis, management also evaluated sectors that have low levels of historical defaults, but current conditions show the potential for future losses. The principal considerations for our determination that performing procedures relating to the allowance for credit losses on loans held-in-portfolio quantitative models, and qualitative adjustments to the Puerto Rico commercial portfolios is a critical audit matter are (i) the significant judgment by management in determining the allowance for credit losses, including qualitative adjustments to the Puerto Rico commercial portfolios, which in turn led to a high degree of auditor effort, judgment, and subjectivity in performing procedures and evaluating audit evidence relating to the allowance for credit losses, including management’s selection of macroeconomic scenarios and probability weights applied; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the allowance for credit losses for loans held-in-portfolio, including qualitative adjustments to the Puerto Rico commercial portfolios. These procedures also included, among others, testing management’s process for estimating the allowance for credit losses by (i) evaluating the appropriateness of the methodology, including models used for estimating the ACL; (ii) evaluating the reasonableness of management’s selection of various macroeconomic scenarios including probability weights applied to the expected loss outcome of the selected macroeconomic scenarios; (iii) evaluating the reasonableness of the qualitative adjustments to Puerto Rico commercial portfolios allowance for credit losses; and (iv) testing the data used in the allowance for credit losses. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the methodology and 54 POPULAR, INC. 2023 ANNUAL REPORT models, the reasonableness of management’s selection and weighting of macroeconomic scenarios used to estimate current expected credit losses and reasonableness of the qualitative adjustments to Puerto Rico commercial portfolios allowance for credit losses. San Juan, Puerto Rico February 29, 2024 We have served as the Corporation’s auditor since 1971, which includes periods before the Corporation became subject to SEC reporting requirements. CERTIFIED PUBLIC ACCOUNTANTS (OF PUERTO RICO) License No. LLP-216 Expires Dec. 1, 2025 Stamp E548240 of the P.R. Society of Certified Public Accountants has been affixed to the file copy of this report POPULAR, INC. 2023 ANNUAL REPORT 55 POPULAR, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2023 (In thousands, except share information) December 31, 2022 Assets: Cash and due from banks Money market investments: Time deposits with other banks Total money market investments Trading account debt securities, at fair value: Other trading account debt securities Debt securities available-for-sale, at fair value: Pledged securities with creditors’ right to repledge Other debt securities available-for-sale Debt securities held-to-maturity, at amortized cost: Pledged securities with creditors’ right to repledge Other debt securities held-to-maturity Debt securities held-to-maturity (fair value 2023 - $8,159,385; 2022 - $8,440,196) Less – Allowance for credit losses Debt securities held-to-maturity, net Equity securities (realizable value 2023 - $194,641; 2022 - $196,665) Loans held-for-sale, at fair value Loans held-in-portfolio Less – Unearned income Allowance for credit losses Total loans held-in-portfolio, net Premises and equipment, net Other real estate Accrued income receivable Mortgage servicing rights, at fair value Other assets Goodwill Other intangible assets Total assets Liabilities and Stockholders’ Equity Liabilities: Deposits: Non-interest bearing Interest bearing Total deposits Assets sold under agreements to repurchase Other short-term borrowings Notes payable Other liabilities Total liabilities Commitments and contingencies (Refer to Note 24) Stockholders’ equity: Preferred stock, 30,000,000 shares authorized; 885,726 shares issued and outstanding (2022 -885,726) Common stock, $0.01 par value; 170,000,000 shares authorized; 104,767,348 shares issued (2022 -104,657,522) and 72,153,621 shares outstanding (2022 - 71,853,720) Surplus Retained earnings Treasury stock - at cost, 32,613,727 shares (2022 - 32,803,802) Accumulated other comprehensive loss, net of tax Total stockholders’ equity Total liabilities and stockholders’ equity The accompanying notes are an integral part of these Consolidated Financial Statements. 56 POPULAR, INC. 2023 ANNUAL REPORT $ 420,462 $ 469,501 6,998,871 6,998,871 5,614,595 5,614,595 31,568 27,723 72,827 16,656,217 129,203 17,675,171 27,083 8,167,252 8,194,335 5,780 8,188,555 193,726 4,301 35,420,879 355,908 729,341 26,496 8,498,870 8,525,366 6,911 8,518,455 195,854 5,381 32,372,925 295,156 720,302 34,335,630 31,357,467 565,284 80,416 263,433 118,109 2,014,564 804,428 9,764 498,711 89,126 240,195 128,350 1,847,813 827,428 12,944 $70,758,155 $67,637,917 $15,419,624 48,198,619 $15,960,557 45,266,670 63,618,243 61,227,227 91,384 – 986,948 914,627 148,609 365,000 886,710 916,946 65,611,202 63,544,492 22,143 22,143 1,048 4,843,399 4,194,851 (2,018,957) (1,895,531) 1,047 4,790,993 3,834,348 (2,030,178) (2,524,928) 5,146,953 4,093,425 $70,758,155 $67,637,917 POPULAR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share information) Interest income: Loans Money market investments Investment securities Total interest income Interest expense: Deposits Short-term borrowings Long-term debt Total interest expense Net interest income Provision for credit losses (benefit) Net interest income after provision for credit losses (benefit) Service charges on deposit accounts Other service fees Mortgage banking activities (Refer to Note 10) Net gain on sale of debt securities Net gain (loss), including impairment on equity securities Net profit (loss) on trading account debt securities Net loss on sale of loans, including valuation adjustments on loans held-for-sale Adjustments to indemnity reserves on loans sold Other operating income Total non-interest income Operating expenses: Personnel costs Net occupancy expenses Equipment expenses Other taxes Professional fees Technology and software expenses Processing and transactional services Communications Business promotion FDIC deposit insurance Other real estate owned (OREO) income Other operating expenses Amortization of intangibles Goodwill impairment charge Total operating expenses Income before income tax Income tax expense Net Income Net Income Applicable to Common Stock Net Income per Common Share – Basic Net Income per Common Share – Diluted The accompanying notes are an integral part of these consolidated financial statements. Years ended December 31, 2022 2021 2023 $2,331,654 366,625 547,028 $1,876,166 118,080 471,665 $1,747,827 21,147 353,663 3,245,307 2,465,911 2,122,637 1,050,024 7,329 56,430 1,113,783 2,131,524 208,609 252,845 5,737 39,970 298,552 111,621 319 53,107 165,047 2,167,359 83,030 1,957,590 (193,464) 1,922,915 2,084,329 2,151,054 147,476 374,440 21,497 – 3,482 1,382 (115) 2,319 100,243 650,724 778,045 111,586 37,057 55,926 161,142 290,615 138,070 16,664 94,926 105,985 (15,375) 97,279 3,180 23,000 157,210 334,009 42,450 – (7,334) (784) – 919 370,592 897,062 719,764 106,169 35,626 63,603 172,043 291,902 127,145 14,885 88,918 26,787 (22,143) 109,446 3,275 9,000 162,698 311,248 50,133 23 131 (389) (73) 4,406 113,951 642,128 631,802 102,226 32,919 56,783 126,721 277,979 121,367 14,029 72,981 25,579 (14,414) 92,169 9,134 – 1,898,100 1,746,420 1,549,275 675,539 134,197 1,234,971 132,330 1,243,907 309,018 $ 541,342 $1,102,641 $ 934,889 $ 539,930 $1,101,229 $ 933,477 $ $ 7.53 7.52 $ $ 14.65 14.63 $ $ 11.49 11.46 POPULAR, INC. 2023 ANNUAL REPORT 57 POPULAR, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In thousands) Net income Other comprehensive income (loss) before tax: Foreign currency translation adjustment Adjustment of pension and postretirement benefit plans Amortization of net losses Unrealized net holding gains (losses) on debt securities arising during the period Reclassification adjustment for gains included in net income Amortization of unrealized losses of debt securities transfer from available-for-sale to held-to-maturity [1] Unrealized net gains (losses) on cash flow hedges Reclassification adjustment for net (gains) losses included in net income Other comprehensive income (loss) before tax Income tax benefit Total other comprehensive income (loss), net of tax Comprehensive income (loss), net of tax Tax effect allocated to each component of other comprehensive income (loss): (In thousands) Adjustment of pension and postretirement benefit plans Amortization of net losses Unrealized net holding gains (losses) on debt securities arising during the period Reclassification adjustment for gains included in net income Amortization of unrealized losses of debt securities transferred from available-for-sale to held-to-maturity [1] Unrealized net gains (losses) on cash flow hedges Reclassification adjustment for net (gains) losses included in net income Income tax benefit Years ended December 31, 2022 2021 2023 $ 541,342 $ 1,102,641 $ 934,889 (7,793) 23,052 19,253 391,633 – 172,883 (30) (41) 598,957 30,440 10,572 7,811 15,644 (2,539,421) – 3,947 36,950 20,749 (619,470) (23) 41,642 3,719 (960) (2,460,993) 261,134 – 539 1,847 (555,461) 40,401 629,397 (2,199,859) (515,060) $1,170,739 $ (1,097,218) $ 419,829 Years ended December 31, 2021 2022 2023 $ (8,644) $ (2,929) $(13,856) (7,781) 62,468 5 (5,867) 278,324 – (7,219) 80,854 – (34,577) 11 15 (8,328) (612) 546 – (172) (263) $ 30,440 $261,134 $ 40,401 [1] In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to-maturity portfolio. Refer to Note 7 to the Consolidated Financial Statements for additional information. The accompanying notes are an integral part of these consolidated financial statements. 58 POPULAR, INC. 2023 ANNUAL REPORT POPULAR, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands) Balance at December 31, 2020 Net income Issuance of stock Dividends declared: Common stock[1] Preferred stock Common stock purchases [2] Stock based compensation Other comprehensive loss, net of tax Transfer to statutory reserve Balance at December 31, 2021 Net income Issuance of stock Dividends declared: Common stock[1] Preferred stock Common stock purchases[3] Stock based compensation Other comprehensive loss, net of tax Transfer to statutory reserve Balance at December 31, 2022 Cumulative effect of accounting change Net income Issuance of stock Dividends declared: Common stock[1] Preferred stock Common stock purchases Stock based compensation Other comprehensive income, net of tax Transfer to statutory reserve Balance at December 31, 2023 Common stock Preferred stock Surplus Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total $1,045 $22,143 $4,571,534 $2,260,928 $(1,016,954) 934,889 $ 189,991 1 4,673 (142,290) (1,412) (8,557) 4,162 (347,093) 11,397 78,370 (78,370) (515,060) $ 6,028,687 934,889 4,674 (142,290) (1,412) (355,650) 15,559 (515,060) – $1,046 $22,143 $4,650,182 $2,973,745 $(1,352,650) $ (325,069) $ 5,969,397 1 5,836 1,102,641 (163,693) (1,412) 53,592 4,450 (691,256) 13,728 76,933 (76,933) (2,199,859) 1,102,641 5,837 (163,693) (1,412) (637,664) 18,178 (2,199,859) – $1,047 $22,143 $4,790,993 $3,834,348 $(2,030,178) $(2,524,928) $ 4,093,425 1 6,310 28,752 541,342 (163,664) (1,412) 1,581 44,515 (44,515) (4,550) 15,771 629,397 28,752 541,342 6,311 (163,664) (1,412) (4,550) 17,352 629,397 – $1,048 $22,143 $4,843,399 $4,194,851 $(2,018,957) $(1,895,531) $ 5,146,953 [1] Dividends declared per common share during the year ended December 31, 2023 - $ 2.27 (2022 - $2.20; 2021 - $1.75). [2] During the year ended December 31, 2021, the Corporation completed a $ 350 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 20 for additional information. [3] During the year ended December 31, 2022, the Corporation completed two accelerated share repurchase transactions with respect to its common stock, which were accounted for as a treasury stock transactions. The aggregate amount of both transactions was $631 million. Refer to Note 20 for additional information. Disclosure of changes in number of shares: Preferred Stock: Balance at beginning and end of year Common Stock: Balance at beginning of year Issuance of stock Balance at end of year Treasury stock Common Stock – Outstanding The accompanying notes are an integral part of these consolidated financial statements. Years ended December 31, 2021 2022 2023 885,726 885,726 885,726 104,657,522 109,826 104,579,334 78,188 104,508,290 71,044 104,767,348 (32,613,727) 104,657,522 (32,803,802) 104,579,334 (24,728,165) 72,153,621 71,853,720 79,851,169 POPULAR, INC. 2023 ANNUAL REPORT 59 POPULAR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses (benefit) Goodwill impairment losses Amortization of intangibles Depreciation and amortization of premises and equipment Net accretion of discounts and amortization of premiums and deferred fees Interest capitalized on loans subject to the temporary payment moratorium or loss mitigation alternatives Share-based compensation Impairment losses on right-of-use and long-lived assets Fair value adjustments on mortgage servicing rights Fair value adjustment for contingent consideration Adjustments to indemnity reserves on loans sold Earnings from investments under the equity method, net of dividends or distributions Deferred income tax (benefit) expense (Gain) loss on: Disposition of premises and equipment and other productive assets Proceeds from insurance claims Sale of debt securities Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities Sale of equity method investment Disposition of stock as part of the Evertec Transactions Sale of foreclosed assets, including write-downs Acquisitions of loans held-for-sale Proceeds from sale of loans held-for-sale Net originations on loans held-for-sale Net decrease (increase) in: Trading debt securities Equity securities Accrued income receivable Other assets Net increase (decrease) in: Interest payable Pension and other postretirement benefits obligation Other liabilities Total adjustments Net cash provided by operating activities Cash flows from investing activities: Net (increase) decrease in money market investments Purchases of investment securities: Available-for-sale Held-to-maturity Equity Proceeds from calls, paydowns, maturities and redemptions of investment securities: Available-for-sale Held-to-maturity Proceeds from sale of investment securities: Available-for-sale Equity Net (disbursements) repayments on loans Proceeds from sale of loans Acquisition of loan portfolios Payments to acquire other intangible Payments to acquire businesses, net of cash acquired Return of capital from equity method investments Payments to acquire equity method investments Proceeds from sale of equity method investment Proceeds from disposition of stock as part of the Evertec Transactions Acquisition of premises and equipment Proceeds from insurance claims Proceeds from sale of: Premises and equipment and other productive assets Foreclosed assets Net cash (used in) provided by investing activities Cash flows from financing activities: Net increase (decrease) in: Deposits Assets sold under agreements to repurchase Other short-term borrowings Payments of notes payable Principal payments of finance leases Proceeds from issuance of notes payable Proceeds from issuance of common stock Dividends paid Net payments for repurchase of common stock Payments related to tax withholding for share-based compensation Net cash provided by (used in) financing activities Net (decrease) increase in cash and due from banks, and restricted cash Cash and due from banks, and restricted cash at beginning of period Cash and due from banks, and restricted cash at end of period The accompanying notes are an integral part of these consolidated financial statements. 60 POPULAR, INC. 2023 ANNUAL REPORT Years ended December 31, 2023 2022 2021 $ 541,342 $ 1,102,641 $ 934,889 208,609 23,000 3,180 58,507 (45,249) (9,868) 16,773 – 12,339 – (2,319) (27,450) (43,139) (12,756) (145) – 203 (152) – (22,665) (7,639) 44,734 (68,310) 33,500 (11,341) (23,238) 24,200 19,814 16,092 (41,410) 145,270 686,612 83,030 9,000 3,275 55,107 29,120 (11,521) 16,727 2,233 (166) (9,241) (919) (29,522) (33,129) (9,453) – – 252 (8,198) (240,412) (33,008) (122,363) 64,542 (202,913) 353,301 54 (62,932) 76,589 (193,464) – 9,134 55,104 (21,962) (15,567) 17,774 5,320 10,206 – (4,406) (50,942) 229,371 (18,393) – (23) (21,611) – – (30,098) (251,336) 95,100 (527,585) 741,465 (2,336) 6,193 25,022 6,061 (2,893) (20,724) (88,103) 1,014,538 (5,395) (4,104) 22,802 70,269 1,005,158 (1,383,821) 11,922,703 (5,895,789) (16,707,264) (8,615) (18,477) (22,232,278) (1,879,443) (48,921) (14,672,856) – (16,196) 18,215,910 458,806 20,143,921 9,826 9,602,430 15,700 – 31,946 (2,475,837) 135,231 (770,493) – – 249 (1,500) 152 – (208,044) 145 8,658 109,547 (2,613,407) 2,365,451 (57,225) (365,000) (343,261) (5,360) 441,705 6,311 (159,860) (461) (4,089) 1,878,211 (48,584) 476,159 427,575 $ – 42,990 (2,237,084) 141,314 (753,684) – – 681 (1,625) 8,198 219,883 (103,789) – 10,305 107,203 5,350,200 (5,770,261) 57,006 290,000 (103,147) (3,346) – 5,837 (161,516) (631,893) (5,771) (6,323,091) 41,647 434,512 476,159 $ 235,992 2,904 469,268 203,179 (348,179) (905) (155,828) 6,362 (375) – – (72,781) – 21,482 86,942 (10,518,650) 10,138,617 (29,700) 75,000 (237,713) (2,852) – 4,674 (141,466) (350,535) (5,115) 9,450,910 (62,582) 497,094 434,512 $ Notes to Consolidated Financial Statements Note 1 - Nature of Operations and Basis of Presentation Note 2 - Summary of Significant Accounting Policies Note 3 - New Accounting Pronouncements Note 4 - Business Combinations Note 5 - Restrictions on Cash and Due from Banks and Certain Securities Note 6 - Debt Securities Available-For-Sale Note 7 - Debt Securities Held-to-Maturity Note 8 - Loans Note 9 - Allowance for Credit Losses – Loans Held-In-Portfolio Note 10 - Mortgage Banking Activities Note 11 - Transfers of Financial Assets and Mortgage Servicing Assets Note 12 - Premises and Equipment Note 13 - Other Real Estate Owned Note 14 - Other Assets Note 15 - Goodwill and Other Intangible Assets Note 16 - Deposits Note 17 - Borrowings Note 18 - Trust Preferred Securities Note 19 - Other Liabilities Note 20 - Stockholders’ Equity Note 21 - Regulatory Capital Requirements Note 22 - Other Comprehensive Income (Loss) Note 23 - Guarantees Note 24 - Commitments and Contingencies Note 25 - Non-consolidated Variable Interest Entities Note 26 - Derivative Instruments and Hedging Activities Note 27 - Related Party Transactions Note 28 - Fair Value Measurement Note 29 - Fair Value of Financial Instruments Note 30 - Employee Benefits Note 31 - Net Income per Common Share Note 32 - Revenue from Contracts with Customers Note 33 - Leases Note 34 - Stock-Based Compensation Note 35 - Income Taxes Note 36 - Supplemental Disclosure on the Consolidated Statements of Cash Flows Note 37 - Segment Reporting Note 38 - Popular, Inc. (Holding company only) Financial Information 62 62 72 77 78 78 81 84 91 119 119 122 122 123 124 126 127 129 130 130 131 133 134 136 140 140 143 145 152 154 160 161 162 164 165 169 169 171 POPULAR, INC. 2023 ANNUAL REPORT 61 Note 1 - Nature of Operations and basis of Presentation Nature of Operations Popular, Inc. (the “Corporation” or “Popular”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the mainland United States (“U.S.”) and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services, through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker- leasing and financing, and dealer, auto and equipment insurance services through specialized subsidiaries. In the mainland U.S., the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB” or “Popular U.S.”), which has branches located in New York, New Jersey and Florida, investment and insurance services and equipment leasing and financing services through specialized subsidiaries. Basis of Presentation Leveraging the completion of the Evertec Transactions, as defined in Note 4 to the Consolidated Financial Statements, the a on embarked Corporation broad-based multi-year, technological and business process transformation during the second half of 2022. The needs and expectations of our clients, as well as the competitive landscape, have evolved, requiring us to make technological investments infrastructure and adopt more agile practices. Our technology and business transformation will be a significant priority for the Corporation over the next three years and beyond. important in our our platform, technology As part of this transformation, we aim to expand our digital capabilities, modernize and implement agile and efficient business processes across the entire Corporation. To facilitate the transparency of the progress with the transformation initiative and to better portray the level of technology related expenses categorized by the nature of the expense, effective in the fourth quarter of 2022, the Corporation has separated technology, professional fees and transactional as standalone accompanying Consolidated statement of operations. There were no changes to the total operating expenses presented. Prior periods amount in the financial statements and related disclosures have been reclassified to conform to the current presentation. and items processing related expenses categories expense the in The following table provides the detail of the reclassifications for the year. Financial statement line item Equipment expenses Professional fees Technology and software expenses Processing and transactional services Communications Other operating expenses Net effect on operating expenses Note 2 - Summary of significant accounting policies The accounting and financial reporting policies of Popular, Inc. and its conform with accounting principles generally accepted in the United States of America and with prevailing practices within the financial services industry. “Corporation”) subsidiaries (the The following is a description of the most significant of these policies: Principles of consolidation The consolidated financial statements include the accounts of Popular, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In accordance with the consolidation guidance for variable interest entities, the Corporation would also consolidate any variable 62 POPULAR, INC. 2023 ANNUAL REPORT Year ended December 31, 2021 As reported Adjustments Adjusted $ 92,097 410,865 – – 25,234 136,988 $ (59,178) (284,144) 277,979 121,367 (11,205) (44,819) $ 32,919 126,721 277,979 121,367 14,029 92,169 $665,184 $ – $665,184 interest entities (“VIEs”) for which it has a controlling financial interest; and therefore, it is the primary beneficiary. Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the Consolidated Statements of Financial Condition. Unconsolidated investments, in which there is at least 20% ownership and / or the Corporation exercises significant influence, are generally accounted for by the equity method with earnings recorded in other operating income. Limited partnerships are also accounted for by the equity method unless the investor’s interest is so “minor” that the limited partner may have virtually no influence over partnership operating and financial policies. These investments are included in other assets and the Corporation’s proportionate share of income or loss is included in other operating income. Statutory business trusts that are wholly-owned by the Corporation and are issuers of trust preferred securities are not consolidated in the Corporation’s Consolidated Financial Statements. in the acquiree at Business combinations Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and any noncontrolling interest the acquisition date are measured at their fair values as of the acquisition date. The acquisition date is the date the acquirer obtains control. Transaction costs are expensed as incurred. Contingent consideration classified as an asset or a liability is remeasured to fair value at each reporting date until the contingency is resolved. The changes in fair value of the contingent consideration are recognized in earnings unless the arrangement is a hedging instrument for which changes are initially recognized in other comprehensive income (loss). Refer to Note 4 for information of business combinations completed by the Corporation for the years presented. requires management Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. to make estimates Fair value measurements The Corporation determines the fair values of its financial instruments based on the fair value framework established in the guidance for Fair Value Measurements in Accounting Standards Codification (“ASC”) Subtopic 820-10, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value which are (1) quoted market prices for identical assets or liabilities in active markets, (2) observable market-based inputs or unobservable inputs that are corroborated by market data, and (3) unobservable inputs that are not corroborated by market data. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The guidance in ASC Subtopic 820-10 also addresses measuring fair value in situations where markets are inactive and transactions are not orderly. Transactions or quoted prices for assets and liabilities may not be determinative of fair value when transactions are not orderly, and thus, may require adjustments to estimate fair value. Price quotes based on transactions that are not orderly should be given little, if any, weight in measuring fair value. Price quotes based on transactions that are orderly shall be considered in determining fair value, and the weight given is based on facts and circumstances. If sufficient information is not available to determine if price quotes are based on orderly transactions, less weight should be given to the price quote relative to other transactions that are known to be orderly. Investment securities Investment securities are classified in four categories and accounted for as follows: on the framework, uncollectible, • Debt securities that the Corporation has the intent and ability to hold to maturity are classified as debt securities held-to-maturity and reported at amortized cost. An ACL is established for the expected credit losses over the remaining term of debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which considers qualitative factors, including internal credit ratings and the underlying source of repayment in determining the amount of expected credit losses. Debt securities held-to-maturity are written-off through the ACL when a portion or the entire amount is information based deemed considered to develop expected credit losses through the life of the asset. The ACL is estimated by leveraging the expected loss framework for mortgages in the case of securities collateralized by 2nd lien loans and the commercial C&I models for municipal bonds. As part of this factors are stressed, as a qualitative adjustment, to reflect current conditions that loss are not necessarily captured within the historical experience. The modeling framework includes a 2-year reasonable and supportable period gradually reverting, over a 3-years horizon, to historical information at the model level. The Corporation’s portfolio of held-to-maturity securities includes U.S. Treasury notes and obligations from the U.S. Government. These securities have an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established. The Corporation may not sell or transfer held-to-maturity securities without calling into question its intent to hold other debt securities to maturity, unless a nonrecurring or unusual event that could not have been reasonably anticipated has occurred. internal input POPULAR, INC. 2023 ANNUAL REPORT 63 • Debt securities classified as trading securities are reported at fair value, with unrealized and realized gains and losses included in non-interest income. losses relating earnings. losses over • Debt securities classified as available-for-sale are reported at fair value. Declines in fair value below the securities’ amortized cost which are not related to estimated credit losses are recorded through other comprehensive income or loss, net of taxes. If the Corporation intends to sell or believes it is more likely than not that it will be required to sell the debt security, it is written down to fair value through to Credit available-for-sale debt securities are recorded through an ACL, which are limited to the difference between the amortized cost and the fair value of the asset. The ACL is the the expected credit established for security. The Corporation’s remaining term of debt portfolio of available-for-sale securities is comprised mainly of U.S. Treasury notes and obligations from the U.S. Government. These securities have an explicit or implicit guarantee from the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Corporation applies a these zero-credit securities has been established. The Corporation monitors its credit performance on a quarterly basis to determine if any securities allowance available-for-sale are written-off when a portion or the entire amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of the asset. The specific identification method is used to determine realized gains and losses on debt securities available-for-sale, which are included in net in the Consolidated Statements of Operations. loss assumption and no ACL for (loss) gain on sale of debt considered necessary. Debt composition securities securities portfolio and is • Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily available fair values are measured at cost, less any resulting from impairment, plus or minus changes observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Stock that is owned by the Corporation to comply with regulatory requirements, such as Federal Reserve Bank and Federal Home Loan Bank (“FHLB”) stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in the Consolidated Statements of Operations. Dividend income from investments in equity securities is included in interest income. 64 POPULAR, INC. 2023 ANNUAL REPORT The amortization of premiums is deducted and the accretion of discounts is added to net interest income based on the interest method over the outstanding period of the related securities. Purchases and sales of securities are recognized on a trade date basis. Derivative financial instruments All derivatives are recognized on the Statements of Financial Condition at fair value. The Corporation’s policy is not to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement nor to offset the fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. comprehensive For a cash flow hedge, changes in the fair value of the derivative instrument are recorded net of taxes in accumulated subsequently other reclassified to net income in the same period(s) that the hedged transaction impacts earnings. For free-standing derivative instruments, changes in fair values are reported in current period earnings. income (loss) and the includes documents relationship and strategy for undertaking Prior to entering a hedge transaction, the Corporation formally between hedging instruments and hedged items, as well as the risk management various hedge objective transactions. This process linking all derivative instruments to specific assets and liabilities on the Statements of Financial Condition or to specific forecasted transactions or firm commitments along with a formal assessment, at both inception of the hedge and on an ongoing basis, as to the effectiveness of the derivative instrument in offsetting changes in fair values or cash flows of the hedged item. Hedge accounting is discontinued when the derivative instrument is not highly effective as a hedge, a derivative expires, is sold, terminated, when it is unlikely that a forecasted transaction will occur or when it is determined that it is no longer appropriate. When hedge accounting is discontinued the derivative continues to be carried at fair value with changes in fair value included in earnings. other income Effective on January 1, 2023, the Corporation discontinued the hedge accounting treatment of certain forward contracts for which the changes in fair value were recorded, net of taxes, in accumulated and comprehensive subsequently reclassified to net income in the same period that the hedged transaction impacted earnings. As a result of this change, the changes in the fair value of these forward contracts are being recorded through net income. The Corporation utilizes forward contracts to hedge the sale of mortgage-backed securities with duration terms over one month. Interest rate forwards are contracts for the delayed delivery of securities, which the seller agrees to deliver on a specified future date at a (loss) specified price or yield. These forward contracts are hedging a forecasted transaction and thus qualify for cash flow hedge accounting. Based on the election to apply fair value accounting for its mortgage loans held for sale, effective on January 1, 2023, the Corporation discontinued the hedge accounting since the changes in the fair value of the loans are expected to be offset by the changes in the fair value of the forward contract, both of which are now recorded through net income. quotes, For non-exchange traded contracts, fair value is based on flow dealer methodologies the determination of fair value may require significant management judgment or estimation. pricing models, or cash for which discounted techniques similar The fair value of derivative instruments considers the risk of non-performance by the counterparty or the Corporation, as applicable. The Corporation obtains or pledges collateral in connection the with its derivative activities when applicable under agreement. as are loans classified Loans held-in-portfolio when Loans management has the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. The foreseeable future is a management judgment which is determined based loan, business strategies, current market upon the type of conditions, balance sheet management and liquidity needs. Management’s view of the foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that was not originated or initially acquired with the intent to sell or securitize, the loan is reclassified from held-in-portfolio into held-for-sale. Due to changing market conditions or other strategic initiatives, management’s intent with respect to the disposition of the loan may change, and accordingly, loans previously classified as held-for-sale may be reclassified into held-in-portfolio. Loans transferred between loans held-for-sale and held-in-portfolio classifications are recorded at the lower of cost or fair value at the date of transfer. Purchased loans with no evidence of credit deterioration since origination are recorded at fair value upon acquisition. Credit discounts are included in the determination of fair value. Loans held-in-portfolio are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Fees collected and costs incurred in the origination of new loans are deferred and amortized using the interest method or a method which approximates the interest method over the term of the loan as an adjustment to interest yield. Loans held-for-sale, except for mortgage loans originated as held-for-sale, are stated at the lower of cost or fair value, cost being determined based on the outstanding loan balance less credit unearned income, and fair value determined, generally in the aggregate. Fair value is measured based on current market prices for similar loans, outstanding investor commitments, prices of recent sales or discounted cash flow analyses which utilize inputs and assumptions which are believed to be consistent with market participants’ views. The cost basis also includes consideration of deferred origination fees and costs, which are recognized in earnings at the time of sale. Upon reclassification to held-for-sale, related fair value adjustments are recorded as a reduction in the ACL. To the extent that the loan’s reduction in value has not already been provided for in the ACL, an additional provision for credit losses to Subsequent held-for-sale, the amount, by which cost exceeds fair value, if any, is accounted for as a valuation allowance with changes therein included in the determination of net income for the period in which the change occurs. Effective on January 1, 2023, newly originated mortgage loans held-for-sale are reported at fair value, with changes recorded through earnings. The past due status of a loan is determined in accordance with its contractual repayment terms. Furthermore, loans are reported as past due when either interest or principal remains unpaid for 30 days or more in accordance with its contractual repayment terms. reclassification recorded. to is Non-accrual loans are those loans on which the accrual of interest is discontinued. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is charged against interest income and the loan is accounted for either on a cash-basis method or on the cost-recovery method. Loans designated as non-accruing are returned to accrual status when the Corporation expects remaining contractual principal and interest. repayment the of interest deemed Recognition of income on commercial uncollectible) in any event, not and construction loans is discontinued when the loans are 90 days or more in arrears on payments of principal or interest or when the collection of principal and other factors indicate that interest is doubtful. The portion of a secured loan deemed uncollectible is charged-off no later than 365 days past due. However, in the case of a collateral dependent loan, the excess of the recorded investment over the fair value of the collateral (portion promptly charged-off, but later than the quarter following the quarter in which such excess was first recognized. Commercial unsecured loans are charged-off no later than 180 days past due. Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The portion of a mortgage loan deemed uncollectible is charged-off when the loan is 180 days past due. The Corporation discontinues the recognition of interest on residential mortgage loans insured by the Federal Housing Administration (“FHA”) or guaranteed by (“VA”) when the U.S. Department of Veterans Affairs generally is POPULAR, INC. 2023 ANNUAL REPORT 65 15-months delinquent as to principal or interest. The principal repayment on these loans is insured. Recognition of interest income on closed-end consumer loans and home equity lines of credit is discontinued when the loans are 90 days or more in arrears on payments of principal or interest. Income is generally recognized on open-end consumer loans, except for home the loans are charged-off. equity lines of credit, until Recognition of interest income for lease financing is ceased when loans are 90 days or more in arrears. Closed-end consumer loans and leases are charged-off when they are 120 days in arrears. Open-end (revolving credit) consumer loans are charged-off when 180 days in arrears. Commercial and consumer overdrafts are generally charged-off no later than 60 days past their due date. Lease financing The Corporation leases passenger and commercial vehicles and equipment to individual and corporate customers. The finance method of accounting is used to recognize revenue on lease contracts that meet the criteria specified in the guidance for leases in ASC Topic 842. Aggregate rentals due over the term of the leases less unearned income are included in finance lease contracts receivable. Unearned income is amortized using a method which results in approximate level rates of return on the principal amounts outstanding. Finance lease origination fees and costs are deferred and amortized over the average life of the lease as an adjustment to the interest yield. Revenue for other leases is recognized as it becomes due under the terms of the agreement. status until in non-accrual A loan modified with financial difficulties is typically in non-accrual status at the time of the modification. These loans continue the borrower has demonstrated a willingness and ability to make the restructured loan payments (at least six months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and management has concluded that it is probable that the borrower would not be in payment default in the foreseeable future. Loan modifications In connection with the implementation of the Accounting Standards Update (“ASU”) 2022-02, the Corporation modified its policy related to loan modifications. As discussed in Note 3, the new accounting guidance eliminates the recognition and measurement principle of troubled debt restructurings (TDRs). A modification is subject to disclosure under the new ASU when the Corporation separately concludes that both of the following conditions exist: 1) the debtor is experiencing financial difficulties and 2) the modification constitutes a reduction in the interest rate on the loan, a payment extension, a forgiveness of principal, or a more-than-insignificant payment delay. Determination that a borrower is experiencing financial difficulties involves a degree of judgment. The identification of loan modifications to debtors with in the determination of the financial difficulties is critical adequacy of the ACL. The ASU 2022-02 eliminates the requirement to use a discounted cash flow (“DCF”) approach to estimated credit losses for modified loans with borrowers experiencing financial difficulties. The entity can apply a methodology similar to the one used for loans that were not modified. The Corporation applied a modified retrospective transition method for the implementation of ASU 2022-02 which resulted in a reduction of approximately $46 million ($29 million net of tax) in the reserve which was recorded as an adjustment to the beginning balance of retained earnings. Refer to Note 9 to the Consolidated Financial Statements for additional qualitative information on loan modifications and the Corporation’s determination of the ACL. 66 POPULAR, INC. 2023 ANNUAL REPORT Loans acquired with deteriorated credit quality Purchased credit deteriorated (“PCD”) loans are defined as those with evidence of a more-than-insignificant deterioration in credit quality since origination. PCD loans are initially recorded at its purchase price plus an estimated allowance for credit losses (“ACL”). Upon the acquisition of a PCD loan, the Corporation makes an estimate of the expected credit losses over the remaining contractual term of each individual loan. The estimated credit losses over the life of the loan are recorded as an ACL with a corresponding addition to the loan purchase price. The amount of the purchased premium or discount which is not related to credit risk is amortized over the life of the loan through net interest income using the effective interest method or a method that approximates the effective interest method. Changes in expected credit losses are recorded as an increase or decrease to the ACL with a corresponding charge (reverse) to the provision for credit losses in the Consolidated Statement of Operations. These same nonaccrual policies as non-PCD loans. follow the loans Refer to Note 8 to the Consolidated Financial Statements for information with respect to loans acquired with additional deteriorated credit quality. Accrued interest receivable The amortized basis for loans and investments in debt securities is presented exclusive of accrued interest receivable. The Corporation has elected not to establish an ACL for accrued interest receivable for loans and investments in debt securities, given the Corporation’s non-accrual policies, in which accrual of interest is discontinued and reversed based on the asset’s delinquency status. Allowance for credit losses - loans portfolio The Corporation establishes an ACL for its loan portfolio based on its estimate of credit losses over the remaining contractual term of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since inception, with a corresponding charge to the provision for credit losses, except for PCD loans for which the ACL at acquisition is recorded as an addition to the purchase price with subsequent changes recorded in earnings. Loan losses are charged and recoveries are credited to the ACL. The Corporation follows a methodology to estimate the ACL which includes a reasonable and supportable forecast period for estimating credit losses, considering quantitative and qualitative factors as well as the economic outlook. As part of this methodology, management evaluates various macroeconomic scenarios provided by third parties. At December 31, 2023, management applied probability weights to the outcome of the selected scenarios. This evaluation includes benchmarking procedures as well as careful analysis of the underlying assumptions used to build the scenarios. The application of probability weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The Corporation considers additional macroeconomic scenarios as part of its qualitative adjustment framework. of The macroeconomic variables chosen to estimate credit losses were selected by combining quantitative procedures with expert judgment. These variables were determined to be the losses within the expected credit best predictors Corporation’s loan portfolios and include drivers such as unemployment rate, different measures of employment levels, house prices, gross domestic product and measures of disposable income, amongst others. The loss estimation framework includes a reasonable and supportable period of 2 years for PR portfolios, gradually reverting, over a 3-years horizon, to historical macroeconomic variables at the model input level. For the US portfolio the reasonable and supportable period considers the contractual life of the asset, impacted by prepayments, except for the US CRE portfolio. The US CRE portfolio utilizes a 2-year reasonable and supportable period gradually reverting, over a 3-years horizon, to historical information at the output level. channels, The Corporation developed loan level quantitative models distributed by geography and loan type. This segmentation was determined by evaluating their risk characteristics, which include default patterns, source of repayment, type of collateral, and lending amongst others. The modeling framework includes competing risk models to generate lifetime defaults and prepayments, and other loan level modeling techniques to estimate loss severity. Recoveries on future losses are contemplated as part of the loss severity modeling. These parameters are estimated by combining internal risk factors with macroeconomic expectations. In order to generate the expected credit losses, the output of these models is combined with loan level repayment information. The internal risk factors contemplated within the models may include borrowers’ credit scores, loan-to-value, delinquency status, risk ratings, interest rate, loan term, loan age and type of collateral, amongst others. The ACL also includes a qualitative framework that addresses two main components: losses that are expected but not captured within the quantitative modeling framework, and model imprecision. In order to identify potential losses that are not captured through the models, management evaluates model limitations as well as the different risks covered by the variables used in each quantitative model. The Corporation considers additional macroeconomic scenarios to address these risks. This assessment takes into consideration factors listed as part of ASC 326-20-55-4. To complement the analysis, management also evaluates whether there are sectors that have low levels of historical defaults, but current conditions show the potential for future losses. This type of qualitative adjustment is more prevalent in the commercial portfolios. The model imprecision component of the qualitative adjustments is determined after evaluating model performance for these portfolios through different time periods. This type of qualitative adjustment mainly impacts consumer portfolios. is used when repayment The Corporation has designated as collateral dependent loans secured by collateral when foreclosure is probable or when foreclosure is not probable but the practical expedient is used. The practical expedient is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The ACL of collateral dependent loans is measured based on the fair value of the collateral less costs to sell. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. further behaviors were The Credit Cards portfolio, due to its revolving nature, does not have a specified maturity date. To estimate the average remaining term of this segment, management evaluated the portfolios payment behavior based on internal historical data. classified into These payment sub-categories that accounted for delinquency history and differences between transactors, revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without any finance charge in the last 6 months. The paydown curves generated for each sub-category are applied to the outstanding exposure at the measurement (FIFO) the methodology. These amortization patterns are combined with loan level default and loss severity modeling to arrive at the ACL. first-in first-out date using establishes Reserve for unfunded commitments The Corporation unfunded a commitments, based on the estimated losses over the remaining term of the facility. An allowance is not established for commitments that are unconditionally cancellable by the established for Corporation. Accordingly, no reserve reserve for is POPULAR, INC. 2023 ANNUAL REPORT 67 unfunded commitments related to its credit cards portfolio. Reserve for the unfunded portion of credit commitments is presented within other in the Consolidated Statements of Financial Condition. Net adjustments to the reserve for unfunded commitments are reflected in the Consolidated Statements of Operations as provision for credit losses for the years ended December 31, 2023 and 2022. liabilities Transfers and servicing of financial assets The transfer of an entire financial asset, a group of entire financial assets, or a participating interest in an entire financial asset in which the Corporation surrenders control over the assets is accounted for as a sale if all of the following conditions set forth in ASC Topic 860 are met: (1) the assets must be isolated from creditors of the transferor, (2) the transferee must obtain the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the transferor cannot maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. When the Corporation transfers financial assets and the transfer fails any one of these criteria, the Corporation is prevented from derecognizing the transferred financial assets and the transaction is accounted for as a secured borrowing. For federal and Puerto Rico income tax purposes, the Corporation treats the transfers of loans which do not qualify as “true sales” under the applicable accounting guidance, as sales, recognizing a deferred tax asset or liability on the transaction. sold; For transfers of financial assets that satisfy the conditions to be accounted for as sales, the Corporation derecognizes all assets recognizes all assets obtained and liabilities incurred in consideration as proceeds of the sale, including servicing assets and servicing liabilities, if applicable; initially measures at fair value assets obtained and liabilities incurred in a sale; and recognizes in earnings any gain or loss on the sale. The guidance on transfer of financial assets requires a true sale analysis of the treatment of the transfer under state law as if the Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a true sale is never absolute and unconditional, but contains qualifications based on the inherent equitable powers of a bankruptcy court, as well as the unsettled state of the common law. Once the legal isolation test has been met, other the factors concerning the nature and extent of transferor’s control over the transferred assets are taken into account in order to determine whether derecognition of assets is warranted. The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”) in the normal course of business and retains the servicing rights. The GNMA programs under which the loans are sold allow the Corporation 68 POPULAR, INC. 2023 ANNUAL REPORT to repurchase individual delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may repurchase the delinquent loan for an amount equal to 100% of the remaining principal balance of the unconditional ability to repurchase the delinquent loan, the Corporation is deemed to have regained effective control over the loan and recognizes the loan on its balance sheet as well as an offsetting liability, regardless of the Corporation’s intent to repurchase the loan. the Corporation has loan. Once the the servicer loans originated by others. Whenever Servicing assets The Corporation periodically sells or securitizes loans while retaining the obligation to perform the servicing of such loans. In addition, the Corporation may purchase or assume the right to service the Corporation undertakes an obligation to service a loan, management assesses whether a servicing asset or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to more than adequately compensate for performing the servicing. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate the Corporation for its expected cost. Mortgage servicing assets recorded at fair value are separately presented on the Consolidated Statements of Financial Condition. All separately recognized servicing assets are initially recognized at fair value. For subsequent measurement of servicing rights, the Corporation has elected the fair value method for mortgage loans servicing rights (“MSRs”). Under the fair value measurement method, MSRs are recorded at fair value each reporting period, and changes in fair value are reported in mortgage banking activities in the Consolidated Statement of Operations. Contractual servicing fees including ancillary income and late fees, as well as fair value adjustments, are reported in mortgage banking activities in the Consolidated Statement of Operations. Loan servicing fees, which are based on a percentage of the principal balances of the loans serviced, are credited to income as loan payments are collected. The fair value of servicing rights is estimated by using a cash flow valuation model which calculates the present value of estimated future net taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. servicing cash flows, Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-line basis over the estimated useful life of each type of asset. Amortization of leasehold improvements is computed over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Costs of maintenance and repairs which do not improve or extend the life of the respective assets are expensed as incurred. Costs of renewals and betterments are capitalized. When assets are disposed of, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reflected in earnings as realized or incurred, respectively. incurred during The Corporation capitalizes interest cost incurred in the construction of significant real estate projects, which consist primarily of facilities for its own use or intended for lease. The amount of interest cost capitalized is to be an allocation of the the period required to interest cost substantially complete for interest capitalization purposes is to be based on a weighted average rate on the Corporation’s outstanding borrowings, unless there is a specific new borrowing associated with the asset. Interest cost capitalized for the years ended December 31, 2023, 2022 and 2021 was not significant. asset. The rate the right-of-use assets The Corporation recognizes (“ROU assets”) and lease liabilities relating to operating and finance lease arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance leases, interest is recognized on the lease liability separately from the amortization of the ROU asset, whereas for operating leases a single lease cost is recognized so that the cost of the lease is allocated over the lease term on a straight-line basis. Impairments on ROU assets are evaluated under the guidance for impairment or disposal of long-lived assets. The Corporation recognizes gains on sale and leaseback transactions in earnings when the transfer constitutes a sale, and the transaction was at to Note 33 to the fair value. Refer Consolidated Financial Statements for additional information on operating and finance lease arrangements. Impairment of long-lived assets The Corporation evaluates for impairment its long-lived assets to be held and used, and long-lived assets to be disposed of, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and records a write down for the difference between the carrying amount and the fair value less costs to sell. Other real estate Other real estate, received in satisfaction of a loan, is recorded at fair value less estimated costs of disposal. The difference between the carrying amount of the loan and the fair value less cost to sell is recorded as an adjustment to the ACL. Subsequent to foreclosure, any losses in the carrying value arising from periodic re-evaluations of the properties, and any gains or losses on the sale of these properties are credited or charged to expense in the period incurred and are included as OREO expenses. The cost of maintaining and operating such properties is expensed as incurred. Updated appraisals are obtained to adjust the value of the other real estate assets. The frequency depends on the loan type and total credit exposure. The appraisal for a commercial or construction other real estate property with a book value equal to or greater than $1 million is updated annually and if lower than $1 million it is updated every two years. For residential the Corporation requests appraisals mortgage properties, annually. to age, adjusted due Appraisals may be collateral inspections, property profiles, or general market conditions. The adjustments applied are based upon internal information such as other appraisals for the type of properties and/or loss severity information that can provide historical trends in the real estate market and may change from time to time based on market conditions. if events or circumstances Goodwill and other intangible assets Goodwill is recognized when the purchase price is higher than the fair value of net assets acquired in business combinations under the purchase method of accounting. Goodwill is not amortized but is tested for impairment at least annually or more frequently indicate possible impairment. If the carrying amount of any of the reporting units exceeds its fair value, the Corporation would be required to record an impairment charge for the difference up to the amount of the goodwill. In determining the fair value of each reporting unit, the Corporation generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Goodwill impairment losses are recorded as part of operating in the Consolidated Statements of Operations. expenses Other intangible assets deemed to have an indefinite life are not amortized but are tested for impairment using a one-step process which compares the fair value with the carrying amount of the asset. In determining that an intangible asset has an indefinite life, the Corporation considers expected cash inflows competitive, economic and other factors, which could limit the intangible asset’s useful life. contractual, and legal, regulatory, Other identifiable intangible assets with a finite useful life, mainly core deposits, are amortized using various methods over the periods benefited, which range from 5 to 10 years. These intangibles are evaluated periodically for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments on intangible assets with a finite useful life are evaluated under the guidance for impairment or disposal of long-lived assets. Assets sold / purchased under agreements to repurchase / resell Repurchase and resell agreements are treated as collateralized financing transactions and are carried at the amounts at which POPULAR, INC. 2023 ANNUAL REPORT 69 the assets will be subsequently reacquired or resold as specified in the respective agreements. to agreements resell. However, It is the Corporation’s policy to take possession of securities purchased under the counterparties to such agreements maintain effective control over such securities, and accordingly those securities are not reflected in the Corporation’s Consolidated Statements of Financial Condition. The Corporation monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the Consolidated Statements of Financial Condition. The Corporation may require counterparties to deposit return collateral pledged, when collateral or additional appropriate. stated at cost, Software Capitalized software is less accumulated amortization. Capitalized software includes purchased software and capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line method, the estimated useful life of the software. Capitalized software is included in “Other assets” in the Consolidated Statement of Financial Condition. is charged to operations over Guarantees, including indirect guarantees of indebtedness to others The estimated losses to be absorbed under the credit recourse arrangements are recorded as a liability when the loans are sold and are updated by accruing or reversing expense (categorized in the line item “Adjustments (expense) to indemnity reserves on loans sold” in the Consolidated Statements of Operations) throughout the life of the loan, as necessary, when additional relevant information becomes available. The methodology used to estimate the recourse liability considers current conditions, macroeconomic expectations through a 2-years reasonable and historical supportable to macroeconomic variables at level over a 3-years, portfolio composition by risk characteristics, amongst other factors. Statistical methods are used to estimate the recourse liability. Expected loss rates are applied to different loan segmentations. The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The reserve for the estimated losses under the credit recourse arrangements is presented separately within other liabilities in the Consolidated Statements of Financial Condition. Refer to Note 23 to the Consolidated Financial Statements for further disclosures on guarantees. the model gradually reverting period, input 70 POPULAR, INC. 2023 ANNUAL REPORT Treasury stock Treasury stock is recorded at cost and is carried as a reduction of stockholders’ equity in the Consolidated Statements of Financial Condition. At the date of retirement or subsequent reissue, the treasury stock account is reduced by the cost of such stock. At retirement, the excess of the cost of the treasury stock over its par value is recorded entirely to surplus. At reissuance, the difference between the consideration received upon issuance and the specific cost is charged or credited to surplus. Revenues from contract with customers Refer to Note 32 for a detailed description of the Corporation’s policies on the recognition and presentation of revenues from contract with customers. Foreign exchange Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using prevailing rates of exchange at the end of the period. Revenues, expenses, gains and losses are translated using weighted average rates for the period. The resulting from operations for which the functional currency is other than the U.S. dollar is reported in accumulated other comprehensive income (loss), except for highly inflationary environments in which the effects are included in other operating expenses. translation adjustment foreign currency The Corporation holds interests in Centro Financiero BHD León, S.A. (“BHD León”) in the Dominican Republic. The business of BHD León is mainly conducted in their country’s foreign currency. The resulting foreign currency translation adjustment from these operations is reported in accumulated other comprehensive (loss) income (loss). Refer to the disclosure of accumulated other comprehensive income (loss) included in Note 22. Income taxes The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation’s financial statements or tax are returns. Deferred income determined for differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The computation is based on enacted tax laws and rates applicable to periods in which the temporary differences are expected to be recovered or settled. and liabilities tax assets The guidance for income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not (defined as a likelihood of more than 50 percent) that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically by the Corporation based on the more likely than not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among others, all sources of taxable income available to realize the deferred tax asset, including the future reversal of existing temporary differences, the future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies. In making such assessments, significant weight is given to evidence that can be objectively verified. The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns and future profitability. The Corporation’s accounting for deferred tax consequences represents management’s best estimate of those future events. on plan assets, as well as deferral and amortization of certain items such as actuarial gains or losses. The funding policy is to contribute to the plan, as necessary, to provide for services to date and for those expected to be earned in the future. To the extent that these requirements are fully covered by assets in the plan, a contribution may not be made in a particular year. The cost of postretirement benefits, which is determined based on actuarial assumptions and estimates of the costs of providing these benefits in the future, is accrued during the years that the employee renders the required service. The guidance for compensation retirement benefits of ASC Topic 715 requires the recognition of the funded status of each defined pension benefit plan, retiree health care and other postretirement benefit plans on the Consolidated Statements of Financial Condition. to by taxing challenge Positions taken in the Corporation’s tax returns may be subject authorities upon the examination. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not (greater than 50%) that the position will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts. The amount of unrecognized tax benefit may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level of uncertainty, including addition or elimination of uncertain tax positions, status of examinations, litigation, settlements with tax authorities and legislative activity. Stock-based compensation The Corporation opted to use the fair value method of recording stock-based compensation as described in the guidance for employee share plans in ASC Subtopic 718-50. Comprehensive income Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, except those resulting from owners. and investments Comprehensive income (loss) is separately presented in the Consolidated Statements of Comprehensive Income. distributions owners by to The Corporation accounts for the taxes collected from customers and remitted to governmental authorities on a net basis (excluded from revenues). Income tax expense or benefit for the year is allocated among continuing operations, discontinued operations, and other comprehensive income (loss), as applicable. The amount allocated to continuing operations is the tax effect of the pre-tax income or loss from continuing operations that occurred during the year, plus or minus income tax effects of (a) changes in circumstances that cause a change in judgment about the realization of deferred tax assets in future years, (b) changes in tax and (d) tax-deductible dividends paid to stockholders, subject to certain exceptions. changes in tax status, rates, laws (c) or Employees’ retirement and other postretirement benefit plans Pension costs are computed on the basis of accepted actuarial methods and are charged to current operations. Net pension costs are based on various actuarial assumptions regarding future experience under the plan, which include costs for services rendered during the period, interest costs and return Net income per common share Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or unpaid dividends if cumulative, and charges or credits related to the extinguishment of preferred stock or induced conversions of preferred stock, by the weighted average number of common shares outstanding during the year. Diluted income per common share takes into consideration the weighted average common shares adjusted for the effect of shares and restricted stock, performance stock options, warrants, if any, using the treasury stock method. Statement of cash flows For purposes of reporting cash flows, cash includes cash on hand and amounts due from banks, including restricted cash. POPULAR, INC. 2023 ANNUAL REPORT 71 Note 3 - New accounting pronouncements Recently Adopted Accounting Standards Updates Standard FASB ASU 2023-04, Liabilities (Topic 405) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 121 FASB ASU 2023-03, Presentation of Financial Statements (Topic 205), Income Statement – Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation – Stock Compensation (Topic 718) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 – General Revision of Regulation S- X: Income or Loss Applicable to Common Stock FASB ASU 2022-05, Financial Services – Insurance (Topic 944) – Transition for Sold Contracts FASB ASU 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50) – Disclosure of Supplier Finance Program Obligations Description The Financial Accounting Standards Board (“FASB”) Standards issued Accounting Update (“ASU”) 2023-04 in August 2023 which amends paragraphs within ASC Topic 405 to clarify the accounting and to safeguard disclosure for obligations Crypto-Assets held by an entity for its platform users. The FASB issued ASU 2023-03 in July 2023 which amends or supersedes various SEC paragraphs within to conform to past SEC announcements and guidance which updated SAB Topics 5.T, 14, and 6. B. the Codification Date of adoption August 2023 Effect on the financial statements The Corporation was not impacted by the adoption of this ASU since it does not hold crypto-assets for its platform users. July 1, 2023 The Corporation was not impacted by the adoption of this ASU since it codifies previous guidance. January 1, 2023 The Corporation was not impacted by the adoption of ASU 2022-05 during the first quarter of 2023 since it does not hold Long- Duration Contracts (LDTI). the an accounting policy The FASB issued ASU 2022-05 in December 2022, which allows an insurance entity to election of make applying Long-Duration Contracts (LDTI) transition guidance on a transaction- by-transaction basis if the contracts have been derecognized because of a sale or disposal and the insurance entity has no significant continuing involvement with the derecognized contract. The FASB issued ASU 2022-04 in September 2022, which requires to disclose information about the use of supplier finance programs in connection with the purchase of goods and services. January 1, 2023 The Corporation was not impacted by the adoption of ASU 2022-04 since it does not use supplier finance programs. 72 POPULAR, INC. 2023 ANNUAL REPORT Standard FASB ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures FASB ASU 2022-01, Derivatives and Hedging (Topic 815) – Fair Value Hedging – Portfolio Layer Method FASB ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers Description Date of adoption Effect on the financial statements the and Subtopic in ASC troubled debt refinancing to The FASB issued ASU 2022-02 in March accounting 2022, which eliminates restructurings guidance for (“TDRs”) 310-40 Receivables – Troubled Debt Restructurings by Creditors and requires creditors to apply restructuring the loan guidance a whether determine modification results in a new loan or a continuation of an existing loan. In addition, disclosure the requirements for certain loan refinancing and restructurings by creditors when a borrower is and financial enhances the vintage disclosure by requiring the disclosure of current-period gross write- offs by year of origination for financing receivables and net investments in leases. experiencing enhances difficulty ASU the January 1, 2023 this The Corporation adopted ASU 2022-02 during the first quarter of 2023. The adoption of standard resulted in enhanced disclosure for loans modified to borrowers with financial difficulties and the disclosure of period gross charge offs by vintage year. The Corporation anticipates that there will be loans subject to disclosure under the new standard that did not qualify under the prior guidance given the removal of the concession such disclosures. The requirement for guidance amended the eliminated requirement to measure the effect of the concession from a loan modification, for which the Corporation used a discounted cash flow (“DCF”) model. The impact of discontinuing the use of the DCF model to measure the concession resulted in a release of the allowance for credit losses (“ACL”) of $46 million, mainly related to mortgage loans for which modifications mostly included a reduction in contractual interest rates and given the extended maturity term of these loans, this resulted in an increase in the ACL in the period of modification. For the transition method related to the recognition and measurement of TDRs, the Corporation has the modified retrospective approach for the adoption of this standard. Accordingly, this presented an adjustment increase of $29 million, net of tax effect, to the beginning balance of retained earnings on January 1, 2023. elected apply to The FASB issued ASU 2022-01 in March 2022, which amends ASC Topic 815 by allowing non prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. This amendment permits an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable and non- prepayable considering financial prepayment risk when or measuring those assets. without credit assets risk contract The FASB issued ASU 2021-08 in October 2021, which amends ASC Topic 805 by requiring contract liabilities arising from revenue contract with customers to be recognized in accordance with ASC Topic 606 on the acquisition date instead of fair value. assets and January 1, 2023 The Corporation was not impacted by the adoption of ASU 2022-01 since it does not hold derivatives designated as fair value hedges. January 1, 2023 The Corporation was not impacted by the adoption of ASU 2021-08, however, it will consider this guidance for revenue contracts with customers recognized as part of business combinations entered into on or after the effective date. POPULAR, INC. 2023 ANNUAL REPORT 73 Accounting Standards Updates Not Yet Adopted Standard FASB ASU 2023-09, Income Tax (Topic 740) – Improvements to Income Tax Disclosures FASB ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60) – Accounting for and Disclosure of Crypto Assets Description Date of adoption Effect on the financial statements January 1, 2025 The Corporation is currently evaluating the impact that the adoption of this guidance will have on its financial statements and presentation and disclosures. January 1, 2025 The Corporation does not expect to be impacted by the adoption of this ASU since it does not hold crypto-assets its platform users. for The FASB issued ASU 2023-09 in December 2023, which amends ASC topic 740 by enhancing disclosures regarding rate reconciliation and requiring the disclosure of income taxes paid, income (or loss) from continuing operations before income tax expense expense income disaggregated by national, state and foreign level. Disclosures that no longer were considered cost beneficial or relevant were removed from ASC topic 740 and tax of in The FASB issued ASU 2023-08 December 2023, which amends ASC subtopic 350-60 by requiring that crypto assets are measured at fair value in the each financial position statement reporting period with changes from remeasurement being recognized in net income. The ASU also requires enhanced disclosures for both annual and interim reporting periods to provide investors with relevant information to analyze and assess the significant and risk of individual crypto asset holdings. exposure FASB ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures The FASB issued ASU 2023-07 in November 2023, which amends ASC topic 280 by requiring additional disclosures about significant segment expenses. For fiscal years beginning on January 1, 2024 For interim periods within fiscal years beginning after January 1, 2025 The Corporation is currently evaluating the impact that the adoption of this guidance will have on its and financial presentation and disclosures. statements 74 POPULAR, INC. 2023 ANNUAL REPORT Description Date of adoption Effect on the financial statements Standard FASB ASU 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative The FASB issued ASU 2023-06 in October 2023 which modifies the disclosure or presentation various requirements subtopics in the Codification with the purpose aligning U.S. GAAP requirement with those of the SEC under Regulation S-X and S-K. of of The date on which the SEC removes related disclosure requirements from Regulation S-X or Regulation S-K. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. January 1, 2025 The Corporation does not expect to be impacted by the adoption of this ASU since it to SEC’s current disclosure and presentation requirements under Regulation S-X and S-K. is currently subject Upon adoption of this ASU, the Corporation will consider this guidance for the initial measure of assets and liabilities of newly created joint ventures. January 1, 2024 The Corporation does not expect to be impacted by the adoption of this ASU since it does not hold investments in tax equity investments. POPULAR, INC. 2023 ANNUAL REPORT 75 FASB ASU 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60) – Recognition and initial measurement The FASB issued ASU 2023-05 in August 2023, which amends ASC subtopic 805-60 to include specific guidance about how joint ventures should recognize and initially measure assets contributed and liabilities assumed. The amendments require that a joint venture, upon formation, recognize and initially measure its assets and liabilities at fair value. FASB ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323) – Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method the credits income in low- election to apply amortization method The FASB issued ASU 2023-02 in March 2023, which amend ASC topic 323 by the permitting proportional to account for tax equity investments that generate through tax income-housing tax investment credit (LIHTC) structures and other tax credit programs if certain conditions are met. The ASU also the application of the ASC subtopic 323-740 to LIHTC investment not accounted for using amortization proportional method and instead requires the use of other guidance. eliminates the Standard FASB ASU 2023-01, Leases (Topic 842) – Common Control Arrangements FASB ASU 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction Description Date of adoption Effect on the financial statements amortization leases over the useful The FASB issued ASU 2023-01 in March 2023, which amends ASC Topic 842 and requires leasehold the associated with common improvements life of the control to the common leasehold improvements control group as long as the lessee controls the use of the underlying assets through a the ASU requires lease. In companies leasehold for associated with common improvements control leases as a transfer between entities under an adjustments to equity if, and when, the lessee no longer controls the use of the underlying asset. addition, to common through account control The FASB issued ASU 2022-03 in June 2022, which clarifies that a contractual restriction that prohibits the sale of an equity security is not considered part of the unit of account of the not considered in measuring its fair value. The ASU also provides enhanced disclosures for equity securities subject to a contractual sale restriction. therefore, security, equity is January 1, 2024 The Corporation does not expect to be impacted by the adoption of this ASU since it does not hold common control leasehold improvements, however, it will consider this guidance amortization period for and accounting treatment of leasehold improvements associated with common control leases acquired on or after the effective date. to determine the January 1, 2024 The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect in its consolidated statement of financial condition and results of operations. 76 POPULAR, INC. 2023 ANNUAL REPORT Note 4 - Business combinations Acquisition of key customer channels and business from Evertec On July 1, 2022, BPPR completed its previously announced acquisition of certain assets used by Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Business to service certain BPPR channels (“Evertec”), Acquisition Transaction”). the closing of As a result of the Business Acquisition Transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. In connection with the Business Acquisition Transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries. Under the amended service agreements, Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. The amended service agreements include discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec also entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. Under the terms of the amended and restated Master Service Agreement (“MSA”), Evertec will be entitled to receive monthly payments from the Corporation to the extent that Evertec’s revenues, covered under the MSA, fall below certain agreed annualized minimum amounts. As consideration for the Business Acquisition Transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169.2 million (based on Evertec’s stock price on June 30, 2022 of $36.88). A total of $144.8 million of the consideration for the transaction was attributed to the acquisition of the critical channels of which $28.7 million were attributed to Software Intangible Assets and $116.1 million were attributed to goodwill. The transaction was accounted for as a business combination. The remaining $24.2 million was attributed to the renegotiation of the MSA with Evertec and was recorded as an expense. The Corporation also recorded a credit of $6.9 million in Evertec billings under the MSA during the third quarter of 2022 as a result of the Business Acquisition Transaction, resulting in a net expense charge of $17.3 million. On August 15, 2022, the Corporation completed the sale of its remaining 7,065,634 shares of common stock of Evertec (the “Evertec Stock Sale”, and collectively with the Business Acquisition Transactions”). the Following the Evertec Stock Sale, Popular no longer owns any Evertec common stock. The impact of the gain on the sale of the Business Evertec consideration for shares used as Transaction, “Evertec for the Acquisition Transaction in exchange acquired applications on July 1, 2022 and the net expense associated with the renegotiation of the MSA, together with the Evertec Stock Sale and the related accounting adjustments of the Evertec Transactions, resulted in an aggregate after-tax gain of $226.6 million, recorded during the third quarter of 2022. the fair values of the consideration and major classes of identifiable assets acquired by BPPR as of July 1, 2022. The following table presents (In thousands) Stock consideration Total consideration Assets: Developed technology – Software intangible assets Total assets Net assets acquired Goodwill on acquisition Fair Value $144,785 $144,785 $ 28,650 $ 28,650 $ 28,650 $116,135 The following is a description of the methods used to determine the fair values of significant assets acquired in the Business Acquisition Transaction: Developed technology – Software intangible assets In order to determine the fair value of the developed technology acquired, the Corporation considered the guidance in ASC Topic 820, Fair Value Measurements. The Corporation used the cost replacement methodology and estimated the cost that would be incurred in developing the acquired technology as the assets’ fair value. In developing this estimate, the Corporation considered the historical direct costs as well as indirect costs and applied an inflation factor to arrive at what would be the current the cost. To this Corporation applied an obsolescence factor to arrive at the acquired technology. The the estimated fair obsolescence factor considered the estimated remaining useful life of considering existing and upcoming technology changes, as well as the scalability of the system architecture for further developments. This software acquired for internal use is recorded within Other Assets in the accompanying Consolidated Financial Statements and will be amortized over its current estimated remaining useful life of 5 years. acquired software, estimated cost, replacement value of the is the goodwill residual difference Goodwill The between the consideration transferred to Evertec and the fair value of the assets acquired, net of the liabilities assumed, if any. The entire is deductible for income tax purposes amount of goodwill pursuant Internal Revenue Code (“IRC”) section to P.R. 1033.07 over a 15-year period. POPULAR, INC. 2023 ANNUAL REPORT 77 The Corporation believes that given the amount of assets acquired and the size of the operations acquired in relation to Popular’s operations, the historical results of Evertec are not material to Popular’s results, and thus no pro forma information is presented. Note 5 - Restrictions on cash and due from banks and certain securities BPPR is required by regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $2.7 billion at December 31, 2023 (December 31, 2022 - $2.8 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances. At December 31, 2023, the Corporation held $78 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2022 - $80 million). The restricted assets held in debt securities available for sale and equity securities consist primarily of assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing insured possible liens or encumbrances over the title of properties. Note 6 – Debt securities available-for-sale The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities available-for-sale at December 31, 2023 and December 31, 2022. (In thousands) U.S. Treasury securities Within 1 year After 1 to 5 years After 5 to 10 years Total U.S. Treasury securities Collateralized mortgage obligations - federal agencies After 1 to 5 years After 5 to 10 years After 10 years Total collateralized mortgage obligations - federal agencies Mortgage-backed securities Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total mortgage-backed securities Other Within 1 year After 1 to 5 years Total other At December 31, 2023 Gross unrealized losses Gross unrealized gains Fair value Weighted average yield Amortized cost $ 7,103,518 3,598,209 307,512 11,009,239 $ 526 84 – 610 $ 59,415 170,209 33,164 $ 7,044,629 3,428,084 274,348 3.51% 1.35 1.63 262,788 10,747,061 2.75 17,899 20,503 108,280 146,682 637 82,310 792,431 6,067,353 6,942,731 1,011 1,500 2,511 – 2 29 31 – 11 75 667 753 – – – 838 1,321 9,868 17,061 19,184 98,441 12,027 134,686 3 3,536 48,250 1,046,909 634 78,785 744,256 5,021,111 1,098,698 5,844,786 – – – 1,011 1,500 2,511 1.55 2.28 2.54 2.38 3.72 2.34 2.28 1.64 1.72 4.00 8.50 6.69 Total debt securities available-for-sale[1] $18,101,163 $1,394 $1,373,513 $16,729,044 2.35% [1] Includes $12 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $11.1 billion serve as collateral for public funds. The Corporation had unpledged Available for Sale securities with a fair value of $4.6 billion that could be used to increase its borrowing facilities. 78 POPULAR, INC. 2023 ANNUAL REPORT (In thousands) U.S. Treasury securities Within 1 year After 1 to 5 years After 5 to 10 years Total U.S. Treasury securities Collateralized mortgage obligations - federal agencies After 1 to 5 years After 5 to 10 years After 10 years Total collateralized mortgage obligations - federal agencies Mortgage-backed securities After 1 to 5 years After 5 to 10 years After 10 years Total mortgage-backed securities Other After 1 to 5 years Total other At December 31, 2022 Gross unrealized losses Gross unrealized gains Fair value Weighted average yield Amortized cost $ 4,576,127 6,793,739 308,854 11,678,720 $ 506 – – 506 $ 47,156 410,858 40,264 $ 4,529,477 6,382,881 268,590 2.42% 1.35 1.63 498,278 11,180,948 1.78 3,914 47,979 127,639 179,532 74,328 866,757 6,762,150 7,703,235 1,062 1,062 – – 24 24 11 43 932 986 – – 213 3,428 10,719 14,360 3,701 44,551 116,944 165,196 3,428 58,997 1,184,626 70,911 807,803 5,578,456 1,247,051 6,457,170 2 2 1,060 1,060 1.77 1.73 2.53 2.30 2.33 2.16 1.61 1.68 3.98 3.98 Total debt securities available-for-sale[1] $19,562,549 $1,516 $1,759,691 $17,804,374 1.75% [1] Includes $11.3 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $10.3 billion serve as collateral for public funds. The Corporation had unpledged Available for Sale securities with a fair value of $6.4 billion that could be used to increase its borrowing facilities. The weighted average yield on debt securities available-for- sale is based on amortized cost; therefore, it does not give effect to changes in fair value. Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer. The following table presents the aggregate amortized cost at available-for-sale value of debt and fair December 31, 2023 by contractual maturity. securities (In thousands) Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total debt securities available-for-sale Amortized cost Fair value $ 7,105,166 3,699,918 1,120,446 6,175,633 $ 7,046,274 3,525,430 1,037,788 5,119,552 $18,101,163 $16,729,044 At December 31, 2023, the Corporation did not intend to sell or believed it was more likely than not that it would be required to sell debt securities classified as available-for-sale. There were no debt securities available-for-sale sold during the years ended December 31, 2023 and December 31, 2022. During the year ended December 31, 2021, the Corporation sold U.S Treasury Notes. The proceeds from these sales were $236 million. Gross realized gains and losses on the sale of debt securities available-for-sale for the years ended December 31, 2023, 2022 and 2021 were as follows: (In thousands) Gross realized gains Gross realized losses 2023 2022 2021 $ – – $ – – $ 695 (672) Net realized gains (losses) on sale of debt securities available-for-sale $ – $– $ 23 POPULAR, INC. 2023 ANNUAL REPORT 79 The following tables present the Corporation’s fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022. (In thousands) Less than 12 months Gross unrealized losses Fair value At December 31, 2023 12 months or more Gross unrealized losses Fair value Fair value Total U.S. Treasury securities Collateralized mortgage obligations - federal agencies Mortgage-backed securities $ 244,925 5,234 37,118 $ 5,126 35 405 $ 6,550,941 124,930 5,779,260 $ 257,662 11,992 1,098,293 $ 6,795,866 130,164 5,816,378 Gross unrealized losses $ 262,788 12,027 1,098,698 Total debt securities available-for-sale in an unrealized loss position $ 287,277 $ 5,566 $12,455,131 $1,367,947 $12,742,408 $1,373,513 (In thousands) U.S. Treasury securities Collateralized mortgage obligations - federal agencies Mortgage-backed securities Other Total debt securities available-for-sale in an unrealized Less than 12 months Gross unrealized losses Fair value At December 31, 2022 12 months or more Gross unrealized losses Fair value Fair value Total $6,027,786 139,845 1,740,214 60 $288,582 10,655 138,071 2 $ 3,244,572 22,661 4,662,195 – $ 209,696 3,705 1,108,980 – $ 9,272,358 162,506 6,402,409 60 Gross unrealized losses $ 498,278 14,360 1,247,051 2 loss position $7,907,905 $437,310 $ 7,929,428 $1,322,381 $15,837,333 $1,759,691 As of December 31, 2023, the portfolio of available-for-sale debt securities reflects gross unrealized losses of $1.4 billion, driven mainly by fixed-rate U.S. Treasury Securities and mortgage-backed securities, which have been impacted by a decline in fair value as a result of the rising interest rate environment. The portfolio of available-for-sale debt securities is comprised mainly of U.S Treasuries and obligations from the U.S. Government, sponsored entities, including FNMA, FHMLC and GNMA. As discussed in these Note 2 to the Consolidated Financial Statements, securities carry an explicit or implicit guarantee from the U.S. Government, are highly rated by major rating agencies, and have a long history of no credit the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established. its agencies or government losses. Accordingly, In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for-sale portfolio to its held-to- maturity portfolio. Management changed its intent, given its ability to hold these securities to maturity due to the Corporation’s liquidity position and its intention to reduce the impact on accumulated other comprehensive income (loss) (“AOCI”) and tangible capital of further increases in interest rates. The securities were reclassified at fair value at the time of the transfer. At the date of the transfer, these securities had pre- tax unrealized losses of $873 million recorded in AOCI. This fair value discount is being accreted to interest income and the is being amortized, unrealized loss the offsetting each other securities. There were no realized gains or losses recorded as a result of this transfer. through the remaining life of remaining in AOCI 80 POPULAR, INC. 2023 ANNUAL REPORT Note 7 –Debt securities held-to-maturity The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at December 31, 2023 and 2022. (In thousands) U.S. Treasury securities Within 1 year After 1 to 5 years After 5 to 10 years Total U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations - federal agencies Within 1 year After 10 years Total collateralized mortgage obligations - federal agencies Securities in wholly owned statutory business trusts After 10 years Total securities in wholly owned statutory business trusts At December 31, 2023 Amortized cost Book [1] Value Allowance for Credit Losses Carrying Value Net of Allowance Gross unrealized gains Gross unrealized losses Fair value Weighted average yield $ 597,768 $ 597,768 7,971,072 7,335,159 188,484 211,061 $ 8,779,901 8,121,411 – – – – $ 597,768 7,335,159 188,484 8,121,411 $ – 637 – 637 $ 7,526 $ 590,242 7,313,800 21,996 188,297 187 2.58% 1.39 1.50 29,709 8,092,339 1.47 4,820 20,171 845 39,572 4,820 20,171 845 39,572 9 147 28 5,596 4,811 20,024 817 33,976 3 96 28 2,814 – 125 – 2,766 4,814 19,995 845 34,024 6.17 3.80 5.80 1.41 65,408 65,408 5,780 59,628 2,941 2,891 59,678 2.55 13 1,543 13 1,543 1,556 1,556 5,960 5,960 5,960 5,960 – – – – – 13 1,543 1,556 5,960 5,960 – – – – – – 148 148 – – 13 1,395 6.44 2.87 1,408 2.90 5,960 6.33 5,960 6.33 Total debt securities held-to-maturity [2] $8,852,825 $8,194,335 $5,780 $8,188,555 $3,578 $32,748 $8,159,385 1.48% [1] [2] Book value includes $658 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to certain securities transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio as discussed in Note 6. Includes $8.1 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The Corporation had unpledged held-to-maturities securities with a fair value of $67.3 million that could be used to increase its borrowing facilities. POPULAR, INC. 2023 ANNUAL REPORT 81 (In thousands) U.S. Treasury securities Within 1 year After 1 to 5 years After 5 to 10 years Total U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations - federal agencies After 1 to 5 years Total collateralized mortgage obligations - federal agencies Securities in wholly owned statutory business trusts After 10 years Total securities in wholly owned statutory business trusts At December 31, 2022 Amortized cost Book [1] Value Allowance for Credit Losses Carrying Value Net of Allowance Gross unrealized gains Gross unrealized losses Fair value Weighted average yield $ 499,034 $ 499,034 6,147,568 5,640,767 2,638,238 2,313,666 $ 9,284,840 8,453,467 $ – – – – $ 499,034 5,640,767 2,313,666 8,453,467 – – – – $ 6,203 $ 492,831 5,580,961 59,806 2,298,809 14,857 2.83% 1.49 1.41 80,866 8,372,601 1.54 4,530 19,105 1,025 41,261 4,530 19,105 1,025 41,261 8 234 34 6,635 ` 4,522 18,871 991 34,626 5 150 34 4,729 – 82 – 2,229 4,527 18,939 1,025 37,126 6.08% 4.24 5.80 1.40 65,921 65,921 6,911 59,010 4,918 2,311 61,617 2.61 19 19 19 19 5,959 5,959 5,959 5,959 – – – – 19 19 5,959 5,959 – – – – – – – – 19 6.44 19 6.44 5,959 6.33 5,959 6.33 Total debt securities held-to-maturity [2] $9,356,739 $8,525,366 $6,911 $8,518,455 $4,918 $83,177 $8,440,196 1.55% [1] [2] Book value includes $831 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to certain securities transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio as discussed in Note 6. Includes $6.9 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The Corporation had unpledged held-to-maturities securities with a fair value of $1.5 billion that could be used to increase its borrowing facilities. Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer. The following table presents the aggregate amortized cost and fair value of debt securities held-to-maturity at December 31, 2023 by contractual maturity. (In thousands) Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total debt securities held-to-maturity 82 POPULAR, INC. 2023 ANNUAL REPORT Amortized cost Book Value Fair value $ 602,601 7,991,243 211,906 47,075 $ 602,601 7,355,330 189,329 47,075 $ 595,069 7,333,795 189,142 41,379 $8,852,825 $8,194,335 $8,159,385 Credit Quality Indicators The following describes the credit quality indicators by major security type that the Corporation considers in its’ estimate to develop the allowance for credit losses for investment securities held-to-maturity. As discussed in Note 2 to the Consolidated Financial Statements, U.S. Treasury securities carry an explicit guarantee from the U.S. Government are highly rated by major rating losses. agencies, and have a long history of no credit Accordingly, loss the Corporation applies these securities has been assumption and no ACL for established. zero-credit a the At December 31, 2023 and December 31, 2022, “Obligations of Puerto Rico, States and political subdivisions” includes securities issued by classified as held-to-maturity, municipalities of Puerto Rico that are generally not rated by a credit rating agency. This includes $19 million of general and special obligation bonds issued by three municipalities of Puerto Rico, that are payable primarily from certain property taxes imposed by the issuing municipality (December 31, 2022 - $25 million). In the case of general obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality, which is required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds. The Corporation performs periodic credit quality reviews of these securities and internally assigns standardized credit risk ratings based on its evaluation. The Corporation considers these ratings in its estimate to develop the allowance for credit losses associated with these securities. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 9 to the Consolidated Financial Statements. The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico aggregated by the internally assigned standardized credit risk rating: (In thousands) At December 31, 2023 At December 31, 2022 Securities issued by Puerto Rico municipalities Watch Pass Total $ 2,255 16,565 $18,820 $13,735 10,925 $24,660 At December 31, 2023, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $40 million in securities issued by the Puerto Rico Housing Finance Authority (“HFA”), a government instrumentality, for which the underlying source of payment is second mortgage loans in Puerto Rico residential properties (not the government), but for which HFA, provides a guarantee in the event of default and upon the satisfaction of certain other conditions (December 31, 2022 - $42 million). These securities are not rated by a credit rating agency. The Corporation assesses risk associated with these securities by evaluating the refreshed FICO scores of a representative sample of the underlying borrowers. At December 31, 2023, the average refreshed FICO score for the representative sample, comprised of 67% of the nominal value of the securities, used for the loss estimate was of 708 (compared to 65% and 707, respectively, at December 31, 2022). The loss estimates for this portfolio was based on the methodology loan established under CECL for obligations. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. the credit similar A further deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation. Refer to Note 24 to the Consolidated Financial Statements for additional information on the Corporation’s exposure to the Puerto Rico Government. At December 31, 2023, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $7 million in securities issued by the HFA for which the underlying source of payment is U.S. Treasury securities. The Corporation applies a zero-credit loss assumption for these securities, and no ACL has been established for these securities given that U.S. Treasury securities carry an explicit guarantee from the U.S. Government, are highly rated by major rating agencies, and have a long history of no credit losses. Refer to Note 2 to the Consolidated Financial Statements for further details. Delinquency status At December 31, 2023 and December 31, 2022, there were no securities held-to-maturity in past due or non-performing status. POPULAR, INC. 2023 ANNUAL REPORT 83 Allowance for credit losses on debt securities held-to-maturity The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type at December 31, 2023 and December 31, 2022: For the year ended December 31, 2023 2022 Obligations of Puerto Rico, States and political subdivisions $ 6,911 (1,131) – – $ 5,780 $ 8,096 (1,185) – – $ 6,911 (In thousands) Allowance for credit losses: Beginning balance Provision for credit losses (benefit) Securities charged-off Recoveries Ending balance The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $0.2 million for securities issued by municipalities of Puerto Rico, and $5.6 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential (compared to $0.3 million and $6.6 million, properties respectively, at December 31, 2022). Note 8 – Loans For a summary of the accounting policies related to loans, interest recognition and allowance for credit losses refer to Note 2 to the Consolidated Financial Statement . During the year ended December 31, 2023, the Corporation recorded purchases (including repurchases) of mortgage loans of $385 million, which include $1 million in Purchased Credit Deteriorated (“PCD”) loans, consumer loans of $127 million and commercial loans of $266 million; compared to purchases (including repurchases) of mortgage loans of $299 million, which include $4 million in PCD loans, consumer loans of $433 million, and commercial loans of $142 million during the year ended December 31, 2022. The Corporation performed whole-loan sales involving approximately $49 million of residential mortgage loans, $45 million of consumer loans, and $82 million of commercial and construction loans during the year ended December 31, 2023 (December 31, 2022 - $63 million of residential mortgage loans and $138 million of commercial and construction loans). Also, during the year ended December 31, 2023, the Corporation securitized approximately $2 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities and $ 35 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities, compared to $169 million and $ 122 million, respectively, during the year ended December 31, the Corporation securitized approximately $9 2022. Also, million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the year ended December 31, 2022. Delinquency status The following tables present the amortized cost basis of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non- performing status or that are accruing interest but are past due 90 days or more at December 31, 2023 and December 31, 2022. 84 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 BPPR Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP Past due 90 days or more Accruing Non-accrual loans loans $ 524 $ – $ 1,991 $ 2,515 $ 289,427 $ 291,942 $ 1,991 $ – 5,510 2,726 6,998 – 260,897 20,140 13,243 230 19,065 100,061 1,641 77 249 3,352 – 114,282 6,719 9,912 – 14,611 27,443 204 8,745 29,430 36,210 6,378 416,528 8,632 23,281 26 19,031 45,615 1,213 14,332 32,405 46,560 6,378 791,707 35,491 46,436 256 52,707 173,119 3,058 2,990,922 1,365,978 4,749,666 163,479 5,600,117 1,696,318 1,089,292 2,392 1,723,603 3,487,661 147,104 3,005,254 1,398,383 4,796,226 169,857 6,391,824 1,731,809 1,135,728 2,648 1,776,310 3,660,780 150,162 8,745 29,430 32,826 6,378 175,106 8,632 – – 19,031 45,615 964 – – 3,384 – 241,422 – 23,281 26 – – 249 (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Credit cards Home equity lines of credit Personal Auto Other Total $431,035 $176,849 $597,080 $1,204,964 $23,305,959 $24,510,923 $328,718 $268,362 December 31, 2023 Popular U.S. Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP Past due 90 days or more Accruing Non-accrual loans loans $ 9,141 $ 2,001 $ – $ 11,142 $ 2,112,536 $ 2,123,678 $ – $ – 566 30,560 7,815 – 48,818 – 1,472 2,222 4 1,036 – 697 – 7,821 – 4 1,948 – 1,117 6,274 3,881 – 11,191 – 3,733 2,805 1 2,719 36,834 12,393 – 67,830 – 5,209 6,975 5 2,079,448 1,645,418 2,317,502 789,423 1,236,263 19 58,096 161,962 10,274 2,082,167 1,682,252 2,329,895 789,423 1,304,093 19 63,305 168,937 10,279 1,117 6,274 3,772 – 11,191 – 3,733 2,805 1 – – 109 – – – – – – (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Consumer: Credit cards Home equity lines of credit Personal Other Total $100,598 $13,507 $29,002 $143,107 $10,410,941 $10,554,048 $28,893 $109 POPULAR, INC. 2023 ANNUAL REPORT 85 December 31, 2023 Popular, Inc. Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP [2] [3] Past due 90 days or more Accruing Non-accrual loans loans $ 9,665 $ 2,001 $ 1,991 $ 13,657 $ 2,401,963 $ 2,415,620 $ 1,991 $ – 6,076 33,286 14,813 – 309,715 20,140 13,243 1,702 21,287 100,061 1,645 1,113 249 4,049 – 122,103 6,719 9,912 4 16,559 27,443 204 9,862 35,704 40,091 6,378 427,719 8,632 23,281 3,759 21,836 45,615 1,214 17,051 69,239 58,953 6,378 859,537 35,491 46,436 5,465 59,682 173,119 3,063 5,070,370 3,011,396 7,067,168 952,902 6,836,380 1,696,318 1,089,311 60,488 1,885,565 3,487,661 157,378 5,087,421 3,080,635 7,126,121 959,280 7,695,917 1,731,809 1,135,747 65,953 1,945,247 3,660,780 160,441 9,862 35,704 36,598 6,378 186,297 8,632 – 3,733 21,836 45,615 965 – – 3,493 – 241,422 – 23,281 26 – – 249 (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage [1] Leasing Consumer: Credit cards Home equity lines of credit Personal Auto Other Total $531,633 $190,356 $626,082 $1,348,071 $33,716,900 $35,064,971 $357,611 $268,471 [1] [2] [3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by Federal Housing Administration (“FHA”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”) as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $106 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2023. Furthermore, as of December 31, 2023, the Corporation had approximately $38 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets. Loans held-in-portfolio are net of $356 million in unearned income and exclude $4 million in loans held-for-sale. Includes $14.2 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $7.0 billion were pledged at the Federal Home Loan Bank (“FHLB”) as collateral for borrowings and $7.2 billion at the Federal Reserve Bank (“FRB”) for discount window borrowings. As of December 31, 2023, the Corporation had an available borrowing facility with the FHLB and the discount window of Federal Reserve Bank of New York of $3.5 billion and $4.4 billion, respectively. 86 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2022 BPPR Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP Past due 90 days or more Accruing Non-accrual loans loans $ 425 $ – $ 242 $ 667 $ 280,706 $ 281,373 $ 242 $ – 941 729 3,036 – 222,926 11,983 7,106 – 13,232 68,868 487 428 245 941 – 91,881 3,563 5,049 – 8,752 19,243 87 23,662 23,990 35,777 – 579,993 5,941 11,910 – 18,082 40,978 12,682 25,031 24,964 39,754 – 894,800 21,487 24,065 – 40,066 129,089 13,256 2,732,296 1,563,092 3,756,754 147,041 5,215,479 1,564,252 1,017,766 2,954 1,545,621 3,383,441 124,324 2,757,327 1,588,056 3,796,508 147,041 6,110,279 1,585,739 1,041,831 2,954 1,585,687 3,512,530 137,580 23,662 23,990 34,277 – 242,391 5,941 – – 18,082 40,978 12,446 – – 1,500 – 337,602 – 11,910 – – – 236 (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Credit cards Home equity lines of credit Personal Auto Other Total $329,733 $130,189 $753,257 $1,213,179 $21,333,726 $22,546,905 $402,009 $351,248 (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Consumer: Credit cards Home equity lines of credit Personal Other December 31, 2022 Popular U.S. Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP Past due 90 days or more Accruing Non-accrual loans loans $ 2,177 $ – $ – $ 2,177 $2,038,163 $2,040,340 $ – $ – 484 – 12,960 – 16,131 – 413 1,808 – – – 2,205 – 5,834 – 161 1,467 – 1,454 5,095 4,685 – 20,488 – 4,110 1,958 8 1,938 5,095 19,850 – 42,453 – 4,684 5,233 8 1,740,405 1,485,398 2,022,842 610,943 1,244,739 39 64,278 232,659 9,960 1,742,343 1,490,493 2,042,692 610,943 1,287,192 39 68,962 237,892 9,968 1,454 5,095 4,319 – 20,488 – 4,110 1,958 8 – – 366 – – – – – – Total $33,973 $9,667 $37,798 $81,438 $9,449,426 $9,530,864 $37,432 $366 POPULAR, INC. 2023 ANNUAL REPORT 87 December 31, 2022 Popular, Inc. Past due 30-59 days 60-89 days 90 days or more Total past due Current Loans HIP [2] [3] Past due 90 days or more Accruing Non-accrual loans loans $ 2,602 $ – $ 242 $ 2,844 $ 2,318,869 $ 2,321,713 $ 242 $ – 1,425 729 15,996 – 239,057 11,983 7,106 413 15,040 68,868 487 428 245 3,146 – 97,715 3,563 5,049 161 10,219 19,243 87 25,116 29,085 40,462 – 600,481 5,941 11,910 4,110 20,040 40,978 12,690 26,969 30,059 59,604 – 937,253 21,487 24,065 4,684 45,299 129,089 13,264 4,472,701 3,048,490 5,779,596 757,984 6,460,218 1,564,252 1,017,805 67,232 1,778,280 3,383,441 134,284 4,499,670 3,078,549 5,839,200 757,984 7,397,471 1,585,739 1,041,870 71,916 1,823,579 3,512,530 147,548 25,116 29,085 38,596 – 262,879 5,941 – 4,110 20,040 40,978 12,454 – – 1,866 – 337,602 – 11,910 – – – 236 (In thousands) Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage [1] Leasing Consumer: Credit cards Home equity lines of credit Personal Auto Other Total $363,706 $139,856 $791,055 $1,294,617 $30,783,152 $32,077,769 $439,441 $351,614 [1] [2] [3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances also include $190 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2022. Furthermore, as of December 31, 2022, the Corporation had approximately $42 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets. Loans held-in-portfolio are net of $295 million in unearned income and exclude $5 million in loans held-for-sale. Includes $7.4 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.8 billion were pledged at the Federal Home Loan Bank (FHLB) as collateral for borrowings and $2.6 billion at the Federal Reserve Bank (FRB) for discount window borrowings. As of December 31, 2022, the Corporation had an available borrowing facility with the FHLB and the discount window of Federal Reserve Bank of New York of $2.1 billion and $1.4 billion, respectively. Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the FHA or guaranteed by VA when 15 months delinquent as to principal or interest, since the principal repayment on these loans is insured. At December 31, 2023, mortgage loans held-in-portfolio include $2.2 billion (December 31, 2022 - $2.0 billion) of loans insured by the FHA, or guaranteed by the VA of which $241.6 million (December 31, 2022 - $337.8 million) are 90 days or more past due. The portfolio of guaranteed loans includes $106 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of December 31, 2023 (December 31, 2022 - $190 million). The Corporation has approximately $38 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not at December 31, 2023 accruing interest (December 31, 2022 - $42 million). Loans with a delinquency status of 90 days past due as of December 31, 2023 include $11 million in loans previously pooled into GNMA securities (December 31, 2022 - $14 million). Under the GNMA program, issuers such as BPPR have 88 POPULAR, INC. 2023 ANNUAL REPORT the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements of BPPR with an offsetting liability. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative. The components of the net finance leases within the C&I December 31, 2023 and 2022 were as follows: financing leases, category, including at receivable (In thousands) Total minimum lease payments Estimated residual value of leased property Deferred origination costs, net of fees Less - Unearned financing income Net minimum lease payments Less - Allowance for credit losses Net minimum lease payments, net of 2023 2022 $1,499,230 $1,336,173 685,757 25,634 351,026 605,638 24,909 293,091 1,859,595 10,920 1,673,629 22,216 allowance for credit losses $1,848,675 $1,651,413 At December 31, 2023, future minimum lease payments are expected to be received as follows: (In thousands) 2024 2025 2026 2027 2028 2029 and thereafter Total $ 69,188 92,293 138,254 249,775 339,962 609,758 $1,499,230 The following tables present the amortized cost basis of non-accrual loans as of December 31, 2023 and December 31, 2022 by class of loans: (In thousands) Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: HELOCs Personal Auto Other Total (In thousands) Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: HELOCs Personal Auto Other Total December 31, 2023 BPPR Popular U.S. Popular, Inc. Non-accrual with no allowance Non-accrual with allowance Non-accrual with no allowance Non-accrual with allowance Non-accrual with no allowance Non-accrual with allowance $ – 3,695 20,432 6,991 – 84,677 481 – 3,589 1,833 263 $ 1,991 5,050 8,998 25,835 6,378 90,429 8,151 – 15,442 43,782 701 $ – – 3,877 – – 120 – – – – – $ – 1,117 2,397 3,772 – 11,071 – 3,733 2,805 – 1 $ – 3,695 24,309 6,991 – 84,797 481 – 3,589 1,833 263 $ 1,991 6,167 11,395 29,607 6,378 101,500 8,151 3,733 18,247 43,782 702 $121,961 $206,757 $3,997 $24,896 $125,958 $231,653 December 31, 2022 BPPR Popular U.S. Popular, Inc. Non-accrual with no allowance Non-accrual with allowance Non-accrual with no allowance Non-accrual with allowance Non-accrual with no allowance Non-accrual with allowance $ – 15,639 9,070 20,227 119,027 458 – 4,623 1,177 263 $ 242 8,023 14,920 14,050 123,364 5,483 – 13,459 39,801 12,183 $ – 1,454 5,095 – 71 – – – – – $ – – – 4,319 20,417 – 4,110 1,958 – 8 $ – 17,093 14,165 20,227 119,098 458 – 4,623 1,177 263 $ 242 8,023 14,920 18,369 143,781 5,483 4,110 15,417 39,801 12,191 $170,484 $231,525 $6,620 $30,812 $177,104 $262,337 POPULAR, INC. 2023 ANNUAL REPORT 89 Loans in non-accrual status with no allowance at December 31, loans 2023 include $126 million in collateral dependent (December 31, 2022 - $177 million). The Corporation recognized $4 million in interest income on non-accrual loans during the year ended December 31, 2023 (December 31, 2022 - $4 million). The Corporation has designated loans classified as collateral dependent for which the ACL is measured based on the fair value of the collateral less cost to sell, when foreclosure is probable or when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due location, and condition of the to their age, and the type, property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. The following tables present the amortized cost basis of collateral-dependent loans, for which the ACL was measured based on the fair value of the collateral less cost to sell, by class of loans and type of collateral as of December 31, 2023 and December 31, 2022: (In thousands) BPPR Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Personal Auto Other Total BPPR Popular U.S. Commercial real estate: Owner occupied Commercial and industrial Construction Mortgage Total Popular U.S. Popular, Inc. Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Construction Mortgage Leasing Consumer: Personal Auto Other Total Popular, Inc. 90 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 Real Estate Auto Equipment Other Total $ 1,339 $ – $ – $ – $ 1,339 160,555 25,848 1,103 6,378 85,113 – – – – – – 1,373 4,338 – – – 12,965 – – – – – – – – – – – – 30,287 – – – – – 305 160,555 25,848 31,390 6,378 85,113 1,373 4,338 12,965 305 $284,674 $14,338 $ – $30,592 $329,604 $ 3,877 – 5,990 1,303 $ 11,170 $ 1,339 160,555 29,725 1,103 12,368 86,416 – $ $ $ – – – – – – – – – – – 1,373 4,338 – – – 12,965 – $ – 105 – – $105 $ – – – 105 – – – – – – $ $ $ – 400 – – 400 $ 3,877 505 5,990 1,303 $ 11,675 – $ 1,339 – – 30,687 – – – – – 305 160,555 29,725 31,895 12,368 86,416 1,373 4,338 12,965 305 $295,844 $14,338 $105 $30,992 $341,279 (In thousands) BPPR Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Mortgage Leasing Consumer: Personal Auto Other Total BPPR Popular U.S. Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Mortgage Total Popular U.S. Popular, Inc. Commercial multi-family Commercial real estate: Non-owner occupied Owner occupied Commercial and industrial Mortgage Leasing Consumer: Personal Auto Other Total Popular, Inc. December 31, 2022 Real Estate Auto Equipment Accounts Receivables Other Total $ 1,329 $ – $ – $ – $ – $ 1,329 202,980 18,234 1,345 128,069 – 5,381 – – $357,338 $ 1,454 5,095 – 1,104 $ 7,653 $ 1,329 204,434 23,329 1,345 129,173 – 5,381 – – $364,991 – – – – 1,020 – 9,556 – $10,576 $ $ $ – – – – – – – – – – 1,020 – 9,556 – $10,576 – – 32 – – – – – $ 32 $ – – 136 – $136 $ – – – 168 – – – – – $168 – – 9,853 – – – – – $9,853 $ $ $ – – – – – – – – 9,853 – – – – – $9,853 – – 20,985 – – 202,980 18,234 32,215 128,069 1,020 – – 263 $21,248 5,381 9,556 263 $399,047 $ $ $ – – – – – – – – 20,985 – – $ 1,454 5,095 136 1,104 $ 7,789 $ 1,329 204,434 23,329 32,351 129,173 1,020 – – 263 $21,248 5,381 9,556 263 $406,836 Purchased Credit Deteriorated (PCD) Loans The Corporation has purchased loans during the year for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows: (In thousands) December 31, 2023 December 31, 2022 Purchase price of loans at acquisition Allowance for credit losses at acquisition Non-credit discount / (premium) at acquisition Par value of acquired loans at acquisition $819 $3,144 89 9 915 140 $917 $4,199 ACL to provide for expected losses in the loan portfolio. This model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired or originated. In addition, CECL provides that the initial ACL on PCD financial assets be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. The provision for credit losses recorded in current operations is based on this methodology. Loan losses are charged, and recoveries are credited to the ACL. The Corporation’s modeling framework includes competing risk models that generate lifetime default and prepayment estimates as well as other loan level techniques to estimate loss severity. These models combine credit risk factors, which include the impact of loan modifications, with macroeconomic expectations to derive the lifetime expected loss. Note 9 - Allowance for credit losses - loans held-in-portfolio The Corporation follows the current expected credit loss (“CECL”) model, to establish and evaluate the adequacy of the As part of the Corporation’s model governance procedures, a new model was implemented during the third quarter of 2023 for the U.S commercial real estate segment. The new model POPULAR, INC. 2023 ANNUAL REPORT 91 of part geographical footprint. As enhances techniques used to capture default activity within the the Corporation’s implementation analysis management evaluated the credit metrics of the portfolio such as risk ratings, delinquency levels, and low exposure to the commercial office sector. Qualitative reserves continue to be maintained to address risks within the U. S. commercial real estate segment. The new model including qualitative reserve accounted for $15 million of PB’s reduction in ACL during the third quarter of 2023. At December 31, 2023, the Corporation estimated the ACL by weighting the outputs of optimistic, baseline, and pessimistic scenarios. Among the three scenarios used to estimate the ACL, the baseline is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. The weightings applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The Corporation evaluates, at least on an annual basis, the assumptions tied to the CECL accounting its evaluation procedures, framework. These include the reasonable and supportable period as well as the reversion window. During the third quarter of 2022, as part of the Corporation decided to extend the reversion window from 1 year to 3 years. The extension in the reversion window results in a better representation of historical movements for key macroeconomic variables that impact the ACL. The reasonable and supportable period assumptions remained unchanged at 2 years. The baseline scenario assumes a 2024 annualized GDP growth for Puerto Rico and the United States of 1.21% and 1.65%. For 2023, annualized expected growth was 2.0% and 2.4% for Puerto Rico and United States, respectively. The reduction in 2024 is due to the Fed’s monetary policy. The 2024 average unemployment rate is forecasted at 6.79% and 3.95% for Puerto Rico and United States, respectively, compared to 2023 average level 6.1% for Puerto Rico and 3.7% for the United States. The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the years ended December 31, 2023 and 2022. (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer Total - Loans Allowance for credit losses - unfunded commitments: Commercial Construction Ending balance - unfunded commitments [1] For the year ended December 31, 2023 BPPR Provision for credit losses (benefit) Impact of Adopting ASU 2022-02 Beginning Balance Allowance for credit losses - PCD Loans Charge-off Recoveries Net write down Ending Balance $ 5,210 $ 52,475 48,393 68,217 174,295 2,978 117,344 20,618 58,670 103 96,369 129,735 15,433 300,310 – – (1,161) (552) (1,713) – (33,556) (35) – – (7,020) (21) – (7,041) $ (1,597) $ – $ – $ 1 $ 980 (5,495) 29,911 23,799 4,926 (25,295) (3,836) 54,649 (155) 74,226 63,185 3,335 195,240 – – – – – 89 – – – – – – – (1,130) 1,429 (4,437) (7,739) (13,306) (2,611) (1,638) (10,879) (41,007) (213) (71,977) (55,306) (12,454) (180,957) 3,337 17,740 22,507 1 15,496 3,840 8,776 368 9,583 20,338 818 39,883 – – – – – – – – (601) – – – – (601) $ 3,614 53,754 40,637 107,577 205,582 5,294 72,440 9,708 80,487 103 101,181 157,931 7,132 346,834 $615,545 $(42,345) $194,834 $89 $(209,391) $81,727 $(601) $639,858 $ 4,336 2,022 $ 6,358 $ $ – – – $ $ 726 (404) 322 $ – – $ – $ $ – – – $ $ – – – $ $ – – – $ 5,062 1,618 $ 6,680 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. 92 POPULAR, INC. 2023 ANNUAL REPORT (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Consumer Credit cards Home equity lines of credit Personal Other Total Consumer Total - Loans Allowance for credit losses - unfunded commitments: Commercial Construction Consumer Ending balance - unfunded commitments [1] For the year ended December 31, 2023 Popular U.S. Beginning Balance Impact of Adopting ASU 2022-02 Provision for credit losses - (benefit) Charge-offs Recoveries $ 21,101 19,065 8,688 12,227 61,081 1,268 17,910 – 2,439 22,057 2 24,498 $ – – – – – – (2,098) – – (1,140) – (1,140) $(10,980) (9,222) 8,851 4,557 (6,794) 6,124 (5,248) 1 (1,058) 13,521 159 12,623 $ – (193) (1,395) (3,875) (5,463) – – (1) (471) (19,971) (171) (20,614) $ 5 2,049 83 1,870 4,007 – 210 – 965 2,142 12 3,119 Ending Balance $10,126 11,699 16,227 14,779 52,831 7,392 10,774 – 1,875 16,609 2 18,486 $104,757 $(3,238) $ 6,705 $(26,077) $7,336 $89,483 $ 1,175 1,184 88 $ 2,447 $ $ – – – – $ 676 7,262 (59) $ 7,879 $ $ – – – – $ $ – – – – $ 1,851 8,446 29 $10,326 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. POPULAR, INC. 2023 ANNUAL REPORT 93 For the year ended December 31, 2023 Popular Inc. Beginning Balance Impact of adopting ASU 2022-02 Provision for credit losses (benefit) Allowance for credit losses - PCD Loans Charge-offs Recoveries Net write down Ending Balance (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner $ 26,311 $ occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer 71,540 57,081 80,444 235,376 4,246 135,254 20,618 58,670 2,542 118,426 129,735 15,435 324,808 – – (1,161) (552) (1,713) – (35,654) (35) – – (8,160) (21) – (8,181) $ (12,577) $ – $ – $ 6 $ (8,242) 3,356 34,468 17,005 11,050 (30,543) (3,836) 54,650 (1,213) 87,747 63,185 3,494 207,863 – – – – – 89 – – – – – – – (1,323) 3,478 (5,832) (11,614) (18,769) (2,611) (1,638) (10,879) (41,008) (684) (91,948) (55,306) (12,625) (201,571) 3,420 19,610 26,514 1 15,706 3,840 8,776 1,333 11,725 20,338 830 43,002 – – – – – – – – (601) – – – – (601) $ 13,740 65,453 56,864 122,356 258,413 12,686 83,214 9,708 80,487 1,978 117,790 157,931 7,134 365,320 Total - Loans $720,302 $(45,583) $201,539 $89 $(235,468) $89,063 $(601) $729,341 Allowance for credit losses - unfunded commitments: Commercial Construction Consumer Ending balance - unfunded commitments [1] $ $ 5,511 3,206 88 $ 8,805 $ – – – – $ 1,402 6,858 (59) $ 8,201 $ – – – $ – $ $ – – – – $ $ – – – – $ $ – – – – $ 6,913 10,064 29 $ 17,006 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. 94 POPULAR, INC. 2023 ANNUAL REPORT (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer For the year ended December 31, 2022 BPPR Beginning Balance Provision for credit losses (benefit) Allowance for credit losses - PCD Loans Charge-offs Recoveries Ending Balance $ 3,050 45,211 54,176 49,491 151,928 1,641 138,286 17,578 43,499 98 71,022 154,498 15,612 284,729 $ 2,160 5,744 (12,405) 15,976 11,475 526 (37,600) 6,832 32,582 (273) 54,279 843 880 88,311 $ – – – – – – 915 – – – – – – – $ – (34) (1,063) (6,141) (7,238) – (5,105) (7,107) (26,210) (191) (36,179) (42,143) (2,029) (106,752) $ – 1,554 7,685 8,891 18,130 811 20,848 3,315 8,799 469 7,247 16,537 970 34,022 $ 5,210 52,475 48,393 68,217 174,295 2,978 117,344 20,618 58,670 103 96,369 129,735 15,433 300,310 Total - Loans $594,162 $ 69,544 $915 $(126,202) $77,126 $615,545 Allowance for credit losses - unfunded commitments: Commercial Construction Ending balance - unfunded commitments [1] $ 1,751 2,388 $ 2,585 (366) $ 4,139 $ 2,219 $ – – $ – $ $ – – – $ $ – – – $ 4,336 2,022 $ 6,358 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. POPULAR, INC. 2023 ANNUAL REPORT 95 For the year ended December 31, 2022 Popular U.S. (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Consumer Credit cards Home equity lines of credit Personal Other Total Consumer Total - Loans Allowance for credit losses - unfunded commitments: Commercial Construction Consumer Ending balance - unfunded commitments [1] Beginning Balance Provision for credit losses (benefit) Charge-offs Recoveries $ 25,418 22,246 6,053 10,160 63,877 4,722 16,192 – 3,708 12,700 5 16,413 $ (4,338) 5,468 2,276 1,191 4,597 (4,586) 1,706 (13) (3,713) 15,619 153 12,046 $ – (8,671) (6) (1,335) (10,012) – (68) – (430) (7,404) (202) (8,036) $ 21 22 365 2,211 2,619 1,132 80 13 2,874 1,142 46 4,075 Ending Balance $ 21,101 19,065 8,688 12,227 61,081 1,268 17,910 – 2,439 22,057 2 24,498 $101,204 $13,763 $(18,116) $7,906 $104,757 $ 1,384 2,337 37 $ 3,758 $ (209) (1,153) 51 $ (1,311) $ $ – – – – $ $ – – – – $ 1,175 1,184 88 $ 2,447 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. 96 POPULAR, INC. 2023 ANNUAL REPORT (In thousands) Allowance for credit losses - loans: Commercial Commercial multi-family Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Total Commercial Construction Mortgage Leasing Consumer Credit cards Home equity lines of credit Personal Auto Other Total Consumer For the year ended December 31, 2022 Popular Inc. Beginning Balance Provision for credit losses (benefit) Allowance for credit losses - PCD Loans Charge-offs Recoveries $ 28,468 67,457 60,229 59,651 215,805 6,363 154,478 17,578 43,499 3,806 83,722 154,498 15,617 301,142 $ (2,178) 11,212 (10,129) 17,167 16,072 (4,060) (35,894) 6,832 32,569 (3,986) 69,898 843 1,033 100,357 $ – – – – – – 915 – – – – – – – $ – (8,705) (1,069) (7,476) (17,250) – (5,173) (7,107) (26,210) (621) (43,583) (42,143) (2,231) (114,788) $ 21 1,576 8,050 11,102 20,749 1,943 20,928 3,315 8,812 3,343 8,389 16,537 1,016 38,097 Ending Balance $ 26,311 71,540 57,081 80,444 235,376 4,246 135,254 20,618 58,670 2,542 118,426 129,735 15,435 324,808 Total - Loans $695,366 $ 83,307 $915 $(144,318) $85,032 $720,302 Allowance for credit losses - unfunded commitments: Commercial Construction Consumer $ 3,135 4,725 37 $ 2,376 (1,519) 51 Ending balance - unfunded commitments [1] $ 7,897 $ 908 $ – – – $ – $ $ – – – – $ $ – – – – $ 5,511 3,206 88 $ 8,805 [1] Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition. Modifications A modification constitutes a change in loan terms in the form of principal forgiveness, an interest rate reduction, other than- insignificant payment delay, term extension or combination of the above made to a borrower experiencing financial difficulty. The amount of outstanding commitments to lend additional funds to debtors with financial difficulties owing receivables whose terms have been modified during the year ended December 31, 2023 amounted to $21 million related to the commercial and construction loan portfolios. POPULAR, INC. 2023 ANNUAL REPORT 97 The following tables show the amortized cost basis of the loans modified to borrowers experiencing financial difficulties at the end of the reporting period disaggregated by class of financing receivable and type of concession granted for the year ended December 31,2023. Loans modified to borrowers under financial difficulties that were fully paid down, charged-off or foreclosed upon by period end are not reported. Loan Modifications Made to Borrowers Experiencing Financial Difficulty for the year ended December 31,2023 (Dollars in thousands) CRE owner occupied Commercial and industrial Mortgage Consumer: Credit cards Personal Other Total Interest Rate Reduction BPPR Popular U.S. Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $141,291 70 301 700 783 6 $143,151 10.10% –% –% 0.06% 0.04% –% 0.58% $ $ – – – – 2 – 2 Term Extension –% –% –% –% –% –% –% $141,291 70 301 700 785 6 $143,153 4.59% –% –% 0.06% 0.04% –% 0.41% (Dollars in thousands) CRE non-owner occupied CRE owner occupied Commercial and industrial Construction Mortgage Consumer: Personal Auto Total BPPR Popular U.S. Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $ 33,318 4,921 39,445 – 53,447 413 91 $131,635 1.11% 0.35% 0.82% –% 0.84% 0.02% –% 0.54% $ – 60,669 250 5,990 5,450 129 – $72,488 –% 3.61% 0.01% 0.76% 0.42% 0.08% –% 0.69% $ 33,318 65,590 39,695 5,990 58,897 542 91 $204,123 0.65% 2.13% 0.56% 0.62% 0.77% 0.03% –% 0.58% Other-Than-Insignificant Payment Delays Popular U.S. BPPR Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $ 1,854 16,068 10,545 137 $ 28,604 0.06% 1.15% 0.22% –% 0.12% $ – 13,468 814 – $14,282 –% 0.80% 0.03% –% 0.14% $ 1,854 29,536 11,359 137 $ 42,886 0.04% 0.96% 0.16% –% 0.12% (Dollars in thousands) CRE non-owner occupied CRE owner occupied Commercial and industrial Mortgage Total 98 POPULAR, INC. 2023 ANNUAL REPORT Combination - Term extension and Interest Rate Reduction BPPR Popular U.S. Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $ 65 19,983 14,416 335 37,179 2,318 27 $74,323 0.02% 0.66% 1.03% 0.01% 0.58% 0.13% –% 0.30% $ – $ – – – 405 62 – $467 –% –% –% –% 0.03% 0.04% –% –% $ 65 19,983 14,416 335 37,584 2,380 27 $74,790 –% 0.39% 0.47% –% 0.49% 0.12% –% 0.21% (Dollars in thousands) Commercial multi-family CRE non-owner occupied CRE owner occupied Commercial and industrial Mortgage Consumer: Personal Auto Total Combination - Other-Than-Insignificant Payment Delays and Interest Rate Reduction (Dollars in thousands) CRE non-owner occupied Commercial and industrial Consumer: Credit cards Total Puerto Rico Popular U.S. Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $ 180 199 814 $ 1,193 0.01% –% 0.07% –% $ – – – $ – –% –% –% –% $ 180 199 814 $ 1,193 –% –% 0.07% –% Combination - Other-Than-Insignificant Payment Delays and Principal Forgiveness Puerto Rico Popular U.S. Popular, Inc. Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable Amortized Cost Basis at December 31, 2023 % of total class of Financing Receivable $ $ 158 158 0.01% –% $ – $ – –% –% $ $ 158 158 0.01% –% (Dollars in thousands) CRE owner occupied Total POPULAR, INC. 2023 ANNUAL REPORT 99 The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties: Loan Type Commercial multi-family CRE non-owner occupied CRE owner occupied Commercial and industrial Mortgage Consumer: Credit cards Personal Auto Other Loan Type Commercial multi-family CRE non-owner occupied CRE owner occupied Commercial and industrial Construction Mortgage Consumer: Personal Auto Loan Type CRE owner occupied Loan Type CRE non-owner occupied CRE owner occupied Commercial and industrial Mortgage Consumer: Credit cards For the year ended December 31, 2023 Interest rate reduction Financial Effect Reduced weighted-average contractual interest rate from 7.5% to 5.3%. Reduced weighted-average contractual interest rate from 9.1% to 7.3%. Reduced weighted-average contractual interest rate from 8.4% to 6.6%. Reduced weighted-average contractual interest rate from 17.8% to 7.8%. Reduced weighted-average contractual interest rate from 5.8% to 4.2%. Reduced weighted-average contractual interest rate from 18.8% to 4.5%. Reduced weighted-average contractual interest rate from 17.8% to 9.3%. Reduced weighted-average contractual interest rate from 12.64% to 12.62%. Reduced weighted-average contractual interest rate from 18.0% to 0.0%. Term extension Financial Effect Added a weighted-average of 43 years to the life of loans. Added a weighted-average of 20 months to the life of loans. Added a weighted-average of 1 year to the life of loans. Added a weighted-average of 2 years to the life of loans. Added a weighted-average of 1 year to the life of loans. Added a weighted-average of 11 years to the life of loans. Added a weighted-average of 8 years to the life of loans. Added a weighted-average of 2 years to the life of loans. Principal forgiveness Financial Effect Reduced the amortized cost basis of the loans by $88 thousand. Other than insignificant payment delay Financial Effect Added a weighted-average of 11 months to the life of loans. Added a weighted-average of 9 months to the life of loans. Added a weighted-average of 7 months to the life of loans. Added a weighted-average of 40 months to the life of loans. Added a weighted-average of 25 months to the life of loans. 100 POPULAR, INC. 2023 ANNUAL REPORT The following table presents, by class, the performance of loans that have been modified during the year ended December 31, 2023. The past due 90 days or more categories includes all loans modified classified as non-accruing at the time of the modification. These loans will continue in non-accrual status, and presented as past due 90 days or more, until the borrower has demonstrated a willingness and ability to make the restructured loan payments (at least six months of sustained performance after the modification or one year for loans providing for quarterly or semi-annual payments) and management has concluded that it is probable that the borrower would not be in payment default in the foreseeable future. BPPR December 31, 2023 30-59 days 60-89 days Past due 90 days or more $ – – 339 2,519 7,520 $ – – – 77 3,358 59 140 – – 51 – – – $ 65 2,094 2,267 14,881 28,128 294 817 15 – Total past due Current Total $ 65 $ – $ 2,094 2,606 17,477 39,006 53,241 174,248 33,117 52,058 65 55,335 176,854 50,594 91,064 404 957 15 – 1,110 2,557 103 6 1,514 3,514 118 6 Past Due 90 days or more [1] With Payment Default Without Payment Default $ – – – 556 8,319 176 63 – – $ 65 2,094 2,267 14,325 19,809 118 754 15 – $10,577 $3,486 $48,561 $62,624 $316,440 $379,064 $9,114 $39,447 (In thousands) Commercial multi-family CRE non-owner occupied CRE owner occupied Commercial and industrial Mortgage Consumer: Credit cards Personal Auto Other Total [1] Loans that were in non-accrual status at the time of modification are presented as past due until the borrower has demonstrated a willingness and ability to make the restructured loan payments. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified with financial difficulty that were fully paid down, charged-off or foreclosed upon by period end are not reported. Popular U.S. December 31, 2023 (In thousands) CRE owner occupied Commercial and industrial Construction Mortgage Consumer: Personal Total 30-59 days 60-89 days Past due 90 days or more Total past due Current Total Past Due 90 days or more [1] With Payment Default Without Payment Default $– – – – – $– $ – 250 – – – $250 $ – – – 388 125 $513 $ – 250 – 388 125 $74,137 814 5,990 5,467 $74,137 1,064 5,990 5,855 68 193 $763 $86,476 $87,239 $– – – – – $– $ – – – 388 125 $513 [1] Loans that were in non-accrual status at the time of modification are presented as past due until the borrower has demonstrated a willingness and ability to make the restructured loan payments. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified with financial difficulty that were fully paid down, charged-off or foreclosed upon by period end are not reported. POPULAR, INC. 2023 ANNUAL REPORT 101 Popular Inc. December 31, 2023 (In thousands) 30-59 days 60-89 days Past due 90 days or more Total past due Current Total Past Due 90 days or more [1] With Payment Default Without Payment Default Commercial multi-family CRE non-owner occupied CRE owner occupied Commercial and industrial Construction Mortgage Consumer: Credit cards Personal Auto Other $ – – 339 2,519 – 7,520 59 140 – – $ – – – 327 – 3,358 51 – – – $ 65 2,094 2,267 14,881 – 28,516 294 942 15 – $ 65 2,094 2,606 17,727 – 39,394 404 1,082 15 – $ – $ 53,241 248,385 33,931 5,990 57,525 1,110 2,625 103 6 65 55,335 250,991 51,658 5,990 96,919 1,514 3,707 118 6 $ – – – 556 – 8,319 176 63 – – $ 65 2,094 2,267 14,325 – 20,197 118 879 15 – Total $10,577 $3,736 $49,074 $63,387 $402,916 $466,303 $9,114 $39,960 [1] Loans that were in non-accrual status at the time of modification are presented as past due until the borrower has demonstrated a willingness and ability to make the restructured loan payments. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified with financial difficulty that were fully paid down, charged-off or foreclosed upon by period end are not reported. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. During the year ended December 31, 2023, the outstanding balance of loans modified for borrowers under financial difficulties that were subject to payment default during the year ended preceding the default date was $10 million. For the year ended December 31, 2023, extension of maturity and the combination of reduction of interest rate and extension of maturity amounted to $8 million and $2 million, respectively, of the outstanding balance of loans modified for to borrowers under financial difficulties that were subject payment default during the year preceding the default date. Legacy TDR Modifications A modification of a loan, prior to ASU 2022-02, constituted a troubled debt restructuring (TDR) when a borrower was experiencing financial difficulty and the modification constituted a concession. For a summary of the legacy accounting policy related to TDRs, refer to the Summary of Significant Accounting Policies included in Note 2 to the 2022 Form 10-K. The outstanding balance of loans classified as TDRs amounted to $1.6 billion at December 31, 2022. The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $12 million related to the commercial and construction loan portfolios at December 31, 2022. The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at December 31, 2022. (In thousands) Loans held-in-portfolio: Commercial Mortgage [1] Leasing Consumer Loans held-in-portfolio December 31, 2022 Accruing Non-Accruing Total Related Allowance $ 269,784 1,169,976 1,154 54,395 $ 54,641 86,790 24 7,883 $ 324,425 1,256,766 1,178 62,278 $18,451 58,819 43 13,577 $1,495,309 $149,338 $1,644,647 $90,890 [1] At December 31, 2022, accruing mortgage loan TDRs include $725 million guaranteed by U.S. sponsored entities at BPPR. 102 POPULAR, INC. 2023 ANNUAL REPORT The following table presents the loan count by type of modification for those loans modified in a TDR during the year ended December 31, 2022. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation. Popular Inc. For the year ended December 31, 2022 Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total Reduction in interest rate Extension of maturity date Combination of reduction in interest rate and extension of maturity date Other – 3 4 7 – 48 – 111 – 1 174 2 10 9 217 2 – – 111 1 – 352 2 1 1 881 1 – 1 3 – – 890 4 14 16 5 34 48 – 40 129 – 290 The following table presents, by class, quantitative information related to loans modified as TDRs during year ended December 31, 2022. Popular, Inc. For the year ended December 31, 2022 (Dollars in thousands) Loan count Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Increase (decrease) in the allowance for loan losses as a result of modification Commercial real estate non-owner occupied Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards HELOCs Personal Auto Other Total 8 28 30 1,110 37 96 1 265 130 1 $ 6,530 19,192 51,139 128,581 1,181 866 245 3,581 1,631 8 $ 6,527 19,165 50,929 125,875 1,180 898 236 3,479 1,631 8 $ 60 (2,078) 2,120 4,447 13 10 67 671 5 1 1,706 $212,954 $209,928 $ 5,316 POPULAR, INC. 2023 ANNUAL REPORT 103 The following table presents, by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported. Popular Inc. Defaulted during the year ended December 31, 2022 Loan count Recorded investment as of first default date (Dollars in thousands) Commercial real estate owner occupied Commercial and industrial Mortgage Leasing Consumer: Credit cards Personal Total Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. loans modified in a TDR If subsequently default, the allowance for credit losses may be increased or partial charge-offs may be taken to further write- down the carrying value of the loan. Credit Quality The Corporation has defined a risk rating system to assign a rating to all credit exposures, particularly for the commercial and construction loan portfolios. Risk ratings in the aggregate provide the Corporation’s management the asset quality profile for the loan portfolio. The risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower. The risk rating analysis process is performed at least once a year or more frequently if events or conditions change which may deteriorate the credit quality. In the case of consumer and mortgage loans, these loans are classified considering their delinquency status at the end of the reporting period. The Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk of payment default of a borrower in the ordinary course of business. Pass Credit Classifications: Pass (Scales 1 through 8) - Loans classified as pass have a well defined primary source of repayment, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and strong capitalization. Watch (Scale 9) - Loans classified as watch have acceptable business credit, but borrower’s operations, cash flow or financial condition evidence more than average levels of supervision and attention from Loan Officers. requires average above risk, 104 POPULAR, INC. 2023 ANNUAL REPORT 2 7 75 1 29 49 163 $ 620 6,639 9,391 5 249 918 $17,822 Special Mention (Scale 10) -Loans classified as special mention have potential weaknesses that deserve management’s close attention. left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date. If Adversely Classified Classifications: Substandard (Scales 11 and 12) -Loans classified as substandard are deemed to be inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as such have well-defined weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. the weaknesses inherent Doubtful (Scale 13) - Loans classified as doubtful have in those classified as all substandard, with the additional characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss (Scale 14) - Uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be effected in the future. Risk ratings scales 10 through 14 conform to regulatory ratings. The assignment of the obligor risk rating is based on relevant information about the ability of borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following tables present the amortized cost basis, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at December 31, 2023 and 2022 by vintage year. December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) BPPR Commercial: Commercial multi-family Watch Special Mention Substandard Pass $ Total commercial multi-family $ – $ – $ – $ – – – – 21,334 37,976 37,976 $139,178 $ 21,334 $ 20,487 $ 33,622 $ – $ 1,068 $ – – 20,487 559 – 138,619 – – 32,554 5,179 $ 4,780 4,832 24,248 39,039 $ – – – 306 306 Commercial real estate non-owner occupied Watch Special Mention Substandard Pass $ 1,959 $ 43,020 1,016 305,243 882 $ 5,205 $ 22,211 $ 5,938 $ 5,413 1,307 871,191 24,730 180 560,785 – 2,231 359,853 15,843 53,729 41,262 27,015 $ 68,368 12,968 563,794 – – 4,069 7,042 Total commercial real estate non-owner occupied $ 351,238 $878,793 $590,900 $384,295 $116,772 $ 672,145 $ 11,111 Year-to-Date gross write-offs $ – $ – $ – $ 609 $ – $ 521 $ – Commercial real estate owner occupied $Watch Special Mention Substandard Doubtful Pass $ 2,947 $ 45,106 $ 9,913 $ 4,285 $ 5,017 $ – 1,316 – 92,234 16,860 15,710 – 155,819 20,741 5,080 – 227,246 1,462 143,696 – 51,038 887 845 – 24,184 62,217 $ 44,069 87,383 136 357,429 1,000 – 12,617 – 9,146 Total commercial real estate owner occupied Year-to-Date gross write-offs Commercial and industrial Watch Special Mention Substandard Doubtful Pass Total commercial and industrial Year-to-Date gross write-offs Construction Watch Special Mention Substandard Pass Total construction Year-to-Date gross write-offs Mortgage Substandard Pass Total mortgage $ $ $ $ $ $ $ $ 96,497 $233,495 $262,980 $200,481 $ 30,933 $ 551,234 $ 22,763 – $ 4 $ – $ – $ 1 $ 4,432 $ – 28,841 $ 95,785 $ 6,111 $ 4,043 $ 15,560 $ 276 6,401 8,644 731 – – 511,912 1,109,898 3,200 22,065 54 241,452 3,269 1,760 – 634,401 2,088 1,922 – 123,458 65,360 $ 182,756 9,410 41,289 40,670 32,087 – 26 1,343,885 258,872 $1,145,871 $735,215 $526,943 $270,814 $143,028 $ 397,634 $1,576,721 896 $ 184 $ 215 $ 335 $ 555 $ 1,086 $ 4,468 – $ 16,546 $ 5,458 $ 1,009 – – – 26,662 27,364 26,662 $ 47,386 $ 33,831 $ 10,758 $ 1,944 $ – $ – – 10,758 – $ – – 1,944 – 6,378 24,462 – $ – – 1,049 1,049 $ 9,506 1 – 38,720 48,227 – $ 2,611 $ – $ – $ – $ – $ 96 $ 161 $ 162 $ 345 $ 2,606 $ 71,893 $ 751,532 439,373 421,297 259,412 164,438 4,280,509 $ 751,628 $439,534 $421,459 $259,757 $167,044 $4,352,402 $ Year-to-Date gross write-offs $ – $ – $ – $ – $ – $ 1,638 $ – – – – – $– – – – $– $– – – – $– $– $– – – – – $– $– $– – – – – $– $– $– – – – $– $– $– – $– $– Total $ 6,247 5,339 4,832 275,524 $ 291,942 $ 63,210 157,374 75,500 2,709,170 $3,005,254 $ 1,130 $ 130,485 84,019 266,647 136 917,096 $1,398,383 $ 4,437 $ 398,456 65,933 107,879 80 4,223,878 $4,796,226 $ 7,739 $ 31,510 1,010 6,378 130,959 $ 169,857 $ 2,611 $ 75,263 6,316,561 $6,391,824 $ 1,638 POPULAR, INC. 2023 ANNUAL REPORT 105 December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis $ 806 $ – 647,659 2,516 $ – 488,506 3,053 $ – 313,133 906 $ – 163,189 818 $ – 88,983 517 $ 17 21,706 Total leasing $ 648,465 $ 491,022 $ 316,186 $ 164,095 $ 89,801 $ 22,240 $ 1,065 $ 4,424 $ 2,878 $ 849 $ 976 $ 687 $ (In thousands) BPPR Leasing Substandard Loss Pass Year-to-Date gross write-offs Consumer: Credit cards Substandard Loss Pass Total credit cards Year-to-Date gross write-offs HELOCs Substandard Pass Total HELOCs Year-to-Date gross write-offs Personal Substandard Loss Pass $ $ $ $ $ $ $ $ $ – $ – – – $ – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ 23,259 – $ – 22 – 1,112,447 – $1,135,728 – $ 41,007 – $ – $ – $ 26 2,622 2,648 – $ 213 1,815 $ – 859,434 4,985 $ – 480,771 1,939 $ 14 181,483 493 $ – 57,227 933 $ 12 58,849 8,322 $ 37 96,956 Total Personal $ 861,249 $ 485,756 $ 183,436 $ 57,720 $ 59,794 $ 105,315 $ Year-to-Date gross write-offs Auto Substandard Loss Pass $ $ 4,458 $ 35,915 $ 18,076 $ 4,210 $ 4,891 $ 2,952 $ 6,980 $ 9 1,210,622 14,049 $ 44 899,797 11,916 $ 45 711,439 9,157 $ 7,051 $ 16 9 405,768 260,355 3,199 $ 6 120,318 Total Auto $1,217,611 $ 913,890 $ 723,400 $ 414,941 $267,415 $ 123,523 $ Year-to-Date gross write-offs Other consumer Substandard Loss Pass Total Other consumer Year-to-Date gross write-offs $ $ $ $ 10,170 $ 23,849 $ 11,820 $ 5,914 $ 3,553 $ – $ 244 $ – 36,144 25 $ – 24,238 – $ 137 14,942 73 $ – 5,618 16 $ – 3,433 131 $ 363 2,753 249 – 61,796 36,388 $ 24,263 $ 15,079 $ 5,691 $ 3,449 $ 3,247 $ 62,045 47 $ 154 $ 125 $ 164 $ 88 $ 11,876 $ – – – – – – – – – – – – – – – – Total $ 8,616 17 1,723,176 $ 1,731,809 $ $ 10,879 23,259 22 1,112,447 $ 1,135,728 $ $ $ $ $ $ 41,007 26 2,622 2,648 213 19,493 63 1,756,754 $ $ $ $ $ $ $ $ $ $ – – – – – – – – – – – – – – $ 1,006 – 22,034 $23,040 $ 1,776,310 $ 1,475 $ $ $ $ $ $ – – – – – – – – – – $ $ 71,977 52,352 129 3,608,299 $ 3,660,780 $ $ $ $ 55,306 738 500 148,924 150,162 12,454 Total BPPR $5,173,585 $4,388,532 $3,095,548 $1,789,039 $913,802 $6,267,828 $2,859,549 $23,040 $24,510,923 106 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) Popular U.S. Commercial: Commercial multi-family Watch Special Mention Substandard Pass $ – $116,794 $ 39,319 $ 71,237 $ 93,239 $ 98,365 $ – – 166,410 – – 417,169 862 – 326,047 3,377 20,780 410,836 1,171 – 164,887 – 5,545 182,528 – – – 5,112 Total commercial multi-family $166,410 $533,963 $366,228 $237,295 $281,312 $533,358 $ 5,112 Commercial real estate non-owner occupied Watch Special Mention Substandard Pass Total commercial real estate non-owner occupied $ – $ 39,721 $ 38,713 $ 43,705 $ 39,908 $ 91,922 $ 4,557 – – – – 8,054 – 6,086 201,225 396,712 – – 490,316 63,365 3,730 394,455 – – 170,074 1,327 1,702 86,595 $396,712 $530,037 $208,787 $252,984 $129,532 $553,472 $ 10,643 Year-to-Date gross write-offs $ – $ – $ – $ – $ – $ 193 $ – Commercial real estate owner occupied $ Watch Special Mention Substandard Pass Total commercial real estate – $ 69,894 $ 84,218 $ 53,066 $ 14,057 $ 98,502 $ 1,905 – – – – 9,753 303,202 11,224 107,675 204,888 – 477 278,380 77,912 2,430 226,289 6,074 21,763 47,083 4,955 – 58,505 owner occupied $303,202 $348,751 $390,849 $116,526 $ 88,977 $422,289 $ 11,658 Year-to-Date gross write-offs Commercial and industrial Watch Special Mention Substandard Pass $ $ – $ – $ – $ – $ – $ 1,395 $ – 198 $ 37,022 $ 47,299 $ 44,939 $ 23,493 $ 93,299 $ 32,497 8,674 30 208 1,517 1,152 636 414,883 268,835 196,959 39 1,841 379,635 889 628 278,238 1,021 152 346,428 151 730 148,502 Total commercial and industrial $198,001 $316,777 $394,900 $314,956 $172,876 $474,814 $457,571 247 $ 221 $ 1,994 $ 44 $ 1,320 $ – $ 49 Year-to-Date gross write-offs Construction Watch Special Mention Substandard Pass $ $ – $ 22,867 $ 12,869 $ 2,120 – 280,188 13,151 1 251,627 – 13,997 89,450 – $ 21,896 $ – 3,895 14,733 – – 25,254 782 $ – 36,593 – Total construction $282,308 $287,646 $116,316 $ 18,628 $ 47,150 $ 37,375 $ Mortgage Substandard Pass Total mortgage $ – $ 235 $ – $ 646 $ 2,102 $ 8,208 $ 99,296 229,720 288,767 233,805 177,245 264,069 $ 99,296 $229,955 $288,767 $234,451 $179,347 $272,277 $ – – – – – – – – $– – – – $– $– – – – $– $– $– – – – $– $– $– – – – $– $– $– – – – $– $– – $– Total $ 418,954 5,410 26,325 1,672,989 $2,123,678 $ 258,526 64,692 13,486 1,745,463 $2,082,167 $ 193 $ 321,642 100,165 132,345 1,128,100 $1,682,252 $ 1,395 $ 278,747 11,012 6,656 2,033,480 $2,329,895 $ $ 3,875 58,414 15,271 54,486 661,252 $ 789,423 $ 11,191 1,292,902 $1,304,093 POPULAR, INC. 2023 ANNUAL REPORT 107 December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis Total – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – – – $ – $ – $ – $ – $ – $ – $ – $ – $ – $ – $ 19 19 1 – $ – – – $ – $ – – – $ 1,849 $ 99 7,394 – – 39,925 9,342 $ 39,925 $14,038 – $ – $ 471 $ 333 $ – 41,016 1,630 $ – 93,759 325 $ – 23,325 50 $ – 2,993 126 $ 1 3,597 211 $ 130 1,441 41,349 $ 95,389 $ 23,650 $ 3,043 $ 3,724 $ 1,782 $ 735 $ 13,136 $ 4,450 $ 618 $ 872 $ 160 $ – $ 19 19 $ – $ – $ – – $ – $ – $ – – $ – $ – $ – – $ – $ – – $ – $ – 1 10,259 – $ 10,260 – $ – $ – $ 171 $ $ $ $ – – – 966 819 12,253 $ $ $ $ $ $ $ – – – – – – – – – – $ $ $ $ $ $ $ $ $ $ $ $ 19 19 1 2,815 918 59,572 63,305 471 2,675 131 166,131 168,937 19,971 1 10,278 10,279 171 – – – – – – (In thousands) Popular U.S. Consumer: Credit cards Pass Total credit cards Year-to-Date gross write-offs HELOCs Substandard Loss Pass Total HELOCs Year-to-Date gross write-offs Personal Substandard Loss Pass Total Personal Year-to-Date gross write-offs Other consumer Substandard Pass Total Other consumer Year-to-Date gross write-offs $ $ $ $ $ $ $ $ $ $ $ $ Total Popular U.S. $1,487,297 $2,342,518 $1,789,497 $1,177,883 $902,918 $2,304,709 $535,188 $14,038 $10,554,048 108 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) Popular, Inc. Commercial: Commercial multi-family Watch Special Mention Substandard Pass Total commercial multi-family $ – $ 116,794 $ 39,319 $ 71,237 $ 94,307 $ 103,544 $ – – 204,386 – 5,545 555,788 347,381 185,374 215,082 8,157 25,612 435,084 1,171 – 862 – 559 – – – – 5,418 $ 204,386 $ 673,141 $387,562 $257,782 $314,934 $ 572,397 $ 5,418 Commercial real estate non-owner occupied Watch Special Mention Substandard Pass $ 1,959 $ 43,020 1,016 40,603 $ 43,918 $ 65,916 $ 45,846 $ 118,937 $ 5,413 – 10,285 1,307 17,170 55,431 701,955 1,361,507 730,859 561,078 127,857 131,733 16,698 958,249 24,730 180 4,557 – 4,069 13,128 Total commercial real estate non-owner occupied $ 747,950 $1,408,830 $799,687 $637,279 $246,304 $1,225,617 $ 21,754 Year-to-Date gross write-offs $ – $ – $ – $ 609 $ – $ 714 $ – Commercial real estate owner occupied Watch Special Mention Substandard Doubtful Pass Total commercial real estate $ 2,947 $ 115,000 $ 94,131 $ 57,351 $ 19,074 $ 160,719 $ – 1,316 – 395,436 16,860 16,187 – 98,653 6,417 7,510 143,696 – 434,199 453,535 109,543 – 6,961 22,608 – 71,267 55,293 195,058 136 562,317 2,905 – 12,617 – 18,899 owner occupied $ 399,699 $ 582,246 $653,829 $317,007 $119,910 $ 973,523 $ 34,421 Year-to-Date gross write-offs $ – $ 4 $ – $ – $ 1 $ 5,827 $ – Commercial and industrial Watch Special Mention Substandard Doubtful Pass Total commercial and industrial $ 29,039 $ 132,807 $ 53,410 $ 48,982 $ 39,053 $ 158,659 $ 215,253 18,084 6,609 3,230 42,187 23,217 1,367 – 54 – 1,758,768 1,306,857 2,239 2,652 – 912,639 858,340 510,287 271,960 41,328 33,928 26 638,507 4,158 2,388 – 1,297 8,796 – $1,343,872 $1,051,992 $921,843 $585,770 $315,904 $ 872,448 $2,034,292 Year-to-Date gross write-offs $ 1,143 $ 405 $ 2,209 $ 379 $ 1,875 $ 1,086 $ 4,517 $ – – – – $ – $ – – – – $ – $ – $ – – – – – $ – $ – $ – – – – – $ – $ – Total $ 425,201 10,749 31,157 1,948,513 $2,415,620 $ 321,736 222,066 88,986 4,454,633 $5,087,421 $ 1,323 $ 452,127 184,184 398,992 136 2,045,196 $3,080,635 $ 5,832 $ 677,203 76,945 114,535 80 6,257,358 $7,126,121 $ 11,614 POPULAR, INC. 2023 ANNUAL REPORT 109 Total $ 89,924 16,281 60,864 792,211 $ 959,280 $ 2,611 $ 86,454 7,609,463 $7,695,917 $ $ 1,638 8,616 17 1,723,176 $1,731,809 $ 10,879 $ – – – – $ – $ – $ – – $ – $ – $ – – – $ – $ – December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) Popular, Inc. Construction Watch Special Mention Substandard Pass $ – $ 39,413 $ 18,327 $ 2,120 – 306,850 13,151 6,379 276,089 1,009 13,997 116,814 – $ 21,896 $ – 3,895 25,491 – – 27,198 782 – 36,593 1,049 $ 9,506 1 – 38,720 Total construction $308,970 $335,032 $150,147 $ 29,386 $ 49,094 $ 38,424 $48,227 $ $ $ $ $ $ $ – – – – – – – – – – Year-to-Date gross write-offs Mortgage Substandard Pass Total mortgage Year-to-Date gross write-offs Leasing Substandard Loss Pass Total leasing $ $ – $ 2,611 $ – $ – $ – $ – 96 $ 396 $ 162 $ 991 $ 4,708 $ 850,828 669,093 710,064 493,217 341,683 80,101 4,544,578 $850,924 $669,489 $710,226 $494,208 $346,391 $4,624,679 $ $ – $ – $ – $ – $ – $ 1,638 806 $ 2,516 $ 3,053 $ – 488,506 – 313,133 – 647,659 906 $ – 163,189 818 $ – 88,983 517 17 21,706 $648,465 $491,022 $316,186 $164,095 $ 89,801 $ 22,240 Year-to-Date gross write-offs $ 1,065 $ 4,424 $ 2,878 $ 849 $ 976 $ 687 110 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 Term Loans Amortized Cost Basis by Origination Year 2023 2022 2021 2020 2019 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ – $ – $ – – – $ 23,259 – $ 22 – – 1,112,466 – $1,135,747 – $ 41,008 1,849 $ 99 7,394 26 – 42,547 $ $ $ $ – – – – – 966 819 12,253 9,342 $ 42,573 $14,038 – $ 471 $ 213 $ – 2,148 $ – 900,450 6,615 $ – 574,530 2,264 $ 14 204,808 543 $ – 60,220 1,059 $ 13 62,446 8,533 $ 167 98,397 $ 1,006 – 22,034 Total $ 23,259 22 1,112,466 $ 1,135,747 $ $ $ $ $ 41,008 2,841 918 62,194 65,953 684 22,168 194 1,922,885 (In thousands) Popular, Inc. Consumer: Credit cards Substandard Loss Pass Total credit cards Year-to-Date gross write-offs HELOCs Substandard Loss Pass Total HELOCs Year-to-Date gross write-offs Personal Substandard Loss Pass $ $ $ $ $ $ $ Total Personal $ 902,598 $ 581,145 $ 207,086 $ 60,763 $ 63,518 $ 107,097 $ Year-to-Date gross write-offs Auto Substandard Loss Pass $ $ 5,193 $ 49,051 $ 22,526 $ 4,828 $ 5,763 $ 3,112 $ 6,980 $ 9 1,210,622 14,049 $ 44 899,797 11,916 $ 45 711,439 9,157 $ 16 405,768 7,051 $ 9 260,355 3,199 $ 6 120,318 Total Auto $1,217,611 $ 913,890 $ 723,400 $ 414,941 $ 267,415 $ 123,523 $ Year-to-Date gross write-offs Other consumer Substandard Loss Pass Total Other consumer Year-to-Date gross write-offs $ $ $ $ 10,170 $ 23,849 $ 11,820 $ 5,914 $ 3,553 $ – $ 244 $ – 36,163 25 $ – 24,238 – $ 137 14,942 73 $ – 5,618 16 $ – 3,433 131 $ 363 2,753 250 – 72,055 36,407 $ 24,263 $ 15,079 $ 5,691 $ 3,449 $ 3,247 $ 72,305 47 $ 154 $ 125 $ 164 $ 88 $ 11,876 $ 171 $23,040 $ 1,945,247 $ 1,475 $ $ $ $ $ $ – – – – – – – – – – $ $ 91,948 52,352 129 3,608,299 $ 3,660,780 $ $ $ $ 55,306 739 500 159,202 160,441 12,625 Total Popular Inc. $6,660,882 $6,731,050 $4,885,045 $2,966,922 $1,816,720 $8,572,537 $3,394,737 $37,078 $35,064,971 POPULAR, INC. 2023 ANNUAL REPORT 111 – – – – – – – – – – December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) BPPR Commercial: Commercial multi-family Watch Special Mention Substandard Pass $ – $ – – 137,411 – $ – – 22,850 – $ 18,508 $ – – 20,821 – – 16,145 – $ – – 24,640 4,687 $ 2,692 3,326 30,193 – – 100 – 100 Total commercial multi-family $137,411 $ 22,850 $ 20,821 $ 34,653 $ 24,640 $ 40,898 $ Commercial real estate non-owner occupied Watch Special Mention Substandard Pass Total commercial real estate non-owner occupied $ 173 $ 36,228 $ 14,045 $ 14,942 $ 7,777 $ – 8,933 19,970 3,209 855,839 585,690 294,086 4,361 – 7,517 19,004 94,056 – 25,490 35,105 99,269 $ 25,540 21,064 568,893 – – – 16,136 $864,945 $626,279 $331,310 $135,519 $ 68,372 $ 714,766 $ 16,136 Commercial real estate owner occupied Watch Special Mention Substandard Doubtful Pass $ 2,296 $ 5,271 $ 9,447 $ 4,275 $ 31,649 $ 1,684 802 – 227,404 258,473 274,333 1,076 770 – 68,029 6,578 800 – 30,691 10 16,205 – 284 6,177 – 71,568 $ 61,460 84,205 505 407,322 – – – – 16,742 Total commercial real estate owner occupied $245,915 $270,205 $286,266 $ 42,344 $101,524 $ 625,060 $ 16,742 Commercial and industrial Watch Special Mention Substandard Doubtful Loss Pass $ 32,376 $ 2,185 $ 15,493 $ 18,829 $ 15,483 $ 5,770 1,600 29 – 1,139 3,138 – – 793,662 684,647 211,013 177,265 6,767 11,536 75 – 65,197 2,479 1,276 – – 2,537 789 – – 51,602 $ 46,040 40,636 75 – 56,508 6,283 46,226 – 144 292,173 1,203,536 Total commercial and industrial $829,364 $690,587 $233,905 $200,371 $ 99,058 $ 430,526 $1,312,697 Construction Watch Substandard Pass $ 35,446 $ 3,116 $ 98 $ – 13,044 – 34,387 9,629 15,961 – $ – 2,262 Total construction $ 48,490 $ 37,503 $ 25,688 $ 2,262 $ – $ – – – $ – $ – – – $ 141 – 32,957 33,098 Mortgage Substandard Pass Total mortgage Leasing Substandard Loss Pass Total leasing 112 POPULAR, INC. 2023 ANNUAL REPORT $ – $ 574 $ 687 $ 3,926 $ 4,227 $ 93,959 $ 449,286 451,027 285,026 204,170 237,007 4,380,390 $449,286 $451,601 $285,713 $208,096 $241,234 $4,474,349 $ $ 953 $ 1,491 $ 941 $ 1,172 $ 1,127 $ 21 672,294 428,889 237,939 146,231 – 79,451 – – – 215 $ 21 14,994 $673,247 $430,380 $238,880 $147,424 $ 80,578 $ 15,230 $ – – – – – – – Total $ 23,195 2,692 3,426 252,060 $ 281,373 $ 172,434 57,388 77,700 2,449,805 $2,757,327 $ 124,506 71,092 108,959 505 1,282,994 $1,588,056 $ 192,476 71,015 105,201 179 144 3,427,493 $3,796,508 $ 38,801 9,629 98,611 $ 147,041 $ 103,373 6,006,906 $6,110,279 $ 5,899 42 1,579,798 $1,585,739 $– – – – $– $– – – – $– $– – – – – $– $– – – – – – $– $– – – $– $– – $– $– – – $– – – – – – – – – December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ 11,907 – $ 3 – – 1,029,921 – $1,041,831 – $ – $ 2,954 2,954 $ $ $ $ – – – – – – 1,330 $ – 841,564 2,001 $ – 320,809 764 $ 53 103,337 1,774 $ 20 117,568 503 $ 31 46,555 10,831 $ 10 109,543 $ 1,285 1 27,708 Total $ 11,907 3 1,029,921 $ 1,041,831 $ $ $ 2,954 2,954 18,488 115 1,567,084 (In thousands) BPPR Consumer: Credit cards Substandard Loss Pass Total credit cards HELOCs Pass Total HELOCs Personal Substandard Loss Pass $ $ $ $ $ Total Personal $ 842,894 $ 322,810 $ 104,154 $ 119,362 $ 47,089 $ 120,384 $ Auto Substandard Loss Pass $ 6,764 $ 23 1,156,654 11,171 $ 41 961,571 10,466 $ 48 588,200 10,243 $ 4,597 $ 25 7 426,169 248,328 2,382 $ 14 85,827 Total Auto $1,163,441 $ 972,783 $ 598,714 $ 436,437 $252,932 $ 88,223 $ Other consumer Substandard Loss Pass $ – $ – 29,557 – $ – 17,439 100 $ – 6,967 593 $ – 4,201 543 $ 263 4,553 242 $ 40 1,942 10,902 – 60,238 Total Other consumer $ 29,557 $ 17,439 $ 7,067 $ 4,794 $ 5,359 $ 2,224 $ 71,140 $28,994 $ 1,585,687 $ $ $ $ – – – – – – – – $ 45,623 158 3,466,749 $ 3,512,530 $ 12,380 303 124,897 $ 137,580 Total BPPR $5,284,550 $3,842,437 $2,132,518 $1,331,262 $920,786 $6,511,660 $2,494,698 $28,994 $22,546,905 POPULAR, INC. 2023 ANNUAL REPORT 113 December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) Popular U.S. Commercial: Commercial multi-family Watch Special Mention Substandard Pass $ 750 $ – – 503,010 917 $ 6,218 $ 85,579 $ 9,633 $ 52,835 $ – 9,305 210,295 14,491 7,373 138,723 8,372 2,941 347,615 1,198 – 238,903 – – 399,397 – – – 2,785 Total commercial multi-family $503,760 $400,314 $246,319 $305,179 $170,220 $411,763 $ 2,785 Commercial real estate non-owner occupied Watch Special Mention Substandard Pass Total commercial real estate non-owner occupied $ – $ 2,167 $ 13,622 $ 3,355 $ 26,931 $ 29,849 $ – – 552,258 1,353 3,220 109,781 – 1,429 100,065 – 2,864 209,338 75,269 4,722 383,409 – 2,149 211,449 – – – 9,113 $552,258 $214,369 $227,220 $117,709 $128,425 $493,249 $ 9,113 Commercial real estate owner occupied Watch Special Mention Substandard Pass Total commercial real estate $ – $ – – 363,655 – $ 1,197 $ 1,079 $ 6,095 $ 55,005 $ – – 422,959 901 33,586 258,881 3,886 – 114,988 – 11,165 119,565 – 7,403 82,971 – – – 7,157 owner occupied $363,655 $422,959 $120,071 $ 91,453 $136,825 $348,373 $ 7,157 Commercial and industrial Watch Special Mention Substandard Loss Pass $ 12,328 $ 2,218 $ 2,022 $ 2,049 $ 8,438 $ 1,262 260 292 185,318 1,130 935 525 341,855 314 74 1 368,398 244 4,278 75 202,301 60 315 192 171,528 532 $ 4,291 3 1,408 – 352,169 – 1,829 3 376,045 Total commercial and industrial $199,460 $346,663 $370,809 $208,947 $180,533 $378,409 $357,871 Construction Watch Special Mention Substandard Pass $ – $ 12,085 $ – – 164,272 3 – 146,062 – $ 6,979 $ 18,310 $ 34,126 $ – 1,423 91,486 – 6,540 10,863 – 2,095 23,581 – – 93,118 Total construction $164,272 $158,150 $ 92,909 $100,097 $ 35,713 $ 59,802 $ $ – $ 2,009 $ 3,478 $ 4,048 $ 1,156 $ 9,798 $ 183,846 303,204 241,564 243,468 58,026 236,595 $236,595 $305,213 $246,946 $187,894 $ 59,182 $251,362 $ Mortgage Substandard Pass Total mortgage 114 POPULAR, INC. 2023 ANNUAL REPORT – – – – – – – – $ – – – – $ – $ – – – – $ – $ – – – – $ – $ – – – – – $ – $ – – – – $ – $ – – $ – Total $ 155,932 24,061 19,619 1,840,728 $2,040,340 $ 75,924 76,622 14,384 1,575,413 $1,742,343 $ 63,376 4,787 52,154 1,370,176 $1,490,493 $ 31,878 3,013 9,099 1,088 1,997,614 $2,042,692 $ 71,500 3 10,058 529,382 $ 610,943 $ 20,489 1,266,703 $1,287,192 Total $ $ $ $ $ 39 39 3,568 542 64,852 68,962 1,538 421 235,933 $ 237,892 $ $ 8 9,960 9,968 December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ – $ – – – $ – $ – $ 39 39 $ $ – – 2,146 $ 4 9,169 20 – 41,724 11,319 $ 41,744 $ 1,402 538 13,959 $15,899 (In thousands) Popular U.S. Consumer: Credit cards Pass Total credit cards HELOCs Substandard Loss Pass Total HELOCs Personal Substandard Loss Pass $ $ $ $ $ 621 $ – 165,153 454 $ – 46,320 149 $ – 7,339 238 $ – 13,443 70 $ – 2,021 6 $ 421 1,657 Total Personal $ 165,774 $ 46,774 $ 7,488 $ 13,681 $ 2,091 $ 2,084 $ Other consumer Substandard Pass Total Other consumer $ $ – $ – – $ – $ – – $ – $ – – $ – $ – – $ – $ – – $ – $ – 8 9,960 – $ 9,968 – – – – $ $ $ $ – – – – – – – Total Popular U.S. $2,185,774 $1,894,442 $1,311,762 $1,024,960 $712,989 $1,956,361 $428,677 $15,899 $9,530,864 POPULAR, INC. 2023 ANNUAL REPORT 115 December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis Total $ 179,127 26,753 23,045 2,092,788 $2,321,713 $ 248,358 134,010 92,084 4,025,218 $4,499,670 $ 187,882 75,879 161,113 505 2,653,170 $3,078,549 $ 224,354 74,028 114,300 179 1,232 5,425,107 $5,839,200 $ – – – – $ – $ – – – – $ – $ – – – – – $ – $ – – – – – – $ – (In thousands) Popular, Inc. Commercial: Commercial multi-family Watch Special Mention Substandard Pass Total commercial multi-family $ 750 $ – – 640,421 917 $ 6,218 $104,087 $ 9,633 $ – – 422,247 1,198 – 259,724 – 9,305 226,440 14,491 7,373 163,363 57,522 $ 11,064 6,267 377,808 – – 100 2,785 $ 641,171 $ 423,164 $267,140 $339,832 $194,860 $ 452,661 $ 2,885 Commercial real estate non-owner occupied Watch Special Mention Substandard Pass $ 173 $ – 8,933 1,408,097 38,395 $ 27,667 $ 18,297 $ 34,708 $ 129,118 $ 4,361 2,864 795,028 100,809 25,786 952,302 – 26,919 135,170 19,970 5,358 505,535 8,870 22,224 203,837 – – – 25,249 Total commercial real estate non-owner occupied $1,417,203 $ 840,648 $558,530 $253,228 $196,797 $1,208,015 $ 25,249 Commercial real estate owner occupied 2,296 $ 10 16,205 – 591,059 Watch Special Mention Substandard Doubtful Pass $ 5,271 $ 10,644 $ 5,354 $ 37,744 $ 126,573 $ 284 6,177 – 681,432 5,570 802 – 389,321 6,578 8,203 – 113,662 1,076 11,935 – 187,594 62,361 117,791 505 666,203 – – – – 23,899 Total commercial real estate owner occupied $ 609,570 $ 693,164 $406,337 $133,797 $238,349 $ 973,433 $ 23,899 Commercial and industrial Watch Special Mention Substandard Doubtful Loss Pass Total commercial and industrial $ 44,704 $ 3,799 1,049 – 292 978,980 4,403 $ 17,515 $ 20,878 $ 23,921 $ 3,609 2,211 – 525 1,026,502 6,827 11,851 75 192 236,725 1,383 7,416 – 75 379,566 6,084 1,674 29 1 579,411 52,134 $ 46,040 42,465 75 3 668,218 60,799 6,286 47,634 – 144 1,555,705 $1,028,824 $1,037,250 $604,714 $409,318 $279,591 $ 808,935 $1,670,568 116 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis (In thousands) Popular, Inc. Construction Watch Special Mention Substandard Pass $ 35,446 – – 177,316 $ 15,201 3 – 180,449 $ 98 – 11,052 107,447 $ 6,979 – – 95,380 $ 18,310 – 6,540 10,863 $ 34,126 – 2,095 23,581 Total construction $212,762 $195,653 $118,597 $102,359 $ 35,713 $ 59,802 Mortgage Substandard Pass $ – 685,881 $ 2,583 754,231 $ 4,165 528,494 $ 7,974 388,016 $ 5,383 295,033 $ 103,757 4,621,954 Total mortgage $685,881 $756,814 $532,659 $395,990 $300,416 $4,725,711 Leasing Substandard Loss Pass $ 953 – 672,294 $ 1,491 – 428,889 $ 941 – 237,939 $ 1,172 21 146,231 $ 1,127 – 79,451 $ 215 21 14,994 Total leasing $673,247 $430,380 $238,880 $147,424 $ 80,578 $ 15,230 $ 141 – – 32,957 $33,098 $ $ $ $ – – – – – – – $ – – – – $ – $ – – $ – $ – – – $ – Total $ 110,301 3 19,687 627,993 $ 757,984 $ 123,862 7,273,609 $7,397,471 $ 5,899 42 1,579,798 $1,585,739 POPULAR, INC. 2023 ANNUAL REPORT 117 December 31, 2022 Term Loans Amortized Cost Basis by Origination Year 2022 2021 2020 2019 2018 Revolving Loans Amortized Cost Basis Prior Years Revolving Loans Converted to Term Loans Amortized Cost Basis Total (In thousands) Popular, Inc. Consumer: Credit cards Substandard Loss Pass Total credit cards HELOCs Substandard Loss Pass Total HELOCs Personal Substandard Loss Pass $ $ $ $ $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – – $ – $ – – 11,907 3 1,029,960 – $1,041,870 $ $ – – – – $ 11,907 3 1,029,960 $ 1,041,870 2,146 $ 4 9,169 20 – 44,678 $ 1,402 538 13,959 11,319 $ 44,698 $15,899 1,951 $ – 1,006,717 2,455 $ – 367,129 913 $ 53 110,676 2,012 $ 20 131,011 573 $ 31 48,576 10,837 $ 431 111,200 $ 1,285 1 27,708 Total Personal $1,008,668 $ 369,584 $ 111,642 $ 133,043 $ 49,180 $ 122,468 $ Auto Substandard Loss Pass $ 6,764 $ 23 1,156,654 11,171 $ 41 961,571 10,466 $ 48 588,200 10,243 $ 25 426,169 4,597 $ 7 248,328 2,382 $ 14 85,827 Total Auto $1,163,441 $ 972,783 $ 598,714 $ 436,437 $ 252,932 $ 88,223 $ Other consumer Substandard Loss Pass $ – $ – 29,557 – $ – 17,439 100 $ – 6,967 593 $ – 4,201 543 $ 263 4,553 242 $ 40 1,942 10,910 – 70,198 Total Other consumer $ 29,557 $ 17,439 $ 7,067 $ 4,794 $ 5,359 $ 2,224 $ 81,108 – – – – – – – – $ $ $ 3,568 542 67,806 71,916 20,026 536 1,803,017 $28,994 $ 1,823,579 $ $ $ $ – – – – – – – – $ 45,623 158 3,466,749 $ 3,512,530 $ 12,388 303 134,857 $ 147,548 Total Popular Inc. $7,470,324 $5,736,879 $3,444,280 $2,356,222 $1,633,775 $8,468,021 $2,923,375 $44,893 $32,077,769 118 POPULAR, INC. 2023 ANNUAL REPORT Note 10 - Mortgage banking activities Income from mortgage banking activities includes mortgage servicing fees earned in connection with administering residential mortgage loans and valuation adjustments on mortgage servicing rights. It also includes gain on sales and losses on residential mortgage securitizations of loans, repurchased loans, including interest advances, and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition, fair value valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities. The following table presents the components of mortgage banking activities: (In thousands) Mortgage servicing fees, net of fair value adjustments: Mortgage servicing fees Mortgage servicing rights fair value adjustments Total mortgage servicing fees, net of fair value adjustments Net (loss) gain on sale of loans, including valuation on loans held for sale Trading account profit: Unrealized loss on outstanding derivative positions Realized gains on closed derivative positions Total trading account profit Losses on repurchased loans, including interest advances [1] Total mortgage banking activities Years ended December 31, 2021 2022 2023 $ 32,981 (11,589) $36,487 236 $ 38,105 (10,206) 21,392 36,723 (88) (251) 27,899 21,684 (138) 614 476 (283) – 6,635 6,635 – 1,323 1,323 (657) (773) $ 21,497 $42,450 $ 50,133 [1] Effective on January 1, 2023, loans held-for-sale are stated at fair value. Prior to such date, loans held-for-sale were stated at lower -of-cost-or- market. Note 11 - Transfers of financial assets and mortgage servicing assets The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, and the Corporation has made warranties with respect to the originally transferred loans and, certain representations in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 23 to the Consolidated Financial Statements for a description of such arrangements. incurred as No liabilities were these securitizations during the years ended December 31, 2023 and recourse 2022 because they did not contain any credit arrangements. result of a The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the years ended December 31, 2023 and 2022: (In thousands) Assets Trading account debt securities: Mortgage-backed securities - GNMA Mortgage-backed securities - FNMA Total trading account debt securities Mortgage servicing rights Total Proceeds Obtained During the Year Ended December 31, 2023 Level 1 Level 2 Level 3 Initial fair value $– – $– $– $– $ 2,488 34,857 $37,345 $ – $37,345 $ – – $ – $987 $987 $ 2,488 34,857 $37,345 $ 987 $38,332 POPULAR, INC. 2023 ANNUAL REPORT 119 Proceeds Obtained During the Year Ended December 31, 2022 Level 1 Level 2 Level 3 Initial fair value $– – – $– $– $– $169,352 122,422 8,505 $300,279 $ – $300,279 $ $ – – – – $5,318 $5,318 $169,352 122,422 8,505 $300,279 $ 5,318 $305,597 During the quarter ended June 30, 2023 the Corporation terminated a servicing agreement, in which it acted as sub- servicer for a third party, for a portfolio with an unpaid principal balance of approximately $260 million and a related MSR fair value of approximately $2 million. The transaction did not result in a material effect on the financial results of the Corporation. Residential mortgage loans serviced for others were $9.9 billion at December 31, 2023 (2022 - $11.1 billion). activities Statements Net mortgage servicing fees, a component of mortgage banking of in the Consolidated Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At December 31, 2023, those weighted average mortgage servicing fees were 0.31% (2022 - 0.31%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced. The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the years ended December 31, 2023 and 2022 were as follows: Years ended December 31, 2023 December 31, 2022 BPPR PB BPPR 7.0% 6.8% 5.4% PB 8.1% 9.1 8.3 9.5 7.8 9.6% 11.1% 10.5% 9.9% Prepayment speed Weighted average life (in years) Discount rate (annual rate) (In thousands) Assets Trading account debt securities: Mortgage-backed securities - GNMA Mortgage-backed securities - FNMA Mortgage-backed securities - FHLMC Total trading account debt securities Mortgage servicing rights Total During the year ended December 31, 2023, the Corporation involving retained servicing rights on whole loan sales approximately $50 million in principal balance outstanding (2022 - $114 million), with net realized gains of approximately $0.7 million (2022 - $1.8 million). All loan sales performed during the years ended December 31, 2023 and 2022 were without credit recourse agreements. The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value. The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment considerations. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior. among other and late fees, The following table presents the changes in MSRs measured using the fair value method for the years ended December 31, 2023 and 2022. Residential MSRs (In thousands) Fair value at beginning of period Additions Changes due to payments on loans [1] Reduction due to loan repurchases Changes in fair value due to changes in valuation model inputs or assumptions Other December 31, 2023 December 31, 2022 $128,350 2,097 $121,570 6,614 (9,934) (606) (529) (1,269) (11,063) (779) 12,845 (837) Fair value at end of period [2] $118,109 $128,350 [1] Represents changes due to collection / realization of expected cash flows over time. [2] At December 31, 2023, PB had MSRs amounting to $1.9 million (December 31, 2022 - $2.0 million). 120 POPULAR, INC. 2023 ANNUAL REPORT Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to immediate changes in those assumptions, were as follows as of the end of the periods reported: (In thousands) Fair value of servicing rights Weighted average life (in years) Weighted average prepayment speed (annual rate) Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change Weighted average discount rate (annual rate) Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. At December 31, 2023, the Corporation serviced $561 million (2022 - $640 million) in residential mortgage loans from which $13 with credit recourse to the Corporation, million was 60 days or more past due (2022 - $15 million). Also refer in the Corporation’s liability of estimated losses related to loans serviced with credit recourse. information on changes to Note 23 for Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan for a GNMA guaranteed mortgage-backed that is collateral security when certain delinquency criteria are met. At the time that loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is individual Originated MSRs Purchased MSRs December 31, December 31, December 31, December 31, 2023 $39,757 6.6 5.9% $ (696) $ (1,365) 11.3% $ (1,387) $ (2,686) 2022 $41,548 6.8 5.9% $ (730) $ (1,433) 11.2% $ (1,485) $ (2,876) 2023 $78,352 6.8 7.0% $ (1,440) $ (2,827) 10.9% $ (2,871) $ (5,562) 2022 $86,802 6.9 7.0% $ (1,602) $ (3,143) 11.0% $ (3,256) $ (6,304) deemed to have regained effective control over these loans if the Corporation was the pool issuer. At December 31, 2023, the Corporation had recorded $11 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (2022 - $14 million). Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed the MSR is recognized by the mortgage-backed security, Corporation. During the year ended December 31, 2023, the Corporation repurchased approximately $44 million of mortgage loans from its GNMA servicing portfolio (2022 - $58 million). The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. The risk associated with the loans reduced due to their guaranteed nature. The Corporation may place these loans under modification programs offered by FHA, VA or United loss States Department of Agriculture (USDA) or other mitigation programs offered by the Corporation, and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market. is POPULAR, INC. 2023 ANNUAL REPORT 121 Note 12 - Premises and equipment Premises and equipment are stated at cost less accumulated depreciation and amortization as follows: (In thousands) Premises and equipment: Land Buildings Equipment Leasehold improvements Less - Accumulated depreciation and amortization Subtotal Construction in progress Premises and equipment, net Useful life in years 2023 2022 10-50 2-10 3-10 $ 90,275 487,053 421,513 90,333 998,899 605,178 393,721 81,288 $565,284 $ 90,625 482,030 388,911 89,693 960,634 586,479 374,155 33,931 $498,711 Depreciation and amortization of premises and equipment for the year 2023 was $58.5 million (2022 - $55.1 million; 2021 - $55.1 million), of which $26.5 million (2022 -$24.8 million; 2021 -$25.2 million) was charged to occupancy expense and $32.0 million (2022 - $30.3 million; 2021 - $29.8 million) was charged to equipment, technology and software and other operating expenses. Occupancy expense of premises and equipment is net of rental income of $13.1 million (2022 - $13.1 million; 2021 - $13.4 million). For information related to the amortization expense of finance leases, refer to Note 33 -Leases. Note 13 - Other real estate owned The following tables present the activity related to Other Real Estate Owned (“OREO”), for the years ended December 31, 2023, 2022 and 2021. For the year ended December 31, 2023 OREO Commercial/Construction OREO Mortgage (In thousands) Balance at beginning of period Write-downs in value Additions Sales Other adjustments Ending balance (In thousands) Balance at beginning of period Write-downs in value Additions Sales Other adjustments Ending balance (In thousands) Balance at beginning of period Write-downs in value Additions Sales Other adjustments Ending balance 122 POPULAR, INC. 2023 ANNUAL REPORT For the year ended December 31, 2022 OREO Commercial/Construction OREO Mortgage $12,500 (607) 2,707 (3,428) 17 $11,189 $15,017 (959) 5,787 (7,453) 108 $12,500 $13,214 (1,058) 9,746 (7,282) 397 $15,017 $ 76,626 (2,179) 68,582 (73,548) (254) Total $ 89,126 (2,786) 71,289 (76,976) (237) $ 69,227 $ 80,416 Total $ 85,077 (2,476) 75,856 (68,906) (425) $ 70,060 (1,517) 70,069 (61,453) (533) $ 76,626 $ 89,126 Total $ 83,146 (3,219) 65,644 (59,948) (546) $ 69,932 (2,161) 55,898 (52,666) (943) $ 70,060 $ 85,077 For the year ended December 31, 2021 OREO Commercial/Construction OREO Mortgage Note 14 - Other assets The caption of other assets in the consolidated statements of financial condition consists of the following major categories: (In thousands) Net deferred tax assets (net of valuation allowance) Investments under the equity method Prepaid taxes Other prepaid expenses Capitalized software costs Derivative assets Trades receivable from brokers and counterparties Receivables from investments maturities Principal, interest and escrow servicing advances Guaranteed mortgage loan claims receivable Operating ROU assets (Note 33) Finance ROU assets (Note 33) Assets for pension benefit Others Total other assets December 31, 2023 December 31, 2022 $1,009,068 236,485 39,052 29,338 93,404 24,419 23,102 176,000 48,557 29,648 116,106 21,093 23,404 144,888 $2,014,564 $ 953,676 210,001 39,405 33,384 81,862 19,229 35,099 125,000 41,916 59,659 125,573 18,884 – 104,125 $1,847,813 The Corporation regularly incurs in capitalizable costs associated with software development or licensing which are recorded within the Other Assets line item in the accompanying Consolidated Statements of Financial Condition. In addition, the Corporation incurs costs associated with hosting arrangements that are service contracts that are also recorded within Other Assets. The hosting arrangements can include capitalizable implementation costs that are amortized during the term of the hosting arrangement. The following table summarizes the composition of acquired or developed software costs as well as costs related to hosting arrangements: (In thousands) December 31, 2023 Software development costs Software license costs Cloud computing arrangements Total Capitalized software costs [1] [2] December 31, 2022 Software development costs Software license costs Cloud computing arrangements Total Capitalized software costs [1] [2] Gross Carrying Amount $ 76,497 42,868 23,623 $142,988 $ 63,609 37,165 20,745 $121,519 Accumulated Amortization Net Carrying Value $22,086 18,048 9,450 $49,584 $16,803 14,164 8,690 $39,657 $54,411 24,820 14,173 $93,404 $46,806 23,001 12,055 $81,862 Software intangible assets are presented as part of Other Assets in the Consolidated Statements of Financial Condition. [1] [2] The tables above excludes assets that have been fully amortized. Total amortization expense for all capitalized software and hosting arrangement cost, reflected as part of technology and software expenses in the consolidated statement of operations, is as follows: (In thousands) Software development and license costs Cloud computing arrangements Total amortization expense Year ended December 31, 2021 2022 2023 $ 66,233 3,324 $ 55,011 3,805 $ 45,577 3,867 $ 69,557 $ 58,816 $ 49,444 POPULAR, INC. 2023 ANNUAL REPORT 123 Note 15 – Goodwill and other intangible assets The changes in the carrying amount of goodwill for the year ended December 31, 2023 and 2022, allocated by reportable segments, were as follows (refer to Note 37 for the definition of the Corporation’s reportable segments): (In thousands) Banco Popular de Puerto Rico Popular U.S. Total Popular, Inc. (In thousands) Banco Popular de Puerto Rico Popular U.S. Total Popular, Inc. December 31, 2023 Balance at January 1, 2023 $436,383 391,045 $827,428 Goodwill on acquisition $– – $– Goodwill impairment $ – (23,000) $(23,000) Balance at December 31, 2023 $436,383 368,045 $804,428 December 31, 2022 Balance at January 1, 2022 $320,248 400,045 $720,293 Goodwill on acquisition $116,135 – $116,135 Goodwill impairment $ – (9,000) $(9,000) Balance at December 31, 2022 $436,383 391,045 $827,428 The goodwill recognized during the year ended December 31, 2022 in the reportable segment of Banco Popular de Puerto Rico of $116.1 million was related to the Evertec Business Acquisition Transaction. Refer to Note 4, Business combination, for additional information related to the assets acquired and liabilities assumed as a result of business combinations, including goodwill and other intangible assets. The following table reflects the components of other intangible assets subject to amortization: Other intangible assets (In thousands) December 31, 2023 Core deposits Other customer relationships Total other intangible assets December 31, 2022 Core deposits Other customer relationships Total other intangible assets Gross Carrying Amount $12,810 14,286 $27,096 $12,810 14,286 $27,096 Accumulated Amortization $11,315 6,777 $18,092 $10,034 4,878 $14,912 Net Carrying Value $ 1,495 7,509 $ 9,004 $ 2,776 9,408 $12,184 During the year ended December 31, 2023, the Corporation recognized $ 3.2 million in amortization expense related to other intangible assets with definite useful lives (2022 - $3.3 million; 2021 - $9.1 million). The following table presents the estimated amortization of the intangible assets with definite useful lives for each of the following periods: (In thousands) Year 2024 Year 2025 Year 2026 Year 2027 Year 2028 Later years 124 POPULAR, INC. 2023 ANNUAL REPORT $2,938 1,750 1,440 959 959 958 Results of the Annual Goodwill Impairment Test The Corporation’s goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment, at least annually and on a more frequent basis if events or circumstances indicate impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit. Management monitors events or changes in circumstances between annual tests to determine if these events or changes in circumstances would more likely than not reduce the fair value of its reporting units below their carrying amounts. The Corporation performed the annual goodwill impairment evaluation for the entire organization during the third quarter of 2023 using July 31, 2023 as the annual evaluation date. The reporting units utilized for this evaluation were those that are one level below the business segments, which are the legal entities within the reportable segment. The Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units when carrying out a business combination. as well In determining the fair value of each reporting unit, the combination of methods, a Corporation generally uses including market price multiples of comparable companies and transactions, as discounted cash flow analysis. Management evaluates the particular circumstances of each reporting unit in order to determine the most appropriate valuation methodology and the weights applied to each applicable. The Corporation as valuation methodology, evaluates valuation obtained results the methodology to identify and understand the key value drivers in order to ascertain that the results obtained are reasonable and appropriate under the circumstances. Elements considered include current market and economic conditions, developments in specific lines of business, and any particular features in the individual reporting units. under each The computations require management to make estimates and assumptions. Critical assumptions that are used as part of these evaluations include: • a selection of comparable publicly traded companies, based on nature of business, location and size; • a selection of comparable acquisitions; • the discount rate applied to future earnings, based on an estimate of the cost of equity; • the potential future earnings of the reporting unit; and • the market growth and new business assumptions. comparable the market For purposes of the reporting unit. Management uses judgment companies’ approach, valuations were determined by calculating average price multiples of relevant value drivers from a group of companies that are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of in the determination of which value drivers are considered more appropriate for each reporting unit. Comparable companies’ price multiples represent minority-based multiples and thus, a control premium adjustment is added to the comparable companies’ market multiples applied to the reporting unit’s value drivers. For purposes of the market comparable transactions’ approach, valuations had been previously determined by the Corporation by calculating average price multiples of relevant value drivers from a group of transactions for which the target companies are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of the reporting unit. For purposes of (“DCF”) approach, the valuation is based on estimated future cash flows. the discounted cash flows financial projections presented to The financial projections used in the DCF valuation analysis for each reporting unit are based on the most recent (as of the valuation date) the / Liability Management Committee Corporation’s Asset (“ALCO”). The growth assumptions included in these projections are based on management’s expectations for each reporting unit’s financial prospects considering economic and industry conditions as well as particular plans of each entity (i.e. restructuring plans, de-leveraging, etc.). The cost of equity used to discount the cash flows was calculated using the Ibbotson Build-Up Method and ranged from 12.30% to 16.96% for the 2023 analysis. The Ibbotson Build-Up Method builds up a cost of equity starting with the rate of return of a “risk-free” asset (20-year U.S. Treasury note) and adds to it additional risk elements such as equity risk premium, size premium, industry risk premium, and a specific geographic risk premium (as applicable). The resulting discount rates were analyzed in terms of reasonability given the current market conditions. The results of the BPPR annual goodwill impairment test as of July 31, 2023 indicated that the average estimated fair value using all valuation methodologies exceeded BPPR’s equity value by approximately $3.7 billion or 468% compared to $3.1 billion or 245%, for the annual goodwill impairment test completed as of July 31, 2022. PB’s annual goodwill impairment test results as of such dates indicated that the average estimated fair value using all valuation methodologies exceeded PB’s equity value by approximately $129 million or 8%, compared to $670 million or 41%, for the annual goodwill impairment test completed as of July 31, 2022. Accordingly, no impairment was recognized for BPPR or PB. The goodwill balance of BPPR and PB, as legal entities, represented approximately 93% of the Corporation’s total goodwill balance as of the July 31, 2023 valuation date. An impairment of $23 million was recognized by the Corporation from the annual test as of July 31, 2023 related to PEF due to lower forecasted cash flows and an increase in the rate used to discount cash flows. During 2022 the Corporation recognized a goodwill impairment of $9 million related to PEF, as a result of a decrease in the projected earnings of this business unit. The PEF goodwill balance as of December 31, 2023 amounted to $17 million (December 31, 2022 - $40 million). the as part of Furthermore, analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of the fair value results determined for the reporting units in the July 31, 2023 annual assessment were reasonable. the Corporation concluding that The goodwill impairment evaluation process requires the Corporation to make estimates and assumptions with regard to the fair value of the 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 the Corporation’s results of operations and the reporting POPULAR, INC. 2023 ANNUAL REPORT 125 units where the goodwill is recorded. Particularly for reporting units with recognized impairments or where the estimated fair value approximates the equity value, future decreases in fair value estimates could result in additional impairment charges. Additionally, Corporation’s market capitalization and adverse economic conditions sustained over a longer period of time negatively affecting forecasted earnings could increase the risk of goodwill impairment in the future. declines the in A decline in the Corporation’s stock price related to global and/or regional macroeconomic conditions, a deterioration in the Puerto Rico or the U.S. economies, increases in the rate to discount future cash flows, and lower future earnings estimates could, individually or in the aggregate, have a material impact on the determination of the fair value of our reporting units, which could in turn result in an impairment of goodwill in the future. An impairment of goodwill would result in a non-cash expense, net of tax impact. A charge to earnings related to a goodwill impairment would not materially impact regulatory capital calculations. The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments. (In thousands) Banco Popular de Puerto Rico Popular U.S. Total Popular, Inc. (In thousands) Banco Popular de Puerto Rico Popular U.S. Total Popular, Inc. December 31, 2023 December 31, 2022 Balance at December 31, 2023 (gross amounts) $ 440,184 564,456 $1,004,640 Accumulated impairment losses $ 3,801 196,411 $200,212 Balance at December 31, 2023 (net amounts) $436,383 368,045 $804,428 Balance at December 31, 2022 (gross amounts) $ 440,184 564,456 $1,004,640 Accumulated impairment losses $ 3,801 173,411 $177,212 Balance at December 31, 2022 (net amounts) $436,383 391,045 $827,428 Note 16 - Deposits Total deposits as of the end of the periods presented consisted of: A summary of December 31, 2023 follows: certificates of deposits by maturity at (In thousands) Savings accounts NOW, money market and other interest bearing demand deposits Total savings, NOW, money market and other interest bearing demand deposits Certificates of deposit: Under $250,000 $250,000 and over Total certificates of deposit December 31, 2023 December 31, 2022 $14,602,411 $14,746,329 25,094,316 23,738,940 39,696,727 38,485,269 5,443,062 3,058,830 8,501,892 4,235,651 2,545,750 6,781,401 Total interest bearing deposits $48,198,619 $45,266,670 Non- interest bearing deposits $15,419,624 $15,960,557 Total deposits $63,618,243 $61,227,227 126 POPULAR, INC. 2023 ANNUAL REPORT (In thousands) 2024 2025 2026 2027 2028 2029 and thereafter Total certificates of deposit $5,440,688 1,136,539 809,921 391,601 642,747 80,396 $8,501,892 At December 31, 2023, the Corporation had brokered deposits amounting to $ 1.7 billion (December 31, 2022 - $ 1.1 billion). The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $9.1 million at December 31, 2023 (December 31, 2022 - $6.3 million). At December 31, 2023, Puerto Rico public sector deposits amounted to $18.1 billion. Puerto Rico public sector deposits are interest bearing accounts. These public funds deposits are indexed to short-term market rates and fluctuate in cost with changes in those rates, in accordance with contractual terms. Public deposit balances are difficult to predict. For example, the receipt by the Puerto Rico Government of hurricane recovery related Federal assistance and seasonal tax collections could increase public deposit balances at BPPR. On the other hand, the amount and timing of reductions in balances are likely to be impacted by, for example, the speed at which federal assistance is distributed, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation of fiscal and debt adjustment plans approved pursuant to PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”). Generally, these the bank pledge high credit quality deposits require that securities as collateral, therefore, liquidity risk arising from public sector deposit outflows are lower. the financial condition, Note 17 - Borrowings Assets sold under agreements to repurchase Assets sold under agreements to repurchase amounted to $91 million at December 31, 2023 and $149 million at December 31, 2022. The repurchase transactions Corporation’s are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default, each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them. Pursuant to the Corporation’s accounting policy, the repurchase agreements are not offset with other agreements held with the same counterparty. repurchase The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with debt securities available-for-sale, debt securities held-to-maturity, other assets held-for- trading purposes or which have been obtained under agreements to resell. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the Consolidated Statements of Financial Condition. Repurchase agreements accounted for as secured borrowings (Dollars in thousands) U.S. Treasury securities Within 30 days After 30 to 90 days After 90 days Total U.S. Treasury securities Mortgage-backed securities Within 30 days After 30 to 90 days Total mortgage-backed securities Collateralized mortgage obligations Within 30 days Total collateralized mortgage obligations Total December 31, 2023 December 31, 2022 Repurchase liability Repurchase liability weighted average interest rate Repurchase liability Repurchase liability weighted average interest rate $16,931 18,369 8,292 43,592 27,171 20,394 47,565 227 227 $91,384 5.56% 5.60 5.73 5.61 5.49 5.71 5.58 5.25 5.25 5.59% $ 410 30,739 17,521 48,670 98,984 791 99,775 164 164 $148,609 4.40% 3.79 4.39 4.01 4.27 3.27 4.26 4.25 4.25 4.18% POPULAR, INC. 2023 ANNUAL REPORT 127 Repurchase agreements in this portfolio are generally short- term, often overnight. As such, our risk is very limited. We manage the liquidity risks arising from secured funding by sourcing of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. from a globally funding diverse group (Dollars in thousands) 2023 2022 Maximum aggregate balance outstanding at any month-end $150,692 $162,450 Average monthly aggregate balance outstanding $115,808 $107,305 Weighted average interest rate: For the year At December 31 5.20% 5.68% 2.15% 4.23% Other short-term borrowings There were no other short-term borrowings at December 31, 2023, compared to $365 million in FHLB advances at December 31, 2022. The following table presents additional information related to the Corporation’s other short-term borrowings for the years ended December 31, 2023 and December 31, 2022. (Dollars in thousands) 2023 2022 Maximum aggregate balance outstanding at any month-end $65,000 $375,000 Average monthly aggregate balance outstanding Weighted average interest rate: For the year At December 31 $27,302 $ 99,083 4.80% 5.60% 3.46% 4.47% Notes Payable The following table presents the composition of notes payable at December 31, 2023 and December 31, 2022. (In thousands) Advances with the FHLB with maturities ranging from 2024 through 2029 paying interest at monthly fixed rates ranging from 0.41% to 5.26% (2022 - 0.39% to 3.18%) Unsecured senior debt securities maturing on 2028 paying interest semiannually at a fixed rate of 7.25% (2022 - 6.125%), net of debt issuance costs of $6,063 (2022 - $891)[1] Junior subordinated deferrable interest debentures (related to trust preferred securities) maturing on 2034 with fixed interest rates ranging from 6.125% to 6.564% (2022 - 6.125% to 6.564%), net of debt issuance costs of $288 (2022 - $315) Total notes payable December 31, 2023 December 31, 2022 $394,665 $389,282 393,937 299,109 198,346 $986,948 198,319 $886,710 [1] On March 13, 2023, the Corporation issued $400 million aggregate principal amount of 7.25% Senior Notes due 2028 (the “2028 Notes”) in an underwritten public offering. The Corporation used a portion of the net proceeds of the 2028 Notes offering to redeem, on August 14, 2023, the outstanding $300 million aggregate principal amount of its 6.125% Senior Notes which were due on September 2023. The redemption price was equal to 100% of the principal amount plus accrued and unpaid interest through the redemption date. A breakdown of borrowings by contractual maturities at December 31, 2023 is included in the table below. (In thousands) 2024 2025 2026 2028 Later years Total borrowings Assets sold under agreements to repurchase Notes payable $91,384 – – – – $91,384 Total $ 183,327 144,214 74,500 438,288 238,003 $ 91,943 144,214 74,500 438,288 238,003 $986,948 $1,078,332 At December 31, 2023 and December 31, 2022, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $4.2 billion and $3.3 billion, respectively, of which $0.4 billion and $0.8 billion, respectively, were used. at December 31, 2023 and December 31, 2022, the Corporation had placed $0.3 billion In addition, and $0.4 billion, respectively, of the available FHLB credit facility as collateral for municipal letters of credit to secure deposits. The FHLB borrowing facilities are collateralized with securities and loans held-in-portfolio, and do not have restrictive covenants or callable features. 128 POPULAR, INC. 2023 ANNUAL REPORT Also, at December 31, 2023, the Corporation has borrowing facilities at the discount window of the Federal Reserve Bank of New York amounting to $4.4 billion (December 31, 2022 - $1.4 billion), which remained unused at December 31, 2023 and December 31, 2022. The facilities are a collateralized source of credit is highly reliable even under difficult market that conditions. Note 18 – Trust preferred securities Statutory trusts established by the Corporation (Popular North America Capital Trust I and Popular Capital Trust II) had issued trust preferred securities (also referred to as “capital securities”) to the public. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts (the “common securities”), were used by the trusts to purchase junior subordinated deferrable interest debentures (the “junior subordinated debentures”) issued by the Corporation. The sole assets of the trusts consisted of the junior subordinated debentures of the Corporation and the related accrued interest receivable. These trusts are not consolidated by the Corporation pursuant to accounting principles generally accepted in the United States of America. The junior subordinated debentures are included by the Corporation as notes payable in the Consolidated Statements of Financial Condition, while the common securities issued by the issuer trusts are included as debt securities held-to-maturity. The common securities of each trust are wholly-owned, or indirectly wholly-owned, by the Corporation. The following table presents financial data pertaining to the different trusts at December 31, 2023 and 2022. (Dollars in thousands) Issuer Capital securities Distribution rate Common securities Junior subordinated debentures aggregate liquidation amount Stated maturity date Reference notes December 31, 2023 and 2022 Popular North America Capital Trust I Popular Capital Trust Il $ $ $ 91,651 6.564% 2,835 94,486 September 2034 [1],[3],[5] $ $ $ 101,023 6.125% 3,125 104,148 December 2034 [2],[4],[5] Statutory business trust that is wholly-owned by PNA and indirectly wholly-owned by the Corporation. Statutory business trust that is wholly-owned by the Corporation. [1] [2] [3] The obligation of PNA under the junior subordinated debenture and its guarantees of the capital securities under the trust is fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the guarantee agreement. [4] These capital securities are fully and unconditionally guaranteed on a subordinated basis by the Corporation to the extent set forth in the guarantee agreement. [5] The Corporation has the right, subject to any required prior approval from the Federal Reserve, to redeem after certain dates or upon the occurrence of certain events mentioned below, the junior subordinated debentures at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption. The maturity of the junior subordinated debentures may be shortened at the option of the Corporation prior to their stated maturity dates (i) on or after the stated optional redemption dates stipulated in the agreements, in whole at any time or in part from time to time, or (ii) in whole, but not in part, at any time within 90 days following the occurrence and during the continuation of a tax event, an investment company event or a capital treatment event as set forth in the indentures relating to the capital securities, in each case subject to regulatory approval. At December 31, 2023, the Corporation’s $193 million in trust preferred securities outstanding do not qualify for Tier 1 capital treatment, but instead qualify for Tier 2 capital treatment compared to $193 million at December 31, 2022. POPULAR, INC. 2023 ANNUAL REPORT 129 Note 19 - Other liabilities The caption of other liabilities in the consolidated statements of financial condition consists of the following major categories: (In thousands) Accrued expenses Accrued interest payable Accounts payable Dividends payable Trades payable Liability for GNMA loans sold with an option to repurchase Reserves for loan indemnifications Reserve for operational losses Operating lease liabilities (Note 33) Finance lease liabilities (Note 33) Pension benefit obligation Postretirement benefit obligation Others December 31, 2023 December 31, 2022 $337,695 59,102 89,339 44,741 31 10,960 4,408 27,994 126,946 25,778 6,772 117,045 63,816 $337,284 39,288 76,456 39,525 9,461 14,271 7,520 39,266 137,290 24,737 8,290 118,336 65,222 Total other liabilities $914,627 $916,946 Note 20 - Stockholders’ equity The Corporation’s common stock ranks junior to all series of preferred stock as to dividend rights and / or as to rights on liquidation, dissolution or winding up of the Corporation. Dividends on preferred stock are payable if declared. The Corporation’s ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, its common stock is subject to certain restrictions in the event that the Corporation fails to pay or set aside full dividends on the preferred stock for the latest dividend period. The ability of the Corporation to pay dividends in the future is limited by regulatory requirements, legal availability of funds, recent and projected financial results, capital levels and liquidity of the Corporation, general business conditions the Corporation’s Board of Directors. factors deemed relevant by and other The Corporation’s common stock trades on the Nasdaq Global Select Market (the “Nasdaq”) under the symbol BPOP. The 2003 Series A Preferred Stock are not listed on Nasdaq. Preferred stocks The Corporation 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. The Corporation’s shares of preferred stock at December 31, 2023 consisted of: • 6.375% non-cumulative monthly income preferred stock, 2003 Series A, no par value, liquidation preference value of $25 per share. Holders on record of the 2003 Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors of the Corporation or 130 POPULAR, INC. 2023 ANNUAL REPORT an authorized committee thereof, out of funds legally available, non-cumulative cash dividends at the annual rate per share of 6.375% of their liquidation preference value, or $0.1328125 per share per month. These shares of preferred stock are perpetual, nonconvertible, have no preferential rights to purchase any securities of the Corporation and are redeemable solely at the option of the Corporation with the consent of the Board of Governors of the Federal Reserve System. The redemption price per share is $25.00. The shares of 2003 Series A Preferred Stock have no voting rights, except for certain rights in instances when the Corporation does not pay dividends for a defined period. These shares are not subject to any sinking fund requirement. Cash dividends declared and paid on the 2003 Series A Preferred Stock amounted to $ 1.4 million for the years ended December 31, 2023, 2022 and 2021. Outstanding shares of 2003 Series A Preferred Stock amounted to 885,726 at December 31, 2023, 2022 and 2021. Common stock Dividends During the year 2023, cash dividends of $2.27 (2022 - $2.20; 2021 - $1.75) per common share outstanding were declared amounting to $ 163.7 million (2022 - $ 163.7 million; 2021 - $ 142.3 million) of which $44.7 million were payable to stockholders of common stock at December 31, 2023 (2022 - $39.5 million; 2021 - $35.9 million). The quarterly dividend of $0.62 per share declared to stockholders of record as of the close of business on December 7, 2023, was paid on January 2, the Corporation’s Board of 2024. On February 23, 2024, Directors approved a quarterly cash dividend of $0.62 per share on its outstanding common stock, payable on April 1, 2024 to stockholders of record at the close of business on March 14, 2024. Accelerated share repurchase transaction (“ASR”) On August 24, 2022, the Corporation entered into a $231 million ASR transaction with respect to its common stock (the “August ASR Agreement”), which was accounted for as a treasury transaction. As a result of the receipt of the initial 2,339,241 shares, the Corporation recognized in stockholders’ equity approximately $185 million in treasury stock and $46 million as a reduction of capital surplus. The Corporation completed the transaction on December 7, 2022 and received 840,024 additional shares of common stock and recognized stock with a approximately $60 million as the In total corresponding increase in its capital surplus. Corporation repurchase a total of 3,179,265 shares at an average purchased price of $72.6583 under the August ASR Agreement. treasury a as accounted for On March 1, 2022, the Corporation announced that on February 28, 2022 it entered into a $400 million ASR transactions with respect to its common stock (the “March ASR Agreement”), which was treasury transaction. As a result of the receipt of the initial 3,483,942 shares, the Corporation recognized in stockholders’ equity approximately $320 million in treasury stock and $80 million as a reduction of capital surplus. The Corporation completed the transaction on July 12, 2022 and received 1,582,922 additional shares of common stock and recognized $120 million in treasury stock with a corresponding increase in its capital surplus. In total the Corporation repurchased a total of 5,066,864 shares at an average purchased price of $78.9443 under the March ASR Agreement. the receipt of the initial 3,785,831 shares, On May 3, 2021, the Corporation entered into a $350 million ASR transaction with respect to its common stock, which was accounted for as a treasury stock transaction. As a result of the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. The Corporation completed the transaction on September 9, 2021 and received 828,965 additional shares of common stock and recognized $61 million in treasury stock with a corresponding increase in capital surplus. In total, the Corporation repurchased a total of 4,614,796 shares at an average price of $75.8430 under the ASR Agreement. Statutory reserve The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of 10% of BPPR’s net income for the year be transferred to a statutory reserve account until such statutory reserve equals the total of paid-in capital on common and preferred stock. Any losses incurred by a bank must first be charged to retained earnings and then to the reserve fund. Amounts credited to the reserve fund may not be used to pay the Puerto Rico the prior consent of dividends without Commissioner of Financial Institutions. The failure to maintain sufficient statutory reserves would preclude BPPR from paying dividends. BPPR’s statutory reserve fund amounted to $908 million at December 31, 2023 (2022 - $863 million; 2021 - $786 million). During 2023, $45 million was transferred to the statutory reserve account (2022 - $77 million, 2021 - $78 million). BPPR was in compliance with the statutory reserve requirement in 2023, 2022 and 2021. Note 21 - Regulatory capital requirements The Corporation, BPPR and PB are subject to various regulatory capital requirements imposed by the federal banking agencies. Failure to meet minimum capital requirements can lead to certain mandatory and additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Popular, Inc., BPPR and PB are subject to Basel III capital including minimum and well requirements, capitalized regulatory capital ratios and compliance with the standardized approach for determining risk-weighted assets. The Basel III Capital Rules established a Common Equity Tier I (“CET1”) capital measure and related regulatory capital ratio CET1 to risk-weighted assets. The Basel III Capital Rules provide that a depository institution will be deemed to be well capitalized if it maintained a leverage ratio of at least 5%, a CET1 ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8% and a total risk- based ratio of at least 10%. Management has determined that at December 31, 2023 and 2022, the Corporation exceeded all capital adequacy requirements to which it is subject. The Corporation has been designated by the Federal Reserve Board as a Financial Holding Company (“FHC”) and is eligible to engage in certain financial activities permitted under the Gramm-Leach-Bliley Act of 1999. Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the Corporation elected to use a five-year transition period option as permitted in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of the adoption of the CECL accounting standard on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay. to to the that clarified banking including organizations agencies have On August 26, 2020, federal banking regulators issued a final rule to modify the Basel III regulatory capital rules applicable allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, banking organizations, the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of December 31, 2023, the Corporation has $9 million in PPP loans and no loans were pledged as collateral for PPPL Facilities. At December 31, 2023 and 2022, BPPR and PB were well- regulatory framework for prompt the capitalized under corrective action. POPULAR, INC. 2023 ANNUAL REPORT 131 The following tables present the Corporation’s risk-based capital and leverage ratios at December 31, 2023 and 2022 under the Basel III regulatory guidance. The following table presents the minimum amounts and ratios to be categorized as well- for capitalized. the Corporation’s banks Capital adequacy minimum requirement (including conservation capital buffer) [1] Actual (Dollars in thousands) Amount Ratio Amount Ratio 2023 2022 Total Capital (to Risk- Weighted Assets): BPPR PB Common Equity Tier I Capital (to Risk- Weighted Assets): BPPR PB Tier I Capital (to Risk- Weighted Assets): BPPR PB Tier I Capital (to Average Assets): BPPR PB $2,650,453 1,036,909 10% $2,476,068 938,581 10 10% 10 $1,722,795 673,991 6.5% $1,609,444 610,078 6.5 6.5% 6.5 $2,120,363 829,527 8% $1,980,855 750,865 8 $2,928,968 634,927 5% $2,979,348 533,540 5 8% 8 5% 5 (Dollars in thousands) Amount Ratio Amount Ratio 2023 Total Capital (to Risk- Weighted Assets): Corporation BPPR PB Common Equity Tier I Capital (to Risk- Weighted Assets): Corporation BPPR PB Tier I Capital (to Risk- Weighted Assets): Corporation BPPR PB Tier I Capital (to Average Assets): Corporation BPPR PB $6,733,964 18.13% $3,900,365 2,782,976 4,811,675 18.15 1,088,754 1,491,549 14.38 10.50% 10.50 10.50 $6,053,315 16.30% $2,600,243 1,855,317 4,478,033 16.90 725,836 1,426,037 13.75 $6,075,458 16.36% $3,157,438 2,252,885 4,478,033 16.90 881,372 1,426,037 13.75 8.51% $2,854,127 $6,075,458 2,343,174 4,478,033 7.64 507,942 1,426,037 11.23 7.00% 7.00 7.00 8.50% 8.50 8.50 4.00% 4.00 4.00 [1] The conservation capital buffer included for these ratios is 2.5%, except for the Tier I to Average Asset ratio for which the buffer is not applicable and therefore the capital adequacy minimum of 4% is presented. Capital adequacy minimum requirement (including conservation capital buffer) Actual (Dollars in thousands) Amount Ratio Amount Ratio 2022 Total Capital (to Risk- Weighted Assets): Corporation BPPR PB Common Equity Tier I Capital (to Risk- Weighted Assets): Corporation BPPR PB Tier I Capital (to Risk- Weighted Assets): Corporation BPPR PB Tier I Capital (to Average Assets): Corporation BPPR PB $6,285,648 18.26% $3,613,668 2,599,872 4,541,915 18.34 985,510 1,463,511 15.59 10.500% 10.500 10.500 $5,639,686 16.39% $2,409,112 1,733,248 4,230,820 17.09 657,007 1,395,272 14.87 7.000% 7.000 7.000 $5,661,829 16.45% $2,925,351 2,104,658 4,230,820 17.09 797,794 1,395,272 14.87 8.500% 8.500 8.500 8.06% $2,811,504 $5,661,829 2,383,478 4,230,820 7.10 426,832 1,395,272 13.08 4% 4 4 132 POPULAR, INC. 2023 ANNUAL REPORT Note 22 - Other comprehensive income (loss) The following table presents changes in accumulated other comprehensive income (loss) by component for the years ended December 31, 2023 , 2022 and 2021. Changes in Accumulated Other Comprehensive (Loss) Income by Component [1] (In thousands) Foreign currency translation Beginning Balance Other comprehensive (loss) income Net change Ending balance Adjustment of pension and postretirement benefit plans Beginning Balance Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive loss for amortization of net losses Net change Ending balance Unrealized net holding (losses) gains on debt securities Beginning Balance Other comprehensive income (loss) before reclassifications Amounts reclassified from accumulated other comprehensive (loss) income for gains on securities Amounts reclassified from accumulated other comprehensive (loss) income for amortization of net unrealized losses of debt securities transferred from available-for-sale to held-to-maturity Net change Ending balance Unrealized net gains (losses) on cash flow hedges Beginning Balance Other comprehensive (loss) income before reclassifications Amounts reclassified from accumulated other comprehensive income (loss) Net change Ending balance Total [1] All amounts presented are net of tax. Years ended December 31, 2022 2023 2021 $ (56,735) $ (67,307) $ (71,254) (7,793) (7,793) 10,572 10,572 3,947 3,947 $ (64,528) $ (56,735) $ (67,307) $ (144,335) $ (158,994) $(195,056) 14,408 4,882 23,094 12,034 26,442 9,777 14,659 12,968 36,062 $ (117,893) $ (144,335) $(158,994) $(2,323,903) $ (96,120) $ 460,900 472,487 (2,261,097) (557,002) – – (18) 138,306 33,314 – 610,793 (2,227,783) (557,020) $(1,713,110) $(2,323,903) $ (96,120) $ $ 45 $ (2,648) $ (4,599) (19) (26) (45) 3,107 367 (414) 2,693 1,584 1,951 – $ 45 $ (2,648) $(1,895,531) $(2,524,928) $(325,069) POPULAR, INC. 2023 ANNUAL REPORT 133 The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the years ended December 31, 2023, 2022, and 2021. (In thousands) Adjustment of pension and postretirement benefit plans Reclassifications Out of Accumulated Other Comprehensive (Loss) Income Years ended December 31, 2021 2022 2023 Affected Line Item in the Consolidated Statements of Operations Amortization of net losses Other operating expenses $ (19,253) $(15,644) $(20,749) Total before tax Income tax benefit Total net of tax (19,253) (15,644) (20,749) 7,219 5,867 7,781 $ (12,034) $ (9,777) $(12,968) Unrealized net holding (losses) gains on debt securities Realized gain on sale of debt securities Net gain (loss) on sale of debt securities $ – $ – $ Amortization of unrealized net losses of debt securities Investment securities [1] transferred to held-to-maturity Unrealized net gains (losses) losses on cash flow hedges Forward contracts Interest rate swaps Total before tax Income tax benefit (expense) Total net of tax Mortgage banking activities Other operating income Total before tax Income tax (expense) benefit Total net of tax (172,883) (41,642) (172,883) (41,642) 34,577 8,328 $(138,306) $(33,314) $ 23 – 23 (5) 18 $ $ 41 – 41 (15) $ 1,458 $ (704) (498) 960 (546) (1,143) (1,847) 263 26 $ 414 $ (1,584) [1] In October 2022, the Corporation transferred U.S. Treasury securities with a fair value of $6.5 billion (par value of $7.4 billion) from its available-for- sale portfolio to its held-to-maturity portfolio. Refer to Note 6 to the Consolidated Financial Statements for additional information. Total reclassification adjustments, net of tax $(150,314) $(42,677) $(14,534) Note 23 - Guarantees The Corporation has obligations upon the occurrence of certain events under guarantees provided in certain contractual agreements as summarized below. financial If institutions, The Corporation issues financial standby letters of credit and has risk participation in standby letters of credit issued by in each case to guarantee the other financial performance of various customers to third parties. the customers failed to meet its financial or performance obligation to the third party under the terms of the contract, then, upon their request, the Corporation would be obligated to make the payment to the guaranteed party. At December 31, 2023, the Corporation recorded a liability of $1 million (December 31, 2022 - $0.3 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. In accordance with the provisions of ASC Topic 460, the Corporation recognizes at fair value the obligation at inception of the standby letters of credit. The fair value approximates the fee received from the customer for issuing such commitments. These fees are deferred and are the commitment period. The contracted recognized over amounts at credit December 31, 2023 and 2022, shown in Note 24 to the in standby outstanding letters of Consolidated Financial Statements, represent the maximum future payments that the Corporation potential amount of could be required to make under the guarantees in the event of nonperformance by the customers. These standby letters of credit are used by the customers as a credit enhancement and typically expire without being drawn upon. The Corporation’s standby letters of credit are generally secured, and in the event of nonperformance by the customers, the Corporation has rights to the underlying collateral provided, which normally includes cash, marketable securities, real estate, receivables, and others. Management does not anticipate any material losses related to these instruments. Also, from time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject in certain instances, to lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. Also, the in bulk sale transactions, residential Corporation may sell, mortgage loans and Small Business Administration (“SBA”) commercial to credit recourse or to certain representations and warranties from the Corporation to the purchaser. These representations and warranties may relate, for from time to time, loans subject 134 POPULAR, INC. 2023 ANNUAL REPORT example, to borrower creditworthiness, loan documentation, and early payment defaults. The collateral, prepayment Corporation may be required to repurchase the loans under the credit recourse agreements or representation and warranties. credit to the recourse provided, At December 31, 2023, the Corporation serviced $561 million (December 31, 2022 - $640 million) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation 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. During 2023, the Corporation repurchased approximately $2 million of unpaid principal balance in mortgage loans subject to the credit recourse provisions (2022 - $7 million). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers losses on these loans when 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 the related property. At December 31, 2023, the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $4 million (December 31, 2022 - $7 million). The following table shows the changes in the Corporation’s liability of estimated losses from these credit recourses agreements, included in the consolidated statements of financial condition during the years ended December 31, 2023 and 2022. the Corporation’s liability established to cover (In thousands) Balance as of beginning of period Provision (benefit) for recourse liability Net charge-offs Balance as of end of period Years ended December 31, 2022 2023 $ 6,897 (1,989) (698) $11,800 (1,715) (3,188) $ 4,211 $ 6,897 The estimated losses to be absorbed under the credit recourse arrangements are recorded as a liability when the loans are sold and are updated by accruing or reversing expense (categorized in the line item “Adjustments (expense) to indemnity reserves on loans consolidated statements of operations) throughout the life of the loan, as necessary, when additional information becomes available. The methodology used to estimate the recourse liability is a function of the recourse arrangements given and relevant in the sold” considers a variety of factors, which include actual defaults and loss experience, foreclosure rate, estimated future historical defaults and the probability that a loan would be delinquent. Statistical methods are used to estimate the recourse liability. Expected loss rates are applied to different loan segmentations. The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss the probability that a loan in good standing would become 90 days delinquent within the twelve-month period. following Regression analysis quantifies the relationship between the default event and loan-specific characteristics, including credit scores, loan-to-value ratios, and loan aging, among others. severity. The probability of default represents the loans characteristics When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties the regarding sold. The of Corporation’s mortgage operations in Puerto Rico group conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA for cash. As required under the government agency programs, quality review procedures are performed by the Corporation to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. The representation and warranty amount arrangements during the years ended December 31, 2023 and December 31, 2022 was not considered material for the Corporation. purchased under From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At December 31, 2023, the Corporation serviced $9.9 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2022 - $11.1 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and the guarantees programs. However, Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the in the meantime, POPULAR, INC. 2023 ANNUAL REPORT 135 foreclosure proceedings and the Corporation would not receive any future servicing income with respect to that loan. At December 31, 2023, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $49 million (December 31, 2022 - $42 million). To the extent the mortgage loans underlying the Corporation’s servicing portfolio experience increased delinquencies, the Corporation would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts. guarantees Inc. Holding Company (“PIHC”) fully and Popular, unconditionally certain borrowing obligations issued by certain of its 100% owned consolidated subsidiaries amounting to $94 million at both December 31, 2023 and December 31, 2022, at both respectively. December 31, 2023 and December 31, 2022, PIHC fully and unconditionally guaranteed on a subordinated basis $193 million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 18 to the consolidated financial statements for further information on the trust preferred securities. In addition, Note 24 - Commitments and contingencies Off-balance sheet risk the financial needs of The Corporation is a party to financial instruments with off- balance sheet credit risk in the normal course of business to meet its customers. These financial instruments include loan commitments, letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the consolidated statements of financial condition. 136 POPULAR, INC. 2023 ANNUAL REPORT Financial instruments with off-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows: (In thousands) Commitments to extend credit: Credit card lines Commercial lines of credit Construction lines of credit Other consumer unused credit commitments Commercial letters of credit Standby letters of credit Commitments to originate or fund December 31, 2023 December 31, 2022 $6,108,939 3,626,269 1,287,679 $5,853,990 3,523,930 901,895 256,610 1,404 80,889 250,271 3,351 27,868 mortgage loans 32,968 45,170 At December 31, 2023 and December 31, 2022, the Corporation maintained a reserve of approximately $17 million and $8.8 million, respectively, for potential losses associated with unfunded loan commitments related to commercial and construction lines of credit. Other commitments At December 31, 2023 and December 31, 2022, the Corporation also maintained for approximately $3.3 million and $4.8 million, respectively, primarily for the acquisition of other investments. commitments non-credit other the and, residential Puerto Rico has faced significant Business concentration Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto and Rico economy in particular, commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 37 to the Consolidated Financial Statements. fiscal and economic challenges for over a decade. In response to such challenges, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established the Oversight Board and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated no entities municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA. PROMESA, covered under its as At December 31, 2023, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $362 million, of which $333 million were outstanding ($374 million and $327 million at December 31, 2022). Of the amount outstanding, $314 million consists of loans and $19 million are securities ($302 million and $25 million at December 31, 2022). Substantially all of the amount outstanding at December 31, 2023 and December 31, 2022 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other the revenues. At December 31, 2023, 76% of Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Caguas. The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities as of December 31, 2023: (In thousands) Central Government After 1 to 5 years After 5 to 10 years After 10 years Total Central Government Municipalities Within 1 year After 1 to 5 years After 5 to 10 years After 10 years Total Municipalities Total Direct Government Exposure satisfaction of a governmental In addition, at December 31, 2023, the Corporation had $238 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($251 million at December 31, 2022). These included $191 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), instrumentality that has been designated as a covered entity under PROMESA (December 31, 2022 - $209 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the conditions. The Corporation also had at December 31, 2023, $40 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default and upon the satisfaction of certain other conditions (December 31, 2022 - $42 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this certain other Investment Portfolio Loans Total Outstanding $ 10 1 44 55 4,820 13,155 845 – 18,820 $18,875 $ – – – – 13,218 141,519 112,169 46,823 313,729 $313,729 $ 10 1 44 55 18,038 154,674 113,014 46,823 332,549 $332,604 Total Exposure $ 10 1 44 55 47,038 154,674 113,014 46,823 361,549 $361,604 portfolio. Although the Governor is currently authorized by legislation to impose a temporary moratorium on the local financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof. BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits. In addition, $1.9 billion of residential mortgages, $9.2 million of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $80 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at December 31, 2023 (compared to $1.6 billion, $38 million and $72 million, respectively, at December 31, 2022). The Corporation also had U.S. Treasury and obligations from the U.S. Government, its agencies or government sponsored entities within the portfolio of available- for-sale and held-to-maturity securities as described in Note 6 and 7 to the Consolidated Financial Statements. POPULAR, INC. 2023 ANNUAL REPORT 137 At December 31, 2023, the Corporation has operations in (the “USVI”) and has the United States Virgin Islands approximately $28 million in direct exposure to USVI government entities (December 31, 2022 - $28 million). The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. At December 31, 2023, the Corporation has operations in the British Virgin Islands (“BVI”), which islands were negatively affected by the COVID-19 pandemic, particularly due to a reduction in the tourism activity which accounts for a significant portion of their economy. Although the Corporation has no significant exposure to a single borrower in the BVI, it has a loan portfolio amounting to approximately $205 million comprised of various retail and commercial clients, compared to a loan portfolio of $214 million at December 31, 2022. the Federal Deposit FDIC Special Assessment On November 16, 2023, Insurance Corporation (“FDIC”) approved a final rule that imposes a special assessment (the “FDIC Special Assessment”) to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of several failed banks. is equal Under the final rule, the assessment base for the special assessment to an insured depository institution’s (“IDI”) estimated uninsured deposits, as reported in the IDI’s December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits. For a holding company that has more than one IDI subsidiary, such as Popular, the $5 billion exclusion is allocated among the company’s IDI subsidiaries in proportion to each IDI’s estimated uninsured deposits. The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.35 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024. In their December 31, 2022 Call Reports, BPPR and PB reported estimated uninsured deposits of approximately $28.1 billion, including $16.2 billion in fully collateralized public sector deposits, and $3.5 billion, respectively. The Corporation recorded an expense of $71.4 million, $45.3 million net of tax, in the fourth quarter of 2023, representing the full amount of the assessment. By statute, the FDIC is required to recover the loss arising from the use of a systemic risk determination through one or more special assessments. As of December 31, 2023, the FDIC’s loss estimate described in the final rule had increased by approximately $4.1 billion to $20.4 billion, or approximately 25%. The exact amount of losses will be determined when the 138 POPULAR, INC. 2023 ANNUAL REPORT FDIC terminates the related receiverships considered in the final rule. Accordingly, the special assessment amount and collection period may change as is periodically adjusted or if the total amount collected varies. If increase in the FDIC’s estimate remains the most recent unchanged and is the assessed in the Corporation estimates that the incremental expense for the FDIC Special Assessment could be approximately $18 million. the estimated loss same manner, Legal Proceedings The nature of Popular’s business ordinarily generates claims, litigation, investigations, and legal and administrative cases and proceedings (collectively, “Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of the Corporation and its stockholders to least a quarterly basis, Popular assesses its do so. On at liabilities and contingencies relating to outstanding Legal Proceedings utilizing the most current information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes loss. Once established, the accrual is adjusted on at least a quarterly basis to reflect any relevant developments, as appropriate. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established. an accrual the for In certain cases, exposure to loss exists in excess of any accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the range of reasonably possible losses (with respect to those matters where such limits may be determined, in excess of amounts accrued) for current Legal Proceedings ranged from $0 to approximately $16.3 million as of December 31, 2023. In certain cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants the current Legal Proceedings whose share of liability has yet to be determined, the Legal the numerous unresolved issues the various Proceedings, and the inherent uncertainty of potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate. in several of in many of While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, coverage, management insurance believes that the amount it has already accrued is adequate and any incremental liability arising from the Legal Proceedings in matters in which a loss amount can be reasonably estimated and available will not have a material adverse effect on the Corporation’s in the event of consolidated financial position. However, unexpected future developments, it is possible that the ultimate resolution of these matters in a reporting period, if unfavorable, could have a material adverse effect on the Corporation’s consolidated financial position for that period. Set forth below is a description of the Corporation’s significant Legal Proceedings. BANCO POPULAR DE PUERTO RICO Insufficient Funds and Overdraft Fees Class Actions Popular was named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff alleged breach of contract, violation of the covenant of good faith and fair dealing, unjust enrichment and violation of New York consumer protection law due to Popular’s purported practice of charging overdraft fees (“OD Fees”) on transactions that, under plaintiffs’ theory, do not overdraw the account. Plaintiff described Popular’s purported practice of charging OD Fees as “Authorize Positive, Purportedly Settle Negative” (“APPSN”) transactions and alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. In August 2020, Popular filed a Motion to Dismiss on several grounds, including failure to state a claim against Popular, Inc. and improper venue. In October 2020, Plaintiff filed a Notice of Voluntary Dismissal before the U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for the District of the Virgin Islands against Popular, Inc., Popular Bank and Banco Popular de Puerto Rico (“BPPR”). In November 2020, Plaintiff filed a Notice of Voluntary Dismissal against Popular, Inc. and Popular Bank following a Motion to Dismiss filed on behalf of such entities, which argued failure to state a claim and lack of minimum contacts of such parties with the U.S.V.I. district court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to Dismiss in January 2021. thereafter, In October 2021, the District Court, notwithstanding that BPPR’s Motion to Dismiss remained pending resolution, held an initial scheduling conference and, issued a trial management order where it scheduled the deadline for all discovery for November 2022, and several other trial-related deadlines for June 2023. During a mediation hearing held in October 2022, the parties reached a settlement in principle on a class-wide basis subject to final court approval. In January filed before the Court a motion for the parties 2023, preliminary approval of the settlement agreement and, on March 31, 2023, the Court issued an order granting preliminary approval of the settlement agreement. The Court scheduled the final approval hearing for September 8, 2023. On September 8, 2023, the Court held a hearing to consider the final approval of the class settlement agreement and, on September 29, 2023, the Court issued an Opinion and Order granting final approval to the settlement agreement. On December 19, 2023, the Court issued an Order staying all deadlines in the settlement agreement regarding payment of benefit until further notice after the parties informed the Court that the settlement administrator had mistakenly failed to send the settlement notice to approximately 3,000 class members. The parties expect to file a supplemental notice plan for court approval by February 29, 2024. On January 31, 2022, Popular was also named as a defendant on a putative class action complaint captioned Lipsett v. Popular, Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Similar to the claims set forth in the aforementioned Golden complaint, Plaintiff alleges breach of contract, including violations of the covenant of good faith and fair dealing, as a result of Popular’s purported practice for APPSN transactions. The complaint further alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. Popular waived service of process and filed a Motion to Compel Arbitration. In response to Popular’s motion, Plaintiff filed a Notice of Voluntary Dismissal in April 2022. charging OD Fees of On May 13, 2022, Plaintiff in the Lipsett complaint filed a new complaint captioned Lipsett v. Banco Popular North America d/b/a Popular Community Bank with the same allegations of his previous complaint against Popular. In June 2022, after serving Plaintiff with a written notice of election to arbitrate the claims asserted in the complaint which went unanswered, Popular Bank (“PB”) filed a Pre-Motion Conference motion related to a new Motion to Compel Arbitration. After Plaintiff responded to the Pre-Motion conference motion, the Court allowed PB to file its Motion to Compel Arbitration, which it did in September 2022. Plaintiff opposed such motion in October 2022, and PB filed its reply in November 2022. On December 9, 2022, the Court issued a Decision and Order denying PB’s Motion to Compel Arbitration. On December 20, 2022, PB filed a Notice of Appeal with the United States Court of Appeals for the Second Circuit. PB filed its appeal brief on April 5, 2023 and Plaintiff filed his opposition brief on July 5, 2023. PB filed its reply brief on July 26, 2023. The Court of Appeals held an oral argument on December 4, 2023. On January 10, 2024, the Court of Appeals entered judgment affirming the trial court’s decision denying PB’s Motion to Compel Arbitration. The formal mandate of the Court of Appeals remanding the case to the lower court was issued on January 31, 2024. PB expects to file a responsive allegation to the complaint on or before March 16, 2024. POPULAR, INC. 2023 ANNUAL REPORT 139 Note 25 - Non-consolidated variable interest entities The Corporation is involved with three statutory trusts which it created to issue trust preferred securities to the public. These trusts are deemed to be variable interest entities (“VIEs”) since the equity investors at risk have no substantial decision-making rights. The Corporation does not hold any variable interest in the trusts, and therefore, cannot be the trusts’ primary beneficiary. Furthermore, the Corporation concluded that it did not hold a controlling financial interest in these trusts since the decisions of the trusts are predetermined through the trust documents and the guarantee of the trust preferred securities is irrelevant since in substance the sponsor is guaranteeing its own debt. Also, the Corporation is involved with various special purpose entities mainly in guaranteed mortgage securitization transactions, including GNMA and FNMA. The Corporation has also engaged in securitization transactions with FHLMC, but considers its exposure in the form of servicing fees and servicing advances not to be significant at December 31, 2023. These special purpose entities are deemed to be VIEs since they lack equity investments at risk. The Corporation’s continuing involvement in these guaranteed loan securitizations includes owning certain beneficial interests in the form of securities as well as the servicing rights retained. The Corporation is not required to provide additional financial support to any of the variable interest entities to which it has transferred the financial assets. The mortgage-backed securities, to the extent retained, are classified in the Corporation’s Consolidated Statements of Financial Condition as available-for-sale or trading securities. The Corporation concluded that, essentially, these entities (FNMA and GNMA) control the design of their respective VIEs, dictate the quality and nature of the collateral, require the underlying insurance, set the servicing standards via the servicing guides and can change them at will, and can remove a primary servicer with cause, and without cause in the case of FNMA. Moreover, through their guarantee obligations, agencies (FNMA and GNMA) have the obligation to absorb losses that could be potentially significant to the VIE. The Corporation holds variable interests in these VIEs in the form of agency mortgage-backed securities and collateralized mortgage obligations, including those securities originated by the Corporation and those acquired from third parties. Additionally, the Corporation holds agency mortgage-backed securities and agency collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 28 to the Consolidated Financial Statements for additional information on the debt securities outstanding at December 31, 2023 and 2022, which are classified as available-for-sale and trading securities in the Corporation’s Consolidated Statements of Financial Condition. In addition, the Corporation holds variable interests in the form to service the of servicing fees, since it retains the right in those government-sponsored special transferred loans 140 POPULAR, INC. 2023 ANNUAL REPORT purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party. The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at December 31, 2023 and 2022. (In thousands) Assets Servicing assets: Mortgage servicing rights Total servicing assets Other assets: Servicing advances Total other assets Total assets Maximum exposure to loss 2023 2022 $92,999 $ 99,614 $92,999 $ 99,614 $ 6,291 $ 6,157 $ 6,291 $ 6,157 $99,290 $105,771 $99,290 $105,771 The size of in which the the non-consolidated VIEs, Corporation has a variable interest in the form of servicing fees, measured as the total unpaid principal balance of the loans, amounted to $7.2 billion at December 31, 2023 (December 31, 2022 - $7.7 billion). The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at December 31, 2023 and 2022 will not be recovered. The agency debt securities are not included as part of the maximum exposure to loss since they are guaranteed by the related agencies. should be made to determine whether ASU 2009-17 requires that an ongoing primary beneficiary assessment the Corporation is the primary beneficiary of any of the VIEs it is involved with. The conclusion on the assessment of these non- consolidated VIEs has not changed since their initial evaluation. The Corporation concluded that it is still not the primary beneficiary of these VIEs, and therefore, these VIEs are not required to be consolidated in the Corporation’s financial statements at December 31, 2023. Note 26 - Derivative instruments and hedging activities the incorporated as part of is The use of derivatives Corporation’s overall interest rate risk management strategy to minimize significant unplanned fluctuations in earnings and cash flows that are caused by interest rate volatility. The is to manage interest rate sensitivity by Corporation’s goal modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest income is not materially affected by movements in interest rates. The Corporation uses derivatives in its trading activities to facilitate customer transactions, and as a means of risk management. As a result of interest rate fluctuations, hedged fixed and variable interest rate assets and liabilities will appreciate or depreciate in fair value. The effect of this unrealized appreciation or depreciation is expected to be substantially offset by the Corporation’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. As a matter of policy, the Corporation does not use highly leveraged derivative instruments for interest rate risk management. to the risk The credit attributed counterparty’s nonperformance risk is incorporated in the fair value of the derivatives. Additionally, the fair value of the Corporation’s own credit standing is considered in the fair value of the derivative liabilities. During the year ended December 31, 2023, inclusion of the credit risk in the fair value of the derivatives resulted in a gain of $0.4 million from the Corporation’s credit standing adjustment. During the years ended December 31, 2022 and 2021, the Corporation recognized a loss of $0.5 million and a loss of $0.3 million, respectively, from the Corporation’s credit standing adjustment. The Corporation’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty. In an event of default, each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them. Pursuant to the Corporation’s accounting policy, the fair value of derivatives is not offset with the fair value of other derivatives held with the same counterparty even if these agreements allow a right of set- off. In addition, the fair value of derivatives is not offset with the amounts for the right to reclaim financial collateral or the obligation to return financial collateral. Financial instruments designated as cash flow hedges or non-hedging derivatives outstanding at December 31, 2023 and 2022 were as follows: Notional amount Derivative assets Derivative liabilities At December 31, 2022 2023 Statement of condition classification Fair value at December 31, 2022 2023 Statement of condition classification Fair value at December 31, 2022 2023 (In thousands) Derivatives designated as hedging instruments: Forward contracts Total derivatives designated as hedging instruments Derivatives not designated as hedging instruments: Forward contracts Interest rate caps Indexed options on deposits $ $ – – $ 15,100 Other assets $ 15,100 $ $ – – $ 14,930 528,125 89,730 $ – – $ 150,000 Other assets 85,414 Other assets $ – 2,195 22,224 $ $ $ 93 Other liabilities 93 – Other liabilities 1,045 Other liabilities – 18,091 Interest bearing deposits – $ $ $ – – 138 2,213 – $ $ $ 22 22 – 1,045 – 18,752 15,933 $21,103 $16,978 $21,103 $17,000 Bifurcated embedded options 82,118 78,972 – – Total derivatives not designated as hedging instruments $714,903 $314,386 Total derivative assets and liabilities $714,903 $329,486 $24,419 $19,136 $24,419 $19,229 Cash Flow Hedges The Corporation utilizes forward contracts to hedge the sale of mortgage-backed securities with duration terms over one month. Interest rate forwards are contracts for the delayed delivery of securities, which the seller agrees to deliver on a specified future date at a specified price or yield. These forward contracts are hedging a forecasted transaction and thus qualify for cash flow hedge accounting. Changes in the fair value of these forward contracts designated as cash flow hedges are recorded in other comprehensive income (loss). other Effective on January 1, 2023, the Corporation discontinued the hedge accounting treatment of certain forward contracts for which the changes in fair value were recorded, net of taxes, in and comprehensive accumulated subsequently reclassified to net income (loss) in the same period that the hedged transaction impacted earnings. As a result of this change, the changes in the fair value of these forward contracts are being recorded through net income. At December 31, 2023, there were no derivatives designated as cash flow hedges. income (loss) POPULAR, INC. 2023 ANNUAL REPORT 141 For cash flow hedges, net gains (losses) on derivative contracts that are reclassified from accumulated other comprehensive income (loss) to current period earnings are included in the line item in which the hedged item is recorded and during the period in which the forecasted transaction impacts earnings, as presented in the tables below. Year ended December 31, 2023 Amount of net gain (loss) recognized in OCI on derivatives (effective portion) $(30) $(30) (In thousands) Forward contracts Total Classification in the statement of operations of the net gain (loss) reclassified from AOCI into income (effective portion and ineffective portion) Mortgage banking activities Amount of net gain (loss) reclassified from AOCI into income (effective portion) Amount of net gain (loss) recognized in income on derivatives (ineffective portion) $41 $41 $– $– Year ended December 31, 2022 Amount of net gain (loss) recognized in OCI on derivatives (effective portion) $1,636 $1,636 (In thousands) Forward contracts Total Classification in the statement of operations of the net gain (loss) reclassified from AOCI into income (effective portion and ineffective portion) Mortgage banking activities Amount of net gain (loss) reclassified from AOCI into income (effective portion) Amount of net gain (loss) recognized in income on derivatives (ineffective portion) $1,458 $1,458 $– $– Year ended December 31, 2021 Amount of net gain (loss) recognized in OCI on derivatives (effective portion) $456 $456 (In thousands) Forward contracts Total Classification in the statement of operations of the net gain (loss) reclassified from AOCI into income (effective portion and ineffective portion) Mortgage banking activities Amount of net gain (loss) reclassified from AOCI into income (effective portion) Amount of net gain (loss) recognized in income on derivatives (ineffective portion) $(704) $(704) $– $– Fair Value Hedges At December 31, 2023 and 2022, there were no derivatives designated as fair value hedges. Non-Hedging Activities For the year ended December 31, 2023, the Corporation recognized a gain of $ 1.5 million (2022 - gain of $ 7.7 million; 2021 - gain of $ 2.3 million) related to its non-hedging derivatives, as detailed in the table below. (In thousands) Forward contracts Interest rate caps Indexed options on deposits Bifurcated embedded options Total Amount of Net Gain (Loss) Recognized in Income on Derivatives Classification of Net Gain (Loss) Recognized in Income on Derivatives Year ended December 31, 2023 Year ended December 31, 2022 Year ended December 31, 2021 Mortgage banking activities Other operating income Interest expense Interest expense $ 655 (18) 6,201 (5,326) $ 1,512 $ 8,094 – (5,290) 4,942 $ 7,746 $ 2,027 – 6,824 (6,538) $ 2,313 Forward Contracts The Corporation has forward contracts to sell mortgage-backed securities, which are accounted for as trading derivatives. Changes in their fair value are recognized in mortgage banking activities. 142 POPULAR, INC. 2023 ANNUAL REPORT Interest Rate Caps The Corporation enters an intermediary on behalf of its customers and simultaneously takes offsetting positions under the same terms and conditions, thus minimizing its market and credit risks. into interest caps rate as Indexed and Embedded Options The Corporation offers certain customers’ deposits whose return are tied to the performance of the Standard and Poor’s (“S&P 500”) stock market indexes, and other deposits whose returns are tied to other stock market indexes or other equity securities performance. The Corporation bifurcated the related options embedded within these customers’ deposits from the host contract in accordance with ASC Subtopic 815-15. In order to limit the Corporation’s exposure to changes in these indexes, the Corporation purchases indexed options which returns are tied to the same indexes from major broker dealer companies in the over the counter market. Accordingly, the embedded options and the related indexed options are marked-to-market through earnings. Note 27 - Related party transactions The Corporation grants loans to its directors, executive officers, including certain related individuals or organizations, and affiliates in the ordinary course of business. The activity and balance of these loans were as follows: (In thousands) Balance at December 31, 2021 New loans Payments Other changes, including existing loans to new related parties Balance at December 31, 2022 New loans Payments Other changes, including existing loans to new related parties Balance at December 31, 2023 $102,579 11,090 (15,402) 27,070 $125,337 23,381 (9,731) 7,030 $146,017 New loans and payments include disbursements and collections from existing lines of credit. The Corporation has had loan transactions with the Corporation’s directors, executive officers, including certain related individuals or organizations, and affiliates, and proposes to continue such transactions in the ordinary course of its business, on substantially the same terms, including interest rates and collateral, as those prevailing for comparable loan transactions with third parties. Except as discussed below, the extensions of credit have not involved and do not currently involve more than normal risks of collection or present other unfavorable features. In 2010, as part of the Westernbank FDIC assisted loans made to transaction, BPPR acquired five commercial entities that were wholly owned by one brother-in-law of a director of the Corporation. The loans were secured by real estate and personally guaranteed by the director’s brother-in- law. The loans were originated by Westernbank between 2001 and 2005 and had an aggregate outstanding principal balance of approximately $33.5 million when they were acquired by BPPR in 2010. Between 2011 and 2014, the loans were restructured to consist of (i) five notes with an aggregate outstanding principal balance of $19.8 million with a 6% annual interest rate (“Notes A”) and (ii) five notes with an aggregate outstanding balance of $13.5 million with a 1% annual interest rate, to be paid upon maturity (“Notes B”). The restructured notes had an original maturity of September 30, 2016 and, thereafter, various interim renewals were approved to allow for the re-negotiation of a longer-term extension. On April 2022, one of these interim extensions decreased the interest rate applicable to the Notes A to 4.25% and maintained the Notes B at an interest rate of 1%. In November 2022, BPPR and related parties of the Corporation’s director entered into a three-year extension of the loans, until November 2025, which, among other things: (i) increased the interest rate applicable to Notes A to 5.25% and maintained the Notes B at an interest rate of 1% and (ii) established a principal repayment schedule for Notes A, including a $0.7 million mandatory prepayment. The three-year extension of the loans was approved by the Audit Committee in accordance with the Related Party Policy. The aggregate outstanding balance on the loans as of December 31, 2023 was approximately $28.5 million, of which approximately $15.0 million corresponded to Notes A and $13.5 million to Notes B. During 2023, the borrower paid approximately $0.8 million and $0.8 million in principal and interest, respectively. In April 2010, in connection with the acquisition of the Westernbank assets from the FDIC, as receiver, BPPR acquired a term loan to a corporate borrower partially owned by an investment corporation in which the Corporation’s Chairman, at that time the Chief Executive Officer, as well as certain of his family members, are the owners. In addition, the Chairman’s sister is the owner of an entity that holds an ownership interest in the borrower. At the time the loan was acquired by BPPR, it had an unpaid principal balance of $40.2 million. In May 2017, this loan was sold by BPPR to Popular, Inc., holding company (“PIHC”). At the time of sale, the loan had an unpaid principal balance of $37.9 million. PIHC paid $37.9 million to BPPR for the loan, of which $6.0 million was recognized by BPPR as a capital contribution representing the difference between the fair value and the book value of the loan at the time of transfer. Immediately upon being acquired by PIHC, the loan’s maturity was extended by 90 days (under the same terms as originally contracted) to provide the PIHC additional time to evaluate a refinancing or long-term extension of the loan. In August 2017, the credit facility was refinanced with a stated maturity in February 2019. During 2017, the facility was subject to the loan payment moratorium offered as part of the hurricane relief efforts. As such, interest payments amounting to approximately $0.5 million were deferred and capitalized as part of the loan balance. In February 2019, the Audit Committee approved, under the Related Party Policy, a 36-month renewal of the loan at an interest rate of 5.75% and a 30-year amortization POPULAR, INC. 2023 ANNUAL REPORT 143 schedule. In December 2021, the Corporation refinanced the then-current $36.0 million principal balance of the loan at an interest rate of 4.50%, a maturity date of December 2026 and a 20-year amortization schedule. Payments of principal and interest of approximately $1.2 million and $1.5 million, respectively, were made during 2023. As of December 31, 2023, the outstanding balance of the loan was approximately $32.4 million. The borrower is current on its payments. At December the Corporation’s banking subsidiaries held deposits from related parties amounting to approximately $655 million (2022 - $628 million). 31, 2023, From time to time, the Corporation, in the ordinary course of business, obtains services from related parties that have some association with the Corporation. Management believes the terms of such arrangements are consistent with arrangements entered into with independent third parties. For the year ended December 31, 2023, the Corporation made contributions of approximately $2.6 million to Fundación Banco Popular and Popular Bank Foundation, which are not- for-profit corporations dedicated to philanthropic work (2022 - $4.8 million). The Corporation also provided human and operational resources to support the activities of the Fundación Banco Popular which in 2023 amounted to approximately $1.4 million (2022 - $1.5 million). Related party transactions with Evertec, as an affiliate Until August 15, 2022, the Corporation had an investment in Evertec, Inc. (“Evertec”) which provides various processing and information technology services to the Corporation and its subsidiaries and gave BPPR access to the ATH network owned and operated by Evertec. This investment was accounted for under the equity method. The Corporation recorded $1.5 million in dividends from its investment in Evertec during the year ended December 31, 2022. respective subsidiaries. As part of On July 1, 2022, BPPR completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”) to service certain BPPR channels, in exchange for shares of Evertec held by BPPR. The transaction was accounted In connection with this for as a business combination. transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. On August 15, 2022, the Corporation completed the sale of its remaining shares of common stock of Evertec, together with the aforementioned business acquisition (the “Evertec Transactions”. As a result, the Corporation discontinued accounting for its proportionate share of Evertec’s income (loss) and changes in stockholder’s equity under the equity method of accounting in the third quarter of 2022. The Corporation recorded a pre-tax gain of $257.7 million considering the initial exchange of Evertec shares as well as the sale of the remaining shares. The following table presents the Corporation’s proportionate share of Evertec’s income (loss) and changes in stockholders’ equity for the years ended December 31, 2022 and 2021. (In thousands) Share of Evertec income and Gain from the Evertec Transactions and related accounting adjustments [1] Share of other changes in Evertec’s stockholders’ equity Share of Evertec’s changes in equity recognized in income and Gain from the Evertec Transaction and related accounting adjustments Year ended December 31, 2022 $269,539 3,168 2021 $26,096 53 $272,707 $26,149 [1] The Gain from the Evertec Transactions and related accounting adjustments are reflected within other operating income in the accompanying consolidated financial statements. As discussed in Note 4, the Corporation recognized an additional $17.3 million as an operating expense in connection with the Business Acquisition Transaction. 144 POPULAR, INC. 2023 ANNUAL REPORT The following table presents the impact of transactions and service payments between the Corporation and Evertec (as an affiliate) and their impact on the results of operations for the years ended December 31, 2022 and 2021. Items that represent expenses to the Corporation are presented with parenthesis. (In thousands) Interest expense on deposits ATH and credit cards interchange income from services to Evertec Rental income charged to Evertec Fees on services provided by Evertec Other services provided to Evertec Total [1] Includes activity through June 30, 2022. Centro Financiero BHD, S.A. At December 31, 2023, the Corporation had a 15.84% equity interest in Centro Financiero BHD, S.A. (“BHD”), one of the largest banking and financial services groups in the Dominican Republic. During the year ended December 31, 2023, the Corporation recorded $40.1 million in equity pickup from its investment in BHD (December 31, 2022 - $31.2 million), which had a carrying amount of $225.9 million at December 31, 2023 (December 31, 2022 - $199.8 million). The Corporation received $14.1 million in cash dividend distributions and $2.1 million in stock dividends during the year ended December 31, 2023 from its investment in BHD (December 31, 2022 - $16 million cash dividends). through its Investment Companies The Corporation, subsidiary Popular Asset Management LLC (“PAM”), provides advisory services to several investment companies registered under the Investment Company Act of 1940 in exchange for a fee. The Corporation, through its subsidiary BPPR, also provides transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties. For the year ended December 31, 2023 administrative fees charged to these investment companies amounted to $2.3 million (December 31, 2022 - 2.5 million) and waived fees amounted to $0.9 million (December 31, 2022 - $0.9 million), for a net fee of $1.4 million (December 31, 2022 - $1.6 million). 820-10 “Fair Value Measurements Note 28 – Fair value measurement ASC Subtopic and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels to increase consistency and comparability in fair value measurements and disclosures. The in order Years ended December 31, 2022 [1] 2021 $ (267) 13,955 3,258 (128,681) 420 $(111,315) $ (388) 27,384 6,593 (245,945) 740 $(211,616) Category Interest expense Other service fees Net occupancy Professional fees Other operating expenses hierarchy is broken down into three levels based on the reliability of inputs as follows: • Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Valuation on these instruments does not necessitate a significant degree of judgment since valuations are based on quoted prices that are readily available in an active market. • Level 2 - Quoted prices other than those included in Level 1 that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the financial instrument. • Level 3 - Inputs are unobservable and significant to the fair value measurement. Unobservable inputs reflect the Corporation’s own judgements about assumptions that market participants would use in pricing the asset or liability. The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally- developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts the counterparty Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. quality, reflect credit that POPULAR, INC. 2023 ANNUAL REPORT 145 The estimated fair value may be subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in calculating fair value could significantly affect the results. Fair Value on a Recurring and Nonrecurring Basis The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and 2022: At December 31, 2023 Level 1 Level 2 Level 3 Measured at NAV Total $3,936,036 – – – $3,936,036 $ 6,811,025 134,686 5,844,180 11 $12,789,902 $ – – 606 2,500 $ 3,106 $ 16,859 – – – – 16,859 – – – – $3,952,895 $ $ $ – 71 93 14,261 – 14,425 37,965 – 3,239 24,419 $12,869,950 $ $ $ – – 5 112 167 284 – 118,109 – – $121,499 $ $ $ $ – – $ $ (21,103) $ (21,103) $ – – $ – – – – $ – $ – – – – – $ – $310 – – – $310 $ – $ – $10,747,061 134,686 5,844,786 2,511 $16,729,044 $ 16,859 71 98 14,373 167 31,568 38,275 118,109 3,239 24,419 $16,944,654 $ $ $ $ (21,103) (21,103) (In thousands) RECURRING FAIR VALUE MEASUREMENTS Assets Debt securities available-for-sale: U.S. Treasury securities Collateralized mortgage obligations - federal agencies Mortgage-backed securities Other Total debt securities available-for-sale Trading account debt securities, excluding derivatives: U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations Mortgage-backed securities Other Total trading account debt securities, excluding derivatives Equity securities Mortgage servicing rights Loans held-for-sale Derivatives Total assets measured at fair value on a recurring basis Liabilities Derivatives Total liabilities measured at fair value on a recurring basis 146 POPULAR, INC. 2023 ANNUAL REPORT At December 31, 2022 (In thousands) RECURRING FAIR VALUE MEASUREMENTS Assets Debt securities available-for-sale: U.S. Treasury securities Collateralized mortgage obligations - federal agencies Mortgage-backed securities Other Total debt securities available-for-sale Trading account debt securities, excluding derivatives: U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligations Mortgage-backed securities Other Total trading account debt securities, excluding derivatives Equity securities Mortgage servicing rights Derivatives Total assets measured at fair value on a recurring basis Liabilities Derivatives Total liabilities measured at fair value on a recurring basis Level 1 Level 2 Level 3 Measured at NAV Total $1,908,589 – – – $1,908,589 $ 9,272,359 165,196 6,456,459 60 $15,894,074 $ – – 711 1,000 $ 1,711 $ 13,069 – – – – 13,069 – – – $1,921,658 $ $ $ – 64 47 14,008 – 14,119 29,302 – 19,229 $15,956,724 $ $ $ – – 113 215 207 535 – 128,350 – $130,596 $ $ $ $ – – $ $ (17,000) $ (17,000) $ – – $ – – – – $ – $ – – – – – $ – $330 – – $330 $ – $ – $11,180,948 165,196 6,457,170 1,060 $17,804,374 $ 13,069 64 160 14,223 207 27,723 29,632 128,350 19,229 $18,009,308 $ $ $ $ (17,000) (17,000) Beginning in the first quarter of 2023, the Corporation has elected the fair value option for newly originated mortgage loans held-for-sale. This election better aligns with the management of the portfolio from a business perspective. As of December 31, 2022, the Corporation had not elected the fair value option for any of the loans in the held for sale portfolio. Loans held-for-sale measured at fair value Loans held-for-sale measured at fair value were priced based on secondary market prices. These loans are classified as Level 2. The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans originated as held-for-sale measured at fair value as of December 31, 2023. (In thousands) December 31, 2023 Aggregate Unpaid Principal Balance Difference Fair Value Loans held for sale $ 3,239 $ 3,202 $ 37 No loans held-for-sale were 90 or more days past due or on nonaccrual status as of December 31, 2023. For the year ended December 31, 2023, changes in the fair value of mortgage loans held-for-sale for which the Corporation elected the fair value option, were not considered material. POPULAR, INC. 2023 ANNUAL REPORT 147 The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the years ended December 31, 2023, 2022 and 2021 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date. (In thousands) Level 1 Level 2 Level 3 Total NONRECURRING FAIR VALUE MEASUREMENTS Year ended December 31, 2023 Assets Loans [1] Other real estate owned [2] Other foreclosed assets [2] Total assets measured at fair value on a nonrecurring basis Write-downs $ $ – – – – $ $ – – – – $ 10,091 6,560 102 $ 10,091 6,560 102 $ $ 16,753 $ 16,753 $ (3,157) (1,516) (28) (4,701) [1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount. [2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. (In thousands) Level 1 Level 2 Level 3 Total NONRECURRING FAIR VALUE MEASUREMENTS Year ended December 31, 2022 Assets Loans [1] Other real estate owned [2] Other foreclosed assets [2] Long-lived assets held-for-sale [3] Total assets measured at fair value on a nonrecurring basis Write-downs $ $ – – – – – $ $ – – – – – $ $ 11,215 3,992 13 1,178 $ 11,215 3,992 13 1,178 $ 16,398 $ 16,398 $ (2,067) (1,026) (1) (2,155) (5,249) [1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount. [2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. [3] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value. (In thousands) Level 1 Level 2 Level 3 Total NONRECURRING FAIR VALUE MEASUREMENTS Year ended December 31, 2021 Assets Loans [1] Other real estate owned [2] Other foreclosed assets [2] Long-lived assets held-for-sale [3] Trademark [4] Total assets measured at fair value on a nonrecurring basis Write-downs $ $ – – – – – – $ $ – – – – – – $ $ 21,167 7,727 68 9,007 156 $ 21,167 7,727 68 9,007 156 (3,721) (1,579) (33) (5,320) (5,404) $ 38,125 $ 38,125 $ (16,057) [1] Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount. [2] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount. [3] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value. [4] Represents the fair value of a trademark due to a write-down on impairment. 148 POPULAR, INC. 2023 ANNUAL REPORT The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2023, 2022, and 2021. Year ended December 31, 2023 MBS classified as debt securities available- for-sale $ 711 – (5) – – (100) $ 606 Other classified as debt securities available- for-sale $1,000 – – 1,500 – – $2,500 CMOs classified as trading account debt securities $ 113 – – 4 – (112) 5 $ MBS classified as trading account debt securities $ 215 (2) – – – (101) $ 112 Other securities classified as trading account debt securities $207 (40) – – – – $167 Mortgage servicing rights Total assets (11,589) – 2,097 (1,269) 520 $128,350 $130,596 (11,631) (5) 3,601 (1,269) 207 $118,109 $121,499 Contingent Consideration $– – – – – – $– Total liabilities $– – – – – – $– $ – $ – $ – $ (1) $ 18 $ (529) $ (512) $– $– Year ended December 31, 2022 MBS classified as debt securities available- for-sale $ 826 – (15) – (100) $ 711 Other classified as debt securities available- for-sale – $ – – 1,000 – $1,000 CMOs classified as trading account debt securities $198 (2) – 5 (88) $113 MBS classified as trading account debt securities $ – 4 – 211 – $215 Other securities classified as trading account debt securities $ 280 (73) – – – $ 207 Mortgage servicing rights Total assets $121,570 $122,874 95 166 (15) – 7,830 6,614 (188) – $128,350 $130,596 Contingent Consideration $(9,241) 9,241 – – – – $ Total liabilities $(9,241) 9,241 – – – – $ $ – $ – $ (2) $ 4 $(23) $ 11,964 $ 11,943 $ – $ – (In thousands) Balance at January 1, 2023 Gains (losses) included in earnings Gains (losses) included in OCI Additions Sales Settlements Balance at December 31, 2023 Changes in unrealized gains (losses) included in earnings relating to assets still held at December 31, 2023 (In thousands) Balance at January 1, 2022 Gains (losses) included in earnings Gains (losses) included in OCI Additions Settlements Balance at December 31, 2022 Changes in unrealized gains (losses) included in earnings relating to assets still held at December 31, 2022 (In thousands) Balance at January 1, 2021 Gains (losses) included in earnings Gains (losses) included in OCI Additions Settlements Balance at December 31, 2021 Changes in unrealized gains (losses) included in earnings relating to assets still held at December 31, 2021 Year ended December 31, 2021 MBS classified as debt securities available- for-sale $1,014 – (13) – (175) $ 826 CMOs classified as trading account debt securities Other securities classified as trading account debt securities $ 278 (1) – 29 (107) $ 198 $ 381 (101) – – – $ 280 Mortgage servicing rights $118,395 (10,216) – 13,391 – Total assets Contingent Consideration Total liabilities $120,068 (10,318) (13) 13,419 (282) $ – – – (9,241) – $(9,241) $ – – – (9,241) – $(9,241) $121,570 $122,874 $ – $ (1) $ (45) $ 6,410 $ 6,364 $ – $ – POPULAR, INC. 2023 ANNUAL REPORT 149 Gains and losses (realized and unrealized) included in earnings for the years ended December 31, 2023, 2022, and 2021 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows: 2023 2022 2021 Total gains (losses) included in earnings Changes in unrealized gains (losses) relating to assets still held at reporting date Total gains (losses) included in earnings Changes in unrealized gains (losses) relating to assets still held at reporting date Total gains (losses) included in earnings Changes in unrealized gains (losses) relating to assets still held at reporting date $(11,589) (42) – $(11,631) $(529) 17 – $(512) $ 166 (71) 9,241 $9,336 $11,964 (21) – $11,943 $(10,216) (102) – $(10,318) $6,410 (46) – $6,364 (In thousands) Mortgage banking activities Trading account (loss) profit Other operating income Total The following tables include quantitative information about significant unobservable inputs used to derive the fair value of Level 3 instruments, excluding those instruments for which the unobservable inputs were not developed by the Corporation such as prices of prior transactions and/or unadjusted third-party pricing sources at December 31, 2023 and 2022. (In thousands) CMO’s - trading Fair value at December 31, 2023 Valuation technique Unobservable inputs Weighted average (range) [1] $ 5 Discounted cash flow model Weighted average life Yield Prepayment speed Other - trading $ 167 Discounted cash flow model Weighted average life Loans held-in-portfolio $10,023 [2] External appraisal Other real estate owned $ 325 [3] External appraisal Yield Prepayment speed Haircut applied on external appraisals Haircut applied on external appraisals [1] Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value. [2] Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table. [3] Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table. (In thousands) CMO’s - trading Fair value at December 31, 2022 Valuation technique Unobservable inputs Weighted average (range) [1] $ 113 Discounted cash flow model Weighted average life Yield Prepayment speed 0.2 years (0.1 - 0.2 years) 4.9% 14.5% 2.3 years 12.0% 10.8% 6.9% (5.0% - 10.0%) 35.0% 0.4 years (0.1 - 0.6 years) 4.9% (4.9% - 5.4%) 10.2% (9.1% - 32%) 2.5 years 12.0% 10.8% 8.3% (5.0% - 10.4%) 18.4% (5.0% - 35.0%) Other - trading $ 207 Discounted cash flow model Weighted average life Loans held-in-portfolio $5,087 [2] External appraisal Other real estate owned $ 528 [3] External appraisal Yield Prepayment speed Haircut applied on external appraisals Haircut applied on external appraisals [1] Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value. [2] Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table. [3] Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table. 150 POPULAR, INC. 2023 ANNUAL REPORT the constant prepayment The significant unobservable inputs used in the fair value the Corporation’s collateralized mortgage measurement of obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield, constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for rate will generate a directionally opposite change in the weighted average life. For example, as the average life is reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield. The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement. Following is a description of the Corporation’s valuation methodologies used for assets and liabilities measured at fair value. The disclosure requirements exclude certain financial instruments and all non-financial instruments. Accordingly, the instruments aggregate fair value amounts of the disclosed do not represent management’s estimate of underlying value of the Corporation. the financial Trading account debt securities and debt securities available- for-sale • U.S. Treasury securities: The fair value of U.S. Treasury notes is based on yields that are interpolated from the constant maturity treasury curve. These securities are classified as Level 2. U.S. Treasury bills are classified as Level 1 given the high volume of trades and pricing based on those trades. • Obligations of U.S. Government sponsored entities: The sponsored entities Obligations of U.S. Government include U.S. agency securities, which fair value is based on an active exchange market and on quoted market prices for similar securities. The U.S. agency securities are classified as Level 2. • Obligations and States of Puerto Rico, political subdivisions: Obligations of Puerto Rico, States and political subdivisions include municipal bonds. The bonds are segregated and the like characteristics divided into specific sectors. Market inputs used in the evaluation process include all or some of the following: trades, bid price or spread, two sided markets, quotes, benchmark curves including but not limited to Treasury benchmarks, LIBOR and swap curves, market data feeds such as those obtained from municipal market sources, discount and capital rates, and trustee reports. The municipal bonds are classified as Level 2. • Mortgage-backed securities: Certain agency mortgage- backed securities (“MBS”) are priced based on a bond’s theoretical value derived from similar bonds defined by credit quality and market fair value incorporates an option adjusted spread. The agency MBS are classified as Level 2. Other agency MBS such as GNMA Puerto Rico Serials are priced using an internally- prepared pricing matrix with quoted prices from local brokers dealers. These particular MBS are classified as Level 3. sector. Their • Collateralized mortgage obligations: Agency collateralized mortgage obligations (“CMOs”) are priced based on a bond’s theoretical value derived from similar bonds defined by credit quality and market sector and for which fair value incorporates an option adjusted spread. The option adjusted spread model includes prepayment and volatility assumptions, ratings (whole loans collateral) and spread adjustments. These CMOs are classified as Level 2. Other CMOs, due to their limited liquidity, are classified as Level 3 due to the insufficiency of inputs such as executed trades, credit information and cash flows. • Corporate securities (included as in the “available-for-sale” category): Given that the quoted prices are for similar instruments, these securities are classified as Level 2. “other” • Corporate securities and interest-only strips (included as “other” in the “trading account debt securities” category): For corporate securities, quoted prices for these security types are obtained from broker dealers. Given that the quoted prices are for similar instruments or do not trade in highly liquid markets, these securities are classified as Level 2. Given that the fair value was estimated based on a discounted cash flow model using unobservable inputs, interest-only strips are classified as Level 3. Equity securities Equity securities are comprised principally of shares in closed- funds and other equity ended and open-ended mutual securities. Closed-end funds are traded on the secondary market at the shares’ market value. Open-ended funds are considered to be liquid, as investors can sell their shares continually to the fund and are priced at NAV. Mutual funds are classified as Level 2. Other equity securities that do not trade in highly liquid markets are also classified as Level 2, except for one equity security that do not have readily determinable fair value and is under an investment company is measured at NAV. POPULAR, INC. 2023 ANNUAL REPORT 151 discounted cash flow model Mortgage servicing rights Mortgage servicing rights (“MSRs”) do not trade in an active market with readily observable prices. MSRs are priced using a discounted cash flow model valuation performed by a third party. The incorporates assumptions that market participants would use in estimating future net servicing income, including portfolio characteristics, prepayments assumptions, discount rates, delinquency and foreclosure rates, late charges, other ancillary revenues, cost to service and other economic factors. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior. Due to the unobservable nature of certain valuation inputs, the MSRs are classified as Level 3. Derivatives Interest rate caps and indexed options are traded in over-the- counter active markets. These derivatives are indexed to an observable interest rate benchmark, such as LIBOR or equity indexes, and are priced using an income approach based on present value and option pricing models using observable inputs. Other derivatives are liquid and have quoted prices, such as forward contracts or “to be announced securities” (“TBAs”). All of these derivatives are classified as Level 2. The non-performance risk is determined using internally-developed models that consider the collateral held, the remaining term, and the creditworthiness of the entity that bears the risk, and uses available public data or internally-developed data related to current spreads that denote their probability of default. Contingent consideration liability The fair value of the contingent consideration, which relates to earnout payments that could be payable to K2 over a three-year period, was calculated based on a discounted cash flow technique using the probability-weighted average from likely scenarios. This contingent consideration is classified as Level 3. Loans held-in-portfolio that are collateral dependent The impairment is measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar to assets in similar locations and which could be subject internal adjustments. These collateral dependent loans are classified as Level 3. Loans measured at fair value or measured at the lower of cost or market Loans held-for-sale measured at fair value or measured at the lower of cost or market were priced based on secondary market prices. These loans are classified as Level 2. Other real estate owned and other foreclosed assets Other real estate owned includes real estate properties securing mortgage, consumer, and commercial loans. Other foreclosed 152 POPULAR, INC. 2023 ANNUAL REPORT assets include primarily automobiles securing auto loans. The fair value of foreclosed assets may be determined using an external appraisal, broker price opinion, or an internal valuation. These foreclosed assets are classified as Level 3 since they are subject to internal adjustments. ROU assets and leasehold improvements The impairment was measured based on the sublease rental value of the branches that were subject to the strategic realignment of PB’s New York Metro Branch network. These ROU assets and leasehold improvements are classified as Level 3. Long-lived assets held-for-sale The Corporation evaluates for impairment its long-lived assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and records a write down for the difference between the carrying amount and the fair value less cost to sell. These long-lived assets held- for-sale are classified as Level 3. Trademark The write-down on impairment of a trademark was based on the discontinuance of origination thru e-loan platform. This trademark is classified as Level 3. Note 29 - Fair value of financial instruments The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these vary estimates significantly from amounts that could be realized in actual transactions. judgment with respect assumptions and may involve various The fair values reflected herein have been determined based on the prevailing rate environment at December 31, 2023 and December 31, 2022, as applicable. In different interest rate fair value estimates can differ significantly, environments, especially for certain fixed rate financial In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, they do not represent the Corporation’s value as a going concern. There in the Corporation’s valuation have been no changes methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value. instruments. that is, The following tables present the carrying amount and estimated fair values of financial instruments with their corresponding level in the fair value hierarchy. The aggregate fair value amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation. (In thousands) Financial Assets: Cash and due from banks Money market investments Trading account debt securities, excluding derivatives[1] Debt securities available-for-sale[1] Debt securities held-to-maturity: U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligation-federal agency Securities in wholly owned statutory business trusts Total debt securities held-to-maturity Equity securities: FHLB stock FRB stock Other investments Total equity securities Loans held-for-sale Loans held-in-portfolio Mortgage servicing rights Derivatives (In thousands) Financial Liabilities: Deposits: Demand deposits Time deposits Total deposits Assets sold under agreements to repurchase Notes payable: FHLB advances Unsecured senior debt securities Junior subordinated deferrable interest debentures (related to trust preferred securities) Total notes payable Derivatives December 31, 2023 Carrying amount Level 1 Level 2 Level 3 Measured at NAV Fair value $ 420,462 6,998,871 31,568 16,729,044 $ 420,462 6,991,758 16,859 3,936,036 $ – 7,113 14,425 12,789,902 $ – – 284 3,106 $ – – – – $ 420,462 6,998,871 31,568 16,729,044 $ 8,121,411 $ 59,628 1,556 5,960 $ 8,188,555 $ $ $ 49,549 98,948 45,229 193,726 4,301 34,335,630 118,109 24,419 Carrying amount $55,116,351 8,501,892 $63,618,243 $ $ $ $ 91,384 394,665 393,937 198,346 986,948 21,103 $ $ $ $ $ $ $ $ $ $ – – – – – – – – – – – – – $ 8,092,339 $ – $ – $ 8,092,339 7,007 1,395 5,960 $ 8,106,701 $ $ $ 49,549 98,948 37,965 186,462 4,328 – – 24,419 52,671 13 – 52,684 – – 7,869 7,869 – 33,376,255 118,109 – $ $ $ $ December 31, 2023 – – – 59,678 1,408 5,960 $ – $ 8,159,385 $ – – 310 $310 $ – – – – $ $ $ 49,549 98,948 46,144 194,641 4,328 33,376,255 118,109 24,419 Level 1 Level 2 Level 3 Measured at NAV Fair value – – – – – – – – – $55,116,351 8,154,823 $63,271,174 $ $ $ $ 91,386 377,851 400,848 180,076 958,775 21,103 $ $ $ $ $ $ – – – – – – – – – $ – – $ – $ – $ – – – $ – $ – $55,116,351 8,154,823 $63,271,174 $ $ $ $ 91,386 377,851 400,848 180,076 958,775 21,103 [1] Refer to Note 28 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. POPULAR, INC. 2023 ANNUAL REPORT 153 (In thousands) Financial Assets: Cash and due from banks Money market investments Trading account debt securities, excluding derivatives[1] Debt securities available-for-sale[1] Debt securities held-to-maturity: U.S. Treasury securities Obligations of Puerto Rico, States and political subdivisions Collateralized mortgage obligation-federal agency Securities in wholly owned statutory business trusts Total debt securities held-to-maturity Equity securities: FHLB stock FRB stock Other investments Total equity securities Loans held-for-sale Loans held-in-portfolio Mortgage servicing rights Derivatives (In thousands) Financial Liabilities: Deposits: Demand deposits Time deposits Total deposits Assets sold under agreements to repurchase Other short-term borrowings[2] Notes payable: FHLB advances Unsecured senior debt securities Junior subordinated deferrable interest debentures (related to trust preferred securities) Total notes payable Derivatives December 31, 2022 Carrying amount Level 1 Level 2 Level 3 Measured at NAV Fair value $ 469,501 5,614,595 27,723 17,804,374 $ 469,501 5,607,937 13,069 1,908,589 $ – 6,658 14,119 15,894,074 $ – – 535 1,711 $ – – – – $ 469,501 5,614,595 27,723 17,804,374 $ 8,453,467 $ 59,010 19 5,959 $ 8,518,455 $ $ $ 65,861 96,206 33,787 195,854 5,381 31,357,467 128,350 19,229 Carrying amount $54,445,825 6,781,402 $61,227,227 $ $ $ $ 148,609 365,000 389,282 299,109 198,319 886,710 17,000 $ $ $ $ $ $ $ $ $ $ – – – – – – – – – – – – – $ 8,372,601 $ – $ – $ 8,372,601 – – 5,959 $ 8,378,560 $ $ $ 65,861 96,206 29,302 191,369 – – – 19,229 61,617 19 – 61,636 – – 4,966 4,966 5,404 29,366,365 128,350 – $ $ $ $ December 31, 2022 – – – 61,617 19 5,959 $ – $ 8,440,196 $ – – 330 $330 $ – – – – $ $ $ 65,861 96,206 34,598 196,665 5,404 29,366,365 128,350 19,229 Level 1 Level 2 Level 3 Measured at NAV Fair value – – – – – – – – – – $54,445,825 6,464,943 $60,910,768 $ $ $ $ 148,566 365,000 361,951 300,027 173,938 835,916 17,000 $ $ $ $ $ $ – – – – – – – – – – $ – – $ – $ – – $ – – – $ – $ – $54,445,825 6,464,943 $60,910,768 $ $ $ $ 148,566 365,000 361,951 300,027 173,938 835,916 17,000 [1] Refer to Note 28 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level. [2] Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings. The notional amount of commitments to extend credit at December 31, 2023 and December 31, 2022 is $10 billion and $10.5 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at December 31, 2023 and December 31, 2022 is $82 million and $31 million, respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements. Note 30 - Employee benefits Certain employees of BPPR are covered by three non- contributory defined benefit pension plans, the Banco Popular de Puerto Rico Retirement Plan and two Restoration Plans (the “Pension Plans”). Pension benefits are based on age, years of credited service, and final average compensation. 154 POPULAR, INC. 2023 ANNUAL REPORT The Pension Plans are currently closed to new hires and the accrual of benefits are frozen to all participants. The Pension Plans’ benefit formula is based on a percentage of average final compensation and years of service as of the plan freeze date. Normal retirement age under the retirement plan is age 65 with 5 years of service. Pension costs are funded in accordance with minimum funding standards under the Employee Retirement Income Security Act of 1974 (“ERISA”). Benefits under the Pension Plans are subject to the U.S. and Puerto Rico Internal Revenue Code limits on compensation and benefits. Benefits under restoration plans restore benefits to selected employees that are limited under the Banco Popular de Puerto Rico Retirement Plan due to U.S. and Puerto Rico Internal Revenue Code limits and a compensation definition that excludes amounts deferred pursuant to nonqualified arrangements. In addition to providing pension benefits, BPPR provides certain health care benefits for certain retired employees (the “OPEB Plan”). Regular employees of BPPR, hired before February 1, 2000, may become eligible for health care benefits, provided they reach retirement age while working for BPPR. funding policy is The Corporation’s to make annual contributions to the Pension Plans, when necessary, in amounts which fully provide for all benefits as they become due under the plans. The Corporation’s pension fund investment strategy is to invest in a prudent manner for the exclusive purpose of providing benefits to participants. A well defined internal structure has been established to develop and implement a risk- controlled investment strategy that is targeted to produce a total return that, when combined with BPPR contributions to the fund, will maintain the fund’s ability to meet all required benefit obligations. Risk is controlled through diversification of asset types, such as investments in domestic and international equities and fixed income. Equity investments include various types of stock and index funds. Also, this category includes Popular, Inc.’s common stock. Fixed income investments include U.S. Government securities and other U.S. agencies’ obligations, corporate bonds, mortgage loans, mortgage-backed securities and index funds, among others. A designated committee periodically reviews the performance of investments and assets allocation. The Trustee and the money managers are allowed to exercise limitations established by the pension plans’ investment policies. The plans forbid money managers to enter into derivative transactions, unless approved by the Trustee. the pension plans’ investment discretion, subject to The overall expected long-term rate-of-return-on-assets assumption reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. The assumption has been determined by reflecting expectations regarding future rates of return for the plan assets, with consideration given to the distribution of the investments by asset class and historical rates of return for each individual asset class. This process is reevaluated at least on an annual basis and if market, actuarial and economic conditions change, adjustments to the rate of return may come into place. The Pension Plans weighted average asset allocation as of December 31, 2023 and 2022 and the approved asset allocation ranges, by asset category, are summarized in the table below. Equity Debt securities Popular related securities Cash and cash equivalents Minimum allotment Maximum allotment 0% 0% 0% 0% 70% 100% 5% 100% 2023 2022 22% 27% 74% 69% 2% 2% 2% 2% POPULAR, INC. 2023 ANNUAL REPORT 155 The following table sets forth by level, within the fair value hierarchy, the Pension Plans’ assets at fair value at December 31, 2023 and 2022. Investments measured at net asset value per share (“NAV”) as a practical expedient have not been classified in the fair value hierarchy, but are presented in order to permit reconciliation of the plans’ assets. (In thousands) Level 1 Level 2 Level 3 Obligations of the U.S. Government, its Measured at NAV Total Level 1 Level 2 Level 3 Measured at NAV Total 2023 2022 agencies, states and political subdivisions Corporate bonds and debentures Equity securities - Common Stock Equity securities - ETF’s Foreign commingled trust funds Mutual fund Mortgage-backed securities Cash and cash equivalents Accrued investment income $ – $ 3,711 $ 295,141 – – 34,334 17,173 42,798 – – 1,610 – 9,289 – – 8,908 – – – $154,459 $158,170 $ – – – – – – – 3,927 302,183 34,334 59,971 51,392 24,252 9,289 8,908 3,927 7,042 – – 51,392 22,642 – – – – $ 8,113 $ 268,641 – – 32,906 20,276 51,836 – – 3,471 – – – – 7,637 – – – $130,397 $138,510 274,932 – 32,906 – 72,112 – 64,630 – 25,577 – – – 7,637 – 3,581 3,581 6,291 – – 64,630 22,106 – – – Total assets $86,040 $326,924 $3,927 $235,535 $652,426 $92,379 $300,501 $3,581 $223,424 $619,885 The closing prices reported in the active markets in which the securities are traded are used to value the investments. Following is a description of the valuation methodologies • Foreign commingled trust fund- Collective investment funds are valued at the NAV of shares held by the plan at year end. used for investments measured at fair value: • Obligations of U.S. Government, its agencies, states and political subdivisions - The fair value of Obligations of U.S. Government and its agencies obligations are based on an active exchange market and on quoted market prices for similar securities. U.S. agency structured notes are priced based on a bond’s theoretical value from similar bonds defined by credit quality and market sector and for which the fair value incorporates an option adjusted spread in deriving their fair value. The fair value of municipal bonds are based on trade data on these instruments reported on Municipal Securities Rulemaking system or Board comparable bonds from the same issuer and credit quality. These securities are classified as Level 2, except for the governmental index funds that are measured at NAV. transaction (“MSRB”) reporting • Corporate bonds and debentures - Corporate bonds and debentures are valued at fair value at the closing price reported in the active market in which the bond is traded. These securities are classified as Level 2, except for the corporate bond funds that are measured at NAV. • Equity securities - common stock - Equity securities with quoted market prices obtained from an active exchange market and high liquidity are classified as Level 1. • Equity securities - ETF’s - Exchange Traded Funds shares with quoted market prices obtained from an active exchange market. Highly liquid ETF’s are classified as Level 1 while less liquid ETF’s are classified as Level 2. 156 POPULAR, INC. 2023 ANNUAL REPORT • Mutual funds - Mutual funds are valued at the NAV of shares held by the plan at year end. Mutual funds are classified as Level 2. • Cash and cash equivalents - The carrying amount of cash and cash equivalents is a reasonable estimate of the fair value since it is available on demand or due to their short- term maturity. Cash and cash equivalents are classified as Level 1. • Accrued investment income - Given the short-term nature of these assets, their carrying amount approximates fair value. Since there is a lack of observable inputs related to instrument specific attributes, these are reported as Level 3. The preceding valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the plan believes its valuation methods are appropriate and consistent with other market participants, of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. the use The following table presents the change in Level 3 assets measured at fair value. (In thousands) Balance at beginning of year Purchases, sales, issuance and settlements (net) Balance at end of year 2023 2022 $3,581 346 $4,566 (985) $3,927 $3,581 There were no transfers in and/or out of Level 3 for financial instruments measured at fair value on a recurring basis during the years ended December 31, 2023 and 2022. There were no transfers in and/or out of Level 1 and Level 2 during the years ended December 31, 2023 and 2022. Information on the shares of common stock held by the pension plans is provided in the table that follows. (In thousands, except number of shares information) Shares of Popular, Inc. common stock Fair value of shares of Popular, Inc. common stock 2023 2022 178,611 171,931 $ 14,659 $ 11,402 Dividends paid on shares of Popular, Inc. common stock held by the plan $ 384 $ 355 The following table presents the components of net periodic benefit cost for the years ended December 31, 2023, 2022 and 2021. (In thousands) (in thousands) Service cost Other operating expenses: Interest cost Expected return on plan assets Recognized net actuarial loss Net periodic cost (benefit) Other Adjustments Total cost (benefit) Pension Plans 2022 2023 2021 2023 OPEB Plan 2022 2021 $ – $ – $ – $ 191 $ 485 $ 642 31,548 (34,365) 21,465 $ 18,648 – $ 18,648 $ $ 19,199 (35,388) 15,644 15,993 (38,679) 18,876 6,082 – (2,212) 3,931 – – 3,573 – 1,873 (545) $ (3,810) $ 4,061 $4,416 $6,088 – – – 60 – (545) $ (3,810) $ 4,061 $4,476 $6,088 POPULAR, INC. 2023 ANNUAL REPORT 157 The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements at December 31, 2023 and 2022. (In thousands) Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain)/loss[1] Benefits paid Other adjustments Benefit obligation at end of year Change in fair value of plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year Funded status of the plan: Benefit obligation at end of year Fair value of plan assets at end of year Funded status at year end Amounts recognized in accumulated other comprehensive loss: Net loss/(gain) Accumulated other comprehensive loss (AOCL) Reconciliation of net (liabilities) assets: Net liabilities at beginning of year Amount recognized in AOCL at beginning of year, pre-tax Amount prepaid (liability) at beginning of year Total benefit cost Contributions Amount prepaid (liability) at end of year Amount recognized in AOCL Net asset/(liabilities) at end of year Pension Plans OPEB Plan 2023 2022 2023 2022 $ 628,175 – 31,548 16,861 (40,790) – $ 851,471 – 19,199 (194,473) (48,022) – $ 118,336 191 6,082 (1,180) (6,384) – $ 159,958 485 3,931 (39,479) (6,619) 60 $ 635,794 $ 628,175 $ 117,045 $ 118,336 $ $ 619,885 73,101 230 (40,790) $ 860,484 (192,807) 230 (48,022) – – 6,384 (6,384) $ – – 6,619 (6,619) $ 652,426 $ 619,885 $ – $ – $(635,794) $(628,175) $(117,045) $(118,336) – 619,885 652,426 – $ 16,632 $ (8,290) $(117,045) $(118,336) 200,094 243,434 (25,454) (26,486) $ 200,094 $ 243,434 $ (25,454) $ (26,486) $ (8,290) $ 243,434 235,144 (18,648) 230 9,013 225,356 234,369 545 230 216,726 (200,094) 235,144 (243,434) $(118,336) $(159,958) 12,993 (26,486) (144,822) (4,061) 6,384 (142,499) 25,454 (146,965) (4,476) 6,619 (144,822) 26,486 $ 16,632 $ (8,290) $(117,045) $(118,336) [1] For 2023, the significant component of the Pension Plans actuarial gain were mainly related to a higher return on the fair value of plan assets partially offset by an increase in the obligation due to a decrease in the single weighted-average discount rates. For OPEB plans, significant components of the actuarial gain that changed the benefit obligation were mainly related to the per capita assumption at year end that improved the funded position and the gain associated with census data updates and plan experience better than expected offset by the decrease in discount rates. For 2022, significant components of the Pension Plans actuarial gain that changed the benefit obligation were mainly related to an increase in the single weighted-average discount rates partially offset by a lower return on the fair value of plan assets. For OPEB Plans significant components of the actuarial gain that change the benefit obligation were mainly related to an increase in discount rates and the per capita claim assumption at year-end which was lower than expected partially offset by the health care cost trend assumption which was updated to reflect inflationary pressures in the health care industry. 158 POPULAR, INC. 2023 ANNUAL REPORT The following table presents the change in accumulated other comprehensive loss (“AOCL”), pre-tax, for the years ended December 31, 2023 and 2022. (In thousands) Accumulated other comprehensive loss at beginning of year Increase (decrease) in AOCL: Recognized during the year: Amortization of actuarial losses Occurring during the year: Net actuarial (gains)/losses Total (decrease) increase in AOCL Accumulated other comprehensive loss at end of year Pension Plans OPEB Plan 2023 2022 2023 2022 $243,434 $225,356 $(26,486) $ 12,993 (21,465) (15,644) 2,212 – (21,875) (43,340) 33,722 18,078 (1,180) (39,479) 1,032 (39,479) $200,094 $243,434 $(25,454) $(26,486) The Corporation estimates the service and interest cost components utilizing a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. To determine benefit obligation at year end, the Corporation used a weighted average of annual spot rates applied to future expected cash flows for years ended December 31, 2023 and 2022. The following table presents the discount rate and assumed health care cost trend rates used to determine the benefit obligation and net periodic benefit cost for the plans: Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31: 2023 2022 2021 2023 2022 2021 Pension Plan OPEB Plan Discount rate for benefit obligation Discount rate for service cost Discount rate for interest cost Expected return on plan assets Initial health care cost trend rate Ultimate health care cost trend rate Year that the ultimate trend rate is reached N/A 5.34 - 5.37% 2.79 - 2.83% 2.41 - 2.48% 5.42% 2.94% 2.65% 5.66% 3.21% 3.09% 5.23 - 5.24% 2.30 - 2.33% 1.76 - 1.80% 5.28% 2.51% 2.03% 5.90 - 6.50% 4.30 - 5.40% 4.60 - 5.50% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 7.50% 4.75% 5.00% 4.50% 4.50% 4.50% N/A N/A N/A 2035 2023 2023 Weighted average assumptions used to determine benefit obligation at December 31: Pension Plans 2023 2022 OPEB Plan 2022 2023 Discount rate for benefit obligation Initial health care cost trend rate Ultimate health care cost trend rate Year that the ultimate trend rate is reached 5.02-5.05% 5.34-5.37% 5.10% 5.42% 7.25% 7.50% N/A N/A 4.50% 4.50% N/A 2035 N/A N/A N/A 2035 The following table presents information for plans with a projected benefit obligation and accumulated benefit obligation in excess of plan assets for the years ended December 31, 2023 and 2022. (In thousands) Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Pension Plans 2022 2023 OPEB Plan 2023 2022 $35,965 36,965 29,193 $628,175 628,175 619,885 $117,045 117,045 – $118,336 118,336 – POPULAR, INC. 2023 ANNUAL REPORT 159 The following table presents information for plans with plan assets in excess of its projected benefit obligation and accumulated benefit obligation for the years ended December 31, 2023 and 2022. (In thousands) Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Pension Plans OPEB Plan 2023 2022 2023 2022 $599,829 599,829 623,233 $ – – – $ – – – $ – – – The Corporation expects to pay the following contributions to the plans during the year ended December 31, 2024. Benefit payments projected to be made from the plans during the next ten years are presented in the table below. (In thousands) Pension Plans OPEB Plan 2024 (In thousands) Pension Plans OPEB Plan $ 228 $5,744 2024 2025 2026 2027 2028 2029 - 2033 $ 49,072 45,790 45,906 45,907 45,818 223,097 $ 5,744 6,003 6,301 6,582 6,865 37,503 The table below presents a breakdown of the plans’ assets and liabilities at December 31, 2023 and 2022. (In thousands) Non-current assets Current liabilities Non-current liabilities Pension Plans 2022 2023 OPEB Plan 2023 2022 $23,404 222 6,550 $ – 222 8,068 $ – 5,595 111,451 $ – 5,779 112,557 Savings plans The Corporation also provides defined contribution savings plans pursuant the Puerto Rico to Section 1081.01(d) of Internal Revenue Code and Section 401(k) of the U.S. Internal Revenue Code, as applicable, for substantially all the employees of the Corporation. Investments in the plans are participant- directed, and employer matching contributions are determined based on the specific provisions of each plan. Employees are fully vested in the employer’s contribution after five years of service. The cost of providing these benefits in the year ended December 31, 2023 was $20.3 million (2022 - $18.7 million, 2021 - $13.3 million). The plans held 1,253,702 (2022 - 1,246,519) shares of common stock of the Corporation with a market value of approximately $102.9 million at December 31, 2023 (2022 - $82.7 million). Note 31 - Net income per common share The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the years ended December 31, 2023, 2022 and 2021: (In thousands, except per share information) Net income Preferred stock dividends Net income applicable to common stock Average common shares outstanding Average potential dilutive common shares Average common shares outstanding - assuming dilution Basic EPS Diluted EPS 160 POPULAR, INC. 2023 ANNUAL REPORT 2023 2022 2021 541,342 (1,412) $ 1,102,641 (1,412) 539,930 $ 1,101,229 $ $ 934,889 (1,412) 933,477 71,710,265 81,427 75,147,263 126,740 81,263,027 157,127 71,791,692 75,274,003 81,420,154 7.53 7.52 $ $ 14.65 14.63 $ $ 11.49 11.46 $ $ $ $ Potential common shares consist of shares of common stock issuable under the assumed exercise of stock options, restricted stock and performance share awards using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from exercise, in addition to the amount of compensation cost attributed to future services, are used to purchase shares of common stock at the exercise date. The difference between the number of potential common shares issued and the shares of common stock purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Warrants, stock options, restricted stock and performance share awards, if any, that result in lower potential common shares issued than shares of common stock purchased under the treasury stock included in the computation of dilutive method are not inclusion would have an earnings per share since their antidilutive effect in earnings per common share. Note 32 - Revenue from contracts with customers The following table presents the Corporation’s revenue streams from contracts with customers by reportable segment for the years ended December 31, 2023, 2022 and 2021. (In thousands) Service charges on deposit accounts Other service fees: Debit card fees Insurance fees, excluding reinsurance Credit card fees, excluding late fees and membership fees Sale and administration of investment products Trust fees 2023 Years ended December 31, 2022 2021 BPPR Popular U.S. BPPR Popular U.S. BPPR Popular U.S. $137,297 $10,179 $146,073 $11,137 $151,453 $11,245 53,434 46,903 147,559 26,316 26,160 853 5,602 1,597 – – 49,297 40,545 136,295 23,553 23,614 876 5,018 1,275 – – 47,681 40,929 117,418 23,634 24,855 956 3,798 1,052 – – Total revenue from contracts with customers [1] $437,669 $18,231 $419,377 $18,306 $405,970 $17,051 [1] The amounts include intersegment transactions of $5.0 million, $5.0 million and $4.1 million, respectively, for the years ended December 31, 2023, 2022 and 2021. Revenue from contracts with customers is recognized when, or as, the performance obligations are satisfied by the Corporation by transferring the promised services to the customers. A service is transferred to the customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized based on the services that have been rendered to date. Revenue from a performance obligation satisfied at a point in time is recognized when the customer obtains control over the service. The transaction price, or the amount of revenue recognized, reflects the consideration the Corporation expects to be entitled to in exchange for those promised services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration is is included in the transaction price only to the extent probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Corporation is the principal in a transaction if it obtains control of the specified goods or services before they are transferred to the customer. If the Corporation acts as principal, revenues are presented in the gross amount of consideration to which it expects to be entitled and are not netted with any related expenses. On the other hand, the Corporation is an agent if it does not control the specified goods or services before they are transferred to the it customer. If the Corporation acts as an agent, revenues are presented in the amount of consideration to which it expects to be entitled, net of related expenses. Following is a description of the nature and timing of revenue streams from contracts with customers: Service charges on deposit accounts Service charges on deposit accounts are earned on retail and commercial deposit activities and include, but are not limited to, nonsufficient fund fees, overdraft fees and checks stop payment fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. The Corporation is acting as principal in these transactions. Debit card fees Debit card fees include, but are not limited to, interchange fees, surcharging income and foreign transaction fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. Interchange fees are recognized upon settlement of the debit card payment transactions. The Corporation is acting as principal in these transactions. POPULAR, INC. 2023 ANNUAL REPORT 161 Insurance fees Insurance fees include, but are not limited to, commissions and contingent commissions. Commissions and fees are recognized when related policies are effective since the Corporation does not have an enforceable right to payment for services completed to date. An allowance is created for expected adjustments to commissions earned related to policy cancellations. Contingent commissions are recorded on an accrual basis when the amount to be received is notified by the insurance company. The Corporation is acting as an agent since it arranges for the sale of the policies and receives commissions if, and when, it achieves the sale. Credit card fees Credit card fees include, but are not limited to, interchange fees, additional card fees, cash advance fees, balance transfer fees, foreign transaction fees, and returned payments fees. Credit card fees are recognized at a point in time, upon the occurrence of an activity or an event. Interchange fees are recognized upon settlement of the credit card payment transactions. The Corporation is acting as principal in these transactions. Sale and administration of investment products Fees from the sale and administration of investment products include, but are not limited to, commission income from the fees, sale underwriting fees, and mutual fund fees. asset management investment products, of Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products. Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the broker-dealer influence. As the manager’s subsidiary is acting as principal. advisor, Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal. Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the 162 POPULAR, INC. 2023 ANNUAL REPORT uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent. Trust fees Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset manager, it has the obligation to provide the specified service to the customer and has the ultimate discretion in establishing the fee paid by the customer for the specified services. Note 33 - Leases The Corporation enters in the ordinary course of business into operating and finance leases for land, buildings and equipment. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms of 0.1 to 31.0 years considers options to extend the leases for up to 20 years. The Corporation identifies leases when it has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. right-of-use assets The Corporation recognizes (“ROU assets”) and lease liabilities related to operating and finance leases in its Consolidated Statements of Financial Condition under liabilities, respectively. Refer to Note 14 and Note 19 to the Consolidated for information on the Financial Statements, respectively, balances of these lease assets and liabilities. the caption of other assets and other The Corporation uses the incremental borrowing rate for purposes of discounting lease payments for operating and finance leases, since it does not have enough information to determine the rates implicit in the leases. The discount rates are based on fixed-rate and fully amortizing borrowing facilities of its banking subsidiaries that are collateralized. For leases held by non-banking subsidiaries, a credit spread is added to this rate based on financing transactions with a similar credit risk profile. The following table presents the undiscounted cash flows of operating and finance leases for each of the following periods: (In thousands) Operating Leases Finance Leases December 31, 2023 2024 2025 2026 2027 2028 Later Years $30,652 4,498 $28,042 4,605 $19,600 4,374 $14,357 3,017 $11,902 2,344 $40,648 10,434 Total Lease Payments $145,201 29,272 Less: Imputed Interest Total $(18,255) $126,946 25,778 (3,494) The following table presents the lease cost recognized by the Corporation in the Consolidated Statements of Operations as follows: (In thousands) Finance lease cost: Amortization of ROU assets Interest on lease liabilities Operating lease cost Short-term lease cost Variable lease cost Sublease income Net gain recognized from sale and leaseback transaction [1] Years ended December 31, 2021 2022 2023 $ 4,192 1,063 31,596 456 211 (66) $ 2,938 1,117 30,534 505 124 (37) $ 2,006 1,044 29,970 647 93 (70) – – (7,007) Total lease cost [2] $37,452 $35,181 $26,683 [1] During the quarter ended September 30, 2021, the Corporation recognized the transfer of two corporate office buildings as a sale. Since these sale and partial leaseback transactions were considered to be at fair value, no portion of the gain on sale was deferred. [2] Total lease cost is recognized as part of net occupancy expense, except for the net gain recognized from sale and leaseback transactions which was included as part of other operating income. following table presents The cash flow information and other related information related to operating and finance leases. supplemental (Dollars in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases [1] Operating cash flows from finance leases Financing cash flows Years ended December 31, 2022 2021 2023 $ 31,124 $ 29,985 $ 38,288 1,063 1,117 1,044 from finance leases [1] 5,360 3,346 2,852 ROU assets obtained in exchange for new lease obligations: Operating leases [2] Finance leases Weighted-average remaining lease term: Operating leases Finance leases Weighted-average discount rate: Operating leases Finance leases $ 8,048 6,198 $ 14,564 556 $ 24,136 – 7.3 years 8.3 years 7.5 years 8.2 years 7.9 years 8.3 years 3.3% 3.9% 3.0% 4.2% 2.7% 5.0% [1] During the quarter ended March 31, 2021, the Corporation made base lease termination payments amounting to $7.8 million in connection with the closure of nine branches as a result of the strategic realignment of PB’s New York Metro branch network. [2] During the quarter ended September 30, 2021, the Corporation recognized a lease liability of $16.8 million and a corresponding ROU asset for the same amount as a result of the partial leaseback of two corporate office buildings. POPULAR, INC. 2023 ANNUAL REPORT 163 As of December 31, 2023, the Corporation has additional operating leases contracts that have not yet commenced with an undiscounted contract amount of $3.9 million, which will have lease terms ranging from 10 to 20 years. Note 34 - Stock-based compensation the stockholders of Incentive Plan On May 12, 2020, 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 (the “2004 Incentive Plan” and, together with the 2020 Incentive Plan, the “Incentive Plan”). Participants under the Incentive Plan are designated by the Board of the Talent and Compensation Committee of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares to its employees and restricted stock and restricted stock units (“RSUs”) to its directors. The restricted stock granted under the Incentive Plan to employees becomes vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock granted prior to 2021 was determined based on a two- prong vesting schedule. The first part is vested ratably over five or four years commencing at the date of grant (the “graduated vesting portion”) and the second part is vested at termination of employment after attaining 55 years of age and 10 years of service or 60 years of age and 5 years of service (the “retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending in the classification of the employee. The vesting schedule is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. The performance share awards granted under the Incentive Plan consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Return on Average Tangible Common Equity (“ROATCE”) goal. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The ROATCE metric is 164 POPULAR, INC. 2023 ANNUAL REPORT are equally weighted considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the ROATCE goal as of each reporting period. The TSR and ROATCE metrics and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market The and (TSR) performance three-year performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service, the performance shares shall continue outstanding and vest at the performance cycle. performance shares vest the end of (ROATCE) conditions. end of the the at The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management. (Not in thousands) Non-vested at January 1, 2021 Granted Performance Shares Quantity Adjustment Vested Forfeited Non-vested at December 31, 2021 Granted Performance Shares Quantity Adjustment Vested Forfeited Non-vested at December 31, 2022 Granted Performance Shares Quantity Adjustment Vested Forfeited Shares 358,512 191,479 54,306 (273,974) (8,440) 321,883 194,791 6,947 (240,033) (1,625) 281,963 257,757 19,753 (243,133) (16,444) Non-vested at December 31, 2023 299,896 Weighted-average grant date fair value $41.23 69.38 54.21 55.11 43.48 $47.98 84.29 78.02 66.11 78.86 $56.50 66.01 75.32 66.31 55.82 $58.20 During the year ended December 31, 2023, 200,303 shares of restricted stock (2022 - 137,934; 2021 - 120,105) and 57,454 performance shares (2022 - 56,857; 2021 - 71,374) were awarded to management under the Incentive Plan. During the year ended December 31, 2023, the Corporation recognized $11.5 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.9 million (2022 - $10.3 million, with a tax benefit of $1.8 million; 2021 - $8.6 million, with a tax benefit of $1.6 million). During the year ended December 31, 2023, the fair market value of the restricted stock and performance shares vested was $11.4 million at grant date and $14.3 million at vesting date. This differential triggers a windfall of $1.1 million that was recorded as a reduction in income tax expense. During the year ended December 31, 2023, the Corporation recognized $3.5 million of performance shares expense, with a tax benefit of $0.1 million (2022 - $4.8 million, with a tax benefit of $0.4 million; 2021 - $5.8 million, with a tax benefit of $0.5 million). The total related to non-vested unrecognized compensation cost restricted stock awards and performance shares to members of management at December 31, 2023 was $10.4 million and is expected to be recognized over a weighted-average period of 1.76 years. The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors: (Not in thousands) Non-vested at January 1, 2021 Granted Vested Forfeited Non-vested at December 31, 2021 Granted Vested Forfeited Non-vested at December 31, 2022 Granted Vested Forfeited Non-vested at December 31, 2023 Units/Stocks Weighted-average grant date fair value – 20,638 (20,638) – – 25,321 (25,321) – – 39,104 (39,104) – – – $78.20 78.20 – – $77.48 77.48 – – $55.30 55.30 – – The equity awards granted to members of the Board of Directors of Popular, Inc. (the “Directors”) will vest and become non-forfeitable on the grant date of such award. Effective in May 2019, all equity awards granted to the Directors may be paid in either common stock or RSUs at each Directors election. If RSUs are elected, the Directors may defer the delivery of the shares of common stock underlying the RSUs award until their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stock, the Directors will receive an additional number of RSUs that reflect a reinvested dividend equivalent. For 2023, 2021 and 2021, Directors elected RSUs and common stock. For the year ended December 31, 2023, 36,804 RSUs and 2,300 shares of common stock were granted to the Directors (2022 - 25,321 RSUs and no shares of common stock; 2021 - 20,638 RSUs and no shares of common stock). For the year ended December 31, 2023, $2.2 million of restricted stock expense related to these RSUs and unrestricted stocks were recognized, with a tax benefit of $0.4 million (2022 - $2.0 million with a tax benefit of $0.4 million; 2021 - $1.9 million with a tax benefit of $0.4 million). The fair value at vesting date of the RSUs vested during the year ended December 31, 2023 for the Directors was $2.2 million. Note 35 - Income taxes The components of income tax expense for the years ended December 31, 2023, 2022, and 2021 are summarized in the following table. (In thousands) Current income tax expense: Puerto Rico Federal and States Subtotal Deferred income tax (benefit) expense: Puerto Rico Federal and States Subtotal Total income tax expense 2023 2022 2021 $168,001 9,335 $156,425 9,034 $ 69,415 10,232 177,336 165,459 79,647 (50,871) 7,732 (4,373) (28,756) 179,688 49,683 (43,139) (33,129) 229,371 $134,197 $132,330 $309,018 POPULAR, INC. 2023 ANNUAL REPORT 165 The reasons for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico were as follows: (In thousands) Computed income tax at statutory rates Net benefit of tax exempt interest income Effect of income subject to preferential tax rate Deferred tax asset valuation allowance NOL Adjustments Difference in tax rates due to multiple jurisdictions Change in tax rates Unrecognized tax benefits Other tax benefits State and local taxes Others Income tax expense 2023 % of pre-tax income 38% (14) – – – (2) (3) – – 3 (2) 20% Amount $253,327 (95,222) (1,854) 2,304 – (12,857) (18,714) (1,529) (2,925) 25,401 (13,734) $134,197 2022 2021 Amount $ 463,114 (165,065) (86,797) (21,469) (34,817) (26,887) – (1,503) – 14,981 (9,227) $ 132,330 % of pre-tax income 38% (13) (7) (2) (3) (2) – – – 1 (1) 11% Amount $ 466,465 (139,426) (11,981) 20,932 – (30,719) – (5,484) – 14,629 (5,398) $ 309,018 % of pre-tax income 38% (12) (1) 2 – (3) – – – 1 – 25% For the year ended December 31, 2023, the Corporation recorded income tax expense of $134.2 million, compared to $132.3 million for the same period of 2022. The net increase of $1.9 million in income tax expense reflects the impact of the composition and source of taxable income between both years. For the year ended December 31, 2023, the income before tax was lower than for the year ended December 31, 2022, which would have resulted in a lower income tax expense; however, the income tax expense for 2022 benefited from: the reversal of a portion of the deferred tax assets valuation allowance of the U. S. operations, resulting in an income tax benefit of $68.2 million, higher exempt income, net of disallowance, and the gain on sale of Evertec shares, taxable at a preferential tax rate. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant components of the Corporation’s deferred tax assets and liabilities at December 31, 2023 and 2022 were as follows: (In thousands) Deferred tax assets: Tax credits available for carryforward Net operating loss and other carryforward available Postretirement and pension benefits Allowance for credit losses Depreciation FDIC-assisted transaction Lease liability Unrealized net loss on investment securities Difference in outside basis from pass-through entities Mortgage Servicing Rights Other temporary differences Total gross deferred tax assets Deferred tax liabilities: Intangibles Right of use assets Deferred loan origination fees/cost Loans acquired Other temporary differences Total gross deferred tax liabilities Valuation allowance Net deferred tax asset 166 POPULAR, INC. 2023 ANNUAL REPORT December 31, 2023 US PR Total $ 263 122,634 38,121 244,956 6,774 152,665 29,070 312,583 46,056 14,085 47,679 $ 10,281 620,982 – 28,222 6,578 – 20,492 19,037 – – 9,625 $ 10,544 743,616 38,121 273,178 13,352 152,665 49,562 331,620 46,056 14,085 57,304 1,014,886 715,217 1,730,103 84,635 26,648 (1,056) 20,430 6,402 137,059 139,347 51,944 18,030 1,486 – 422 71,882 374,035 136,579 44,678 430 20,430 6,824 208,941 513,382 $ 738,480 $269,300 $1,007,780 (In thousands) Deferred tax assets: Tax credits available for carryforward Net operating loss and other carryforward available Postretirement and pension benefits Allowance for credit losses Depreciation FDIC-assisted transaction Lease liability Unrealized net loss on investment securities Difference in outside basis from pass-through entities Mortgage Servicing Rights Other temporary differences Total gross deferred tax assets Deferred tax liabilities: Intangibles Right of use assets Deferred loan origination fees/cost Loans acquired Other temporary differences Total gross deferred tax liabilities Valuation allowance Net deferred tax asset The net deferred tax asset shown in the table above at December 31, 2023 is reflected in the consolidated statements of financial condition as $1.0 billion in net deferred tax assets (in the “other assets” caption) (December 31, 2022 - $1.0 billion) and $1.3 million in deferred tax liabilities (in the “other liabilities” caption) (December 31, 2022 - $2.6 million), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States. The net reduction in the valuation allowance of approximately $27 million during the year ended December 31, 2023 was due primarily to the change in the blended state tax rate applicable to net operating losses of the U.S. operation. The deferred tax asset related to the NOLs and other carryforwards as of December 31, 2023, expires as follows: (In thousands) 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 $ 9,234 13,516 13,367 15,202 244,706 111,307 137,344 106,295 51,302 8,198 901 32,244 $743,616 December 31, 2022 US PR Total $ 261 121,742 47,122 250,615 5,972 152,665 28,290 265,955 40,602 13,711 17,122 944,057 81,174 26,015 1,076 23,353 1,531 133,149 137,863 $673,045 $ 2,781 661,144 – 32,688 6,309 – 23,521 23,913 – – 7,815 758,171 54,623 20,262 2,961 – – 77,846 402,333 $277,992 $ 3,042 782,886 47,122 283,303 12,281 152,665 51,811 289,868 40,602 13,711 24,937 1,702,228 135,797 46,277 4,037 23,353 1,531 210,995 540,196 $ 951,037 At December 31, 2023 the net deferred tax asset of the U.S. operations amounted to $643 million with a valuation allowance of $374 million, for a net deferred tax asset of $269 million. The Corporation evaluates on a quarterly basis the realization of the deferred tax asset by taxing jurisdiction. The U. S. operations sustained profitability for the three years period ended December 31, 2023. The financial results for year 2023 were lower than prior year; however, this additional component of negative evidence was offset by positive evidence of recent historical results, still demonstrating financial stability for the U. S. Operations. The historical financial results are objectively verifiable positive evidence, evaluated together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs. On the other hand, evidence accumulated over the years, including financial results lower than expectations and challenges to the economy due to inflationary pressures and global geopolitical uncertainty that have resulted in a reduction of pre-tax income for the year 2023. As of December 31, 2023, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $269 million of the deferred tax asset from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation based this determination on its estimated earnings available to realize the deferred tax asset for the remaining carryforward period, together with the historical level of book income adjusted by permanent differences. Management will continue to monitor and review the U.S. operation’s results, the pre-tax earnings the Corporation evaluated the negative POPULAR, INC. 2023 ANNUAL REPORT 167 of in the financial statement the total amount of At December 31, 2023, interest condition recognized approximated $2.3 million (2022 - $2.6 million). The total interest expense recognized during 2023 was $199 thousand net of a reduction of $475 thousand due to the expiration of the statute of limitation (2022 - $268 thousand net of a reduction of $448 thousand). Management determined that, as of December 31, 2023 and 2022, there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax if any, are reported in other expense, while the penalties, operating of in the expenses operations. consolidated statements After consideration of the effect on U.S. federal tax of the total amount of unrecognized U.S. state tax benefits, unrecognized tax benefits, including U.S. and Puerto Rico that, if recognized, would affect the Corporation’s effective tax rate, was approximately $2.9 million at December 31, 2023 (2022 - $4.3 million). The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level of uncertainty, status of examinations, and the addition or elimination of uncertain tax positions. litigation and legislative activity, The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. As of December 31, 2023, the following years remain subject to examination in the U.S. Federal jurisdiction - 2020 and thereafter and in the Puerto Rico jurisdiction - 2018 and thereafter. factors, including net forecast, and other income versus forecast, targeted loan growth, net interest income margin, changes in deposits costs, allowance for credit losses, charge offs, NPLs inflows and NPA balances, to assess the future realization of the deferred tax asset. At December 31, 2023, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $738 million. The Corporation’s Puerto Rico Banking operation has strong historical record of profitability. This is considered a strong piece of objectively verifiable positive evidence that outweigh any negative evidence considered by Management in the evaluation of the realization of the deferred tax asset. Based on this evidence and Management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized. taking into account The Holding Company operation is in a cumulative loss taxable income exclusive of position, for the three years period reversing temporary differences, ended December 31, 2023. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all of the deferred tax asset. After weighting all positive and negative evidence, management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets. Accordingly, the Corporation has maintained a full valuation allowance on the deferred tax asset of $139 million as of December 31, 2023. The Corporation’s subsidiaries in the United States file a income tax return. The intercompany consolidated federal settlement of taxes paid is based on tax sharing agreements which generally allocate taxes to each entity based on a separate return basis. The reconciliation presents of a table unrecognized tax benefits. following (In millions) Balance at January 1, 2022 Reduction as a result of lapse of statute of limitations Balance at December 31, 2022 Reduction as a result of change in tax position Balance at December 31, 2023 $ 3.5 (1.0) $ 2.5 (1.0) $ 1.5 168 POPULAR, INC. 2023 ANNUAL REPORT Note 36 - Supplemental disclosure on the consolidated statements of cash flows Additional disclosures on cash flow information and non-cash activities for the years ended December 31, 2023, 2022 and 2021 are listed in the following table: (In thousands) Income taxes paid Interest paid Non-cash activities: Loans transferred to other real estate Loans transferred to other property Total loans transferred to foreclosed assets Loans transferred to other assets Financed sales of other real estate assets Financed sales of other foreclosed assets Total financed sales of foreclosed assets Financed sale of premises and equipment Transfers from premises and equipment to long-lived assets held-for-sale Transfers from loans held-in-portfolio to loans held-for-sale Transfers from loans held-for-sale to loans held-in-portfolio Transfers from available-for-sale to held-to-maturity debt securities Loans securitized into investment securities[1] Trades receivables from brokers and counterparties Trades payable to brokers and counterparties Net change in receivables from investments securities Recognition of mortgage servicing rights on securitizations or asset transfers Loans booked under the GNMA buy-back option Capitalization of right of use assets Acquisition of software intangible assets Goodwill on acquisition 2023 2022 2021 $ 185,423 1,093,968 $ 178,808 292,491 $ 64,997 170,442 60,976 72,069 133,045 28,616 10,378 49,361 59,739 88,537 – 57,526 5,354 – 37,345 31 30 51,000 2,097 6,014 23,991 – – 64,953 51,642 116,595 8,664 8,535 38,467 47,002 47,697 1,739 11,531 26,425 6,531,092 300,279 9,461 9,461 125,000 6,614 9,799 17,932 28,650 116,135 57,638 45,144 102,782 7,219 13,014 43,060 56,074 31,085 32,103 69,890 9,762 – 732,533 64,824 13,789 – 13,391 19,798 35,683 – – Total stock consideration related to Evertec transactions – 144,785 – [1] Includes loans securitized into trading securities and subsequently sold before year end. The following table provides a reconciliation of cash and due from banks, and restricted cash reported within the Consolidated Statement of Financial Condition that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows. (In thousands) Cash and due from banks Restricted cash and due from banks Restricted cash in money market investments Total cash and due from banks, and restricted cash[2] December 31, 2023 December 31, 2022 December 31, 2021 $383,385 37,077 7,113 $427,575 $423,233 46,268 6,658 $476,159 $411,346 17,087 6,079 $434,512 [2] Refer to Note 5 - Restrictions on cash and due from banks and certain securities for nature of restrictions. structure corporate consists of Note 37 - Segment reporting The Corporation’s two reportable segments – Banco Popular de Puerto Rico and Popular U.S. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. The segments were determined based on the organizational structure, which focuses primarily on the markets the segments serve, as well as on the products and services offered by the segments. Banco Popular de Puerto Rico: The Banco Popular de Puerto Rico reportable segment includes commercial, consumer and retail banking operations conducted at BPPR, including U.S. based activities conducted through its New York Branch. It also includes the lending operations of Popular Auto and Popular Mortgage. Other financial services within the BPPR segment include the trust service units of Popular Asset BPPR, Management, the brokerage and investment banking operations asset management services of POPULAR, INC. 2023 ANNUAL REPORT 169 of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Risk Services, Popular Life Re, and Popular Re. Popular U.S.: Popular U.S. the banking reportable segment consists of operations of Popular Bank (PB), Popular Insurance Agency, U.S.A., and PEF. PB operates through a retail branch network in the U.S. mainland under the name of Popular, and equipment leasing and financing services through PEF. Popular Insurance Agency, U.S.A. offers investment and insurance services across the PB branch network. The Corporate group consists primarily of the holding companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including Evertec, until August 15, 2022, and Centro Financiero BHD, León. are accounting policies of The the segments Transactions between reportable conducted at market eliminated for reporting consolidated results of operations. individual operating the Corporation. are primarily that are segments resulting in profits the those of rates, same as (In thousands) BPPR Popular U.S. Intersegment Eliminations December 31, 2022 Net interest income Provision for credit losses Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense Net income Segment assets $ $ 1,823,517 70,304 680,276 1,937 – 47,003 1,454,187 148,351 $ 372,988 12,452 31,958 1,338 9,000 6,919 230,136 (25,205) $ 782,011 $ 170,306 $ 3 – (547) – – – (543) – (1) $56,190,260 $11,558,280 $(421,781) (In thousands) Net interest income (expense) Provision for credit losses Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense December 31, 2022 Reportable Segments Corporate Eliminations Total Popular, Inc. $ 2,196,508 $ (29,149) $ 82,756 711,687 274 189,835 – – (4,460) $ 2,167,359 83,030 897,062 3,275 – – 3,275 9,000 53,922 1,683,780 123,146 – 1,185 80 9,074 – – (4,822) 110 9,000 55,107 1,679,038 132,330 The tables that follow present the results of operations and total assets by reportable segments: Net income $ 952,316 $ 150,073 $ 252 $ 1,102,641 Segment assets $67,326,759 $5,390,122 $(5,078,964) $67,637,917 December 31, 2023 December 31, 2021 (In thousands) BPPR Popular U.S. Intersegment Eliminations Net interest income Provision for credit losses Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense Net income Segment assets $ $ 1,811,655 194,325 586,677 1,937 – 49,135 1,563,571 117,412 $ 350,645 14,584 24,868 1,243 23,000 7,888 254,253 18,198 $ 471,952 $ 56,347 $ 2 – (404) – – – (404) – 2 (In thousands) Net interest income Provision for credit losses (benefit) Non-interest income Amortization of intangibles Depreciation expense Other operating expenses Income tax expense Banco Popular de Puerto Rico $ 1,674,589 (136,352) 565,310 2,813 46,539 1,285,959 253,479 Popular U.S. Intersegment Eliminations $ 321,154 (56,897) 24,518 665 7,415 203,892 56,538 $ 6 – (548) – – (544) – Net income $ 787,461 $ 134,059 $ 2 $57,023,071 $13,812,158 $(426,058) Segment assets $64,336,681 $10,399,066 $(31,528) (In thousands) Net interest income (expense) Provision for credit losses (benefit) Non-interest income Amortization of intangibles Goodwill impairment charge Depreciation expense Other operating expenses Income tax expense (benefit) Net income December 31, 2023 Reportable Segments Corporate Eliminations Total Popular, Inc. (In thousands) December 31, 2021 Reportable Segments Corporate Eliminations Total Popular, Inc. $ 2,162,302 $ (30,778) $ – $ 2,131,524 208,909 611,141 (300) 44,410 – (4,827) 208,609 650,724 3,180 – – 3,180 23,000 57,023 1,817,420 – 1,484 518 – – (4,525) 23,000 58,507 1,813,413 135,610 (1,333) (80) 134,197 $ 528,301 $ 13,263 $ (222) $ 541,342 Net interest income (expense) Provision for credit losses (benefit) Non-interest income Amortization of intangibles Depreciation expense Other operating expenses Income tax expense (benefit) Net income $ 1,995,749 $ (38,159) $ – $ 1,957,590 (193,249) 589,280 (215) 56,535 3,478 53,954 1,489,307 5,656 1,150 (545) – (3,687) – – (3,725) (193,464) 642,128 9,134 55,104 1,485,037 310,017 (1,085) 86 309,018 $ 921,522 $ 13,415 $ (48) $ 934,889 Segment assets $74,704,219 $5,458,718 $(5,065,038) $75,097,899 Segment assets $70,409,171 $5,607,833 $(5,258,849) $70,758,155 170 POPULAR, INC. 2023 ANNUAL REPORT selected presents information Geographic Information financial following The information based on the geographic location where the Corporation conducts its business. The banking operations of BPPR are primarily based in Puerto Rico, where it has the largest retail banking franchise. BPPR also conducts banking operations in the U.S. Virgin Islands, the British Virgin Islands and New York. BPPR’s banking operations in the mainland United States include commercial lending activities. BPPR’s commercial lending activities in the U.S., through its New York Branch, include periodic loan participations with PB. During the year ended December 31, 2023, BPPR participated in loans originated by PB totaling $81 million (2022 - $184 million, 2021 - $35 million). Total assets for the BPPR segment related to its operations in the United States amounted to $1.5 billion (2022 - $1.2 billion), including $106 million in multifamily loans (2022 - $103 million), $528 million in commercial real estate loans (2022 - $446 million), $557 million in C&I loans (2022 - $214 million), and $229 million in unsecured personal loans ended (2022 - $227 million). During the year December generated approximately $117.7 million (2022 - $67.8 million, 2021 - $50.6 million) in revenues from its operations in the United States, including net interest income and other service fees. In the Virgin Islands, the BPPR segment offers banking products, including loans and deposits. The BPPR segment generated $45.0 million in revenues during the year ended December 31, 2023 (2022 - $46.6 million, 2021 - $45.4 million) from its operations in the U.S. and British Virgin Islands. segment 2023, BPPR the 31, (In thousands) Revenues: [1] Puerto Rico United States Other 2023 2022 2021 $2,175,938 518,805 87,505 $2,505,988 480,545 77,888 $2,136,481 390,201 73,036 Total consolidated revenues $2,782,248 $3,064,421 $2,599,718 [1] Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain on sale of debt securities, net gain (loss), including impairment on equity securities, net profit (loss) on trading account debt securities, net loss on sale of loans, including valuation adjustments on loans held-for-sale, adjustments to indemnity reserves on loans sold, and other operating income. Selected Balance Sheet Information (In thousands) Puerto Rico Total assets Loans Deposits United States Total assets Loans Deposits Other Total assets Loans Deposits [1] 2023 2022 2021 $54,181,300 22,519,961 51,282,007 $53,541,427 20,884,442 51,138,790 $63,221,282 19,770,118 57,211,608 $15,343,156 12,006,012 10,643,602 $12,718,775 10,643,964 8,182,702 $10,986,055 8,903,493 7,777,232 $1,233,699 543,299 1,692,634 $1,377,715 554,744 1,905,735 $890,562 626,115 2,016,248 [1] Represents deposits from BPPR operations located in the U.S. and British Virgin Islands. Note 38 - Popular, Inc. (holding company only) financial information The following condensed financial information presents the financial position of Popular, Inc. Holding Company only at December 31, 2023 and 2022, and the results of its operations and cash flows for the years ended December 31, 2023, 2022 and 2021. POPULAR, INC. 2023 ANNUAL REPORT 171 Condensed Statements of Condition (In thousands) ASSETS Cash and due from banks (includes $126,388 due from bank subsidiary (2022 – $101,753)) Money market investments Debt securities held-to-maturity, at amortized cost (includes $3,125 in common securities from statutory trusts (2022 – $3,125))[1] Equity securities, at lower of cost or realizable value Investment in BPPR and subsidiaries, at equity Investment in Popular North America and subsidiaries, at equity Investment in other non-bank subsidiaries, at equity Other loans Less - Allowance for credit losses Premises and equipment Investment in equity method investees Other assets (includes $3,639 due from subsidiaries and affiliate (2022 – $6,115)) Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Notes payable Other liabilities (includes $6,078 due to subsidiaries and affiliate (2022 – $2,764)) Stockholders’ equity Total liabilities and stockholders’ equity [1] Refer to Note 18 to the consolidated financial statements for information on the statutory trusts. December 31, 2023 2022 $ 126,388 243,459 $ 101,753 77,180 3,125 23,993 3,006,768 1,899,546 385,033 26,957 51 7,035 5,266 36,531 3,125 18,835 2,120,503 1,879,123 335,552 28,196 370 6,411 5,350 34,841 $5,764,050 $4,610,499 $ 498,085 118,899 5,147,066 $ 403,257 113,772 4,093,470 $5,764,050 $4,610,499 172 POPULAR, INC. 2023 ANNUAL REPORT Condensed Statements of Operations (In thousands) Income: Years ended December 31, 2022 2023 2021 Dividends from subsidiaries Interest income (includes $15,401 due from subsidiaries and affiliates (2022 – $680; 2021 – $828)) Losses (earnings) from investments in equity method investees Other operating income Net gains (losses), including impairment, on equity securities Total income Expenses: Interest expense Provision for credit losses (benefit) Operating expense (includes expenses for services provided by subsidiaries and affiliate of $13,463 (2022 – $18,414 ; 2021 – $13,546)), net of reimbursement by subsidiaries for services provided by parent of $215,479 (2022 – $222,935 ; 2021 – $162,019) Total expenses Income before income taxes and equity in undistributed earnings of subsidiaries Income tax expense Income before equity in undistributed earnings of subsidiaries Equity in undistributed earnings of subsidiaries Net income Comprehensive income (loss), net of tax $ $ 208,000 17,715 (84) – 2,012 458,000 2,846 15,688 139,191 (4,446) $792,000 4,303 29,387 – (525) 227,643 611,279 825,165 42,691 (300) 26,021 274 36,444 (215) 924 43,315 184,328 – 184,328 357,014 223 26,518 584,761 8,723 576,038 526,603 5,432 41,661 783,504 352 783,152 151,737 $ 541,342 $ 1,102,641 $934,889 $1,170,739 $(1,097,218) $419,829 POPULAR, INC. 2023 ANNUAL REPORT 173 Condensed Statements of Cash Flows (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries, net of dividends or distributions Provision for credit (benefit) losses Amortization of intangibles Net accretion of discounts and amortization of premiums and deferred fees Share-based compensation Losses (earnings) from investments under the equity method, net of dividends or distributions (Gain) loss on: Disposition of stock as part of the Evertec Transactions Sale of foreclosed assets, including write-downs Net increase in: Equity securities Other assets Net increase (decrease) in: Interest payable Other liabilities Total adjustments Net cash provided by operating activities Cash flows from investing activities: Net (increase) decrease in money market investments Proceeds from calls, paydowns, maturities and redemptions of investment securities held-to- maturity Net repayments on other loans Capital contribution to subsidiaries Return of capital from wholly owned subsidiaries Proceeds from disposition of stock as part of the Evertec Transactions Acquisition of premises and equipment Proceeds from sale of premises and equipment Proceeds from sale of foreclosed assets Net cash (used in) provided by investing activities Cash flows from financing activities: Payments of notes payable Proceeds from issuance of notes payable Proceeds from issuance of common stock Dividends paid Net payments for repurchase of common stock Payments related to tax withholding for share-based compensation Net cash used in financing activities Net increase in cash and due from banks, and restricted cash Cash and due from banks, and restricted cash at beginning of period Cash and due from banks, and restricted cash at end of period Years ended December 31, 2022 2021 2023 $ 541,342 $1,102,641 $ 934,889 (357,014) (300) – 1,754 9,735 84 (526,603) 274 – 1,250 9,440 (14,170) (151,737) (215) 5,656 1,241 8,895 (26,360) – – (137,813) – – 59 (5,158) (62) 3,239 (3,377) (339) (1,952) – 8,257 (3,662) (1,970) (1,042) 19,095 (351,099) (661,656) (150,040) 190,243 440,985 784,849 (165,000) 129,000 (94,000) – 1,252 (4,150) 64,000 – (2,266) 68 – – 1,267 (54,188) 72,000 219,883 (2,224) 1,678 – 5,601 1,879 (12,900) – – (1,788) 83 87 (106,096) 367,416 (101,038) (300,000) 393,061 14,045 (159,860) (1,396) (4,083) – – 13,479 (161,516) (631,965) (5,771) (186,664) – 10,493 (141,466) (350,656) (5,107) (58,233) (785,773) (673,400) 25,914 102,933 22,628 80,305 10,411 69,894 $ 128,847 $ 102,933 $ 80,305 During the year ended December 31, 2023, Popular, Inc. (parent company only) received dividend distributions from PNA amounting to $50.0 million (2022 - $53.5 million; 2021 - $0 million) and from PIBI’s amounting to $14.0 million (2022 - $18.5 million; 2021 - $0 million). PIBI’s main source of income is its investment in BHD. Also, during the year ended December 31, 2022, Popular, Inc. received distributions from its direct equity method investees amounting to $1.5 million (2021 - $3.0 million), of which $1.5 million were related to dividend distributions (2021 - $2.3 million). 174 POPULAR, INC. 2023 ANNUAL REPORT Notes payable include junior subordinated debentures issued by the Corporation that are associated to capital securities issued by the Popular Capital Trust II and medium- term notes. Refer to Note 18 for a description of significant provisions related to these junior subordinated debentures. The following table presents the aggregate amounts by contractual maturities of notes payable at December 31, 2023: Year 2024 2025 2026 2027 2028 Later years Total (In thousands) $ – – – – 393,937 104,148 $498,085 POPULAR, INC. 2023 ANNUAL REPORT 175 [THIS PAGE INTENTIONALLY LEFT BLANK]

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