POPULAR, INC. - Quarter Report: 2021 March (Form 10-Q)

	UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549

	Form 10-Q

[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended March 31, 2021
	Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	Commission File Number: 001-34084

POPULAR, INC.
(Exact name of registrant as specified in its charter)
Puerto Rico			66-0667416
(State or other jurisdiction of Incorporation or			(IRS Employer Identification Number)
organization)
Popular Center Building
209 Muñoz Rivera Avenue
Hato Rey, Puerto Rico			00918
(Address of principal executive offices)			(Zip code)
(787) 765-9800
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)		BPOP	The NASDAQ Stock Market
6.70% Cumulative Monthly Income Trust Preferred Securities		BPOPN	The NASDAQ Stock Market
6.125% Cumulative Monthly Income Trust Preferred Securities		BPOPM	The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
	[X] Yes	[ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
	[X] Yes	[ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer [X]		Accelerated filer [ ]	Non-accelerated filer [ ]
Smaller reporting company [ ]		Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	[ ] Yes	[X] No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 80,593,882 shares outstanding as of May 5, 2021.

POPULAR, INC.
INDEX

Part I – Financial Information	Page

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at March 31, 2021 and
December 31, 2020	6

Unaudited Consolidated Statements of Operations for the quarters
ended March 31, 2021 and 2020	7

Unaudited Consolidated Statements of Comprehensive Income for the
quarters ended March 31, 2021 and 2020	8

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the
quarters ended March 31, 2021 and 2020	9


Unaudited Consolidated Statements of Cash Flows for the quarters
ended March 31, 2021 and 2020	10

Notes to Unaudited Consolidated Financial Statements	12

Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations	109

Item 3. Quantitative and Qualitative Disclosures about Market Risk	151

Item 4. Controls and Procedures	151

Part II – Other Information

Item 1. Legal Proceedings	152

Item 1A. Risk Factors	152

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	153

Item 3. Defaults Upon Senior Securities	154

Item 4. Mine Safety Disclosures	154

Item 5. Other information	154

Item 6. Exhibits	154

Signatures	155

Forward-Looking Information

This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements about Popular Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) business, financial condition, results of operations, plans, objectives, future performance and the effects of the COVID-19 pandemic on our business. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements.

Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

 the rate of growth or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated;

 the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business;

 the impact of the pending debt restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action;

 the scope and duration of the COVID-19 pandemic (including the appearance of new strains of the virus), actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on us, our customers, service providers and third parties;

 the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government in connection with the COVID-19 pandemic and the rate of expenditure of such funds, as well as the timeline and outcome of current Puerto Rico debt restructuring proceedings under Title III of PROMESA;

 changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets;

 the fiscal and monetary policies of the federal government and its agencies;

 changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;

 additional Federal Deposit Insurance Corporation (“FDIC”) assessments;

 regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;

 unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters or the emergence of pandemics, epidemics and other health-related crises, which could cause a disruption in our operations or other adverse consequences for our business;

 the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;

 the performance of the stock and bond markets;

 competition in the financial services industry;

 possible legislative, tax or regulatory changes; and

 a failure in or breach of our operational or security systems or infrastructure or those of EVERTEC, Inc., our provider of core financial transaction processing and information technology services, or of other third parties providing services to us, including as a result of cyberattacks, e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.

Other possible events or factors that could cause our results or performance to differ materially from those expressed in these forward-looking statements include the following:

 negative economic conditions that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense;

 changes in market rates and prices which may adversely impact the value of financial assets and liabilities;

 potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory or government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;

 changes in accounting standards, rules and interpretations;

 our ability to grow our core businesses;

 decisions to downsize, sell or close units or otherwise change our business mix; and

 management’s ability to identify and manage these and other risks.

Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operation may constitute forward-looking statements and are subject to the risk that actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of the pandemic on us, our customers, service providers and third parties.

Moreover, the outcome of legal and regulatory proceedings, as discussed in “Part II, Item 1. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, as well as “Part II, Item 1A” of our Quarterly Reports on Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

All forward-looking statements included in this Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

			March 31,		December 31,
(In thousands, except share information)			2021		2020
Assets:
Cash and due from banks			$	495,915	$	491,065
Money market investments:
		Time deposits with other banks		11,568,677		11,640,880
		Total money market investments		11,568,677		11,640,880
Trading account debt securities, at fair value:
		Pledged securities with creditors’ right to repledge		239		241
		Other trading account debt securities		36,265		36,433
Debt securities available-for-sale, at fair value:
		Pledged securities with creditors’ right to repledge		88,668		125,819
		Other debt securities available-for-sale		22,682,941		21,435,333
Debt securities held-to-maturity, at amortized cost (fair value 2021 - $92,643; 2020 - $94,891)				89,725		92,621
		Less – Allowance for credit losses		10,096		10,261
		Debt securities held-to-maturity, net		79,629		82,360
Equity securities (realizable value 2021 - $179,000; 2020 - $173,929)				178,650		173,737
Loans held-for-sale, at lower of cost or fair value				84,214		99,455
Loans held-in-portfolio				29,344,620		29,588,430
		Less – Unearned income		212,992		203,234
		Allowance for credit losses		800,797		896,250
		Total loans held-in-portfolio, net		28,330,831		28,488,946
Premises and equipment, net				508,023		510,241
Other real estate				72,060		83,146
Accrued income receivable				215,993		209,320
Mortgage servicing rights, at fair value				122,543		118,395
Other assets				1,713,083		1,737,041
Goodwill				671,122		671,122
Other intangible assets				21,415		22,466
Total assets			$	66,870,268	$	65,926,000
Liabilities and Stockholders’ Equity
Liabilities:
	Deposits:
		Non-interest bearing	$	14,263,548	$	13,128,699
		Interest bearing		44,479,253		43,737,641
		Total deposits		58,742,801		56,866,340
Assets sold under agreements to repurchase				86,834		121,303
Notes payable				1,224,230		1,224,981
Other liabilities				918,844		1,684,689
		Total liabilities		60,972,709		59,897,313
Commitments and contingencies (Refer to Note 20)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 885,726 shares issued and outstanding (2020 - 885,726)				22,143		22,143
Common stock, $0.01 par value; 170,000,000 shares authorized;104,529,277 shares issued (2020 - 104,508,290) and 84,379,180 shares outstanding (2020 - 84,244,235)				1,045		1,045
Surplus				4,571,919		4,571,534
Retained earnings				2,489,453		2,260,928
Treasury stock - at cost, 20,150,097 shares (2020 - 20,264,055)				(1,012,263)		(1,016,954)
Accumulated other comprehensive (loss) income, net of tax				(174,738)		189,991
		Total stockholders’ equity		5,897,559		6,028,687
Total liabilities and stockholders’ equity			$	66,870,268	$	65,926,000
The accompanying notes are an integral part of these Consolidated Financial Statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

			Quarters ended March 31,
(In thousands, except per share information)				2021		2020
Interest income:
	Loans		$	434,649	$	450,446
	Money market investments			3,112		12,000
	Investment securities			85,690		87,912
		Total interest income		523,451		550,358
Interest expense:
	Deposits			30,201		62,101
	Short-term borrowings			143		1,048
	Long-term debt			13,995		14,114
		Total interest expense		44,339		77,263
Net interest income				479,112		473,095
Provision (reversal) for credit losses				(82,226)		189,731
Net interest income after provision (reversal) for credit losses				561,338		283,364
Service charges on deposit accounts				39,620		41,659
Other service fees				70,628		64,773
Mortgage banking activities (Refer to Note 9)				17,343		6,420
Net gain (loss), including impairment, on equity securities				421		(2,728)
Net (loss) profit on trading account debt securities				(45)		491
Net gain on sale of loans, including valuation adjustments on loans held-for-sale				-		957
Indemnity reserves on loans sold expense				(698)		(4,793)
Other operating income				26,384		19,864
		Total non-interest income		153,653		126,643
Operating expenses:
Personnel costs				159,479		146,831
Net occupancy expenses				26,013		25,158
Equipment expenses				21,575		21,605
Other taxes				13,959		13,681
Professional fees				99,948		101,071
Communications				6,833		5,954
Business promotion				12,521		14,197
FDIC deposit insurance				5,968		5,080
Other real estate owned (OREO) (income) expenses				(4,533)		2,479
Other operating expenses				32,714		34,079
Amortization of intangibles				1,051		2,473
		Total operating expenses		375,528		372,608
Income before income tax				339,463		37,399
Income tax expense				76,831		3,097
Net Income			$	262,632	$	34,302
Net Income Applicable to Common Stock			$	262,279	$	33,602
Net Income per Common Share - Basic			$	3.13	$	0.37
Net Income per Common Share - Diluted			$	3.12	$	0.37
The accompanying notes are an integral part of these Consolidated Financial Statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

			Quarters ended March 31,
(In thousands)		2021		2020
Net income		$	262,632	$	34,302
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment			569		(1,818)
Amortization of net losses of pension and postretirement benefit plans			5,190		5,362
Unrealized holding (losses) gains on debt securities arising during the period			(397,327)		447,117
Unrealized net gains (losses) on cash flow hedges			2,223		(4,702)
	Reclassification adjustment for net (gains) losses included in net income		(91)		1,327
Other comprehensive (loss) income before tax			(389,436)		447,286
Income tax benefit (expense)			24,707		(66,725)
Total other comprehensive (loss) income, net of tax			(364,729)		380,561
Comprehensive (loss) income, net of tax		$	(102,097)	$	414,863

Tax effect allocated to each component of other comprehensive (loss) income:			Quarters ended March 31,
(In thousands)		2021		2020
Amortization of net losses of pension and postretirement benefit plans		$	(1,948)	$	(2,011)
Unrealized holding (losses) gains on debt securities arising during the period			27,382		(65,341)
Unrealized net gains (losses) on cash flow hedges			(866)		1,113
	Reclassification adjustment for net (gains) losses included in net income		139		(486)
Income tax benefit (expense)		$	24,707	$	(66,725)
The accompanying notes are an integral part of these Consolidated Financial Statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


												Accumulated
												other
		Common		Preferred				Retained		Treasury		comprehensive
(In thousands)		stock		stock		Surplus		earnings		stock		(loss) income		Total
Balance at December 31, 2019		$	1,044	$	50,160	$	4,447,412	$	2,147,915	$	(459,814)	$	(169,938)	$	6,016,779
Cumulative effect of accounting change									(205,842)						(205,842)
Net income									34,302						34,302
Issuance of stock							863								863
Dividends declared:
	Common stock^[1]								(35,505)						(35,505)
	Preferred stock								(700)						(700)
Common stock purchases^[2]							(77,066)				(425,735)				(502,801)
Common stock reissuance							(563)				3,669				3,106
Preferred stock redemption^[3]					(28,017)										(28,017)
Stock based compensation							(4,346)				11,205				6,859
Other comprehensive income, net of tax													380,561		380,561
Balance at March 31, 2020		$	1,044	$	22,143	$	4,366,300	$	1,940,170	$	(870,675)	$	210,623	$	5,669,605
Balance at December 31, 2020		$	1,045	$	22,143	$	4,571,534	$	2,260,928	$	(1,016,954)	$	189,991	$	6,028,687
Net income									262,632						262,632
Issuance of stock							1,118								1,118
Dividends declared:
	Common stock^[1]								(33,754)						(33,754)
	Preferred stock								(353)						(353)
Common stock purchases											(3,942)				(3,942)
Stock based compensation							(733)				8,633				7,900
Other comprehensive loss, net of tax													(364,729)		(364,729)
Balance at March 31, 2021		$	1,045	$	22,143	$	4,571,919	$	2,489,453	$	(1,012,263)	$	(174,738)	$	5,897,559
[1]	Dividends declared per common share during the quarter ended March 31, 2021 - $0.40 (2020 - $0.40).
[2]	On January 30, 2020, the Corporation entered into a $500 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction.The transaction was completed on May 27, 2020. Refer to Note 17 for additional information.
[3]	On February 24, 2020, the Corporation redeemed all the outstanding shares of 2008 Series B Preferred Stock. Refer to Note 17 for additional information.


		March 31,	March 31,
Disclosure of changes in number of shares:		2021	2020
Preferred Stock:
	Balance at beginning of period	885,726	2,006,391
	Redemption of stock	-	(1,120,665)
	Balance at end of period	885,726	885,726
Common Stock – Issued:
	Balance at beginning of period	104,508,290	104,392,222
	Issuance of stock	20,987	15,466
	Balance at end of period	104,529,277	104,407,688
	Treasury stock	(20,150,097)	(16,281,714)
Common Stock – Outstanding		84,379,180	88,125,974


The accompanying notes are an integral part of these Consolidated Financial Statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




			Quarters ended March 31,
(In thousands)				2021		2020
Cash flows from operating activities:
Net income			$	262,632	$	34,302
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision (reversal) for credit losses			(82,226)		189,731
	Amortization of intangibles			1,051		2,473
	Depreciation and amortization of premises and equipment			14,738		14,486
	Net accretion of discounts and amortization of premiums and deferred fees			(12,361)		(27,269)
	Interest capitalized on loans subject to the temporary payment moratorium			(2,855)		-
	Share-based compensation			8,905		5,331
	Impairment losses on right-of-use and long-lived assets			303		-
	Fair value adjustments on mortgage servicing rights			(512)		5,229
	Adjustments to indemnity reserves on loans sold			698		4,793
	Earnings from investments under the equity method, net of dividends or distributions			(12,088)		(9,716)
	Deferred income tax expense (benefit)			69,633		(23,152)
	(Gain) loss on:
		Disposition of premises and equipment and other productive assets		(4,443)		(1,369)
		Proceeds from insurance claims		-		(366)
		Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(4,977)		(4,944)
		Sale of foreclosed assets, including write-downs		(6,090)		(4,850)
	Acquisitions of loans held-for-sale			(63,261)		(51,163)
	Proceeds from sale of loans held-for-sale			218,483		12,135
	Net originations on loans held-for-sale			(327,742)		(58,166)
	Net decrease (increase) in:
		Trading debt securities		182,659		117,276
		Equity securities		(3,197)		(273)
		Accrued income receivable		(6,728)		4,794
		Other assets		(4,942)		55,644
	Net (decrease) increase in:
		Interest payable		(8,498)		(9,488)
		Pension and other postretirement benefits obligation		(1,071)		3,276
		Other liabilities		(27,714)		(65,735)
Total adjustments				(72,235)		158,677
Net cash provided by operating activities				190,397		192,979
Cash flows from investing activities:
	Net decrease (increase) in money market investments			72,284		(2,679,671)
	Purchases of investment securities:
		Available-for-sale		(6,828,725)		(1,550,746)
		Equity		(1,296)		(15,219)
	Proceeds from calls, paydowns, maturities and redemptions of investment securities:
		Available-for-sale		4,492,494		3,838,754
		Held-to-maturity		3,339		2,877
	Proceeds from sale of investment securities:
		Equity		64		12,321
	Net repayments (disbursements) on loans			290,232		(192,839)
	Proceeds from sale of loans			48,156		1,884
	Acquisition of loan portfolios			(86,071)		(96,153)
	Return of capital from equity method investments			682		131
	Payments to acquire equity method investments			-		(440)
	Acquisition of premises and equipment			(17,850)		(15,133)
	Proceeds from insurance claims			-		366
	Proceeds from sale of:
		Premises and equipment and other productive assets		8,497		6,659
		Foreclosed assets		24,968		19,413
Net cash used in investing activities				(1,993,226)		(667,796)

Cash flows from financing activities:
	Net increase (decrease) in:
		Deposits		1,881,314		1,047,341
		Assets sold under agreements to repurchase		(34,469)		(14,612)
		Other short-term borrowings		-		100,000
	Payments of notes payable			(1,075)		(43,800)
	Principal payments of finance leases			(1,133)		(538)
	Proceeds from issuance of common stock			1,118		3,969
	Payments for repurchase of redeemable preferred stock			-		(28,017)
	Dividends paid			(34,053)		(29,726)
	Net payments for repurchase of common stock			(279)		(500,222)
	Payments related to tax withholding for share-based compensation			(3,663)		(2,579)
Net cash provided by financing activities				1,807,760		531,816
Net increase in cash and due from banks, and restricted cash				4,931		56,999
Cash and due from banks, and restricted cash at beginning of period				497,094		394,323
Cash and due from banks, and restricted cash at the end of the period			$	502,025	$	451,322
The accompanying notes are an integral part of these Consolidated Financial Statements.

Notes to Consolidated Financial

Statements (Unaudited)

Note 1 -	Nature of operations	13
Note 2 -	Basis of presentation	14
Note 3 -	New accounting pronouncements	15
Note 4 -	Restrictions on cash and due from banks and certain securities	17
Note 5 -	Debt securities available-for-sale	18
Note 6 -	Debt securities held-to-maturity	21
Note 7 -	Loans	24
Note 8 -	Allowance for credit losses – loans held-in-portfolio	32
Note 9 -	Mortgage banking activities	54
Note 10 -	Transfers of financial assets and mortgage servicing assets	55
Note 11 -	Other real estate owned	58
Note 12 -	Other assets	59
Note 13 -	Goodwill and other intangible assets	60
Note 14 -	Deposits	62
Note 15 -	Borrowings	63
Note 16 -	Other liabilities	65
Note 17 -	Stockholders’ equity	66
Note 18 -	Other comprehensive (loss) income	67
Note 19 -	Guarantees	69
Note 20 -	Commitments and contingencies	71
Note 21-	Non-consolidated variable interest entities	78
Note 22 -	Related party transactions	80
Note 23 -	Fair value measurement	82
Note 24 -	Fair value of financial instruments	89
Note 25 -	Net income per common share	92
Note 26 -	Revenue from contracts with customers	93
Note 27 -	Leases	95
Note 28 -	Pension and postretirement benefits	97
Note 29 -	Stock-based compensation	98
Note 30 -	Income taxes	100
Note 31 -	Supplemental disclosure on the consolidated statements of cash flows	104
Note 32 -	Segment reporting	105

Note 1 – Nature of operations

Popular, Inc. (the “Corporation” or “Popular”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the mainland United States (“U.S.”) and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the mainland U.S., the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB” or “Popular U.S.”), which has branches located in New York, New Jersey and Florida.

Note 2 – Basis of Presentation

Basis of Presentation

The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition data at December 31, 2020 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2020, included in the Corporation’s 2020 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 3 - New accounting pronouncements


Recently Adopted Accounting Standards Updates

Standard	Description	Date of adoption	Effect on the financial statements
FASB ASU 2020-08, Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs	The FASB issued ASU 2020-08 in October 2020 which clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs.	January 1, 2021	The Corporation was not impacted by the adoption of ASU 2020-08 during the first quarter of 2021 since it does not currently hold purchased callable debt securities at a premium.
FASB ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815	The FASB issued ASU 2020-01 in January 2020, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 and includes scope considerations for entities that hold certain non-derivative forward contracts and purchased options to acquire equity securities that, upon settlement of the forward contract or exercise of the purchase option, would be accounted for under the equity method of accounting.	January 1, 2021	The Corporation was not impacted by the adoption of ASU 2020-01 during the first quarter of 2021 since it does not hold certain non-derivative forward contracts and purchased options to acquire equity securities that, upon settlement of the forward or exercise of the purchase option, would be accounted for under the equity method of accounting. Notwithstanding, it will consider this guidance for the purposes of applying the measurement alternative in ASC Topic 321 immediately before applying or discontinuing the equity method of accounting.
FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	The FASB issued ASU 2019-12 in December 2019, which simplifies the accounting for income taxes by removing certain exceptions such as the incremental approach for intraperiod tax allocation and interim period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU simplifies GAAP in a number of areas such as when separate financial statements of legal entities are not subject to tax and enacted changes in tax laws in interim periods.	January 1, 2021	The Corporation adopted ASU 2019-12 during the first quarter of 2021 but was not materially impacted by the amendments of this ASU. It will consider this guidance for enacted changes in tax laws, subsequent step-ups in the tax basis of goodwill, or ownership changes in investments.


Accounting Standards Updates Not Yet Adopted

Standard	Description	Date of adoption	Effect on the financial statements
FASB ASU 2021-04, Earnings per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)	The FASB issued ASU 2021-04 in May 2021, which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity.	January 1, 2022	Upon adoption of this ASU, the Corporation will consider this guidance for modifications or exchanges of freestanding equity-classified written call options.

For other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2020 Form 10-K.

Note 4 - Restrictions on cash and due from banks and certain securities

BPPR is required by regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $ 2.5 billion at March 31, 2021 (December 31, 2020 - $ 2.3 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At March 31, 2021, the Corporation held $ 41 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2020 - $ 39 million). The restricted assets held in debt securities available for sale and equity securities consist primarily of assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

Note 5 – Debt securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities available-for-sale at March 31, 2021 and December 31, 2020.

		At March 31, 2021
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	Within 1 year	$	1,357,228	$	16,087	$	-	$	1,373,315	2.25	%
	After 1 to 5 years		6,089,702		209,634		7,620		6,291,716	1.72
	After 5 to 10 years		4,226,436		7,863		41,553		4,192,746	1.11
Total U.S. Treasury securities			11,673,366		233,584		49,173		11,857,777	1.56
Obligations of U.S. Government sponsored entities
	After 1 to 5 years		90		2		-		92	5.63
Total obligations of U.S. Government sponsored entities			90		2		-		92	5.63
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		1,054		11		-		1,065	2.86
	After 5 to 10 years		54,344		1,085		-		55,429	1.55
	After 10 years		273,644		7,930		104		281,470	2.04
Total collateralized mortgage obligations - federal agencies			329,042		9,026		104		337,964	1.96
Mortgage-backed securities
	Within 1 year		5,572		22		-		5,594	2.86
	After 1 to 5 years		63,882		2,892		9		66,765	2.39
	After 5 to 10 years		553,299		19,919		5		573,213	1.89
	After 10 years		10,018,263		113,577		201,840		9,930,000	1.83
Total mortgage-backed securities			10,641,016		136,410		201,854		10,575,572	1.84
Other
	After 1 to 5 years		194		10		-		204	3.62
Total other			194		10		-		204	3.62
Total debt securities available-for-sale^[1]		$	22,643,708	$	379,032	$	251,131	$	22,771,609	1.69	%
[1]	Includes $17.2 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $16.0 billion serve as collateral for public funds.

		At December 31, 2020
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	Within 1 year	$	4,900,055	$	16,479	$	-	$	4,916,534	0.69	%
	After 1 to 5 years		5,007,223		259,399		-		5,266,622	2.05
	After 5 to 10 years		567,367		37,517		-		604,884	1.68
Total U.S. Treasury securities			10,474,645		313,395		-		10,788,040	1.40
Obligations of U.S. Government sponsored entities
	Within 1 year		59,993		101		-		60,094	1.46
	After 1 to 5 years		90		-		-		90	5.64
Total obligations of U.S. Government sponsored entities			60,083		101		-		60,184	1.47
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		1,388		14		-		1,402	2.97
	After 5 to 10 years		61,229		1,050		-		62,279	1.56
	After 10 years		318,292		10,202		43		328,451	2.04
Total collateralized mortgage obligations - federal agencies			380,909		11,266		43		392,132	1.97
Mortgage-backed securities
	Within 1 year		5,616		56		-		5,672	2.83
	After 1 to 5 years		50,393		1,735		-		52,128	2.35
	After 5 to 10 years		454,880		20,022		6		474,896	1.91
	After 10 years		9,608,860		180,844		1,839		9,787,865	1.94
Total mortgage-backed securities			10,119,749		202,657		1,845		10,320,561	1.94
Other
	After 1 to 5 years		224		11		-		235	3.62
Total other			224		11		-		235	3.62
Total debt securities available-for-sale^[1]		$	21,035,610	$	527,430	$	1,888	$	21,561,152	1.66	%
[1]	Includes $18.2 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $16.9 billion serve as collateral for public funds.

The weighted average yield on debt securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Debt securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

There were no debt securities sold during the quarters ended March 31, 2021 and 2020.

The following tables present the Corporation’s fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020.

	At March 31, 2021
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Treasury securities	$	4,974,081	$	49,173	$	-	$	-	$	4,974,081	$	49,173
Collateralized mortgage obligations - federal agencies		37,475		75		1,808		29		39,283		104
Mortgage-backed securities		7,225,135		201,842		608		12		7,225,743		201,854
Total debt securities available-for-sale in an unrealized loss position	$	12,236,691	$	251,090	$	2,416	$	41	$	12,239,107	$	251,131

	At December 31, 2020
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Collateralized mortgage obligations - federal agencies	$	4,029	$	43	$	-	$	-	$	4,029	$	43
Mortgage-backed securities		886,432		1,834		555		11		886,987		1,845
Total debt securities available-for-sale in an unrealized loss position	$	890,461	$	1,877	$	555	$	11	$	891,016	$	1,888

As of March 31, 2021, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $251 million, driven mainly by mortgage-backed securities, which were impacted by increases in the interest rate environment.

The following table states the name of issuers, and the aggregate amortized cost and fair value of the debt securities of such issuer (includes available-for-sale and held-to-maturity debt securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes debt securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

		March 31, 2021				December 31, 2020

(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,031,853	$	2,114,358	$	2,242,121	$	2,338,897
Freddie Mac		3,787,952		3,747,196		3,616,238		3,675,679

Note 6 –Debt securities held-to-maturity

The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at March 31, 2021 and December 31, 2020.

		At March 31, 2021
					Allowance			Gross		Gross				Weighted
		Amortized			for Credit		Net of	unrealized		unrealized		Fair		average
(In thousands)		cost			Losses		Allowance	gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year	$	4,165	$	69	$	4,096	$	69	$	-	$	4,165	6.07	%
	After 1 to 5 years		14,765		619		14,146		619		-		14,765	6.20
	After 5 to 10 years		13,210		440		12,770		235		-		13,005	2.33
	After 10 years		45,993		8,968		37,025		12,090		-		49,115	1.57
Total obligations of Puerto Rico, States and political subdivisions			78,133		10,096		68,037		13,013		-		81,050	2.81
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		31		-		31		1		-		32	6.44
Total collateralized mortgage obligations - federal agencies			31		-		31		1		-		32	6.44
Securities in wholly owned statutory business trusts
	After 10 years		11,561		-		11,561		-		-		11,561	6.51
Total securities in wholly owned statutory business trusts			11,561		-		11,561		-		-		11,561	6.51
Total debt securities held-to-maturity		$	89,725	$	10,096	$	79,629	$	13,014	$	-	$	92,643	3.29	%

		At December 31, 2020
					Allowance			Gross		Gross				Weighted
		Amortized			for Credit		Net of	unrealized		unrealized		Fair		average
(In thousands)		cost			Losses		Allowance	gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year	$	3,990	$	50	$	3,940	$	47	$	-	$	3,987	6.05	%
	After 1 to 5 years		16,030		710		15,320		710		-		16,030	6.16
	After 5 to 10 years		14,845		573		14,272		295		23		14,544	2.77
	After 10 years		46,164		8,928		37,236		11,501		-		48,737	1.58
Total obligations of Puerto Rico, States and political subdivisions			81,029		10,261		70,768		12,553		23		83,298	2.93
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		31		-		31		1		-		32	6.44
Total collateralized mortgage obligations - federal agencies			31		-		31		1		-		32	6.44
Securities in wholly owned statutory business trusts
	After 10 years		11,561		-		11,561		-		-		11,561	6.51
Total securities in wholly owned statutory business trusts			11,561		-		11,561		-		-		11,561	6.51
Total debt securities held-to-maturity		$	92,621	$	10,261	$	82,360	$	12,554	$	23	$	94,891	3.38	%

Debt securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

Credit Quality Indicators

The following describes the credit quality indicators by major security type that the Corporation considers in its’ estimate to develop the allowance for credit losses for investment securities held-to-maturity.

At March 31, 2021 and December 31, 2020, the “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity, includes securities issued by municipalities of Puerto Rico that are generally not rated by a credit rating agency. This includes $33 million of general and special obligation bonds issued by three municipalities of Puerto Rico, that are payable primarily from certain property taxes imposed by the issuing municipality (December 31, 2020 - $35 million). In the case of general obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality, which is required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds. The Corporation performs periodic credit quality reviews of these securities and internally assigns standardized credit risk ratings based on its evaluation. The Corporation considers these ratings in its estimate to develop the allowance for credit losses associated with these securities. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2020.

The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico aggregated by the internally assigned standardized credit risk rating:


	At March 31, 2021		At December 31, 2020
(In thousands)	Securities issued by Puerto Rico municipalities
Watch	$	32,590	$	35,315
Total	$	32,590	$	35,315

At March 31, 2021, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $45 million in securities issued by the Puerto Rico Housing Finance Authority (“HFA”), a government instrumentality, for which the underlying source of payment is second mortgage loans in Puerto Rico residential properties (not the government), but for which HFA, provides a guarantee in the event of default and upon the satisfaction of certain other conditions (December 31, 2020 - $46 million). These securities are not rated by a credit rating agency. The Corporation assesses the credit risk associated with these securities by evaluating the refreshed FICO scores of a representative sample of the underlying borrowers. At March 31, 2021, the average refreshed FICO score for the representative sample, comprised of 67% of the nominal value of the securities, used for the loss estimate was of 697 (compared to 66% and 697, respectively, at December 31, 2020). The loss estimates for this portfolio was based on the methodology established under CECL for similar loan obligations. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio.

A further deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation.

Refer to Note 20 for additional information on the Corporation’s exposure to the Puerto Rico Government.

Delinquency status

At March 31, 2021 and December 31, 2020, there were no securities held-to-maturity in past due or non-performing status.

Allowance for credit losses on debt securities held-to-maturity

The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type at March 31, 2021 and March 31, 2020:


	For the quarters ended March 31,
		2021		2020
(In thousands)	Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance	$	10,261	$	-
Impact of adopting CECL		-		12,654
Provision for credit loss expense (reversal of provision)		(165)		736
Securities charged-off		-		-
Recoveries		-		-
Ending balance	$	10,096	$	13,390

The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $1.2 million for securities issued by municipalities of Puerto Rico, and $8.9 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $1.4 million and $8.9 million, respectively, at December 31, 2020).

Note 7 – Loans

For a summary of the accounting policies related to loans, interest recognition and allowance for credit losses refer to Note 2 - Summary of Significant Accounting Policies in the 2020 Form 10-K.

During the quarter ended March 31, 2021, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $126 million including $ 6 million in Purchased Credit Deteriorated (“PCD”) loans and commercial loans of $21 million; compared to purchases (including repurchases) of mortgage loans of $85 million including $4 million in PCD loans, consumer loans of $56 million and commercial loans of $1 million, during the quarter ended March 31, 2020.

The Corporation performed whole-loan sales involving approximately $66 million of residential mortgage loans and $17 million of commercial loans during the quarter ended March 31, 2021 (March 31, 2020 - $10 million of residential mortgage and $2 million of commercial and construction loans). Also, during the quarter ended March 31, 2021, the Corporation securitized approximately $ 102 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities and $ 86 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities, compared to $ 51 million and $ 34 million, respectively, during the quarter ended March 31, 2020.

Delinquency status

The following table presents the amortized cost basis of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that are accruing interest but are past due 90 days or more at March 31, 2021 and December 31, 2020.

March 31, 2021
Puerto Rico

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP		loans		loans
Commercial multi-family		$	196	$	-	$	814	$	1,010	$	137,097	$	138,107	$	814	$	-
Commercial real estate:
	Non-owner occupied		939		25,406		76,524		102,869		1,958,129		2,060,998		76,524		-
	Owner occupied		6,749		2,114		89,752		98,615		1,413,356		1,511,971		89,752		-
Commercial and industrial			3,870		650		34,333		38,853		4,032,359		4,071,212		33,773		560
Construction			639		-		14,877		15,516		145,081		160,597		14,877		-
Mortgage^[1]			175,930		83,770		1,211,935		1,471,635		5,204,344		6,675,979		390,781		821,154
Leasing			7,564		1,408		3,040		12,012		1,232,944		1,244,956		3,040		-
Consumer:
	Credit cards		4,824		3,883		10,779		19,486		858,255		877,741		-		10,779
	Home equity lines of credit		-		-		46		46		3,498		3,544		-		46
	Personal		10,216		6,250		25,731		42,197		1,219,094		1,261,291		25,731		-
	Auto		47,396		8,783		15,405		71,584		3,131,553		3,203,137		15,405		-
	Other		360		375		15,489		16,224		108,508		124,732		15,281		208
Total		$	258,683	$	132,639	$	1,498,725	$	1,890,047	$	19,444,218	$	21,334,265	$	665,978	$	832,747

March 31, 2021
Popular U.S.

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP		loans		loans
Commercial multi-family		$	30,185	$	-	$	-	$	30,185	$	1,724,802	$	1,754,987	$	-	$	-
Commercial real estate:
	Non-owner occupied		8,280		-		392		8,672		2,034,383		2,043,055		392		-
	Owner occupied		5,437		644		323		6,404		323,541		329,945		323		-
Commercial and industrial			7,226		1,321		1,201		9,748		1,522,463		1,532,211		1,192		9
Construction			11,110		-		7,523		18,633		728,506		747,139		7,523		-
Mortgage			13,032		1,762		14,793		29,587		1,103,286		1,132,873		14,793		-
Consumer:
	Credit cards		-		-		-		-		22		22		-		-
	Home equity lines of credit		121		10		6,855		6,986		82,631		89,617		6,855		-
	Personal		1,156		666		1,086		2,908		162,540		165,448		1,086		-
	Other		-		-		-		-		2,066		2,066		-		-
Total		$	76,547	$	4,403	$	32,173	$	113,123	$	7,684,240	$	7,797,363	$	32,164	$	9

March 31, 2021
Popular, Inc.

			Past due											Past due 90 days or more
		30-59		60-89		90 days		Total						Non-accrual			Accruing
(In thousands)		days		days		or more		past due		Current		Loans HIP^{[2] [3]}		loans		loans
Commercial multi-family		$	30,381	$	-	$	814	$	31,195	$	1,861,899	$	1,893,094	$	814	$	-
Commercial real estate:
	Non-owner occupied		9,219		25,406		76,916		111,541		3,992,512		4,104,053		76,916		-
	Owner occupied		12,186		2,758		90,075		105,019		1,736,897		1,841,916		90,075		-
Commercial and industrial			11,096		1,971		35,534		48,601		5,554,822		5,603,423		34,965		569
Construction			11,749		-		22,400		34,149		873,587		907,736		22,400		-
Mortgage^[1]			188,962		85,532		1,226,728		1,501,222		6,307,630		7,808,852		405,574		821,154
Leasing			7,564		1,408		3,040		12,012		1,232,944		1,244,956		3,040		-
Consumer:
	Credit cards		4,824		3,883		10,779		19,486		858,277		877,763		-		10,779
	Home equity lines of credit		121		10		6,901		7,032		86,129		93,161		6,855		46
	Personal		11,372		6,916		26,817		45,105		1,381,634		1,426,739		26,817		-
	Auto		47,396		8,783		15,405		71,584		3,131,553		3,203,137		15,405		-
	Other		360		375		15,489		16,224		110,574		126,798		15,281		208
Total		$	335,230	$	137,042	$	1,530,898	$	2,003,170	$	27,128,458	$	29,131,628	$	698,142	$	832,756

[1]	It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These include loans rebooked, which were previously pooled into GNMA securities amounting to $29 million. Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative.
[2]	Loans held-in-portfolio are net of $213 million in unearned income and exclude $84 million in loans held-for-sale.
[3]	Includes $6.3 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.0 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $2.3 billion at the Federal Reserve Bank ("FRB") for discount window borrowings.

December 31, 2020
Puerto Rico

			Past due											Past due 90 days or more
			30-59		60-89		90 days	Total						Non-accrual			Accruing
(In thousands)			days		days		or more	past due^[1]		Current		Loans HIP		loans		loans
Commercial multi-family		$	796	$	-	$	505	$	1,301	$	150,979	$	152,280	$	505	$	-
Commercial real estate:
	Non-owner occupied		2,189		3,503		77,137		82,829		1,924,504		2,007,333		77,137		-
	Owner occupied		8,270		1,218		92,001		101,489		1,497,406		1,598,895		92,001		-
Commercial and industrial			10,223		775		35,012		46,010		4,183,098		4,229,108		34,449		563
Construction			-		-		21,497		21,497		135,609		157,106		21,497		-
Mortgage^[2]			195,602		87,726		1,428,824		1,712,152		5,057,991		6,770,143		414,343		1,014,481
Leasing			9,141		1,427		3,441		14,009		1,183,652		1,197,661		3,441		-
Consumer:
	Credit cards		6,550		4,619		12,798		23,967		895,968		919,935		-		12,798
	Home equity lines of credit		184		-		48		232		3,947		4,179		-		48
	Personal		11,255		8,097		26,387		45,739		1,232,008		1,277,747		26,387		-
	Auto		53,186		12,696		15,736		81,618		3,050,610		3,132,228		15,736		-
	Other		304		483		15,052		15,839		110,826		126,665		14,881		171
Total		$	297,700	$	120,544	$	1,728,438	$	2,146,682	$	19,426,598	$	21,573,280	$	700,377	$	1,028,061
[1]	Loans included as 90 days or more past due include loans that that are not delinquent in their payment terms but that are reported as nonperforming due to other credit quality considerations. As part of the adoption of CECL, at January 1, 2020, the Corporation reclassified to this category $134 million of acquired loans with credit deterioration that were previously excluded from non-performing status. In addition, as part of the CECL transition, an additional $125 million of loans that were 90 days or more past due previously excluded from non-performing status are now included as non-performing.
[2]	It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These include $57 million in loans rebooked under the GNMA program at December 31, 2020, in which issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due.

December 31, 2020
Popular U.S.

			Past due											Past due 90 days or more
			30-59		60-89		90 days		Total					Non-accrual			Accruing
(In thousands)			days		days		or more		past due		Current		Loans HIP	loans		loans
Commercial multi-family		$	5,273	$	-	$	1,894	$	7,167	$	1,736,544	$	1,743,711	$	1,894	$	-
Commercial real estate:
	Non-owner occupied		924		3,640		669		5,233		1,988,577		1,993,810		669		-
	Owner occupied		191		650		334		1,175		343,205		344,380		334		-
Commercial and industrial			1,117		72		3,091		4,280		1,540,513		1,544,793		3,091		-
Construction			21,312		-		7,560		28,872		740,230		769,102		7,560		-
Mortgage			33,422		15,464		14,864		63,750		1,056,787		1,120,537		14,864		-
Consumer:
	Credit cards		-		-		3		3		28		31		-		3
	Home equity lines of credit		236		342		7,491		8,069		86,502		94,571		7,491		-
	Personal		1,486		1,342		1,474		4,302		194,936		199,238		1,474		-
	Other		-		-		20		20		1,723		1,743		20		-
Total		$	63,961	$	21,510	$	37,400	$	122,871	$	7,689,045	$	7,811,916	$	37,397	$	3

December 31, 2020
Popular, Inc.

			Past due											Past due 90 days or more
			30-59		60-89		90 days		Total					Non-accrual			Accruing
(In thousands)			days		days		or more^[2]		past due	Current		Loans HIP^{[3] [4]}		loans		loans
Commercial multi-family		$	6,069	$	-	$	2,399	$	8,468	$	1,887,523	$	1,895,991	$	2,399	$	-
Commercial real estate:
	Non-owner occupied		3,113		7,143		77,806		88,062		3,913,081		4,001,143		77,806		-
	Owner occupied		8,461		1,868		92,335		102,664		1,840,611		1,943,275		92,335		-
Commercial and industrial			11,340		847		38,103		50,290		5,723,611		5,773,901		37,540		563
Construction			21,312		-		29,057		50,369		875,839		926,208		29,057		-
Mortgage^[1]			229,024		103,190		1,443,688		1,775,902		6,114,778		7,890,680		429,207		1,014,481
Leasing			9,141		1,427		3,441		14,009		1,183,652		1,197,661		3,441		-
Consumer:
	Credit cards		6,550		4,619		12,801		23,970		895,996		919,966		-		12,801
	Home equity lines of credit		420		342		7,539		8,301		90,449		98,750		7,491		48
	Personal		12,741		9,439		27,861		50,041		1,426,944		1,476,985		27,861		-
	Auto		53,186		12,696		15,736		81,618		3,050,610		3,132,228		15,736		-
	Other		304		483		15,072		15,859		112,549		128,408		14,901		171
Total		$	361,661	$	142,054	$	1,765,838	$	2,269,553	$	27,115,643	$	29,385,196	$	737,774	$	1,028,064

[1]	It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These include loans rebooked, which were previously pooled into GNMA securities amounting to $57 million. Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative.
[2]	Loans included as 90 days or more past due include loans that that are not delinquent in their payment terms but that are reported as nonperforming due to other credit quality considerations. As part of the adoption of CECL, at January 1, 2020, the Corporation reclassified to this category $134 million of acquired loans with credit deterioration that were previously excluded from non-performing status. In addition, as part of the CECL transition, an additional $144 million of loans that were 90 days or more past due previously excluded from non-performing status are now included as non-performing.
[3]	Loans held-in-portfolio are net of $203 million in unearned income and exclude $99 million in loans held-for-sale.
[4]	Includes $6.5 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.1 billion were pledged at the FHLB as collateral for borrowings and $2.4 billion at the FRB for discount window borrowings.

Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the Federal Housing Administration (“FHA”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”) when 15 months delinquent as to principal or interest, since the principal repayment on these loans is insured.

At March 31, 2021, mortgage loans held-in-portfolio include $2.1 billion (December 31, 2020 - $2.1 billion) of loans insured by the Federal Housing Administration (“FHA”), or guaranteed by the U.S. Department of Veterans Affairs (“VA”) of which $0.8 billion (December 31, 2020 - $1.0 million) are 90 days or more past due. These balances include $675 million in loans modified under a TDR (December 31, 2020 - $655 million), that are presented as accruing loans. The portfolio of U.S. guaranteed loans includes $341 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of March 31, 2021 (December 31, 2020 - $329 million). The Corporation has approximately $58 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at March 31, 2021 (December 31, 2020 - $60 million).

Loans with a delinquency status of 90 days past due as of March 31, 2021 include $29 million in loans previously pooled into GNMA securities (December 31, 2020 - $57 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements of BPPR with an offsetting liability. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative.

The following tables present the amortized cost basis of non-accrual loans as of March 31, 2021 and December 31, 2020 by class of loans:

March 31, 2021
	Puerto Rico				Popular U.S.				Popular, Inc.
(In thousands)	Non-accrual with no allowance		Non-accrual with allowance		Non-accrual with no allowance		Non-accrual with allowance		Non-accrual with no allowance		Non-accrual with allowance
Commercial multi-family	$	-	$	814	$	-	$	-	$	-	$	814
Commercial real estate non-owner occupied		60,727		15,797		-		392		60,727		16,189
Commercial real estate owner occupied		25,612		64,140		-		323		25,612		64,463
Commercial and industrial		22,264		11,509		-		1,192		22,264		12,701
Construction		14,877		-		7,523		-		22,400		-
Mortgage		160,605		230,176		-		14,793		160,605		244,969
Leasing		-		3,040		-		-		-		3,040
Consumer:
HELOCs		-		-		-		6,855		-		6,855
Personal		7,690		18,041		-		1,086		7,690		19,127
Auto		-		15,405		-		-		-		15,405
Other		-		15,281		-		-		-		15,281
Total	$	291,775	$	374,203	$	7,523	$	24,641	$	299,298	$	398,844

December 31, 2020
	Puerto Rico				Popular U.S.				Popular, Inc.
(In thousands)	Non-accrual with no allowance		Non-accrual with allowance		Non-accrual with no allowance		Non-accrual with allowance		Non-accrual with no allowance		Non-accrual with allowance
Commercial multi-family	$	-	$	505	$	-	$	1,894	$	-	$	2,399
Commercial real estate non-owner occupied		35,968		41,169		-		669		35,968		41,838
Commercial real estate owner occupied		14,825		77,176		-		334		14,825		77,510
Commercial and industrial		1,148		33,301		-		3,091		1,148		36,392
Construction		-		21,497		-		7,560		-		29,057
Mortgage		141,737		272,606		517		14,347		142,254		286,953
Leasing		-		3,441		-		-		-		3,441
Consumer:
HELOCs		-		-		-		7,491		-		7,491
Personal		9,265		17,122		-		1,474		9,265		18,596
Auto		-		15,736		-		-		-		15,736
Other		-		14,881		-		20		-		14,901
Total	$	202,943	$	497,434	$	517	$	36,880	$	203,460	$	534,314

Loans in non-accrual status with no allowance at March 31, 2021 include $299 million in collateral dependent loans (December 31, 2020 - $203 million). The Corporation recognized $4 million in interest income on non-accrual loans during the quarter ended March 31, 2021 (March 31, 2020 - $3 million).

The Corporation has designated loans classified as collateral dependent for which it applies the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower.

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and type of collateral as of March 31, 2021 and December 31, 2020:

		March 31, 2021
(In thousands)			Real Estate		Auto		Equipment		Taxi Medallions		Accounts Receivables		Other		Total
Puerto Rico
Commercial multi-family		$	1,374	$	-	$	-	$	-	$	-	$	-	$	1,374
Commercial real estate:
	Non-owner occupied		295,454		-		-		-		-		-		295,454
	Owner occupied		78,710		-		-		-		-		-		78,710
Commercial and industrial			6,481		-		1,428		-		10,982		12,005		30,896
Construction			14,877		-		-		-		-		-		14,877
Mortgage			208,691		-		-		-		-		-		208,691
Consumer:
	Personal		7,817		-		-		-		-		-		7,817
	Auto		-		517		-		-		-		-		517
Total Puerto Rico		$	613,404	$	517	$	1,428	$	-	$	10,982	$	12,005	$	638,336
Popular U.S.
Commercial and industrial		$	-	$	-	$	-	$	115	$	-	$	-	$	115
Construction			7,523		-		-		-		-		-		7,523
Mortgage			573		-		-		-		-		-		573
Total Popular U.S.		$	8,096	$	-	$	-	$	115	$	-	$	-	$	8,211
Popular, Inc.
Commercial multi-family		$	1,374	$	-	$	-	$	-	$	-	$	-	$	1,374
Commercial real estate:
	Non-owner occupied		295,454		-		-		-		-		-		295,454
	Owner occupied		78,710		-		-		-		-		-		78,710
Commercial and industrial			6,481		-		1,428		115		10,982		12,005		31,011
Construction			22,400		-		-		-		-		-		22,400
Mortgage			209,264		-		-		-		-		-		209,264
Consumer:
	Personal		7,817		-		-		-		-		-		7,817
	Auto		-		517		-		-		-		-		517
Total Popular, Inc.		$	621,500	$	517	$	1,428	$	115	$	10,982	$	12,005	$	646,547

		December 31, 2020
(In thousands)			Real Estate		Auto		Equipment		Taxi Medallions		Accounts Receivables		Other		Total
Puerto Rico
Commercial multi-family		$	1,301	$	-	$	-	$	-	$	-	$	-	$	1,301
Commercial real estate:
	Non-owner occupied		299,223		-		-		-		-		-		299,223
	Owner occupied		79,769		-		-		-		-		-		79,769
Commercial and industrial			7,577		-		1,438		-		10,989		12,046		32,050
Construction			21,497		-		-		-		-		-		21,497
Mortgage			181,648		-		-		-		-		-		181,648
Consumer:
	Personal		7,414		-		-		-		-		-		7,414
	Auto		-		4		-		-		-		-		4
Total Puerto Rico		$	598,429	$	4	$	1,438	$	-	$	10,989	$	12,046	$	622,906
Popular U.S.
Commercial multi-family		$	1,755	$	-	$	-	$	-	$	-	$	-	$	1,755
Commercial and industrial			-		-		-		1,545		-		-		1,545
Construction			7,560		-		-		-		-		-		7,560
Mortgage			855		-		-		-		-		-		855
Total Popular U.S.		$	10,170	$	-	$	-	$	1,545	$	-	$	-	$	11,715
Popular, Inc.
Commercial multi-family		$	3,056	$	-	$	-	$	-	$	-	$	-	$	3,056
Commercial real estate:
	Non-owner occupied		299,223		-		-		-		-		-		299,223
	Owner occupied		79,769		-		-		-		-		-		79,769
Commercial and industrial			7,577		-		1,438		1,545		10,989		12,046		33,595
Construction			29,057		-		-		-		-		-		29,057
Mortgage			182,503		-		-		-		-		-		182,503
Consumer:
	Personal		7,414		-		-		-		-		-		7,414
	Auto		-		4		-		-		-		-		4
Total Popular, Inc.		$	608,599	$	4	$	1,438	$	1,545	$	10,989	$	12,046	$	634,621

Purchased Credit Deteriorated (PCD) Loans

The Corporation has purchased loans during the quarter, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:


(In thousands)		March 31, 2021		March 31, 2020
Purchase price of loans at acquisition	$	4,935	$	3,112
Allowance for credit losses at acquisition		1,356		429
Non-credit premium at acquisition		121		138
Par value of acquired loans at acquisition	$	6,412	$	3,679

Note 8 – Allowance for credit losses – loans held-in-portfolio

The Corporation follows the current expected credit loss (“CECL”) model, to establish and evaluate the adequacy of the allowance for credit losses (“ACL”) to provide for expected losses in the loan portfolio. This model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired or originated. In addition, CECL provides that the initial ACL on purchased credit deteriorated (“PCD”) financial assets be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. The provision for credit losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ACL.

At March 31, 2021, the Corporation estimated the ACL by weighting the outputs of optimistic, baseline, and pessimistic scenarios. Among the three scenarios used to estimate the ACL, the baseline is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. The weights applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The current baseline scenario shows improvement in both 2021 GDP growth and unemployment rate when compared to previous estimates. The 2021 forecasted GDP growth is now at 4.9% for U.S. and 3.4% for P.R., compared to 4.1% and 2.5%, respectively, in the previous 2021 forecast. Expectations for 2022 also present an improvement over the prior forecast. The U.S. and P.R. forecasted unemployment rate average for 2021 is now 6.09% and 7.98%, respectively. This is an improvement over the previous estimate of 7.41% for U.S. and 8.34% for P.R. The reduction in ACL for the loans portfolio and the reserve for unfunded commitments of $82.1 million is mainly attributed to the improvements in the macroeconomic forecast.

The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters ended March 31, 2021 and 2020.

For the quarter ended March 31, 2021
Puerto Rico


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	225,323	$	4,871	$	195,557	$	16,863	$	297,136	$	739,750
	Provision (reversal of provision)		(29,646)		1,306		(2,805)		(4,058)		(4,773)		(39,976)
	Initial allowance for credit losses - PCD Loans		-		-		1,356		-		-		1,356
	Charge-offs		(2,883)		(6,619)		(10,381)		(1,058)		(24,029)		(44,970)
	Recoveries		4,317		702		2,078		940		17,459		25,496
Ending balance - loans		$	197,111	$	260	$	185,805	$	12,687	$	285,793	$	681,656
Allowance for credit losses - unfunded commitments:
Beginning balance		$	4,913	$	4,610	$	-	$	-	$	-	$	9,523
	Reversal of provision		(1,000)		(4,365)		-		-		-		(5,365)
Ending balance - unfunded commitments [1]		$	3,913	$	245	$	-	$	-	$	-	$	4,158
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the quarter ended March 31, 2021
Popular U.S.


(In thousands)		Commercial		Construction		Mortgage		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	108,057	$	9,366	$	20,159	$	18,918	$	156,500
	Reversal of provision		(28,933)		(431)		(3,918)		(2,521)		(35,803)
	Charge-offs		(383)		-		(1)		(3,256)		(3,640)
	Recoveries		367		-		81		1,636		2,084
Ending balance - loans		$	79,108	$	8,935	$	16,321	$	14,777	$	119,141
Allowance for credit losses - unfunded commitments:
Beginning balance		$	1,753	$	4,469	$	-	$	106	$	6,328
	Reversal of provision		(310)		(566)		-		(41)		(917)
Ending balance - unfunded commitments [1]		$	1,443	$	3,903	$	-	$	65	$	5,411
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the quarter ended March 31, 2021
Popular, Inc.


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	333,380	$	14,237	$	215,716	$	16,863	$	316,054	$	896,250
	Provision (reversal of provision)		(58,579)		875		(6,723)		(4,058)		(7,294)		(75,779)
	Initial allowance for credit losses - PCD Loans		-		-		1,356		-		-		1,356
	Charge-offs		(3,266)		(6,619)		(10,382)		(1,058)		(27,285)		(48,610)
	Recoveries		4,684		702		2,159		940		19,095		27,580
Ending balance - loans		$	276,219	$	9,195	$	202,126	$	12,687	$	300,570	$	800,797
Allowance for credit losses - unfunded commitments:
Beginning balance		$	6,666	$	9,079	$	-	$	-	$	106	$	15,851
	Reversal of provision		(1,310)		(4,931)		-		-		(41)		(6,282)
Ending balance - unfunded commitments [1]		$	5,356	$	4,148	$	-	$	-	$	65	$	9,569
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the quarter ended March 31, 2020
Puerto Rico


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	131,063	$	574	$	116,281	$	10,768	$	173,965	$	432,651
	Impact of adopting CECL		62,393		115		86,081		(713)		122,492		270,368
	Provision (reversal of provision)		14,974		(289)		5,547		5,841		86,931		113,004
	Initial allowance for credit losses - PCD Loans		-		-		429		-		-		429
	Charge-offs		(2,994)		-		(8,306)		(3,775)		(58,084)		(73,159)
	Recoveries		2,414		19		2,768		468		7,973		13,642
Ending balance - loans		$	207,850	$	419	$	202,800	$	12,589	$	333,277	$	756,935
Allowance for credit losses - unfunded commitments:
Beginning balance		$	678	$	294	$	-	$	-	$	7,467	$	8,439
	Impact of adopting CECL		1,158		(185)		-		-		(7,467)		(6,494)
	Provision		141		69		-		-		-		210
Ending balance - unfunded commitments [1]		$	1,977	$	178	$	-	$	-	$	-	$	2,155
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the quarter ended March 31, 2020
Popular U.S.


(In thousands)		Commercial		Construction		Mortgage		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	16,557	$	4,266	$	4,827	$	19,407	$	45,057
	Impact of adopting CECL		29,537		(3,038)		10,431		7,809		44,739
	Provision		53,072		846		9,028		13,045		75,991
	Charge-offs		(577)		-		(9)		(4,938)		(5,524)
	Recoveries		578		155		10		1,775		2,518
Ending balance - loans		$	99,167	$	2,229	$	24,287	$	37,098	$	162,781
Allowance for credit losses - unfunded commitments:
Beginning balance		$	152	$	125	$	-	$	1	$	278
	Impact of adopting CECL		453		582		-		(1)		1,034
	Provision		506		434		-		59		999
Ending balance - unfunded commitments [1]		$	1,111	$	1,141	$	-	$	59	$	2,311
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the quarter ended March 31, 2020
Popular, Inc.


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses - loans:
Beginning balance		$	147,620	$	4,840	$	121,108	$	10,768	$	193,372	$	477,708
	Impact of adopting CECL		91,930		(2,923)		96,512		(713)		130,301		315,107
	Provision		68,046		557		14,575		5,841		99,976		188,995
	Initial allowance for credit losses - PCD Loans		-		-		429		-		-		429
	Charge-offs		(3,571)		-		(8,315)		(3,775)		(63,022)		(78,683)
	Recoveries		2,992		174		2,778		468		9,748		16,160
Ending balance - loans		$	307,017	$	2,648	$	227,087	$	12,589	$	370,375	$	919,716
Allowance for credit losses - unfunded commitments:
Beginning balance		$	830	$	419	$	-	$	-	$	7,468	$	8,717
	Impact of adopting CECL		1,611		397		-		-		(7,468)		(5,460)
	Provision		647		503		-		-		59		1,209
Ending balance - unfunded commitments [1]		$	3,088	$	1,319	$	-	$	-	$	59	$	4,466
[1]	Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

Modifications

A modification of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to troubled debt restructurings (“TDRs”), refer to the Summary of Significant Accounting Policies included in Note 2 to the 2020 Form 10-K.

The outstanding balance of loans classified as TDRs amounted to $ 1.7 billion at March 31, 2021 (December 31, 2020 - $ 1.7 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $14 million related to the commercial loan portfolio at March 31, 2021 (December 31, 2020 - $14 million).

In response to the COVID-19 pandemic, the Corporation implemented a relief program in March 2020 to work with eligible customers in mortgage, personal loans, credit cards, auto loans and leases and certain commercial credit facilities, comprised mainly of payment deferrals of up to six months, subject to certain terms and conditions. In addition, certain participating clients impacted by the seismic activity in the Southern region of the island also benefitted from other loan payment moratoriums offered by the Corporation since mid-January 2020. These loan modifications do not affect the asset quality measures as the deferred payments are not deemed to be delinquent and the Corporation continues to accrue interest on these loans. The Puerto Rico Legislative Assembly enacted legislation in April 2020 that required financial institutions to offer through June 2020 moratoriums on consumer financial products to clients impacted by the COVID-19 pandemic and extended relief with respect to mortgage products through August 2020. Additionally, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed by the President of the United States as part of an economic stimulus package, provides relief related to U.S. GAAP requirements for loan modifications related to COVID-19 relief measures. This relief was subsequently extended until the earlier of January 1, 2022 or 60 days after the national COVID-19 emergency ends. In addition, the Federal Reserve, along with other U.S. banking regulators, also issued interagency guidance to financial institutions that offers some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs. According to the interagency guidance, COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were current as of the date of the loan modification are not TDRs, since the lender can conclude that the borrower is current on their loan and thus not experiencing financial difficulties and furthermore the period of the deferral granted does not represent a more than insignificant concession on the part of the lender. In addition, a modification or deferral program that is mandated by the federal government or a state government (e.g., a state program that requires all institutions within that state to suspend mortgage payments for a specified period) does not represent a TDR. As of March 31, 2021, approximately $34 million of loan payment moratoriums granted under the COVID-19 relief program have been classified as TDRs. In making this determination, the Corporation considered the criteria of whether the borrower was in financial difficulty at the time of the deferral and whether the deferral period was more than insignificant.

Excluding government guaranteed loans, at March 31, 2021, the Corporation had 122,216 loans with an aggregate book value of $6.8 billion that had completed their moratorium period, of which 114,900 loans, or 94%, with an aggregate book value of $6.5 billion were current in their payments.

The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at March 31, 2021 and December 31, 2020.

	March 31, 2021								December 31, 2020
(In thousands)		Accruing		Non-Accruing		Total		Related Allowance		Accruing		Non-Accruing		Total		Related Allowance
Loans held-in-portfolio:
Commercial	$	281,234	$	107,933	$	389,167	$	26,109	$	259,246	$	103,551	$	362,797	$	15,236
Construction		-		14,877		14,877		-		-		21,497		21,497		4,397
Mortgage^[1]		1,098,479		118,536		1,217,015		71,623		1,060,193		135,772		1,195,965		71,018
Leases		388		160		548		97		392		218		610		150
Consumer		74,150		11,771		85,921		20,785		74,707		12,792		87,499		22,508
Loans held-in-portfolio	$	1,454,251	$	253,277	$	1,707,528	$	118,614	$	1,394,538	$	273,830	$	1,668,368	$	113,309
[1] At March 31, 2021, accruing mortgage loan TDRs include $675 million guaranteed by U.S. sponsored entities at BPPR, compared to $655 million at December 31, 2020.

The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters ended March 31, 2021 and 2020. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

For the quarter ended March 31, 2021
	Reduction in interest rate	Extension of maturity date	Combination of reduction in interest rate and extension of maturity date	Other
Commercial multi-family	-	1	-	-
Commercial real estate non-owner occupied	-	9	-	-
Commercial real estate owner occupied	2	20	-	-
Commercial and industrial	-	8	-	-
Mortgage	8	40	360	-
Leasing	-	-	1	-
Consumer:
Credit cards	52	-	-	14
HELOCs	-	-	1	-
Personal	61	2	1	-
Auto	-	1	2	-
Other	4	-	-	-
Total	127	81	365	14

For the quarter ended March 31, 2020
	Reduction in interest rate	Extension of maturity date	Combination of reduction in interest rate and extension of maturity date	Other
Commercial real estate non-owner occupied	-	1	-	-
Commercial real estate owner occupied	-	6	-	-
Commercial and industrial	1	11	-	1
Mortgage	2	26	147	-
Leasing	-	-	3	-
Consumer:
Credit cards	148	-	-	13
HELOCs	-	-	1	-
Personal	100	1	-	1
Auto	-	1	2	-
Other	1	-	-	-
Total	252	46	153	15

The following tables present, by class, quantitative information related to loans modified as TDRs during the quarters ended March 31, 2021 and 2020.

For the quarter ended March 31, 2021
(Dollars in thousands)	Loan count	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial multi-family	1	$	87	$	86	$	4
Commercial real estate non-owner occupied	9		3,295		3,281		141
Commercial real estate owner occupied	22		29,750		29,484		572
Commercial and industrial	8		222		218		8
Mortgage	408		47,654		49,729		1,046
Leasing	1		32		32		4
Consumer:
Credit cards	66		824		854		27
HELOCs	1		63		116		28
Personal	64		1,062		1,062		304
Auto	3		48		53		10
Other	4		6		6		1
Total	587	$	83,043	$	84,921	$	2,145

For the quarter ended March 31, 2020
(Dollars in thousands)	Loan count	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied	1	$	104	$	104	$	(8)
Commercial real estate owner occupied	6		3,906		3,902		105
Commercial and industrial	13		4,070		4,068		(717)
Mortgage	175		20,315		17,940		2,012
Leasing	3		94		95		6
Consumer:
Credit cards	161		1,260		1,273		84
HELOCs	1		332		265		854
Personal	102		1,861		1,859		297
Auto	3		86		87		12
Other	1		20		20		5
Total	466	$	32,048	$	29,613	$	2,650

The following tables present, by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

Defaulted during the quarter ended March 31, 2021
(Dollars in thousands)	Loan count	Recorded investment as of first default date
Commercial real estate owner occupied	2	$	3,754
Commercial and industrial	2		224
Mortgage	23		1,732
Consumer:
Credit cards	40		535
Personal	6		260
Total	73	$	6,505

Defaulted during the quarter ended March 31, 2020
(Dollars in thousands)	Loan count	Recorded investment as of first default date
Commercial real estate owner occupied	2	$	243
Commercial and industrial	2		40
Mortgage	39		4,482
Consumer:
Credit cards	106		859
Personal	45		808
Other	1		-
Total	195	$	6,432

Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the allowance for credit losses may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.

Credit Quality

The risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower. The risk rating analysis process is performed at least once a year or more frequently if events or conditions change which may deteriorate the credit quality. In the case of consumer and mortgage loans, these loans are classified considering their delinquency status at the end of the reporting period.

The following tables present the amortized cost basis, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at March 31, 2021 and December 31, 2020 by vintage year. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2020.

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Puerto Rico
	Commercial:
		Commercial multi-family
			Watch	$	-	$	-	$	-	$	-	$	-	$	566	$	-	$	-	$	566
			Special mention		-		-		-		-		-		4,096		-		-		4,096
			Substandard		-		-		-		-		-		1,018		100		-		1,118
			Pass		2,500		10,447		36,212		25,889		2,096		55,091		92		-		132,327
		Total commercial multi-family		$	2,500	$	10,447	$	36,212	$	25,889	$	2,096	$	60,771	$	192	$	-	$	138,107

		Commercial real estate non-owner occupied
			Watch	$	-	$	232,123	$	72,809	$	27,128	$	225,172	$	40,421	$	2,037	$	-	$	599,690
			Special Mention		17,959		-		26,449		124,060		36,824		29,611		-		-		234,903
			Substandard		-		43,336		74,608		26,602		158,367		4,928		95		-		307,936
			Pass		31,990		88,654		27,905		39,238		665,039		59,157		6,486		-		918,469
		Total commercial real estate non-owner occupied		$	49,949	$	364,113	$	201,771	$	217,028	$	1,085,402	$	134,117	$	8,618	$	-	$	2,060,998

		Commercial real estate owner occupied
			Watch	$	-	$	7,016	$	15,518	$	13,986	$	6,108	$	132,580	$	1,222	$	-	$	176,430
			Special Mention		-		1,245		6,588		241		8,547		175,158		-		-		191,779
			Substandard		2,692		1,987		2,044		37,707		2,383		172,336		-		-		219,149
			Doubtful		-		-		-		-		-		1,478		-		-		1,478
			Pass		16,029		217,419		47,995		31,309		58,557		539,283		12,543		-		923,135
		Total commercial real estate owner occupied		$	18,721	$	227,667	$	72,145	$	83,243	$	75,595	$	1,020,835	$	13,765	$	-	$	1,511,971

	Commercial and industrial
		Watch	$	47,071	$	117,215	$	73,327	$	147,175	$	49,845	$	325,459	$	213,847	$	-	$	973,939
		Special Mention		14,491		25,350		9,977		47,433		45,004		28,711		96,605		-		267,571
		Substandard		15,597		22,254		1,907		35,980		26,946		56,443		71,661		-		230,788
		Doubtful		-		-		67		-		-		51		4		-		122
		Loss		-		-		-		-		-		-		14		-		14
		Pass		412,730		899,524		373,582		108,200		145,588		116,412		542,742		-		2,598,778
	Total commercial and industrial		$	489,889	$	1,064,343	$	458,860	$	338,788	$	267,383	$	527,076	$	924,873	$	-	$	4,071,212

Construction
		Watch	$	-	$	-	$	3,580	$	-	$	-	$	-	$	-	$	-	$	3,580
		Substandard		-		-		-		-		14,877		-		-		-		14,877
		Pass		2,925		22,730		21,067		3,316		64,738		-		27,364		-		142,140
Total construction			$	2,925	$	22,730	$	24,647	$	3,316	$	79,615	$	-	$	27,364	$	-	$	160,597

Mortgage
		Substandard	$	-	$	1,515	$	948	$	1,278	$	2,879	$	141,940	$	-	$	-	$	148,560
		Pass		66,896		271,135		218,744		163,092		207,737		5,599,815		-		-		6,527,419
Total mortgage			$	66,896	$	272,650	$	219,692	$	164,370	$	210,616	$	5,741,755	$	-	$	-	$	6,675,979

Leasing
		Substandard	$	-	$	252	$	1,127	$	504	$	900	$	256	$	-	$	-	$	3,039
		Pass		195,606		406,064		292,103		189,562		97,018		61,564		-		-		1,241,917
Total leasing			$	195,606	$	406,316	$	293,230	$	190,066	$	97,918	$	61,820	$	-	$	-	$	1,244,956

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Puerto Rico
	Consumer:
		Credit cards
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	10,779	$	-	$	10,779
			Pass		-		-		-		-		-		-		866,962		-		866,962
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	877,741	$	-	$	877,741

		HELOCs
			Pass	$	-	$	-	$	-	$	-	$	-	$	526	$	3,018	$	-	$	3,544
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	526	$	3,018	$	-	$	3,544

		Personal
			Substandard	$	-	$	441	$	2,170	$	1,275	$	1,007	$	19,422	$	-	$	1,416	$	25,731
			Pass		125,173		297,600		361,153		145,452		86,373		174,319		1,924		43,566		1,235,560
	Total Personal			$	125,173	$	298,041	$	363,323	$	146,727	$	87,380	$	193,741	$	1,924	$	44,982	$	1,261,291

		Auto
			Substandard	$	34	$	3,086	$	5,906	$	3,238	$	1,421	$	1,720	$	-	$	-	$	15,405
			Pass		350,123		984,223		819,082		574,799		267,006		192,499		-		-		3,187,732
	Total Auto			$	350,157	$	987,309	$	824,988	$	578,037	$	268,427	$	194,219	$	-	$	-	$	3,203,137

		Other consumer
			Substandard	$	-	$	-	$	-	$	2,097	$	240	$	12,943	$	-	$	-	$	15,280
			Pass		5,992		15,845		13,463		9,410		4,465		6,203		54,074		-		109,452
	Total Other consumer			$	5,992	$	15,845	$	13,463	$	11,507	$	4,705	$	19,146	$	54,074	$	-	$	124,732
Total Puerto Rico				$	1,307,808	$	3,669,461	$	2,508,331	$	1,758,971	$	2,179,137	$	7,954,006	$	1,911,569	$	44,982	$	21,334,265

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Popular U.S.
	Commercial:
		Commercial multi-family
			Watch	$	-	$	41,982	$	19,813	$	33,251	$	52,889	$	93,850	$	-	$	-	$	241,785
			Special mention		-		15,500		12,384		4,250		34,531		61,330		-		-		127,995
			Substandard		-		-		74,778		25,202		-		21,386		-		-		121,366
			Pass		65,917		271,994		288,541		165,986		66,381		403,611		1,411		-		1,263,841
		Total commercial multi-family		$	65,917	$	329,476	$	395,516	$	228,689	$	153,801	$	580,177	$	1,411	$	-	$	1,754,987

		Commercial real estate non-owner occupied
			Watch	$	-	$	8,381	$	23,773	$	69,771	$	44,935	$	65,724	$	957	$	-	$	213,541
			Special Mention		-		-		3,767		15,219		9,330		89,003		350		-		117,669
			Substandard		-		767		18,617		36,419		10,877		85,562		-		-		152,242
			Pass		74,164		381,234		231,033		228,180		259,590		378,697		6,705		-		1,559,603
		Total commercial real estate non-owner occupied		$	74,164	$	390,382	$	277,190	$	349,589	$	324,732	$	618,986	$	8,012	$	-	$	2,043,055

		Commercial real estate owner occupied
			Watch	$	-	$	244	$	10,466	$	7,490	$	1,937	$	25,599	$	4,222	$	-	$	49,958
			Special Mention		-		-		-		-		-		2,339		-		-		2,339
			Substandard		-		-		1,159		2,929		-		21,426		-		-		25,514
			Pass		5,764		48,521		44,906		40,173		26,817		85,631		322		-		252,134
		Total commercial real estate owner occupied		$	5,764	$	48,765	$	56,531	$	50,592	$	28,754	$	134,995	$	4,544	$	-	$	329,945

	Commercial and industrial
		Watch	$	1,916	$	13,874	$	377	$	75	$	12	$	7,685	$	5,474	$	-	$	29,413
		Special Mention		2,415		13,492		-		-		115		9,429		98		-		25,549
		Substandard		527		463		7,472		-		-		5,210		1,689		-		15,361
		Pass		57,862		391,530		199,475		192,904		127,651		395,589		96,877		-		1,461,888
	Total commercial and industrial		$	62,720	$	419,359	$	207,324	$	192,979	$	127,778	$	417,913	$	104,138	$	-	$	1,532,211

Construction
		Watch	$	-	$	12,387	$	7,000	$	31,008	$	55,383	$	2,034	$	-	$	-	$	107,812
		Special Mention		-		-		-		-		-		28,778		-		-		28,778
		Substandard		-		-		-		20,803		-		7,523		-		-		28,326
		Pass		14,234		100,699		292,585		94,932		67,349		12,424		-		-		582,223
Total construction			$	14,234	$	113,086	$	299,585	$	146,743	$	122,732	$	50,759	$	-	$	-	$	747,139

Mortgage
		Substandard	$	-	$	340	$	2,453	$	990	$	-	$	11,010	$	-	$	-	$	14,793
		Pass		112,924		303,906		256,141		90,161		9,265		345,683		-		-		1,118,080
Total mortgage			$	112,924	$	304,246	$	258,594	$	91,151	$	9,265	$	356,693	$	-	$	-	$	1,132,873

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Popular U.S.
	Consumer:
		Credit cards
			Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	22	$	-	$	22
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	22	$	-	$	22

		HELOCs
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	195	$	195
			Loss		-		-		-		-		-		258		-		6,403		6,661
			Pass		-		-		-		-		-		10,540		38,819		33,402		82,761
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	10,798	$	38,819	$	40,000	$	89,617

		Personal
			Substandard	$	-	$	54	$	482	$	191	$	54	$	5	$	-	$	-	$	786
			Loss		-		-		57		1		5		234		2		-		299
			Pass		3,182		34,910		90,489		19,710		7,599		8,297		176		-		164,363
	Total Personal			$	3,182	$	34,964	$	91,028	$	19,902	$	7,658	$	8,536	$	178	$	-	$	165,448

		Other consumer
			Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	2,066	$	-	$	2,066
	Total Other consumer			$	-	$	-	$	-	$	-	$	-	$	-	$	2,066	$	-	$	2,066
Total Popular U.S.				$	338,905	$	1,640,278	$	1,585,768	$	1,079,645	$	774,720	$	2,178,857	$	159,190	$	40,000	$	7,797,363

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Popular, Inc.
	Commercial:
		Commercial multi-family
			Watch	$	-	$	41,982	$	19,813	$	33,251	$	52,889	$	94,416	$	-	$	-	$	242,351
			Special mention		-		15,500		12,384		4,250		34,531		65,426		-		-		132,091
			Substandard		-		-		74,778		25,202		-		22,404		100		-		122,484
			Pass		68,417		282,441		324,753		191,875		68,477		458,702		1,503		-		1,396,168
		Total commercial multi-family		$	68,417	$	339,923	$	431,728	$	254,578	$	155,897	$	640,948	$	1,603	$	-	$	1,893,094

		Commercial real estate non-owner occupied
			Watch	$	-	$	240,504	$	96,582	$	96,899	$	270,107	$	106,145	$	2,994	$	-	$	813,231
			Special Mention		17,959		-		30,216		139,279		46,154		118,614		350		-		352,572
			Substandard		-		44,103		93,225		63,021		169,244		90,490		95		-		460,178
			Pass		106,154		469,888		258,938		267,418		924,629		437,854		13,191		-		2,478,072
		Total commercial real estate non-owner occupied		$	124,113	$	754,495	$	478,961	$	566,617	$	1,410,134	$	753,103	$	16,630	$	-	$	4,104,053

		Commercial real estate owner occupied
			Watch	$	-	$	7,260	$	25,984	$	21,476	$	8,045	$	158,179	$	5,444	$	-	$	226,388
			Special Mention		-		1,245		6,588		241		8,547		177,497		-		-		194,118
			Substandard		2,692		1,987		3,203		40,636		2,383		193,762		-		-		244,663
			Doubtful		-		-		-		-		-		1,478		-		-		1,478
			Pass		21,793		265,940		92,901		71,482		85,374		624,914		12,865		-		1,175,269
		Total commercial real estate owner occupied		$	24,485	$	276,432	$	128,676	$	133,835	$	104,349	$	1,155,830	$	18,309	$	-	$	1,841,916

		Commercial and industrial
			Watch	$	48,987	$	131,089	$	73,704	$	147,250	$	49,857	$	333,144	$	219,321	$	-	$	1,003,352
			Special Mention		16,906		38,842		9,977		47,433		45,119		38,140		96,703		-		293,120
			Substandard		16,124		22,717		9,379		35,980		26,946		61,653		73,350		-		246,149
			Doubtful		-		-		67		-		-		51		4		-		122
			Loss		-		-		-		-		-		-		14		-		14
			Pass		470,592		1,291,054		573,057		301,104		273,239		512,001		639,619		-		4,060,666
		Total commercial and industrial		$	552,609	$	1,483,702	$	666,184	$	531,767	$	395,161	$	944,989	$	1,029,011	$	-	$	5,603,423

March 31, 2021
			Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
			Amortized Cost Basis by Origination Year
(In thousands)				2021		2020		2019		2018		2017		Prior Years						Total
Popular, Inc.

	Construction
		Watch	$	-	$	12,387	$	10,580	$	31,008	$	55,383	$	2,034	$	-	$	-	$	111,392
		Special Mention		-		-		-		-		-		28,778		-		-		28,778
		Substandard		-		-		-		20,803		14,877		7,523		-		-		43,203
		Pass		17,159		123,429		313,652		98,248		132,087		12,424		27,364		-		724,363
	Total construction		$	17,159	$	135,816	$	324,232	$	150,059	$	202,347	$	50,759	$	27,364	$	-	$	907,736

	Mortgage
		Substandard	$	-	$	1,855	$	3,401	$	2,268	$	2,879	$	152,950	$	-	$	-	$	163,353
		Pass		179,820		575,041		474,885		253,253		217,002		5,945,498		-		-		7,645,499
	Total mortgage		$	179,820	$	576,896	$	478,286	$	255,521	$	219,881	$	6,098,448	$	-	$	-	$	7,808,852

	Leasing
		Substandard	$	-	$	252	$	1,127	$	504	$	900	$	256	$	-	$	-	$	3,039
		Pass		195,606		406,064		292,103		189,562		97,018		61,564		-		-		1,241,917
	Total leasing		$	195,606	$	406,316	$	293,230	$	190,066	$	97,918	$	61,820	$	-	$	-	$	1,244,956

March 31, 2021
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2021		2020		2019		2018		2017		Prior Years						Total
Popular, Inc.
	Consumer:
		Credit cards
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	10,779	$	-	$	10,779
			Pass		-		-		-		-		-		-		866,984		-		866,984
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	877,763	$	-	$	877,763

		HELOCs
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	195	$	195
			Loss		-		-		-		-		-		258		-		6,403		6,661
			Pass		-		-		-		-		-		11,066		41,837		33,402		86,305
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	11,324	$	41,837	$	40,000	$	93,161

		Personal
			Substandard	$	-	$	495	$	2,652	$	1,466	$	1,061	$	19,427	$	-	$	1,416	$	26,517
			Loss		-		-		57		1		5		234		2		-		299
			Pass		128,355		332,510		451,642		165,162		93,972		182,616		2,100		43,566		1,399,923
	Total Personal			$	128,355	$	333,005	$	454,351	$	166,629	$	95,038	$	202,277	$	2,102	$	44,982	$	1,426,739

		Auto
			Substandard	$	34	$	3,086	$	5,906	$	3,238	$	1,421	$	1,720	$	-	$	-	$	15,405
			Pass		350,123		984,223		819,082		574,799		267,006		192,499		-		-		3,187,732
	Total Auto			$	350,157	$	987,309	$	824,988	$	578,037	$	268,427	$	194,219	$	-	$	-	$	3,203,137

		Other consumer
			Substandard	$	-	$	-	$	-	$	2,097	$	240	$	12,943	$	-	$	-	$	15,280
			Pass		5,992		15,845		13,463		9,410		4,465		6,203		56,140		-		111,518
	Total Other consumer			$	5,992	$	15,845	$	13,463	$	11,507	$	4,705	$	19,146	$	56,140	$	-	$	126,798
Total Popular Inc.				$	1,646,713	$	5,309,739	$	4,094,099	$	2,838,616	$	2,953,857	$	10,132,863	$	2,070,759	$	84,982	$	29,131,628

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Puerto Rico
	Commercial:
		Commercial multi-family
			Watch	$	-	$	-	$	-	$	-	$	-	$	460	$	-	$	-	$	460
			Special mention		-		-		-		-		-		4,160		-		-		4,160
			Substandard		-		-		-		-		-		400		100		-		500
			Pass		5,216		36,433		26,051		2,106		2,563		74,791		-		-		147,160
		Total commercial multi-family		$	5,216	$	36,433	$	26,051	$	2,106	$	2,563	$	79,811	$	100	$	-	$	152,280

		Commercial real estate non-owner occupied
			Watch	$	160,960	$	73,561	$	27,592	$	40,654	$	33,277	$	197,912	$	2,100	$	-	$	536,056
			Special Mention		-		26,331		124,560		29,711		19,895		62,839		836		-		264,172
			Substandard		43,399		74,303		26,799		4,932		29,974		130,218		95		-		309,720
			Pass		88,324		53,385		39,814		60,585		124,643		527,282		3,352		-		897,385
		Total commercial real estate non-owner occupied		$	292,683	$	227,580	$	218,765	$	135,882	$	207,789	$	918,251	$	6,383	$	-	$	2,007,333

		Commercial real estate owner occupied
			Watch	$	96,046	$	10,319	$	14,412	$	9,760	$	9,584	$	146,445	$	2,627	$	-	$	289,193
			Special Mention		850		6,638		249		6,571		282		172,078		-		-		186,668
			Substandard		1,774		2,181		37,686		1,878		27,094		145,193		-		-		215,806
			Doubtful		-		-		-		-		-		1,714		-		-		1,714
			Pass		204,840		54,274		31,917		57,854		128,392		417,376		10,861		-		905,514
		Total commercial real estate owner occupied		$	303,510	$	73,412	$	84,264	$	76,063	$	165,352	$	882,806	$	13,488	$	-	$	1,598,895

	Commercial and industrial
		Watch	$	131,556	$	77,821	$	182,776	$	40,318	$	63,968	$	267,856	$	243,335	$	-	$	1,007,630
		Special Mention		28,310		10,297		19,220		45,861		910		28,507		86,263		-		219,368
		Substandard		32,941		2,180		26,921		26,769		1,824		55,220		49,036		-		194,891
		Doubtful		-		67		-		1		-		54		1		-		123
		Loss		-		-		-		-		-		-		13		-		13
		Pass		1,181,399		492,778		119,709		168,174		105,442		218,716		520,865		-		2,807,083
	Total commercial and industrial		$	1,374,206	$	583,143	$	348,626	$	281,123	$	172,144	$	570,353	$	899,513	$	-	$	4,229,108

Construction
		Watch	$	-	$	105	$	4,895	$	-	$	-	$	-	$	960	$	-	$	5,960
		Substandard		-		-		-		21,497		-		-		-		-		21,497
		Pass		15,723		22,408		3,423		63,582		-		-		24,513		-		129,649
Total construction			$	15,723	$	22,513	$	8,318	$	85,079	$	-	$	-	$	25,473	$	-	$	157,106

Mortgage
		Substandard	$	754	$	903	$	1,172	$	3,129	$	4,374	$	159,359	$	-	$	-	$	169,691
		Pass		263,473		224,390		177,537		212,650		225,824		5,496,578		-		-		6,600,452
Total mortgage			$	264,227	$	225,293	$	178,709	$	215,779	$	230,198	$	5,655,937	$	-	$	-	$	6,770,143

Leasing
		Substandard	$	200	$	822	$	748	$	913	$	617	$	136	$	-	$	-	$	3,436
		Pass		480,964		315,022		209,340		109,708		63,955		15,236		-		-		1,194,225
Total leasing			$	481,164	$	315,844	$	210,088	$	110,621	$	64,572	$	15,372	$	-	$	-	$	1,197,661

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Puerto Rico
	Consumer:
		Credit cards
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	12,798	$	-	$	12,798
			Pass		-		-		-		-		-		-		907,137		-		907,137
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	919,935	$	-	$	919,935

		HELOCs
			Pass	$	-	$	-	$	-	$	-	$	-	$	540	$	3,639	$	-	$	4,179
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	540	$	3,639	$	-	$	4,179

		Personal
			Substandard	$	1,288	$	4,782	$	1,741	$	1,022	$	971	$	18,647	$	152	$	1,545	$	30,148
			Pass		323,170		413,973		168,142		99,768		57,319		137,693		2,144		45,390		1,247,599
	Total Personal			$	324,458	$	418,755	$	169,883	$	100,790	$	58,290	$	156,340	$	2,296	$	46,935	$	1,277,747

		Auto
			Substandard	$	1,975	$	6,029	$	3,612	$	1,760	$	1,369	$	990	$	-	$	-	$	15,735
			Pass		1,064,082		881,343		628,657		299,677		168,157		74,577		-		-		3,116,493
	Total Auto			$	1,066,057	$	887,372	$	632,269	$	301,437	$	169,526	$	75,567	$	-	$	-	$	3,132,228

		Other consumer
			Substandard	$	-	$	16	$	1,376	$	240	$	174	$	13,075	$	-	$	-	$	14,881
			Pass		16,912		15,698		13,158		4,966		2,828		3,785		54,437		-		111,784
	Total Other consumer			$	16,912	$	15,714	$	14,534	$	5,206	$	3,002	$	16,860	$	54,437	$	-	$	126,665
Total Puerto Rico				$	4,144,156	$	2,806,059	$	1,891,507	$	1,314,086	$	1,073,436	$	8,371,837	$	1,925,264	$	46,935	$	21,573,280

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Popular U.S.
	Commercial:
		Commercial multi-family
			Watch	$	1,643	$	16,787	$	39,980	$	39,713	$	52,989	$	61,369	$	-	$	-	$	212,481
			Special mention		3,122		30,708		4,380		19,593		37,745		20,463		-		-		116,011
			Substandard		-		17,376		21,771		1,755		20,085		6,247		-		-		67,234
			Pass		326,008		289,652		163,812		100,555		132,400		332,709		2,849		-		1,347,985
		Total commercial multi-family		$	330,773	$	354,523	$	229,943	$	161,616	$	243,219	$	420,788	$	2,849	$	-	$	1,743,711

		Commercial real estate non-owner occupied
			Watch	$	10,057	$	23,877	$	76,629	$	56,112	$	49,166	$	62,766	$	1,055	$	-	$	279,662
			Special Mention		-		4,760		15,304		14,623		70,224		20,028		350		-		125,289
			Substandard		771		18,642		36,495		11,007		40,528		28,984		-		-		136,427
			Pass		397,686		231,904		224,256		236,008		142,432		214,495		5,651		-		1,452,432
		Total commercial real estate non-owner occupied		$	408,514	$	279,183	$	352,684	$	317,750	$	302,350	$	326,273	$	7,056	$	-	$	1,993,810

		Commercial real estate owner occupied
			Watch	$	393	$	8,266	$	7,941	$	4,060	$	16,689	$	16,108	$	4,222	$	-	$	57,679
			Special Mention		-		-		192		-		-		1,467		-		-		1,659
			Substandard		-		1,152		2,361		-		1,348		20,305		-		-		25,166
			Pass		48,684		47,484		47,451		28,761		18,296		68,739		461		-		259,876
		Total commercial real estate owner occupied		$	49,077	$	56,902	$	57,945	$	32,821	$	36,333	$	106,619	$	4,683	$	-	$	344,380

	Commercial and industrial
		Watch	$	16,126	$	1,973	$	30	$	3,621	$	1,196	$	8,488	$	3,972	$	-	$	35,406
		Special Mention		14,056		-		-		1,634		4,807		4,756		1,637		-		26,890
		Substandard		2,029		6,568		-		-		-		5,980		2,394		-		16,971
		Pass		410,349		196,958		198,249		132,993		123,762		300,846		102,369		-		1,465,526
	Total commercial and industrial		$	442,560	$	205,499	$	198,279	$	138,248	$	129,765	$	320,070	$	110,372	$	-	$	1,544,793

Construction
		Watch	$	8,451	$	-	$	-	$	37,015	$	-	$	2,065	$	-	$	-	$	47,531
		Special Mention		-		-		-		3,089		-		30,083		-		-		33,172
		Substandard		-		-		20,655		9,372		7,560		-		-		-		37,587
		Pass		79,489		288,865		168,411		99,814		8,392		5,841		-		-		650,812
Total construction			$	87,940	$	288,865	$	189,066	$	149,290	$	15,952	$	37,989	$	-	$	-	$	769,102

Mortgage
		Substandard	$	29	$	-	$	1,221	$	-	$	328	$	13,287	$	-	$	-	$	14,865
		Pass		356,839		275,289		103,160		9,337		9,530		351,517		-		-		1,105,672
Total mortgage			$	356,868	$	275,289	$	104,381	$	9,337	$	9,858	$	364,804	$	-	$	-	$	1,120,537

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Popular U.S.
	Consumer:
		Credit cards
			Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	31	$	-	$	31
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	31	$	-	$	31

		HELOCs
			Substandard	$	-	$	-	$	-	$	-	$	-	$	112	$	-	$	357	$	469
			Loss		-		-		-		-		-		156		-		6,867		7,023
			Pass		-		-		-		-		-		11,907		39,366		35,806		87,079
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	12,175	$	39,366	$	43,030	$	94,571

		Personal
			Substandard	$	83	$	784	$	165	$	74	$	18	$	6	$	-	$	-	$	1,130
			Loss		-		17		63		12		6		244		2		-		344
			Pass		40,539		109,606		27,693		9,623		1,855		8,256		192		-		197,764
	Total Personal			$	40,622	$	110,407	$	27,921	$	9,709	$	1,879	$	8,506	$	194	$	-	$	199,238

		Other consumer
			Substandard	$	-		-		-		-		-		-		20		-		20
			Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	1,723	$	-	$	1,723
	Total Other consumer			$	-	$	-	$	-	$	-	$	-	$	-	$	1,743	$	-	$	1,743
Total Popular U.S.				$	1,716,354	$	1,570,668	$	1,160,219	$	818,771	$	739,356	$	1,597,224	$	166,294	$	43,030	$	7,811,916

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Popular, Inc.
	Commercial:
		Commercial multi-family
			Watch	$	1,643	$	16,787	$	39,980	$	39,713	$	52,989	$	61,829	$	-	$	-	$	212,941
			Special mention		3,122		30,708		4,380		19,593		37,745		24,623		-		-		120,171
			Substandard		-		17,376		21,771		1,755		20,085		6,647		100		-		67,734
			Pass		331,224		326,085		189,863		102,661		134,963		407,500		2,849		-		1,495,145
		Total commercial multi-family		$	335,989	$	390,956	$	255,994	$	163,722	$	245,782	$	500,599	$	2,949	$	-	$	1,895,991

		Commercial real estate non-owner occupied
			Watch	$	171,017	$	97,438	$	104,221	$	96,766	$	82,443	$	260,678	$	3,155	$	-	$	815,718
			Special Mention		-		31,091		139,864		44,334		90,119		82,867		1,186		-		389,461
			Substandard		44,170		92,945		63,294		15,939		70,502		159,202		95		-		446,147
			Pass		486,010		285,289		264,070		296,593		267,075		741,777		9,003		-		2,349,817
		Total commercial real estate non-owner occupied		$	701,197	$	506,763	$	571,449	$	453,632	$	510,139	$	1,244,524	$	13,439	$	-	$	4,001,143

		Commercial real estate owner occupied
			Watch	$	96,439	$	18,585	$	22,353	$	13,820	$	26,273	$	162,553	$	6,849	$	-	$	346,872
			Special Mention		850		6,638		441		6,571		282		173,545		-		-		188,327
			Substandard		1,774		3,333		40,047		1,878		28,442		165,498		-		-		240,972
			Doubtful		-		-		-		-		-		1,714		-		-		1,714
			Pass		253,524		101,758		79,368		86,615		146,688		486,115		11,322		-		1,165,390
		Total commercial real estate owner occupied		$	352,587	$	130,314	$	142,209	$	108,884	$	201,685	$	989,425	$	18,171	$	-	$	1,943,275

		Commercial and industrial
			Watch	$	147,682	$	79,794	$	182,806	$	43,939	$	65,164	$	276,344	$	247,307	$	-	$	1,043,036
			Special Mention		42,366		10,297		19,220		47,495		5,717		33,263		87,900		-		246,258
			Substandard		34,970		8,748		26,921		26,769		1,824		61,200		51,430		-		211,862
			Doubtful		-		67		-		1		-		54		1		-		123
			Loss		-		-		-		-		-		-		13		-		13
			Pass		1,591,748		689,736		317,958		301,167		229,204		519,562		623,234		-		4,272,609
		Total commercial and industrial		$	1,816,766	$	788,642	$	546,905	$	419,371	$	301,909	$	890,423	$	1,009,885	$	-	$	5,773,901

December 31, 2020
			Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
			Amortized Cost Basis by Origination Year
(In thousands)				2020		2019		2018		2017		2016		Prior Years						Total
Popular, Inc.

	Construction
		Watch	$	8,451	$	105	$	4,895	$	37,015	$	-	$	2,065	$	960	$	-	$	53,491
		Special Mention		-		-		-		3,089		-		30,083		-		-		33,172
		Substandard		-		-		20,655		30,869		7,560		-		-		-		59,084
		Pass		95,212		311,273		171,834		163,396		8,392		5,841		24,513		-		780,461
	Total construction		$	103,663	$	311,378	$	197,384	$	234,369	$	15,952	$	37,989	$	25,473	$	-	$	926,208

	Mortgage
		Substandard	$	783	$	903	$	2,393	$	3,129	$	4,702	$	172,646	$	-	$	-	$	184,556
		Pass		620,312		499,679		280,697		221,987		235,354		5,848,095		-		-		7,706,124
	Total mortgage		$	621,095	$	500,582	$	283,090	$	225,116	$	240,056	$	6,020,741	$	-	$	-	$	7,890,680

	Leasing
		Substandard	$	200	$	822	$	748	$	913	$	617	$	136	$	-	$	-	$	3,436
		Pass		480,964		315,022		209,340		109,708		63,955		15,236		-		-		1,194,225
	Total leasing		$	481,164	$	315,844	$	210,088	$	110,621	$	64,572	$	15,372	$	-	$	-	$	1,197,661

December 31, 2020
				Term Loans													Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
				Amortized Cost Basis by Origination Year
(In thousands)					2020		2019		2018		2017		2016		Prior Years						Total
Popular, Inc.
	Consumer:
		Credit cards
			Substandard	$	-	$	-	$	-	$	-	$	-	$	-	$	12,798	$	-	$	12,798
			Pass		-		-		-		-		-		-		907,168		-		907,168
	Total credit cards			$	-	$	-	$	-	$	-	$	-	$	-	$	919,966	$	-	$	919,966

		HELOCs
			Substandard	$	-	$	-	$	-	$	-	$	-	$	112	$	-	$	357	$	469
			Loss		-		-		-		-		-		156		-		6,867		7,023
			Pass		-		-		-		-		-		12,447		43,005		35,806		91,258
	Total HELOCs			$	-	$	-	$	-	$	-	$	-	$	12,715	$	43,005	$	43,030	$	98,750

		Personal
			Substandard	$	1,371	$	5,566	$	1,906	$	1,096	$	989	$	18,653	$	152	$	1,545	$	31,278
			Loss		-		17		63		12		6		244		2		-		344
			Pass		363,709		523,579		195,835		109,391		59,174		145,949		2,336		45,390		1,445,363
	Total Personal			$	365,080	$	529,162	$	197,804	$	110,499	$	60,169	$	164,846	$	2,490	$	46,935	$	1,476,985

		Auto
			Substandard	$	1,975	$	6,029	$	3,612	$	1,760	$	1,369	$	990	$	-	$	-	$	15,735
			Pass		1,064,082		881,343		628,657		299,677		168,157		74,577		-		-		3,116,493
	Total Auto			$	1,066,057	$	887,372	$	632,269	$	301,437	$	169,526	$	75,567	$	-	$	-	$	3,132,228

		Other consumer
			Substandard	$	-	$	16	$	1,376	$	240	$	174	$	13,075	$	20	$	-	$	14,901
			Pass		16,912		15,698		13,158		4,966		2,828		3,785		56,160		-		113,507
	Total Other consumer			$	16,912	$	15,714	$	14,534	$	5,206	$	3,002	$	16,860	$	56,180	$	-	$	128,408
Total Popular Inc.				$	5,860,510	$	4,376,727	$	3,051,726	$	2,132,857	$	1,812,792	$	9,969,061	$	2,091,558	$	89,965	$	29,385,196

Note 9 – Mortgage banking activities

Income from mortgage banking activities includes mortgage servicing fees earned in connection with administering residential mortgage loans and valuation adjustments on mortgage servicing rights. It also includes gain on sales and securitizations of residential mortgage loans, losses on repurchased loans, including interest advances, and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition, lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.

The following table presents the components of mortgage banking activities:


			Quarters ended March 31,
(In thousands)			2021		2020
Mortgage servicing fees, net of fair value adjustments:
	Mortgage servicing fees	$	9,715	$	10,968
	Mortgage servicing rights fair value adjustments		512		(5,229)
Total mortgage servicing fees, net of fair value adjustments			10,227		5,739
Net gain on sale of loans, including valuation on loans held-for-sale			4,975		3,986
Trading account profit (loss):
	Unrealized losses on outstanding derivative positions		-		(1,695)
	Realized profit (losses) on closed derivative positions		2,502		(1,610)
Total trading account profit (loss)			2,502		(3,305)
Losses on repurchased loans, including interest advances [1]			(361)		-
Total mortgage banking activities		$	17,343	$	6,420
[1]	The Corporation, from time to time, repurchases delinquent loans from its GNMA servicing portfolio, in compliance with Guarantor guidelines, and may incur in losses related to previously advanced interest on delinquent loans. Effective for the quarter ended September 30, 2020, the Corporation has determined to present these losses as part of its Mortgage Banking Activities, which were previously presented within the indemnity reserves on loans sold component of non-interest income. The amount of these losses for prior years were considered immaterial for reclassification.

Note 10 – Transfers of financial assets and mortgage servicing assets

The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA and FNMA securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 19 to the Consolidated Financial Statements for a description of such arrangements.

No liabilities were incurred as a result of these securitizations during the quarters ended March 31, 2021 and 2020 because they did not contain any credit recourse arrangements. During the quarter ended March 31, 2021, the Corporation recorded a net gain of $3.7 million (March 31, 2020 - $3.8 million) related to the residential mortgage loans securitized.

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters ended March 31, 2021 and 2020:

		Proceeds Obtained During the Quarter Ended March 31, 2021
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA	$	-	$	101,988	$	-	$	101,988
Mortgage-backed securities - FNMA		-		86,280		-		86,280
Total trading account debt securities	$	-	$	188,268	$	-	$	188,268
Mortgage servicing rights	$	-	$	-	$	2,809	$	2,809
Total	$	-	$	188,268	$	2,809	$	191,077

		Proceeds Obtained During the Quarter Ended March 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA	$	-	$	50,648	$	-	$	50,648
Mortgage-backed securities - FNMA		-		33,573		-		33,573
Total trading account debt securities	$	-	$	84,221	$	-	$	84,221
Mortgage servicing rights	$	-	$	-	$	1,487	$	1,487
Total	$	-	$	84,221	$	1,487	$	85,708

During the quarter ended March 31, 2021, the Corporation retained servicing rights on whole loan sales involving approximately $65 million in principal balance outstanding (March 31, 2020 - $10 million), with net realized gains of approximately $1.3 million (March 31, 2020 - gains of $0.2 million). All loan sales performed during the quarters ended March 31, 2021 and 2020 were without credit recourse agreements.

The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSR”) are measured at fair value.

The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. Prepayment speeds are adjusted for the Corporation’s loan characteristics and portfolio behavior.

The following table presents the changes in MSRs measured using the fair value method for the quarters ended March 31, 2021 and 2020.

Residential MSRs
(In thousands)	March 31, 2021		March 31, 2020
Fair value at beginning of period	$	118,395	$	150,906
Additions		3,636		1,634
Changes due to payments on loans^[1]		(4,094)		(2,502)
Reduction due to loan repurchases		(556)		(312)
Changes in fair value due to changes in valuation model inputs or assumptions		5,162		(2,439)
Other		-		24
Fair value at end of period	$	122,543	$	147,311
[1] Represents changes due to collection / realization of expected cash flows over time.

Residential mortgage loans serviced for others were $12.7 billion at March 31, 2021 (December 31, 2020 - $12.9 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At March 31, 2021 and 2020, those weighted average mortgage servicing fees were 0.30%. Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

During the quarter ended June 30, 2020, PB commenced selling whole loans with servicing retained. At March 31, 2021, PB had MSRs amounting to $1.0 million.

The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters ended March 31, 2021 and 2020 were as follows:

	Quarters ended
	March 31, 2021				March 31, 2020
	BPPR		PB		BPPR		PB
Prepayment speed	8.8	%	21.4	%	5.9	%	-	%
Weighted average life (in years)	7.2		3.5		9.8		-
Discount rate (annual rate)	10.5	%	11.0	%	10.9	%	-	%

Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to immediate changes in those assumptions, were as follows as of the end of the periods reported:

		Originated MSRs						Purchased MSRs
		March 31,			December 31,			March 31,			December 31,
(In thousands)		2021			2020			2021			2020
Fair value of servicing rights		$	43,655		$	44,129		$	78,888		$	74,266
Weighted average life (in years)			6.3			6.2			6.2			5.9
Weighted average prepayment speed (annual rate)			6.0	%		6.6	%		6.1	%		7.1	%
	Impact on fair value of 10% adverse change	$	(951)		$	(1,115)		$	(1,972)		$	(2,206)
	Impact on fair value of 20% adverse change	$	(1,876)		$	(2,194)		$	(3,871)		$	(4,312)
Weighted average discount rate (annual rate)			11.3	%		11.3	%		11.1	%		11.1	%
	Impact on fair value of 10% adverse change	$	(1,630)		$	(1,640)		$	(3,059)		$	(2,740)
	Impact on fair value of 20% adverse change	$	(3,156)		$	(3,175)		$	(5,910)		$	(5,301)

The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

At March 31, 2021 and December 31, 2020, the Corporation serviced $0.9 billion in residential mortgage loans with credit recourse to the Corporation. Also refer to Note 19 for information on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse.

Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At March 31, 2021, the Corporation had recorded $29 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (December 31, 2020 - $57 million). Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation.

During the quarter ended March 31, 2021, the Corporation repurchased approximately $44 million (March 31, 2020 - $22 million) of mortgage loans from its GNMA servicing portfolio. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mostly related to principal and interest advances. The risk associated with the loans is reduced due to their guaranteed nature. The Corporation may place these loans under COVID-19 modification programs offered by FHA, VA or USDA or other loss mitigation programs offered by the Corporation, and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market.

Note 11 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters ended March 31, 2021 and 2020.

		For the quarter ended March 31, 2021
		OREO		OREO
(In thousands)		Commercial/Construction		Mortgage		Total
Balance at beginning of period	$	13,214	$	69,932	$	83,146
Write-downs in value		(307)		(970)		(1,277)
Additions		3,850		1,873		5,723
Sales		(1,672)		(13,860)		(15,532)
Ending balance	$	15,085	$	56,975	$	72,060

		For the quarter ended March 31, 2020
		OREO		OREO
(In thousands)		Commercial/Construction		Mortgage		Total
Balance at beginning of period	$	16,959	$	105,113	$	122,072
Write-downs in value		(509)		(900)		(1,409)
Additions		2,120		15,407		17,527
Sales		(1,033)		(13,340)		(14,373)
Other adjustments		-		105		105
Ending balance	$	17,537	$	106,385	$	123,922

Note 12 − Other assets

The caption of other assets in the consolidated statements of financial condition consists of the following major categories:

(In thousands)	March 31, 2021		December 31, 2020
Net deferred tax assets (net of valuation allowance)	$	804,148	$	851,592
Investments under the equity method		262,335		250,467
Prepaid taxes		26,464		32,615
Other prepaid expenses		78,864		74,572
Derivative assets		20,971		20,785
Trades receivable from brokers and counterparties		72,567		65,429
Principal, interest and escrow servicing advances		66,158		65,671
Guaranteed mortgage loan claims receivable		72,649		80,477
Operating ROU assets (Note 27)		127,622		131,921
Finance ROU assets (Note 27)		14,884		15,464
Others		166,421		148,048
Total other assets	$	1,713,083	$	1,737,041

The Corporation enters in the ordinary course of business into technology hosting arrangements that are service contracts. These arrangements can include capitalizable implementation costs that are amortized during the term of the hosting arrangement. The Corporation recognizes capitalizable implementation costs related to hosting arrangements that are service contracts within Others in the table above. As of March 31, 2021, the total capitalized implementation costs amounted to $17.9 million with an accumulated amortization of $5.7 million for a net value of $12.2 million, compared to total capitalized implementation costs amounting to $17.4 million with an accumulated amortization of $4.9 million for a net value of $12.5 million as of December 31, 2020. Total amortization expense for all capitalized implementation costs of hosting arrangements that are service contracts for the quarter ended March 31, 2021 was $0.8 million (March 31, 2020 - $0.5 million).

Note 13 – Goodwill and other intangible assets

Goodwill

There were no changes in the carrying amount of goodwill for the quarters ended March 31, 2021 and 2020.

The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments:

March 31, 2021
	Balance at				Balance at
	March 31,		Accumulated		March 31,
	2021		impairment		2021
(In thousands)	(gross amounts)		losses		(net amounts)
Banco Popular de Puerto Rico	$	324,049	$	3,801	$	320,248
Popular U.S.		515,285		164,411		350,874
Total Popular, Inc.	$	839,334	$	168,212	$	671,122

December 31, 2020
	Balance at				Balance at
	December 31,		Accumulated		December 31,
	2020		impairment		2020
(In thousands)	(gross amounts)		losses		(net amounts)
Banco Popular de Puerto Rico	$	324,049	$	3,801	$	320,248
Popular U.S.		515,285		164,411		350,874
Total Popular, Inc.	$	839,334	$	168,212	$	671,122

Other Intangible Assets

At March 31, 2021 and December 31, 2020, the Corporation had $6.1 million of identifiable intangible assets with indefinite useful lives, mostly associated with the E-LOAN trademark.

The following table reflects the components of other intangible assets subject to amortization:

		Gross Carrying			Accumulated		Net Carrying
(In thousands)			Amount		Amortization		Value
March 31, 2021
	Core deposits	$	12,810	$	7,793	$	5,017
	Other customer relationships		26,397		16,390		10,007
	Trademark		488		261		227
Total other intangible assets		$	39,695	$	24,444	$	15,251
December 31, 2020
	Core deposits	$	12,810	$	7,473	$	5,337
	Other customer relationships		26,397		15,684		10,713
	Trademark		488		236		252
Total other intangible assets		$	39,695	$	23,393	$	16,302

During the quarter ended March 31, 2021, the Corporation recognized $1.1 million in amortization expense related to other intangible assets with definite useful lives (March 31, 2020 - $2.5 million).

The following table presents the estimated amortization of the intangible assets with definite useful lives for each of the following periods:

(In thousands)
Remaining 2021	$	2,524
Year 2022		2,700
Year 2023		2,659
Year 2024		2,361
Year 2025		1,172
Later years		3,835

Note 14 – Deposits

Total interest bearing deposits as of the end of the periods presented consisted of:

(In thousands)		March 31, 2021		December 31, 2020
Savings accounts		$	14,599,535	$	14,031,736
NOW, money market and other interest bearing demand deposits			22,623,197		22,398,057
Total savings, NOW, money market and other interest bearing demand deposits			37,222,732		36,429,793
Certificates of deposit:
	Under $100,000		2,877,209		2,917,700
	$100,000 and over		4,379,312		4,390,148
Total certificates of deposit			7,256,521		7,307,848
Total interest bearing deposits		$	44,479,253	$	43,737,641

A summary of certificates of deposits by maturity at March 31, 2021 follows:

(In thousands)
2021	$	3,996,245
2022		1,166,193
2023		702,298
2024		609,922
2025		549,390
2026 and thereafter		232,473
Total certificates of deposit	$	7,256,521

At March 31, 2021, the Corporation had brokered deposits amounting to $ 0.8 billion (December 31, 2020 - $ 0.8 billion).

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $3 million at March 31, 2021 (December 31, 2020 - $3 million)

At March 31, 2021, public sector deposits amounted to $15 billion. These balances are expected to decline over the long term, however, the receipt by the P.R. Government of additional COVID-19 and hurricane relief related Federal assistance, and seasonal tax collections, are likely to increase public deposit balances at BPPR in the near term. The rate at which public deposit balances will decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the timeline of current debt restructuring efforts under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) and the speed at which COVID-19 federal assistance is distributed.

Note 15 – Borrowings

Assets sold under agreements to repurchase amounted to $87 million at March 31, 2021 and $121 million December 31, 2020.

The Corporation’s repurchase transactions are overcollateralized with the securities detailed in the table below. The Corporation’s repurchase agreements have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default each party has a right of set-off against the other party for amounts owed in the related agreement and any other amount or obligation owed in respect of any other agreement or transaction between them. Pursuant to the Corporation’s accounting policy, the repurchase agreements are not offset with other repurchase agreements held with the same counterparty.

The following table presents information related to the Corporation’s repurchase transactions accounted for as secured borrowings that are collateralized with debt securities available-for-sale, other assets held-for-trading purposes or which have been obtained under agreements to resell. It is the Corporation’s policy to maintain effective control over assets sold under agreements to repurchase; accordingly, such securities continue to be carried on the Consolidated Statements of Financial Condition.

Repurchase agreements accounted for as secured borrowings

		March 31, 2021		December 31, 2020
			Repurchase		Repurchase
(In thousands)			liability		liability
U.S. Treasury securities
	Within 30 days	$	14,665	$	67,157
	After 30 to 90 days		14,732		39,318
	After 90 days		44,796		9,979
Total U.S. Treasury securities			74,193		116,454
Mortgage-backed securities
	Within 30 days		2,129		3,778
	After 30 to 90 days		-		268
	After 90 days		9,735		-
Total mortgage-backed securities			11,864		4,046
Collateralized mortgage obligations
	Within 30 days		777		803
Total collateralized mortgage obligations			777		803
Total		$	86,834	$	121,303

Repurchase agreements in this portfolio are generally short-term, often overnight. As such our risk is very limited. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.

There were no other short-term borrowings outstanding at March 31, 2021 and December 31, 2020.

The following table presents the composition of notes payable at March 31, 2021 and December 31, 2020.

(In thousands)	March 31, 2021		December 31, 2020
Advances with the FHLB with maturities ranging from 2021 through 2029 paying interest at monthly fixed rates ranging from 0.39% to 4.19%	$	541,469	$	542,469
Advances with the FRB maturing on 2022 paying interest annually at a fixed rate of 0.35%		934		1,009
Unsecured senior debt securities maturing on 2023 paying interest semiannually at a fixed rate of 6.125%, net of debt issuance costs of $ 3,109		296,891		296,574
Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2033 to 2034 with fixed interest rates ranging from 6.125% to 6.7%, net of debt issuance costs of $362		384,936		384,929
Total notes payable	$	1,224,230	$	1,224,981
Note: Refer to the Corporation's 2020 Form 10-K for rates information at December 31, 2020.

A breakdown of borrowings by contractual maturities at March 31, 2021 is included in the table below.

		Assets sold under
(In thousands)		agreements to repurchase		Notes payable	Total
2021	$	62,099	$	49,040	$	111,139
2022		24,735		104,081		128,816
2023		-		340,152		340,152
2024		-		91,944		91,944
2025		-		139,920		139,920
Later years		-		499,093		499,093
Total borrowings	$	86,834	$	1,224,230	$	1,311,064

At March 31, 2021 and December 31, 2020, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $2.9 billion and $3.0 billion, respectively, of which $0.5 billion were used at each period. In addition, at March 31, 2021 and December 31, 2020, the Corporation had placed $0.9 billion of the available FHLB credit facility as collateral for municipal letters of credit to secure deposits. The FHLB borrowing facilities are collateralized with loans held-in-portfolio, and do not have restrictive covenants or callable features.

Also, at March 31, 2021, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.3 billion (2020 - $1.4 billion), which remained unused at March 31, 2021 and December 31, 2020. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

Note 16 − Other liabilities

The caption of other liabilities in the consolidated statements of financial condition consists of the following major categories:

(In thousands)	March 31, 2021		December 31, 2020
Accrued expenses	$	246,177	$	235,449
Accrued interest payable		30,124		38,622
Accounts payable		71,174		69,784
Dividends payable		33,754		33,701
Trades payable		12,180		720,212
Liability for GNMA loans sold with an option to repurchase		29,399		57,189
Reserves for loan indemnifications		22,422		24,781
Reserve for operational losses		44,144		41,452
Operating lease liabilities (Note 27)		140,129		152,588
Finance lease liabilities (Note 27)		21,439		22,572
Pension benefit obligation		29,854		35,568
Postretirement benefit obligation		178,666		179,211
Others		59,382		73,560
Total other liabilities	$	918,844	$	1,684,689

Note 17 – Stockholders’ equity

As of March 31, 2021, stockholder’s equity totaled $5.9 billion. During the quarter ended March 31, 2021, the Corporation declared cash dividends of $0.40 (2020 - $0.40) per common share outstanding to $33.8 million (2020 - $35.5 million). The quarterly dividend declared to shareholders of record as of the close of business on March 18, 2021 was paid on April 1, 2021. On May 6, 2021, the Corporation’s Board of Directors approved a quarterly cash dividend of $0.45 per share on its outstanding common stock. The dividend will be payable on July 1, 2020 to shareholders of record at the close of business on May 26, 2021.

Preferred Stocks

On February 24, 2020, the Corporation redeemed all the outstanding shares of the 2008 Series B Preferred Stock. The redemption price of the 2008 Series B Preferred Stock was $25.00 per share, plus $0.1375 (representing the amount of accrued and unpaid dividends for the current monthly dividend period to the redemption date), for a total payment per share in the amount of $25.1375.

Accelerated share repurchase transaction (“ASR”)

On May 3, 2021, the Corporation announced that it had entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $350 million of Corpration’s common stock. Under the terms of the ASR Agreement, on May 4, 2021 the Corporation made an initial payment of $350 million and received an initial delivery of 3,785,831 shares of Corporation’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. Furthermore, as a result of the receipt of the Initial Shares, the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the final delivery or receipt of cash or shares, which will depend on the volume-weighted average price of the Corporation’s common stock during the term of the ASR Agreement, less a discount. The final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2021.

On January 30, 2020, the Corporation entered into a $500 million ASR transaction with respect to its common stock, which was accounted for as a treasury stock transaction. As a result of the receipt of the initial 7,055,919 shares, the Corporation recognized in shareholder’s equity approximately $400 million in treasury stock and $100 million as a reduction in capital surplus. On March 19, 2020 (the “early termination date”), the dealer counterparty to the ASR exercised its right to terminate the ASR as a result of the trading price of the Corporation’s common stock falling below a specified level due to the effects of the COVID-19 pandemic on the global markets. As a result of such early termination, the final settlement of the ASR, which was expected to occur during the fourth quarter of 2020, occurred during the second quarter of 2020. The Corporation completed the transaction on May 27, 2020 and received 4,763,216 additional shares of common stock after the early termination date. In total the Corporation repurchased 11,819,135 shares at an average price per share of $42.3043 under the ASR.

Note 18 – Other comprehensive (loss) income

The following table presents changes in accumulated other comprehensive (loss) income by component for the quarters ended March 31, 2021 and 2020.

	Changes in Accumulated Other Comprehensive (Loss) Income by Component [1]
		Quarters ended March 31,
(In thousands)		2021		2020
Foreign currency translation	Beginning Balance	$	(71,254)	$	(56,783)
	Other comprehensive income (loss)		569		(1,818)
	Net change		569		(1,818)
	Ending balance	$	(70,685)	$	(58,601)
Adjustment of pension and postretirement benefit plans	Beginning Balance	$	(195,056)	$	(202,816)
	Amounts reclassified from accumulated other comprehensive loss for amortization of net losses		3,242		3,351
	Net change		3,242		3,351
	Ending balance	$	(191,814)	$	(199,465)
Unrealized net holding gains on debt securities	Beginning Balance	$	460,900	$	92,155
	Other comprehensive (loss) income		(369,945)		381,776
	Net change		(369,945)		381,776
	Ending balance	$	90,955	$	473,931
Unrealized net losses on cash flow hedges	Beginning Balance	$	(4,599)	$	(2,494)
	Other comprehensive income (loss) before reclassifications		1,357		(3,589)
	Amounts reclassified from accumulated other comprehensive loss		48		841
	Net change		1,405		(2,748)
	Ending balance	$	(3,194)	$	(5,242)
	Total	$	(174,738)	$	210,623
[1] All amounts presented are net of tax.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income during the quarters ended March 31, 2021 and 2020.

		Reclassifications Out of Accumulated Other Comprehensive (Loss) Income
		Affected Line Item in the	Quarters ended March 31,
(In thousands)		Consolidated Statements of Operations	2021		2020

Adjustment of pension and postretirement benefit plans
	Amortization of net losses	Other operating expenses	$	(5,190)	$	(5,362)
		Total before tax		(5,190)		(5,362)
		Income tax benefit		1,948		2,011
		Total net of tax	$	(3,242)	$	(3,351)
Unrealized net losses on cash flow hedges
	Forward contracts	Mortgage banking activities	$	370	$	(1,296)
	Interest rate swaps	Other operating income	$	(279)	$	(31)
		Total before tax		91		(1,327)
		Income tax (expense) benefit		(139)		486
		Total net of tax	$	(48)	$	(841)
		Total reclassification adjustments, net of tax	$	(3,290)	$	(4,192)

Note 19 – Guarantees

At March 31, 2021 the Corporation had a liability of $0.2 million (December 31, 2020 - $0.2 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. Management does not anticipate any material losses related to these instruments.

From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. At March 31, 2021, the Corporation serviced $0.9 billion (December 31, 2020 - $0.9 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter ended March 31, 2021, the Corporation repurchased approximately $8 million of unpaid principal balance in mortgage loans subject to the credit recourse provisions (March 31, 2020 - $8 million). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At March 31, 2021 the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $20 million (December 31, 2020 - $22 million).

The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters ended March 31, 2021 and 2020.

		Quarters ended March 31,
(In thousands)		2021		2020
Balance as of beginning of period	$	22,484	$	34,862
Impact of adopting CECL		-		(3,831)
Provision for recourse liability		817		4,364
Net charge-offs		(3,057)		(3,676)
Balance as of end of period	$	20,244	$	31,719

When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. There were no repurchases of loans under representation and warranty arrangements during the quarters ended March 31, 2021 and 2020. A substantial amount of these loans reinstates to performing status or have mortgage insurance, and thus the ultimate losses on the loans are not deemed significant.

From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. The following table presents the changes in the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR for the quarters ended March 31, 2021 and 2020.

		Quarters ended March 31,
(In thousands)		2021		2020
Balance as of beginning of period	$	2,297	$	3,212
Provision (reversal) for representation and warranties		(119)		(69)
Balance as of end of period	$	2,178	$	3,143

Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At March 31, 2021, the Corporation serviced $12.7 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2020 - $12.9 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, the Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Corporation would not receive any future servicing income with respect to that loan. At March 31, 2021, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $66 million (December 31, 2020 - $66 million). To the extent the mortgage loans underlying the Corporation’s servicing portfolio experience increased delinquencies, the Corporation would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its 100% owned consolidated subsidiaries amounting to $94 million at March 31, 2021 and December 31, 2020. In addition, at March 31, 2021 and December 31, 2020, PIHC fully and unconditionally guaranteed on a subordinated basis $374 million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 17 to the Consolidated Financial Statements in the 2020 Form 10-K for further information on the trust preferred securities.

Note 20 – Commitments and contingencies

Off-balance sheet risk

The Corporation is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments, letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the consolidated statements of financial condition.

Financial instruments with off-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows:

(In thousands)		March 31, 2021		December 31, 2020
Commitments to extend credit:
	Credit card lines	$	5,271,202	$	5,226,660
	Commercial and construction lines of credit		3,844,356		3,805,459
	Other consumer unused credit commitments		251,574		257,312
Commercial letters of credit			3,090		1,864
Standby letters of credit			21,330		22,266
Commitments to originate or fund mortgage loans			107,464		96,786

At March 31, 2021 and December 31, 2020, the Corporation maintained a reserve of approximately $10 million and $16 million, respectively, for potential losses associated with unfunded loan commitments related to commercial, construction and consumer lines of credit.

Other commitments

At March 31, 2021, and December 31, 2020, the Corporation’s also maintained other non-credit commitments for approximately $1.4 million, primarily for the acquisition of other investments.

Business concentration

Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 32 to the Consolidated Financial Statements.

Puerto Rico has faced significant fiscal and economic challenges for over a decade. In response to such challenges, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA.

At March 31, 2021 and December 31, 2020, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $375 million and $377 million, respectively, which amounts were fully outstanding on such dates. Of this amount, $342 million consists of loans and $33 million are securities ($342 million and $ 35 million at December 31, 2020). Substantially all of the amount outstanding at March 31, 2021 and March 31, 2020 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At March 31, 2021, 74% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón.

The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities as of March 31, 2021:

(In thousands)		Investment Portfolio		Loans		Total Outstanding		Total Exposure
Central Government
After 1 to 5 years	$	3	$	-	$	3	$	3
After 5 to 10 years		16		-		16		16
After 10 years		36		-		36		36
Total Central Government		55		-		55		55
Municipalities
Within 1 year		4,165		17,147		21,312		21,312
After 1 to 5 years		14,765		133,365		148,130		148,130
After 5 to 10 years		13,210		120,935		134,145		134,145
After 10 years		450		70,478		70,928		70,928
Total Municipalities		32,590		341,925		374,515		374,515
Total Direct Government Exposure	$	32,645	$	341,925	$	374,570	$	374,570

In addition, at March 31, 2021, the Corporation had $311 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($317 million at December 31, 2020). These included $255 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2020 - $260 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had at March 31, 2021, $45 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default and upon the satisfaction of certain other conditions (December 31, 2020 - $46 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof. In addition, at March 31, 2021, the Corporation had $11 million of commercial real estate notes issued by government entities but that are payable from rent paid by non-governmental parties (December 31, 2020 - $11 million).

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits.

In addition, $1.7 billion of residential mortgages, $1.2 billion of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $60 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at March 31, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

At March 31, 2021, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $103 million in direct exposure to USVI government entities (December 31, 2020 - $105 million). The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations.

At March 31, 2021, the Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, it has a loan portfolio amounting to

approximately $250 million comprised of various retail and commercial clients, including a loan of approximately $18 million with the government of the BVI (compared to $251 million and $19 million, respectively, at December 31, 2020).

Legal Proceedings

The nature of Popular’s business ordinarily generates claims, litigation, investigations, and legal and administrative cases and proceedings (collectively, “Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of the Corporation and its stockholders to do so. On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the most current information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis to reflect any relevant developments, as appropriate. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established.

In certain cases, exposure to loss exists in excess of the accrual to the extent such loss is reasonably possible, but not probable. Management believes and estimates that the range of reasonably possible losses (with respect to those matters where such limits may be determined, in excess of amounts accrued) for current Legal Proceedings ranged from $0 to approximately $34.2 million as of March 31, 2021. In certain cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the Legal Proceedings, and the inherent uncertainty of the various potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.

While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, management believes that the amount it has already accrued is adequate and any incremental liability arising from the Legal Proceedings in matters in which a loss amount can be reasonably estimated will not have a material adverse effect on the Corporation’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters in a reporting period, if unfavorable, could have a material adverse effect on the Corporation’s consolidated financial position for that period.

Set forth below is a description of the Corporation’s significant Legal Proceedings.

BANCO POPULAR DE PUERTO RICO

Hazard Insurance Commission-Related Litigation

Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a class action complaint captioned Pérez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $400 million plus legal interest, for the “good experience” commissions allegedly paid by the Defendant Insurance Companies during the relevant time period, as well as injunctive relief seeking to enjoin the Defendant Insurance Companies from paying commissions to the insurance agent/mortgagee and ordering them to pay those fees directly to the insured. A motion for dismissal on the merits filed by the Defendant Insurance Companies was denied with a right to replead following limited targeted discovery. Each of the Puerto Rico Court of Appeals and the Puerto Rico Supreme Court denied the Popular Defendants’ request to review the lower court’s denial of the motion to dismiss. In December 2017, plaintiffs amended the complaint, and, in January 2018, defendants filed an answer thereto. Separately, in October 2017, the Court entered an order whereby it broadly certified the class, after which the Popular Defendants filed a certiorari petition before the Puerto Rico Court of Appeals in relation to the class certification, which the Court declined to entertain. In November

2018 and in January 2019, plaintiffs filed voluntary dismissal petitions against MAPFRE-PRAICO Insurance Company and Antilles Insurance Company, respectively, leaving the Popular Defendants as the sole remaining defendants in the action.

In April 2019, the Court amended the class definition to limit it to individual homeowners whose residential units were subject to a mortgage from BPPR who, in turn, obtained risk insurance policies with Antilles Insurance or MAPFRE Insurance through Popular Insurance from 2002 to 2015, and who did not make insurance claims against said policies during their effective term. The Court approved in September 2020 the notice to the class, which is yet to be published. The Popular Defendants expect to file a Motion for Summary Judgment requesting the dismissal of the action by May 7, 2021, which is the current deadline for the filing of dispositive motions. This deadline, and current deadlines for the Pre-Trial and Trial hearings, may be extended if the Court allows an additional expert witness recently disclosed by Plaintiffs and opposed by the Popular Defendants.

Mortgage-Related Litigation and Claims

BPPR has been named a defendant in a putative class action captioned Lilliam González Camacho, et al. v. Banco Popular de Puerto Rico, et al., filed before the United States District Court for the District of Puerto Rico on behalf of mortgage-holders who have allegedly been subjected to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs maintain that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel (or dual tracking). Plaintiffs assert that such actions violate the Home Affordable Modification Program (“HAMP”), the Home Affordable Refinance Program (“HARP”) and other federally sponsored loan modification programs, as well as the Puerto Rico Mortgage Debtor Assistance Act and the Truth in Lending Act (“TILA”). For the alleged violations stated above, plaintiffs request that all defendants (over 20, including all local banks) be held jointly and severally liable in an amount no less than $400 million. BPPR filed a motion to dismiss in August 2017, as did most co-defendants, and, in March 2018, the District Court dismissed the complaint in its entirety. After being denied reconsideration by the District Court, in August 2018, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. In July 2020, the U.S. Court of Appeals for the First Circuit affirmed the District Court’s decision dismissing the complaint. In September 2020, the Appellants filed a petition for rehearing and for rehearing en banc, which was denied in December 2020. Proceedings before the First Circuit Court of Appeals concluded, and Plaintiffs did not seek certiorari review before the U.S. Supreme Court. This matter is now closed.

BPPR has also been named a defendant in another putative class action captioned Yiries Josef Saad Maura v. Banco Popular, et al., filed by the same counsel who filed the González Camacho action referenced above, on behalf of residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. As in González Camacho, plaintiffs contend that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel, all in violation of TILA, the Real Estate Settlement Procedures Act (“RESPA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and other consumer-protection laws and regulations. Plaintiffs did not include a specific amount of damages in their complaint. After waiving service of process, BPPR filed a motion to dismiss the complaint on the same grounds as those asserted in the González Camacho action (as did most co-defendants, separately). BPPR further filed a motion to oppose class certification, which the Court granted in September 2018. In April 2019, the Court entered an Opinion and Order granting BPPR’s and several other defendants’ motions to dismiss with prejudice. Plaintiffs filed a Motion for Reconsideration in April 2019, which Popular timely opposed. In September 2019, the Court issued an Amended Opinion and Order dismissing plaintiffs’ claims against all defendants, denying the reconsideration requests and other pending motions, and issuing final judgment. In October 2019, plaintiffs filed a Motion for Reconsideration of the Court’s Amended Opinion and Order, which was denied in December 2019. In January 2020, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. Plaintiffs filed their appeal brief in July 2020, Appellees filed their brief in September 2020, and Appellants filed their reply brief in January 2021. The appeal is now fully briefed and pending resolution.

Insufficient Funds and Overdraft Fees Class Actions

In February 2020, BPPR was served with a putative class action complaint captioned Soto-Melendez v. Banco Popular de Puerto Rico, filed before the United States District Court for the District of Puerto Rico. The complaint alleges breach of contract, breach of the covenant of good faith and fair dealing and unjust enrichment due to BPPR’s purported practice of (a) assessing more than one

insufficient funds fee (“NSF Fees”) on the same “item” or transaction and (b) charging both NSF Fees and overdraft fees (“OD Fees”) on the same item or transaction, and is filed on behalf of all persons who during the applicable statute of limitations period were charged NSF Fees and/or OD Fees pursuant to these purported practices. In April 2020, BPPR filed a motion to dismiss the case. On April 21, 2021, the Court issued an order granting in part and denying in part BPPR’s motion to dismiss; the unjust enrichment claim was dismissed, whereas the breach of contract and covenant of good faith and fair dealing claims survived the motion. Discovery is ongoing.

Popular has been also named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff alleges breach of contract, violation of the covenant of good faith and fair dealing, unjust enrichment and violation of New York consumer protection law due to Popular’s purported practice of charging OD Fees on transactions that, under plaintiffs’ theory, do not overdraw the account. Plaintiff describes Popular’s purported practice of charging OD Fees as “Authorize Positive, Purportedly Settle Negative Transactions” (“APPSN”) and states that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. In August 2020, Popular filed a Motion to Dismiss on several grounds, including failure to state a claim against Popular, Inc. and improper venue. In October 2020, Plaintiffs filed a Notice of Voluntary Dismissal before the U.S. District Court for the Southern District of New York and, on that same date, filed an identical complaint in the U.S. District Court for the District of the Virgin Islands against Popular, Inc., Popular Bank and BPPR. In November 2020, Plaintiffs filed a Notice of Voluntary Dismissal against Popular, Inc. and Popular Bank following a Motion to Dismiss filed on behalf of such entities which argued failure to state a claim and lack of minimum contacts of such parties with the U.S.V.I. district court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to Dismiss in January 2021. Plaintiff opposed the Motion to Dismiss in February 2021 and BPPR replied in March 2021. The Motion to Dismiss is now fully briefed and pending resolution.

Other Proceedings

In June 2017, a syndicate comprised of BPPR and other local banks (the “Lenders”) filed an involuntary Chapter 11 bankruptcy proceeding against Betteroads Asphalt and Betterecycling Corporation (the “Involuntary Debtors”). This filing followed attempts by the Lenders to restructure and resolve the Involuntary Debtors’ obligations and outstanding defaults under a certain credit agreement, first through good faith negotiations and subsequently, through the filing of a collection action against the Involuntary Debtors in local court. The Involuntary Debtors subsequently counterclaimed, asserting damages in excess of $900 million. The Lenders ultimately joined in the commencement of these involuntary bankruptcy proceedings against the Debtors in order to preserve and recover the Involuntary Debtors’ assets, having confirmed that the Involuntary Debtors were transferring assets out of their estate for little or no consideration.

The Involuntary Debtors filed a motion to dismiss the proceedings and for damages against the syndicate, arguing both that this petition was filed in bad faith and that there was a bona fide dispute as to the petitioners’ claims, as set forth in the counterclaim filed by the Involuntary Debtors in local court. After the Court held hearings in June and July 2019 to consider whether the involuntary petitions were filed in bad faith, in October 2019, the Court entered an Opinion and Order determining that the involuntary petitions were not filed in bad faith and issued an order for relief under Chapter 11 of the U.S. Bankruptcy Code granting the involuntary petitions. In October 2019, the debtors filed a Notice of Appeal to the U.S. District Court. In November 2020, the U.S. District Court issued an opinion affirming the order for relief issued by the Bankruptcy Court under Chapter 11 of the U.S. Bankruptcy Code granting the involuntary petitions. In January 2021, Debtors filed a Notice of Appeal from this decision before the U.S. Court of Appeals for the First Circuit.

In February 2020, the Debtors initiated an adversary proceeding seeking in excess of $80 million in damages, alleging that in 2016 the Lenders illegally foreclosed on their accounts receivable and as a result illegally interfered with contracts entered with third parties, forcing the Debtors into bankruptcy. Debtors further seek a judgment declaring that Lenders do not possess security interests over certain personal property of the Debtors because either such security interests were not adequately perfected according to Puerto Rico law, or the security interests were lost upon the lapsing date of the financing statements that the Lenders had originally perfected in connection with such interests. Debtors amended their adversary complaint to include references to the Lenders’ Syndicate and BPPR’s proof of claims and formally object to such proof of claims, as well as to demand that the District Court, not the Bankruptcy Court, entertains the complaint, requesting trial by jury on all counts. Lenders filed a Motion to dismiss in June 2020. In September 2020, the Court granted the parties an extension of all pending deadlines for 30 days in furtherance of settlement negotiations, and, thereafter, the Court granted, at the request of the parties, multiple additional 30-day extensions for the

parties to continue settlement conversations. On April 28, 2021, the Lenders, the Debtors and other related parties executed a settlement agreement that contemplates the resolution of any and all claims between the parties as part of the bankruptcy proceedings. The Bankruptcy Court set May 14, 2021 as the deadline to submit objections to the settlement agreement, May 20, 2021 as the deadline for objections to the Debtors’ disclosure statement and set a hearing for May 27, 2021 to approve the settlement agreement and the disclosure statement.

POPULAR BANK

Employment-Related Litigation

In July 2019, Popular Bank (“PB”) was served in a putative class complaint in which it was named as a defendant along with five (5) current PB employees (collectively, the “AB Defendants”), captioned Aileen Betances, et al. v. Popular Bank, et al., filed before the Supreme Court of the State of New York (the “AB Action”). The complaint, filed by five (5) current and former PB employees, seeks to recover damages for the AB Defendants' alleged violation of local and state sexual harassment, discrimination and retaliation laws. Additionally, in July 2019, PB was served in a putative class complaint in which it was named as a defendant along with six (6) current PB employees (collectively, the “DR Defendants”), captioned Damian Reyes, et al. v. Popular Bank, et al., filed before the Supreme Court of the State of New York (the “DR Action”). The DR Action, filed by three (3) current and former PB employees, seeks to recover damages for the DR Defendants’ alleged violation of local and state discrimination and retaliation laws. Plaintiffs in both complaints are represented by the same legal counsel, and five of the six named individual defendants in the DR Action are the same named individual defendants in the AB Action. Both complaints are related, among other things, to allegations of purported sexual harassment and/or misconduct by a former PB employee as well as PB’s actions in connection thereto and seek no less than $100 million in damages each. In October 2019, PB and the other defendants filed several Motions to Dismiss. Plaintiffs opposed the motions in December 2019 and PB and the other defendants replied in January 2020. In July 2020, a hearing to discuss the motions to dismiss filed by PB in both actions was held, at which the Court dismissed one of the causes of action included by plaintiffs in the AB Action and ordered the parties to submit a copy of the court reporter’s transcript. The parties submitted a copy of the court reporter’s transcript in August 2020 and the motions to dismiss are pending resolution.

POPULAR SECURITIES

Puerto Rico Bonds and Closed-End Investment Funds

The volatility in prices and declines in value that Puerto Rico municipal bonds and closed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and, as of March 31, 2021, is named as a respondent (among other broker-dealers) in 131 pending arbitration proceedings with aggregate claimed amounts of approximately $139 million, including one arbitration with claimed damages of approximately $30 million. While Popular Securities believes it has meritorious defenses to the claims asserted in these proceedings, it has often determined that it is in its best interest to settle certain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults and non-payment of its various debt obligations, as well as the Commonwealth’s and the Financial Oversight Management Board’s (the “Oversight Board”) decision to pursue restructurings under Title III and Title VI of PROMESA, have impacted the number of customer complaints (and claimed damages) filed against Popular Securities concerning Puerto Rico bonds and closed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the arbitration proceedings described above, or a significant increase in customer complaints, could have a material adverse effect on Popular.

PROMESA Title III Proceedings

In 2017, the Oversight Board engaged the law firm of Kobre & Kim to carry out an independent investigation on behalf of the Oversight Board regarding, among other things, the causes of the Puerto Rico financial crisis. Popular, Inc., BPPR and Popular Securities (collectively, the “Popular Companies”) were served by, and cooperated with, the Oversight Board in connection with requests for the preservation and voluntary production of certain documents and witnesses with respect to Kobre & Kim’s independent investigation.

On August 20, 2018, Kobre & Kim issued its Final Report, which contained various references to the Popular Companies, including an allegation that Popular Securities participated as an underwriter in the Commonwealth’s 2014 issuance of government obligation bonds notwithstanding having allegedly advised against it. The report noted that such allegation could give rise to an unjust enrichment claim against the Corporation and could also serve as a basis to equitably subordinate claims filed by the Corporation in the Title III proceeding to other third-party claims.

After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the applicable two-year statute of limitations for the filing of such claims pursuant to the U.S. Bankruptcy Code, the SCC, along with the Commonwealth’s Unsecured Creditors’ Committee (“UCC”), filed various avoidance, fraudulent transfer and other claims against third parties, including government vendors and financial institutions and other professionals involved in bond issuances being challenged as invalid by the SCC and the UCC. The Popular Companies, the SCC and the UCC have entered into a tolling agreement with respect to potential claims the SCC and the UCC, on behalf of the Commonwealth or other Title III debtors, may assert against the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result of any role of the Popular Companies in the offering of the aforementioned challenged bond issuances.

Note 21 – Non-consolidated variable interest entities

The Corporation is involved with three statutory trusts which it created to issue trust preferred securities to the public. These trusts are deemed to be variable interest entities (“VIEs”) since the equity investors at risk have no substantial decision-making rights. The Corporation does not hold any variable interest in the trusts, and therefore, cannot be the trusts’ primary beneficiary. Furthermore, the Corporation concluded that it did not hold a controlling financial interest in these trusts since the decisions of the trusts are predetermined through the trust documents and the guarantee of the trust preferred securities is irrelevant since in substance the sponsor is guaranteeing its own debt.

Also, the Corporation is involved with various special purpose entities mainly in guaranteed mortgage securitization transactions, including GNMA and FNMA. These special purpose entities are deemed to be VIEs since they lack equity investments at risk. The Corporation’s continuing involvement in these guaranteed loan securitizations includes owning certain beneficial interests in the form of securities as well as the servicing rights retained. The Corporation is not required to provide additional financial support to any of the variable interest entities to which it has transferred the financial assets. The mortgage-backed securities, to the extent retained, are classified in the Corporation’s Consolidated Statements of Financial Condition as available-for-sale or trading securities. The Corporation concluded that, essentially, these entities (FNMA and GNMA) control the design of their respective VIEs, dictate the quality and nature of the collateral, require the underlying insurance, set the servicing standards via the servicing guides and can change them at will, and can remove a primary servicer with cause, and without cause in the case of FNMA. Moreover, through their guarantee obligations, agencies (FNMA and GNMA) have the obligation to absorb losses that could be potentially significant to the VIE.

The Corporation holds variable interests in these VIEs in the form of agency mortgage-backed securities and collateralized mortgage obligations, including those securities originated by the Corporation and those acquired from third parties. Additionally, the Corporation holds agency mortgage-backed securities and agency collateralized mortgage obligations issued by third party VIEs in which it has no other form of continuing involvement. Refer to Note 23 to the Consolidated Financial Statements for additional information on the debt securities outstanding at March 31, 2021 and December 31, 2020, which are classified as available-for-sale and trading securities in the Corporation’s Consolidated Statements of Financial Condition. In addition, the Corporation holds variable interests in the form of servicing fees, since it retains the right to service the transferred loans in those government-sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party.

The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at March 31, 2021 and December 31, 2020.

(In thousands)		March 31, 2021		December 31, 2020
Assets
Servicing assets:
	Mortgage servicing rights	$	94,890	$	90,273
Total servicing assets		$	94,890	$	90,273
Other assets:
	Servicing advances	$	9,482	$	8,769
Total other assets		$	9,482	$	8,769
Total assets		$	104,372	$	99,042
Maximum exposure to loss		$	104,372	$	99,042

The size of the non-consolidated VIEs, in which the Corporation has a variable interest in the form of servicing fees, measured as the total unpaid principal balance of the loans, amounted to $8.5 billion at March 31, 2021 (December 31, 2020 - $8.7 billion).

The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at March 31, 2021 and December 31, 2020, will not be recovered. The agency debt securities are not included as part of the maximum exposure to loss since they are guaranteed by the related agencies.

ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the primary beneficiary of any of the VIEs it is involved with. The conclusion on the assessment of these non-consolidated VIEs has not changed since their initial evaluation. The Corporation concluded that it is still not the primary beneficiary of these VIEs, and therefore, these VIEs are not required to be consolidated in the Corporation’s financial statements at March 31, 2021.

Note 22 – Related party transactions

The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.

EVERTEC

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of March 31, 2021, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.15%. The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

The Corporation recorded $0.6 million in dividends distributions during the quarter ended March 31, 2021 from its investments in EVERTEC (March 31, 2020 - $0.6 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)		March 31, 2021		December 31, 2020
Equity investment in EVERTEC	$	92,004	$	86,158

The Corporation had the following financial condition balances outstanding with EVERTEC at March 31, 2021 and December 31, 2020. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)	March 31, 2021		December 31, 2020
Accounts receivable (Other assets)	$	3,597	$	5,678
Deposits		(75,420)		(125,361)
Accounts payable (Other liabilities)		(1,835)		(2,395)
Net total	$	(73,658)	$	(122,078)

The Corporation’s proportionate share of income from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income and changes in stockholders’ equity for the quarters ended March 31, 2021 and 2020.

		Quarters ended March 31,
(In thousands)		2021		2020
Share of income from investment in EVERTEC	$	5,734	$	3,602
Share of other changes in EVERTEC's stockholders' equity		178		785
Share of EVERTEC's changes in equity recognized in income	$	5,912	$	4,387

The following table presents the impact of transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters ended March 31, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis.

	Quarters ended March 31,
(In thousands)	2021		2020		Category
Interest expense on deposits	$	(89)	$	(67)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		6,454		5,489	Other service fees
Rental income charged to EVERTEC		1,547		1,767	Net occupancy
Processing fees on services provided by EVERTEC		(60,141)		(55,596)	Professional fees
Other services provided to EVERTEC		121		261	Other operating expenses
Total	$	(52,108)	$	(48,146)

Centro Financiero BHD León

At March 31, 2021, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2021, the Corporation recorded $6.4 million in earnings from its investment in BHD León (March 31, 2020 - $6.8 million), which had a carrying amount of $160.1 million at March 31, 2021 (December 31, 2020 - $153.1 million). There were no dividends distributions received by the Corporation from its investment in BHD León, during the quarter ended March 31, 2021 and 2020.

Investment Companies

The Corporation provides advisory services to several investment companies registered under the Puerto Rico Investment Companies Act in exchange for a fee. The Corporation also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.

For the quarter ended March 31, 2021 administrative fees charged to these investment companies amounted to $1.2 million (March 31, 2020 - $1.6 million) and waived fees amounted to $0.5 million (March 31, 2020 - $0.5 million), for a net fee of $0.7 million (March 31, 2020 - $1.1 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. As of March 31, 2021, the available lines of credit facilities amounted to $255 million (December 31, 2020 - $275 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those investment companies for which BPPR acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital. At March 31, 2021 there was no outstanding balance for these credit facilities.

Note 23 – Fair value measurement

ASC Subtopic 820-10 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels in order to increase consistency and comparability in fair value measurements and disclosures. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

 Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date. Valuation on these instruments does not necessitate a significant degree of judgment since valuations are based on quoted prices that are readily available in an active market.

 Level 2 - Quoted prices other than those included in Level 1 that are observable either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or that can be corroborated by observable market data for substantially the full term of the financial instrument.

 Level 3 - Inputs are unobservable and significant to the fair value measurement. Unobservable inputs reflect the Corporation’s own assumptions about assumptions that market participants would use in pricing the asset or liability.

The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2020 Form 10-K.

The estimated fair value may be subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in calculating fair value could significantly affect the results.

Fair Value on a Recurring and Nonrecurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020:

At March 31, 2021
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	-	$	11,857,777	$	-	$	11,857,777
Obligations of U.S. Government sponsored entities		-		92		-		92
Collateralized mortgage obligations - federal agencies		-		337,964		-		337,964
Mortgage-backed securities		-		10,574,638		934		10,575,572
Other		-		204		-		204
Total debt securities available-for-sale	$	-	$	22,770,675	$	934	$	22,771,609
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	11,620	$	-	$	-	$	11,620
Obligations of Puerto Rico, States and political subdivisions		-		94		-		94
Collateralized mortgage obligations		-		65		251		316
Mortgage-backed securities		-		24,102		-		24,102
Other		-		-		372		372
Total trading account debt securities, excluding derivatives	$	11,620	$	24,261	$	623	$	36,504
Equity securities	$	-	$	31,787	$	-	$	31,787
Mortgage servicing rights		-		-		122,543		122,543
Derivatives		-		20,971		-		20,971
Total assets measured at fair value on a recurring basis	$	11,620	$	22,847,694	$	124,100	$	22,983,414
Liabilities
Derivatives	$	-	$	(17,851)	$	-	$	(17,851)
Total liabilities measured at fair value on a recurring basis	$	-	$	(17,851)	$	-	$	(17,851)

At December 31, 2020
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	3,499,781	$	7,288,259	$	-	$	10,788,040
Obligations of U.S. Government sponsored entities		-		60,184		-		60,184
Collateralized mortgage obligations - federal agencies		-		392,132		-		392,132
Mortgage-backed securities		-		10,319,547		1,014		10,320,561
Other		-		235		-		235
Total debt securities available-for-sale	$	3,499,781	$	18,060,357	$	1,014	$	21,561,152
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	11,506	$	-	$	-	$	11,506
Obligations of Puerto Rico, States and political subdivisions		-		103		-		103
Collateralized mortgage obligations		-		68		278		346
Mortgage-backed securities		-		24,338		-		24,338
Other		-		-		381		381
Total trading account debt securities, excluding derivatives	$	11,506	$	24,509	$	659	$	36,674
Equity securities	$	-	$	29,590	$	-	$	29,590
Mortgage servicing rights		-		-		118,395		118,395
Derivatives		-		20,785		-		20,785
Total assets measured at fair value on a recurring basis	$	3,511,287	$	18,135,241	$	120,068	$	21,766,596
Liabilities
Derivatives	$	-	$	(18,925)	$	-	$	(18,925)
Total liabilities measured at fair value on a recurring basis	$	-	$	(18,925)	$	-	$	(18,925)

The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters ended March 31, 2021 and 2020 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

Quarter ended March 31, 2021
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans^[1]		$	-	$	-	$	2,384	$	2,384	$	(406)
Loans held-for-sale^[2]			-		-		3,549		3,549		(846)
Other real estate owned^[3]			-		-		6,205		6,205		(1,073)
Other foreclosed assets^[3]			-		-		48		48		(7)
Long-lived assets held-for-sale^[4]			-		-		2,728		2,728		(303)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	14,914	$	14,914	$	(2,635)
[1]	Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.
[2]	Relates to a quarterly valuation on loans held-for-sale. Costs to sell are excluded from the reported fair value amount.
[3]	Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.
[4]	Represents the fair value of long-lived assets held-for-sale that were written down to their fair value.

Quarter ended March 31, 2020

(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans^[1]		$	-	$	-	$	3,151	$	3,151	$	(497)
Other real estate owned^[2]			-		-		10,742		10,742		(1,368)
Other foreclosed assets^[2]			-		-		1,021		1,021		(152)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	14,914	$	14,914	$	(2,017)
[1]	Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.
[2]	Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters ended March 31, 2021 and 2020.

	Quarter ended March 31, 2021
		MBS		CMOs		Other
		classified		classified		securities
		as debt		as trading		classified
		securities		account		as trading		Mortgage
		available-		debt		account debt		servicing		Total
(In thousands)		for-sale		securities		securities		rights		assets
Balance at December 31, 2020		$	1,014	$	278	$	381	$	118,395	$	120,068
Gains (losses) included in earnings			-		-		(9)		512		503
Gains (losses) included in OCI			(5)		-		-		-		(5)
Additions			-		1		-		3,636		3,637
Settlements			(75)		(28)		-		-		(103)
Balance at March 31, 2021		$	934	$	251	$	372	$	122,543	$	124,100
Changes in unrealized gains (losses) included in earnings relating to assets still held at March 31, 2021		$	-	$	-	$	4	$	5,162	$	5,166

	Quarter ended March 31, 2020
		MBS						Other
		classified		CMOs				securities
		as investment		classified		MBS		classified
		securities		as trading		classified as		as trading		Mortgage
		available-		account		trading account		account		servicing		Total
(In thousands)		for-sale		securities		securities		securities		rights		assets
Balance at December 31, 2019		$	1,182	$	530	$	-	$	440	$	150,906	$	153,058
Gains (losses) included in earnings			-		1		-		(12)		(5,229)		(5,240)
Gains (losses) included in OCI			(5)		-		-		-		-		(5)
Additions			-		2		-		-		1,634		1,636
Settlements			-		(66)		-		-		-		(66)
Balance at March 31, 2020		$	1,177	$	467	$	-	$	428	$	147,311	$	149,383
Changes in unrealized gains (losses) included in earnings relating to assets still held at March 31, 2020		$	-	$	1	$	-	$	6	$	(2,439)	$	(2,432)

Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2021 and 2020 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statements of operations as follows:

	Quarter ended March 31, 2021				Quarter ended March 31, 2020
				Changes in unrealized				Changes in unrealized
		Total gains		gains (losses) relating to		Total gains		gains (losses) relating to
		(losses) included		assets still held at		(losses) included		assets still held at
(In thousands)		in earnings		reporting date		in earnings		reporting date

Mortgage banking activities	$	512	$	5,162	$	(5,229)	$	(2,439)
Trading account loss		(9)		4		(11)		7
Total	$	503	$	5,166	$	(5,240)	$	(2,432)

The following tables include quantitative information about significant unobservable inputs used to derive the fair value of Level 3 instruments, excluding those instruments for which the unobservable inputs were not developed by the Corporation such as prices of prior transactions and/or unadjusted third-party pricing sources at March 31, 2021 and 2020.

			Fair value
			at March 31,
(In thousands)			2021		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	251		Discounted cash flow model	Weighted average life	1.1 years (0.3 - 1.3 years)
						Yield	3.6% (3.6% - 4.1%)
						Prepayment speed	12.9% (10.4% - 18.3%)
Other - trading		$	372		Discounted cash flow model	Weighted average life	3.6 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	122,543		Discounted cash flow model	Prepayment speed	6.0% (0.4% - 24.6%)
						Weighted average life	6.3 years (0.1 - 12.8 years)
						Discount rate	11.1% (9.5% - 14.7%)
Loans held-in-portfolio		$	2,162	^[2]	External appraisal	Haircut applied on
						external appraisals	16.3% (12.6% - 21.4%)
Other real estate owned		$	5,772	^[3]	External appraisal	Haircut applied on
						external appraisals	22.1% (5.0% - 35.0%)
[1]	Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.
[2]	Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.
[3]	Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

			Fair value
			at March 31,
(In thousands)			2020		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	467		Discounted cash flow model	Weighted average life	1.5 years (0.1 - 1.6 years)
						Yield	3.8% (3.7% - 4.3%)
						Prepayment speed	18.4% (14.5% - 21.2%)
Other - trading		$	428		Discounted cash flow model	Weighted average life	3.8 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	147,311		Discounted cash flow model	Prepayment speed	6.3% (0.2% - 18.9%)
						Weighted average life	7.2 years (0.1 - 14.3 years)
						Discount rate	11.1% (9.5% - 14.7%)
Loans held-in-portfolio		$	3,151	^[2]	External appraisal	Haircut applied on
						external appraisals	10%
Other real estate owned		$	7,050	^[3]	External appraisal	Haircut applied on
						external appraisals	22.3% (5.0% - 30.0%)
[1]	Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.
[2]	Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.
[3]	Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield, constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield.The significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement.

Note 24 – Fair value of financial instruments

The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.

The fair values reflected herein have been determined based on the prevailing rate environment at March 31, 2021 and December 31, 2020, as applicable. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments. In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation’s value as a going concern. There have been no changes in the Corporation’s valuation methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value.

The following tables present the carrying amount and estimated fair values of financial instruments with their corresponding level in the fair value hierarchy. The aggregate fair value amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.

		March 31, 2021
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	495,915	$	495,915	$	-	$	-	$	495,915
Money market investments			11,568,677		11,562,567		6,110		-		11,568,677
Trading account debt securities, excluding derivatives^[1]			36,504		11,620		24,261		623		36,504
Debt securities available-for-sale^[1]			22,771,609		-		22,770,675		934		22,771,609
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	68,037	$	-	$	-	$	81,050	$	81,050
	Collateralized mortgage obligation-federal agency		31		-		-		32		32
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
Total debt securities held-to-maturity		$	79,629	$	-	$	11,561	$	81,082	$	92,643
Equity securities:
	FHLB stock	$	50,554	$	-	$	50,554	$	-	$	50,554
	FRB stock		93,522		-		93,522		-		93,522
	Other investments		34,574		-		31,787		3,137		34,924
Total equity securities		$	178,650	$	-	$	175,863	$	3,137	$	179,000
Loans held-for-sale		$	84,214	$	-	$	-	$	84,608	$	84,608
Loans held-in-portfolio			28,330,831		-		-		27,285,789		27,285,789
Mortgage servicing rights			122,543		-		-		122,543		122,543
Derivatives			20,971		-		20,971		-		20,971
		March 31, 2021
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	51,486,280	$	-	$	51,486,280	$	-	$	51,486,280
	Time deposits		7,256,521		-		7,234,844		-		7,234,844
Total deposits		$	58,742,801	$	-	$	58,721,124	$	-	$	58,721,124
Assets sold under agreements to repurchase		$	86,834	$	-	$	86,816	$	-	$	86,816
Notes payable:
	FHLB advances	$	541,469	$	-	$	551,151	$	-	$	551,151
	Unsecured senior debt securities		296,891		-		324,342		-		324,342
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,936		-		385,792		-		385,792
	FRB advances		934		-		934		-		934
Total notes payable		$	1,224,230	$	-	$	1,262,219	$	-	$	1,262,219
Derivatives		$	17,851	$	-	$	17,851	$	-	$	17,851
[1]	Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

		December 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	491,065	$	491,065	$	-	$	-	$	491,065
Money market investments			11,640,880		11,634,851		6,029		-		11,640,880
Trading account debt securities, excluding derivatives^[1]			36,674		11,506		24,509		659		36,674
Debt securities available-for-sale^[1]			21,561,152		3,499,781		18,060,357		1,014		21,561,152
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	70,768	$	-	$	-	$	83,298	$	83,298
	Collateralized mortgage obligation-federal agency		31		-		-		32		32
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
Total debt securities held-to-maturity		$	82,360	$	-	$	11,561	$	83,330	$	94,891
Equity securities:
	FHLB stock	$	49,799	$	-	$	49,799	$	-	$	49,799
	FRB stock		93,045		-		93,045		-		93,045
	Other investments		30,893		-		29,590		1,495		31,085
Total equity securities		$	173,737	$	-	$	172,434	$	1,495	$	173,929
Loans held-for-sale		$	99,455	$	-	$	-	$	102,189	$	102,189
Loans held-in-portfolio			28,488,946		-		-		27,098,297		27,098,297
Mortgage servicing rights			118,395		-		-		118,395		118,395
Derivatives			20,785		-		20,785		-		20,785
		December 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	49,558,492	$	-	$	49,558,492	$	-	$	49,558,492
	Time deposits		7,307,848		-		7,319,963		-		7,319,963
Total deposits		$	56,866,340	$	-	$	56,878,455	$	-	$	56,878,455
Assets sold under agreements to repurchase		$	121,303	$	-	$	121,257	$	-	$	121,257
Notes payable:
	FHLB advances	$	542,469	$	-	$	561,977	$	-	$	561,977
	Unsecured senior debt securities		296,574		-		321,078		-		321,078
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,929		-		395,078		-		395,078
	FRB advances		1,009		-		1,009		-		1,009
Total notes payable		$	1,224,981	$	-	$	1,279,142	$	-	$	1,279,142
Derivatives		$	18,925	$	-	$	18,925	$	-	$	18,925
[1]	Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

The notional amount of commitments to extend credit at March 31, 2021 and December 31, 2020 is $ 9.4 billion and $ 9.3 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at March 31, 2021 and December 31, 2020 is $ 24 million and $ 24 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.

Note 25 – Net income per common share

The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters ended March 31, 2021 and 2020:

		Quarters ended March 31,
(In thousands, except per share information)		2021		2020
Net income	$	262,632	$	34,302
Preferred stock dividends		(353)		(700)
Net income applicable to common stock	$	262,279	$	33,602
Average common shares outstanding		83,899,769		90,788,557
Average potential dilutive common shares		152,166		104,404
Average common shares outstanding - assuming dilution		84,051,935		90,892,961
Basic EPS	$	3.13	$	0.37
Diluted EPS	$	3.12	$	0.37

For the quarters ended March 31, 2021 and 2020, the Corporation calculated the impact of potential dilutive common shares under the treasury stock method, consistent with the method used for the preparation of the financial statements for the year ended December 31, 2020. For a discussion of the calculation under the treasury stock method, refer to Note 30 of the Consolidated Financial Statements included in the 2020 Form 10-K.

Note 26 – Revenue from contracts with customers

The following table presents the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters ended March 31, 2021 and 2020.

		Quarters ended March 31,
(In thousands)		2021				2020
			BPPR		Popular U.S.		BPPR		Popular U.S.
Service charges on deposit accounts		$	36,859	$	2,761	$	38,331	$	3,328
Other service fees:
	Debit card fees		11,342		235		9,999		238
	Insurance fees, excluding reinsurance		8,238		609		7,688		737
	Credit card fees, excluding late fees and membership fees		25,410		248		19,768		242
	Sale and administration of investment products		5,540		-		6,263		-
	Trust fees		6,015		-		5,386		-
Total revenue from contracts with customers^[1]		$	93,404	$	3,853	$	87,435	$	4,545
[1] The amounts include intersegment transactions of $0.3 million and $0.3 million, respectively, for the quarters ended March 31, 2021 and 2020.

Revenue from contracts with customers is recognized when, or as, the performance obligations are satisfied by the Corporation by transferring the promised services to the customers. A service is transferred to the customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized based on the services that have been rendered to date. Revenue from a performance obligation satisfied at a point in time is recognized when the customer obtains control over the service. The transaction price, or the amount of revenue recognized, reflects the consideration the Corporation expects to be entitled to in exchange for those promised services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Corporation is the principal in a transaction if it obtains control of the specified goods or services before they are transferred to the customer. If the Corporation acts as principal, revenues are presented in the gross amount of consideration to which it expects to be entitled and are not netted with any related expenses. On the other hand, the Corporation is an agent if it does not control the specified goods or services before they are transferred to the customer. If the Corporation acts as an agent, revenues are presented in the amount of consideration to which it expects to be entitled, net of related expenses.

Following is a description of the nature and timing of revenue streams from contracts with customers:

Service charges on deposit accounts

Service charges on deposit accounts are earned on retail and commercial deposit activities and include, but are not limited to, nonsufficient fund fees, overdraft fees and checks stop payment fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. The Corporation is acting as principal in these transactions.

Debit card fees

Debit card fees include, but are not limited to, interchange fees, surcharging income and foreign transaction fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. Interchange fees are recognized upon settlement of the debit card payment transactions. The Corporation is acting as principal in these transactions.

Insurance fees

Insurance fees include, but are not limited to, commissions and contingent commissions. Commissions and fees are recognized when related policies are effective since the Corporation does not have an enforceable right to payment for services completed to date. An allowance is created for expected adjustments to commissions earned related to policy cancellations. Contingent commissions are recorded on an accrual basis when the amount to be received is notified by the insurance company. The

Corporation is acting as an agent since it arranges for the sale of the policies and receives commissions if, and when, it achieves the sale.

Credit card fees

Credit card fees include, but are not limited to, interchange fees, additional card fees, cash advance fees, balance transfer fees, foreign transaction fees, and returned payments fees. Credit card fees are recognized at a point in time, upon the occurrence of an activity or an event. Interchange fees are recognized upon settlement of the credit card payment transactions. The Corporation is acting as principal in these transactions.

Sale and administration of investment products

Fees from the sale and administration of investment products include, but are not limited to, commission income from the sale of investment products, asset management fees, underwriting fees, and mutual fund fees.

Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products.

Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the manager’s influence. As advisor, the broker-dealer subsidiary is acting as principal.

Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal.

Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent.

Trust fees

Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset manager, it has the obligation to provide the specified service to the customer and has the ultimate discretion in establishing the fee paid by the customer for the specified services.

Note 27 – Leases

The Corporation enters in the ordinary course of business into operating and finance leases for land, buildings and equipment. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms of 0.1 to 32.8 years considers options to extend the leases for up to 20.0 years. The Corporation identifies leases when it has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

The Corporation recognizes right-of-use assets (“ROU assets”) and lease liabilities related to operating and finance leases in its Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 12 and Note 16, respectively, for information on the balances of these lease assets and liabilities.

The Corporation uses the incremental borrowing rate for purposes of discounting lease payments for operating and finance leases, since it does not have enough information to determine the rates implicit in the leases. The discount rates are based on fixed-rate and fully amortizing borrowing facilities of its banking subsidiaries that are collateralized. For leases held by non-banking subsidiaries, a credit spread is added to this rate based on financing transactions with a similar credit risk profile.

On October 27, 2020, PB authorized and approved a strategic realignment of its New York Metro branch network that resulted in eleven branch closures, of which nine were leased properties. The branch closures were completed on January 29, 2021. An impairment loss of ROU assets amounting to $15.9 million was recognized in connection with this transaction during the fourth quarter of 2020.

The following table presents the undiscounted cash flows of operating and finance leases for each of the following periods:

March 31, 2021
(In thousands)		Remaining 2021		2022		2023		2024		2025		Later Years		Total Lease Payments		Less: Imputed Interest		Total
Operating Leases	$	21,007	$	24,843	$	22,657	$	21,549	$	18,605	$	52,393	$	161,054	$	(20,925)	$	140,129
Finance Leases		2,491		3,402		3,492		3,589		3,701		8,850		25,525		(4,086)		21,439

The following table presents the lease cost recognized by the Corporation in the Consolidated Statements of Operations as follows:

		Quarters ended March 31,
(In thousands)		2021		2020
Finance lease cost:
	Amortization of ROU assets	$	581	$	520
	Interest on lease liabilities		273		313
Operating lease cost			7,055		7,914
Short-term lease cost			87		57
Variable lease cost			30		11
Sublease income			(19)		(30)
Total lease cost^[1]		$	8,007	$	8,785
[1]	Total lease cost is recognized as part of net occupancy expense.

The following table presents supplemental cash flow information and other related information related to operating and finance leases.

			Quarters ended March 31,
(Dollars in thousands)			2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases^[1]	$	15,197		$	7,822
	Operating cash flows from finance leases		273			313
	Financing cash flows from finance leases^[1]		1,133			538
ROU assets obtained in exchange for new lease obligations:
	Operating leases	$	2,394		$	259
Weighted-average remaining lease term:
	Operating leases		8.2	years		8.6	years
	Finance leases		8.9	years		7.3	years
Weighted-average discount rate:
	Operating leases		3.0	%		3.4	%
	Finance leases		5.1	%		5.7	%
[1]	During the quarter ended March 31, 2021, the Corporation made base lease termination payments amounting to $7.8 million in connection with the closure of nine branches as a result of the strategic realignment of PB’s New York Metro branch network.

As of March 31, 2021, the Corporation has additional operating leases contracts that have not yet commenced with an undiscounted contract amount of $3.6 million, which will have lease terms ranging from 10 to 20 years.

Note 28 – Pension and postretirement benefits

The Corporation has a non-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries (the “Pension Plans”). The accrual of benefits under the Pension Plans is frozen to all participants. The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries (the “OPEB Plan”).

The components of net periodic cost for the Pension Plans and the OPEB Plan for the periods presented were as follows:


		Pension Plans				OPEB Plan
		Quarters ended March 31,				Quarters ended March 31,
(In thousands)		2021		2020		2021		2020
Personnel Cost:
Service cost	$	-	$	-	$	159	$	178
Other operating expenses:
Interest cost		3,998		5,847		893		1,228
Expected return on plan assets		(9,670)		(9,526)		-		-
Amortization of prior service cost/(credit)		-		-		-		-
Amortization of net loss		4,720		5,220		470		142
Total net periodic pension cost	$	(952)	$	1,541	$	1,522	$	1,548

The Corporation paid the following contributions to the plans for the quarter ended March 31, 2021 and expects to pay the following contributions for the year ending December 31, 2021.

	For the quarter ended		For the year ending
(In thousands)	March 31, 2021		December 31, 2021
Pension Plans	$	57	$	229
OPEB Plan	$	1,567	$	6,333

Note 29 - Stock-based compensation

On May 12, 2020, the stockholders of the Corporation approved the Popular, Inc. 2020 Omnibus Incentive Plan, which permits the Corporation to issue several types of stock-based compensation to employees and directors of the Corporation and/or any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan, which was in effect prior to the adoption of the 2020 Incentive Plan (the “2004 Incentive Plan” and, together with the 2020 Incentive Plan, the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares for its employees and restricted stock and restricted stock units (“RSU”) to its directors.

The restricted stock granted under the Incentive Plan to employees becomes vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service (“the retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service. The vesting schedule for restricted shares granted on or after 2014 is as follows, the graduated vesting portion is vested ratably over four years commencing at the date of the grant and the retirement vesting portion is vested at termination of employment after attainment of the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending on the classification of the employee.

The performance share award granted under the Incentive Plan consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and the Absolute Earnings per Share (“EPS”) goals. For grants issued on 2020 and 2021, the EPS goal is substituted by the Absolute Return on Average Assets (“ROA”) goal and the Absolute Return on Average Tangible Common Equity (“ROATCE”) respectively. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The EPS, ROA and ROATCE metrics are considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS, ROA or ROATCE goal as of each reporting period. The TSR and EPS, ROA or ROATCE metrics are equally weighted and work independently. The number of shares that will ultimately vest ranges from 50% to a 150% of target based on both market (TSR) and performance (EPS, ROA and ROATCE) conditions. The performance shares vest at the end of the three-year performance cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.

The following table summarizes the restricted stock and performance shares activity under the Incentive Plan for members of management.

(Not in thousands)	Shares		Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2019	345,365	$	41.68
Granted	253,943		42.49
Performance Shares Quantity Adjustment	(7)		48.79
Vested	(234,421)		42.64
Forfeited	(6,368)		44.26
Non-vested at December 31, 2020	358,512	$	41.23
Granted	124,613		66.84
Performance Shares Quantity Adjustment	46,704		51.48
Vested	(193,946)		57.16
Non-vested at March 31, 2021	335,883	$	42.96

During the quarter ended March 31, 2021, 53,239 shares of restricted stock (March 31, 2020 - 87,706) and 71,374 performance shares (March 31, 2020 - 64,815) were awarded to management under the Incentive Plan.

During the quarter ended March 31, 2021, the Corporation recognized $3.9 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.5 million (March 31, 2020 - $3.6 million, with a tax benefit of $0.4 million). For the quarter ended March 31, 2021, the fair market value of the restricted stock and performance shares vested was $3.2 million at grant date and $4.3 million at vesting date. This differential triggers a windfall, of $1.7 million that was recorded as a reduction in income tax expense. For the quarter ended March 31, 2021, the Corporation recognized $4.3 million of performance shares expense, with a tax benefit of $0.4 million (March 31, 2020 - $2.5 million, with a tax benefit of $0.2 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31, 2021 was $9.9 million and is expected to be recognized over a weighted-average period of 2.21 years.

The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:

(Not in thousands)		Restricted Stock units		Weighted-Average Grant Date Fair Value per Unit
Non-vested at December 31, 2019	$	-	$	-
Granted		43,866		35.47
Vested		(43,866)		35.47
Forfeited		-		-
Non-vested at December 31, 2020	$	-	$	-
Granted		524		55.23
Vested		(524)		55.23
Forfeited		-		-
Non-vested at March 31, 2021	$	-	$	-

The equity awards granted to members of the Board of Directors of Popular, Inc. (the “Directors”) will vest and become non-forfeitable on the grant date of such award. Effective on May 2019 all equity awards granted to the Directors may be paid in either restricted stocks or RSU, at the Directors’ election. If RSU are elected the Directors may defer the delivery of the shares of common stocks underlying the RSU award after their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the Directors will receive an additional number of RSU that reflect reinvested dividend equivalent.

For 2020 and 2021, all Directors elected RSU. During the quarter ended March 31, 2021, 524 RSU were granted to the Directors (March 31, 2020 - 298). During this period, the Corporation recognized $29 thousand of restricted stock expense related to these RSU, with a tax benefit of $5 thousand (March 31, 2020 - $18 thousand, with a tax benefit of $2 thousand). The fair value at vesting date of the RSU vested during the quarter ended March 31, 2021 for directors was $29 thousand.

Note 30 – Income taxes

The reason for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico, were as follows:

		Quarters ended
		March 31, 2021				March 31, 2020
(In thousands)		Amount	% of pre-tax income			Amount	% of pre-tax income
Computed income tax expense at statutory rates	$	127,299	38	%	$	14,025	38	%
Net benefit of tax exempt interest income		(34,163)	(10)			(32,896)	(88)
Deferred tax asset valuation allowance		10,321	3			5,538	15
Difference in tax rates due to multiple jurisdictions		(10,948)	(3)			8,875	24
Effect of income subject to preferential tax rate		(3,329)	(1)			(1,900)	(5)
Adjustment due to estimate on the annual effective rate		(10,328)	(3)			9,004	24
State and local taxes		61	-			(555)	(2)
Others		(2,082)	(1)			1,006	2
Income tax expense	$	76,831	23	%	$	3,097	8	%

For the quarter ended March 31, 2021, the Corporation recorded an income tax expense of $76.8 million, compared to $3.1 million for the quarter ended March 31, 2020. The increase in income tax expense was primarily due to higher pre-tax income during the first quarter of 2021 compared to the same quarter of 2020.

The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.

100

			March 31, 2021
(In thousands)			PR		US		Total
Deferred tax assets:
Tax credits available for carryforward		$	3,003	$	2,781	$	5,784
Net operating loss and other carryforward available			130,535		696,884		827,419
Postretirement and pension benefits			77,832		-		77,832
Deferred loan origination fees			17,041		(3,092)		13,949
Allowance for credit losses			321,981		33,545		355,526
Accelerated depreciation			4,400		6,496		10,896
FDIC-assisted transaction			152,665		-		152,665
Intercompany deferred gains			1,412		-		1,412
Lease liability			21,967		18,844		40,811
Difference in outside basis from pass-through entities			56,932		-		56,932
Other temporary differences			37,968		7,944		45,912
	Total gross deferred tax assets		825,736		763,402		1,589,138
Deferred tax liabilities:
Indefinite-lived intangibles			74,138		43,552		117,690
Unrealized net gain (loss) on trading and available-for-sale securities			39,536		5,027		44,563
Right of use assets			19,883		17,181		37,064
Other temporary differences			51,553		1,332		52,885
	Total gross deferred tax liabilities		185,110		67,092		252,202
Valuation allowance			118,575		415,079		533,654
Net deferred tax asset		$	522,051	$	281,231	$	803,282

			December 31, 2020
(In thousands)			PR		US		Total
Deferred tax assets:
Tax credits available for carryforward		$	3,003	$	5,269	$	8,272
Net operating loss and other carryforward available			124,355		698,842		823,197
Postretirement and pension benefits			80,179		-		80,179
Deferred loan origination fees			12,079		(2,652)		9,427
Allowance for loan losses			373,010		38,606		411,616
Accelerated depreciation			3,439		5,390		8,829
FDIC-assisted transaction			152,665		-		152,665
Intercompany deferred gains			1,728		-		1,728
Lease liability			22,790		18,850		41,640
Difference in outside basis from pass-through entities			61,222		-		61,222
Other temporary differences			38,954		7,344		46,298
	Total gross deferred tax assets		873,424		771,649		1,645,073
Deferred tax liabilities:
Indefinite-lived intangibles			73,305		37,745		111,050
Unrealized net gain (loss) on trading and available-for-sale securities			67,003		8,595		75,598
Right of use assets			20,708		15,510		36,218
Other temporary differences			50,247		1,169		51,416
	Total gross deferred tax liabilities		211,263		63,019		274,282
Valuation allowance			112,871		407,225		520,096
Net deferred tax asset		$	549,290	$	301,405	$	850,695

101

The net deferred tax asset shown in the table above at March 31, 2021 is reflected in the consolidated statements of financial condition as $0.8 billion in net deferred tax assets in the “Other assets” caption (December 31, 2020 - $0.9 billion) and $866 thousand in deferred tax liabilities in the “Other liabilities” caption (December 31, 2020 - $897 thousand), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.

A deferred tax asset should be reduced by a valuation allowance if based on the weight of all available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. At March 31, 2021 the net deferred tax asset of the U.S. operations amounted to $696 million with a valuation allowance of approximately $415 million, for a net deferred tax asset after valuation allowance of approximately $281 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. operations are evaluated, as a whole,since a consolidated income tax return is filed. Currently management considers as negative evidence the economic uncertainty resulting from the effects of the COVID-19 pandemic. While the scope and duration of the COVID-19 pandemic, the actions taken by governmental authorities in response to it, and the direct and indirect impact of the pandemic on the economy are not certain, vaccination process in Puerto Rico and the United States, as well as the economic stimulus measures taken by the federal government as a result of the pandemic creates a positive economic outlook in the short term. Notwithstanding the challenges raised by the pandemic, the financial results of the U.S. operations for the year ended December 31,2020 and the quarter ended March 31,2021 were also positive. This objectively verifiable positive evidence together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs are enough to overcome the negative evidence related to the COVID-19 pandemic. As of March 31,2021, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $281 million of the deferred tax asset from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation based this determination on its estimated earnings available to realize the deferred tax asset for the remaining carryforward period, together with the historical level of book income adjusted by permanent differences. Management will continue to monitor and review the U.S. operation’s results and the pre-tax earnings forecast on a quarterly basis to assess the future realization of the DTA. Management will closely monitor factors like, net income versus forecast, targeted loan growth, net interest income margin, allowance for credit losses, charge offs, NPLs inflows and NPA balances. If such factors worsen during future periods, they could constitute sufficient objectively verifiable negative evidence to overcome the positive evidence, that currently exists, and could require additional amounts of valuation allowance to be registered on the DTA. Any increases to the valuation allowance would be reflected as an income tax expense, reducing the Corporation’s earnings.

At March 31, 2021, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $522 million net of valuation allowance pertaining to the Holding Company operation.

The Corporation’s Puerto Rico Banking operation is not in a cumulative three-year loss position and has sustained profitability for the three-year period ended March 31, 2021. This is considered a strong piece of objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized as of March 31, 2021.

The Holding Company operation is in a cumulative loss position, taking into account taxable income exclusive of reversing temporary differences, for the three years period ending March 31,2021. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management a strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax asset of $119 million as of March 31,2021.

The reconciliation of unrecognized tax benefits, excluding interest, was as follows:

102

(In millions)		2021		2020
Balance at January 1	$	14.8	$	16.3
Balance at March 31	$	14.8	$	16.3

At March 31, 2021, the total amount of accrued interest recognized in the statement of financial condition approximated $5.2 million (December 31, 2020 - $4.8 million). The total interest expense recognized at March 31, 2021 was $364 thousand (March 31, 2020 - $854 thousand). Management determined that at March 31, 2021 and December 31, 2020 there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while the penalties, if any, are reported in other operating expenses in the consolidated statements of operations.

After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the total amount of unrecognized tax benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $10.5 million at March 31, 2021 (December 31, 2020 - $10.2 million).

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.

The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At March 31, 2021, the following years remain subject to examination in the U.S. Federal jurisdiction: 2017 and thereafter; and in the Puerto Rico jurisdiction, 2014, 2016 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $13.9 million, including interest.

103

Note 31 – Supplemental disclosure on the consolidated statements of cash flows

Additional disclosures on cash flow information and non-cash activities for the quarters ended March 31, 2021 and March 31, 2020 are listed in the following table:


(In thousands)			March 31, 2021		March 31, 2020
Non-cash activities:
Loans transferred to other real estate		$	2,900	$	16,986
Loans transferred to other property			13,029		14,232
Total loans transferred to foreclosed assets			15,929		31,218
Loans transferred to other assets			1,156		1,681
Financed sales of other real estate assets			3,206		4,619
Financed sales of other foreclosed assets			9,417		10,823
Total financed sales of foreclosed assets			12,623		15,442
Transfers from loans held-in-portfolio to loans held-for-sale			38,959		10,723
Transfers from loans held-for-sale to loans held-in-portfolio			1,136		-
Loans securitized into investment securities^[1]			188,268		84,221
Trades receivable from brokers and counterparties			70,965		5,280
Trades payable to brokers and counterparties			12,180		5,279
Recognition of mortgage servicing rights on securitizations or asset transfers			3,636		1,634
Loans booked under the GNMA buy-back option			7,393		30,211
Capitalization of lease right of use asset			1,774		4,536
[1]	Includes loans securitized into trading securities and subsequently sold before quarter end.

The following table provides a reconciliation of cash and due from banks, and restricted cash reported within the Consolidated Statement of Financial Condition that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows.


(In thousands)		March 31, 2021		March 31, 2020
Cash and due from banks		$	489,084	$	406,853
Restricted cash and due from banks			6,831		38,698
Restricted cash in money market investments			6,110		5,771
Total cash and due from banks, and restricted cash^[2]		$	502,025	$	451,322
[2]	Refer to Note 4 - Restrictions on cash and due from banks and certain securities for nature of restrictions.

104

Note 32 – Segment reporting

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Popular U.S. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. The segments were determined based on the organizational structure, which focuses primarily on the markets the segments serve, as well as on the products and services offered by the segments.

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at March 31, 2021, additional disclosures are provided for the business areas included in this reportable segment, as described below:

 Commercial banking represents the Corporation’s banking operations conducted at BPPR, which are targeted mainly to corporate, small and middle size businesses. It includes aspects of the lending and depository businesses, as well as other finance and advisory services. BPPR allocates funds across business areas based on duration matched transfer pricing at market rates. This area also incorporates income related with the investment of excess funds, as well as a proportionate share of the investment function of BPPR.

 Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.

 Other financial services include the trust and asset management service units of BPPR, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.

Popular U.S.:

Popular U.S. reportable segment consists of the banking operations of Popular Bank (PB) and Popular Insurance Agency, U.S.A. PB operates through a retail branch network in the U.S. mainland under the name of Popular. Popular Insurance Agency, U.S.A. offers investment and insurance services across the PB branch network.

The Corporate group consists primarily of the holding companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, León.

The accounting policies of the individual operating segments are the same as those of the Corporation. Transactions between reportable segments are primarily conducted at market rates, resulting in profits that are eliminated for reporting consolidated results of operations.

The tables that follow present the results of operations and total assets by reportable segments:

105

2021
For the quarter ended March 31, 2021
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	410,323	$	79,169	$	2
Provision (reversal) for credit losses				(45,361)		(36,720)		-
Non-interest income				135,208		5,666		(138)
Amortization of intangibles				861		166		-
Depreciation expense				12,143		2,328		-
Other operating expenses				306,920		53,194		(136)
Income tax expense				58,813		18,035		-
Net income			$	212,155	$	47,832	$	-
Segment assets			$	55,990,801	$	10,557,751	$	(41,613)

For the quarter ended March 31, 2021
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	489,494	$	(10,382)	$	-	$	479,112
Provision (reversal) for credit losses		(82,081)		(145)		-		(82,226)
Non-interest income		140,736		13,150		(233)		153,653
Amortization of intangibles		1,027		24		-		1,051
Depreciation expense		14,471		267		-		14,738
Other operating expenses		359,978		670		(909)		359,739
Income tax expense (benefit)		76,848		(333)		316		76,831
Net income	$	259,987	$	2,285	$	360	$	262,632
Segment assets	$	66,506,939	$	5,193,058	$	(4,829,729)	$	66,870,268

2020
For the quarter ended March 31, 2020
				Banco Popular				Intersegment
(In thousands)				de Puerto Rico		Popular U.S.		Eliminations
Net interest income			$	409,626	$	72,689	$	3
Provision for credit losses				113,582		75,991		-
Non-interest income				112,142		5,232		(140)
Amortization of intangibles				2,282		167		-
Depreciation expense				12,287		1,953		-
Other operating expenses				300,377		55,194		(137)
Income tax expense (benefit)				15,101		(11,951)		-
Net income (loss)			$	78,139	$	(43,433)	$	-
Segment assets			$	42,392,356	$	10,107,045	$	(23,284)

For the quarter ended March 31, 2020
		Reportable
(In thousands)		Segments		Corporate		Eliminations		Total Popular, Inc.
Net interest income (expense)	$	482,318	$	(9,223)	$	-	$	473,095
Provision for credit losses		189,573		158		-		189,731
Non-interest income		117,234		9,461		(52)		126,643
Amortization of intangibles		2,449		24		-		2,473
Depreciation expense		14,240		246		-		14,486
Other operating expenses		355,434		1,037		(822)		355,649
Income tax expense (benefit)		3,150		(322)		269		3,097
Net income (loss)	$	34,706	$	(905)	$	501	$	34,302
Segment assets	$	52,476,117	$	5,241,196	$	(4,913,674)	$	52,803,639

Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as follows:

106

2021
For the quarter ended March 31, 2021
Banco Popular de Puerto Rico
				Consumer		Other				Total Banco
		Commercial		and Retail		Financial				Popular de
(In thousands)		Banking		Banking		Services		Eliminations		Puerto Rico
Net interest income	$	179,511	$	229,386	$	1,426	$	-	$	410,323
Provision (reversal) for credit losses		(27,606)		(17,755)		-		-		(45,361)
Non-interest income		25,741		86,197		23,658		(388)		135,208
Amortization of intangibles		54		694		113		-		861
Depreciation expense		5,289		6,685		169		-		12,143
Other operating expenses		86,828		199,316		21,268		(492)		306,920
Income tax expense		42,108		15,582		1,123		-		58,813
Net income	$	98,579	$	111,061	$	2,411	$	104	$	212,155
Segment assets	$	51,622,574	$	28,932,452	$	2,386,006	$	(26,950,231)	$	55,990,801

	2020
	For the quarter ended March 31, 2020
	Banco Popular de Puerto Rico
					Consumer		Other				Total Banco
			Commercial		and Retail		Financial				Popular de
(In thousands)			Banking		Banking		Services		Eliminations		Puerto Rico
Net interest income		$	161,534	$	243,056	$	5,036	$	-	$	409,626
Provision for credit losses			10,313		103,269		-		-		113,582
Non-interest income			24,712		63,984		23,740		(294)		112,142
Amortization of intangibles			48		1,310		924		-		2,282
Depreciation expense			5,150		6,978		159		-		12,287
Other operating expenses			74,875		202,042		23,769		(309)		300,377
Income tax expense (benefit)			25,616		(12,952)		2,437		-		15,101
Net income		$	70,244	$	6,393	$	1,487	$	15	$	78,139
Segment assets		$	33,212,687	$	24,388,065	$	3,080,386	$	(18,288,782)	$	42,392,356

Geographic Information

The following information presents selected financial information based on the geographic location where the Corporation conducts its business. The banking operations of BPPR are primarily based in Puerto Rico, where it has the largest retail banking franchise. BPPR also conducts banking operations in the U.S. Virgin Islands, the British Virgin Islands and New York. BPPR’s banking operations in the United States include E-loan, an online platform used to offer personal loans, co-branded credit cards offerings and an online deposit gathering platform. In the Virgin Islands, the BPPR segment offers banking products, including loans and deposits. During the quarter ended March 31, 2020, the BPPR segment generated approximately $12.7 million (2020 - $15.1 million) in revenues from its operations in the United States, including net interest income, service charges on deposit accounts and other service fees. In addition, the BPPR segment generated $11.6 million in revenues (2020 - $11.6 million) from its operations in the U.S. and British Virgin Islands. At March 31, 2020, total assets for the BPPR segment related to its operations in the United States amounted to $576 million (2020 - $582 million).

Geographic Information
			Quarter ended
(In thousands)			March 31, 2021		March 31, 2020
Revenues:^[1]
Puerto Rico		$	518,709	$	489,636
United States			96,012		91,679
Other			18,044		18,423
Total consolidated revenues		$	632,765	$	599,738
[1]	Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss), including impairment, on equity securities, net (loss) profit on trading account debt securities, net gain on sale of loans, including valuation adjustments on loans held-for-sale, indemnity reserves on loans sold and other operating income.

107

Selected Balance Sheet Information:
(In thousands)			March 31, 2021		December 31, 2020
Puerto Rico
	Total assets	$	54,832,769	$	54,143,954
	Loans		20,226,682		20,413,112
	Deposits		49,133,585		47,586,880
United States
	Total assets	$	11,128,729	$	10,878,030
	Loans		8,315,116		8,396,983
	Deposits		7,987,426		7,672,549
Other
	Total assets	$	908,770	$	904,016
	Loans		674,044		674,556
	Deposits^[1]		1,621,790		1,606,911
[1]	Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

108

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report includes management’s discussion and analysis (“MD&A”) of the consolidated financial position and financial performance of Popular, Inc. (the “Corporation” or “Popular”). All accompanying tables, financial statements and notes included elsewhere in this report should be considered an integral part of this analysis.

The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States (“U.S.”) mainland and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB”), which has branches located in New York, New Jersey and Florida. Note 32 to the Consolidated Financial Statements presents information about the Corporation’s business segments.

The Corporation has several investments which it accounts for under the equity method. As of March 31, 2021, the Corporation had a 16.15% interest in EVERTEC, Inc. (“EVERTEC”), whose operating subsidiaries provide transaction processing services throughout the Caribbean and Latin America, and service many of the Corporation’s systems infrastructure and transaction processing businesses. During the quarter ended March 31, 2021, the Corporation recorded $ 5.9 million in earnings from its investment in EVERTEC, which had a carrying amount of $92 million as of the end of the quarter. Also, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2021, the Corporation recorded $6.4 million in earnings from its investment in BHD León, which had a carrying amount of $160 million, as of the end of the quarter.

SIGNIFICANT EVENTS

Capital Actions

On May 6, 2021, the Corporation’s Board of Directors approved a quarterly cash dividend of $0.45 per share on its outstanding common stock. The dividend will be payable on July 1, 2021 to shareholders of record at the close of business on May 26, 2021.

On May 3, 2021, the Corporation announced that it had entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $350 million of the Corporation’s common stock. Under the terms of the ASR Agreement, on May 4, 2021 the Corporation made an initial payment of $350 million and received an initial delivery of 3,785,831 shares of the Corporation’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. Furthermore, as a result of the receipt of the Initial Shares, the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction of capital surplus. Upon the final settlement of the ASR Agreement, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the final delivery or receipt of cash or shares, which will depend on the volume-weighted average price of the Corporation’s common stock during the term of the ASR Agreement, less a discount. The final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2021.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters ended March 31, 2021 and 2020.

109

Table 1 - Financial highlights

Financial Condition Highlights		Ending Balances at					Average for the Quarter Ended
(In thousands)		March 31, 2021	December 31, 2020			Variance		March 31, 2021			March 31, 2020			Variance
Money market investments	$	11,568,677	$	11,640,880	$	(72,203)	$	12,450,533		$	4,024,477		$	8,426,056
Investment securities		23,076,488		21,864,184		1,212,304		21,305,160			16,707,338			4,597,822
Loans		29,215,842		29,484,651		(268,809)		29,335,164			27,404,841			1,930,323
Earning assets		63,861,007		62,989,715		871,292		63,090,857			48,149,448			14,941,409
Total assets		66,870,268		65,926,000		944,268		66,086,263			51,354,494			14,731,769
Deposits		58,742,801		56,866,340		1,876,461		57,696,863			43,650,084			14,046,779
Borrowings		1,311,064		1,346,284		(35,220)		1,322,431			1,326,784			(4,353)
Stockholders’ equity		5,897,559		6,028,687		(131,128)		5,693,673			5,481,179			212,494


Operating Highlights							First Quarter
(In thousands, except per share information)								2021			2020			Variance
Net interest income							$	479,112		$	473,095		$	6,017
Provision (reversal) for credit losses								(82,226)			189,731			(271,957)
Non-interest income								153,653			126,643			27,010
Operating expenses								375,528			372,608			2,920
Income before income tax								339,463			37,399			302,064
Income tax expense								76,831			3,097			73,734
Net income							$	262,632		$	34,302		$	228,330
Net income applicable to common stock							$	262,279		$	33,602		$	228,677
Net income per common share - basic							$	3.13		$	0.37		$	2.76
Net income per common share - diluted							$	3.12		$	0.37		$	2.75
Dividends declared per common share							$	0.40		$	0.40		$	―

							First Quarter
Selected Statistical Information								2021			2020
Common Stock Data
End market price							$	70.32		$	35.00
Book value per common share at period end								69.63			64.08
Profitability Ratios
Return on assets								1.61	%		0.27	%
Return on common equity								18.76			2.50
Net interest spread								2.96			3.73
Net interest spread (taxable equivalent) - Non-GAAP								3.28			4.13
Net interest margin								3.07			3.94
Net interest margin (taxable equivalent) - Non-GAAP								3.39			4.34
Capitalization Ratios
Average equity to average assets								8.62	%		10.67	%
Common equity Tier 1 capital								17.08			15.79
Tier I capital								17.15			15.79
Total capital								19.62			18.36
Tier 1 leverage								8.06			8.94

110

Net interest income on a taxable equivalent basis – Non-GAAP Financial Measure

The Corporation’s interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, certain obligations of the Commonwealth of Puerto Rico and/or its agencies and municipalities and assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by Puerto Rico tax law. Thereunder, the exempt interest can be deducted up to the amount of taxable income.

Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources. Net interest income on a taxable equivalent basis is presented with its different components in Table 2, along with the reconciliation to net interest income (GAAP), for the quarter ended March 31, 2021 as compared with the same periods in 2020, segregated by major categories of interest earning assets and interest-bearing liabilities.

Non-GAAP financial measures used by the Corporation may not be comparable to similarly named Non-GAAP financial measures used by other companies.

Financial highlights for the quarter ended March 31, 2021

 For the quarter ended March 31, 2021, the Corporation recorded net income of $ 262.6 million, compared to net income of $ 34.3 million for the same quarter of the previous year. Net interest income was $479.1 million, an increase of $6.0 million when compared to the same quarter of 2020. Net interest margin for the first quarter of 2021 was 3.07%, a decrease of 87 basis points when compared to 3.94% for the same quarter of the previous year, driven by the decrease in the Federal Funds Rate and the increase in average deposits, which were redeployed mostly at overnight Fed Funds, U.S. Treasuries, agency debt securities and in loans funded under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). On a taxable equivalent basis, the net interest margin was of 3.39%, compared to 4.34% for the same quarter of the previous year. The provision for credit losses for the loan portfolio was a benefit of $75.8 million, a decrease of $264.8 million when compared to the same quarter of 2020, reflecting changes to the economic outlook, qualitative reserves, and portfolio credit quality. Non-interest income was higher by $27.0 million mostly due to higher income from mortgage banking activities, mainly due to a favorable variance in fair value adjustments on mortgage servicing rights. Operating expenses were higher by $2.9 million principally due to higher personnel costs, partially offset by lower other real estate expenses.

 Total assets at March 31, 2021 amounted to $66.9 billion, compared to $65.9 billion, at December 31, 2020. The increase was mainly due to higher debt securities available-for-sale due to purchases of U.S. treasury securities and agency mortgage-backed securities.

 Total deposits at March 31, 2021 increased by $1.9 billion when compared to deposits at December 31, 2020, mainly due to higher retail and commercial demand deposits at BPPR.

 Capital ratios continued to be strong. As of March 31, 2021, the Corporation’s common equity tier 1 capital ratio was 17.08%, while the total capital ratio was 19.62%. Refer to Table 7 for capital ratios.

Refer to the Operating Results Analysis and Financial Condition Analysis within this MD&A for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.

As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business spending and investment, consumer income, spending and savings, capital market activities, competition, customer preferences, interest rate conditions and prevailing market rates on competing products.

The Corporation operates in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations. Also, competition with other financial institutions could adversely affect its profitability.

111

The Corporation continuously monitors general business and economic conditions, industry-related indicators and trends, competition, interest rate volatility, credit quality indicators, loan and deposit demand, operational and systems efficiencies, revenue enhancements and changes in the regulation of financial services companies.

The description of the Corporation’s business contained in Item 1 of the Corporation’s 2020 Form 10-K, while not all inclusive, discusses additional information about the business of the Corporation and risk factors, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider.

The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol BPOP.

112

CRITICAL ACCOUNTING POLICIES / ESTIMATES

The accounting and reporting policies followed by the Corporation and its subsidiaries conform to generally accepted accounting principles in the United States of America and general practices within the financial services industry. Various elements of the Corporation’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates.

Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Credit Losses; (iii) Loans Acquired with Deteriorated Credit Quality; (iv) Income Taxes; (v) Goodwill; and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in Popular, Inc.’s 2020 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2020 Form 10-K for a summary of the Corporation’s significant accounting policies and to Note 3 to the Consolidated Financial Statements included in this Form 10-Q for information on recently adopted accounting standard updates.

113

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income for the first quarter of 2021 was $479.1 million, an increase of $6.0 million when compared to $473.1 million for the same quarter of 2020. Taxable equivalent net interest income was $529.8 million for the first quarter of 2021, an increase of $8.3 million when compared to $521.5 million for the same quarter of 2020.

Net interest margin for the first quarter of 2021 was 3.07%, a decrease of 87 basis points when compared to 3.94% for the same quarter of the previous year. The lower net interest margin for the quarter is mainly driven by the decrease of 150 basis points in the Federal Funds Rate that occurred in March 2020 at the beginning of the COVID-19 pandemic. Also impacting the net interest margin is the increase in average deposits of $14.0 billion resulting from pandemic relief programs, which were redeployed in overnight Fed Funds, investment securities and loans funded under the SBA PPP. Loans under the SBA PPP had an average balance of $1.3 billion for the first quarter of 2021. Management is constantly monitoring the liquidity position of the Corporation and has taken actions to deploy a portion of this liquidity. These actions include bulk loan repurchases from its GNMA, FNMA and FHMLC loan servicing portfolios, which occurred in the third quarter of 2020, and acquiring investment securities, including U.S. Treasury and agency mortgage-backed securities. The net interest margin, on a taxable equivalent basis, for the first quarter of 2021 was 3.39%, a decrease of 95 basis points when compared to 4.34% for the same quarter of 2020.The detailed variances of the decrease in net interest income are described below:

Negative variances:

 Lower interest income from money market investments related to the above-mentioned decrease in the Federal funds rate, partially offset by an increase in average volume;

 Lower interest income from investment securities due lower yield, partially offset by a higher volume of U.S. Treasuries and U.S. agency mortgage-backed securities, related to purchases to deploy liquidity and to benefit from the Puerto Rico tax exemption of these assets; and

 Lower interest income from loans driven by lower interest income from a lower volume of consumer loans, and by the impact of the decrease in rates in variable rate loans and loans issued under a lower interest rate environment. Partially offsetting these negative variances is a higher average loan balance, mainly mortgage, auto loan and lease financing and PPP loans. The latter carry a yield of approximately 7.21%, including the amortization of fees received under the program which is accelerated upon the full repayment of these loans.

Positive variances:

 Lower interest expense on deposits due to lower interest cost by 44 basis points resulting from the decrease in market rates, mostly on Puerto Rico Government and U.S. deposits, and management actions to reduce rates in most deposit categories, partially offset by higher average interest-bearing deposits increasing by $9.7 billion when compared with the same quarter in 2020, therefore increasing interest expense.

Interest income for the quarter ended March 31, 2021, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, amounting to $26.6 million, including $20.0 million on fees related to PPP loans, compared with $11.2 million income from the same quarter in 2020. Excluding the impact of PPP fees, the decrease is related to a lower amortization of PCD loans and lower amortization of the fair value discount of auto and credit card portfolios acquired in previous years.

114

	Table 2 - Analysis of Levels & Yields on a Taxable Equivalent Basis (Non-GAAP)
	Quarters ended March 31,
																					Variance
	Average Volume					Average Yields / Costs								Interest							Attributable to
	2021		2020	Variance		2021		2020		Variance					2021		2020		Variance		Rate		Volume
	(In millions)														(In thousands)
$	12,451	$	4,024	$	8,427	0.10	%	1.20	%	(1.10)	%	Money market investments		$	3,112	$	12,000	$	(8,888)	$	(18,000)	$	9,112
	21,221		16,659		4,562	2.35		2.96		(0.61)		Investment securities [1]			123,665		122,715		950		(27,000)		27,951
	84		61		23	4.96		6.67		(1.71)		Trading securities			1,033		1,020		13		(309)		322
												Total money market,
													investment and trading
	33,756		20,744		13,012	1.52		2.63		(1.11)			securities		127,810		135,735		(7,925)		(45,309)		37,385
												Loans:
	13,624		12,342		1,282	5.33		5.97		(0.64)			Commercial		179,064		183,202		(4,138)		(22,143)		18,006
	911		861		50	5.30		6.16		(0.86)			Construction		11,901		13,175		(1,274)		(2,012)		738
	1,215		1,072		143	6.04		6.07		(0.03)			Leasing		18,354		16,269		2,085		(86)		2,171
	7,869		7,028		841	5.00		5.30		(0.30)			Mortgage		98,429		93,201		5,228		(5,489)		10,716
	2,513		3,110		(597)	11.36		11.56		(0.20)			Consumer		70,401		89,423		(19,022)		(2,226)		(16,796)
	3,203		2,992		211	8.63		9.10		(0.47)			Auto		68,152		67,721		431		(4,178)		4,609
	29,335		27,405		1,930	6.15		6.79		(0.64)		Total loans			446,301		462,991		(16,690)		(36,134)		19,444
$	63,091	$	48,149	$	14,942	3.67	%	4.99	%	(1.32)	%	Total earning assets		$	574,111	$	598,726	$	(24,615)	$	(81,443)	$	56,829
												Interest bearing deposits:
$	22,674	$	16,229	$	6,445	0.15	%	0.63	%	(0.48)	%		NOW and money market [2]	$	8,262	$	25,295	$	(17,033)	$	(24,308)	$	7,275
	14,364		10,724		3,640	0.20		0.44		(0.24)			Savings		7,020		11,661		(4,641)		(8,012)		3,371
	7,265		7,691		(426)	0.83		1.31		(0.48)			Time deposits		14,919		25,145		(10,226)		(8,484)		(1,741)
	44,303		34,644		9,659	0.28		0.72		(0.44)		Total deposits			30,201		62,101		(31,900)		(40,804)		8,905
	98		229		(131)	0.59		1.84		(1.25)		Short-term borrowings			143		1,048		(905)		(501)		(404)
												Other medium and
	1,246		1,098		148	4.51		5.17		(0.66)			long-term debt		13,995		14,114		(119)		(887)		768
												Total interest bearing
	45,647		35,971		9,676	0.39		0.86		(0.47)			liabilities		44,339		77,263		(32,924)		(42,192)		9,269
	13,394		9,005		4,389							Demand deposits
	4,050		3,173		877							Other sources of funds
$	63,091	$	48,149	$	14,942	0.28	%	0.65	%	(0.37)	%	Total source of funds			44,339		77,263		(32,924)		(42,192)		9,269
												Net interest margin/
						3.39	%	4.34	%	(0.95)	%		income on a taxable equivalent basis (Non-GAAP)		529,772		521,463		8,309	$	(39,251)	$	47,560
						3.28	%	4.13	%	(0.85)	%	Net interest spread
												Taxable equivalent adjustment			50,661		48,369		2,292
												Net interest margin/ income
						3.07	%	3.94	%	(0.87)	%		non-taxable equivalent basis (GAAP)	$	479,111	$	473,094	$	6,017
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.
[1] Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale.
[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

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Provision for Credit Losses - Loans Held-in-Portfolio

For the quarter ended March 31, 2021, the Corporation recorded a release of $82.2 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The Corporation’s provision for credit losses for its loans-held-in-portfolio for the quarter ended March 31, 2021 decreased by $264.8 million to a benefit of $75.8 million, compared to a provision expense of $189.0 million for the quarter ended March 31, 2020. The decrease reflects changes to the economic outlook, qualitative reserves, and portfolio credit quality. The provision for unfunded commitments for the first quarter of 2021 reflected a benefit of $6.3 million, compared to a provision expense of $1.2 million for the same period of 2020.

The provision for credit losses for the BPPR segment was a benefit of $40.0 million for the quarter ended March 31, 2021, compared to a provision expense of $113.0 million for the quarter ended March 31, 2020, a decrease of $153.0 million. The Popular U.S. segment provision for credit losses was also a benefit of $35.8 million for the quarter ended March 31, 2021, a decrease of $111.8 million, compared to a provision expense of $76.0 million for the same quarter in 2020.

At March 31, 2021, the total allowance for credit losses for loans held-in-portfolio amounted to $800.8 million, compared to $896.3 million as of December 31, 2020. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.75% at March 31, 2021, compared to 3.05% at December 31, 2020. Refer to Note 8 to the Consolidated Financial Statements, for additional information on the Corporation’s methodology to estimate its allowance for credit losses (“ACL”). Refer to the Credit Risk section of this MD&A for a detailed analysis of net charge-offs, non-performing assets, the allowance for credit losses and selected loan losses statistics.

Provision for Credit Losses – Investment Securities

The Corporation’s provision for credit losses related to its investment securities held-to-maturity is related to the portfolio of obligations from the Government of Puerto Rico, states and political subdivisions. For the quarter ended March 31, 2021, the provision for credit losses was a benefit of $0.2 million, compared to a provision expense of $0.7 million for the quarter ended March 31, 2020. At March 31, 2021, the total allowance for credit losses for this portfolio amounted to $10.1 million, compared to $10.3 million as of December 31, 2020.

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Non-Interest Income

Non-interest income was $153.7 million for the first quarter of 2021, an increase of $27.0 million when compared with the same quarter of the previous year. The increase in non-interest income was primarily driven by:

 higher other service fees by $5.9 million mainly due to higher credit card fees by $5.5 million as a result of higher interchange transactional volumes;

 higher income from mortgage banking activities by $10.9 million mainly due to a favorable variance in fair value adjustments on mortgage servicing rights (“MSRs”) of $5.7 million due to a decrease in estimated prepayments driven by increases in interest rates, coupled with higher realized gains on closed derivative positions by $4.1 million;

 a favorable variance in unrealized net gains on equity securities by $3.1 million mainly on deferred compensation plans that have an offsetting expense in personnel related expenses;

 a favorable variance in adjustments to indemnity reserves on previously sold loans of $4.1 million mainly due to lower provision expense related to loans previously sold with credit recourse; and

 higher other operating income by $6.5 million mainly due to higher net earnings from the combined portfolio of investments under the equity method by $2.4 million and a higher gain on sale of daily auto rental units by $2.0 million.

These increases were partially offset by lower service charges on deposit accounts by $2.0 million due to increases in average deposits.

Operating Expenses

Operating expenses for the quarter ended March 31, 2021 increased by $ 2.9 million when compared with the same quarter of 2020, driven primarily by:

 higher personnel cost by $12.6 million mainly related to annual employee incentives tied to the Corporation’s financial performance by $7.4 million and higher commission, incentives and other bonuses by $8.0 million; partially offset by lower salaries by $2.9 million.

Partially offset by:

 lower professional fees by $1.1 million mainly due to lower advisory expenses;

 lower business promotion by $1.7 million due to lower seasonal donations and advertising expense;

 lower OREO expenses by $7.0 million mainly due to higher gain on sale of properties by $3.4 million and lower OREO costs including repairs and maintenance; and

 lower other operating expenses by $1.4 million due mainly to lower pension plan expense driven by annual changes in actuarial assumptions by $2.5 million and lower provision for unfunded commitments by $1.2 million since this is currently presented within the provision for credit losses, while it was included within other expenses in the first quarter of 2020; partially offset by higher credit and debit card processing, volume and interchange expenses by $2.2 million.

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Table 3 - Operating Expenses
		Quarters ended March 31,
(In thousands)		2021		2020		Variance
Personnel costs:
	Salaries	$	89,335	$	92,256	$	(2,921)
	Commissions, incentives and other bonuses		33,218		25,258		7,960
	Pension, postretirement and medical insurance		10,924		9,638		1,286
	Other personnel costs, including payroll taxes		26,002		19,679		6,323
	Total personnel costs		159,479		146,831		12,648
Net occupancy expenses			26,013		25,158		855
Equipment expenses			21,575		21,605		(30)
Other taxes			13,959		13,681		278
Professional fees:
	Collections, appraisals and other credit related fees		3,320		3,881		(561)
	Programming, processing and other technology services		66,366		62,819		3,547
	Legal fees, excluding collections		2,365		2,986		(621)
	Other professional fees		27,897		31,385		(3,488)
	Total professional fees		99,948		101,071		(1,123)
Communications			6,833		5,954		879
Business promotion			12,521		14,197		(1,676)
FDIC deposit insurance			5,968		5,080		888
Other real estate owned (OREO) (income) expenses			(4,533)		2,479		(7,012)
Other operating expenses:
	Credit and debit card processing, volume and interchange expenses		12,454		10,282		2,172
	Operational losses		7,896		8,374		(478)
	All other		12,364		15,423		(3,059)
	Total other operating expenses		32,714		34,079		(1,365)
Amortization of intangibles			1,051		2,473		(1,422)
Total operating expenses		$	375,528	$	372,608	$	2,920

INCOME TAXES

For the quarter ended March 31, 2021, the Corporation recorded an income tax expense of $76.8 million with an effective tax rate (“ETR”) of 23%, compared to $3.1 million with an ETR of 8% for the same period of 2020. The increase in income tax expense and ETR for the quarter ended March 31, 2021 reflects the impact of higher pre-tax income.

At March 31,2021, the Corporation had a deferred tax asset amounting to $0.8 billion, net of a valuation allowance of $0.5 billion. The deferred tax asset related to the U.S. operations was $0.3 billion, net of a valuation allowance of $0.4 billion.

Refer to Note 30 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on the income tax expense and deferred tax asset balances.

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REPORTABLE SEGMENT RESULTS

The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. A Corporate group has been defined to support the reportable segments.

For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 32 to the Consolidated Financial Statements.

The Corporate group reported a net income of $2.3 million for the quarter ended March 31, 2021, compared with a net loss of $0.9 million for the same quarter of the previous year.

Highlights on the earnings results for the reportable segments are discussed below:

Banco Popular de Puerto Rico

The Banco Popular de Puerto Rico reportable segment’s net income amounted to $212.2 million for the quarter ended March 31, 2021, compared with net income of $78.1 million for the same quarter of the previous year. The increase in net income was principally driven by the benefit of $45.4 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended March 31, 2021. The principal factors that contributed to the variance in the financial results include the following:

 Higher net interest income by $0.7 million mainly due to:

 lower interest income from loans by $11.3 million mainly due to lower yields in the commercial portfolio and lower average balance and yields in consumer loans; and

 lower interest income from investment securities by $8.3 million largely due to lower yields in money market investments and U.S. Treasuries due to the decrease interest rates, partially offset by higher income from mortgage-backed securities due to higher average balances;

Partially offset by:

 lower interest expense on deposits by $19.9 million mainly due to a lower cost of public sector deposits and time deposits, partially offset by higher average balances.

The net interest margin for the quarter ended March 31, 2021 was 3.10% compared to 4.22% for the same quarter in the previous year. The decrease in net interest margin is driven by a lower yield in earning assets, and earning asset mix, partially offset by a lower cost of public sector deposits.

 The BPPR segment recorded a benefit of $45.4 million in its reserve for credit losses and unfunded commitments for the quarter ended March 31, 2021 due to the improvements in the macroeconomic outlook and portfolio credit metrics. This compared to a provision expense of $113.6 million for the first quarter of 2020.

 Non-interest income was higher by $23.1 million mainly due to:

 higher other service fees by $6.2 million mainly due to higher credit card fees as a result of higher interchange transactional volumes;

 higher income from mortgage banking activities by $10.4 million due to a favorable variance in fair value adjustments on mortgage servicing rights of $5.8 million due to a decrease in estimated prepayments driven by increases in interest rates, coupled with higher realized gains on closed derivative positions;

 a favorable variance in adjustments to indemnity reserves on previously sold loans of $4.1 million mainly due to lower provision expense related to loans previously sold with credit recourse; and

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 higher other operating income by $4.0 million mainly due to higher gain on sale of daily auto rental units by $2.0 million, recoveries from the sale of acquired fully charged off loans by $1.0 million and higher net earnings from the combined portfolio of investments under the equity method;

Partially offset by:

 Lower service charges on deposit accounts by $1.5 million due to an increase in average deposits.

 Higher operating expenses by $5.0 million mostly due to:

 Higher personnel costs by $4.4 million due mainly to the annual incentives tied to the Corporation’s financial performance;

 Higher occupancy expenses by $2.2 million, due to higher rent and lower income from building tenants; and

 Higher other operating expenses by $9.8 million due to higher allocations from the Corporate segment, mainly related to professional services fees and personnel costs;

Partially offset by:

 Lower professional fees by $3.0 million mainly due to lower advisory expenses related to corporate initiatives; and

 Lower OREO expenses by $6.6 million mainly due to lower maintenance expenses and higher gain on sale of residential properties.

 Higher income tax expense by $43.7 million due to higher income before tax.

Popular U.S.

For the quarter ended March 31, 2021, the reportable segment of Popular U.S. reported a net income of $47.8 million, compared with a net loss of $43.4 million for the same quarter of the previous year. The favorable variance was principally driven by the benefit of $36.7 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended March 31, 2021. The factors that contributed to the variance in the financial results included the following:

 higher net interest income by $6.5 million due to:

 lower interest expense on deposits by $13.1 million mainly due to lower interest rates;

Partially offset by:

 lower interest income from loans by $4.5 million mainly due to lower average balance in consumer loans; and

 lower interest income from investment securities by $2.8 million due to lower yields and lower average balances.

The net interest margin for the quarter ended March 31, 2021 was 3.35% compared to 3.21% for the same quarter in the previous year.

 The PB segment recorded a benefit of $36.7 million in its reserve for credit losses and unfunded commitments for the quarter ended March 31, 2021 due to the improvements in the macroeconomic outlook and portfolio credit metrics. This compared to a provision expense of $76.0 million for the first quarter of 2020.

 Lower operating expenses by $1.6 million due to:

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 lower occupancy expense by 1.4 million due to lower rent expense related to the benefits of the completed branch optimization initiative in our New York Metro region; and

 Lower professional fees by $4.6 million, a portion of which is now centralized at the Corporate segment and charged back to operating units.

Partially offset by:

 Higher other operating expenses by $2.6 million due to higher Corporate expense allocations.

 Income tax unfavorable variance of $30.0 million mainly due to income before tax of $65.9 million for the first quarter of 2021, compared to a pre-tax loss of $55.4 million recorded in the quarter ended March 31, 2020.

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FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were $66.9 billion at March 31, 2021, compared to $65.9 billion at December 31, 2020. Refer to the Consolidated Statements of Financial Condition included in this report for additional information.

Money market investments and debt securities available-for-sale

Money market investments remained flat at $11.6 billion at March 31, 2021 and December 31, 2020.

Debt securities available-for-sale increased by $1.2 billion to $22.8 billion at March 31, 2021. The increase was mainly due to purchases of U.S. treasury securities and agency mortgage-backed securities, partially offset by paydowns and a decrease in unrealized gains of $0.4 billion in this portfolio. Refer to Note 5 to the Consolidated Financial Statements for additional information with respect to the Corporation’s debt securities available-for-sale.

Loans

Refer to Table 4 for a breakdown of the Corporation’s loan portfolio. Also, refer to Note 7 in the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

Loans held-in-portfolio decreased by $0.3 billion to $29.1 billion at March 31, 2021, mainly in commercial loans at BPPR, in part due to the repayments of PPP loans.

Table 4 - Loans Ending Balances
(In thousands)		March 31, 2021		December 31, 2020		Variance
Loans held-in-portfolio:
Commercial	$	13,442,486	$	13,614,310	$	(171,824)
Construction		907,736		926,208		(18,472)
Lease financing		1,244,956		1,197,661		47,295
Mortgage		7,808,852		7,890,680		(81,828)
Auto		3,203,137		3,132,228		70,909
Consumer		2,524,461		2,624,109		(99,648)
Total loans held-in-portfolio		29,131,628		29,385,196		(253,568)
Loans held-for-sale:
Commercial		3,549		2,738		811
Mortgage		80,665		96,717		(16,052)
Total loans held-for-sale		84,214		99,455		(15,241)
Total loans	$	29,215,842	$	29,484,651	$	(268,809)

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Other assets

Other assets amounted to $1.7 billion at March 31, 2021 and December 31, 2020. Refer to Note 12 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the Consolidated Statements of Financial Condition at March 31, 2021 and December 31, 2020.

Liabilities

The Corporation’s total liabilities were $61.0 billion at March 31, 2021, compared to $59.9 billion at December 31, 2020, mainly due to increases in deposits as discussed below.

Deposits and Borrowings

The composition of the Corporation’s financing to total assets at March 31, 2021 and December 31, 2020 is included in Table 5.

Table 5 - Financing to Total Assets
	March 31,		December 31,		% increase (decrease)		% of total assets
(In millions)		2021		2020	from 2020 to 2021		2021		2020
Non-interest bearing deposits	$	14,264	$	13,129	8.6	%	21.4	%	19.9	%
Interest-bearing core deposits		39,328		38,599	1.9		58.8		58.5
Other interest-bearing deposits		5,151		5,138	0.3		7.7		7.8
Repurchase agreements		87		121	(28.1)		0.1		0.2
Notes payable		1,224		1,225	(0.1)		1.8		1.9
Other liabilities		919		1,685	(45.5)		1.4		2.6
Stockholders’ equity		5,897		6,029	(2.2)		8.8		9.1

Deposits

The Corporation’s deposits totaled $58.8 billion at March 31, 2021, compared to $56.9 billion at December 31, 2020. The deposits increase of $1.9 billion was mainly due to higher retail and commercial demand deposits by $1.6 billion at BPPR and PB and higher savings account deposits at BPPR by $0.3 billion. Public sector deposit balances, which amounted to $15.0 billion at March 31, 2021, are expected to decline over the long term. However, the receipt by the P.R. Government of additional COVID-19-related Federal assistance and seasonal tax collections are likely to increase public deposit balances at BPPR in the near term. The rate at which public deposit balances will decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the timeline of current debt restructuring efforts under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) and the speed at which the COVID-19 federal assistance is distributed. Refer to Table 6 for a breakdown of the Corporation’s deposits at March 31, 2021 and December 31, 2020.

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Table 6 - Deposits Ending Balances
(In thousands)		March 31, 2021		December 31, 2020		Variance
Demand deposits^[1]		$	23,450,312	$	22,532,729	$	917,583
Savings, NOW and money market deposits (non-brokered)			27,356,136		26,390,565		965,571
Savings, NOW and money market deposits (brokered)			679,832		635,198		44,634
Time deposits (non-brokered)			7,143,221		7,130,749		12,472
Time deposits (brokered CDs)			113,300		177,099		(63,799)
Total deposits		$	58,742,801	$	56,866,340	$	1,876,461
[1]	Includes interest and non-interest bearing demand deposits.

Borrowings

The Corporation’s borrowings remained flat at $1.3 billion at March 31, 2021 and December 31, 2020. Refer to Note 15 to the Consolidated Financial Statements for detailed information on the Corporation’s borrowings. Also, refer to the Liquidity section in this MD&A for additional information on the Corporation’s funding sources.

Other liabilities

The Corporation’s other liabilities decreased by $0.8 billion to $0.9 billion at March 31, 2021, when compared to December 31, 2020, mainly due to the settlement of purchases of debt securities.

Stockholders’ Equity

Stockholders’ equity totaled $5.9 billion at March 31, 2021, a decrease of $131.1 million when compared to December 31, 2020, principally due to lower accumulated unrealized gains on debt securities available-for-sale by $369.9 million, offset by net income for the quarter of $262.6 million, less declared dividends of $33.7 million on common stock and $0.4 million in dividends on preferred stock. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.

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REGULATORY CAPITAL

The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of March 31, 2021, the Corporation’s, BPPR’s and PB’s capital ratios continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

The risk-based capital ratios presented in Table 7, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of March 31, 2021 and December 31, 2020.

Table 7 - Capital Adequacy Data

(Dollars in thousands)			March 31, 2021			December 31, 2020
Common equity tier 1 capital:
	Common stockholders equity - GAAP basis	$	5,875,416		$	6,006,544
	CECL transitional amount^[1]		191,687			218,398
	AOCI related adjustments due to opt-out election		104,053			(261,245)
	Goodwill, net of associated deferred tax liability (DTL)		(552,614)			(591,931)
	Intangible assets, net of associated DTLs		(21,415)			(22,466)
	Deferred tax assets and other deductions		(345,105)			(357,204)
Common equity tier 1 capital		$	5,252,022		$	4,992,096
Additional tier 1 capital:
	Preferred stock		22,143			22,143
Additional tier 1 capital		$	22,143		$	22,143
Tier 1 capital		$	5,274,165		$	5,014,239
Tier 2 capital:
	Trust preferred securities subject to phase in as tier 2		373,737			373,737
	Other inclusions (deductions), net		385,483			385,943
Tier 2 capital		$	759,220		$	759,680
Total risk-based capital		$	6,033,385		$	5,773,919
Minimum total capital requirement to be well capitalized		$	3,074,491		$	3,070,209
Excess total capital over minimum well capitalized		$	2,958,894		$	2,703,710
Total risk-weighted assets		$	30,744,906		$	30,702,091
Total assets for leverage ratio		$	65,460,228		$	64,305,022
Risk-based capital ratios:
	Common equity tier 1 capital		17.08	%		16.26	%
	Tier 1 capital		17.15			16.33
	Total capital		19.62			18.81
	Tier 1 leverage		8.06			7.80
[1] The CECL transitional amount includes the impact of Popular's adoption of the new CECL accounting standard on January 1, 2020.

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The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of March 31, 2021, the Corporation, BPPR and PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the Corporation elected to use the five-year transition period option as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay.

On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of March 31, 2021, the Corporation has $1.2 billion in PPP loans and $934 thousand pledged as collateral for PPPL Facilities.

The increase in the common equity Tier I capital ratio, Tier I capital ratio, total capital ratio, and leverage capital ratio as of March 31, 2021 as compared to December 31, 2020 was mainly attributed to the three months period earnings.

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Non-GAAP financial measures

The tangible common equity, tangible common equity ratio, tangible assets and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders' equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

Table 8 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of March 31, 2021, and December 31, 2020.

Table 8 - Reconciliation of Tangible Common Equity and Tangible Assets

(In thousands, except share or per share information)		March 31, 2021			December 31, 2020
Total stockholders’ equity	$	5,897,559		$	6,028,687
Less: Preferred stock		(22,143)			(22,143)
Less: Goodwill		(671,122)			(671,122)
Less: Other intangibles		(21,415)			(22,466)
Total tangible common equity	$	5,182,879		$	5,312,956
Total assets	$	66,870,268		$	65,926,000
Less: Goodwill		(671,122)			(671,122)
Less: Other intangibles		(21,415)			(22,466)
Total tangible assets	$	66,177,731		$	65,232,412
Tangible common equity to tangible assets		7.83	%		8.14	%
Common shares outstanding at end of period		84,379,180			84,244,235
Tangible book value per common share	$	61.42		$	63.07


		Quarterly average
Total stockholders’ equity [1]	$	5,693,672		$	5,540,456
Less: Preferred Stock		(22,143)			(22,143)
Less: Goodwill		(671,121)			(671,121)
Less: Other intangibles		(22,104)			(23,166)
Total tangible common equity	$	4,978,304		$	4,824,026
Return on average tangible common equity		21.37	%		14.50	%
[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale.

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OFF-BALANCE SHEET ARRANGEMENTS AND OTHER COMMITMENTS

In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 19 in the Consolidated Financial Statements for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.

Contractual Obligations and Commercial Commitments

The Corporation has various financial obligations, including contractual obligations and commercial commitments, which require future cash payments on debt agreements.

As previously indicated, the Corporation also enters into derivative contracts under which it is required either to receive or pay cash, depending on changes in interest rates. These contracts are carried at fair value on the Consolidated Statement of Financial Condition with the fair value representing the net present value of the expected future cash receipts and payments based on market rates of interest as of the statement of condition date. The fair value of the contract changes daily as interest rates change. The Corporation may also be required to post additional collateral on margin calls on the derivatives and repurchase transactions.

Refer to Note 15 in the Consolidated Financial Statements for a breakdown of long-term borrowings by maturity.

The Corporation utilizes lending-related financial instruments in the normal course of business to accommodate the financial needs of its customers. The Corporation’s exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is represented by the contractual notional amount of these instruments. The Corporation uses credit procedures and policies in making those commitments and conditional obligations as it does in extending loans to customers. Since many of the commitments expire without being drawn upon or a default occurring, the total contractual amounts are not representative of the Corporation’s actual future credit exposure or liquidity requirements for these commitments.

Table 9 presents the contractual amounts related to the Corporation’s off-balance sheet lending and other activities at March 31, 2021.

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Table 9 - Off-Balance Sheet Lending and Other Activities
		Amount of commitment - Expiration Period
(In thousands)	2021		Years 2022 - 2023		Years 2024 - 2025		Years 2026 - thereafter		Total
Commitments to extend credit	$	8,058,989	$	1,095,191	$	127,309	$	85,643	$	9,367,132
Commercial letters of credit		3,090		-		-		-		3,090
Standby letters of credit		15,757		5,573		-		-		21,330
Commitments to originate or fund mortgage loans		103,634		3,830		-		-		107,464
Total	$	8,181,470	$	1,104,594	$	127,309	$	85,643	$	9,499,016

RISK MANAGEMENT

Market / Interest Rate Risk

The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks.

Market risk refers to the risk of a reduction in the Corporation’s capital due to changes in the market valuation of its assets and/or liabilities.

Most of the assets subject to market valuation risk are debt securities classified as available-for-sale. Refer to Notes 5 and 6 for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $22.8 billion as of March 31, 2021. Other assets subject to market risk include loans held-for-sale, which amounted to $84 million, mortgage servicing rights (“MSRs”) which amounted to $123 million and securities classified as “trading”, which amounted to $37 million, as of March 31, 2021.

Interest Rate Risk (“IRR”)

The Corporation’s net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. In managing interest rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market expectations and policy constraints.

Management utilizes various tools to assess IRR, including Net Interest Income (“NII”) simulation modeling, static gap analysis, and Economic Value of Equity (“EVE”). The three methodologies complement each other and are used jointly in the evaluation of the Corporation’s IRR. NII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides management a better view of long-term IRR.

Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs.

Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat rates, implied forwards, and parallel and non-parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.

The asset and liability management group perform validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy.

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The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same amount (parallel shifts). The rate scenarios considered in these market risk simulations reflect instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at March 31, 2021 and December 31, 2020, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

Table 10 - Net Interest Income Sensitivity (One Year Projection)
	March 31, 2021					December 31, 2020
(Dollars in thousands)		Amount Change	Percent Change			Amount Change	Percent Change
Change in interest rate
+400 basis points	$	160,598	8.39	%	$	167,474	9.19	%
+200 basis points		135,245	7.07			81,690	4.49
+100 basis points		121,100	6.33			39,361	2.16
-100 basis points		(73,283)	(3.83)			(53,952)	(2.96)
-200 basis points		(111,000)	(5.80)			(71,517)	(3.93)

As of March 31, 2021, NII simulations show the Corporation maintains an asset sensitive position and is expected to benefit from an overall rising rate environment. The increases in sensitivity for the period are primarily driven by deposit increases which have increased the level of cash reserves maintained at the Federal Reserve as well as liftoff effects from market rates increasing over the quarter. Popular assumes rates do not turn negative therefore the increase in rates in the quarter impacted declining rate scenarios as rates now have more room to fall and thus increase the projected NII impact (negative) in the declining rate scenarios. The sensitivity to rising rate scenarios increased as well driven by growth in deposits which rose the levels of short-term assets and cash reserves that the Company maintains at the Federal Reserve. These short-term assets reprice immediately in rising rate scenarios thus increasing the NII benefit in these scenarios.

The Corporation’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a third-party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed securities and collateralized mortgage obligations since prepayments could shorten (or lower prepayments could extend) the weighted average life of these portfolios.

Trading

The Corporation engages in trading activities in the ordinary course of business at its subsidiaries, BPPR and Popular Securities. Popular Securities’ trading activities consist primarily of market-making activities to meet expected customers’ needs related to its retail brokerage business, and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR’s trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as “trading” and hedging the related market risk with “TBA” (to-be-announced) market transactions. The objective is to derive spread income from the portfolio and not to benefit from short-term market movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline.

At March 31, 2021 and December 31, 2020, the Corporation held trading securities with a fair value of $37 million, representing approximately 0.1% of the Corporation’s total assets. As shown in Table 11, the trading portfolio consists principally of mortgage-backed securities which at March 31, 2021 were investment grade securities. As of March 31, 2021 and December 31, 2020, the

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trading portfolio also included $0.1 million in Puerto Rico government obligations. Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized a net trading account loss of $45 thousand for the quarter ended March 31, 2021 and a net trading account gain of $491 thousand for the quarter ended March 31, 2020.

Table 11 - Trading Portfolio
		March 31, 2021				December 31, 2020
(Dollars in thousands)		Amount	Weighted Average Yield^[1]			Amount	Weighted Average Yield^[1]
Mortgage-backed securities	$	24,102	5.06	%	$	24,338	5.19	%
U.S. Treasury securities		11,620	-			11,506	0.04
Collateralized mortgage obligations		316	5.66			346	5.65
Puerto Rico government obligations		94	0.44			103	0.48
Interest-only strips		372	12.00			381	12.00
Total	$	36,504	3.51	%	$	36,674	3.64	%
[1] Not on a taxable equivalent basis.

The Corporation’s trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability.

The Corporation’s trading portfolio had a 5-day VAR of approximately $0.4 million for the last week in March 2021. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation.

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Liquidity

The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth, fund planned capital distributions and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board of Directors is responsible for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board of Directors has delegated the monitoring of these risks to the Board’s Risk Management Committee and the Asset/Liability Management Committee. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation’s Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board of Directors and for monitoring the Corporation’s liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies.

An institution’s liquidity may be pressured if, for example, it experiences a sudden and unexpected substantial cash outflow due to exogenous events such as the current COVID-19 pandemic, its credit rating is downgraded, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.

Liquidity is managed by the Corporation at the level of the holding companies that own the banking and non-banking subsidiaries. It is also managed at the level of the banking and non-banking subsidiaries. As further explained below, a principal source of liquidity for the bank holding companies (the “BHCs”) are dividends received from banking and non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation’s liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 88% of the Corporation’s total assets at March 31, 2021 and 86% at December 31, 2020. The ratio of total ending loans to deposits was 50% at March 31, 2021, compared to 52% at December 31, 2020. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.3 billion in outstanding balances at March 31, 2021 and December 31, 2020. A detailed description of the Corporation’s borrowings, including their terms, is included in Note 15 to the Consolidated Financial Statements. Also, the Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements provide information on the Corporation’s cash inflows and outflows.

The following sections provide further information on the Corporation’s major funding activities and needs, as well as the risks involved in these activities.

Banking Subsidiaries

Primary sources of funding for the Corporation’s banking subsidiaries (BPPR and PB or, collectively, “the banking subsidiaries”) include retail, commercial and public sector deposits, brokered deposits, unpledged investment securities, mortgage loan securitization and, to a lesser extent, loan sales. In addition, the Corporation maintains borrowing facilities with the FHLB and at the discount window of the Federal Reserve Bank of New York (the “FRB”) and has a considerable amount of collateral pledged that can be used to raise funds under these facilities.

Refer to Note 15 to the Consolidated Financial Statements, for additional information of the Corporation’s borrowing facilities available through its banking subsidiaries.

The principal uses of funds for the banking subsidiaries include loan originations, investment portfolio purchases, loan purchases and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational expenses. Also, the banking subsidiaries assume liquidity risk related to collateral posting requirements for certain activities mainly in connection with contractual commitments, recourse provisions, servicing advances, derivatives, credit card licensing agreements and support to several mutual funds administered by BPPR.

The banking subsidiaries maintain sufficient funding capacity to address large increases in funding requirements such as deposit outflows. The Corporation has established liquidity guidelines that require the banking subsidiaries to have sufficient liquidity to cover all short-term borrowings and a portion of deposits.

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The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation’s banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.

Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 6 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $100,000, excluding brokered deposits with denominations under $100,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $ 53.6 billion, or 91% of total deposits, at March 31, 2021, compared with $51.7 billion, or 91% of total deposits, at December 31, 2020. Core deposits financed 84% of the Corporation’s earning assets at March 31, 2021, compared with 82% at December 31, 2020.

The distribution by maturity of certificates of deposits with denominations of $100,000 and over at March 31, 2021 is presented in the table that follows:

Table 12 - Distribution by Maturity of Certificate of Deposits of $100,000 and Over
(In thousands)
3 months or less	$	2,433,443
3 to 6 months		238,091
6 to 12 months		545,054
Over 12 months		1,162,724
Total	$	4,379,312

The Corporation had $ 0.8 billion in brokered deposits at March 31, 2021, which financed approximately 1% of its total assets (December 31, 2020 - $0.8 billion and 1%, respectively). In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts.

Deposits from the public sector represent an important source of funds for the Corporation. As of March 31, 2021, total public sector deposits were $15.0 billion, compared to $15.1 billion at December 31, 2020. Generally, these deposits require that the bank pledge high credit quality securities as collateral; therefore liquidity risks arising from public sector deposit outflows are lower given that the bank receives its collateral in return. This, now unpledged, collateral can either be financed via repurchase agreements or sold for cash. However, there are some timing differences between the time the deposit outflow occurs and when the bank receives its collateral.

At March 31, 2021, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if the banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.

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Bank Holding Companies

The principal sources of funding for the BHCs, which are Popular, Inc. (holding company only) and PNA, include cash on hand, investment securities, dividends received from banking and non-banking subsidiaries, asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings. Dividends from banking and non-banking subsidiaries are subject to various regulatory limits and authorization requirements that are further described below and that may limit the ability of those subsidiaries to act as a source of funding to the BHCs.

The principal use of these funds includes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities), the payment of dividends to common stockholders and capitalizing its banking subsidiaries.

The BHCs have in the past borrowed in the money markets and in the corporate debt market primarily to finance their non-banking subsidiaries; however, the cash needs of the Corporation’s non-banking subsidiaries other than to repay indebtedness and interest are now minimal. These sources of funding have become more costly due to the Corporation’s principal credit rating being below “investment grade”, which affects the Corporation’s ability to raise funds in the capital markets. The Corporation has an automatic shelf registration statement filed and effective with the Securities and Exchange Commission, which permits the Corporation to issue an unspecified amount of debt or equity securities.

The outstanding balance of notes payable at the BHCs amounted to $682 million at March 31, 2021 and December 31, 2020.

The contractual maturities of the BHCs notes payable at March 31, 2021 are presented in Table 13.

Table 13 - Distribution of BHC's Notes Payable by Contractual Maturity

Year		(In thousands)
2023	$	296,891
Later years		384,936
Total	$	681,827

Annual debt service at the BHCs is approximately $44 million, and the Corporation’s latest quarterly dividend was $0.40 per share. The BHCs liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all BHCs obligations during the foreseeable future. As of March 31, 2021, the BHCs had cash and money markets investments totaling $150 million, borrowing potential of $152 million from its secured facility with BPPR. In addition to these liquidity sources, the stake in EVERTEC had a market value of $434 million as of March 31, 2021 and it represents an additional source of contingent liquidity.

Non-Banking Subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies.

Dividends

During the quarter ended March 31, 2021, the Corporation declared quarterly dividends on its outstanding common stock of $0.40 per share, for a year-to-date total of $ 33.8 million. The dividends for the Corporation’s Series A preferred stock amounted to $0.4 million. During the quarter ended March 31, 2021, the BHC’s received dividends amounting to $2 million in dividends from its non-banking subsidiaries. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity. On May 6, 2021, the Corporation’s Board of Directors approved a quarterly cash dividend of $0.45 per share on its outstanding common stock. The dividend will be payable on July 1, 2021 to shareholders of record at the close of business on May 26, 2021. On May 3, 2021, the Corporation announced that it had entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $350 million of Popular’s common stock. Refer to Note 17 to the Consolidated financial statements for additional information of the ASR.

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Other Funding Sources and Capital

The debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s debt securities portfolio consists primarily of liquid U.S. government debt securities, U.S. government sponsored agency debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged debt securities amounted to $5.6 billion at March 31, 2021 and $3.4 billion at December 31, 2020. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources.

Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.

Financial information of guarantor and issuers of registered guaranteed securities

The Corporation (not including any of its subsidiaries, “PIHC”) is the parent holding company of Popular North America “PNA” and has other subsidiaries through which it conducts its financial services operations. PNA is an operating, 100% subsidiary of Popular, Inc. Holding Company (“PIHC”) and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and Popular Bank, including Popular Bank’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., and E-LOAN, Inc.

PNA has issued junior subordinated debentures guaranteed by PIHC (together with PNA, the “obligor group”) purchased by statutory trusts established by the Corporation. These debentures were purchased by the statutory trust using the proceeds from trust preferred securities issued to the public (referred to as “capital securities”), together with the proceeds of the related issuances of common securities of the trusts.

PIHC fully and unconditionally guarantees the junior subordinated debentures issued by PNA. PIHC’s obligation to make a guarantee payment may be satisfied by direct payment of the required amounts to the holders of the applicable capital securities or by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions by the applicable trust except to the extent such trust has funds available for such payments. If PIHC does not make interest payments on the debentures held by such trust, such trust will not pay distributions on the applicable capital securities and will not have funds available for such payments. PIHC’s guarantee of PNA’s junior subordinated debentures is unsecured and ranks subordinate and junior in right of payment to all the PIHC’s other liabilities in the same manner as the applicable debentures as set forth in the applicable indentures; and equally with all other guarantees that the PIHC issues. The guarantee constitutes a guarantee of payment and not of collection, which means that the guaranteed party may sue the guarantor to enforce its rights under the respective guarantee without suing any other person or entity.

The principal sources of funding for PIHC and PNA have included dividends received from their banking and non-banking subsidiaries, asset sales and proceeds from the issuance of debt and equity. As further described below, in the Risk to Liquidity section, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval.

The following summarized financial information presents the financial position of the obligor group, on a combined basis at March 31, 2021 and December 31, 2020, and the results of their operations for the period ended March 31, 2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded.

The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group's amounts due from, amounts due to and transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately.

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Table 14 - Summarized Statement of Condition

(In thousands)		March 31, 2021		December 31, 2020
Assets
Cash and money market investments	$	149,639	$	190,830
Investment securities		30,170		27,630
Accounts receivables from non-obligor subsidiaries		20,973		16,338
Accounts receivables from affiliates and related parties		583		-
Other loans (net of allowance for credit losses of $167)		31,152		31,162
Investment in equity method investees		94,672		88,272
Other assets		45,237		46,547
Total assets	$	372,426	$	400,779
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries	$	6,511	$	3,946
Accounts payable to affiliates and related parties		982		977
Notes payable		681,827		681,503
Other liabilities		78,646		79,208
Stockholders' deficit		(395,540)		(364,855)
Total liabilities and stockholders' deficit	$	372,426	$	400,779

Table 15 - Summarized Statement of Operations

				For the quarter ended
(In thousands)				March 31, 2021
Income:
Dividends from non-obligor subsidiaries			$	2,000
Interest income from non-obligor subsidiaries and affiliates				192
Earnings from investments in equity method investees				6,465
Other operating income				908
Total income			$	9,565
Expenses:
Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of ($41,438))			$	2,825
Other operating expenses				8,701
Total expenses			$	11,526
Net income			$	(1,961)

The Obligor group recorded $0.6 million of dividend receivable from its direct equity method investees for the quarter ended March 31, 2021.

Risks to Liquidity

Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.

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The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.

Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB.

The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation’s ability to access a broad array of wholesale funding sources, among other factors.

Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, less any required transfers to surplus or to a fund for the retirement of any preferred stock. In addition, a member bank may not declare or pay a dividend in an amount greater than its undivided profits as reported in its Report of Condition and Income, unless the member bank has received the approval of the Federal Reserve Board. A member bank also may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve Board. Pursuant to these requirements, PB may not declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary to up-stream dividends to its BHC could thus be impacted by its financial performance, thus potentially limiting the amount of cash moving up to the BHCs from the banking subsidiaries. This could, in turn, affect the BHCs ability to declare dividends on its outstanding common and preferred stock, for example.

The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings.

Obligations Subject to Rating Triggers or Collateral Requirements

The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits at March 31, 2021 that are subject to rating triggers.

In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 19 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $43 million at March 31, 2021. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.

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Credit Risk

Geographic and Government Risk

The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 33 to the Consolidated Financial Statements.

Commonwealth of Puerto Rico

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which faces severe economic and fiscal challenges.

COVID-19 Pandemic

On December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since spread globally to other countries and jurisdictions, including the mainland United States and Puerto Rico. In March 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has significantly disrupted and negatively impacted the global economy, disrupted global supply chains, created significant volatility in financial markets, and increased unemployment levels worldwide, including in the markets in which we do business.

In Puerto Rico, former Governor Wanda Vázquez issued an executive order in March 2020 declaring a health emergency, ordering residents to shelter in place, implementing a mandatory curfew, and requiring the closure of non-essential businesses. While many of the restrictions have been gradually lifted, a mandatory curfew is still in effect and most businesses have had to make significant adjustments to protect customers and employees, including transitioning to telework and suspending or modifying certain operations in compliance with health and safety guidelines. The Puerto Rico Legislative Assembly enacted legislation in April 2020 requiring financial institutions to offer moratoriums on consumer financial products to clients impacted by the COVID-19 pandemic, which was effective through August 2020. The Federal Government has also approved several economic stimulus measures that seek to cushion the economic fallout of the pandemic, including providing direct subsidies, expanding eligibility for and increasing unemployment benefits and guaranteeing through the Small Business Administration’s Paycheck Protection Program (the “PPP”) loans to small and medium businesses.

The COVID-19 pandemic and the restrictions imposed to curb the spread of the disease have had and may continue to have a material adverse effect on economic activity worldwide, including in Puerto Rico. The extent to which the COVID-19 pandemic will continue adversely affect economic activity will depend on future developments, which are highly uncertain and difficult to predict, including the scope and duration of the pandemic, the restrictions imposed by governmental authorities and other third parties in response to the same, the pace of global vaccination efforts, and the amount of federal and local assistance offered to offset the impact of the pandemic. Pursuant to the 2021 Fiscal Plan (as defined below), economic stimulus measures have more than offset the estimated income loss due to reduced economic activity in Puerto Rico and are estimated to have caused a temporary increase in personal income on a net basis. However, there can be no assurance that these measures will be sufficient to offset the pandemic’s economic impact in the medium- and long-term.

For a discussion of the impact of the pandemic on the Corporation’s operations and financial results during the first quarter of 2021, refer to the MD&A Significant Events section, on the accompanying financial statements. For additional discussion of risk factors related to the impact of the pandemic, see “Part I – Item 1A – Risk Factors” in the Corporation’s Form 10-K for the year ended December 31, 2020.

Economic Performance

The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006 and its gross national product (“GNP”) contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019 due to the influx of federal funds and private insurance payments to repair damage caused by Hurricanes Irma and María. However, the Planning Board estimates that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19 pandemic and the measures taken by the government in response

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to the same. Finally, the Planning Board projects that the negative effects of COVID-19 will continue through the current fiscal year, resulting in a contraction in real GNP of approximately -2%.

Fiscal Crisis

The Commonwealth’s central government and many of its instrumentalities, public corporations and municipalities continue to face significant fiscal challenges, which have been primarily the result of economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations, and lack of access to the capital markets, among other factors. As a result, the Commonwealth and certain of its instrumentalities have been unable to make debt service payments on their outstanding bonds and notes since 2016. The escalating fiscal and economic crisis and imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in June 2016. As further discussed below under “Pending Title III Proceedings,” the Commonwealth and several of its instrumentalities are currently in the process of restructuring their debts through the debt restructuring mechanisms provided by PROMESA.

PROMESA

PROMESA, among other things, created a seven-member federally-appointed oversight board (the “Oversight Board”) with ample powers over the fiscal and economic affairs of the Commonwealth, its public corporations, instrumentalities and municipalities and established two mechanisms for the restructuring of the obligations of such entities. Pursuant to PROMESA, the Oversight Board will remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years. In August 2016, President Obama appointed the seven voting members of the Oversight Board through the process established in PROMESA, which authorizes the President to select the members from several lists required to be submitted by congressional leaders and which process was recently upheld by the U.S. Supreme Court. The terms of the original Oversight Board members expired in August 2019, but PROMESA allows members to remain in their roles until their successors have been appointed. All of the original members continued to serve on the Oversight Board on holdover status until 2020, when President Donald Trump reappointed three of the original members and appointed four new members to the Oversight Board.

In October 2016, the Oversight Board designated the Commonwealth and all of its public corporations and instrumentalities as “covered entities” under PROMESA. The only Commonwealth government entities that were not subject to such initial designation were the Commonwealth’s municipalities. In May 2019, however, the Oversight Board designated all of the Commonwealth’s municipalities as covered entities. At the Oversight Board’s request, covered entities are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. Finally, covered entities are potentially eligible to avail themselves of the debt restructuring processes provided by PROMESA.

Fiscal Plans

Commonwealth Fiscal Plan. The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated April 23, 2021 (the “2021 Fiscal Plan”).

Pursuant to the 2021 Fiscal Plan, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. The 2021 Fiscal Plan’s economic projections incorporate adjustments for these short-term income effects for purposes of estimating tax receipts. For example, the 2021 Fiscal Plan estimates that real GNP contracted by 3% in fiscal year 2020, but estimates the GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the 2021 Fiscal Plan projects that real GNP will grow 1% and 0.6%, respectively, but projects that growth adjusted for income effects for such years will be approximately 3.8% and 1.5%, respectively.

The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented, the Commonwealth will have a pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the fiscal measures could drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 2026 and that the structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $30.7 billion).

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However, even after the fiscal measures and structural reforms, and before contractual debt service, the 2021 Fiscal Plan projects that there will be an annual deficit starting in fiscal year 2036.

The 2021 Fiscal Plan provides for the gradual reduction and the ultimate elimination of Commonwealth budgetary subsidies to municipalities, which constitute a material portion of the operating revenues of some municipalities. Since fiscal year 2017, Commonwealth appropriations to municipalities have decreased by approximately 64% (from approximately $370 million in fiscal year 2017 to approximately $132 million in fiscal year 2020). In response to the COVID-19 crisis, reductions in appropriations to municipalities were paused in fiscal year 2021. Municipalities have also received extraordinary appropriations and other funds from federally-funded programs during the current fiscal year, which has helped temporarily offset the impact of the reduced Commonwealth support. However, the 2021 Fiscal Plan contemplates additional reductions in appropriations to municipalities starting in fiscal year 2022, before eventually phasing out all appropriations in fiscal year 2025. Further, while the Commonwealth had enacted legislation in 2019 suspending the municipality’s obligations to contribute to the Commonwealth’s health plan and pay-as-you go retirement system, such legislation was challenged by the Oversight Board and eventually declared null by the Title III court in April 2020. As a result, municipalities are required to cover their own employees’ healthcare costs and retirement benefits and had to reimburse the Commonwealth for such costs corresponding to the period during which the law in effect. Finally, the 2021 Fiscal Plan notes that municipalities have made little or no progress towards implementing fiscal discipline required to reduce reliance on Commonwealth appropriations and that this lack of fiscal management threatens the ability of municipalities to provide necessary services, such as health, sanitation, public safety, and emergency services to their residents, forcing them to prioritize expenditures.

Other Fiscal Plans. Pursuant to PROMESA, the Oversight Board has also requested and certified fiscal plans for several public corporations and instrumentalities. The certified fiscal plan for the Puerto Rico Electric Power Authority (“PREPA”), Puerto Rico’s electric power utility, contemplated the transformation of Puerto Rico’s electric system through, among other things, the establishment of a public-private partnership with respect to PREPA’s transmission and distribution system, and calls for significant structural reforms at PREPA. The procurement process for the establishment of a public-private partnership with respect to PREPA’s transmission and distribution system (the “T&D System”) was completed in June 2020. The selected proponent, LUMA Energy LLC (“LUMA”), and PREPA entered into a 15-year agreement whereby LUMA will be responsible for operating, maintaining and modernizing the T&D System. LUMA and PREPA have announced that the transition of the operations of the T&D System to LUMA is expected to occur on or about June 1, 2021.

On April 23, 2021, the Oversight Board certified the latest version of the fiscal plan (the “CRIM Fiscal Plan”) for the Municipal Revenue Collection Center (“CRIM”), the government entity responsible for collecting property taxes and distributing them among the municipalities. The CRIM Fiscal Plan outlines a series of measures centered around improving the competitiveness of Puerto Rico’s property tax regime and the enhancement of property tax collections, including identifying and appraising new properties as well as improvements to existing properties, and implementing operational and technological initiatives.

Pending Title III Proceedings

On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”), the Puerto Rico Highways and Transportation Authority, PREPA and the Puerto Rico Public Buildings Authority (“PBA”). On February 12, 2019, the government completed a restructuring of COFINA’s debts pursuant to a plan of adjustment confirmed by the U.S. District Court. In March 2021, the Oversight Board filed a plan of adjustment for the Commonwealth, ERS and PBA in the pending debt restructuring proceedings under Title III of PROMESA. The plan, which has substantial support from several creditor constituencies but is still subject to confirmation in the Title III proceeding, seeks to restructure approximately $35 billion of debt and other claims against the Commonwealth, PBA and ERS, and more than $50 billion of pension liabilities.

Seismic Activity

On January 7, 2020, Puerto Rico was struck by a magnitude 6.4 earthquake, which caused island-wide power outages and significant damage to infrastructure and property in the southwest region of the island. The 6.4 earthquake was preceded by foreshocks and followed by aftershocks. The Commonwealth’s government has estimated total earthquake-related damages at approximately $1 billion.

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Exposure of the Corporation

The credit quality of BPPR’s loan portfolio reflects, among other things, the general economic conditions in Puerto Rico and other adverse conditions affecting Puerto Rico consumers and businesses. The effects of the prolonged recession have been reflected in limited loan demand, an increase in the rate of foreclosures and delinquencies on loans granted in Puerto Rico. While PROMESA provided a process to address the Commonwealth’s fiscal crisis, the complexity and uncertainty of the Title III proceedings for the Commonwealth and various of its instrumentalities and the adjustment measures required by the fiscal plans still present significant economic risks. In addition, the COVID-19 outbreak has affected many of our individual customers and customers’ businesses. This, when added to Puerto Rico’s ongoing fiscal crisis and recession, could cause credit losses that adversely affect us and may negatively affect consumer confidence, result in reductions in consumer spending, and adversely impact our interest and non-interest revenues. If global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s fiscal and economic challenges, including by controlling the COVID-19 pandemic and consummating an orderly restructuring of the Commonwealth’s debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict.

At March 31, 2021 and December 31, 2020, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $375 million and $377 million, respectively, which amounts were fully outstanding on such dates. Further deterioration of the Commonwealth’s fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $342 million consists of loans and $33 million are securities ($342 million and $35 million, respectively, at December 31, 2020). Substantially all of the amount outstanding at March 31, 2021 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At March 31, 2021, 74% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. For additional discussion of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 20 – Commitments and Contingencies.

In addition, at March 31, 2021, the Corporation had $311 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($317 million at December 31, 2020). These included $255 million in residential mortgage loans insured by the Puerto Rico Housing Finance Authority (“HFA”), a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2020 - $260 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had, at March 31, 2021, $45 million in bonds issued by HFA which are secured by second mortgage loans on Puerto Rico residential properties, and for which HFA also provides insurance to cover losses in the event of a borrower default, and upon the satisfaction of certain other conditions (December 31, 2020 - $46 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of this loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof. In addition, at March 31, 2021, the Corporation had $11 million of commercial real estate notes issued by government entities but that are payable from rent paid by non-governmental parties (December 31, 2020 - $11 million).

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA described above. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits.

BPPR also has a significant amount of deposits from the Commonwealth, its instrumentalities, and municipalities. The amount of such deposits may fluctuate depending on the financial condition and liquidity of such entities, as well as on the ability of BPPR to maintain these customer relationships.

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The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 20 of the Consolidated Financial Statements.

United States Virgin Islands

The Corporation has operations in the United States Virgin Islands (the “USVI”) and has credit exposure to USVI government entities.

The USVI has been experiencing a number of fiscal and economic challenges, which have been and maybe be further exacerbated as a result of the effects of the COVID-19 pandemic, and which could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.

To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

At March 31, 2021, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $103 million, of which $69 million is outstanding (compared to $105 million and $70 million, respectively, at December 31, 2020). Of the amount outstanding, approximately (i) $42 million represents loans to the West Indian Company LTD, a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, (ii) $20 million represents loans to the Virgin Islands Water and Power Authority, a public corporation of the USVI that operates USVI’s water production and electric generation plants, (iii) $3 million represents loans to the Virgin Islands Public Finance Authority (“VI PFA” ), a public corporation of the USVI created for the purpose of raising capital for public projects and (iv) $4 million in loans to the Virgin Islands Porth Authority (compared to $43 million, $20 million, $3 million, and $4 million, respectively, at December 31, 2020).

British Virgin Islands

The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, it has a loan portfolio amounting to approximately $250 million comprised of various retail and commercial clients, including a loan of approximately $18 million with the government of the BVI (compared to $251 million and $19 million, respectively, as of December 31, 2020).

U.S. Government

As further detailed in Notes 5 and 6 to the Consolidated Financial Statements, a substantial portion of the Corporation’s investment securities represented exposure to the U.S. Government in the form of U.S. Government sponsored entities, as well as agency mortgage-backed and U.S. Treasury securities. In addition, $1.8 billion of residential mortgages, $1.2 billion of SBA loans under the PPP and $60 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at March 31, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

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Non-Performing Assets

Non-performing assets include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 16.

The Corporation adopted the CECL accounting standard effective January 1, 2020. This framework requires management to estimate credit losses over the full remaining expected life of the loan using economic forecasts over a reasonable and supportable period, and historical information thereafter.

The Corporation exhibited improved credit quality metrics and lower credit costs during the first quarter of 2021, driven by the improving economic environment, which reflects the impact of the unprecedented amounts of government stimulus in response to the COVID-19 pandemic and prudent risk management practices. Notwithstanding, given the disruptions and continued uncertainties caused by the pandemic, we will continue to closely monitor economic conditions, the effect of the pandemic on our loan portfolios and associated risks. However, management believes that the improvement over the last few years in the risk profile of the Corporation’s loan portfolios, along with the government stimulus, positions Popular to operate successfully under the current environment.

Total NPAs decreased by $50 million when compared with December 31, 2020. Total non-performing loans held-in-portfolio decreased by $40 million from December 31, 2020. BPPR’s NPLs decreased by $34 million, driven by lower mortgage NPLs by $24 million, reflective of the resumption of consistent loan payments following the end of the COVID-19 moratorium period. BPPR’s construction NPLs decreased by $7 million mostly due to a previously reserved loan that was partially charged-off during the quarter. Popular Bank’s NPLs decreased by $5 million, mostly related to a commercial loan transferred to loans-held-for-sale and loan collection activity. Excluding government guaranteed loans, at March 31, 2021, the Corporation had 122,216 loans with an aggregate book value of $6.8 billion that had completed their COVID-19 moratorium period, of which 114,900 loans, or 94%, with an aggregate book value of $6.5 billion were current in their payments. At March 31, 2021, the ratio of NPLs to total loans held-in-portfolio was 2.4% compared to 2.5% in the fourth quarter of 2020. In addition, other real estate owned loans (“OREOs”) decreased by $11 million, mostly due to the resumption of sales and the suspension of foreclosure activity due to the COVID-19 pandemic.

At March 31, 2021, NPLs secured by real estate amounted to $596 million in the Puerto Rico operations and $33 million in Popular U.S. These figures were $630 million and $34 million, respectively, at December 31, 2020.

The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $7.8 billion at March 31, 2021, of which $1.8 billion was secured with owner occupied properties, compared with $7.8 billion and $1.9 billion, respectively, at December 31, 2020. CRE NPLs amounted to $168 million at March 31, 2021, compared with $173 million at December 31, 2020. The CRE NPL ratios for the BPPR and Popular U.S. segments were 4.50% and 0.02%, respectively, at March 31, 2021, compared with 4.51% and 0.07%, respectively, at December 31, 2020.

In addition to the NPLs included in Table 16, at March 31, 2021, there were $228 million of performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification as non-performing and are considered impaired (December 31, 2020 - $228 million).

For the quarter ended March 31, 2021, total inflows of NPLs held-in-portfolio, excluding consumer loans, remained flat at approximately $84 million, when compared to the inflows for the same period in 2020. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $15 million, or 18%, compared to the same period in 2020, driven by lower mortgage inflows by $18 million. Inflows of NPLs held-in-portfolio at the Popular U.S. segment increased by $14 million from the same period in 2020, mostly due to due to higher construction inflows related to a loan that reached 90 days past due during its renewal process. As of March 31, 2021, the loan was current.

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Table 16 - Non-Performing Assets
	March 31, 2021										December 31, 2020
(Dollars in thousands)		BPPR		Popular U.S.		Popular, Inc.		As a % of loans HIP by category			BPPR		Popular U.S.		Popular, Inc.		As a % of loans HIP by category
Commercial	$	200,863	$	1,907	$	202,770		1.5	%	$	204,092	$	5,988	$	210,080		1.5	%
Construction		14,877		7,523		22,400		2.5			21,497		7,560		29,057		3.1
Leasing		3,040		-		3,040		0.2			3,441		-		3,441		0.3
Mortgage		390,781		14,793		405,574		5.2			414,343		14,864		429,207		5.4
Auto		15,405		-		15,405		0.5			15,736		-		15,736		0.5
Consumer		41,012		7,941		48,953		1.9			41,268		8,985		50,253		1.9
Total non-performing loans held-in-portfolio		665,978		32,164		698,142		2.4	%		700,377		37,397		737,774		2.5	%
Non-performing loans held-for-sale ^[1]		-		3,549		3,549					-		2,738		2,738
Other real estate owned (“OREO”)		70,537		1,523		72,060					81,512		1,634		83,146
Total non-performing assets	$	736,515	$	37,236	$	773,751				$	781,889	$	41,769	$	823,658
Accruing loans past due 90 days or more^[2]	$	832,747	$	9	$	832,756				$	1,028,061	$	3	$	1,028,064
Ratios:
Non-performing assets to total assets		1.32	%	0.33	%	1.16	%				1.42	%	0.38	%	1.25	%
Non-performing loans held-in-portfolio to loans held-in-portfolio		3.12		0.41		2.40					3.25		0.48		2.51
Allowance for credit losses to loans held-in-portfolio		3.20		1.53		2.75					3.43		2.00		3.05
Allowance for credit losses to non-performing loans, excluding held-for-sale		102.35		370.42		114.70					105.62		418.48		121.48
HIP = “held-in-portfolio”
[1] There were $4 million in non-performing commercial loans held-for-sale as of March 31, 2021 and $3 million as of December 31, 2020.
[2] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $29 million at March 31, 2021 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below (December 31, 2020 - $57 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to repurchases option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. While the borrowers for our serviced GNMA portfolio benefited from the moratorium, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. These balances include $341 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of March 31, 2021 (December 31, 2020 - $329 million). Furthermore, the Corporation has approximately $58 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2020 - $60 million).

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Table 17 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

		For the quarter ended March 31, 2021
(Dollars in thousands)			BPPR		Popular U.S.	Popular, Inc.
Beginning balance		$	639,932	$	28,412	$	668,344
Plus:
	New non-performing loans		66,121		18,157		84,278
	Advances on existing non-performing loans		-		11		11
Less:
	Non-performing loans transferred to OREO		(4,651)		-		(4,651)
	Non-performing loans charged-off		(17,733)		(353)		(18,086)
	Loans returned to accrual status / loan collections		(77,148)		(20,231)		(97,379)
	Loans transferred to held-for-sale		-		(1,773)		(1,773)
Ending balance NPLs		$	606,521	$	24,223	$	630,744

Table 18 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

		For the quarter ended March 31, 2020
(Dollars in thousands)			BPPR		Popular U.S.	Popular, Inc.
Beginning balance		$	431,082	$	16,621	$	447,703
Transition of PCI to PCD loans under CECL			245,703		18,547		264,250
Plus:
	New non-performing loans		80,920		4,173		85,093
	Advances on existing non-performing loans		-		171		171
Less:
	Non-performing loans transferred to OREO		(10,390)		-		(10,390)
	Non-performing loans charged-off		(6,893)		(554)		(7,447)
	Loans returned to accrual status / loan collections		(84,853)		(6,719)		(91,572)
	Loans transferred to held-for-sale		-		(10,679)		(10,679)
Ending balance NPLs		$	655,569	$	21,560	$	677,129

Table 19 - Activity in Non-Performing Commercial Loans Held-In-Portfolio
		For the quarter ended March 31, 2021
(In thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning Balance - NPLs		$	204,092	$	5,988	$	210,080
Plus:
	New non-performing loans		7,724		1,693		9,417
	Advances on existing non-performing loans		-		6		6
Less:
	Non-performing loans transferred to OREO		(3,850)		-		(3,850)
	Non-performing loans charged-off		(2,391)		(352)		(2,743)
	Loans returned to accrual status / loan collections		(4,712)		(3,655)		(8,367)
	Loans transferred to held-for-sale		-		(1,773)		(1,773)
Ending balance - NPLs		$	200,863	$	1,907	$	202,770

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Table 20 - Activity in Non-Performing Commercial Loans Held-In-Portfolio
		For the quarter ended March 31, 2020
(In thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning Balance - NPLs		$	147,255	$	5,504	$	152,759
Transition of PCI to PCD loans under CECL			112,517		18,547		131,064
Plus:
	New non-performing loans		4,954		166		5,120
	Advances on existing non-performing loans		-		119		119
Less:
	Non-performing loans transferred to OREO		(2,202)		-		(2,202)
	Non-performing loans charged-off		(2,146)		(554)		(2,700)
	Loans returned to accrual status / loan collections		(9,274)		(3,719)		(12,993)
	Loans transferred to held-for-sale		-		(10,679)		(10,679)
Ending balance - NPLs		$	251,104	$	9,384	$	260,488

Table 21 - Activity in Non-Performing Construction Loans Held-In-Portfolio

		For the quarter ended March 31, 2021
(In thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning Balance - NPLs		$	21,497	$	7,560	$	29,057
Plus:
	New non-performing loans		-		12,141		12,141
Less:
	Non-performing loans charged-off		(6,620)		-		(6,620)
	Loans returned to accrual status / loan collections		-		(12,178)		(12,178)
Ending balance - NPLs		$	14,877	$	7,523	$	22,400

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Table 22 - Activity in Non-Performing Construction Loans Held-In-Portfolio

		For the quarter ended March 31, 2020
(In thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning Balance - NPLs		$	119	$	26	$	145
Less:			-		-
	Loans returned to accrual status / loan collections		(119)		(26)		(145)
Ending balance - NPLs		$	-	$	-	$	-

Table 23 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio
		For the quarter ended March 31, 2021
(Dollars in thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning balance - NPLs		$	414,343	$	14,864	$	429,207
Plus:
	New non-performing loans		58,397		4,323		62,720
	Advances on existing non-performing loans		-		5		5
Less:
	Non-performing loans transferred to OREO		(801)		-		(801)
	Non-performing loans charged-off		(8,722)		(1)		(8,723)
	Loans returned to accrual status / loan collections		(72,436)		(4,398)		(76,834)
Ending balance - NPLs		$	390,781	$	14,793	$	405,574

Table 24 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio
		For the quarter ended March 31, 2020
(Dollars in thousands)			BPPR		Popular U.S.		Popular, Inc.
Beginning balance - NPLs		$	283,708	$	11,091	$	294,799
Transition of PCI to PCD loans under CECL			133,186		-		133,186
Plus:
	New non-performing loans		75,966		4,007		79,973
	Advances on existing non-performing loans		-		52		52
Less:
	Non-performing loans transferred to OREO		(8,188)		-		(8,188)
	Non-performing loans charged-off		(4,747)		-		(4,747)
	Loans returned to accrual status / loan collections		(75,460)		(2,974)		(78,434)
Ending balance - NPLs		$	404,465	$	12,176	$	416,641

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Loan Delinquencies

Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more, as a percentage of their related portfolio category at March 31, 2021 and December 31, 2020, are presented below.

Table 25 - Loan Delinquencies

(Dollars in thousands)		March 31, 2021							December 31, 2020
	Loans delinquent 30 days or more		Total loans		Total delinquencies as a percentage of total loans			Loans delinquent 30 days or more		Total loans		Total delinquencies as a percentage of total loans
Commercial	$	296,356	$	13,442,486		2.20	%	$	249,484	$	13,614,310		1.83	%
Construction		34,149		907,736		3.76			50,369		926,208		5.44
Leasing		12,012		1,244,956		0.96			14,009		1,197,661		1.17
Mortgage ^[1]		1,501,222		7,808,852		19.22			1,775,902		7,890,680		22.51
Consumer		159,431		5,727,598		2.78			179,789		5,756,337		3.12
Loans held-for-sale		3,718		84,214		4.41			3,108		99,455		3.13
Total	$	2,006,888	$	29,215,842		6.87	%	$	2,272,661	$	29,484,651		7.71	%
[1] Loans delinquent 30 days or more includes $0.9 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of March 31, 2021 (December 31, 2020 - $1.1 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans.

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Allowance for Credit Losses Loans Held-in-Portfolio

The Corporation adopted the new CECL accounting standard effective on January 1, 2020. The allowance for credit losses (“ACL”), represents management’s estimate of expected credit losses through the remaining contractual life of the different loan segments, impacted by expected prepayments. The ACL is maintained at a sufficient level to provide for estimated credit losses on collateral dependent loans as well as troubled debt restructurings separately from the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the ACL on a quarterly basis. In this evaluation, management considers current conditions, macroeconomic economic expectations through a reasonable and supportable period, historical loss experience, portfolio composition by loan type and risk characteristics, results of periodic credit reviews of individual loans, and regulatory requirements, amongst other factors.

The Corporation must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets. Other factors that can affect management’s estimates are recalibration of statistical models used to calculate lifetime expected losses, changes in underwriting standards, financial accounting standards and loan impairment measurements, among others. Changes in the financial condition of individual borrowers, in economic conditions, and in the condition of the various markets in which collateral may be sold, may also affect the required level of the ACL. Consequently, the business financial condition, liquidity, capital and results of operations could also be affected.

At March 31, 2021, the ACL for the Corporation’s loans held-in-portfolio amounted to $801 million, a decrease of $95 million, when compared with December 31, 2020, mainly prompted by improvements in the macroeconomic outlook. The ACL incorporated updated economic stimulus assumptions that contributed to a more optimistic view of the economy compared to the fourth quarter 2020 scenarios, prompting substantial reductions in reserves across different portfolios. The ACL for BPPR decreased by $58 million to $682 million, while the ACL for PB decreased by $37 million to $119 million, when compared to December 31, 2020. The decrease in the reserve for PB was partially offset with qualitative reserves aimed at addressing uncertainties mainly in the commercial real estate portfolio. The provision for credit losses for the loans-held-in portfolio for the quarter ended March 31, 2021 amounted to a benefit of $75.8 million, decreasing by $264.8 million from the same period in the prior year, amid improved macroeconomic outlook and lower NCOs.

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Table 26 - Allowance for Credit Losses - Loan Portfolios
March 31, 2021
(Dollars in thousands)	Commercial			Construction				Mortgage		Leasing			Consumer			Total
Total ACL	$	276,219		$	9,195		$	202,126		$	12,687		$	300,570		$	800,797
Total loans held-in-portfolio	$	13,442,486		$	907,736		$	7,808,852		$	1,244,956		$	5,727,598		$	29,131,628
ACL to loans held-in-portfolio		2.05	%		1.01	%		2.59	%		1.02	%		5.25	%		2.75	%

Table 27 - Allowance for Credit Losses - Loan Portfolios
December 31, 2020
(Dollars in thousands)	Commercial			Construction				Mortgage		Leasing			Consumer			Total
Total ACL	$	333,380		$	14,237		$	215,716		$	16,863		$	316,054		$	896,250
Total loans held-in-portfolio	$	13,614,310		$	926,208		$	7,890,680		$	1,197,661		$	5,756,337		$	29,385,196
ACL to loans held-in-portfolio		2.45	%		1.54	%		2.73	%		1.41	%		5.49	%		3.05	%

Annualized net charge offs

The following table presents annualized net charge-offs to average loans held-in-portfolio (“HIP”) by loan category for the quarters ended March 31, 2021 and 2020.

Table 28 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio
	Quarter ended March 31, 2021						Quarter ended March 31, 2020
	BPPR		Popular U.S.		Popular, Inc.		BPPR		Popular U.S.		Popular, Inc.
Commercial	(0.07)	%	―	%	(0.04)	%	0.03	%	―	%	0.02	%
Construction	14.62		―		2.60		(0.05)		(0.09)		(0.08)
Mortgage	0.50		(0.03)		0.42		0.37		―		0.32
Leasing	0.04		―		0.04		1.23		―		1.23
Consumer	0.48		2.35		0.57		3.54		2.88		3.49
Total annualized net charge-offs to average loans held-in-portfolio	0.36	%	0.08	%	0.29	%	1.18	%	0.17	%	0.91	%

NCOs for the quarter ended March 31, 2021 amounted to $21.0 million, decreasing by $41.5 million when compared to the same period in 2020. The BPPR segment NCOs decreased by $40.0 million mainly driven by lower consumer NCOs by $43.5 million, aided by measures taken by the Corporation to control the impact of the pandemic, as well as the U.S. government stimulus programs, and $7.6 million in recoveries recorded from the sale of fully charged-off loans during the first quarter of 2021. The PB segment NCOs amounted to $1.6 million, decreasing by $1.5 million, mainly driven by lower consumer. The Corporation continues to be attentive to the effect of the pandemic on our loan portfolios and changes in delinquencies and NCOs.

Troubled Debt Restructurings

The Corporation’s troubled debt restructurings (“TDRs”) loans amounted to $1.7 billion at March 31, 2021, increasing by $39 million, or approximately 2.35%, from December 31, 2020, mainly related to mortgage borrowers that needed additional COVID extensions past the original 6-month moratorium period. TDRs in the BPPR segment increased by $40 million, mostly related to higher mortgage TDRs by $22 million, of which $20 million were related to government guaranteed loans, coupled with a combined increase of $20 million in the commercial and construction TDRs. The PB segment TDRs remained essentially flat at $16 million from December 31, 2020. TDRs in accruing status increased by $60 million from December 31, 2020, mostly related to an increase of $39 million and $22 million in BPPR’s mortgage and commercial TDRs, respectively, while non-accruing TDRs decreased by $21 million.

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Refer to Note 8 to the Consolidated Financial Statements for additional information on modifications considered TDRs, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.

ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 2020 Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control Over Financial Reporting

There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Note 20, Commitments and Contingencies, to the Consolidated Financial Statements.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under “Part I - Item 1A - Risk Factors” in our 2020 Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of risk factors below and in our 2020 Form 10-K.

There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s 2020 Form 10-K.

The risks described in our 2020 Form 10-K and in this report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Corporation did not have any unregistered sales of equity securities during the quarter ended March 31, 2021.

Issuer Purchases of Equity Securities

The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended March 31, 2021:

Issuer Purchases of Equity Securities
Not in thousands
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1- January 31	4,780	$	61.81	-	-
February 1- February 28	-		-	-	-
March 1- March 31	53,755		67.42	-	-
Total	58,535	$	66.96	-	-
(1) Includes 58,535 shares of the Corporation’s common stock acquired by the Corporation in connection with the satisfaction of tax withholding obligations on vested awards of restricted stock or restricted stock units granted to directors and certain employees under the Corporation’s Omnibus Incentive Plan. The acquired shares of common stock were added back to treasury stock.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Index

Exhibit No	Exhibit Description
10.1	Form of Popular, Inc. 2021 Long-Term Equity Incentive Award and Agreement (1)
22.1	Issuers of Guaranteed Securities (Incorporated by reference to Exhibit 22.1 of Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.)
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽¹⁾
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽¹⁾
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002⁽¹⁾
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002⁽¹⁾
101. INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline Document.
101.SCH	Inline Taxonomy Extension Schema Document⁽¹⁾
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document⁽¹⁾
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document⁽¹⁾
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document⁽¹⁾
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document⁽¹⁾
104	The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments)⁽¹⁾

(1) Included herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	POPULAR, INC.
	(Registrant)

Date: May 10, 2021	By: /s/ Carlos J. Vázquez
	Carlos J. Vázquez
	Executive Vice President &
	Chief Financial Officer

Date: May 10, 2021	By: /s/ Jorge J. García
	Jorge J. García
	Senior Vice President & Corporate Comptroller

155