UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 11-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-34084
POPULAR, INC. PUERTO RICO SAVINGS AND INVESTMENT PLAN
(Full title of the Plan and address of the Plan, if different from that of the issuer named below)
POPULAR, INC.
209 MUÑOZ RIVERA AVENUE
HATO REY, PUERTO RICO 00918
(Name of issuer of the securities held pursuant to the plan and the address of principal executive office)
Popular, Inc. Puerto Rico Savings and Investment Plan
Financial Statements and Supplemental Schedule
December 31, 2019 and 2018
Popular, Inc. Puerto Rico Savings and Investment Plan
Financial Statements and Supplemental Schedule
Note: | Other schedules required by Section 2520.103-10 of the Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (ERISA) have been omitted because they are not applicable or not required. |
Report of Independent Registered Public Accounting Firm
To the Administrator and Plan Participants of Popular, Inc. Puerto Rico Savings and Investment Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of Popular, Inc. Puerto Rico Savings and Investment Plan (the Plan) as of December 31, 2019 and 2018 and the related statement of changes in net assets available for benefits for the year ended December 31, 2019, including the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2019 and 2018, and the changes in net assets available for benefits for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plans management. Our responsibility is to express an opinion on the Plans financial statements 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 Plan 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 of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental Schedule H, Line 4i Schedule of Assets (Held at End of Year) as of December 31, 2019 has been subjected to audit procedures performed in conjunction with the audit of the Plans financial statements. The supplemental schedule is the responsibility of the Plans management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its
1
form and content, is presented in conformity with the Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ PricewaterhouseCoopers LLP |
San Juan, Puerto Rico |
June 26, 2020 |
We have served as the Plans auditor since 1999.
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. LLP-216 Expires Dec. 1, 2022
Stamp E411532 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
2
Popular, Inc. Puerto Rico Savings and Investment Plan
Statements of Net Assets Available for Benefits
December 31, 2019 and 2018
2019 | 2018 | |||||||
Assets |
||||||||
Investments, at fair value |
$ | 449,076,570 | $ | 349,555,125 | ||||
Receivables |
||||||||
Employer contributions |
12,653,033 | 11,682,759 | ||||||
Participant contributions |
312,308 | 1,058,014 | ||||||
Notes receivable from participants |
523,639 | 1,099,406 | ||||||
Dividends and interest |
421,756 | 405,182 | ||||||
Receivable for investments sold |
12,967 | 226,592 | ||||||
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Total receivables |
13,923,703 | 14,471,953 | ||||||
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Total assets |
$ | 463,000,273 | $ | 364,027,078 | ||||
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Liabilities |
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Accrued expenses |
$ | 136,950 | $ | 195,484 | ||||
Payable for investments purchased |
12,967 | 194,959 | ||||||
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Total liabilities |
$ | 149,917 | $ | 390,443 | ||||
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Net assets available for benefits |
$ | 462,850,356 | $ | 363,636,635 | ||||
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The accompanying notes are an integral part of these financial statements. |
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3
Popular, Inc. Puerto Rico Savings and Investment Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2019
Additions to assets available for benefits |
| |||
Investment income: |
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Net appreciation in fair value of investments |
$ | 56,891,906 | ||
Interest and dividends |
19,656,700 | |||
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Total investment income |
76,548,606 | |||
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Interest income on notes receivable from participants |
89,306 | |||
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Contributions |
||||
Employer |
24,301,041 | |||
Participants |
27,615,533 | |||
Rollovers from qualified plans |
1,534,323 | |||
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Total contributions |
53,450,897 | |||
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Total additions |
$ | 130,088,809 | ||
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Deductions from assets attributed to |
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Benefits and withdrawals paid to participants, including rollover distributions |
$ | 30,729,123 | ||
Administrative expenses |
145,965 | |||
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Total deductions |
$ | 30,875,088 | ||
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|
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Net increase in assets available for benefits |
$ | 99,213,721 | ||
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Net assets available for benefits |
||||
Beginning of year |
$ | 363,636,635 | ||
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End of year |
$ | 462,850,356 | ||
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The accompanying notes are an integral part of these financial statements.
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Popular, Inc. Puerto Rico Savings and Investment Plan
December 31, 2019 and 2018
1. Description of Plan
The following description of the Popular, Inc. Puerto Rico Savings and Investment Plan (the Plan) provides only general information. Participants should refer to the Plan Document for a more complete description of its provisions.
Plan Description
The Plan is sponsored by Popular, Inc. (the Corporation). The Plan is a defined contribution plan covering substantially all employees of the Corporation and its affiliates (the Companies), who have one month of service, are at least eighteen years old and are residents of the Commonwealth of Puerto Rico. The Plan was established for the purpose of providing retirement benefits to employees and to encourage and assist them in adopting a regular savings plan that qualifies under the applicable income tax laws of the Commonwealth of Puerto Rico. The Plan provides the participants the ability to invest in mutual funds, interest bearing deposits, and common stock of the Corporation. The Plan is subject to the provisions of Employee Retirement Income Security Act of 1974 (ERISA).
On August 1, 2018, the Corporation, through its auto finance subsidiary Popular Auto, LLC (Popular Auto), completed the acquisition of certain assets and the assumption of certain liabilities related to Reliable Financial Services, Inc. and Reliable Finance Holding Co. (Reliable), Wells Fargo & Companys (Wells Fargo) auto finance business in Puerto Rico. As part of the acquisition, the Corporation retained 352 former employees of Reliable. A number of these former Reliable employees became participants of the Plan during 2018.
Contributions
At December 31, 2019, Plan participants could authorize the Corporation to make pre-tax deductions ranging from 1% to 70% and after-tax deductions ranging from 1% to 10% of their monthly compensation, as defined under the Plan Documents. The Corporation matches 50% of each dollar contributed up to 8% of the total cash compensation (maximum effective match of 4%). At no time may participants pre-tax contributions exceed the legal limit established by Section 1081.01 (d)(7)(A) of the Internal Revenue Code for the New Puerto Rico, Act No. 1 of January 31, 2011, as amended from time to time, (the 2011 PR Code), ($15,000 for 2013 and later). Employees are automatically enrolled in the Plan at a pre-tax contribution rate of 4% and may change their contribution rate at any time. Also, the Plan permits catch-up contributions that are before tax contributions made in excess of the deferral limit by a participant who has reached age 50, limited for the calendar years ended on December 31, 2019 and 2018 to $1,500.
On August 1, 2018, the Plan was amended to provide former employees of Reliable who became participants of the Plan full vesting in the value of their previous account. In addition, participants that had an outstanding loan with their former Reliable savings plan were allowed to request a new loan under the Plan to cover such outstanding balance.
The Plan also provides for an automatic increase in the participant contributions. The automatic contribution increase of 1% occurs each year until the participant reaches a contribution rate of 8%. Participants are given written notice of the automatic increase no less than 30 days or more than 90 days before the increase is to be effective. Participants, upon receipt of the notice of automatic increase, may elect to change their percentage of before-tax contributions to a different amount, including zero (0%), by the deadline established by the Plan Administrator to avoid the automatic increase. Matching contributions are invested pursuant to each participants investment directions.
In addition, the Corporation may make discretionary contributions to its own employees out of its net profits in such amounts as each subsidiarys Board of Directors may determine. At December 31, 2019 and 2018, the plan had $12,302,345 and $11,028,000, respectively, included as employer contributions receivable in the accompanying Statement of Net Assets Available for Benefits, related to discretionary contributions declared by the Corporations Board of Directors subsequent to the end of each respective fiscal year.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Also, the Plan provides for an additional employer contribution known as True-Up contribution to ensure participants receive the maximum matching benefit under the Plans contribution guidelines. On April 2020, the Corporation reviewed the matching contributions for the year 2019 and as a result made a True-Up contribution of $213,093, which is included as employer contributions receivable in the accompanying Statement of Changes in Net Assets Available for Benefits.
Refer to Note 8 Subsequent Events, for changes to the plan made in response to the COVID-19 pandemic and seismic events in Puerto Rico.
Participant Accounts
Each participant account is credited with its contribution and allocation of: (a) its own Corporation matching and profit-sharing contribution and (b) plan earnings. Allocations are based on participant earnings or account balances, as defined in the Plan Document. The benefit to which a participant is entitled is the benefit that can be provided from the participants vested account.
Eligibility and vesting
All employees are eligible to participate in the Plan on the first day of the month, following 30 days of service. Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Vesting in the Corporations matching and discretionary profit-sharing contributions plus actual earnings thereon is based on years of service since commencement of employment with the Corporation. These contributions and actual earnings thereon vest in accordance with the following schedule:
Years of Service |
Vesting % | |||
At least 1 |
20 | |||
At least 2 |
40 | |||
At least 3 |
60 | |||
At least 4 |
80 | |||
5 or more |
100 |
Payment of Benefits and Withdrawals
Plan participants are permitted to make withdrawals from the Plan from after-tax contributions balance, subject to provisions in the Plan Document as amended. If a participant suffers financial hardship, as defined in the Plan Document, the participant may request a withdrawal from his/her pre-tax contributions balance. Upon termination of service due to disability, retirement or other reasons, a participant may elect to receive either a lump sum distribution in cash, recurring benefit payments, shares of Popular, Inc.s common stock, if applicable, or a combination of elections. In the case of participant termination due to death, the entire vested amount is paid to the person or persons legally entitled thereto.
On June 28, 2019, the Plan was amended to allow for hardship withdrawals for the purchase of a participants main residence and not just the participants first residence, limited to a one-time event by the Plan participant.
Notes Receivable from Participants
The Plan does not allow participants to take loans from their accounts. However, during 2006 the Plan was amended to allow active participants to take a one-time loan from the Plan collateralized by their account balances for the payment of the 5% tax on their Savings Plan account balance and Banco Popular de Puerto Rico Retirement Plan accrued benefits as provided by Act 87 of May 13, 2006. After December 31, 2006, the Plan does not allow participants to take loans.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Also, as previously disclosed, during 2018 the Plan was amended to provide former employees of Reliable the option to rollover their account into the Plan and to request a new loan to cover their outstanding balances of their existing loans under their former savings plan.
Notes receivable from participants amounted to $523,639 and $1,099,406, at December 31, 2019 and 2018, respectively. Interest rates ranged from 5.00% to 7.00% at December 31, 2019 and 2018.
Plan Termination
Although it has not expressed any intent to do so, the Corporation has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, the interest of each participant in the Plan shall be fully vested and such termination shall not reduce the interest of any participating employee or their beneficiaries accrued under the Plan up to the date of such termination.
Plan Expenses and Administration
The Plan is administered by the Popular, Inc. Benefits Committee which, in turn, may delegate certain administrative functions to other committees and/or officers of the Corporation. The named fiduciary of the Plan for purposes of investment-related matters is the Popular, Inc. Corporate Investment Committee.
The Plans Recordkeeper and Trustee is Banco Popular de Puerto Rico. Unless otherwise paid by the Corporation, expenses of the Plan are borne by the Plan.
Forfeited Accounts
Forfeited balances of terminated participants non-vested accounts may first be used to pay administrative expenses, to reduce the earliest employer contributions made after the forfeitures are determined, or at the Corporations discretion, may be redistributed among participants after a five (5) year severance period. During the severance period, if the terminated participant is re-employed by the Corporation, the dollar value at the date of re-employment shall be restored to the participants account if the re-employed participant repays to the Plan an amount equal to the dollar value of his/her vested balance distributed upon termination.
During 2019, the Plan used forfeitures of $189,049 to pay administrative expenses, which included some expenses accrued in prior years. During 2019, the plan used $182,737 to reduce the additional True-Up contribution to be paid by the employer corresponding to the year ended December 31, 2018. Forfeited non-vested accounts amounted to $97,700 and $291,656 at December 31, 2019 and 2018, respectively.
Non-Participant Directed Investments
At December 31, 2019, there were no non-participant directed investments in the Plan.
2. Summary of Significant Accounting Policies
The significant accounting policies followed by the Plan in the preparation of the financial statements are summarized below:
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Plan investments are presented at fair value. Shares of registered investment companies are presented at published market prices which represent the net asset value of shares held by the Plan at the reporting date. Popular, Inc. common stock is presented at the quoted closing market price at the reporting date. The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. Purchases and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date and interest is recorded under the accrual basis and credited to each participants account, as defined by the Plan Document. Realized gains and losses from security transactions are reported on the average cost basis.
The Plan determines the fair values of its investments based on the fair value framework established in the Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC) Subtopic 820-10, Fair Value Measurements, 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 under ASC Subtopic 820-10 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. Refer to Note 3 to these financial statements for the ASC Subtopic 820-10 disclosures required as of December 31, 2019 and 2018.
Interest Bearing Deposits
Interest Bearing Deposits consist of all demand deposits and balances invested in short-term highly liquid investments available upon demand. Interest Bearing Deposits include revenue sharing dollars accumulated over the past years that the Corporation will use to allocate pro-rata among Plans participants on the last day of the Plan Year based on their year end funds account balance. Revenue sharing dollars during the years ended December 31, 2019 and 2018 were $214,447 and $97,758, respectively.
Contributions
Employee and employer matching contributions are recorded on an accrual basis in the period in which the payroll is earned.
Discretionary contributions are recorded in the period in which they are earned by the participant as determined by the Corporations Board of Directors.
Rollovers Distributions
Terminated employees or retirees may elect to transfer their savings to other plans qualified by the Puerto Rico Department of the Treasury, and are recorded when paid.
Rollovers Contributions
Rollovers Contributions to the Plan consist of monies received by a Participant from another plan qualified under the 2011 PR Code, and are recorded when received.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Notes receivable from participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Principal and interest is paid ratably through bi-weekly payroll deductions. Principal portion of the loan payments are considered as investment transfers which do not impact the Statement of Changes in Net Assets Available for Benefits. Notes receivable from participants in default are recorded as a distribution based upon the terms of the plan document when they are deemed uncollectible.
Payment of Benefits
Benefits are recorded when paid.
Refundable Contributions
On an annual basis, the plan completes a non-discrimination test pursuant to IRS regulations. Excess contributions determined as a result of this test, if any, are netted against the participant contributions in the Statement of Changes in Net Assets Available for Benefits. For the years ended December 31, 2019 and 2018, the plan passed the non-discrimination test.
3. Fair Value Measurement
The Plan measures fair value as required by ASC Subtopic 820-10, Fair Value Measurements and Disclosures which provides a framework for measuring fair value under accounting principles generally accepted in the United States. Under ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs and valuation techniques used to measure fair value into three levels in order to increase consistency and comparability in fair value measurements and disclosures. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for the fair value measurement are observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect the Plans estimates about assumptions that market participants would use in pricing the asset or liability based on the best information available. The 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 that the Plan 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 Plans own assumptions about assumptions that market participants would use in pricing the asset or liability.
Following is a description of the Plans valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019 and 2018.
Mutual Funds: Valued at the daily closing NAV price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily NAV and to transact at that price. These securities are classified as Level 2. Investments in mutual funds generally may be redeemed daily.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Interest Bearing Deposits: The carrying amount of interest bearing deposits are reasonable estimates of the fair value due to its short term maturity. These interest bearing deposits are available upon demand, hence, classified as Level 1.
Popular, Inc. Common Stock: Equity securities with quoted market prices obtained from an active exchange market are classified as Level 1.
The preceding 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 tables set forth by level, within the fair value hierarchy, the Plans net assets at fair value as of December 31, 2019 and 2018.
Assets at Fair Value as of December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds |
$ | | $ | 337,809,228 | $ | | $ | 337,809,228 | ||||||||
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Interest Bearing Deposits |
39,626,094 | | | 39,626,094 | ||||||||||||
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Popular, Inc. Common Stock |
71,641,248 | | | 71,641,248 | ||||||||||||
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Total assets at fair value |
$ | 111,267,342 | $ | 337,809,228 | $ | | $ | 449,076,570 | ||||||||
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Assets at Fair Value as of December 31, 2018 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mutual Funds |
$ | | $ | 249,988,158 | $ | | $ | 249,988,158 | ||||||||
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Interest Bearing Deposits |
36,843,614 | | | 36,843,614 | ||||||||||||
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|
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Popular, Inc. Common Stock |
62,723,353 | | | 62,723,353 | ||||||||||||
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Total assets at fair value |
$ | 99,566,967 | $ | 249,988,158 | $ | | $ | 349,555,125 | ||||||||
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4. Tax Status
The Plan received a favorable determination letter from the Puerto Rico Treasury Department (the PR Treasury) dated August 26, 2016 as updated by letters from PR Treasury dated February 15, 2019 and September 20, 2019, indicating it meets the requirements of Section 1081.01 of the 2011 Puerto Rico Internal Revenue Code (2011 PR Code) and accordingly, the Trust associated with the Plan is exempt from Puerto Rico income tax under such section.
No events have occurred with respect to the Plan or the associated Trust that, in substantial likelihood, would result in the Plan being disqualified by the PR Treasury. Pursuant to Section 1022(i)(1) of ERISA, the Plans Trust is considered as an organization described in Section 401(a) of the U.S. Internal Revenue Code of 1986, as amended (the U.S. Code) and exempt under Section 501(a) of the U.S. Code.
10
Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by federal, state and/or local taxing authorities. The plan administrator believes there are no tax positions and has concluded that as of December 31, 2019 and 2018 there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions. At December 31, 2019, the years 2015 and thereafter remain subject to examination; however, there are currently no audits for any tax periods in progress.
5. Risks and Uncertainties
The Plans investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the values of investments, it is at least reasonably possible that changes in these factors in the near term could materially affect participants account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits. Individual participants accounts bear the risk of loss resulting from fluctuations in investment values.
6. Related Party Transactions
At December 31, 2019 and 2018, the Plan held 1,219,426 and 1,328,322 common stock shares of Popular, Inc., with a quoted market value of $71,641,248 and $62,723,353 respectively. During the year ended December 31, 2019, the Plan purchased or acquired through rollovers 115,464 common shares of Popular, Inc., with an acquisition price of $6,046,184 and completed sales and distributions of 224,360 shares which had a carrying value of $8,881,703, resulting in a realized gain of $2,768,207. These transactions are permitted party-in-interest transactions under provisions of ERISA and the regulations promulgated thereunder.
The accompanying Statements of Net Assets Available for Benefits, includes accrued dividend income of $364,424 and $330,241, related to the dividends declared on Popular Inc.s common stock during the fourth quarter of 2019 and 2018, which were paid in January 2020 and 2019, respectively.
As of December 31, 2019 and 2018, the Plan held a bank deposit open account with Banco Popular de Puerto Rico of $39,541,548 and $36,647,749, respectively. As of December 31, 2019 and 2018, the Plan held a time deposit open account with Banco Popular de Puerto Rico of $84,546 and $195,865, respectively. These transactions qualify as party-in-interest transactions permitted under provisions of ERISA.
At December 31, 2019 and 2018, notes receivable from participants amounted to $523,639 and $1,099,406, respectively. For the year ended December 31, 2019 and 2018 interest income related to notes receivable from participants amounted to $89,306 and $16,499, respectively. These transactions qualify as party-in-interest transactions permitted under provisions of ERISA.
Banco Popular de Puerto Rico provides services as Trustee and Recordkeeper for the Plan, which for the year ended December 31, 2019 and 2018 amounted to $501,479 and $432,005, respectively, and were borne by the Plan sponsor.
11
Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
7. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2019 and 2018 to Form 5500:
2019 | 2018 | |||||||
Net assets available for benefits per the financial statements |
$ | 462,850,356 | $ | 363,636,635 | ||||
Less: Amounts allocated to withdrawing participants |
(83,893 | ) | (38,739 | ) | ||||
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Net assets available for benefits per the Form 5500 |
$ | 462,766,463 | $ | 363,597,896 | ||||
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The following is a reconciliation of benefits paid to participants per the financial statements for the period ended December 31, 2019 to Form 5500:
Benefits paid to participants per the financial statements |
$ | 30,729,123 | ||
Add: Amounts allocated to withdrawing participants at December 31, 2019 |
83,893 | |||
Less: Amounts allocated to withdrawing participants at December 31, 2018 |
(38,739 | ) | ||
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|
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Benefits paid to participants per Form 5500 |
$ | 30,774,277 | ||
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8. Subsequent Events
The Plan has evaluated subsequent events through the date the financial statements were issued. Refer to Note 1- Description of Plan, for information related to additional employer contributions during 2020.
Seismic Activity
On January 7, 2020, Puerto Rico was struck by a magnitude 6.4 earthquake, which caused island-wide power outages and significant damage to infrastructure and property in the southwest region of the island. The damages caused by the earthquake and aftershocks were preliminarily estimated to be approximately $1 billion.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since spread globally to other countries and jurisdictions, including the mainland United States and Puerto Rico. In March 2020, the World Health Organization declared COVID-19 to be a pandemic. The COVID-19 pandemic has significantly disrupted and negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets, significantly increased unemployment levels worldwide and decreased consumer confidence and commercial activity generally.
As a result of the COVID-19 pandemic, economic uncertainties have arisen which have resulted in significant volatility in the investment markets and have affected, and may continue to affect, the market price of the Popular Inc, common stock and other Plan assets, which could in turn affect participants account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits. The duration of the COVID-19 pandemic and these current economic uncertainties, as well as the ultimate economic and financial impact of these circumstances in the Corporation and the Plan, are highly uncertain and cannot be reasonably estimated at this time.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Notes to Financial Statements
December 31, 2019 and 2018
Changes to the plan in response to subsequent events
The Department of the Treasury issued the Internal Revenue Circular Letter No. 20-09 of February 19, 2020 and the Internal Revenue Circular Letter No. 20-23 of March 29, 2020 (the Circular Letters), which establish the rules applicable to distributions of retirement plans and individual retirement accounts (IRAs) related to the earthquakes that occurred in Puerto Rico in January 2020 and to the COVID-19 pandemic (the Disasters), respectively. Pursuant to this relief measure, participants are allowed to withdraw 25% of their vested balance up to $100,000, of which the first $10,000 would be tax exempt and the remaining subject to a 10% tax rate if the request for the distribution is made on or before June 1st, 2020. The Plan adopted the provisions of this relief measure, allowing participants to make withdrawals that complied with the specified terms and conditions of the relief, at the preferential tax rates.
In addition, on May 12, 2020, the Plan was amended in response to the changes in the economic outlook resulting from the COVID-19 pandemic in order to modify the matching contribution feature of the Plan. In accordance with the amendment, the Corporation will match 50% of each dollar that the participant contributes on a pre-tax basis, up to 6% (previously up to 8%) of the total cash compensation per payroll. As a result, the Corporations maximum effective matching contribution will be 3% of the total cash compensation. Also, effective July 20, 2020, the automatic annual increase of 1% in participants pre-tax contribution was modified to a maximum of 6% (previously up to 8%). Participants may modify the automatic annual increase of the pre-tax contribution up to the maximum permitted amount.
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Popular, Inc. Puerto Rico Savings and Investment Plan
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2019
Supplemental Schedule
(a) |
(b) Identity of Issue, Borrower, Lessor, or Similar Party |
(c) Description of Investment |
(d) Cost |
(e) Current Value |
||||||||
Amcap Fund-R6 |
Mutual Fund 554,000 shares |
** | $ | 18,835,996 | ||||||||
American Balanced Fd-R6 |
Mutual Fund 1,638,064 shares |
** | 46,701,215 | |||||||||
Franklin U.S. Government Securities |
Mutual Fund 596,742 shares |
** | 3,616,257 | |||||||||
Goldman Sachs S/C Value |
Mutual Fund 119,288 shares |
** | 6,525,043 | |||||||||
JP Morgan Mid Cap Value Fund |
Mutual Fund 432,119 shares |
** | 17,133,510 | |||||||||
Legg Mason Bw Global Op Bd-Is |
Mutual Fund 92,123 shares |
** | 980,188 | |||||||||
Metropolitan West Tot Ret Bond Inst |
Mutual Fund 1,316,977 shares |
** | 14,394,562 | |||||||||
Mfs Value Fund-R6 |
Mutual Fund 424,011 shares |
** | 18,830,322 | |||||||||
Principal Lifetime Strategic Income |
Mutual Fund 428,628 shares |
** | 5,092,105 | |||||||||
Principal Lifetime 2010 Fund |
Mutual Fund 601,871 shares |
** | 7,685,886 | |||||||||
Principal Lifetime 2015 Selt |
Mutual Fund 1,807 shares |
** | 16,862 | |||||||||
Principal Lifetime 2020 Fund |
Mutual Fund 1,786,759 shares |
** | 24,299,919 | |||||||||
Principal Lifetime 2025 Inst |
Mutual Fund 22,969 shares |
** | 261,392 | |||||||||
Principal Lifetime 2030 Fund |
Mutual Fund 2,645,487 shares |
** | 38,333,102 | |||||||||
Principal Lifetime 2035 Selt |
Mutual Fund 44,472 shares |
** | 540,340 | |||||||||
Principal Lifetime 2040 Fund |
Mutual Fund 2,538,740 shares |
** | 39,096,595 | |||||||||
Principal Lifetime 2045 Intl |
Mutual Fund 81,196 shares |
** | 1,046,615 | |||||||||
Principal Lifetime 2055 Selt |
Mutual Fund 66,912 shares |
** | 932,082 | |||||||||
Principal Lifetime 2050 Fund |
Mutual Fund 2,016,806 shares |
** | 31,381,508 | |||||||||
Principal Lifetime 2060 Fund |
Mutual Fund 657,698 shares |
** | 9,655,003 | |||||||||
Principal Lifetime 2065 Inst |
Mutual Fund 3,227 shares |
** | 36,723 | |||||||||
Principal Diversified International Fund |
Mutual Fund 601,351 shares |
** | 7,745,396 | |||||||||
Vanguard Institutional Index Fund |
Mutual Fund 124,209 shares |
** | 36,051,643 | |||||||||
Vanguard Total Bond Market Index Fund |
Mutual Fund 142,909 shares |
** | 1,579,147 | |||||||||
Vanguard Extended Market Index Fund |
Mutual Fund 39,885 shares |
** | 3,813,421 | |||||||||
Vanguard Total International Stock Index Fund |
Mutual Fund 107,948 shares |
** | 3,224,396 | |||||||||
|
|
|||||||||||
Total Mutual Funds |
** | 337,809,228 | ||||||||||
|
|
|||||||||||
* |
BPPR Bank Deposit Open Account |
Open Deposit Account |
** | 39,541,548 | ||||||||
* |
BPPR Time Deposit Open Account |
Open Deposit Account |
** | 84,546 | ||||||||
|
|
|||||||||||
Total Interest Bearing Deposits |
39,626,094 | |||||||||||
|
|
|||||||||||
* |
Popular, Inc. |
Common Stock 1,219,426 shares |
** | 71,641,248 | ||||||||
|
|
|||||||||||
* |
Participant loans |
Participant loans with maturities ranging from 2021 to 2025 and interest rate ranging from 5.00% to 7.00% | ** | 523,639 | ||||||||
|
|
|||||||||||
$ | 449,600,209 | |||||||||||
|
|
* | Party in-interest |
** | Cost is not required to be presented for participant directed investments |
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Pursuant to the requirement of the Securities Exchange Act of 1934, the persons who administer the employee benefit plan have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
POPULAR, INC. PUERTO RICO SAVINGS & INVESTMENT PLAN | ||||||
(Registrant) | ||||||
Date: June 26, 2020 |
By: |
/s/ Eduardo J. Negrón | ||||
Eduardo J. Negrón Chairperson Popular, Inc. Benefits Committee (Plan Administrator) |
15
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-229711) of Popular, Inc. of our report dated June 26, 2020 relating to the financial statements and supplemental schedule of the Popular, Inc. Puerto Rico Savings and Investment Plan which appears in this Form 11-K.
/s/ PricewaterhouseCoopers LLP |
San Juan, Puerto Rico |
June 26, 2020 |