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| 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 September 30, 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
6.125% 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, 79,857,220 shares outstanding as of November 5, 2021.

1

POPULAR INC |  |
INDEX |  |
Part I – Financial Information | Page |
Item 1. Financial Statements |  |
Unaudited Consolidated Statements of Financial Condition at September 30, 2021 and |  |
December 31, 2020 | 6 |
Unaudited Consolidated Statements of Operations for the quarters |  |
and nine months ended September 30, 2021 and 2020 | 7 |
Unaudited Consolidated Statements of Comprehensive Income for the |  |
quarters and nine months ended September 30, 2021 and 2020 | 8 |
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the |  |
quarters and nine months ended September 30, 2021 and 2020 | 9 |
Unaudited Consolidated Statements of Cash Flows for the nine months |  |
ended September 30, 2021 and 2020 | 11 |
Notes to Unaudited Consolidated Financial Statements | 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and |  |
Results of Operations | 119 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 164 |
Item 4. Controls and Procedures | 164 |
Part II – Other Information |  |
Item 1. Legal Proceedings | 165 |
Item 1A. Risk Factors | 165 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 167 |
Item 3. Defaults Upon Senior Securities | 168 |
Item 4. Mine Safety Disclosures | 168 |
Item 5. Other Information | 168 |
Item 6. Exhibits | 168 |
Signatures | 169 |

2

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;

3

 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.

4

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.

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

|  |  |  | September 30, | December 31,
(In thousands, except share information) | 2021 | 2020
Assets: |  |  |  |
Cash and due from banks | $ | 538,973 | $ | 491,065
Money market investments: |  |  |  |
|  | Time deposits with other banks |  | 17,526,238 |  | 11,640,880
|  | Total money market investments |  | 17,526,238 |  | 11,640,880
Trading account debt securities, at fair value: |  |  |  |
|  | Pledged securities with creditors’ right to repledge |  | 301 |  | 241
|  | Other trading account debt securities |  | 35,763 |  | 36,433
Debt securities available-for-sale, at fair value: |  |  |  |
|  | Pledged securities with creditors’ right to repledge |  | 88,418 |  | 125,819
|  | Other debt securities available-for-sale |  | 24,302,808 |  | 21,435,333
Debt securities held-to-maturity, at amortized cost (fair value 2021 - $89,775; 2020 - $94,891) |  | 85,655 |  | 92,621
|  | Less – Allowance for credit losses |  | 9,222 |  | 10,261
|  | Debt securities held-to-maturity, net |  | 76,433 |  | 82,360
Equity securities (realizable value 2021 - $186,329; 2020 - $173,929) |  | 184,931 |  | 173,737
Loans held-for-sale, at lower of cost or fair value |  | 91,313 |  | 99,455
Loans held-in-portfolio |  | 29,089,241 |  | 29,588,430
|  | Less – Unearned income |  | 233,869 |  | 203,234
|  | Allowance for credit losses |  | 718,575 |  | 896,250
|  | Total loans held-in-portfolio, net |  | 28,136,797 |  | 28,488,946
Premises and equipment, net |  | 487,526 |  | 510,241
Other real estate |  | 76,828 |  | 83,146
Accrued income receivable |  | 200,649 |  | 209,320
Mortgage servicing rights, at fair value |  | 116,567 |  | 118,395
Other assets |  | 1,634,839 |  | 1,737,041
Goodwill |  | 671,122 |  | 671,122
Other intangible assets |  | 19,657 |  | 22,466
Total assets | $ | 74,189,163 | $ | 65,926,000
Liabilities and Stockholders’ Equity |  |  |  |
Liabilities: |  |  |  |
| Deposits: |  |  |  |
|  | Non-interest bearing | $ | 15,147,567 | $ | 13,128,699
|  | Interest bearing |  | 50,865,994 |  | 43,737,641
|  | Total deposits |  | 66,013,561 |  | 56,866,340
Assets sold under agreements to repurchase |  | 86,470 |  | 121,303
Notes payable |  | 1,176,943 |  | 1,224,981
Other liabilities |  | 929,218 |  | 1,684,689
|  | Total liabilities |  | 68,206,192 |  | 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;104,562,933 shares issued (2020 - 104,508,290) and 79,841,564 shares outstanding (2020 - 84,244,235) |  | 1,046 |  | 1,045
Surplus |  | 4,569,641 |  | 4,571,534
Retained earnings |  | 2,882,340 |  | 2,260,928
Treasury stock - at cost, 24,721,369 shares (2020 - 20,264,055) |  | (1,352,104) |  | (1,016,954)
Accumulated other comprehensive (loss) income, net of tax |  | (140,095) |  | 189,991
|  | Total stockholders’ equity |  | 5,982,971 |  | 6,028,687
Total liabilities and stockholders’ equity | $ | 74,189,163 | $ | 65,926,000
The accompanying notes are an integral part of these Consolidated Financial Statements.

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

|  |  | Quarters ended September 30, |  | Nine months ended September 30,
(In thousands, except per share information) | 2021 |  | 2020 |  | 2021 |  | 2020
Interest income: |  |  |  |  |  |  |  |  |  |  |
| Loans | $ | 435,296 |  | $ | 431,286 |  | $ | 1,303,726 |  | $ | 1,311,402
| Money market investments |  | 6,914 |  |  | 2,773 |  |  | 14,300 |  |  | 16,788
| Investment securities |  | 87,952 |  |  | 79,142 |  |  | 265,348 |  |  | 243,938
|  | Total interest income |  | 530,162 |  |  | 513,201 |  |  | 1,583,374 |  |  | 1,572,128
Interest expense: |  |  |  |  |  |  |  |  |  |  |
| Deposits |  | 27,029 |  |  | 37,554 |  |  | 85,290 |  |  | 142,435
| Short-term borrowings |  | 54 |  |  | 416 |  |  | 259 |  |  | 2,109
| Long-term debt |  | 13,686 |  |  | 14,210 |  |  | 41,518 |  |  | 42,587
|  | Total interest expense |  | 40,769 |  |  | 52,180 |  |  | 127,067 |  |  | 187,131
Net interest income |  | 489,393 |  |  | 461,021 |  |  | 1,456,307 |  |  | 1,384,997
Provision for credit losses (benefit) |  | (61,173) |  |  | 19,138 |  |  | (160,414) |  |  | 271,318
Net interest income after provision for credit losses (benefit) |  | 550,566 |  |  | 441,883 |  |  | 1,616,721 |  |  | 1,113,679
Non-interest income: |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 41,312 |  |  | 36,849 |  |  | 121,085 |  |  | 108,671
Other service fees |  | 80,445 |  |  | 69,879 |  |  | 227,455 |  |  | 186,736
Mortgage banking activities (Refer to Note 9) |  | 8,307 |  |  | (9,526) |  |  | 33,098 |  |  | 671
Net gain on sale of debt securities |  | 23 |  |  | 41 |  |  | 23 |  |  | 41
Net (loss) gain, including impairment on equity securities |  | (401) |  |  | 5,150 |  |  | 1,585 |  |  | 4,869
Net profit (loss) on trading account debt securities |  | 58 |  |  | 20 |  |  | (34) |  |  | 593
Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale |  | - |  |  | (2,198) |  |  | (73) |  |  | 981
Adjustments (expense) to indemnity reserves on loans sold |  | 2,038 |  |  | 4,183 |  |  | 3,008 |  |  | (1,770)
Other operating income |  | 37,476 |  |  | 24,369 |  |  | 91,304 |  |  | 66,673
|  | Total non-interest income |  | 169,258 |  |  | 128,767 |  |  | 477,451 |  |  | 367,465
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  | 157,647 |  |  | 135,941 |  |  | 471,330 |  |  | 421,938
Net occupancy expenses |  | 24,896 |  |  | 25,907 |  |  | 75,471 |  |  | 76,552
Equipment expenses |  | 22,537 |  |  | 24,088 |  |  | 66,917 |  |  | 66,537
Other taxes |  | 14,459 |  |  | 13,918 |  |  | 41,623 |  |  | 40,922
Professional fees |  | 104,709 |  |  | 96,474 |  |  | 305,810 |  |  | 290,092
Communications |  | 6,133 |  |  | 5,694 |  |  | 18,971 |  |  | 17,222
Business promotion |  | 18,116 |  |  | 14,664 |  |  | 47,148 |  |  | 41,142
FDIC deposit insurance |  | 7,181 |  |  | 6,568 |  |  | 18,891 |  |  | 16,988
Other real estate owned (OREO) (income) expenses |  | (1,722) |  |  | (1,615) |  |  | (10,554) |  |  | 520
Other operating expenses |  | 33,429 |  |  | 38,351 |  |  | 93,185 |  |  | 104,647
Amortization of intangibles |  | 783 |  |  | 1,076 |  |  | 3,089 |  |  | 5,345
|  | Total operating expenses |  | 388,168 |  |  | 361,066 |  |  | 1,131,881 |  |  | 1,081,905
Income before income tax |  | 331,656 |  |  | 209,584 |  |  | 962,291 |  |  | 399,239
Income tax expense |  | 83,542 |  |  | 41,168 |  |  | 233,466 |  |  | 68,893
Net Income | $ | 248,114 |  | $ | 168,416 |  | $ | 728,825 |  | $ | 330,346
Net Income Applicable to Common Stock | $ | 247,761 |  | $ | 168,064 |  | $ | 727,766 |  | $ | 328,941
Net Income per Common Share – Basic | $ | 3.09 |  | $ | 2.01 |  | $ | 8.89 |  | $ | 3.80
Net Income per Common Share – Diluted | $ | 3.09 |  | $ | 2.00 |  | $ | 8.87 |  | $ | 3.80
The accompanying notes are an integral part of these Consolidated Financial Statements.

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

|  | Quarters ended, |  | Nine months ended,
|  | September 30, |  | September 30,
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Net income | $ | 248,114 |  | $ | 168,416 |  | $ | 728,825 |  | $ | 330,346
Other comprehensive (loss) income before tax: |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  | (1,265) |  |  | (2,035) |  |  | 2,030 |  |  | (14,710)
Amortization of net losses of pension and postretirement benefit plans |  | 5,187 |  |  | 5,362 |  |  | 15,566 |  |  | 16,086
Unrealized holding (losses) gains on debt securities arising during the period |  | (55,220) |  |  | (10,633) |  |  | (375,634) |  |  | 450,134
| Reclassification adjustment for gains included in net income |  | (23) |  |  | (41) |  |  | (23) |  |  | (41)
Unrealized net (losses) gains on cash flow hedges |  | (721) |  |  | (1,478) |  |  | 900 |  |  | (6,760)
| Reclassification adjustment for net losses included in net income |  | 1,518 |  |  | 1,613 |  |  | 1,707 |  |  | 5,127
Other comprehensive (loss) income before tax |  | (50,524) |  |  | (7,212) |  |  | (355,454) |  |  | 449,836
Income tax benefit (expense) |  | 6,120 |  |  | 3,279 |  |  | 25,368 |  |  | (64,482)
Total other comprehensive (loss) income, net of tax |  | (44,404) |  |  | (3,933) |  |  | (330,086) |  |  | 385,354
Comprehensive income, net of tax | $ | 203,710 |  | $ | 164,483 |  | $ | 398,739 |  | $ | 715,700
Tax effect allocated to each component of other comprehensive (loss) income:
|  | Quarters ended |  | Nine months ended,
|  | September 30, |  | September 30,
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Amortization of net losses of pension and postretirement benefit plans | $ | (1,945) |  | $ | (2,011) |  | $ | (5,840) |  | $ | (6,033)
Unrealized holding (losses) gains on debt securities arising during the period |  | 8,264 |  |  | 5,390 |  |  | 31,760 |  |  | (58,427)
| Reclassification adjustment for gains included in net income |  | 5 |  |  | 6 |  |  | 5 |  |  | 6
Unrealized net (losses) gains on cash flow hedges |  | 256 |  |  | 393 |  |  | (238) |  |  | 1,693
| Reclassification adjustment for net losses included in net income |  | (460) |  |  | (499) |  |  | (319) |  |  | (1,721)
Income tax benefit (expense) | $ | 6,120 |  | $ | 3,279 |  | $ | 25,368 |  | $ | (64,482)
The accompanying notes are an integral part of the Consolidated Financial Statements. |  |  |  |  |  |

8

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  | other |  |  |
|  |  | Common | Preferred |  |  | Retained |  | Treasury |  | comprehensive |  |  |
(In thousands) | stock | stock | Surplus | earnings |  | stock |  | income (loss) |  | Total
Balance at June 30, 2020 | $ | 1,044 | $ | 22,143 | $ | 4,520,333 | $ | 2,033,782 |  | $ | (1,016,486) |  | $ | 219,349 |  | $ | 5,780,165
Net income |  |  |  |  |  |  |  | 168,416 |  |  |  |  |  |  |  |  | 168,416
Issuance of stock |  | 1 |  |  |  | 1,145 |  |  |  |  |  |  |  |  |  |  | 1,146
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (33,693) |  |  |  |  |  |  |  |  | (33,693)
| Preferred stock |  |  |  |  |  |  |  | (352) |  |  |  |  |  |  |  |  | (352)
Common stock purchases |  |  |  |  |  | - |  |  |  |  | (185) |  |  |  |  |  | (185)
Common stock reissuance |  |  |  |  |  | (69) |  |  |  |  | 269 |  |  |  |  |  | 200
Stock based compensation |  |  |  |  |  | 280 |  |  |  |  | 41 |  |  |  |  |  | 321
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | (3,933) |  |  | (3,933)
Balance at September 30, 2020 | $ | 1,045 | $ | 22,143 | $ | 4,521,689 | $ | 2,168,153 |  | $ | (1,016,361) |  | $ | 215,416 |  | $ | 5,912,085
Balance at June 30, 2021 | $ | 1,045 | $ | 22,143 | $ | 4,506,659 | $ | 2,670,885 |  | $ | (1,290,427) |  | $ | (95,691) |  | $ | 5,814,614
Net income |  |  |  |  |  |  |  | 248,114 |  |  |  |  |  |  |  |  | 248,114
Issuance of stock |  | 1 |  |  |  | 1,234 |  |  |  |  |  |  |  |  |  |  | 1,235
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (36,306) |  |  |  |  |  |  |  |  | (36,306)
| Preferred stock |  |  |  |  |  |  |  | (353) |  |  |  |  |  |  |  |  | (353)
Common stock purchases[2] |  |  |  |  |  | 61,443 |  |  |  |  | (61,707) |  |  |  |  |  | (264)
Stock based compensation |  |  |  |  |  | 305 |  |  |  |  | 30 |  |  |  |  |  | 335
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | (44,404) |  |  | (44,404)
Balance at September 30, 2021 | $ | 1,046 | $ | 22,143 | $ | 4,569,641 | $ | 2,882,340 |  | $ | (1,352,104) |  | $ | (140,095) |  | $ | 5,982,971
[1] | Dividends declared per common share during the quarter ended September 30, 2021 - $0.45 (2020 - $0.40).
[2] | During the quarter ended September 30, 2021, the Corporation completed its previously announced $350 million accelerated share repurchase transaction with respect to its common stock. Refer to Note 17 for additional information.

9

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 |  |  |  |  |  |  |  | 330,346 |  |  |  |  |  |  |  |  | 330,346
Issuance of stock |  | 1 |  |  |  | 3,139 |  |  |  |  |  |  |  |  |  |  | 3,140
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (102,861) |  |  |  |  |  |  |  |  | (102,861)
| Preferred stock |  |  |  |  |  |  |  | (1,405) |  |  |  |  |  |  |  |  | (1,405)
Common stock purchases[2] |  |  |  |  |  | 76,336 |  |  |  |  | (580,003) |  |  |  |  |  | (503,667)
Common stock reissuance |  |  |  |  |  | (1,180) |  |  |  |  | 5,971 |  |  |  |  |  | 4,791
Preferred stock redemption[3] |  |  |  | (28,017) |  |  |  |  |  |  |  |  |  |  |  |  | (28,017)
Stock based compensation |  |  |  |  |  | (4,018) |  |  |  |  | 17,485 |  |  |  |  |  | 13,467
Other comprehensive income, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | 385,354 |  |  | 385,354
Balance at September 30, 2020 | $ | 1,045 | $ | 22,143 | $ | 4,521,689 | $ | 2,168,153 |  | $ | (1,016,361) |  | $ | 215,416 |  | $ | 5,912,085
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 |  |  |  |  |  |  |  | 728,825 |  |  |  |  |  |  |  |  | 728,825
Issuance of stock |  | 1 |  |  |  | 3,460 |  |  |  |  |  |  |  |  |  |  | 3,461
Dividends declared: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock[1] |  |  |  |  |  |  |  | (106,354) |  |  |  |  |  |  |  |  | (106,354)
| Preferred stock |  |  |  |  |  |  |  | (1,059) |  |  |  |  |  |  |  |  | (1,059)
Common stock purchases[4] |  |  |  |  |  | (8,557) |  |  |  |  | (347,014) |  |  |  |  |  | (355,571)
Stock based compensation |  |  |  |  |  | 3,204 |  |  |  |  | 11,864 |  |  |  |  |  | 15,068
Other comprehensive loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  | (330,086) |  |  | (330,086)
Balance at September 30, 2021 | $ | 1,046 | $ | 22,143 | $ | 4,569,641 | $ | 2,882,340 |  | $ | (1,352,104) |  | $ | (140,095) |  | $ | 5,982,971
[1] | Dividends declared per common share during the nine months ended September 30, 2021 - $1.30 (2020 - $1.20).
[2] | During the quarter ended June 30, 2020, the Corporation completed a $500 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. 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.
[4] | During the quarter ended June 30, 2021, the Corporation entered into a $350 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 September 9, 2021. Refer to Note 17 for additional information.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Nine-month period ending
|  |  |  |  |  |  |  |  |  |  |  | September 30, |  |  | September 30,
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 |  |  |  |  |  |  |  |  |  |  |  |  |  | 54,643 |  |  | 83,032
| Balance at end of period |  |  |  |  |  |  |  |  |  |  |  |  |  | 104,562,933 |  |  | 104,475,254
| Treasury stock |  |  |  |  |  |  |  |  |  |  |  |  |  | (24,721,369) |  |  | (20,255,790)
Common Stock – Outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  | 79,841,564 |  |  | 84,219,464
The accompanying notes are an integral part of these Consolidated Financial Statements.

10

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

| Nine months ended September 30,
(In thousands) |  | 2021 |  |  | 2020
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 728,825 |  | $ | 330,346
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
| Provision for credit losses (benefit) |  | (160,414) |  |  | 271,318
| Amortization of intangibles |  | 3,089 |  |  | 5,345
| Depreciation and amortization of premises and equipment |  | 41,416 |  |  | 43,419
| Net accretion of discounts and amortization of premiums and deferred fees |  | (21,773) |  |  | (56,134)
| Interest capitalized on loans subject to the temporary payment moratorium or loss mitigation alternatives |  | (12,735) |  |  | (17,625)
| Share-based compensation |  | 16,186 |  |  | 8,308
| Impairment losses on right-of-use and long-lived assets |  | 303 |  |  | -
| Fair value adjustments on mortgage servicing rights |  | 11,706 |  |  | 33,360
| Adjustments to indemnity reserves on loans sold |  | (3,008) |  |  | 1,770
| Earnings from investments under the equity method, net of dividends or distributions |  | (39,135) |  |  | (19,160)
| Deferred income tax expense |  | 198,110 |  |  | 26,742
| Gain on: |  |  |  |  |
|  | Disposition of premises and equipment and other productive assets |  | (18,292) |  |  | (10,286)
|  | Proceeds from insurance claims |  | - |  |  | (366)
|  | Sale of debt securities |  | (23) |  |  | (41)
|  | Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities |  | (16,183) |  |  | (21,370)
|  | Sale of foreclosed assets, including write-downs |  | (23,622) |  |  | (13,676)
| Acquisitions of loans held-for-sale |  | (191,591) |  |  | (151,916)
| Proceeds from sale of loans held-for-sale |  | 73,362 |  |  | 51,077
| Net originations on loans held-for-sale |  | (413,258) |  |  | (243,954)
| Net decrease (increase) in: |  |  |  |  |
|  | Trading debt securities |  | 535,835 |  |  | 287,764
|  | Equity securities |  | (1,621) |  |  | (5,390)
|  | Accrued income receivable |  | 8,584 |  |  | (30,832)
|  | Other assets |  | 2,379 |  |  | 75,243
| Net (decrease) increase in: |  |  |  |  |
|  | Interest payable |  | (10,483) |  |  | (11,308)
|  | Pension and other postretirement benefits obligation |  | (3,078) |  |  | 4,225
|  | Other liabilities |  | (6,605) |  |  | (65,269)
Total adjustments |  | (30,851) |  |  | 161,244
Net cash provided by operating activities |  | 697,974 |  |  | 491,590
Cash flows from investing activities: |  |  |  |  |
| Net increase in money market investments |  | (5,884,981) |  |  | (8,597,704)
| Purchases of investment securities: |  |  |  |  |
|  | Available-for-sale |  | (12,117,969) |  |  | (15,997,778)
|  | Equity |  | (11,648) |  |  | (28,885)
| Proceeds from calls, paydowns, maturities and redemptions of investment securities: |  |  |  |  |
|  | Available-for-sale |  | 7,903,982 |  |  | 14,386,967
|  | Held-to-maturity |  | 8,869 |  |  | 5,770
| Proceeds from sale of investment securities: |  |  |  |  |
|  | Available-for-sale |  | 235,992 |  |  | 5,103
|  | Equity |  | 2,688 |  |  | 20,169
| Net repayments (disbursements) on loans |  | 680,937 |  |  | (965,465)
| Proceeds from sale of loans |  | 99,680 |  |  | 64,917
| Acquisition of loan portfolios |  | (213,804) |  |  | (994,908)
| Payments to acquire other intangible assets |  | (1,185) |  |  | (83)
| Return of capital from equity method investments |  | 3,616 |  |  | 812
| Payments to acquire equity method investments |  | - |  |  | (443)
| Acquisition of premises and equipment |  | (50,809) |  |  | (39,121)
| Proceeds from insurance claims |  | - |  |  | 366
| Proceeds from sale of: |  |  |  |  |
|  | Premises and equipment and other productive assets |  | 19,874 |  |  | 20,816
|  | Foreclosed assets |  | 69,456 |  |  | 53,872
Net cash used in investing activities |  | (9,255,302) |  |  | (12,065,595)

11

Cash flows from financing activities: |  |  |  |  |
| Net increase (decrease) in: |  |  |  |  |
|  | Deposits |  | 9,148,635 |  |  | 12,264,323
|  | Assets sold under agreements to repurchase |  | (34,833) |  |  | (87,350)
|  | Other short-term borrowings |  | - |  |  | 100,000
| Payments of notes payable |  | (49,009) |  |  | (127,989)
| Principal payments of finance leases |  | (2,262) |  |  | (1,608)
| Proceeds from issuance of notes payable |  | - |  |  | 226,807
| Proceeds from issuance of common stock |  | 3,461 |  |  | 7,931
| Payments for repurchase of redeemable preferred stock |  | - |  |  | (28,017)
| Dividends paid |  | (104,808) |  |  | (99,600)
| Net payments for repurchase of common stock |  | (350,521) |  |  | (500,325)
| Payments related to tax withholding for share-based compensation |  | (5,050) |  |  | (3,342)
Net cash provided by financing activities |  | 8,605,613 |  |  | 11,750,830
Net increase in cash and due from banks, and restricted cash |  | 48,285 |  |  | 176,825
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 | $ | 545,379 |  | $ | 571,148
The accompanying notes are an integral part of these Consolidated Financial Statements.

12

Notes to Consolidated Financial

Statements (Unaudited)

Note 1 - | Nature of operations | 14
Note 2 - | Basis of presentation | 15
Note 3 - | New accounting pronouncements | 16
Note 4 - | Restrictions on cash and due from banks and certain securities | 18
Note 5 - | Debt securities available-for-sale | 19
Note 6 - | Debt securities held-to-maturity | 22
Note 7 - | Loans | 25
Note 8 - | Allowance for credit losses – loans held-in-portfolio | 34
Note 9 - | Mortgage banking activities | 60
Note 10 - | Transfers of financial assets and mortgage servicing assets | 61
Note 11 - | Other real estate owned | 65
Note 12 - | Other assets | 66
Note 13 - | Goodwill and other intangible assets | 67
Note 14 - | Deposits | 70
Note 15 - | Borrowings | 71
Note 16 - | Other liabilities | 73
Note 17 - | Stockholders’ equity | 74
Note 18 - | Other comprehensive (loss) income | 75
Note 19 - | Guarantees | 77
Note 20 - | Commitments and contingencies | 79
Note 21- | Non-consolidated variable interest entities | 85
Note 22 - | Related party transactions | 87
Note 23 - | Fair value measurement | 89
Note 24 - | Fair value of financial instruments | 96
Note 25 - | Net income per common share | 99
Note 26 - | Revenue from contracts with customers | 100
Note 27 - | Leases | 102
Note 28 - | Pension and postretirement benefits | 104
Note 29 - | Stock-based compensation | 105
Note 30 - | Income taxes | 108
Note 31 - | Supplemental disclosure on the consolidated statements of cash flows | 112
Note 32 - | Segment reporting | 113
Note 33 - | Subsequent events | 118

13

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.

14

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.

15

Note 3 - New accounting pronouncements

|  | Recently Adopted Accounting Standards Updates
|  | Standard |  | Description | Date of adoption | Effect on the financial statements
|  | FASB ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Financial Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants |  | The FASB issued ASU 2021-06 in August 2021, which amends certain SEC paragraphs from the ASC in response to the issuance of SEC Final Rules Nos. 33-10786 and 33-10835. | August 9, 2021 | As a result of the adoption of ASU 2021-06 during the third quarter of 2021, the Corporation was not impacted by the amendments pursuant to SEC Final Rule 33-10835 and SEC Final Rule 33-10786 as it did not result in changes to the disclosures provided and there were no fund acquisitions during the period.
|  | 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.

16

| Accounting Standards Updates Not Yet Adopted
| Standard |  | Description | Date of adoption | Effect on the financial statements
| FASB ASU 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers |  | The FASB issued ASU 2021-08 in October 2021, which amends ASC Topic 805 by requiring contract assets and contract liabilities arising from revenue contracts with customers to be recognized in accordance with ASC Topic 606 on the acquisition date instead of fair value. | January 1, 2023 | Upon adoption of this ASU, the Corporation will consider this guidance for revenue contracts with customers recognized as part of business combinations entered into on or after the effective date.
| FASB ASU 2021-05, Leases (Topic 842), Lessors – Certain Leases with Variable Lease Payments |  | The FASB issued ASU 2021-05 in July 2021, which amends ASC Topic 842 so that lessors can classify as operating leases those leases with variable lease payments that, prior to these amendments, would have been classified as a sales-type or direct financing lease and a Day One loss would have been recognized. | January 1, 2022 | The Corporation does not expect to be impacted by the adoption of this ASU since it does not hold direct financing leases with variable lease payments.
| 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.

17

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 $2.7 billion at September 30, 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 September 30, 2021, the Corporation held $65 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.

18

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 September 30, 2021 and December 31, 2020.

|  | At September 30, 2021 |
|  |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized | unrealized | unrealized | Fair | average |
(In thousands) | cost | gains | losses | value | yield |
U.S. Treasury securities |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 2,044,124 | $ | 14,907 | $ | 2 | $ | 2,059,029 | 1.43 | %
| After 1 to 5 years |  | 9,119,008 |  | 165,170 |  | 10,487 |  | 9,273,691 | 1.24 |
| After 5 to 10 years |  | 3,290,414 |  | 6,262 |  | 12,447 |  | 3,284,229 | 1.12 |
Total U.S. Treasury securities |  | 14,453,546 |  | 186,339 |  | 22,936 |  | 14,616,949 | 1.25 |
Obligations of U.S. Government sponsored entities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 70 |  | 1 |  | - |  | 71 | 5.63 |
Total obligations of U.S. Government sponsored entities |  | 70 |  | 1 |  | - |  | 71 | 5.63 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 527 |  | 2 |  | - |  | 529 | 2.52 |
| After 5 to 10 years |  | 49,410 |  | 842 |  | - |  | 50,252 | 1.58 |
| After 10 years |  | 194,123 |  | 5,658 |  | 71 |  | 199,710 | 2.10 |
Total collateralized mortgage obligations - federal agencies |  | 244,060 |  | 6,502 |  | 71 |  | 250,491 | 2.00 |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |
| Within 1 year |  | 5,513 |  | 1 |  | 1 |  | 5,513 | 1.98 |
| After 1 to 5 years |  | 55,423 |  | 2,549 |  | 9 |  | 57,963 | 2.35 |
| After 5 to 10 years |  | 667,142 |  | 22,843 |  | 4 |  | 689,981 | 1.92 |
| After 10 years |  | 8,815,176 |  | 95,593 |  | 140,667 |  | 8,770,102 | 1.72 |
Total mortgage-backed securities |  | 9,543,254 |  | 120,986 |  | 140,681 |  | 9,523,559 | 1.74 |
Other |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 148 |  | 8 |  | - |  | 156 | 3.62 |
Total other |  | 148 |  | 8 |  | - |  | 156 | 3.62 |
Total debt securities available-for-sale[1] | $ | 24,241,078 | $ | 313,836 | $ | 163,688 | $ | 24,391,226 | 1.44 | %
[1] | Includes $21.8 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 $20.7 billion serve as collateral for public funds.

19

|  | 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.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified based on 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.

During the nine months ended September 30, 2021 and 2020, the Corporation sold U.S. Treasury Notes. The proceeds from these sales were $236 million and $5 million, respectively.

The following table presents the Corporation’s gross realized gains and losses on the sale of debt securities available-for-sale for the quarters and nine months ended September 30, 2021 and 2020.

| For the quarter ended September 30, | Nine months ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Gross realized gains | $ | 695 | $ | 41 | $ | 695 | $ | 41
Gross realized losses |  | (672) |  | - |  | (672) |  | -
Net realized gains on sale of debt securities available-for-sale | $ | 23 | $ | 41 | $ | 23 | $ | 41

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 September 30, 2021 and December 31, 2020.

20

|  | At September 30, 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 | $ | 4,607,689 | $ | 22,936 | $ | - | $ | - | $ | 4,607,689 | $ | 22,936
Collateralized mortgage obligations - federal agencies |  | 22,197 |  | 56 |  | 1,124 |  | 15 |  | 23,321 |  | 71
Mortgage-backed securities |  | 6,743,824 |  | 140,671 |  | 342 |  | 10 |  | 6,744,166 |  | 140,681
Total debt securities available-for-sale in an unrealized loss position | $ | 11,373,710 | $ | 163,663 | $ | 1,466 | $ | 25 | $ | 11,375,176 | $ | 163,688

|  | 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 September 30, 2021, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $164 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.

|  | September 30, 2021 |  | December 31, 2020
(In thousands) | Amortized cost | Fair value | Amortized cost | Fair value
FNMA | $ | 1,674,044 | $ | 1,747,848 | $ | 2,242,121 | $ | 2,338,897
Freddie Mac |  | 3,417,413 |  | 3,394,380 |  | 3,616,238 |  | 3,675,679

21

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 September 30, 2021 and December 31, 2020.

|  | At September 30, 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 | $ | 4,240 | $ | 46 | $ | 4,194 | $ | 47 | $ | - | $ | 4,241 | 6.09 | %
| After 1 to 5 years |  | 14,395 |  | 555 |  | 13,840 |  | 555 |  | - |  | 14,395 | 6.23 |
| After 5 to 10 years |  | 11,280 |  | 347 |  | 10,933 |  | 194 |  | - |  | 11,127 | 2.18 |
| After 10 years |  | 44,149 |  | 8,274 |  | 35,875 |  | 12,545 |  | - |  | 48,420 | 1.52 |
Total obligations of Puerto Rico, States and political subdivisions |  | 74,064 |  | 9,222 |  | 64,842 |  | 13,341 |  | - |  | 78,183 | 2.80 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 30 |  | - |  | 30 |  | 1 |  | - |  | 31 | 6.44 |
Total collateralized mortgage obligations - federal agencies |  | 30 |  | - |  | 30 |  | 1 |  | - |  | 31 | 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 | $ | 85,655 | $ | 9,222 | $ | 76,433 | $ | 13,342 | $ | - | $ | 89,775 | 3.30 | %

|  | 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.

22

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 September 30, 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 $30 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 September 30, 2021 | At December 31, 2020
(In thousands) | Securities issued by Puerto Rico municipalities
Watch | $ | 16,345 | $ | 35,315
Pass |  | 13,800 |  | -
Total | $ | 30,145 | $ | 35,315

At September 30, 2021, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $44 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 September 30, 2021, the average refreshed FICO score for the representative sample, comprised of 66% of the nominal value of the securities, used for the loss estimate was of 702 (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 September 30, 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 September 30, 2021 and September 30, 2020:

23

|  | For the quarters ended September 30,
|  |  | 2021 |  | 2020
(In thousands) | Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses: |  |  |  |
Beginning balance |  | $ | 10,214 | $ | 12,735
Provision for credit losses (benefit) |  |  | (992) |  | (314)
Securities charged-off |  |  | - |  | -
Recoveries |  |  | - |  | -
Ending balance | $ | 9,222 | $ | 12,421

|  | For the nine months ended September 30,
|  |  | 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 losses (benefit) |  |  | (1,039) |  | (233)
Securities charged-off |  |  | - |  | -
Recoveries |  |  | - |  | -
Ending balance | $ | 9,222 | $ | 12,421

The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $1.0 million for securities issued by municipalities of Puerto Rico, and $8.2 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).

24

Note 7 – Loans

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2 - Summary of significant accounting policies of the 2020 Form 10-K.

During the quarter and nine months ended September 30, 2021, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $90 million and $310 million, respectively, including $1 million and $13 million in PCD loans, respectively, and commercial loans of $41 million and $90 million, respectively.

During the quarter and nine months ended September 30, 2020, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $941 million and $1.1 billion, respectively, including $137 million and $143 million in PCD loans, respectively. These mortgage loan repurchases included a bulk repurchase transaction of $688 million in GNMA loans, of which $684 million are included in the 90 days past due category, including $324 million which were included in the Corporation’s ending portfolio balance at June 30, 2020, since due to the delinquency status of the loans the Corporation had the right but not the obligation to repurchase the assets and is required to recognize (rebook) these loans in accordance with U.S. GAAP. The bulk repurchase also included $120 million in loans from the FNMA and FHMLC servicing portfolio, subject to credit recourse which were considered PCD loans.

There were no purchases of commercial and consumer loans during the quarter ended September 30, 2020. During the nine months ended September 30, 2020, the Corporation recorded purchases of commercial loans of $3 million and consumer loans of $56 million.

The Corporation performed whole-loan sales involving approximately $31 million and $116 million of residential mortgage loans during the quarter and nine months ended September 30, 2021, respectively (September 30, 2020 - $62 million and $101 million, respectively). During the quarter and nine months ended September 30, 2021, the Corporation performed sales of commercial and construction loans, including loan participations amounting to $35 million and $44 million, respectively (September 30, 2020 - $1 million and $7 million, respectively).

Also, the Corporation securitized approximately $85 million and $294 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2021, respectively (September 30, 2020 - $100 million and $214 million, respectively). Furthermore, the Corporation securitized approximately $76 million and $235 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2021, respectively (September 30, 2020 - $54 million and $94 million, respectively). Also, the Corporation securitized approximately $4 million and $18 million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and nine months ended September 30, 2021.

Delinquency status

The following tables present the composition 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 September 30, 2021 and December 31, 2020.

25

September 30, 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 | $ | 392 |  | $ | - |  | $ | 396 | $ | 788 |  | $ | 149,639 |  | $ | 150,427 |  |  | $ | 396 |  | $ | - |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 661 |  |  | 17,383 |  |  | 60,143 |  | 78,187 |  |  | 2,268,441 |  |  | 2,346,628 |  |  |  | 60,143 |  |  | - |
| Owner occupied |  | 2,719 |  |  | 614 |  |  | 71,863 |  | 75,196 |  |  | 1,394,503 |  |  | 1,469,699 |  |  |  | 71,863 |  |  | - |
Commercial and industrial |  | 1,641 |  |  | 576 |  |  | 51,456 |  | 53,673 |  |  | 3,618,266 |  |  | 3,671,939 |  |  |  | 50,992 |  |  | 464 |
Construction |  | - |  |  | - |  |  | 14,877 |  | 14,877 |  |  | 112,602 |  |  | 127,479 |  |  |  | 14,877 |  |  | - |
Mortgage[1] |  | 197,955 |  |  | 76,345 |  |  | 896,208 |  | 1,170,508 |  |  | 5,204,541 |  |  | 6,375,049 |  |  |  | 354,555 |  |  | 541,653 |
Leasing |  | 8,193 |  |  | 1,969 |  |  | 2,542 |  | 12,704 |  |  | 1,335,975 |  |  | 1,348,679 |  |  |  | 2,542 |  |  | - |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | 5,211 |  |  | 3,667 |  |  | 7,558 |  | 16,436 |  |  | 870,139 |  |  | 886,575 |  |  |  | - |  |  | 7,558 |
| Home equity lines of credit |  | 46 |  |  | - |  |  | - |  | 46 |  |  | 3,507 |  |  | 3,553 |  |  |  | - |  |  | - |
| Personal |  | 9,329 |  |  | 5,954 |  |  | 21,646 |  | 36,929 |  |  | 1,238,448 |  |  | 1,275,377 |  |  |  | 21,646 |  |  | - |
| Auto |  | 52,486 |  |  | 11,663 |  |  | 17,345 |  | 81,494 |  |  | 3,295,200 |  |  | 3,376,694 |  |  |  | 17,345 |  |  | - |
| Other |  | 393 |  |  | 76 |  |  | 14,621 |  | 15,090 |  |  | 108,492 |  |  | 123,582 |  |  |  | 14,512 |  |  | 109 |
Total | $ | 279,026 |  | $ | 118,247 |  | $ | 1,158,655 | $ | 1,555,928 |  | $ | 19,599,753 |  | $ | 21,155,681 |  |  | $ | 608,871 |  | $ | 549,784 |

September 30, 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 |  | $ | - |  | $ | 22,171 |  | $ | - |  | $ | 22,171 |  | $ | 1,709,508 |  | $ | 1,731,679 |  |  | $ | - |  | $ | -
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  |  | 2,569 |  |  | 4,632 |  |  | 374 |  |  | 7,575 |  |  | 2,029,514 |  |  | 2,037,089 |  |  |  | 374 |  |  | -
| Owner occupied |  |  | 1,158 |  |  | - |  |  | 986 |  |  | 2,144 |  |  | 343,430 |  |  | 345,574 |  |  |  | 986 |  |  | -
Commercial and industrial |  |  | 804 |  |  | 1 |  |  | 1,428 |  |  | 2,233 |  |  | 1,548,403 |  |  | 1,550,636 |  |  |  | 1,427 |  |  | 1
Construction |  |  | 14,978 |  |  | - |  |  | - |  |  | 14,978 |  |  | 658,583 |  |  | 673,561 |  |  |  | - |  |  | -
Mortgage |  |  | 1,369 |  |  | 2,833 |  |  | 14,488 |  |  | 18,690 |  |  | 1,145,413 |  |  | 1,164,103 |  |  |  | 14,488 |  |  | -
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 26 |  |  | 26 |  |  |  | - |  |  | -
| Home equity lines of credit |  |  | 690 |  |  | 76 |  |  | 5,941 |  |  | 6,707 |  |  | 73,042 |  |  | 79,749 |  |  |  | 5,941 |  |  | -
| Personal |  |  | 588 |  |  | 544 |  |  | 748 |  |  | 1,880 |  |  | 111,598 |  |  | 113,478 |  |  |  | 748 |  |  | -
| Other |  |  | 16 |  |  | - |  |  | - |  |  | 16 |  |  | 3,780 |  |  | 3,796 |  |  |  | - |  |  | -
Total |  | $ | 22,172 |  | $ | 30,257 |  | $ | 23,965 |  | $ | 76,394 |  | $ | 7,623,297 |  | $ | 7,699,691 |  |  | $ | 23,964 |  | $ | 1

26

September 30, 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 | $ | 392 |  | $ | 22,171 |  | $ | 396 | $ | 22,959 |  | $ | 1,859,147 |  | $ | 1,882,106 |  |  | $ | 396 |  | $ | - |
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 3,230 |  |  | 22,015 |  |  | 60,517 |  | 85,762 |  |  | 4,297,955 |  |  | 4,383,717 |  |  |  | 60,517 |  |  | - |
| Owner occupied |  | 3,877 |  |  | 614 |  |  | 72,849 |  | 77,340 |  |  | 1,737,933 |  |  | 1,815,273 |  |  |  | 72,849 |  |  | - |
Commercial and industrial |  | 2,445 |  |  | 577 |  |  | 52,884 |  | 55,906 |  |  | 5,166,669 |  |  | 5,222,575 |  |  |  | 52,419 |  |  | 465 |
Construction |  | 14,978 |  |  | - |  |  | 14,877 |  | 29,855 |  |  | 771,185 |  |  | 801,040 |  |  |  | 14,877 |  |  | - |
Mortgage[1] |  | 199,324 |  |  | 79,178 |  |  | 910,696 |  | 1,189,198 |  |  | 6,349,954 |  |  | 7,539,152 |  |  |  | 369,043 |  |  | 541,653 |
Leasing |  | 8,193 |  |  | 1,969 |  |  | 2,542 |  | 12,704 |  |  | 1,335,975 |  |  | 1,348,679 |  |  |  | 2,542 |  |  | - |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Credit cards |  | 5,211 |  |  | 3,667 |  |  | 7,558 |  | 16,436 |  |  | 870,165 |  |  | 886,601 |  |  |  | - |  |  | 7,558 |
| Home equity lines of credit |  | 736 |  |  | 76 |  |  | 5,941 |  | 6,753 |  |  | 76,549 |  |  | 83,302 |  |  |  | 5,941 |  |  | - |
| Personal |  | 9,917 |  |  | 6,498 |  |  | 22,394 |  | 38,809 |  |  | 1,350,046 |  |  | 1,388,855 |  |  |  | 22,394 |  |  | - |
| Auto |  | 52,486 |  |  | 11,663 |  |  | 17,345 |  | 81,494 |  |  | 3,295,200 |  |  | 3,376,694 |  |  |  | 17,345 |  |  | - |
| Other |  | 409 |  |  | 76 |  |  | 14,621 |  | 15,106 |  |  | 112,272 |  |  | 127,378 |  |  |  | 14,512 |  |  | 109 |
Total | $ | 301,198 |  | $ | 148,504 |  | $ | 1,182,620 | $ | 1,632,322 |  | $ | 27,223,050 |  | $ | 28,855,372 |  |  | $ | 632,835 |  | $ | 549,785 |

[1] | It is the Corporation’s policy to report delinquent residential mortgage loans insured by Federal Housing Administration (“FHA”) or guaranteed by the U.S. Department of Veterans Affairs (“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 $12 million at September 30, 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. 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. These balances include $350 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2021. Furthermore, the Corporation has approximately $53 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.
[2] | Loans held-in-portfolio are net of $234 million in unearned income and exclude $91 million in loans held-for-sale.
[3] | Includes $6.4 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $3.2 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $1.6 billion at the Federal Reserve Bank ("FRB") for discount window borrowings and $1.6 billion serve as collateral for public funds.

27

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 | 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[1] |  | 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] | 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

28

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 |  | past due |  | Current |  | Loans HIP[2] [3] |  |  | 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. The balance of these loans includes $57 million at December 31, 2020 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below. 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. These balances include $329 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2020. Furthermore, the Corporation has approximately $60 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.
[2] | Loans held-in-portfolio are net of $203 million in unearned income and exclude $99 million in loans held-for-sale.
[3] | 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 FHA or guaranteed by VA when 15 months delinquent as to principal or interest, since the principal repayment on these loans is insured.

At September 30, 2021, mortgage loans held-in-portfolio include $2.0 billion (December 31, 2020 - $2.1 billion) of loans insured by the FHA, or guaranteed VA of which $0.5 billion (December 31, 2020 - $1.0 billion) are 90 days or more past due. These balances include $709 million in loans modified under a TDR (December 31, 2020 - $655 million), that are presented as accruing loans. The portfolio of guaranteed loans includes $350 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of September 30, 2021 (December 31, 2020 - $329 million). The Corporation has approximately $53 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at September 30, 2021 (December 31, 2020 - $60 million).

Loans with a delinquency status of 90 days past due as of September 30, 2021 include $12 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 September 30, 2021 and December 31, 2020 by class of loans:

29

September 30, 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 | $ | - | $ | 396 |  | $ | - | $ | - |  | $ | - | $ | 396
Commercial real estate non-owner occupied |  | 28,883 |  | 31,260 |  |  | - |  | 374 |  |  | 28,883 |  | 31,634
Commercial real estate owner occupied |  | 14,358 |  | 57,505 |  |  | - |  | 986 |  |  | 14,358 |  | 58,491
Commercial and industrial |  | 15,423 |  | 35,569 |  |  | - |  | 1,427 |  |  | 15,423 |  | 36,996
Construction |  | 14,877 |  | - |  |  | - |  | - |  |  | 14,877 |  | -
Mortgage |  | 179,895 |  | 174,660 |  |  | 33 |  | 14,455 |  |  | 179,928 |  | 189,115
Leasing |  | 166 |  | 2,376 |  |  | - |  | - |  |  | 166 |  | 2,376
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |
HELOCs |  | - |  | - |  |  | - |  | 5,941 |  |  | - |  | 5,941
Personal |  | 7,516 |  | 14,130 |  |  | - |  | 748 |  |  | 7,516 |  | 14,878
Auto |  | 767 |  | 16,578 |  |  | - |  | - |  |  | 767 |  | 16,578
Other |  | - |  | 14,512 |  |  | - |  | - |  |  | - |  | 14,512
Total | $ | 261,885 | $ | 346,986 |  | $ | 33 | $ | 23,931 |  | $ | 261,918 | $ | 370,917

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 September 30, 2021 include $262 million in collateral dependent loans (December 31, 2020 - $203 million). The Corporation recognized $4 million in interest income on non-accrual loans during the nine months ended September 30, 2021 (September 30, 2020 - $2 million).

The Corporation has designated loans classified as collateral dependent for which the ACL is measured based on the fair value of the collateral less cost to sell, when foreclosure is probable or 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, for which the ACL was measured based on the fair value of the collateral less cost to sell, by class of loans and type of collateral as of September 30, 2021 and December 31, 2020:

30

|  | September 30, 2021
(In thousands) |  | Real Estate |  | Auto |  | Equipment |  | Taxi Medallions |  | Accounts Receivables |  | Other |  | Total
Puerto Rico |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 1,392 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 1,392
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 250,906 |  | - |  | - |  | - |  | - |  | - |  | 250,906
| Owner occupied |  | 62,291 |  | - |  | - |  | - |  | - |  | - |  | 62,291
Commercial and industrial |  | 3,160 |  | - |  | 819 |  | - |  | 11,026 |  | 32,303 |  | 47,308
Construction |  | 14,877 |  | - |  | - |  | - |  | - |  | - |  | 14,877
Mortgage |  | 194,399 |  | - |  | - |  | - |  | - |  | - |  | 194,399
Leases |  | - |  | 166 |  | - |  | - |  | - |  | - |  | 166
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Personal |  | 7,190 |  | - |  | - |  | - |  | - |  | - |  | 7,190
| Auto |  | - |  | 767 |  | - |  | - |  | - |  | - |  | 767
Total Puerto Rico | $ | 534,215 | $ | 933 | $ | 819 | $ | - | $ | 11,026 | $ | 32,303 | $ | 579,296
Popular U.S. |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | - |  | - |  | - |  | 115 |  | - |  | - |  | 115
Mortgage |  | 746 |  | - |  | - |  | - |  | - |  | - |  | 746
Total Popular U.S. | $ | 746 | $ | - | $ | - | $ | 115 | $ | - | $ | - | $ | 861
Popular, Inc. |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial multi-family | $ | 1,392 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 1,392
Commercial real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-owner occupied |  | 250,906 |  | - |  | - |  | - |  | - |  | - |  | 250,906
| Owner occupied |  | 62,291 |  | - |  | - |  | - |  | - |  | - |  | 62,291
Commercial and industrial |  | 3,160 |  | - |  | 819 |  | 115 |  | 11,026 |  | 32,303 |  | 47,423
Construction |  | 14,877 |  | - |  | - |  | - |  | - |  | - |  | 14,877
Mortgage |  | 195,145 |  | - |  | - |  | - |  | - |  | - |  | 195,145
Leases |  | - |  | 166 |  | - |  | - |  | - |  | - |  | 166
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Personal |  | 7,190 |  | - |  | - |  | - |  | - |  | - |  | 7,190
| Auto |  | - |  | 767 |  | - |  | - |  | - |  | - |  | 767
Total Popular, Inc. | $ | 534,961 | $ | 933 | $ | 819 | $ | 115 | $ | 11,026 | $ | 32,303 | $ | 580,157

31

|  | 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

32

Purchased Credit Deteriorated (PCD) Loans

The Corporation has purchased loans during the quarter and nine months ended, 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) |  | For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
Purchase price of loans at acquisition | $ | 1,060 | $ | 10,044
Allowance for credit losses at acquisition |  | 253 |  | 2,811
Non-credit discount / (premium) at acquisition |  | 54 |  | 389
Par value of acquired loans at acquisition | $ | 1,367 | $ | 13,244

(In thousands) |  | For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
Purchase price of loans at acquisition | $ | 132,738 | $ | 137,477
Allowance for credit losses at acquisition |  | 4,823 |  | 5,819
Non-credit discount / (premium) at acquisition |  | (6,485) |  | (6,273)
Par value of acquired loans at acquisition | $ | 131,076 | $ | 137,023

33

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 recorded in current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ACL.

At September 30, 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 forecast continues to show a favorable economic scenario. The 2021 forecasted GDP growth is now at 6.4% for U.S. and 3.8% for P.R., consistent with the previous 2021 forecast of 6.8% and 3.8%, respectively. The forecasted U.S. unemployment rate average for 2021 of 5.5% remained consistent with the previous estimate of 5.4%. In the case of P.R., the forecasted unemployment rate average for 2021 of 8.2% showed a slight improvement when compared to the previous forecast of 8.4%. Average unemployment rate in P.R. is expected to continue declining through 2022, which is now forecasted at 7.2%, improving from the previous forecast of 7.3%.

The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters and nine months ended September 30, 2021 and 2020.

34

For the quarter ended September 30, 2021
Puerto Rico
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses - loans:
Beginning balance | $ | 186,784 |  | $ | 1,220 |  | $ | 166,808 |  | $ | 17,551 |  | $ | 289,490 |  | $ | 661,853
| Provision for credit losses (benefit) |  | (13,923) |  |  | (1,532) |  |  | (14,110) |  |  | (5,613) |  |  | (814) |  |  | (35,992)
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 253 |  |  | - |  |  | - |  |  | 253
| Charge-offs |  | (9,481) |  |  | (1) |  |  | (1,157) |  |  | (1,054) |  |  | (18,211) |  |  | (29,904)
| Recoveries |  | 5,124 |  |  | 2,224 |  |  | 3,268 |  |  | 750 |  |  | 9,202 |  |  | 20,568
Ending balance | $ | 168,504 |  | $ | 1,911 |  | $ | 155,062 |  | $ | 11,634 |  | $ | 279,667 |  | $ | 616,778
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 3,252 |  | $ | 1,405 |  | $ | - |  | $ | - |  | $ | - |  | $ | 4,657
| Provision for credit losses (benefit) |  | (915) |  |  | 663 |  |  | - |  |  | - |  |  | - |  |  | (252)
Ending balance - unfunded commitments [1] | $ | 2,337 |  | $ | 2,068 |  | $ | - |  | $ | - |  | $ | - |  | $ | 4,405
[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 September 30, 2021
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  |  | Consumer |  | Total
Allowance for credit losses - loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 84,360 |  | $ | 10,036 |  | $ | 15,811 |  | $ | 13,730 |  | $ | 123,937
| Provision for credit losses (benefit) |  | (18,513) |  |  | (2,097) |  |  | (543) |  |  | (1,500) |  |  | (22,653)
| Charge-offs |  | (24) |  |  | - |  |  | (2) |  |  | (1,637) |  |  | (1,663)
| Recoveries |  | 487 |  |  | - |  |  | 50 |  |  | 1,639 |  |  | 2,176
Ending balance | $ | 66,310 |  | $ | 7,939 |  | $ | 15,316 |  | $ | 12,232 |  | $ | 101,797
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 1,559 |  | $ | 3,672 |  | $ | - |  | $ | 48 |  | $ | 5,279
| Provision for credit losses (benefit) |  | (405) |  |  | (866) |  |  | - |  |  | (13) |  |  | (1,284)
Ending balance - unfunded commitments [1] | $ | 1,154 |  | $ | 2,806 |  | $ | - |  | $ | 35 |  | $ | 3,995
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

35

For the quarter ended September 30, 2021
Popular, Inc.
(In thousands) | Commercial |  | Construction |  | Mortgage | Leasing |  | Consumer |  | Total
Allowance for credit losses - loans:
Beginning balance | $ | 271,144 |  | $ | 11,256 |  | $ | 182,619 | $ | 17,551 |  | $ | 303,220 |  | $ | 785,790
| Provision for credit losses (benefit) |  | (32,436) |  |  | (3,629) |  |  | (14,653) |  | (5,613) |  |  | (2,314) |  |  | (58,645)
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 253 |  | - |  |  | - |  |  | 253
| Charge-offs |  | (9,505) |  |  | (1) |  |  | (1,159) |  | (1,054) |  |  | (19,848) |  |  | (31,567)
| Recoveries |  | 5,611 |  |  | 2,224 |  |  | 3,318 |  | 750 |  |  | 10,841 |  |  | 22,744
Ending balance | $ | 234,814 |  | $ | 9,850 |  | $ | 170,378 | $ | 11,634 |  | $ | 291,899 |  | $ | 718,575
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 4,811 |  | $ | 5,077 |  | $ | - | $ | - |  | $ | 48 |  | $ | 9,936
| Provision for credit losses (benefit) |  | (1,320) |  |  | (203) |  |  | - |  | - |  |  | (13) |  |  | (1,536)
Ending balance - unfunded commitments [1] | $ | 3,491 |  | $ | 4,874 |  | $ | - | $ | - |  | $ | 35 |  | $ | 8,400
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the nine months ended September 30, 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 for credit losses (benefit) |  | (63,773) |  |  | 255 |  |  | (36,179) |  |  | (4,414) |  |  | 5,655 |  |  | (98,456)
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 2,811 |  |  | - |  |  | - |  |  | 2,811
| Charge-offs |  | (14,399) |  |  | (6,620) |  |  | (16,585) |  |  | (3,247) |  |  | (59,606) |  |  | (100,457)
| Recoveries |  | 21,353 |  |  | 3,405 |  |  | 9,458 |  |  | 2,432 |  |  | 36,482 |  |  | 73,130
Ending balance - loans | $ | 168,504 |  | $ | 1,911 |  | $ | 155,062 |  | $ | 11,634 |  | $ | 279,667 |  | $ | 616,778
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 4,913 |  | $ | 4,610 |  | $ | - |  | $ | - |  | $ | - |  | $ | 9,523
| Provision for credit losses (benefit) |  | (2,576) |  |  | (2,542) |  |  | - |  |  | - |  |  | - |  |  | (5,118)
Ending balance - unfunded commitments [1] | $ | 2,337 |  | $ | 2,068 |  | $ | - |  | $ | - |  | $ | - |  | $ | 4,405
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

36

For the nine months ended September 30, 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
| Provision for credit losses (benefit) |  | (42,607) |  |  | (1,334) |  |  | (5,394) |  |  | (4,133) |  |  | (53,468)
| Charge-offs |  | (1,097) |  |  | (523) |  |  | (3) |  |  | (7,267) |  |  | (8,890)
| Recoveries |  | 1,957 |  |  | 430 |  |  | 554 |  |  | 4,714 |  |  | 7,655
Ending balance - loans | $ | 66,310 |  | $ | 7,939 |  | $ | 15,316 |  | $ | 12,232 |  | $ | 101,797
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 1,753 |  | $ | 4,469 |  | $ | - |  | $ | 106 |  | $ | 6,328
| Provision for credit losses (benefit) |  | (599) |  |  | (1,663) |  |  | - |  |  | (71) |  |  | (2,333)
Ending balance - unfunded commitments [1] | $ | 1,154 |  | $ | 2,806 |  | $ | - |  | $ | 35 |  | $ | 3,995
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the nine months ended September 30, 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 for credit losses (benefit) |  | (106,380) |  |  | (1,079) |  |  | (41,573) |  |  | (4,414) |  |  | 1,522 |  |  | (151,924)
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 2,811 |  |  | - |  |  | - |  |  | 2,811
| Charge-offs |  | (15,496) |  |  | (7,143) |  |  | (16,588) |  |  | (3,247) |  |  | (66,873) |  |  | (109,347)
| Recoveries |  | 23,310 |  |  | 3,835 |  |  | 10,012 |  |  | 2,432 |  |  | 41,196 |  |  | 80,785
Ending balance - loans | $ | 234,814 |  | $ | 9,850 |  | $ | 170,378 |  | $ | 11,634 |  | $ | 291,899 |  | $ | 718,575
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 6,666 |  | $ | 9,079 |  | $ | - |  | $ | - |  | $ | 106 |  | $ | 15,851
| Provision for credit losses (benefit) |  | (3,175) |  |  | (4,205) |  |  | - |  |  | - |  |  | (71) |  |  | (7,451)
Ending balance - unfunded commitments [1] | $ | 3,491 |  | $ | 4,874 |  | $ | - |  | $ | - |  | $ | 35 |  | $ | 8,400
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

37

For the quarter ended September 30, 2020
Puerto Rico
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Leasing |  | Consumer |  | Total
Allowance for credit losses - loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 214,927 |  | $ | 354 |  | $ | 199,250 |  | $ | 13,093 |  | $ | 328,158 |  | $ | 755,782
| Provision for credit losses (benefit) |  | 1,562 |  |  | 4,358 |  |  | 1,549 |  |  | 1,746 |  |  | (1,533) |  |  | 7,682
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 4,823 |  |  | - |  |  | - |  |  | 4,823
| Charge-offs |  | (2,059) |  |  | - |  |  | (5,217) |  |  | (957) |  |  | (25,808) |  |  | (34,041)
| Recoveries |  | 4,018 |  |  | 156 |  |  | 3,253 |  |  | 1,286 |  |  | 11,559 |  |  | 20,272
Ending balance | $ | 218,448 |  | $ | 4,868 |  | $ | 203,658 |  | $ | 15,168 |  | $ | 312,376 |  | $ | 754,518
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 2,274 |  | $ | 145 |  | $ | - |  | $ | - |  | $ | - |  | $ | 2,419
| Provision for credit losses |  | 2,086 |  |  | 2,581 |  |  | - |  |  | - |  |  | - |  |  | 4,667
Ending balance - unfunded commitments [1] | $ | 4,360 |  | $ | 2,726 |  | $ | - |  | $ | - |  | $ | - |  | $ | 7,086
[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 September 30, 2020
Popular U.S.
(In thousands) | Commercial |  | Construction |  | Mortgage |  | Consumer |  | Total
Allowance for credit losses - loans:
Beginning balance | $ | 102,039 |  | $ | 6,105 |  | $ | 22,987 |  | $ | 31,521 |  | $ | 162,652
| Provision for credit losses (benefit) |  | 11,885 |  |  | 1,479 |  |  | (1,312) |  |  | (282) |  |  | 11,770
| Charge-offs |  | (484) |  |  | - |  |  | (12) |  |  | (3,852) |  |  | (4,348)
| Recoveries |  | 175 |  |  | - |  |  | 17 |  |  | 1,066 |  |  | 1,258
Ending balance - loans | $ | 113,615 |  | $ | 7,584 |  | $ | 21,680 |  | $ | 28,453 |  | $ | 171,332
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 1,566 |  | $ | 2,671 |  | $ | - |  | $ | 61 |  | $ | 4,298
| Provision for credit losses |  | 1,176 |  |  | 730 |  |  | - |  |  | 5 |  |  | 1,911
Ending balance - unfunded commitments [1] | $ | 2,742 |  | $ | 3,401 |  | $ | - |  | $ | 66 |  | $ | 6,209
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statement of Financial Condition.

For the quarter ended September 30, 2020
Popular, Inc.
(In thousands) | Commercial | Construction | Mortgage | Leasing | Consumer | Total
Allowance for credit losses - loans: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 316,966 | $ | 6,459 | $ | 222,237 | $ | 13,093 | $ | 359,679 | $ | 918,434
| Provision for credit losses (benefit) |  | 13,447 |  | 5,837 |  | 237 |  | 1,746 |  | (1,815) |  | 19,452
| Initial allowance for credit losses - PCD Loans |  | - |  | - |  | 4,823 |  | - |  | - |  | 4,823
| Charge-offs |  | (2,543) |  | - |  | (5,229) |  | (957) |  | (29,660) |  | (38,389)
| Recoveries |  | 4,193 |  | 156 |  | 3,270 |  | 1,286 |  | 12,625 |  | 21,530
Ending balance | $ | 332,063 | $ | 12,452 | $ | 225,338 | $ | 15,168 | $ | 340,829 | $ | 925,850
Allowance for credit losses - loans: |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 3,840 | $ | 2,816 | $ | - | $ | - | $ | 61 | $ | 6,717
| Provision for credit losses |  | 3,262 |  | 3,311 |  | - |  | - |  | 5 |  | 6,578
Ending balance - unfunded commitments [1] | $ | 7,102 | $ | 6,127 | $ | - | $ | - | $ | 66 | $ | 13,295
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

38

For the nine months ended September 30, 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 for credit losses |  | 24,710 |  |  | 3,809 |  |  | 10,533 |  |  | 11,481 |  |  | 130,576 |  |  | 181,109
| Initial allowance for credit losses - PCD Loans |  | - |  |  | - |  |  | 5,819 |  |  | - |  |  | - |  |  | 5,819
| Charge-offs |  | (7,799) |  |  | - |  |  | (22,940) |  |  | (8,681) |  |  | (141,794) |  |  | (181,214)
| Recoveries |  | 8,081 |  |  | 370 |  |  | 7,884 |  |  | 2,313 |  |  | 27,137 |  |  | 45,785
Ending balance - loans | $ | 218,448 |  | $ | 4,868 |  | $ | 203,658 |  | $ | 15,168 |  | $ | 312,376 |  | $ | 754,518
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 for credit losses |  | 2,524 |  |  | 2,617 |  |  | - |  |  | - |  |  | - |  |  | 5,141
Ending balance - unfunded commitments [1] | $ | 4,360 |  | $ | 2,726 |  | $ | - |  | $ | - |  | $ | - |  | $ | 7,086
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

For the nine months ended September 30, 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 for credit losses |  | 67,045 |  |  | 6,201 |  |  | 6,397 |  |  | 10,799 |  |  | 90,442
| Charge-offs |  | (1,452) |  |  | - |  |  | (28) |  |  | (13,663) |  |  | (15,143)
| Recoveries |  | 1,928 |  |  | 155 |  |  | 53 |  |  | 4,101 |  |  | 6,237
Ending balance - loans | $ | 113,615 |  | $ | 7,584 |  | $ | 21,680 |  | $ | 28,453 |  | $ | 171,332
Allowance for credit losses - unfunded commitments:
Beginning balance | $ | 152 |  | $ | 125 |  | $ | - |  | $ | 1 |  | $ | 278
| Impact of adopting CECL |  | 453 |  |  | 582 |  |  | - |  |  | (1) |  |  | 1,034
| Provision for credit losses |  | 2,137 |  |  | 2,694 |  |  | - |  |  | 66 |  |  | 4,897
Ending balance - unfunded commitments [1] | $ | 2,742 |  | $ | 3,401 |  | $ | - |  | $ | 66 |  | $ | 6,209
[1] | Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

39

For the nine months ended September 30, 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 for credit losses |  | 91,755 |  | 10,010 |  | 16,930 |  | 11,481 |  | 141,375 |  | 271,551
| Initial allowance for credit losses - PCD Loans |  | - |  | - |  | 5,819 |  | - |  | - |  | 5,819
| Charge-offs |  | (9,251) |  | - |  | (22,968) |  | (8,681) |  | (155,457) |  | (196,357)
| Recoveries |  | 10,009 |  | 525 |  | 7,937 |  | 2,313 |  | 31,238 |  | 52,022
Ending balance - loans | $ | 332,063 | $ | 12,452 | $ | 225,338 | $ | 15,168 | $ | 340,829 | $ | 925,850
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 for credit losses |  | 4,661 |  | 5,311 |  | - |  | - |  | 66 |  | 10,038
Ending balance - unfunded commitments [1] | $ | 7,102 | $ | 6,127 | $ | - | $ | - | $ | 66 | $ | 13,295
[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 September 30, 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 $12 million related to the commercial loan portfolio at September 30, 2021 (December 31, 2020 - $14 million).

The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at September 30, 2021 and December 31, 2020.

| September 30, 2021 |  |  | December 31, 2020
(In thousands) |  | Accruing |  | Non-Accruing |  | Total |  | Related Allowance |  |  |  | Accruing |  | Non-Accruing |  | Total |  | Related Allowance
Loans held-in-portfolio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial | $ | 245,601 | $ | 93,718 | $ | 339,319 | $ | 23,091 |  |  | $ | 259,246 | $ | 103,551 | $ | 362,797 | $ | 15,236
Construction |  | - |  | 14,877 |  | 14,877 |  | - |  |  |  | - |  | 21,497 |  | 21,497 |  | 4,397
Mortgage[1] |  | 1,135,021 |  | 118,527 |  | 1,253,548 |  | 65,550 |  |  |  | 1,060,193 |  | 135,772 |  | 1,195,965 |  | 71,018
Leases |  | 397 |  | 98 |  | 495 |  | 61 |  |  |  | 392 |  | 218 |  | 610 |  | 150
Consumer |  | 67,200 |  | 10,933 |  | 78,133 |  | 17,529 |  |  |  | 74,707 |  | 12,792 |  | 87,499 |  | 22,508
Loans held-in-portfolio | $ | 1,448,219 | $ | 238,153 | $ | 1,686,372 | $ | 106,231 |  |  | $ | 1,394,538 | $ | 273,830 | $ | 1,668,368 | $ | 113,309
[1] At September 30, 2021, accruing mortgage loan TDRs include $709 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 and nine months ended September 30, 2021 and 2020. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

40

| Popular, Inc.
| For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
| Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other |  | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other
Commercial multi-family | - | - | - | - |  | - | 1 | 1 | -
Commercial real estate non-owner occupied | - | - | 1 | - |  | - | 9 | 1 | -
Commercial real estate owner occupied | - | - | - | 4 |  | 3 | 23 | 3 | 6
Commercial and industrial | 1 | 2 | - | 8 |  | 2 | 10 | - | 14
Mortgage | 13 | 35 | 455 | 4 |  | 35 | 114 | 1,273 | 4
Leasing | - | - | 1 | - |  | - | - | 2 | -
Consumer: |  |  |  |  |  |  |  |  |
Credit cards | 19 | - | - | 12 |  | 108 | - | 1 | 39
HELOCs | - | - | - | - |  | - | 1 | 1 | -
Personal | 28 | 31 | - | - |  | 148 | 94 | 1 | 2
Auto | - | 3 | 1 | - |  | - | 5 | 3 | -
Other | - | - | - | 1 |  | 6 | - | - | 1
Total | 61 | 71 | 458 | 29 |  | 302 | 257 | 1,286 | 66

| Popular, Inc.
| For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
| Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other |  | Reduction in interest rate | Extension of maturity date | Combination of reduction in interest rate and extension of maturity date | Other
Commercial multi-family | - | 1 | - | - |  | - | 2 | - | -
Commercial real estate non-owner occupied | - | 2 | - | - |  | - | 4 | - | 1
Commercial real estate owner occupied | - | 7 | - | - |  | - | 26 | - | -
Commercial and industrial | - | 12 | - | - |  | 1 | 38 | - | -
Construction | - | 1 | - | - |  | - | 1 | - | -
Mortgage | - | 24 | 70 | 254 |  | 2 | 50 | 231 | 326
Leasing | - | - | - | - |  | - | - | 3 | 11
Consumer: |  |  |  |  |  |  |  |  |
Credit cards | 69 | - | - | 13 |  | 621 | - | - | 78
HELOCs | - | - | - | - |  | - | 1 | 1 | -
Personal | 91 | 1 | - | - |  | 269 | 3 | - | 1
Auto | - | 1 | - | - |  | - | 2 | 2 | 8
Other | 1 | - | - | - |  | 3 | - | - | -
Total | 161 | 49 | 70 | 267 |  | 896 | 127 | 237 | 425

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and nine months ended September 30, 2021 and 2020.

41

Popular, Inc.
For the quarter ended September 30, 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 real estate non-owner occupied | 1 | $ | 166 | $ | 173 | $ | 21
Commercial real estate owner occupied | 4 |  | 10,878 |  | 6,812 |  | 10
Commercial and industrial | 11 |  | 4,750 |  | 4,236 |  | 642
Mortgage | 507 |  | 67,293 |  | 60,601 |  | 1,889
Leasing | 1 |  | 8 |  | 6 |  | 1
Consumer: |  |  |  |  |  |  |
Credit cards | 31 |  | 265 |  | 263 |  | 4
Personal | 59 |  | 756 |  | 753 |  | 122
Auto | 4 |  | 107 |  | 107 |  | 44
Other | 1 |  | 293 |  | 291 |  | 122
Total | 619 | $ | 84,516 | $ | 73,242 | $ | 2,855

Popular, Inc.
For the quarter ended September 30, 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 multi-family | 1 | $ | 140 | $ | 139 | $ | 1
Commercial real estate non-owner occupied | 2 |  | 5,060 |  | 5,058 |  | -
Commercial real estate owner occupied | 7 |  | 1,964 |  | 1,960 |  | 4
Commercial and industrial | 12 |  | 625 |  | 614 |  | -
Construction | 1 |  | 21,514 |  | 21,514 |  | 4,370
Mortgage | 348 |  | 40,932 |  | 36,036 |  | 3,784
Consumer: |  |  |  |  |  |  |
Credit cards | 82 |  | 1,032 |  | 1,076 |  | 14
Personal | 92 |  | 1,682 |  | 1,682 |  | 290
Auto | 1 |  | 18 |  | 19 |  | 3
Other | 1 |  | 1 |  | 1 |  | -
Total | 547 | $ | 72,968 | $ | 68,099 | $ | 8,466

42

Popular, Inc.
For the nine months ended September 30, 2021
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for credit losses as a result of modification
Commercial multi-family | 2 | $ | 246 | $ | 211 | $ | 26
Commercial real estate non-owner occupied | 10 |  | 3,461 |  | 3,454 |  | 162
Commercial real estate owner occupied | 35 |  | 91,678 |  | 86,768 |  | 1,146
Commercial and industrial | 26 |  | 5,463 |  | 4,943 |  | 707
Mortgage | 1,426 |  | 173,041 |  | 171,852 |  | 5,040
Leasing | 2 |  | 40 |  | 38 |  | 5
Consumer: |  |  |  |  |  |  |
Credit cards | 148 |  | 1,819 |  | 1,745 |  | 38
HELOCs | 2 |  | 176 |  | 228 |  | 54
Personal | 245 |  | 3,438 |  | 3,434 |  | 754
Auto | 8 |  | 171 |  | 176 |  | 59
Other | 7 |  | 304 |  | 302 |  | 124
Total | 1,911 | $ | 279,837 | $ | 273,151 | $ | 8,115

Popular, Inc.
For the nine months ended September 30, 2020
(Dollars in thousands) | Loan count | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | Increase (decrease) in the allowance for credit losses as a result of modification
Commercial multi-family | 2 | $ | 1,133 | $ | 1,115 | $ | (18)
Commercial real estate non-owner occupied | 5 |  | 8,478 |  | 8,476 |  | (748)
Commercial real estate owner occupied | 26 |  | 8,463 |  | 8,436 |  | 110
Commercial and industrial | 39 |  | 2,409 |  | 2,392 |  | 25
Construction | 1 |  | 21,514 |  | 21,514 |  | 4,370
Mortgage | 609 |  | 75,695 |  | 62,930 |  | 6,629
Leasing | 14 |  | 326 |  | 327 |  | 6
Consumer: |  |  |  |  |  |  |
Credit cards | 699 |  | 6,492 |  | 6,530 |  | 276
HELOCs | 2 |  | 369 |  | 298 |  | 862
Personal | 273 |  | 4,703 |  | 4,701 |  | 781
Auto | 12 |  | 164 |  | 166 |  | 15
Other | 3 |  | 25 |  | 25 |  | 6
Total | 1,685 | $ | 129,771 | $ | 116,910 | $ | 12,314

43

During the nine months ended September 30, 2021, five loans with an aggregate unpaid principal balance of $ 10.2 million were restructured into multiple notes (“Note A / B split”), compared to five loans with an aggregate unpaid principal balance of $32.8 million during the nine months ended September 30, 2020. The Corporation recorded $0.1 million in charge-offs as part of Note A / B splits during 2020. The recorded investment on these commercial TDRs amounted to approximately $10.2 million at September 30, 2021, compared to $32.4 million at September 30 2021. These loans were restructured after analyzing the borrowers’ capacity to repay the debt, collateral and ability to perform under the modified terms.

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.

Popular, Inc.
| Defaulted during the quarter ended September 30, 2021 |  | Defaulted during the nine months ended September 30, 2021
(Dollars in thousands) | Loan count |  | Recorded investment as of first default date |  | Loan count |  | Recorded investment as of first default date
Commercial real estate non-owner occupied | - | $ | - |  | 4 | $ | 8,421
Commercial real estate owner occupied | 1 |  | 383 |  | 3 |  | 4,138
Commercial and industrial | - |  | - |  | 5 |  | 317
Mortgage | 25 |  | 2,503 |  | 72 |  | 7,514
Consumer: |  |  |  |  |  |  |
Credit cards | 17 |  | 202 |  | 74 |  | 914
Personal | 13 |  | 158 |  | 21 |  | 603
Total | 56 | $ | 3,246 |  | 179 | $ | 21,907

44

Popular, Inc.
| Defaulted during the quarter ended September 30, 2020 |  | Defaulted during the nine months ended September 30, 2020
(Dollars in thousands) | Loan count |  | Recorded investment as of first default date |  | Loan count |  | Recorded investment as of first default date
Commercial real estate non-owner occupied | - | $ | - |  | 1 | $ | 1,700
Commercial real estate owner occupied | - |  | - |  | 5 |  | 846
Commercial and industrial | - |  | - |  | 3 |  | 97
Mortgage | 23 |  | 2,321 |  | 215 |  | 22,518
Consumer: |  |  |  |  |  |  |
Credit cards | 124 |  | 975 |  | 290 |  | 2,190
Personal | 13 |  | 185 |  | 89 |  | 1,504
Other | - |  | - |  | 2 |  | 1
Total | 160 | $ | 3,481 |  | 605 | $ | 28,856

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 ACL 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 September 30, 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.

45

September 30, 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 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,110 | $ | - | $ | - | $ | 3,110
|  |  | Special mention |  | - |  | - |  | - |  | - |  | - |  | 1,312 |  | - |  | - |  | 1,312
|  |  | Substandard |  | - |  | - |  | - |  | - |  | - |  | 686 |  | 100 |  | - |  | 786
|  |  | Pass |  | 2,824 |  | 21,372 |  | 35,750 |  | 25,554 |  | 2,076 |  | 57,430 |  | 213 |  | - |  | 145,219
|  | Total commercial multi-family | $ | 2,824 | $ | 21,372 | $ | 35,750 | $ | 25,554 | $ | 2,076 | $ | 62,538 | $ | 313 | $ | - | $ | 150,427
|  | Commercial real estate non-owner occupied
|  |  | Watch | $ | 54,738 | $ | 231,426 | $ | 68,212 | $ | 99,375 | $ | 2,427 | $ | 212,035 | $ | 2,867 | $ | - | $ | 671,080
|  |  | Special Mention |  | 18,441 |  | 12,339 |  | 24,594 |  | 49,367 |  | 31,182 |  | 22,512 |  | - |  | - |  | 158,435
|  |  | Substandard |  | 32,671 |  | 28,208 |  | 22,755 |  | 26,230 |  | 2,800 |  | 115,476 |  | - |  | - |  | 228,140
|  |  | Pass |  | 496,138 |  | 88,514 |  | 32,198 |  | 22,145 |  | 82,474 |  | 561,833 |  | 5,671 |  | - |  | 1,288,973
|  | Total commercial real estate non-owner occupied | $ | 601,988 | $ | 360,487 | $ | 147,759 | $ | 197,117 | $ | 118,883 | $ | 911,856 | $ | 8,538 | $ | - | $ | 2,346,628
|  | Commercial real estate owner occupied
|  |  | Watch | $ | 6,772 | $ | 6,180 | $ | 13,723 | $ | 9,351 | $ | 4,935 | $ | 127,870 | $ | - | $ | - | $ | 168,831
|  |  | Special Mention |  | 46,571 |  | 1,234 |  | 7,411 |  | 680 |  | 5,916 |  | 110,272 |  | - |  | - |  | 172,084
|  |  | Substandard |  | 7,118 |  | 1,285 |  | 1,730 |  | 35,783 |  | 1,895 |  | 125,824 |  | 78 |  | - |  | 173,713
|  |  | Doubtful |  | - |  | - |  | - |  | - |  | 93 |  | 786 |  | - |  | - |  | 879
|  |  | Pass |  | 131,885 |  | 203,597 |  | 45,905 |  | 28,225 |  | 54,977 |  | 476,183 |  | 13,420 |  | - |  | 954,192
|  | Total commercial real estate owner occupied | $ | 192,346 | $ | 212,296 | $ | 68,769 | $ | 74,039 | $ | 67,816 | $ | 840,935 | $ | 13,498 | $ | - | $ | 1,469,699

|  | Commercial and industrial
|  |  | Watch | $ | 167,282 | $ | 15,370 | $ | 30,040 | $ | 104,941 | $ | 40,423 | $ | 142,275 | $ | 106,833 | $ | - | $ | 607,164
|  |  | Special Mention |  | 18,527 |  | 12,857 |  | 17,732 |  | 36,533 |  | 2,267 |  | 29,846 |  | 55,841 |  | - |  | 173,603
|  |  | Substandard |  | 15,941 |  | 3,645 |  | 3,478 |  | 22,878 |  | 67,558 |  | 45,470 |  | 60,900 |  | - |  | 219,870
|  |  | Doubtful |  | - |  | - |  | - |  | - |  | - |  | 62 |  | - |  | - |  | 62
|  |  | Loss |  | 3 |  | - |  | - |  | - |  | - |  | - |  | - |  | - |  | 3
|  |  | Pass |  | 851,729 |  | 395,676 |  | 337,161 |  | 97,765 |  | 76,861 |  | 300,097 |  | 611,948 |  | - |  | 2,671,237
|  | Total commercial and industrial | $ | 1,053,482 | $ | 427,548 | $ | 388,411 | $ | 262,117 | $ | 187,109 | $ | 517,750 | $ | 835,522 | $ | - | $ | 3,671,939
| Construction
|  |  | Watch | $ | - | $ | - | $ | 4,480 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 4,480
|  |  | Substandard |  | - |  | - |  | - |  | - |  | 14,877 |  | - |  | - |  | - |  | 14,877
|  |  | Pass |  | 14,425 |  | 46,319 |  | 21,009 |  | 3,316 |  | - |  | - |  | 23,053 |  | - |  | 108,122
| Total construction | $ | 14,425 | $ | 46,319 | $ | 25,489 | $ | 3,316 | $ | 14,877 | $ | - | $ | 23,053 | $ | - | $ | 127,479
| Mortgage
|  |  | Substandard | $ | - | $ | 1,257 | $ | 5,596 | $ | 6,094 | $ | 3,478 | $ | 128,211 | $ | - | $ | - | $ | 144,636
|  |  | Pass |  | 368,271 |  | 322,589 |  | 234,963 |  | 278,337 |  | 201,259 |  | 4,824,994 |  | - |  | - |  | 6,230,413
| Total mortgage | $ | 368,271 | $ | 323,846 | $ | 240,559 | $ | 284,431 | $ | 204,737 | $ | 4,953,205 | $ | - | $ | - | $ | 6,375,049
| Leasing
|  |  | Substandard | $ | 138 | $ | 439 | $ | 648 | $ | 578 | $ | 448 | $ | 289 | $ | - | $ | - | $ | 2,540
|  |  | Loss |  | - |  | - |  | - |  | 1 |  | - |  | 1 |  | - |  | - |  | 2
|  |  | Pass |  | 493,471 |  | 354,102 |  | 244,949 |  | 149,989 |  | 72,831 |  | 30,795 |  | - |  | - |  | 1,346,137
| Total leasing | $ | 493,609 | $ | 354,541 | $ | 245,597 | $ | 150,568 | $ | 73,279 | $ | 31,085 | $ | - | $ | - | $ | 1,348,679

46

September 30, 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 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,558 | $ | - | $ | 7,558
|  |  | Pass |  | - |  | - |  | - |  | - |  | - |  | - |  | 879,017 |  | - |  | 879,017
| Total credit cards | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 886,575 | $ | - | $ | 886,575
|  | HELOCs
|  |  | Pass | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,553 | $ | - | $ | 3,553
| Total HELOCs | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,553 | $ | - | $ | 3,553
|  | Personal
|  |  | Substandard | $ | 299 | $ | 639 | $ | 2,243 | $ | 767 | $ | 907 | $ | 16,241 | $ | - | $ | 1,332 | $ | 22,428
|  |  | Loss |  | - |  | - |  | - |  | - |  | - |  | 1 |  | - |  | - |  | 1
|  |  | Pass |  | 408,362 |  | 228,904 |  | 268,944 |  | 108,201 |  | 63,956 |  | 135,764 |  | - |  | 38,817 |  | 1,252,948
| Total Personal | $ | 408,661 | $ | 229,543 | $ | 271,187 | $ | 108,968 | $ | 64,863 | $ | 152,006 | $ | - | $ | 40,149 | $ | 1,275,377
|  | Auto
|  |  | Substandard | $ | 1,213 | $ | 5,642 | $ | 7,426 | $ | 4,621 | $ | 2,157 | $ | 1,591 | $ | - | $ | - | $ | 22,650
|  |  | Loss |  | - |  | 37 |  | 27 |  | 7 |  | - |  | - |  | - |  | - |  | 71
|  |  | Pass |  | 1,002,804 |  | 869,202 |  | 696,000 |  | 468,582 |  | 205,790 |  | 111,595 |  | - |  | - |  | 3,353,973
| Total Auto | $ | 1,004,017 | $ | 874,881 | $ | 703,453 | $ | 473,210 | $ | 207,947 | $ | 113,186 | $ | - | $ | - | $ | 3,376,694
|  | Other consumer
|  |  | Substandard | $ | - | $ | 142 | $ | 22 | $ | 1,326 | $ | - | $ | 395 | $ | 836 | $ | - | $ | 2,721
|  |  | Loss |  | - |  | - |  | - |  | 452 |  | 234 |  | 34 |  | 11,180 |  | - |  | 11,900
|  |  | Pass |  | 17,428 |  | 11,669 |  | 10,618 |  | 6,011 |  | 4,075 |  | 1,067 |  | 58,093 |  | - |  | 108,961
| Total Other consumer | $ | 17,428 | $ | 11,811 | $ | 10,640 | $ | 7,789 | $ | 4,309 | $ | 1,496 | $ | 70,109 | $ | - | $ | 123,582
Total Puerto Rico | $ | 4,157,051 | $ | 2,862,644 | $ | 2,137,614 | $ | 1,587,109 | $ | 945,896 | $ | 7,584,057 | $ | 1,841,161 | $ | 40,149 | $ | 21,155,681

47

September 30, 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 | $ | - | $ | 41,564 | $ | 33,750 | $ | 46,123 | $ | 47,791 | $ | 39,089 | $ | - | $ | - | $ | 208,317
|  |  | Special mention |  | - |  | - |  | 11,200 |  | 16,395 |  | 11,131 |  | 53,961 |  | - |  | - |  | 92,687
|  |  | Substandard |  | - |  | 15,500 |  | 86,857 |  | 12,812 |  | - |  | 31,028 |  | - |  | - |  | 146,197
|  |  | Pass |  | 215,272 |  | 247,071 |  | 237,657 |  | 145,812 |  | 46,549 |  | 384,437 |  | 7,680 |  | - |  | 1,284,478
|  | Total commercial multi-family | $ | 215,272 | $ | 304,135 | $ | 369,464 | $ | 221,142 | $ | 105,471 | $ | 508,515 | $ | 7,680 | $ | - | $ | 1,731,679
|  | Commercial real estate non-owner occupied
|  |  | Watch | $ | 2,228 | $ | 9,122 | $ | 35,254 | $ | 58,053 | $ | 41,320 | $ | 133,780 | $ | 980 | $ | - | $ | 280,737
|  |  | Special Mention |  | - |  | - |  | 3,226 |  | 7,068 |  | 8,317 |  | 15,904 |  | - |  | - |  | 34,515
|  |  | Substandard |  | - |  | 760 |  | 6,435 |  | 14,626 |  | 11,521 |  | 74,887 |  | - |  | - |  | 108,229
|  |  | Pass |  | 236,331 |  | 371,687 |  | 165,115 |  | 219,252 |  | 254,545 |  | 359,384 |  | 7,294 |  | - |  | 1,613,608
|  | Total commercial real estate non-owner occupied | $ | 238,559 | $ | 381,569 | $ | 210,030 | $ | 298,999 | $ | 315,703 | $ | 583,955 | $ | 8,274 | $ | - | $ | 2,037,089
|  | Commercial real estate owner occupied
|  |  | Watch | $ | - | $ | 241 | $ | 7,876 | $ | 8,207 | $ | 1,074 | $ | 12,285 | $ | 4,222 | $ | - | $ | 33,905
|  |  | Special Mention |  | - |  | - |  | - |  | - |  | - |  | 2,435 |  | - |  | - |  | 2,435
|  |  | Substandard |  | - |  | - |  | 1,158 |  | 2,896 |  | - |  | 21,030 |  | - |  | - |  | 25,084
|  |  | Pass |  | 71,443 |  | 47,082 |  | 40,079 |  | 24,011 |  | 27,120 |  | 70,687 |  | 3,728 |  | - |  | 284,150
|  | Total commercial real estate owner occupied | $ | 71,443 | $ | 47,323 | $ | 49,113 | $ | 35,114 | $ | 28,194 | $ | 106,437 | $ | 7,950 | $ | - | $ | 345,574

|  | Commercial and industrial
|  |  | Watch | $ | 1,854 | $ | 4,723 | $ | 1,339 | $ | - | $ | 6 | $ | 6,684 | $ | 6,974 | $ | - | $ | 21,580
|  |  | Special Mention |  | 2,415 |  | 8,473 |  | - |  | - |  | 78 |  | - |  | 8,229 |  | - |  | 19,195
|  |  | Substandard |  | 516 |  | 69 |  | 4,614 |  | - |  | - |  | 1,298 |  | 254 |  | - |  | 6,751
|  |  | Pass |  | 197,925 |  | 320,332 |  | 179,619 |  | 193,930 |  | 124,356 |  | 357,709 |  | 129,239 |  | - |  | 1,503,110
|  | Total commercial and industrial | $ | 202,710 | $ | 333,597 | $ | 185,572 | $ | 193,930 | $ | 124,440 | $ | 365,691 | $ | 144,696 | $ | - | $ | 1,550,636
| Construction
|  |  | Watch | $ | - | $ | 15,050 | $ | 21,978 | $ | 23,511 | $ | 42,072 | $ | 1,972 | $ | - | $ | - | $ | 104,583
|  |  | Special Mention |  | - |  | - |  | - |  | - |  | - |  | 13,623 |  | - |  | - |  | 13,623
|  |  | Substandard |  | - |  | - |  | - |  | 24,029 |  | - |  | 9,786 |  | - |  | - |  | 33,815
|  |  | Pass |  | 54,106 |  | 131,733 |  | 211,039 |  | 61,688 |  | 54,528 |  | 8,446 |  | - |  | - |  | 521,540
| Total construction | $ | 54,106 | $ | 146,783 | $ | 233,017 | $ | 109,228 | $ | 96,600 | $ | 33,827 | $ | - | $ | - | $ | 673,561
| Mortgage
|  |  | Substandard | $ | - | $ | 476 | $ | 2,427 | $ | 786 | $ | - | $ | 10,846 | $ | - | $ | - | $ | 14,535
|  |  | Pass |  | 262,684 |  | 285,503 |  | 231,864 |  | 69,923 |  | 7,275 |  | 292,319 |  | - |  | - |  | 1,149,568
| Total mortgage | $ | 262,684 | $ | 285,979 | $ | 234,291 | $ | 70,709 | $ | 7,275 | $ | 303,165 | $ | - | $ | - | $ | 1,164,103

48

September 30, 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 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 26 | $ | - | $ | 26
| Total credit cards | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 26 | $ | - | $ | 26
|  | HELOCs
|  |  | Substandard | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,319 | $ | - | $ | 902 | $ | 4,221
|  |  | Loss |  | - |  | - |  | - |  | - |  | - |  | 265 |  | - |  | 1,455 |  | 1,720
|  |  | Pass |  | - |  | - |  | - |  | - |  | - |  | 12,339 |  | 38,657 |  | 22,812 |  | 73,808
| Total HELOCs | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 15,923 | $ | 38,657 | $ | 25,169 | $ | 79,749
|  | Personal
|  |  | Substandard | $ | - | $ | 139 | $ | 288 | $ | 48 | $ | 19 | $ | 177 | $ | - | $ | - | $ | 671
|  |  | Loss |  | - |  | - |  | 26 |  | 28 |  | 4 |  | 19 |  | - |  | - |  | 77
|  |  | Pass |  | 12,044 |  | 23,544 |  | 56,900 |  | 9,942 |  | 4,108 |  | 6,058 |  | 134 |  | - |  | 112,730
| Total Personal | $ | 12,044 | $ | 23,683 | $ | 57,214 | $ | 10,018 | $ | 4,131 | $ | 6,254 | $ | 134 | $ | - | $ | 113,478
|  | Other consumer
|  |  | Pass | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,796 | $ | - | $ | 3,796
| Total Other consumer | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,796 | $ | - | $ | 3,796
Total Popular U.S. | $ | 1,056,818 | $ | 1,523,069 | $ | 1,338,701 | $ | 939,140 | $ | 681,814 | $ | 1,923,767 | $ | 211,213 | $ | 25,169 | $ | 7,699,691

49

September 30, 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 | $ | - | $ | 41,564 | $ | 33,750 | $ | 46,123 | $ | 47,791 | $ | 42,199 | $ | - | $ | - | $ | 211,427
|  |  | Special mention |  | - |  | - |  | 11,200 |  | 16,395 |  | 11,131 |  | 55,273 |  | - |  | - |  | 93,999
|  |  | Substandard |  | - |  | 15,500 |  | 86,857 |  | 12,812 |  | - |  | 31,714 |  | 100 |  | - |  | 146,983
|  |  | Pass |  | 218,096 |  | 268,443 |  | 273,407 |  | 171,366 |  | 48,625 |  | 441,867 |  | 7,893 |  | - |  | 1,429,697
|  | Total commercial multi-family | $ | 218,096 | $ | 325,507 | $ | 405,214 | $ | 246,696 | $ | 107,547 | $ | 571,053 | $ | 7,993 | $ | - | $ | 1,882,106
|  | Commercial real estate non-owner occupied
|  |  | Watch | $ | 56,966 | $ | 240,548 | $ | 103,466 | $ | 157,428 | $ | 43,747 | $ | 345,815 | $ | 3,847 | $ | - | $ | 951,817
|  |  | Special Mention |  | 18,441 |  | 12,339 |  | 27,820 |  | 56,435 |  | 39,499 |  | 38,416 |  | - |  | - |  | 192,950
|  |  | Substandard |  | 32,671 |  | 28,968 |  | 29,190 |  | 40,856 |  | 14,321 |  | 190,363 |  | - |  | - |  | 336,369
|  |  | Pass |  | 732,469 |  | 460,201 |  | 197,313 |  | 241,397 |  | 337,019 |  | 921,217 |  | 12,965 |  | - |  | 2,902,581
|  | Total commercial real estate non-owner occupied | $ | 840,547 | $ | 742,056 | $ | 357,789 | $ | 496,116 | $ | 434,586 | $ | 1,495,811 | $ | 16,812 | $ | - | $ | 4,383,717
|  | Commercial real estate owner occupied
|  |  | Watch | $ | 6,772 | $ | 6,421 | $ | 21,599 | $ | 17,558 | $ | 6,009 | $ | 140,155 | $ | 4,222 | $ | - | $ | 202,736
|  |  | Special Mention |  | 46,571 |  | 1,234 |  | 7,411 |  | 680 |  | 5,916 |  | 112,707 |  | - |  | - |  | 174,519
|  |  | Substandard |  | 7,118 |  | 1,285 |  | 2,888 |  | 38,679 |  | 1,895 |  | 146,854 |  | 78 |  | - |  | 198,797
|  |  | Doubtful |  | - |  | - |  | - |  | - |  | 93 |  | 786 |  | - |  | - |  | 879
|  |  | Pass |  | 203,328 |  | 250,679 |  | 85,984 |  | 52,236 |  | 82,097 |  | 546,870 |  | 17,148 |  | - |  | 1,238,342
|  | Total commercial real estate owner occupied | $ | 263,789 | $ | 259,619 | $ | 117,882 | $ | 109,153 | $ | 96,010 | $ | 947,372 | $ | 21,448 | $ | - | $ | 1,815,273
|  | Commercial and industrial
|  |  | Watch | $ | 169,136 | $ | 20,093 | $ | 31,379 | $ | 104,941 | $ | 40,429 | $ | 148,959 | $ | 113,807 | $ | - | $ | 628,744
|  |  | Special Mention |  | 20,942 |  | 21,330 |  | 17,732 |  | 36,533 |  | 2,345 |  | 29,846 |  | 64,070 |  | - |  | 192,798
|  |  | Substandard |  | 16,457 |  | 3,714 |  | 8,092 |  | 22,878 |  | 67,558 |  | 46,768 |  | 61,154 |  | - |  | 226,621
|  |  | Doubtful |  | - |  | - |  | - |  | - |  | - |  | 62 |  | - |  | - |  | 62
|  |  | Loss |  | 3 |  | - |  | - |  | - |  | - |  | - |  | - |  | - |  | 3
|  |  | Pass |  | 1,049,654 |  | 716,008 |  | 516,780 |  | 291,695 |  | 201,217 |  | 657,806 |  | 741,187 |  | - |  | 4,174,347
|  | Total commercial and industrial | $ | 1,256,192 | $ | 761,145 | $ | 573,983 | $ | 456,047 | $ | 311,549 | $ | 883,441 | $ | 980,218 | $ | - | $ | 5,222,575

50

September 30, 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 | $ | - | $ | 15,050 | $ | 26,458 | $ | 23,511 | $ | 42,072 | $ | 1,972 | $ | - | $ | - | $ | 109,063
|  |  | Special Mention |  | - |  | - |  | - |  | - |  | - |  | 13,623 |  | - |  | - |  | 13,623
|  |  | Substandard |  | - |  | - |  | - |  | 24,029 |  | 14,877 |  | 9,786 |  | - |  | - |  | 48,692
|  |  | Pass |  | 68,531 |  | 178,052 |  | 232,048 |  | 65,004 |  | 54,528 |  | 8,446 |  | 23,053 |  | - |  | 629,662
| Total construction | $ | 68,531 | $ | 193,102 | $ | 258,506 | $ | 112,544 | $ | 111,477 | $ | 33,827 | $ | 23,053 | $ | - | $ | 801,040
| Mortgage
|  |  | Substandard | $ | - | $ | 1,733 | $ | 8,023 | $ | 6,880 | $ | 3,478 | $ | 139,057 | $ | - | $ | - | $ | 159,171
|  |  | Pass |  | 630,955 |  | 608,092 |  | 466,827 |  | 348,260 |  | 208,534 |  | 5,117,313 |  | - |  | - |  | 7,379,981
| Total mortgage | $ | 630,955 | $ | 609,825 | $ | 474,850 | $ | 355,140 | $ | 212,012 | $ | 5,256,370 | $ | - | $ | - | $ | 7,539,152
| Leasing
|  |  | Substandard | $ | 138 | $ | 439 | $ | 648 | $ | 578 | $ | 448 | $ | 289 | $ | - | $ | - | $ | 2,540
|  |  | Loss |  | - |  | - |  | - |  | 1 |  | - |  | 1 |  | - |  | - |  | 2
|  |  | Pass |  | 493,471 |  | 354,102 |  | 244,949 |  | 149,989 |  | 72,831 |  | 30,795 |  | - |  | - |  | 1,346,137
| Total leasing | $ | 493,609 | $ | 354,541 | $ | 245,597 | $ | 150,568 | $ | 73,279 | $ | 31,085 | $ | - | $ | - | $ | 1,348,679

51

September 30, 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 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,558 | $ | - | $ | 7,558
|  |  | Pass |  | - |  | - |  | - |  | - |  | - |  | - |  | 879,043 |  | - |  | 879,043
| Total credit cards | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 886,601 | $ | - | $ | 886,601
|  | HELOCs
|  |  | Substandard | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,319 | $ | - | $ | 902 | $ | 4,221
|  |  | Loss |  | - |  | - |  | - |  | - |  | - |  | 265 |  | - |  | 1,455 |  | 1,720
|  |  | Pass |  | - |  | - |  | - |  | - |  | - |  | 12,339 |  | 42,210 |  | 22,812 |  | 77,361
| Total HELOCs | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 15,923 | $ | 42,210 | $ | 25,169 | $ | 83,302
|  | Personal
|  |  | Substandard | $ | 299 | $ | 778 | $ | 2,531 | $ | 815 | $ | 926 | $ | 16,418 | $ | - | $ | 1,332 | $ | 23,099
|  |  | Loss |  | - |  | - |  | 26 |  | 28 |  | 4 |  | 20 |  | - |  | - |  | 78
|  |  | Pass |  | 420,406 |  | 252,448 |  | 325,844 |  | 118,143 |  | 68,064 |  | 141,822 |  | 134 |  | 38,817 |  | 1,365,678
| Total Personal | $ | 420,705 | $ | 253,226 | $ | 328,401 | $ | 118,986 | $ | 68,994 | $ | 158,260 | $ | 134 | $ | 40,149 | $ | 1,388,855
|  | Auto
|  |  | Substandard | $ | 1,213 | $ | 5,642 | $ | 7,426 | $ | 4,621 | $ | 2,157 | $ | 1,591 | $ | - | $ | - | $ | 22,650
|  |  | Loss |  | - |  | 37 |  | 27 |  | 7 |  | - |  | - |  | - |  | - |  | 71
|  |  | Pass |  | 1,002,804 |  | 869,202 |  | 696,000 |  | 468,582 |  | 205,790 |  | 111,595 |  | - |  | - |  | 3,353,973
| Total Auto | $ | 1,004,017 | $ | 874,881 | $ | 703,453 | $ | 473,210 | $ | 207,947 | $ | 113,186 | $ | - | $ | - | $ | 3,376,694
|  | Other consumer
|  |  | Substandard | $ | - | $ | 142 | $ | 22 | $ | 1,326 | $ | - | $ | 395 | $ | 836 | $ | - | $ | 2,721
|  |  | Loss |  | - |  | - |  | - |  | 452 |  | 234 |  | 34 |  | 11,180 |  | - |  | 11,900
|  |  | Pass |  | 17,428 |  | 11,669 |  | 10,618 |  | 6,011 |  | 4,075 |  | 1,067 |  | 61,889 |  | - |  | 112,757
| Total Other consumer | $ | 17,428 | $ | 11,811 | $ | 10,640 | $ | 7,789 | $ | 4,309 | $ | 1,496 | $ | 73,905 | $ | - | $ | 127,378
Total Popular Inc. | $ | 5,213,869 | $ | 4,385,713 | $ | 3,476,315 | $ | 2,526,249 | $ | 1,627,710 | $ | 9,507,824 | $ | 2,052,374 | $ | 65,318 | $ | 28,855,372

52

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

53

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

54

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

55

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

56

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

57

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

58

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

59

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 September 30, | Nine months ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Mortgage servicing fees, net of fair value adjustments: |  |  |  |  |  |  |  |
| Mortgage servicing fees | $ | 9,376 | $ | 12,966 | $ | 28,613 | $ | 32,992
| Mortgage servicing rights fair value adjustments |  | (5,979) |  | (20,491) |  | (11,706) |  | (33,360)
Total mortgage servicing fees, net of fair value adjustments |  | 3,397 |  | (7,525) |  | 16,907 |  | (368)
Net gain on sale of loans, including valuation on loans held-for-sale |  | 6,084 |  | 10,916 |  | 16,256 |  | 20,389
Trading account (loss) profit: |  |  |  |  |  |  |  |
| Unrealized losses on outstanding derivative positions |  | - |  | (4) |  | - |  | (4)
| Realized (losses) gains on closed derivative positions |  | (1,004) |  | (1,958) |  | 632 |  | (8,391)
Total trading account (loss) profit |  | (1,004) |  | (1,962) |  | 632 |  | (8,395)
Losses on repurchased loans, including interest advances |  | (170) |  | (10,955) |  | (697) |  | (10,955)
Total mortgage banking activities | $ | 8,307 | $ | (9,526) | $ | 33,098 | $ | 671

60

Note 10 – Transfers of financial assets and mortgage servicing assets

The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC 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 and nine months ended September 30, 2021 and 2020 because they did not contain any credit recourse arrangements. During the quarter and nine months ended September 30, 2021, the Corporation recorded a net gain of $5.3 million and $13.7 million, respectively (September 30, 2020 - $9.1 million and $17.6 million, respectively) 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 and nine months ended September 30, 2021 and 2020:

|  | Proceeds Obtained During the Quarter Ended September 30, 2021
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 84,896 | $ | - | $ | 84,896
Mortgage-backed securities - FNMA |  | - |  | 76,118 |  | - |  | 76,118
Mortgage-backed securities - FHLMC |  | - |  | 4,268 |  | - |  | 4,268
Total trading account debt securities | $ | - | $ | 165,282 | $ | - | $ | 165,282
Mortgage servicing rights | $ | - | $ | - | $ | 2,597 | $ | 2,597
Total | $ | - | $ | 165,282 | $ | 2,597 | $ | 167,879

|  | Proceeds Obtained During the Nine Months Ended September 30, 2021
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 293,613 | $ | - | $ | 293,613
Mortgage-backed securities - FNMA |  | - |  | 234,953 |  | - |  | 234,953
Mortgage-backed securities - FHLMC |  | - |  | 17,769 |  | - |  | 17,769
Total trading account debt securities | $ | - | $ | 546,335 | $ | - | $ | 546,335
Mortgage servicing rights | $ | - | $ | - | $ | 8,286 | $ | 8,286
Total | $ | - | $ | 546,335 | $ | 8,286 | $ | 554,621

|  | Proceeds Obtained During the Quarter Ended September 30, 2020
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 99,576 | $ | - | $ | 99,576
Mortgage-backed securities - FNMA |  | - |  | 54,390 |  | - |  | 54,390
Total trading account debt securities | $ | - | $ | 153,966 | $ | - | $ | 153,966
Mortgage servicing rights | $ | - | $ | - | $ | 1,737 | $ | 1,737
Total | $ | - | $ | 153,966 | $ | 1,737 | $ | 155,703

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|  | Proceeds Obtained During the Nine Months Ended September 30, 2020
(In thousands) | Level 1 | Level 2 | Level 3 | Initial Fair Value
Assets |  |  |  |  |  |  |  |
Trading account debt securities: |  |  |  |  |  |  |  |
Mortgage-backed securities - GNMA | $ | - | $ | 213,608 | $ | - | $ | 213,608
Mortgage-backed securities - FNMA |  | - |  | 93,904 |  | - |  | 93,904
Total trading account debt securities | $ | - | $ | 307,512 | $ | - | $ | 307,512
Mortgage servicing rights | $ | - | $ | - | $ | 4,324 | $ | 4,324
Total | $ | - | $ | 307,512 | $ | 4,324 | $ | 311,836

During the nine months ended September 30, 2021, the Corporation retained servicing rights on whole loan sales involving approximately $114 million in principal balance outstanding (September 30, 2020 - $100 million), with net realized gains of approximately $2.6 million (September 30, 2020 - gains of $2.7 million). All loan sales performed during the nine months ended September 30, 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 (“MSRs”) 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 nine months ended September 30, 2021 and 2020.

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Residential MSRs
(In thousands) | September 30, 2021 | September 30, 2020
Fair value at beginning of period | $ | 118,395 | $ | 150,906
Additions |  | 9,888 |  | 6,006
Changes due to payments on loans [1] |  | (11,873) |  | (8,427)
Reduction due to loan repurchases |  | (1,047) |  | (9,679)
Changes in fair value due to changes in valuation model inputs or assumptions |  | 1,214 |  | (15,278)
Other |  | (10) |  | 24
Fair value at end of period [2] | $ | 116,567 | $ | 123,552
[1] Represents changes due to collection / realization of expected cash flows over time.
[2] At September 30, 2021, PB had MSRs amounting to $1.4 million (September 30, 2020 - $0.5 million).

Residential mortgage loans serviced for others were $12.3 billion at September 30, 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 September 30, 2021, those weighted average mortgage servicing fees were 0.30% (September 30, 2020 - 0.31%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

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 and nine months ended September 30, 2021 and 2020 were as follows:

| Quarters ended |  |  | Nine months ended
| September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  | September 30, 2020
| BPPR |  | PB |  |  | BPPR |  | PB |  |  | BPPR |  | PB |  |  | BPPR |  | PB |
Prepayment speed | 5.8 | % | 13.7 | % |  | 9.5 | % | 21.8 | % |  | 6.9 | % | 20.5 | % |  | 7.1 | % | 22.1 | %
Weighted average life (in years) | 8.8 |  | 5.9 |  |  | 7.3 |  | 3.6 |  |  | 8.3 |  | 15.4 |  |  | 8.9 |  | 3.5 |
Discount rate (annual rate) | 10.5 | % | 10.0 | % |  | 10.9 | % | 10.8 | % |  | 10.5 | % | 10.9 | % |  | 10.8 | % | 10.4 | %

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
|  | September 30, | December 31, | September 30, | December 31,
(In thousands) | 2021 | 2020 | 2021 | 2020
Fair value of servicing rights | $ | 39,474 |  | $ | 44,129 |  | $ | 77,093 |  | $ | 74,266 |
Weighted average life (in years) |  | 6.1 |  |  | 6.2 |  |  | 6.1 |  |  | 5.9 |
Weighted average prepayment speed (annual rate) |  | 6.2 | % |  | 6.6 | % |  | 6.2 | % |  | 7.1 | %
| Impact on fair value of 10% adverse change | $ | (878) |  | $ | (1,115) |  | $ | (1,979) |  | $ | (2,206) |
| Impact on fair value of 20% adverse change | $ | (1,730) |  | $ | (2,194) |  | $ | (3,881) |  | $ | (4,312) |
Weighted average discount rate (annual rate) |  | 11.3 | % |  | 11.3 | % |  | 11.0 | % |  | 11.1 | %
| Impact on fair value of 10% adverse change | $ | (1,411) |  | $ | (1,640) |  | $ | (2,926) |  | $ | (2,740) |
| Impact on fair value of 20% adverse change | $ | (2,734) |  | $ | (3,175) |  | $ | (5,654) |  | $ | (5,301) |

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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 September 30, 2021, the Corporation serviced $0.8 billion in residential mortgage loans with credit recourse to the Corporation (December 31, 2020 - $0.9 billion). 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 September 30, 2021, the Corporation had recorded $12 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 nine months ended September 30, 2021, the Corporation repurchased approximately $80 million (September 30, 2020 - $753 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 United States Department of Agriculture (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.

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Note 11 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and nine months ended September 30, 2021 and 2020.

|  | For the quarter ended September 30, 2021
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 14,581 | $ | 58,691 | $ | 73,272
Write-downs in value |  | (522) |  | (245) |  | (767)
Additions |  | 1,693 |  | 17,395 |  | 19,088
Sales |  | (1,734) |  | (12,588) |  | (14,322)
Other adjustments |  | 217 |  | (660) |  | (443)
Ending balance | $ | 14,235 | $ | 62,593 | $ | 76,828

|  | For the quarter ended September 30, 2020
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 16,482 | $ | 97,458 | $ | 113,940
Write-downs in value |  | (160) |  | (843) |  | (1,003)
Additions |  | 41 |  | 1,467 |  | 1,508
Sales |  | (1,385) |  | (12,416) |  | (13,801)
Other adjustments |  | (56) |  | 4 |  | (52)
Ending balance | $ | 14,922 | $ | 85,670 | $ | 100,592

|  | For the nine months ended September 30, 2021
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 13,214 | $ | 69,932 | $ | 83,146
Write-downs in value |  | (986) |  | (1,764) |  | (2,750)
Additions |  | 7,668 |  | 36,335 |  | 44,003
Sales |  | (6,059) |  | (40,967) |  | (47,026)
Other adjustments |  | 398 |  | (943) |  | (545)
Ending balance | $ | 14,235 | $ | 62,593 | $ | 76,828

|  | For the nine months ended September 30, 2020
|  | OREO |  | OREO |  |
(In thousands) |  | Commercial/Construction |  | Mortgage |  | Total
Balance at beginning of period | $ | 16,959 | $ | 105,113 | $ | 122,072
Write-downs in value |  | (1,474) |  | (2,414) |  | (3,888)
Additions |  | 2,161 |  | 17,716 |  | 19,877
Sales |  | (2,668) |  | (34,845) |  | (37,513)
Other adjustments |  | (56) |  | 100 |  | 44
Ending balance | $ | 14,922 | $ | 85,670 | $ | 100,592

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Note 12 − Other assets

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

(In thousands) | September 30, 2021 | December 31, 2020
Net deferred tax assets (net of valuation allowance) | $ | 677,053 | $ | 851,592
Investments under the equity method |  | 288,259 |  | 250,467
Prepaid taxes |  | 45,519 |  | 32,615
Other prepaid expenses |  | 85,255 |  | 74,572
Derivative assets |  | 23,827 |  | 20,785
Trades receivable from brokers and counterparties |  | 75,589 |  | 65,429
Principal, interest and escrow servicing advances |  | 59,109 |  | 65,671
Guaranteed mortgage loan claims receivable |  | 96,212 |  | 80,477
Operating ROU assets (Note 27) |  | 139,632 |  | 131,921
Finance ROU assets (Note 27) |  | 13,933 |  | 15,464
Others |  | 130,451 |  | 148,048
Total other assets | $ | 1,634,839 | $ | 1,737,041

The Corporation enters in the ordinary course of business into 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 the Other assets line item in the accompanying Consolidated Statements of Financial Condition. As of September 30, 2021, the total capitalized implementation costs amounted to $18.2 million with an accumulated amortization of $7.7 million for a net value of $10.5 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 and nine months ended September 30, 2021 was $0.9 million and $2.8 million, respectively (September 30, 2020 - $0.5 million and $1.5 million respectively).

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Note 13 – Goodwill and other intangible assets

Goodwill

There were no changes in the carrying amount of goodwill for the quarters and nine months ended September 30, 2021 and 2020.

Other Intangible Assets

At September 30, 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
September 30, 2021 |  |  |  |  |  |
| Core deposits | $ | 12,810 | $ | 8,433 | $ | 4,377
| Other customer relationships |  | 11,679 |  | 2,563 |  | 9,116
Total other intangible assets | $ | 24,489 | $ | 10,996 | $ | 13,493
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 nine months ended September 30, 2021, $14.9 million in other customer relationships became fully amortized and thus were removed from the Corporation’s intangibles assets, from which $14.2 million were recognized as part of the purchase of the American Airlines co-branded credit card portfolio during 2011.

During the quarter ended September 30, 2021, the Corporation recognized $0.8 million in amortization expense related to other intangible assets with definite useful lives (September 30, 2020 - $ 1.1 million). During the nine months ended September 30, 2021, the Corporation recognized $ 3.1 million in amortization related to other intangible assets with definite useful lives (September 30, 2020 - $ 5.3 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 | $ | 657
Year 2022 |  | 2,630
Year 2023 |  | 2,630
Year 2024 |  | 2,389
Year 2025 |  | 1,200
Later years |  | 3,987

Results of the Annual Goodwill Impairment Test

The Corporation’s goodwill and other identifiable intangible assets having an indefinite useful life are tested for impairment, at least annually and on a more frequent basis if events or circumstances indicate impairment could have taken place. Such events could include, among others, a significant adverse change in the business climate, an adverse action by a regulator, an unanticipated change in the competitive environment and a decision to change the operations or dispose of a reporting unit.

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Management monitors events or changes in circumstances between annual tests to determine if these events or changes in circumstances would more likely than not reduce the fair value of its reporting units below their carrying amounts.

The Corporation performed the annual goodwill impairment evaluation for the entire organization during the third quarter of 2021 using July 31, 2021 as the annual evaluation date. The reporting units utilized for this evaluation were those that are one level below the business segments, which are the legal entities within the reportable segment. The Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units when carrying out a business combination.

In determining the fair value of each reporting unit, the Corporation generally uses a combination of methods, including market price multiples of comparable companies and transactions, as well as discounted cash flow analysis. Management evaluates the particular circumstances of each reporting unit in order to determine the most appropriate valuation methodology and the weights applied to each valuation methodology, as applicable. The Corporation evaluates the results obtained under each valuation methodology to identify and understand the key value drivers in order to ascertain that the results obtained are reasonable and appropriate under the circumstances. Elements considered include current market and economic conditions, developments in specific lines of business, and any particular features in the individual reporting units.

The computations require management to make estimates and assumptions. Critical assumptions that are used as part of these evaluations include:

 a selection of comparable publicly traded companies, based on nature of business, location and size;

 a selection of comparable acquisitions;

 the discount rate applied to future earnings, based on an estimate of the cost of equity;

 the potential future earnings of the reporting unit; and

 the market growth and new business assumptions.

For purposes of the market comparable companies’ approach, valuations were determined by calculating average price multiples of relevant value drivers from a group of companies that are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of the reporting unit. Management uses judgment in the determination of which value drivers are considered more appropriate for each reporting unit. Comparable companies’ price multiples represent minority-based multiples and thus, a control premium adjustment is added to the comparable companies’ market multiples applied to the reporting unit’s value drivers. For purposes of the market comparable transactions’ approach, valuations had been previously determined by the Corporation by calculating average price multiples of relevant value drivers from a group of transactions for which the target companies are comparable to the reporting unit being analyzed and applying those price multiples to the value drivers of the reporting unit.

For purposes of the discounted cash flows (“DCF”) approach, the valuation is based on estimated future cash flows. The financial projections used in the DCF valuation analysis for each reporting unit are based on the most recent (as of the valuation date) financial projections presented to the Corporation’s Asset / Liability Management Committee (“ALCO”). The growth assumptions included in these projections are based on management’s expectations for each reporting unit’s financial prospects considering economic and industry conditions as well as particular plans of each entity (i.e. restructuring plans, de-leveraging, etc.). The cost of equity used to discount the cash flows was calculated using the Ibbotson Build-Up Method and ranged from 11.34% to 15.13 % for the 2021 analysis. The Ibbotson Build-Up Method builds up a cost of equity starting with the rate of return of a “risk-free” asset (20-year U.S. Treasury note) and adds to it additional risk elements such as equity risk premium, size premium, industry risk premium, and a specific geographic risk premium (as applicable). The resulting discount rates were analyzed in terms of reasonability given the current market conditions.

No impairment was recognized by the Corporation from the annual test as of July 31, 2021. The results of the BPPR annual goodwill impairment test as of July 31, 2021 indicated that the average estimated fair value using all valuation methodologies exceeded BPPR’s equity value by approximately $1.5 billion or 50% compared to $282 million or 9%, for the annual goodwill impairment test completed as of July 31, 2020. PB’s annual goodwill impairment test results as of such dates indicated that the average estimated fair value using all valuation methodologies exceeded PB’s equity value by approximately $412 million or 24%, compared to $215 million or 13%, for the annual goodwill impairment test completed as of July 31, 2020. The goodwill balance of BPPR and PB, as legal entities, represented approximately 91% of the Corporation’s total goodwill balance as of the July 31, 2021 valuation date.

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Furthermore, as part of the analyses, management performed a reconciliation of the aggregate fair values determined for the reporting units to the market capitalization of the Corporation concluding that the fair value results determined for the reporting units in the July 31, 2021 annual assessment were reasonable.

The goodwill impairment evaluation process requires the Corporation to make estimates and assumptions with regard to the fair value of the reporting units. Actual values may differ significantly from these estimates. Such differences could result in future impairment of goodwill that would, in turn, negatively impact the Corporation’s results of operations and the reporting units where the goodwill is recorded. Declines in the Corporation’s market capitalization and adverse economic conditions sustained over a longer period of time negatively affecting forecasted cash flows could increase the risk of goodwill impairment in the future.

The extent to which the COVID-19 pandemic further impacts our business, results of operations and financial condition, as well as the operations of our clients, customers, service providers and suppliers, will depend on future developments, which are highly uncertain and is difficult to predict, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response thereto. A decline in the Corporation’s stock price related to global and/or regional macroeconomic conditions, the continued weakness in the Puerto Rico economy and fiscal situation, reduced future earnings estimates, additional expenses and higher credit losses, and the continuance of the current interest rate environment could, individually or in the aggregate, have a material impact on the determination of the fair value of our reporting units, which could in turn result in an impairment of goodwill in the future. An impairment of goodwill would result in a non-cash expense, net of tax impact. A charge to earnings related to a goodwill impairment would not impact regulatory capital calculations.

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

September 30, 2021
| Balance at |  |  | Balance at
| September 30, | Accumulated | September 30,
| 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

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Note 14 – Deposits

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

(In thousands) | September 30, 2021 | December 31, 2020
Savings accounts | $ | 15,767,861 | $ | 14,031,736
NOW, money market and other interest bearing demand deposits |  | 28,166,013 |  | 22,398,057
Total savings, NOW, money market and other interest bearing demand deposits |  | 43,933,874 |  | 36,429,793
Certificates of deposit: |  |  |  |
| Under $100,000 |  | 2,776,214 |  | 2,917,700
| $100,000 and over |  | 4,155,906 |  | 4,390,148
Total certificates of deposit |  | 6,932,120 |  | 7,307,848
Total interest bearing deposits | $ | 50,865,994 | $ | 43,737,641

A summary of certificates of deposits by maturity at September 30, 2021 follows:

(In thousands) |  |
2021 | $ | 2,581,033
2022 |  | 1,835,519
2023 |  | 808,046
2024 |  | 670,978
2025 |  | 518,878
2026 and thereafter |  | 517,666
Total certificates of deposit | $ | 6,932,120

At September 30, 2021, the Corporation had brokered deposits amounting to $0.7 billion (December 31, 2020 - $ 0.8 billion).

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $4 million at September 30, 2021 (December 31, 2020 - $3 million)

At September 30, 2021, public sector deposits amounted to $20 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 recovery related Federal assistance, and seasonal tax collections, could 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.

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Note 15 – Borrowings

Assets sold under agreements to repurchase amounted to $86 million at September 30, 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

|  | September 30, 2021 | December 31, 2020
|  |  | Repurchase |  | Repurchase |
(In thousands) |  | liability |  | liability |
U.S. Treasury securities |  |  |  |  |
| Within 30 days | $ | 14,574 | $ | 67,157 |
| After 30 to 90 days |  | 20,394 |  | 39,318 |
| After 90 days |  | 39,638 |  | 9,979 |
Total U.S. Treasury securities |  | 74,606 |  | 116,454 |
Mortgage-backed securities |  |  |  |  |
| Within 30 days |  | 1,427 |  | 3,778 |
| After 30 to 90 days |  | - |  | 268 |
| After 90 days |  | 9,868 |  | - |
Total mortgage-backed securities |  | 11,295 |  | 4,046 |
Collateralized mortgage obligations |  |  |  |  |
| Within 30 days |  | 569 |  | 803 |
Total collateralized mortgage obligations |  | 569 |  | 803 |
Total | $ | 86,470 | $ | 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 September 30, 2021 and December 31, 2020.

The following table presents the composition of notes payable at September 30, 2021 and December 31, 2020.

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(In thousands) | September 30, 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 3.18% | $ | 494,469 |  | $ | 542,469
Advances with the FRB maturing on 2022 paying interest annually at a fixed rate of 0.35%[1] |  | - |  |  | 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 $ 2,475 |  | 297,525 |  |  | 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 $349 |  | 384,949 |  |  | 384,929
Total notes payable | $ | 1,176,943 |  | $ | 1,224,981
[1] During the second quarter of 2021, the Paycheck Protection Program Liquidity Facility advance was prepaid.
Note: Refer to the Corporation's 2020 Form 10-K for rates information at December 31, 2020.

On November 1, 2021, the Corporation redeemed all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities (the “Capital Securities”) issued by the Popular Capital Trust I (liquidation amount of $25 per security and amounting to $186,663,800 (or $181,063,250 after excluding Popular’s participation in the Trust of $5,600,550) in the aggregate). The redemption price for the Capital Securities was equal to $25 per security plus accrued and unpaid distributions up to and excluding the redemption date in the amount of $0.139583 per security, for a total payment per security in the amount of $25.139583. Upon redemption, Popular delisted the Capital Securities of Popular Capital Trust I (NASDAQ: BPOPN) from the Nasdaq Global Select Market.

A breakdown of borrowings by contractual maturities at September 30, 2021 is included in the table below.

|  | Assets sold under |  |  |
(In thousands) |  | agreements to repurchase |  | Notes payable | Total
2021 | $ | 36,964 | $ | 2,040 | $ | 39,004
2022 |  | 49,506 |  | 103,148 |  | 152,654
2023 |  | - |  | 340,786 |  | 340,786
2024 |  | - |  | 91,943 |  | 91,943
2025 |  | - |  | 139,920 |  | 139,920
Later years |  | - |  | 499,106 |  | 499,106
Total borrowings | $ | 86,470 | $ | 1,176,943 | $ | 1,263,413

At September 30, 2021 and December 31, 2020, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $3.0 billion, of which $0.5 billion were used at each period. In addition, at September 30, 2021 and December 31, 2020, the Corporation had placed $1.2 billion and $0.9 billion, respectively, 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 September 30, 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 September 30, 2021 and December 31, 2020. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

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Note 16 − Other liabilities

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

(In thousands) | September 30, 2021 | December 31, 2020
Accrued expenses | $ | 280,831 | $ | 235,449
Accrued interest payable |  | 28,140 |  | 38,622
Accounts payable |  | 67,401 |  | 69,784
Dividends payable |  | 36,305 |  | 33,701
Trades payable |  | 13,746 |  | 720,212
Liability for GNMA loans sold with an option to repurchase |  | 12,297 |  | 57,189
Reserves for loan indemnifications |  | 14,650 |  | 24,781
Reserve for operational losses |  | 44,941 |  | 41,452
Operating lease liabilities (Note 27) |  | 152,039 |  | 152,588
Finance lease liabilities (Note 27) |  | 20,310 |  | 22,572
Pension benefit obligation |  | 18,427 |  | 35,568
Postretirement benefit obligation |  | 177,712 |  | 179,211
Others |  | 62,419 |  | 73,560
Total other liabilities | $ | 929,218 | $ | 1,684,689

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Note 17 – Stockholders’ equity

As of September 30, 2021, stockholder’s equity totaled $6.0 billion. During the nine months ended September 30, 2021, the Corporation declared cash dividends of $1.30 (2020 - $1.20) per common share amounting to $106.4 million (2020 - $102.9 million). The quarterly dividend declared to shareholders of record as of the close of business on September 10, 2021 was paid on October 1, 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 entered into a $350 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 3,785,831 shares, the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. The Corporation completed the transaction on September 9, 2021 and received 828,965 additional shares of common stock and recognized $61 million in treasury stock with a corresponding increase in capital surplus. In total, the Corporation repurchased a total of 4,614,796 shares at an average price of $75.8430 under the ASR Agreement.

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.

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Note 18 – Other comprehensive (loss) income

The following table presents changes in accumulated other comprehensive (loss) income by component for the quarters and nine months ended September 30, 2021 and 2020.

|  | Changes in Accumulated Other Comprehensive (Loss) Income by Component [1]
|  |  |  | Quarters ended | Nine months ended
|  |  | September 30, | September 30,
(In thousands) |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign currency translation | Beginning Balance | $ | (67,959) | $ | (69,458) | $ | (71,254) | $ | (56,783)
|  | Other comprehensive (loss) income |  | (1,265) |  | (2,035) |  | 2,030 |  | (14,710)
|  | Net change |  | (1,265) |  | (2,035) |  | 2,030 |  | (14,710)
|  | Ending balance | $ | (69,224) | $ | (71,493) | $ | (69,224) | $ | (71,493)
Adjustment of pension and postretirement benefit plans | Beginning Balance | $ | (188,572) | $ | (196,114) | $ | (195,056) | $ | (202,816)
|  | Amounts reclassified from accumulated other comprehensive loss for amortization of net losses |  | 3,242 |  | 3,351 |  | 9,726 |  | 10,053
|  | Net change |  | 3,242 |  | 3,351 |  | 9,726 |  | 10,053
|  | Ending balance | $ | (185,330) | $ | (192,763) | $ | (185,330) | $ | (192,763)
Unrealized net holding gains on debt securities | Beginning Balance | $ | 163,982 | $ | 489,105 | $ | 460,900 | $ | 92,155
|  | Other comprehensive (loss) income |  | (46,956) |  | (5,243) |  | (343,874) |  | 391,707
|  | Amounts reclassified from accumulated other comprehensive income for gains on securities |  | (18) |  | (35) |  | (18) |  | (35)
|  | Net change |  | (46,974) |  | (5,278) |  | (343,892) |  | 391,672
|  | Ending balance | $ | 117,008 | $ | 483,827 | $ | 117,008 | $ | 483,827
Unrealized net losses on cash flow hedges | Beginning Balance | $ | (3,142) | $ | (4,184) | $ | (4,599) | $ | (2,494)
|  | Other comprehensive (loss) income before reclassifications |  | (465) |  | (1,085) |  | 662 |  | (5,067)
|  | Amounts reclassified from accumulated other comprehensive loss |  | 1,058 |  | 1,114 |  | 1,388 |  | 3,406
|  | Net change |  | 593 |  | 29 |  | 2,050 |  | (1,661)
|  | Ending balance | $ | (2,549) | $ | (4,155) | $ | (2,549) | $ | (4,155)
|  | Total | $ | (140,095) | $ | 215,416 | $ | (140,095) | $ | 215,416
[1] | All amounts presented are net of tax. |  |  |  |  |  |  |  |

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The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income during the quarters and nine months ended September 30, 2021 and 2020.

|  | Reclassifications Out of Accumulated Other Comprehensive (Loss) Income
|  |  |  | Quarters ended | Nine months ended
|  | Affected Line Item in the | September 30, | September 30,
(In thousands) | Consolidated Statements of Operations |  | 2021 |  | 2020 |  | 2021 |  | 2020
Adjustment of pension and postretirement benefit plans |  |  |  |  |  |  |  |  |
| Amortization of net losses | Other operating expenses | $ | (5,187) | $ | (5,362) | $ | (15,566) | $ | (16,086)
|  | Total before tax |  | (5,187) |  | (5,362) |  | (15,566) |  | (16,086)
|  | Income tax benefit |  | 1,945 |  | 2,011 |  | 5,840 |  | 6,033
|  | Total net of tax | $ | (3,242) | $ | (3,351) | $ | (9,726) | $ | (10,053)
Unrealized holding gains on debt securities |  |  |  |  |  |  |  |  |
| Realized gain on sale of debt securities | Net gain on sale of debt securities |  | 23 |  | 41 |  | 23 |  | 41
|  | Total before tax |  | 23 |  | 41 |  | 23 |  | 41
|  | Income tax expense |  | (5) |  | (6) |  | (5) |  | (6)
|  | Total net of tax | $ | 18 | $ | 35 | $ | 18 | $ | 35
Unrealized net losses on cash flow hedges |  |  |  |  |  |  |  |  |
| Forward contracts | Mortgage banking activities | $ | (1,229) | $ | (1,331) | $ | (854) | $ | (4,590)
| Interest rate swaps | Other operating income |  | (289) |  | (282) |  | (853) |  | (537)
|  | Total before tax |  | (1,518) |  | (1,613) |  | (1,707) |  | (5,127)
|  | Income tax benefit |  | 460 |  | 499 |  | 319 |  | 1,721
|  | Total net of tax | $ | (1,058) | $ | (1,114) | $ | (1,388) | $ | (3,406)
|  | Total reclassification adjustments, net of tax | $ | (4,282) | $ | (4,430) | $ | (11,096) | $ | (13,424)

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Note 19 – Guarantees

At September 30, 2021, the Corporation recorded a liability of $0.1 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 September 30, 2021, the Corporation serviced $0.8 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 and nine months ended September 30, 2021, the Corporation repurchased approximately $2 million and $17 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (September 30, 2020 - $131 million and $143 million, respectively, which included $120 million during the third quarter of 2020 as part of the bulk loan repurchase from FNMA and FHLMC, for which the Corporation recorded a release of $5.1 million in its reserve for credit recourse). 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 September 30, 2021, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $13 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 and nine months ended September 30, 2021 and 2020.

| Quarters ended September 30, |  |  | Nine months ended September 30, |  |
(In thousands) | 2021 |  |  | 2020 |  |  | 2021 |  | 2020 |  |
Balance as of beginning of period | $ | 15,662 |  |  | $ | 31,305 |  |  | $ | 22,484 |  | $ | 34,862 |  |
Impact of adopting CECL |  | - |  |  |  | - |  |  |  | - |  |  | (3,831) |  |
Provision (benefit) for recourse liability |  | (1,959) |  |  |  | (4,058) |  | [1] |  | (2,710) |  |  | 1,356 |  | [1]
Net charge-offs |  | (1,052) |  |  |  | (362) |  |  |  | (7,123) |  |  | (5,502) |  |
Balance as of end of period | $ | 12,651 |  |  | $ | 26,885 |  |  | $ | 12,651 |  | $ | 26,885 |  |
[1] Includes a release of $5.1 million recorded in connection with the bulk loan repurchase of $120 million loans from FNMA and FHLMC completed during the quarter ended September 30, 2020.

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 and nine-month period ended September 30, 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 and nine-month period ended September 30, 2021 and 2020.

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|  | Quarters ended September 30, |  | Nine months ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Balance as of beginning of period | $ | 2,078 | $ | 3,122 | $ | 2,297 | $ | 3,212
Provision (benefit) for representation and warranties |  | (79) |  | (125) |  | (298) |  | (215)
Balance as of end of period | $ | 1,999 | $ | 2,997 | $ | 1,999 | $ | 2,997

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 September 30, 2021, the Corporation serviced $12.3 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 incom e with respect to that loan. At September 30, 2021, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $59 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 addition al 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 September 30, 2021 and December 31, 2020. In addition, at September 30, 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.

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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) | September 30, 2021 | December 31, 2020
Commitments to extend credit: |  |  |  |
| Credit card lines | $ | 5,323,511 | $ | 5,226,660
| Commercial and construction lines of credit |  | 3,690,856 |  | 3,805,459
| Other consumer unused credit commitments |  | 249,522 |  | 257,312
Commercial letters of credit |  | 4,669 |  | 1,864
Standby letters of credit |  | 23,117 |  | 22,266
Commitments to originate or fund mortgage loans |  | 107,003 |  | 96,786

At September 30, 2021 and December 31, 2020, the Corporation maintained a reserve of approximately $8 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 September 30, 2021, and December 31, 2020, the Corporation 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 September 30, 2021, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $365 million, of which $346 million were outstanding, compared to $377 million, which were fully outstanding at December 31, 2020. Of the amount outstanding, $316 million consists of loans and $30 million are securities ($342 million and $ 35 million at December 31, 2020). Substantially all of the amount outstanding at September 30, 2021 and September 30, 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 September 30, 2021, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. On July 1, 2021, the

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Corporation received scheduled principal payments amounting to $32 million from various obligations from Puerto Rico municipalities.

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 September 30, 2021:

(In thousands) |  | Investment Portfolio |  | Loans |  | Total Outstanding |  | Total Exposure
Central Government |  |  |  |  |  |  |  |
After 1 to 5 years | $ | 6 | $ | - | $ | 6 | $ | 6
After 5 to 10 years |  | 5 |  | - |  | 5 |  | 5
After 10 years |  | 37 |  | - |  | 37 |  | 37
Total Central Government |  | 48 |  | - |  | 48 |  | 48
Municipalities |  |  |  |  |  |  |  |
Within 1 year |  | 4,240 |  | 68,650 |  | 72,890 |  | 72,890
After 1 to 5 years |  | 14,395 |  | 70,871 |  | 85,266 |  | 104,323
After 5 to 10 years |  | 11,280 |  | 120,812 |  | 132,092 |  | 132,092
After 10 years |  | 230 |  | 55,257 |  | 55,487 |  | 55,487
Total Municipalities |  | 30,145 |  | 315,590 |  | 345,735 |  | 364,792
Total Direct Government Exposure | $ | 30,193 | $ | 315,590 | $ | 345,783 | $ | 364,840

In addition, at September 30, 2021, the Corporation had $284 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 $240 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 September 30, 2021, $44 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.

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, $1.6 billion of residential mortgages, $670 million of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $65 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

At September 30, 2021, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $72 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 September 30, 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

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approximately $226 million comprised of various retail and commercial clients, compared to a loan portfolio of $251 million at December 31, 2020, which included a $19 million loan with the BVI Government that was paid off during the second quarter of 2021.

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 $34.7 million as of September 30, 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 originally sought 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

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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.

On May 7, 2021, the Popular Defendants filed a motion for summary judgment with respect to plaintiffs’ unjust enrichment theory of liability, reserving the right to file an additional motion for summary judgment regarding damages should the court deny the Popular Defendant’s pending motion to exclude an economic expert recently designated by Plaintiffs. Plaintiffs opposed the motion for summary judgment on July 6, 2021 and the Popular Defendants replied on July 28, 2021. On May 7, 2021, Popular, Inc. and BPPR also filed a separate motion for summary judgment alleging that, even taking as true and correct Plaintiffs’ theory of liability, Popular, Inc. and BPPR are not liable to Plaintiffs since they do not receive—and are legally prohibited from receiving insurance commissions. On September 27, 2021, the Court held an oral hearing to discuss the pending motions for summary judgment. At such hearing, Plaintiffs notified they did not object the dismissal of the action with prejudice as to Popular, Inc. and BPPR, leaving Popular Insurance, LLC as the sole remaining defendant in the case. On November 1, 2021, the Court issued a resolution denying Popular Insurance, LLC’s motion for summary judgment. Popular Insurance, LLC may request reconsideration of such denial before November 16, 2021 and/or seek review before the Puerto Rico Court of Appeals before December 1, 2021.

Mortgage-Related Litigation

BPPR was named a defendant in a putative class action captioned Yiries Josef Saad Maura v. Banco Popular, et al. 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. 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 the Truth In Lending Act (“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 (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

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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, simultaneously, 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.

On October 4, 2021, the District Court, notwithstanding that BPPR’s Motion to Dismiss remains pending resolution, held an initial scheduling conference and, thereafter, issued a trial management order where it scheduled the deadline for all discovery for November 1, 2022, the deadline for the filing of a joint pre-trial brief for June 1, 2023, and the trial for June 20 to June 30, 2023.

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.

In June 2021, the Court in the AB Action entered a judgment dismissing all claims except those regarding the principal plaintiff Aileen Betances against PB for retaliation, and Betances’ claim against three (3) other AB Defendants for aiding/abetting the alleged retaliation. Also, in July 2021, the Court in the DR action entered a partial judgment dismissing all claims against the individual DR Defendants, with all surviving claims being against PB and limited to local retaliation claims and local and state discrimination claims. Plaintiffs in both the AB Action and the DR Action have filed notices of appeal of both judgments. On August 11, 2021, PB and the remaining AB Defendants in the AB Action, as well as PB in the DR Action, answered the respective complaints as to the surviving claims. Discovery is ongoing.

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 September 30, 2021, was named as a respondent (among other broker-dealers) in 104 pending arbitration proceedings with initial claimed amounts of approximately $107 million in the aggregate. Such amounts include a single arbitration proceeding with claimed damages arising from trading losses of approximately $30 million, in which on October 28, 2021 the

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arbitration panel ordered Popular Securities to pay claimants approximately $6.9 million in compensatory damages and expenses. 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.

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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 September 30, 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 September 30, 2021 and December 31, 2020.

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(In thousands) | September 30, 2021 | December 31, 2020
Assets |  |  |  |
Servicing assets: |  |  |  |
| Mortgage servicing rights | $ | 91,209 | $ | 90,273
Total servicing assets | $ | 91,209 | $ | 90,273
Other assets: |  |  |  |
| Servicing advances | $ | 8,967 | $ | 8,769
Total other assets | $ | 8,967 | $ | 8,769
Total assets | $ | 100,176 | $ | 99,042
Maximum exposure to loss | $ | 100,176 | $ | 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 $8.3 billion at September 30, 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 September 30, 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 September 30, 2021.

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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 September 30, 2021, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.19%. 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 $1.7 million in dividends distributions during the nine months ended September 30, 2021 from its investments in EVERTEC (September 30, 2020 - $1.7 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) |  | September 30, 2021 |  |  | December 31, 2020
Equity investment in EVERTEC | $ | 104,850 |  | $ | 86,158

The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, 2021 and December 31, 2020. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands) | September 30, 2021 | December 31, 2020
Accounts receivable (Other assets) | $ | 7,641 | $ | 5,678
Deposits |  | (144,130) |  | (125,361)
Accounts payable (Other liabilities) |  | (2,738) |  | (2,395)
Net total | $ | (139,227) | $ | (122,078)

The Corporation’s proportionate share of income or loss 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 (loss) and changes in stockholders’ equity for the quarters and nine months ended September 30, 2021 and 2020.

|  | Quarter ended |  |  | Nine months ended
(In thousands) |  | September 30, 2021 |  |  | September 30, 2021
Share of income from the investment in EVERTEC | $ | 5,709 |  | $ | 19,426
Share of other changes in EVERTEC's stockholders' equity |  | 610 |  |  | 1,009
Share of EVERTEC's changes in equity recognized in income | $ | 6,319 |  | $ | 20,435

|  | Quarter ended |  |  | Nine months ended
(In thousands) |  | September 30, 2020 |  |  | September 30, 2020
Share of income from the investment in EVERTEC | $ | 5,586 |  | $ | 11,696
Share of other changes in EVERTEC's stockholders' equity |  | 1,135 |  |  | 1,804
Share of EVERTEC's changes in equity recognized in income | $ | 6,721 |  | $ | 13,500

The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and nine months ended September 30, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis.

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|  | Quarter ended | Nine months ended |
(In thousands) | September 30, 2021 | September 30, 2021 | Category
Interest expense on deposits |  | $ | (103) |  | $ | (267) | Interest expense
ATH and credit cards interchange income from services to EVERTEC |  |  | 6,849 |  |  | 20,278 | Other service fees
Rental income charged to EVERTEC |  |  | 1,973 |  |  | 4,915 | Net occupancy
Processing fees on services provided by EVERTEC |  |  | (62,421) |  |  | (183,302) | Professional fees
Other services provided to EVERTEC |  |  | 214 |  |  | 554 | Other operating expenses
Total |  | $ | (53,488) |  | $ | (157,822) |

|  | Quarter ended | Nine months ended |
(In thousands) |  | September 30, 2020 | September 30, 2020 | Category
Interest expense on deposits |  | $ | (71) |  | $ | (228) | Interest expense
ATH and credit cards interchange income from services to EVERTEC |  |  | 6,153 |  |  | 16,172 | Other service fees
Rental income charged to EVERTEC |  |  | 1,758 |  |  | 5,293 | Net occupancy
Processing fees on services provided by EVERTEC |  |  | (57,372) |  |  | (164,373) | Professional fees
Other services provided to EVERTEC |  |  | 253 |  |  | 794 | Other operating expenses
Total |  | $ | (49,279) |  | $ | (142,342) |

Centro Financiero BHD León

At September 30, 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 nine months ended September 30, 2021, the Corporation recorded $20.4 million in earnings from its investment in BHD León (September 30, 2020 - $21.4 million), which had a carrying amount of $172.1 million at September 30, 2021 (December 31, 2020 - $147.2 million). The Corporation received $4.3 million in dividends distributions during the nine months ended September 30, 2021 from its investment in BHD León (September 30, 2020 - $13.2 million).

Investment Companies

The Corporation, through its subsidiary Popular Asset Management LLC (“PAM”), provides advisory services to several investment companies registered under the Investment Company Act of 1940 in exchange for a fee. The Corporation, through its subsidiary BPPR, 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 nine months ended September 30, 2021 administrative fees charged to these investment companies amounted to $3.4 million (September 30, 2020 - $4.8 million) and waived fees amounted to $1.3 million (September 30, 2020 - $2.1 million), for a net fee of $2.1 million (September 30, 2020 - $2.7 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. The available lines of credit facilities amounted to $275 million at December 31, 2020, with no balance outstanding, and at September 30, 2021 these were in the process of renewal after they had reached their maturity date. The aggregate sum of all outstanding balances under all credit facilities that could be made available by BPPR, from time to time, to those investment companies for which PAM acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital.

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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 September 30, 2021 and December 31, 2020:

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At September 30, 2021
(In thousands) | Level 1 | Level 2 | Level 3 | Total
RECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |
Debt securities available-for-sale: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 799,972 | $ | 13,816,977 | $ | - | $ | 14,616,949
Obligations of U.S. Government sponsored entities |  | - |  | 71 |  | - |  | 71
Collateralized mortgage obligations - federal agencies |  | - |  | 250,491 |  | - |  | 250,491
Mortgage-backed securities |  | - |  | 9,522,676 |  | 883 |  | 9,523,559
Other |  | - |  | 156 |  | - |  | 156
Total debt securities available-for-sale | $ | 799,972 | $ | 23,590,371 | $ | 883 | $ | 24,391,226
Trading account debt securities, excluding derivatives: |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 10,780 | $ | - | $ | - | $ | 10,780
Obligations of Puerto Rico, States and political subdivisions |  | - |  | 82 |  | - |  | 82
Collateralized mortgage obligations |  | - |  | 61 |  | 220 |  | 281
Mortgage-backed securities |  | - |  | 24,569 |  | - |  | 24,569
Other |  | - |  | - |  | 352 |  | 352
Total trading account debt securities, excluding derivatives | $ | 10,780 | $ | 24,712 | $ | 572 | $ | 36,064
Equity securities | $ | - | $ | 30,212 | $ | - | $ | 30,212
Mortgage servicing rights |  | - |  | - |  | 116,567 |  | 116,567
Derivatives |  | - |  | 23,827 |  | - |  | 23,827
Total assets measured at fair value on a recurring basis | $ | 810,752 | $ | 23,669,122 | $ | 118,022 | $ | 24,597,896
Liabilities |  |  |  |  |  |  |  |
Derivatives | $ | - | $ | (20,879) | $ | - | $ | (20,879)
Total liabilities measured at fair value on a recurring basis | $ | - | $ | (20,879) | $ | - | $ | (20,879)

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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 and nine months ended September 30, 2021 and 2020 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

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Nine months ended September 30, 2021
(In thousands) | Level 1 | Level 2 | Level 3 | Total |  |
NONRECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  | Write-downs
Loans[1] | $ | - | $ | - | $ | 22,700 | $ | 22,700 | $ | (4,775)
Other real estate owned[2] |  | - |  | - |  | 6,540 |  | 6,540 |  | (1,583)
Long-lived assets held-for-sale[3] |  | - |  | - |  | 2,728 |  | 2,728 |  | (303)
Total assets measured at fair value on a nonrecurring basis | $ | - | $ | - | $ | 31,968 | $ | 31,968 | $ | (6,661)
[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.
[3] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value.

Nine months ended September 30, 2020
(In thousands) | Level 1 | Level 2 | Level 3 | Total |  |
NONRECURRING FAIR VALUE MEASUREMENTS |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  | Write-downs
Loans[1] | $ | - | $ | - | $ | 96,740 | $ | 96,740 | $ | (20,495)
Loans held-for-sale[2] |  | - |  | - |  | 4,070 |  | 4,070 |  | (2,038)
Other real estate owned[3] |  | - |  | - |  | 19,475 |  | 19,475 |  | (3,025)
Other foreclosed assets[3] |  | - |  | - |  | 444 |  | 444 |  | (701)
Total assets measured at fair value on a nonrecurring basis | $ | - | $ | - | $ | 120,729 | $ | 120,729 | $ | (26,259)
[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.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2021 and 2020.

| Quarter ended September 30, 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 June 30, 2021 | $ | 938 | $ | 250 | $ | 361 | $ | 119,467 | $ | 121,016
Gains (losses) included in earnings |  | - |  | - |  | (9) |  | (5,979) |  | (5,988)
Gains (losses) included in OCI |  | (5) |  | - |  | - |  | - |  | (5)
Additions |  | - |  | 4 |  | - |  | 3,079 |  | 3,083
Settlements |  | (50) |  | (34) |  | - |  | - |  | (84)
Balance at September 30, 2021 | $ | 883 | $ | 220 | $ | 352 | $ | 116,567 | $ | 118,022
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2021 | $ | - | $ | - | $ | 4 | $ | (1,912) | $ | (1,908)

92

| Nine months ended September 30, 2021
|  | MBS |  |  | Other |  |  |  |
|  | classified | CMOs | securities |  |  |  |
|  | as investment | classified | classified |  |  |  |
|  | securities | as trading | as trading | Mortgage |
|  | available- | account | account | servicing | Total
(In thousands) | for-sale | securities | securities | rights | assets
Balance at January 1, 2021 | $ | 1,014 | $ | 278 | $ | 381 | $ | 118,395 | $ | 120,068
Gains (losses) included in earnings |  | - |  | - |  | (29) |  | (11,716) |  | (11,745)
Gains (losses) included in OCI |  | (6) |  | - |  | - |  | - |  | (6)
Additions |  | - |  | 28 |  | - |  | 9,888 |  | 9,916
Settlements |  | (125) |  | (86) |  | - |  | - |  | (211)
Balance at September 30, 2021 | $ | 883 | $ | 220 | $ | 352 | $ | 116,567 | $ | 118,022
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2021 | $ | - | $ | (1) | $ | 13 | $ | 1,214 | $ | 1,226

| Quarter ended September 30, 2020
|  | MBS |  |  | Other |  |  |  |
|  | classified | CMOs | securities |  |  |  |
|  | as investment | classified | classified |  |  |  |
|  | securities | as trading | as trading | Mortgage |
|  | available- | account | account | servicing | Total
(In thousands) | for-sale | securities | securities | rights | assets
Balance at June 30, 2020 | $ | 1,151 | $ | 442 | $ | 423 | $ | 141,144 | $ | 143,160
Gains (losses) included in earnings |  | - |  | - |  | (10) |  | (20,491) |  | (20,501)
Gains (losses) included in OCI |  | (2) |  | - |  | - |  | - |  | (2)
Additions |  | - |  | 2 |  | - |  | 2,899 |  | 2,901
Settlements |  | (25) |  | (34) |  | - |  | - |  | (59)
Balance at September 30, 2020 | $ | 1,124 | $ | 410 | $ | 413 | $ | 123,552 | $ | 125,499
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2020 | $ | - | $ | - | $ | - | $ | (7,892) | $ | (7,892)

| Nine months ended September 30, 2020
|  | MBS |  |  | Other |  |  |  |
|  | classified | CMOs | securities |  |  |  |
|  | as investment | classified | classified |  |  |  |
|  | securities | as trading | as trading | Mortgage |
|  | available- | account | account | servicing | Total
(In thousands) | for-sale | securities | securities | rights | assets
Balance at January 1, 2020 | $ | 1,182 | $ | 530 | $ | 440 | $ | 150,906 | $ | 153,058
Gains (losses) included in earnings |  | - |  | - |  | (27) |  | (33,360) |  | (33,387)
Gains (losses) included in OCI |  | (8) |  | - |  | - |  | - |  | (8)
Additions |  | - |  | 4 |  | - |  | 6,006 |  | 6,010
Settlements |  | (50) |  | (124) |  | - |  | - |  | (174)
Balance at September 30, 2020 | $ | 1,124 | $ | 410 | $ | 413 | $ | 123,552 | $ | 125,499
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2020 | $ | - | $ | - | $ | 13 | $ | (15,278) | $ | (15,265)

Gains and losses (realized and unrealized) included in earnings for the quarters and nine months ended September 30, 2021 and 2020 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

| Quarter ended September 30, 2021 | Nine months ended September 30, 2021
|  |  | 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 | $ | (5,979) | $ | (1,912) | $ | (11,716) | $ | 1,214
Trading account profit (loss) |  | (9) |  | 4 |  | (29) |  | 12
Total | $ | (5,988) | $ | (1,908) | $ | (11,745) | $ | 1,226

93

| Quarter ended September 30, 2020 | Nine months ended September 30, 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 | $ | (20,491) | $ | (7,892) | $ | (33,360) | $ | (15,278)
Trading account profit (loss) |  | (10) |  | - |  | (27) |  | 13
Total | $ | (20,501) | $ | (7,892) | $ | (33,387) | $ | (15,265)

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 September 30, 2021 and 2020.

|  |  | Fair value at |  |  |  |  |
| September 30, |  |  |  |  |
(In thousands) |  | 2021 |  | Valuation technique | Unobservable inputs | Weighted average (range) [1]
CMO's - trading | $ | 220 |  | Discounted cash flow model | Weighted average life | 0.9 years (0.1 - 1.1 years) |
|  |  |  |  |  | Yield | 3.6% (3.6% - 4.1%) |
|  |  |  |  |  | Prepayment speed | 11.4% (10.1% - 16.7%) |
Other - trading | $ | 352 |  | Discounted cash flow model | Weighted average life | 3.6 years |
|  |  |  |  |  | Yield | 12.0% |
|  |  |  |  |  | Prepayment speed | 10.8% |
Mortgage servicing rights | $ | 116,567 |  | Discounted cash flow model | Prepayment speed | 6.2% (0.3% - 34.2%) |
|  |  |  |  |  | Weighted average life | 6.1 years (0.1 - 13.1 years) |
|  |  |  |  |  | Discount rate | 11.1% (9.5% - 14.7%) |
Loans held-in-portfolio | $ | 21,715 | [2] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 11.0% (10.0% - 30.5%) |
Other real estate owned | $ | 4,099 | [3] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 22.3% (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 |  |  |  |  |
| September 30, |  |  |  |  |
(In thousands) |  | 2020 |  | Valuation technique | Unobservable inputs | Weighted average (range) [1]
CMO's - trading | $ | 410 |  | Discounted cash flow model | Weighted average life | 1.3 years (0.6 - 1.5 years) |
|  |  |  |  |  | Yield | 3.7% (3.6% - 4.1%) |
|  |  |  |  |  | Prepayment speed | 17.7% (13.8% - 18.4%) |
Other - trading | $ | 413 |  | Discounted cash flow model | Weighted average life | 3.8 years |
|  |  |  |  |  | Yield | 12.0% |
|  |  |  |  |  | Prepayment speed | 10.8% |
Mortgage servicing rights | $ | 123,552 |  | Discounted cash flow model | Prepayment speed | 6.9% (0.2% - 22.1%) |
|  |  |  |  |  | Weighted average life | 6.1 years (0.1 - 12.3 years) |
|  |  |  |  |  | Discount rate | 11.2% (9.5% - 14.7%) |
Loans held-in-portfolio | $ | 96,740 | [2] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 23.2% (21.0% - 40.0%) |
Other real estate owned | $ | 13,826 | [3] | External appraisal | Haircut applied on |  |
|  |  |  |  |  | external appraisals | 21.5% (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.

94

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. S ignificant 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.

95

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 September 30, 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.

96

|  | September 30, 2021
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 538,973 | $ | 538,973 | $ | - | $ | - | $ | 538,973
Money market investments |  | 17,526,238 |  | 17,519,832 |  | 6,406 |  | - |  | 17,526,238
Trading account debt securities, excluding derivatives[1] |  | 36,064 |  | 10,780 |  | 24,712 |  | 572 |  | 36,064
Debt securities available-for-sale[1] |  | 24,391,226 |  | 799,972 |  | 23,590,371 |  | 883 |  | 24,391,226
Debt securities held-to-maturity: |  |  |  |  |  |  |  |  |  |
| Obligations of Puerto Rico, States and political subdivisions | $ | 64,842 | $ | - | $ | - | $ | 78,183 | $ | 78,183
| Collateralized mortgage obligation-federal agency |  | 30 |  | - |  | - |  | 31 |  | 31
| Securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | 11,561
Total debt securities held-to-maturity | $ | 76,433 | $ | - | $ | 11,561 | $ | 78,214 | $ | 89,775
Equity securities: |  |  |  |  |  |  |  |  |  |
| FHLB stock | $ | 56,685 | $ | - | $ | 56,685 | $ | - | $ | 56,685
| FRB stock |  | 95,119 |  | - |  | 95,119 |  | - |  | 95,119
| Other investments |  | 33,127 |  | - |  | 30,212 |  | 4,313 |  | 34,525
Total equity securities | $ | 184,931 | $ | - | $ | 182,016 | $ | 4,313 | $ | 186,329
Loans held-for-sale | $ | 91,313 | $ | - | $ | - | $ | 92,903 | $ | 92,903
Loans held-in-portfolio |  | 28,136,797 |  | - |  | - |  | 27,091,726 |  | 27,091,726
Mortgage servicing rights |  | 116,567 |  | - |  | - |  | 116,567 |  | 116,567
Derivatives |  | 23,827 |  | - |  | 23,827 |  | - |  | 23,827
|  | September 30, 2021
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
| Demand deposits | $ | 59,081,441 | $ | - | $ | 59,081,441 | $ | - | $ | 59,081,441
| Time deposits |  | 6,932,120 |  | - |  | 6,881,141 |  | - |  | 6,881,141
Total deposits | $ | 66,013,561 | $ | - | $ | 65,962,582 | $ | - | $ | 65,962,582
Assets sold under agreements to repurchase | $ | 86,470 | $ | - | $ | 86,455 | $ | - | $ | 86,455
Notes payable: |  |  |  |  |  |  |  |  |  |
| FHLB advances | $ | 494,469 | $ | - | $ | 502,792 | $ | - | $ | 502,792
| Unsecured senior debt securities |  | 297,525 |  | - |  | 322,938 |  | - |  | 322,938
| Junior subordinated deferrable interest debentures (related to trust preferred securities) |  | 384,949 |  | - |  | 411,186 |  | - |  | 411,186
Total notes payable | $ | 1,176,943 | $ | - | $ | 1,236,916 | $ | - | $ | 1,236,916
Derivatives | $ | 20,879 | $ | - | $ | 20,879 | $ | - | $ | 20,879
[1] | Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

97

|  | 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 September 30, 2021 and December 31, 2020 is $9.3 billion, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2021 and December 31, 2020 is $ 28 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.

98

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 and nine months ended September 30, 2021 and 2020:

|  | Quarters ended September 30, | Nine months ended September 30,
(In thousands, except per share information) | 2021 | 2020 | 2021 | 2020
Net income | $ | 248,114 | $ | 168,416 | $ | 728,825 | $ | 330,346
Preferred stock dividends |  | (353) |  | (352) |  | (1,059) |  | (1,405)
Net income applicable to common stock | $ | 247,761 | $ | 168,064 | $ | 727,766 | $ | 328,941
Average common shares outstanding |  | 80,126,166 |  | 83,809,272 |  | 81,864,634 |  | 86,567,680
Average potential dilutive common shares |  | 148,776 |  | 26,879 |  | 149,479 |  | 78,011
Average common shares outstanding - assuming dilution |  | 80,274,942 |  | 83,836,151 |  | 82,014,113 |  | 86,645,691
Basic EPS | $ | 3.09 | $ | 2.01 | $ | 8.89 | $ | 3.80
Diluted EPS | $ | 3.09 | $ | 2.00 | $ | 8.87 | $ | 3.80

As disclosed in Note 17, as of September 30, 2021, the Corporation completed its $350 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 3,785,831 shares of common stock during the second quarter of 2021 and 828,965 additional shares of common stock during the third quarter of 2021. The final number of shares delivered was based in the average daily volume weighted average price (“VWAP”) of its common stock, net of discount, during the term of the ASR, which amounted to $75.84.

Potential common shares consist of shares of common stock issuable under the assumed exercise of stock options, restricted stock and performance share awards using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from exercise, in addition to the amount of compensation cost attributed to future services, are used to purchase shares of common stock at the exercise date. The difference between the number of potential common shares issued and the shares of common stock purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Warrants, stock options, restricted stock and performance share awards, if any, that result in lower potential common shares issued than shares of common stock purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect in earnings per common share.

99

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 and nine months ended September 30, 2021 and 2020.

|  | Quarter ended September 30, |  | Nine months ended September 30,
(In thousands) | 2021 |  |  | 2021
|  |  | BPPR |  | Popular U.S. |  |  | BPPR |  | Popular U.S.
Service charges on deposit accounts | $ | 38,496 | $ | 2,816 |  | $ | 112,732 | $ | 8,353
Other service fees: |  |  |  |  |  |  |  |  |
| Debit card fees |  | 11,967 |  | 243 |  |  | 35,522 |  | 723
| Insurance fees, excluding reinsurance |  | 9,416 |  | 1,054 |  |  | 27,489 |  | 2,483
| Credit card fees, excluding late fees and membership fees |  | 30,076 |  | 274 |  |  | 85,203 |  | 788
| Sale and administration of investment products |  | 6,216 |  | - |  |  | 17,726 |  | -
| Trust fees |  | 6,574 |  | - |  |  | 18,878 |  | -
Total revenue from contracts with customers [1] | $ | 102,745 | $ | 4,387 |  | $ | 297,550 | $ | 12,347
[1] | The amounts include intersegment transactions of $0.3 million and $2.6 million, respectively, for the quarter and nine months ended September 30, 2021.
|  | Quarter ended September 30, |  | Nine months ended September 30,
(In thousands) | 2020 |  |  | 2020
|  |  | BPPR |  | Popular U.S. |  |  | BPPR |  | Popular U.S.
Service charges on deposit accounts | $ | 34,078 | $ | 2,771 |  | $ | 100,513 | $ | 8,158
Other service fees: |  |  |  |  |  |  |  |  |
| Debit card fees |  | 10,865 |  | 258 |  |  | 27,717 |  | 725
| Insurance fees, excluding reinsurance |  | 9,269 |  | 642 |  |  | 25,140 |  | 1,910
| Credit card fees, excluding late fees and membership fees |  | 23,631 |  | 194 |  |  | 60,777 |  | 597
| Sale and administration of investment products |  | 5,094 |  | - |  |  | 16,267 |  | -
| Trust fees |  | 4,975 |  | - |  |  | 16,092 |  | -
Total revenue from contracts with customers [1] | $ | 87,912 | $ | 3,865 |  | $ | 246,506 | $ | 11,390
[1] | The amounts include intersegment transactions of $0.2 million and $2.6 million, respectively, for the quarter and nine months ended September 30, 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.

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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.

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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 32.3 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, the United States mainland banking subsidiary of the Corporation, 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:

September 30, 2021
(In thousands) |  | Remaining 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | Later Years |  | Total Lease Payments |  | Less: Imputed Interest |  | Total
Operating Leases | $ | 7,611 | $ | 28,880 | $ | 26,677 | $ | 25,396 | $ | 22,458 | $ | 61,399 | $ | 172,421 | $ | (20,382) | $ | 152,039
Finance Leases |  | 839 |  | 3,402 |  | 3,492 |  | 3,589 |  | 3,701 |  | 8,851 |  | 23,874 |  | (3,564) |  | 20,310

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

|  |  | Quarters ended September 30, | Nine months ended September 30,
(In thousands) | 2021 | 2020 | 2021 | 2020
Finance lease cost: |  |  |  |  |  |  |  |
| Amortization of ROU assets | $ | 475 | $ | 525 | $ | 1,531 | $ | 1,512
| Interest on lease liabilities |  | 257 |  | 299 |  | 795 |  | 900
Operating lease cost |  | 7,800 |  | 8,361 |  | 22,005 |  | 24,189
Short-term lease cost |  | 174 |  | 38 |  | 349 |  | 172
Variable lease cost |  | 20 |  | 12 |  | 70 |  | 37
Sublease income |  | (19) |  | (23) |  | (57) |  | (83)
Net gain recognized from sale and leaseback transactions[1] |  | (7,007) |  | - |  | (7,007) |  | (5,550)
Total lease cost[2] | $ | 1,700 | $ | 9,212 | $ | 17,686 | $ | 21,177
[1] | During the quarter ended September 30, 2021, the Corporation recognized the transfer of two corporate office buildings as a sale. During the quarter ended June 30, 2020, the Corporation recognized the transfer of the Caparra Center as a sale. Since these sale and partial leaseback transactions were considered to be at fair value, no portion of the gain on sale was deferred.
[2] | Total lease cost is recognized as part of net occupancy expense, except for the net gain recognized from sale and leaseback transactions which was included as part of other operating income.

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

|  |  |  | Nine months ended September 30,
(Dollars in thousands) |  | 2021 |  | 2020
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
| Operating cash flows from operating leases[1] | $ | 30,282 | $ | 24,115
| Operating cash flows from finance leases |  | 795 |  | 900
| Financing cash flows from finance leases[1] |  | 2,262 |  | 1,608
ROU assets obtained in exchange for new lease obligations: |  |  |  |
| Operating leases[2] | $ | 22,352 | $ | 13,085
| Finance leases |  | - |  | 4,510
Weighted-average remaining lease term: |  |  |  |  |  |
| Operating leases |  | 7.9 | years |  | 8.1 | years
| Finance leases |  | 8.5 | years |  | 9.2 | years
Weighted-average discount rate: |  |  |  |  |  |
| Operating leases |  | 2.8 | % |  | 3.2 | %
| Finance leases |  | 5.0 | % |  | 5.0 | %
[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.
[2] | During the quarter ended September 30, 2021, the Corporation recognized a lease liability of $16.8 million and a corresponding ROU asset for the same amount as a result of the partial leaseback of two corporate office buildings.

As of September 30, 2021, the Corporation has additional operating leases contracts that have not yet commenced with an undiscounted contract amount of $2.9 million, which will have lease terms ranging from 10 to 20 years.

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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 September 30, |  | Quarters ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Personnel Cost: |  |  |  |  |  |  |  |
Service cost | $ | - | $ | - | $ | 160 | $ | 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 |  | 4,719 |  | 5,220 |  | 468 |  | 142
Total net periodic pension cost | $ | (953) | $ | 1,541 | $ | 1,521 | $ | 1,548

|  | Pension Plans |  | OPEB Plan
|  | Nine months ended September 30, |  | Nine months ended September 30,
(In thousands) |  | 2021 |  | 2020 |  | 2021 |  | 2020
Personnel Cost: |  |  |  |  |  |  |  |
Service cost | $ | - | $ | - | $ | 480 | $ | 535
Other operating expenses: |  |  |  |  |  |  |  |
Interest cost |  | 11,994 |  | 17,541 |  | 2,679 |  | 3,684
Expected return on plan assets |  | (29,011) |  | (28,577) |  | - |  | -
Amortization prior service cost/(credit) |  | - |  | - |  | - |  | -
Amortization of net loss |  | 14,159 |  | 15,660 |  | 1,407 |  | 426
Total net periodic pension cost | $ | (2,858) | $ | 4,624 | $ | 4,566 | $ | 4,645

The Corporation paid the following contributions to the plans for the nine months ended September 30, 2021 and expects to pay the following contributions for the year ending December 31, 2021.

| For the nine months ended | For the year ending
(In thousands) | September 30, 2021 | December 31, 2021
Pension Plans | $ | 172 | $ | 229
OPEB Plan | $ | 4,640 | $ | 6,333

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Note 29 - Stock-based compensation

Incentive Plan

On May 12, 2020, the shareholders 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 to its employees and restricted stock and restricted stock units (“RSUs”) 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 and prior to 2021 was modified 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 awards 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.

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(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 | 191,479 |  | 69.38
Performance Shares Quantity Adjustment | 54,306 |  | 54.21
Vested | (272,990) |  | 55.15
Forfeited | (2,429) |  | 42.52
Non-vested at September 30, 2021 | 328,878 | $ | 47.90

During the quarter ended September 30, 2021, no shares of restricted stock (September 30, 2020 – 266) were awarded to management under the Incentive Plan. During the quarters ended September 30, 2021 and 2020, no performance shares were awarded to management under the Incentive Plan. For the nine months ended September 30, 2021, 120,105 shares of restricted stock (September 30, 2020 – 213,511) and 71,374 performance shares (September 30, 2020 - 64,815) were awarded to management under the Incentive Plan.

During the quarter ended September 30, 2021, the Corporation recognized $1.3 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.3 million (September 30, 2020 - $1.0 million, with a tax benefit of $0.2 million). For the nine months ended September 30, 2021, the Corporation recognized $7.5 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.4 million (September 30, 2020 - $6.7 million, with a tax benefit of $1.1 million). For the nine months ended September 30, 2021, the fair market value of the restricted stock and performance shares vested was $7.1 million at grant date and $10.5 million at vesting date. This differential triggers a windfall of $2.5 million that was recorded as a reduction on income tax expense. During the quarter ended September 30, 2021 the Corporation recognized $0.3 million of performance shares expense, with a tax benefit of $12 thousand (September 30, 2020 - $0.3 million, with a tax benefit of $24 thousand). For the nine months ended September 30, 2021, the Corporation recognized $4.9 million of performance shares expense, with a tax benefit of $0.5 million (September 30, 2020 - $3.1 million, with a tax benefit of $0.3 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at September 30, 2021 was $10.5 million and is expected to be recognized over a weighted-average period of 2.0 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 |  | 20,079 |  | 78.19
Vested |  | (20,079) |  | 78.19
Forfeited |  | - |  | -
Non-vested at September 30, 2021 | $ | - | $ | -

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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 in May 2019, all equity awards granted to the Directors may be paid in either restricted stock or RSUs at each Directors election. If RSUs are elected, the Directors may defer the delivery of the shares of common stock underlying the RSU award until their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stock, the Directors holding RSUs will receive an additional number of RSUs that reflect a reinvested dividend equivalent.

For 2021 and 2020, all Directors elected RSUs. During the quarter ended September 30, 2021, 545 RSUs were granted to the Directors (September 30, 2020 - 783) and the Corporation recognized expense related to these RSUs of $42 thousand with a tax benefit of $8 thousand (September 30, 2020 - $28 thousand with a tax benefit of $5 thousand). For the nine months ended September 30, 2021, the Corporation granted 20,079 RSUs to the Directors (September 30, 2020 - 43,084) and the Corporation recognized $1.9 million of expense related to these RSUs, with a tax benefit of $0.3 million, (September 30, 2020 - $1.5 million, with a tax benefit of $0.3 million). The fair value at vesting date of the RSUs vested during the nine months ended September 30, 2021 for the Directors was $1.6 million.

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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 |
|  |  | September 30, 2021 |  |  |  | September 30, 2020 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 124,370 | 38 | % |  | $ | 78,594 | 38 | %
Net benefit of tax exempt interest income |  | (34,294) | (10) |  |  |  | (31,177) | (15) |
Deferred tax asset valuation allowance |  | 3,529 | 1 |  |  |  | 2,185 | 1 |
Difference in tax rates due to multiple jurisdictions |  | (9,600) | (3) |  |  |  | (2,584) | (1) |
Effect of income subject to preferential tax rate |  | (5,441) | (2) |  |  |  | (3,095) | (2) |
Unrecognized tax benefits |  | (5,484) | (2) |  |  |  | (2,163) | (1) |
Adjustment due to estimate on the annual effective rate |  | 4,001 | 1 |  |  |  | (4,030) | (2) |
State and local taxes |  | 6,352 | 2 |  |  |  | 3,748 | 2 |
Others |  | 109 | - |  |  |  | (310) | - |
Income tax expense | $ | 83,542 | 25 | % |  | $ | 41,168 | 20 | %

|  |  | Nine months ended |
|  |  | September 30, 2021 |  |  |  | September 30, 2020 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 360,859 | 38 | % |  | $ | 149,715 | 38 | %
Net benefit of tax exempt interest income |  | (105,297) | (11) |  |  |  | (93,497) | (24) |
Deferred tax asset valuation allowance |  | 19,682 | 2 |  |  |  | 10,333 | 3 |
Difference in tax rates due to multiple jurisdictions |  | (25,429) | (3) |  |  |  | 2,081 | 1 |
Effect of income subject to preferential tax rate |  | (10,175) | (1) |  |  |  | (7,722) | (2) |
Adjustment due to estimate on the annual effective rate |  | (6,732) | (1) |  |  |  | 2,821 | 1 |
Unrecognized tax benefits |  | (5,484) | (1) |  |  |  | (2,163) | (1) |
State and local taxes |  | 8,943 | 1 |  |  |  | 5,807 | 1 |
Others |  | (2,901) | - |  |  |  | 1,518 | - |
Income tax expense | $ | 233,466 | 24 | % |  | $ | 68,893 | 17 | %

For the quarter and nine months ended September 30, 2021, the Corporation recorded an income tax expense of $83.5 million and $233.5 million, respectively, compared to $41.2 million and $68.9 million for the respective period of 2020. The increase in income tax expense was primarily due to higher pre-tax income resulting primarily from a lower provision for credit losses partially offset by higher net exempt interest income and higher income from the U.S. operations subject to lower statutory tax rate.

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

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|  |  | September 30, 2021
(In thousands) |  | PR |  | US |  | Total
Deferred tax assets: |  |  |  |  |  |
Tax credits available for carryforward | $ | 3,718 | $ | 2,781 | $ | 6,499
Net operating loss and other carryforward available |  | 106,024 |  | 682,305 |  | 788,329
Postretirement and pension benefits |  | 73,189 |  | - |  | 73,189
Deferred loan origination fees |  | 11,251 |  | (3,997) |  | 7,254
Allowance for credit losses |  | 254,120 |  | 32,493 |  | 286,613
Accelerated depreciation |  | 4,400 |  | 7,325 |  | 11,725
FDIC-assisted transaction |  | 152,665 |  | - |  | 152,665
Intercompany deferred gains |  | 1,458 |  | - |  | 1,458
Lease liability |  | 27,670 |  | 24,757 |  | 52,427
Difference in outside basis from pass-through entities |  | 56,358 |  | - |  | 56,358
Other temporary differences |  | 40,689 |  | 8,443 |  | 49,132
| Total gross deferred tax assets |  | 731,542 |  | 754,107 |  | 1,485,649
Deferred tax liabilities: |  |  |  |  |  |
Indefinite-lived intangibles |  | 75,803 |  | 50,562 |  | 126,365
Unrealized net gain (loss) on trading and available-for-sale securities |  | 35,095 |  | 5,882 |  | 40,977
Right of use assets |  | 25,564 |  | 21,065 |  | 46,629
Other temporary differences |  | 52,623 |  | 1,507 |  | 54,130
| Total gross deferred tax liabilities |  | 189,085 |  | 79,016 |  | 268,101
Valuation allowance |  | 124,351 |  | 417,013 |  | 541,364
Net deferred tax asset | $ | 418,106 | $ | 258,078 | $ | 676,184
|  |  | 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 credit 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

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The net deferred tax asset shown in the table above at September 30, 2021 is reflected in the consolidated statements of financial condition as $0.7 billion in net deferred tax assets in the “Other assets” caption (December 31, 2020 - $0.9 billion) and $869 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.

At September 30, 2021 the net deferred tax asset of the U.S. operations amounted to $675 million with a valuation allowance of approximately $417 million, for a net deferred tax asset after valuation allowance of approximately $258 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. operation is not in a cumulative three-year loss position and had sustained profitability for the three-year period ended September 30, 2021 with strong pre-tax income for the first three quarters of 2021. 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 any negative evidence related to the COVID-19 pandemic and the uncertainty created by new variants. As of September 30, 2021, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $258 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 deferred tax asset. Management will closely monitor factors, including, net income versus forecast, targeted loan growth, net interest income margin, allowance for credit losses, charge offs, NPLs inflows and NPA balances.

At September 30, 2021, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $418 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 had sustained profitability for the three-year period ended September 30, 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 September 30, 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 September 30, 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 $124 million as of September 30, 2021.

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

(In millions) |  | 2021 |  |  | 2020
Balance at January 1 | $ | 14.8 |  | $ | 16.3
Balance at March 31 | $ | 14.8 |  | $ | 16.3
Balance at June 30 | $ | 14.8 |  | $ | 16.3
Reduction as a result of lapse of statute of limitations - July through September |  | (11.3) |  |  | (1.5)
Balance at September 30 | $ | 3.5 |  | $ | 14.8

At September 30, 2021, the total amount of accrued interest recognized in the statement of financial condition approximated $2.6 million (December 31, 2020 - $4.8 million). The total interest expense recognized at September 30, 2021 was $810 thousand, net of the reduction of $2.9 million due to the expiration of the statute of limitation (September 30, 2020 - $1.6 million) net of the reduction of $645 thousand due to the expiration of the statute of limitation). Management determined that at September 30, 2021 and

110

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 $5.4 million at September 30, 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 September 30, 2021, the following years remain subject to examination in the U.S. Federal jurisdiction: 2018 and thereafter; and in the Puerto Rico jurisdiction, 2017 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 $1.4 million, including interest.

111

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

Additional disclosures on cash flow information and non-cash activities for the nine months ended September 30, 2021 and September 30, 2020 are listed in the following table:

(In thousands) |  | September 30, 2021 |  | September 30, 2020
Non-cash activities: |  |  |  |
Loans transferred to other real estate | $ | 40,278 | $ | 16,724
Loans transferred to other property |  | 32,748 |  | 34,351
Total loans transferred to foreclosed assets |  | 73,026 |  | 51,075
Loans transferred to other assets |  | 5,237 |  | 5,763
Financed sales of other real estate assets |  | 9,641 |  | 11,401
Financed sales of other foreclosed assets |  | 31,809 |  | 24,188
Total financed sales of foreclosed assets |  | 41,450 |  | 35,589
Financed sale of premises and equipment |  | 30,730 |  | 31,350
Transfers from premises and equipment to long-lived assets held-for-sale |  | 26,242 |  | -
Transfers from loans held-in-portfolio to loans held-for-sale |  | 60,806 |  | 65,229
Transfers from loans held-for-sale to loans held-in-portfolio |  | 6,710 |  | 17,640
Loans securitized into investment securities[1] |  | 546,335 |  | 307,512
Trades receivable from brokers and counterparties |  | 74,328 |  | 65,993
Trades payable to brokers and counterparties |  | 13,746 |  | 1,484,410
Recognition of mortgage servicing rights on securitizations or asset transfers |  | 9,888 |  | 6,006
Loans booked under the GNMA buy-back option |  | 20,908 |  | 121,531
Capitalization of lease right of use asset |  | 26,676 |  | 25,620
[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) | September 30, 2021 | September 30, 2020
Cash and due from banks | $ | 506,890 | $ | 558,996
Restricted cash and due from banks |  | 32,083 |  | 6,206
Restricted cash in money market investments |  | 6,406 |  | 5,946
Total cash and due from banks, and restricted cash[2] | $ | 545,379 | $ | 571,148
[2] | Refer to Note 4 - Restrictions on cash and due from banks and certain securities for nature of restrictions.

112

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 September 30, 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 service units of BPPR, asset management services of Popular Asset Management, 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:

113

2021
For the quarter ended September 30, 2021
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 419,166 | $ | 80,038 | $ | 2
Provision for credit losses (benefit) |  |  |  | (37,022) |  | (23,937) |  | -
Non-interest income |  |  |  | 146,139 |  | 6,150 |  | (136)
Amortization of intangibles |  |  |  | 617 |  | 166 |  | -
Depreciation expense |  |  |  | 11,164 |  | 1,516 |  | -
Other operating expenses |  |  |  | 324,171 |  | 50,694 |  | (136)
Income tax expense |  |  |  | 65,357 |  | 18,139 |  | -
Net income |  |  | $ | 201,018 | $ | 39,610 | $ | 2
Segment assets |  |  | $ | 63,476,269 | $ | 10,338,333 | $ | (23,074)
For the quarter ended September 30, 2021
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 499,206 | $ | (9,813) | $ | - | $ | 489,393
Provision for credit losses (benefit) |  | (60,959) |  | (214) |  | - |  | (61,173)
Non-interest income |  | 152,153 |  | 17,251 |  | (146) |  | 169,258
Amortization of intangibles |  | 783 |  | - |  | - |  | 783
Depreciation expense |  | 12,680 |  | 328 |  | - |  | 13,008
Other operating expenses |  | 374,729 |  | 615 |  | (967) |  | 374,377
Income tax expense (benefit) |  | 83,496 |  | (279) |  | 325 |  | 83,542
Net income | $ | 240,630 | $ | 6,988 | $ | 496 | $ | 248,114
Segment assets | $ | 73,791,528 | $ | 5,378,819 | $ | (4,981,184) | $ | 74,189,163

For the nine months ended September 30, 2021
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 1,248,689 | $ | 237,950 | $ | 5
Provision for credit losses (benefit) |  |  |  | (104,425) |  | (55,801) |  | -
Non-interest income |  |  |  | 417,399 |  | 17,083 |  | (411)
Amortization of intangibles |  |  |  | 2,338 |  | 499 |  | -
Depreciation expense |  |  |  | 35,115 |  | 5,441 |  | -
Other operating expenses |  |  |  | 938,754 |  | 152,421 |  | (408)
Income tax expense |  |  |  | 187,784 |  | 46,337 |  | -
Net income |  |  | $ | 606,522 | $ | 106,136 | $ | 2
Segment assets |  |  | $ | 63,476,269 | $ | 10,338,333 | $ | (23,074)
For the nine months ended September 30, 2021
|  | Reportable |  |  |  |  |  | Total
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Popular, Inc.
Net interest income (expense) | $ | 1,486,644 | $ | (30,337) | $ | - | $ | 1,456,307
Provision for credit losses (benefit) |  | (160,226) |  | (188) |  | - |  | (160,414)
Non-interest income |  | 434,071 |  | 45,675 |  | (2,295) |  | 477,451
Amortization of intangibles |  | 2,837 |  | 252 |  | - |  | 3,089
Depreciation expense |  | 40,556 |  | 860 |  | - |  | 41,416
Other operating expenses |  | 1,090,767 |  | (567) |  | (2,824) |  | 1,087,376
Income tax expense (benefit) |  | 234,121 |  | (925) |  | 270 |  | 233,466
Net income | $ | 712,660 | $ | 15,906 | $ | 259 | $ | 728,825
Segment assets | $ | 73,791,528 | $ | 5,378,819 | $ | (4,981,184) | $ | 74,189,163

114

2020
For the quarter ended September 30, 2020
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 394,662 | $ | 76,481 | $ | 2
Provision for credit losses |  |  |  | 7,288 |  | 11,770 |  | -
Non-interest income |  |  |  | 107,577 |  | 7,186 |  | (138)
Amortization of intangibles |  |  |  | 886 |  | 166 |  | -
Depreciation expense |  |  |  | 11,921 |  | 2,338 |  | -
Other operating expenses |  |  |  | 292,528 |  | 54,679 |  | (136)
Income tax expense |  |  |  | 35,834 |  | 5,350 |  | -
Net income |  |  | $ | 153,782 | $ | 9,364 | $ | -
Segment assets |  |  | $ | 55,388,782 | $ | 10,220,824 | $ | (28,177)
For the quarter ended September 30, 2020
|  | Reportable |  |  |  |  |  |
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Total Popular, Inc.
Net interest income (expense) | $ | 471,145 | $ | (10,124) | $ | - | $ | 461,021
Provision for credit losses |  | 19,058 |  | 80 |  | - |  | 19,138
Non-interest income |  | 114,625 |  | 14,230 |  | (88) |  | 128,767
Amortization of intangibles |  | 1,052 |  | 24 |  | - |  | 1,076
Depreciation expense |  | 14,259 |  | 259 |  | - |  | 14,518
Other operating expenses |  | 347,071 |  | (748) |  | (851) |  | 345,472
Income tax expense (benefit) |  | 41,184 |  | (312) |  | 296 |  | 41,168
Net income | $ | 163,146 | $ | 4,803 | $ | 467 | $ | 168,416
Segment assets | $ | 65,581,429 | $ | 5,201,316 | $ | (4,872,376) | $ | 65,910,369

For the nine months ended September 30, 2020
|  |  |  | Banco Popular |  |  |  | Intersegment
(In thousands) |  |  |  | de Puerto Rico |  | Popular U.S. |  | Eliminations
Net interest income |  |  | $ | 1,191,452 | $ | 222,874 | $ | 9
Provision for credit losses |  |  |  | 180,659 |  | 90,442 |  | -
Non-interest income |  |  |  | 315,522 |  | 18,831 |  | (414)
Amortization of intangibles |  |  |  | 4,773 |  | 499 |  | -
Depreciation expense |  |  |  | 36,282 |  | 6,396 |  | -
Other operating expenses |  |  |  | 876,438 |  | 160,749 |  | (408)
Income tax expense |  |  |  | 69,040 |  | 666 |  | -
Net income (loss) |  |  | $ | 339,782 | $ | (17,047) | $ | 3
Segment assets |  |  | $ | 55,388,782 | $ | 10,220,824 | $ | (28,177)
For the nine months ended September 30, 2020
|  | Reportable |  |  |  |  |  | Total
(In thousands) |  | Segments |  | Corporate |  | Eliminations |  | Popular, Inc.
Net interest income (expense) | $ | 1,414,335 | $ | (29,338) | $ | - | $ | 1,384,997
Provision for credit losses |  | 271,101 |  | 217 |  | - |  | 271,318
Non-interest income |  | 333,939 |  | 35,645 |  | (2,119) |  | 367,465
Amortization of intangibles |  | 5,272 |  | 73 |  | - |  | 5,345
Depreciation expense |  | 42,678 |  | 741 |  | - |  | 43,419
Other operating expenses |  | 1,036,779 |  | (1,056) |  | (2,582) |  | 1,033,141
Income tax expense (benefit) |  | 69,706 |  | (964) |  | 151 |  | 68,893
Net income | $ | 322,738 | $ | 7,296 | $ | 312 | $ | 330,346
Segment assets | $ | 65,581,429 | $ | 5,201,316 | $ | (4,872,376) | $ | 65,910,369

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

115

2021
For the quarter ended September 30, 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 | $ | 183,456 | $ | 234,477 | $ | 1,233 | $ | - | $ | 419,166
Provision for credit losses (benefit) |  | (11,948) |  | (25,074) |  | - |  | - |  | (37,022)
Non-interest income |  | 36,662 |  | 83,531 |  | 26,335 |  | (389) |  | 146,139
Amortization of intangibles |  | 54 |  | 457 |  | 106 |  | - |  | 617
Depreciation expense |  | 4,881 |  | 6,124 |  | 159 |  | - |  | 11,164
Other operating expenses |  | 96,414 |  | 206,257 |  | 21,911 |  | (411) |  | 324,171
Income tax expense |  | 46,183 |  | 17,836 |  | 1,338 |  | - |  | 65,357
Net income | $ | 84,534 | $ | 112,408 | $ | 4,054 | $ | 22 | $ | 201,018
Segment assets | $ | 63,743,047 | $ | 30,902,005 | $ | 2,020,629 | $ | (33,189,412) | $ | 63,476,269

For the nine months ended September 30, 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 | $ | 543,807 | $ | 701,018 | $ | 3,864 | $ | - | $ | 1,248,689
Provision for credit losses (benefit) |  | (57,305) |  | (47,120) |  | - |  | - |  | (104,425)
Non-interest income |  | 91,235 |  | 251,022 |  | 76,322 |  | (1,180) |  | 417,399
Amortization of intangibles |  | 161 |  | 1,845 |  | 332 |  | - |  | 2,338
Depreciation expense |  | 15,401 |  | 19,222 |  | 492 |  | - |  | 35,115
Other operating expenses |  | 273,374 |  | 599,289 |  | 67,417 |  | (1,326) |  | 938,754
Income tax expense |  | 132,632 |  | 51,531 |  | 3,621 |  | - |  | 187,784
Net income | $ | 270,779 | $ | 327,273 | $ | 8,324 | $ | 146 | $ | 606,522
Segment assets | $ | 63,743,047 | $ | 30,902,005 | $ | 2,020,629 | $ | (33,189,412) | $ | 63,476,269

| 2020
| For the quarter ended September 30, 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 | $ | 164,791 | $ | 228,293 | $ | 1,578 | $ | - | $ | 394,662
Provision for credit losses |  | 4,061 |  | 3,227 |  | - |  | - |  | 7,288
Non-interest income |  | 24,804 |  | 58,955 |  | 24,194 |  | (376) |  | 107,577
Amortization of intangibles |  | 50 |  | 699 |  | 137 |  | - |  | 886
Depreciation expense |  | 5,179 |  | 6,569 |  | 173 |  | - |  | 11,921
Other operating expenses |  | 77,906 |  | 195,624 |  | 19,389 |  | (391) |  | 292,528
Income tax expense |  | 32,331 |  | 2,275 |  | 1,228 |  | - |  | 35,834
Net income | $ | 70,068 | $ | 78,854 | $ | 4,845 | $ | 15 | $ | 153,782
Segment assets | $ | 47,920,631 | $ | 29,358,230 | $ | 2,408,998 | $ | (24,299,077) | $ | 55,388,782

| For the nine months ended September 30, 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 | $ | 486,050 | $ | 694,983 | $ | 10,419 | $ | - | $ | 1,191,452
Provision for credit losses |  | 23,244 |  | 157,415 |  | - |  | - |  | 180,659
Non-interest income |  | 74,771 |  | 170,205 |  | 71,459 |  | (913) |  | 315,522
Amortization of intangibles |  | 148 |  | 2,911 |  | 1,714 |  | - |  | 4,773
Depreciation expense |  | 15,406 |  | 20,383 |  | 493 |  | - |  | 36,282
Other operating expenses |  | 226,232 |  | 587,297 |  | 63,863 |  | (954) |  | 876,438
Income tax expense (benefit) |  | 82,271 |  | (18,912) |  | 5,681 |  | - |  | 69,040
Net income | $ | 213,520 | $ | 116,094 | $ | 10,127 | $ | 41 | $ | 339,782
Segment assets | $ | 47,920,631 | $ | 29,358,230 | $ | 2,408,998 | $ | (24,299,077) | $ | 55,388,782

116

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 September 30, 2021, the BPPR segment generated approximately $38.1 million (2020 - $41.7 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 $34.7 million in revenues (2020 - $33.5 million) from its operations in the U.S. and British Virgin Islands. At September 30, 2021, total assets for the BPPR segment related to its operations in the United States amounted to $565 million (2020 - $579 million).

Geographic Information |  |  |  |
|  |  | Quarter ended |  | Nine months ended
(In thousands) |  | September 30, 2021 |  | September 30, 2020 |  | September 30, 2021 |  | September 30, 2020
Revenues:[1] |  |  |  |  |  |  |  |
Puerto Rico | $ | 542,178 | $ | 476,863 | $ | 1,590,030 | $ | 1,418,243
United States |  | 97,331 |  | 95,145 |  | 288,619 |  | 279,246
Other |  | 19,142 |  | 17,780 |  | 55,109 |  | 54,973
Total consolidated revenues | $ | 658,651 | $ | 589,788 | $ | 1,933,758 | $ | 1,752,462
[1] | Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain on sale of debt securities, net (loss) gain, including impairment on equity securities, net profit (loss) on trading account debt securities, net (loss) gain on sale of loans, including valuation adjustment on loans held-for-sale, adjustments (expense) to indemnity reserves on loans sold, and other operating income.

Selected Balance Sheet Information:
(In thousands) |  | September 30, 2021 |  | December 31, 2020
Puerto Rico |  |  |  |
| Total assets | $ | 62,401,086 | $ | 54,143,954
| Loans |  | 20,097,055 |  | 20,413,112
| Deposits |  | 56,247,551 |  | 47,586,880
United States |  |  |  |
| Total assets | $ | 10,900,069 | $ | 10,878,030
| Loans |  | 8,211,160 |  | 8,396,983
| Deposits |  | 7,836,138 |  | 7,672,549
Other |  |  |  |
| Total assets | $ | 888,008 | $ | 904,016
| Loans |  | 638,470 |  | 674,556
| Deposits[1] |  | 1,929,872 |  | 1,606,911
[1] | Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

117

Note 33 ─ Subsequent events

Acquisition of K2 Capital Group LLC

On October 15, 2021, Popular Equipment Finance, LLC (“PEF”), a newly-formed wholly-owned subsidiary of Popular Bank, completed the acquisition of certain assets and the assumption of certain liabilities of Minnesota-based K2 Capital Group LLC’s (“K2”) equipment leasing and financing business (the “Acquired Business”). PEF made a payment to K2 at closing of approximately $159 million in cash, representing a premium of approximately $40 million over the book value of K2’s net assets. An additional approximately $29 million in earnout payments could be payable to K2 over the next three years, contingent upon the achievement of certain agreed-upon financial targets during such period.

Specializing in the healthcare industry, the Acquired Business provides a variety of lease products, including operating and capital leases, and also offers private label vendor finance programs to equipment manufacturers and healthcare organizations. The acquisition provides PB with a national equipment leasing platform that complements its existing healthcare lending business.

As part of the transaction, PEF acquired approximately $119 million in net assets that consisted mainly of capital leases. All of K2’s former employees, including its management team, became PEF employees at the closing of the transaction. The transaction will be accounted for as a business combination and will be subject to purchase accounting adjustments as the Corporation completes its fair value estimates and the corresponding accounting.

118

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 September 30, 2021, the Corporation had a 16.19% 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 and nine months ended September 30, 2021, the Corporation recorded $6.3 million and $20.4 million, respectively, in earnings from its investment in EVERTEC, which had a carrying amount of $105 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 and nine months ended September 30, 2021, the Corporation recorded $7.8 million and $20.4 million, respectively, in earnings from its investment in BHD León, which had a carrying amount of $172 million, as of the end of the quarter.

SIGNIFICANT EVENTS

Capital Actions

Accelerated Share Repurchase

On September 9, 2021, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $350 million of Popular’s common stock. Under the terms of the accelerated share repurchase agreement (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 Popular’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in shareholders’ 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 received an additional 828,965 shares and recognized $61 million as treasury stock with a corresponding increase in its capital surplus account. The Corporation repurchased a total of 4,614,796 shares at an average purchase price of $75.84 under the ASR Agreement.

Redemption of Trust Preferred Securities

On November 1, 2021, the Corporation redeemed all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities (the “Capital Securities”) issued by the Popular Capital Trust I (the “Trust”) (liquidation amount of $25 per security and amounting to $186,663,800 (or $181,063,250 after excluding the Corporation’s participation in the Trust of $5,600,550) in the aggregate). The redemption price for the Capital Securities was equal to $25 per security plus accrued and unpaid distributions up to and excluding the redemption date in the amount of $0.139583 per security, for a total payment per security in the amount of $25.139583. Upon redemption, Popular delisted the Capital Securities of the Popular Capital Trust I (NASDAQ: BPOPN) from the Nasdaq Global Select Market.

Acquisition of K2 Capital Group LLC

On October 15, 2021, Popular Equipment Finance, LLC (“PEF”), a newly-formed wholly-owned subsidiary of PB, completed the acquisition of certain assets and the assumption of certain liabilities of Minnesota-based K2 Capital Group LLC’s (“K2”) equipment

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leasing and financing business (the “Acquired Business”). PEF made a payment to K2 at closing of approximately $159 million in cash, representing a premium of approximately $40 million over the book value of K2’s net assets. An additional approximately $29 million in earnout payments could be payable to K2 over the next three years, contingent upon the achievement of certain agreed-upon financial targets during such period.

Specializing in the healthcare industry, the Acquired Business provides a variety of lease products, including operating and capital leases, and also offers private label vendor finance programs to equipment manufacturers and healthcare organizations. The acquisition provides PB with a national equipment leasing platform that complements its existing healthcare lending business.

As part of the transaction, PEF acquired approximately $119 million in net assets that consisted mainly of capital leases. All of K2’s former employees, including its management team, became PEF employees at the closing of the transaction. The transaction will be accounted for as a business combination.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and nine-month periods ended September 30, 2021 and 2020.

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 Tables 2 and 3, along with the reconciliation to net interest income (GAAP), for the quarter and nine-month periods ended September 30, 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 September 30, 2021

 For the quarter ended September 30, 2021, the Corporation recorded net income of $ 248.1 million, compared to net income of $ 168.4 mi llion for the same quarter of the previous year. Net interest margin for the third quarter of 2021 was 2.77%, a decrease of 29 basis points when compared to 3.06% for the same quarter of the previous year, mainly due to earning asset mix driven by higher money market and investment securities which carry a low yield, and the low interest rate environment, partially offset by higher interest and fees from loans under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), and lower cost of deposits. On a taxable equivalent basis, the net interest margin was of 3.04%, compared to 3.37% for the same quarter of the previous year. The Corporation recorded a release of $61.2 million on its reserve for credit losses, a decrease of $80.3 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 $40.5 million mostly due to lower unfavorable fair value adjustments on mortgage servicing rights (“MSRs”); the gains from the sale and partial leaseback of two corporate office buildings; higher net earnings from the combined portfolio of investments under the equity method; and higher other service fees due to higher credit and debit card fees in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020. Operating expenses were higher by $27.1 million principally due to higher personnel costs, mostly related to incentive compensation, and h igher professional fees.

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 Total assets at September 30, 2021 amounted to $74.2 billion, compared to $65.9 billion, at December 31, 2020. The increase was mainly due to higher money market investments and debt securities available-for-sale.

 Total deposits at September 30, 2021 increased by $9.1 billion when compared to deposits at December 31, 2020, reflecting growth across various sectors at BPPR, mainly in the Puerto Rico public sector.

 At September 30, 2021, the Corporation’s tangible book value per common share was $66.01.

 Capital ratios continued to be strong. As of September 30, 2021, the Corporation’s common equity tier 1 capital ratio was 17.36%, the tier 1 leverage ratio was 7.38%, and the total capital ratio was 19.90%. Refer to Table 8 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.

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. Readers should also refer to “Part I - Item 1A” of the 2020 Form 10-K and “Part II - Item 1A” of any subsequent Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, 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.

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Table 1 - Financial Highlights |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial Condition Highlights |  |  |  |  |  |
|  | Ending balances at |  |  | Average for the nine months ended
(In thousands) |  | September 30, 2021 | December 31, 2020 |  |  | Variance |  |  | September 30, 2021 |  | September 30, 2020 |  | Variance |
Money market investments | $ | 17,526,238 |  | $ | 11,640,880 |  | $ | 5,885,358 |  | $ | 15,364,275 |  | $ | 7,628,941 |  | $ | 7,735,334 |
Investment securities |  | 24,697,876 |  |  | 21,864,184 |  |  | 2,833,692 |  |  | 22,386,777 |  |  | 18,868,073 |  |  | 3,518,704 |
Loans |  | 28,946,685 |  |  | 29,484,651 |  |  | (537,966) |  |  | 29,120,107 |  |  | 28,077,906 |  |  | 1,042,201 |
Earning assets |  | 71,170,799 |  |  | 62,989,715 |  |  | 8,181,084 |  |  | 66,871,159 |  |  | 54,574,920 |  |  | 12,296,239 |
Total assets |  | 74,189,163 |  |  | 65,926,000 |  |  | 8,263,163 |  |  | 69,938,785 |  |  | 57,776,191 |  |  | 12,162,594 |
Deposits |  | 66,013,561 |  |  | 56,866,340 |  |  | 9,147,221 |  |  | 61,864,897 |  |  | 49,875,563 |  |  | 11,989,334 |
Borrowings |  | 1,263,413 |  |  | 1,346,284 |  |  | (82,871) |  |  | 1,314,592 |  |  | 1,340,437 |  |  | (25,845) |
Stockholders’ equity |  | 5,982,971 |  |  | 6,028,687 |  |  | (45,716) |  |  | 5,715,792 |  |  | 5,379,472 |  |  | 336,320 |
Operating Highlights | Quarters ended September 30, |  | Nine months ended September 30, |
(In thousands, except per share information) |  | 2021 |  |  | 2020 |  |  | Variance |  |  | 2021 |  |  | 2020 |  |  | Variance |
Net interest income | $ | 489,393 |  | $ | 461,021 |  | $ | 28,372 |  | $ | 1,456,307 |  | $ | 1,384,997 |  | $ | 71,310 |
Provision for credit losses (benefit) |  | (61,173) |  |  | 19,138 |  |  | (80,311) |  |  | (160,414) |  |  | 271,318 |  |  | (431,732) |
Non-interest income |  | 169,258 |  |  | 128,767 |  |  | 40,491 |  |  | 477,451 |  |  | 367,465 |  |  | 109,986 |
Operating expenses |  | 388,168 |  |  | 361,066 |  |  | 27,102 |  |  | 1,131,881 |  |  | 1,081,905 |  |  | 49,976 |
Income before income tax |  | 331,656 |  |  | 209,584 |  |  | 122,072 |  |  | 962,291 |  |  | 399,239 |  |  | 563,052 |
Income tax expense |  | 83,542 |  |  | 41,168 |  |  | 42,374 |  |  | 233,466 |  |  | 68,893 |  |  | 164,573 |
Net income | $ | 248,114 |  | $ | 168,416 |  | $ | 79,698 |  | $ | 728,825 |  | $ | 330,346 |  | $ | 398,479 |
Net income applicable to common stock | $ | 247,761 |  | $ | 168,064 |  | $ | 79,697 |  | $ | 727,766 |  | $ | 328,941 |  | $ | 398,825 |
Net income per common share – basic | $ | 3.09 |  | $ | 2.01 |  | $ | 1.08 |  | $ | 8.89 |  | $ | 3.80 |  | $ | 5.09 |
Net income per common share – diluted | $ | 3.09 |  | $ | 2.00 |  | $ | 1.09 |  | $ | 8.87 |  | $ | 3.80 |  | $ | 5.07 |
Dividends declared per common share | $ | 0.45 |  | $ | 0.40 |  | $ | 0.05 |  | $ | 1.30 |  | $ | 1.20 |  | $ | 0.10 |
|  |  |  |  | Quarters ended September 30, |  |  |  | Nine months ended September 30,
Selected Statistical Information |  |  |  |  | 2021 |  |  | 2020 |  |  |  |  |  | 2021 |  |  | 2020 |
Common Stock Data |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
End market price |  |  |  | $ | 77.67 |  |  | 36.27 |  |  |  |  | $ | 77.67 |  |  | 36.27 |
Book value per common share at period end |  |  | 74.66 |  |  | 69.94 |  |  |  |  |  | 74.66 |  |  | 69.94 |
Profitability Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Return on assets |  |  |  |  | 1.34 | % | 1.06 | % |  |  |  | 1.39 | % | 0.76 | %
Return on common equity |  |  |  |  | 17.10 |  |  | 12.46 |  |  |  |  |  | 17.09 |  |  | 8.21 |
Net interest spread |  |  | 2.69 |  |  | 2.93 |  |  |  |  |  | 2.82 |  |  | 3.23 |
Net interest spread (taxable equivalent) - Non-GAAP |  |  | 2.96 |  |  | 3.24 |  |  |  |  |  | 3.13 |  |  | 3.56 |
Net interest margin |  |  | 2.77 |  |  | 3.06 |  |  |  |  |  | 2.92 |  |  | 3.39 |
Net interest margin (taxable equivalent) - Non-GAAP |  |  | 3.04 |  |  | 3.37 |  |  |  |  |  | 3.23 |  |  | 3.72 |
Capitalization Ratios |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Average equity to average assets |  |  |  |  | 7.87 | % | 8.53 | % |  |  |  | 8.17 | % | 9.31 | %
Common equity Tier 1 capital |  |  |  |  | 17.36 |  |  | 15.93 |  |  |  |  |  | 17.36 |  |  | 15.93 |
Tier I capital |  |  |  |  | 17.43 |  |  | 16.01 |  |  |  |  |  | 17.43 |  |  | 16.01 |
Total capital |  |  |  |  | 19.90 |  |  | 18.49 |  |  |  |  |  | 19.90 |  |  | 18.49 |
Tier 1 leverage |  |  |  |  | 7.38 |  |  | 7.80 |  |  |  |  |  | 7.38 |  |  | 7.80 |

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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.

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OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income for the third quarter of 2021 was $489.4 million, an increase of $28.4 million when compared to $461.0 million for the same quarter of 2020. Taxable equivalent net interest income was $536.3 million for the third quarter of 2021 compared to $506.8 million in the third quarter of 2020, an increase of $29.5 million.

Net interest margin for the third quarter of 2021 was 2.77%, a decrease of 29 basis points when compared to 3.06% for the same quarter of the previous year. The decrease in the net interest margin is due to earning assets mix, a higher proportion of money market and investment securities resulting from a higher volume of deposits in the quarter, partially offset by higher loan fees related to loans issued under the SBA PPP and a lower cost of deposits. The net interest margin, on a taxable equivalent basis, for the third quarter of 2021 was 3.04%, a decrease of 33 basis points when compared to 3.37% for the same quarter of 2020. The detailed variances of the increase in net interest income are described below:

Positive variances:

 Higher interest income from money market investments due to both a higher volume and a higher interest rate received on excess reserves at the Federal Reserve by 5 basis points, effective in mid-June,2021. Also, higher trading and investment securities mainly driven by a higher volume of mortgage-backed securities and higher yields from U.S. Treasury Notes due to renewal of maturities at longer terms. These larger balances resulted from an increase in deposits in most categories;

 Higher interest income from commercial loans driven by interest and fees from PPP loans which increased $11.7 million when compared to the third quarter of 2020, partially offset by lower volume upon the SBA forgiveness of PPP loans. The average balance and yield of PPP loans in the third quarter of 2021 was $852.4 million and 10.10%, respectively, compared to $1.4 billion and 2.88% in the same quarter of 2020;

 The auto and lease financing portfolios increased by $561.2 million or 14% driven by increased demand for automobiles in the quarters after the COVID-19 related lockdown and higher household liquidity resulting from COVID-19 relief federal assistances;

 Mortgage loans increased 8% when compared to the same quarter in 2020, driven by the $807.6 million bulk loan repurchases from our GSE loan servicing portfolios that occurred at the end of September 2020, partially offset by lower yields also related to the lower rate of the repurchased portfolio; and

 Lower interest expense on deposits due to the decrease in interest cost by 14 basis points resulting from the decrease in market rates in March 2020 and the subsequent effect on these liabilities. In the U.S. the cost of interest-bearing deposits decreased 42 basis points when compared to the same quarter in 2020 and in P.R. the decrease was 7 basis points. The impact from lower rates was partially offset by higher average balance of interest-bearing deposits by $8.2 billon when compared with the same quarter in 2020.

Partially offset by:

 Lower interest income from consumer loans due to lower average volume both on the installment loan and credit card portfolios.

Interest income for the quarter ended September 30, 2021, included the amortization of deferred loan fees, prepayment penalties, late fees and the amortization of premium/discounts, including the amortization of the discount of PCD loans, amounted to $27.0 million compared to $13.7 million reported in the same quarter of 2020. The increase in this amortization is related to higher amortized fees resulting mainly from the SBA forgiveness of PPP loans of $19.9 million compared to $6.7 million in the third quarter of 2020, partially offset by a lower amortization of the fair value discount of auto and credit card portfolios acquired in previous years.

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| Table 2 - Analysis of Levels & Yields on a Taxable Equivalent Basis (Non-GAAP)
| Quarter ended September 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Variance
| Average Volume |  | Average Yields / Costs |  |  |  | Interest |  | Attributable to
| 2021 |  | 2020 | Variance |  | 2021 |  | 2020 |  | Variance |  |  |  |  |  | 2021 |  | 2020 |  | Variance |  | Rate |  | Volume
| (In millions) |  |  |  |  |  |  |  |  |  |  | (In thousands)
$ | 18,041 | $ | 10,853 | $ | 7,188 |  | 0.15 | % | 0.10 | % | 0.05 | % |  | Money market investments | $ | 6,914 | $ | 2,773 | $ | 4,141 | $ | 1,781 | $ | 2,360
| 23,154 |  | 20,405 |  | 2,749 |  | 2.10 |  | 2.22 |  | (0.12) |  |  | Investment securities [1] |  | 121,857 |  | 113,603 |  | 8,254 |  | (6,872) |  | 15,126
| 84 |  | 79 |  | 5 |  | 4.97 |  | 5.44 |  | (0.47) |  |  | Trading securities |  | 1,051 |  | 1,079 |  | (28) |  | (94) |  | 66
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total money market, |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | investment and trading |  |  |  |  |  |  |  |  |  |
| 41,279 |  | 31,337 |  | 9,942 |  | 1.25 |  | 1.49 |  | (0.24) |  |  |  | securities |  | 129,822 |  | 117,455 |  | 12,367 |  | (5,185) |  | 17,552
|  |  |  |  |  |  |  |  |  |  |  |  |  | Loans: |  |  |  |  |  |  |  |  |  |
| 13,265 |  | 13,669 |  | (404) |  | 5.36 |  | 4.95 |  | 0.41 |  |  |  | Commercial |  | 179,204 |  | 170,124 |  | 9,080 |  | 14,215 |  | (5,135)
| 854 |  | 930 |  | (76) |  | 5.40 |  | 5.67 |  | (0.27) |  |  |  | Construction |  | 11,621 |  | 13,251 |  | (1,630) |  | (583) |  | (1,047)
| 1,317 |  | 1,122 |  | 195 |  | 5.99 |  | 6.08 |  | (0.09) |  |  |  | Leasing |  | 19,737 |  | 17,069 |  | 2,668 |  | (253) |  | 2,921
| 7,652 |  | 7,094 |  | 558 |  | 5.11 |  | 5.40 |  | (0.29) |  |  |  | Mortgage |  | 97,806 |  | 95,770 |  | 2,036 |  | (5,258) |  | 7,294
| 2,435 |  | 2,722 |  | (287) |  | 11.28 |  | 11.21 |  | 0.07 |  |  |  | Consumer |  | 67,749 |  | 76,696 |  | (8,947) |  | (1,178) |  | (7,769)
| 3,372 |  | 3,006 |  | 366 |  | 8.37 |  | 9.08 |  | (0.71) |  |  |  | Auto |  | 71,171 |  | 68,604 |  | 2,567 |  | (5,409) |  | 7,976
| 28,895 |  | 28,543 |  | 352 |  | 6.15 |  | 6.16 |  | (0.01) |  |  | Total loans |  | 447,288 |  | 441,514 |  | 5,774 |  | 1,534 |  | 4,240
$ | 70,174 | $ | 59,880 | $ | 10,294 |  | 3.27 | % | 3.72 | % | (0.45) | % |  | Total earning assets | $ | 577,110 | $ | 558,969 | $ | 18,141 | $ | (3,651) | $ | 21,792
|  |  |  |  |  |  |  |  |  |  |  |  |  | Interest bearing deposits: |  |  |  |  |  |  |  |  |  |
$ | 27,773 | $ | 21,225 | $ | 6,548 |  | 0.11 | % | 0.17 | % | (0.06) | % |  |  | NOW and money market [2] | $ | 7,935 | $ | 9,063 | $ | (1,128) | $ | (4,170) | $ | 3,042
| 15,621 |  | 13,103 |  | 2,518 |  | 0.16 |  | 0.25 |  | (0.09) |  |  |  | Savings |  | 6,353 |  | 8,328 |  | (1,975) |  | (3,613) |  | 1,638
| 6,957 |  | 7,810 |  | (853) |  | 0.73 |  | 1.03 |  | (0.30) |  |  |  | Time deposits |  | 12,741 |  | 20,164 |  | (7,423) |  | (4,975) |  | (2,448)
| 50,351 |  | 42,138 |  | 8,213 |  | 0.21 |  | 0.35 |  | (0.14) |  |  | Total interest bearing deposits |  | 27,029 |  | 37,555 |  | (10,526) |  | (12,758) |  | 2,232
| 87 |  | 138 |  | (51) |  | 0.25 |  | 1.19 |  | (0.94) |  |  | Short-term borrowings |  | 54 |  | 416 |  | (362) |  | (260) |  | (102)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other medium and |  |  |  |  |  |  |  |  |  |
| 1,197 |  | 1,220 |  | (23) |  | 4.57 |  | 4.67 |  | (0.10) |  |  |  | long-term debt |  | 13,686 |  | 14,209 |  | (523) |  | (375) |  | (148)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total interest bearing |  |  |  |  |  |  |  |  |  |
| 51,635 |  | 43,496 |  | 8,139 |  | 0.31 |  | 0.48 |  | (0.17) |  |  |  | liabilities |  | 40,769 |  | 52,180 |  | (11,411) |  | (13,393) |  | 1,982
| 14,955 |  | 12,806 |  | 2,149 |  |  |  |  |  |  |  |  | Demand deposits |  |  |  |  |  |  |  |  |  |
| 3,584 |  | 3,578 |  | 6 |  |  |  |  |  |  |  |  | Other sources of funds |  |  |  |  |  |  |  |  |  |
$ | 70,174 | $ | 59,880 | $ | 10,294 |  | 0.23 | % | 0.35 | % | (0.12) | % |  | Total source of funds |  | 40,769 |  | 52,180 |  | (11,411) |  | (13,393) |  | 1,982
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net interest margin/ |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  | 3.04 | % | 3.37 | % | (0.33) | % |  |  | income on a taxable equivalent basis (Non-GAAP) |  | 536,341 |  | 506,789 |  | 29,552 | $ | 9,742 | $ | 19,810
|  |  |  |  |  |  | 2.96 | % | 3.24 | % | (0.28) | % |  | Net interest spread |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Taxable equivalent adjustment |  | 46,947 |  | 45,769 |  | 1,178 |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Net interest margin/ income |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  | 2.77 | % | 3.06 | % | (0.29) | % |  |  | non-taxable equivalent basis (GAAP) | $ | 489,394 | $ | 461,020 | $ | 28,374 |  |  |  |
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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Net interest income for the nine-month period ended September 30, 2021 was $1.5 billion, or $71.3 million higher than the same period in 2020. Taxable equivalent net interest income was $1.6 billion for the nine months ended September 30, 2021, or $90.7 million higher than the same period in 2020. Net interest margin was 2.92%, a decrease of 47 basis points when compared to 3.39% in 2020. The decrease in net interest margin is mainly driven by earning assets mix with a higher volume of money market and investment securities, which resulted in higher interest income but contributed negatively to the decrease in net interest margin due to the low rate of these assets and the low interest rate environment. Net interest margin, on a taxable equivalent basis, for the nine months ended September 30, 2021, was 3.23%, a decrease of 49 basis points when compared to the 3.72% for the same period of 2020. The drivers of the variances in net interest income for the nine-month period are:

Positive variances:

 Higher interest income from money market, trading and investment securities. Part of the liquidity resulting from the increase in deposits has been used to acquire tax exempt investment securities in P.R.

 Higher interest income from commercial loans driven by interest and fees from PPP loans.

 Higher interest income from the auto and lease financing portfolios due to the increase in volume of $473.4 million or 12%.

 Mortgage loans increased 10% when compared to the same period in 2020, driven by the $807.6 million bulk loan repurchases from our GSE loan servicing portfolios that occurred at the end of September 2020, partially offset by lower yields also related to the lower rate of the repurchased portfolio.

 Lower interest expense on deposits due to lower interest cost resulting from the decrease in market rates and the subsequent effect on these liabilities, partially offset by higher average balance of deposits.

Negative variances:

 Lower interest income from consumer loans driven by lower volume of credit cards and personal loans.

Net interest income for the nine months ended September 30, 2021, included the amortization of deferred loan fees, prepayment penalties, late fees and the amortization of premium/discounts, including the amortization of the discount of PCD loans, amounted to $69.7 million, compared to $39.3 million in the same period of 2020. The increase in loan fee income was driven by PPP loan fees, which amounted to $50.8 million for the nine-month periods ended September 30, 2021 versus $18.9 million in the nine-month period ended September 30, 2020.

126

Table 3 - Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP) |
Nine months ended September 30,
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Variance
Average Volume |  | Average Yields / Costs |  |  |  | Interest |  | Attributable to
| 2021 |  | 2020 | Variance |  | 2021 |  | 2020 |  | Variance |  |  |  |  |  | 2021 |  | 2020 |  | Variance |  | Rate |  | Volume
| (In millions) |  |  |  |  |  |  |  |  |  |  | (In thousands)
$ | 15,364 | $ | 7,629 | $ | 7,735 |  | 0.12 | % | 0.29 | % | (0.17) | % |  | Money market investments | $ | 14,300 | $ | 16,789 | $ | (2,489) | $ | (13,259) | $ | 10,770
| 22,302 |  | 18,804 |  | 3,498 |  | 2.29 |  | 2.45 |  | (0.16) |  |  | Investment securities [1] |  | 382,280 |  | 344,926 |  | 37,354 |  | (26,880) |  | 64,234
| 85 |  | 64 |  | 21 |  | 5.06 |  | 6.20 |  | (1.14) |  |  | Trading securities |  | 3,218 |  | 2,960 |  | 258 |  | (619) |  | 877
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total money market, |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | investment and trading |  |  |  |  |  |  |  |  |  |
| 37,751 |  | 26,497 |  | 11,254 |  | 1.42 |  | 1.84 |  | (0.42) |  |  |  | securities |  | 399,798 |  | 364,675 |  | 35,123 |  | (40,758) |  | 75,881
|  |  |  |  |  |  |  |  |  |  |  |  |  | Loans: |  |  |  |  |  |  |  |  |  |
| 13,475 |  | 13,122 |  | 353 |  | 5.32 |  | 5.31 |  | 0.01 |  |  |  | Commercial |  | 535,126 |  | 522,126 |  | 13,000 |  | (1,048) |  | 14,048
| 874 |  | 909 |  | (35) |  | 5.39 |  | 5.83 |  | (0.44) |  |  |  | Construction |  | 35,125 |  | 39,649 |  | (4,524) |  | (3,054) |  | (1,470)
| 1,265 |  | 1,092 |  | 173 |  | 6.01 |  | 6.04 |  | (0.03) |  |  |  | Leasing |  | 57,055 |  | 49,480 |  | 7,575 |  | (228) |  | 7,803
| 7,761 |  | 7,054 |  | 707 |  | 5.08 |  | 5.32 |  | (0.24) |  |  |  | Mortgage |  | 295,598 |  | 281,191 |  | 14,407 |  | (12,928) |  | 27,335
| 2,460 |  | 2,916 |  | (456) |  | 11.24 |  | 11.40 |  | (0.16) |  |  |  | Consumer |  | 206,896 |  | 248,912 |  | (42,016) |  | (3,997) |  | (38,019)
| 3,285 |  | 2,985 |  | 300 |  | 8.55 |  | 9.06 |  | (0.51) |  |  |  | Auto |  | 209,460 |  | 202,372 |  | 7,088 |  | (12,551) |  | 19,639
| 29,120 |  | 28,078 |  | 1,042 |  | 6.16 |  | 6.39 |  | (0.23) |  |  | Total loans |  | 1,339,260 |  | 1,343,730 |  | (4,470) |  | (33,806) |  | 29,336
$ | 66,871 | $ | 54,575 | $ | 12,296 |  | 3.48 | % | 4.18 | % | (0.70) | % |  | Total earning assets | $ | 1,739,058 | $ | 1,708,405 | $ | 30,653 | $ | (74,564) | $ | 105,217
|  |  |  |  |  |  |  |  |  |  |  |  |  | Interest bearing deposits: |  |  |  |  |  |  |  |  |  |
$ | 25,201 | $ | 18,956 | $ | 6,245 |  | 0.13 | % | 0.32 | % | (0.19) | % |  |  | NOW and money market [2] | $ | 24,169 | $ | 45,909 | $ | (21,740) | $ | (33,877) | $ | 12,137
| 15,128 |  | 11,899 |  | 3,229 |  | 0.18 |  | 0.34 |  | (0.16) |  |  |  | Savings |  | 20,289 |  | 30,239 |  | (9,950) |  | (17,340) |  | 7,390
| 7,108 |  | 8,076 |  | (968) |  | 0.77 |  | 1.10 |  | (0.33) |  |  |  | Time deposits |  | 40,832 |  | 66,287 |  | (25,455) |  | (17,281) |  | (8,174)
| 47,437 |  | 38,931 |  | 8,506 |  | 0.24 |  | 0.49 |  | (0.25) |  |  | Total interest bearing deposits |  | 85,290 |  | 142,435 |  | (57,145) |  | (68,498) |  | 11,353
| 92 |  | 178 |  | (86) |  | 0.38 |  | 1.58 |  | (1.20) |  |  | Short-term borrowings |  | 259 |  | 2,109 |  | (1,850) |  | (1,182) |  | (668)
|  |  |  |  |  |  |  |  |  |  |  |  |  | Other medium and |  |  |  |  |  |  |  |  |  |
| 1,222 |  | 1,162 |  | 60 |  | 4.54 |  | 4.89 |  | (0.35) |  |  |  | long-term debt |  | 41,518 |  | 42,587 |  | (1,069) |  | (2,816) |  | 1,747
|  |  |  |  |  |  |  |  |  |  |  |  |  | Total interest bearing |  |  |  |  |  |  |  |  |  |
| 48,751 |  | 40,271 |  | 8,480 |  | 0.35 |  | 0.62 |  | (0.27) |  |  |  | liabilities |  | 127,067 |  | 187,131 |  | (60,064) |  | (72,496) |  | 12,432
| 14,428 |  | 10,945 |  | 3,483 |  |  |  |  |  |  |  |  | Demand deposits |  |  |  |  |  |  |  |  |  |
| 3,692 |  | 3,359 |  | 333 |  |  |  |  |  |  |  |  | Other sources of funds |  |  |  |  |  |  |  |  |  |
$ | 66,871 | $ | 54,575 | $ | 12,296 |  | 0.25 | % | 0.46 | % | (0.21) | % |  | Total source of funds |  | 127,067 |  | 187,131 |  | (60,064) |  | (72,496) |  | 12,432
|  |  |  |  |  | 3.23 | % | 3.72 | % | (0.49) | % |  | Net interest margin/ income on a taxable equivalent basis (Non-GAAP) |  | 1,611,991 |  | 1,521,274 |  | 90,717 | $ | (2,068) | $ | 92,785
|  |  |  |  |  |  | 3.13 | % | 3.56 | % | (0.43) | % |  | Net interest spread |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Taxable equivalent adjustment |  | 155,684 |  | 136,278 |  | 19,406 |  |  |  |
|  |  |  |  |  |  | 2.92 | % | 3.39 | % | (0.47) | % |  | Net interest margin/ income non-taxable equivalent basis (GAAP) | $ | 1,456,307 | $ | 1,384,996 | $ | 71,311 |  |  |  |
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 and Unfunded Commitments

For the quarter ended September 30, 2021, the Corporation recorded a release of $60.2 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The reserve release related to the loans-held-in-portfolio for the quarter ended September 30, 2021 was $58.6 million, compared to a provision expense of $19.5 million for the quarter ended September 30, 2020. The decrease reflects the improvements in credit quality, changes in the macroeconomic outlook, and changes in qualitative reserves. The reserve release related to unfunded commitments for the third quarter of 2021 was $1.5 million, compared to a provision expense of $6.6 million for the same period of 2020.

For the quarter ended September 30, 2021, the Corporation recorded a reserve release for the BPPR segment of $36.0 million, compared to a provision expense of $7.7 million for the quarter ended September 30, 2020, a decrease of $43.7 million. The Popular U.S. segment recorded a reserve release of $22.7 million for the quarter ended September 30, 2021, a decrease of $34.5 million, compared to a provision expense of $11.8 million for the same quarter in 2020.

For the nine-month period ended September 30, 2021, the Corporation recorded a release of $159.4 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The reserve release related to the loans-held-in-portfolio for the nine-month period ended September 30, 2021 was $151.9 million, compared to a provision expense of $271.6 million for the nine month period ended September 30, 2020. The decrease reflects the improvements in credit quality, changes in the macroeconomic outlook, and changes in qualitative reserves. The provision for unfunded commitments for the nine-month period of 2021 reflected a benefit of $7.4 million, compared to a provision expense of $10.0 million for the same period of 2020.

The reserve release related to loans held-in-portfolio for the BPPR segment was $98.5 million for the nine-month period ended September 30, 2021, compared to a provision expense of $181.1 million for the nine-month period ended September 30, 2020, a decrease of $279.6 million. The reserve release related to loans held-in-portfolio for the Popular U.S. segment was $53.5 million for the nine-month period ended September 30, 2021, a decrease of $143.9 million, compared to a provision expense of $90.4 million for the same period in 2020.

At September 30, 2021, the total allowance for credit losses for loans held-in-portfolio amounted to $718.6 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 2.49% at September 30, 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 and nine-month period ended September 30, 2021, the Corporation recorded a reserve release of $1.0 million for each period, compared to a benefit of $0.3 million and $0.2 million, respectively, for the quarter and nine-month period ended September 30, 2020. At September 30, 2021, the total allowance for credit losses for this portfolio amounted to $9.2 million, compared to $10.3 million as of December 31, 2020. Refer to Note 8 for additional information on the ACL for this portfolio.

128

Non-Interest Income

Non-interest income amounted to $169.3 million for the quarter ended September 30, 2021, compared to $128.8 million for the same quarter of the previous year. The increase in non-interest income by $40.5 million was primarily driven by:

 higher service charges on deposit accounts by $4.5 million principally due to higher fees on transactional cash management services at BPPR in part due to the business disruptions and the waiver of fees related to the COVID-19 pandemic during 2020;

 higher other service fees by $10.6 million, principally at the BPPR segment, due to higher credit and debit card fees by $7.4 million mainly in interchange income resulting from higher transactional volumes in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020;

 higher income from mortgage banking activities by $17.8 million mainly due to lower unfavorable fair value adjustments on mortgage servicing rights (“MSRs”) by $14.5 million, of which $8.8 million was related to the bulk loan repurchases from the Corporation’s GNMA, FNMA and FHLMC loan servicing portfolio during the third quarter of 2020; $10.5 million in interest advanced losses related to the loans repurchased in bulk from GNMA during 2020; partially offset by lower gains on securitization transactions by $3.8 million and lower mortgage servicing fees by $3.6 million mostly due to the collection of fees in arrears at the time of the previously mentioned bulk loan repurchase in 2020;

 a favorable variance in net (loss) gain on sale of loans, including valuation adjustments, of $2.2 million mainly due to a $2.0 million negative valuation adjustment recognized during the third quarter of 2020 on the held-for-sale taxi medallion portfolio at PB; and

 higher other operating income by $13.1 million mostly due to a gain of $7.0 million recognized by BPPR as a result of the sale and partial leaseback of two corporate office buildings and higher net earnings from the combined portfolio of investments under the equity method by $4.7 million;

partially offset by:

 an unfavorable variance in net (loss) gain on equity securities of $5.6 million mainly related to a $4.1 million gain on sale of certain equity securities at PB during the third quarter of 2020; and

 an unfavorable variance in adjustments to indemnity reserves of $2.1 million mainly due to a $5.1 million recourse reserve release during the third quarter of 2020 related to the bulk loan repurchase from FNMA and FHLMC.

Non-interest income amounted to $477.5 million for the nine months ended September 30, 2021, compared to $367.5 million for the same period of the previous year. Non-interest income increased by $110.0 million primarily driven by:

 higher service charges on deposit accounts by $12.4 million principally due to higher fees on transactional cash management services at BPPR in part due to the business disruptions and the waiver of fees related to the COVID-19 pandemic during 2020;

 higher other service fees by $40.7 million, principally at the BPPR segment, due to higher credit and debit card fees by $34.6 million mainly in interchange income resulting from higher transactional volumes in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020;

 higher income from mortgage banking activities by $32.4 million mainly due to lower unfavorable fair value adjustments on MSRs by $21.7 million and $10.5 million in interest advanced losses recognized as a result of the previously mentioned bulk GNMA repurchase during 2020; and

 higher other operating income by $24.6 million principally due to higher net earnings from the combined portfolio of investments under the equity method by $11.6 million, the previously mentioned $7.0 million gain on sale of two corporate office buildings, and higher daily auto rental revenues by $3.2 million.

129

Operating Expenses

Operating expenses amounted to $388.2 million for the quarter ended September 30, 2021, an increase of $27.1 million when compared with the same quarter of 2020, driven primarily by:

 Higher personnel cost by $21.7 million mainly due to higher incentives related to the profit-sharing plan which is tied to the Corporation’s financial performance by $7.2 million and higher commission, incentive and other bonuses by $8.0 million;

 Higher professional fees by $8.2 million due higher programming, processing and other technology services by $4.3 million mainly due to higher volume of transactions and higher advisory expense by $4.2 million related to corporate initiatives; and

 Higher business promotions by $3.5 million due to higher advertising and sponsorship expense by $2.1 million and higher customer reward program expense in our credit card business by $1.1 million.

These increases were partially offset by:

 Lower other operating expenses by $4.9 million mainly due to provision for unfunded commitments by $6.6 million which is included within the provision for credit losses caption for 2021 and lower operational losses by $1.7 million; partially offset by lower gain on sale of repossessed auto units by $1.7 million and higher credit and debit card processing expenses by $1.2 million due to higher transactional volumes.

Operating expenses amounted to $1.1 billion for the nine months ended September 30, 2021, an increase of $50.0 million when compared with the same period of 2020, driven primarily by:

 Higher personnel cost by $49.4 million mainly due to due to higher incentives related to the profit-sharing plan by $21.9 million and higher commission and incentive by $26.3 million due to performance metrics and salary increases; higher fringe benefits expense, mainly medical insurance by $6.4 million; partially offset by higher deferred salaries as a result of higher loan originations during 2021;

 Higher professional fees by $15.7 million primarily due to higher processing services due to higher volume of transactions; and

 Higher business promotions by $6.0 million due to higher customer reward program expense in our credit card business and higher advertising expense.

These increases were partially offset by:

 Lower OREO expenses by $11.1 million due to higher gain on sale on mortgage, commercial and construction properties by $8.4 million; and

 Lower other operating expenses by $11.5 million mainly due to lower pension plan cost by $7.5 million due to annual changes in actuarial assumptions, provision for unfunded commitments by $10.0 million which is included within the provision for credit losses caption for 2021; partially offset by higher credit and debit card processing expenses by $4.4 million due to higher transactional volumes and lower gain on sale of repossessed auto units by $2.2 million.

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Table 4 - Operating Expenses |  |  |  |  |  |  |  |  |  |
| Quarters ended September 30, |  | Nine months ended September 30,
(In thousands) | 2021 | 2020 | Variance |  | 2021 |  | 2020 |  | Variance
Personnel costs: |  |  |  |  |  |  |  |  |  |  |  |
| Salaries | $ | 95,185 | $ | 91,891 | $ | 3,294 | $ | 274,814 | $ | 278,116 | $ | (3,302)
| Commissions, incentives and other bonuses |  | 25,892 |  | 17,849 |  | 8,043 |  | 85,484 |  | 59,183 |  | 26,301
| Pension, postretirement and medical insurance |  | 13,893 |  | 10,639 |  | 3,254 |  | 38,106 |  | 31,669 |  | 6,437
| Other personnel costs, including payroll taxes |  | 22,677 |  | 15,562 |  | 7,115 |  | 72,926 |  | 52,970 |  | 19,956
| Total personnel costs |  | 157,647 |  | 135,941 |  | 21,706 |  | 471,330 |  | 421,938 |  | 49,392
Net occupancy expenses |  | 24,896 |  | 25,907 |  | (1,011) |  | 75,471 |  | 76,552 |  | (1,081)
Equipment expenses |  | 22,537 |  | 24,088 |  | (1,551) |  | 66,917 |  | 66,537 |  | 380
Other taxes |  | 14,459 |  | 13,918 |  | 541 |  | 41,623 |  | 40,922 |  | 701
Professional fees: |  |  |  |  |  |  |  |  |  |  |  |
| Collections, appraisals and other credit related fees |  | 3,166 |  | 2,862 |  | 304 |  | 9,972 |  | 9,640 |  | 332
| Programming, processing and other technology services |  | 69,221 |  | 64,876 |  | 4,345 |  | 202,739 |  | 187,082 |  | 15,657
| Legal fees, excluding collections |  | 2,535 |  | 2,707 |  | (172) |  | 7,267 |  | 7,877 |  | (610)
| Other professional fees |  | 29,787 |  | 26,029 |  | 3,758 |  | 85,832 |  | 85,493 |  | 339
| Total professional fees |  | 104,709 |  | 96,474 |  | 8,235 |  | 305,810 |  | 290,092 |  | 15,718
Communications |  | 6,133 |  | 5,694 |  | 439 |  | 18,971 |  | 17,222 |  | 1,749
Business promotion |  | 18,116 |  | 14,664 |  | 3,452 |  | 47,148 |  | 41,142 |  | 6,006
FDIC deposit insurance |  | 7,181 |  | 6,568 |  | 613 |  | 18,891 |  | 16,988 |  | 1,903
Other real estate owned (OREO) (income) expenses |  | (1,722) |  | (1,615) |  | (107) |  | (10,554) |  | 520 |  | (11,074)
Other operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
| Credit and debit card processing, volume and interchange and other expenses |  | 12,960 |  | 11,744 |  | 1,216 |  | 36,331 |  | 31,899 |  | 4,432
| Operational losses |  | 7,147 |  | 8,837 |  | (1,690) |  | 21,571 |  | 21,339 |  | 232
| All other |  | 13,322 |  | 17,770 |  | (4,448) |  | 35,283 |  | 51,409 |  | (16,126)
| Total other operating expenses |  | 33,429 |  | 38,351 |  | (4,922) |  | 93,185 |  | 104,647 |  | (11,462)
Amortization of intangibles |  | 783 |  | 1,076 |  | (293) |  | 3,089 |  | 5,345 |  | (2,256)
Total operating expenses | $ | 388,168 | $ | 361,066 | $ | 27,102 | $ | 1,131,881 | $ | 1,081,905 | $ | 49,976

INCOME TAXES

For the quarter and nine months ended September 30, 2021, the Corporation recorded an income tax expense of $83.5 million and $233.5 million with an effective tax rate (“ETR”) of 25% and 24%, respectively, compared to $41.2 million and $68.9 million with an ETR of 20% and 17% for the respective period of 2020. The increase in income tax expense was primarily due to higher pre-tax income resulting primarily from a lower provision for credit losses partially offset by higher net exempt interest income and higher income from the U.S. operations subject to lower statutory tax rate.

At September 30, 2021, the Corporation had a net deferred tax asset amounting to $0.7 billion, net of a valuation allowance of $0.5 billion. The net 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.

131

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 grou p 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 $7.0 million for the quarter ended September 30, 2021, compared with a net income of $4.8 million for the same quarter of the previous year. The increase in net income was mainly attributed to higher income from the portfolio of equity method investments, partially offset by higher operating expenses, mainly personnel costs. For the nine months ended September 30, 2021 the Corporate group reported a net income of $15.9 million, an increase of $8.6 million compared to a net income of $7.3 million for the same period of the previous year mainly due to higher income from the portfolio of equity method investments.

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 $201.0 million for the quarter ended September 30, 2021, compared with net income of $153.8 million for the same quarter of the previous year. The increase in net income was principally driven by the benefit of $37.0 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended September 30, 2021, compared to a provision expense of $7.3 million for the same quarter of the previous year. The additional factors that contributed to the variance in the financial results include the following:

 Higher net interest income by $24.5 million mainly due to:

 higher interest income from money market and investment securities by $15.2 million largely due to higher average balance of money market investments and mortgage-backed securities available-for-sale funded from the increase in deposit balances and higher yields from U.S. Treasury securities, offset by lower yields on mortgage-backed securities;

 higher interest income from loans by $6.1 million mainly from commercial loans due to higher interest and fees from PPP loans and higher average balance in the mortgage and auto loans portfolio, partially offset by lower average balance in personal and credit card loans portfolio; and

 lower interest expense on deposits by $2.9 million mainly due to lower costs, partially offset by higher average balance of deposits.

The net interest margin for the quarter ended September 30, 2021 was 2.75% compared to 3.13% for the same quarter in the previous year. The decrease in net interest margin is driven by earnings assets mix and a lower yield in earning assets, partially offset by a lower cost of deposits.

 Non-interest income was higher by $38.6 million mainly due to:

 Higher service charges on deposit accounts by $4.4 million and higher other service fees by $10.1 million, mainly from debit and credit card fees, from higher transactional volumes due in part to the business disruptions and waiver of fees related to the COVID-19 pandemic in 2020;

 higher income from mortgage banking activities by $18.6 million due to the impact of the bulk loan repurchases from the Corporation’s GNMA, FNMA and FHLMC loan servicing portfolio during the third quarter of 2020, which included interest advanced losses of $10.5 million and an unfavorable fair value adjustment on mortgage servicing rights of $8.8 million; and

132

 higher other operating income by $7.8 million mostly due to a gain of $7.0 million recognized by BPPR as a result of the sale and partial leaseback of two corporate office buildings;

Partially offset by:

 an unfavorable variance in adjustments to indemnity reserves of $2.1 million mainly due a $5.1 million recourse reserve release during the third quarter of 2020 related to the bulk loan repurchase from FNMA and FHLMC.

 Higher operating expenses by $30.6 million mostly due to:

 Higher personnel costs by $15.8 million driven by higher salaries and incentives tied to the Corporation’s financial performance;

 higher professional fees by $9.6 million mainly due to processing related services due to higher volume of transactions; and

 higher business promotion expenses by $3.1 million due to advertising and customer rewards programs;

 Higher income tax expense by $29.5 million mainly due to higher income before tax.

For the nine months ended September 30, 2021, the BPPR reportable segment recorded a net income of $606.5 million, compared to $339.8 million for the same period of the previous year. The increase in net income was principally driven by the benefit of $104.4 million in the reserve for credit losses and unfunded commitments recorded in the period, compared to a provision expense of $180.7 million for the same period of the previous year. The additional factors that contributed to the variance in the financial results include the following:

 Higher net interest income by $57.2 million mainly due to:

 higher interest income from money market and investment securities by $26.2 million largely due to higher average balance of money market investments and mortgage-backed securities available-for-sale funded from the increase in deposit balances, offset by lower average balance of U.S. Treasuries and lower yields;

 higher income from loans by $3.0 million due to higher interest and fees from PPP commercial loans and higher average balances, mostly in mortgage and auto loans, partially offset by lower yields and lower average balances in personal and credit card loans; and

 lower interest expense on deposits by $27.0 million mainly due to lower costs, partially offset by higher average balance of deposits across various sectors.

The net interest margin for the nine months ended September 30, 2021 was 2.91% compared to 3.53% for the same period of the previous year. The decrease in net interest margin is driven by the earnings assets mix and lower yield, partially offset by a lower cost of deposits.

 Non-interest income was higher by $101.9 million mainly due to:

 Higher service charges on deposit accounts by $12.2 million and higher other service fees by $40.0 million mainly from debit and credit card fees, due to higher transactional volumes due in part to the business disruptions and waiver of fees related to the COVID-19 pandemic in 2020;

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 higher income from mortgage banking activities by $32.6 million mainly due to the impact of the bulk loan repurchase in 2020, as mentioned above;

 a favorable variance in adjustments to indemnity reserves of $4.8 million mainly due to a release of reserve for loans previously sold with credit recourse; and

 higher other operating income by $12.9 million mainly due to the previously mentioned $7.0 million gain on sale of two corporate office buildings, and higher daily auto rental revenues by $3.2 million.

 Higher operating expenses by $58.7 million mostly due to:

 Higher personnel costs by $31.6 million driven by higher salaries and incentives tied to the Corporation’s financial performance;

 higher professional fees by $16.1 million mainly due to programing, processing and technology related services due to higher volume of transactions;

 higher business promotion expenses by $6.7 million due to customer rewards programs and advertising expenses; and

 higher other operating expenses by $10.1 million due higher expenses allocated from the Corporate group, higher credit and debit card processing expenses due to higher transactional volumes, partially offset by lower provision for unfunded commitments, which for 2021 is included within the provision for credit losses.

Partially offset by:

 Lower OREO expenses by $11.2 million mainly due to higher gains on sales of residential properties and lower maintenance expenses.

 Higher income tax expense by $118.7 million mainly due to higher income before tax.

Popular U.S.

For the quarter ended September 30, 2021, the reportable segment of Popular U.S. reported a net income of $39.6 million, compared with a net income of $9.4 million for the same quarter of the previous year. The increase in net income was principally driven by the benefit of $23.9 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended September 30, 2021, compared to a provision expense of $11.8 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

 higher net interest income by $3.6 million due to:

 lower interest expense on deposits by $7.7 million mainly due to lower interest rates and lower average balance of time deposits.

Partially offset by:

 lower interest income from loans by $2.1 million due to lower average balance in personal loans, partially offset by an increase in the commercial portfolio; and

 lower income from money market and investment securities by $2.6 million due to lower average balances and lower yields.

The net interest margin for the quarter ended September 30, 2021 was 3.36% compared to 3.18% for the same quarter in the previous year.

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 Lower operating expenses by $4.8 million due to:

 lower other operating expenses by $6.2 million due to lower sundry losses and lower provision for unfunded commitments which for 2021 is recorded within the provision for credit losses

 lower net occupancy expenses by $1.7 million due to the lower rent expense related to the benefits of the completed branch optimization initiative in the New York Metro region.

Partially offset by

 higher personnel costs by $1.9 million due to higher salaries and incentives tied to the Corporation’s financial performance.

 Income tax unfavorable variance of $12.8 million due to higher income before tax and blended state income tax rate.

For the nine-month period ended September 30, 2021, the reportable segment of Popular U.S. reported a net income of $106.1 million, compared with a net loss of $17.0 million for the same period of the previous year. The increase in net income was principally driven by the release of $55.8 million in the reserve for credit losses and unfunded commitments recorded for the period, due to changes in credit quality and credit metrics, compared to a provision expense of $90.4 million for the same period of the previous year. The factors that contributed to the variance in the financial results included the following:

 higher net interest income by $15.1 million due to:

 lower interest expense on deposits by $31.7 million mainly due to lower interest rates and lower average balance of time deposits.

 Partially offset by:

 lower interest income from loans by $10.6 million due to lower yield and lower average balance in consumer loans, partially offset by an increase in the commercial portfolio; and

 lower income from money market and investment securities by $7.8 million due to lower average balances and lower yields.

The net interest margin for the nine-month period ended September 30, 2021 was 3.35% compared to 3.15% for the same period of the previous year.

 Lower operating expenses by $9.3 million due to:

 lower occupancy expense by $4.9 million due to lower rent expense related to the benefits of the completed branch optimization initiative in our New York Metro region;

 Lower professional fees by $3.0 million, a portion of which is now centralized at the Corporate group and charged back to operating units and reflected in higher other operating expenses; and

 Lower other operating expenses by $3.3 million mainly due to lower provision for unfunded commitments which for 2021 is recorded within the provision for credit losses, partially offset by higher allocations from the Corporate group, mainly professional services.

 Partially offset by:

 Higher personnel costs by $4.6 million mainly due to incentives tied to the Corporation’s financial performance.

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 Unfavorable variance in income tax expense of $45.7 million due to higher income before tax and blended state income tax rate.

FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were $74.2 billion at September 30, 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 and debt securities available-for-sale increased by $5.9 billion and $2.8 billion, respectively, at September 30, 2021. This was largely driven by the additional funds available to invest resulting from the increase in deposits across various sectors, partially offset by paydowns of agency mortgage-backed securities. 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 5 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 $0.5 billion to $28.9 billion at September 30, 2021, mainly due to a decrease in commercial loans at BPPR of $0.3 billion mainly due to the repayment of PPP loans and a decrease in mortgage loans at BPPR of $0.4 billion mainly due to paydowns, partially offset by growth in auto loans and leases at BPPR by $0.4 billion.

Table 5 - Loans Ending Balances |  |  |  |
(In thousands) |  | September 30, 2021 |  | December 31, 2020 |  | Variance
Loans held-in-portfolio: |  |  |  |  |  |
Commercial | $ | 13,303,671 | $ | 13,614,310 | $ | (310,639)
Construction |  | 801,040 |  | 926,208 |  | (125,168)
Lease financing |  | 1,348,679 |  | 1,197,661 |  | 151,018
Mortgage |  | 7,539,152 |  | 7,890,680 |  | (351,528)
Auto |  | 3,376,694 |  | 3,132,228 |  | 244,466
Consumer |  | 2,486,136 |  | 2,624,109 |  | (137,973)
Total loans held-in-portfolio |  | 28,855,372 |  | 29,385,196 |  | (529,824)
Loans held-for-sale: |  |  |  |  |  |
Commercial |  | - |  | 2,738 |  | (2,738)
Mortgage |  | 91,313 |  | 96,717 |  | (5,404)
Total loans held-for-sale |  | 91,313 |  | 99,455 |  | (8,142)
Total loans | $ | 28,946,685 | $ | 29,484,651 | $ | (537,966)

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Other assets

Other assets amounted to $1.6 billion at September 30, 2021, compared to $1.7 billion at 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 September 30, 2021 and December 31, 2020.

Liabilities

The Corporation’s total liabilities were $68.2 billion at September 30, 2021, an increase of $8.3 billion, 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 September 30, 2021 and December 31, 2020 is included in Table 6.

Table 6 - Financing to Total Assets |  |  |  |  |  |
| September 30, | December 31, | % increase (decrease) |  | % of total assets
(In millions) |  | 2021 |  | 2020 | from 2020 to 2021 |  | 2021 |  | 2020 |
Non-interest bearing deposits | $ | 15,148 | $ | 13,129 | 15.4 | % | 20.4 | % | 19.9 | %
Interest-bearing core deposits |  | 45,981 |  | 38,599 | 19.1 |  | 62.0 |  | 58.5 |
Other interest-bearing deposits |  | 4,885 |  | 5,138 | (4.9) |  | 6.6 |  | 7.8 |
Repurchase agreements |  | 86 |  | 121 | (28.9) |  | 0.1 |  | 0.2 |
Notes payable |  | 1,177 |  | 1,225 | (3.9) |  | 1.6 |  | 1.9 |
Other liabilities |  | 929 |  | 1,685 | (44.9) |  | 1.2 |  | 2.6 |
Stockholders’ equity |  | 5,983 |  | 6,029 | (0.8) |  | 8.1 |  | 9.1 |

Deposits

The Corporation’s deposits totaled $66.0 billion at September 30, 2021, compared to $56.9 billion at December 31, 2020. The deposits increase of $9.1 billion was mainly due to higher Puerto Rico public sector deposits by $4.9 billion and higher retail and commercial demand deposits by $3.2 billion at BPPR. Public sector deposit balances, which amounted to $20.0 billion at September 30, 2021, are expected to decline over the long term. However, the receipt by the P.R. Government of additional COVID-19 and hurricane recovery-related Federal assistance and seasonal tax collections could 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 7 for a breakdown of the Corporation’s deposits at September 30, 2021 and December 31, 2020.

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Table 7 - Deposits Ending Balances
(In thousands) | September 30, 2021 |  | December 31, 2020 |  | Variance
Demand deposits [1] | $ | 25,495,481 |  | $ | 22,532,729 |  | $ | 2,962,752
Savings, NOW and money market deposits (non-brokered) |  | 32,867,805 |  |  | 26,390,565 |  |  | 6,477,240
Savings, NOW and money market deposits (brokered) |  | 718,155 |  |  | 635,198 |  |  | 82,957
Time deposits (non-brokered) |  | 6,906,509 |  |  | 7,130,749 |  |  | (224,240)
Time deposits (brokered CDs) |  | 25,611 |  |  | 177,099 |  |  | (151,488)
Total deposits | $ | 66,013,561 |  | $ | 56,866,340 |  | $ | 9,147,221
[1] Includes interest and non-interest bearing demand deposits.

Borrowings

The Corporation’s borrowings remained flat at $1.3 billion at September 30, 2021 and December 31, 2020. Refer to Note 15 to the C onsolidated 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, when compared to December 31, 2020, due to the settlement of purchases of debt securities.

Stockholders’ Equity

Stockholders’ equity totaled $6.0 billion at September 30, 2021, a decrease of $45.7 million when compared to December 31, 2020, principally due to the impact of the $350.0 million accelerated share repurchase transaction and lower accumulated unrealized gains on debt securities available-for-sale by $343.9 million, offset by net income for the nine months ended September 30, 2021 of $728.8 million, less declared dividends of $106.3 million on common stock and $1.1 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 September 30, 2021, t he 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 8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of September 30, 2021 and December 31, 2020.

Table 8 - Capital Adequacy Data |  |  |  |  |  |
(Dollars in thousands) |  | September 30, 2021 |  |  | December 31, 2020 |
Common equity tier 1 capital: |  |  |  |  |  |
| Common stockholders equity - GAAP basis | $ | 5,960,828 |  | $ | 6,006,544 |
| CECL transitional amount [1] |  | 172,459 |  |  | 218,398 |
| AOCI related adjustments due to opt-out election |  | 70,871 |  |  | (261,245) |
| Goodwill, net of associated deferred tax liability (DTL) |  | (543,799) |  |  | (591,931) |
| Intangible assets, net of associated DTLs |  | (19,657) |  |  | (22,466) |
| Deferred tax assets and other deductions |  | (299,418) |  |  | (357,204) |
Common equity tier 1 capital | $ | 5,341,284 |  | $ | 4,992,096 |
Additional tier 1 capital: |  |  |  |  |  |
| Preferred stock |  | 22,143 |  |  | 22,143 |
Additional tier 1 capital | $ | 22,143 |  | $ | 22,143 |
Tier 1 capital | $ | 5,363,427 |  | $ | 5,014,239 |
Tier 2 capital: |  |  |  |  |  |
| Trust preferred securities subject to phase in as tier 2 |  | 373,737 |  |  | 373,737 |
| Other inclusions (deductions), net |  | 385,047 |  |  | 385,943 |
Tier 2 capital | $ | 758,784 |  | $ | 759,680 |
Total risk-based capital | $ | 6,122,211 |  | $ | 5,773,919 |
Minimum total capital requirement to be well capitalized | $ | 3,076,738 |  | $ | 3,070,209 |
Excess total capital over minimum well capitalized | $ | 3,045,473 |  | $ | 2,703,710 |
Total risk-weighted assets | $ | 30,767,384 |  | $ | 30,702,091 |
Total assets for leverage ratio | $ | 72,713,570 |  | $ | 64,305,022 |
Risk-based capital ratios: |  |  |  |  |  |
| Common equity tier 1 capital |  | 17.36 | % |  | 16.26 | %
| Tier 1 capital |  | 17.43 |  |  | 16.33 |
| Total capital |  | 19.90 |  |  | 18.81 |
| Tier 1 leverage |  | 7.38 |  |  | 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 September 30, 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 September 30, 2021, the Corporation has $670 million in PPP loans and no loans were pledge as collateral for PPPL Facilities.

The increase in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of September 30, 2021 as compared to December 31, 2020 was mainly attributed to the nine months period earnings, partially offset by the accelerated share repurchase agreement to repurchase an aggregate of $350 million of Popular’s common stock. The decrease in leverage capital ratio was mainly due to the increase in average total assets, which did not have a significant impact on the risk-weighted assets.

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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 9 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of September 30, 2021, and December 31, 2020.

Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets |  |  |  |  |
(In thousands, except share or per share information) |  |  | September 30, 2021 |  |  |  | December 31, 2020 |
Total stockholders’ equity |  | $ | 5,982,971 |  |  | $ | 6,028,687 |
Less: Preferred stock |  |  | (22,143) |  |  |  | (22,143) |
Less: Goodwill |  |  | (671,122) |  |  |  | (671,122) |
Less: Other intangibles |  |  | (19,657) |  |  |  | (22,466) |
Total tangible common equity |  | $ | 5,270,049 |  |  | $ | 5,312,956 |
Total assets |  | $ | 74,189,163 |  |  | $ | 65,926,000 |
Less: Goodwill |  |  | (671,122) |  |  |  | (671,122) |
Less: Other intangibles |  |  | (19,657) |  |  |  | (22,466) |
Total tangible assets |  | $ | 73,498,384 |  |  | $ | 65,232,412 |
Tangible common equity to tangible assets |  |  | 7.17 | % |  |  | 8.14 | %
Common shares outstanding at end of period |  |  | 79,841,564 |  |  |  | 84,244,235 |
Tangible book value per common share |  | $ | 66.01 |  |  | $ | 63.07 |
|  |  | Quarterly average |
Total stockholders’ equity [1] |  | $ | 5,769,545 |  |  | $ | 5,540,456 |
Less: Preferred Stock |  |  | (22,143) |  |  |  | (22,143) |
Less: Goodwill |  |  | (671,121) |  |  |  | (671,121) |
Less: Other intangibles |  |  | (20,132) |  |  |  | (23,166) |
Total tangible common equity |  | $ | 5,056,149 |  |  | $ | 4,824,026 |
Return on average tangible common equity |  |  | 19.44 | % |  |  | 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 10 presents the contractual amounts related to the Corporation’s off-balance sheet lending and other activities at September 30, 2021.

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Table 10 - 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 |  | $ | 6,689,881 | $ | 2,296,037 | $ | 127,099 | $ | 150,872 | $ | 9,263,889
Commercial letters of credit |  |  | 3,545 |  | 1,124 |  | - |  | - |  | 4,669
Standby letters of credit |  |  | 10,956 |  | 12,161 |  | - |  | - |  | 23,117
Commitments to originate or fund mortgage loans |  |  | 98,295 |  | 8,708 |  | - |  | - |  | 107,003
Total |  | $ | 6,802,677 | $ | 2,318,030 | $ | 127,099 | $ | 150,872 | $ | 9,398,678

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 $24.4 billion as of September 30, 2021. Other assets subject to market risk include loans held-for-sale, which amounted to $91 million, mortgage servicing rights (“MSRs”) which amounted to $117 million and securities classified as “trading”, which amounted to $36 million, as of September 30, 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 performs 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 September 30, 2021 and December 31, 2020, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

Table 11 - Net Interest Income Sensitivity (One Year Projection)
| September 30, 2021 |  |  | December 31, 2020
(Dollars in thousands) |  | Amount Change | Percent Change |  |  | Amount Change | Percent Change |
Change in interest rate |  |  |  |  |  |  |  |
+400 basis points | $ | 276,317 | 14.51 | % | $ | 167,474 | 9.19 | %
+200 basis points |  | 205,581 | 10.80 |  |  | 81,690 | 4.49 |
+100 basis points |  | 170,207 | 8.94 |  |  | 39,361 | 2.16 |
-100 basis points |  | (72,909) | (3.83) |  |  | (53,952) | (2.96) |
-200 basis points |  | (109,352) | (5.74) |  |  | (71,517) | (3.93) |

As of September 30, 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 the significant deposit increases seen so far in 2021, which have increased the level of cash reserves maintained at the Federal Reserve. These short-term assets reprice immediately, thus increasing the NII benefit in rising rate scenarios. The declining rate scenarios show a smaller impact in sensitivity as rates continue to be close to their lower bound and Popular does not allow rates to turn negative in its IRR simulations.

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 September 30, 2021, the Corporation held trading securities with a fair value of $36 million, representing approximately 0.1% of the Corporation’s total assets, compared with $37 million and 0.1%, respectively, at December 31, 2020. As shown in Table 12, the trading portfolio consists principally of mortgage-backed securities which at September 30, 2021 were investment grade securities. As of September 30, 2021 and December 31, 2020, the 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

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or exchange rates reported in current period earnings. The Corporation recognized a net trading account gain of $58 thousand for the quarter ended September 30, 2021 and a net trading account gain of $20 thousand for the quarter ended September 30, 2020.

Table 12 - Trading Portfolio |  |  |  |  |  |  |  |  |  |
|  | September 30, 2021 |  |  | December 31, 2020 |
(Dollars in thousands) |  | Amount |  | Weighted Average Yield[1] |  |  | Amount |  | Weighted Average Yield[1] |
Mortgage-backed securities | $ | 24,569 |  | 4.95 | % | $ | 24,338 |  | 5.19 | %
U.S. Treasury securities |  | 10,780 |  | - |  |  | 11,506 |  | 0.04 |
Collateralized mortgage obligations |  | 281 |  | 5.64 |  |  | 346 |  | 5.65 |
Puerto Rico government obligations |  | 82 |  | 0.46 |  |  | 103 |  | 0.48 |
Interest-only strips |  | 352 |  | 12.00 |  |  | 381 |  | 12.00 |
Total | $ | 36,064 |  | 3.53 | % | $ | 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 $0.3 million for the last week in September 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 89% of the Corporation’s total assets at September 30, 2021 and 86% at December 31, 2020. The ratio of total ending loans to deposits was 44% at September 30, 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 September 30, 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.

On September 9, 2021, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $350 million of Popular’s common stock, refer to Note 25 for additional information.

On November 1, 2021, the corporation redeemed all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities issued by the Popular Capital Trust I, refer to Note 15 for additional information.

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

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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.

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 7 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 $ 61.1 billion, or 93% of total deposits, at September 30, 2021, compared with $51.7 billion, or 91% of total deposits, at December 31, 2020. Core deposits financed 86% of the Corporation’s earning assets at September 30, 2021, compared with 82% at December 31, 2020.

The distribution by maturity of certificates of deposits with denominations of $100,000 and over at September 30, 2021 is presented in the table that follows:

Table 13 - Distribution by Maturity of Certificate of Deposits of $100,000 and Over |  |  |
(In thousands) |  |  |
3 months or less |  | $ | 2,069,982
3 to 6 months |  |  | 294,714
6 to 12 months |  |  | 697,634
Over 12 months |  |  | 1,093,576
Total |  | $ | 4,155,906

The Corporation had $ 0.7 billion in brokered deposits at September 30, 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 September 30, 2021, total public sector deposits were $20.0 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 September 30, 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

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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.

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 are more costly due to the fact that two out of the three principal credit rating agencies rate the Corporation below “investment grade”, which affects the Corporation’s cost and 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 September 30, 2021 and December 31, 2020.

The contractual maturities of the BHCs notes payable at September 30, 2021 are presented in Table 14.

Table 14 - Distribution of BHC's Notes Payable by Contractual Maturity |  |
Year |  | (In thousands)
2023 | $ | 297,525
Later years |  | 384,949
Total | $ | 682,474

Annual debt service at the BHCs is approximately $44 million, and the Corporation’s latest quarterly dividend was $0.45 per share, for a total of $36.3 million for the quarter ended September 30, 2021. 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 September 30, 2021, the BHCs had cash and money markets investments totaling $300 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 $533 million as of September 30, 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. During 2021, Popular, Inc. made a capital contribution to its wholly owned subsidiary Popular Securities amounting to $5 million.

Dividends

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During the nine months ended September 30, 2021, the Corporation declared cash dividend of $1.30 per common share outstanding to $ 106.4 million. The dividends for the Corporation’s Series A preferred stock amounted to $1.1 million. During the quarter ended September 30, 2021, the BHC’s received dividends amounting to $575 million from BPPR, $4 million from PIBI which main source of income is derived from its investment in BHD, $6 million in dividends from its non-banking subsidiaries and $2 million in dividends from EVERTEC. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity.

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 $2.6 billion at September 30, 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 PB, including PB’s wholly-owned subsidiaries Popular Equipment Finance, LLC, 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 September 30, 2021 and December 31, 2020, and the results of their operations for the period ended September 30, 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

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transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately.

Table 15 - Summarized Statement of Condition |  |  |  |
(In thousands) |  | September 30, 2021 |  | December 31, 2020
Assets |  |  |  |
Cash and money market investments | $ | 301,126 | $ | 190,830
Investment securities |  | 31,167 |  | 27,630
Accounts receivables from non-obligor subsidiaries |  | 12,051 |  | 16,338
Other loans (net of allowance for credit losses of $123) |  | 30,902 |  | 31,162
Investment in equity method investees |  | 110,228 |  | 88,272
Other assets |  | 48,396 |  | 46,547
Total assets | $ | 533,870 | $ | 400,779
Liabilities and Stockholders' deficit |  |  |  |
Accounts payable to non-obligor subsidiaries | $ | 3,245 | $ | 3,946
Accounts payable to affiliates and related parties |  | 1,025 |  | 977
Notes payable |  | 682,473 |  | 681,503
Other liabilities |  | 87,909 |  | 79,208
Stockholders' deficit |  | (240,782) |  | (364,855)
Total liabilities and stockholders' deficit | $ | 533,870 | $ | 400,779
Table 16 - Summarized Statement of Operations |  |  |  |
|  |  |  | For the period ended
(In thousands) |  |  |  | September 30, 2021
Income: |  |  |  |
Dividends from non-obligor subsidiaries |  |  | $ | 581,000
Interest income from non-obligor subsidiaries and affiliates |  |  |  | 680
Earnings from investments in equity method investees |  |  |  | 24,195
Other operating income |  |  |  | 3,605
Total income |  |  | $ | 609,480
Expenses: |  |  |  |
Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of ($120,032)) |  |  | $ | 9,820
Other operating expenses |  |  |  | 22,712
Total expenses |  |  | $ | 32,532
Net income |  |  | $ | 576,948
During the nine months ended September 30, 2021, the Obligor group recorded $2.2 million of distribution from its direct equity method investees, of which $1.7 million are related to dividend distributions.

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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.

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 September 30, 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 $36 million at September 30, 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. Although the most restrictive measures have been eased or lifted, allowing for the gradual reopening of the economy, certain measures remain in place and additional measures may be implemented in the future as a result of a resurgence in the spread of the virus or new strains of the virus. Since the beginning of the pandemic, 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 SBA 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 to 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 (including the appearance of new strains of the virus), 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 third 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 and “Part II- Item 1A – Risk Factors” of any subsequent Form 10-Q.

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. The Planning Board projected that the negative effects of COVID-19 would continue through fiscal year 2021, resulting in a contraction in real GNP of approximately -2%, followed by 0.8% GNP growth in the current fiscal year.

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 original 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. Such appointments 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. For additional discussion of risk factors related to the Puerto Rico fiscal challenges, see “Part I – Item 1A – Risk Factors” in the Corporation’s Form 10-K for the year ended December 31, 2020.

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

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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). 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 (the “T&D System”), and calls for significant structural reforms at PREPA. The procurement process for the establishment of a public-private partnership with respect to 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, since June 1, 2021, LUMA is responsible for operating, maintaining and modernizing the T&D System.

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.

On November 3, 2021, the Oversight Board filed the Eight Amended Title III Joint Plan of Adjustment for the Commonwealth, et. al. in the pending debt restructuring proceedings under Title III of PROMESA. The proposed 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. In October 2021, the Commonwealth’s government enacted legislation establishing the framework for the issuance of new securities by the Commonwealth in connection with the proposed plan. The final hearings for the confirmation of the plan of adjustment are scheduled to begin on November 8, 2021 and continue as necessary through November 23, 2021.

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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.

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 September 30, 2021, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $365 million of which $346 million were outstanding, compared to $377 million at December 31, 2020 which was fully outstanding on such date. 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, $316 million consists of loans and $30 million are securities ($342 million and $35 million, respectively, at December 31, 2020). Substantially all of the amount outstanding at September 30, 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 September 30, 2021, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. On July 1, 2021, the Corporation received scheduled principal payments amounting to $32 million from various obligations from Puerto Rico municipalities. 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 September 30, 2021, the Corporation had $284 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 $240 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 September 30, 2021, $44 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.

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

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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.

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 September 30, 2021, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $72 million, of which $69 million is outstanding (compared to $105 million and $70 million, respectively, at December 31, 2020). The amount outstanding included approximately $42 million in loans to a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, $20 million in 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 and $6 million in loans to the Virgin Islands Porth Authority (compared to $43 million, $20 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, at September 30, 2020 it has a loan portfolio amounting to approximately $226 million comprised of various retail and commercial clients, compared to a loan portfolio of $251 million at December 31, 2020, which included a $19 million loan with the BVI Government that was paid off during the second quarter of 2021.

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, $1.6 billion of residential mortgages, $670 million of SBA loans under the PPP and $65 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at September 30, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

The United States federal government, through legislation, has created a limit on the amount of debt that it may issue, commonly referred to as the “debt ceiling.” The Bipartisan Budget Act of 2019 and subsequent legislation have suspended and/or temporarily increased the debt ceiling through December 2021. Failure by Congress to further suspend or increase the debt ceiling may impact the federal government’s ability to incur additional debt and pay its existing debt instruments or other obligations.

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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 17.

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.

During the third quarter of 2021, the Corporation’s assets continued to exhibit favorable credit quality and low credit costs, outperforming pre-pandemic trends. These improvements have been aided by the significant government stimulus and the rebound in the economy. We will continue to closely monitor post COVID-19 risks and the effects of the receding stimulus on macroeconomic conditions and on borrower performance. However, management believes that the improvement over the last few years in the risk profile of the Corporation’s loan portfolios, positions Popular to operate successfully under the current environment.

Total NPAs decreased by $114 million when compared with December 31, 2020. Total non-performing loans held-in-portfolio (“NPLs”) decreased by $105 million from December 31, 2020. BPPR’s NPLs decreased by $92 million, mainly driven by lower mortgage NPLs by $60 million, as inflows continue trending lower than pre-COVID levels, and lower commercial NPLs by $21 million, mostly driven by repayment activity. BPPR’s construction NPLs decreased by $7 million mostly due to a previously reserved loan that was partially charged-off during the first quarter of 2021. Popular U.S. NPLs decreased by $13 million from December 31, 2020, mostly related to a $7 million construction loan sold and $6 million commercial loan pay-off. At September 30, 2021, the ratio of NPLs to total loans held-in-portfolio was 2.2% compared to 2.5% in the fourth quarter of 2020. In addition, other real estate owned loans (“OREOs”) decreased by $6 million, mostly related to sales activity, combined with the suspension of foreclosure activity due to the COVID-19 pandemic.

At September 30, 2021, NPLs secured by real estate amounted to $522 million in the Puerto Rico operations and $23 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 $8.1 billion at September 30, 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 $134 million at September 30, 2021, compared with $173 million at December 31, 2020. The CRE NPL ratios for the BPPR and Popular U.S. segments were 3.34% and 0.03%, respectively, at September 30, 2021, compared with 4.51% and 0.07%, respectively, at December 31, 2020.

In addition to the NPLs included in Table 17, at September 30, 2021, there were $200 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 September 30, 2021, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $60 million, when compared to the inflows for the same period in 2020. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $37 million compared to the same period in 2020, driven by lower construction and commercial inflows by $22 million and $13 million, respectively. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $23.2 million from the same period in 2020, mostly due to lower commercial NPL inflows.

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Table 17 - Non-Performing Assets
| September 30, 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 | $ | 183,394 | $ | 2,787 | $ | 186,181 |  | 1.4 | % | $ | 204,092 | $ | 5,988 | $ | 210,080 |  | 1.5 | %
Construction |  | 14,877 |  | - |  | 14,877 |  | 1.9 |  |  | 21,497 |  | 7,560 |  | 29,057 |  | 3.1 |
Leasing |  | 2,542 |  | - |  | 2,542 |  | 0.2 |  |  | 3,441 |  | - |  | 3,441 |  | 0.3 |
Mortgage |  | 354,555 |  | 14,488 |  | 369,043 |  | 4.9 |  |  | 414,343 |  | 14,864 |  | 429,207 |  | 5.4 |
Auto |  | 17,345 |  | - |  | 17,345 |  | 0.5 |  |  | 15,736 |  | - |  | 15,736 |  | 0.5 |
Consumer |  | 36,158 |  | 6,689 |  | 42,847 |  | 1.7 |  |  | 41,268 |  | 8,985 |  | 50,253 |  | 1.9 |
Total non-performing loans held-in-portfolio |  | 608,871 |  | 23,964 |  | 632,835 |  | 2.2 | % |  | 700,377 |  | 37,397 |  | 737,774 |  | 2.5 | %
Non-performing loans held-for-sale [1] |  | - |  | - |  | - |  |  |  |  | - |  | 2,738 |  | 2,738 |  |  |
Other real estate owned (“OREO”) |  | 75,369 |  | 1,459 |  | 76,828 |  |  |  |  | 81,512 |  | 1,634 |  | 83,146 |  |  |
Total non-performing assets | $ | 684,240 | $ | 25,423 | $ | 709,663 |  |  |  | $ | 781,889 | $ | 41,769 | $ | 823,658 |  |  |
Accruing loans past due 90 days or more[2] | $ | 549,784 | $ | 1 | $ | 549,785 |  |  |  | $ | 1,028,061 | $ | 3 | $ | 1,028,064 |  |  |
Ratios: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-performing assets to total assets |  | 1.08 | % | 0.23 | % | 0.96 | % |  |  |  | 1.42 | % | 0.38 | % | 1.25 | % |  |
Non-performing loans held-in-portfolio to loans held-in-portfolio |  | 2.88 |  | 0.31 |  | 2.19 |  |  |  |  | 3.25 |  | 0.48 |  | 2.51 |  |  |
Allowance for credit losses to loans held-in-portfolio |  | 2.92 |  | 1.32 |  | 2.49 |  |  |  |  | 3.43 |  | 2.00 |  | 3.05 |  |  |
Allowance for credit losses to non-performing loans, excluding held-for-sale |  | 101.30 |  | 424.79 |  | 113.55 |  |  |  |  | 105.62 |  | 418.48 |  | 121.48 |  |  |
HIP = “held-in-portfolio”
[1] There were no non-performing loans held-for-sale as of September 30, 2021 (December 31, 2020 - $3 million in commercial loans).
[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 $12 million at September 30, 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. These balances include $350 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2021 (December 31, 2020 - $329 million). Furthermore, the Corporation has approximately $53 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 18 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |  |
|  | For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
(Dollars in thousands) |  | BPPR |  | Popular U.S. | Popular, Inc. |  | BPPR |  | Popular U.S. | Popular, Inc.
Beginning balance | $ | 603,233 | $ | 21,185 | $ | 624,418 | $ | 639,932 | $ | 28,412 | $ | 668,344
Plus: |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 46,060 |  | 5,701 |  | 51,761 |  | 195,270 |  | 36,202 |  | 231,472
| Advances on existing non-performing loans |  | - |  | 12 |  | 12 |  | - |  | 35 |  | 35
Less: |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (11,053) |  | - |  | (11,053) |  | (26,307) |  | - |  | (26,307)
| Non-performing loans charged-off |  | (9,640) |  | - |  | (9,640) |  | (33,185) |  | (1,500) |  | (34,685)
| Loans returned to accrual status / loan collections |  | (75,774) |  | (9,623) |  | (85,397) |  | (222,884) |  | (37,101) |  | (259,985)
| Loans transferred to held-for-sale |  | - |  | - |  | - |  | - |  | (8,773) |  | (8,773)
Ending balance NPLs | $ | 552,826 | $ | 17,275 | $ | 570,101 | $ | 552,826 | $ | 17,275 | $ | 570,101
Table 19 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans) |  |
|  | For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
(Dollars in thousands) |  | BPPR |  | Popular U.S. | Popular, Inc. |  | BPPR |  | Popular U.S. | Popular, Inc.
Beginning balance | $ | 651,152 | $ | 23,383 | $ | 674,535 | $ | 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 |  | 83,277 |  | 28,843 |  | 112,120 |  | 260,944 |  | 42,442 |  | 303,386
| Advances on existing non-performing loans |  | - |  | 106 |  | 106 |  | - |  | 414 |  | 414
Less: |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (531) |  | - |  | (531) |  | (10,969) |  | - |  | (10,969)
| Non-performing loans charged-off |  | (4,738) |  | (463) |  | (5,201) |  | (20,880) |  | (1,392) |  | (22,272)
| Loans returned to accrual status / loan collections |  | (95,602) |  | (20,562) |  | (116,164) |  | (272,322) |  | (34,646) |  | (306,968)
| Loans transferred to held-for-sale |  | - |  | - |  | - |  | - |  | (10,679) |  | (10,679)
Ending balance NPLs | $ | 633,558 | $ | 31,307 | $ | 664,865 | $ | 633,558 | $ | 31,307 | $ | 664,865

Table 20 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 217,703 | $ | 7,862 | $ | 225,565 |  | $ | 204,092 | $ | 5,988 | $ | 210,080
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 7,454 |  | 1,039 |  | 8,493 |  |  | 54,835 |  | 10,302 |  | 65,137
| Advances on existing non-performing loans |  | - |  | 10 |  | 10 |  |  | - |  | 17 |  | 17
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (2,069) |  | - |  | (2,069) |  |  | (8,265) |  | - |  | (8,265)
| Non-performing loans charged-off |  | (8,617) |  | - |  | (8,617) |  |  | (12,523) |  | (976) |  | (13,499)
| Loans returned to accrual status / loan collections |  | (31,077) |  | (6,124) |  | (37,201) |  |  | (54,745) |  | (10,771) |  | (65,516)
| Loans transferred to held-for-sale |  | - |  | - |  | - |  |  | - |  | (1,773) |  | (1,773)
Ending balance NPLs | $ | 183,394 | $ | 2,787 | $ | 186,181 |  | $ | 183,394 | $ | 2,787 | $ | 186,181

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Table 21 - Activity in Non-Performing Commercial Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 253,890 | $ | 9,239 | $ | 263,129 |  | $ | 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 |  | 20,250 |  | 12,877 |  | 33,127 |  |  | 39,391 |  | 15,029 |  | 54,420
| Advances on existing non-performing loans |  | - |  | 58 |  | 58 |  |  | - |  | 303 |  | 303
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (39) |  | - |  | (39) |  |  | (2,241) |  | - |  | (2,241)
| Non-performing loans charged-off |  | (1,000) |  | (452) |  | (1,452) |  |  | (4,548) |  | (1,374) |  | (5,922)
| Loans returned to accrual status / loan collections |  | (31,117) |  | (13,968) |  | (45,085) |  |  | (50,390) |  | (19,576) |  | (69,966)
| Loans transferred to held-for-sale |  | - |  | - |  | - |  |  | - |  | (10,679) |  | (10,679)
Ending balance NPLs | $ | 241,984 | $ | 7,754 | $ | 249,738 |  | $ | 241,984 | $ | 7,754 | $ | 249,738

Table 22 - Activity in Non-Performing Construction Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 14,877 | $ | - | $ | 14,877 |  | $ | 21,497 | $ | 7,560 | $ | 29,057
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | - |  | - |  | - |  |  | - |  | 12,141 |  | 12,141
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans charged-off |  | - |  | - |  | - |  |  | (6,620) |  | (523) |  | (7,143)
| Loans returned to accrual status / loan collections |  | - |  | - |  | - |  |  | - |  | (12,178) |  | (12,178)
| Loans transferred to held-for-sale |  | - |  | - |  | - |  |  | - |  | (7,000) |  | (7,000)
Ending balance NPLs | $ | 14,877 | $ | - | $ | 14,877 |  | $ | 14,877 | $ | - | $ | 14,877

Table 23 - Activity in Non-Performing Construction Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | - | $ | - | $ | - |  | $ | 119 | $ | 26 | $ | 145
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 21,514 |  | 9,069 |  | 30,583 |  |  | 21,514 |  | 9,069 |  | 30,583
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Loans returned to accrual status / loan collections |  | - |  | - |  | - |  |  | (119) |  | (26) |  | (145)
Ending balance NPLs | $ | 21,514 | $ | 9,069 | $ | 30,583 |  | $ | 21,514 | $ | 9,069 | $ | 30,583

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Table 24 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2021 |  | For the nine months ended September 30, 2021
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 370,653 | $ | 13,323 | $ | 383,976 |  | $ | 414,343 | $ | 14,864 | $ | 429,207
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 38,606 |  | 4,662 |  | 43,268 |  |  | 140,435 |  | 13,759 |  | 154,194
| Advances on existing non-performing loans |  | - |  | 2 |  | 2 |  |  | - |  | 18 |  | 18
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (8,984) |  | - |  | (8,984) |  |  | (18,042) |  | - |  | (18,042)
| Non-performing loans charged-off |  | (1,023) |  | - |  | (1,023) |  |  | (14,042) |  | (1) |  | (14,043)
| Loans returned to accrual status / loan collections |  | (44,697) |  | (3,499) |  | (48,196) |  |  | (168,139) |  | (14,152) |  | (182,291)
Ending balance NPLs | $ | 354,555 | $ | 14,488 | $ | 369,043 |  | $ | 354,555 | $ | 14,488 | $ | 369,043

Table 25 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio |  |
|  | For the quarter ended September 30, 2020 |  | For the nine months ended September 30, 2020
(Dollars in thousands) |  | BPPR |  | Popular U.S. |  | Popular, Inc. |  |  | BPPR |  | Popular U.S. |  | Popular, Inc.
Beginning balance | $ | 397,262 | $ | 14,144 | $ | 411,406 |  | $ | 283,708 | $ | 11,091 | $ | 294,799
Transition of PCI to PCD loans under CECL |  | - |  | - |  | - |  |  | 133,186 |  | - |  | 133,186
Plus: |  |  |  |  |  |  |  |  |  |  |  |  |
| New non-performing loans |  | 41,513 |  | 6,897 |  | 48,410 |  |  | 200,039 |  | 18,344 |  | 218,383
| Advances on existing non-performing loans |  | - |  | 48 |  | 48 |  |  | - |  | 111 |  | 111
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
| Non-performing loans transferred to OREO |  | (492) |  | - |  | (492) |  |  | (8,728) |  | - |  | (8,728)
| Non-performing loans charged-off |  | (3,738) |  | (11) |  | (3,749) |  |  | (16,332) |  | (18) |  | (16,350)
| Loans returned to accrual status / loan collections |  | (64,485) |  | (6,594) |  | (71,079) |  |  | (221,813) |  | (15,044) |  | (236,857)
Ending balance NPLs | $ | 370,060 | $ | 14,484 | $ | 384,544 |  | $ | 370,060 | $ | 14,484 | $ | 384,544

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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 September 30, 2021 and December 31, 2020, are presented below.

Table 26 - Loan Delinquencies
(Dollars in thousands) |  | September 30, 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 | $ | 241,967 | $ | 13,303,671 |  | 1.82 | % | $ | 249,484 | $ | 13,614,310 |  | 1.83 | %
Construction |  | 29,855 |  | 801,040 |  | 3.73 |  |  | 50,369 |  | 926,208 |  | 5.44 |
Leasing |  | 12,704 |  | 1,348,679 |  | 0.94 |  |  | 14,009 |  | 1,197,661 |  | 1.17 |
Mortgage [1] |  | 1,189,198 |  | 7,539,152 |  | 15.77 |  |  | 1,775,902 |  | 7,890,680 |  | 22.51 |
Consumer |  | 158,598 |  | 5,862,830 |  | 2.71 |  |  | 179,789 |  | 5,756,337 |  | 3.12 |
Loans held-for-sale |  | 391 |  | 91,313 |  | 0.43 |  |  | 3,108 |  | 99,455 |  | 3.13 |
Total | $ | 1,632,713 | $ | 28,946,685 |  | 5.64 | % | $ | 2,272,661 | $ | 29,484,651 |  | 7.71 | %
[1] Loans delinquent 30 days or more includes $0.7 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of September 30, 2021 (December 31, 2020 - $1.1 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans.

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 allowance for credit losses. Consequently, the business financial condition, liquidity, capital, and results of operations could also be affected.

At September 30, 2021, the allowance for credit losses amounted to $719 million, a decrease of $178 million, when compared with December 31, 2020, mainly prompted by improvements in credit quality and the macroeconomic outlook. Since the December 31, 2020 scenarios, updated economic assumptions have included a more optimistic view of the economy, prompting substantial reductions in reserves across different portfolios, also contributing to lower qualitative reserves. The ACL for BPPR decreased by $123 million to $617 million, when compared to December 31, 2020. The ACL for Popular U.S. decreased by $55 million to $102 million, when compared to December 31, 2020, mainly driven by a reduction in the qualitative reserve for commercial real estate loans, influenced by the changes in the macroeconomic scenarios The provision for credit losses for the quarter ended September 30, 2021 amounted to a benefit of $58.6 million, a favorable variance of $78.1 million from the same period in the prior year, driven by improved credit quality and macroeconomic outlook, and lower NCOs. Refer to Note 8 – Allowance for credit losses – loans held-in-portfolio, and to the Provision for Credit Losses section of this MD&A for additional information.

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Table 27 - Allowance for Credit Losses - Loan Portfolios
September 30, 2021
(Dollars in thousands) | Commercial | Construction |  | Mortgage |  | Leasing | Consumer | Total |
Total ACL | $ | 234,814 |  | $ | 9,850 |  | $ | 170,378 |  | $ | 11,634 |  | $ | 291,899 |  | $ | 718,575 |
Total loans held-in-portfolio | $ | 13,303,671 |  | $ | 801,040 |  | $ | 7,539,152 |  | $ | 1,348,679 |  | $ | 5,862,830 |  | $ | 28,855,372 |
ACL to loans held-in-portfolio |  | 1.77 | % |  | 1.23 | % |  | 2.26 | % |  | 0.86 | % |  | 4.98 | % |  | 2.49 | %

Table 28 - 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 (recoveries)

The following tables present annualized net charge-offs (recoveries) to average loans held-in-portfolio (“HIP”) by loan category for the quarters and nine months ended September 30, 2021 and 2020.

Table 29 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio |
|  | Quarters ended
|  | September 30, 2021 |  | September 30, 2020
|  | BPPR |  | Popular U.S. |  | Popular Inc. |  | BPPR |  | Popular U.S. |  | Popular Inc. |
Commercial |  | 0.23 | % | (0.03) | % | 0.12 | % | (0.10) | % | 0.02 | % | (0.05) | %
Construction |  | (6.82) |  | ― |  | (1.05) |  | (0.33) |  | ― |  | (0.07) |
Mortgage |  | (0.13) |  | (0.02) |  | (0.11) |  | 0.13 |  | ― |  | 0.11 |
Leasing |  | 0.09 |  | ― |  | 0.09 |  | (0.12) |  | ― |  | (0.12) |
Consumer |  | 0.64 |  | ― |  | 0.62 |  | 1.06 |  | 3.09 |  | 1.19 |
Total annualized net charge-offs (recoveries) to average loans held-in-portfolio |  | 0.18 | % | (0.03) | % | 0.12 | % | 0.26 | % | 0.16 | % | 0.24 | %
|  | Nine months ended
|  | September 30, 2021 |  | September 30, 2020
|  | BPPR |  | Popular U.S. |  | Popular Inc. |  | BPPR |  | Popular U.S. |  | Popular Inc. |
Commercial |  | (0.12) | % | (0.02) | % | (0.08) | % | ― | % | (0.01) | % | (0.01) | %
Construction |  | 3.01 |  | 0.02 |  | 0.51 |  | (0.29) |  | (0.03) |  | (0.08) |
Mortgage |  | 0.14 |  | (0.06) |  | 0.11 |  | 0.34 |  | ― |  | 0.29 |
Leasing |  | 0.09 |  | ― |  | 0.09 |  | 0.78 |  | ― |  | 0.78 |
Consumer |  | 0.56 |  | 1.41 |  | 0.60 |  | 2.78 |  | 3.16 |  | 2.81 |
Total annualized net charge-offs to average loans held-in-portfolio |  | 0.17 | % | 0.02 | % | 0.13 | % | 0.88 | % | 0.16 | % | 0.69 | %

NCOs for the quarter ended September 30, 2021 amounted to $8.8 million, decreasing by $8.0 million when compared to the same period in 2020. NCOs have remained at low levels, aided by measures taken by the Corporation to control the impact of the pandemic, as well as the U.S. government stimulus programs.

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.

Troubled Debt Restructurings

The Corporation’s troubled debt restructurings (“TDRs”) loans amounted to $1.7 billion at September 30, 2021, increasing by $18 million, from December 31, 2020, mainly related to mortgage borrowers that needed additional COVID-19 extensions past the original 6-month moratorium period. TDRs in the BPPR segment increased by $20 million, mostly related to higher mortgage TDRs by $59 million, of which $54 million were related to government guaranteed loans, in part offset by a combined decrease of $30 million in the commercial and construction TDRs. The Popular U.S. segment TDRs have remained essentially flat since December 31, 2020. TDRs in accruing status increased by $54 million from December 31, 2020, mostly related to an increase of $75 million in BPPR’s mortgage TDRs, in part offset by a decrease of $14 million in BPPR’s commercial TDRs, while non-accruing TDRs decreased by $36 million.

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 September 30, 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 and under “Part II – Item 1A - Risk Factors” of any subsequent Quarterly Report on Form 10-Q. 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 the risk factors below and in our 2020 Form 10-K and any subsequent Quarterly Reports on Form 10-Q.

The risks described in our 2020 Form 10-K and in our Quarterly Reports on Form 10-Q 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.

There have been no material changes to the risk factors previously disclosed under “Part I - Item 1- A - Risk Factors” in our 2020 Form 10-K, except for the risks included below which supplement the risk factors described in our 2020 Form 10-K.

We are subject to a variety of cybersecurity risks, that if realized, may have an adverse effect on our business and results of operations. These cybersecurity risks have been heightened by the increase on our employees’ remote work capabilities and in the use of digital channels by our customers as a result of the COVID-19 pandemic.

Information security risks for large financial institutions such as Popular have increased significantly in recent years in part because of the proliferation of new technologies, such as Internet and mobile banking to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to transmit and store sensitive data. We employ a layered defensive approach that employs people, processes and technology to manage and maintain cybersecurity controls through a variety of preventative and detective tools that monitor, block, and provide alerts regarding suspicious activity and identify suspected advanced persistent threats. Notwithstanding our defensive measures and the significant resources we devote to protect the security of our systems, there is no assurance that all of our security measures will be effective at all times, especially as the threats from cyber-attacks is continuous and severe. T he risk of a security breach due to a cyber attack could increase in the future as we continue to expand our mobile banking and other internet-based product offerings and Popular’s internal use of internet-based products and applications.

We continue to detect and identify attacks that are becoming more sophisticated and increasing in volume, as well as attackers that respond rapidly to changes in defensive countermeasures. We have been the target of phishing attacks in the past, targeting both our customers and employees through brand and email impersonation, that have compromised the email accounts of certain of our customers and employees. We continually monitor and address those vulnerabilities and continue to enhance our security measures to detect and prevent such events, while enhancing employee and customer trainings and awareness campaigns. There can be no assurances, however, that there will not be further compromises of sensitive customer information in the future. Furthermore, increased use of remote access and third-party video conferencing solutions during the COVID-19 pandemic, to facilitate work-from-home arrangements for employees, and facilitating the use of digital channels by our customers, could increase our exposure to cyber attacks. In addition, a third party could misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by Popular’s employees.

The most significant cyber-attack risks that we may face are e-fraud, denial-of-service, ransomware and computer intrusion that might result in disruption of services and in the exposure or loss of customer or proprietary data. Loss from e-fraud occurs when cybercriminals compromise our systems and extract funds from customer’s credit cards or bank accounts.

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Denial-of-service disrupts services available to our customers through our on-line banking system. Computer intrusion attempts might result in the compromise of sensitive customer data, such as account numbers and social security numbers, and could present significant reputational, legal and regulatory costs to Popular if successful. Risks and exposures related to cyber security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as the expanding use of digital channels for banking, such as mobile banking and other technology-based products and services used by us and our customers.

Although we are regularly targeted by unauthorized parties, we have not, to date, experienced any material losses as a result of any cyber-attacks.

A successful compromise or circumvention of the security of our systems could have serious negative consequences for us, including significant disruption of our operations and those of our clients, customers and counterparties, misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or damage to computers or systems used by us or by our clients, customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on us. For example, if personal, non-public, confidential or proprietary information in our possession were to be mishandled, misused or stolen, we could suffer significant regulatory consequences, reputational damage and financial loss. The extent of a particular cyber attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed. While such an investigation is ongoing, Popular may not necessarily know the full extent of the harm caused by the cyber attack, and that damage may continue to spread. These factors may inhibit our ability to provide rapid, full and reliable information about the cyber attack to its clients, customers, counterparties and regulators, as well as the public. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyber attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyber attack. For a discussion of the guidance that federal banking regulators have released regarding cybersecurity and cyber risk management standards, see “Regulation and Supervision” in Part I, Item 1 — Business, included in our 2020 Form 10-K. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

We rely on third parties for the performance of a significant portion of our information technology functions and the provision of information security, technology and business process services. As a result, a successful compromise or circumvention of the security of the systems of these third-party service providers could have serious negative consequences for us, including misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or other negative implications identified above with respect to a cyber attack on our systems, which could have a material adverse effect on us. The most important of these third-party service providers for us is EVERTEC, and certain risks particular to EVERTEC are discussed under “Part I - Item 1- A - Risk Factors” in our 2020 Form 10-K. During 2021, we determined that, as a result of the widely reported breach of Accellion, Inc.’s File Transfer Appliance tool, which was being used at the time of such breach by a U.S.-based third-party advisory services vendor of Popular, personal information of certain Popular customers was compromised. As a result, Popular has notified, as required or otherwise deemed appropriate, customers identified as affected by the incident. Although we are not aware of fraudulent activity in connection with this incident, Popular’s networks and systems were not impacted and our third-party service provider has agreed to cover external remediation costs associated with the incident, a compromise of the personal information of our customers maintained by third party vendors could result in significant regulatory consequences, reputational damage and financial loss to us. The success of our business depends in part on the continuing ability of these (and other) third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively monitor or mitigate fourth-party risk, in particular as it relates to the use of common suppliers or vendors by the third parties that perform functions and services for us.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate and remediate any information security vulnerabilities. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones, including risks associated with supply chain compromises and the software development lifecycle of the systems used by us and our service providers. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues. In addition, addressing certain information security

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vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors.

If Popular’s operational systems, or those of external parties on which Popular’s businesses depend, are unable to meet the requirements of our businesses and operations or bank regulatory standards, or if they fail or have other significant shortcomings, Popular could be materially and adversely affected.

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 September 30, 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 September 30, 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 (2) | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1- July 31 | 2,137 | $ | 73.08 | - | $53,732,448
August 1- August 31 | 21 |  | 75.05 | - | 53,732,448
September 1- September 30 | 829,118 |  | 74.12 | 828,965 | 53,732,448
Total | 831,276 | $ | 74.12 | 828,965 | $-
(1) Includes 2,311 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.
(2) As of September 30, 2021, the Corporation completed its $350 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 3,785,831 shares of common stock during the second quarter of 2021 and 828,965 additional shares of common stock during the third quarter of 2021.

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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
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 September 30, 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: November 9, 2021 | By: /s/ Carlos J. Vázquez
| Carlos J. Vázquez
| Executive Vice President &
| Chief Financial Officer
Date: November 9, 2021 | By: /s/ Jorge J. García
| Jorge J. García
| Senior Vice President & Corporate Comptroller

169