EX-13.1

Financial Review and

Supplementary Information

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Statistical Summaries

Report of Management on Internal Control Over Financial

Reporting

Report of Independent Registered Public

Accounting Firm

Consolidated Statements of Financial Condition as of

December 31, 2021 and 2020

Consolidated Statements of Operations for the

years ended December 31, 2021, 2020 and

2019

Consolidated Statements of Comprehensive

Income for the years ended December 31, 2021,

2020 and

2019

Consolidated Statements of Changes in Stockholders’

Equity for the years ended December 31, 2021,

2020 and

2019

Consolidated Statements of Cash Flows for the

years ended December 31, 2021, 2020 and

2019

Notes to Consolidated Financial Statements

Management’s Discussion and

Analysis of Financial Condition

and Results of Operations

Forward-Looking Statements

Overview

Critical Accounting Policies / Estimates

Statement of Operations Analysis

Net Interest Income

Provision for Credit Losses

Non-Interest Income

Operating Expenses

Income Taxes

Fourth Quarter Results

Reportable Segment Results

Statement of Financial Condition Analysis

Assets

Liabilities

Stockholders’ Equity

Regulatory Capital

Risk Management

Market / Interest Rate Risk

Liquidity

Enterprise Risk Management

Adoption of New Accounting Standards and Issued

but

Not Yet Effective Accounting Standards

Statistical Summaries

Statements of Financial Condition

Statements of Operations

Average Balance Sheet and Summary of Net Interest

Income

FORWARD-LOOKING STATEMENTS

The information included in this report contains

certain 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

operations,

plans,

objectives

and

future

performance.

These

statements

are

not

guarantees

future

performance,

are

based

management’s

current

expectations

and,

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

legal

and

regulatory

proceedings

and

new

accounting

standards

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

conditional verbs

such

“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

the

pending

debt

restructuring

proceedings

under

Title

III

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

the

value

our

portfolio

Puerto

Rico

government

securities

and

loans

governmental

entities

and

our

commercial, mortgage and consumer loan portfolios where

private borrowers could be directly affected

by governmental action; the

amount of

Puerto Rico

public sector

deposits held

at the

Corporation, whose

future balances

are uncertain

and difficult

to predict

and

may

impacted by

factors such

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 implementation

of the Plan of Adjustment

for

the

Puerto

Rico

debt

restructuring

under

Title

III

PROMESA;

risks

Popular’s

planned

acquisition

certain

information technology

and related

assets currently

used by

EVERTEC, Inc.

to service

certain of

Banco Popular

de Puerto

Rico’s

key channels, as well as the planned entry into amended and restated commercial agreements and the sale or conversion into

non-

voting

Popular’s ownership

stake

Evertec

(the

“Transaction”),

including:

the

length

time

necessary

consummate

the

Transaction; the ability to satisfy the conditions to the closing thereof; the receipt of any regulatory approvals necessary to effect

the

Transaction and

the contemplated return to

shareholders of net

gains resulting from

a sale of

EVERTEC, Inc. shares;

the ability to

successfully transition

and integrate

the assets

acquired as

part of

the Transaction,

as well

as related

operations, employees

and

third party contractors;

unexpected costs, including,

without limitation, costs due

to exposure to

any unrecorded liabilities or

issues

not identified

during due

diligence investigation

of the

Transaction or

that are

not subject

to indemnification

or reimbursement

EVERTEC, Inc.; risks that Popular may be affected by operational

and other risks arising from the acquisition of

the acquired assets,

including

the

transition

and

integration

thereof,

adverse

effects

relationships

with

customers,

employees

and

service

providers; and

business and

other risks

arising from

the

extension of

Popular’s current

commercial agreements

with EVERTEC,

Inc.,

well

the

sale

conversion

EVERTEC,

Inc.

owned

Popular;

the

scope

and

duration

the

COVID-19

pandemic

(including

the

appearance

new

strains

the

virus),

actions

taken

governmental

authorities

response

the

pandemic, and the direct

and indirect impact of

the pandemic on us,

our customers, service providers and

third parties; 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

federal

bank

regulatory

and

supervisory

policies,

including

required

levels

capital

and

the

impact

proposed capital standards on our capital ratios; additional Federal

Deposit Insurance Corporation (“FDIC”) assessments; regulatory

approvals

that

may

necessary

undertake

certain

actions

consummate

strategic

transactions

such

acquisitions

and

dispositions;

unforeseen or

catastrophic

events, including

extreme weather

events,

other

natural

disasters, man-made

disasters,

acts of violence or war, or the emergence of pandemics epidemics and other health-related crises,

which could cause a disruption in

our operations or other adverse consequences for our business; the relative strength or weakness

of the consumer and commercial

credit sectors and of the

real estate markets in Puerto

Rico and the other markets in

which borrowers are located; the

performance

of the stock

and bond markets;

competition in the

financial services industry;

possible legislative, tax

or regulatory changes;

and a

failure in or breach of

our operational or security systems or infrastructure or

those of EVERTEC, Inc., our provider

of core financial

transaction processing and information technology services, or of other third parties providing services to us, including as a

result of

cyberattacks, e-fraud, denial-of-services

and computer intrusion,

that might

result in

loss or

breach of customer

data, disruption of

services,

reputational

damage

additional

costs

Popular.

Other

possible

events

factors

that

could

cause

results

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, enforcement

actions and

reputational damage resulting

from pending

or future

litigation and regulatory

or government

investigations or

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. Moreover, the outcome

of legal and regulatory proceedings, as discussed in

“Part I, Item 3. Legal Proceedings” of

the Corporation’s Form 10-K for the year

ended

December 31,

2021,

inherently uncertain

and

depends on

judicial

interpretations of

law and

the

findings

regulators,

judges

and/or

juries.

The

description

the

Corporation’s

business

and

risk

factors

contained

Part

Items

and

the

Corporation’s

Form

10-K

for

the

year

ended

December

31,

2021

discusses

additional

information

about

the

business

the

Corporation

and

the

material

risk

factors

and

uncertainties

which

the

Corporation

subject

that,

addition

the

other

information in this report, readers should consider.

All forward-looking statements included

in this report

are based upon information

available to the

Corporation as of the

date of this

report,

and

other

than

required by

law,

including the

requirements

applicable securities

laws,

assume

obligation to

update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date

of such statements.

OVERVIEW

The Corporation is a diversified,

publicly-owned financial holding company subject to the supervision

and regulation of the Board

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.

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

U.S.

mainland,

the

Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary,

Popular

Bank

(“PB”

“Popular

U.S.”)

which

has

branches

located

New

York,

New

Jersey

and

Florida.

Note

the

Consolidated

Financial Statements presents information about the

Corporation’s business segments.

The

Corporation

has

several

investments

which

accounts

for

under

the

equity

method.

These

include

the

16.19%

interest

EVERTEC, a 15.84%

interest in Centro Financiero BHD

Leon, S.A. (“BHD Leon”),

among other investments in

limited partnerships

which mainly

hold loans

and investment

securities. EVERTEC

provides transaction processing

services throughout

the Caribbean

and Latin America, and also provides to the Corporation core

banking and transaction processing and other

services. BHD León is a

diversified

financial

services

institution

operating

the

Dominican

Republic.

For

the

year

ended

December

31,

2021,

the

Corporation recorded approximately $58.3 million in earnings from these

investments on an aggregate basis. The carrying amounts

of these investments

as of December 31,

2021 were $299.0 million.

Refer to Note

27 to the

Consolidated Financial Statements for

additional information.

SIGNIFICANT EVENTS

Acquisition

of K2 Capital Group LLC

October

15,

2021,

Popular

Equipment

Finance

LLC

(“PEF”),

newly-formed

wholly-owned

subsidiary

PB,

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

payment

approximately

$157

million

cash,

representing a premium of

$49 million over the

book value of K2’s

net assets, which has

been recorded as goodwill.

An additional

approximate $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 finance

leases,

and

also

offers

private

label

vendor

finance

programs

equipment

manufacturers

and

healthcare

organizations.

The

acquisition provides PB with a national equipment

leasing platform that complements its existing healthcare

lending business.

part

the

transaction,

PEF

acquired

approximately

$115

million

net

assets

that

consisted

mainly

commercial

finance

leases. The transaction was accounted for as a business combination. Refer to Note 4

to the Consolidated Financial Statements for

additional information.

Capital Actions

2021 Increase in Common Stock Dividend

On May 6, 2021,

the Corporation’s Board of

Directors approved a quarterly cash

dividend of $0.45

per share, an increase

from the

$0.40

per

quarterly

dividend, on

its

outstanding common

stock.

During

the

year

ended December

31,

2021,

the

Corporation declared cash dividend of $1.75 per common

share outstanding ($142.3 million in the aggregate).

Accelerated Share Repurchase

September

2021,

the

Corporation

completed

its

previously

announced

accelerated

repurchase

program

for

the

repurchase

aggregate

$350

million

Popular’s

common

stock.

Under

the

terms

the

accelerated

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 of Popular’s common

stock and recognized $61

million as treasury stock

with a

corresponding

increase

its

capital

surplus

account.

The

Corporation

repurchased

total

4,614,796

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

“Trust Preferred 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

Trust Preferred

Securities was

equal to

$25 per

security plus

accrued and

unpaid distributions

up to

and

excluding

the

redemption

date

the

amount

$0.139583

per

security,

for

total

payment

per

security

the

amount

$25.139583. Upon redemption, Popular

delisted the Trust

Preferred Securities (NASDAQ: BPOPN) from

the Nasdaq Global

Select

Market.

2022 Capital Plan

On January 12, 2022 the Corporation announced

the following capital actions:

●

an increase in the

Corporation’s quarterly common stock

dividend from $0.45 per share

to $0.55 per share,

commencing

with the dividend

payable in the second

quarter of 2022, subject

to the approval

by the Corporation’s

Board of Directors;

and

●

common stock repurchases of up to $500 million

during 2022.

The Corporation’s planned common stock

repurchases may be executed in the

open market or in privately negotiated

transactions.

The

timing

and

exact

amount

such

repurchases

will

subject

various

factors,

including

market

conditions

and

the

Corporation’s capital position and financial performance.

Refer to Table 1 for selected financial data for the past three years.

Table 1 - Selected Financial Data

Years ended December

31,

(Dollars in thousands, except per common share data)

2021

2020

2019

CONDENSED STATEMENTS

OF OPERATIONS

Interest income

2,122,637

2,091,551

2,260,793

Interest expense

165,047

234,938

369,099

Net interest income

1,957,590

1,856,613

1,891,694

Provision for credit losses (benefit)

(193,464)

292,536

165,779

Non-interest income

642,128

512,312

569,883

Operating expenses

1,549,275

1,457,829

1,477,482

Income tax expense

309,018

111,938

147,181

Net income

934,889

506,622

671,135

Net income applicable to common stock

933,477

504,864

667,412

PER COMMON SHARE DATA

Net income per common share - basic

11.49

5.88

6.89

Net income per common share - diluted

11.46

5.87

6.88

Dividends declared

1.75

1.60

1.20

Common equity per share

74.48

71.30

62.42

Market value per common share

82.04

56.32

58.75

Outstanding shares:

Average - basic

81,263,027

85,882,371

96,848,835

Average - assuming dilution

81,420,154

85,975,259

96,997,800

End of period

79,851,169

84,244,235

95,589,629

AVERAGE BALANCES

Net loans

[1]

29,074,036

28,384,981

26,806,368

Earning assets

68,088,675

56,404,607

44,944,793

Total assets

71,168,650

59,583,455

50,341,827

Deposits

63,102,916

51,585,779

42,218,796

Borrowings

1,255,495

1,321,772

1,404,459

Total stockholders'

equity

5,777,652

5,419,938

5,713,517

PERIOD END BALANCE

Net loans

[1]

29,299,725

29,484,651

27,466,076

Allowance for credit losses - loans portfolio

695,366

896,250

477,708

Earning assets

72,103,862

62,989,715

48,674,705

Total assets

75,097,899

65,926,000

52,115,324

Deposits

67,005,088

56,866,340

43,758,606

Borrowings

1,155,166

1,346,284

1,294,986

Total stockholders'

equity

5,969,397

6,028,687

6,016,779

SELECTED RATIOS

Net interest margin (non-taxable equivalent basis)

2.88

3.29

4.03

Net interest margin (taxable equivalent basis) -Non-GAAP

3.19

3.62

4.43

Return on assets

1.31

0.85

1.33

Return on common equity

16.22

9.36

11.78

Tier I capital

17.49

16.33

17.76

Total capital

19.35

18.81

20.31

[1] Includes loans held-for-sale.

Non-GAAP financial measures

Net interest income on a taxable equivalent basis

Net

interest

income,

taxable

equivalent

basis,

presented

with

its

different

components

Table

for

the

year

ended

December 31,

2021

as compared

with

the

same

period in

2020, segregated

major categories

interest

earning assets

and

interest-bearing liabilities.

The interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The

main

sources

tax-exempt

interest

income

are

certain

investments

obligations

the

U.S.

Government,

its

agencies

and

sponsored

entities,

and

certain

obligations

the

Commonwealth

Puerto

Rico

and

its

agencies

and

assets

held

the

Corporation’s international

banking entities.

facilitate the

comparison of

all interest

related to

these assets,

the interest

income

has

been

converted

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 the

Puerto Rico

tax

law. Under Puerto

Rico tax law, the

exempt interest can be deducted up

to the amount of taxable

income. Net interest income on a

taxable

equivalent

basis

non-GAAP

financial

measure.

Management

believes

that

this

presentation

provides

meaningful

information since it facilitates the comparison of revenues

arising from taxable and exempt sources.

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 year ended December 31,

2021

The Corporation’s

net income

for the

year ended

December 31,

2021 amounted

$934.9 million,

compared to

a net

income of

$506.6 million for 2020.

The discussion

that follows

provides highlights

of the

Corporation’s results

operations for

the year

ended December

31, 2021

compared to the results of

operations of 2020. It also

provides some highlights with respect to

the Corporation’s financial condition,

credit

quality,

capital and

liquidity.

Table

2 presents

a three-year

summary of

the components

net income

as a

percentage of

average total assets.

Table 2 - Components of Net

Income as a Percentage of Average Total

Assets

2021

2020

2019

Net interest income

2.75

3.12

3.76

Provision for credit losses (benefit)

0.27

(0.49)

(0.33)

Mortgage banking activities

0.07

0.02

0.06

Net gain and valuation adjustments on investment securities

0.01

Other non-interest income

0.83

1.07

Total net interest

income and non-interest income, net of provision

for credit losses

3.92

3.49

4.56

Operating expenses

(2.18)

(2.45)

(2.94)

Income before income tax

1.74

1.04

1.62

Income tax expense

0.43

0.19

0.29

Net income

1.31

0.85

1.33

Net interest income for the

year ended December 31, 2021 was

$2.0 billion, an increase of $101.0

million when compared to 2020.

The increase in

net interest income

was mainly driven

by higher

interest income from

commercial loans due

to income from

loans

under

the

Small

Business

Administration

(“SBA”)

Paycheck

Protection

Program

(“PPP”),

and

higher

income

from

investment

securities. In addition, lower

interest expense on deposits, despite

the higher volume, contributed to

the higher net interest

income.

The net interest margin for the year ended December 31, 2021 was 2.88% compared to 3.29% for the same period in 2020 and was

impacted by

prolonged low interest

rates as

well as

the change

in the

earning assets composition.

On a

taxable equivalent

basis,

net

interest margin

was 3.19%

in 2021,

compared to

3.62%

in 2020.

Refer to

the Net

Interest Income

section

of this

MD&A for

additional information.

The

Corporation’s

total

provision

for

credit

losses

reflected

benefit

$193.5

million

for

the

year

ended

December

31,

2021,

compared to a provision expense of $292.5 million for 2020. The benefit for the year 2021 was due to improvements in credit quality

and

the

macroeconomic

outlook. The

Corporation continued

exhibit strong

credit

quality

trends and

low

credit

costs

with

low

levels

net

charge-offs

and

lower

non-performing

loans.

Non-performing

assets

totaled

$633

million

December

31,

2021,

reflecting a

decrease of

$191 million

when compared

to December

31, 2020.

Refer to

the Provision

for Credit

Losses and

Credit

Risk sections

of this

MD&A for information

on the

allowance for credit

losses, non-performing assets,

troubled debt restructurings,

net charge-offs and credit quality metrics.

Non-interest

income

for

the

year

ended

December

31,

2021

amounted

$642.1

million,

increase

$129.8

million,

when

compared

with

2020,

mostly

due

to:

higher

service

fees

and

service

charges

deposit

accounts

due

economic

disruptions

related to

the pandemic,

the waiver of

service charges and

late fees

during 2020,

higher income from

mortgage banking activities

and higher other operating income principally due to higher

net earnings from the combined portfolio of investments

under the equity

method. Refer

to the

Non-Interest Income

section of

this MD&A

for additional

information on

the major

variances of

the different

categories of non-interest income.

Total

operating expenses amounted to

$1.5 billion for the

year 2021, reflecting

an increase of

$91.4 million, when compared

to the

same period

in 2020,

mainly due

to higher

personnel costs.

Refer to

the Operating

Expenses section

of this

MD&A for

additional

information.

Income tax expense

amounted to $309.0 million

for the year

ended December 31, 2021,

compared with an

income tax expense of

$111.9

million for the previous year. The increase in income tax expense

for the year is mainly due to a higher pre-tax income.

Refer

to the Income Taxes section in this MD&A

and Note 35 to the consolidated financial statements for additional information on income

taxes.

At December

31, 2021,

the Corporation’s

total assets

were $75.1 billion,

compared with

$65.9 billion at

December 31,

2020. The

increase

$9.2

billion

mainly

driven

higher

money

market

investments

and

debt

securities

available-for-sale

due

the

additional funds

available to

invest resulting

from the

increase in

deposits across

various sectors,

partially offset

by paydowns

agency mortgage-backed securities.

Refer to the Statement of Condition Analysis

section of this MD&A for additional information.

Deposits amounted to $67.0

billion at December 31,

2021, compared with $56.9

billion at December 31,

2020. Table

7 presents a

breakdown of deposits

by major categories.

The increase in

deposits was mainly

due to

higher Puerto Rico

public sector deposits

and higher balances in retail and

commercial demand deposits accounts. The Corporation’s borrowings remained flat

at $1.2 billion

December 31,

2021. Refer

to Note

the

Consolidated Financial

Statements for

detailed information

on the

Corporation’s

borrowings.

Refer

Table

the

Statement

Financial

Condition

Analysis

section

this

MD&A

for

the

percentage

allocation

the

composition of the Corporation’s financing to total assets.

Stockholders’ equity remained flat at $6.0 billion

at December 31, 2021, compared with December 31,

2020. The net activity for the

year was mainly

due to

net income of

$934.9 million for

the year 2021

offset by

unrealized losses on

debt securities

available-for-

sale

and

capital

return

transactions,

including

accelerated

repurchase

transaction

completed

during

2021.

The

Corporation and its

banking subsidiaries continue to

be well-capitalized at December

31, 2021. The Common

Equity Tier

1 Capital

ratio at December 31, 2021 was 17.42%, compared

to 16.26% at December 31, 2020.

For further discussion of operating results, financial

condition and business risks refer to the narrative

and tables included

herein.

The shares of the Corporation’s common stock are traded

on the NASDAQ Global Select Market under the

symbol BPOP.

CRITICAL ACCOUNTING POLICIES / ESTIMATES

The accounting and

reporting policies followed by

the Corporation and its

subsidiaries conform with generally

accepted accounting

principles in

the United

States of America

(“GAAP”) and

general practices within

the financial services

industry. The

Corporation’s

significant

accounting policies

are described

detail in

Note 2

to the

Consolidated Financial

Statements and

should

read in

conjunction with this section.

Critical accounting policies

require management to

make estimates and

assumptions, which involve significant

judgment about the

effect of matters

that are inherently uncertain

and that involve a

high degree of subjectivity.

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. The

following MD&A

section is

a summary

of what

management considers

the Corporation’s

critical accounting

policies and estimates.

Fair Value Measurement of Financial Instruments

The Corporation

currently measures

at fair

value on

a recurring

basis its

trading debt

securities, debt

securities available-for-sale,

certain equity securities,

derivatives and mortgage

servicing rights. Occasionally,

the Corporation may

be required to

record at

fair

value other

assets on

a nonrecurring

basis, such

as loans

held-for-sale, loans

held-in-portfolio that

are collateral

dependent and

certain other

assets. These

nonrecurring fair

value adjustments

typically result

from

the application

lower of

cost

or fair

value

accounting or write-downs of individual assets.

The

Corporation categorizes

its

assets and

liabilities measured

at fair

value under

the three-level

hierarchy.

The level

within the

hierarchy is based on whether the inputs to

the valuation methodology used for fair value measurement

are observable.

The

Corporation

requires

the

use

observable

inputs

when

available,

order

minimize

the

use

unobservable

inputs

determine fair value. The inputs or methodologies used for valuing securities are

not necessarily an indication of the risk associated

with investing

in those

securities. The

amount of

judgment involved

in estimating

the fair

value of

a financial

instrument depends

upon the availability of

quoted market prices or observable market

parameters. In addition, it may

be affected by other

factors such

as the

type of instrument,

the liquidity of

the market for

the instrument, transparency

around the inputs

to the valuation,

as well

the contractual characteristics of the instrument.

Broker quotes

used for

fair value

measurements inherently

reflect any

lack of

liquidity in

the market

since they

represent an

exit

price from

the perspective

of the

market participants.

Financial assets

that were

fair valued

using broker

quotes amounted

to $6

million at December 31, 2021, of which $1

million were Level 3 assets and $5 million

were Level 2 assets. Level 3 assets consisted

principally of

tax-exempt GNMA

mortgage-backed securities.

Fair value

for these

securities was

based on

an internally-prepared

matrix derived

from local

broker quotes.

The main

input used

in the

matrix pricing

was non-binding

local broker

quotes obtained

from limited trade activity. Therefore, these securities were classified as Level

Trading Debt Securities and Debt Securities Available-for-Sale

The

majority

the

values

for

trading

debt

securities

and

debt

securities

available-for-sale

are

obtained

from

third-party

pricing

services and

are validated

with alternate

pricing sources

when available.

Securities not

priced by

a secondary

pricing source

are

documented

and

validated

internally

according

their

significance

the

Corporation’s

financial

statements.

Management

has

established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained

from the primary pricing service provider and the secondary pricing source used as support for the valuation results. During the year

ended December 31, 2021, the Corporation did

not adjust any prices obtained from pricing

service providers or broker dealers.

Inputs are evaluated to

ascertain that they consider current

market conditions, including the

relative liquidity of the

market. When a

market quote

for a

specific security

is not

available, the

pricing service

provider generally

uses observable

data to

derive an

exit

price

for

the

instrument,

such

benchmark

yield

curves

and

trade

data

for

similar

products.

the

extent

trading

data

not

available, the

pricing service provider

relies on

specific information including

dialogue with brokers,

buy side clients,

credit ratings,

spreads to

established benchmarks and

transactions on similar

securities, to

draw correlations based

on the

characteristics of

the

evaluated instrument. If

for any

reason the pricing

service provider cannot

observe data required

to feed

its model,

it discontinues

pricing the instrument. During the year

ended December 31, 2021, none of

the Corporation’s debt securities were subject

to pricing

discontinuance by the

pricing service providers.

The pricing

methodology and approach

of our

primary pricing service

providers is

concluded to be consistent with the fair value measurement

guidance.

Furthermore, management assesses the fair value of its

portfolio of investment securities at least on a

quarterly basis. Securities are

classified

the

fair

value

hierarchy

according

product

type,

characteristics

and

market

liquidity.

the

end

each

period,

management assesses the valuation hierarchy for each asset or liability measured. The fair

value measurement analysis performed

the

Corporation

includes

validation

procedures

and

review

market

changes,

pricing

methodology,

assumption

and

level

hierarchy changes, and evaluation of distressed transactions.

Refer to

Note 28

to the

Consolidated Financial Statements for

a description of

the Corporation’s

valuation methodologies used

for

the assets and liabilities measured at fair value.

Loans and Allowance for Credit Losses

Interest on loans is accrued and recorded as

interest income based upon the principal amount

outstanding.

Non-accrual loans are those loans on which the

accrual of interest is discontinued. When a loan is

placed on non-accrual status, all

previously

accrued

and

unpaid interest

charged against

interest

income

and

the

loan

accounted for

either

a cash-basis

method or

on the

cost-recovery method.

Loans designated

as non-accruing

are returned

to accrual

status when

the Corporation

expects repayment of the remaining contractual principal and interest.

The determination as to the ultimate collectability of the loan’s

balance may involve management’s judgment in the evaluation of

the borrower’s financial condition and

prospects for repayment.

Refer to

the MD&A

section titled

Credit Risk,

particularly the

Non-performing assets

sub-section, for

a detailed

description of

the

Corporation’s non-accruing and charge-off policies by major loan

categories.

One of

the most

critical and

complex accounting

estimates is

associated with

the determination

of the

allowance for

credit losses

(“ACL”).

The

Corporation

establishes

ACL

for

its

loan

portfolio

based

its

estimate

credit

losses

over

the

remaining

contractual term

of the

loans, adjusted

for expected

prepayments, in

accordance with

Accounting Standards

Codification (“ASC”)

Topic

326.

ACL

recognized

for

all

loans

including

originated

and

purchased

loans,

since

inception,

with

corresponding

charge

the

provision

for

credit

losses,

except

for

purchased

credit

deteriorated

(“PCD”)

loans

explained

below.

The

Corporation follows a methodology to establish the ACL which includes a

reasonable and supportable forecast period for estimating

credit

losses,

considering

quantitative

and

qualitative

factors

well

the

economic

outlook.

part

this

methodology,

management evaluates

various macroeconomic

scenarios provided

by third

parties. At

December 31,

2021, management

applied

probability weights to the outcome of the selected

scenarios.

The

Corporation

has

designated

collateral

dependent

loans

secured

collateral

when

foreclosure

probable

when

foreclosure is

not probable but

the practical

expedient is used.

The practical expedient

is used

when repayment is

expected to be

provided

substantially

the

sale

operation

the

collateral

and

the

borrower is

experiencing financial

difficulty.

The

ACL

collateral dependent loans

is measured based

on the fair

value of the

collateral less costs

to sell. 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.

addition, refer

to the

Credit Risk

section of

this MD&A

for detailed

information on

the Corporation’s

collateral value

estimation for

other real estate.

A restructuring constitutes a TDR when the Corporation

separately concludes that the restructuring constitutes a

concession and the

debtor

experiencing

financial

difficulties.

For

information

the

Corporation’s

TDR

policy,

refer

Note

The

established

framework captures

the impact

of concessions

through discounting

modified contractual cash

flows, both

principal and

interest, at

the loan’s

original effective

rate. The

impact of

these concessions

is combined

with the

expected credit

losses generated

by the

quantitative loss models in order to arrive at the

ACL.

Loans Acquired with Deteriorated Credit Quality

PCD loans are defined as those with evidence of a more-than-insignificant

deterioration in credit quality since origination. PCD loans

are initially recorded

at its purchase

price plus an

estimated ACL. Upon

the acquisition of

a PCD loan,

the Corporation recognizes

the

estimate

the

expected

credit

losses

over

the

remaining

contractual

term

each

individual

loan

ACL

with

corresponding addition to the

loan purchase price. The

amount of the purchased

premium or discount which

is not related to

credit

risk

amortized

over

the

life

the

loan

through

net

interest

income

using

the

effective

interest

method

that

approximates the effective interest method. Changes in

expected credit losses are recorded as an

increase or decrease to the ACL

with

corresponding

charge

(reverse)

the

provision

for

credit

losses

the

Consolidated

Statements

Operations.

Upon

transition to the individual loan measurement,

these loans follow the same

nonaccrual policies as non-PCD loans and are

therefore

no longer

excluded from

non-performing status.

Modifications of

PCD loans

that meet

the definition

a TDR

subsequent to

the

adoption of ASC Topic 326 are accounted and reported as such following the same processes

as non-PCD loans.

Income Taxes

Income

taxes

are

accounted

for

using

the

asset

and

liability

method.

Under

this

method,

deferred

tax

assets

and

liabilities

are

recognized based

on the

future tax

consequences attributable

to temporary

differences

between the

financial statement

carrying

amounts

existing

assets

and

liabilities

and

their

respective

tax

basis,

and

attributable

operating

loss

and

tax

credit

carryforwards. Deferred tax assets

and liabilities are measured

using enacted tax rates

expected to apply in

the years in

which the

temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax

rates

is recognized in earnings in the period when

the changes are enacted.

The

calculation

periodic

income

taxes

complex

and

requires

the

use

estimates

and

judgments.

The

Corporation

has

recorded

two

accruals

for

income

taxes:

(i)

the

net

estimated

amount

currently

due

received

from

taxing

jurisdictions,

including

any

reserve

for

potential

examination

issues,

and

(ii)

deferred

income

tax

that

represents

the

estimated

impact

temporary differences between how the Corporation recognizes assets and

liabilities under accounting principles generally accepted

the

United

States

(GAAP),

and

how

such

assets

and

liabilities

are

recognized

under

the

tax

code.

Differences

the

actual

outcome of these future tax consequences could impact the Corporation’s financial position or its results of operations. In estimating

taxes, management assesses the relative

merits and risks of

the appropriate tax treatment

of transactions taking into consideration

statutory, judicial and regulatory guidance.

A deferred

tax asset

should be

reduced by

a valuation

allowance if based

on the

weight of

all available evidence,

it is

more likely

than

not

likelihood

than

50%)

that

some

portion

the

entire

deferred

tax

asset

will

not

realized.

The

valuation

allowance

should

sufficient

reduce

the

deferred

tax

asset

the

amount

that

likely

than

not

realized.

The

determination of whether a deferred

tax asset is realizable is

based on weighting all

available evidence, including both positive and

negative evidence.

The realization

of deferred

tax assets,

including carryforwards

and deductible

temporary differences,

depends

upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The realization of

deferred tax assets requires

the consideration of all

sources of taxable income

available to realize the

deferred tax asset, including

the

future

reversal

existing

temporary

differences,

future

taxable

income

exclusive

reversing

temporary

differences

and

carryforwards, taxable income in carryback years and

tax-planning strategies.

Management evaluates the

realization of the

deferred tax asset

by taxing

jurisdiction. The U.S.

mainland operations are

evaluated

a whole

since a

consolidated income

tax return

is filed;

on the

other

hand, the

deferred tax

asset related

to the

Puerto

Rico

operations

is evaluated

on an

entity

by entity

basis, since

no consolidation

allowed in

the income

tax filing.

Accordingly,

this

evaluation

composed

three

major

components:

U.S.

mainland

operations,

Puerto

Rico

banking

operations

and

Holding

Company.

For the evaluation of the realization of the deferred

tax asset by taxing jurisdiction, refer to Note 35.

Under the Puerto Rico Internal Revenue Code, the

Corporation and its subsidiaries are treated as separate taxable

entities and are

not entitled to file

consolidated tax returns. The Code

provides a dividends-received deduction of 100%

on dividends received from

“controlled” subsidiaries subject to taxation in Puerto Rico

and 85% on dividends received from other

taxable domestic corporations.

Changes in

the Corporation’s

estimates can occur

due to changes

in tax

rates, new business

strategies, newly

enacted guidance,

and resolution

of issues

with taxing

authorities regarding

previously taken tax

positions. Such

changes could

affect the

amount of

accrued taxes. The Corporation has made

tax payments in accordance with

estimated tax payments rules. Any remaining

payment

will not have any significant impact on liquidity

and capital resources.

The valuation

of deferred

tax assets

requires judgment

in assessing

the likely

future tax

consequences of

events that

have been

recognized

the

financial

statements

tax

returns

and

future

profitability.

The

accounting

for

deferred

tax

consequences

represents management’s best

estimate of those

future events. Changes

in management’s current

estimates, due to

unanticipated

events, could have a material impact on the

Corporation’s financial condition and results of operations.

The Corporation establishes tax liabilities or

reduces tax assets for uncertain tax

positions when, despite its assessment that

its tax

return positions are appropriate and supportable under local tax law, the Corporation believes it may not succeed in realizing the tax

benefit of

certain positions if

challenged. In evaluating

a tax position,

the Corporation determines

whether it is

more-likely-than-not

that the position will be sustained upon examination, including resolution

of any related appeals or litigation processes, based on the

technical

merits

the

position.

The

Corporation’s

estimate

the

ultimate

tax

liability

contains

assumptions

based

past

experiences, and judgments

about potential actions

by taxing jurisdictions

as well as

judgments about the

likely outcome of

issues

that have been raised by taxing jurisdictions. The tax

position is measured as the largest amount of benefit that

is greater than 50%

likely of being

realized upon ultimate settlement.

The Corporation evaluates these

uncertain tax positions each

quarter and adjusts

the related tax liabilities or

assets in light of changing

facts and circumstances, such as the

progress of a tax audit

or the expiration

of a

statute of

limitations. The Corporation

believes the

estimates and assumptions

used to

support its

evaluation of

uncertain tax

positions are reasonable.

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

through earnings, would

affect the Corporation’s

effective tax

rate, was

approximately $5.5

million at

December 31,

2021 and

$10.2 million

at December

31, 2020.

Refer to

Note 35

to the

Consolidated

Financial Statements

for further

information on

this subject

matter.

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.

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

open

income

tax

returns

due

the

statutes

limitation,

changes

management’s

judgment about

the level

of uncertainty,

status of

examinations, litigation

and legislative

activity and

the addition

or elimination

uncertain tax

positions. Although

the

outcome of

tax audits

is uncertain,

the Corporation

believes that

adequate amounts

of tax,

interest and penalties

have been provided

for any adjustments

that are expected

to result from

open years. From

time to time,

the

Corporation is audited

by various federal, state

and local authorities regarding

income tax matters. Although

management believes

its

approach

determining the

appropriate

tax

treatment

supportable

and

accordance

with

the

accounting standards,

possible that the final tax

authority will take a tax position that

is different than the tax

position reflected in the Corporation’s income

tax provision and other tax reserves. As each audit is conducted, adjustments, if any,

are appropriately recorded in the consolidated

financial

statement

the

period

determined.

Such

differences

could

have

adverse

effect

the

Corporation’s

income

tax

provision or

benefit, or

other tax

reserves, in

the reporting

period in

which such

determination is

made and,

consequently,

on the

Corporation’s results of operations, financial position and

/ or cash flows for such period.

Goodwill and Other Intangible Assets

The

Corporation’s

goodwill

and

other

identifiable

intangible

assets

having

indefinite

useful

life

are

tested

for

impairment.

Intangibles

with

indefinite

lives

are

evaluated

for

impairment

least

annually,

and

frequent

basis,

events

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

dispose

reporting

unit.

Other

identifiable

intangible

assets

with

finite

useful

life

are

evaluated

periodically for impairment when events or changes

in circumstances indicate that the carrying amount

may not be recoverable.

Goodwill impairment is recognized when the carrying amount of any

of the reporting units exceeds its fair value

up to the amount of

the

goodwill.

The

Corporation

estimates

the

fair

value

each

reporting

unit,

consistent

with

the

requirements

the

fair

value

measurements

accounting

standard,

generally

using

combination

methods,

including

market

price

multiples

comparable

companies and

transactions, as

well as

discounted cash

flow analyses.

Subsequent reversal

of goodwill

impairment losses

is not

permitted under applicable accounting standards. No impairment was recognized by the

Corporation from the annual test as of July

31,

2021.For

detailed

description

the

annual

goodwill

impairment

evaluation

performed

the

Corporation

during

the

third

quarter of 2021, refer to Note 15.

At December 31, 2021,

goodwill amounted to $720 million.

During the year ended December

31, 2021, the Corporation recognized

impairment loss

$5.4

million

associated with

trademark.

Note

the

Consolidated Financial

Statements

provides the

assignment of goodwill by reportable segment.

Pension and Postretirement Benefit Obligations

The Corporation provides pension and

restoration benefit plans for certain employees

of various subsidiaries. The Corporation also

provides certain

health care

benefits for

retired employees of

BPPR. The

non-contributory defined pension

and benefit

restoration

plans (“the Pension Plans”) are frozen with regards

to all future benefit accruals.

The estimated

benefit costs

and obligations

of the

Pension Plans and

Postretirement Health

Care Benefit Plan

(“OPEB Plan”)

are

impacted by

the use

of subjective

assumptions, which can

materially affect

recorded amounts, including

expected returns on

plan

assets,

discount

rates,

termination

rates,

retirement

rates

and

health

care

trend

rates.

Management

applies

judgment

the

determination of these factors, which normally undergo evaluation against current industry practice and the

actual experience of the

Corporation.

The

Corporation

uses

independent

actuarial

firm

for

assistance

the

determination

the

Pension

Plans

and

OPEB Plan

costs and

obligations. Detailed information

on the Plans

and related valuation

assumptions are included

in Note

30 to

the Consolidated Financial Statements.

The Corporation periodically reviews its assumption for the long-term expected return on Pension Plans

assets. The Pension Plans’

assets

fair

value

December

31,

2021

was

$860.5

million.

The

expected

return

plan

assets

determined

considering

various factors, including a total fund return estimate based on a weighted-average

of estimated returns for each asset class in each

plan.

Asset

class

returns

are

estimated

using

current

and

projected

economic

and

market

factors

such

real

rates

return,

inflation, credit spreads, equity risk premiums and

excess return expectations.

As part of the review,

the Corporation’s independent consulting actuaries performed an analysis of expected

returns based on each

plan’s expected asset

allocation for the year

2022 using the

Willis Towers

Watson US Expected

Return Estimator.

This analysis is

reviewed by the Corporation

and used as a

tool to develop expected

rates of return, together

with other data. This

forecast reflects

the actuarial firm’s view of

expected long-term rates of return for each significant asset

class or economic indicator as of January

2022;

for

example, 8.5%

for

large

cap

stocks,

8.8% for

small cap

stocks,

8.9% for

international stocks,

3.5% for

long

corporate

bonds

and

2.4%

for

long

Treasury

bonds.

range

expected

investment

returns

developed,

and

this

range

relies

both

forecasts and on broad-market historical benchmarks

for expected returns, correlations, and volatilities

for each asset class.

As a consequence of recent reviews, the Corporation decreased its expected return on plan assets for year 2022

to 4.3% and 5.4%

for the Pension

Plans.

Expected rates

of return of

4.6% and 5.5%

had been used

for 2021 and

5.0% and 5.8%

had been used

for

2020 for the Pension Plans. Since the expected return assumption is on a long-term basis, it is not materially impacted by the yearly

fluctuations (either positive or negative) in the actual

return on assets. The expected return can be

materially impacted by a change

in the plan’s asset allocation.

Net Periodic

Benefit Cost

(“pension expense”)

for the

Pension Plans

amounted to

a net

benefit of

$3.8 million

in 2021.

The total

pension expense included a benefit of $38.7 million

for the expected return on assets.

Pension expense is sensitive

to changes in the

expected return on assets.

For example, decreasing the expected

rate of return

for

2021 from

4.3% to

4.05% would

increase the

projected 2022

pension expense

for the

Banco Popular

de Puerto

Rico Retirement

Plan, the Corporation’s largest plan, by approximately $2.0

million.

the

projected

benefit

obligation

exceeds

the

fair

value

plan

assets,

the

Corporation

shall

recognize

liability

equal

the

unfunded projected

benefit obligation

and vice

versa, if

the fair

value of

plan assets

exceeds the

projected benefit

obligation, the

Corporation recognizes an asset equal to the overfunded projected

benefit obligation. This asset or liability may result in a

taxable or

deductible temporary difference and its

tax effect shall be

recognized as an income tax

expense or benefit which shall

be allocated

to various

components of

the financial

statements, including

other comprehensive

income.

The determination

of the

fair value

pension

plan

obligations

involves

judgment,

and

any

changes

those

estimates

could

impact

the

Corporation’s

Consolidated

Statements

of Financial Condition.

Management believes that

the fair value

estimates of the

Pension Plans assets

are reasonable

given the valuation methodologies used to measure the investments at fair value as

described in Note 28. Also, the compositions of

the plan assets

are primarily in

equity and debt

securities, which have

readily determinable quoted market

prices. The Corporation

had recorded a pension asset of $17.8 million

and a pension liability of $8.8 million at December

31, 2021.

The Corporation uses

the spot rate

yield curve from

the Willis Towers

Watson RATE:

Link (10/90) Model

to discount the

expected

projected

cash

flows

the

plans.

The

equivalent

single

weighted

average

discount

rate

ranged

from

2.79%

2.83%

for

the

Pension Plans and 2.94%

for the OPEB Plan to determine the benefit obligations

at December 31, 2021.

A 50

basis point

decrease to

each of

the rates

in the

December 31,

2021 Willis

Towers

Watson RATE:

Link (10/90)

Model would

increase the

projected 2022

expense for

the Banco

Popular de

Puerto Rico

Retirement Plan

by approximately

$2.6 million.

The

change would not affect the minimum required contribution

to the Pension Plans.

The OPEB Plan was unfunded (no assets were held by the plan) at December 31, 2021. The Corporation had recorded a liability for

the underfunded postretirement benefit obligation of $160.0

million at December 31, 2021.

STATEMENT

OF OPERATIONS ANALYSIS

Net Interest Income

Net interest income is the interest earned from loans, debt securities and money market investments, including loan fees, minus

the

interest cost of deposits and borrowings. Various risk factors affect net interest income including the economic environment in which

operate,

market

driven

events,

the

mix

and

size

the

earning

assets

and

funding,

changes

volumes,

repricing

characteristics, loans

fees collected,

moratoriums granted

on loan

payments and

delay charges,

interest collected

on nonaccrual

loans, as well as strategic decisions made by the Corporation’s management. Net interest income for the

year ended December 31,

2021 was $2.0

billion or $101.0

million higher than

in 2020. Net

interest income, on

a taxable equivalent

basis, for the

year ended

December 31, 2021 was $2.2 billion compared

to $2.0 billion in 2020.

Due

the

Corporation’s

current

asset

sensitive

position,

increase

interest

rates

should

have

favorable

impact

the

Corporation’s results. See

the Risk Management:

Market/Interest Rate Risk

section of this

MD&A for additional

information related

to the Corporation’s interest rate risk.

The average key index rates for the years 2021

and 2020 were as follows:

2021

2020

Prime rate………………………………………………………………………………………………….

3.25%

3.53%

Fed funds rate……………………………………………………………………………………………..

0.25

0.35

3-month LIBOR……………………………………………………………………………………………

0.16

0.65

3-month Treasury Bill…………………………………………………………………………………….

0.03

0.35

10-year Treasury………………………………………………………………………………………….

1.44

0.89

FNMA 30-year…………………………………………………………………………………………….

1.84

1.01

Average

outstanding securities

balances are

based

upon

amortized cost

excluding any

unrealized gains

losses

securities

available-for-sale.

Non-accrual

loans

have

been

included

the

respective

average

loans

and

leases

categories.

Loan

fees

collected, and

costs incurred

in the

origination of

loans are

deferred and

amortized over

the term

of the

loan as

an adjustment

interest yield. Prepayment penalties, late fees collected and the amortization of premiums /

discounts on purchased loans, including

the discount accretion on purchased credit deteriorated loans (“PCD”),

are also included as part of the loan yield. Interest income for

the

period

ended

December

31, 2021

included

favorable

impact of

$131.6

million,

those

items,

compared

$98.5

million for the

same period in

2020. The year

over year increase

is related to

higher amortized fees

resulting mainly from

the SBA

forgiveness of PPP

loans by

$53.9 million,

partially offset

by $15.4

million lower

amortization of the

fair value

discount of

the auto

and credit card portfolios acquired in previous

years.

Table

3 presents

the

different

components

the

Corporation’s

net

interest

income,

taxable

equivalent

basis,

for

the

year

ended December 31,

2021, as compared

with the same

period in 2020,

segregated by major

categories of interest

earning assets

and interest-bearing liabilities. Net interest margin was 2.88% in 2021 or 41 basis points lower than the 3.29% reported in 2020. The

lower net interest margin for the

year is driven by the

increase of $11.5

billion in average deposits which were mostly

redeployed in

overnight Fed

Funds and

U.S. Treasury

and agency

debt securities.

These assets,

although accretive

to net

interest income,

are

low yielding assets and have the effect of compressing the net interest margin.

Also impacting the net interest

margin was a full year

of low short-term

rates as the

Federal Reserve decreased

by 150 basis

points the Federal

Funds Rate in

the first quarter

of 2020.

taxable

equivalent

basis,

net

interest

margin

was 3.19% in

2021,

compared

3.62%

2020.

The

main

drivers

for

the

increase in net interest income on a taxable equivalent

basis were:

Positive variances:

●

Higher

interest

income

from

money

market

and

investment

securities

due

higher

volume

$11.0

billion,

which

resulted from an increase in deposits in most categories, partially

offset by lower yield by 39 basis points driven by a lower

interest rate environment. These larger balances resulted

from an increase in deposits in most categories;

●

Higher interest

income from

commercial loans

driven by

higher interest

and fees

from PPP

loans by

$54.0 million

when

compared to 2020, partially offset the repricing of adjustable

rates loans and origination in a low

interest rate environment;

●

The auto and

lease financing portfolios increased

by $478 million

or 12% driven

by continued demand for

automobiles in

Puerto Rico

after the

COVID-19 related

lockdown and

higher household

liquidity resulting

from COVID-19

relief federal

assistances;

●

Mortgage loans

interest income

increased 6%

when compared

to the

year 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 rates

of the repurchased portfolio; and

●

Lower interest expense on

deposits due to the

decrease in interest cost

by 21 basis points

resulting from the decrease in

market rates in March 2020, increased liquidity in the financial industry as a result of retail and

commercial federal support

programs

and

the

subsequent

effect

these

liabilities.

The

decrease in

the

cost

interest-bearing deposits

was

basis points

when compared

to the

year 2020

in the

U.S. segment

and 13

basis points

in P.R.

The impact

from lower

rates was partially offset by higher average balance of interest-bearing deposits by $8.4 billon when compared to the year

2020.

Partially offset by:

●

Lower interest

income from

consumer loans

due to

lower average

volume both

on the

installment loan

and credit

card

portfolios, resulting also from a higher household

liquidity in the market, as discussed above.

Table 3 – Analysis of Levels & Yields

on a Taxable Equivalent Basis

from Continuing Operations (Non-GAAP)

Year ended December 31,

Variance

Average Volume

Average Yields / Costs

Interest

Attributable to

2021

2020

Variance

2021

2020

Variance

2021

2020

Variance

Rate

Volume

(In millions)

(In thousands)

16,000

8,598

7,402

0.13

0.23

(0.10)

Money market investments

21,147

19,722

1,425

(10,745)

12,170

22,931

19,353

3,578

2.22

2.42

(0.20)

Investment securities [1]

508,131

467,994

40,137

(43,723)

83,860

5.16

6.00

(0.84)

Trading securities

4,339

4,165

174

(646)

820

Total money market,

investment and trading

39,015

28,020

10,995

1.37

1.76

(0.39)

securities

533,617

491,881

41,736

(55,114)

96,850

Loans:

13,455

13,245

210

5.39

5.23

0.16

Commercial

723,765

692,372

31,393

20,297

11,096

849

913

(64)

5.41

5.74

(0.33)

Construction

45,821

52,438

(6,617)

(3,059)

(3,558)

1,289

1,112

177

6.00

6.05

(0.05)

Leasing

77,356

67,247

10,109

(522)

10,631

7,696

7,255

441

5.09

5.23

(0.14)

Mortgage

392,047

379,794

12,253

(10,414)

22,667

2,463

2,839

(376)

11.17

11.34

(0.17)

Consumer

275,078

322,009

(46,931)

(5,612)

(41,319)

3,322

3,021

301

8.47

8.97

(0.50)

Auto

280,722

271,162

9,560

(16,500)

26,060

29,074

28,385

689

6.19

6.29

(0.10)

Total loans

1,794,789

1,785,022

9,767

(15,810)

25,577

68,089

56,405

11,684

3.43

4.04

(0.61)

Total earning assets

2,328,406

2,276,903

51,503

(70,924)

122,427

Interest bearing deposits:

25,959

19,678

6,281

0.12

0.28

(0.16)

NOW and money market [2]

31,911

54,652

(22,741)

(37,171)

14,430

15,429

12,399

3,030

0.18

0.30

(0.12)

Savings

27,123

37,765

(10,642)

(19,220)

8,578

7,028

7,971

(943)

0.75

1.05

(0.30)

Time deposits

52,587

83,438

(30,851)

(20,755)

(10,096)

48,416

40,048

8,368

0.23

0.44

(0.21)

Total interest bearing

deposits

111,621

175,855

(64,234)

(77,146)

12,912

166

(74)

0.35

1.48

(1.13)

Short-term borrowings

318

2,457

(2,139)

(1,411)

(728)

Other medium and

1,185

1,178

4.49

4.81

(0.32)

long-term debt

53,107

56,626

(3,519)

(2,927)

(592)

Total interest bearing

49,693

41,392

8,301

0.33

0.57

(0.24)

liabilities

165,046

234,938

(69,892)

(81,484)

11,592

14,687

11,538

3,149

Demand deposits

3,709

3,475

234

Other sources of funds

68,089

56,405

11,684

0.24

0.42

(0.18)

Total source of funds

165,046

234,938

(69,892)

(81,484)

11,592

3.19

3.62

(0.43)

Net interest margin/ income

on a taxable equivalent basis

(Non-GAAP)

2,163,360

2,041,965

121,395

10,560

110,835

3.10

3.47

(0.37)

Net interest spread

Taxable equivalent

adjustment

205,770

185,353

20,418

2.88

3.29

(0.41)

Net interest margin/ income

non-taxable equivalent basis

(GAAP)

1,957,590

1,856,612

100,977

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.

Provision for Credit Losses - Loans Held-in-Portfolio

and Unfunded Commitments

For the year ended December 31, 2021, the Corporation recorded a release of $191.3 million for its reserve for

credit losses related

loans

held-in-portfolio

and

unfunded

commitments,

compared

with

provision

expense

$294.9

million

for

the

year

ended

December 31, 2020. The

reserve release related to

the loans-held-in-portfolio for

the year 2021 was

$183.3 million, compared to

provision

expense of

$282.3 million

for

the year

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 year 2021 reflected a

benefit of $8.0 million, compared to a provision expense

of $12.6 million for the same period of 2020.

The reserve

release related to

loans held-in-portfolio

for the

BPPR segment

was $129.0

million for

the year

ended December

31,

2021, compared

to a

provision expense

of $205.9

million for

the year

ended December

31, 2020,

a favorable

variance of

$334.9

million. The

reserve release

related to

loans held-in-portfolio

for the

Popular U.S.

segment was

$54.3 million

for the

year 2021,

favorable variance of $130.8 million, compared to a provision

expense of $76.5 million for the year 2020.

December

31,

2021,

the

total

allowance

for

credit

losses

for

loans

held-in-portfolio amounted

$695.4

million,

compared

$896.3

million

December

31,

2020.

The

ratio

the

allowance

for

credit

losses

loans

held-in-portfolio

was

2.38%

December

31,

2021, compared

3.05%

December 31,

2020. Refer

Note

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.

discussed

Note

the

Consolidated Financial

Statements, within

the

process

estimate its

allowance for

credit

losses

(“ACL”),

the

Corporation

applies

probability

weights

the

outcomes

simulations

using

Moody’s

Analytics’

Baseline,

(pessimistic) and S1 (optimistic) scenarios.

Provision for Credit Losses – Investment Securities

The

Corporation’s

provision

for

credit

losses

its

investment

securities

held-to-maturity

the

portfolio

obligations

from

the

Government

Puerto

Rico,

states

and

political

subdivisions.

For

the

year

ended

December

31,

2021,

the

Corporation recorded a reserve release of

$2.2 million, compared to a reserve

release of $2.4 million for the

year ended December

31, 2020. At December 31,

2021, the total allowance for credit

losses for this portfolio amounted to

$8.1 million, compared to $10.3

million as of December 31, 2020. Refer to Note

7 for additional information on the ACL for this

portfolio.

Non-Interest Income

For the

year ended December

31, 2021, non-interest

income increased by

$129.8 million, when

compared with the

previous year,

primarily driven by:

●

higher

service

charges

deposit

accounts

$14.9

million

principally

due

higher

fees

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 $53.4

million, principally

at the

BPPR segment,

due to

higher credit

and debit

card fees

$43.4

million

mainly

interchange

income

resulting

from

higher

transactional

volumes

part

due

the

business

disruptions

and

the

waiver

service

charges

and

late

fees

the

COVID-19

pandemic

during

2020;

higher

insurance

fees

$5.8

million,

from

which

$3.0

million

were

contingent

insurance

commissions

recognized

during the fourth quarter;

and higher trust fees by $3.1 million;

●

higher income

from mortgage

banking activities

by $39.7

million mainly

due to

the impact

of the

bulk loan

repurchases

from the

Corporation’s GNMA,

FNMA and

FHLMC loan servicing

portfolio during

2020 which

resulted in

an unfavorable

adjustment

$8.8

million

and

$10.5

million

the

valuation

mortgage

servicing

rights

(“MSRs”)

and

servicing

advances losses,

respectively,

and an

offsetting positive

adjustment in

servicing fees

of $3.4

million; lower

unfavorable

fair value

adjustments on

MSRs by

$23.0 million

due to

changes in

assumptions; and

higher realized

gains on

closed

derivatives positions by $11.9 million also contributed to the year over year income improvements; partially offset by lower

gains from securitization transactions by $8.9 million;

and

●

higher

other

operating

income

$26.7

million

principally

due

higher

net

earnings

from

the

combined

portfolio

investments under the

equity method by

$15.1 million, the

gain of $7.0

million recognized in

the third quarter

of 2021 by

BPPR as a result of the sale and partial leaseback of two corporate office

buildings, and higher daily auto rental revenues

by $3.9 million;

partially offset by:

●

lower net gain on

equity securities

by $6.1 million mainly

related to a $4.1

million gain on sale

of certain equity securities

at PB during the third quarter of 2020.

Operating Expenses

Table 4 provides a breakdown of operating expenses by major categories.

Table 4 - Operating Expenses

Years ended December

31,

(In thousands)

2021

2020

2019

Personnel costs:

Salaries

371,644

370,179

351,788

Commissions, incentives and other bonuses

113,095

78,582

97,764

Pension, postretirement and medical insurance

52,077

44,123

41,804

Other personnel costs, including payroll taxes

94,986

71,321

99,269

Total personnel

costs

631,802

564,205

590,625

Net occupancy expenses

102,226

119,345

96,339

Equipment expenses

92,097

88,932

84,215

Other taxes

56,783

54,454

51,653

Professional fees:

Collections, appraisals and other credit related fees

13,199

12,588

16,300

Programming, processing and other technology services

272,386

253,565

247,332

Legal fees, excluding collections

10,712

10,611

12,877

Other professional fees

114,568

117,358

107,902

Total professional

fees

410,865

394,122

384,411

Communications

25,234

23,496

23,450

Business promotion

72,981

57,608

75,372

FDIC deposit insurance

25,579

23,868

18,179

Other real estate owned (OREO) (income) expenses

(14,414)

(3,480)

4,298

Other operating expenses:

Credit and debit card processing, volume, interchange and

other expenses

45,088

45,108

38,059

Operational losses

38,391

26,331

21,414

All other

53,509

57,443

80,097

Total other operating

expenses

136,988

128,882

139,570

Amortization of intangibles

9,134

6,397

9,370

Total operating

expenses

1,549,275

1,457,829

1,477,482

Personnel costs to average assets

0.89

0.95

1.17

Operating expenses to average assets

2.18

2.45

2.93

Employees (full-time equivalent)

8,351

8,522

8,560

Average assets per employee (in millions)

$8.52

$6.99

$5.88

Operating expenses for the year ended December 31, 2021 increased by $91.4 million, when compared with the previous year. The

increase in operating expenses was driven primarily

by:

●

Higher personnel cost

by $67.6

million mainly

due to

higher incentives related

to the

profit-sharing plan by

$29.1 million

and

higher

commission

and

performance-based incentives

$34.5

million

due

improved

performance metrics

and

salary

increases,

higher

fringe

benefit

expense,

mainly

medical

insurance

$8.0

million,

partially

offset

higher

deferred salaries as a result of higher

loan originations during 2021;

●

Higher equipment expense by $3.2 million due

to higher amortization of software costs;

●

Higher

professional

fees

$16.7

million

primarily

due

higher

processing

service

fees

due

higher

volume

transactions;

●

Higher business promotions by $15.4 million due to

higher customer reward program expense in our credit card

business

and higher advertising expense;

●

Higher other

operating expenses by

$8.1 million mainly

due higher sundry

losses by $12.1

million, including $3.7

million

related to the termination of

a white label credit card

contract and higher legal reserves; and

higher impairment losses on

undeveloped properties by $3.2 million; partially offset by lower

pension plan cost by $10.0 million due to annual changes

in actuarial assumptions and higher gain on

sale of repossess auto units by $2.8 million; and

●

Higher amortization of intangibles by $2.7 million due

to a write-down on impairment of a trademark.

These variances were partially offset by:

●

Lower net

occupancy expense

by $17.1

million due

$19.0 million

in costs

related to

the termination

real property

leases associated

with PB’s

New York

branch realignment,

including the

impairment of

the right-of-use

assets recorded

during 2020; and

●

Lower OREO expense by $10.9 million mainly due

to higher gains on sale of mortgage properties.

Income Taxes

For the

year ended

December 31,

2021, the

Corporation recorded an

income tax

expense of

$309.0 million,

compared to

$111.9

million for the

same period of

2020.

The income tax

expense for the

year ended December

31, 2021 reflects

the impact of

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 U.S. operations subject to a

lower statutory tax rate.

At December 31, 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 $0.2 billion, net of a valuation

allowance of $0.4 billion.

Refer to

Note 35

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.

Fourth Quarter Results

The Corporation recognized net income of $206.1 million for the

quarter ended December 31, 2021, compared with a net income

$176.3 million for the same quarter of 2020.

Net interest income for the fourth quarter of

2021 amounted to $501.3 million, compared with $471.6 million for the

fourth quarter of

2020, an increase

of $29.7 million.

The increase in

net interest income

was mainly due

to increase in

average balance of

earning

assets, mainly due

to increase in deposits.

The net interest

margin declined by 26

basis points to

2.78% due to

declines in market

rates and

the earning

assets mix, which

were concentrated in

overnight Fed Funds,

U.S. Treasuries

and agency securities,

which

are all lower yielding assets.

The provision for credit losses was a

benefit of $33.1 million compared to a provision

expense of $21.2 million for the fourth quarter

2020.

The

benefit

recorded

the

fourth

quarter

2021

was

reflective

improvements

the

credit

metrics

and

the

macroeconomic outlook as well as releases in

qualitative reserves.

Non-interest income

amounted to

$164.7 million

for the

quarter ended

December 31,

2020, compared

with $144.8

million for

the

same quarter in 2020. The increase of $19.9 million was mainly due to other service fees, due to higher volume of transactions, and

higher income from mortgage banking activities.

Operating expenses

totaled $417.4

million for

the quarter

ended December

31, 2021,

compared with

$375.9 million

for the

same

quarter

the

year.

The

increase

$41.5

million

mainly

higher

personnel

costs

due

higher

salaries,

incentives and commissions, higher

business promotion expenses, and

higher other operating expenses

due to the

reclassification

during

the

fourth

quarter

2020

$10.0

million

provision

for

unfunded

commitments

from

the

other

expenses

line

the

provision for credit losses caption, partially offset by lower net occupancy expenses related to the termination of real property leases

associated with PB’s New York branch rationalization, amounting to $19.0 million, including the impairment

of the right-of-use assets

and related costs recorded in the last quarter of

2020.

Income tax

expense amounted

to $75.6

million for

the quarter

ended December

31, 2021,

compared with

income tax

expense of

$43.0 million for the same quarter of 2020. The increase is mainly due to higher pre-tax income during the quarter ended December

31, 2021, compared to the quarter ended December 31,

2020.

REPORTABLE SEGMENT RESULTS

The Corporation’s

reportable segments

for managerial

reporting purposes

consist of

Banco Popular

de Puerto

Rico and

Popular

U.S. A Corporate group has been defined to

support the reportable segments.

For

description

the

Corporation’s

reportable

segments,

including

additional

financial

information

and

the

underlying

management accounting process, refer to Note 37

to the Consolidated Financial Statements.

The Corporate

group reported a

net income of

$13.4 million for

the year ended

December 31, 2021,

compared to a

net income of

$8.5 million for the previous year. The increase in the net income was mainly attributed to lower net interest expense

by $1.4 million,

mainly

due

lower

interest

expense

after

the

redemption

November

2021

the

trust

preferred securities

issued

the

Popular Capital Trust I;

higher non-interest income by $10.1 million mainly due

to higher income from the portfolio

of equity method

investments, partially offset by higher operating expenses by $6.4 million mainly due

to higher amortization of intangibles due to the

impairment

of a trademark.

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 $787.5

million for the

year ended December 31,

2021, compared with $499.0 million for

the year ended December 31, 2020.

The results for 2021 included

reserve for credit losses

release

$136.4 million.

The

results for

2020

were impacted

by the

COVID-19 pandemic

well as

the implementation

the

CECL accounting pronouncement

under which provision

for credit

losses of $211.0

million was recorded

throughout the year.

The

principal factors that contributed to the variance in the

financial results included the following:

●

Higher net interest income by $81.0 million due to higher income from investment

securities by $35.2 million mainly due to

higher average balances, higher income

from loans by $15.3 million,

mainly from interest and fees

from commercial PPP

loans

and

higher volume

mortgage loans

and

leases,

partially offset

lower income

from

consumer loans,

mainly

credit cards;

and lower

interest expense

from deposits

by $29.2

million.

The BPPR

segment’s net

interest margin

was

2.86% for

2021 compared

with 3.40%

for the

same period

in 2020.

The decrease

was mainly

due to

the earning

asset

composition;

●

A reversal of $136.4 million

of the reserve for credit

losses, due to improved credit metrics

and improved macroeconomic

outlook, compared to a

provision expense of $211.0

million in 2020, which

reflected the implementation of CECL and

the

impact of the COVID-19 pandemic in the macroeconomic

outlook;

●

Higher non-interest income by $119.4 million mainly due to:

●

Higher service charges on deposit accounts by

$14.8 million due to the impact in

2020 of lower transactions and the

temporary waiver of fees in response to the COVID-19

pandemic;

●

Higher other service fees by

$51.7 million due to

higher debit and credit card

transactions and the temporary waiver

of fees in response to the COVID-19 pandemic in 2020

and higher contingent insurance revenues in 2021;

●

Higher mortgage

banking

activities by

$39.9 million

due

lower unfavorable

fair value

adjustments

mortgage

servicing

rights,

and

the

negative

net

impact

that

resulted

from

the

from

the

bulk

repurchase

loans

from

the

Corporation’s GNMA, FNMA and FHLMC loan servicing

portfolio in 2020; and

●

Higher other operating income by $10.7 million due to higher income from the portfolio

of equity method investments,

the gain from the sale of two corporate office buildings in 2021

and higher income from daily auto rental

activities.

●

Higher operating expenses by $112.0 million, mainly due to:

●

Higher personnel costs by $43.6 million mainly due

to higher salaries, incentives and profit-sharing plan

expense;

●

Higher professional

fees by $20.3 million mainly due to processing service

fees due to higher volume of transactions;

●

Higher business

promotions by

$13.6 million

mainly due

to higher

customer reward

program expense

in our

credit

card business and higher advertising expense;

●

Higher other

operating expenses

by $34.3

million due

to higher

sundry losses,

including $3.7

million related

to the

termination of

a white

label credit

card contract,

impairment losses

on long-lived

assets of

$5.3 million

recorded in

2021, higher legal reserves and higher corporate

expense allocations;

Partially offset by:

●

Lower OREO expenses by $11.1 million mainly due to higher gains

on sales of residential properties.

●

Higher income tax expense by $147.3 million mainly

due to higher income before tax.

Popular U.S.

For the

year ended

December 31, 2021, the

reportable segment of

Popular U.S.

reported net income

of $134.1

million, compared

with a

net loss

of $0.7

million for

the year

ended December

31, 2020.

The principal

factors that

contributed to

the variance

in the

financial results included the following:

●

Higher net

interest

income

$18.6 million

mainly

due to

lower

interest

expense on

deposits by

$36.5 million,

due to

lower

rates

and

lower

average

balance

certificates

deposits,

partially

offset

lower

income

from

loans

$9.8

million mainly from

consumer and construction loans,

and lower income

from investment securities by

$10.2 million. The

Popular U.S. reportable

segment’s net

interest margin was

3.39% for 2021

compared with 3.21%

for the same

period in

2020;

●

release of

$56.9 million

of the

reserve for

credit losses,

due to

improvements credit

metrics

and the

macroeconomic

outlook, compared

to a

provision expense

of $81.5

million in

2020, mainly

due to

the implementation

of CECL

and the

effects of the pandemic;

●

Lower operating expenses by $26.7 million mainly

due to:

●

Lower occupancy expenses

by $22.7 million

mainly due to

the impact of

the NY branch

rationalization in 2020

that resulted in $19.0 million in lease termination

costs, including the impairment of the right of use

assets;

and

●

Lower professional fees by $5.1 million mainly

due intersegment allocated services;

Partially offset by:

●

Higher personnel costs by $6.9 million due to higher

salaries, incentives and profit-sharing plan expenses.

●

Income taxes unfavorable variance of $49.1 million

mainly due to higher income before tax.

STATEMENT

OF FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total

assets were $75.1 billion

at December 31, 2021,

compared to $65.9 billion

at December 31, 2020.

Refer to

the Corporation’s

Consolidated Statements

of Financial

Condition at

December 31,

2021 and

2020 included

in this

2021 Annual

Report

Form

10-K.

Also,

refer

the

Statistical

Summary

2021-2020

this

MD&A

for

Condensed

Statements

Financial

Condition.

Money market investments and debt securities available-for-sale

Money

market

investments

and

debt

securities

available-for-sale

increased

$5.9

billion

and

$3.4

billion,

respectively,

December 31, 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

6 to

the Consolidated Financial

Statements for additional information with respect

to the Corporation’s debt securities available-for-sale.

Loans

Refer to Tab

le 5 for a

breakdown of the Corporation’s

loan portfolio. Also, refer

to Note 8 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

$0.1 billion

to $29.2

billion at

December 31,

2021, mainly

due to

a decrease

in commercial

loans at

BPPR of

$0.6 billion

principally related

the repayment

PPP loans,

a decrease

in mortgage

loans

at BPPR

of $0.5

billion mainly

due to

paydowns and

a decrease

in construction

loans of

$0.2 billion,

partially offset

by an

increase in

commercial

loans at PB of $0.7

billion principally in the healthcare industry from which

$0.1 billion was related to the

acquisition by PEF of K2’s

lease financing business and growth in auto loans

and leases at BPPR by $0.5 billion.

The allowance for credit losses for

the loan portfolio decreased by $0.2

billion due to improvements in credit quality,

changes in the

macroeconomic

outlook,

and

changes

qualitative

reserves.

Refer

the

Credit

Quality

section

the

MD&A

for

additional

information on the Allowance for credit losses for

the loan portfolio.

Table 5 - Loans Ending Balances

At December 31,

(In thousands)

2021

2020

Loans held-in-portfolio:

Commercial

13,732,701

13,614,310

Construction

716,220

926,208

Leasing

1,381,319

1,197,661

Mortgage

7,427,196

7,890,680

Auto

3,412,187

3,132,228

Consumer

2,570,934

2,624,109

Total loans held-in

-portfolio

29,240,557

29,385,196

Loans held-for-sale:

Commercial

2,738

Mortgage

59,168

96,717

Total loans held-for-sale

59,168

99,455

Total loans

29,299,725

29,484,651

Other assets

amounted to

$1.6 billion

at December

31, 2021,

a decrease

of $0.1

billion when

compared to

December 31,

2020.

Refer

Note

for

breakdown

the

principal

sponsored

mortgage-backed securities

classified

“trading” and

hedging

the

market

risk

with

“TBA”

(to-be-announced)

market

transactions.

The

objective

derive

spread

income

from

the

portfolio

and

not

benefit

from

short-term

market

movements. In

addition, BPPR

uses forward

contracts or

TBAs to

hedge its

securitization pipeline.

Risks related

to variations

interest rates

and market volatility

are hedged

with TBAs

that have

characteristics similar to

that of

the forecasted security

and its

conversion timeline.

At December 31, 2021,

the Corporation held trading securities

with a fair value

of $30 million, representing approximately 0.04%

the Corporation’s total assets,

compared with $37 million and 0.1%, respectively,

at December 31, 2020.

As shown in Table

14, the

trading portfolio

consists principally of

mortgage-backed securities which

at December 31,

2021 were investment

grade securities.

December

31,

2021

and

December

31,

2020,

the

trading

portfolio

also

included

$0.1

million

Puerto

Rico

government

obligations.

Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates

or exchange rates reported in

current period earnings. The Corporation recognized

a net trading account loss

of $389 thousand for

the year ended December 31, 2021 and a net

trading account gain of $1 million for the year

ended December 31, 2020.

Table 14 - Trading

Portfolio

December 31, 2021

December 31, 2020

(Dollars in thousands)

Amount

Weighted

Average Yield

[1]

Amount

Weighted

Average Yield

[1]

Mortgage-backed securities

22,559

5.12

24,338

5.19

U.S. Treasury securities

6,530

0.03

11,506

0.04

Collateralized mortgage obligations

257

5.61

346

5.65

Puerto Rico government obligations

0.47

103

0.48

Interest-only strips

280

12.00

381

12.00

Total

29,711

4.06

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

measured

the

5-day

net

value-at-risk

(“VAR”),

with

confidence

level

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 December

31, 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.

Derivatives

Derivatives may

used by

the Corporation

part

its

overall interest

rate risk

management strategy

minimize significant

unexpected

fluctuations

earnings

and

cash

flows

that

are

caused

interest

rate

volatility.

Derivative

instruments

that

the

Corporation may use

include, among others,

interest rate caps,

indexed options, and

forward contracts. The

Corporation does not

use highly leveraged derivative instruments in its interest rate risk management strategy. Credit risk embedded in these transactions

reduced

requiring

appropriate

collateral

from

counterparties

and

entering

into

netting

agreements

whenever

possible.

All

outstanding derivatives are

recognized in the

Corporation’s Consolidated Statements

of Condition at

their fair

value. Refer

to Note

26 for further information on the Corporation’s involvement

in derivative instruments and hedging activities.

Cash Flow Hedges

The

Corporation

manages

the

variability

cash

payments

due

interest

rate

fluctuations

the

effective

use

derivatives

designated

cash

flow

hedges

and

that

are

linked

specified

hedged

assets

and

liabilities.

The

cash

flow

hedges

relate

forward

contracts

TBA

mortgage-backed securities

that

are

sold

and

bought

for

future

settlement to

hedge

mortgage-backed

securities

and

loans

prior

securitization.

The

seller

agrees

deliver

specified

future

date

specified

instrument

specified price or

yield. These securities

are hedging a

forecasted transaction and

are designated for

cash flow hedge

accounting.

The notional amount

of derivatives designated as

cash flow hedges at

December 31, 2021 amounted

to $ 88

million (2020 - $

189

million). Refer to Note 26 for additional quantitative

information on these derivative contracts.

Fair Value Hedges

The

Corporation did

not

have

any

derivatives designated

fair value

hedges

during the

years

ended December

31,

2021

and

2020.

Trading and Non-Hedging Derivative Activities

The Corporation enters into derivative positions based on market expectations or to benefit from price differentials between financial

instruments

and

markets

mostly

economically

hedge

asset

liability.

The

Corporation

also

enters

into

various

derivatives to provide these

types of derivative products to

customers. These free-standing derivatives are carried

at fair value with

changes in fair value recorded as part of the results of

operations for the period.

Following

description

the

most

significant

the

Corporation’s

derivative

activities

that

are

not

designated

for

hedge

accounting.

The Corporation

has over-the-counter

option contracts

which are

utilized in

order to

limit the

Corporation’s exposure

on customer

deposits whose returns are tied

to the S&P 500

or to certain other

equity securities or commodity indexes. In

these certificates, the

customer’s

principal

guaranteed

the

Corporation

and

insured

the

FDIC

the

maximum

extent

permitted

law.

The

instruments pay a return based

on the increase of these

indexes, as applicable, during the term

of the instrument. Accordingly,

this

product

gives

customers

the

opportunity

invest

product

that

protects

the

principal

invested

but

allows

the

customer

the

potential to earn a return

based on the performance of the indexes. The

risk of issuing certificates of deposit

with returns tied to the

applicable indexes is economically hedged by the Corporation. Indexed

options are purchased from financial institutions with strong

credit standings, whose

return is designed

to match the

return payable on

the certificates of

deposit issued. By

hedging the risk

this manner,

the effective cost of

these deposits is fixed.

The contracts have a maturity

and an index equal to

the terms of the

pool

of retail deposits that they are economically hedging.

The purchased

indexed options

are used

to economically

hedge the

bifurcated embedded

option. These

option contracts

do not

qualify

for

hedge

accounting,

and

therefore,

cannot

designated

accounting

hedges.

December

31,

2021,

the

notional

amount of

the indexed

options on deposits

approximated $

79 million

(2020 -

$ 69

million) with

a fair

value of

$ 26

million (asset)

(2020 -

$ 21 million)

while the embedded

options had a

notional value of

$72 million (2020

- $ 63

million) with

a fair value

of $

million (liability) (2020 - $ 18 million).

Refer to Note 26 for a description of other non-hedging

derivative activities utilized by the Corporation

during 2021 and 2020.

Foreign Exchange

The Corporation holds

an interest in

BHD León

in the

Dominican Republic, which

is an investment

accounted for under

the equity

method. The

Corporation’s carrying value

of the

equity interest in

BHD León

approximated $

180.3 million at

December 31, 2021.

This business is conducted in

the country’s foreign currency.

The resulting foreign currency translation

adjustment, from operations

for

which

the

functional

currency

other

than

the

U.S.

dollar,

reported

accumulated

other

comprehensive

loss

the

consolidated

statements

condition,

except

for

highly-inflationary

environments

which

the

effects

would

included

the

consolidated statements

operations. At

December 31,

2021, the

Corporation had

approximately $

67 million in

an unfavorable

foreign currency translation

adjustment as part

of accumulated other

comprehensive income (loss),

compared with an

unfavorable

adjustment of $ 71 million at December 31,

2020 and $ 57 million at December 31,

2019.

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

Directors

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

these

risks

the

Board’s

Risk

Management

Committee

and

the

Asset/Liability

Management

Committee.

The

management

liquidity

risk,

long-term

and

day-to-day

basis,

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

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

the

current

COVID-19

pandemic,

its

credit

rating

downgraded,

some

other

event

causes

counterparties to

avoid exposure

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

every

event,

and

are

dependent

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 December

31, 2021

and 86%

at December

31, 2020.

The ratio of total ending loans to deposits was

44% at December 31, 2021, compared to 52% at December 31, 2020.

In addition to

traditional deposits, the Corporation maintains borrowing

arrangements,

which amounted to approximately $1.2 billion in

outstanding

balances at December 31, 2021 (December 31, 2020 - $1.3 billion). A detailed

description of the Corporation’s borrowings, including

their terms,

is included

in Note

17 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 an

accelerated share

repurchase program for

the repurchase

of an

aggregate

$350 million of Popular’s common stock, refer

to Note 31 for additional information.

November

2021,

the

Corporation

redeemed

all

outstanding 6.70%

Cumulative Monthly

Income

Trust

Preferred

Securities

issued by the Popular Capital Trust I, refer to Note 17

for additional information.

On January

12, 2022,

Popular,

Inc. announced

the plan

to increase

its quarterly

common stock

dividend from

$0.45 per

share to

$0.55

per

share,

commencing

with

the

dividend

payable

the

second

quarter

2022,

subject

the

approval

its

Board

Directors, and repurchase up to $500 million

of its common stock during 2022.

The

following

sections

provide

further

information

the

Corporation’s

major

funding

activities

and

needs,

well

the

risks

involved in these activities.

Banking Subsidiaries

Primary

sources of

funding

for the

Corporation’s

banking subsidiaries

(BPPR and

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

Note

the

Consolidated

Financial

Statements,

for

additional

information

the

Corporation’s

borrowing

facilities

available through its banking subsidiaries.

The principal

uses of

funds for

the banking

subsidiaries include

loan originations,

investment portfolio

purchases, loan

purchases

and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational

expenses. Also, the

banking subsidiaries assume liquidity

risk related to collateral

posting requirements for certain

activities mainly

in connection with contractual

commitments, recourse provisions, servicing advances, derivatives, credit

card licensing agreements

and support to several mutual funds administered by BPPR.

The banking

subsidiaries maintain

sufficient funding

capacity to

address large

increases in

funding requirements

such as

deposit

outflows.

The

Corporation has

established

liquidity

guidelines

that

require

the

banking

subsidiaries

have

sufficient

liquidity

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

downgrade

the

credit

ratings

the

Corporation’s banking

subsidiaries may

impact their

ability to

raise retail

and commercial

deposits or

the rate

that it

is required

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

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 $250,000,

excluding brokered

deposits

with denominations

under $250,000.

Core deposits

have

historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $63.6 billion,

95% of total deposits, at December 31, 2021, compared with $51.7 billion, or 91% of

total deposits, at December 31, 2020. Core

deposits financed 88% of the Corporation’s earning assets

at December 31, 2021, compared with 82%

at December 31, 2020.

The distribution by maturity of

certificates of deposits with denominations of

$250,000 and over at December 31,

2021 is presented

in the table that follows:

Table 15 - Distribution by

Maturity of Certificate of Deposits of $250,000 and Over

(In thousands)

3 months or less

1,772,700

Over 3 to 12 months

500,200

Over 1 year to 3 years

219,395

Over 3 years

133,795

Total

2,626,090

Average deposits, including brokered deposits, for the year ended December

31, 2021 represented

93%

of average earning assets,

compared with 91% for the year ended December

31, 2020. Table 16 summarizes average deposits for the past three years.

Table 16 - Average

Total Deposits

For the years ended December 31,

(In thousands)

2021

2020

Non-interest bearing demand deposits

14,687,093

11,537,700

Savings accounts

15,753,630

12,620,755

NOW, money market and other interest

bearing demand accounts

25,648,707

19,466,357

Certificates of deposit

7,013,486

7,960,967

Total interest bearing

deposits

48,415,823

40,048,079

Total average deposits

63,102,916

51,585,779

The Corporation

had $0.8

billion in

brokered deposits

at December

31, 2021,

which financed

approximately 1%

of its

total assets

(December 31, 2020 -

$0.8 billion and 1%,

respectively).

In the event that

any of the Corporation’s

banking subsidiaries’ regulatory

capital

ratios fall

below those

required by

a well-capitalized

institution or

are subject

to capital

restrictions by

the regulators,

that

banking subsidiary faces

the risk of

not being able

to raise or

maintain brokered deposits

and faces limitations

on the rate

paid on

deposits, which

may hinder

the Corporation’s

ability to

effectively compete

in its

retail markets

and could

affect its

deposit raising

efforts.

Deposits from the

public sector represent

an important source

of funds for

the Corporation.

As of

December 31, 2021,

total public

sector deposits were $20.3 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 December 31, 2021,

management believes that the

banking subsidiaries had sufficient current

and projected liquidity sources to

meet their anticipated cash flow obligations,

as well as special needs

and off-balance sheet commitments, in the

ordinary course of

business and have sufficient

liquidity resources to address a

stress event. Although the

banking subsidiaries have historically been

able to replace

maturing deposits and advances,

no assurance can

be given that

they would be

able to replace

those funds in

the

future if the

Corporation’s financial condition

or general market

conditions were to

deteriorate. The Corporation’s

financial flexibility

will

severely constrained

the

banking subsidiaries

are

unable to

maintain access

funding

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

deposit additional

cash or

securities to

meet

its margin

requirements, thereby

adversely affecting

its liquidity.

Finally,

if management

is required

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

these

funds

includes

the

repayment

debt,

and

interest

payments

holders

senior

debt

and

junior

subordinated

deferrable

interest

(related

trust

preferred

securities),

the

payment

dividends

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 $496 million at December 31, 2021 and $682 at

December 31,

2020.

The contractual maturities of the BHCs notes payable

at December 31, 2021 are presented in

Table 17.

Table 17

- Distribution of BHC's Notes Payable by Contractual

Maturity

Year

(In thousands)

2023

297,842

Later years

198,292

Total

496,134

Annual debt service at

the BHCs is approximately

$32 million, and the

Corporation’s latest quarterly dividend

was $0.45 per share.

On February

23, 2022,

the Board

of Directors

of the

Corporation declared

a $0.55

cash dividend

per common

share, payable

April 1, 2022.

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

December 31, 2021, the

BHCs had

cash and

money markets

investments totaling

$292 million,

borrowing potential

of $157

million from

its secured

facility

with BPPR.

In addition

to these

liquidity sources,

the stake

in EVERTEC

had a

market value

of $583

million as

of December

31,

2021 and it represents an additional source of

contingent liquidity.

Non-Banking Subsidiaries

The

principal

sources

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

from

intercompany

borrowings

capital

contributions

from

their

holding

companies.

Popular,

Inc.

made capital contributions

to its wholly

owned subsidiary Popular Securities

amounting to $9

million during the

year 2021 and

$10

million on February 24, 2022.

Dividends

During the year ended December 31, 2021, the Corporation

declared cash dividend of $1.75 per common share outstanding

$ 142.3

million

in the

aggregate.

The dividends

for the

Corporation’s Series

preferred stock

amounted to

$1.4 million.

During the

year

ended December

31, 2021,

the BHC’s

received dividends amounting

to $761

million from

BPPR, $4

million from

PIBI which

main

source of income is

derived from its investment in

BHD, $31 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

additional

source

liquidity,

which

may

realized

through

either

securities

sales

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

used

raise

funds

the

repo

markets.

The

availability

the

repurchase

agreement

would

subject

having

sufficient

unpledged

collateral

available

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

$3.0

billion at

December 31,

2021

and

$3.4 billion

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.

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

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

the

same

credit

policies

and

approval

process

used

for

on-balance

sheet

instruments.

These

instruments

involve,

varying degrees, elements

of credit and

interest rate risk

in excess of

the amount recognized

in the statement

of financial position.

Refer to

Note 24

to the

Consolidated Financial

Statements for

information on

the Corporation’s

commitments to

extent credit

and

other non-credit commitments.

Other types

of off-balance

sheet arrangements

that the

Corporation enters

in the

ordinary course

of business

include derivatives,

operating leases and provision of guarantees, indemnifications, and representation

and warranties. Refer to Note 33

for information

operating

leases

and

Note

for

detailed

discussion

the

Corporation’s

obligations under

credit

recourse

and

representation and warranties arrangements.

The Corporation monitors

its cash requirements,

including its contractual obligations

and debt commitments.

As discussed above,

liquidity

managed

the

Corporation in

order to

meet

its

short-

and

long-term cash

obligations. Note

the

Consolidated

Financial Statements has information on

the Corporation’s borrowings by maturity,

which amounted to $1.2 billion

at December 31,

2021.

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

PIHC

(together

with

PNA,

the

“obligor

group”)

purchased

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

PNA.

PIHC’s

obligation

make

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

the

applicable

trust

except

the

extent

such

trust

has

funds

available

for

such

payments.

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

PNA’s

junior

subordinated

debentures

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

payment

and

not

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

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

the

obligor

group,

combined

basis

December

31,

2021

and

December 31,

2020,

and

the

results

their

operations

for

the

period

ended December

31,

2021

and

December 31, 2020. 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

the

obligor

group

presented

combined

basis

with

intercompany

balances

and

transactions

between

entities

the

obligor

group

eliminated.

The

obligor

group's

amounts

due

from,

amounts

due

and

transactions with

subsidiaries and

affiliates

have been

presented in

separate line

items, if

they are

material.

addition, related

parties transactions are presented separately.

Table 18 - Summarized Statement

of Condition

(In thousands)

December 31, 2021

December 31, 2020

Assets

Cash and money market investments

291,540

190,830

Investment securities

25,691

27,630

Accounts receivables from non-obligor subsidiaries

17,634

16,338

Other loans (net of allowance for credit losses of $96 (2020

- $311))

29,349

31,162

Investment in equity method investees

114,955

88,272

Other assets

42,251

46,547

Total assets

521,420

400,779

Liabilities and Stockholders' deficit

Accounts payable to non-obligor subsidiaries

6,481

3,946

Accounts payable to affiliates and related parties

1,254

977

Notes payable

496,134

681,503

Other liabilities

97,172

79,208

Stockholders' deficit

(79,621)

(364,855)

Total liabilities and

stockholders' deficit

521,420

400,779

Table 19 - Summarized Statement

of Operations

For the years ended

(In thousands)

December 31, 2021

December 31, 2020

Income:

Dividends from non-obligor subsidiaries

792,000

586,000

Interest income from non-obligor subsidiaries and affiliates

848

2,383

Earnings from investments in equity method investees

29,387

17,912

Other operating income

3,136

4,340

Total income

825,371

610,635

Expenses:

Services provided by non-obligor subsidiaries and affiliates

(net of

reimbursement by subsidiaries for services provided by parent

$162,019 (2020 - $138,729))

13,594

13,191

Other operating expenses

33,524

29,652

Total expenses

47,118

42,843

Net income

778,253

567,792

During the

year ended

December 31,

2021, the

Obligor

group recorded

$3.0 million

distribution from

its

direct equity

method

investees

(2020

$2.3

million),

which

$2.3

million

are

dividend

distributions (2020

$2.3

million).

During the year ended December 31, 2020, the

Obligor group received dividend distributions from a non-obligor subsidiary

amounting $12.5 million which was recorded as

a reduction to the investment.

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.

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.

order to

prepare for

the

possibility of

such scenario,

management

has

adopted

contingency

plans

for

raising

financing

under

stress

scenarios

when

important

sources

funds

that

are

usually

fully

available

are

temporarily

unavailable. These

plans call

for

using

alternate

funding

mechanisms,

such

the

pledging

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

the

capital

markets,

its

cost

and

access

funding

sources.

Credit

ratings

are

based

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

dividends

insured

depository

institution

may

pay

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, after

considering those

years’ dividend

activity,

less any

required transfers to surplus or to a fund for the retirement of any preferred

stock. During the year ended December 31, 2021, BPPR

declared cash dividends

of $761 million.

At December 31,

2021, BPPR would

have needed to

obtain prior approval

of the Federal

Reserve Board

before declaring

a dividend

due to

its declared

dividend activity

and transfers

to statutory

reserves over

the three

year’s ended

December 31,

2021. In

addition, a

member bank

may not

declare or

pay

a dividend

in an

amount greater

than its

undivided

profits

reported

its

Report

Condition

and

Income,

unless

the

member

bank

has

received

the

approval

the

Federal

Reserve

Board.

member

bank

also

may

not

permit

any

portion

its

permanent

capital

withdrawn

unless

the

withdrawal

has

been

approved

the

Federal

Reserve

Board.

Pursuant

these

requirements,

may

not

declare

pay

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

not

use

borrowings

that

are

rated

the

major

rating

agencies,

these

banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits

at December 31, 2021 that are subject to

rating triggers.

In addition, certain

mortgage servicing and custodial

agreements that BPPR

has with third

parties include rating covenants.

In the

event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for

escrow

deposits

and/or

increase

collateral

levels

securing

the

recourse

obligations.

Also,

discussed

Note

the

Consolidated

Financial

Statements,

the

Corporation

services

residential

mortgage

loans

subject

credit

recourse

provisions.

Certain

contractual

agreements

require

the

Corporation

post

collateral

secure

such

recourse

obligations

the

institution’s

required

credit

ratings

are

not

maintained.

Collateral

pledged

the

Corporation

secure

recourse

obligations

amounted

approximately

$32

million

December

31,

2021.

The

Corporation

could

required

post

additional

collateral

under

the

agreements.

Management

expects

that

would

able

meet

additional

collateral

requirements

and

when

needed.

The

requirements

post

collateral under

certain

agreements or

the

loss

escrow deposits

could

reduce

the

Corporation’s liquidity

resources and impact its operating results.

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

significant

portion

our

financial

activities

and

credit

exposure

concentrated

the

Commonwealth

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

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

implemented in

the future

result

resurgence in

the spread

the

virus

new

strains

the virus.

Since the

beginning of

the

pandemic, most

businesses have

had

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

offer

moratoriums

consumer

financial

products

clients

impacted

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

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

curb the

spread

of the

disease have

had and

may continue

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

federal

and

local

assistance offered

offset

the

impact

the

pandemic. Pursuant

the

2022

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.

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

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

place

until

market access

restored

and

balanced budgets,

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.

In 2020,

when President

Donald Trump

reappointed three

of the

original

members and appointed four new members to the Oversight

Board.

October

2016,

the

Oversight

Board

designated

the

Commonwealth and

all

its

public

corporations

and

instrumentalities

“covered entities” under

PROMESA. The only

Commonwealth government entities

that were not

subject to such

initial designation

were

the

Commonwealth’s

municipalities.

May

2019,

however,

the

Oversight

Board

designated

all

the

Commonwealth’s

municipalities as covered entities. At

the Oversight Board’s

request, covered entities are required

to submit fiscal

plans and annual

budgets

the

Oversight

Board

for

its

review

and

approval.

They

are

also

required to

seek

Oversight

Board

approval

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 this

Form 10-K.

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 January 27, 2022

(the “2022 Fiscal Plan”).

Pursuant to the 2022 Fiscal Plan, while the COVID-19 pandemic and the measures taken in response to the same severely reduced

economic

activity

and

caused

unprecedented

increase

unemployment

Puerto

Rico,

pandemic-related

federal

and

local

stimulus

funding

have more

than

offset

the

estimated income

loss

due

reduced economic

activity

and

are

estimated to

have

caused

temporary

increase

personal

income

net

basis.

The

2022

Fiscal

Plan’s

economic

projections

incorporate

adjustments

for

these

short-term

income

effects

for

purposes

estimating

tax

receipts.

For

example,

the

2022

Fiscal

Plan

estimates that, for fiscal years 2022 and 2023, real GNP will grow 2.6% and 0.9%, respectively, but projects that growth adjusted for

income effects for such years will be approximately 5.2% and

0.6%, respectively.

The 2022 Fiscal Plan

incorporates the debt service costs

of the Commonwealth’s restructured debt

as contemplated by the Plan

Adjustment (as defined and further explained below).

Therefore, it projects an unrestricted surplus after debt

service average of $1

billion annually between fiscal

years 2022 to

2031. This surplus declines

over time as federal

disaster relief funding slows,

nominal

GNP

growth declines,

revenues decline,

and

healthcare expenditures

rise.

The

2022

Fiscal

Plan estimates

that

fiscal

measures

could drive approximately $6.3

billion in savings and

extra revenue over fiscal

years 2022 through 2026

and that structural

reforms

could drive a cumulative 0.90% increase in growth

by fiscal year 2051 (equal to approximately

$33 billion).

The

2022

Fiscal

Plan

provides

for

the

gradual

reduction

and

the

ultimate

elimination

Commonwealth budgetary

subsidies

municipalities,

which

constitute

material

portion

the

operating

revenues

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).

response to

the COVID-19

crisis, reductions

in appropriations

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

the

reduced

Commonwealth

support.

However,

the

2022

Fiscal

Plan

contemplates

additional

reductions

appropriations

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 was in

effect. Finally, the

2022 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

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

the

T&D

System

was

completed

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.

April

23,

2021,

the

Oversight

Board

certified

the

latest

version

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

subsequently filed analogous petitions with respect to

the

Puerto

Rico

Sales

Tax

Financing

Corporation

(“COFINA”),

the

Employees

Retirement

System

the

Government

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 Eighth Amended

Title III Joint Plan of Adjustment for the Commonwealth, et. al.

(the “Plan of Adjustment”) in the pending debt restructuring proceedings under Title III

of PROMESA. The Plan of Adjustment 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

new

securities

the

Commonwealth

connection

with

the

Plan

Adjustment.

January

18,

2022,

the

U.S.

District

Court

confirmed

the

Plan

Adjustment,

which

expected

become

effective

about

March

15,

2022

upon

the

satisfaction

certain

conditions

effectiveness.

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

Puerto

Rico’s

ongoing

fiscal

crisis

and

recession,

could

cause

credit

losses

that

adversely

affect

and

may

negatively

affect

consumer

confidence,

result

reductions

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

adequately

manage

the

Commonwealth’s

fiscal

and

economic

challenges,

including

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.

December

31,

2021,

the

Corporation’s

direct

exposure

the

Puerto

Rico

government’s

instrumentalities

and

municipalities

totaled

$367

million

which

$349

million

were

outstanding,

compared

$377

million

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, $319 million consists of loans

and

$30 million are

securities

($342 million and

$35 million, respectively,

December 31, 2020).

Substantially all

the

amount

outstanding at

December 31,

2021 were

obligations from

various Puerto

Rico municipalities.

In most

cases, these

were “general

obligations” of

a municipality,

to which

the applicable municipality

has pledged

its good

faith, credit

and unlimited taxing

power, or

“special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At December 31, 2021, 75%

the

Corporation’s exposure

municipal

loans and

securities

was concentrated

the

municipalities of

San

Juan,

Guaynabo,

Carolina and

Bayamón.

On July

2021,

the

Corporation received

scheduled

principal payments

amounting

$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 24 – Commitments and Contingencies.

addition,

December

31,

2021,

the

Corporation

had

$275 million

loans

insured

securities

issued

Puerto

Rico

governmental entities,

but for

which the

principal source

of repayment

is non-governmental

($317 million at

December 31, 2020).

These

included

$232

million

residential

mortgage

loans

insured

the

Puerto

Rico

Housing

Finance

Authority

(“HFA”),

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 December

31,

2021, $43 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

currently

authorized

local

legislation

impose

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

private borrowers

who

are service

providers, lessors,

suppliers or

have

other relationships with the government. These

borrowers could be negatively affected by

the Commonwealth’s fiscal crisis and

the

ongoing Title III

proceedings under PROMESA described

above. Similarly,

BPPR’s mortgage and consumer

loan portfolios include

loans to government employees and

retirees,

which could also be

negatively affected by fiscal measures

such as employee layoffs

or furloughs or reductions in pension benefits.

BPPR also

has a

significant amount

of deposits

from the

Commonwealth, its

instrumentalities, and

municipalities. The

amount of

such deposits may

fluctuate depending on

the financial condition

and liquidity of

such entities, as

well as on

the ability of

BPPR to

maintain these customer relationships.

The

Corporation may

also have

direct

exposure with

regards to

avoidance and

other causes

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 24

of the Consolidated Financial Statements.

United States Virgin Islands

The

Corporation

has

operations

the

United

States

Virgin

Islands

(the

“USVI”)

and

has

credit

exposure

USVI

government

entities.

The USVI has been experiencing a number of fiscal and

economic challenges, which have been and maybe be further exacerbated

result

the

effects

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.

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 December 31,

2021, the Corporation has

operations in the United

States Virgin Islands

(the “USVI”) and

has approximately $70

million

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

service their outstanding debt obligations.

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 December 31, 2021 it has a loan portfolio amounting to approximately

$221 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

6 and 7 to the

Consolidated Financial Statements, a substantial portion of the

Corporation’s investment

securities

represented exposure

the

U.S.

Government in

the

form

U.S. Government

sponsored entities

7,972

120

1.50

70,424

2,818

4.00

234,553

5,911

2.52

Obligations of Puerto Rico, States

and political subdivisions

75,607

7,608

10.06

82,051

5,705

6.95

93,313

6,394

6.85

Collateralized mortgage obligations and

mortgage-backed securities

10,255,525

224,706

2.19

6,913,416

194,794

2.82

5,582,051

178,964

3.21

Other

194,640

9,027

4.64

178,818

7,369

4.12

171,223

8,487

4.96

Total investment securities

22,930,517

508,131

2.22

19,352,528

467,994

2.42

15,904,658

501,781

3.15

Trading account securities

84,380

4,339

5.16

69,446

4,165

6.00

67,596

5,103

7.55

Loans (net of unearned income)

29,074,045

1,794,789

6.19

28,384,981

1,785,022

6.29

26,806,368

1,850,894

6.90

Total interest earning

assets/Interest

income

68,088,683

2,328,406

3.43

56,404,607

2,276,904

4.04

46,944,915

2,447,602

5.21

Total non-interest

earning assets

3,079,942

3,178,848

3,396,912

Total assets

71,168,625

59,583,455

50,341,827

Liabilities and Stockholders' Equity

Interest bearing liabilities:

Savings, NOW,

money market and other

interest bearing demand accounts

41,387,504

59,034

0.15

32,077,578

92,417

0.29

25,575,455

192,200

0.75

Time deposits

7,028,334

52,587

0.75

7,970,474

83,438

1.05

7,770,430

112,658

1.45

Federal funds purchased

0.25

342

0.25

2.63

Securities purchased under agreement to

resell

91,394

317

0.35

143,718

2,336

1.63

222,565

5,882

2.64

Other short-term borrowings

343

0.35

21,557

120

0.56

8,703

217

2.50

Notes payable

1,184,737

53,107

4.49

1,178,169

56,626

4.81

1,194,119

58,142

4.77

Total interest bearing

liabilities/Interest

expense

49,692,313

165,046

0.33

41,391,838

234,938

0.57

34,771,272

369,099

1.06

Total non-interest

bearing liabilities

15,698,660

12,771,679

9,857,038

Total liabilities

65,390,973

54,163,517

44,628,310

Stockholders' equity

5,777,652

5,419,938

5,713,517

Total liabilities and

stockholders' equity

71,168,625

59,583,455

50,341,827

Net interest income on a taxable

equivalent basis

2,163,360

2,041,966

2,078,503

Cost of funding earning assets

0.24

0.42

0.78

Net interest margin

3.19

3.62

4.43

Effect of the taxable equivalent

205,770

185,353

186,809

Net interest income per books

1,957,590

1,856,613

1,891,694

Shows

the

effect

the

tax

exempt

status

some

loans

and

investments

their

yield,

using

the

applicable

statutory

income

tax

rates.

The

computation considers

the interest

expense disallowance

required by

the Puerto

Rico Internal

Revenue Code.

This adjustment

is shown

in order

compare the yields of the tax exempt and taxable assets

on a taxable basis.

Note: Average loan

balances include the

average balance of

non-accruing loans. No

interest income is

recognized for these

loans in accordance

with

the Corporation’s policy.

Report of Management on Internal Control Over Financial

Reporting

The management of

Popular, Inc.

(the “Corporation”) is responsible

for establishing and

maintaining adequate internal control

over

financial reporting as defined in Rules 13a - 15(f) and 15d -

15(f) under the Securities Exchange Act of 1934 and for our assessment

of internal control over financial reporting. The Corporation’s internal

control over financial reporting is a process designed to provide

reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes

accordance

with

accounting

principles

generally

accepted

the

United

States

America,

and

includes

controls

over

the

preparation of

financial statements

in accordance

with the

instructions to

the Consolidated

Financial Statements

for Bank

Holding

Companies (Form FR Y-9C)

to comply with the reporting requirements of Section 112

of the Federal Deposit Insurance Corporation

Improvement Act (FDICIA). The Corporation’s internal control

over financial reporting includes those policies

and procedures that:

(i)

pertain

the

maintenance

records

that,

reasonable

detail,

accurately

and

fairly

reflect

the

transactions

and

dispositions of the assets of the Corporation;

(ii)

provide

reasonable

assurance

that

transactions

are

recorded

necessary

permit

preparation

financial

statements in accordance with accounting principles generally accepted in the United States of America, and that receipts

and expenditures of the Corporation are being made only in accordance with authorizations of management and directors

of the Corporation; and

(iii) provide reasonable assurance regarding

prevention or timely detection of

unauthorized acquisition, use or disposition

of the Corporation’s assets that could have a material effect

on the financial statements.

Because

its

inherent

limitations,

internal

control

over

financial

reporting

may

not

prevent

detect

misstatements.

Also,

projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because

of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

The management of Popular,

Inc. has assessed the

effectiveness of the Corporation’s

internal control over financial reporting

as of

December

31,

2021.

making

this

assessment,

management

used

the

criteria

set

forth

the

Internal

Control-Integrated

Framework (2013) issued by the Committee of

Sponsoring Organizations of the Treadway Commission (COSO).

On October

15, 2021, Popular

Equipment Finance, LLC

(“PEF”), a newly

formed wholly-owned subsidiary

of Popular Bank

(“PB”),

completed the

acquisition of

certain assets

and

the

assumption of

certain

liabilities of

Capital Group

LLC’s

(“K2”) equipment

leasing

and

financing

business

based

Minnesota

(the

“Acquired

Business”).

The

Acquired

Business’

total

assets

and

total

revenues represented approximately 0.2% and 0.2%, respectively, of

the related consolidated financial statements as of and for

the

period ended

December 31,

2021. The

Corporation has

excluded the

Acquired Business

from

its assessment

of the

design and

operating effectiveness of internal controls over financial reporting for the fiscal year 2021. The Corporation made this determination

in accordance with SEC’s

guidance which permits the exclusion of

a recently acquired business from

the scope of this

assessment

in the year of acquisition.

Based on our assessment, management concluded that the Corporation maintained effective internal control over financial reporting

as of December 31, 2021 based on the

criteria referred to above.

The Corporation’s

independent registered

public accounting

firm, PricewaterhouseCoopers

LLP,

has audited

the effectiveness

the Corporation’s

internal control

over financial

reporting as

of December

31, 2021,

as stated

in their

report dated

March 1,

2022

which appears herein.

Ignacio Alvarez

Carlos J. Vázquez

President and

Executive Vice President

Chief Executive Officer

and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

the

Board of Directors and Stockholders of Popular, Inc.

Opinions on the Financial Statements and Internal

Control over Financial Reporting

have

audited

the

accompanying

consolidated

statements

financial

condition

Popular,

Inc.

and

its

subsidiaries

(the

“Corporation”)

December

31,

2021

and

2020,

and

the

consolidated

statements

operations, comprehensive income, changes

in stockholders’ equity and cash

flows for each of

the three years in

the

period

ended December

31, 2021,

including the

related notes

collectively

referred

as the

“consolidated

financial

statements”).

also

have

audited

the

Corporation's

internal

control

over

financial

reporting

December

31,

2021,

based

criteria

established

Internal

Control

Integrated

Framework

(2013)

issued

the

Committee

Sponsoring Organizations of the Treadway Commission (COSO).

our

opinion,

the

consolidated

financial

statements

referred

above

present

fairly,

all

material

respects,

the

financial position of the Corporation as of

December 31, 2021 and 2020, and the

results of its operations and its cash

flows

for

each

the

three

years

the

period

ended

December

31,

2021

conformity with

accounting

principles

generally accepted

in the

United States

of America.

Also, in

our opinion,

the Corporation

maintained, in

all material

respects, effective

internal control over

financial reporting

as of

December 31, 2021,

based on criteria

established in

Internal Control - Integrated Framework

(2013) issued by the COSO.

Change in Accounting Principle

discussed

Note

the

consolidated

financial

statements,

the

Corporation

changed

the

manner

which

accounts for its allowance for credit losses in 2020.

Basis for Opinions

The

Corporation's management

is responsible

for these

consolidated

financial statements,

for maintaining

effective

internal control

over financial

reporting, and

for its

assessment of

the effectiveness

of internal

control over

financial

reporting,

included

the

accompanying

Report

Management

Internal

Control

over

Financial

Reporting.

Our

responsibility is

to express opinions

on the

Corporation’s consolidated

financial statements and

on the

Corporation’s

internal

control

over

financial

reporting

based

our

audits.

are

public

accounting

firm

registered

with

the

Public

Company

Accounting

Oversight

Board

(United

States)

(PCAOB)

and

are

required

independent

with

respect

the

Corporation

accordance

with

the

U.S.

federal

securities

laws

and

the

applicable

rules

and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits

in accordance with the standards

of the PCAOB. Those standards

require that we plan and

perform

the audits

to obtain

reasonable assurance

about

whether the

consolidated financial

statements are

free of

material

misstatement,

whether due

to error

fraud, and

whether

effective

internal control

over financial

reporting

was maintained in all material respects.

Our

audits

the

consolidated

financial

statements

included

performing

procedures

assess

the

risks of

material

misstatement of the consolidated

financial statements, whether due

to error or fraud,

and performing procedures that

respond to

those risks.

Such procedures

included examining,

on a

test basis,

evidence regarding

the amounts

and

disclosures

the

consolidated

financial

statements.

Our

audits

also

included

evaluating

the

accounting

principles

used

and

significant

estimates

made

management,

well

evaluating

the

overall

presentation

the

consolidated

financial

statements.

Our

audit

internal

control

over

financial

reporting

included

obtaining

understanding

internal

control

over

financial

reporting,

assessing

the

risk

that

material

weakness

exists,

and

testing

and

evaluating

the

design

and

operating

effectiveness

internal

control

based

the

assessed

risk.

Our

audits also included performing such other procedures as we considered necessary in

the circumstances. We believe

that our audits provide a reasonable basis for our opinions.

As described in

the Report of

Management on Internal

Control Over Financial Reporting,

management has excluded

the business

acquired from

K2 Capital

Group LLC

(the "acquired

business") from

its assessment

of internal

control

over financial reporting as of December

31, 2021 because it was acquired

by the Corporation in a purchase

business

combination

during

2021.

have

also

excluded

the

acquired

business

from

our

audit

internal

control

over

financial reporting. The acquired

business' total assets and

total revenues excluded from

management’s assessment

and

our

audit

internal

control

over

financial

reporting

represent

.2%

and

.2%,

respectively,

the

consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

company’s

internal

control

over

financial

reporting

process

designed

provide

reasonable

assurance

regarding

the

reliability

financial

reporting

and

the

preparation

financial

statements

for

external

purposes

accordance

with

generally

accepted

accounting

principles.

Management's

assessment

and

our

audit

Popular,

Inc.'s

internal

control

over

financial

reporting

also

included

controls

over

the

preparation

financial

statements

accordance with the instructions

to the Consolidated Financial Statements

for Bank Holding Companies

(Form FR Y-

9C)

comply

with

the

reporting

requirements

Section

112

the

Federal

Deposit

Insurance

Corporation

Improvement

Act

(FDICIA).

company’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that (i)

pertain to

the maintenance

of records

that, in

reasonable detail,

accurately

and fairly

reflect the

transactions and

dispositions of

the assets

of the

company; (ii)

provide reasonable

assurance that

transactions are

recorded

necessary

permit

preparation

financial

statements

accordance

with

generally

accepted

accounting

principles, and

that receipts

and expenditures

of the

company are

being made

only

in accordance

with

authorizations

management

and

directors

the

company;

and

(iii)

provide

reasonable

assurance

regarding

prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have

a material effect on the financial statements.

Because of

its inherent

limitations, internal

control over

financial reporting

may not

prevent or

detect misstatements.

Also, projections of

any evaluation of effectiveness

to future periods are

subject to the risk

that controls may become

inadequate because

of changes

in conditions,

or that

the degree

of compliance

with the

policies or

procedures may

deteriorate.

Critical Audit Matters

The critical

audit matters

communicated below

are matters

arising from

the current

period audit

of the

consolidated

financial

statements

that

were

communicated

required

communicated

the

audit

committee

and

that

(i)

relate

accounts

disclosures

that

are

material

the

consolidated

financial

statements

and

(ii)

involved

our

especially challenging,

subjective, or

complex judgments.

The communication

of critical

audit matters

does not

alter

in any way our opinion on the consolidated financial statements, taken as a whole, and

we are not, by communicating

the

critical

audit

matters

below,

providing

separate

opinions

the

critical

audit

matters

the

accounts

disclosures to which they relate.

Allowance

for

Credit

Losses

Loans

Held-in-Portfolio

Quantitative

Models,

and

Qualitative

Adjustments

the

Puerto Rico Portfolios

As described in

Notes 2 and

9 to the

consolidated financial statements,

the Corporation follows

the current expected

credit

loss

(“CECL”)

model,

establish

and

evaluate

the

adequacy

the

allowance

for

credit

losses

(“ACL”)

provide for expected

losses in the loan

portfolio. As of December

31, 2021, the allowance

for credit losses

was $695

million

total

loans

$29

billion.

This

CECL

model

establishes

forward-looking

methodology

that

reflects

the

expected credit losses over the lives of financial assets. The quantitative modeling framework includes competing risk

models

generate

lifetime

defaults

and

prepayments,

and

other

loan

level

modeling

techniques

estimate

loss

severity.

part

this

methodology,

management

evaluates

various

macroeconomic

scenarios,

and

may

apply

probability

weights

the

outcome

the

selected

scenarios.

The

ACL

also

includes

qualitative

framework

that

addresses losses

that are

expected but

not captured

within the

quantitative modeling

framework. In

order to

identify

potential

losses

that are

not captured

through the

models, management

evaluated model

limitations as

well as

the

different

risks covered

by the

variables used

in each

quantitative model.

complement the

analysis, management

also evaluated

sectors that

have low

levels of

historical defaults,

but current

conditions show

the potential

for future

losses.

The

principal

considerations

for

our

determination

that

performing

procedures

relating

the

allowance

for

credit

losses on

loans

held-in-portfolio quantitative

models, and

qualitative adjustments

to the

Puerto Rico

portfolios is

critical

audit

matter

are

(i)

the

significant

judgment

management

determining

the

allowance

for

credit

losses,

including

qualitative adjustments

to the

Puerto Rico

portfolios,

which in

turn led

to a

high degree

of auditor

effort,

judgment, and subjectivity in performing

procedures and evaluating audit evidence

relating to the allowance for

credit

losses,

including management’s

selection of

macroeconomic

scenarios and

probability

weights applied;

and (ii)

the

audit

effort

involved the

use of

professionals with

specialized skill

and knowledge.

Addressing the

matter

involved

performing

procedures

and

evaluating

audit

evidence

connection

with

forming

our

overall

opinion

the

consolidated

financial

statements.

These

procedures

included

testing

the

effectiveness

controls

relating

the

allowance for

credit losses

for loans

held-in-portfolio, including

qualitative adjustments

to the

Puerto Rico

portfolios.

These procedures also included, among others, testing management’s

process for estimating the allowance for credit

losses

by (i)

evaluating the

appropriateness of

the methodology,

including models

used for

estimating the

ACL; (ii)

evaluating

the reasonableness of management’s

selection of various macroeconomic

scenarios including probability

weights

applied

the

expected

loss

outcome

the

selected

macroeconomic

scenarios;

(iii)

evaluating

the

reasonableness of

the qualitative

adjustments to

Puerto Rico

portfolios allowance

for credit

losses;

and (iv)

testing

the

data

used

the

allowance

for

credit

losses.

Professionals

with

specialized

skill

and

knowledge

were

used

assist

evaluating

the

appropriateness

the

methodology

and

models,

the

reasonableness

management’s

selection

and

weighting

macroeconomic

scenarios

used

estimate

current

expected

credit

losses

and

reasonableness of the qualitative adjustments to Puerto Rico portfolios allowance for credit losses.

Goodwill Annual Impairment Assessment - Banco Popular de Puerto Rico and Popular Bank Reporting Units

described

Note

the

consolidated

financial

statements,

the

Corporation’s

consolidated

goodwill

balance

was $720 million as of December 31, 2021, of which a significant

portion relates to the Banco Popular de Puerto Rico

(“BPPR”) and

Popular Bank

(“PB”) reporting

units. Management

conducts an

impairment test

as of

July 31

of each

year

and

frequent

basis

events

circumstances

indicate

impairment

could

have

taken

place.

determining

the

fair

value

of each

reporting

unit,

management

generally

uses

combination

methods,

including

market

price

multiples

comparable

companies

and

transactions,

well

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

each

valuation

methodology,

applicable.

The

computations

require

management

make

estimates,

assumptions

and

calculations

to:

(i)

selection

comparable

publicly

traded

companies,

based

the

nature

business,

location

and

size;

(ii)

selection

comparable

acquisitions, (iii)

calculation of average price multiples

of relevant value drivers from

a group of selected

comparable

companies

and

acquisitions;

(iv)

the

discount

rate

applied

future

earnings,

based

estimate

the

cost

equity;

(v)

the

potential

future

earnings

the

reporting

units;

and

(vi)

the

market

growth

and

new

business

assumptions.

Furthermore,

part

the

analyses,

management

performed

reconciliation

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 were reasonable.

The principal

considerations for our

determination that performing

procedures relating to

goodwill annual

impairment

assessments of

the Banco

Popular de

Puerto Rico

and Popular

Bank reporting

units is

a critical

audit matter

are (i)

the significant judgment by

management when determining the

fair value measurements of

the reporting units, which

turn

led

high

degree

auditor

judgment,

subjectivity,

and

effort

performing

procedures

and

evaluating

evidence

relating

the

calculation

average

price

multiples

relevant

value

drivers

from

group

selected

comparable

companies

and

acquisitions;

the

potential

future

earnings

the

reporting

unit;

the

estimated

cost

equity;

and

the

market

growth

and

new

business

assumptions;

and

(ii)

the

audit

effort

involved

the

use

professionals

with

specialized

skill

and

knowledge.

Addressing

the

matter

involved

performing

procedures

and

evaluating

audit

evidence

connection

with

forming

our

overall

opinion

the

consolidated

financial

statements.

These

procedures

included

testing

the

effectiveness

controls

relating

management’s

goodwill

impairment

assessment

process,

including

controls

over

the

valuation

Banco

Popular

Puerto

Rico

and

Popular

Bank

reporting units. These procedures

also included, among others, (i) testing management’s process for determining the

fair

value

estimates

Banco

Popular

Puerto

Rico

and

Popular

Bank

reporting

units;

(ii)

evaluating

the

appropriateness of

the discounted cash

flow analyses and

guideline public companies

methodologies including

the

weights applied

to each

valuation method;

(iii) testing

the underlying

data used

in the

estimates;

(iv) evaluating

the

appropriateness

the

calculation

average

price

multiples

relevant

value

drivers

from

group

selected

comparable

companies

and acquisitions;

and (v)

evaluating the

potential

future

earnings of

the

reporting units;

the

estimated cost

of equity;

and the market

growth and

new business

assumptions, including

whether the

assumptions

used

management

were

reasonable

considering,

applicable,

(i)

the

current

and

past

performance

the

reporting units;

(ii) the

consistency with

external market and

industry data;

and (iii) whether

these assumptions

were

consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were

used

assist

evaluating

the

appropriateness

the

methods

and

the

reasonableness

certain

significant

assumptions.

San Juan, Puerto Rico

March 1, 2022

We have served as the Corporation’s auditor since 1971, which includes periods before the Corporation became

subject to SEC reporting requirements.

CERTIFIED PUBLIC ACCOUNTANTS

(OF PUERTO RICO)

License No. LLP-216 Expires Dec. 1, 2022

Stamp E452193 of the P.R. Society of

Certified Public Accountants has been

affixed to the file copy of this report

POPULAR, INC.

CONSOLIDATED STATEMENTS

OF FINANCIAL CONDITION

December 31,

(In thousands, except share information)

2021

2020

Assets:

Cash and due from banks

428,433

491,065

Money market investments:

Time deposits with other banks

17,536,719

11,640,880

Total money market investments

17,536,719

11,640,880

Trading account debt securities, at fair value:

Pledged securities with creditors’ right to repledge

241

Other trading account debt securities

29,711

36,433

Debt securities available-for-sale, at fair

value:

Pledged securities with creditors’ right to repledge

93,330

125,819

Other debt securities available-for-sale

24,874,939

21,435,333

Debt securities held-to-maturity, at amortized cost (fair value 2021

- $83,368; 2020 - $94,891)

79,461

92,621

Less – Allowance for credit losses

8,096

10,261

Debt securities held-to-maturity, net

71,365

82,360

Equity securities (realizable value 2021 -

$192,345; 2020 - $173,929)

189,977

173,737

Loans held-for-sale, at lower of cost or fair

value

59,168

99,455

Loans held-in-portfolio

29,506,225

29,588,430

Less – Unearned income

265,668

203,234

Allowance for credit losses

695,366

896,250

Total loans held-in-portfolio, net

28,545,191

28,488,946

Premises and equipment, net

494,240

510,241

Other real estate

85,077

83,146

Accrued income receivable

203,096

209,320

Mortgage servicing rights, at fair value

121,570

118,395

Other assets

1,628,571

1,737,041

Goodwill

720,293

671,122

Other intangible assets

16,219

22,466

Total assets

75,097,899

65,926,000

Liabilities and Stockholders’ Equity

Liabilities:

Deposits:

Non-interest bearing

15,684,482

13,128,699

Interest bearing

51,320,606

43,737,641

Total deposits

67,005,088

56,866,340

Assets sold under agreements to repurchase

91,603

121,303

Other short-term borrowings

75,000

Notes payable

988,563

1,224,981

Other liabilities

968,248

1,684,689

Total liabilities

69,128,502

59,897,313

Commitments and contingencies (Refer

to Note 24)

Stockholders’ equity:

Preferred stock, 30,000,000 shares authorized;

885,726 shares issued and outstanding (2020

885,726)

22,143

Common stock, $0.01 par value; 170,000,000

shares authorized;104,579,334 shares issued

(2020 -

104,508,290) and 79,851,169 shares outstanding

(2020 - 84,244,235)

1,046

1,045

Surplus

4,650,182

4,571,534

Retained earnings

2,973,745

2,260,928

Treasury stock - at cost, 24,728,165 shares (2020 -

20,264,055)

(1,352,650)

(1,016,954)

Accumulated other comprehensive (loss)

income, net of tax

(325,069)

189,991

Total stockholders’ equity

5,969,397

6,028,687

Total liabilities and stockholders’ equity

75,097,899

65,926,000

The accompanying notes are an integral part of

these Consolidated Financial Statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS

OF OPERATIONS

Years ended December 31,

(In thousands, except per share information)

2021

2020

2019

Interest income:

Loans

1,747,827

1,742,390

1,802,968

Money market investments

21,147

19,721

89,823

Investment securities

353,663

329,440

368,002

Total interest income

2,122,637

2,091,551

2,260,793

Interest expense:

Deposits

111,621

175,855

304,858

Short-term borrowings

319

2,457

6,100

Long-term debt

53,107

56,626

58,141

Total interest expense

165,047

234,938

369,099

Net interest income

1,957,590

1,856,613

1,891,694

Provision for credit losses (benefit)

(193,464)

292,536

165,779

Net interest income after provision for credit losses

(benefit)

2,151,054

1,564,077

1,725,915

Service charges on deposit accounts

162,698

147,823

160,933

Other service fees

311,248

257,892

285,206

Mortgage banking activities (Refer to Note 10)

50,133

10,401

32,093

Net gain (loss) on sale of debt securities

(20)

Net gain, including impairment on equity securities

131

6,279

2,506

Net (loss) profit on trading account debt securities

(389)

1,033

994

Net (loss) gain on sale of loans, including

valuation adjustments on loans

held-for-sale

(73)

1,234

Adjustments (expense) to indemnity reserves on loans

sold

4,406

390

(343)

Other operating income

113,951

87,219

88,514

Total non-interest income

642,128

512,312

569,883

Operating expenses:

Personnel costs

631,802

564,205

590,625

Net occupancy expenses

102,226

119,345

96,339

Equipment expenses

92,097

88,932

84,215

Other taxes

56,783

54,454

51,653

Professional fees

410,865

394,122

384,411

Communications

25,234

23,496

23,450

Business promotion

72,981

57,608

75,372

FDIC deposit insurance

25,579

23,868

18,179

Other real estate owned (OREO) (income) expenses

(14,414)

(3,480)

4,298

Other operating expenses

136,988

128,882

139,570

Amortization of intangibles

9,134

6,397

9,370

Total operating expenses

1,549,275

1,457,829

1,477,482

Income before income tax

1,243,907

618,560

818,316

Income tax expense

309,018

111,938

147,181

Net Income

934,889

506,622

671,135

Net Income Applicable to Common Stock

933,477

504,864

667,412

Net Income per Common Share – Basic

11.49

5.88

6.89

Net Income per Common Share – Diluted

11.46

5.87

6.88

The accompanying notes are an integral part of

these consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

Years ended December 31,

(In thousands)

2021

2020

2019

Net income

934,889

506,622

671,135

Reclassification to retained earnings

due to cumulative effect of accounting change

(50)

Other comprehensive income (loss) before

tax:

Foreign currency translation adjustment

3,947

(14,471)

(6,847)

Adjustment of pension and postretirement

benefit plans

36,950

(9,032)

(21,874)

Amortization of net losses

20,749

21,447

23,508

Unrealized net holding (losses) gains on debt

securities arising during the period

(619,470)

419,993

286,063

Reclassification adjustment for (gains) losses

included in net income

(23)

(41)

Unrealized net gains (losses) on cash flow hedges

539

(8,872)

(5,741)

Reclassification adjustment for net losses included

in net income

1,847

6,379

3,882

Other comprehensive (loss) income before

tax

(555,461)

415,403

278,961

Income tax benefit (expense)

40,401

(55,474)

(20,925)

Total other comprehensive (loss) income, net of tax

(515,060)

359,929

258,036

Comprehensive income, net of tax

419,829

866,551

929,171

Tax effect allocated to each component of other comprehensive

(loss) income:

Years ended December 31,

(In thousands)

2021

2020

2019

Adjustment of pension and postretirement

benefit plans

(13,856)

3,387

8,203

Amortization of net losses

(7,781)

(8,042)

(8,817)

Unrealized net holding (losses) gains on debt

securities arising during the period

62,468

(51,213)

(20,113)

Reclassification adjustment for (gains) losses

included in net income

(4)

Unrealized net gains (losses) on cash flow

hedges

(172)

2,472

1,302

Reclassification adjustment for net losses included

in net income

(263)

(2,084)

(1,496)

Income tax benefit (expense)

40,401

(55,474)

(20,925)

The accompanying notes are an integral

part of these consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

other

Common

Preferred

Retained

Treasury

comprehensive

(In thousands)

stock

Surplus

earnings

stock

(loss) income

Total

Balance at December 31, 2018

1,043

50,160

4,365,606

1,651,731

(205,509)

(427,974)

5,435,057

Cumulative effect of accounting change

4,905

Net income

671,135

Issuance of stock

3,496

3,497

Dividends declared:

Common stock

[1]

(116,022)

Preferred stock

(3,723)

Common stock purchases

[2]

15,740

(271,752)

(256,012)

Common stock reissuance

374

4,848

5,222

Stock based compensation

2,085

12,599

14,684

Other comprehensive income, net of tax

258,036

Transfer to statutory reserve

60,111

(60,111)

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)

Net income

506,622

Issuance of stock

4,262

4,263

Dividends declared:

Common stock

[1]

(136,561)

Preferred stock

(1,758)

Common stock purchases

[3]

76,335

(580,507)

(504,172)

Common stock reissuance

(1,192)

6,022

4,830

Preferred Stock, Redemption Amount

[4]

(28,017)

Stock based compensation

(4,731)

17,345

12,614

Other comprehensive income, net of tax

359,929

Transfer to statutory reserve

49,448

(49,448)

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

934,889

Issuance of stock

4,673

4,674

Dividends declared:

Common stock

[1]

(142,290)

Preferred stock

(1,412)

Common stock purchases

[5]

(8,557)

(347,093)

(355,650)

Stock based compensation

4,162

11,397

15,559

Other comprehensive loss, net of tax

(515,060)

Transfer

to statutory reserve

78,370

(78,370)

Balance at December 31, 2021

1,046

22,143

4,650,182

2,973,745

(1,352,650)

(325,069)

5,969,397

[1]

Dividends declared per common share during the year ended

December 31, 2021 - $1.75 (2020 - $1.60; 2019 -

$1.20).

[2]

During the year ended December 31, 2019, the Corporation

completed a $250 million accelerated share repurchase

transaction with respect to its

common stock, which was accounted for as a treasury stock

transaction. Refer to Note 20 for additional information.

[3]

During the year ended December 31, 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 20 for additional information.

[4]

On February 24, 2020, the Corporation redeemed all

the outstanding shares of 2008 Series B Preferred Stock.

Refer to Note 20 for additional

information.

[5]

During the year ended December 31, 2021, the Corporation

completed a $350 million accelerated share repurchase

transaction with respect to its

common stock, which was accounted for as a treasury stock

transaction. Refer to Note 20 for additional information.

Years ended December

31,

Disclosure of changes in number of shares:

2021

2020

2019

Preferred Stock:

Balance at beginning of year

885,726

2,006,391

Redemption of stocks

(1,120,665)

Balance at end of year

885,726

2,006,391

Common Stock:

Balance at beginning of year

104,508,290

104,392,222

104,320,303

Issuance of stock

71,044

116,068

71,919

Balance at end of year

104,579,334

104,508,290

104,392,222

Treasury stock

(24,728,165)

(20,264,055)

(8,802,593)

Common Stock – Outstanding

79,851,169

84,244,235

95,589,629

The accompanying notes are an integral part of these consolidated

financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

Years ended December

31,

(In thousands)

2021

2020

2019

Cash flows from operating activities:

Net income

934,889

506,622

671,135

Adjustments to reconcile net income to net cash provided

by operating activities:

Provision for credit losses (benefit)

(193,464)

292,536

165,779

Amortization of intangibles

9,134

6,397

9,370

Depreciation and amortization of premises and equipment

55,104

58,452

58,067

Net accretion of discounts and amortization of premiums and

deferred fees

(21,962)

(63,300)

(158,070)

Interest capitalized on loans subject to the temporary payment

moratorium or loss mitigation

alternatives

(15,567)

(95,212)

Share-based compensation

17,774

8,254

12,303

Impairment losses on right-of-use and long-lived assets

5,320

18,004

2,591

Fair value adjustments on mortgage servicing rights

10,206

42,055

27,771

Adjustments (expense) to indemnity reserves on loans sold

(4,406)

(390)

343

Earnings from investments under the equity method, net

of dividends or distributions

(50,942)

(27,738)

(28,011)

Deferred income tax expense

229,371

75,044

141,332

(Gain) loss on:

Disposition of premises and equipment and other productive

assets

(18,393)

(11,561)

(6,666)

Proceeds from insurance claims

(366)

(1,205)

Sale of debt securities

(23)

(41)

Sale of loans, including valuation adjustments on loans

held-for-sale and mortgage banking

activities

(21,611)

(32,449)

(15,888)

Sale of foreclosed assets, including write-downs

(30,098)

(19,958)

(21,982)

Acquisitions of loans held-for-sale

(251,336)

(227,697)

(223,939)

Proceeds from sale of loans held-for-sale

95,100

83,456

71,075

Net originations on loans held-for-sale

(527,585)

(391,537)

(289,430)

Net decrease (increase) in:

Trading debt securities

741,465

493,993

460,969

Equity securities

(2,336)

(8,263)

(8,032)

Accrued income receivable

6,193

(35,616)

(8,369)

Other assets

25,022

114,329

(37,847)

Net (decrease) increase in:

Interest payable

(5,395)

(5,404)

(284)

Pension and other postretirement benefits obligation

(4,104)

5,898

778

Other liabilities

22,802

(106,736)

(116,443)

Total adjustments

70,269

172,150

34,232

Net cash provided by operating activities

1,005,158

678,772

705,367

Cash flows from investing activities:

Net (increase) decrease in money market investments

(5,895,789)

(8,378,577)

905,558

Purchases of investment securities:

Available-for-sale

(14,672,856)

(21,033,807)

(18,733,295)

Equity

(16,196)

(30,794)

(16,300)

Proceeds from calls, paydowns, maturities and redemptions

of investment securities:

Available-for-sale

9,602,430

18,224,362

14,650,440

Held-to-maturity

15,700

6,733

5,913

Proceeds from sale of investment securities:

Available-for-sale

235,992

5,103

99,445

Equity

2,904

25,206

20,030

Net repayments (disbursements) on loans

469,268

(875,941)

(641,029)

Proceeds from sale of loans

203,179

84,385

110,534

Acquisition of loan portfolios

(348,179)

(1,138,276)

(619,737)

Payments to acquire other intangible

(905)

(83)

(10,382)

Payments to acquire businesses, net of cash acquired

(155,828)

Return of capital from equity method investments

6,362

959

6,942

Payments to acquire equity method investments

(375)

(1,778)

Acquisition of premises and equipment

(72,781)

(60,073)

(75,665)

Proceeds from insurance claims

366

1,205

Proceeds from sale of:

Premises and equipment and other productive assets

21,482

26,548

18,608

Foreclosed assets

86,942

77,521

107,881

Net cash used in investing activities

(10,518,650)

(13,068,146)

(4,169,852)

Cash flows from financing activities:

Net increase (decrease) in:

Deposits

10,138,617

13,102,028

4,043,955

Assets sold under agreements to repurchase

(29,700)

(72,076)

(88,151)

Other short-term borrowings

75,000

(41)

Payments of notes payable

(237,713)

(139,920)

(210,377)

Principal payments of finance leases

(2,852)

(3,145)

(1,726)

Proceeds from issuance of notes payable

261,999

75,000

Proceeds from issuance of common stock

4,674

9,093

8,719

Payments for repurchase of redeemable preferred stock

(28,017)

Dividends paid

(141,466)

(133,645)

(115,810)

Net payments for repurchase of common stock

(350,535)

(500,479)

(250,581)

Payments related to tax withholding for share-based compensation

(5,115)

(3,693)

(5,431)

Net cash provided by financing activities

9,450,910

12,492,145

3,455,557

Net (decrease) increase in cash and due from banks, and

restricted cash

(62,582)

102,771

(8,928)

Cash and due from banks, and restricted cash at beginning

of period

497,094

394,323

403,251

Cash and due from banks, and restricted cash at end of period

434,512

497,094

394,323

The accompanying notes are an integral part of these consolidated

financial statements.

Notes to Consolidated Financial Statements

Note 1 -

Nature of Operations

Note 2 -

Summary of Significant Accounting

Note 3 -

New Accounting Pronouncements

Note 4 -

Business Combination

Note 5 -

Restrictions on Cash and Due from Banks

Note 6 -

Debt Securities Available-For-Sale

Note 7 -

Debt Securities Held-to-Maturity

Note 8 -

Loans

Note 9 -

Allowance for Credit Losses – Loans

105

Note 10 -

Mortgage Banking Activities

127

Note 11 -

Transfers of Financial Assets and

128

Note 12 -

Premises and Equipment

131

Note 13 -

Other Real Estate Owned

132

Note 14 -

Other Assets

133

Note 15 -

Goodwill and Other Intangible Assets

134

Note 16 -

Deposits

138

Note 17 -

Borrowings

139

Note 18 -

Trust Preferred Securities

142

Note 19 -

Other Liabilities

144

Note 20 -

Stockholders’ Equity

145

Note 21 -

Regulatory Capital Requirements

147

Note 22 -

Other Comprehensive (Loss) Income

150

Note 23 -

Guarantees

152

Note 24 -

Commitments and Contingencies

155

Note 25-

Non-consolidated Variable Interest

161

Note 26 -

Derivative Instruments and Hedging

163

Note 27 -

Related Party Transactions

166

Note 28 -

Fair Value Measurement

170

Note 29 -

Fair Value of Financial Instruments

179

Note 30 -

Employee Benefits

182

Note 31 -

Net Income per Common Share

190

Note 32 -

Revenue from Contracts with Customers

191

Note 33 -

Leases

193

Note 34 -

Stock-Based Compensation

195

Note 35 -

Income Taxes

198

Note 36 -

Supplemental Disclosure on the

203

Note 37 -

Segment Reporting

204

Note 38 -

Popular, Inc. (Holding company only)

209

Note 39 -

Subsequent Events

212

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.

Puerto

Rico,

the

Corporation

provides

retail,

mortgage

and

commercial

banking

services,

through

its

principal

banking

subsidiary,

Banco

Popular

Puerto

Rico

(“BPPR”),

well

investment

banking,

broker-dealer,

auto

and

equipment

leasing

and

financing,

and

insurance

services

through

specialized

subsidiaries.

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, and

equipment leasing

and

financing services

through Popular

Equipment Finance

(“PEF”), a

newly formed

wholly-

owned subsidiary of PB based in Minnesota.

Note 2 – Summary of significant accounting

policies

The

accounting

and

financial

reporting

policies

Popular,

Inc.

and

its

subsidiaries

(the

“Corporation”) conform

with

accounting

principles generally accepted in the United States

of America and with prevailing practices within

the financial services industry.

The following is a description of the most significant

of these policies:

Principles of consolidation

The

consolidated

financial

statements

include

the

accounts

Popular,

Inc.

and

its

subsidiaries.

Intercompany

accounts

and

transactions have been

eliminated in consolidation. In

accordance with the

consolidation guidance for variable

interest entities, the

Corporation

would

also

consolidate

any

variable

interest

entities

(“VIEs”)

for

which

has

controlling

financial

interest;

and

therefore, it is the primary beneficiary. Assets

held in a fiduciary capacity are not assets of the Corporation and, accordingly,

are not

included in the Consolidated Statements of Financial

Condition.

Unconsolidated investments, in

which there is

at least

20% ownership and

/ or

the Corporation exercises

significant influence, are

generally

accounted

for

the

equity

method

with

earnings

recorded

other

operating

income.

Limited

partnerships

are

also

accounted for by the equity method unless the investor’s

interest is so “minor” that the limited partner may have

virtually no influence

over

partnership

operating

and

financial

policies.

These

investments

are

included

other

assets

and

the

Corporation’s

proportionate share of income or loss is included

in other operating income.

Statutory business trusts that are wholly-owned by the Corporation and are

issuers of trust preferred securities are not consolidated

in the Corporation’s Consolidated Financial Statements.

Business combinations

Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and

any noncontrolling

interest in

the acquiree

at the

acquisition date

are measured

at their

fair values

as of

the acquisition

date. The

acquisition

date

the

date

the

acquirer

obtains

control.

Transaction

costs

are

expensed

incurred.

Contingent

consideration

classified as an asset

or a liability is remeasured to

fair value at each

reporting date until the contingency

is resolved. The changes

in fair

value of

the contingent

consideration are

recognized in

earnings unless

the arrangement

is a

hedging instrument

for which

changes are initially recognized in other comprehensive

income.

On October

15, 2021, Popular

Equipment Finance, LLC

(“PEF”), a newly

formed wholly-owned subsidiary

of Popular Bank

(“PB”),

completed the

acquisition of

certain assets

and

the

assumption of

certain

liabilities of

Capital Group

LLC’s

(“K2”) equipment

leasing

and

financing

business

based

Minnesota

(the

“Acquired

Business”).

The

Corporation

determined that

this

acquisition

constituted

business

combination

defined

the

Financial

Accounting

Standards

Board

(“FASB”)

Accounting

Standards

Codification

(“ASC”)

Topic

805

“Business

Combinations”.

Refer

Note

Business

combination,

for

further

details

the

Transaction.

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

the

date

the

financial

statements,

and

the

reported

amounts

revenues

and

expenses

during

the

reporting period. Actual results could differ from those estimates.

Fair value measurements

The Corporation determines the fair values of its

financial instruments based on the fair value framework

established in the guidance

for

Fair

Value

Measurements

ASC

Subtopic

820-10,

which

requires

entity

maximize

the

use

observable

inputs

and

minimize

the

use

unobservable inputs

when

measuring fair

value.

Fair value

defined

the

exchange

price

that

would be

received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability

in an orderly

transaction between market participants

on the measurement date.

The standard describes three

levels of inputs

that

may

used

measure

fair

value

which

are

(1)

quoted

market

prices

for

identical

assets

liabilities

active

markets,

(2)

observable market-based inputs or unobservable inputs

that are corroborated by market

data, and (3) unobservable inputs

that are

not corroborated

by market

data. The fair

value hierarchy

ranks the

quality and

reliability of the

information used to

determine fair

values.

The

guidance

ASC

Subtopic

820-10

also

addresses

measuring

fair

value

situations

where

markets

are

inactive

and

transactions are

not orderly.

Transactions

or quoted

prices for

assets and

liabilities may

not be

determinative of

fair value

when

transactions are not

orderly, and

thus, may require

adjustments to estimate fair

value. Price quotes

based on transactions

that are

not orderly should be given

little, if any,

weight in measuring fair value. Price

quotes based on transactions that are

orderly shall be

considered

determining

fair

value,

and

the

weight

given

based

facts

and

circumstances.

sufficient

information

not

available to

determine if

price quotes

are based

on orderly

transactions, less

weight should

be given to

the price

quote relative

other transactions that are known to be orderly.

Investment securities

Investment securities are classified in four categories and

accounted for as follows:

●

Debt securities that

the Corporation has

the intent and

ability to hold

to maturity are

classified as debt

securities held-to-

maturity and reported

at amortized cost. An

ACL is established

for the expected credit

losses over the remaining

term of

debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which

considers

qualitative factors,

including internal credit

ratings and

the underlying source

of repayment

in determining

the amount

expected

credit

losses.

Debt

securities

held-to-maturity

are

written-off

through

the

ACL

when

portion

the

entire

amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of

the

asset.

The

ACL

estimated

leveraging

the

expected

loss

framework

for

mortgages

the

case

securities

collateralized by

lien loans

and the

commercial C&I

models for

municipal bonds.

As part

of this

framework, internal

factors are stressed,

as a qualitative

adjustment, to reflect current

conditions that are

not necessarily captured

within the

historical

loss

experience.

The

modeling

framework

includes

2-year

reasonable

and

supportable

period

gradually

reverting, over a 1-year horizon, to historical information at the model

input level. The Corporation may not sell or transfer

held-to-maturity

securities

without

calling

into

question

its

intent

hold

other

debt

securities

maturity,

unless

nonrecurring or unusual event that could not have

been reasonably anticipated has occurred.

●

Debt securities

classified as

trading securities

are reported

at fair

value, with

unrealized and

realized gains

and losses

included in non-interest income.

●

Debt

securities

classified

available-for-sale

are

reported

fair

value.

Declines

fair

value

below

the

securities’

amortized cost which are not related to estimated credit losses are recorded through other comprehensive income or loss,

net of

taxes. If

the Corporation intends

to sell

or believes

it is

more likely than

not that it

will be

required to sell

the debt

security,

it is

written down

fair value

through earnings.

Credit losses

relating to

available-for-sale debt

securities are

recorded through an

ACL, which are

limited to the

difference between

the amortized cost

and the fair

value of the

asset.

The ACL is established for the expected credit losses over the remaining term of debt security. The Corporation’s portfolio

available-for-sale securities

is comprised

mainly

U.S. Treasury

notes

and

obligations from

the

U.S.

Government.

These

securities

have

explicit

implicit

guarantee

from

the

U.S.

government,

are

highly

rated

major

rating

agencies, and have a

long history of no

credit losses. Accordingly,

the Corporation applies a

zero-credit loss assumption

and no

ACL for

these securities

has been

established. The Corporation

monitors its securities

portfolio composition and

credit performance on a

quarterly basis to determine if

any allowance is considered necessary.

Debt securities available-

for-sale are written-off when

a portion or

the entire amount is

deemed uncollectible, based on the

information considered

develop expected

credit losses

through the

life of

the asset.

The specific

identification method

is used

determine

realized

gains

and

losses

debt

securities

available-for-sale,

which

are

included

net

(loss)

gain

sale

debt

securities in the Consolidated Statements of Operations.

●

Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily

available fair

values are

measured at

cost, less

any impairment,

plus or

minus changes

resulting from

observable price

changes in

orderly transactions

for the

identical or

a similar

investment of

the same

issuer.

Stock that

is owned

by the

Corporation

comply

with

regulatory

requirements,

such

Federal

Reserve

Bank

and

Federal

Home

Loan

Bank

(“FHLB”) stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and

losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in

the Consolidated Statements

of Operations. Dividend income

from investments in

equity securities is included

in interest

income.

The

amortization

premiums is

deducted

and

the

accretion of

discounts is

added to

net

interest income

based on

the

interest

method

over the

outstanding period

the

securities.

Purchases and

sales

securities

are

recognized

trade

date

basis.

Derivative financial instruments

All derivatives are recognized on the Statements of Financial Condition at

fair value. The Corporation’s policy is not to

offset the fair

value

amounts

recognized

for

multiple

derivative

instruments

executed

with

the

same

counterparty

under

master

netting

arrangement nor to offset the fair value amounts recognized for the

right to reclaim cash collateral (a receivable) or the obligation

return cash collateral (a payable) arising from the

same master netting arrangement as the derivative

instruments.

For

cash

flow

hedge,

changes

the

fair

value

the

derivative

instrument

are

recorded

net

taxes

accumulated

other

comprehensive income/(loss) and subsequently

reclassified to net

income (loss) in

the same period(s)

that the hedged

transaction

impacts earnings. For free-standing derivative instruments,

changes in fair values are reported in current period earnings.

Prior

entering

hedge

transaction,

the

Corporation

formally

documents

the

relationship

between

hedging

instruments

and

hedged

items,

well

the

risk

management objective

and

strategy for

undertaking various

hedge

transactions.

This

process

includes

linking all

derivative instruments

specific assets

and

liabilities

on the

Statements of

Financial Condition

or to

specific

forecasted transactions

or firm

commitments along

with a

formal assessment,

at both

inception of

the hedge

and on

an ongoing

basis,

the

effectiveness

of the

derivative instrument

offsetting

changes

fair

values

cash

flows

the

hedged item.

Hedge accounting

is discontinued

when the

derivative instrument

is not

highly effective

as a

hedge, a

derivative expires,

is sold,

terminated, when it is unlikely that a forecasted transaction will

occur or when it is determined that it

is no longer appropriate. When

hedge accounting is discontinued the derivative continues

to be carried at fair value with changes in fair

value included in earnings.

For non-exchange

traded contracts,

fair value

is based

on dealer

quotes, pricing

models, discounted

cash flow

methodologies or

similar techniques for which the determination of

fair value may require significant management judgment

or estimation.

The fair value of derivative instruments considers

the risk of non-performance by the counterparty

or the Corporation, as applicable.

The Corporation obtains or pledges collateral in

connection with its derivative activities when applicable

under the agreement.

Loans

are

classified

loans

held-in-portfolio when

management has

the

intent

and

ability

hold

the

loan

for

the

foreseeable

future, or

until maturity

or payoff.

The foreseeable

future is

a management

judgment which

is determined

based upon

the type

loan,

business strategies,

current market

conditions, balance

sheet

management and

liquidity needs.

Management’s view

the

foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that

was

not originated or

initially acquired with the

intent to sell

or securitize, the loan

is reclassified from held-in-portfolio

into held-for-sale.

Due to changing market conditions or other strategic

initiatives, management’s intent with respect to the disposition of

the loan may

change,

and

accordingly,

loans

previously classified

held-for-sale may

reclassified into

held-in-portfolio. Loans

transferred

between loans held-for-sale and held-in-portfolio

classifications are recorded at the lower of cost or

fair value at the date of transfer.

Purchased

loans

with

evidence

credit

deterioration

since

origination

are

recorded

fair

value

upon

acquisition.

Credit

discounts are included in the determination of fair

value.

Loans held-for-sale are stated

at the lower

of cost or

fair value, cost

being determined based on

the outstanding loan balance

less

unearned income, and fair value determined, generally

in the aggregate. Fair value is

measured based on current market prices for

similar loans,

outstanding investor

commitments, prices

of recent

sales or

discounted cash

flow analyses

which utilize

inputs and

assumptions

which

are

believed

consistent

with

market

participants’

views.

The

cost

basis

also

includes

consideration

deferred origination fees and costs, which are recognized in earnings

at the time of sale. Upon reclassification to held-for-sale,

credit

fair

value

adjustments are

recorded

reduction

the

ACL.

the

extent

that

the

loan's

reduction

value

has

not

already been provided for in the ACL, an additional provision for credit losses is recorded. Subsequent to reclassification to held-for-

sale, the amount,

by which cost exceeds

fair value, if any,

is accounted for as

a valuation allowance with

changes therein included

in the determination of net income (loss) for the

period in which the change occurs.

Loans held-in-portfolio

are reported

at their

outstanding principal

balances net

of any

unearned income,

charge-offs, unamortized

deferred fees and

costs on originated

loans, and premiums

or discounts on

purchased loans. Fees

collected and costs

incurred in

the

origination of

new

loans are

deferred and

amortized using

the interest

method or

a method

which approximates

the interest

method over the term of the loan as an adjustment

to interest yield.

The past due status of a loan is determined in accordance with its

contractual repayment terms. Furthermore, loans are reported as

past due when either interest or principal remains

unpaid for 30 days or more in accordance

with its contractual repayment terms.

Non-accrual loans are those loans on which the

accrual of interest is discontinued. When a loan is

placed on non-accrual status, all

previously

accrued

and

unpaid interest

charged against

interest

income

and

the

loan

accounted for

either

a cash-basis

method or

on the

cost-recovery method.

Loans designated

as non-accruing

are returned

to accrual

status when

the Corporation

expects repayment of the remaining contractual principal

and interest.

Recognition of interest income on commercial and construction loans is discontinued when the loans are 90 days or more in arrears

on payments of principal or interest or when other factors indicate that the collection of principal and interest is

doubtful. The portion

secured

loan

deemed

uncollectible

charged-off

later

than

365

days

past

due.

However,

the

case

collateral

dependent

loan,

the

excess

the

recorded

investment

over

the

fair

value

the

collateral

(portion

deemed

uncollectible)

generally

promptly charged-off,

but

any

event,

not

later

than

the

quarter

following

the

quarter

which

such

excess was

first

recognized.

Commercial

unsecured

loans

are

charged-off

later

than

180

days

past

due.

Recognition

interest

income

mortgage

loans

generally

discontinued

when

loans

are

days

arrears

payments

principal

interest.

The

portion of a

mortgage loan deemed

uncollectible is charged-off

when the loan

is 180 days

past due. The

Corporation discontinues

the recognition

of interest

on residential

mortgage loans

insured by

the Federal

Housing Administration

(“FHA”) or

guaranteed by

the U.S.

Department of Veterans

Affairs (“VA”)

when 15-months

delinquent as

to principal

or interest.

The principal

repayment on

these loans is insured. Recognition of interest income on closed-end consumer loans and home equity lines of credit is discontinued

when the

loans are

90 days

or more

in arrears

on payments

of principal

or interest.

Income is

generally recognized

on open-end

consumer loans,

except for

home equity

lines

credit,

until

the

loans

are

charged-off.

Recognition of

interest

income

for

lease

financing is ceased when

loans are 90 days

or more in arrears.

Closed-end consumer loans and leases

are charged-off when they

are 120

days in

arrears. Open-end

(revolving credit)

consumer loans

are charged-off

when 180

days in

arrears. Commercial

and

consumer overdrafts are generally charged-off no later than

60 days past their due date.

A loan classified

as a troubled

debt restructuring (“TDR”) is

typically in non-accrual status

at the time

of the modification.

The TDR

loan continues

in non-accrual

status

until the

borrower has

demonstrated a

willingness and

ability to

make the

restructured loan

payments (at least six months of sustained performance after the modification

(or one year for loans providing for quarterly or semi-

annual payments))

and management

has concluded

that

it is

probable that

the borrower

would not

in payment

default in

the

foreseeable future.

Lease financing

The

Corporation leases

passenger and

commercial

vehicles

and

equipment

individual

and

corporate

customers.

The

finance

method of accounting

is used to

recognize revenue on lease

contracts that meet

the criteria specified in

the guidance for leases

ASC Topic

842. Aggregate

rentals due

over the

term of

the leases

less unearned

income are

included in

finance lease

contracts

receivable.

Unearned

income

amortized

using

method

which

results

approximate

level

rates

return

the

principal

amounts outstanding. Finance lease origination

fees and costs

are deferred and amortized

over the average life

of the lease as

adjustment to the interest yield.

Revenue for other leases is recognized as it becomes

due under the terms of the agreement.

Loans acquired with deteriorated credit quality

Purchased credit

deteriorated (“PCD”) loans

are defined

as those

with evidence

of a

more-than-insignificant deterioration in

credit

quality since origination.

PCD loans are initially recorded at its purchase price plus an estimated

allowance for credit losses (“ACL”).

Upon the acquisition of a PCD loan, the Corporation makes an estimate

of the expected credit losses over the remaining contractual

term

each individual

loan. The

estimated credit

losses over

the life

of the

loan are

recorded as

an ACL

with a

corresponding

addition to the loan purchase price. The amount of the purchased

premium or discount which is not related to credit risk

is amortized

over the life of

the loan through net

interest income using the

effective interest method or

a method that approximates the

effective

interest

method.

Changes

expected

credit

losses

are

recorded as

increase

decrease

the

ACL

with

corresponding

charge (reverse) to the provision for credit losses in the Consolidated Statement of Operations. Upon transition to the individual loan

measurement, these loans

follow the same

nonaccrual policies as non-PCD

loans and are

therefore no longer

excluded from non-

performing status. Modifications

of PCD loans

that meet the

definition of a

TDR subsequent to

the adoption of

ASC Topic

326 are

accounted and reported as such following the same

processes as non-PCD loans.

Refer to Note 8

to the Consolidated Financial Statements

for additional information with respect

to loans acquired with

deteriorated

credit quality.

Accrued interest receivable

The

amortized

basis

for

loans

and

investments

debt

securities

presented

exclusive

accrued

interest

receivable.

The

Corporation has elected

not to establish

an ACL for

accrued interest receivable for

loans and investments

in debt securities,

given

the Corporation’s

non-accrual policies, in

which accrual

of interest is

discontinued and reversed

based on the

asset’s delinquency

status.

Allowance for credit losses – loans portfolio

The Corporation establishes an ACL

for its loan

portfolio based on its

estimate of credit losses

over the remaining contractual

term

of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since

inception, with

a corresponding charge

to the

provision for

credit losses,

except for

PCD loans

for which

the ACL

at acquisition

recorded

addition

the

purchase

price

with

subsequent

changes

recorded

earnings.

Loan

losses

are

charged

and

recoveries are credited to the ACL.

The

Corporation

follows

methodology

estimate

the

ACL

which

includes

reasonable

and

supportable

forecast

period

for

estimating

credit

losses,

considering

quantitative

and

qualitative

factors

well

the

economic

outlook.

part

this

methodology,

management

evaluates

various

macroeconomic

scenarios

provided

third

parties.

December

31,

2021,

management

applied

probability

weights

the

outcome

the

selected

scenarios.

This

evaluation

includes

benchmarking

procedures

well

careful

analysis

the

underlying assumptions

used to

build the

scenarios. The

application of

probability

weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as

part

the

ACL’s

governance

process.

The

Corporation considers

additional

macroeconomic scenarios

part

its

qualitative

adjustment framework.

The

macroeconomic variables

chosen

estimate credit

losses

were selected

combining

quantitative

procedures

with

expert

judgment.

These

variables

were

determined

the

best

predictors

expected

credit

losses

within

the

Corporation’s

loan

portfolios and

include drivers such

as unemployment rate,

different measures

of employment levels,

house prices,

gross domestic

product

and

measures

disposable

income,

amongst

others.

The

loss

estimation

framework

includes

reasonable

and

supportable period of

2 years for PR

portfolios, gradually reverting, over

a 1-year horizon, to

historical macroeconomic variables at

the

model

input

level.

For

the

portfolio

the

reasonable

and

supportable

period

considers

the

contractual

life

the

asset,

impacted

prepayments, except

for

the US

CRE portfolio.

The US

CRE portfolio

utilizes a

2-year reasonable

and supportable

period gradually reverting, over a 1-year horizon,

to historical information at the output level.

The

Corporation

developed

loan

level

quantitative

models

distributed

geography

and

loan

type.

This

segmentation

was

determined

evaluating

their

risk

characteristics,

which

include

default

patterns,

source

repayment,

type

collateral,

and

lending

channels,

amongst

others.

The

modeling

framework

includes

competing

risk

models

generate

lifetime

defaults

and

prepayments, and other loan

level modeling techniques to estimate

loss severity.

Recoveries on future losses

are contemplated as

part

the

loss

severity

modeling.

These

parameters

are

estimated

combining

internal

risk

factors

with

macroeconomic

expectations. In

order to

generate the

expected credit

losses, the

output of

these models

is combined

with loan

level repayment

information.

The

internal

risk

factors

contemplated

within

the

models

may

include

borrowers’

credit

scores,

loan-to-value,

delinquency status, risk ratings, interest rate, loan

term, loan age and type of collateral, amongst

others.

The ACL

also includes

a qualitative

framework that

addresses two

main components:

losses that

are expected

but not

captured

within the quantitative modeling framework, and model imprecision. In order to identify

potential losses that are not captured through

the

models,

management

evaluates

model

limitations

well

the

different

risks

covered

the

variables

used

each

quantitative model. The

Corporation considers additional macroeconomic

scenarios to address

these risks. This

assessment takes

into

consideration factors

listed

part

ASC

326-20-55-4. To

complement

the

analysis, management

also

evaluates

whether

there are sectors

that have low

levels of historical

defaults, but current

conditions show the

potential for future

losses. This type

qualitative

adjustment

prevalent

the

commercial

portfolios.

The

model

imprecision

component

the

qualitative

adjustments

determined

after

evaluating

model

performance

for

these

portfolios

through

different

time

periods.

This

type

qualitative adjustment mainly impacts consumer portfolios.

The

Corporation

has

designated

collateral

dependent

loans

secured

collateral

when

foreclosure

probable

when

foreclosure is

not probable but

the practical

expedient is used.

The practical expedient

is used

when repayment is

expected to be

provided

substantially

the

sale

operation

the

collateral

and

the

borrower is

experiencing financial

difficulty.

The

ACL

collateral dependent loans

is measured based

on the fair

value of the

collateral less costs

to sell. 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.

the

case

troubled

debt

restructurings

(“TDRs”),

the

established

framework

captures

the

impact

concessions

through

discounting

modified contractual

cash

flows,

both principal

and

interest, at

the

loan’s

original

effective rate.

The

impact of

these

concessions is combined with the expected credit losses generated by the quantitative loss models in order to arrive at

the ACL. As

a result, the ACL related to TDRs is impacted by

the expected macroeconomic conditions.

The Credit Cards

portfolio, due to

its revolving nature,

does not have

a specified maturity

date. To

estimate the average remaining

term

this

segment,

management

evaluated the

portfolios

payment

behavior

based

internal

historical data.

These payment

behaviors were

further classified

into sub-categories

that accounted

for

delinquency history

and differences

between transactors,

revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without

any

finance

charge

the

last

months.

The

paydown

curves

generated

for

each

sub-category

are

applied

the

outstanding

exposure at

the measurement

date using

the first-in

first-out (FIFO)

methodology.

These amortization

patterns are

combined with

loan level default and loss severity modeling to arrive

at the ACL.

Troubled debt restructurings

restructuring constitutes

TDR

when

the

Corporation separately

concludes

that

both

the

following

conditions

exist:

the

restructuring

constitute

concession

and

the

debtor

experiencing

financial

difficulties.

The

concessions

stem

from

agreement between the Corporation and the

debtor or are imposed by

law or a court. These

concessions could include a reduction

in the

interest rate

on the

loan, payment

extensions, forgiveness

of principal,

forbearance or

other actions

intended to

maximize

collection.

concession

has

been

granted

when,

result

the

restructuring,

the

Corporation does

not

expect

collect

all

amounts

due,

including

interest

accrued

the

original

contract

rate.

the

payment

principal

dependent

the

value

collateral,

the

current

value

the

collateral

taken

into

consideration

determining

the

amount

principal

collected;

therefore, all factors that changed are considered to determine if a concession was granted, including the change in the fair value of

the

underlying collateral

that

may

used

repay

the

loan.

Classification of

loan

modifications

TDRs

involves

degree

judgment. Indicators that the debtor is experiencing financial difficulties

which are considered include: (i) the borrower is currently in

default on any of its

debt or it is

probable that the borrower would be

in payment default on any

of its debt in the

foreseeable future

without the modification; (ii)

the borrower has declared or

is in the process

of declaring bankruptcy; (iii) there

is significant doubt as

whether the

borrower will

continue to

be a

going concern;

(iv) the

borrower has

securities that

have been

delisted, are

in the

process of being delisted,

or are under threat

of being delisted from an

exchange; (v) based on

estimates and projections that only

encompass

the

borrower’s current

business

capabilities,

forecasted

that

the

entity-specific

cash

flows

will

insufficient

service the

debt (both

interest and

principal) in

accordance with the

contractual terms

of the

existing agreement through

maturity;

and

(vi)

absent

the

current

modification,

the

borrower

cannot

obtain

funds

from

sources

other

than

the

existing

creditors

effective interest rate equal to the current market interest rate for similar debt for a non-troubled debtor. The identification of TDRs is

critical in the determination of the adequacy of the ACL.

A loan

may be

restructured in

a troubled

debt restructuring

into two

(or more)

loan agreements,

for example,

Note A

and Note

Note

represents

the

portion

the

original

loan

principal

amount

that

expected

fully

collected

along

with

contractual

interest. Note B represents the portion of the original loan that may be considered uncollectible and charged-off, but the obligation is

not forgiven

to the

borrower.

Note A

may be

returned to

accrual status

provided all

of the

conditions for

a TDR

to be

returned to

accrual status are met. The modified loans are

considered TDRs.

Refer

Note

the

Consolidated

Financial

Statements

for

additional

qualitative

information

TDRs

and

the

Corporation’s

determination of the ACL.

Reserve for unfunded commitments

The Corporation

establishes a

reserve for

unfunded commitments,

based on

the estimated

losses over

the remaining

term of

the

facility.

An allowance

is not

established for

commitments that

are unconditionally

cancellable by

the Corporation.

Accordingly,

reserve

established

for

unfunded commitments

related to

its

credit

cards

portfolio.

Reserve for

the

unfunded

portion

credit

commitments

presented

within

other

liabilities

the

Consolidated Statements

Financial

Condition.

Net

adjustments

the

reserve for unfunded commitments are

reflected in the Consolidated Statements

of Operations as provision for

credit losses for the

years ended December 31, 2021 and 2020.

Transfers and servicing of financial assets

The transfer

of an

entire financial

asset, a

group of

entire financial

assets, or

a participating interest

in an

entire financial

asset in

which the Corporation surrenders control over the assets is accounted

for as a sale

if all of the following conditions set forth in

ASC

Topic

860 are met:

(1) the assets

must be isolated

from creditors of

the transferor,

(2) the transferee

must obtain the

right (free of

conditions that constrain it

from taking advantage

of that right)

to pledge or

exchange the transferred assets,

and (3) the

transferor

cannot maintain effective control over

the transferred assets through an agreement

to repurchase them before their

maturity. When

the

Corporation

transfers

financial

assets

and

the

transfer

fails

any

one

these

criteria,

the

Corporation

prevented

from

derecognizing the transferred financial

assets and the

transaction is accounted for

as a secured

borrowing. For federal and

Puerto

Rico income

tax purposes,

the Corporation

treats the

transfers of

loans which

do not

qualify as

“true sales”

under the

applicable

accounting guidance, as sales, recognizing a deferred

tax asset or liability on the transaction.

For transfers

of financial

assets that

satisfy the

conditions to

be accounted

for as

sales, the

Corporation derecognizes

all assets

sold; recognizes all

assets obtained and liabilities

incurred in consideration as

proceeds of the

sale, including servicing

assets and

servicing liabilities, if

applicable; initially measures

at fair

value assets obtained

and liabilities incurred

in a

sale; and

recognizes in

earnings any gain or loss on the sale.

The guidance

on transfer

of financial

assets requires a

true sale

analysis of

the treatment

of the

transfer under state

law as

if the

Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the

nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a

true sale

is never

absolute and

unconditional, but

contains qualifications

based on

the inherent

equitable powers

of a

bankruptcy

court, as

well as

the unsettled

state of

the common

law.

Once the

legal isolation

test has

been met,

other factors

concerning the

nature

and

extent

the

transferor’s

control

over

the

transferred

assets

are

taken

into

account

order

determine

whether

derecognition of assets is warranted.

The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”)

in the normal course of business

and retains the servicing rights. The GNMA programs under which the loans

are sold allow the Corporation to repurchase individual

delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may

repurchase the delinquent

loan for an

amount equal to

100% of the

remaining principal balance

of the loan.

Once the Corporation

has the

unconditional ability

to repurchase

the delinquent

loan, the

Corporation is

deemed to

have regained

effective control

over

the

loan

and

recognizes

the

loan

its

balance

sheet

well

offsetting

liability,

regardless of

the

Corporation’s

intent

repurchase the loan.

Servicing assets

The

Corporation

periodically

sells

securitizes

loans

while

retaining

the

obligation

perform

the

servicing

such

loans.

addition,

the

Corporation

may

purchase

assume

the

right

service

loans

originated

others.

Whenever

the

Corporation

undertakes an

obligation to

service a

loan, management

assesses whether

a servicing

asset or

liability should

be recognized.

servicing

asset

recognized

whenever

the

compensation

for

servicing

expected

than

adequately

compensate

the

servicer

for

performing

the

servicing.

Likewise,

servicing

liability

would

recognized

the

event

that

servicing

fees

received are not

expected to adequately

compensate the Corporation

for its

expected cost. Mortgage servicing

assets recorded at

fair value are separately presented on the Consolidated

Statements of Financial Condition.

All separately recognized servicing assets are initially recognized at fair value. For subsequent measurement of

servicing rights, the

Corporation

has

elected

the

fair

value

method

for

mortgage

loans

servicing

rights

(“MSRs”).

Under

the

fair

value

measurement

method,

MSRs

are

recorded

fair

value

each

reporting

period,

and

changes

fair

value

are

reported

mortgage

banking

activities in the Consolidated Statement of Operations. Contractual

servicing fees including ancillary income and late

fees, as well as

fair

value

adjustments, are

reported in

mortgage

banking

activities in

the

Consolidated Statement

Operations. Loan

servicing

fees, which are based on a percentage of the principal balances of the

loans serviced, are credited to income as loan payments are

collected.

The fair value

of servicing rights is

estimated by using a

cash flow valuation model

which calculates the present value

of estimated

future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing

costs,

and other economic factors, which are determined

based on current market conditions.

Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a

straight-

line basis over the estimated useful life of each

type of asset. Amortization of leasehold improvements

is computed over the terms of

the respective

leases or

the estimated

useful lives

of the

improvements, whichever

is shorter.

Costs of

maintenance and

repairs

which do not

improve or extend

the life of

the respective assets

are expensed as

incurred. Costs of

renewals and betterments

are

capitalized. When assets are

disposed of, their cost

and related accumulated depreciation are removed

from the accounts and

any

gain or loss is reflected in earnings as realized

or incurred, respectively.

The Corporation

capitalizes interest

cost

incurred in

the construction

significant real

estate projects,

which consist

primarily of

facilities

for

its

own

use

intended for

lease.

The

amount

interest cost

capitalized is

allocation of

the

interest cost

incurred during the

period required to substantially

complete the asset.

The interest rate

for capitalization purposes is

to be based

on a weighted

average rate on

the Corporation’s outstanding

borrowings, unless there

is a specific

new borrowing associated

with

the asset. Interest cost capitalized for the years ended

December 31, 2021, 2020 and 2019 was not

significant.

The

Corporation

recognizes

right-of-use

assets

(“ROU

assets”)

and

lease

liabilities

relating

operating

and

finance

lease

arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance

leases, interest is recognized on the

lease liability separately from the amortization

of the ROU asset, whereas for

operating leases

a single lease cost

is recognized so that

the cost of the

lease is allocated over

the lease term on

a straight-line basis. Impairments

on ROU assets are evaluated under the guidance for impairment

or disposal of long-lived assets.

The Corporation recognizes gains

on sale and

leaseback transactions in earnings when

the transfer constitutes a

sale, and the transaction

was at fair value.

Refer to

Note 33 to the Consolidated Financial Statements

for additional information on operating and

finance lease arrangements.

Impairment of long-lived assets

The

Corporation

evaluates

for

impairment

its

long-lived

assets

held

and

used,

and

long-lived

assets

disposed

of,

whenever events or changes

in circumstances indicate that the

carrying amount of an

asset may not be recoverable

and records a

write down for the difference between the carrying amount

and the fair value less costs to sell.

Other real estate

Other

real

estate,

received

satisfaction

loan,

recorded

fair

value

less

estimated

costs

disposal.

The

difference

between the carrying amount of the loan and the fair value less cost to

sell is recorded as an adjustment to the ACL. Subsequent to

foreclosure, any

losses in

the carrying

value arising

from periodic

re-evaluations of the

properties, and any

gains or

losses on

the

sale of these properties are credited or charged to expense in the period incurred and are included as OREO expenses. The cost of

maintaining and operating such properties is expensed

as incurred.

Updated appraisals

are obtained

to adjust

the value

of the

other real

estate assets.

The frequency

depends on

the loan

type and

total credit exposure. The appraisal for a commercial or construction other real estate property with a book value

equal to or greater

than $1 million is updated annually and if lower

than $1 million it is updated every two years.

For residential mortgage properties, the

Corporation requests appraisals annually.

Appraisals

may

adjusted

due

age,

collateral

inspections,

property

profiles,

general

market

conditions.

The

adjustments

applied are based upon

internal information such

as other appraisals for

the type of

properties and/or loss severity

information that

can provide historical trends in the real estate market

and may change from time to time based

on market conditions.

Goodwill and other intangible assets

Goodwill is recognized when the purchase

price is higher than the fair

value of net assets acquired in

business combinations under

the purchase

method of

accounting. Goodwill

is not

amortized but

is tested

for impairment

at least

annually or

more frequently

events or circumstances indicate possible impairment. If the

carrying amount of any of the

reporting units exceeds its fair value, the

Corporation would be required to record an impairment

charge for the difference up to the amount of the goodwill. In determining

the

fair

value

each

reporting

unit,

the

Corporation

generally

uses

combination

methods,

including

market

price

multiples

comparable companies and transactions, as well as discounted cash flow analysis. Goodwill impairment losses are recorded

as part

of operating expenses in the Consolidated Statements

of Operations.

Other intangible assets deemed

to have an

indefinite life are

not amortized but are

tested for impairment using

a one-step process

which compares the fair value with the carrying amount of the asset.

In determining that an intangible asset has an indefinite life, the

Corporation

considers

expected

cash

inflows

and

legal,

regulatory,

contractual,

competitive,

economic

and

other

factors,

which

could limit the intangible asset’s useful life.

Other

identifiable

intangible

assets

with

finite

useful

life,

mainly

core

deposits,

are

amortized

using

various

methods

over

the

periods

benefited,

which

range

from

years.

These

intangibles are

evaluated

periodically for

impairment

when

events

changes in circumstances

indicate that the carrying

amount may not

be recoverable. Impairments on

intangible assets with

a finite

useful life are evaluated under the guidance for

impairment or disposal of long-lived assets.

Assets sold / purchased under agreements to repurchase

/ resell

Repurchase and resell agreements

are treated as collateralized

financing transactions and are

carried at the

amounts at which the

assets will be subsequently reacquired or resold as

specified in the respective agreements.

It is the

Corporation’s policy to take possession

of securities purchased under agreements

to resell. However, the

counterparties to

such

agreements

maintain

effective

control

over

such

securities,

and

accordingly

those

securities

are

not

reflected

the

Corporation’s Consolidated Statements

of Financial

Condition. The Corporation

monitors the

fair value of

the underlying

securities

as compared to the related receivable, including accrued

interest.

the

Corporation’s

policy

maintain

effective

control

over

assets

sold

under

agreements

repurchase;

accordingly,

such

securities continue to be carried on the Consolidated

Statements of Financial Condition.

The Corporation may require counterparties to deposit

additional collateral or return collateral pledged,

when appropriate.

Software

Capitalized

software

stated

cost,

less

accumulated

amortization.

Capitalized

software

includes

purchased

software

and

capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line

method, is charged to operations

over the estimated useful life

of the software. Capitalized software is

included in “Other assets” in

the Consolidated Statement of Financial Condition.

Guarantees, including indirect guarantees of indebtedness

to others

The estimated losses to be absorbed under the credit

recourse arrangements are recorded as a liability when

the loans are sold and

are updated by

accruing or reversing expense

(categorized in the line

item “Adjustments (expense) to

indemnity reserves on loans

sold”

the

Consolidated

Statements

Operations)

throughout

the

life

the

loan,

necessary,

when

additional

relevant

information becomes

available. The

recourse liability

estimated using

loan level

statistical techniques.

Internal factors

that

are

evaluated

include

customer

credit

scores,

refreshed

loan-to-values,

loan

age,

and

outstanding

balance,

amongst

others.

The

methodology leverages the

expected loss framework

for mortgage loans

and includes macroeconomic

expectations based on

a 2-

year reasonable and supportable period, gradually reverting over a 1-year horizon to historical macroeconomic

variables at the input

level.

Estimated

future

defaults,

prepayments

and

loss

severity

are

combined

with

loan

level

repayment

information

order

estimate lifetime expected

losses for this

portfolio. The reserve

for the estimated

losses under the

credit recourse arrangements

presented

separately

within

other

liabilities

the

Consolidated

Statements

Financial

Condition.

Refer

Note

the

Consolidated Financial Statements for further disclosures

on guarantees.

Treasury stock

Treasury stock is

recorded at cost and

is carried as a

reduction of stockholders’ equity in

the Consolidated Statements of Financial

Condition.

At the

date of

retirement or

subsequent reissue,

the treasury

stock account

is reduced

the cost

of such

stock.

retirement, the excess of the cost of the treasury stock over

its par value is recorded entirely to surplus. At reissuance,

the difference

between the consideration received upon issuance

and the specific cost is charged or credited to

surplus.

Revenues from contract with customers

Refer

Note

for

detailed

description

the

Corporation’s

policies

the

recognition

and

presentation

revenues

from

contract with customers.

Foreign exchange

Assets and liabilities

denominated in foreign currencies

are translated to U.S.

dollars using prevailing rates

of exchange at

the end

the

period.

Revenues, expenses,

gains

and

losses

are

translated using

weighted

average

rates

for

the

period.

The

resulting

foreign currency translation adjustment

from operations for which

the functional currency is

other than the U.S.

dollar is reported in

accumulated

other

comprehensive

loss,

except

for

highly

inflationary

environments

which

the

effects

are

included

other

operating expenses.

The Corporation

holds interests

in Centro

Financiero BHD

León, S.A.

(“BHD León”)

in the

Dominican Republic.

The business

BHD León is

mainly conducted in their

country’s foreign currency.

The resulting foreign currency

translation adjustment from these

operations is reported in accumulated other comprehensive

loss.

Refer to the disclosure of accumulated other comprehensive

loss included in Note 22.

Income taxes

The Corporation

recognizes deferred tax

assets and

liabilities for

the expected

future tax

consequences of

events that

have been

recognized in

the Corporation’s

financial statements

or tax

returns. Deferred

income tax

assets and

liabilities are

determined for

differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible

amounts in the

future.

The

computation

based

enacted

tax

laws

and

rates

applicable

periods

which

the

temporary

differences

are

expected to be recovered or settled.

The

guidance for

income

taxes

requires a

reduction of

the

carrying

amounts

deferred tax

assets

a valuation

allowance if,

based on the available evidence, it is more likely

than not (defined as a likelihood of more

than 50 percent) that such assets will not

realized.

Accordingly,

the

need

establish

valuation

allowances

for

deferred

tax

assets

assessed

periodically

the

Corporation

based

the

likely

than

not

realization

threshold

criterion.

the

assessment

for

valuation

allowance,

appropriate consideration

is given

to all

positive and

negative evidence

related to

the realization

of the

deferred tax

assets. This

assessment considers, among others,

all sources of

taxable income available to

realize the deferred tax

asset, including the future

reversal of existing temporary differences, the future taxable income

exclusive of reversing temporary differences and carryforwards,

taxable income in carryback years and tax-planning strategies. In making such

assessments, significant weight is given to evidence

that can be objectively verified.

The valuation

of deferred

tax assets

requires judgment

in assessing

the likely

future tax

consequences of

events that

have been

recognized in the Corporation’s financial statements or tax returns and future profitability.

The Corporation’s accounting for deferred

tax consequences represents management’s best estimate

of those future events.

Positions taken in

the Corporation’s

tax returns may

be subject to

challenge by the

taxing authorities upon

examination. Uncertain

tax positions

are initially

recognized in the

financial statements when

it is

more likely than

not (greater than

50%) that

the position

will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts. The amount

of unrecognized tax benefit 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 statute of limitations, changes in management’s judgment about the level

uncertainty,

including

addition

elimination

uncertain

tax

positions,

status

examinations, litigation,

settlements

with

tax

authorities and legislative activity.

The Corporation accounts for the taxes collected from customers

and remitted to governmental authorities on a net

basis (excluded

from revenues).

Income

tax

expense

benefit

for

the

year

allocated

among

continuing

operations,

discontinued

operations,

and

other

comprehensive income, as applicable. The

amount allocated to continuing operations is

the tax effect of

the pre-tax income or

loss

from

continuing operations

that

occurred during

the year,

plus

or minus

income tax

effects

(a) changes

in circumstances

that

cause

change

judgment

about

the

realization

deferred

tax

assets

future

years,

(b)

changes

tax

laws

rates,

(c)

changes in tax status, and (d) tax-deductible

dividends paid to shareholders, subject to certain

exceptions.

Employees’ retirement and other postretirement benefit

plans

Pension costs are

computed on the

basis of accepted

actuarial methods and are

charged to current

operations. Net pension costs

are based

on various actuarial

assumptions regarding future

experience under the

plan, which include

costs for services

rendered

during the

period, interest

costs and

return on

plan assets,

as well

as deferral

and amortization

of certain

items such

as actuarial

gains or losses.

The funding policy is

to contribute to the

plan, as necessary,

to provide for services

to date and for

those expected to be

earned in

the

future.

the

extent

that

these

requirements

are

fully

covered

assets

the

plan,

contribution

may

not

made

particular year.

The cost

of postretirement

benefits, which

is determined

based on

actuarial assumptions

and estimates

of the

costs of

providing

these benefits in the future, is accrued during

the years that the employee renders the required

service.

The guidance for compensation

retirement benefits of ASC

Topic

715 requires the recognition

of the funded status

of each defined

pension

benefit

plan,

retiree

health

care

and

other

postretirement

benefit

plans

the

Consolidated

Statements

Financial

Condition.

Stock-based compensation

The

Corporation

opted

use

the

fair

value

method

recording

stock-based

compensation

described

the

guidance

for

employee share plans in ASC Subtopic 718-50.

Comprehensive income

(loss) is

defined as

the change

in equity

a business

enterprise during

a period

from

transactions and

other events

and circumstances,

except those

resulting from

investments by

owners and

distributions to

owners. Comprehensive

income (loss) is separately presented in the Consolidated

Statements of Comprehensive Income.

Net income per common share

Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or

unpaid dividends

if cumulative,

and charges

or credits

related to

the extinguishment

of preferred

stock or

induced conversions

preferred stock, by the weighted average number of

common shares outstanding during the year. Diluted income per common

takes into consideration the weighted average common shares adjusted for the effect of stock options, restricted stock, performance

shares and warrants, if any, using the treasury stock method.

Statement of cash flows

For purposes of reporting cash flows, cash includes

cash on hand and amounts due from banks, including

restricted cash.

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

August

2021,

which

amends

certain

paragraphs

from the ASC in response to the issuance of

SEC

Final

Rules

Nos.

33-10786

and

33-

10835.

August 9, 2021

The

adoption

ASU

2021-06

during

2021

resulted

simplified

MD&A

disclosures.

FASB ASU 2020-10,

Codification Improvements

The FASB

issued ASU

2020-10 in

October

2020 which

moves all

disclosures guidance

the

appropriate

codification

section

and

makes

other

improvements

and

technical

corrections.

December 31, 2021

The

Corporation

was

not

impacted

the

adoption

ASU

2020-10

during

the fourth quarter of 2021.

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

reporting

entity

should

assess

whether

callable

debt

security

purchased

premium

within

the

scope

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

the

adoption

ASU

2020-08

during

the

first

quarter

2021

since

does

not

currently

hold

purchased

callable

debt securities at a premium.

FASB ASU 2020-04,

Reference Rate Reform

(Topic 848)

The

FASB

issued

ASU

2020-04

March

2020, which provides

accounting relief from

the

impact

the

cessation

LIBOR

by,

among

other

things,

providing

optional

expedients

treat

contract

modifications

resulting from such reference rate reform as

continuation

the

existing

contract

and

for

hedging

relationships

not

de-

designated

resulting

from

such

changes

provided certain criteria are met.

December 31, 2021

The

Corporation

identified

all

LIBOR-

based

contracts

that

will

impacted

the

cessation

LIBOR.

has

incorporated

fallback

language

new

contracts

and

the

process

completing

the

modification

existing

contracts

include

adequate

fallback

language.

The

Company

has

outstanding

hedge

accounting

relationships

tied

LIBOR-based

assets

liabilities.

Furthermore,

the

Company

stopped

originating

LIBOR-

based

contracts

December 2021

new

exposures

will

added

prospectively. The

election to apply

the

optional

expedients

did

not

have

material

impact

the

Consolidated

Financial Statements.

Standard

Description

Date of adoption

Effect on the financial statements

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

entity

should

consider

observable

transactions

that

require it

either

apply or

discontinue the

equity

method

accounting

for

the

purposes

applying

the

measurement

alternative

accordance

with

Topic

321

and

includes

scope

considerations

for

entities

that

hold

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

accounted

for

under

the

equity method of accounting.

January 1, 2021

The

Corporation

was

not

impacted

the

adoption

ASU

2020-01

during

the

first

quarter

2021

since

does

not

hold

non-derivative

forward

contracts

and

purchased

options

acquire

equity

securities

that,

upon

settlement of the

forward or exercise of

the

purchase

option,

would

accounted for

under the

equity method

accounting.

Notwithstanding,

will

consider this guidance for the purposes

applying

the

measurement

alternative

ASC

Topic

321

immediately

before

applying

discontinuing

the

equity

method

accounting.

FASB ASU 2019-12,

Income Taxes (Topic

740):

Simplifying the Accounting

for Income Taxes

The

FASB

issued

ASU

2019-12

December

2019,

which

simplifies

the

accounting

for

income

taxes

removing

certain

exceptions such

the incremental

approach

for

intraperiod

tax

allocation

and

interim

period

income

tax

accounting

for

year-to-date losses

that

exceed anticipated

losses.

addition,

the

ASU

simplifies

GAAP in

a number

of areas

such as

when

separate

financial

statements

legal

entities

are

not

subject

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

the

amendments

this

ASU.

will

consider

this

guidance

for

enacted

changes in

tax laws,

subsequent step-

ups

the

tax

basis

goodwill,

ownership changes in investments.

FASB ASUs Financial Instruments – Credit Losses (Topic 326)

The CECL

model applies

to financial

assets measured

at amortized

cost that

are subject

to credit

losses and

certain off-balance

sheet exposures. CECL establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial

assets,

starting

when

such

assets

are

first

acquired

originated.

Under

the

revised

methodology,

credit

losses

are

measured

based on past

events, current conditions

and reasonable and

supportable forecasts that

affect the collectability

of financial assets.

CECL

also

revises

the

approach

recognizing

credit

losses

for

available-for-sale

securities

replacing

the

direct

write-down

approach with

the allowance

approach and

limiting the

allowance to

the amount

at which

the security’s

fair value

is less

than the

amortized

cost.

addition,

CECL

provides

that

the

initial

allowance

for

credit

losses

purchased

credit

deteriorated

(“PCD”)

financial assets

will be

recorded as

an increase

to the

purchase price,

with subsequent

changes to

the allowance

recorded as

credit loss

expense.

The standards

also expand credit

quality disclosures. These

accounting standards

updates were

effective on

January 1,

2020. Prior

to the

adoption of

CECL, the Corporation

followed a

systematic methodology to

establish and

evaluate the

adequacy of the allowance for credit losses to provide

for probable losses in the loan portfolio.

As a result of the adoption, the Corporation recorded an

increase in its allowance for credit losses related to its loan portfolio

of $315

million, and

a decrease

of $9

million in

the allowance

for credit

losses for

unfunded commitments and

credit recourse

guarantees

which is

recorded in Other

Liabilities. The

Corporation also recognized

an allowance

for credit

losses of

approximately $13 million

its

held-to-maturity

debt

securities

portfolio.

The

adoption

CECL

was

recognized

under

the

modified

retrospective

approach. Therefore, the

adjustments to record

the increase

in the

allowance for credit

losses was

recorded as

a decrease to

the

opening

balance

retained

earnings

the

year

implementation,

net

income

taxes,

except

for

approximately

$17

million

related to loans

previously accounted under ASC

Subtopic 310-30, which

resulted in a

reclassification between certain contra

loan

balance

accounts to

the

allowance for

credit

losses. The

total

impact to

retained earnings,

net of

tax,

related to

the adoption

CECL

was of

$205.8 million.

As part

the adoption

CECL, the

Corporation made

the election

break the

existing pools

purchased credit impaired (“PCI”) loans and, as such,

these loans are no longer excluded from non-performing

status.

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

requiring

contract

assets

and

contract

liabilities arising from revenue contracts with

customers

recognized

accordance

with ASC

Topic

606 on

the acquisition date

instead of fair value.

January 1, 2023

Upon

adoption

this

ASU,

the

Corporation will

consider this

guidance

for

revenue

contracts

with

customers

recognized

part

business

combinations

entered

into

after

the effective date.

FASB ASU 2021-05,

Leases (Topic 842),

Lessors – Certain Leases

with Variable Lease

Payments

The

FASB

issued

ASU

2021-05

July

2021, which amends ASC Topic

842 so that

lessors

can

classify

operating

leases

those

leases

with

variable

lease

payments

that,

prior

these

amendments,

would

have

been

classified

sales-type

direct

financing

lease

and

inception

loss would have been recognized.

January 1, 2022

The Corporation

does not

expect to

impacted

the

adoption

this

ASU

since

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

May

2021,

which

clarifies

the

accounting

for

modification

exchange

freestanding

equity-classified

written

call

option that

remains equity

classified after

modification

exchange

and

the

EPS

effects

such

transaction

recognized as an adjustment to equity.

January 1, 2022

Upon

adoption

this

ASU,

the

Corporation will

consider this

guidance

for

modifications

exchanges

freestanding

equity-classified

written

call options.

FASB ASU 2020-06, Debt

– Debt with Conversion

and other Options

(Subtopic 470-20) and

Derivatives and Hedging –

Contracts in Entity’s Own

Equity (Subtopic 815-40):

Accounting for Convertible

Instruments and Contracts

in an Entity’s Own Equity

The

FASB

issued

ASU

2020-06

August

2020

which,

among

other

things,

simplifies

the

accounting

for

convertible

instruments

and contracts

in an

entity’s own

equity and

amends

the

diluted

EPS

computation

for

these instruments.

January 1, 2022

Upon

adoption

this

standard,

the

Corporation

will

consider

these

amendments

its

evaluation

contracts

its

own

equity,

including

accelerated

repurchase

transactions.

Note 4

–

Business combination

On October

15, 2021, Popular

Equipment Finance, LLC

(“PEF”), a newly

formed wholly-owned subsidiary

of Popular Bank

(“PB”),

completed the

acquisition of

certain assets

and

the

assumption of

certain

liabilities of

Capital Group

LLC’s

(“K2”) equipment

leasing and

financing business

based in

Minnesota (the

“Acquired Business”).

Commercial loans

acquired by

PEF as

part of

this

transaction consisted of $105 million

in commercial direct financing leases

and $14 million in

working capital lines. Refer to

Note 2,

Summary of significant accounting policies, for further

details.

Specializing in the healthcare

industry, the

Acquired Business provides a variety

of lease products, including

operating and finance

leases,

and

also

offers

private

label

vendor

finance

programs

equipment

manufacturers

and

healthcare

organizations.

The

acquisition provides PB with a national equipment

leasing platform that complements its existing health

care lending business.

The

following

table

presents

the

fair

values

the

consideration

and

major

classes

identifiable

assets

acquired

and

liabilities

assumed by PEF as of October 15, 2021.

Book value prior to

purchase accounting

Fair value

As recorded by

(In thousands)

adjustments

Popular, Inc.

Cash consideration

156,628

Contingent consideration

9,241

Total consideration

156,628

9,241

165,869

Assets:

Cash and due from banks

800

Commercial loans

118,907

(3,332)

115,575

Premises and equipment

6,987

2,009

8,996

Accrued income receivable

Other assets

2,822

Other intangible assets

2,887

Total assets

129,573

1,564

131,137

Liabilities:

Other liabilities

14,439

Total liabilities

14,439

Net assets acquired

115,134

1,564

116,698

Goodwill on acquisition

49,171

The fair values

initially assigned to the

assets acquired and liabilities

assumed are preliminary and

are subject to refinement

for up

to one year after the closing date of the acquisition as

new information relative to closing date fair values becomes available. As the

Corporation finalizes

its analyses, there

may continue

to be

adjustments to the

recorded carrying values,

and thus

the recognized

goodwill may increase or decrease.

Following is a description of

the methods used to determine

the fair values of significant

assets acquired and liabilities assumed

the K2 Transaction:

Commercial Loans

In determining the fair value

of commercial direct financing leases, the specific

terms and conditions of each lease

agreement were

considered.

The

fair

values

for

commercial

direct

financing

leases

were

calculated

based

the

fair

value

the

underlying

collateral, or from

the cash flows

expected to be

collected discounted at

a market rate

commensurate with the

credit risk profile

the

lessee at

origination in

instances where

there

was a

purchase option

at the

end of

the lease

term

with a

stated

guaranteed

residual value. Fair values for commercial working capital lines were calculated based on the present value of remaining contractual

payments discounted

at a

market rate

commensurate with

the credit

risk profile

of the

borrower at

origination. These

commercial

loans were

accounted for

under ASC

Subtopic 310-20.

As of

October 15,

2021, the

gross contractual

receivable for

commercial

loans amounted to $125 million. An allowance for credit losses of $1 million was recognized as of October 15, 2021 with an offset to

provision for credit losses, which represents the estimate

of contractual cash flows not expected to be

collected.

Goodwill

The

amount

goodwill

the

residual

difference

between

the

consideration

transferred

and

the

fair

value

the

assets

acquired,

net

the

liabilities

assumed.

The

entire

amount

goodwill

deductible

for

income

tax

purposes

pursuant

U.S.

Internal Revenue Code (“IRC”) section 197 over

a 15-year period.

Contingent consideration

The fair value of the contingent consideration, which relates to approximately $29 million in earnout payments that could be payable

to K2 over a three-year period, was calculated based

on a Montecarlo Simulation model.

The Corporation believes that given the

amount of assets and liabilities assumed

and the size of the operations

acquired in relation

Popular’s operations,

the

historical results

are

not significant

Popular’s results,

and thus

pro

forma

information is

presented.

Note 5 - 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

$2.7 billion

at December

31, 2021

(December 31,

2020

$2.3

billion). Cash

and

due from

banks, as

well

other highly

liquid securities,

are

used to

cover

the required

average

reserve balances.

December

31,

2021

Corporation

held

$50

million

restricted

assets

the

form

funds

deposited

money

market

accounts, debt

securities available for

sale and

equity securities (December

31, 2020

- $39

million).

The restricted

assets held

debt securities available for

sale and equity securities

consist primarily of assets

held for the Corporation’s

non-qualified retirement

plans and fund deposits guaranteeing possible liens

or encumbrances over the title of insured

properties.

Note 6 – 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 December 31, 2021 and December 31, 2020.

At December 31, 2021

Gross

Weighted

Amortized

unrealized

Fair

average

(In thousands)

cost

gains

losses

value

yield

U.S. Treasury securities

Within 1 year

1,225,558

13,556

1,239,045

2.33

After 1 to 5 years

10,059,163

98,808

65,186

10,092,785

1.18

After 5 to 10 years

4,563,265

739

36,804

4,527,200

1.22

Total U.S. Treasury

securities

15,847,986

113,103

102,059

15,859,030

1.27

Obligations of U.S. Government sponsored entities

Within 1 year

5.63

Total obligations of

U.S. Government sponsored entities

5.63

Collateralized mortgage obligations - federal agencies

After 1 to 5 years

2,433

2,475

2.16

After 5 to 10 years

43,241

295

43,530

1.54

After 10 years

172,176

3,441

357

175,260

2.13

Total collateralized

mortgage obligations - federal agencies

217,850

3,778

363

221,265

2.01

Mortgage-backed securities

Within 1 year

4.79

After 1 to 5 years

65,749

2,380

68,118

2.23

After 5 to 10 years

665,600

17,998

683,593

1.97

After 10 years

8,263,835

68,128

195,910

8,136,053

1.67

Total mortgage-backed

securities

8,995,195

88,507

195,926

8,887,776

1.69

Other

After 1 to 5 years

123

128

3.62

Total other

123

128

3.62

Total debt securities

available-for-sale

[1]

25,061,224

205,393

298,348

24,968,269

1.42

[1]

Includes $22.0 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 $20.9

billion serve as collateral for

public funds.

At December 31, 2020

Gross

Weighted

Amortized

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

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

1,402

2.97

After 5 to 10 years

61,229

1,050

62,279

1.56

After 10 years

318,292

10,202

328,451

2.04

Total collateralized

mortgage obligations - federal agencies

380,909

11,266

392,132

1.97

Mortgage-backed securities

Within 1 year

5,616

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

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

235

3.62

Total other

224

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,

does not

give

effect to

changes in fair value.

Securities

not

due

single

contractual

maturity

date,

such

mortgage-backed

securities

and

collateralized

mortgage

obligations, are classified

in the period

of final contractual

maturity. The

expected maturities of

collateralized mortgage obligations,

mortgage-backed securities and certain other securities may

differ from their contractual maturities

because they may be subject to

prepayments or may be called by the issuer.

The following table presents the

aggregate amortized cost and fair value of

debt securities available-for-sale at December 31, 2021

by contractual maturity.

(In thousands)

Amortized cost

Fair value

Within 1 year

1,225,639

1,239,127

After 1 to 5 years

10,127,468

10,163,506

After 5 to 10 years

5,272,106

5,254,323

After 10 years

8,436,011

8,311,313

Total debt securities

available-for-sale

25,061,224

24,968,269

During the years

ended December 31,

2021 and 2020,

the Corporation sold

U.S. Treasury

Notes. The proceeds

from these sales

were $236

million and $5

million, respectively.

Gross realized gains

and losses on

the sale

of debt securities

available-for-sale for

the years ended December 31, 2021, 2020 and

2019 were as follows:

(In thousands)

2021

2020

2019

Gross realized gains

695

Gross realized losses

(672)

(20)

Net realized gains (losses) on sale of debt securities available

-for-sale

(20)

The

following

tables

present

the

Corporation’s

fair

value

and

gross

unrealized

losses

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 December 31, 2021 and 2020.

At December 31, 2021

Less than 12 months

12 months or more

Total

Gross

Fair

unrealized

Fair

unrealized

Fair

unrealized

(In thousands)

value

losses

value

losses

value

losses

U.S. Treasury securities

9,590,448

102,059

9,590,448

102,059

Collateralized mortgage obligations - federal agencies

35,533

334

1,084

36,617

363

Mortgage-backed securities

5,767,556

170,614

595,051

25,312

6,362,607

195,926

Total debt securities

available-for-sale in an unrealized loss position

15,393,537

273,007

596,135

25,341

15,989,672

298,348

At December 31, 2020

Less than 12 months

12 months or more

Total

Gross

Fair

unrealized

Fair

unrealized

Fair

unrealized

(In thousands)

value

losses

value

losses

value

losses

Collateralized mortgage obligations - federal agencies

4,029

Mortgage-backed securities

886,432

1,834

555

886,987

1,845

Total debt securities

available-for-sale in an unrealized loss position

890,461

1,877

555

891,016

1,888

As of

December 31, 2021,

the portfolio

of available-for-sale debt

securities reflects gross

unrealized losses of

approximately $298

million, driven mainly by U.S. Treasury Securities and 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.

2021

2020

(In thousands)

Amortized cost

Fair value

Amortized cost

Fair value

FNMA

1,533,637

1,587,127

2,242,121

2,338,897

Freddie Mac

3,228,543

3,176,197

3,616,238

3,675,679

Note 7 –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 December

31, 2021 and 2020.

At December 31, 2021

Allowance

Gross

Weighted

Amortized

for Credit

Net of

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

4,233

4,237

6.07

After 1 to 5 years

14,395

148

14,247

149

14,396

6.23

After 5 to 10 years

11,280

122

11,158

104

11,262

2.18

After 10 years

43,561

7,819

35,742

11,746

47,488

1.50

Total obligations of

Puerto Rico, States and political

subdivisions

73,476

8,096

65,380

12,003

77,383

2.79

Collateralized mortgage obligations - federal agencies

After 1 to 5 years

6.44

Total collateralized

mortgage obligations - federal

6.44

Securities in wholly owned statutory business trusts

After 10 years

5,960

6.33

Total securities

in wholly owned statutory business

5,960

6.33

Total debt securities

held-to-maturity

79,461

8,096

71,365

12,003

83,368

3.06

At December 31, 2020

Allowance

Gross

Weighted

Amortized

for Credit

Net of

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

3,940

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

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

83,298

2.93

Collateralized mortgage obligations - federal agencies

After 1 to 5 years

6.44

Total collateralized

mortgage obligations - federal

6.44

Securities in wholly owned statutory business trusts

After 10 years

11,561

6.51

Total securities

in wholly owned statutory business

11,561

6.51

Total debt securities

held-to-maturity

92,621

10,261

82,360

12,554

94,891

3.38

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.

The following

table presents the

aggregate amortized cost

and fair value

of debt securities

held-to-maturity at December

31, 2021

by contractual maturity.

(In thousands)

Amortized cost

Fair value

Within 1 year

4,240

4,237

After 1 to 5 years

14,420

14,421

After 5 to 10 years

11,280

11,262

After 10 years

49,521

53,448

Total debt securities

held-to-maturity

79,461

83,368

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 December 31, 2021 and December 31, 2020, the “Obligations

of Puerto Rico, States and political subdivisions” classified

as held-

to-maturity,

includes securities

issued by

municipalities of

Puerto Rico

that are

generally not

rated by

a credit

rating agency.

This

includes $30 million of general and special obligation bonds issued by three municipalities of Puerto Rico, that

are payable primarily

from

certain

property

taxes

imposed

the

issuing

municipality

(December

31,

2020

$35

million).

the

case

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 9.

The

following

presents

the

amortized

cost

basis

securities

held

the

Corporation

issued

municipalities

Puerto

Rico

aggregated by the internally assigned standardized

credit risk rating:

At December 31, 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 December

31, 2021,

the portfolio

of “Obligations

of Puerto

Rico, States

and political

subdivisions” also

includes $43

million in

securities

issued

the

Puerto

Rico

Housing

Finance

Authority

(“HFA”),

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

credit

rating

agency.

The

Corporation assesses

the

credit

risk

associated

with

these

securities

evaluating the refreshed

FICO scores of

a representative sample of

the underlying borrowers.

At December 31,

2021, the average

refreshed FICO

score

for the

representative sample,

comprised of

64%

the

nominal value

of the

securities, used

for the

loss

estimate was

704 (compared

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.

further

deterioration

the

Puerto

Rico

economy

the

fiscal

health

the

Government

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 24

for additional information on the Corporation’s exposure to

the Puerto Rico Government.

Delinquency status

At December 31, 2021 and December 31, 2020,

there were no securities held-to-maturity in

past due or non-performing status.

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

The following table provides the

activity in the allowance for

credit losses related to debt securities

held-to-maturity by security type

at December 31, 2021 and December 31, 2020:

For the year ended December 31,

2021

2020

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

Beginning balance

10,261

Impact of adopting CECL

12,654

Provision for credit losses (benefit)

(2,165)

(2,393)

Securities charged-off

Recoveries

Ending balance

8,096

10,261

The

allowance

for

credit

losses

for

the

Obligations

Puerto

Rico,

States

and

political

subdivisions

includes

$0.3

million

for

securities issued by municipalities of

Puerto Rico, and $7.8

million for bonds issued by

the Puerto Rico HFA

which are secured by

second mortgage loans on

Puerto Rico residential properties (compared to

$1.4 million and $8.9 million,

respectively, at

December

31, 2020).

Note 8 – Loans

For

summary

of the

accounting policies

related to

loans, interest

recognition

and

allowance for

credit

losses

refer to

Note

Summary of Significant Accounting Policies of this Form

10-K.

During

the

year

ended

December

31,

2021,

the

Corporation

recorded

purchases

(including

repurchases)

mortgage

loans

amounting to $393 million

including $14 million in

Purchased Credit Deteriorated (“PCD”) loans,

consumer loans of $61

million and

commercial loans of

$139 million; compared

to purchases (including

repurchases) of mortgage

loans of $1.3

billion including $160

million

PCD loans,

consumer loans

$56 million

and commercial

loans

$26

million, during

the year

ended December

31,

2020.

During 2020,

these mortgage

loan repurchases

included a

bulk

repurchase transaction

$688 million

in GNMA

loans, of

which

$684 million

were 90

days past

due

that

time,

including $324

million

which

were already

included

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

repurchase the

assets

and

required to

recognize

(rebook) these

loans

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.

The Corporation performed whole-loan sales involving

approximately $145 million of residential mortgage

loans and $131 million of

commercial and

construction loans

during the

year

ended December

31,

2021

(December 31,

2020 -

$150

million

residential

mortgage loans and $32 million of commercial loans).

Also, during the year ended December 31, 2021, the

Corporation securitized

approximately

$380

million

mortgage

loans

into

Government

National

Mortgage

Association

(“GNMA”)

mortgage-backed

securities

$330

million

mortgage

loans

into

Federal

National

Mortgage

Association

(“FNMA”)

mortgage-backed

securities,

compared

$332

million

and

$176

million,

respectively,

during

the

year

ended

December

31,

2020.

Also,

the

Corporation

securitized

approximately

$23

million

mortgage

loans

into

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”)

mortgage-

backed securities during the year ended December 31,

2021.

previously

disclosed

Note

October

15,

2021

Popular

Equipment

Finance

LLC

acquired

$105

million

commercial

finance leases and

$14 million in

working capital lines

as a result

of the acquisition of

certain assets and

the assumption of certain

liabilities from the K2 Capital Group LLC. The portfolio of leases and loans

from the acquired business is included in the information

presented in this note.

Delinquency status

The following tables present the

amortized cost basis of loans

held-in-portfolio (“HIP”), net of unearned

income, by past due status,

and by loan class including those that are in non-performing status or that are accruing

interest but are past due 90 days or more at

December 31, 2021 and 2020.

December 31, 2021

Puerto Rico

Past due

Past due 90 days or more

30-59

60-89

90 days

Total

Non-accrual

Accruing

(In thousands)

days

or more

past due

Current

Loans HIP

loans

Commercial multi-family

314

272

586

154,183

154,769

272

Commercial real estate:

Non-owner occupied

2,399

136

20,716

23,251

2,266,672

2,289,923

20,716

Owner occupied

3,329

278

54,335

57,942

1,365,787

1,423,729

54,335

Commercial and industrial

3,438

1,727

45,242

50,407

3,478,041

3,528,448

44,724

518

Construction

485

86,626

87,111

485

Mortgage

217,830

81,754

805,245

1,104,829

5,147,037

6,251,866

333,887

471,358

Leasing

9,240

2,037

3,102

14,379

1,366,940

1,381,319

3,102

Consumer:

Credit cards

5,768

3,520

8,577

17,865

901,986

919,851

8,577

Home equity lines of credit

3,502

3,571

Personal

10,027

6,072

21,235

37,334

1,250,726

1,288,060

21,235

Auto

59,128

15,019

23,085

97,232

3,314,955

3,412,187

23,085

Other

432

714

12,621

13,767

110,781

124,548

12,448

173

Total

311,951

111,257

994,938

1,418,146

19,447,236

20,865,382

514,289

480,649

December 31, 2021

Popular U.S.

Past due

Past due 90 days or more

30-59

60-89

90 days

Total

Non-accrual

Accruing

(In thousands)

days

or more

past due

Current

Loans HIP

loans

Commercial multi-family

3,826

1,804,035

1,807,861

Commercial real estate:

Non-owner occupied

5,721

683

622

7,026

2,316,441

2,323,467

622

Owner occupied

1,095

1,013

2,108

392,265

394,373

1,013

Commercial and industrial

9,410

2,680

4,015

16,105

1,794,026

1,810,131

3,897

118

Construction

629,109

Mortgage

11,711

2,573

21,969

36,253

1,139,077

1,175,330

21,969

Consumer:

Credit cards

Home equity lines of credit

5,406

5,511

69,780

75,291

5,406

Personal

863

574

681

2,118

152,827

154,945

681

Other

4,658

Total

32,697

6,544

33,706

72,947

8,302,228

8,375,175

33,588

118

December 31, 2021

Popular, Inc.

Past due

Past due 90 days or more

30-59

60-89

90 days

Total

Non-accrual

Accruing

(In thousands)

days

or more

past due

Current

Loans HIP

[2] [3]

loans

Commercial multi-family

4,140

272

4,412

1,958,218

1,962,630

272

Commercial real estate:

Non-owner occupied

8,120

819

21,338

30,277

4,583,113

4,613,390

21,338

Owner occupied

4,424

278

55,348

60,050

1,758,052

1,818,102

55,348

Commercial and industrial

12,848

4,407

49,257

66,512

5,272,067

5,338,579

48,621

636

Construction

485

715,735

716,220

485

Mortgage

[1]

229,541

84,327

827,214

1,141,082

6,286,114

7,427,196

355,856

471,358

Leasing

9,240

2,037

3,102

14,379

1,366,940

1,381,319

3,102

Consumer:

Credit cards

5,768

3,520

8,577

17,865

901,996

919,861

8,577

Home equity lines of credit

117

5,429

5,580

73,282

78,862

5,406

Personal

10,890

6,646

21,916

39,452

1,403,553

1,443,005

21,916

Auto

59,128

15,019

23,085

97,232

3,314,955

3,412,187

23,085

Other

432

714

12,621

13,767

115,439

129,206

12,448

173

Total

344,648

117,801

1,028,644

1,491,093

27,749,464

29,240,557

547,877

480,767

[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 $13 million at

December 31, 2021 related to the rebooking of loans

previously pooled

into GNMA securities, in which the Corporation had a

buy-back option as further described below.

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 $304 million of residential mortgage loans insured

by FHA or guaranteed by the VA

that are no longer accruing interest as of December

31, 2021. Furthermore, the Corporation has approximately

$50 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 $266 million in unearned income

and exclude $59 million in loans held-for-sale.

[3]

Includes $6.6 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

$1.7 billion at the Federal Reserve

Bank ("FRB") for discount window borrowings and $1.7

billion serve as collateral for public funds.

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

or more

past due

Current

Loans HIP

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

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

232

3,947

4,179

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

or more

past due

Current

Loans HIP

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

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

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

1,723

1,743

Total

63,961

21,510

37,400

122,871

7,689,045

7,811,916

37,397

100

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

or more

past due

Current

Loans HIP

[2]

[3]

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

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

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

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

when 15

months delinquent

as to

principal or

interest, since

the principal

repayment on

these loans

insured.

At December

31, 2021, mortgage

loans held-in-portfolio include

$1.9 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 $716 million in

loans modified under a

TDR (December 31, 2020 -

$655 million), that are

presented as accruing loans. The

portfolio of guaranteed loans includes

$304 million of residential mortgage

loans in Puerto Rico

that are no longer

accruing interest

as of December

31, 2021 (December 31,

2020 - $329 million).

The Corporation has approximately $50

million in reverse mortgage

loans in Puerto Rico which

are guaranteed by FHA, but which

are currently not accruing interest at

December 31, 2021 (December

31, 2020 - $60 million).

Loans with

a delinquency status

of 90

days past due

as of

December 31, 2021

include $13 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

reflected on

the

financial statements

of BPPR

with

offsetting

liability.

Loans

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 components of the net financing leases,

including finance leases within the C&I category,

receivable at December 31, 2021 and

2020 were as follows:

101

(In thousands)

2021

2020

Total minimum lease

payments

1,190,545

957,367

Estimated residual value of leased property

518,670

419,024

Deferred origination costs, net of fees

21,474

18,141

Less - Unearned financing income

257,738

196,788

Net minimum lease payments

1,472,951

1,197,744

Less - Allowance for credit losses

18,581

16,863

Net minimum lease payments, net of allowance for credit losses

1,454,370

1,180,881

At December 31, 2021, future minimum lease payments

are expected to be received as follows:

(In thousands)

2022

106,927

2023

123,654

2024

181,405

2025

216,577

2026

369,592

2027 and thereafter

192,390

Total

1,190,545

The following tables present the amortized cost basis

of non-accrual loans as of December 31, 2021

and 2020 by class of loans:

December 31, 2021

Puerto Rico

Popular U.S.

Popular, Inc.

(In thousands)

Non-accrual

with no

allowance

Non-accrual

with

allowance

Non-accrual

with no

allowance

Non-accrual

with

allowance

Non-accrual

with no

allowance

Non-accrual

with

allowance

Commercial multi-family

272

Commercial real estate non-owner occupied

15,819

4,897

622

15,819

5,519

Commercial real estate owner occupied

13,491

40,844

1,013

13,491

41,857

Commercial and industrial

30,177

14,547

3,897

30,177

18,444

Construction

485

Mortgage

169,827

164,060

21,940

169,856

186,000

Leasing

276

2,826

276

2,826

Consumer:

HELOCs

5,406

Personal

6,279

14,956

600

6,360

15,556

Auto

879

22,206

879

22,206

Other

12,448

Total

236,748

277,541

110

33,478

236,858

311,019

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

Consumer:

HELOCs

7,491

Personal

9,265

17,122

1,474

9,265

18,596

Auto

15,736

Other

14,881

14,901

Total

202,943

497,434

517

36,880

203,460

534,314

102

Loans in non-accrual status with no

allowance at December 31, 2021 include

$237 million in collateral dependent loans

(December

31,

2020

$203

million).

The

Corporation recognized

million

interest

income

non-accrual loans

during

the

year

ended

December 31, 2021 (December 31, 2020 - $4

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

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 December

31, 2021 and 2020:

103

December 31, 2021

(In thousands)

Real Estate

Auto

Equipment

Accounts

Receivables

Other

Total

Puerto Rico

Commercial multi-family

1,374

Commercial real estate:

Non-owner occupied

211,026

Owner occupied

47,268

Commercial and industrial

2,650

680

10,675

27,893

41,898

Mortgage

179,774

Leasing

574

Consumer:

Personal

6,165

Auto

8,983

Total Puerto Rico

448,257

9,557

680

10,675

27,893

497,062

Popular U.S.

Mortgage

926

Total Popular U.S.

926

Popular, Inc.

Commercial multi-family

1,374

Commercial real estate:

Non-owner occupied

211,026

Owner occupied

47,268

Commercial and industrial

2,650

680

10,675

27,893

41,898

Mortgage

180,700

Leasing

574

Consumer:

Personal

6,165

Auto

8,983

Total Popular,

Inc.

449,183

9,557

680

10,675

27,893

497,988

104

December 31, 2020

(In thousands)

Real Estate

Auto

Equipment

Taxi

Medallions

Accounts

Receivables

Other

Total

Puerto Rico

Commercial multi-family

1,301

Commercial real estate:

Non-owner occupied

299,223

Owner occupied

79,769

Commercial and industrial

7,577

1,438

10,989

12,046

32,050

Construction

21,497

Mortgage

181,648

Consumer:

Personal

7,414

Auto

Total Puerto Rico

598,429

1,438

10,989

12,046

622,906

Popular U.S.

Commercial multi-family

1,755

Commercial and industrial

1,545

Construction

7,560

Mortgage

855

Total Popular U.S.

10,170

1,545

11,715

Popular, Inc.

Commercial multi-family

3,056

Commercial real estate:

Non-owner occupied

299,223

Owner occupied

79,769

Commercial and industrial

7,577

1,438

1,545

10,989

12,046

33,595

Construction

29,057

Mortgage

182,503

Consumer:

Personal

7,414

Auto

Total Popular,

Inc.

608,599

1,438

1,545

10,989

12,046

634,621

Purchased Credit Deteriorated (PCD) Loans

The Corporation has purchased loans during the

year 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)

December 31, 2021

December 31, 2020

Purchase price of loans at acquisition

10,995

152,667

Allowance for credit losses at acquisition

3,142

7,512

Non-credit discount / (premium) at acquisition

446

(6,542)

Par value of acquired loans at acquisition

14,583

153,637

105

Note 9 – 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.

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.

December

31,

2021,

the

Corporation

estimated

the

ACL

weighting

the

outputs

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

the

economic

outlook

and

downside

risk.

The

weights

applied

are

subject

evaluation

quarterly

basis

part

the

ACL’s

governance

process.

The

current

baseline

forecast

continues

show

favorable economic

scenario. The

2022 expected

GDP growth

rate for

Puerto Rico

is approximately

4%, with

the unemployment

rate expected to average around 7.4%

for the year.

In the case of the

United States, the baseline scenario expects GDP

growth for

2022 of approximately 4.6%, with unemployment rate expected

to average around 3.7%.

For 2023 both regions expect GDP growth

with average unemployment rate levels remaining

stable in comparison to 2022.

The

following

tables

present

the

changes

the

ACL

loans

held-in-portfolio

and

unfunded

commitments

for

the

years

ended

December 31, 2021 and 2020.

For the year ended December 31, 2021

Puerto Rico

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

225,323

4,871

195,557

16,863

297,136

739,750

Provision for credit losses (benefit)

(91,695)

(1,533)

(57,684)

2,094

19,800

(129,018)

Initial allowance for credit losses - PCD Loans

3,142

Charge-offs

(17,180)

(6,620)

(17,656)

(4,637)

(78,047)

(124,140)

Recoveries

35,480

4,923

14,927

3,258

45,840

104,428

Ending balance - loans

151,928

1,641

138,286

17,578

284,729

594,162

Allowance for credit losses - unfunded commitments:

Beginning balance

4,913

4,610

9,523

Provision for credit losses (benefit)

(3,162)

(2,222)

(5,384)

Ending balance - unfunded commitments [1]

1,751

2,388

4,139

[1]

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

106

For the year ended December 31, 2021

Popular U.S.

(In thousands)

Commercial

Construction

Mortgage

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

108,057

9,366

20,159

18,918

156,500

Provision for credit losses (benefit)

(45,427)

(4,764)

(3,949)

(187)

(54,327)

Charge-offs

(1,177)

(523)

(605)

(8,732)

(11,037)

Recoveries

2,424

643

587

6,414

10,068

Ending balance - loans

63,877

4,722

16,192

16,413

101,204

Allowance for credit losses - unfunded commitments:

Beginning balance

1,753

4,469

106

6,328

Provision for credit losses (benefit)

(369)

(2,132)

(69)

(2,570)

Ending balance - unfunded commitments [1]

1,384

2,337

3,758

[1]

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

For the year ended December 31, 2021

Popular, Inc.

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

333,380

14,237

215,716

16,863

316,054

896,250

Provision for credit losses (benefit)

(137,122)

(6,297)

(61,633)

2,094

19,613

(183,345)

Initial allowance for credit losses - PCD Loans

3,142

Charge-offs

(18,357)

(7,143)

(18,261)

(4,637)

(86,779)

(135,177)

Recoveries

37,904

5,566

15,514

3,258

52,254

114,496

Ending balance - loans

215,805

6,363

154,478

17,578

301,142

695,366

Allowance for credit losses - unfunded commitments:

Beginning balance

6,666

9,079

106

15,851

Provision for credit losses (benefit)

(3,531)

(4,354)

(69)

(7,954)

Ending balance - unfunded commitments [1]

3,135

4,725

7,897

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

107

For the year ended December 31, 2020

Puerto Rico

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

131,063

574

116,281

10,768

173,965

432,651

Impact of adopting CECL

62,393

115

86,081

(713)

122,492

270,368

Provision for credit losses

48,756

3,228

5,318

14,172

134,391

205,865

Initial allowance for credit losses - PCD Loans

7,512

Charge-offs

(27,731)

(30,080)

(10,447)

(170,023)

(238,281)

Recoveries

10,842

954

10,445

3,083

36,311

61,635

Ending balance - loans

225,323

4,871

195,557

16,863

297,136

739,750

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

3,077

4,501

7,578

Ending balance - unfunded commitments [1]

4,913

4,610

9,523

[1]

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

For the year ended December 31, 2020

Popular U.S.

(In thousands)

Commercial

Construction

Mortgage

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

16,557

4,266

4,827

19,407

45,057

Impact of adopting CECL

29,537

(3,038)

10,431

7,809

44,739

Provision for credit losses

59,748

8,427

4,891

3,405

76,471

Charge-offs

(2,078)

(1,509)

(59)

(17,404)

(21,050)

Recoveries

4,293

1,220

5,701

11,283

Ending balance - loans

108,057

9,366

20,159

18,918

156,500

Allowance for credit losses - unfunded commitments:

Beginning balance

152

125

278

Impact of adopting CECL

453

582

(1)

1,034

Provision for credit losses

1,148

3,762

106

5,016

Ending balance - unfunded commitments [1]

1,753

4,469

106

6,328

[1]

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

108

For the year ended December 31, 2020

Popular, Inc.

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

Beginning balance

147,620

4,840

121,108

10,768

193,372

477,708

Impact of adopting CECL

91,930

(2,923)

96,512

(713)

130,301

315,107

Provision for credit losses

108,504

11,655

10,209

14,172

137,796

282,336

Initial allowance for credit losses - PCD Loans

7,512

Charge-offs

(29,809)

(1,509)

(30,139)

(10,447)

(187,427)

(259,331)

Recoveries

15,135

2,174

10,514

3,083

42,012

72,918

Ending balance - loans

333,380

14,237

215,716

16,863

316,054

896,250

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

4,225

8,263

106

12,594

Ending balance - unfunded commitments [1]

6,666

9,079

106

15,851

[1]

Allowance for credit losses of unfunded commitments is

presented as part of Other Liabilities in the Consolidated

Statements of Financial Condition.

Modifications

modification

loan

constitutes

troubled

debt

restructuring

when

borrower

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 these Consolidated Financial

Statements.

The outstanding

balance of

loans classified

as TDRs

amounted to

$1.7 billion

at December

31, 2021

(December 31,

2020 -

$1.7

billion).

The amount

of outstanding

commitments to

lend additional

funds to

debtors owing

receivables whose

terms have

been

modified in TDRs amounted to

$9 million related to the

commercial loan portfolio at December 31,

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 December 31, 2021 and 2020.

December 31, 2021

December 31, 2020

(In thousands)

Accruing

Non-

Accruing

Total

Allowance

Accruing

Non-

Accruing

Total

Allowance

Loans held-in-portfolio:

Commercial

261,344

64,744

326,088

24,736

259,246

103,551

362,797

15,236

Construction

21,497

4,397

Mortgage

[1]

1,143,204

112,509

1,255,713

61,888

1,060,193

135,772

1,195,965

71,018

Leasing

325

372

392

218

610

150

Consumer

64,093

10,556

74,649

16,124

74,707

12,792

87,499

22,508

Loans held-in-portfolio

1,468,966

187,856

1,656,822

102,790

1,394,538

273,830

1,668,368

113,309

[1] At December 31, 2021, accruing mortgage loan TDRs include

$716 million guaranteed by U.S. sponsored entities

at BPPR, compared to $655

million at December 31, 2020.

The

following

tables

present

the

loan

count

type

modification

for

those

loans

modified

TDR

during

the

years

ended

December 31, 2021 and 2020. Loans modified

as TDRs for the U.S. operations are considered

insignificant to the Corporation.

109

For the year ended December 31, 2021

Reduction in

interest rate

Extension of

maturity date

Combination of

reduction in interest

rate and extension of

maturity date

Other

Commercial multi-family

Commercial real estate non-owner occupied

Commercial real estate owner occupied

Commercial and industrial

Mortgage

140

1,590

Leasing

Consumer:

Credit cards

134

HELOCs

Personal

183

117

Auto

Other

Total

372

313

1,604

For the year ended December 31, 2020

Reduction in

interest rate

Extension of

maturity date

Combination of

reduction in interest

rate and extension of

maturity date

Other

Commercial multi-family

Commercial real estate non-owner occupied

Commercial real estate owner occupied

Commercial and industrial

Construction

Mortgage

331

411

Leasing

Consumer:

Credit cards

659

HELOCs

Personal

355

Auto

Other

Total

1,025

177

340

561

110

The following tables present,

by class, quantitative information related

to loans modified as TDRs during the years

ended December

31, 2021 and 2020.

Popular, Inc.

For the year ended December 31, 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

246

211

Commercial real estate non-owner occupied

3,612

3,604

177

Commercial real estate owner occupied

95,354

90,096

1,577

Commercial and industrial

6,573

5,719

745

Mortgage

1,774

213,661

214,367

6,632

Leasing

Consumer:

Credit cards

178

2,223

2,136

HELOCs

176

228

Personal

303

4,222

4,217

899

Auto

199

206

Other

305

303

124

Total

2,373

326,611

321,125

10,346

Popular, Inc.

For the year ended December 31, 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

1,133

1,115

(18)

Commercial real estate non-owner occupied

25,217

22,065

(969)

Commercial real estate owner occupied

10,955

10,914

137

Commercial and industrial

3,140

3,178

Construction

21,514

4,370

Mortgage

813

102,559

85,394

6,875

Leasing

720

732

Consumer:

Credit cards

752

7,048

7,097

286

HELOCs

510

396

Personal

362

6,194

6,188

1,043

Auto

836

838

131

Other

Total

2,103

179,851

159,456

11,993

111

During the year ended December 31, 2021, five loans with an aggregate

unpaid principal balance of $ 10.2 million were restructured

into multiple notes (“Note A / B

split”)

compared to ten loans with an aggregate unpaid

principal balance of $35.1 million during the

year

ended

December

31,

2020,

which

discounted

payoff

for

one

loan

with

aggregate

unpaid principal

balance

$1.7

million was completed after the restructuring.

The Corporation recorded $0.3 million in charge-offs as part of Note A / B splits during

2020.

The

recorded

investment

these

commercial

TDRs

amounted

approximately

$10.2

million

December

31,

2021,

compared to

$32.9 million

at December

31, 2020.

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

charged-off,

whichever

occurs

first.

The

recorded

investment

period

end

inclusive

all

partial

paydowns

and

charge-offs

since

the

modification

date.

Loans

modified

TDR

that

were

fully

paid

down,

charged-off

foreclosed upon by period end are not reported.

Defaulted during the year ended December 31, 2021

(Dollars in thousands)

Loan count

Recorded investment as of first default date

Commercial real estate non-owner occupied

8,421

Commercial real estate owner occupied

4,500

Commercial and industrial

317

Mortgage

104

10,543

Consumer:

Credit cards

979

Personal

723

Total

225

25,483

Defaulted during the year ended December 31, 2020

(Dollars in thousands)

Loan count

Recorded investment as of first default date

Commercial real estate non-owner occupied

1,700

Commercial real estate owner occupied

933

Commercial and industrial

141

Construction

21,497

Mortgage

249

26,925

Consumer:

Credit cards

317

2,560

Personal

1,660

Other

Total

679

55,417

112

Commercial,

consumer

and

mortgage

loans

modified

TDR

are

closely

monitored

for

delinquency

early

indicator

possible future default.

If loans modified in a TDR

subsequently default, the allowance for credit losses

may be increased or partial

charge-offs may be taken to further write-down the carrying

value of the loan.

Credit Quality

The

Corporation

has

defined

risk

rating

system

assign

rating

all

credit

exposures,

particularly

for

the

commercial

and

construction loan

portfolios. Risk

ratings in

the aggregate

provide the

Corporation’s management

the asset

quality profile

for

the

loan portfolio. 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.

the

case

consumer

and

mortgage

loans,

these

loans

are

classified

considering

their

delinquency status at the end of the reporting period.

The Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk

of payment default of a borrower in the ordinary

course of business.

Pass Credit Classifications:

Pass (Scales 1 through 8)

– Loans classified as

pass have a well defined

primary source of repayment, with no

apparent

risk, strong financial position, minimal operating risk, profitability, liquidity and strong

capitalization.

Watch

(Scale 9)

– Loans

classified as

watch have

acceptable business

credit,

but borrower’s

operations, cash

flow or

financial condition evidence more than average risk, requires above

average levels of supervision and attention from Loan

Officers.

Special Mention (Scale 10) -

Loans classified as special mention have

potential weaknesses that deserve management’s

close attention.

If left uncorrected, these potential weaknesses may result

in deterioration of the repayment prospects for

the loan or of the Corporation’s credit position at

some future date.

Adversely Classified Classifications:

Substandard

(Scales

and

12)

Loans

classified

substandard

are

deemed

inadequately

protected

the

current net worth

and payment capacity

of the obligor

or of the

collateral pledged, if

any.

Loans classified as

such have

well-defined weaknesses that jeopardize the liquidation of

the debt.

They are characterized by the

distinct possibility that

the institution will sustain some loss if the deficiencies

are not corrected.

Doubtful (Scale

13) - Loans

classified as

doubtful have

all the

weaknesses inherent

in those

classified as

substandard,

with the

additional characteristic

that the

weaknesses make

the collection

or liquidation

in full,

on the

basis of

currently

existing facts, conditions, and values, highly questionable

and improbable.

Loss

(Scale

14)

Uncollectible

and

such

little

value

that

continuance

bankable

asset

not

warranted.

This

classification does

not mean

that the

asset has

absolutely no

recovery or

salvage value,

but rather

it is

not practical

desirable to defer writing off this asset even though partial

recovery may be effected in the future.

Risk

ratings scales

through

conform

regulatory

ratings.

The

assignment

the

obligor

risk

rating

based

relevant

information about the ability of borrowers to

service their debts such as current

financial information, historical payment experience,

credit documentation, public information, and

current economic trends, among other factors.

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

December 31, 2021 and 2020 by vintage year.

113

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Puerto Rico

Commercial:

Commercial multi-family

Watch

4,485

Special mention

3,025

Substandard

982

6,257

100

7,339

Pass

24,936

21,288

34,840

25,311

2,066

31,468

139,920

Total commercial

multi-family

24,936

21,288

35,822

25,311

2,066

45,235

111

154,769

Commercial real estate non-owner occupied

Watch

100,465

228,852

25,443

137,044

2,406

205,304

3,237

702,751

Special Mention

18,509

12,563

7,271

4,608

24,056

67,007

Substandard

30,155

27,790

24,200

25,456

2,770

72,407

182,778

Pass

513,087

88,662

88,353

37,999

42,522

557,052

9,712

1,337,387

Total commercial

real estate non-

owner occupied

662,216

357,867

145,267

200,499

52,306

858,819

12,949

2,289,923

Commercial real estate owner occupied

Watch

8,393

8,612

8,972

6,958

3,039

121,716

157,690

Special Mention

5,573

857

7,598

1,427

2,449

103,472

121,376

Substandard

6,960

1,028

1,646

35,529

1,869

113,288

160,320

Doubtful

612

688

Pass

238,533

198,442

44,943

23,112

32,585

429,651

16,389

983,655

Total commercial

real estate owner

occupied

259,459

208,939

63,159

67,026

40,018

768,739

16,389

1,423,729

Commercial and industrial

Watch

186,529

12,542

21,536

103,835

14,577

90,776

108,183

537,978

Special Mention

7,380

9,936

14,856

28,473

1,012

28,448

60,397

150,502

Substandard

2,190

1,091

3,041

35,826

66,771

45,168

38,003

192,090

Doubtful

Pass

843,661

335,369

275,357

84,084

72,580

333,869

702,896

2,647,816

Total commercial

and industrial

1,039,760

358,938

314,790

252,218

154,940

498,323

909,479

3,528,448

Construction

Substandard

485

Pass

21,596

41,622

1,148

22,260

86,626

Total construction

21,596

41,622

1,633

22,260

87,111

Mortgage

Substandard

954

5,212

5,613

4,310

122,690

138,779

Pass

463,742

304,780

223,464

265,239

194,982

4,660,880

6,113,087

Total mortgage

463,742

305,734

228,676

270,852

199,292

4,783,570

6,251,866

Leasing

Substandard

124

618

880

613

235

3,083

Loss

Pass

613,452

328,085

222,770

133,112

62,881

17,917

1,378,217

Total leasing

613,576

328,703

223,650

133,726

63,510

18,154

1,381,319

114

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Puerto Rico

Consumer:

Credit cards

Substandard

8,577

Pass

911,274

Total credit cards

919,851

HELOCs

Substandard

Pass

3,548

Total HELOCs

3,571

Personal

Substandard

426

610

2,105

866

936

15,680

1,385

22,008

Loss

Pass

539,604

197,652

227,328

91,341

53,630

120,065

36,394

1,266,014

Total Personal

540,060

198,264

229,436

92,207

54,566

135,748

37,779

1,288,060

Auto

Substandard

3,080

7,520

9,498

4,739

2,210

1,422

28,469

Loss

Pass

1,259,800

808,339

637,300

420,293

177,104

80,829

3,383,665

Total Auto

1,262,922

815,870

646,798

425,032

179,314

82,251

3,412,187

Other consumer

Substandard

114

487

135

11,250

12,007

Loss

579

613

Pass

24,845

9,781

9,348

5,610

3,914

947

57,483

111,928

Total Other

consumer

24,845

9,895

9,369

6,676

3,914

1,116

68,733

124,548

Total Puerto Rico

4,913,112

2,647,120

1,898,600

1,473,547

749,926

7,191,955

1,953,343

37,779

20,865,382

115

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Popular U.S.

Commercial:

Commercial multi-family

Watch

8,600

41,348

56,229

20,682

37,343

48,753

212,955

Special mention

3,752

9,013

30,244

11,071

28,297

82,377

Substandard

67,149

12,748

18,644

98,541

Pass

422,613

241,805

201,298

144,534

46,809

352,724

4,205

1,413,988

Total commercial

multi-family

431,213

286,905

333,689

208,208

95,223

448,418

4,205

1,807,861

Commercial real estate non-owner occupied

Watch

12,716

22,109

42,067

56,576

28,604

154,289

780

317,141

Special Mention

2,939

3,205

7,025

10,573

15,569

39,311

Substandard

756

6,405

14,544

11,384

60,323

93,412

Pass

543,667

356,071

156,925

211,432

250,516

346,606

8,386

1,873,603

Total commercial

real estate non-

owner occupied

559,322

378,936

208,602

289,577

301,077

576,787

9,166

2,323,467

Commercial real estate owner occupied

Watch

239

7,825

8,150

1,676

17,132

4,222

39,244

Special Mention

1,800

Substandard

1,148

2,878

20,841

24,867

Pass

129,898

46,737

34,355

23,845

26,236

63,463

3,928

328,462

Total commercial

real estate owner

occupied

129,898

46,976

43,328

34,873

27,912

103,236

8,150

394,373

Commercial and industrial

Watch

3,747

4,667

4,292

9,273

1,530

3,925

27,439

Special Mention

2,504

7,203

670

481

215

8,177

19,309

Substandard

537

4,559

495

168

1,890

159

7,905

Loss

262

108

191

687

Pass

273,254

339,564

211,695

191,086

115,146

339,336

284,710

1,754,791

Total commercial

and industrial

280,304

351,589

221,324

201,352

115,429

343,162

296,971

1,810,131

Construction

Watch

14,300

23,547

28,757

34,205

100,809

Special Mention

13,622

Substandard

15,438

10,231

25,669

Pass

130,587

136,045

165,105

13,634

36,500

7,138

489,009

Total construction

130,587

150,345

188,652

57,829

80,936

20,760

629,109

Mortgage

Substandard

4,338

3,894

967

217

12,680

22,096

Pass

326,641

266,212

215,071

61,986

6,376

276,948

1,153,234

Total mortgage

326,641

270,550

218,965

62,953

6,593

289,628

1,175,330

116

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Popular U.S.

Consumer:

Credit cards

Pass

Total credit cards

HELOCs

Substandard

3,006

935

3,941

Loss

207

1,258

1,465

Pass

11,423

38,267

20,195

69,885

Total HELOCs

14,636

38,267

22,388

75,291

Personal

Substandard

250

163

658

Loss

Pass

75,538

19,411

43,346

7,418

2,802

5,625

124

154,264

Total Personal

75,610

19,492

43,600

7,491

2,819

5,807

126

154,945

Other consumer

Pass

4,658

Total Other

consumer

4,658

Total Popular U.S.

1,933,575

1,504,793

1,258,160

862,283

629,989

1,802,434

361,553

22,388

8,375,175

117

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Popular, Inc.

Commercial:

Commercial multi-family

Watch

8,600

41,348

56,229

20,682

37,343

53,238

217,440

Special mention

3,752

9,013

30,244

11,071

31,322

85,402

Substandard

68,131

12,748

24,901

100

105,880

Pass

447,549

263,093

236,138

169,845

48,875

384,192

4,216

1,553,908

Total commercial

multi-family

456,149

308,193

369,511

233,519

97,289

493,653

4,316

1,962,630

Commercial real estate non-owner occupied

Watch

113,181

250,961

67,510

193,620

31,010

359,593

4,017

1,019,892

Special Mention

21,448

12,563

10,476

7,025

15,181

39,625

106,318

Substandard

30,155

28,546

30,605

40,000

14,154

132,730

276,190

Pass

1,056,754

444,733

245,278

249,431

293,038

903,658

18,098

3,210,990

Total commercial

real estate non-

owner occupied

1,221,538

736,803

353,869

490,076

353,383

1,435,606

22,115

4,613,390

Commercial real estate owner occupied

Watch

8,393

8,851

16,797

15,108

4,715

138,848

4,222

196,934

Special Mention

5,573

857

7,598

1,427

2,449

105,272

123,176

Substandard

6,960

1,028

2,794

38,407

1,869

134,129

185,187

Doubtful

612

688

Pass

368,431

245,179

79,298

46,957

58,821

493,114

20,317

1,312,117

Total commercial

real estate owner

occupied

389,357

255,915

106,487

101,899

67,930

871,975

24,539

1,818,102

Commercial and industrial

Watch

190,276

17,209

25,828

113,108

14,582

92,306

112,108

565,417

Special Mention

9,884

17,139

15,526

28,954

1,071

28,663

68,574

169,811

Substandard

2,727

1,188

7,600

36,321

66,939

47,058

38,162

199,995

Doubtful

Loss

262

108

191

687

Pass

1,116,915

674,933

487,052

275,170

187,726

673,205

987,606

4,402,607

Total commercial

and industrial

1,320,064

710,527

536,114

453,570

270,369

841,485

1,206,450

5,338,579

118

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Popular, Inc.

Construction

Watch

14,300

23,547

28,757

34,205

100,809

Special Mention

13,622

Substandard

485

15,438

10,231

26,154

Pass

152,183

177,667

166,253

13,634

36,500

7,138

22,260

575,635

Total construction

152,183

191,967

190,285

57,829

80,936

20,760

22,260

716,220

Mortgage

Substandard

5,292

9,106

6,580

4,527

135,370

160,875

Pass

790,383

570,992

438,535

327,225

201,358

4,937,828

7,266,321

Total mortgage

790,383

576,284

447,641

333,805

205,885

5,073,198

7,427,196

Leasing

Substandard

124

618

880

613

235

3,083

Loss

Pass

613,452

328,085

222,770

133,112

62,881

17,917

1,378,217

Total leasing

613,576

328,703

223,650

133,726

63,510

18,154

1,381,319

119

December 31, 2021

Term Loans

Revolving

Loans

Amortized

Cost Basis

Revolving

Loans

Converted to

Term Loans

Amortized

Cost Basis

Amortized Cost Basis by Origination Year

(In thousands)

2021

2020

2019

2018

2017

Prior

Years

Total

Popular, Inc.

Consumer:

Credit cards

Substandard

8,577

Pass

911,284

Total credit cards

919,861

HELOCs

Substandard

3,006

935

3,964

Loss

207

1,258

1,465

Pass

11,423

41,815

20,195

73,433

Total HELOCs

14,636

41,838

22,388

78,862

Personal

Substandard

498

691

2,355

939

953

15,843

1,385

22,666

Loss

Pass

615,142

217,063

270,674

98,759

56,432

125,690

124

36,394

1,420,278

Total Personal

615,670

217,756

273,036

99,698

57,385

141,555

126

37,779

1,443,005

Auto

Substandard

3,080

7,520

9,498

4,739

2,210

1,422

28,469

Loss

Pass

1,259,800

808,339

637,300

420,293

177,104

80,829

3,383,665

Total Auto

1,262,922

815,870

646,798

425,032

179,314

82,251

3,412,187

Other consumer

Substandard

114

487

135

11,250

12,007

Loss

579

613

Pass

24,845

9,781

9,348

5,610

3,914

947

62,141

116,586

Total Other

consumer

24,845

9,895

9,369

6,676

3,914

1,116

73,391

129,206

Total Popular Inc.

6,846,687

4,151,913

3,156,760

2,335,830

1,379,915

8,994,389

2,314,896

60,167

29,240,557

120

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

Special mention

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

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

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

123

Loss

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

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

121

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

Pass

907,137

Total credit cards

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

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

122

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

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

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

123

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

Total credit cards

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

784

165

1,130

Loss

244

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

Pass

1,723

Total Other

consumer

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

124

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

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

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

123

Loss

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

125

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

126

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

Pass

907,168

Total credit cards

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

244

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

1,376

240

174

13,075

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

127

Note 10 – Mortgage banking activities

Income

from

mortgage

banking

activities

includes

mortgage

servicing

fees

earned

connection

with

administering

residential

mortgage

loans

and

valuation

adjustments

mortgage

servicing

rights.

also

includes

gain

sales

and

securitizations

residential mortgage

loans, losses

on repurchased

loans, including

interest advances,

and trading

gains and

losses on

derivative

contracts

used

hedge

the

Corporation’s

securitization

activities.

addition,

lower-of-cost-or-market

valuation

adjustments

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:

Years ended December

31,

(In thousands)

2021

2020

2019

Mortgage servicing fees, net of fair value adjustments:

Mortgage servicing fees

38,105

43,234

46,952

Mortgage servicing rights fair value adjustments

(10,206)

(42,055)

(27,430)

Total mortgage

servicing fees, net of fair value adjustments

27,899

1,179

19,522

Net gain on sale of loans, including valuation on loans

held for sale

21,684

31,215

18,817

Trading account profit (loss):

Realized gains (losses) on closed derivative positions

1,323

(10,586)

(6,246)

Total trading account

profit (loss)

1,323

(10,586)

(6,246)

Losses on repurchased loans, including interest advances [1]

(773)

(11,407)

Total mortgage

banking activities

50,133

10,401

32,093

[1]

The Corporation, from time to time, repurchases delinquent

loans from its GNMA servicing portfolio, in compliance

with Guarantor guidelines, and

may incur in losses related to previously advanced interest

on delinquent loans. During the quarter ended September

30, 2020 the Corporation

repurchased $687.9 million of GNMA loans and recorded

a loss of $10.5 million for previously advanced interest

on delinquent loans. Effective for

the quarter ended September 30, 2020, the Corporation

has determined to present these losses as part of its

Mortgage Banking Activities, which

were previously presented within the indemnity reserves on loans

sold component of non-interest income. The amount

of these losses for prior

years were considered immaterial for reclassification.

128

Note 11 – Transfers of financial assets and mortgage servicing assets

The

Corporation

typically

transfers

conforming

residential

mortgage

loans

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

government-sponsored

entity,

namely

FNMA.

Refer

Note

the

Consolidated

Financial

Statements for a description of such arrangements.

No liabilities were

incurred as a

result of these

securitizations during the

years ended December

31, 2021 and

2020 because they

did

not

contain

any

credit

recourse

arrangements.

The

Corporation

recorded

net

gain

$18.4

million

and

$27.3

million,

respectively, during the years ended December 31, 2021 and 2020 related to the residential

mortgage loans securitized.

The

following tables

present the

initial fair

value of

the

assets obtained

proceeds from

residential mortgage

loans securitized

during the years ended December 31, 2021 and

2020:

Proceeds Obtained During the Year

Ended December 31, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial fair value

Assets

Trading account debt securities:

Mortgage-backed securities - GNMA

380,228

Mortgage-backed securities - FNMA

329,617

Mortgage-backed securities - FHLMC

22,688

Total trading account

debt securities

732,533

Mortgage servicing rights

11,314

Total

732,533

11,314

743,847

Proceeds Obtained During the Year

Ended December 31, 2020

(In thousands)

Level 1

Level 2

Level 3

Initial fair value

Assets

Trading account debt securities:

Mortgage-backed securities - GNMA

332,207

Mortgage-backed securities - FNMA

175,864

Total trading account

debt securities

508,071

Mortgage servicing rights

7,236

Total

508,071

7,236

515,307

During the

year ended

December 31,

2021, the

Corporation retained

servicing rights

on whole

loan sales

involving approximately

$144 million in principal balance outstanding (2020 - $147 million), with net realized gains of

approximately $3.2 million (2020 - $3.9

million). All loan sales performed during the

years ended December 31, 2021 and 2020 were without

credit recourse agreements.

The Corporation recognizes as assets the rights to service loans for others,

whether these rights are purchased or result from asset

transfers such as sales and securitizations. These mortgage

servicing rights (“MSRs”) are measured at fair

value.

The

Corporation

uses

discounted

cash

flow

model

estimate

the

fair

value

MSRs.

The

discounted

cash

flow

model

incorporates

assumptions

that

market

participants

would

use

estimating

future

net

servicing

income,

including

estimates

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 loans’ characteristics and portfolio behavior.

The following table

presents the changes

in MSRs measured

using the fair

value method for

the years ended

December 31, 2021

and 2020.

129

Residential MSRs

(In thousands)

December 31, 2021

December 31, 2020

Fair value at beginning of period

118,395

150,906

Additions

13,391

9,544

Changes due to payments on loans

[1]

(15,383)

(11,692)

Reduction due to loan repurchases

(1,233)

(11,060)

Changes in fair value due to changes in valuation model inputs

or assumptions

6,410

(19,327)

Other

(10)

Fair value at end of period

[2]

121,570

118,395

[1] Represents changes due to collection / realization

of expected cash flows over time.

[2] At December 31, 2021, PB had MSRs amounting to $1.6

million (December 31, 2020 - $0.7 million).

Residential mortgage loans serviced for others were $12.1

billion at December 31, 2021 (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

December 31,

2021, those weighted

average mortgage servicing

fees were

0.30%

(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

years ended December 31, 2021 and 2020 were

as follows:

Years ended

December 31, 2021

December 31, 2020

BPPR

Prepayment speed

6.8

19.0

7.6

21.9

Weighted average life (in years)

8.3

20.9

8.7

3.6

Discount rate (annual rate)

10.5

10.7

10.9

10.5

Key

economic

assumptions

used

estimate

the

fair

value

MSRs

derived

from

sales

and

securitizations

mortgage

loans

performed

the

banking

subsidiaries

and

servicing

rights

purchased

from

other

financial

institutions,

and

the

sensitivity

immediate changes in those assumptions,

were as follows as of the end of the periods

reported:

Originated MSRs

Purchased MSRs

December 31,

(In thousands)

2021

2020

2021

2020

Fair value of servicing rights

40,058

44,129

81,512

74,266

Weighted average life (in years)

7.1

6.2

7.5

5.9

Weighted average prepayment speed (annual

rate)

7.7

6.6

7.6

7.1

Impact on fair value of 10% adverse change

(1,500)

(1,115)

(1,486)

(2,206)

Impact on fair value of 20% adverse change

(2,359)

(2,194)

(3,495)

(4,312)

Weighted average discount rate (annual rate)

11.2

11.3

11.0

11.1

Impact on fair value of 10% adverse change

(2,079)

(1,640)

(2,731)

(2,740)

Impact on fair value of 20% adverse change

(3,452)

(3,175)

(5,832)

(5,301)

130

The sensitivity analyses

presented in the

table above for

servicing rights are

hypothetical and should

be used with

caution. As the

figures

indicate, changes

fair value

based

and

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 December 31, 2021, the Corporation serviced $0.7

billion (2020 - $0.9 billion) in residential mortgage

loans with credit recourse to

the Corporation,

from which $26 million was 60

days or more past due (2020

- $52 million). Also refer

to Note 23 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

collateral

for

GNMA

guaranteed

mortgage-backed

security

when

certain

delinquency

criteria

are

met.

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

December

31,

2021,

the

Corporation

had

recorded

$13

million

mortgage

loans

its

Consolidated

Statements

Financial

Condition related to this

buy-back option program (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

year

ended

December

31,

2021,

the

Corporation

repurchased

approximately

$94

million

mortgage

loans

from

its

GNMA servicing portfolio (2020 - $862 million). The determination to

repurchase these loans was based on the economic benefits

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.

131

Note 12 - Premises and equipment

Premises and equipment are stated at cost less accumulated

depreciation and amortization as follows:

(In thousands)

Useful life in years

2021

2020

Premises and equipment:

Land

94,246

109,780

Buildings

10-50

468,293

512,131

Equipment

2-10

374,192

350,014

Leasehold improvements

3-10

87,406

87,289

929,891

949,434

Less - Accumulated depreciation and amortization

559,234

574,835

Subtotal

370,657

374,599

Construction in progress

29,337

25,862

Premises and equipment, net

494,240

510,241

Depreciation and

amortization of

premises and

equipment for

the year

2021 was

$55.1 million

(2020 -$58.4

million; 2019

- $58.1

million), of

which $25.2

million (2020

- $27.2

million; 2019

- $27.3

million) was

charged to

occupancy expense

and $29.8

million

(2020 - $31.2

million; 2019 -

$30.8 million) was charged

to equipment, communications and

other operating expenses. Occupancy

expense

premises

and

equipment

net

rental

income

$13.4

million

(2020

$15.5

million;

2019

$19.3

million).

For

information related to the amortization expense of finance

leases, refer to Note 33 - Leases.

132

Note 13 – Other real estate owned

The following

tables present

the activity

related to

Other Real

Estate Owned

(“OREO”), for

the years

ended December

31, 2021,

2020 and 2019.

For the year ended December 31, 2021

OREO

(In thousands)

Commercial/Construction

Mortgage

Total

Balance at beginning of period

13,214

69,932

83,146

Write-downs in value

(1,058)

(2,161)

(3,219)

Additions

9,746

55,898

65,644

Sales

(7,282)

(52,666)

(59,948)

Other adjustments

397

(943)

(546)

Ending balance

15,017

70,060

85,077

For the year ended December 31, 2020

OREO

(In thousands)

Commercial/Construction

Mortgage

Total

Balance at beginning of period

16,959

105,113

122,072

Write-downs in value

(1,564)

(3,060)

(4,624)

Additions

2,223

17,785

20,008

Sales

(4,359)

(49,797)

(54,156)

Other adjustments

(45)

(109)

(154)

Ending balance

13,214

69,932

83,146

For the year ended December 31, 2019

OREO

(In thousands)

Commercial/ Construction

Mortgage

Total

Balance at beginning of period

21,794

114,911

136,705

Write-downs in value

(1,584)

(4,541)

(6,125)

Additions

6,801

62,630

69,431

Sales

(9,892)

(67,137)

(77,029)

Other adjustments

(160)

(750)

(910)

Ending balance

16,959

105,113

122,072

133

Note 14 − Other assets

The caption of other assets in the consolidated

statements of financial condition consists of the following

major categories:

(In thousands)

December 31, 2021

December 31, 2020

Net deferred tax assets (net of valuation allowance)

657,597

851,592

Investments under the equity method

298,988

250,467

Prepaid taxes

37,924

32,615

Other prepaid expenses

79,845

74,572

Derivative assets

26,093

20,785

Trades receivable from brokers and counterparties

65,460

65,429

Principal, interest and escrow servicing advances

53,942

65,671

Guaranteed mortgage loan claims receivable

98,001

80,477

Operating ROU assets (Note 33)

141,748

131,921

Finance ROU assets (Note 33)

13,459

15,464

Others

155,514

148,048

Total other assets

1,628,571

1,737,041

The Corporation enters

in the

ordinary course of

business into technology

hosting arrangements that

are service contracts.

These

arrangements can

include capitalizable

implementation costs

that are

amortized during

the term

of the

hosting arrangement.

The

Corporation recognizes capitalizable implementation costs

related to hosting arrangements

that are service

contracts within Others

the

table

above.

December

31,

2021,

the

total

capitalized

implementation

costs

amounted

$18.4

million

with

accumulated

amortization

$8.8

million

for

net

value

$9.6

million,

compared

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

year ended December 31, 2021 was $3.9 million

(December 31, 2020 - $2.2 million).

134

Note 15 – Goodwill and other intangible assets

The changes in the carrying

amount of goodwill for the year

ended December 31, 2021, allocated by

reportable segments, were as

follows (refer to Note 37 for the definition of

the Corporation’s reportable segments):

2021

Balance at

Goodwill on

Balance at

(In thousands)

January 1, 2021

acquisition

December 31,2021

Banco Popular de Puerto Rico

320,248

Popular U.S.

350,874

49,171

400,045

Total Popular,

Inc.

671,122

49,171

720,293

The goodwill

recognized during

the year

ended December

31, 2021

in the

reportable segment of

Popular U.S.

of $49

million was

the

Transaction.

Refer

Note

Business

combination,

for

additional

information

the

Transaction,

including the goodwill and other intangible assets recognized.

There were no changes in the carrying amount

of goodwill for the year ended December 31,

2020.

December 31,

2021, the

Corporation had

$0.7 million

of identifiable

intangible assets

with indefinite

useful lives,

compared to

$6.1 million at December 31, 2020, due

to the recognition of an impairment loss of $5.4

million associated with a trademark.

The following table reflects the components of

other intangible assets subject to amortization:

Gross

Net

Carrying

Accumulated

Carrying

(In thousands)

Amount

Amortization

Value

December 31, 2021

Core deposits

12,810

8,754

4,056

Other customer relationships

14,286

2,883

11,403

Total other intangible

assets

27,096

11,637

15,459

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

year

ended December

31, 2021,

$15.0 million

other customer

relationships became

fully amortized

and thus

were

removed

from

the

Corporation’s

intangibles

assets,

from

which

$14.2

million

were

recognized

part

the

purchase

the

American Airlines co-branded credit card portfolio during

2011.

During

the

year

ended

December

31,

2021,

the

Corporation

recognized

9.1

million

amortization

expense

other

intangible

assets

with

definite

useful

lives,

which

includes

the

previously

mentioned

$5.4

million

impairment

loss

(2020

6.4

million; 2019 - $9.4 million).

The following

table presents

the estimated

amortization of

the intangible

assets with

definite useful

lives for

each of

the following

periods:

135

(In thousands)

Year 2022

3,299

Year 2023

3,179

Year 2024

2,938

Year 2025

1,750

Year 2026

1,416

Later years

2,877

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.

Management

monitors

events

changes

circumstances

between

annual

tests

determine

these

events

changes

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

comparable

companies

and

transactions,

well

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

each

valuation

methodology,

applicable.

The

Corporation

evaluates

the

results

obtained

under

each

valuation

methodology to

identify and

understand the

key

value drivers

in order

ascertain that

the

results obtained

are

reasonable and

appropriate

under

the

circumstances.

Elements

considered

include

current

market

and

economic

conditions,

developments

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

the

value

drivers

the

reporting

unit.

Management

uses

judgment

the

determination

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

the

market

comparable

transactions’

approach,

valuations

had

been

previously

determined

the

Corporation

calculating

average

price

multiples

relevant

value

drivers

from

group

transactions

for

which

the

target

companies

are

comparable

the

reporting

unit

being

analyzed

and

applying

those

price

multiples

the

value

drivers

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

the

DCF

valuation

analysis

for

each

reporting

unit

are

based

the

most

recent

(as

the

valuation

date)

financial

projections presented

the

Corporation’s Asset

Liability Management

Committee (“ALCO”).

The

growth assumptions

included

these

projections

are

based

management’s

expectations

for

each

reporting

unit’s

financial

prospects

considering

136

economic and industry conditions as well

as particular plans of each entity

(i.e. restructuring plans, de-leveraging, etc.). The cost

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

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,

legal entities, represented approximately 91% of the

Corporation’s total goodwill balance as of the July 31,

2021 valuation date.

Furthermore,

part

the

analyses,

management

performed

reconciliation

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

make estimates

and assumptions

with regard

to the

fair

value

the

reporting

units.

Actual

values

may

differ

significantly

from

these

estimates.

Such

differences

could

result

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

our

clients,

customers,

service

providers

and

suppliers,

will

depend

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

response

thereto.

decline

the

Corporation’s

stock

price

global

and/or

regional

macroeconomic

conditions,

the

continued

weakness

the

Puerto

Rico

economy

and

fiscal

situation,

reduced

future

earnings

estimates,

additional

expenses

and

higher

credit

losses,

and

the

continuance

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

turn

result

impairment of

goodwill

the

future.

impairment of

goodwill would

result

a non-cash

expense,

net

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.

137

December 31, 2021

Balance at

December 31,

Accumulated

December 31,

2021

impairment

2021

(In thousands)

(gross amounts)

losses

(net amounts)

Banco Popular de Puerto Rico

324,049

3,801

320,248

Popular U.S.

564,456

164,411

400,045

Total Popular,

Inc.

888,505

168,212

720,293

December 31, 2020

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

138

Note 16 – Deposits

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

(In thousands)

December 31, 2021

December 31, 2020

Savings accounts

15,871,998

14,031,736

NOW, money market and other interest

bearing demand deposits

28,736,459

22,398,057

Total savings, NOW,

money market and other interest bearing demand

deposits

44,608,457

36,429,793

Certificates of deposit:

Under $250,000

4,086,059

4,524,794

$250,000 and over

2,626,090

2,783,054

Total certificates

of deposit

6,712,149

7,307,848

Total interest bearing

deposits

51,320,606

43,737,641

A summary of certificates of deposits by maturity at

December 31, 2021 follows:

(In thousands)

2022

4,043,357

2023

864,315

2024

681,201

2025

511,710

2026

534,030

2027 and thereafter

77,536

Total certificates of

deposit

6,712,149

At December 31, 2021, the Corporation had brokered

deposits amounting to $ 0.8 billion (December

31, 2020 - $ 0.8 billion).

The aggregate

amount of

overdrafts in

demand deposit

accounts that

were reclassified

to loans

was $6

million at

December 31,

2021 (December 31, 2020 - $3 million)

At December 31,

2021, public sector

deposits amounted to

$20.3 billion. A significant

portion of Puerto

Rico public sector

deposits

are expected to be used by Puerto Rico pursuant to the Plan of Adjustment for Puerto Rico confirmed by the Puerto Rico Oversight,

Management, and Economic Stability Act

(PROMESA) Title III

Court, which is expected to

become effective on or

about March 15,

2022. 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

BPPR

the

near

term.

The

rate

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 implementation of PROMESA and

the speed at which COVID-19 federal assistance is

distributed.

139

Note 17 – Borrowings

Assets sold under agreements to repurchase

Assets sold under agreements to repurchase amounted

to $92 million at December 31, 2021 and $121

million December 31, 2020.

The Corporation’s

repurchase transactions are

overcollateralized with the

securities detailed in

the table

below.

The Corporation’s

repurchase

agreements

have

right

set-off

with

the

respective

counterparty

under

the

supplemental

terms

the

master

repurchase agreements.

an event

default each

party has

a right

set-off

against the

other party

for amounts

owed in

the

agreement

and

any

other

amount

obligation

owed

respect

any

other

agreement

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

resell.

the

Corporation’s

policy

maintain

effective

control

over

assets

sold

under

agreements

repurchase; accordingly, such securities continue to be carried on the Consolidated

Statements of Financial Condition.

Repurchase agreements accounted for as secured borrowings

December 31, 2021

December 31, 2020

Repurchase liability

Repurchase

weighted average

Repurchase

weighted average

(Dollars in thousands)

liability

interest rate

liability

interest rate

U.S. Treasury securities

Within 30 days

19,538

0.30

67,157

1.16

After 30 to 90 days

30,295

0.21

39,318

1.20

After 90 days

29,036

0.29

9,979

0.33

Total U.S. Treasury

securities

78,869

0.26

116,454

1.10

Mortgage-backed securities

Within 30 days

11,733

0.26

3,778

0.28

After 30 to 90 days

268

1.50

After 90 days

722

0.16

Total mortgage-backed

securities

12,455

0.26

4,046

0.36

Collateralized mortgage obligations

Within 30 days

279

0.25

803

0.24

Total collateralized

mortgage obligations

279

0.25

803

0.24

Total

91,603

0.26

121,303

1.07

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.

140

(Dollars in thousands)

2021

2020

Maximum aggregate balance outstanding at any month-end

92,101

195,498

Average monthly aggregate balance outstanding

91,394

143,718

Weighted average interest rate:

For the year

0.35

1.63

At December 31

0.26

1.11

Other short-term borrowings

At December 31, 2021, other short-term borrowings

consisted of $75 million in FHLB Advances. There

were no other short-term

borrowings outstanding at December 31, 2020. The

following table presents additional information related

to the Corporation’s other

short-term borrowings for the years ended December

31, 2021 and December 31, 2020.

(Dollars in thousands)

2021

2020

Maximum aggregate balance outstanding at any month-end

75,000

100,000

Average monthly aggregate balance outstanding

343

21,557

Weighted average interest rate:

For the year

0.35

0.56

At December 31

0.35

0.73

Notes Payable

The following table presents the composition of notes

payable at December 31, 2021 and December

31, 2020.

(In thousands)

December 31, 2021

December 31, 2020

Advances with the FHLB with maturities ranging from

2022 through 2029 paying interest at monthly

fixed rates ranging from 0.39% to 3.18%

(2020 - 0.39% to 4.19%)

492,429

542,469

Advances with the FRB maturing on 2022 paying interest

at annual 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 $2,158 (2020 - $3,426)

297,842

296,574

Junior subordinated deferrable interest debentures (related

to trust preferred securities) maturing on

2034 with fixed interest rates ranging from 6.125% to

6.564% (2020 - 6.125% to 6.70%), net of debt

issuance costs of $342 (2020 - $369)

198,292

384,929

Total notes payable

988,563

1,224,981

[1] During the second quarter of 2021, the Paycheck Protection

Program Liquidity Facility advance was prepaid.

Notes

payable

included junior

subordinated debentures

issued

the

Corporation that

were

associated to

capital

issued

the

Popular Capital Trust

I. On November 1,

2021, the Corporation redeemed

all outstanding 6.70%

Cumulative Monthly Income Trust

Preferred

Securities

(the

“Capital

Securities”)

issued

the

Popular

Capital

Trust

(liquidation

amount

$25

per

security

and

amounting

approximately

$187

million

(or

approximately

$181

million

after

excluding

Popular’s

participation

the

Trust

approximately

million)

the

aggregate).

The

redemption

price

for

the

Capital

Securities

was

equal

$25

per

security

plus

accrued

and

unpaid

distributions up

and

excluding

the

redemption date

the

amount

$0.139583

per

security,

for

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 December 31, 2021 is included in

the table below.

141

Assets sold under

Short-term

(In thousands)

agreements to repurchase

borrowings

Notes payable

Total

2022

91,603

75,000

103,148

269,751

2023

341,103

2024

91,943

2025

139,920

2026

74,500

Later years

237,949

Total borrowings

91,603

75,000

988,563

1,155,166

At December

31, 2021

and 2020, the

Corporation had FHLB

borrowing facilities whereby

the Corporation could

borrow up to

$3.0

billion, of which

$0.6 billion and

$0.5 billion, respectively,

were used. In

addition, at December 31,

2021 and 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

December 31, 2021,

the Corporation has

a borrowing facility

at the discount

window of the

Federal Reserve Bank

of New

York amounting to $1.3 billion (2020 - $1.4 billion), which remained unused at

December 31, 2021 and December 31, 2020.

142

Note 18 – Trust preferred securities

Statutory trusts established

by the Corporation

(Popular Capital Trust

I, Popular North

America Capital Trust

I and Popular

Capital

Trust

II)

had

issued

trust

preferred

securities

(also

referred

“capital

securities”)

the

public.

The

proceeds

from

such

issuances, together with

the proceeds of

the related

issuances of common

securities of the

trusts (the

“common securities”), were

used by

the trusts to

purchase junior subordinated

deferrable interest debentures

(the “junior subordinated

debentures”) issued by

the Corporation.

The sole

assets of

the trusts

consisted of

the junior

subordinated debentures

of the

Corporation and

the related

accrued interest

receivable. These trusts are not consolidated

by the Corporation pursuant to accounting

principles generally accepted in the United

States of America.

The junior subordinated

debentures are included

by the Corporation

as notes payable

in the Consolidated

Statements of Financial

Condition, while

the common

securities issued

by the

issuer trusts

are included

as debt

securities held-to-maturity.

The common

securities of each trust are wholly-owned, or

indirectly wholly-owned, by the Corporation.

As disclosed

in Note

17, on

November 1,

2021, the

Corporation redeemed all

outstanding trust

preferred securities

issued by

the

Popular

Capital Trust

amounting to

approximately $187

million

(or approximately

$181 million

after excluding

the Corporation’s

participation in the Trust of approximately $6 million) in the aggregate.

The following tables presents financial data pertaining

to the different trusts at December 31, 2021 and

2020.

(Dollars in thousands)

December 31, 2021

Popular

North America

Popular

Issuer

Capital Trust I

Capital Trust Il

Capital securities

91,651

101,023

Distribution rate

6.564

6.125

Common securities

2,835

3,125

Junior subordinated debentures aggregate liquidation amount

94,486

104,148

Stated maturity date

September 2034

December 2034

Reference notes

[1],[3],[5]

[2],[4],[5]

[1] Statutory business trust that is wholly-owned by

PNA and indirectly wholly-owned by the Corporation.

[2] Statutory business trust that is wholly-owned by

the Corporation.

[3] The obligation of PNA under the junior subordinated

debenture and its guarantees of the capital securities under

the trust is fully and unconditionally

guaranteed on a subordinated basis by the Corporation

to the extent set forth in the guarantee agreement.

[4] These capital securities are fully and unconditionally guaranteed

on a subordinated basis by the Corporation to the extent

set forth in the guarantee

agreement.

[5] The Corporation has the right, subject to any required

prior approval from the Federal Reserve, to redeem

after certain dates or upon the

occurrence of certain events mentioned below,

the junior subordinated debentures at a redemption

price equal to 100% of the principal amount, plus

accrued and unpaid interest to the date of redemption. The

maturity of the junior subordinated debentures may

be shortened at the option of the

Corporation prior to their stated maturity dates (i) on or

after the stated optional redemption dates stipulated in

the agreements, in whole at any time or

in part from time to time, or (ii) in whole, but not in part,

at any time within 90 days following the occurrence

and during the continuation of a tax event,

an investment company event or a capital treatment event

as set forth in the indentures relating to the capital securities,

in each case subject to

regulatory approval.

143

(Dollars in thousands)

December 31, 2020

Popular

North America

Popular

Issuer

Capital Trust I

Capital Trust Il

Capital securities

181,063

91,651

101,023

Distribution rate

6.700

6.564

6.125

Common securities

5,601

2,835

3,125

Junior subordinated debentures aggregate liquidation amount

186,664

94,486

104,148

Stated maturity date

November 2033

September 2034

December 2034

Reference notes

[2],[4],[5]

[1],[3],[5]

[2],[4],[5]

[1] Statutory business trust that is wholly-owned by

PNA and indirectly wholly-owned by the Corporation.

[2] Statutory business trust that is wholly-owned by

the Corporation.

[3] The obligation of PNA under the junior subordinated

debenture and its guarantees of the capital securities under

the trust is fully and unconditionally

guaranteed on a subordinated basis by the Corporation

to the extent set forth in the guarantee agreement.

[4] These capital securities are fully and unconditionally guaranteed

on a subordinated basis by the Corporation to the extent

set forth in the applicable

guarantee agreement.

[5] The Corporation has the right, subject to any required

prior approval from the Federal Reserve, to redeem

after certain dates or upon the

occurrence of certain events mentioned below,

the junior subordinated debentures at a redemption

price equal to 100% of the principal amount, plus

accrued and unpaid interest to the date of redemption. The

maturity of the junior subordinated debentures may

be shortened at the option of the

Corporation prior to their stated maturity dates (i) on or

after the stated optional redemption dates stipulated in

the agreements, in whole at any time or

in part from time to time, or (ii) in whole, but not in part,

at any time within 90 days following the occurrence

and during the continuation of a tax event,

an investment company event or a capital treatment event

as set forth in the indentures relating to the capital securities,

in each case subject to

regulatory approval.

December

31,

2021,

the

Corporation’s

$193

million

trust

preferred

securities

outstanding

not

qualify

for

Tier

capital

treatment, but instead qualify for Tier 2 capital treatment

compared to $374 million at December 31,

2020.

144

Note 19 − Other liabilities

The caption of other liabilities in the consolidated

statements of financial condition consists of the following

major categories:

(In thousands)

December 31, 2021

December 31, 2020

Accrued expenses

308,594

235,449

Accrued interest payable

33,227

38,622

Accounts payable

91,804

69,784

Dividends payable

35,937

33,701

Trades payable

13,789

720,212

Liability for GNMA loans sold with an option to repurchase

12,806

57,189

Reserves for loan indemnifications

12,639

24,781

Reserve for operational losses

43,886

41,452

Operating lease liabilities (Note 33)

154,114

152,588

Finance lease liabilities (Note 33)

19,719

22,572

Pension benefit obligation

8,778

35,568

Postretirement benefit obligation

161,988

179,211

Others

70,967

73,560

Total other liabilities

968,248

1,684,689

145

Note 20 – Stockholders’ equity

The Corporation’s common stock ranks junior to all series

of preferred stock as to dividend rights and / or

as to rights on liquidation,

dissolution

winding

the

Corporation.

Dividends

preferred

stock

are

payable

declared.

The

Corporation’s

ability

declare or

pay dividends

on, or

purchase, redeem

or otherwise

acquire, its

common stock

is subject

to certain

restrictions in

the

event that the

Corporation fails to pay

or set aside

full dividends on the

preferred stock for the

latest dividend period. The

ability of

the Corporation to

pay dividends in

the future is

limited by regulatory

requirements, legal availability of

funds, recent and

projected

financial results, capital levels and liquidity of the Corporation, general

business conditions and other factors deemed relevant by the

Corporation’s Board of Directors.

The Corporation’s

common stock

trades on

the NASDAQ

Stock Market

LLC (the

“NASDAQ”) under

the symbol

BPOP.

The 2003

Series A Preferred Stock are not listed on NASDAQ.

Preferred stocks

The Corporation has

30,000,000 shares of authorized

preferred stock that may

be issued in

one or more

series, and the

shares of

each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that

particular series. The Corporation’s shares of preferred stock at

December 31, 2021 consisted of:

●

6.375% non-cumulative monthly income preferred stock, 2003 Series

A, no par value, liquidation

preference value of $25

per share. Holders on record of the 2003 Series A Preferred Stock are entitled to

receive, when, as and if declared by the

Board of

Directors of

the Corporation

or an

authorized committee thereof,

out of

funds legally

available, non-cumulative

cash dividends at the

annual rate per share

of 6.375% of

their liquidation preference value,

or $0.1328125 per share

per

month.

These

preferred

stock

are

perpetual,

nonconvertible,

have

preferential

rights

purchase

any

securities of the

Corporation and are redeemable solely

at the option of

the Corporation with the

consent of the Board

Governors

the

Federal

Reserve

System.

The

redemption

price

per

$25.00.

The

2003

Series

Preferred Stock have no voting

rights, except for certain rights in

instances when the Corporation does not

pay dividends

for a defined period. These

shares are not subject to

any sinking fund requirement. Cash dividends declared

and paid on

the 2003

Series A

Preferred Stock

amounted to

$1.4 million

for the

years ended

December 31,

2021, 2020

and 2019.

Outstanding shares of 2003 Series A Preferred Stock amounted

to 885,726 at December 31, 2021, 2020

and 2019.

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.

At December 31, 2019 the Corporation had 1,120,665

outstanding shares of 2008 Series B Preferred

Stock, described as follows:

●

8.25% non-cumulative monthly

income preferred stock,

2008 Series B,

no par value,

liquidation preference value

of $25

per share. The shares of 2008 Series B Preferred Stock were issued in May 2008. Holders of

record of the 2008 Series B

Preferred

Stock

are

entitled

receive,

when,

and

declared

the

Board

Directors

the

Corporation

authorized committee thereof, out of funds legally available,

non-cumulative cash dividends at the annual

rate per share of

8.25% of their liquidation preferences, or

$0.171875 per share per month. These

shares of preferred stock are

perpetual,

nonconvertible, have no preferential rights to purchase any securities of the Corporation and are redeemable solely at the

option of

the Corporation

with the

consent of

the Board

of Governors of

the Federal

Reserve System beginning

on May

28, 2013. Cash dividends

declared and paid on the

2008 Series B Preferred Stock

amounted to $ 2.3 million

for the year

ended December 31, 2019.

Common stocks

Dividends

During

the

year

2021,

cash

dividends

$1.75

(2020

$1.60;

2019

$1.20)

per

common

outstanding

were

declared

amounting to

$142.3 million

(2020 -

$136.6 million;

2019 -

$116.0

million) of

which $35.9

million were

payable to

shareholders of

common

stock

December

31,

2021

(2020

$33.7

million;

2019

$29.0

million).

The

quarterly

dividend

$0.45

per

declared to shareholders of record as of the close

of business on December 7, 2021, was paid on January

3, 2022. On January 12,

2022, the Corporation announced as part of its capital

plan for 2022, an increase in its

quarterly common stock dividend from $0.45

to $0.55 per share, beginning in the second quarter

of 2022, subject to approval by its Board of Directors. On

February 23, 2022, the

146

Corporation’s Board of

Directors approved a

quarterly cash dividend

of $0.55 per

share on its

outstanding common stock, payable

on April 1, 2022 to shareholders of record at

the close of business on March 15,

2022.

Accelerated share repurchase transaction (“ASR”)

May

2021,

the

Corporation

entered

into

$350

million

ASR

transaction

with

respect

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

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

stockholders’ 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

2020,

occurred during

the

second

quarter

2020.

The

Corporation completed

the

transaction on

May

27,

2020

and

received

4,763,216

additional

common

stock

after

the

early

termination

date.

total

the

Corporation

repurchased

11,819,135 shares at an average price per share of $42.3043 under the ASR.

During the fourth quarter of 2019, the

Corporation completed a $250 million ASR. In connection therewith, the

Corporation received

an initial delivery of

3,500,000 shares of common stock during

the first quarter of

2019 and received 1,165,607 additional shares

common stock during the fourth quarter of 2019. The final number of shares delivered at settlement was based on the average daily

volume

weighted

average

prince

(“VWAP”)

its

common

stock,

net

discount,

during

the

term

the

ASR

$53.58.

connection with the transaction, the Corporation recognized $266 million in treasury stock, offset by $16 million adjustment

to capital

surplus.

Statutory reserve

The

Banking

Act

the

Commonwealth of

Puerto

Rico

requires that

minimum

10%

BPPR’s

net

income

for

the

year

transferred to

a statutory

reserve account

until such

statutory reserve

equals

the total

of paid-in

capital on

common and

preferred

stock. Any losses

incurred by a

bank must first

be charged to

retained earnings and

then to the

reserve fund. Amounts

credited to

the

reserve

fund

may

not

used

pay

dividends

without

the

prior

consent

the

Puerto

Rico

Commissioner

Financial

Institutions.

The

failure

maintain

sufficient

statutory

reserves

would

preclude

BPPR

from

paying

dividends.

BPPR’s

statutory

reserve fund

amounted to $786

million at

December 31, 2021

(2020 - $708

million; 2019 -

$659 million). During

2021, $78 million

was transferred to the statutory reserve account (2020 - $49 million, 2019 -

$60 million). BPPR was in compliance with the statutory

reserve requirement in 2021, 2020 and 2019.

147

Note 21 – Regulatory capital requirements

The Corporation,

BPPR and

PB are

subject to

various regulatory

capital requirements

imposed by

the federal

banking agencies.

Failure to meet minimum capital requirements can

lead to certain mandatory and additional

discretionary actions by regulators that,

if undertaken,

could have

a direct

material effect

on the

Corporation’s consolidated financial

statements. Popular,

Inc., BPPR

and

PB are

subject to

Basel III

capital requirements,

including minimum

and well

capitalized regulatory

capital ratios

and compliance

with the standardized approach for determining

risk-weighted assets.

The Basel III Capital

Rules established a Common Equity

Tier I (“CET1”) capital

measure and related regulatory capital ratio

CET1

to risk-weighted assets.

The Basel III Capital Rules provide that a

depository institution will be deemed to be well capitalized if

it maintained a leverage ratio

of at

least 5%, a

CET1 ratio of

at least

6.5%, a Tier

1 risk-based capital

ratio of at

least 8% and

a total risk-based

ratio of

at least

10%.

Management

has

determined

that

December

31,

2021

and

2020,

the

Corporation

exceeded

all

capital

adequacy

requirements to which it is subject.

The Corporation

has

been designated

by the

Federal Reserve

Board as

a Financial

Holding Company

(“FHC”) and

is eligible

engage in certain financial activities permitted under

the Gramm-Leach-Bliley Act of 1999.

Pursuant to the adoption of the CECL accounting standard on

January 1, 2020, the Corporation elected to use a five-year

transition

period

option

permitted

the

final

interim

regulatory

capital

rules

effective

March

31,

2020.

The

five-year

transition

period

provision delays for two years the estimated impact of the adoption of the CECL accounting standard 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

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,

order

facilitate

use

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 December 31,

2021,

the Corporation has $353 million in PPP loans

and no loans were pledged as collateral for

PPPL Facilities.

At December 31, 2021 and 2020, BPPR and

PB were well-capitalized under the regulatory

framework for prompt corrective action.

The following

tables present

the Corporation’s

risk-based capital

and leverage

ratios at

December 31,

2021 and

2020 under

the

Basel III regulatory guidance.

148

Actual

Capital adequacy minimum

requirement (including

conservation capital buffer) [1]

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

2021

Total Capital (to Risk-Weighted

Assets):

Corporation

6,084,105

19.35

3,301,329

10.500

BPPR

4,281,930

18.92

2,376,184

10.500

1,361,911

16.78

852,032

10.500

Common Equity Tier I Capital (to Risk-Weighted

Assets):

Corporation

5,476,031

17.42

2,200,886

7.000

BPPR

3,998,102

17.67

1,584,123

7.000

1,309,398

16.14

568,021

7.000

Tier I Capital (to Risk-Weighted Assets):

Corporation

5,498,174

17.49

2,672,504

8.500

BPPR

3,998,102

17.67

1,923,577

8.500

1,309,398

16.14

689,740

8.500

Tier I Capital (to Average Assets):

Corporation

5,498,174

7.41

2,969,535

BPPR

3,998,102

6.24

2,561,003

1,309,398

13.44

389,736

[1] The conservation capital buffer included for these

ratios is 2.5%, except for the Tier I

to Average Asset ratio for which the buffer

is not applicable

and therefore the capital adequacy minimum of 4% is

presented.

149

Actual

Capital adequacy minimum

requirement (including

conservation capital buffer)

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

2020

Total Capital (to Risk-Weighted

Assets):

Corporation

5,773,919

18.81

3,223,720

10.500

BPPR

4,226,887

18.58

2,388,394

10.500

1,283,332

17.34

776,975

10.500

Common Equity Tier I Capital (to Risk-Weighted

Assets):

Corporation

4,992,096

16.26

2,149,146

7.000

BPPR

3,940,385

17.32

1,592,262

7.000

1,190,758

16.09

517,983

7.000

Tier I Capital (to Risk-Weighted Assets):

Corporation

5,014,239

16.33

2,609,678

8.500

BPPR

3,940,385

17.32

1,933,461

8.500

1,190,758

16.09

628,980

8.500

Tier I Capital (to Average Assets):

Corporation

5,014,239

7.80

2,572,201

BPPR

3,940,385

7.26

2,169,835

1,190,758

12.35

385,685

The following table presents the minimum amounts

and ratios for the Corporation’s banks to be

categorized as well-capitalized.

2021

2020

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Total Capital (to Risk-Weighted

Assets):

BPPR

2,263,032

2,274,660

811,459

739,976

Common Equity Tier I Capital (to Risk-Weighted

Assets):

BPPR

1,470,971

6.5

1,478,529

6.5

527,448

6.5

480,985

6.5

Tier I Capital (to Risk-Weighted Assets):

BPPR

1,810,426

1,819,728

649,167

591,981

Tier I Capital (to Average Assets):

BPPR

3,201,254

2,712,294

487,171

482,106

150

Note 22 – Other comprehensive (loss) income

The

following

table

presents

changes

accumulated

other

comprehensive

(loss)

income

component

for

the

years

ended

December 31, 2021, 2020 and 2019.

Changes in Accumulated Other Comprehensive (Loss) Income

by Component [1]

Years ended December

31,

(In thousands)

2021

2020

2019

Foreign currency translation

Beginning Balance

(71,254)

(56,783)

(49,936)

Other comprehensive income (loss)

3,947

(14,471)

(6,847)

Net change

3,947

(14,471)

(6,847)

Ending balance

(67,307)

(71,254)

(56,783)

Adjustment of pension and

postretirement benefit plans

Beginning Balance

(195,056)

(202,816)

(203,836)

Other comprehensive income (loss) before reclassifications

23,094

(5,645)

(13,671)

Amounts reclassified from accumulated other comprehensive

loss for

amortization of net losses

12,968

13,405

14,691

Net change

36,062

7,760

1,020

Ending balance

(158,994)

(195,056)

(202,816)

Unrealized net holding

(losses) gains on debt

securities

Beginning Balance

460,900

92,155

(173,811)

Other comprehensive (loss) income before reclassifications

(557,002)

368,780

265,950

Amounts reclassified from accumulated other comprehensive income

(loss) for (gains) losses on securities

(18)

(35)

Net change

(557,020)

368,745

265,966

Ending balance

(96,120)

460,900

92,155

Unrealized net losses on cash

flow hedges

Beginning Balance

(4,599)

(2,494)

(391)

Reclassification to retained earnings due to cumulative effect

adjustment of accounting change

(50)

Other comprehensive income (loss) before reclassifications

367

(6,400)

(4,439)

Amounts reclassified from accumulated other comprehensive loss

1,584

4,295

2,386

Net change

1,951

(2,105)

(2,103)

Ending balance

(2,648)

(4,599)

(2,494)

Total

(325,069)

189,991

(169,938)

[1] All amounts presented are net of tax.

151

The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for

the years ended December 31, 2021,

2020, and 2019.

Reclassifications Out of Accumulated Other Comprehensive

(Loss) Income

Affected Line Item in the

Years ended December

31,

(In thousands)

Consolidated Statements of Operations

2021

2020

2019

Adjustment of pension and postretirement benefit plans

Amortization of net losses

Other operating expenses

(20,749)

(21,447)

(23,508)

Total before tax

(20,749)

(21,447)

(23,508)

Income tax benefit

7,781

8,042

8,817

Total net of tax

(12,968)

(13,405)

(14,691)

Unrealized net holding (losses) gains on debt securities

Realized gain (loss) on sale of debt securities

Net gain (loss) on sale of debt securities

(20)

Total before tax

(20)

Income tax (expense) benefit

(5)

(6)

Total net of tax

(16)

Unrealized net losses on cash flow hedges

Forward contracts

Mortgage banking activities

(704)

(5,559)

(3,992)

Interest rate swaps

Other operating income

(1,143)

(820)

110

Total before tax

(1,847)

(6,379)

(3,882)

Income tax benefit

263

2,084

1,496

Total net of tax

(1,584)

(4,295)

(2,386)

Total reclassification

adjustments, net of tax

(14,534)

(17,665)

(17,093)

152

Note 23 – Guarantees

The Corporation

has obligations

upon the

occurrence of

certain events

under financial

guarantees provided

in certain

contractual

agreements as summarized below.

The

Corporation

issues

financial

standby

letters

credit

and

has

risk

participation

standby

letters

credit

issued

other

financial institutions, in each case to guarantee the performance of various

customers to third parties. If the customers failed to meet

its financial

or performance

obligation to

the third

party under

the terms

of the

contract, then,

upon their

request, the

Corporation

would be obligated to make the payment to the guaranteed party. At December 31, 2021, the Corporation recorded a liability of $0.2

million (December

31, 2020

- $0.2

million), which

represents the

unamortized balance of

the obligations undertaken

in issuing

the

guarantees under the standby

letters of credit.

In accordance with the

provisions of ASC Topic

460, the Corporation recognizes at

fair value the obligation at

inception of the standby letters

of credit. The fair value

approximates the fee received from the

customer

for issuing such commitments. These fees are deferred and are recognized over the commitment period. The contracted amounts

standby letters of

credit outstanding at

December 31, 2021

and 2020, shown

in Note 24,

represent the maximum

potential amount

of future

payments that

the Corporation

could be

required to

make under

the guarantees

in the

event of

nonperformance by

the

customers. These

standby letters

of credit

are used

by the

customers as

a credit

enhancement and

typically expire

without being

drawn

upon.

The

Corporation’s

standby

letters

credit

are

generally

secured,

and

the

event

nonperformance

the

customers, the Corporation has rights to the underlying

collateral provided, which normally includes cash,

marketable securities, real

estate, receivables, and others. Management does

not anticipate any material losses related to these instruments.

Also, from

time to

time, the

Corporation securitized mortgage

loans into

guaranteed mortgage-backed securities

subject in

certain

instances, to 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. Also,

from time

to time,

the Corporation

may sell,

in bulk

sale

transactions, residential mortgage loans

and Small Business Administration

(“SBA”) commercial loans subject

to credit recourse

to certain representations

and warranties from the

Corporation to the purchaser.

These representations and warranties

may relate,

for example, to borrower creditworthiness, loan documentation, collateral, prepayment and early payment defaults.

The Corporation

may be required to repurchase the loans under

the credit recourse agreements or representation

and warranties.

December

31,

2021,

the

Corporation

serviced

$0.7

billion

(December

31,

2020

$0.9

billion)

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

reimburse

the

third

party

investor

for

the

incurred

loss.

The

maximum

potential

amount of

future

payments

that

the

Corporation

would

required

make

under

the

recourse

arrangements

the

event

nonperformance

the

borrowers

equivalent

the

total

outstanding

balance

the

residential

mortgage

loans

serviced

with

recourse

and

interest,

applicable.

During 2021,

the Corporation

repurchased approximately $19

million of

unpaid principal

balance in

mortgage loans

subject to

the

credit recourse

provisions (2020

- $161

million, which

included $120

million as

part of

the bulk

loan repurchase

from FNMA

and

FHLMC

during

the

third

quarter

2020,

for

which

the

Corporation

recorded

release

$5.1

million

its

reserve

for

credit

recourse).

the

event

nonperformance by

the

borrower,

the

Corporation has

rights

the

underlying

collateral

securing

the

mortgage loan. The Corporation suffers 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 December 31,

2021, the Corporation’s

liability established to

cover the

estimated credit loss exposure related to

loans sold or serviced with credit

recourse amounted to $12 million (December 31,

2020 -

$22 million).

The following

table shows

the changes

in the

Corporation’s liability

of estimated

losses from

these credit

recourses

agreements, included in the consolidated statements of

financial condition during the years ended December

31, 2021 and 2020.

Years ended December

31,

(In thousands)

2021

2020

Balance as of beginning of period

22,484

34,862

Impact of adopting CECL

(3,831)

Provision (benefit) for recourse liability

(2,948)

(104)

Net charge-offs

(7,736)

(8,443)

Balance as of end of period

11,800

22,484

153

The estimated losses to be absorbed under the credit

recourse arrangements are recorded as a liability when

the loans are sold and

are updated by

accruing or reversing expense

(categorized in the

line item “Adjustments

(expense) to indemnity reserves

on loans

sold”

the

consolidated

statements

operations)

throughout

the

life

the

loan,

necessary,

when

additional

relevant

information becomes available. The

methodology used to

estimate the recourse

liability is a

function of the

recourse arrangements

given and

considers a

variety of

factors, which

include actual

defaults and

historical loss

experience, foreclosure

rate, estimated

future defaults

and the

probability that

a loan

would be

delinquent. Statistical

methods are

used to

estimate the

recourse liability.

Expected loss

rates are

applied to

different loan

segmentations. The

expected loss,

which represents

the amount

expected to

lost on a given loan, considers the

probability of default and loss severity.

The probability of default represents the probability that

loan in

good standing

would become

90 days

delinquent within

the following

twelve-month period.

Regression analysis

quantifies

the relationship

between the

default event

and loan-specific

characteristics, including

credit scores,

loan-to-value ratios,

and loan

aging, among others.

When the

Corporation sells or

securitizes mortgage loans,

it generally makes

customary representations and

warranties regarding

the characteristics

of the

loans sold. The

Corporation’s mortgage operations

in Puerto

Rico group conforming

mortgage loans into

pools which are

exchanged for FNMA and

GNMA mortgage-backed securities, which are

generally sold to

private investors, or are

sold directly

to FNMA

for cash.

As required

under the

government agency

programs, quality

review procedures

are performed

the Corporation to

ensure that asset

guideline qualifications are met.

the extent the

loans do not

meet specified characteristics,

the

Corporation may

be required

repurchase such

loans or

indemnify for

losses and

bear any

subsequent loss

related to

the

loans. There were no repurchases under BPPR’s

representation and warranty arrangements

during the years ended December 31,

2021

and

2020.

substantial

amount

these

loans

reinstate

performing

status

have

mortgage

insurance,

and

thus

the

ultimate losses on the loans are not deemed

significant.

The following table presents the

changes in the Corporation’s

liability for estimated losses associated

with the indemnifications and

representations and warranties related to loans

sold during the years ended December 31,

2021 and 2020.

Years ended December

31,

(In thousands)

2021

2020

Balance as of beginning of period

2,297

3,212

Provision (benefit) for representation and warranties

(1,458)

(915)

Balance as of end of period

839

2,297

154

Servicing agreements

relating to

the mortgage-backed

securities

programs of

FNMA and

GNMA, and

mortgage loans

sold

serviced to

certain other

investors, including

FHLMC, require

the Corporation

advance funds

to make

scheduled payments

principal, interest, taxes

and insurance,

if such

payments have not

been received

from the

borrowers. At December

31, 2021,

the

Corporation serviced

$12.1 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

insurance

and

guarantees

programs.

However,

the

meantime,

the

Corporation

must

absorb

the

cost

the

funds

advances

during

the

time

the

advance

outstanding.

The

Corporation

must

also

bear

the

costs

attempting

collect

delinquent and defaulted mortgage loans. In

addition, if a defaulted loan

is not cured, the mortgage

loan would be canceled as

part

the

foreclosure

proceedings

and

the

Corporation would

not

receive

any

future

servicing

income

with

respect

that

loan.

December

31,

2021,

the

outstanding

balance

funds

advanced

the

Corporation

under

such

mortgage

loan

servicing

agreements

was approximately

$54 million

(December 31,

2020

- $66

million).

the extent

the mortgage

loans underlying

the

Corporation’s servicing portfolio experience increased delinquencies, the

Corporation would be required to dedicate

additional cash

resources

comply

with

its

obligation to

advance

funds

well as

incur

additional

administrative costs

increases

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 both December 31,

2021 and December 31, 2020, respectively.

In addition, at both December 31, 2021 and December 31, 2020, PIHC

fully and unconditionally guaranteed on a subordinated basis

$193

million

and

$374

million,

respectively,

capital

securities

(trust

preferred

securities)

issued

wholly-owned

issuing

trust

entities to the

extent set forth

in the applicable

guarantee agreement. Refer to

Note 18 to

the consolidated financial statements

for

further information on the trust preferred securities.

155

Note 24 – 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

credit

loss

the

event

nonperformance

the

other

party

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)

December 31, 2021

December 31, 2020

Commitments to extend credit:

Credit card lines

5,382,089

5,226,660

Commercial and construction lines of credit

3,830,601

3,805,459

Other consumer unused credit commitments

250,229

257,312

Commercial letters of credit

3,260

1,864

Standby letters of credit

27,848

22,266

Commitments to originate or fund mortgage loans

95,372

96,786

December 31,

2021

and

December 31,

2020,

the

Corporation maintained

reserve

approximately $7.9

million

and

$15.9

million,

respectively,

for

potential

losses

associated

with

unfunded

loan

commitments

commercial,

construction

and

consumer lines of credit.

Other commitments

At December 31,

2021, and December

31, 2020, the

Corporation also maintained

other non-credit commitments

for approximately

$1.0 million and $1.4 million, respectively, 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 37

to the Consolidated

Financial Statements.

Puerto

Rico

has

faced

significant

fiscal

and

economic

challenges

for

over

decade.

response

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

framework

for

the

restructuring

the

debts

the

Commonwealth,

its

instrumentalities

and

municipalities.

The

Commonwealth

and

several

its

instrumentalities

have

commenced

debt

restructuring

proceedings

under

PROMESA.

the

date

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 December 31, 2021, the Corporation’s direct exposure to the

Puerto Rico government and its instrumentalities and municipalities

totaled $367

million, of

which $349 million

were outstanding, compared

to $377

million, which were

fully outstanding at

December

31, 2020. Of

the amount outstanding,

$319 million consists

of loans and

$30 million are

securities ($342 million

and $35 million

December 31,

2020). Substantially all

of the

amount outstanding at

December 31,

2021 and December

31, 2020

were obligations

from various

Puerto Rico

municipalities. In

most cases,

these were

“general obligations”

of a

municipality,

to which

the applicable

municipality

has

pledged its

good

faith, credit

and unlimited

taxing power,

“special obligations”

a municipality,

which the

applicable municipality has

pledged other revenues. At

December 31, 2021,

75% of the

Corporation’s exposure to

municipal loans

and

securities

was

concentrated

the

municipalities

San

Juan,

Guaynabo,

Carolina

and

Bayamón.

July

2021,

the

156

Corporation

received

scheduled

principal

payments

amounting

$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 December 31, 2021:

(In thousands)

Investment

Portfolio

Loans

Total Outstanding

Total Exposure

Central Government

After 1 to 5 years

After 5 to 10 years

After 10 years

Total Central

Government

Municipalities

Within 1 year

4,240

68,650

72,890

After 1 to 5 years

14,395

70,962

85,357

103,546

After 5 to 10 years

11,280

123,521

134,801

After 10 years

230

55,257

55,487

Total Municipalities

30,145

318,390

348,535

366,724

Total Direct Government

Exposure

30,198

318,390

348,588

366,777

addition,

December

31,

2021,

the

Corporation

had

$275

million

loans

insured

securities

issued

Puerto

Rico

governmental entities

but for

which the

principal source

of repayment

is non-governmental

($317 million

at December

31, 2020).

These

included

$232

million

residential

mortgage

loans

insured

the

Puerto

Rico

Housing

Finance

Authority

(“HFA”),

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 December

31,

2021, $43 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

currently

authorized

local

legislation

impose

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

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

government

employees

and

retirees,

which

could

also

negatively

affected

fiscal

measures

such

employee

layoffs

furloughs or reductions in pension benefits.

In addition,

$1.6 billion

of residential

mortgages, $353

million of

Small Business

Administration (“SBA”) loans

under the

Paycheck

Protection Program (“PPP”) and

$67

million commercial loans were

insured or guaranteed

by the U.S.

Government or its agencies

at December 31, 2021 (compared to $1.8 billion,

$1.3 billion and $60 million, respectively, at December 31, 2020).

At December 31,

2021, the Corporation has

operations in the United

States Virgin Islands

(the “USVI”) and

has approximately $70

million

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

service their outstanding debt obligations.

At December

31, 2021, the

Corporation has

operations in the

British Virgin

Islands (“BVI”),

which has

been negatively affected

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

significant

exposure

single

borrower

the

BVI,

has

loan

portfolio

amounting

157

approximately

$221

million

comprised

various

retail

and

commercial

clients,

compared

loan

portfolio

$251

million

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

Popular’s

business

ordinarily

generates

claims,

litigation,

investigations,

and

legal

and

administrative

cases

and

proceedings (collectively,

“Legal Proceedings”).

When the

Corporation determines

that

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

quarterly basis, Popular assesses its liabilities and contingencies relating

to outstanding Legal Proceedings utilizing the most current

information

available.

For

matters

where

probable

that

the

Corporation

will

incur

material

loss

and

the

amount

can

reasonably estimated,

the Corporation

establishes an

accrual for

the loss.

Once established,

the accrual

is adjusted

on at

least a

quarterly

basis

reflect

any

relevant

developments,

appropriate.

For

matters

where

material

loss

not

probable,

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 $33.9 million as

December

31,

2021.

certain

cases,

management cannot

reasonably

estimate

the

possible

loss

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

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

has

already

accrued

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

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

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

failing

reimburse

them

for

commissions

paid

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.

December 2017, plaintiffs amended the complaint and, in January

2018, defendants filed an answer thereto. Separately,

in October

2017, the Court entered an

order whereby it broadly certified

the class, after which the Popular

Defendants filed a certiorari petition

before the

Puerto Rico

Court of

Appeals in

relation to

the class

certification, which

the Court

declined to

entertain. In

November

2018 and

in January 2019,

plaintiffs filed

voluntary dismissal petitions

against MAPFRE-PRAICO Insurance

Company and Antilles

Insurance Company, respectively, leaving the Popular Defendants as the sole remaining defendants in the

action.

158

In April

2019, the Court

amended the class

definition to limit

it to

individual homeowners whose

residential units were

subject to

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.

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.

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. On December

29, 2021, Popular

Insurance filed a

petition of

certiorari

the Puerto Rico

Court of Appeals,

seeking review from

the denial of

the motion for

summary judgment. This

petition of

certiorari

now fully briefed and pending resolution.

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

residential

customers

the

defendant

banks

who

have

allegedly

been

subject

illegal

foreclosures

and/or

loan

modifications

through

their

mortgage

servicers.

Plaintiffs

contend

that

when

they

sought

reduce

their

loan

payments,

defendants

failed

provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure

claims

against

them

parallel,

all

violation

the

Truth

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

motion

oppose

class

certification,

which the

Court

granted

September

2018.

April

2019,

the

Court

entered an

Opinion and

Order granting

BPPR’s and

several other

defendants’ motions

to dismiss

with prejudice.

Plaintiffs filed

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”)

the

same

“item”

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.

April

21,

2021,

the

Court

issued

order

granting

part

and

denying

part

BPPR’s

motion

dismiss;

the

unjust

enrichment claim

was dismissed,

whereas the

breach of

contract and

covenant of

good faith

and fair

dealing claims

survived the

motion. Discovery is ongoing.

Popular has been also

named as a defendant

on a putative class

action complaint captioned Golden v.

Popular, Inc. filed

in March

2020 before the U.S. District

Court for the Southern District

of New York,

seeking damages, restitution and injunctive

relief. Plaintiff

alleges

breach of

contract, violation

the covenant

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,

not overdraw the

account. Plaintiff describes

Popular’s purported practice of

charging OD Fees

as “Authorize Positive, Purportedly

159

Settle

Negative”

(“APPSN”)

transactions

and

alleges

that

Popular

assesses

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

the

Virgin

Islands

against

Popular,

Inc.,

Popular

Bank

and

BPPR.

November

2020,

Plaintiffs

filed

Notice

Voluntary

Dismissal against

Popular,

Inc.

and Popular

Bank

following a

Motion to

Dismiss filed

on behalf

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

trial

management

order

where

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.

On January

31, 2022,

Popular was

also named

as a

defendant on a

putative class

action complaint captioned

Lipsett v.

Popular,

Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District

of New York, seeking damages, restitution and

injunctive relief. Similar to the claims set forth in the

aforementioned

Golden

complaint, Plaintiff alleges breach of contract, including

violations of the covenant of good faith and

fair dealing, as a result of Popular’s purported practice of

charging OD Fees for APPSN

transactions.

The complaint further alleges

that Popular assesses OD

Fees over authorized transactions

for which sufficient

funds

are held for settlement. Popular waived service of process

and expects to file a responsive allegation

by April 4, 2022.

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

recover damages

for the

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

dismiss filed

both

actions

was

held, at

which

the

Court

dismissed one

the causes

action

included

plaintiffs in the AB Action.

June

2021,

the

Court

in the

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

and

limited

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

Puerto

Rico,

including

Popular

Securities.

Popular

Securities

has

received

customer

complaints

and,

December 31,

2021,

was named

respondent (among

other

broker-dealers) in

pending arbitration

160

proceedings with

initial claimed

amounts of

approximately $62

million

the

aggregate. While

Popular

Securities

believes

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

see

such

cases

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

pursue

restructurings

under

Title

III

and

Title

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.

adverse result

in the

arbitration proceedings

described

above, or a significant increase in customer complaints,

could have a material adverse effect on Popular.

October

28,

2021,

panel

arbitration

proceeding

with

claimed

damages

arising

from

trading

losses

approximately

$30 million ordered

Popular Securities

pay claimants

approximately $6.9

million in

compensatory damages

and expenses.

November 4,

2021, the claimants

in such

arbitration proceeding filed

a complaint

captioned Trinidad

García v.

Popular, Inc.

et. al.

before

the

United

States

District

Court

for

the

District

Puerto

Rico

against

Popular,

Inc.,

BPPR

and

Popular

Securities

(the

“Popular

Defendants”)

alleging,

inter

alia,

that

they

sustained

monetary

losses

result

the

Popular

Defendants’

anticompetitive,

unfair,

and

predatory

practices,

including

tying

arrangements

prohibited

the

Bank

Holding

Company

Act.

Plaintiffs

claim

that

the

Popular

Defendants

caused

them

enter

tying

arrangement scheme

whereby BPPR

allegedly

would

extend secured

credit lines

to the

Plaintiffs on

the conditions

that they

transfer their

portfolios to

Popular Securities

to be

used as

pledged

collateral

and

obtain

additional

investment

services

and

products

solely

from

Popular

Securities,

not

from

any

its

competitors. Plaintiffs

also

invoke federal

court’s

supplemental jurisdiction

allege several

state law

claims

against the

Popular

Defendants,

including

contractual

fault,

fault

causing

losses

value

the

pledge

collateral,

breach

contract,

request

for

specific compliance

thereof, fault

in pre-contractual negotiations,

emotional distress, and

punitive damages. On

January 27,

2022,

Plaintiffs filed an Amended Complaint and the Popular Defendants were served with summons on that same date. Plaintiffs demand

less than

$390

million

damages,

plus

award for

costs

and

attorney's fees.

The

Popular

Defendants expect

file

their

response by March 21, 2022.

PROMESA Title III Proceedings

2017,

the

Oversight

Board

engaged

the

law

firm

Kobre &

Kim

carry

out

independent

investigation

behalf

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

connection with

requests

for

the

preservation

and

voluntary

production

certain

documents

and

witnesses

with

respect

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

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 then being

challenged as

invalid by the

SCC and

the UCC.

The Popular

Companies, the SCC

and the

UCC 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.

On January 12,

2022, the

SCC, the

UCC and

the Popular

Companies executed

a settlement

agreement as

to potential

claims related

to the

avoidance and

recovery of payments

and/or transfers made

to the Popular

Companies. The tolling

agreement as to

potential claims the

SCC and

the

UCC may

assert against

the Popular

Companies as

a result

any role

of the

Popular Companies

in the

offering

of certain

challenged bond issuances remains in effect.

161

Note 25 – Non-consolidated variable interest

entities

The Corporation

is involved

with three

statutory trusts

which it

established to

issue trust

preferred securities

to the

public. These

trusts

are

deemed to

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

the

trust

preferred

securities

irrelevant

since

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

these

guaranteed

loan

securitizations

includes

owning

certain

beneficial

interests

the

form of

securities as well

as the servicing

rights retained. The

Corporation is not

required to provide

additional financial support

any of

the variable

interest entities

to which

it has

transferred the

financial assets.

The mortgage-backed

securities, to

the extent

retained,

are

classified

the

Corporation’s

Consolidated

Statements

Financial

Condition

available-for-sale

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

potentially

significant to the VIE.

The

Corporation

holds

variable

interests

these

VIEs

the

form

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

has

other

form

continuing

involvement.

Refer

Note

the

Consolidated

Financial

Statements

for

additional

information

the

debt

securities

outstanding

December

31,

2021

and

2020,

which

are

classified

available-for-sale

and

trading securities

in the

Corporation’s Consolidated

Statements of

Financial Condition.

In addition,

the Corporation

holds variable

interests

the

form

servicing fees,

since

retains

the

right

service

the

transferred

loans

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

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 December 31, 2021 and 2020.

162

(In thousands)

December 31, 2021

December 31, 2020

Assets

Servicing assets:

Mortgage servicing rights

94,464

90,273

Total servicing

assets

94,464

90,273

Other assets:

Servicing advances

7,968

8,769

Total other assets

7,968

8,769

Total assets

102,432

99,042

Maximum exposure to loss

102,432

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 December 31, 2021

(December 31, 2020 - $8.7 billion).

The Corporation

determined that

the maximum

exposure to

loss includes

the fair

value of

the MSRs

and the

assumption that

the

servicing advances

at December 31,

2021 and

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

still

not

the

primary

beneficiary

these

VIEs,

and

therefore, these VIEs are not required to be consolidated

in the Corporation’s financial statements at December 31, 2021.

163

Note 26 – Derivative instruments and hedging

activities

The

use

derivatives

incorporated

part

the

Corporation’s

overall

interest

rate

risk

management

strategy

minimize

significant unplanned fluctuations in

earnings and cash flows

that are caused

by interest rate volatility.

The Corporation’s goal

is to

manage interest

rate sensitivity by

modifying the repricing

or maturity characteristics

of certain

balance sheet assets

and liabilities

that the

net interest

income is

not materially

affected

by movements

in interest

rates. The

Corporation uses

derivatives in

its

trading activities

to facilitate

customer transactions,

and as

a means

of risk

management. As

a result

of interest

rate fluctuations,

hedged fixed and

variable interest rate

assets and liabilities

will appreciate or

depreciate in fair

value. The effect

of this

unrealized

appreciation or depreciation is expected to be

substantially offset by the Corporation’s

gains or losses on the derivative instruments

that are linked to these hedged assets and liabilities. As a matter of policy,

the Corporation does not use highly leveraged derivative

instruments for interest rate risk management.

The credit

risk attributed to

the counterparty’s

nonperformance risk is

incorporated in the

fair value

of the

derivatives. Additionally,

the

fair value

the

Corporation’s own

credit

standing is

considered in

the fair

value

of the

derivative liabilities.

During the

year

ended December

31, 2021, inclusion

of the

credit risk

in the

fair value

of the

derivatives resulted in

a loss

of $0.3

million from the

Corporation’s credit

standing adjustment

and a

loss of

$0.1 million

from the

counterparty’s

nonperformance risk.

During the

years

ended

December

31,

2020

and

2019,

the

Corporation recognized

gain

$0.7

million

and

$0.2 million,

respectively,

from

the

Corporation’s credit standing adjustment.

The Corporation’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty.

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

fair

value

derivatives

not

offset

with

the

fair

value

other

derivatives

held

with

the

same

counterparty

even

these

agreements allow

a right

of set-off.

addition,

the fair

value of

derivatives is

not offset

with the

amounts for

the right

reclaim

financial collateral or the obligation to return financial

collateral.

Financial

instruments

designated as

cash

flow

hedges

non-hedging derivatives

outstanding at

December 31,

2021

and

2020

were as follows:

164

Notional amount

Derivative assets

Derivative liabilities

Statement of

Fair value at

Statement of

Fair value at

At December 31,

condition

December 31,

condition

December 31,

(In thousands)

2021

2020

classification

2021

2020

classification

2021

2020

Derivatives designated as

hedging instruments:

Forward contracts

87,900

188,800

Other assets

Other liabilities

125

1,267

Total derivatives designated

as hedging instruments

87,900

188,800

125

1,267

Derivatives not designated

as hedging instruments:

Interest rate caps

27,866

29,248

Other assets

Other liabilities

Indexed options on deposits

79,114

69,054

Other assets

26,075

20,785

Bifurcated embedded options

72,352

63,121

Interest

bearing

deposits

22,753

17,658

Total derivatives not

designated as

hedging instruments

179,332

161,423

26,075

20,785

22,753

17,658

Total derivative assets

and liabilities

267,232

350,223

26,093

20,785

22,878

18,925

Cash Flow Hedges

The Corporation

utilizes forward

contracts to

hedge the

sale

of mortgage-backed

securities with

duration terms

over one

month.

Interest rate forwards are contracts for the delayed delivery of securities,

which the seller agrees to deliver on a specified future date

a specified

price or

yield.

These forward

contracts are

hedging a

forecasted transaction

and thus

qualify for

cash flow

hedge

accounting. Changes in the fair value of the derivatives are recorded in other comprehensive (loss)

income.

The amount included in

accumulated other comprehensive (loss) income corresponding to these forward contracts is expected to be reclassified to earnings

in the next twelve months. These contracts have

a maximum remaining maturity of 76 days at

December 31, 2021.

For cash flow hedges,

net gains (losses) on

derivative contracts that are

reclassified from accumulated other comprehensive

(loss)

income to current period

earnings are included in the

line item in which the

hedged item is recorded and

during the period in

which

the forecasted transaction impacts earnings, as

presented in the tables below.

Year ended December

31, 2021

(In thousands)

Amount of net gain (loss)

recognized in OCI on

derivatives (effective

portion)

Classification in the statement of

operations of the net gain (loss)

reclassified from AOCI into income

(effective portion and ineffective

portion)

Amount of net gain

(loss) reclassified from

AOCI into income

(effective portion)

Amount of net gain

(loss) recognized in

income on derivatives

(ineffective portion)

Forward contracts

456

Mortgage banking activities

(704)

Total

456

(704)

165

Year ended December

31, 2020

(In thousands)

Amount of net gain (loss)

recognized in OCI on

derivatives (effective

portion)

Classification in the statement of

operations of the net gain (loss)

reclassified from AOCI into income

(effective portion and ineffective

portion)

Amount of net gain

(loss) reclassified from

AOCI into income

(effective portion)

Amount of net gain

(loss) recognized in

income on derivatives

(ineffective portion)

Forward contracts

(6,594)

Mortgage banking activities

(5,559)

Total

(6,594)

(5,559)

Year ended December

31, 2019

(In thousands)

Amount of net gain (loss)

recognized in OCI on

derivatives (effective

portion)

Classification in the statement of

operations of the net gain (loss)

reclassified from AOCI into income

(effective portion and ineffective

portion)

Amount of net gain

(loss) reclassified from

AOCI into income

(effective portion)

Amount of net gain

(loss) recognized in

income on derivatives

(ineffective portion)

Forward contracts

(3,502)

Mortgage banking activities

(3,992)

Total

(3,502)

(3,992)

Fair Value Hedges

At December 31, 2021 and 2020, there were

no derivatives designated as fair value hedges.

Non-Hedging Activities

For the year ended

December 31, 2021, the

Corporation recognized a gain

of $2.3 million (2020

– loss of $3.0

million; 2019 – loss

of $ 1.2 million) related to its non-hedging

derivatives, as detailed in the table below.

Amount of Net Gain (Loss) Recognized in Income on Derivatives

Year ended

Classification of Net Gain (Loss)

December 31,

(In thousands)

Recognized in Income on Derivatives

2021

2020

2019

Forward contracts

Mortgage banking activities

2,027

(5,027)

(2,254)

Interest rate caps

Other operating income

(5)

Indexed options on deposits

Interest expense

6,824

5,462

7,898

Bifurcated embedded options

Interest expense

(6,538)

(3,417)

(6,883)

Total

2,313

(2,982)

(1,244)

Forward Contracts

The Corporation has forward contracts to sell

mortgage-backed securities, which are accounted for as trading

derivatives. Changes

in their fair value are recognized in mortgage banking

activities.

Interest Rate Caps

The

Corporation enters

into

interest rate

caps as

an intermediary

behalf of

its customers

and simultaneously

takes offsetting

positions under the same terms and conditions, thus minimizing

its market and credit risks.

Indexed and Embedded Options

The Corporation offers certain customers’ deposits whose

return are tied to the performance of the Standard

and Poor’s (“S&P 500”)

stock

market

indexes,

and

other

deposits

whose

returns

are

tied

other

stock

market

indexes

other

equity

securities

performance. The

Corporation bifurcated the

related options embedded

within these

customers’ deposits from

the host

contract in

accordance with

ASC Subtopic

815-15. In

order to

limit the

Corporation’s exposure

to changes

in these

indexes, the

Corporation

purchases indexed options which

returns are tied to

the same indexes from

major broker dealer companies

in the over the

counter

market. Accordingly, the embedded options and the related indexed options are marked-to-market

through earnings.

166

Note 27 – Related party transactions

The Corporation grants loans to its directors, executive officers, including

certain related individuals or organizations, and affiliates in

the ordinary course of business. The activity and

balance of these loans were as follows:

(In thousands)

Balance at December 31, 2019

133,054

New loans

8,360

Payments

(16,839)

Other changes, including existing loans to new related parties

316

Balance at December 31, 2020

124,891

New loans

3,182

Payments

(28,208)

Other changes, including existing loans to new related parties

2,714

Balance at December 31, 2021

102,579

New loans and payments include disbursements and collections

from existing lines of credit.

The Corporation has had loan transactions with the Corporation’s

directors, executive officers, including certain related individuals

organizations, and affiliates, and

proposes to continue such

transactions in the ordinary

course of its business,

on substantially the

same terms, including interest rates and collateral, as those prevailing for comparable loan transactions with third parties. Except as

discussed

below,

the extensions

credit

have not

involved and

do not

currently

involve more

than normal

risks of

collection or

present

other

unfavorable

features.

addition,

during

2020,

response

the

coronavirus

(COVID-19)

pandemic,

BPPR

implemented loan payment moratorium programs with respect to

consumer and commercial loans which were made

available to all

qualifying

customers

provide

financial

relief

during

the

pandemic.

Certain

Parties

participated

this

moratorium

programs under the same terms and conditions

offered to other unrelated third parties.

In 2010,

as part

of the

Westernbank FDIC

assisted transaction,

BPPR acquired

five commercial

loans made

to entities

that were

wholly

owned

one

brother-in-law

director

the

Corporation.

The

loans

were

secured

real

estate

and

personally

guaranteed

the

director’s

brother-in-law.

The

loans

were

originated

Westernbank

between

2001

and

2005

and

had

aggregate outstanding principal

balance of approximately

$33.5 million when

they were acquired

by BPPR in

2010. Between 2011

and 2014,

the loans

were restructured to

consist of

(i) five

notes with

an aggregate

outstanding principal

balance of

$19.8 million

with

annual interest

rate

(“Notes A”)

and

(ii)

five

notes

with

aggregate outstanding

balance

$13.5

million

with a

annual interest

rate, to

be paid

upon maturity

(“Notes B”).

The restructured

notes had

an original

maturity of

September 30,

2016

and, thereafter,

various interim renewals were

approved to allow

for the re-negotiation of

a longer-term extension. The

most recent

of these interim renewals

were approved on February,

April and August 2020.

These renewals, among other things,

decreased the

interest

rate

applicable

the

Notes

4.25%

and

maintained

the

Notes

interest

rate

1%.

During

2020,

the

Audit

Committee also authorized two separate 90-day principal and interest moratoriums, from March to May and from June to August, as

financial

relief in

response to

the coronavirus

(COVID-19) pandemic.

On September

2020, in

accordance with

the Related

Party

Transaction Policy and after being approved by the Audit Committee, the

maturity date of the credit facilities was extended until April

2022, fixing the

interest rate at 4.25%

for Notes A

and at 1% for

Notes B during such

term. The aggregate outstanding

balance on

the loans as of December 31, 2021

was approximately $30.6 million, of which approximately $17.1 million corresponded to Notes A

and $13.5 million to Notes B.

In April 2010, in

connection with the acquisition of

the Westernbank assets from

the FDIC, as receiver,

BPPR acquired a term loan

to a

corporate borrower

partially owned

by an

investment corporation

in which

the Corporation’s

Chairman, at

that time

the Chief

Executive Officer, as well as certain of

his family members, are the owners. In addition, the Chairman’s sister and brother-in-law are

owners of an

entity that holds

an ownership interest

in the borrower.

At the time

the loan was

acquired by BPPR,

it had an

unpaid

principal balance of $40.2 million. In

May 2017, this loan was sold by

BPPR to Popular, Inc.,

holding company (“PIHC”). At the time

of sale, the loan had an unpaid principal balance of $37.9

million. PIHC paid $37.9 million to BPPR for the loan,

of which $6.0 million

was recognized by BPPR as a capital contribution representing the difference

between the fair value and the book value of the

loan

at the

time of

transfer.

Immediately upon

being acquired

by PIHC,

the loan’s

maturity was

extended by

90 days

(under the

same

terms as

originally contracted) to

provide the PIHC

additional time to

evaluate a

refinancing or long-term

extension of the

loan.

167

August 2017, the credit

facility was refinanced with

a stated maturity in

February 2019.

During 2017, the facility

was subject to the

loan payment moratorium offered as part of the hurricane relief efforts. As such,

interest payments amounting to approximately $0.5

million

were

deferred

and

capitalized

part

the

loan

balance.

February

2019,

the

Audit

Committee

approved,

under

the

Related Party Policy, a 36-month renewal of the loan at an interest rate of 5.75% and a 30-year

amortization schedule. In

December

2021, the Corporation refinanced the then-current $36.0 million

principal balance of the loan at

an interest rate of 4.50%, a

maturity

date of December 2026

and a 20-year amortization schedule.

As of December 31,

2021, the unpaid principal

balance amounted to

$34.8 million.

In April

2010, a private

trust and a

sister-in-law of a

director, as

co-borrowers, obtained a

$0.2 million mortgage

loan from Popular

Mortgage, then a subsidiary of BPPR, secured by a residential property. The loan was a fully amortizing 40-year mortgage loan with

fixed

annual

rate

2.99%

for

the

first

years,

and

thereafter

annual

rate

5.875%.

From

March

August

2020,

the

borrowers participated in the COVID-19 forbearance program offered by BPPR to

qualifying mortgage customers in response to the

coronavirus (COVID-19) pandemic. After the expiration of such moratorium period, borrowers did not make any payments under the

loan during the months of September and October 2020,

thereby defaulting on the indebtedness. On November 2020,

the borrowers

requested and

were granted,

an additional

3-month loan

payment moratorium

pursuant to

BPPR’s ordinary

course loss

mitigation

program, which expired

in January 2021.

Since the expiration

of this 3-month

loan payment forbearance the

borrowers have failed

to make

the monthly

loan payments

when due. The

outstanding balance of

the loan

as of

December 31,

2021 was

approximately

$0.2 million. BPPR is currently evaluating borrowers’ application

in connection with this loan under BPPR’s loss mitigation

program.

December

31,

2021,

the

Corporation’s

banking

subsidiaries

held

deposits

from

parties,

excluding

EVERTEC,

Inc.

(“EVERTEC”) amounting to approximately $700 million (2020

- $851 million).

From

time

time,

the

Corporation,

the

ordinary

course

business,

obtains

services

from

parties

that

have

some

association with the

Corporation. Management believes the

terms of such

arrangements are consistent with

arrangements entered

into with independent third parties.

For

the

year

ended

December

31,

2021,

the

Corporation made

contributions

approximately

$4.5

million

Fundación

Banco

Popular and

Popular Bank

Foundation, which

are not-for-profit

corporations dedicated

to philanthropic

work (2020

- $1.6

million).

The Corporation also provided

human and operational resources

to support the

activities of the Fundación

Banco Popular which in

2021 amounted to approximately $1.3 million (2020- $1.4

million).

Related party transactions with EVERTEC, as an affiliate

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 December 31,

2021, the Corporation’s

stake in EVERTEC

was 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 $2.3

million in

dividend distributions

during the

year ended

December 31,

2021 from

its investments

EVERTEC’s holding company

(December 31, 2020

- $2.3 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 statement of financial

condition.

(In thousands)

December 31, 2021

December 31, 2020

Equity investment in EVERTEC

110,299

86,158

The Corporation

had the

following financial

condition balances

outstanding with

EVERTEC at

December 31,

2021 and

December

31, 2020.

Items that represent liabilities to the Corporation

are presented with parenthesis.

168

(In thousands)

December 31, 2021

December 31, 2020

Accounts receivable (Other assets)

5,668

5,678

Deposits

(150,737)

(125,361)

Accounts payable (Other liabilities)

(3,431)

(2,395)

Net total

(148,500)

(122,078)

The

Corporation’s

proportionate

income

from

EVERTEC

included

other

operating

income

the

consolidated

statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income and changes in

stockholders’ equity for the years ended December

31, 2021, 2020 and 2019.

Years ended December

31,

(In thousands)

2021

2020

2019

Share of income from

investment in EVERTEC

26,096

16,936

16,749

Share of other changes in EVERTEC's stockholders'

equity

865

516

Share of EVERTEC's changes in equity recognized

in income

26,149

17,801

17,265

The

following

tables

present

the

impact

transactions

and

service

payments

between

the

Corporation

and

EVERTEC

(as

affiliate) and their impact on the

results of operations for the years ended December

31, 2021, 2020 and 2019. Items that represent

expenses to the Corporation are presented with

parenthesis.

169

Years ended December

31,

(In thousands)

2021

2020

2019

sponsored

entities

Collateralized mortgage obligations - federal

agencies

221,265

Mortgage-backed securities

8,886,950

826

8,887,776

Other

128

Total debt securities

available-for-sale

24,967,443

826

24,968,269

Trading account debt securities, excluding

derivatives:

U.S. Treasury securities

6,530

Obligations of Puerto Rico, States and political

subdivisions

Collateralized mortgage obligations

198

257

Mortgage-backed securities

22,559

Other

280

Total trading account

debt securities, excluding

derivatives

6,530

22,703

478

29,711

Equity securities

32,429

32,506

Mortgage servicing rights

121,570

Derivatives

26,093

Total assets measured

at fair value on a

recurring basis

6,530

25,048,668

122,874

25,178,149

Liabilities

Derivatives

(22,878)

Contingent consideration

(9,241)

Total liabilities measured

at fair value on a

recurring basis

(22,878)

(9,241)

(32,119)

172

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