Corporate Performance
Corporate Net Income
During 2023, Popular delivered solid results despite a challenging environment which included high interest rates, an uncertain geopolitical landscape and disruptions in the banking industry during the first half of the year. The Corporation’s results reflected solid earnings, robust loan growth, stable credit quality and continued customer growth. Important milestones were achieved, including surpassing two million unique customers in Puerto Rico and significant progress was made in our transformation efforts.
Popular’s GAAP Net income for 2023 was approximately $541.3 million, compared to $1.1 billion for the year 2022. Excluding the $45.3 million after-tax impact of the FDIC Special Assessment, the adjusted net income for the year 2023 was approximately $586.6 million, compared to an adjusted net income of $807.8 million in 2022. The variance was mainly driven by a higher provision for credit losses and higher operating expenses. The increase in the provision was due to the release of loan loss reserves in the first half of 2022, continued loan growth during 2023 and the normalization of credit quality metrics in our unsecured consumer lending portfolios from historically low levels experienced during the pandemic. The increase in operating expenses reflects our investment in our transformation initiatives, our people, and our efforts to expand our capabilities in cybersecurity, risk management, data and technology.
For incentive purposes, we use GAAP after-tax adjusted net income, if applicable, as the key financial metric for incentive compensation because we believe it best reflects the underlying performance of our ongoing operations. The Committee’s use of adjusted net income is to ensure that participants are neither rewarded nor penalized for items that are non-recurring, unusual or not indicative of ongoing operations.
The adjusted net income for incentive purposes of $586.6 million represented 88.67% of the 2023 target of $661.6 million. This level of performance yielded a payout slightly above the threshold (i.e., 85% of target) on the Corporate Net Income component of the annual cash incentive. As a result, NEOs earned approximately 62.2% of their respective targets for this component. Refer to the GAAP to non-GAAP reconciliation in Appendix A.
Return on Average Tangible Common Equity
The Committee uses annual after-tax adjusted ROATCE as a performance measure given its increasing focus in our communications with shareholders and due to its incorporation of both earnings and capital management. ROATCE is calculated based on our adjusted earnings for the year divided by our average tangible shareholder’s equity less preferred stock, goodwill, and other intangibles.
The 2023 after-tax adjusted ROATCE of 10.19% represented 91.72% of the 2023 target of 11.11%. This level of performance yielded a payout above the 9.44% threshold (i.e., 85% of target) on the ROATCE component of the annual cash incentive. As a result, NEOs earned approximately 72.4% of their respective targets for this component.
Strategic Performance
The Strategic Performance component is tied to certain strategic objectives of the Corporation’s multi-year transformation. In determining the 2023 payout, the Committee evaluated management’s progress along four strategic priorities: growth and expense management, customer experience, employee experience, and overall progress on the execution of targeted initiatives. Each of those priorities was grounded in one or more key results reviewed by the Committee.
At its February 2024 meeting, the Committee, in consultation with the CEO, reviewed the degree to which the Corporation’s Strategic Performance goals were achieved. The goal relating to growth and expense management was measured based on expense management and organic growth in both the consumer and commercial portfolios, as well as our efficiency ratio metric. Customer experience was measured based on net promoter scores achieved and the increase in digitally led sales. Employee experience was reviewed based on loyalty scores obtained from our employee surveys. The overall progress on the execution of targeted transformation initiatives was assessed by key milestones and results attained in multiple project workstreams during 2023, the successful launch of the Corporation’s redefined purpose and cultural framework, as well as effective cross-firm collaboration that enabled these results to take place.
While many of the investments related to the transformation are foundational in nature and will take time to show meaningful results, the Corporation has already begun to see tangible revenue uplift from several of the early-stage initiatives. In Puerto Rico, these include enhanced pricing segmentation in the commercial cash management business and streamlined processing of small business loans. After discussion with the CEO, and
