20 ANNUAL REPORT 17 INFORME ANUAL CONTENTS ÍNDICE Letter from the Executive Chairman .................................................................................. 1 Letter from the President & Chief Executive Officer ................................................. 2 25-Year Historical Financial Summary ..............................................................................6 Management & Board of Directors .....................................................................................8 Carta del Presidente Ejecutivo de la Junta de Directores ....................................... 9 Carta del Presidente y Principal Oficial Ejecutivo ..................................................... 10 Resumen Financiero Histórico (25 años) ....................................................................... 14 Gerencia y Junta de Directores ....................................................................................... 16 Popular, Inc. (NASDAQ:BPOP) is a Popular, Inc. (NASDAQ:BPOP) es un full-service financial provider based proveedor de servicios financieros con in Puerto Rico, with operations in sede en Puerto Rico y operaciones en Puerto Rico, the Virgin Islands and the Puerto Rico, Islas Vírgenes y Estados United States. In Puerto Rico, Popular Unidos. En Puerto Rico es la institución is the leading banking institution, by bancaria líder, tanto en activos como both assets and deposits, and ranks en depósitos, y se encuentra entre los among the largest 50 banks in the 50 bancos más grandes de los Estados United States by assets. Unidos por total de activos. CORPORATE INFORMATION INFORMACIÓN CORPORATIVA Independent Registered Public Firma registrada de Contabilidad Accounting Firm: Pública Independiente: PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP The company’s Form 10-K, proxy El Formulario 10-K, el proxy y statement and any other financial otra información financiera están information is available on disponibles en popular.com/en/ popular.com/ investor-relations/annual-reports/ accionistas/informe-anual/ ANNUAL MEETING REUNIÓN ANUAL The 2018 Annual Stockholders’ La Reunión Anual de Accionistas 2018 Meeting of Popular, Inc. will be held de Popular, Inc., se llevará a cabo el on Tuesday, May 8, at 9:00 a.m. at martes 8 de mayo, a las 9:00 a.m. the penthouse of the Popular Center en el piso PH de Popular Center, Building, San Juan, Puerto Rico. San Juan, Puerto Rico. After 26 years as Popular’s CEO, in July of 2017 I assumed the position of Executive Chairman and was proud to see my colleague and friend, Ignacio Alvarez, named as the new CEO by the Board of Directors. Serving as the CEO for over two decades has undoubtedly been one of the most While I have officially rewarding experiences of my life. It is immensely gratifying to see an organization been a part of Popular that is not only financially strong, but that remains committed to fulfilling the for 41 years, Popular has needs of our customers, caring for our employees and taking an active role in the been, and will be, a part communities we serve. The values that have guided us since our beginnings 125 years ago are stronger than ever today, and it fills me with pride that Popular is, of me for my entire life. particularly in Puerto Rico, a symbol of excellence and progress. I am grateful to all my colleagues for being a constant source of inspiration, to our clients for their trust and to you, fellow shareholders, for your support throughout all of these years. With Popular on a solid position, the time was right for both Ignacio and me to assume our new roles. Since he joined Popular in 2010 as General Counsel, and more recently as President and COO, Ignacio demonstrated he has the experience, the skills and the vision to lead this organization. It is a privilege for me to continue serving Popular from a different position and it is exciting to collaborate with Ignacio and his team as they take Popular into the future. The vision and the strategy are clear, and the energy is evident. While I have officially been a part of Popular for 41 years, Popular has been, and will be, a part of me for my entire life. From a special vantage point, I have witnessed this organization thrive during good times and persevere and strengthen in challenging ones. The response of all our colleagues in the aftermath of the 2017 hurricanes is the most recent example of the spirit that makes Popular a successful and unique organization. I am confident that Popular’s best days lie ahead. Sincerely, RICHARD L. CARRIÓN Executive Chairman Popular, Inc. 2017 ANNUAL REPORT | 1 POPULAR, INC. YEAR IN REVIEW Dear Shareholders: It is an honor to provide my first annual compared to $358 million in the approximately $1.5 billion in retail auto shareholder update as Popular’s CEO, a previous year. The adjusted results for loans and $340 million in commercial position that I was privileged to assume 2017 were adversely affected by the loans. We anticipate the transaction in July of 2017. impact of the hurricanes on provision, to close during the second quarter of revenues and expenses, which totaled 2018 and be accretive to earnings. I am grateful and humbled by the $73 million, net of income tax, and a confidence the Board of Directors and $38 million loan loss provision expense, Despite concerns about Puerto Rico’s Richard have placed in me. Richard is in net of income tax, related to our taxi economic and fiscal situation, for the many ways the founder of the modern medallion portfolio in the U.S. acquired first nine months of 2017, the price of Popular, helping it evolve during his in 2015 as part of the Doral transaction. Popular’s shares roughly correlated tenure as CEO from a much smaller bank to the movement of the U.S. KBW in Puerto Rico to a diversified financial Credit quality remained stable during Regional Bank Index, albeit with a services institution that currently ranks 2017. In Puerto Rico, our credit metrics higher volatility. However, the price of among the top 50 in the United States. for the first eight months of the year our share was severely affected by the were stable despite a weak economy. impact of Hurricane Maria, closing the As everyone knows, 2017 was an eventful Year-end results include the effect year at $35.49, 19% lower than 2016 year for Popular and for Puerto Rico. of the loan payment moratorium and below our U.S. Peers and the KBW Barely three months after I became CEO, granted to consumer and commercial Regional Bank Index. Nevertheless, this two major hurricanes, Irma and Maria, borrowers after the hurricanes, which performance compared favorably to struck the Virgin Islands and Puerto Rico paused inflows into delinquent status. other Puerto Rican banks. I am happy in the span of two weeks, leaving a trail In our U.S. operation, excluding the to report that our share price has of destruction in their wake. Throughout impact of the taxi medallion portfolio, increased 21% through the first eight this difficult period, we demonstrated the asset quality remained strong. weeks of 2018. power and resilience of our organization by continuing to serve our clients in an During the first quarter of 2017, we incredibly challenging environment. executed a series of actions that reflect We mobilized to restore the strength of our capital position. operations, support In 2017, we achieved net income of $108 We increased the quarterly common million, compared with $217 million in stock dividend from $0.15 per share our colleagues in need 2016. Our 2017 results include a $168 to $0.25 per share and completed the and assist the most million expense related to the impact of repurchase of $75 million in common affected communities. the U.S. tax reform on the deferred tax stock. Our capital base remains strong, asset (DTA) of our U.S. operation. Net closing the year with a Common Equity The hurricanes devastated critical income in 2016 included, among other Tier 1 ratio of 16.3%. infrastructure, leaving the entire significant items, the effects of two population without access to electricity, adverse arbitration awards related to In February 2018, we announced an water and telecommunications in claims made by us under the commercial agreement to acquire and assume from its aftermath. Further complicating loss-share agreement with the FDIC, as Reliable Financial Services, Inc. and matters, the severe damage to roads receiver for Westernbank, which resulted Reliable Finance Holding Company, and the scarcity of fuel delayed initial in an expense of $131 million, net of tax. both subsidiaries of Wells Fargo & Company, certain assets and liabilities recovery efforts and hindered the After adjusting for the impact of related to Wells Fargo’s auto finance supply of basic necessities such as these items, among others, adjusted business in Puerto Rico. As part of food, medicines and drinking water. net income for 2017 was $276 million, the transaction, Popular will acquire Against this backdrop, as soon as 2 | POPULAR, INC. it was safe, we mobilized to restore the payout of the annual statutory operations, support our colleagues Christmas bonus to employees in in need and assist the most affected Puerto Rico and the U.S. and British communities. Virgin Islands. In Puerto Rico, cash became in many We also mobilized quickly to help cases the only viable payment method severely impacted communities by due to the impact that the lack of launching the Embracing Puerto Rico electricity and telecommunications fund, which today has commitments In Puerto Rico, our had on the point-of-sale (POS) and of more than $6 million, including our deposit balances automatic teller machines (ATMs) initial contribution of $1 million. We are increased by $4.3B networks. To help stabilize the situation, grateful for the generous donations of and our customer we provided access to cash and other many business partners and friends base by 31K. essential banking services through our that enabled us to deliver immediate ATM and branch network as quickly relief to the areas most affected by the as possible.