DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT

PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934

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Popular, Inc.

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Table of Contents

LOGO


Table of Contents

 

            NOTICE OF ANNUAL MEETING OF

SHAREHOLDERS AND

PROXY STATEMENT

 

 

DATE AND TIME

Tuesday, May 8, 2018

9:00 a.m. (local time)

PLACE

Popular Center Building

PH Floor

209 Muñoz Rivera Avenue

San Juan, Puerto Rico

RECORD DATE

March 9, 2018

ITEMS OF BUSINESS

 

 

Elect four directors assigned to “Class 1” of the Board of Directors for a three-year term;

 

 

Authorize and approve an amendment to Article Seventh of our Restated Certificate of Incorporation to provide that directors shall be elected by a majority of the votes cast by shareholders at the annual meeting of shareholders, provided that in contested elections directors shall be elected by a plurality of votes cast;

 

 

Approve, on an advisory basis, our executive compensation;

 

  Ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2018;

 

 

Approve the adjournment or postponement of the meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the meeting to approve the proposed amendment to Article Seventh of our Restated Certificate of Incorporation; and

 

 

Consider such other business as may be properly brought before the meeting or any adjournments thereof.

In San Juan, Puerto Rico, on March 21, 2018.

By Order of the Board of Directors,

 

 

LOGO

 

 

Javier D. Ferrer

Executive Vice President, Chief Legal Officer and Secretary

HOW TO VOTE

 

LOGO   LOGO   LOGO   LOGO
Online   Phone   Mail  

In

Person

Only shareholders of record at the close of business on March 9, 2018 are entitled to notice of, and to vote at, the meeting. Each share of common stock is entitled to one vote.

We encourage you to attend the meeting. Your vote is important. Whether or not you plan to attend, please vote as soon as possible so that we may be assured of the presence of a quorum at the meeting.

You may vote online, in person, by telephone or, if you received a paper proxy card in the mail, by mailing the completed proxy card. The instructions on the Notice of Internet Availability of Proxy Materials or your proxy card describe how to use these convenient services.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 8, 2018:

This 2018 Proxy Statement and our Annual Report for the year ended December 31, 2017 are available free of charge at www.popular.com and www.proxyvote.com.

 

 

LOGO

209 Muñoz Rivera Avenue

San Juan, Puerto Rico 00918

 

 

 


Table of Contents

 

         TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY     1  
CORPORATE GOVERNANCE, DIRECTORS AND EXECUTIVE OFFICERS     7  

Corporate Governance

    7  

Key Corporate Governance Features

    7  

Board of Directors’ Independence

    8  

Board Leadership

    8  

Director Continuing Education

    9  

Board Meetings and Executive Sessions

    9  

Board Self-Assessment

    9  

Committees of the Board

    10  

Membership in Board Committees

    12  

Board Oversight of Risk Management

    12  

Nomination of Directors

    13  

Succession Planning

    15  

Code of Ethics

    15  

Communication with the Board

    15  

Where to Find More Information on Governance

    16  

Directors and Executive Officers

    17  

Nominees for Election as Directors and Other Directors

    17  

Executive Officers

    23  

Certain Relationships and Transactions

    26  
EXECUTIVE AND DIRECTOR COMPENSATION     31  

Compensation Discussion and Analysis

    31  

Executive Summary

    31  

Compensation Objectives and Components

    35  

2017 Compensation Program and Pay Decisions

    38  

Determination and Assessment of Executive Compensation

    46  

Other Aspects of Our Executive Compensation Program

    48  

Ensuring Prudent Risk Taking

    49  

Report of the Compensation Committee

    49  

2017 Executive Compensation Tables and Compensation Information

    50  

Summary Compensation Table

    50  

Grants of Plan-Based Awards

    52  

Outstanding Equity Awards at Fiscal Year End

    53  

Option Exercises and Stock Vested Table for 2017

    54  

Post-Termination Compensation

    54  

Compensation of Non-Employee Directors

    60  

Compensation of Directors

    60  

2017 Non-Employee Director Summary Compensation Table

    61  

Director Stock Ownership Requirements

    61  


Table of Contents
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT      62  

Principal Shareholders

     62  

Shares Beneficially Owned by Directors and Executive Officers of Popular

     63  

Section 16(A) Beneficial Ownership Reporting Compliance

     64  
PROPOSALS      65  

Proposal 1: Election of Directors

     65  

Proposal 2: Amendment to Article Seventh of Popular’s Restated Certificate of Incorporation to Amend the Voting Standard for the Election of Directors to Provide that Directors Shall be Elected by a Majority of the Votes Cast by Shareholders at the Annual Meeting of Shareholders, Except that in Contested Elections Directors Shall be Elected by a Plurality of the Votes Cast

     66  

Proposal 3: Advisory Vote to Approve Executive Compensation

     67  

Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm

     68  

Proposal 5: Adjournment or Postponement of Meeting

     69  
AUDIT COMMITTEE REPORT      70  
GENERAL INFORMATION ABOUT THE MEETING      71  

About the Meeting

     71  

Voting Procedure and Results

     72  

Proxy Materials

     73  

Shareholder Proposals

     75  
APPENDIX A—PROPOSED AMENDMENT TO ARTICLE SEVENTH OF THE RESTATED CERTIFICATE OF INCORPORATION      77  
APPENDIX B—POPULAR, INC., RECONCILIATION OF NON-GAAP MEASURES      78  


Table of Contents

 

 

      PROXY STATEMENT SUMMARY

 

This summary highlights information contained elsewhere in this Proxy Statement. You should read the entire Proxy Statement before voting.

Meeting Agenda and Voting Recommendations

 

PROPOSAL 1

Election of Directors

 

LOGO  

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE.

We are asking shareholders to elect four directors. Popular’s directors are elected for a term of three years by the affirmative vote of a majority of the shares represented at the annual meeting in person or by proxy and entitled to vote. The table below sets forth information with respect to our four nominees standing for election. All of the nominees are currently serving as directors. Additional information about the director candidates and their respective qualifications can be found on the “Nominees for Election as Directors and Other Directors” section of this Proxy Statement.

 

 

   

 

IGNACIO ALVAREZ

     

 

ALEJANDRO M. BALLESTER

     

 

RICHARD L. CARRIÓN

     

 

CARLOS A. UNANUE

 
   

Age 59

 

     

Age 51

 

     

Age 65

 

     

Age 54

 

 
   

President and CEO of Popular, Inc.

 

     

President of Ballester Hermanos, Inc.

 

     

Executive Chairman of Popular, Inc.

 

     

President of Goya de Puerto Rico

 

 
   

Director since July 2017

 

     

Director since 2010

 

      Director since 1991       Director since 2010  

 

PROPOSAL 2

Amendment to Restated Certificate of Incorporation

 

LOGO  

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION.

We are asking shareholders to approve an amendment to Article Seventh of Popular’s Restated Certificate of Incorporation to provide that directors shall be elected by a majority of the votes cast by shareholders at the annual meeting of shareholders, provided that if the number of nominees exceeds the number of directors to be elected, the director nominees shall be elected by a plurality of the votes cast. Additional information with respect to the proposed amendment can be found in “Proposal 2: Amendment to Article Seventh of Popular’s Restated Certificate of Incorporation to Amend the Voting Standard for the Election of Directors to Provide that Directors Shall be Elected by a Majority of the Votes Cast by Shareholders at the Annual Meeting of Shareholders, Except that in Contested Elections Directors Shall be Elected by a Plurality of the Votes Cast.” In addition, the text of the proposed amendment is set forth in Appendix A to this Proxy Statement.

 


 

2018 PROXY STATEMENT  |  1


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PROPOSAL 3

Advisory Vote to Approve Executive Compensation

 

LOGO

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.

We are asking shareholders to approve, on an advisory basis, the compensation of our named executive officers (“NEOs”) as described in the sections titled “Compensation Discussion and Analysis” and “2017 Executive Compensation Tables and Compensation Information.” We hold this advisory vote on an annual basis.

PROPOSAL 4

Ratification of Auditors

 

LOGO

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION.

We are asking shareholders to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2018. Information on fees paid to PricewaterhouseCoopers LLP during 2017 and 2016 appears on the “Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm” section of this Proxy Statement.

PROPOSAL 5

Adjournment or Postponement of the Meeting

 

LOGO

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ADJOURNMENT OR POSTPONEMENT OF THE MEETING IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO ADOPT PROPOSAL 2.

We are asking shareholders to approve the adjournment of the meeting, if necessary or appropriate, in order to allow for the solicitation of additional proxies in the event that there are not sufficient votes at the time of the meeting to adopt Proposal 2. This Proposal relates to the amendment to Article Seventh of the Corporation’s Restated Certificate of Incorporation to provide that directors shall be elected by a majority of the votes cast by shareholders at the annual meeting of shareholders, provided that if the number of nominees exceeds the number of directors to be elected, the director nominees shall be elected by a plurality of the votes cast.

For additional information about the meeting please refer to the “General Information About the Meeting” section of this Proxy Statement.

 


 

2  |  2018 PROXY STATEMENT


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2017 Financial Performance and Executive Compensation Highlights

 

2017 CORPORATE HIGHLIGHTS

During 2017, we demonstrated the continued strength of our franchise while operating in a challenging economic environment impacted by the unprecedented destruction and disruption caused by hurricanes Irma and Maria. Notwithstanding the hurricanes’ impact, we persevered to achieve year-over-year growth in our net interest income, stable credit indicators and strong capital levels. Despite the challenges posed by the Puerto Rico economy and the hurricanes that made landfall in 2017, our Puerto Rico business experienced growth in deposits, an increase in our customer base and strong net interest margins. In the United States, our total loan portfolio grew mainly driven by an increase in our commercial loan portfolio. During 2017, Popular’s capital level remained strong. Our quarterly common stock dividend increased from $0.15 to $0.25 per share, and a common stock repurchase program of $75 million was completed by the Corporation.

Popular also enhanced its employees’ physical, emotional and financial well-being through expanded services in our Health and Wellness Center and an increased retirement savings plan matching contribution. During 2017, Popular also implemented several initiatives to develop a robust pool of leadership talent and give our employees tools to improve efficiency and customer satisfaction.

True to Popular’s core value of social commitment, our Puerto Rico and U.S. foundations sourced and provided valuable financial and in-kind assistance to areas severely impacted by the hurricanes, including the distribution of water, food and medical supplies. We launched the “Embracing Puerto Rico” initiative, contributed to the “Unidos por Puerto Rico” fundraising campaign and co-sponsored the “Somos Una Voz” concert which raised funds for the benefit of earthquake victims in Mexico, and hurricane victims in Texas, Florida, Puerto Rico and the Caribbean.

2017 FINANCIAL HIGHLIGHTS

Our 2017 net income was $107.7 million, reflecting the adverse effect of the hurricanes and the U.S. Tax Cut and Jobs Act’s impact on the value of Popular’s U.S. deferred tax asset (“DTA”). To provide meaningful information about the underlying performance of our ongoing operations, the $168.4 million DTA write-down is added back to net income to express our results on an adjusted net income basis, which is a non-GAAP measure; on this basis, our adjusted net income was $276.0 million. In addition, as outlined in the “Compensation Discussion and Analysis” section of this Proxy Statement, the Board of Directors’ Compensation Committee (the “Committee”) decided to make further net income adjustments, directly attributable to the hurricanes’ impact that was beyond the Corporation’s control, for purposes of certain incentive awards; on this basis, our adjusted net income for incentives was $348.7 million. Refer to GAAP to non-GAAP reconciliation in Appendix B.

Popular (“BPOP”) shares closed 2017 at $35.49, 19% lower than 2016. This performance compared negatively against our U.S. peers, which increased by 6%, and the KBW Nasdaq Regional Banking Index (“KRX”), which remained relatively unchanged, but compared favorably to other Puerto Rico banks. Despite concerns about Puerto Rico’s economic and fiscal situation, including the Commonwealth’s May 3rd, 2017 bankruptcy filing under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), for the first nine months of 2017 the price of Popular’s shares correlated to the movement of the mainland KRX. However, following the impact of Hurricane Maria in September, Popular’s share price was severely affected, closing the year at levels below our U.S. peers and the KRX. During the first eight weeks of 2018, Popular’s share price increased by 21%, while the aggregate share price of the KRX, our U.S. peers and other Puerto Rico peer banks rose by 4%, 8% and 20%, respectively.

CEO TRANSITION

As part of a planned leadership transition, Mr. Carrión, after 26 years as Chief Executive Officer (“CEO”), was appointed Executive Chairman of the Board of Directors. Ignacio Alvarez, who had been President and Chief Operating Officer since 2014, was named President and CEO. Both changes were effective July 1, 2017. To ensure a seamless transition of our CEO role, Mr. Carrión collaborates closely with our new CEO on corporate strategy, with emphasis on mergers and acquisitions, innovation and technology, social responsibility initiatives and government and client relations.


 

2018 PROXY STATEMENT  |  3


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EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

Our executive compensation program is designed to motivate and reward performance, align executives with shareholder interests, promote building long-term shareholder value, attract and retain highly qualified executives and mitigate conduct that may promote excessive or unnecessary risk taking. Our program is premised upon:

PAY-FOR-PERFORMANCE

 

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Focus on variable, incentive-based pay (62%-74% of total target NEO pay is performance-based)

 

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Combination of short-term (cash) and long-term (equity) incentives

 

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Equity awards promote performance and retention of high-performing talent

 

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Total compensation opportunity targeted at median of our peer group

 

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No special retirement or severance programs

 

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Limited perquisites

STRONG GOVERNANCE

 

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Incentive risk mitigation through balanced compensation design and strong internal control framework

 

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No speculative transactions in Popular securities nor pledging of common stock (except for certain grandfathered loans)

 

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Clawback guideline

 

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Annual say-on-pay advisory vote

 

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Independent compensation consultant

 

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Compensation Governance Framework which includes internal guidelines covering compensation programs and incentive design

EXECUTIVE ALIGNMENT WITH LONG-TERM SHAREHOLDER VALUE

 

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Stock ownership requirements

 

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Extended equity vesting (including a portion at retirement)

 

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Double-trigger equity vesting upon change in control


 

4  |  2018 PROXY STATEMENT


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2017 COMPENSATION PROGRAM AND PAY DECISIONS

For 2017, the total compensation paid to or earned by our NEOs was as follows:

 

  Name and Principal Position

 

 

Salary

 

          

Bonus

 

          

Stock

Awards

 

          

Non-Equity
Incentive Plan
Compensation

 

          

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings

 

          

All Other
Compensation

 

          

Total

 

 

 

  Richard L. Carrión

  Executive Chairman since July 1, 2017

  (formerly Chief Executive Officer

  through June 30, 2017)

 

 

 

 

 

$1,300,000

 

 

 

 

         

 

 

 

 

$50,205

 

 

 

 

         

 

$

 

 

2,100,000

 

 

 

 

         

 

 

 

 

$1,016,133

 

 

 

 

         

 

 

 

 

            $170,591

 

 

 

 

         

 

 

 

 

$209,168

 

 

 

 

         

 

 

 

 

$4,846,097

 

 

 

 

 

  Ignacio Alvarez

  President and Chief Executive Officer

  since July 1, 2017 (formerly President

  and Chief Operating Officer through

  June 30, 2017)

 

 

 

 

 

807,500

 

 

 

 

         

 

 

 

 

37,535

 

 

 

 

         

 

 

 

 

1,145,670

 

 

 

 

         

 

 

 

 

831,387

 

 

 

 

         

 

 

 

 

 

 

 

 

         

 

 

 

 

40,846

 

 

 

 

         

 

 

 

 

2,862,938

 

 

 

 

 

  Carlos J. Vázquez

  Executive Vice President and

  Chief Financial Officer (“CFO”)

 

 

 

 

 

675,000

 

 

 

 

         

 

 

 

 

28,225

 

 

 

 

         

 

 

 

 

506,250

 

 

 

 

         

 

 

 

 

537,030

 

 

 

 

         

 

 

 

 

47,055

 

 

 

 

         

 

 

 

 

21,089

 

 

 

 

         

 

 

 

 

1,814,649

 

 

 

 

 

  Javier D. Ferrer

  Executive Vice President and

  Chief Legal Officer (“CLO”)

 

 

 

 

 

550,000

 

 

 

 

         

 

 

 

 

22,932

 

 

 

 

         

 

 

 

 

412,500

 

 

 

 

         

 

 

 

 

437,953

 

 

 

 

         

 

 

 

 

 

 

 

 

         

 

 

 

 

13,639

 

 

 

 

         

 

 

 

 

1,437,078

 

 

 

 

 

  Lidio V. Soriano

  Executive Vice President and

  Chief Risk Officer (“CRO”)

 

 

 

 

 

500,000

 

 

 

 

         

 

 

 

 

20,863

 

 

 

 

         

 

 

 

 

375,000

 

 

 

 

         

 

 

 

 

365,764

 

 

 

 

         

 

 

 

 

 

 

 

 

         

 

 

 

 

12,855

 

 

 

 

         

 

 

 

 

1,274,482

 

 

 

 

 

  Eli S. Sepúlveda

  Executive Vice President

  Commercial Credit Group

 

 

 

 

 

450,000

 

 

 

 

         

 

 

 

 

18,905

 

 

 

 

         

 

 

 

 

337,500

 

 

 

 

         

 

 

 

 

363,050

 

 

 

 

         

 

 

 

 

58,418

 

 

 

 

         

 

 

 

 

22,342

 

 

 

 

         

 

 

 

 

1,250,215

 

 

 

 

BASE SALARY

Further to our CEO transition plan, changes in base pay were approved for Messrs. Carrión and Alvarez effective July 1, 2017. Upon assuming the Executive Chairman role, Mr. Carrión’s base pay was adjusted to $1,200,000 (14% reduction). Mr. Alvarez’s base salary was increased to $900,000 (26% increase) due to his promotion to the position of President and CEO.

SHORT-TERM ANNUAL CASH INCENTIVE

The short-term annual cash incentive is awarded based on the achievement of corporate results, individual goals and leadership competencies. In 2017, it had a target of 93.1% of base pay for Mr. Carrión, 95.6% for Mr. Alvarez (both prorated for the period before and after the organizational changes) and 80% of base pay for the other NEOs. Actual payouts can range from zero to 1.5 times the target award. After considering all incentive components, the Compensation Committee granted annual cash incentive awards at 78.2% of base pay for Mr. Carrión, 103.0% for Mr. Alvarez, 79.6% for Mr. Vázquez, 79.6% for Mr. Ferrer, 73.2% for Mr. Soriano and 80.7% for Mr. Sepúlveda.

LONG-TERM EQUITY INCENTIVE

The annual equity grant rewards performance and aligns the interests of our NEOs with those of our shareholders. One half of the target award consists of performance shares, with actual earned shares determined at the end of a 3-year performance period based on total shareholder return and earnings per share metrics. The other half of this award consists of restricted stock granted based on corporate and individual performance, with a vesting period. At the time of grant, in February 2017, the target incentive opportunity was 160% of base pay for Mr. Carrión, 100% of base pay for Mr. Alvarez and 80% of base pay for the other NEOs. The actual long-term incentive awards range from zero to 1.5 times the target award. The 2017 long-term incentive awards were granted considering our performance in 2016, during which we strengthened credit quality and capital levels even though our $358.1 million adjusted net income was below our budgeted $401.4 million. Upon consideration of the corporate and individual performance factors, the Compensation Committee granted equity awards in 2017 of 150% of base pay for Mr. Carrión, 93.8% for Mr. Alvarez and 75% for the other NEOs.


 

2018 PROXY STATEMENT  |  5


Table of Contents

Our executive compensation programs are discussed in more detail in the “Compensation Discussion and Analysis” and “2017 Executive Compensation Tables and Compensation Information” sections of this Proxy Statement.

PAY MIX IN THE COMPENSATION PROGRAM

Our executive compensation program focuses on the achievement of annual and long-term goals that generate sustained company performance and strong returns to our shareholders. As illustrated in the following chart, a significant portion of total target compensation is at-risk, subject to company and individual performance: 63% of total target compensation for the Executive Chairman, 74% for the President & CEO and 62% for the other NEOs.

PAY MIX IN THE EXECUTIVE COMPENSATION PROGRAM

Each element, at target, as a % of base pay

 

 

LOGO


 

6  |  2018 PROXY STATEMENT


Table of Contents

 

         CORPORATE GOVERNANCE

DIRECTORS AND EXECUTIVE OFFICERS

Corporate Governance

 

Our Board of Directors believes that high standards of corporate governance are an essential component of strengthening our corporate culture and embedding our institutional values in our day-to-day business operations. The Board’s Corporate Governance and Nominating Committee recommends to the Board the adoption of corporate governance guidelines to protect and enhance shareholder value and to set forth the principles as to how the Board, its various committees, individual directors and management should perform their functions. The Corporate Governance and Nominating Committee considers developments in corporate governance and periodically recommends to the Board changes to our corporate governance principles.

 

 

KEY CORPORATE GOVERNANCE FEATURES

 

 

Director

Independence

 

 

Popular’s Corporate Governance Guidelines provide that at least two-thirds of the Board shall consist of independent directors. At present, all of our non-employee directors (eight of ten directors) are independent in accordance with the standards of The Nasdaq Stock Market (“NASDAQ”). Messrs. Carrión and Alvarez are our only employee directors and are not considered independent.

 

 

Majority Voting in

Director Elections

 

 

Directors are elected by the affirmative vote of a majority of the shares represented at the annual meeting. An incumbent director not elected by the affirmative vote of a majority of the shares represented at the annual meeting must tender his or her resignation to the Board, which may accept or reject the director’s resignation.

 

 

Independent Lead

Director

 

 

Currently, the Board has an Executive Chairman and a Lead Director. You can read about the respective roles and responsibilities of the Chairman and the Lead Director under “Board Leadership.”

 

 

Board Oversight of

Risk Management

 

 

 

Popular’s Board has a significant role in risk oversight. You can read about the role of the Board in risk oversight under “Board Oversight of Risk Management.”

 

 

Succession Planning

 

 

The Compensation Committee annually reviews a management succession plan, developed by the CEO, to ensure an orderly succession of the CEO and executive officers in both ordinary course and emergency situations.

 

 

Director Retirement

 

 

Popular’s Corporate Governance Guidelines provide that directors may serve on the Board until the end of their term following their 72nd birthday, and may not be initially elected or re-elected after reaching age 72.

 

 

Stock Ownership

 

 

Within three years of their election, directors must hold Popular stock with a value equal to five times the annual Board retainer. Within five years of designation, the Executive Chairman and the President and CEO must hold Popular stock with a value equal to six times base pay and other executive officers must hold three times their base pay. Stock that has been pledged to secure certain grandfathered loans does not count towards meeting ownership requirements.

 

 

Restrictions on

Pledging, Hedging and Speculative

Transactions

 

 

Popular’s directors and executive officers are prohibited from pledging Popular’s common stock as collateral for loans, except with respect to certain grandfathered loans that were outstanding on December 11, 2015 or their refinancings. Directors and executive officers are not allowed to engage in speculative transactions such as hedging and monetization transactions, using Popular’s securities.

 

 

Annual Board and Committee Self-Assessments

 

 

 

The Board and each committee conduct annual self-evaluations to determine whether they are functioning effectively.

 

Executive Sessions of Non-Management Directors

 

 

 

Popular’s independent directors hold executive sessions without Popular’s management after each regularly scheduled in-person Board meeting.

 

Limits on Board

Service

 

 

To ensure that Directors have sufficient time to devote to their responsibilities on Popular’s Board, Popular’s Corporate Governance Guidelines contain a policy about other directorships. Directors who also serve as CEOs of public companies should not serve on more than one public company board in addition to Popular’s Board, and other directors should not serve on more than four public company boards in addition to Popular’s Board. In addition, members of the Audit Committee may not serve on more than three public company audit committees, including Popular’s Audit Committee, without prior Board approval.

 

 

 

 

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BOARD OF DIRECTORS’ INDEPENDENCE

 

Popular’s Corporate Governance Guidelines provide that at least two-thirds of the Board shall consist of directors who the Board has determined have no material relationship with Popular and who are otherwise “independent” under the director independence standards of NASDAQ. The Board, with the assistance of the Corporate Governance and Nominating Committee, conducts an annual review of any relevant business relationships that each director may have with Popular and whether each director meets the independence standards of NASDAQ. The Board has determined that all of  its  directors and  nominees, except

for Messrs. Carrión and Alvarez, have no material relationship with Popular and meet the independence standards of NASDAQ.

As part of the process to determine Ms. Ferré’s independence, the Board considered payments made by Popular in the ordinary course of business to various entities related to Ms. Ferré in connection with advertising activities of Popular and its affiliates and determined that these business relationships are not material and did not impair the ability of Ms. Ferré to act independently.

 

 

BOARD LEADERSHIP

 

Each year, the Board evaluates whether Popular’s leadership structure is in the best interest of Popular. The Board does not have a policy on whether the Chairman and CEO positions should be separate or combined. Mr. Carrión served as Popular’s Chairman and CEO from 1994 to July 1, 2017, when the CEO and President positions were consolidated in Mr. Alvarez and Mr. Carrión assumed the position of Executive Chairman. In his role as Executive Chairman, Mr. Carrión continues to collaborate with Mr. Alvarez on corporate strategy, government and client relations and social responsibility initiatives. The Board  could  in the  future decide to  consolidate the Chairman  and CEO

positions if it determines that doing so would serve the best interests of the Corporation.

Popular’s Corporate Governance Guidelines require the designation of a Lead Director when the Chairman of the Board is not an independent director. The Lead Director is an independent director elected annually by a majority of the independent members of the Board. On February 23, 2018 Mr. Teuber was reappointed as the Lead Director. The Corporate Governance Guidelines provide that the Lead Director will have the responsibilities listed below.

 

 

Lead Director Responsibilities

 

 

Preside over all meetings of the Board at which the Chairman is not present.

 

 

 

Preside over executive sessions of the independent directors.

 

 

 

Act as liaison between the independent directors and the Chairman.

 

 

 

Have authority to call meetings of independent directors.

 

 

 

Assist the other independent directors by ensuring that independent directors have adequate opportunities to meet in executive sessions and communicate to the Chairman, as appropriate, the results of such sessions and other private discussions among outside directors.

 

 

 

Assist the Chairman and the remainder of the Board in assuming effective corporate governance in managing the affairs of the Board.

 

 

 

Serve as the contact person to facilitate communications requested by major shareholders with independent members of the Board.

 

 

 

Approve, in collaboration with the Chairman, meeting agendas and information sent to the Board.

 

 

 

Approve, in collaboration with the Chairman, meeting schedules to assure that there is sufficient time for discussion of all agenda items.

 

 

 

Serve temporarily as Chairman of the Board and the Board’s spokesperson if the Chairman is unable to act.

 

 

 

Interview Board candidates.

 

 

 

Recommend to the Corporate Governance and Nominating Committee nominees to Board committees and sub-committees as may come to the Lead Director’s attention.

 

 

 

Ensure the Board works as a cohesive team.

 

 

 

Be available for consultation and direct communication upon request of major shareholders.

 

 

 

Make such recommendations to the Board as the Lead Director may deem appropriate for the retention of consultants who will report to the Board.

 

 

 

Retain consultants, with the approval of the Board, as the Lead Director and the Board deem appropriate.

 

 

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DIRECTOR CONTINUING EDUCATION

 

Popular encourages directors to participate in continuing director education  programs. To assist the Board in remaining  current with its duties,  committee responsibilities and the many important  developments impacting  our  business,  Popular  participates  in  the  Corporate   Board

Member’s Board Leadership Program. This program offers our directors access to a wide range of in-person, peer-based and webinar educational programs on corporate governance, committee duties, board leadership and industry developments.

 

 

BOARD MEETINGS AND EXECUTIVE SESSIONS

 

The Board met 14 times during 2017. Each director attended 75% or more meetings of the Board and the meetings of committees of the Board on which each such director served. While Popular has not adopted a formal policy with respect to directors’ attendance at the meetings of shareholders, Popular encourages directors to attend  all meetings.  All of  Popular’s directors attended the 2017  annual meeting of shareholders

and all directors are expected to attend the 2018 annual meeting. The Corporate Governance Guidelines require the independent directors to meet in executive session once every in-person regularly scheduled Board meeting. During 2017, the independent directors held executive sessions without Popular’s management after each regularly scheduled in-person Board meeting.

 

 

BOARD SELF-ASSESSMENT

 

Our Board conducts an annual self-assessment aimed at improving its performance. As part of such assessment, each director completes a written questionnaire that is designed to gather suggestions for improving Board effectiveness and solicit feedback on a wide range of issues, including:

 

 

Board and committee composition, structure and operations;

 

 

Board dynamics and standards of conduct;

 

 

adequacy of materials and information
provided;

 

 

access to management; and

 

 

Board effectiveness and accountability.

Each of the four standing Board committees also conducts its own written annual self-assessment, which generally includes issues such as:

 

 

responsibilities and organization of the committee, including adequacy of its charter;

 

operations of the committee;

 

 

adequacy of materials and information
provided; and

 

 

assessment of the committee’s performance.

Responses to the Board and committee self-assessments, including written comments, are tabulated to show trends since prior years. Responses are not attributed to individual directors in order to promote openness and transparency. The Board self-assessment report is discussed by the Corporate Governance and Nominating Committee and then the Chair of the Corporate Governance and Nominating Committee leads the discussion with the full Board. The committee self-assessment reports are discussed at each committee, followed by a discussion with the full Board led by the Committee Chair. The Corporate Governance and Nominating Committee annually discusses the format and process to be used to carry out the Board and committee self-assessment.

 

 

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COMMITTEES OF THE BOARD

The Board has four standing Committees: an Audit Committee, a Corporate Governance and Nominating Committee, a Risk Management Committee and a Compensation Committee. All committees operate under written charters which are posted in our website under the heading Corporate Governance at www.popular.com/en/investor-relations/. The following highlights some of the key responsibilities of each standing committee as well as information about committee members and their independence, number of meetings in 2017 and last charter revision date, among others. For additional information on the role of certain of the standing committees in connection with risk oversight, please see the “Board Oversight of Risk Management” section of this Proxy Statement.

AUDIT COMMITTEE

 

        
 

Members:

Alejandro M. Ballester

John W. Diercksen

C. Kim Goodwin

William J. Teuber, Jr. (Chair)

Carlos A. Unanue

 

Independence:

Each member of the committee is independent

 

Audit Committee

Financial Expert:

Messrs. Teuber and Diercksen and Ms. Goodwin are Audit Committee Financial Experts as defined by SEC rules

 

Meetings in 2017: 11 meetings of which 8 were devoted to the discussion of earnings releases, Form 10-K and Form 10-Q filings

 

Charter last revised:

December 14, 2017

  

 

Primary Responsibilities:

 

Assists the Board in its oversight of:

 

• the outside auditors’ qualifications, independence and performance;

 

• the performance of Popular’s internal audit function;

 

• the integrity of Popular’s financial statements, including overseeing the accounting and financial processes, principles and policies, the effectiveness of internal controls over financial reporting and the audits of the financial statements; and

 

• compliance with legal and regulatory requirements.

 

In addition, the Audit Committee issues a report, as required by the U.S. Securities and Exchange Commission (the “SEC”) rules, for inclusion in Popular’s annual proxy statement. The Audit Committee was established in accordance with the requirements of the Securities Exchange Act of 1934.

   
        

CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

 

        
 

Members:

Joaquín E. Bacardí, III

Alejandro M. Ballester (Chair)

Maria Luisa Ferré

William J. Teuber, Jr.

 

Independence:

Each member of the committee is independent

 

Meetings in 2017: 5

 

Charter last revised:

January 26, 2018

  

 

Primary Responsibilities:

 

The Corporate Governance and Nominating Committee is responsible for:

 

• exercising general oversight with respect to the governance of the Board;

 

• identifying and recommending individuals qualified to become Board members and recommending director nominees and committee members to the Board;

 

• reviewing and reporting to the Board on matters of corporate governance and developing and recommending to the Board a set of corporate governance principles applicable to Popular;

 

• leading the Board and assisting its committees in the annual assessment of their performance; and

 

• recommending to the Board the form and amount of compensation for Popular’s directors.

 

   
        

 

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RISK MANAGEMENT COMMITTEE

 

        
 

Members:

Joaquín E. Bacardí, III

John W. Diercksen

David E. Goel

C. Kim Goodwin (Chair)

William J. Teuber, Jr.

 

Independence:

Each member of the committee is independent

 

Meetings in 2017: 11

 

Charter last revised:

January 26, 2018

  

 

Primary Responsibilities:

 

Assists the Board in the oversight of:

 

•   Popular’s overall risk management framework; and

 

•   the monitoring, review and approval of the policies and procedures that measure, limit and manage Popular’s main risks, including operational, liquidity, interest rate, market, legal, compliance and credit risks.

   
        

COMPENSATION COMMITTEE

 

        
 

Members:

David E. Goel

Maria Luisa Ferré (Chair)

William J. Teuber, Jr.

Carlos A. Unanue

 

Independence:

Each member of the committee is independent

 

Meetings in 2017: 5

 

Charter last revised:

December 14, 2017

  

 

Primary Responsibilities:

 

Discharges the Board’s responsibilities, subject to review by the full Board, relating to:

 

•   compensation of Popular’s Executive Chairman, CEO and all other executive officers;

 

•   adoption of policies that govern Popular’s compensation and benefit programs;

 

•   overseeing plans for executive officer development and succession;

 

•   overseeing, in consultation with management, compliance with federal, state and local laws as they affect compensation matters;

 

•   considering, in consultation with the CRO, whether the incentives and risks arising from the compensation plans for all employees are reasonably likely to have a material adverse effect on Popular and taking necessary actions to limit any risks identified as a result of the risk-related reviews; and

 

•   reviewing and discussing with management the Compensation Discussion and Analysis Section for Popular’s annual proxy statement in compliance with and to the extent required by applicable law, rules and regulations.

 

Compensation Committee Interlocks and Insider Participation:

 

None of the members of the Compensation Committee is or has been an officer or employee of Popular. In addition, none of our executive officers is, or was during 2017, a member of the board of directors or compensation committee (or other committee serving an equivalent function) of another company that has, or had during 2017, an executive officer serving as a member of our Compensation Committee. Other than as disclosed in the “Certain Relationships and Transactions” section of this Proxy Statement, none of the members of the Compensation Committee had any relationship with Popular requiring disclosure under Item 404 of Regulation S-K.

 

   
        

 

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MEMBERSHIP IN BOARD COMMITTEES

 

    

Name

 

 

        Audit        

 

 

    Compensation    

 

 

Corp. Gov. &

    Nominating    

 

 

    Risk    

 

Class 1  

  

 

Ignacio Alvarez

 

               
  

 

Alejandro M. Ballester

 

 

LOGO

 

     

LOGO

 

   
  

 

Richard L. Carrión

 

               
  

 

Carlos A. Unanue

 

 

LOGO

 

 

LOGO

 

       

Class 2

  

 

Joaquín E. Bacardí, III

 

         

LOGO

 

 

LOGO

 

  

 

John W. Diercksen

 

 

LOGO

 

         

LOGO

 

  

 

David E. Goel

 

     

LOGO

 

     

LOGO

 

Class 3

  

 

Maria Luisa Ferré

 

     

LOGO

 

 

LOGO

 

   
  

 

C. Kim Goodwin

 

 

LOGO

 

         

LOGO

 

  

 

William J. Teuber, Jr. (Lead Director)

 

 

LOGO   LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

      LOGO     Member      LOGO     Chair        LOGO     Financial Expert  

BOARD OVERSIGHT OF RISK MANAGEMENT

While management has primary responsibility for managing risk, the Board has a significant role in the risk oversight of Popular. The Board performs its risk oversight functions directly and through several Board committees, each of which oversees the management of risks that fall within its areas of responsibility, as described below. In discharging their responsibilities, Board committees have full access to management and independent advisors as they deem necessary or appropriate. Whenever it is deemed appropriate, management gives presentations to the full Board in connection with specific risks, such as those related to compliance and information security, among others. The principal roles and responsibilities of the Board committees in the oversight of risk management are described below:

 

         
  

 

Risk Management
Committee

    

 

Responsibilities:

 

•   Review, approve and oversee management’s implementation of Popular’s risk management program and related policies,  procedures  and controls to measure, limit and manage Popular’s risks, including operational, liquidity, interest rate, market, legal,  compliance and credit risks, while taking into consideration their alignment with Popular’s strategic and capital plans.

 

•   Review and approve Popular’s capital plans.

 

•   Review and discuss with management Popular’s major financial risk exposures and the steps taken by management to monitor and  control such exposures.

 

•   Review and receive reports on selected risk topics as management or the committee may deem appropriate.

 

•   After each meeting, report to the full Board regarding its activities.

 

 
         
         

 

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Audit

Committee

    

 

Responsibilities:

 

•   Oversight of accounting and financial reporting principles and policies, internal controls and procedures, and controls over financial  reporting.

 

•   Review reports from management, independent auditors, internal auditors, compliance group, legal counsel, regulators and outside  experts, as considered appropriate, that include risks Popular faces and Popular’s risk management function.

 

•   Evaluate and approve the annual risk assessment of the Internal Audit Division, which identifies the areas to be included in the annual  audit  plan.

 

•   After each meeting, report to the full Board regarding its activities.

 

 
         
         
         
  

 

Compensation

Committee

    

 

Responsibilities:

 

•   Establish Popular’s executive compensation and other incentive-based compensation programs, taking into account the risks to Popular  that such programs may pose.

 

•   Periodically evaluate, in consultation with the CRO, whether the incentives and risks arising from Popular’s compensation plans for all  employees are likely to have a material adverse effect on Popular.

 

•   Take such action as the Committee deems necessary to limit any risks identified as a result of the risk-related reviews.

 

•   After each meeting, report to the full Board regarding its activities.

 

 
         

NOMINATION OF DIRECTORS

 

The Corporate Governance and Nominating Committee Charter provides that, in nominating candidates, the Committee will take into consideration such factors as it deems appropriate, which may include judgment, skill, diversity, experience with business and other organizations, the interplay of the candidate’s experience with the experience of the existing Board members, and the extent to which the candidate would be a desirable addition to the Board and any committees of the Board. In practice, the Board has determined that for a community-based financial institution such as Popular it is more important to look for candidates with broad management experience than for persons with a specific skill set. Collectively, the members of our Board embody a range of viewpoints, backgrounds and expertise.

The Corporate Governance and Nominating Committee will consider candidates for director who are recommended by its members,  by  other Board  members, by  management, and  by shareholders.  There  are  no

differences in the manner in which the Corporate Governance and Nominating Committee will evaluate nominees for director in the event the nominee is recommended by a shareholder. There were no nominees for director recommended by shareholders for consideration by the Corporate Governance and Nominating Committee for election at the 2018 meeting. Shareholders who wish to submit nominees for director for consideration by the Corporate Governance and Nominating Committee for election at Popular’s 2019 annual meeting of shareholders may do so as set forth under “General Information About the Meeting—Shareholder Proposals.”

Under Popular’s Corporate Governance Guidelines, the Board should, based on the recommendations of the Corporate Governance and Nominating Committee, select new nominees for the position of independent director by considering the criteria outlined below:

 

 

   Criteria for Nomination

 

 

Personal qualities and characteristics, accomplishments and reputation in the business community.

 

 

 

Current knowledge and contacts in the communities in which Popular does business and in Popular’s industry or other industries relevant to Popular’s business.

 

 

 

Ability and willingness to commit adequate time to Board and committee matters.

 

 

 

The fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of Popular.

 

 

 

Diversity of viewpoints, background, experience and other demographic factors.

 

 

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BOARD DIVERSITY

 

The Corporate Governance and Nominating Committee does not have a specific diversity policy with respect to the director nomination process. Rather, the Committee considers diversity in the broader sense of how a candidate’s viewpoints, experience, skills, background and other demographics could assist the Board in light of the Board’s composition at  the  time.  The  Board  believes  that  each  director contributes  to  the

overall diversity by providing a variety of personal and professional experiences and backgrounds. The Board believes that, as shown below, the current directors and nominees reflect an appropriate diversity of gender, age, race, geographical background and experience and are committed to considering diversity issues in evaluating the composition of the Board.

 

 

 

LOGO

 

 

DIRECTORS’ EXPERIENCE AND SKILLS

The main skills and experience of our director nominees are presented below:

 

 

Global Business

Experience

    

 

Senior Management

and Leadership

Experience

 

    

 

Business Operation

Experience

    

 

Financial, Investment

and M&A

              

 

Audit and Risk

Oversight Experience

 

    

 

Financial Expertise/

Literacy

 

    

 

Marketing and Media

Communications

 

    

 

Telecommunications

 

              

 

Technology Systems

Experience

 

    

 

Public Company

Governance

Experience

 

    

Distribution and Sales

 

    

 

Knowledge and

Understanding of

Popular’s Main

Markets

 

 

80% are female or ethnically diverse 1 is African-American 6 are Hispanic 1 is Asian 2 are women Tenure Years of Service 0-5 6-10 11-15 >15 Average tenure: 9.5 yrs. Independence 80% Independent (all directors are independent except the Executive Chairman and the CEO and President) Age Retirement Age: 72 Average Age: 57 0 2 4 6 46-50 51-55 56-60 61-65 66-70

 

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SUCCESSION PLANNING

 

Popular’s Board recognizes that one of its most important duties is to ensure senior leadership continuity by overseeing the development of executive talent and planning for the efficient succession of the CEO and other executive officers. The Board has delegated primary responsibility for succession planning to the Compensation Committee. The Compensation Committee reviews annually a management succession plan, developed by the CEO, and reports annually to the Board on the management succession  plan. The  principal components of  this  plan are: (1) a proposed  plan for emergency CEO succession, (2) a  proposed

plan for CEO succession in the ordinary course of business, and (3) the CEO’s plan for management succession for the other policy-making officers of Popular. The succession plan includes an assessment of the experience, performance, skills and planned career paths for possible candidates within the senior management team. Development initiatives supporting the succession plan include job enhancements and rotations, the Popular Leadership Academy, specialized external trainings and competency assessments.

 

 

CODE OF ETHICS

 

The Board has adopted a Code of Ethics to be followed by Popular’s employees, officers (including the Executive Chairman, President and CEO, CFO and Corporate Comptroller) and directors to achieve conduct that reflects our ethical principles. Directors, NEOs, executive officers and employees are required to read and comply with the Code. Popular requires that all new employees take Code training shortly after their start date and also provides periodic Code training to all employees. All employees must certify annually that they have read the Code and complete a declaration on possible conflicts of interest. In addition, other persons performing services for Popular by contract or other agreement may be subject to the Code of Ethics for Service Providers.

The Code provides that any waivers for NEOs, executive officers or directors  may be made only  by  the  independent  members  of  the  Board and must be promptly disclosed to the shareholders. During  2017,

Popular did not receive nor grant any request from directors, NEOs or executive officers for waivers under the provisions of the Code. The Code was last revised on September 27, 2017 and is available on the Corporate Governance section of Popular’s website at www.popular.com/en/investor-relations/. Popular will post on its website any amendments to the Code and any waivers to the Executive Chairman, President and CEO, the CFO, the Corporate Comptroller or directors.

Popular expects employees to report behavior that concerns them or that may represent a violation of the Code. Popular offers several channels by which employees may raise an issue or concern, including any actual or potential violations of the Code. One such method is EthicsPoint, a website and telephone hotline that is available 24/7. EthicsPoint reports can be submitted anonymously.

 

 

COMMUNICATION WITH THE BOARD

 

Any shareholder who desires to contact the Board or any of its members may do so by writing to:

 

 

Popular, Inc., Board of Directors (751),

P.O. Box 362708, San Juan, PR 00936-2708

 

Alternatively, a shareholder may contact the Audit Committee or any of its members telephonically by calling the toll-free number (866) 737-6813 or electronically through www.popular.com/ethicspoint-en.

 

 

Popular’s CLO and Secretary reviews all correspondence addressed to the Board or any of its members and provides the Board with copies of all communications that deal with the functions of the Board or its committees, or that otherwise require Board attention. Communications received by the Audit Committee that are not related to accounting or auditing matters may, in its discretion, be forwarded by the Audit Committee or any of its members to other committees of the Board or Popular’s management for review.

 

 

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WHERE TO FIND MORE INFORMATION ON GOVERNANCE

 

Popular maintains a corporate governance section on its website at www.popular.com/en/investor-relations/ where investors may find copies of its   principal governance documents. The corporate governance section of Popular’s website contains, among others, the following documents:

 

  

Code of Ethics

 

       

 

Risk Committee Charter

  

Audit Committee Charter

 

       

Corporate Governance Guidelines

 

   Corporate Governance and Nominating Committee Charter        

Insider Trading Policy

  

 

Compensation Committee Charter

 

 

       

 

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Directors and Executive Officers

 

NOMINEES FOR ELECTION AS DIRECTORS AND OTHER DIRECTORS

Information relating to director’s participation in Popular’s committees, age, principal occupation, business experience during the past five years (including positions held with Popular or its subsidiaries and the period during which each director has served in such capacity), directorships and qualifications is set forth below. All of Popular’s directors are also directors of the following subsidiaries of Popular: Banco Popular de Puerto Rico (“BPPR”), Popular North America, Inc. and Banco Popular North America, which operates under the name Popular Community Bank.

NOMINEES FOR ELECTION – CLASS 1 DIRECTORS (TERMS EXPIRING 2018)

 

 

LOGO

 

Director since July 2017

 

Age 59

    

IGNACIO ALVAREZ

 

BACKGROUND

 

Chief Executive Officer of Popular, BPPR and Popular Community Bank since July 2017. President of Popular, BPPR and Popular Community Bank since October 2014 and Chief Operating Officer of Popular and BPPR from October 2014 to July 2017. Executive Vice President and Chief Legal Officer of Popular from June 2010 to September 2014. President and CEO of Popular North America, Inc. and other direct and indirect wholly-owned subsidiaries of Popular. Director of Popular since July 2017 and of BPPR and Popular Community Bank since October 2014. Member of the Board of Trustees of Fundación Banco Popular, Inc. and of Popular Community Bank Foundation, Inc. since November 2015.

 

QUALIFICATIONS

 

Prior to joining Popular in 2010 as Chief Legal Officer, Mr. Alvarez was one of the six founding partners of the law firm Pietrantoni Méndez & Alvarez LLC, one of Puerto Rico’s principal law firms. During his 27 years in private law practice, his main areas of expertise included banking, corporate and commercial law, corporate and public finance law, securities and capital markets. As President and Chief Operating Officer, Mr. Alvarez demonstrated his solid strategic and analytical skills, understanding of the markets in which we operate, business acumen and strength as a leader, delivering positive results in our Puerto Rico business despite challenging conditions and overseeing the repositioning of our operations in the United States. Mr. Alvarez’s understanding of the Corporation and excellent business skills, as well as his background as an attorney with vast experience on corporate matters, including regulatory and corporate governance, have proven to be a great asset.

         

 

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LOGO

 

Director since 2010

 

Age 51

 

Committees

 

•   Audit

•   Corporate

    Governance &

    Nominating (Chair)

    

ALEJANDRO M. BALLESTER

 

BACKGROUND

 

President of Ballester Hermanos, Inc., a major food and beverage distributor in Puerto Rico, since 2007.

 

QUALIFICATIONS

 

Mr. Ballester has a comprehensive understanding of Puerto Rico’s consumer products and distribution industries acquired through over 27 years of experience at Ballester Hermanos, Inc., a privately-owned business dedicated to the importation and distribution of grocery products, as well as beer, liquors and wine for the retail and food service trade in Puerto Rico. As of December 31, 2017, Ballester Hermanos had approximately $118 million in assets and annual revenues of approximately $320 million. Mr. Ballester is familiar with the challenges faced by family-owned businesses, which constitute an important market segment for Popular’s commercial banking units. He has proven to be a successful entrepreneur establishing the food service division of Ballester Hermanos in 1999, which today accounts for 35% of the firm’s revenues. During 2009, he was a director of the Government Development Bank for Puerto Rico and member of its audit and investment committees where he obtained experience in overseeing a variety of fiscal issues related to various government agencies, instrumentalities and municipalities. The experience, skills and understanding of the Puerto Rico economy and government financial condition acquired by Mr. Ballester have been of great value to the Board.

     

 

 

LOGO

 

Director since 1991

 

Age 65

 

Chairman since 1993

 

Executive

Chairman since July
2017

    

RICHARD L. CARRIÓN

 

BACKGROUND

 

Executive Chairman of Popular since July 2017. CEO of Popular from 1994 to June 2017 and President from 1991 to January 2009 and from May 2010 to September 2014. Executive Chairman of BPPR since July 2017, Chairman since 1993 and CEO from 1989 to June 2017. President of BPPR from 1985 to 2004 and from May 2010 to September 2014. Chairman and CEO, until June 2017, of Popular North America, Inc. and other direct and indirect wholly-owned subsidiaries of Popular. Executive Chairman of BPNA since July 2017 and Chairman since 1998. Director of the Federal Reserve Bank of New York from January 2008 to December 2015. Chairman of the Board of Trustees of Fundación Banco Popular, Inc. since 1991. Chairman and Director of Popular Community Bank Foundation, Inc. since 2005. Member of the Board of Directors of Verizon Communications, Inc. since 1995. Member of the International Olympic Committee since 1990 and Chairman of the International Olympic Committee Finance Commission from 2002 to 2013. Managing Member of RCA3 Investments, LLC, an entity engaged in financial consulting since October 2017. Chairman of the Board of Vall Banc, an Andorra-based bank, since October 2017. Member of the of the Supervisory Board of NIBC Holding N.V. and NIBC Bank N.V., both entities engaged in banking in the Netherlands, since September 2017.

 

QUALIFICATIONS

 

Mr. Carrión’s 42 years of banking experience, 33 heading Popular, Puerto Rico’s largest financial institution, give him a unique level of knowledge of the Puerto Rico financial system. Mr. Carrión is a well-recognized leader with a vast knowledge of the Puerto Rico economy, and is actively involved in major efforts impacting the local economy. His knowledge of the financial industry led him to become a director of the Federal Reserve Bank of New York for eight years.

     

 

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LOGO

 

Director since 2010

 

Age 54

 

Committees

 

•   Compensation

•   Audit

    

CARLOS A. UNANUE

 

BACKGROUND

 

President of Goya de Puerto Rico, Inc. since 2003 and of Goya Santo Domingo, S.A. since 1994, food processors and distributors.

 

QUALIFICATIONS

 

Mr. Unanue has 31 years of experience at Goya Foods, Inc., a privately-held family business with operations in the United States, Puerto Rico, Spain and the Dominican Republic that is dedicated to the sale, marketing and distribution of Hispanic food, as well as to the food processing and canned food manufacturing business. Through his work with Goya Foods, Mr. Unanue has developed a profound understanding of Popular’s two main markets, Puerto Rico and the United States. His experience in distribution, sales and marketing has provided him with the knowledge and experience to contribute to the development of Popular’s business strategy, while his vast experience in management at various Goya entities has allowed him to make valuable contributions to the Board in its oversight functions.

     

CLASS 2 DIRECTORS (TERMS EXPIRING 2019)

 

LOGO

 

Director since 2013

 

Age 52

 

Committees

 

•   Corporate

    Governance &

    Nominating

•   Risk

    

JOAQUÍN E. BACARDÍ, III

 

BACKGROUND

 

Chairman and majority shareholder of Edmundo B. Fernández, Inc., a privately held producer and distributor of rum since November 2017. Private investor since 2016. President and Chief Executive Officer of Bacardi Corporation, a privately held business and major producer and distributor of rum and other spirits, from April 2008 to April 2016.

 

QUALIFICATIONS

 

On November 2017, Mr. Bacardí completed the acquisition of Edmundo B. Fernández, Inc., a 137 year old privately owned rum company. Mr. Bacardí has extensive experience in the development and implementation of international marketing, sales and distribution strategies acquired throughout more than 24 years at various Bacardi companies and 3 years as Product Manager of Nestlé of Puerto Rico. As President and Chief Executive Officer of Bacardi Corporation, Mr. Bacardí directed and managed all business operations with full profit and loss responsibilities and government relations for Bacardi in the Caribbean, Mexico, Central and South America. Prior to becoming President and Chief Executive Officer of Bacardi Corporation, Mr. Bacardí held positions in various Bacardi enterprises where, among other things, he was responsible for the development of all global communication strategies for Bacardi Limited’s whisky portfolio, with total sales of approximately $400 million, and supervision of marketing for all Bacardi brands globally. Mr. Bacardí’s vast experience in business operations in Puerto Rico and across various international markets, as well as his expertise in global communication strategies, have been of great benefit to the Board.

     

 

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LOGO

 

 

Director since 2013

 

Age 68

 

Committees

 

•  Audit (Financial Expert)

•  Risk

    

JOHN W. DIERCKSEN

 

BACKGROUND

 

Principal of Greycrest, LLC, a privately-held financial and operational advisory services company, since October 2013. Chief Executive Officer of Beachfront Wireless LLC, a privately-held investment entity organized to participate in a Federal Communications Commission airwaves auction, from December 2015 to November 2016, when it was sold. Senior Advisor at Liontree Investment Advisors, an investment banking firm, since April 2014. Executive Vice President of Verizon Communications, Inc. from January 2013 to September 2013. Director of Harman International Industries, Incorporated, an audio and infotainment equipment company, from June 2013 to June 2017, when it was sold, Intelsat, S.A., a communications satellite services provider, since September 2013 and Cyxtera Technologies, an entity that provides data center services, since May 2017.

 

QUALIFICATIONS

 

Mr. Diercksen has 29 years of experience in the communications industry. During his tenure at Verizon, a global leader in delivering consumer, enterprise wireless and wire line services, as well as other communication services, Mr. Diercksen was responsible for key strategic initiatives related to the review and assessment of potential mergers, acquisitions and divestitures and was instrumental in forging Verizon’s strategy of technology investment and repositioning its assets. He possesses a vast experience in matters related to corporate strategy, mergers, acquisitions and divestitures, business development, venture investments, strategic alliances, joint ventures and strategic planning. Mr. Diercksen’s extensive senior leadership experience, together with his financial and accounting expertise, position him well to advise the Board and senior management on a wide range of strategic and financial matters.

     

 

 

LOGO

 

Director since 2012

 

Age 48

 

Committees

 

•  Compensation

•  Risk

    

DAVID E. GOEL

 

BACKGROUND

 

Co-Founder and Managing General Partner of Matrix Capital Management Company, LP since 1999. Member of the Board of Directors of Univision Communications, Inc., a privately held media company, until January 2018 and of Adaptive Biotechnologies, Inc., a privately held company specializing in T-cell sequencing and immunotherapy since August 2016. Trustee of Philips Exeter Academy since 2013, of the Museum of Fine Arts, Boston, since 2010 and of The Winsor School, in Boston, Massachusetts, since April 2016.

 

QUALIFICATIONS

 

During his 25-year career as a fundamentals-focused value investor, Mr. Goel has developed a comprehensive understanding of corporate finance, venture capital and public investing. Having founded Matrix Capital Management in 1999, Mr. Goel has built an 19-year investment track record. Through sound and responsible investing for the Matrix Fund, he gained valuable insight into global financial markets and corporate best practices. His experience in the investment management industry allows him insight into the needs of the financial services business, providing extensive knowledge of risk management and corporate governance to the Board. Mr. Goel’s service as a fund manager, trustee, and board member of other organizations provides him with a unique expertise and global perspective to assist the Board with its oversight of Popular.

     

 

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CLASS 3 DIRECTORS (TERMS EXPIRING 2020)

 

LOGO

 

Director since 2004

 

Age 54

 

Committees

 

•   Compensation (Chair)

•   Corporate

    Governance &

    Nominating

    

MARIA LUISA FERRÉ

 

BACKGROUND

 

President and CEO of FRG, Inc., a diversified family holding company with leading operations in media, real estate, contact centers and distribution in Puerto Rico, the United States and Chile, since 2001. Member of the Board of Directors of GFR Media, LLC since 2003 and Chair from 2006 to February 2016. Publisher of El Nuevo Día, Puerto Rico’s most widely read and influential newspaper, and Primera Hora since 2006. Member of the Board of Directors of W.R. Berkley Corporation, an insurance holding company, since May 2017. President and Trustee of The Luis A. Ferré Foundation, Inc. since 2003. Trustee and Vice President of the Ferré Rangel Foundation, Inc. since 1999. President of the Board of Directors of Multisensory Reading Center of PR, Inc. since 2012. Member of the Latin American Caribbean Fund of The Museum of Modern Art since 2013 and of the Smithsonian National Board since 2017. Member of the Board of Directors of Endeavor Puerto Rico since January 2018 and of the Advisory Board of Boys & Girls Club of Puerto Rico since 2017.

 

QUALIFICATIONS

 

Ms. Ferré has 16 years of experience as the President and CEO of FRG, Inc., the largest communications and media group in Puerto Rico, with consolidated assets of approximately $310 million and annual net revenues of approximately $189 million as of December 31, 2017. She holds positions as director and officer of numerous entities related to FRG, Inc. She also serves as director and trustee of philanthropic and charitable organizations related to fine arts and education. As a result of these experiences, Ms. Ferré possesses a deep understanding of Popular’s main market and has developed management and oversight skills that allow her to make significant contributions to the Board. She also provides thoughtful insight regarding the communications needs of Popular.

 

     

LOGO

 

Director since 2011

 

Age 58

 

Committees

 

•   Risk (Chair)

•   Audit (Financial

    Expert)

    

C. KIM GOODWIN

 

BACKGROUND

 

Private investor since 2008. Non-executive director of PineBridge Investments, LLC, a global asset management boutique with over $88 billion in assets under management, since May 2011, and Chair of its Audit Committee. Director of Akamai Technologies, Inc., a technology and Internet corporation, from October 2008 to May 2013, and prior to that from January 2004 to November 2006, and member of the Audit Committee from 2004 to 2006 and from 2008 to 2011. Trustee-Director of various equity funds within the Allianz Global Investors family of funds from June 2010 to October 2014.

 

QUALIFICATIONS

 

Ms. Goodwin’s experience as chief investment officer at several global financial services firms provides the Board with insight into the perspective of institutional investors. Her analytical skills and understanding of global financial markets have proved to be valuable assets. As Head of Equities at Credit Suisse Asset Management from 2006 to 2008, Ms. Goodwin oversaw enterprise risk functions for her global department. Through her experiences as a member of the Audit Committee of Akamai Technologies, Chair of the Audit Committee of PineBridge Investments and Chair of Popular’s Risk Management Committee, Ms. Goodwin has developed profound knowledge of the risks related to our business. She has also developed expertise in identifying, assessing and managing risk exposure, successfully leading the Board’s efforts on risk oversight. Finally, Ms. Goodwin also provides Popular with valuable insight regarding the use of technology by financial firms.

     

 

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LOGO

 

Director since 2004

 

Age 66

 

Lead Director

 

Committees

 

•   Audit (Chair and

    Financial Expert)

 

•   Risk

 

•   Compensation

 

•   Corporate

    Governance &

    Nominating

    

WILLIAM J. TEUBER, JR.

 

BACKGROUND

 

Private investor since October 2016. Senior Operating Principal of Bridge Growth Partners, LLC, a private equity firm, since November 2016. Vice Chairman of EMC Corporation, a provider of information technology infrastructure solutions, from May 2006 to September 2016, when Dell Technologies acquired the company. Director of CRH Plc, a global diversified building materials group based in Ireland, since March 2016. Director of Inovalon Holdings, Inc., a provider of data driven healthcare solutions, since April 2013.

 

QUALIFICATIONS

 

Mr. Teuber has significant financial and financial reporting expertise, which he acquired as a Partner in Coopers & Lybrand LLP from 1988 to 1995 and then as Chief Financial Officer of EMC Corporation from 1996 to 2006. At EMC he demonstrated vast management and leadership skills as he led EMC’s worldwide finance operation and was responsible for all of its financial planning and reporting, balance sheet management, foreign exchange, audit, tax, treasury, investment banking, governance and investor relations function. As Vice Chairman of EMC, he focused on strategy and business development in emerging markets, assisted with government relations and worked closely with the Board of Directors. In addition, he worked closely with EMC’s Chairman, President and CEO in the day to day management of EMC as well as with the company’s executive team to develop future leaders of the company. Mr. Teuber’s significant financial and accounting expertise, vast management experience and skills developed throughout the years that he provided strategic direction at a multinational public company provide the Board with invaluable insight and a unique global perspective.

     

 

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EXECUTIVE OFFICERS

The following information sets forth the names of our executive officers, their age, business experience and directorships during the past five years, as well as the period during which each such person has served as executive officer of Popular.

 

 

LOGO

    

RICHARD L. CARRIÓN

AGE: 65

 

Mr. Carrión has been Chairman of the Board since 1993. He has served as Executive Chairman of Popular since July 2017, as CEO from 1994 to June 2017 and as President from 1991 to January 2009 and from May 2010 to September 2014. For additional information, please refer to the “Nominees for Election as Directors and Other Directors” section of this Proxy Statement.

     

 

 

LOGO

    

IGNACIO ALVAREZ

AGE: 59

 

Mr. Alvarez has been Chief Executive Officer of the Corporation since July 2017 and President and Chief Operating Officer since October 2014. Prior to that he was Executive Vice President and Chief Legal Officer of Popular from June 2010 to September 2014. For additional information, please refer to the “Nominees for Election as Directors and Other Directors” section of this Proxy Statement.

     

 

 

LOGO

    

CAMILLE BURCKHART

AGE: 38

 

Ms. Burckhart has been Executive Vice President and Chief Information and Digital Officer of Popular since July 2015. Prior to becoming Executive Vice President, Ms. Burckhart was the Senior Vice President in charge of the Technology Management Division from December 2010 to June 2015. She has been a member of the Board of Directors of Nuestra Escuela since August 2016.

     

 

 

LOGO

    

LUIS E. CESTERO

AGE: 44

 

Mr. Cestero has been Executive Vice President of BPPR in charge of the Retail Banking Group since July 2017. Prior to becoming Executive Vice President, Mr. Cestero was the Senior Vice President in charge of Retail Banking Administration from May 2009 to June 2017.

     

 

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LOGO

    

MANUEL CHINEA

AGE: 52

 

Mr. Chinea has been Executive Vice President of Popular since January 2016 and Chief Operating Officer of Popular Community Bank since February 2013. Prior to becoming Chief Operating Officer of Popular Community Bank, from April 2012 to January 2013, he was Executive Vice President and Chief Marketing and Product Executive at CertusBank. He has served as a Member of the Board of Trustees of Popular Community Bank Foundation, Inc. since October 2013, member of the Board of Directors of the Hispanic Federation, since June 2016 and member of the Board of Junior Achievement New York since October 2017

 

 

LOGO

    

JAVIER D. FERRER

AGE: 56

 

Mr. Ferrer has been the Executive Vice President, Chief Legal Officer and Secretary of the Board of Directors of Popular since October 2014 and a Director of BPPR since March 2015. Prior to joining Popular, Mr. Ferrer was a Partner at Pietrantoni Méndez & Alvarez LLC, a San Juan, Puerto Rico based law firm, were he worked from September 1992 to December 2012 and from August 2013 to September 2014. From January 2013 to July 2013, Mr. Ferrer served as President of the Government Development Bank for Puerto Rico and Vice Chairman of its Board of Directors as well as Chairman of the Economic Development Bank for Puerto Rico. From March 2001 to December 2012 and from September 2013 to September 2014, Mr. Ferrer was Secretary of the Board of Directors of the First Puerto Rico Family of Funds, which, as of September 2014, was comprised of 17 funds.

 

 

LOGO

    

JUAN O. GUERRERO

AGE: 58

 

Mr. Guerrero has been an Executive Vice President of BPPR in charge of the Financial and Insurance Services Group since April 2004. He has been a Director of Popular Securities LLC since 1995, Popular Insurance LLC since 2004 and of other subsidiaries of Popular. Mr. Guerrero has served as a Director of SER de Puerto Rico since December 2010 and the Puerto Rico Open since October 2016.

 

 

LOGO

    

GILBERTO MONZÓN

AGE: 58

 

Mr. Monzón has been an Executive Vice President of BPPR in charge of the Individual Credit Group since October 2010. He has also served as Member of the Board of Directors of the San Jorge Children’s Hospital Professional Board since 2011, Member of the Government Relations Council of the American Bankers Association since 2013 and director of the Center for a New Economy and of the Coalition for the Prevention of Colorectal Cancer of Puerto Rico since 2014.

 

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LOGO

    

EDUARDO J. NEGRÓN

AGE: 53

 

Mr. Negrón has been Executive Vice President of Popular since April 2008 and has been in charge of the Administration Group since December 2010. He became Chairman of Popular’s Benefits Committee on April 2008. He has served as Member of the Board of Trustees and Treasurer of Fundación Banco Popular, Inc. and of the Popular Community Bank Foundation, Inc. since March 2008. Mr. Negrón has been a Director of Fundación Angel Ramos since April 2012 and Chairman of its Investment and Finance Committee since March 2014. He has also been Director and Treasurer of the Fundación Puertoriqueña de las Humanidades since June 2017.

 

 

LOGO

    

ELI S. SEPÚLVEDA

AGE: 55

 

Mr. Sepúlveda has been Executive Vice President of Popular since February 2010 and of BPPR since December 2009. He has been the supervisor in charge of the Commercial Credit Group in Puerto Rico since January 2010. Mr. Sepúlveda has been a member of the Board of Managers of the Puerto Rico Idea Seed Fund, LLC since December 2016.

 

 

LOGO

    

LIDIO V. SORIANO

AGE: 49

 

Mr. Soriano has been the Executive Vice President and Chief Risk Officer of Popular since August 2011 and a Director of BPPR and Popular Community Bank since October 2014.

 

 

LOGO

    

CARLOS J. VÁZQUEZ

AGE: 59

 

Mr. Vázquez has been the Chief Financial Officer of Popular since March 2013. He was President of Popular Community Bank from September 2010 to September 2014 and has been Executive Vice President of Popular since February 2010 and Senior Executive Vice President of BPPR since 2004. He has served as Director of BPPR and of Popular Community Bank since October 2010. He has been Vice Chairman of the Board of Directors of Popular Community Bank Foundation since November 2010, Director of the Federal Home Loan Bank of New York since November 2013 and Member of the National Board of Directors of Operation Hope since 2012.

 

2018 PROXY STATEMENT  |  25


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CERTAIN RELATIONSHIPS AND TRANSACTIONS

 

We may be party to transactions, arrangements or relationships with our directors, director nominees, executive officers or greater than 5% shareholders, or their immediate family members (each, a “Related Party”). We have adopted a written Policy on Related Party Transactions (the “Related Party Policy”) to identify and evaluate potential conflicts of interest, independence factors and disclosure obligations arising out of transactions, arrangements or relationships between Related Parties and us.

Transactions covered by the Related Party Policy may also be subject to restrictions pursuant to Federal Reserve Board Regulation O, Loans to Executive Officers, Directors and Principal Shareholders, which is the subject of a separate policy.

OUR POLICY ON RELATED PARTY TRANSACTIONS

The Related Party Policy governs the review, approval or ratification of transactions, arrangements or relationships: (i) in which Popular or any subsidiary is a participant; (ii) the aggregate amount involved will or may be expected to exceed $120,000 in any given year; and (iii) a Related Party has or will have a direct or indirect material interest. These transactions must be submitted to the Audit Committee for their review, evaluation and approval, unless pre-approved under the Related Party Policy.

Directors and executive officers must notify the CLO of any related party transaction in which they, or their immediate family members, have a material interest. Any unit or division proposing a related party transaction must also notify the CLO by completing a Related Party Transaction Request Form. After review by the CLO, the form is submitted for consideration and approval of the Audit Committee. The form must contain, among other things, a description of the proposed transaction, its benefits to Popular and an assessment of whether the proposed related party transaction is on terms that are comparable to the terms available to an unrelated third party or to employees generally. Only disinterested members of the Audit Committee will participate in the review and determination of whether a related party transaction is approved. The Audit Committee will approve or ratify transactions with Related Parties when the transaction is deemed to be in, or is not inconsistent with, the best interest of Popular.

PRE-APPROVED CATEGORIES OF RELATED PARTY TRANSACTIONS

In accordance with the terms of the Related Party Policy, certain types of transactions are pre-approved and certain recurring transactions are approved annually, without the need to submit the corresponding form to the Audit Committee. Pre-approved transactions include certain banking-related services and transactions in the ordinary course of business involving financial products and services provided by, or to, Popular, including loans, provided such transactions comply with the Sarbanes-Oxley Act of 2002, Federal Reserve Board Regulation O and other applicable laws and regulations. In the event Popular becomes aware of a transaction with a Related Party that has not been approved under the terms of the Related Party Policy, the Audit Committee considers all relevant facts and circumstances regarding the transaction with the Related Party and evaluates all options available to Popular, including ratification, revision or termination. The Audit Committee also examines the facts and circumstances pertaining to the failure of reporting such related party transaction to the Committee, as required by the Related Party Policy, and may take such actions as it deems appropriate.

RELATED PARTY TRANSACTIONS

In 2017, Popular and its subsidiaries contributed approximately $650,000 to Fundación Banco Popular, Inc. (the “BPPR Foundation”) through the matching of employee contributions. Popular also contributed $100,000 from the proceeds of BPPR’s Holiday Special to the BPPR Foundation. In addition, during 2017 the Bank contributed approximately $1,120,000 to the Embracing Puerto Rico campaign which supports Hurricane Maria relief initiatives, and $282,000 to the Employee Emergency Fund, both of which are sponsored by the BPPR Foundation. The BPPR Foundation is a Puerto Rico not-for-profit corporation created to improve the quality of life in Puerto Rico. As BPPR’s philanthropic arm, it provides a scholarship fund for employees’ children and supports education and community development projects. Popular provides human and operational resources to support the activities of the BPPR Foundation, which during 2017 amounted to approximately $1,220,000, including maintenance and the amortization of leasehold improvements for the BPPR Foundation’s headquarters. BPPR and the Puerto

 

 

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Rico employees of Popular, through voluntary personal donations, are the main source of funds for the BPPR Foundation. The Board of Directors of BPPR appoints six of the ten members of the Board of Trustees. The remaining four trustees are appointed by the Board of Trustees of the BPPR Foundation. Mr. Carrión is the Chairman, and Messrs. Alvarez and Negrón are members, of the BPPR Foundation’s Board of Trustees.

The Popular Community Bank Foundation, Inc. (the “PCB Foundation”), a New York not for-profit corporation, was created to strengthen the social and economic well-being of the communities served by Popular Community Bank. The PCB Foundation is Popular Community Bank’s philanthropic arm and provides support to charitable organizations for community development and education. During 2017, Popular Community Bank contributed approximately $90,000 to the PCB Foundation through the matching of employee contributions. The bank also made additional contributions of approximately $172,500 to the foundation. Popular Community Bank and its employees, through voluntary personal donations, are the main source of funds of the PCB Foundation. Messrs. Carrión, Alvarez, Vázquez, Chinea and Negrón are members of the Board of Directors of the PCB Foundation.

Certain directors and NEOs have immediate family members who are employed by BPPR. The compensation of these family members is established in accordance with BPPR’s employment and compensation practices applicable to employees with similar qualifications and responsibilities or holding similar positions. Until January 2018, a son of Mr. Carrión was employed as a Senior Vice President and Division Manager of the Business Development and International Banking Division of BPPR. He received compensation in the amount of approximately $212,242 during fiscal year 2017 and other benefits and payments that did not exceed $40,000. His compensation was approved and ratified by the Audit Committee under the Related Party Policy.

During 2017 the Corporation engaged, in the ordinary course of business, the legal services of the law firm Reichard & Escalera, LLC, of which the father-in-law of Mr. Negrón, is a partner. The fees paid to Reichard & Escalera, LLC for fiscal year 2017 amounted to approximately $210,000. The engagement of the law firm was approved and ratified by the Audit Committee under the Related Party Policy.

BPPR has loan transactions with Popular’s directors and officers, and other Related Persons, 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 June 2006, a brother-in-law of Mr. Unanue obtained a $828,000 mortgage loan from Popular Mortgage, then a subsidiary of BPPR, secured by a residential property. The loan was a fully amortizing 30-year loan with a fixed annual rate of 7%. Mr. Unanue was not a director of Popular at the time the loan was made. The loan was made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing for comparable loan transactions with third parties at that time. The borrower became delinquent on his payments commencing in July 2010 and, after exhausting various collection and loss mitigation efforts, BPPR commenced foreclosure procedures in November 2010. As of December 31, 2011, Popular had recorded a loss of approximately $65,000 on the loan. In March 2012, the loan was restructured under the terms of BPPR’s loan modification program. The restructured loan is a 40-year loan with a fixed annual rate of 2.5% during the first 5 years, increasing 1% each year thereafter up to a rate of 6.75%. While the principal amount of the restructured loan subject to interest payment is $750,321, the borrower also agreed to repay an additional amount of $158,100 upon cancellation of the restructured loan. The total payments to be made by the borrower represent the entirety of the amount owed prior to restructuring the loan, including accrued interest. During 2017, the borrower defaulted on his payment obligations under the restructured loan and as of December 31, 2017 the loan was 306 days past due. Payments of principal and interest of $2,041 and $2,907, respectively, were made during 2017. As of December 31, 2017, the outstanding balance of the loan was $854,356. The largest outstanding balance of the loan during 2017 was $856,397.

In March 2012, BPPR also entered into an agreement with Mr. Unanue’s same brother-in-law to pay $97,000 of the approximately $139,000 in credit card and personal loan debt (including accrued interest) owed by him. These loans were made in the ordinary course of business prior to the date that Mr. Unanue joined the Board. The borrower agreed to make monthly payments of $538 until the amount was paid in full. In July 2017, the borrower discontinued monthly

 

 

2018 PROXY STATEMENT  |  27


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payments, thereby defaulting on the indebtedness. Prior to the default, the borrower had paid $3,228 during 2017 and the outstanding debt balance as of December 31, 2017 was $65,258. The largest outstanding balance of the loan during 2017 was $68,486.

During 2017, a brother-in-law of Mr. Negrón owned a 50% equity interest in an entity which had a real estate development loan with BPPR. The loan was made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing for comparable loan transactions with third parties at that time. The initial loan was in the amount of $1,650,000 and was originated by Westernbank in 2003. BPPR acquired this loan as part of a Federal Deposit Insurance Corporation (“FDIC”) assisted transaction in 2010. Mr. Negrón’s brother-in-law personally guarantees the loan which is payable from the proceeds of the sale of residential units and bears interest at a rate equal to 5.25%. This loan participated in the moratorium offered to BPPR’s commercial clients after Hurricane Maria. The outstanding balance on the loan as of December 31, 2017 was $114,706, which includes the capitalization of interest accrued during the moratorium. During 2017, $3,480 and $3,917 were paid in principal and interest, respectively. The largest outstanding balance of the loan during 2017 was $117,370.

In September 2008, a brother of Mr. Negrón obtained a $390,000 commercial loan from BPPR, secured by a commercial property. The loan was a fully amortizing 15-year loan with a variable interest rate of prime plus 0.50%. The loan was made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing for comparable loan transactions with third parties at that time. In January 2015, BPPR approved the first of three 6-month temporary reductions to the borrower’s monthly principal payments in the aggregate amount of $13,500. In August 2016, the term of the temporary loan modifications expired, and the borrower started to pay the loan under its original terms. The outstanding balance on the loan as of December 31, 2017 was $200,917, and $22,750 and $7,268 were paid during 2017 in principal and interest, respectively. The largest outstanding balance of the loan during 2017 was $221,250. This loan participated in the moratorium offered to BPPR’s commercial clients after Hurricane Maria.

In July 2017, Mr. Cestero was named an Executive Vice President of BPPR. At the time, relatives of Mr. Cestero had the following  outstanding

loans with BPPR that require disclosure in this proxy statement:

 

 

The brother of Mr. Cestero and his wife are the borrowers under a fully-amortizing 30-year mortgage loan with an original principal amount of $104,177 and a fixed annual interest rate of 7.375%. The loan was made in 2006 and restructured in 2011. It is secured by a second mortgage on the borrowers’ residence. Payments of principal and interest of $874 and $4,162, respectively, were made during 2017. During the months from September to December, the loan participated in the moratorium offered to BPPR’s mortgage clients. No payments have been received thereafter. The largest outstanding balance of the loan during 2017, as well as the outstanding balance of the loan as of December 31, 2017 was $98,611. This amount includes the capitalization of interest accrued during the moratorium.

 

 

Mr. Cestero’s brother and his wife are also borrowers under a 15-year mortgage loan, with an original principal amount of $100,000 and a fixed annual interest rate of 5%. The loan is secured by a third mortgage on the borrowers’ residence and requires monthly payments of principal and interest. Since 2015 the borrowers have only made partial payments of principal, and therefore, are not in compliance with the payment terms of the loan. During 2017, only payments of principal in the amount of $5,000 were made. As of December 31, 2017, the outstanding balance of the loan was $93,702. The largest outstanding balance of the loan during 2017 was $98,702.

In June 2017, Mr. Ballester, acquired new family relationships by way of marriage. These Related Parties had the following outstanding loans, which were obtained prior to Mr. Ballester’s marriage, and require disclosure in this proxy statement:

 

 

In November 2003, an entity owned by two brothers-in-law of Mr. Ballester obtained a commercial loan in the aggregate amount of $700,000 from Westernbank. The loan was acquired by BPPR as part of a FDIC assisted transaction in 2010. The loan is a fully amortizing 30-year loan with a variable interest rate of prime plus 0.75%. It is secured by real estate and guaranteed by the two brothers-in-law and their wives. The outstanding principal balance on the loan as of December 31, 2017 was $374,206, and, during 2017, $26,351 and $24,261 were paid in

 

 

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principal and interest respectively. The largest outstanding balance of the loan during 2017 was $400,556.

 

 

In May 2001, another brother-in-law of Mr. Ballester obtained a $292,000 mortgage loan from Doral Bank, secured by a residential property. The loan was a fully amortizing 30-year loan with a fixed annual rate of 7.250%. The borrower became delinquent on his payments commencing in October 2011. After the FDIC placed Doral Bank in receivership in 2015, BPPR began to act as servicer of the loan for the benefit of a third-party investor. After exhausting various collection and loss mitigation efforts, BPPR, acting as servicer, and the borrower, negotiated and entered into a deed in lieu of foreclosure in June 2017. As a result of that transaction, the third-party investor acquired the residential property that secured the mortgage loan and recorded a loss of $220,414. No payments of principal and interest were made on the mortgage loan during 2017. At the time of closing of the deed in lieu of foreclosure transaction, the outstanding principal balance of the loan was $250,610 and the loan payoff amount, including principal, interest and other accrued fees was $370,376. The deed in lieu of foreclosure was approved and ratified by the Audit Committee under the Related Party Policy.

 

 

In 2010, as part of the Westernbank FDIC assisted transaction, BPPR acquired (i) four commercial loans made to entities that were wholly-owned by one brother-in-law of Mr. Ballester and (ii) one commercial loan made to an entity that was owned by same brother-in-law together with Mr. Ballester’s father-in-law and another brother-in-law. The loans were secured by real estate and personally guaranteed by the owners of each borrower. The loans were originated by Westerbank 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 $19.7 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 a maturity of September 30, 2016 and, thereafter, various interim   renewals   were   approved,   with  the   last   two   renewals

   

occurring in June 2017 and October 2017, with the renewed loans maturing in January 31, 2018. The June renewals included a six-month principal moratorium for four of the Notes A commencing on March 2017 and a change in the interest from 6% to 4.25% in one of the Notes A. The October renewals included a 60-day moratorium of principal and interest on all of the Notes A and a subsequent 60-day principal moratorium on four of the Notes A. The aggregate outstanding balance on the loans as of December 31, 2017 was approximately $32.1 million and, during 2017, $114,892 and $973,290 were paid in principal and interest, respectively. The largest outstanding balance of the loans during 2017 was approximately $32.1 million. Although the loans were not paid by the borrowers upon their expiration on January 31, 2018, borrowers have continued to make payments of principal and interest for all Notes A, except one in which they are only making interest payments. The June and October renewals and moratoriums were ratified by the Audit Committee under the Related Party Policy.

Mr. Carrión is President of and owns, together with his siblings, an entity which owns 35% of a corporation that owns a commercial building. In addition, Mr. Carrión’s sister and brother-in-law are owners of an entity that has a participation of 21.5% in the same corporation. This corporation obtained in June 2001, a $30.4 million commercial loan from Doral Bank to provide financing for the development of the commercial building. In March 2007, Westernbank acquired the loan from Doral Bank and increased the loan amount to $40.5 million through additional borrowings. The loan had a 40-year amortization schedule, an interest rate of LIBOR plus 1.40% and a maturity date of March 2017. It was secured by the commercial building developed with the proceeds of the loan and guaranteed by the owners of the borrower. The loan was acquired by BPPR in 2010 as part of the Westernbank FDIC assisted transaction. In February 2017, the loan was extended by BPPR until June 2017 under the same terms and conditions. In May 2017, the loan was sold by BPPR to the Corporation, which in June 2017 renewed the loan for an additional three months. In August 2017, the Corporation refinanced the then-current $37.9 million principal balance of the loan at an interest rate of 5.15%, a maturity date of February 2019 and a 30-year amortization schedule. Payments of principal and interest of $316,447 and $725,324, respectively,

 

 

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were made during 2017. This loan participated in the moratorium offered to BPPR’s commercial clients after Hurricane Maria. The largest outstanding balance of the loan during 2017, as well as the outstanding balance of the loan as of December 31, 2017 was $38,209,359. This amount includes the capitalization of interest accrued during the moratorium, amounting to $491,019. The renewals, sale and refinancing described above were approved under the Related Party Policy.

On February 2018, BPPR entered into a definitive agreement for the acquisition and assumption of certain assets and liabilities of Reliable Financial Services and Reliable Finance Holding Company, Puerto Rico-based subsidiaries of Wells Fargo & Company, engaged in the auto finance business in Puerto Rico. Reliable Financial Services leases approximately 61,442 square feet of space (comprising approximately 34.54% of the rentable square feet) in the real estate property building securing   the  aforementioned  commercial  loan  to  Related   Parties   of

Mr. Carrión. Such lease is documented pursuant to a lease agreement between Reliable Financial Services and the corporation which is the borrower in the loan and of which Mr. Carrión’s Related Parties own 56.5% in the aggregate. As part of the acquisition transaction, BPPR has agreed to enter in an agreement with Reliable Financial Services to sublease the space necessary for BPPR to continue the acquired operations until the expiration of the lease in accordance with its terms in 2019. Rents paid pursuant to such sublease will be a source of repayment of, and serve as collateral to, the commercial loan. The estimated total amount to be paid during a 12-month period by BPPR to Reliable Financial Services under the sublease is approximately $2 million. BPPR’s agreement to enter into a sublease with Reliable Financial Services in connection with the acquisition transaction was ratified by the Audit Committee under the Related Party Policy.

 

 

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EXECUTIVE AND DIRECTOR COMPENSATION

 

Compensation Discussion and Analysis

 

In this section, we describe the key features of Popular’s executive compensation program and the factors that we considered in making 2017 compensation decisions regarding our named executive officers (“NEOs”).

 

  For 2017, Popular’s NEOs were:

 

     

 

  Richard L. Carrión

  

 

Executive Chairman of the Board of Directors, since July 1, 2017 (formerly Chief Executive Officer through June 30, 2017)

 

 

  Ignacio Alvarez

  

 

President & Chief Executive Officer (“CEO”), since July 1, 2017 (formerly President and Chief Operating Officer (“COO”) through June 30, 2017)

 

 

  Carlos J. Vázquez

  

 

Executive Vice President and Chief Financial Officer (“CFO”)

 

 

  Javier D. Ferrer

  

 

Executive Vice President and Chief Legal Officer (“CLO”)

 

 

  Lidio V. Soriano

  

 

Executive Vice President and Chief Risk Officer (“CRO”)

 

 

  Eli S. Sepúlveda

  

 

Executive Vice President, Commercial Credit Group, Banco Popular de Puerto Rico

 

Popular reports its financial results in accordance with generally accepted accounting principles in the United States (“GAAP”). A reconciliation of the GAAP to non-GAAP financial measures referred to below is provided in Appendix B to this Proxy Statement. This discussion includes statements regarding financial and operating performance targets in the specific context of Popular’s executive compensation program. Shareholders should not read these statements in any other context.

EXECUTIVE SUMMARY

During 2017, we demonstrated the continued strength of our franchise while operating in a challenging economic environment impacted by the unprecedented destruction and disruption caused by hurricanes Irma and Maria. Prior to the hurricanes, the Corporation’s annual net income result was projected to achieve payout under our incentive program. Notwithstanding the hurricanes’ impact, we persevered to achieve year-over-year growth in our net interest income, stable credit indicators and strong capital levels. BPPR’s Puerto Rico and Virgin Islands operations have substantially recovered from the impact of the storms. We also experienced high loan demand in our U.S. operation, with a 16% growth in commercial loans.

 

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2017 CORPORATE HIGHLIGHTS

Some of Popular’s key corporate accomplishments during 2017 included the following:

 

 

LOGO

2017 FINANCIAL SUMMARY

Our 2017 net income was $107.7 million, reflecting the adverse effect of the hurricanes and the U.S. Tax Cut and Jobs Act’s impact on the value of Popular’s U.S. deferred tax asset (“DTA”). To provide meaningful information about the underlying performance of our ongoing operations, the $168.4 million DTA write-down is added back to net income to express our results on an adjusted net income basis, which is a non-GAAP measure; on this basis,

 

32  |  2018 PROXY STATEMENT

Hurricanes Irma & Maria In September 2017, hurricanes Irma and Maria devastated Puerto Rico and the U.S. and British Virgin Islands causing catastrophic damage to infrastructure, including communications, fuel supplies, electric power and water. Immediately following the disaster, our main priority was to ensure the safety and wellbeing of our colleagues and support the stabilization and recovery needs of the most impacted communities. In the face of this dire crisis, our employees responded bravely and selflessly in support of their colleagues and communities, distributing survival supplies and restoring essential financial services that serve as the lifeline of economic activity. Within one week after hurricane Maria, our employees had reopened 32% of branches and made 24% of ATMs operational. By December 93% of our 177 branches were open and 82% of our 655 ATMs were operational. Also, our digital channels were not interrupted by the hurricanes. Following the hurricanes, we offered a 3-month payment moratorium for consumer, mortgage, and commercial loans and temporarily waived ATM surcharges and late payment fees. We increased our Employee Emergency Fund to support those colleagues that suffered severe hurricane damage. Credit Quality Non-performing loans decreased by $7 million (1%) compared to 2016. Non-performing assets as a percentage of total assets decreased from 2.0% at December 2016 to 1.7% at December 2017. We are closely monitoring asset quality measures on our loan portfolios and the moratorium granted to certain consumers and commercial borrowers. Capital Strategy In 2017, our quarterly common stock dividend increased from $0.15 to $0.25/share, and we executed a common stock repurchase of $75 million. Our capital levels remained robust, with year-end Common Equity Tier 1 capital equal to 16.3%. Puerto Rico Business We currently serve 1.68 million customers, reflecting an increase of 2% from 2016. Total deposits rose $4.3 billion (17%) from 2016. Net interest margins remained strong at 4.32%. Our commercial and auto loan portfolios increased during 2017. BPPR’s commercial loan portfolio, excluding run-off from the Westernbank portfolio, increased by $135 million during the year, and auto loans grew by $122 million (8%). We remain focused on providing innovative solutions to our customers through our digital transformation. Digital deposits captured 40% of total deposit transactions, and Mi Banco active customers reached 751,000 in 2017, up 8% from 2016. United States Business Our total loan portfolio grew by 11%, mainly driven by a 16% increase in the commercial loan portfolio. We expanded our consumer lending to U.S. customers through initiatives such as White Label credit card alliances. We launched our private banking initiative to fulfill our customers’ credit, deposit, financial advisory and investment needs. Digital deposit transactions increased to 43% of all deposits in December 2017 from 35% in December 2016. Organizational Excellence We completed several initiatives to protect corporate assets, ensure cyber-security and mitigate against fraud (including chip technology on credit and debit cards). Our 3rd wave of Popular’s Leadership Academy was conducted, ensuring a robust pool of top-quality leadership talent. The 4th wave of our LEAN Six Sigma Academy was launched, providing employees with tools to seize opportunities to improve efficiency and customer satisfaction. We enhanced our employees’ physical, emotional and financial well-being through expanded services in our Health and Wellness Center, mindfulness programs and an increase in Popular’s savings plan matching contribution. Social Commitment Through Fundación Banco Popular and Popular Community Bank Foundation, valuable financial and in-kind assistance was provided to areas severely impacted by the hurricanes in Puerto Rico and the Virgin Islands. Over 500,000 pounds of water, food and medical supplies were disbursed to provide immediate relief to the most affected communities with the support of employees. We launched the “Embracing Puerto Rico” initiative, contributed to the “Unidos por Puerto Rico” fundraising campaign and co-sponsored the “Somos Una Voz” concert which raised $35 million for earthquake victims in Mexico, and hurricane victims in Texas, Florida, Puerto Rico and the Caribbean.


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our adjusted net income was $276.0 million. In addition, as outlined later, the Board of Directors’ Compensation Committee (the “Committee”) decided to make further net income adjustments, directly attributable to the hurricanes’ impact that was beyond the Corporation’s control, for purposes of certain incentive awards; on this basis, our after-tax adjusted net income for incentives was $348.7 million. Refer to the GAAP to non-GAAP reconciliation in Appendix B.

Popular (“BPOP”) shares closed 2017 at $35.49, 19% lower than 2016. This performance compared negatively against our U.S. peers, which increased by 6%, and the KBW Nasdaq Regional Banking Index (“KRX”), which remained relatively unchanged, but compared favorably to other Puerto Rico banks. Despite concerns about Puerto Rico’s economic and fiscal situation, including the Commonwealth’s May 3rd, 2017 bankruptcy filing under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”), for the first nine months of 2017 the price of Popular’s shares correlated to the movement of the mainland KRX. However, following the impact of Hurricane Maria in September, Popular’s share price was severely affected, closing the year at levels below our U.S. peers and the KRX. During the first eight weeks of 2018, Popular’s share price increased by 21%, while the aggregate share price of the KRX, our U.S. peers and other Puerto Rico peer banks rose by 4%, 8% and 20%, respectively.

 

 

LOGO

 

As described below, our executive compensation programs are designed to reward the achievement of annual and long-term goals that generate sustained company performance and strong returns to our shareholders.

OUR 2017 EXECUTIVE COMPENSATION PROGRAM AND ORGANIZATIONAL CHANGES

 

 

Popular’s overarching compensation philosophy has always been to provide our executive officers with pay that is linked to performance and supports the long-term interests of our shareholders. Performance-based short- and long-term incentives represent a large portion of our executive officers’ target total compensation opportunity (63% of  total compensation for the Executive Chairman,

   

74% for the President and CEO and 62% for the other NEOs). Between 50% and 65% of those incentives are equity-based, with one-half of the target award based on Popular’s future total shareholder return and earnings per share. Our executive officers are also subject to stock ownership requirements.

 

 

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The Committee approves Popular’s compensation programs upon consideration of market competitive trends, regulatory guidelines and best practices. Furthermore, our executive compensation program is designed to discourage excessive or unnecessary risk taking and improper sales practices through the adequate balance of short-term and long-term incentives, thresholds and caps to limit payouts, and a mix of financial and non-financial goals, among other design features.

 

 

Effective July 1, 2017, the Board of Directors appointed Richard L. Carrión, previously Popular’s Chairman and CEO, as Executive Chairman of the Board of Directors. Ignacio Alvarez, who had been President and COO since 2014, was named President and CEO and a member of the Board of Directors, effective July 1, 2017.

 

 

In this new position, Mr. Carrión collaborates with the new CEO  on  corporate  strategy,  with  emphasis  on  mergers  and  acquisitions,

   

innovation and technology, social responsibility initiatives and government and client relations, and continues to chair the Board of Directors. The Committee believes that Mr. Carrión’s active involvement and collaboration with Mr. Alvarez has ensured a seamless transition of our CEO role.

 

 

In accordance with these organizational changes, the Committee, in consultation with its independent compensation consultant, reviewed market compensation practices and decided to reconfigure the respective levels and composition of target incentive compensation for the Executive Chairman and the President & CEO moving forward. The following table illustrates the annual cash and equity target award opportunities established for our NEOs in 2017. The result is a balanced perspective of financial and qualitative performance over a short- and long-term horizon.

 

 

2017 EXECUTIVE COMPENSATION PROGRAM

Target Incentive Opportunity

% of Base Pay

 

 

Short-Term (Cash) Incentive % of Base Pay

 

         

Richard L. Carrión

     

Ignacio Alvarez

       
         

CEO

Jan. - Jun.

     

 

Executive

Chairman

Jul. - Dec.

     

 

President

& COO

Jan. - Jun.

     

 

President

& CEO

Jul. - Dec.

     

Other

NEOs

Jan.- Dec.

 

Popular, Inc. Net Income    

 

   

 

  30.0%

 

   

 

 25.0%

 

   

 

 27.5%    

 

   

 

  30.0%

 

   

 

25.0%

 

                   

 

Annual Goals (Financial/Non-Financial)    

 

   

 

  50.0%

 

   

 

45.0%

 

   

 

45.0%

 

   

 

  50.0%

 

   

 

40.0%

 

                   

 

Leadership    

 

   

 

  20.0%

 

   

 

   15.0%

 

   

 

   17.5%

 

   

 

  20.0%

 

   

 

15.0%

 

                   

 

Total Short-Term (% of base pay)    

 

   

 

100.0%

 

   

 

   85.0%

 

   

 

   90.0%

 

   

 

100.0%

 

   

 

80.0%

 

                   

 

Long-Term (Equity) Incentive % of Base Pay

 

         

Richard L. Carrión

     

Ignacio Alvarez

       
         

CEO

Jan. - Jun.

     

 

Executive

Chairman

Jul. - Dec.

     

 

President

& COO

Jan. - Jun.

     

 

President

& CEO

Jul. - Dec.

     

Other

NEOs

Jan. - Dec.

Performance Shares    

( 12 Total Shareholder Return    

and  12 Earnings per Share)    

      80.0%       42.5%       50.0%       92.5%       40.0%
                   

 

Restricted Stock    

 

 

   

 

  80.0%

 

   

 

  42.5%

 

   

 

  50.0%

 

   

 

  92.5%

 

   

 

  40.0%

 

                   

 

Total Long-Term (% of base pay)    

 

   

 

160.0%

 

   

 

  85.0%

 

   

 

100.0%

 

   

 

185.0%

 

   

 

  80.0%

 

                   

 

Total Short- and Long-Term Incentives    

 

   

 

260.0%

 

   

 

170.0%

 

   

 

190.0%

 

   

 

285.0%

 

   

 

160.0%

 

                   

 

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The following key features of our executive compensation program reflect our focus on balanced performance-based pay, long-term shareholder value and prudent risk taking:

 

WHAT WE DO

 

  

Use various performance metrics to deter excessive risk-taking by eliminating any incentive focus on a single performance goal. Also, the Committee may adjust incentive payouts if results are not aligned with Popular’s risk appetite and related tolerances.

 

  

Balance short-term (cash) and long-term (equity) compensation to discourage short-term risk taking at the expense of long-term results.

 

  

Use equity incentives to promote total return to shareholders, company performance and executive retention.

 

  

Hold a portion of equity vesting until retirement, thereby reinforcing long-term risk management and alignment with shareholder interests.

 

  

Apply clawback features to all executive officer variable pay in the event of a financial results restatement, a performance metric found to be materially inaccurate, or an executive’s misconduct.

 

 

  

Employ “double-trigger” vesting of equity awards in the event of a change of control (i.e., vesting is only triggered upon a qualifying termination of employment following a change of control).

 

  

Conduct annual incentives and sales practices risk reviews in conjunction with Popular’s Chief Risk Officer.

 

  

Engage an independent compensation consultant who advises and reports directly to the Committee.

 

  

Require significant stock ownership from our executive officers. Our Executive Chairman and CEO have a requirement of six times their base salary, and the other NEOs must own three times their base salary.

 

WHAT WE DON’T DO

 

×

  

 

No tax gross-ups provided for any compensation or benefits.

×

  

No special executive retirement programs and no severance programs specific to executive officers.

 

×

  

 

No speculative transactions in Popular securities by executive officers is permitted, including: hedging and monetization transactions, such as zero-cost collars, forward sale contracts and short sales; equity swaps; options; and other derivative transactions.

 

×

 

  

 

No pledging of common stock as collateral for margin accounts or for loans (except as grandfathered with respect to certain loans).

×

 

  

No employment or change of control agreements with our NEOs.

×

  

No excessive perquisites for executives.

COMPENSATION OBJECTIVES AND COMPONENTS

MOTIVATE AND REWARD HIGH PERFORMANCE

 

Ensuring and sustaining a proper pay-performance relationship is one of our key objectives. For Popular, performance means a combination of financial results, strategic accomplishments and a demonstration of leadership competencies, all designed to support our company’s business strategy and drive long-term shareholder value.

Base salary, as well as short- and long-term incentive compensation opportunities,  are  generally  targeted  at market  median, with actual pay

varying according to each executive’s experience and performance. Our short-term incentive and performance share awards provide the opportunity to earn increased pay (up to 1.5 times target) for superior performance and similar downside (no payout) should we not achieve our performance goals. Furthermore, our incentive design seeks to dissuade our executives from taking excessive or unnecessary risks.

 

 

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As depicted in the following charts, our NEOs’ 2017 target incentive program had a strong focus on performance and shareholder alignment.

 

LOGO

The bars below illustrate the components of each NEO’s total target compensation opportunity (fixed pay plus variable performance-based pay). The variable portion of 63% for the Executive Chairman, 74% for the President and CEO and 62% for the other NEOs represents at-risk pay whose actual payout depends on company and individual performance. A breakdown of the target incentive elements is provided in the section titled “Our 2017 Executive Compensation Program and Organizational Changes.”

PAY MIX IN THE COMPENSATION PROGRAM

Each element, at target, as a % of base pay

 

LOGO

 

36  |  2018 PROXY STATEMENT

Short-term Incentive Annual cash award linked to the corporate and business unit results, individual goals and leadership competencies. 100% Cash Incentive Aligned with pay-performance; based on Popular, Inc. net income results, each NEO’s individual goals and leadership competencies. 50% Performance Shares One-half of the target equity award consists of performance shares, with actual earned shares determined at the end of a 3-year performance period: 1/2 based on Total Shareholder Return (“TSR”) - relative to an index of banks. 1/2 based on Earnings Per Share (“EPS”) – an absolute 3-year cumulative goal. 50% Restricted Stock One-half of the target equity award is restricted stock granted upon consideration of corporate and individual performance. Supports NEO stock ownership and retention. Shares vest 20% annually over 4 years, holding the remaining 20% to vest upon retirement Long-term Incentive Annual equity grant that rewards performance and aligns Popular’s NEOs with the interests of our shareholders.


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ALIGN EXECUTIVES WITH SHAREHOLDER INTERESTS AND BUILD LONG-TERM SHAREHOLDER VALUE

2017 Say on Pay Results

 

At Popular’s annual shareholders meeting in April 2017, the vast majority of voting shareholders (95.83%) approved our overall executive compensation policies and practices. We believe that this illustrates our shareholders’ support of our compensation philosophy and performance-based pay program. The perspectives of shareholders and industry best practices were taken into consideration by management and the Committee as they developed strategic objectives, business plans and compensation elements supporting the 2017 compensation decisions. The Committee plans to continue considering our shareholders’ perspectives on an annual basis.

Equity-based Compensation

A significant component of our compensation program is equity-based pay designed to promote long-term value by rewarding sustained earnings growth, long-term return on shareholders’ investment and the retention of key high-performing talent. Performance shares promote value creation by  rewarding  executives  for future increases  in earnings

(EPS) and stock appreciation (TSR) depending on the degree of achievement of pre-established EPS and TSR targets.

Restricted stock is awarded upon consideration of corporate and individual performance. It promotes executive stock ownership and retention as the shares vest over time—with a portion held until retirement—further aligning our executives’ interests with those of our shareholders.

Stock Ownership Guidelines

In addition, our NEOs are subject to stock ownership guidelines to reinforce their orientation toward long-term shareholder value. Within five years of appointment, the Executive Chairman and the CEO must reach and subsequently retain shares equivalent to six times their base salary; the requirement for the other NEOs is three times their base salary. Any shares pledged to secure grandfathered loans and any unvested performance shares are not considered to satisfy the requirement. As of February 2018, all NEOs had either met the requirement or were on track to comply within the designated timeframe.

 

 

ATTRACT AND RETAIN HIGHLY QUALIFIED EXECUTIVES

 

Popular’s executive compensation program seeks to attract, motivate and retain the talent needed to successfully deliver future earnings stability and growth. Our mix of salary and performance-based short- and long-term incentives provides a competitive offering to attract the best executive   talent    and    promote   its    long-term   career   retention.   In

consultation with management and its independent compensation consultant, the Committee balances competitiveness and retention features while considering individual performance, experience and qualifications, as well as market practices and Popular’s financial performance.

 

 

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The following key components of our compensation program, combined with strong succession and development initiatives, drive our ability to secure top executive-level talent over the long term.

COMPENSATION COMPONENTS—PURPOSE AND KEY DESIGN FEATURES

 

       
 

 

 

    LOGO    

 

 

Base Pay

 

 
 

• Fixed compensation to reflect each executive’s role, contribution and performance, which provides the foundation of the total compensation program on which other incentives and benefits are based.

 

• The reference point for base salaries is the median of the competitive market, with the ability to vary to reflect each executive’s performance, experience and contributions.

     
 

 

Executive Benefits and Perquisites

 

 
 

• Intended to represent an immaterial portion of total compensation, consistent with shareholder expectations and best practices.

   

 

 

 

 

LOGO

 

 

 

Short-Term Cash Incentive

 

 
 

• Short-term incentive represents a balance of performance measures that are aligned with Popular’s annual goals and business strategy.

 

• Annual incentive opportunity is targeted near the market median.

 

• Actual pay depends on the achievement of performance goals (financial, operational, strategic and individual leadership).

 

• Incentive plan has appropriate mitigating features to dissuade undue risk taking or improper sales practices (e.g., multiple measures, award caps, internal controls and compliance protocols, etc.).

     
 

 

Long-Term Equity Incentive

 

 
 

• Directly aligns executive interests with shareholders.

 

• Annual long-term incentive opportunity is targeted near the market median.

 

• Target award combines equal portions of performance-based and time-based vesting.

 

• Measures and rewards long-term performance.

 

• Allocated upon consideration of performance and potential.

 

• Promotes retention of key executive talent through multi-year vesting, including a portion that vests upon retirement.

   
       

2017 COMPENSATION PROGRAM AND PAY DECISIONS

BASE SALARY

Effective July 2017, the Committee approved base pay adjustments for Messrs. Carrión and Alvarez related to their respective changes in organizational role. Mr. Carrión’s base salary was reduced in connection with his ceasing to be CEO and assuming the role of Executive Chairman, and Mr. Alvarez’s base salary was increased when he assumed the position of President and CEO. Upon consideration of market-competitive pay for similar roles, and in consultation with its independent compensation consultant, the Committee approved the adjustments outlined below:

 

  NEO    New Base
Salary
     % of
adjustment
 

 

  Richard L. Carrión

 

   $

 

1,200,000

 

 

 

    

 

      (14.3%

 

 

 

  Ignacio Alvarez

 

    

 

900,000

 

 

 

    

 

25.9%

 

 

 

During 2017, no other base pay adjustments were made for the other NEOs.

 

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SHORT- AND LONG-TERM INCENTIVE COMPENSATION OPPORTUNITY

Incentive opportunities under the executive compensation program for 2017, as a percent of base pay, are presented below. The short-term incentive targets and related parameters for the Executive Chairman and CEO reflect a prorated opportunity based on 6 months in the former role and 6 months in the new role.

 

         
Component Level of
Achievement

Executive
Chairman

R. Carrión

President /
CEO

I. Alvarez

Other NEOs

 

 

 

<Threshold

 

0.0%

 

0.0%

 

0%

 

Corporate Net Income

Threshold (85%)

 

 

13.8%

 

 

13.9%

 

 

10%

 

 

 

Target

 

 

27.7%

 

 

28.9%

 

 

25%

 

 

Max (115%)

 

41.5%

 

43.9%

 

40%

 

 

<Threshold

 

0.0%

 

0.0%

 

0%

 

Individual Annual Goals
(financial/non-financial)

Threshold

 

23.8%

 

23.9%

 

20%

 

 

Target

 

 

47.7%

 

 

47.8%

 

 

40%

 

 

Max

 

71.5%

 

71.7%

 

60%

 

 

Min

 

0.0%

 

0.0%

 

0%

 

Leadership

Target

 

17.7%

 

18.9%

 

15%

 

 

Max

 

26.5%

 

27.8%

 

20%

 

 

<Threshold

 

0.0%

 

0.0%

 

0%

 

Total Short-Term Incentive

Threshold

 

37.6%

 

37.8%

 

30%

 

 

Target

 

 

93.1%

 

 

95.6%

 

 

80%

 

 

 

Max

 

 

139.5%

 

 

143.4%

 

 

120%

 

 

For the long-term incentive, the parameters below indicate the prevailing structure at the time of grant in February 2017, before the role and compensation changes were implemented.

 

 

<Threshold

 

0%

 

0%

 

0%

 

Equity Incentive—Performance Shares

Min

 

40%

 

25%

 

20%

 

 

Target

 

 

80%

 

 

50%

 

 

40%

 

 

Max

 

120%

 

75%

 

60%

 

 

<Threshold

 

0%

 

0%

 

0%

 

Equity Incentive—Restricted Stock

Threshold

 

40%

 

25%

 

20%

 

 

Target

 

 

80%

 

 

50%

 

 

40%

 

 

Max

 

120%

 

75%

 

60%

 

 

<Threshold

 

0%

 

0%

 

0%

 

Total Long-Term Incentive

Threshold

 

80%

 

50%

 

40%

 

 

Target

 

 

160%

 

 

100%

 

 

80%

 

 

Max

 

240%

 

150%

 

120%

 

    
 

<Threshold

 

0.0%

 

0.0%

 

0.0%

 

Consolidated Total

Threshold

 

117.7%

 

87.8%

 

70.0%

 

 

Target

 

 

253.1%

 

 

195.6%

 

 

160.0%

 

 

Max

 

379.6%

 

293.4%

 

240.0%

 

 

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SHORT-TERM ANNUAL CASH INCENTIVE FOR 2017 (PAID IN 2018)

Our short-term incentive rewards the achievement of annual financial and non-financial goals that reinforce our business strategy and strategic priorities, as well as the demonstration of our leadership competencies. Actual payouts depend on performance and are capped at 1.5 times the target award. Certain threshold levels of performance are required to be achieved for any payouts to be awarded.

Awards are earned based on level of achievement of 2017 net income, as adjusted, pre-established goals and leadership.

The Committee assessed and awarded the 2017 short-term cash incentive as follows:

Corporate Adjusted Net Income Component

As previously discussed, 2017 was marked by significant corporate achievements in terms of loan and deposit growth, digital transformation, organizational excellence and continued strong capital levels. Prior to Hurricanes Irma and Maria, our annual net income was projected to achieve payout under this award component. In the past, we have used adjusted after-tax net income (a non-GAAP measure) for incentive compensation purposes, because we believe it better reflects the underlying performance of our ongoing operations.

In determining the 2017 adjusted after-tax net income for incentive purposes, the Committee, in consultation with its independent compensation consultant, viewed the combined effect of the hurricanes as an unprecedented catastrophic event that was outside the Company’s control and not in the normal course of business. Therefore, for incentive purposes, the Committee decided to adjust its GAAP net income result for: (i) the previously described deferred tax asset write-down, and (ii) expenses specifically attributable to the hurricanes (net of insurance receivables) pertaining to the provision for loan losses, operating expenses and foregone revenue. For information about how we calculated 2017 net income for incentive compensation purposes, see Appendix B. The Committee believes that these adjustments result in a level of net income that more appropriately reflects Popular’s underlying business trends and recognizes the senior management team’s performance during this extraordinarily challenging year.

The adjusted net income for incentive purposes of $348.7 million represented 94.2% of the 2017 target of $370.2 million, thereby yielding a partial award on this component of the short-term annual cash incentive, as follows: 22.3% of base pay for the Executive Chairman, 23.1% for the CEO and 19.2% for the other NEOs, reflecting below-target payouts related to net income performance.

 

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Individual Annual Goals Component

In this individual performance component of the executive compensation program, the Committee assessed the achievements and effectiveness of each NEO against predetermined quantitative and qualitative goals related to financial performance, efficiency, milestones in key corporate strategic projects, etc. The following considerations were taken into account by the Committee in determining each NEO’s award, expressed as a percent of base pay:

 

 NEO

 % of Base

 Pay Earned

     

 Richard L. Carrión

 

 CEO: January-June

 

 Executive Chairman:

 July-December

 

 38.2% of base pay

  

Main Goals

 

•    Manage impact of the fiscal and economic situation in Puerto Rico.

 

•    Direct Popular’s capital strategy.

 

•    Oversee the execution of the Corporation’s business strategy.

 

•    Ensure that Popular has the right talent and systems to successfully execute its strategy.

 

Considerations

 

•   Led the Corporation through the fiscal and economic situation in Puerto Rico, closely monitoring the potential impact on customers, effectively managing the credit exposure to the government, identifying potential business opportunities, and continuing outreach efforts with key stakeholders. Directed negotiations for the $1.8 billion auto and commercial loan acquisition from Wells Fargo’s auto finance business in Puerto Rico announced in February 2018.

 

•   Guided the execution of the Corporation’s capital strategy, including an increase in the quarterly common stock dividend from $0.15 to $0.25 per share and the repurchase of $75 million in common stock. The Corporation’s capital base remained strong, closing the year with a Common Equity Tier 1 ratio of 16.3 percent.

 

•   Supported initiatives aligned with the Corporation’s business strategy. The Corporation’s leadership position in Puerto Rico was further strengthened, achieving an increase in the number of clients (reaching 1.68 million), a 17% year-over-year deposit growth and, in some segments, loan growth, despite economic weakness and the impact of the 2017 hurricanes. In the United States, Popular achieved strong commercial loan growth (16%), launched initiatives to grow fee income and continued making progress in the transformation of the retail branch network.

 

•   Supported recovery efforts for affected employees and communities in the aftermath of the hurricanes, and led our Puerto Rico and U.S. Foundations’ fundraising and community assistance initiatives.

 

•   Effectively supported the CEO transition plan in close collaboration with Popular’s new CEO.

 

•   Spearheaded efforts to attract, develop and retain talent, launching or strengthening initiatives in areas such as performance management, training, diversity and inclusion and wellness. Continued initiatives to simplify and modernize Popular’s technology infrastructure to drive efficiencies and improve our customers’ experience.

 Ignacio Alvarez

 

 President & COO:

 January-June

 

 President & CEO:

 July-December

 

 52.1% of base pay

  

Main Goals

 

•   Maintain financial performance amid the impact of Puerto Rico’s unstable fiscal and economic situation.

 

•   Improve Popular Community Bank’s profitability.

 

•   Continue cost savings and process optimization and initiatives.

 

•   Manage recovery efforts after the impact of hurricanes Maria and Irma.

 

Considerations

 

•   Delivered solid business results in Puerto Rico, despite the hurricanes’ financial impact. Maintained strong interest margins (4.32% in Puerto Rico and 3.99% for the Corporation) and stable credit quality. Grew our leading market position, including raising our deposit balances by $4.3 billion and increasing our customer base by 31,500. Achieved growth in commercial and auto loan portfolios, notwithstanding the difficult economic environment.

 

•   Directed efforts to manage the bank through Puerto Rico’s fiscal and economic situation, including reducing direct credit exposure to the government and continued outreach to government officials, regulators, investors and clients.

 

 

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 NEO

 % of Base

 Pay Earned

     
  

 

•   Led negotiations and internal and external coordination among multiple stakeholders for the $1.8 billion auto and commercial loan acquisition from Wells Fargo’s auto finance business in Puerto Rico announced in February 2018.

 

•   Grew Popular’s U.S. operations strategically without departing from our desired risk appetite through focused loan and low-cost deposit growth, launching of initiatives to drive fee income and continuing the transformation of the retail network. Achieved a 16% growth in commercial loans, launched a private banking initiative and strengthened our mortgage origination capabilities.

 

    

•   Directed digital transformation initiatives to improve efficiency and convenience; digital deposit transactions surpassed 40% of total deposits in Puerto Rico and the U.S. in December 2017.

 

•   Guided multiple initiatives to increase our operational efficiency and promote a high-performance organization centered in the areas of performance management, engagement, wellness and leadership development.

 

•   Drove efforts to control salary expense and reduce fraud losses, while investing in strengthening risk controls and in new business initiatives.

 

•   Successfully managed recovery efforts to restore operations in Puerto Rico and the Virgin Islands after the passage of Hurricanes Irma and Marĺa by effectively addressing the needs of our clients, employees and regulators.

 

•   Achieved a smooth transition to the CEO role by working closely with Popular’s Executive Chairman.

 

 Carlos J. Vázquez

 

 45.4% of base pay

  

Main Goals

 

•   Support business growth and efficiency initiatives.

 

•   Complete and file Popular’s stress test and the resulting capital plan.

 

•   Mentor and guide the Talent Management strategic project.

 

•   Manage and maintain adequate liquidity and capital resources.

 

Considerations

 

•   Guided the analysis, structuring and negotiation of multiple asset acquisition and business growth initiatives, including the $1.8 billion auto and commercial loan acquisition from Wells Fargo’s auto finance business in Puerto Rico announced in February, 2018.

 

•   Directed the completion and filing of the 2017 DFAST stress test.

 

•   Executed the increase in common stock dividend from $0.15 to $0.25 per share and $75 million common stock buyback, in line with the capital plan.

 

•   Continued to maintain strong liquidity in our Puerto Rico and U.S. banking subsidiaries, with minimal reliance on wholesale funding.

 

•   Guided key strategic initiatives related to talent management and leadership development. Assumed responsibility for the Strategic Sourcing and Procurement Division and the implementation of its strategic plan.

 

•   Led aggressive investor outreach efforts (including a steady increase in sell-side analyst events since 2015), achieving additional analyst coverage and enhancements to investor information.

 Javier D. Ferrer

 

 45.4% of base pay

  

Main Goals

 

•   Support and advise management on Popular’s strategic and business initiatives, including material asset acquisitions, growth initiatives and new business ventures.

 

•   Strengthen legal function and manage external legal expenses.

 

Considerations

 

•   Provided strategic and legal advice on numerous strategic initiatives and critical legal matters throughout the year, including commercial and regulatory aspects. Major projects included the $1.8 billion auto and commercial loan acquisition from Wells Fargo’s auto finance business in Puerto Rico announced in February, 2018.

 

•   Strengthened partnerships between the Legal Group and business and support units to provide more efficient input, collaboration and oversight of initiatives.

 

•   Reorganized the legal function to leverage Popular’s legal resources and manage legal risk while aligning with business needs.

 

•   Led and enhanced expense management efforts, resulting in a 62% year-over-year reduction in outside legal expenses and below-budget internal legal operating expenses.

 

•   Drove improvements to corporate governance and disclosure practices.

 

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 NEO

 % of Base

 Pay Earned

     

 Lidio V. Soriano

 

 39.0% of base pay

  

Main Goals

 

•   Implement enhancements to Popular’s compliance, financial, operational, model validation, and credit risk programs.

 

•   Guide technology initiatives to bolster our risk management framework.

 

•   Enhance quantitative analytics resources within the organization.

 

Considerations

 

•   Guided the policies, procedures and controls which yielded stable credit quality during the year’s challenging economic environment.

 

•   Expanded business continuity planning and testing under a wide range of potential situations, including disaster recovery implementation during hurricanes Irma and Maria.

 

•   Guided multiple large-scale technology enhancements to support anti-money laundering, risk data management and business continuity.

 

•   Led the betterment of models and processes related to stress testing.

 

•   Directed framework enhancements in the areas of compliance, financial, operational, credit, loan review, and model validation risks.

 

•   Supported and directed development of internal quantitative analytics expertise in the areas of model validation and compliance.

 Eli S. Sepulveda

 

 46.5% of base pay

  

Main Goals

 

•   Grow commercial deposits and loan portfolio.

 

•   Manage commercial credit quality.

 

•   Support strategic initiatives promoting entrepreneurship.

  

Considerations

 

•   Oversaw credit underwriting standards, including credit review and risk rating accuracy, resulting in improved commercial credit performance.

 

•   Despite the Puerto Rico fiscal situation, credit quality remained stable year-over-year, with commercial net charge-offs at 0.31% (vs. 0.28% in 2016) and commercial non-performing loans flat at 2.22%.

 

•   Facilitated recovery efforts to mitigate charge-offs.

 

•   Oversaw initiatives to grow the commercial portfolio, with $1 billion in new money transactions originated. Managed a $3.4 billion year-over-year (December) increase in commercial deposits.

 

•   Developed projects to boost startup businesses throughout a diverse range of industries and municipalities.

Leadership Component

 

The leadership component of Popular’s executive incentive program encompasses the NEOs’ demonstration of our leadership competencies in areas such as strategic thinking, customer focus, talent management and building effective teams. The Committee determined that the NEOs exhibited strong leadership in 2017 maintaining the strength of our franchise while addressing the challenging and uncertain short- and long-term social and macroeconomic  conditions in our main  market of  Puerto

Rico. Facing an unprecedented level of destruction and uncertainty following the hurricanes, members of senior management led their teams selflessly, rapidly and creatively to address the dire needs of our colleagues, customers and communities. Based on the above, the Committee granted the target leadership award for Mr. Carrión (17.7%), the maximum award for Mr. Alvarez (27.8%) and the target (15.0%) for Messrs. Vázquez, Ferrer, Soriano and Sepúlveda.

 

 

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TOTAL EARNED 2017 SHORT-TERM CASH INCENTIVE

The following table summarizes the 2017 short-term cash incentive granted to the NEOs by the Committee, as a percent of base pay, related to the achievement of the corporate, individual and leadership goals described above:

 

 NEO    Corporate Net
Income
    Individual
Performance
    Leadership     Total Earned (1)     Total Award
($) 
 

 

 Richard L. Carrión

 

    

 

22.3

 

 

   

 

38.2

 

 

   

 

17.7

 

 

   

 

78.2

 

 

   

 

      $1,016,133 

 

 

 

 

 Ignacio Alvarez

 

    

 

23.1

 

 

 

   

 

52.1

 

 

 

   

 

27.8

 

 

 

   

 

103.0

 

 

 

   

 

    831,387 

 

 

 

 

 Carlos J. Vázquez

 

    

 

19.2

 

 

 

   

 

45.4

 

 

 

   

 

15.0

 

 

 

   

 

79.6

 

 

 

   

 

      537,030 

 

 

 

 

 Javier D. Ferrer

 

    

 

19.2

 

 

 

   

 

45.4

 

 

 

   

 

15.0

 

 

 

   

 

79.6

 

 

 

   

 

    437,953 

 

 

 

 

 Lidio V. Soriano

 

    

 

19.2

 

 

 

   

 

39.0

 

 

 

   

 

15.0

 

 

 

   

 

73.2

 

 

 

   

 

    365,764 

 

 

 

 

 Eli S. Sepúlveda

 

    

 

19.2

 

 

 

   

 

46.5

 

 

 

   

 

15.0

 

 

 

   

 

80.7

 

 

 

   

 

    363,050 

 

 

 

 

(1)

Total target awards were 93.1% for Mr. Carrión, 95.6% for Mr. Alvarez and 80% for the other NEOs.

LONG-TERM INCENTIVE FOR 2017 (GRANTED FEBRUARY 2017)

 

Popular’s equity incentive aligns our executives’ compensation with sustained long-term performance and the interests of our shareholders. Each NEO has a target long-term equity award opportunity that reflects market practice for similar roles. One-half (50%) of the target opportunity is granted as Restricted Stock to reward prior year results and individual contributions, and one-half (50%) is granted as Performance Shares, with actual value based on future performance. The actual long-term incentive awards can range from zero to 1.5 times the target award.

In February 2017, the Committee approved NEO equity grants as follows:

Restricted Stock

Restricted stock, reflecting 50% of the target equity incentive opportunity, supports executive ownership and retention. The value of awards granted may vary from zero to 1.5 times the executive’s target award based upon consideration of the prior year’s corporate and individual performance assessed by the Committee on a holistic basis. Once granted, shares vest on a pro-rata basis, with 20% vesting annually over the first 4 years and the remaining 20% vesting at retirement.

Our vest-at-retirement provision supports our desire to balance rewards with appropriate risk mitigation, as well as position the grants as a retirement benefit.

The Committee granted 2017 awards at a below-target level, recognizing that the Corporation’s 2016 adjusted net income of $358.1 million was below the targeted net income of $401.4 million (a reconciliation of the non-GAAP  financial measures is provided  in  Appendix B  to  this  Proxy

Statement). Nevertheless, the Committee recognized the leadership team’s contributions to ending the year in a strong position with stable credit quality and solid capital levels.

Performance Shares

Performance shares, reflecting 50% of the long-term equity incentive opportunity, reward our future performance and vest only if pre-defined performance goals are achieved. Awards are granted based on target award level and vest on the third anniversary of grant according to actual performance during the 2017-2019 period. Two measures, weighted equally, are used to determine vesting:

 

 

3-year relative TSR compared to U.S. Banks with assets greater than $10 billion (as measured by SNL Financial)

 

 

3-year absolute cumulative EPS

Each performance measure has a pre-defined threshold (minimum result for which an incentive would be payable), target and maximum (stretch goal) level of performance that determines vesting at the end of the 3-year period. Performance below threshold results in forfeiture of the shares allocated to the corresponding performance measure. Dividend equivalents are accrued and paid at the end of the performance period based on the actual number of shares earned. Upon consideration of these factors, the Committee granted equity awards to the NEOs, based on percentage of base pay, with the grant date fair market value indicated in the table below. They will vest as previously described to the extent that the corresponding service and performance conditions are met.

 

 

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    Restricted Stock     Performance Shares     Total Grant Date Fair Value  
 NEO   % of base
pay
  $     % of base
pay
  $    

% of base

pay

  $  

 

 Richard L. Carrión

 

 

 

  70.0%

 

 

 

 

 

 

$980,000

 

 

 

 

 

 

 80.0%

 

 

 

 

 

 

$1,120,000

 

 

 

 

 

 

 150.0%

 

 

 

 

 

 

$2,100,000

 

 

 

 

 

 Ignacio Alvarez

 

 

43.8

 

 

 

 

 

 

313,170

 

 

 

 

 

 

50.0

 

 

 

 

 

 

357,500

 

 

 

 

 

 

93.8

 

 

 

 

 

 

670,670

 

 

 

 

 

 

 Carlos J. Vázquez

 

 

 

35.0

 

 

 

 

 

 

236,250

 

 

 

 

 

 

40.0

 

 

 

 

 

 

270,000

 

 

 

 

 

 

75.0

 

 

 

 

 

 

506,250

 

 

 

 

 

 Javier D. Ferrer

 

 

 

35.0

 

 

 

 

 

 

192,500

 

 

 

 

 

 

40.0

 

 

 

 

 

 

220,000

 

 

 

 

 

 

75.0

 

 

 

 

 

 

412,500

 

 

 

 

 

 Lidio V. Soriano

 

 

 

35.0

 

 

 

 

 

 

175,000

 

 

 

 

 

 

40.0

 

 

 

 

 

 

200,000

 

 

 

 

 

 

75.0

 

 

 

 

 

 

375,000

 

 

 

 

 

 Eli S. Sepúlveda

 

 

 

35.0

 

 

 

 

 

 

157,500

 

 

 

 

 

 

40.0

 

 

 

 

 

 

180,000

 

 

 

 

 

 

75.0

 

 

 

 

 

 

 

 

337,500

 

 

 

 

 

 

 

 

 

Note: Total 

target awards were 160% for Mr. Carrión, 100% for Mr. Alvarez and 80% for the other NEOs.

SPECIAL EQUITY INCENTIVE AWARDED TO NEWLY APPOINTED CEO (GRANTED JUNE 2017)

In recognition of Mr. Alvarez’s promotion to the position of CEO, in consultation with its independent compensation consultant, the Committee approved a special one-time restricted stock grant of $475,000. The Committee intended to raise Mr. Alvarez’s 2017 total equity compensation to reflect the prorated value of his new long-term incentive target level. The grant corresponded to 12,202 shares (as per the closing price of $38.93 on the grant date of June 22, 2017), with vesting after Mr. Alvarez’s completion of six months in his new role (January 1, 2018).

PERFORMANCE SHARES PAYOUT—2015-2017 PERFORMANCE CYCLE

On February 27, 2015, the Committee approved a grant of performance shares designed to reward performance over the 3-year performance period (2015-2017). The potential payout of the 2015 performance shares ranged from 0%-150% of target, weighted 50% based on relative total shareholder return (TSR) among the comparative group and 50% based on absolute cumulative earnings per share (EPS) over the performance period. In January 2018, the Committee reviewed Popular’s 2015-2017 performance and determined the degree to which the goals were attained.

2015-2017 Relative TSR

Although the Company started 2017 (year 3 of the performance period) in the 58th percentile among banks with assets greater than $10 billion, its position relative to other banks in the comparative group declined during 2017 (particularly in the 4th quarter) due, significantly, to the effects of Puerto Rico’s economic situation, federal tax reform, and Hurricanes Irma and Maria. Its final 3-year relative TSR of 15.2% ranked in the 5th percentile, below the threshold of the 25th percentile; therefore, no shares were earned for this component.

2015-2017 Absolute EPS, as Adjusted

Consistent with the previously described adjustments for special items applied to the GAAP net income results for our 2017 short-term annual cash incentive, the Committee adjusted Popular’s GAAP EPS results for 2015-2017. In addition, the Committee adjusted the 2017 EPS results to reverse the favorable impact of the $75 million common stock repurchase executed during the first quarter. For information about how we calculated adjusted EPS for purposes of the 2015-2017 performance shares, see Appendix B. The resulting 3-year cumulative EPS of $10.36 was between the threshold and target, yielding a payout of 58.7% of target on this component.

The above decisions yielded a payout of 29% of the total combined target number of performance shares that had been granted, as indicated below.

 

Payout (as Percentage of Target) 2015—2017

 

    Goal

 

 

 

0% of Target

 

  

  50% of Target  

 

 

100% Target

 

 

150% Target

 

 

Performance

 

 

Payout

 

 

 Relative TSR

 (Weighted 50%)

 

 

< 25th Percentile

 

  

25th Percentile

 

 

50th Percentile

 

 

75th Percentile

 

 

5th Percentile (1)

 

  0%

 

 

 Absolute EPS

 (Weighted 50%)

 

 

< $10.25

 

  

$10.25

 

 

$10.88

 

 

$11.52

 

 

$10.36 (2)

 

  58.7%

 

 

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BENEFITS AND PERQUISITES

 

Perquisites and other executive benefits do not represent a significant portion of our executive compensation program. During 2017, perquisites such as home security, the use of company-owned automobiles and personal tickets to events sponsored by Popular were offered on a limited basis to NEOs. We do not provide club memberships  for  NEOs or  other

executives. Popular owns an apartment in New York City, which is used by the Executive Chairman primarily for business purposes during his frequent visits to New York in support of Popular’s business and other company-related affairs.

 

 

DETERMINATION AND ASSESSMENT OF EXECUTIVE COMPENSATION

 

ROLE OF THE COMPENSATION COMMITTEE

In accordance with its charter, a copy of which is available at www.popular.com, the Committee establishes Popular’s general compensation philosophy and oversees the compensation program for executive officers, including our NEOs. It also reviews and approves the overall purpose and goals of our incentive compensation system and benefit plans. In addition, it reviews plans for executive officers’ development and succession. The Committee met five times during 2017. Throughout the year, the Committee maintained regular communication with its external advisors, non-member directors and management to discuss topics such as emerging legislative and regulatory trends and best practices.

The Committee assesses the effectiveness of its compensation program by reviewing its strategic objectives and business plans, considering each NEO’s scope of responsibility, reviewing market reference data, and assessing the relationship between pay and performance (Popular relative to peers and executives relative to their performance goals). The Committee also evaluates whether our compensation programs meet Popular’s goals by monitoring engagement and retention of executives, and by assessing the relationship between company and individual performance and actual payouts. Furthermore, in conjunction with the annual review of the compensation plans with the CRO, the Committee monitors and evaluates whether the design of incentive plans fosters an environment of prudent risk-taking and sound business decisions.

The Committee may modify payments or adjust the compensation program in light of economic or business results, regulatory requirements, risk assessments or results of the annual shareholders advisory vote on executive compensation. It may also recoup previously awarded incentives due to a financial restatement, a materially inaccurate performance metric or misconduct. The Committee’s main activities in 2017 included:

Executive Compensation

 

 

Reviewed, discussed and approved 2017-2019 performance share goals with respect to total shareholder return and earnings per share.

 

 

Reviewed 2016 performance of executive officers (including NEOs), approving awards of short-term cash incentive, performance shares and restricted stock, which were paid or granted in early 2017.

 

 

Assessed the compensation competitiveness of all NEOs and other executive officers.

 

 

Reviewed executive officer equity holdings and compliance with Popular’s stock ownership guidelines.

 

 

Received education and updates from its compensation consultant and other sources concerning regulatory developments, market trends and best practices in executive compensation.

 

 

Reviewed and approved the new duties and compensation program for the newly appointed Executive Chairman and CEO.

 

 

Validated the compensation peer group for future market comparisons.

Governance

 

 

Discussed incentive plan risks with the CRO and management, concluding that our incentive plans and sales practices did not encourage unnecessary or excessive risk taking.

 

 

Reviewed advisor independence. It also performed an evaluation of the services provided by its compensation consultant and determined that such consultant was independent.

Benefits

 

 

Reviewed cost, funding, participation and utilization trends related to Popular’s welfare and retirement benefits, including its on-site

 

 

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health center, wellness incentives and employee retirement readiness.

 

 

Reviewed the liability-driven investment strategy implemented for the BPPR Retirement Plan.

Other

 

 

Reviewed executive officer development and succession planning.

 

 

Examined key human resources indicators, including headcount, personnel costs, turnover and employee engagement, among others.

 

 

Reviewed progress in Popular’s diversity and inclusion strategy, including gender-related aspects of compensation programs.

 

 

Discussed the hurricane impact on employees, approving early payment of the customary Christmas Bonus and special recognition incentives for non-executive employees.

 

 

Met in executive session during each Committee meeting.

 

 

Although the Committee exercises its independent judgment in reaching compensation decisions, it currently utilizes the advice of the following contributors:

 

 Contributors    Role

 

 Meridian Compensation Partners, LLC

 Compensation Committee Independent Advisor

  

 

Provides independent advice and support to the Committee on relevant market trends, best practices in compensation governance, legislation and other requested compensation matters.

 

 

 Executive Chairman and President & CEO*

  

 

Work with the Committee to ensure that the compensation programs are aligned with Popular’s strategic objectives. Discuss corporate strategy and business goals with the Committee, and provide feedback regarding NEO performance.

 

 

 Executive Vice President of

 Administration

  

 

Supports the planning and conduct of Committee meetings. Advises on goal setting and performance evaluations, executive compensation and regulatory matters and proposes the design and modifications to the NEO compensation and benefit programs, plans and awards. Supports the annual risk assessment process.

 

 

 Chief Legal Officer

  

 

Counsels on legal matters regarding compensation programs and regulatory affairs.

 

 

 Chief Accounting Officer/Corporate Comptroller

  

 

Evaluates and advises on the compensation programs’ accounting and tax implications.

 

 

 Chief Risk Officer

  

 

Reviews with the Committee all risk-related aspects of Popular’s incentive plans and sales practices.

 

 

 External Legal Counsel

  

 

Provides information and advice on legal and regulatory aspects of executive compensation, employee benefits and board committee governance.

 

* Neither the Corporation’s Executive Chairman nor the President and CEO may be present during voting or deliberations on his or her respective compensation.

ROLE OF THE COMPENSATION CONSULTANT

 

The Committee uses the services of compensation consultant Meridian Compensation Partners, LLC (“Meridian”) to serve as its independent advisor and review Popular’s executive compensation program’s competitiveness    and   the   pay-performance   relationship   in   light   of

competitive market practices among our peer group and applicable regulations. During 2017, Meridian attended Committee meetings and conferred on multiple occasions with the Committee Chair and various members to provide updates and guidance on

 

 

2018 PROXY STATEMENT  |  47


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compensation matters. During the entire period, Meridian reported directly to the Committee regarding these matters, and the firm had no other relationship with, nor provided any other services to, Popular.

The Committee has reviewed and concluded that Meridian’s consultation services comply with the standards adopted by the SEC and by NASDAQ with regard to compensation advisor independence and conflicts of interest. The Committee will continue to monitor this compliance on an ongoing basis.

COMPENSATION INFORMATION AND PEER GROUP

The Committee periodically assesses the competitiveness of its executive pay practices through external studies conducted by Meridian as well as supplemental internal research based on proxies and compensation surveys (including resources provided by Equilar, Willis Towers Watson, and similar service providers). The  Committee  also  considers executive

compensation information from financial institutions in the headquarters market of Puerto Rico.

The Committee utilizes the information from internal and external analyses to assess the appropriateness of compensation levels (relative to market and performance) and considers the information when setting program guidelines, including base salary ranges, incentive targets and equity compensation. An individual’s relative compensation with respect to the peer group may vary according to his or her role, Popular’s financial performance, and individual qualifications, experience and performance as assessed by the Committee.

Our compensation peer group used for 2017 pay and performance comparisons, as well as reviews of compensation structure and design, was approved by the Committee in 2016 and comprised of the banks listed in the table below. Popular’s total assets were positioned near the median of the group.

 

 

 

  Peer Group

 

 

  Associated Banc-Corp

 

 

 

 

New York Community Bancorp

 

 

 

  BankUnited, Inc.

 

 

 

 

People’s United Financial

 

 

 

  BOK Financial Corporation

 

 

 

 

Signature Bank

 

 

 

  Comerica Incorporated

 

 

 

 

SVB Financial Group

 

 

 

  Commerce BancShares, Inc.

 

 

 

 

Synovus Financial Corp.

 

 

 

  Cullen/Frost Bankers Inc.

 

 

 

 

Umpqua Holdings Corporation

 

 

 

  East West Bancorp Inc.

 

 

 

 

Webster Financial Crop

 

 

 

  First Horizon National Corporation

 

 

 

 

Wintrust Financial Corporation

 

 

 

  First Republic Bank

 

 

 

 

Zions Bancorporation

 

 

OTHER ASPECTS OF OUR EXECUTIVE COMPENSATION PROGRAM

INCENTIVE RECOUPMENT GUIDELINE (CLAWBACK)

The Committee has established an Incentive Recoupment Guideline covering its executive officers and other employees designated by the Committee from time to time, which provides for the recoupment of certain cash- and equity-based incentive compensation awards and payments in the event of (i) a restatement of all or a portion of Popular’s financial statements; (ii) a performance goal or metric that is determined to be materially inaccurate; or (iii) an act or omission by the covered executive that constitutes misconduct.

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION

As part of its role, the Committee considers the deductibility of executive compensation under Section 162(m) of the U.S. Internal Revenue Code. The Committee is cognizant of and will continue to consider the impact of the U.S. Tax Cuts and Jobs Act of 2017, which expanded the number of individuals covered by Section 162(m) of the Internal Revenue Code and eliminated the exception for performance-based compensation (generally effective beginning  for  the  2018  tax  year)  on the Company’s compensation programs  and  design. In  addition,  for  NEOs  who  are  residents  of  Puerto Rico,

 

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compensation is deductible for income tax purposes if it is reasonable. It is the Committee’s intention that the compensation paid to Popular’s NEOs be deductible, but the Committee reserves the ability to grant or pay compensation that is not deductible. For the fiscal year 2017, all NEOs were residents of Puerto Rico.

ENSURING PRUDENT RISK TAKING

 

Appropriate risk management is a key consideration in Popular’s daily operations and decisions. We seek to design compensation programs that do not promote improper sales practices or encourage excessive or unnecessary risk taking by employees. We share with management regular communications concerning the regulatory requirements governing sound sales and incentive practices.

The Committee conducts an annual review of incentive and sales practices risk in conjunction with the CRO. During the December 2017 Committee meeting, the CRO outlined the results of his evaluation, which covered absolute levels and year-over-year changes in number of participants and incentive award payouts, trends in customer claims and complaints, and an in-depth review of specific plans in multiple sales and support divisions. The review encompassed sales practices and the reinforcing framework of incentives, policies and procedures, monitoring and controls,  customer  inquiries/complaints  and  employee training  and

feedback mechanisms. Based on the review, the CRO did not identify any incentive plans or sales practices that would encourage employees to take unnecessary or excessive risks. In conjunction with risk management processes, the compensation programs are designed to adequately balance risks and rewards through: appropriate use of base pay, short-term incentives (cash) and long-term incentives (stock); thresholds and caps to limit payouts; mix of financial and non-financial components; link to company performance; and competitive pay practices. Furthermore, an executive’s incentive payout may be adjusted by the Committee at its discretion if results are not aligned with Popular’s risk appetite. The Committee will continue to monitor our compensation programs to ensure that they do not promote improper sales practices or inappropriate risk-taking, and that they comply with current and emerging regulations and industry best practices.

 

 

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) with management and recommended to the Board that the CD&A be included in this Proxy Statement.

Respectfully submitted,

The Compensation Committee

    Maria Luisa Ferré, Chair

    David E. Goel

    William J. Teuber, Jr.

    Carlos A. Unanue

 

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2017 Executive Compensation Tables and

Compensation Information

 

SUMMARY COMPENSATION TABLE

The following table summarizes the compensation of our NEOs for the year ended December 31, 2017, which reflects the full year of the equity (stock) and non-equity (cash) components of our current executive compensation program.

 

  Name and Principal Position   Year    

Salary

($)(a)

    Bonus
($)(b)
    Stock
Awards
($)(c)
    Non-Equity
Incentive Plan
Compensation
($)(d)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)(e)
    All Other
Compensation
($)(f)
   

Total

($)

 

 

  Richard L. Carrión

  Executive Chairman since July 1, 2017

  (formerly Chief Executive Officer)

 

 

 

 

 

 

2017

 

 

 

 

 

 

$

 

 

1,300,000

 

 

 

 

 

 

$

 

 

50,205

 

 

 

 

 

 

 

 

 

$2,100,000

 

 

 

 

 

 

 

 

 

$1,016,133

 

 

 

 

 

 

                $

 

 

170,591

 

 

 

 

 

 

              $

 

 

209,168

 

 

 

 

 

 

$

 

 

4,846,097

 

 

 

 

    2016       1,453,846       58,533       2,520,000       1,850,800             266,141       6,149,320  
   

 

2015

 

 

 

   

 

1,400,000

 

 

 

   

 

58,528

 

 

 

   

 

2,800,000

 

 

 

   

 

2,276,073

 

 

 

   

 

 

 

 

   

 

281,848

 

 

 

   

 

6,816,449

 

 

 

 

  Ignacio Alvarez

 

  President and Chief Executive Officer

  since July 1, 2017 (formerly President

  and Chief Operating Officer)

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

807,500

 

 

 

 

 

 

 

 

 

37,535

 

 

 

 

 

 

 

 

 

1,145,670

 

 

 

 

 

 

 

 

 

831,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,846

 

 

 

 

 

 

 

 

 

2,862,938

 

 

 

 

    2016       742,500       29,822       804,375       845,155             15,130       2,436,982  
   

 

2015

 

 

 

   

 

695,769

 

 

 

   

 

29,817

 

 

 

   

 

893,750

 

 

 

   

 

1,038,277

 

 

 

   

 

 

 

 

   

 

11,656

 

 

 

   

 

2,669,269

 

 

 

                                                               

 

  Carlos J. Vázquez

  Executive Vice President and

  Chief Financial Officer

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

675,000

 

 

 

 

 

 

 

 

 

28,225

 

 

 

 

 

 

 

 

 

506,250

 

 

 

 

 

 

 

 

 

537,030

 

 

 

 

 

 

 

 

 

47,055

 

 

 

 

 

 

 

 

 

21,089

 

 

 

 

 

 

 

 

 

1,814,649

 

 

 

 

    2016       700,962       28,220       607,500       709,250             13,617       2,059,549  
   

 

2015

 

 

 

   

 

670,192

 

 

 

   

 

28,215

 

 

 

   

 

675,000

 

 

 

   

 

842,855

 

 

 

   

 

 

 

 

   

 

11,700

 

 

 

   

 

2,227,962

 

 

 

 

  Javier D. Ferrer

  Executive Vice President and

  Chief Legal Officer

 

 

 

 

 

2017

 

2016

2015

 

 

 

 

 

 

 

 

 

 

550,000

 

571,154

550,000

 

 

 

 

 

 

 

 

 

 

22,932

 

22,927

22,922

 

 

 

 

 

 

 

 

 

 

412,500

 

495,000

550,000

 

 

 

 

 

 

 

 

 

 

437,953

 

477,950

583,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,693

 

14,296

10,162

 

 

 

 

 

 

 

 

 

 

1,437,078

 

1,581,327

1,716,781

 

 

 

 

 

 

  Lidio V. Soriano

  Executive Vice President and

  Chief Risk Officer

 

 

 

 

 

 

 

 

2017

 

2016

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

500,000

 

519,231

476,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,863

 

20,858

20,853

 

 

 

 

 

 

 

 

 

 

 

 

 

375,000

 

450,000

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

365,764

 

526,500

617,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,855

 

12,524

8,734

 

 

 

 

 

 

 

 

 

 

 

 

 

1,274,482

 

1,529,113

1,623,810

 

 

 

 

 

 

 

 

  Eli S. Sepúlveda

  Executive Vice President

  Commercial Credit Group

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

450,000

 

 

 

 

 

 

 

 

 

18,905

 

 

 

 

 

 

 

 

 

337,500

 

 

 

 

 

 

 

 

 

363,050

 

 

 

 

 

 

 

 

 

58,418

 

 

 

 

 

 

 

 

 

22,342

 

 

 

 

 

 

 

 

 

 

1,250,215

 

 

 

 

 

 

 

(a)

Includes salaries before deductions. On July 1, 2017, Mr. Alvarez, former President and Chief Operating Officer, was appointed President and Chief Executive Officer of the Corporation. Mr. Carrión, former Chief Executive Officer, was appointed Executive Chairman. In light of their new roles, Mr. Alvarez’ annualized base salary was increased to $900,000 and Mr. Carrión’s annualized base salary was reduced to $1,200,000. The base pay differences for the NEOs between 2015, 2016, and 2017 are attributable to the following: the calendar year 2016 contained 27 biweekly pay periods, as compared to 26 biweekly pay periods in 2015 and 2017. Annual salary as of December 31, 2017 was: R. Carrión, $1,200,000; I. Alvarez, $900,000; C. Vázquez, $675,000; J. Ferrer, $550,000; L. Soriano, $500,000; and E. Sepúlveda, $450,000.

 

(b)

Includes Popular’s customary Christmas bonus provided to its Puerto Rico-based employees, equal to 4.17% of base pay.

 

(c)

The awards reported in the “Stock Awards” column were provided in the form of restricted stock and performance shares, granted on February 24, 2017. The value in the column above represents the fair value of the restricted stock and performance shares determined in accordance with FASB ASC Topic 718 based on the closing price of Popular’s common stock on the grant date ($44.35) and the probable outcome of the applicable performance conditions. With regard to the restricted stock, 80% of the shares will vest (i.e., no longer be subject to forfeiture) in equal annual installments over four years, and the remaining 20% will vest upon retirement. The grant date fair value of the restricted stock award is as follows: R. Carrión, $980,000; I. Alvarez, $313,170; C. Vázquez, $236,250; J. Ferrer, $192,500; L. Soriano, $175,000; and E. Sepúlveda, $157,500. For Mr. Alvarez, it includes a one-time grant of $475,000 in restricted stock in recognition for his promotion to President and CEO, with a closing price of Popular’s common stock on the June 22, 2017 grant date of $38.93.

 

  

The performance shares vest after the end of a 3-year performance cycle (2017-2019). The number of shares actually earned will depend on Popular’s achievement of goals related to: (i) TSR; and (ii) an absolute cumulative EPS goal. Each metric corresponds to one-half of the performance share incentive opportunity. Actual earned awards may range from 0 to 1.5 times the target opportunity based on performance. The amounts in the table reflect the target (or 100%) level of achievement, as follows: R. Carrión, $1,120,000; I. Alvarez, $357,500; C. Vázquez, $270,000; J. Ferrer, $220,000; L. Soriano, $200,000; and E. Sepúlveda, $180,000. The maximum potential value for each performance shares award is as follows: R. Carrión, $1,680,000; I. Alvarez, $536,250; C. Vázquez, $405,000; J. Ferrer, $330,000; L. Soriano, $300,000; and E. Sepúlveda, $270,000.

 

(d)

The amounts reported in the Non-Equity Incentive Plan Compensation column reflect the amounts earned by each NEO under Popular’s annual short-term incentive. NEOs were eligible to participate in a 2017 annual cash incentive opportunity based on the achievement of their annual corporate, business unit and individual goals. The “2017 Compensation Program and Pay Decisions” section of the Compensation Discussion and Analysis describes how the 2017 short-term incentive awards to the NEOs were determined.

 

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(e)

No additional benefits in the defined benefit Retirement and Restoration Plans were earned in 2017 as they have been frozen since 2009. This column contains the required accounting representation of the annual change in present value of the pension benefit as of December 31, 2017. With respect to 2015 and 2016, pursuant to proxy rules, the change in present value of accrued benefits is not reflected in this table since it decreased during the year, mainly due to the combined effect of a decrease in the discount rate used for measuring plan liabilities offset by changes in mortality assumptions.

 

  

Present value for changes in pension value were determined using year-end Statement of Financial Accounting Standard Codification Topic 715, Compensation—Retirement Benefits (ASC 715) assumptions with the following exception: payments are assumed to begin at the earliest possible retirement date at which benefits are unreduced. The age to receive retirement benefits with no reductions is 55 provided the participant has completed 10 years of service. Each participating NEO has reached the aforementioned unreduced retirement eligibility.

 

(f)

The amounts reported in the “All Other Compensation” column reflect, for each NEO, the sum of (i) the incremental cost to Popular of all perquisites and other personal benefits, (ii) the amounts contributed by Popular to the Savings Plan, and (iii) the change in value of retiree medical insurance coverage. The following table outlines those perquisites received by those NEOs with an aggregate value exceeding $10,000:

 

  Types of Perquisites Received

 

  

Richard L.

Carrión

 

  

Ignacio

Alvarez

 

  

Carlos J.

Vázquez

 

  

Javier D.

Ferrer

 

  

Lidio V.

Soriano

 

  

Eli S.
Sepúlveda

 

 

  Non Work-Related Security (i)

 

  

 

X

 

 

  

 

X

 

 

                   

 

  Company-Owned Vehicle

 

  

 

X

 

  

 

X

 

  

 

X

 

  

 

X

 

  

 

X

 

  

 

X

 

 

  Other (ii)

 

  

 

X

 

                        

 

(i)

The incremental cost to Popular for the personal security of Messrs. Carrión and Alvarez was $194,186 and $23,460, respectively.

 

(ii)

Includes benefits provided to certain NEOs, the value of which does not exceed the greater of $25,000 or 10% of the total amount of benefits received by each NEO, such as personal tickets to events sponsored by Popular.

The following table shows Popular’s match under the Puerto Rico Savings and Investment Plan:

 

  Employer Match to Savings Plan ($)

 

 

  Richard L. Carrión

 

 

  

 

$8,250  

 

 

 

  Ignacio Alvarez

 

 

  

 

8,250  

 

 

 

  Carlos J. Vázquez

 

 

  

 

8,250  

 

 

 

  Javier D. Ferrer

 

 

  

 

8,250  

 

 

 

  Lidio V. Soriano

 

 

  

 

7,500  

 

 

 

  Eli S. Sepúlveda

 

 

  

 

8,250  

 

 

 

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GRANTS OF PLAN-BASED AWARDS

The following table details all equity and non-equity plan-based awards granted to each of the NEOs during fiscal year 2017.

 

         

 

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards (a)

 

   

 

Estimated Future Payouts Under

Equity Incentive Plan Awards (b)

 

   

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#) (c)

 

   

Grant Date
Fair Value of
Stock and
Option
Awards
($) (d)

 

 

 

  Name

 

 

Grant Date

 

   

Threshold ($)

 

   

Target ($)

 

   

Maximum ($)

 

   

Threshold (#)

 

   

Target (#)

 

   

Maximum (#)

 

     

 

  Richard L. Carrión

                                                                    $2,100,000  

  2017 Short-Term Cash Incentive

      $490,000       $1,210,000       $1,815,000            

  Restricted Stock

    24-Feb-17                   22,097    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

12,628

 

 

 

   

 

25,254

 

 

 

   

 

37,882

 

 

 

               

 

  Ignacio Alvarez

                    1,145,670  

  2017 Short-Term Cash Incentive

      305,125       771,750       1,157,625            

  Restricted Stock

    24-Feb-17                   7,062    

  Restricted Stock

    22-Jun-17                   12,202    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

4,032

 

 

 

   

 

8,062

 

 

 

   

 

12,094

 

 

 

               

 

  Carlos J. Vázquez

                    506,250  

  2017 Short-Term Cash Incentive

      202,500       540,000       810,000            

  Restricted Stock

    24-Feb-17                   5,327    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

3,044

 

 

 

   

 

6,088

 

 

 

   

 

9,132

 

 

 

               

 

  Javier D. Ferrer

                    412,500  

  2017 Short-Term Cash Incentive

      165,000       440,000       660,000            

  Restricted Stock

    24-Feb-17                   4,341    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

2,482

 

 

   

 

4,962

 

 

 

   

 

7,444

 

 

 

               

 

  Lidio V. Soriano

                    375,000  

  2017 Short-Term Cash Incentive

      150,000       400,000       600,000            

  Restricted Stock

    24-Feb-17                   3,946    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

2,256

 

 

 

   

 

4,510

 

 

 

   

 

6,766

 

 

 

               

 

  Eli S. Sepúlveda

                    337,500  

  2017 Short-Term Cash Incentive

      135,000       360,000       540,000            

  Restricted Stock

    24-Feb-17                   3,552    

  Performance Shares

 

   

 

24-Feb-17

 

 

 

                           

 

2,030

 

 

   

 

4,060

 

 

 

   

 

6,090

 

 

 

               

 

(a)

This section includes the 2017 short-term cash incentive. The amounts shown in the “Threshold” column assume that the leadership component did not meet performance “Threshold”, but the NEOs are awarded with the minimum level for the Corporation and Business Unit goals; however, these portions are not guaranteed. The actual short-term annual incentive awards for 2017 performance were as follows: R. Carrión, $1,016,133; I. Alvarez, $831,387; C. Vázquez, $537,030; J. Ferrer, $437,953; L. Soriano, $365,764; and E. Sepúlveda, $363,050.

 

  

Due to Mr. Alvarez new role as CEO effective July 1, 2017, the target opportunity under the short-term annual cash incentive was increased from 90% to 100% of his base salary. Mr. Carrión’s target opportunity under the short-term annual cash incentive was reduced from 100% to 85% of his base salary also effective July 1, 2017. The amounts shown in this section were prorated based on the corresponding plan design and salary that applied to their respective roles during the year.

 

(b)

This section includes the performance shares awarded on February 24, 2017. The number of shares was determined based on the closing price of Popular’s common stock on the grant date of February 24, 2017 ($44.35). The shares will vest on the third anniversary of the grant date, subject to Popular’s achievement of certain performance goals during the performance cycle. The performance goals will be based on two performance metrics weighted equally: Total Shareholder Return and absolute cumulative Earnings Per Share. The performance cycle is a three-year period beginning on January 1 of the calendar year of the grant date and ending on December 31 of the third year. Each performance goal will have a defined minimum threshold (i.e., minimum result for which an incentive would be earned equal to one-half of target number of shares), target (i.e., result at which 100% of the incentive would be earned) and maximum level of performance (i.e., result at which 1.5 times the incentive target would be earned).

 

(c)

This section includes the restricted stock awarded on February 24, 2017; the number of shares was determined based on the closing price of Popular’s common stock on the grant date of February 24, 2017 ($44.35). The shares will vest (i.e., no longer to be subject to forfeiture) as follows: 80% will vest in equal installments on each of the first four anniversaries of the grant date and 20% will vest upon retirement, defined as termination of employment after attaining age 55 with 10 years of service or age 60 with 5 years of service. This section also includes a one-time grant of 12,202 restricted stock for Mr. Alvarez in recognition for his promotion to President and CEO. The Compensation Committee awarded Mr. Alvarez a one-time grant of $475,000 in restricted stock based on the prorated value of his new long-term incentive target opportunity of 185% of his base salary. The grant corresponds to 12,202 shares based on the closing price of the Corporation’s common stock on the grant date of June 22, 2017, which was $38.93. The restricted stock was subject to forfeiture and restrictions on transferability until January 1, 2018, when it vested.

 

(d)

The amounts reported in this column represent the grant date fair value of both performance shares and restricted stock.

 

52  |  2018 PROXY STATEMENT


Table of Contents

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table sets forth certain information with respect to the value of all restricted stock and performance shares previously awarded to the NEOs (based on the closing price of Popular’s common stock as of December 29, 2017, the last trading day of 2017, which was $35.49).

 

     Stock Awards  

  Name

 

   Number of Shares
or Units of Stock That
Have Not Vested (#) (a)
    

Market Value of Shares

or Units of Stock That
Have Not Vested ($)

     Equity Incentive Plan Awards:
Number of Unearned Shares,
Units or Other Rights That
Have Not Vested (#) (b)
    

Equity Incentive Plan Awards:  

Market or Payout Value of  

Unearned Shares, Units or  

Other Rights That  

Have Not Vested ($)  

 

 

  Richard L. Carrión

 

    

 

121,243

 

 

 

    

 

$4,302,914

 

 

 

    

 

70,764

 

 

 

    

 

$2,511,414  

 

 

 

  Ignacio Alvarez

 

    

 

46,762

 

 

 

    

 

1,659,583

 

 

 

    

 

22,589

 

 

 

    

 

801,684  

 

 

 

 

  Carlos J. Vázquez

 

    

 

26,697

 

 

 

    

 

947,477

 

 

 

    

 

17,060

 

 

 

    

 

605,459  

 

 

 

 

  Javier D. Ferrer

 

    

 

21,264

 

 

 

    

 

754,659

 

 

 

    

 

13,902

 

 

 

    

 

493,382  

 

 

 

 

  Lidio V. Soriano

 

    

 

19,331

 

 

 

    

 

686,057

 

 

 

    

 

12,637

 

 

 

    

 

448,487  

 

 

 

 

  Eli S. Sepúlveda

 

    

 

16,546

 

 

 

    

 

587,218

 

 

 

    

 

10,887

 

 

 

    

 

386,380  

 

 

 

 

(a)

Vesting dates of shares or units of stock that have not vested:

 

     

2005
Restricted
Stock
Award (i)

 

    

2006
Restricted
Stock
Award (i)

 

    

2015

Restricted
Stock
Award (ii)

 

    

2015
Performance

Shares
Award (iii)

 

    

2016
Restricted
Stock
Award (iv)

 

    

2017
Restricted
Stock
Award (v)

 

    

Total

 

 

 

  Richard L. Carrión

 

  

 

 

 

 

6,069

 

 

 

 

  

 

 

 

 

6,931

 

 

 

 

  

 

 

 

 

30,207

 

 

 

 

  

 

 

 

 

10,429

 

 

 

 

  

 

 

 

 

45,510

 

 

 

 

  

 

 

 

 

22,097

 

 

 

 

  

 

 

 

 

121,243

 

 

 

 

 

  Ignacio Alvarez

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

9,642

 

 

 

 

  

 

 

 

 

3,329

 

 

 

 

  

 

 

 

 

14,527

 

 

 

 

  

 

 

 

 

19,264

 

 

 

 

  

 

 

 

 

46,762

 

 

 

 

 

  Carlos J. Vázquez

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

601

 

 

 

 

  

 

 

 

 

7,283

 

 

 

 

  

 

 

 

 

2,515

 

 

 

 

  

 

 

 

 

10,971

 

 

 

 

  

 

 

 

 

5,327

 

 

 

 

  

 

 

 

 

26,697

 

 

 

 

 

  Javier D. Ferrer

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

5,934

 

 

 

 

  

 

 

 

 

2,049

 

 

 

 

  

 

 

 

 

8,940

 

 

 

 

  

 

 

 

 

4,341

 

 

 

 

  

 

 

 

 

21,264

 

 

 

 

 

  Lidio V. Soriano

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

5,395

 

 

 

 

  

 

 

 

 

1,863

 

 

 

 

  

 

 

 

 

8,127

 

 

 

 

  

 

 

 

 

3,946

 

 

 

 

  

 

 

 

 

19,331

 

 

 

 

 

  Eli S. Sepúlveda

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

70

 

 

 

 

  

 

 

 

 

4,532

 

 

 

 

  

 

 

 

 

1,565

 

 

 

 

  

 

 

 

 

6,827

 

 

 

 

  

 

 

 

 

3,552

 

 

 

 

  

 

 

 

 

16,546

 

 

 

 

 

  (i)

The shares will vest upon termination of employment on or after age 55 and completing 10 years of service.

 

  (ii)

80% of the shares will vest in equal installments on each of the first four anniversaries of the approval date (February 27, 2015) and 20% will vest upon retirement, defined as termination of employment after attaining age 55 with 10 years of service or age 60 with 5 years of service.

 

  (iii)

The number of shares shown in the tables above are actual shares earned based on the degree to which the goals were attained during the 2015—2017 performance cycle that ended on December 31st, 2017. The shares are subject to continued time-based vesting until February 27, 2018. The dividend equivalents earned and subject to continued time-based vesting until February 27, 2018, were as follows: R. Carrión, 578 shares; I. Alvarez, 185 shares; C. Vázquez, 140 shares; J. Ferrer, 114 shares; L. Soriano, 104 shares; and E. Sepúlveda, 87 shares.

 

  (iv)

80% of the shares will vest in equal installments on each of the first four anniversaries of the grant date (January 27, 2016) and 20% will vest upon retirement, defined as termination of employment after attaining age 55 with 10 years of service or age 60 with 5 years of service.

 

  (v)

80% of the shares will vest in equal installments on each of the first four anniversaries of the grant date (February 24, 2017) and 20% will vest upon retirement, defined as termination of employment after attaining age 55 with 10 years of service or age 60 with 5 years of service. For Mr. Alvarez, a portion of the restricted stock (12,202 shares) was subject to forfeiture and restrictions on transferability until January 1, 2018, when it became vested.

 

2018 PROXY STATEMENT  |  53


Table of Contents
(b)

Vesting dates of unearned shares, units or other rights that have not vested:

 

       

2016

Performance
Shares Award (i)

 

      

2017
Performance
Shares Award (ii)

 

      

Total

 

 

 

  Richard L. Carrión

 

 

    

 

 

 

 

 

45,510

 

 

 

 

 

 

    

 

 

 

 

 

25,254

 

 

 

 

 

 

    

 

 

 

 

 

70,764

 

 

 

 

 

 

 

  Ignacio Alvarez

 

 

    

 

 

 

 

 

14,527

 

 

 

 

 

 

    

 

 

 

 

 

8,062

 

 

 

 

 

 

    

 

 

 

 

 

22,589

 

 

 

 

 

 

 

  Carlos J. Vázquez

 

 

    

 

 

 

 

 

10,972

 

 

 

 

 

 

    

 

 

 

 

 

6,088

 

 

 

 

 

 

    

 

 

 

 

 

17,060

 

 

 

 

 

 

 

  Javier D. Ferrer

 

 

    

 

 

 

 

 

8,940

 

 

 

 

 

 

    

 

 

 

 

 

4,962

 

 

 

 

 

 

    

 

 

 

 

 

13,902

 

 

 

 

 

 

 

  Lidio V. Soriano

 

 

    

 

 

 

 

 

8,127

 

 

 

 

 

 

    

 

 

 

 

 

4,510

 

 

 

 

 

 

    

 

 

 

 

 

12,637

 

 

 

 

 

 

 

  Eli S. Sepulveda

 

 

    

 

 

 

 

 

6,827

 

 

 

 

 

 

    

 

 

 

 

 

4,060

 

 

 

 

 

 

    

 

 

 

 

 

10,887

 

 

 

 

 

 

 

  (i)

The number of performance shares shown in the tables above is based on achievement of target performance. The shares will vest on January 27, 2019, subject to the achievement of certain performance goals during the 2016—2018 performance cycle. Refer to note b of the Grants of Plan-Based Awards Table.

 

  (ii)

The number of performance shares shown in the tables above is based on achievement of target performance. The shares will vest on February 24, 2020, subject to the achievement of certain performance goals during the 2017—2019 performance cycle. Refer to note b of the Grants of Plan-Based Awards Table.

OPTION EXERCISES AND STOCK VESTED TABLE FOR 2017

The following table includes certain information with respect to the vesting of stock awards during 2017.

 

      

Stock Awards

 

 
       

 

Number of Shares
    Acquired on Vesting (#)

 

      

 

Value Realized
    on Vesting ($) (a)

 

 

 

 

  Richard L. Carrión

    

 

 

 

 

 

 

 

21,447

 

 

 

 

 

 

 

    

 

 

 

 

 

 

$962,576

 

 

 

 

 

 

 

  Ignacio Alvarez

 

    

 

 

 

 

 

 

6,846

 

 

 

 

 

    

 

 

 

 

 

 

307,259

 

 

 

 

 

 

 

  Carlos J. Vázquez

 

    

 

 

 

 

 

 

5,170

 

 

 

 

 

    

 

 

 

 

 

 

232,038

 

 

 

 

 

 

 

  Javier D. Ferrer

 

    

 

 

 

 

 

 

4,213

 

 

 

 

 

    

 

 

 

 

 

 

189,086

 

 

 

 

 

 

 

  Lidio V. Soriano

 

    

 

 

 

 

 

 

3,830

 

 

 

 

 

    

 

 

 

 

 

 

171,897