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Employee benefits | 12 Months Ended
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Dec. 31, 2023
Employee benefits |
Pension and postretirement benefits | 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. 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. The Corporation’s funding policy is 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 the pension plans’ investments and assets allocation. The Trustee and the money managers are allowed to exercise investment discretion, subject to limitations established by the pension plans’ investment policies. The plans forbid money managers to enter into derivative transactions, unless approved by the Trustee. 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. Minimum allotment Maximum allotment 2023 2022 Equity 0 % 70 % 22 % 27 % Debt securities 0 % 100 % 74 % 69 % Popular related securities 0 % 5 % 2 % 2 % Cash and cash equivalents 0 % 100 % 2 % 2 % 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. 2023 2022 (In thousands) Level 1 Level 2 Level 3 Measured at NAV Total Level 1 Level 2 Level 3 Measured at NAV Total Obligations of the U.S. Government, its agencies, states and political subdivisions $ - $ 3,711 $ - $ 154,459 $ 158,170 $ - $ 8,113 $ - $ 130,397 $ 138,510 Corporate bonds and debentures - 295,141 - 7,042 302,183 - 268,641 - 6,291 274,932 Equity securities - Common Stock 34,334 - - - 34,334 32,906 - - - 32,906 Equity securities - ETF's 42,798 17,173 - - 59,971 51,836 20,276 - - 72,112 Foreign commingled trust funds - - - 51,392 51,392 - - - 64,630 64,630 Mutual fund - 1,610 - 22,642 24,252 - 3,471 - 22,106 25,577 Mortgage-backed securities - 9,289 - - 9,289 - - - - - Cash and cash equivalents 8,908 - - - 8,908 7,637 - - - 7,637 Accrued investment income - - 3,927 - 3,927 - - 3,581 - 3,581 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 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 Board (“MSRB”) transaction reporting system or 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. ● 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 c orporate 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. ● Foreign commingled trust fund- Collective investment funds are valued at the NAV of shares held by the plan at year end. ● 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, the use 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 following table presents the change in Level 3 assets measured at fair value. (In thousands) 2023 2022 Balance at beginning of year $ 3,581 $ 4,566 Purchases, sales, issuance and settlements (net) 346 (985) Balance at end of year $ 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) 2023 2022 Shares of Popular, Inc. common stock 178,611 171,931 Fair value of shares of Popular, Inc. common stock $ 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. Pension Plans OPEB Plan (In thousands) 2023 2022 2021 2023 2022 2021 (in thousands) Service cost $ - $ - $ - $ 191 $ 485 $ 642 Other operating expenses: Interest cost 31,548 19,199 15,993 6,082 3,931 3,573 Expected return on plan assets (34,365) (35,388) (38,679) - - - Recognized net actuarial loss 21,465 15,644 18,876 (2,212) - 1,873 Net periodic cost (benefit) $ 18,648 $ (545) $ (3,810) $ 4,061 $ 4,416 $ 6,088 Other Adjustments - - - - 60 - Total cost (benefit) $ 18,648 $ (545) $ (3,810) $ 4,061 $ 4,476 $ 6,088 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. Pension Plans OPEB Plan (In thousands) 2023 2022 2023 2022 Change in benefit obligation: Benefit obligation at beginning of year $ 628,175 $ 851,471 $ 118,336 $ 159,958 Service cost - - 191 485 Interest cost 31,548 19,199 6,082 3,931 Actuarial (gain)/loss [1] 16,861 (194,473) (1,180) (39,479) Benefits paid (40,790) (48,022) (6,384) (6,619) Other adjustments - - - 60 Benefit obligation at end of year $ 635,794 $ 628,175 $ 117,045 $ 118,336 Change in fair value of plan assets: Fair value of plan assets at beginning of year $ 619,885 $ 860,484 $ - $ - Actual return on plan assets 73,101 (192,807) - - Employer contributions 230 230 6,384 6,619 Benefits paid (40,790) (48,022) (6,384) (6,619) Fair value of plan assets at end of year $ 652,426 $ 619,885 $ - $ - Funded status of the plan: Benefit obligation at end of year $ (635,794) $ (628,175) $ (117,045) $ (118,336) Fair value of plan assets at end of year 652,426 619,885 - - Funded status at year end $ 16,632 $ (8,290) $ (117,045) $ (118,336) Amounts recognized in accumulated other comprehensive loss: Net loss/(gain) 200,094 243,434 (25,454) (26,486) Accumulated other comprehensive loss (AOCL) $ 200,094 $ 243,434 $ (25,454) $ (26,486) Reconciliation of net (liabilities) assets: Net liabilities at beginning of year $ (8,290) $ 9,013 $ (118,336) $ (159,958) Amount recognized in AOCL at beginning of year, pre-tax 243,434 225,356 (26,486) 12,993 Amount prepaid (liability) at beginning of year 235,144 234,369 (144,822) (146,965) Total benefit cost (18,648) 545 (4,061) (4,476) Contributions 230 230 6,384 6,619 Amount prepaid (liability) at end of year 216,726 235,144 (142,499) (144,822) Amount recognized in AOCL (200,094) (243,434) 25,454 26,486 Net asset/(liabilities) at end of year $ 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. 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) Pension Plans OPEB Plan 2023 2022 2023 2022 Accumulated other comprehensive loss at beginning of year $ 243,434 $ 225,356 $ (26,486) $ 12,993 Increase (decrease) in AOCL: Recognized during the year: Amortization of actuarial losses (21,465) (15,644) 2,212 - Occurring during the year: Net actuarial (gains)/losses (21,875) 33,722 (1,180) (39,479) Total (decrease) increase in AOCL (43,340) 18,078 1,032 (39,479) Accumulated other comprehensive loss at end of year $ 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: Pension Plan OPEB Plan Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31: 2023 2022 2021 2023 2022 2021 Discount rate for benefit obligation 5.34 - 5.37 % 2.79 - 2.83 % 2.41 - 2.48 % 5.42 % 2.94 % 2.65 % Discount rate for service cost N/A N/A N/A 5.66 % 3.21 % 3.09 % Discount rate for interest cost 5.23 - 5.24 % 2.3 0 - 2.33 % 1.76 - 1.80 % 5.28 % 2.51 % 2.03 % Expected return on plan assets 5.9 0 - 6.50 % 4.3 0 - 5.40 % 4.6 0 - 5.5 0 % N/A N/A N/A Initial health care cost trend rate N/A N/A N/A 7.50 % 4.75 % 5.00 % Ultimate health care cost trend rate N/A N/A N/A 4.50 % 4.50 % 4.50 % Year that the ultimate trend rate is reached N/A N/A N/A 2035 2023 2023 Pension Plans OPEB Plan Weighted average assumptions used to determine benefit obligation at December 31: 2023 2022 2023 2022 Discount rate for benefit obligation 5.02 - 5.05 % 5.34 - 5.37 % 5.10 % 5.42 % Initial health care cost trend rate N/A N/A 7.25 % 7.50 % Ultimate health care cost trend rate N/A N/A 4.50 % 4.50 % Year that the ultimate trend rate is reached N/A N/A 2035 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. Pension Plans OPEB Plan (In thousands) 2023 2022 2023 2022 Projected benefit obligation $ 35,965 $ 628,175 $ 117,045 $ 118,336 Accumulated benefit obligation 36,965 628,175 117,045 118,336 Fair value of plan assets 29,193 619,885 - - 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. Pension Plans OPEB Plan (In thousands) 2023 2022 2023 2022 Projected benefit obligation $ 599,829 $ - $ - $ - Accumulated benefit obligation 599,829 - - - Fair value of plan assets 623,233 - - - The Corporation expects to pay the following contributions to the plans during the year ended December 31, 2024. (In thousands) 2024 Pension Plans $ 228 OPEB Plan $ 5,744 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 $ 49,072 $ 5,744 2025 45,790 6,003 2026 45,906 6,301 2027 45,907 6,582 2028 45,818 6,865 2029 - 2033 223,097 37,503 The table below presents a breakdown of the plans’ assets and liabilities at December 31, 2023 and 2022. Pension Plans OPEB Plan (In thousands) 2023 2022 2023 2022 Non-current assets $ 23,404 $ - $ - $ - Current liabilities 222 222 5,595 5,779 Non-current liabilities 6,550 8,068 111,451 112,557 Savings plans The Corporation also provides defined contribution savings plans pursuant to Section 1081.01(d) of the Puerto Rico 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).

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