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Employee benefits | 12 Months Ended
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Dec. 31, 2024
Employee benefits |
Pension and postretirement benefits | Note 29 – 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, 2024 and 2023 and the approved asset allocation ranges, by asset category, are summarized in the table below. Minimum allotment Maximum allotment 2024 2023 Equity 0 % 70 % 10 % 22 % Debt securities 0 % 100 % 85 % 74 % Popular related securities 0 % 5 % 1 % 2 % Cash and cash equivalents 0 % 100 % 4 % 2 % The following table sets forth by level, within the fair value hierarchy, the Pension Plans’ assets at fair value at December 31, 2024 and 2023. 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. 2024 2023 (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 $ - $ 6,956 $ - $ 125,476 $ 132,432 $ - $ 3,711 $ - $ 154,459 $ 158,170 Corporate bonds and debentures - 364,900 - 10,734 375,634 - 295,141 - 7,042 302,183 Equity securities - Common Stock 3,821 - - - 3,821 34,334 - - - 34,334 Equity securities - ETF's 32,372 6,503 - - 38,875 42,798 17,173 - - 59,971 Foreign commingled trust funds - - - 20,097 20,097 - - - 51,392 51,392 Mutual fund - 9,833 - - 9,833 - 1,610 - 22,642 24,252 Mortgage-backed securities - 14,160 - - 14,160 - 9,289 - - 9,289 Cash and cash equivalents 17,034 - - - 17,034 8,908 - - - 8,908 Accrued investment income - - 5,289 - 5,289 - - 3,927 - 3,927 Total assets $ 53,227 $ 402,352 $ 5,289 $ 156,307 $ 617,175 $ 86,040 $ 326,924 $ 3,927 $ 235,535 $ 652,426 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 that are valued using the NAV per share practical expedient, were not categorized within the fair value hierarchy and were presented separately. The Fund's investments are in an international equity portfolio and in an emerging markets equity fund. ● Mutual funds – Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission (SEC) and are required to publish their daily NAV. Since these funds have liquid markets with trading activity of these or similar securities they are considered 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) 2024 2023 Balance at beginning of year $ 3,927 $ 3,581 Purchases, sales, issuance and settlements (net) 1,362 346 Balance at end of year $ 5,289 $ 3,927 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, 2024 and 2023. There were no transfers in and/or out of Level 1 and Level 2 during the years ended December 31, 2024 and 2023. 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) 2024 2023 Shares of Popular, Inc. common stock 40,619 178,611 Fair value of shares of Popular, Inc. common stock $ 3,821 $ 14,659 Dividends paid on shares of Popular, Inc. common stock held by the plan $ 360 $ 384 The following table presents the components of net periodic benefit cost for the years ended December 31, 2024, 2023 and 2022. Pension Plans OPEB Plan (In thousands) 2024 2023 2022 2024 2023 2022 (in thousands) Service cost $ - $ - $ - $ 127 $ 191 $ 485 Other operating expenses: Interest cost 30,234 31,548 19,199 5,686 6,082 3,931 Expected return on plan assets (34,376) (34,365) (35,388) - - - Recognized net actuarial loss 16,664 21,465 15,644 (2,193) (2,212) - Net periodic cost (benefit) $ 12,522 $ 18,648 $ (545) $ 3,620 $ 4,061 $ 4,416 Other Adjustments - - - - - 60 Total cost (benefit) $ 12,522 $ 18,648 $ (545) $ 3,620 $ 4,061 $ 4,476 The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements at December 31, 2024 and 2023. Pension Plans OPEB Plan (In thousands) 2024 2023 2024 2023 Change in benefit obligation: Benefit obligation at beginning of year $ 635,794 $ 628,175 $ 117,045 $ 118,336 Service cost - - 127 191 Interest cost 30,234 31,548 5,686 6,082 Actuarial (gain)/loss [1] (31,747) 16,861 (16,787) (1,180) Benefits paid (44,523) (40,790) (6,899) (6,384) Benefit obligation at end of year $ 589,758 $ 635,794 $ 99,172 $ 117,045 Change in fair value of plan assets: Fair value of plan assets at beginning of year $ 652,426 $ 619,885 $ - $ - Actual return on plan assets 9,042 73,101 - - Employer contributions 230 230 6,899 6,384 Benefits paid (44,523) (40,790) (6,899) (6,384) Fair value of plan assets at end of year $ 617,175 $ 652,426 $ - $ - Funded status of the plan: Benefit obligation at end of year $ (589,758) $ (635,794) $ (99,172) $ (117,045) Fair value of plan assets at end of year 617,175 652,426 - - Funded status at year end $ 27,417 $ 16,632 $ (99,172) $ (117,045) Amounts recognized in accumulated other comprehensive loss: Net loss/(gain) 177,017 200,094 (40,048) (25,454) Accumulated other comprehensive loss (AOCL) $ 177,017 $ 200,094 $ (40,048) $ (25,454) Reconciliation of net (liabilities) assets: Net liabilities at beginning of year $ 16,632 $ (8,290) $ (117,045) $ (118,336) Amount recognized in AOCL at beginning of year, pre-tax 200,094 243,434 (25,454) (26,486) Amount prepaid (liability) at beginning of year 216,726 235,144 (142,499) (144,822) Total benefit cost (12,522) (18,648) (3,620) (4,061) Contributions 230 230 6,899 6,384 Amount prepaid (liability) at end of year 204,434 216,726 (139,220) (142,499) Amount recognized in AOCL (177,017) (200,094) 40,048 25,454 Net asset/(liabilities) at end of year $ 27,417 $ 16,632 $ (99,172) $ (117,045) [1] For 2024, the significant component of the Pension Plans actuarial gain were mainly related to an decrease in the obligation due to an increase in the single weighted-average discount rates and a change to certain demographic assumptions partially offset by a lower return on the fair value of plan assets. 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, a change to certain demographic assumptions, a favorable demographic experience from larger than expected reductions and an increase in discount rates. For 2023, the significant component of the Pension Plans actuarial loss 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. The following table presents the change in accumulated other comprehensive loss (“AOCL”), pre-tax, for the years ended December 31, 2024 and 2023. (In thousands) Pension Plans OPEB Plan 2024 2023 2024 2023 Accumulated other comprehensive loss at beginning of year $ 200,094 $ 243,434 $ (25,454) $ (26,486) Increase (decrease) in AOCL: Recognized during the year: Amortization of actuarial losses (16,664) (21,465) 2,193 2,212 Occurring during the year: Net actuarial (gains)/losses (6,413) (21,875) (16,787) (1,180) Total (decrease) increase in AOCL (23,077) (43,340) (14,594) 1,032 Accumulated other comprehensive loss at end of year $ 177,017 $ 200,094 $ (40,048) $ (25,454) 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, 2024 and 2023. 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: 2024 2023 2022 2024 2023 2022 Discount rate for benefit obligation 5.02 - 5.05 % 5.34 - 5.37 % 2.79 - 2.83 % 5.10 % 5.42 % 2.94 % Discount rate for service cost N/A N/A N/A 5.37 % 5.66 % 3.21 % Discount rate for interest cost 4.95 - 4.96 % 5.23 - 5.24 % 2.3 0 - 2.33 % 4.99 % 5.28 % 2.51 % Expected return on plan assets 5.6 0 - 6.60 % 5.9 0 - 6.50 % 4.3 0 - 5.4 0 % N/A N/A N/A Initial health care cost trend rate N/A N/A N/A 7.25 % 7.50 % 4.75 % 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 2035 2023 Pension Plans OPEB Plan Weighted average assumptions used to determine benefit obligation at December 31: 2024 2023 2024 2023 Discount rate for benefit obligation 5.54 - 5.57 % 5.02 - 5.05 % 5.65 % 5.10 % Initial health care cost trend rate N/A N/A 7.00 % 7.25 % 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, 2024 and 2023. Pension Plans OPEB Plan (In thousands) 2024 2023 2024 2023 Projected benefit obligation $ 33,993 $ 35,965 $ 99,172 $ 117,045 Accumulated benefit obligation 33,993 36,965 99,172 117,045 Fair value of plan assets 28,177 29,193 - - 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, 2024 and 2023. Pension Plans OPEB Plan (In thousands) 2024 2023 2024 2023 Projected benefit obligation $ 555,765 $ 599,829 $ - $ - Accumulated benefit obligation 555,765 599,829 - - Fair value of plan assets 588,998 623,233 - - The Corporation expects to make the following contributions to the plans during the year ended December 31, 2025. (In thousands) 2025 Pension Plans $ 227 OPEB Plan $ 5,428 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 2025 $ 49,495 $ 5,428 2026 45,628 5,656 2027 45,603 5,878 2028 45,475 6,111 2029 45,207 6,311 2030 - 2034 218,548 33,950 The table below presents a breakdown of the plans’ assets and liabilities at December 31, 2024 and 2023. Pension Plans OPEB Plan (In thousands) 2024 2023 2024 2023 Non-current assets $ 33,233 $ 23,404 $ - $ - Current liabilities 222 222 5,304 5,595 Non-current liabilities 5,594 6,550 93,868 111,451 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, 2024 was $ 21.4 million (2023 - $ 20.3 million, 2022 - $ 18.7 million). The plans held 1,177,588 (2023 – 1,253,702 ) shares of common stock of the Corporation with a market value of approximately $ 110.8 million at December 31, 2024 (2023 - $ 102.9 million).

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