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    BPOP   PR7331747001

POPULAR, INC.

(BPOP)
  Report
Real-time Estimate Cboe BZX  -  03:15 2022-12-09 pm EST
65.84 USD   +0.94%
12/06POPULAR, INC. : Ex-dividend day for
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12/05Popular, Inc. Declares Dividend on Preferred Stock and Announces Distribution on Trust Preferred Securities
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11/29The Relevant Group, LLC announced that it has received $45 million in funding from a group of investors
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POPULAR, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/09/2022 | 04:31pm EST
This report includes management's discussion and analysis ("MD&A") of the
consolidated financial position and financial performance of Popular, Inc. (the
"Corporation" or "Popular"). All accompanying tables, financial statements and
notes included elsewhere in this report should be considered an integral part of
this analysis.

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

The Corporation has several investments which it accounts for under the equity
method. As of June 30, 2022, the Corporation had a 16.33% interest in Evertec,
Inc. ("Evertec"), whose operating subsidiaries provide transaction processing
services throughout the Caribbean and Latin America, and service many of the
Corporation's systems infrastructure and transaction processing businesses. On
July 1, 2022, the Corporation's ownership stake in Evertec was reduced to 10.6%,
as further discussed below. During the quarter ended June 30, 2022, the
Corporation recorded $6.9 million in earnings from its investment in Evertec,
which had a carrying amount of $125 million as of the end of the quarter.

Also, the Corporation had a 15.84% equity interest in Centro Financiero BHD
León, S.A. ("BHD León"), one of the largest banking and financial services
groups in the Dominican Republic. During the six months ended June 30, 2022, the
Corporation recorded $14.5 million in earnings from its investment in BHD León,
which had a carrying amount of $184.8 million, as of the end of the quarter.

SIGNIFICANT EVENTS

Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec


On July 1, 2022, the Corporation's wholly owned subsidiary, Banco Popular de
Puerto Rico ("BPPR"), completed its previously announced acquisition of certain
assets from Evertec Group, LLC ("Evertec Group"), a wholly owned subsidiary of
Evertec, Inc. ("Evertec") (NYSE: EVTC), to service certain BPPR channels.

As a result of the closing of the transaction, BPPR acquired from Evertec Group
certain critical channels, including BPPR's retail and business digital banking
and commercial cash management applications. BPPR also entered into amended and
restated service agreements with Evertec Group pursuant to which Evertec Group
will continue to provide various information technology and transaction
processing services to Popular, BPPR and their respective subsidiaries.

Under the amended service agreements, Popular will have greater optionality to
develop and enhance technology platforms and more flexibility to select service
vendors, as Evertec Group no longer has exclusive rights to provide certain of
Popular's technology services. This is expected to improve Popular's ability to
meet its customer needs in a timely manner. In addition, the amended service
agreements are projected to reduce service costs as a result of discounted
pricing and lowered caps on contractual pricing escalators tied to the Consumer
Price Index. As part of the transaction, BPPR also strengthened its relationship
with Evertec in the payments business, including through the incorporation of a
revenue sharing structure for BPPR in connection with its merchant acquiring
relationship with Evertec.

As consideration for the transaction, BPPR delivered to Evertec Group 4,589,169
shares of Evertec common stock valued at closing at $169 million (based on
Evertec's stock price on June 30, 2022 of $36.88), resulting in an after-tax
gain of approximately $112 million.

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In terms of capital, the transaction results in a negative impact of
approximately $44 million in Popular's tangible book value as a result of the
net effect of the after-tax gain of the Evertec shares used as consideration for
the transaction (approximately $112 million), minus approximately $145 million
in goodwill and other intangible assets recognized by the Corporation in
connection with the transaction and the accounting impact of the renegotiation
of the Master Servicing Agreement with Evertec.

As a result of the transfer of the shares used as consideration for the
transaction, Popular's ownership stake in Evertec was reduced from approximately
16.3% to approximately 10.6% at the closing of the transaction. In connection
with the transaction, Popular has agreed to further reduce its voting interest
in Evertec to no more than 4.5%, whether through selling shares of Evertec
common stock or a conversion of such shares into non-voting preferred stock
within 90 days of the closing of the transaction. Popular expects to sell down
its stake in Evertec to no more than 4.5%, subject to market conditions, and
intends to return to Popular shareholders, via common stock repurchases, any
after-tax gains resulting from such sale, subject to the receipt of regulatory
approvals.

Completion of Accelerated Share Repurchase


On July 12, 2022, the Corporation completed its previously announced accelerated
share repurchase program for the repurchase of an aggregate $400 million of
Popular's common stock. Under the terms of the accelerated share repurchase
agreement (the "ASR Agreement"), on March 2, 2022 the Corporation made an
initial payment of $400 million and received an initial delivery of 3,483,942
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 stockholders' equity approximately
$320 million in treasury stock and $80 million as a reduction in capital
surplus. Upon the final settlement of the ASR Agreement, the Corporation
received an additional 1,582,922 shares of Popular common stock and recognized
approximately $120 million as treasury stock with a corresponding increase in
its capital surplus account. The Corporation repurchased a total of 5,066,864
shares at an average purchase price of $78.9443 under the ASR Agreement. Refer
to Note 17 - Stockholders' Equity for further information on the ASR
transaction.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and six months-periods ended June 30, 2022 and 2021.

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


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

Net interest income on a taxable equivalent basis is a non-GAAP financial
measure. Management believes that this presentation provides meaningful
information since it facilitates the comparison of revenues arising from taxable
and tax-exempt sources. Net interest income on a taxable equivalent basis is
presented with its different components in Tables 2 and 3, along with the
reconciliation to net interest income (GAAP), for the quarter and six
month-period ended June 30, 2022 as compared with the same period in 2021,
segregated by major categories of interest earning assets and interest-bearing
liabilities.

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

Financial highlights for the quarter ended June 30, 2022


? For the quarter ended June 30, 2022, the Corporation recorded net income of $
211.4 million, compared to net income of $ 218.1 million for the same quarter of
the previous year. Net interest margin for the second quarter of 2022 was 3.09%,
an increase of 18 basis points when compared to 2.91% for the same quarter of
the previous year, mainly due to higher volume of loans, higher interest rate
environment, and the change in mix of the money markets and investment
portfolio. On a taxable equivalent basis, the net interest margin was of 3.45%,
compared to 3.22% for the same quarter of the previous year. The Corporation
recorded a provision for credit losses of $9.4 million, compared to a benefit of
$17.0 million for the same quarter of the previous year. The higher provision
for 2022 is attributed to the macroeconomic outlook and portfolio growth.
Non-interest income was $157.4 million for the quarter, an increase of $2.9
million when compared to the quarter ended June 30, 2021 mainly due to higher
credit card fees and mortgage banking activities. Operating expenses were higher
by $38.1 million principally due to higher personnel costs and professional
fees.

? Total assets at June 30, 2022 amounted to $71.5 billion, compared to $75.1
billion, at December 31, 2021. The decrease was mainly due to lower money market
investments, due to a decrease in deposits, partially offset by higher debt
securities available-for-sale and held-to-maturity and loan growth.

? Total deposits at June 30, 2022 decreased by $1.7 billion when compared to
deposits at December 31, 2021, mainly due to lower Puerto Rico public sector
deposits by $3.3 billion, partially offset by growth in other deposits sectors.

? Total stockholders' equity decreased by $1.7 billion when compared to December
31, 2021, principally due to an increase in accumulated unrealized losses on
debt securities available-for-sale by $1.6 billion due to a decline in fair
value of fixed-rate debt securities as a result of the rising interest rate
environment, the impact of the $400 million ASR and declared quarterly common
stock dividends, partially offset by the net income of $423.1 million for the
six months ended June 30, 2022.

? At June 30, 2022, the Corporation's tangible book value per common share was $46.18.


? Capital ratios continued to be strong. As of June 30, 2022, the Corporation's
common equity tier 1 capital ratio was 16.39%, the tier 1 leverage ratio was
7.56%, and the total capital ratio was 18.29%. Refer to Table 8 for capital
ratios.

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

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


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

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

The description of the Corporation's business contained in Item 1 of the
Corporation's 2021 Form 10-K, while not all inclusive, discusses additional
information about the business of the Corporation. Readers should also refer to
"Part I - Item 1A" of the 2021 Form 10-K and "Part II - Item 1A" of this Form
10-Q for a discussion of certain risks and uncertainties to which the
Corporation is subject, many beyond the Corporation's control that, in addition
to the other information in this Form 10-Q, readers should consider.

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

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Table 1 - Financial
Highlights

Financial Condition
Highlights
                                              Ending balances at                           Average for the six months ended
                                                  December 31,
(In thousands)                     June 30, 2022          2021         Variance       June 30, 2022    June 30, 2021    Variance
Money market investments     $     9,687,356      $ 17,536,719    $ (7,849,363)   $   13,128,977    $   14,003,612   $ (874,635)
Investment securities             28,138,453        25,267,418        2,871,035       28,174,976        21,954,354     6,220,622
Loans                             30,399,482        29,299,725        1,099,757       29,574,964        29,234,350       340,614
Earning assets                    68,225,291        72,103,862      (3,878,571)       70,878,917        65,192,316     5,686,601
Total assets                      71,501,931        75,097,899      (3,595,968)       73,961,645        68,237,652     5,723,993
Deposits                          65,327,664        67,005,088      (1,677,424)       66,071,560        60,116,322     5,955,238
Borrowings                           959,135         1,155,166       

(196,031) 1,048,084 1,329,988 (281,904) Stockholders' equity

               4,293,349         5,969,397      

(1,676,048) 5,905,057 5,688,471 216,586 [1] Average balances exclude unrealized gains or losses on debt securities available-for-sale.


Operating Highlights                      Quarters ended June 30,                           Six months ended June 30,
(In thousands, except per               2022              2021         Variance             2022              2021      Variance

share information) Net interest income $ 533,862 $ 487,802 $ 46,060 $ 1,028,174 $ 966,914 $ 61,260 Provision for credit losses

            9,362          (17,015)           26,377          (6,138)          (99,241)        93,103
(benefit)
Non-interest income                  157,411           154,540            2,871          312,103           308,193         3,910
Operating expenses                   406,278           368,185           38,093          808,617           743,713        64,904
Income before income tax             275,633           291,172         (15,539)          537,798           630,635      (92,837)
Income tax expense                    64,212            73,093          (8,881)          114,691           149,924      (35,233)
Net income                   $       211,421      $    218,079    $     (6,658)   $      423,107    $      480,711   $  (57,604)
Net income applicable to     $       211,068      $    217,726    $     (6,658)   $      422,401    $      480,005   $  (57,604)
common stock
Net income per common share  $          2.77      $       2.67    $        0.10   $         5.46    $         5.80   $    (0.34)
- basic
Net income per common share  $          2.77      $       2.66    $        0.11   $         5.46    $         5.79   $    (0.33)
- diluted
Dividends declared per       $          0.55      $       0.45    $        0.10   $         1.10    $         0.85   $      0.25
common share

                                                        Quarters ended June 30,                          Six months ended June 30,
Selected Statistical                                      2022             2021                               2022          2021
Information
Common Stock Data
End market price                                  $      76.93            75.05                     $        76.93         75.05
Book value per common share at period end                55.78            71.82                              55.78         71.82
Profitability Ratios
Return on assets                                          1.17 %           1.24 %                             1.15 %        1.42 %
Return on common equity                                  14.58            15.43                              14.48         17.08
Net interest spread                                       3.00             2.82                               2.84          2.89
Net interest spread (taxable equivalent) -                3.36             3.13                               3.16          3.21

Non-GAAP

Net interest margin                                       3.09             2.91                               2.92          2.99
Net interest margin (taxable equivalent) -                3.45             3.22                               3.24          3.31
Non-GAAP
Capitalization Ratios
Average equity to average                                 8.06 %           8.08 %                             7.98 %        8.34 %
assets
Common equity Tier 1                                     16.39            16.55                              16.39         16.55
capital
Tier I capital                                           16.46            16.62                              16.46         16.62
Total capital                                            18.29            19.09                              18.29         19.09
Tier 1 leverage                                           7.56             7.34                               7.56          7.34


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CRITICAL ACCOUNTING POLICIES / ESTIMATES



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

Management has discussed the development and selection of the critical
accounting policies and estimates with the Corporation's Audit Committee. The
Corporation has identified as critical accounting policies those related to: (i)
Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for
Credit Losses; (iii) Loans Acquired with Deteriorated Credit Quality; (iv)
Income Taxes; (v) Goodwill and Other Intangible Assets; and (vi) Pension and
Postretirement Benefit Obligations. For a summary of these critical accounting
policies and estimates, refer to that particular section in the MD&A included in
Popular, Inc.'s 2021 Form 10-K. Also, refer to Note 2 to the Consolidated
Financial Statements included in the 2021 Form 10-K for a summary of the
Corporation's significant accounting policies and to Note 3 to the Consolidated
Financial Statements included in this Form 10-Q for information on recently
adopted accounting standard updates.


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OPERATING RESULTS ANALYSIS

NET INTEREST INCOME


Net interest income for the second quarter of 2022 was $533.9 million, an
increase of $46.1 million when compared to $487.8 million for the same quarter
of 2021. Taxable equivalent net interest income was $595.5 million for the
second quarter of 2022 compared to $541.2 million in the second quarter of 2021,
an increase of $54.3 million.

Net interest margin for the second quarter of 2022 was 3.09%, an increase of 18
basis points when compared to 2.91% for the same quarter of the previous year.
The increase in the net interest margin is mainly due to a higher volume of
loans, a higher interest rate environment, and the change in mix of the money
markets and investment portfolios. The net interest margin, on a taxable
equivalent basis, for the second quarter of 2022 was 3.45%, an increase of 23
basis points when compared to 3.22% for the same quarter of 2021. The detailed
variances of the increase in net interest income are described below:

Positive variances:


? Higher interest income from money market, investment, and trading securities
by $38.2 million due to a higher volume by $1.2 billion and higher yield by 35
basis points related to a higher interest rate environment and the investment in
longer term securities. The interest rate received on excess reserves at the
Federal Reserve increased by 72 basis points when compared to the same quarter
in 2021;

? Higher interest income from commercial loans by $6.2 million due to a higher
average volume by $688 million, partially offset by lower yield by eight basis
points mainly driven by lower income from loans under the Small Business
Administration ("SBA") Paycheck Protection Program ("PPP") by $8.8 million;

? The auto and lease financing portfolios interest income increased by $2.4 million due to higher average volume by $402.0 million, partially offset by lower yield due to a high volume of originations in a prolonged low interest rate environment. Also impacting the yield on this portfolio is a lower amortization of the portfolio purchased in 2018; and

? Higher interest income from consumer loans by $6.2 million due to higher average volume by $223.0 million.

Partially offset by:


? Lower interest expense on medium and long-term debt due to the redemption, on
the fourth quarter of 2021, of all outstanding 6.70% Cumulative Monthly Income
Trust Preferred Securities ($186.7 million).

Prepayment penalties, late fees collected and the amortization of premiums on
purchased loans are included as part of the loan yield. Interest income related
to these items for the quarters ended June 30, 2022 and 2021 amounted to $12.6
million and $31.1 million, respectively. The decrease of $18.5 million is mainly
related to lower amortized fees resulting from the forgiveness of PPP loans of
$4.7 million compared to $10.9 million in the second quarter of 2021, lower
amortization recorded from the prepayment of previously purchased credit
deteriorated loans and lower amortization on the fair value discount of the auto
portfolios acquired in previous years.



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   Table 2 - Analysis of Levels & Yields on a Taxable Equivalent Basis (Non-GAAP)
   Quarter ended June 30,
                                                                                                                                   Variance
           Average Volume                 Average Yields / Costs                                         Interest               Attributable to
    2022       2021    Variance         2022      2021    Variance                               2022      2021     Variance    Rate     Volume
           (In millions)                                                                                         (In thousands)
                                                                         Money market
$   11,513 $   15,540 $   (4,027)       0.83 %    0.11 %       0.72 %    investments          $  23,742 $   4,275 $   19,467 $  20,851 $ (1,384)
                                                                         Investment

27,748 22,509 5,239 2.18 2.35 (0.17) securities [1] 150,890 132,105 18,785 (8,222) 27,007

        65         87        (22)       6.66      5.22         1.44      Trading securities       1,089     1,134       (45)       272     (317)
                                                                         Total money market,
                                                                           investment and
                                                                           trading

39,326 38,136 1,190 1.79 1.44 0.35 securities

           175,721   137,514     38,207    12,901    25,306
                                                                         

Loans:

14,227 13,539 688 5.16 5.24 (0.08) Commercial

           183,042   176,857      6,185   (2,698)     8,883

781 858 (77) 5.71 5.43 0.28 Construction 11,116 11,603 (487) 575 (1,062)

1,445 1,262 183 5.91 6.01 (0.10) Leasing

               21,352    18,964      2,388     (313)     2,701
     7,294      7,765       (471)       5.33      5.12         0.21        Mortgage              97,137    99,364    (2,227)     3,945   (6,172)
     2,654      2,431         223      11.33     11.47       (0.14)        Consumer              74,932    68,746      6,186     (369)     6,555
     3,499      3,280         219       8.04      8.58       (0.54)        Auto                  70,145    70,137          8   (4,538)     4,546

29,900 29,135 765 6.14 6.13 0.01 Total loans

            457,724   445,671     12,053   (3,398)    15,451

$ 69,226 $ 67,271 $ 1,955 3.67 % 3.47 % 0.20 % Total earning assets $ 633,445 $ 583,185 $ 50,260 $ 9,503 $ 40,757

                                                                         Interest bearing
                                                                         deposits:
                                                                          

NOW and money $ 24,897 $ 25,102 $ (205) 0.13 % 0.13 % - % market [2] $ 8,301 $ 7,972 $ 329 $ 470 $ (141)

16,363 15,384 979 0.17 0.18 (0.01) Savings

                6,901     6,916       (15)     (555)       540

7,044 7,104 (60) 0.72 0.74 (0.02) Time deposits 12,625 13,172 (547) (210) (337)

Total interest

    48,304     47,590         714       0.23      0.24       (0.01)      bearing deposits        27,827    28,060      (233)     (295)        62
                                                                         Short-term
       126         91          35       0.79      0.27         0.52      borrowings                 248        62        186        90        96
                                                                         Other medium and
       917      1,224       (307)       4.30      4.53       (0.23)        long-term debt         9,824    13,837    (4,013)     (652)   (3,361)
                                                                         Total interest
                                                                         bearing
    49,347     48,905         442       0.31      0.34       (0.03)        liabilities           37,899    41,959    (4,060)     (857)   (3,203)
    16,254     14,920       1,334                                        Demand deposits
                                                                         Other sources of
     3,625      3,446         179                                        funds
                                                                        

Total source of $ 69,226 $ 67,271 $ 1,955 0.22 % 0.25 % (0.03) % funds

                   37,899    41,959    (4,060)     (857)   (3,203)
                                                                         Net interest margin/
                                                                           income on a
                                                                           taxable equivalent
                                        3.45 %    3.22 %       0.23 %      basis (Non-GAAP)     595,546   541,226     54,320 $  10,360 $  43,960
                                        3.36 %    3.13 %       0.23 %    Net interest spread
                                                                         Taxable equivalent
                                                                         adjustment              61,684    53,424      8,260
                                                                         Net interest margin/
                                                                                income
                                                                           non-taxable
                                                                           equivalent basis
                                        3.09 %    2.91 %       0.18 %      (GAAP)             $ 533,862 $ 487,802 $   46,060
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each
category.
[1] Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities
available-for-sale.
[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.


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Net interest income for the six-month period ended June 30, 2022 was $1.0
billion, or $61.3 million higher than the same period in 2021. Taxable
equivalent net interest income was $1.1 billion for the six months ended June
30, 2022, or $71.0 million higher than the same period in 2021. Net interest
margin was 2.92%, a decrease of seven basis points when compared to 2.99% in
2021. The decrease in net interest margin is mainly driven by a higher volume of
money market and investment securities, and a decrease in loan yields driven by
lower PPP income when compared to the same period in 2021. Net interest margin,
on a taxable equivalent basis, for the six-months ended June 30, 2022, was
3.24%, a decrease of seven basis points when compared to the 3.31% for the same
period of 2021. The drivers of the variances in net interest income for the
six-month period are:

Positive variances:


? Higher interest income from money market, investment, and trading securities
by $53.6 million due to a higher volume by $5.3 billion mainly due to purchases
of U.S. Treasury securities. This increase results from a higher volume of
deposits of $6.0 billion as a result of Covid-19 U.S. Government stimulus and
other aid. The yield of the portfolio increased seven basis points due to a
higher volume of investment securities and higher interest rate received on
excess reserves at the Federal Reserve by 35 basis points, driven by recent
increases in the Federal Funds rate;

? Higher interest income from the auto and lease financing portfolios due to the
increase in volume of $418.3 million, partially offset by lower yield driven by
a lower amortization of the discount of previously acquired portfolios and the
origination of loans in a prolonged low interest rate environment;

? Higher interest income from consumer loans mostly due to a higher average volume of personal loans and credit cards;

? Lower interest expense on deposits due to lower cost by five basis points, partially offset by a higher volume of interest-bearing deposits by $3.9 billion; and


? Lower interest expense on medium and long-term debt due to the redemption, on
the fourth quarter of 2021, of all outstanding 6.70% Cumulative Monthly Income
Trust Preferred Securities ($186.7 million);

Negative variances:

? Lower interest income from mortgage loans by $3.9 million driven by lower average volume mainly related to portfolio run-off.


Prepayment penalties, late fees collected and the amortization of premiums on
purchased loans are included as part of the loan yield. Interest income related
to these items for the six-months ended June 30, 2022, amounted to $28.9
million, compared to $64.8 million in the same period of 2021. The decrease in
loan fee income was driven by PPP loan fees, which amounted to $14.7 million for
the six-month period ended June 30, 2022 versus $30.9 million in the six-month
period ended June 30, 2021 and lower amortization recorded from the prepayment
of previously purchased credit deteriorated loans and lower amortization on the
fair value discount of the auto portfolios acquired in previous years.


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Table 3 - Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP) Six months ended June 30,

                                                                                                                                   Variance
        Average Volume             Average Yields / Costs                                             Interest                  Attributable to
    2022     2021    Variance     2022    2021    Variance                                   2022        2021      Variance     Rate      Volume
          (In millions)                                                                                        (In thousands)
                                                                  Money market
$  13,129 $  14,004 $    (875)     0.46 %  0.11 %     0.35 %      investments            $    30,206 $     7,386 $   22,820 $   23,310 $    (490)
                                                                  Investment securities
   28,107    21,868      6,239     2.06    2.37     (0.31)        [1]                        288,241     257,411     30,830   (28,585)     59,415
       68        86       (18)     6.27    5.10       1.17        Trading securities           2,107       2,167       (60)        447      (507)
                                                                  Total money market,
                                                                    investment and
                                                                    trading
   41,304    35,958      5,346     1.56    1.49       0.07          securities               320,554     266,964     53,590    (4,828)     58,418
                                                                  Loans:
   13,986    13,582        404     5.12    5.30     (0.18)          Commercial               355,171     355,922      (751)   (11,235)     10,484
      754       884      (130)     5.58    5.38       0.20          Construction              20,874      23,504    (2,630)        946    (3,576)
    1,419     1,239        180     5.93    6.02     (0.09)          Leasing                   42,071      37,318      4,753      (587)      5,340
    7,341     7,816      (475)     5.28    5.06       0.22          Mortgage                 193,905     197,792    (3,887)      8,459   (12,346)
    2,595     2,472        123    11.27   11.35     (0.08)          Consumer                 144,994     139,147      5,847    (1,719)      7,566
    3,480     3,241        239     8.08    8.63     (0.55)          Auto                     139,397     138,289      1,108    (8,752)      9,860

29,575 29,234 341 6.10 6.15 (0.05) Total loans

                896,412     891,972      4,440   (12,888)     17,328
$  70,879 $  65,192 $    5,687     3.45 %  3.58 %   (0.13) %      Total earning assets   $ 1,216,966 $ 1,158,936 $   58,030 $ (17,716) $   75,746
                                                                  Interest bearing
                                                                  deposits:
                                                                    NOW and money market
$  26,584 $  23,895 $    2,689     0.12 %  0.14 %   (0.02) %        [2]                  $    15,624 $    16,234 $    (610) $  (2,168) $    1,558
   16,398    14,876      1,522     0.17    0.19     (0.02)          Savings                   13,464      13,935      (471)    (2,173)      1,702
    6,891     7,184      (293)     0.69    0.79     (0.10)          Time deposits             23,522      28,092    (4,570)    (2,700)    (1,870)
                                                                  Total interest bearing
   49,873    45,955      3,918     0.21    0.26     (0.05)        deposits                    52,610      58,261    (5,651)    (7,041)      1,390
      109        95         14     0.61    0.44       0.17        Short-term borrowings          328         205        123         45         78
                                                                  Other medium and
      965     1,235      (270)     4.25    4.53     (0.28)          long-term debt            20,370      27,832    (7,462)          8    (7,470)
                                                                  Total interest bearing
   50,947    47,285      3,662     0.29    0.37     (0.08)          liabilities               73,308      86,298   (12,990)    (6,988)    (6,002)
   16,198    14,161      2,037                                    Demand deposits
    3,734     3,746       (12)                                    Other sources of funds
$  70,879 $  65,192 $    5,687     0.21 %  0.27 %   (0.06) %      Total source of funds       73,308      86,298   (12,990)    (6,988)    (6,002)
                                                                  Net interest margin/
                                                                  income on a taxable
                                                                  equivalent basis
                                   3.24 %  3.31 %   (0.07) %      (Non-GAAP)               1,143,658   1,072,638     71,020 $ (10,728) $   81,748
                                   3.16 %  3.21 %   (0.05) %      Net interest spread
                                                                  Taxable equivalent
                                                                  adjustment                 115,484     105,724      9,760
                                                                  Net interest margin/
                                                                  income non-taxable
                                                                  equivalent basis
                                   2.92 %  2.99 %   (0.07) %      (GAAP)                 $ 1,028,174 $   966,914 $   61,260
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each
category.
[1] Average outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities
available-for-sale.
[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.


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Provision for Credit Losses - Loans Held-in-Portfolio and Unfunded Commitments


For the quarter ended June 30, 2022, the Corporation recorded an expense of $9.7
million for its reserve for credit losses related to loans held-in-portfolio and
unfunded commitments. The provision for credit loss related to the
loans-held-in-portfolio for the quarter ended June 30, 2022 was $9.9 million,
compared to a reserve release of $17.5 million for the quarter ended June 30,
2021. The provision expense was mainly driven by higher loan volumes and changes
in the macroeconomic scenarios. The reserve release related to unfunded
commitments for the second quarter of 2022 was $0.2 million, compared to the
provision for unfunded commitments of $0.4 million for the same period of 2021.

For the quarter ended June 30, 2022, the Corporation recorded a provision for
credit loss of $9.1 million for loans-held-in-portfolio for the BPPR segment,
compared to a reserve release of $22.5 million for the quarter ended June 30,
2021. The Popular U.S. segment recorded a provision of $.7 million for the
quarter ended June 30, 2022, compared to a provision of $5.0 million for the
same quarter in 2021.

For the six-month period ended June 30, 2022, the Corporation recorded a release
of $5.5 million for its reserve for credit losses related to loans
held-in-portfolio and unfunded commitments. The reserve release related to the
loans-held-in-portfolio for the six-month period ended June 30, 2022 was $4.5
million, compared to the reserve release of $93.3 million for the six-month
period ended June 30, 2021. The higher reserve release in 2021 reflected the
improvements in the macroeconomic environment and outlook, at the time, and the
related release of reserves accumulated during early stages of the covid
pandemic. The provision for unfunded commitments for the six-month period of
2022 reflected a benefit of $1.0 million, compared to a provision benefit of
$5.9 million for the same period of 2021.

The provision for credit losses for the BPPR segment was a benefit of $3.5
million for the six-month period ended June 30, 2022, compared to a benefit of
$62.5 million for the six-month period ended June 30, 2021. The Popular U.S.
segment recorded a reserve release of $1 million for the six-month period ended
June 30, 2022, compared to a benefit of $30.8 million for the same period in
2021.

At June 30, 2022, the total allowance for credit losses for loans
held-in-portfolio amounted to $681.8 million, compared to $695.4 million as of
December 31, 2021. The ratio of the allowance for credit losses to loans
held-in-portfolio was 2.24% at June 30, 2022, compared to 2.38% at December 31,
2021. As discussed in Note 8 to the Consolidated Financial Statements, within
the process to estimate its allowance for credit losses ("ACL"), the Corporation
applies probability weightings to the outcomes of simulations using Moody's
Analytics' Baseline, S3 (pessimistic) and S1 (optimistic) scenarios. The
baseline scenario is assigned the highest probability, followed by the
pessimistic scenario given the uncertainties in the economic outlook and
downside risk. Refer to Note 8 to the Consolidated Financial Statements, for
additional information on the Corporation's methodology to estimate its
allowance for credit losses ("ACL"). Refer to the Credit Risk section of this
MD&A for a detailed analysis of net charge-offs, non-performing assets, the
allowance for credit losses and selected loan losses statistics.


Provision for Credit Losses - Investment Securities


The Corporation's provision for credit losses related to its investment
securities held-to-maturity is related to the portfolio of obligations from the
Government of Puerto Rico, states and political subdivisions. For the quarter
and six-month period ended June 30, 2022, the provision for credit losses was
$0.3 million benefit and $0.6 million benefit, respectively, compared to a $0.1
million provision expense and a $0.1 million provision benefit, respectively,
for the quarter and six-month period ended June 30, 2021. At June 30, 2022, the
total allowance for credit losses for this portfolio amounted to $7.5 million,
compared to $8.1 million as of December 31, 2021. Refer to Note 6 to
Consolidated Financial Statements for additional information on the ACL for this
portfolio.


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Non-Interest Income



Non-interest income amounted to $157.4 million for the quarter ended June 30,
2022, compared to $154.5 million for the same quarter of the previous year. The
increase in non-interest income by $2.9 million was primarily driven by:



? higher other service fees by $5.1 million, principally at the BPPR segment,
due to higher credit and debit card fees by $5.8 million mainly in interchange
income resulting from higher transactional volumes; and

? higher income from mortgage banking activities by $6.1 million mainly due to a
positive variance of $8.5 million in the fair value adjustments on mortgage
servicing rights ("MSRs"); and higher realized gains on closed derivative
positions by $3.3 million; partially offset by lower gain on sale of mortgage
loans and securitization activity by $5.2 million;

partially offset by:

? an unfavorable variance in net (loss) gain on equity securities of $5.7 million mainly related to securities held for deferred benefit plans, which have an offsetting positive variance in personnel costs; and

? lower other operating income by $3.0 million due to lower earnings from the portfolio of equity method investments.

Non-interest income amounted to $312.1 million for the six months ended June 30, 2022, compared to $308.2 million for the same period of the previous year. Non-interest income increased by $3.9 million primarily driven by:

? higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees at BPPR; and

? higher other service fees by $11.6 million, principally at the BPPR segment, due to higher credit card fees mainly in interchange income resulting from higher volume of transactions;

partially offset by


? higher losses on equity securities by $8.2 million due mainly to securities
held for deferred benefit plans, which have an offsetting positive variance in
personnel costs; and

? lower other operating income by $1.8 million principally due to lower net earnings from the combined portfolio of investments under the equity method and lower gains from the sale of long-lived assets.

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Operating Expenses


Operating expenses amounted to $406.3 million for the quarter ended June 30,
2022, an increase of $38.1 million when compared with the same quarter of 2021,
driven primarily by:

? higher personnel cost by $14.6 million mainly due to higher salaries as a result of salary adjustments; higher incentive compensation and higher profit-sharing expense, which is tied to the Corporation's financial performance;


? higher professional fees by $13.7 million due to higher programming,
processing and other technology services by $6.2 million mainly due to higher
volume of transactions and higher advisory expense by $6.1 million related to
higher increased customer activity and corporate initiatives related to
compliance, fraud and cyber security among others; and

? higher business promotions by $4.8 million due to higher customer reward program expense in our credit card business by $4.0 million.


Operating expenses amounted to $808.6 million for the six months ended June 30,
2022, an increase of $64.9 million when compared with the same period of 2021,
driven primarily by:

? higher personnel cost by $22.1 million mainly due to higher salaries as a result of salary adjustments;

? higher equipment expense by $4.2 million due to higher software amortization expense;

? higher other operating taxes by $4.3 million due to higher property taxes;


? higher professional fees by $22.3 million due to higher programming,
processing and other technology services by $9.2 million mainly due to higher
volume of transactions and higher advisory expense by $12.6 million related to
higher increased customer activity and corporate initiatives related to
compliance, fraud and cyber security among others;

? higher business promotions by $7.4 million due to higher customer reward program expense in our credit card business; and


? higher other operating expenses by $5.1 million due to lower gain on sale of
foreclosed auto units and higher pension plan cost due to annual changes in
actuarial assumptions; partially offset by lower write-down of foreclosed auto
units.
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Table 4 - Operating Expenses
                                           Quarters ended June 30,        Six months ended June 30,
(In thousands)                               2022      2021  Variance       2022      2021   Variance
Personnel costs:
   Salaries                             $ 101,847 $  90,294 $  11,553 $  200,520 $ 179,629 $   20,891

Commissions, incentives and other

   bonuses                                 29,787    26,374     3,413     

61,126 59,592 1,534

Pension, postretirement and medical

   insurance                               13,730    13,289       441     

26,513 24,213 2,300

Other personnel costs, including

   payroll taxes                           23,424    24,247     (823)     47,625    50,249    (2,624)
   Total personnel costs                  168,788   154,204    14,584    335,784   313,683     22,101
Net occupancy expenses                     26,214    24,562     1,652     50,937    50,575        362
Equipment expenses                         25,088    22,805     2,283     48,567    44,380      4,187
Other taxes                                15,780    13,205     2,575     31,495    27,164      4,331
Professional fees:

Collections, appraisals and other

   credit related fees                      2,802     3,486     (684)      

5,028 6,806 (1,778)

Programming, processing and other

   technology services                     73,305    67,152     6,153    

142,679 133,518 9,161

   Legal fees, excluding collections        3,091     2,367       724      7,045     4,732      2,313
   Other professional fees                 35,674    28,148     7,526     68,617    56,045     12,572
   Total professional fees                114,872   101,153    13,719    223,369   201,101     22,268
Communications                              5,993     6,005      (12)     12,140    12,838      (698)
Business promotion                         21,353    16,511     4,842     36,436    29,032      7,404
FDIC deposit insurance                      6,463     5,742       721     13,835    11,710      2,125
Other real estate owned (OREO) income     (7,806)   (4,299)   (3,507)   (10,519)   (8,832)    (1,687)
Other operating expenses:

Credit and debit card processing,

volume and interchange and other

   expenses                                11,375    10,917       458     23,884    23,371        513
   Operational losses                       4,061     6,528   (2,467)     15,886    14,424      1,462
   All other                               13,302     9,597     3,705     25,117    21,961      3,156
   Total other operating expenses          28,738    27,042     1,696     64,887    59,756      5,131
Amortization of intangibles                   795     1,255     (460)      1,686     2,306      (620)
Total operating expenses                $ 406,278 $ 368,185 $  38,093 $  808,617 $ 743,713 $   64,904



Income Taxes

For the quarter and six months ended June 30, 2022, the Corporation recorded an
income tax expense of $64.2 million and $114.7 million with an effective tax
rate ("ETR") of 23% and 21%, respectively, compared to $73.1 million and $149.9
million with an ETR of 25% and 24% for the respective periods of 2021. The
decrease in income tax expense was primarily due to lower pre-tax income and
higher tax exempt income for the quarter and six months ended June 30, 2022.

At June 30, 2022, the Corporation had a net deferred tax asset amounting to $0.8 billion, net of a valuation allowance of $0.6 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 30 to the Consolidated Financial Statements for a reconciliation of the statutory income tax rate to the effective tax rate and additional information on the income tax expense and deferred tax asset balances.

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REPORTABLE SEGMENT RESULTS

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


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

The Corporate group reported a net income of $4.8 million for the quarter ended
June 30, 2022, compared with a net income of $6.6 million for the same quarter
of the previous year. The decrease in net income was mainly attributed to higher
salaries and higher professional services expense, offset by lower interest
expense related to the redemption in the fourth quarter of 2021 of $186.7
million in Trust Preferred Securities issued by Popular Capital Trust I. For the
six months ended June 30, 2022 the Corporate group reported net income of $11.1
million, compared to a net income of $8.9 million for the same period of the
previous year. The increase in net income was due to lower interest expense from
the redemption of the above mentioned Trust Preferred Securities, and higher
earnings from equity method investments.

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


Banco Popular de Puerto Rico

The Banco Popular de Puerto Rico reportable segment's net income amounted to
$179.6 million for the quarter ended June 30, 2022, compared with net income of
$193.3 million for the same quarter of the previous year. The results for the
second quarter of 2021 reflect a release of the reserve for credit losses of
$22.0 million, reflective of the credit metrics and macroeconomic outlook. The
factors that contributed to the variance in the financial results included the
following:

? Higher net interest income by $28.6 million mainly due to:


? higher interest income from money market and investment securities by $30.2
million due to higher average balances of U.S. Treasury securities and higher
yields from money market investments due to balances maintained at the Federal
Reserve;

partially offset by

? lower interest income from loans by $1.0 million mainly from commercial loans
due to lower fees from PPP loans and lower income from mortgage loans due to
lower average balances, partially offset by higher income from consumer loans
and leases due to loan growth; and

? higher interest expense on deposits by $0.6 million mainly due to higher costs, mainly from time deposits.


The net interest margin for the quarter ended June 30, 2022 was 3.02% compared
to 2.91% for the same quarter in the previous year. The increase in net interest
margin is driven by earnings assets mix and the higher rates for money market
investments held at the Federal Reserve.

? A provision for loan losses expense of $8.8 million, compared to a reserve release of $22.0 million in the second quarter of 2021, or an unfavorable variance of $30.8 million;

? Non-interest income was higher by $8.3 million mainly due to:

? Higher other service fees by $5.7 million mainly due to higher credit card fees as a result of higher interchange transactional volumes; and


? Higher income from mortgage banking activities by $6.2 million due to a
favorable variance in the fair value adjustment for MSRs and higher realized
gains on closed derivative positions; partially offset by lower gain on sale of
mortgage loans and securitization activity;
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partially offset by

? lower other operating income by $2.6 million mostly due to lower earnings from the portfolio of equity method investments.

? Higher operating expenses by $29.8 million mostly due to:

? higher personnel costs by $12.8 million driven by higher salaries and benefits due to salary adjustments; higher incentive compensation and higher profit sharing expense;

? higher other taxes by $2.3 million, mainly from personal property taxes;

? higher professional fees by $4.5 million due mainly to processing and technology fees;

? higher business promotions by $4.3 million due to credit cards rewards expense as a result of higher transactional volumes; and

? higher other operating expenses by $6.2 million due to higher charges allocated from the Corporate segment, mainly advisory services;

partially offset by

? higher net recoveries from OREO by $3.3 million due mainly to higher gains on sale of commercial and residential properties and lower write-downs.

? Lower income tax expense by $10.0 million mainly due to lower income before tax.


For the six months ended June 30, 2022, the BPPR segment recorded net income of
$358.2 million compared to a net income of $405.5 million for the same period of
the previous year. The results for the six months ended June 30, 2021 reflect a
release of the reserve for credit losses of $67.4 million, reflective of the
credit metrics and macroeconomic outlook, at the time, compared to a release of
$4.9 million for the six months-period ended June 30, 2022. The other factors
that contributed to the variance in the financial results included the
following:

? Higher net interest income by $33.4 million mainly due to:


? higher interest income from money market and investment securities by $45.9
million due to higher average balances of U.S. Treasury securities and higher
yields from money market investments due to balances maintained at the Federal
Reserve; and

? lower interest expense on deposits by $1.5 million mainly due to lower costs, offset by higher average balances;

partially offset by


? lower interest income from loans by $14.0 million mainly from commercial loans
due to lower fees and average balances from PPP loans and lower income from
mortgage loans due to lower average balances, partially offset by higher income
from consumer loans and leases due to loan growth; and

The net interest margin for the six months ended June 30, 2022 was 2.84% compared to 3.00% for the same quarter in the previous year. The decrease in net interest margin is driven by earnings assets mix.

? An unfavorable variance of $62.5 million on the provision for loan losses, due to the reserve release in 2021, as discussed above;

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? Non-interest income was higher by $9.1 million mainly due to:

? Higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees;

? Higher other service fees by $12.4 million mainly due to higher credit card fees as a result of higher interchange transactional volumes;

partially offset by

? lower other operating income by $4.3 million mostly due to lower earnings from the portfolio of equity method investments.

? Higher operating expenses by $56.9 million mostly due to:

? Higher personnel costs by $19.9 million driven by higher salaries and benefits due to salary adjustments;

? Higher other taxes by $4.3 million due mainly to property taxes;

? Higher professional fees by $4.3 million mainly due to higher programming, processing and other technology services; and

? Higher business promotion by $6.9 million due to higher customer rewards expense related to higher transactional volumes; and

? Higher other expenses by $19.0 million to due to higher charges allocated from the Corporate segment, mainly advisory services.

? Lower income tax expense by $29.5 million due to lower income before tax.

Popular U.S.

For the quarter ended June 30, 2022, the reportable segment of Popular U.S. reported a net income of $28.1 million, compared with a net income of $18.7 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

? Higher net interest income by $14.7 million due to:

? higher interest income from loans by $13.6 million, mainly from growth in the commercial and personal loans portfolio;

? lower interest expense on borrowings by $0.7 million due to lower average balance and lower rates; and

? lower interest expense on deposits by $0.5 million mainly due to lower interest rates.



The net interest margin for the quarter ended June 30, 2022 was 3.76% compared
to 3.33% for the same quarter in the previous year. The increase in net interest
margin was driven by earnings assets mix, including the growth in the loan
portfolio.

? A favorable variance of $4.3 million on the provision for loan losses and unfunded commitments, reflective of credit metrics and the macroeconomic outlook;

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? Higher operating expenses by $7.7 million due to

? higher personnel costs by $3.0 million due to salary adjustments;

? higher professional fees by $2.1 million due to higher mortgage servicing fees and lower deferred costs related to mortgage originations; and

? higher other expenses by $1.7 million due to higher charges allocated from the Corporate segment, mainly advisory services.

? Higher income tax expense by $1.5 million due mainly to a higher income before tax.



For the six months ended June 30, 2022 the PB segment recorded net income of
$55.1 million, compared to a net income of $66.5 million for the same period of
the previous year. The results for the six months ended June 30, 2021 reflect a
release of the reserve for credit losses of $31.9 million, reflective of the
credit metrics and macroeconomic outlook, compared to a release of $1.4 million
for the six months ended June 30, 2022. The other factors that contributed to
the variance in the financial results included the following:

? Higher net interest income by $22.0 million due to:

? higher interest income from loans by $18.9 million, mainly from growth in the commercial and personal loans portfolio;

? lower interest expense on deposits by $3.6 million due to lower rates;

partially offset by

? lower income from money market and investment securities by $1.4 million mainly due to lower average balances, offset by higher interest rates.



The net interest margin for the six months ended June 30, 2022 was 3.66%
compared to 3.35% for the same period in the previous year. The increase in net
interest margin is driven by earnings assets mix, including the growth in the
loan portfolio.

? An unfavorable variance of $30.4 million on the provision for loan losses and unfunded commitments, due to the reserve release in 2021, as discussed above;

? Higher operating expenses by $7.9 million due to:

? higher personnel costs by $4.0 million due to salary adjustments;

? higher professional fees by $1.7 million lower deferred costs related to mortgage originations and higher technology service fees; and

? higher other expenses by $2.2 million due to higher charges allocated from the Corporate segment, mainly advisory services.

? Lower income tax expense by $4.9 million due mainly to a lower income before tax.


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FINANCIAL CONDITION ANALYSIS

Assets

The Corporation's total assets were $71.5 billion at June 30, 2022, compared to $75.1 billion at December 31, 2021. Refer to the Consolidated Statements of Financial Condition included in this report for additional information.

Money market investments and debt securities available-for-sale


Money market investments decreased by $7.8 billion mainly due to lower Puerto
Rico public sector deposits and the deployment of liquidity to purchase
investment securities and loan originations. Debt securities available-for-sale
and held-to-maturity increased by $1.3 billion and $1.6 billion, respectively at
June 30, 2022, due to purchases of U.S. Treasury securities. Refer to Note 5 to
the Consolidated Financial Statements for additional information with respect to
the Corporation's debt securities available-for-sale.

Loans

Refer to Table 5 for a breakdown of the Corporation's loan portfolio. Also, refer to Note 7 in the Consolidated Financial Statements for detailed information about the Corporation's loan portfolio composition and loan purchases and sales.


Loans held-in-portfolio increased by $1.1 billion to $30.4 billion at June 30,
2022, mainly due to an increase in commercial and consumer loans at both BPPR
and PB.




Table 5 - Loans Ending Balances
(In thousands)                    June 30, 2022   December 31, 2021    Variance
Loans held-in-portfolio:
Commercial                      $    14,545,301 $        13,732,701 $   812,600
Construction                            790,920             716,220      74,700
Leasing                               1,480,222           1,381,319      98,903
Mortgage                              7,261,955           7,427,196   (165,241)
Auto                                  3,489,976           3,412,187      77,789
Consumer                              2,802,562           2,570,934     231,628
Total loans held-in-portfolio   $    30,370,936 $        29,240,557 $ 1,130,379
Loans held-for-sale:
Mortgage                        $        28,546 $            59,168 $  (30,622)
Total loans held-for-sale       $        28,546 $            59,168 $  (30,622)
Total loans                     $    30,399,482 $        29,299,725 $ 1,099,757


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Other assets
Other assets amounted to $1.8 billion at June 30, 2022, compared to $1.6 billion
at December 31, 2021. Refer to Note 12 to the Consolidated Financial Statements
for a breakdown of the principal categories that comprise the caption of "Other
Assets" in the Consolidated Statements of Financial Condition at June 30, 2022
and December 31, 2021.

Liabilities

The Corporation's total liabilities were $67.2 billion at June 30, 2022, a decrease of $1.9 billion, compared to $69.1 billion at December 31, 2021, mainly due to lower deposits as discussed below.


Deposits and Borrowings
The composition of the Corporation's financing to total assets at June 30, 2022
and December 31, 2021 is included in Table 6.


Table 6 - Financing to Total Assets

                                                             % increase
                                 June 30,    December 31,    (decrease)    % of total assets
                                                           from 2021 to
(In millions)                          2022           2021         2022      2022       2021
Non-interest bearing deposits    $   16,663  $      15,684          6.2 %    23.3 %     20.9 %
Interest-bearing core deposits       44,768         47,954        (6.6)      62.6       63.9
Other interest-bearing deposits       3,897          3,367         15.7       5.5        4.5
Repurchase agreements                    71             92       (22.8)       0.1        0.1
Other short-term borrowings               -             75         N.M.         -        0.1
Notes payable                           888            989       (10.2)       1.2        1.3
Other liabilities                       922            968        (4.8)       1.3        1.3
Stockholders' equity                  4,293          5,969       (28.1)       6.0        7.9




Deposits


The Corporation's deposits totaled $65.3 billion at June 30, 2022, compared to
$67.0 billion at December 31, 2021. The deposits decrease of $1.7 billion was
mainly due to lower Puerto Rico public sector deposits by $3.3 billion at BPPR,
partially offset by growth in other deposits sectors. At June 30, 2022, Puerto
Rico public sector deposits amounted to $17.1 billion. The receipt by the Puerto
Rico Government of additional COVID-19 pandemic and hurricane recovery related
Federal assistance, and seasonal tax collections, could increase public deposit
balances at BPPR in the near term. However, the rate at which public deposit
balances may decline is uncertain and difficult to predict. The amount and
timing of any such reduction is likely to be impacted by, for example, the speed
at which COVID-19 pandemic and hurricane recovery federal assistance is
distributed, the financial condition, liquidity and cash management practices of
the Puerto Rico Government and its instrumentalities and the implementation of
fiscal and debt adjustment plans approved pursuant to PROMESA or other actions
mandated by the Fiscal Oversight and Management Board for Puerto Rico (the
"Oversight Board").

Refer to Table 7 for a breakdown of the Corporation's deposits at June 30, 2022 and December 31, 2021.

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Table 7 - Deposits Ending Balances
(In thousands)                                June 30, 2022     December 31, 2021      Variance
Demand deposits [1]                          $    27,798,243    $       25,889,732   $   1,908,511
Savings, NOW and money market deposits
(non-brokered)                                    29,672,655            33,674,134     (4,001,479)
Savings, NOW and money market deposits
(brokered)                                           761,244               729,073          32,171
Time deposits (non-brokered)                       6,896,786             6,685,938         210,848
Time deposits (brokered CDs)                         198,736                26,211         172,525
Total deposits                               $    65,327,664    $       67,005,088   $ (1,677,424)
[1] Includes interest and non-interest bearing demand deposits.



Borrowings

The Corporation's borrowings totaled $1.0 billion at June 30, 2022 compared to
$1.2 billion at December 31, 2021. Refer to Note 15 to the Consolidated
Financial Statements for detailed information on the Corporation's borrowings.
Also, refer to the Liquidity section in this MD&A for additional information on
the Corporation's funding sources.

Stockholders' Equity


Stockholders' equity totaled $4.3 billion at June 30, 2022, a decrease of $1.7
billion when compared to December 31, 2021, principally due to an increase in
accumulated unrealized losses on debt securities available-for-sale by $1.6
billion due to a decline in fair value of fixed-rate debt securities as a result
of the rising interest rate environment, the impact of the $400 million ASR and
declared quarterly common stock dividends, partially offset by the net income of
$423.1 million for the six months ended June 30, 2022. Refer to the Consolidated
Statements of Financial Condition, Comprehensive Income and of Changes in
Stockholders' Equity for information on the composition of stockholders' equity.

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REGULATORY CAPITAL


The Corporation, BPPR and PB are subject to regulatory capital requirements
established by the Federal Reserve Board. The risk-based capital standards
applicable to the Corporation, BPPR and PB ("Basel III capital rules") are based
on the final capital framework for strengthening international capital
standards, known as Basel III, of the Basel Committee on Banking Supervision. As
of June 30, 2022, the Corporation's, BPPR's and PB's capital ratios continue to
exceed the minimum requirements for being "well-capitalized" under the Basel III
capital rules.

The risk-based capital ratios presented in Table 8, which include common equity
tier 1, Tier 1 capital, total capital and leverage capital as of June 30, 2022
and December 31, 2021.


Table 8 - Capital Adequacy Data


                                                          June 30,       December 31,
(Dollars in thousands)                                        2022          

2021

Common equity tier 1 capital:

Common stockholders equity - GAAP basis $ 4,271,206 $ 5,947,254

   CECL transitional amount [1]                            127,127            169,502
   AOCI related adjustments due to opt-out
   election                                              1,888,849            257,762
   Goodwill, net of associated deferred tax
   liability (DTL)                                       (588,752)         

(591,703)

   Intangible assets, net of associated DTLs              (14,533)          

(16,219)

   Deferred tax assets and other deductions              (270,588)          

(290,565)

Common equity tier 1 capital                        $    5,413,309     $    5,476,031
Additional tier 1 capital:
   Preferred stock                                          22,143             22,143
Additional tier 1 capital                           $       22,143     $       22,143
Tier 1 capital                                      $    5,435,452     $    5,498,174
Tier 2 capital:
   Trust preferred securities subject to phase in
   as tier 2                                               192,674            192,674
   Other inclusions (deductions), net                      413,540            393,257
Tier 2 capital                                      $      606,214     $      585,931
Total risk-based capital                            $    6,041,666     $    

6,084,105

Minimum total capital requirement to be well
capitalized                                         $    3,302,848     $    

3,144,122

Excess total capital over minimum well capitalized $ 2,738,818 $ 2,939,983 Total risk-weighted assets

                          $   33,028,484     $   

31,441,224

Total assets for leverage ratio                     $   71,850,332     $   

74,238,367

Risk-based capital ratios:

   Common equity tier 1 capital                              16.39 %            17.42 %
   Tier 1 capital                                            16.46              17.49
   Total capital                                             18.29              19.35
   Tier 1 leverage                                            7.56               7.41

[1] The CECL transitional amount includes the impact of Popular's adoption of the new CECL accounting standard on January 1, 2020.

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The Basel III capital rules provide that a depository institution will be deemed
to be well capitalized if it maintains a leverage ratio of at least 5%, a common
equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and
a total risk-based ratio of at least 10%. Management has determined that as of
June 30, 2022, the Corporation, BPPR and PB continue to exceed the minimum
requirements for being "well-capitalized" under the Basel III capital rules.

Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the
Corporation elected to use the five-year transition period option as provided in
the final interim regulatory capital rules effective March 31, 2020. The
five-year transition period provision delays for two years the estimated impact
of CECL on regulatory capital, followed by a three-year transition period to
phase out the aggregate amount of the capital benefit provided during the
initial two-year delay. As of June 30, 2022, the Corporation had phased-in 25%
of the cumulative CECL deferral with the remaining impact to be recognized over
the remainder of the three-year transition period.

On April 9, 2020, federal banking regulators issued an interim final rule to
modify the Basel III regulatory capital rules applicable to banking
organizations to allow those organizations participating in the Paycheck
Protection Program ("PPP") established under the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act") to neutralize the regulatory capital
effects of participating in the program. Specifically, the agencies have
clarified that banking organizations, including the Corporation and its Bank
subsidiaries, are permitted to assign a zero percent risk weight to PPP loans
for purposes of determining risk-weighted assets and risk-based capital ratios.
Additionally, in order to facilitate use of the Paycheck Protection Program
Liquidity Facility (the "PPPL Facility"), which provides Federal Reserve Bank
loans to eligible financial institutions such as the Corporation's Bank
subsidiaries to fund PPP loans, the agencies further clarified that, for
purposes of determining leverage ratios, a banking organization is permitted to
exclude from total average assets PPP loans that have been pledged as collateral
for a PPPL Facility. As of June 30, 2022, the Corporation has $89 million in PPP
loans and no loans were pledge as collateral for PPPL Facilities.

The decrease in the common equity Tier I capital ratio, Tier I capital ratio,
and total capital ratio as of June 30, 2022 as compared to December 31, 2021 was
mainly attributed to the accelerated share repurchase agreement to repurchase an
aggregate of $400 million of Popular's common stock, and an increase in
risk-weighted assets driven by the growth in the commercial loans portfolio,
partially offset by the six month period earnings. The increase in leverage
capital ratio was mainly due to the decrease in average total assets, which
mostly did not have a significant impact on the risk-weighted assets.

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

Table 9 provides a reconciliation of total stockholders' equity to tangible common equity and total assets to tangible assets as of June 30, 2022, and December 31, 2021.

Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets


(In thousands, except share or per share                                        December
information)                                         June 30, 2022              31, 2021
Total stockholders' equity                         $     4,293,349         $   5,969,397
Less: Preferred stock                                     (22,143)              (22,143)
Less: Goodwill                                           (720,293)             (720,293)
Less: Other intangibles                                   (14,533)              (16,219)
Total tangible common equity                       $     3,536,380         $   5,210,742
Total assets                                       $    71,501,931         $  75,097,899
Less: Goodwill                                           (720,293)             (720,293)
Less: Other intangibles                                   (14,533)              (16,219)
Total tangible assets                              $    70,767,105         $  74,361,387
Tangible common equity to tangible assets                     5.00 %                7.01 %
Common shares outstanding at end of period              76,576,397          

79,851,169

Tangible book value per common share               $         46.18         $       65.26


                                                              Quarterly average
Total stockholders' equity [1]                     $     5,827,666         $   5,961,214
Less: Preferred Stock                                     (22,143)              (22,143)
Less: Goodwill                                           (720,292)             (706,184)
Less: Other intangibles                                   (15,043)              (19,889)
Total tangible common equity                       $     5,070,188         $   5,212,998
Return on average tangible common equity                     16.70 %        

15.66 % [1] Average balances exclude unrealized gains or losses on debt securities available-for-sale.



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RISK MANAGEMENT

Market / Interest Rate Risk

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

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


Most of the assets subject to market valuation risk are debt securities
classified as available-for-sale. Refer to Notes 5 and 6 to the Consolidated
Financial Statements for further information on the debt securities
available-for-sale and held-to-maturity portfolios. Debt securities classified
as available-for-sale amounted to $26.3 billion as of June 30, 2022. Other
assets subject to market risk include loans held-for-sale, which amounted to $29
million, mortgage servicing rights ("MSRs") which amounted to $130 million and
securities classified as "trading", which amounted to $32 million, as of June
30, 2022.

Interest Rate Risk ("IRR")

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

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

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

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

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

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


The Corporation processes NII simulations under interest rate scenarios in which
the yield curve is assumed to rise and decline by the same magnitude (parallel
shifts). The rate scenarios considered in these market risk simulations reflect
instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points
during the succeeding twelve-month period. Simulation analyses are based on many
assumptions, including relative levels of market interest rates across all yield
curve points and indexes, interest rate spreads, loan prepayments and deposit
elasticity. Thus, they should not be relied upon as indicative of actual
results. Further, the estimates do not contemplate actions that management could
take to respond to changes in interest rates. Additionally, the Company is also
subject to basis risk in the repricing of its assets and liabilities, including
the basis related to using different rate indexes for the repricing of assets
and liabilities, as well as the effect of pricing lags which may be contractual
or due to historical differences in the timing of management responses to
changes in the rate environment. By their nature, these forward-looking
computations are only estimates and may be different from what may actually
occur in the future. The following table presents the results of the simulations
at June 30, 2022 and December 31, 2021, assuming a static balance sheet and
parallel changes over flat spot rates over a one-year time horizon:

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Table 10 - Net Interest Income Sensitivity (One Year Projection)

                                         June 30, 2022                      December 31, 2021
(Dollars in thousands)             Amount Change Percent Change       Amount Change Percent Change
Change in interest rate
+400 basis points                $        29,304           1.31 % $         257,223          13.21 %
+200 basis points                         15,465           0.69             197,354          10.14
+100 basis points                          8,908           0.40             166,920           8.57
-100 basis points                       (99,097)         (4.44)            (78,408)         (4.03)
-200 basis points                      (228,558)        (10.23)           (120,661)         (6.20)




As of June 30, 2022, NII simulations show the Corporation maintains an asset
sensitive position, meaning that changes in net interest income are primarily
driven by changes in asset yields. In declining rate scenarios net interest
income would fall, as changes in asset yields would decline faster and by a
higher magnitude than liability costs. In rising rate scenarios asset sensitive
banks usually benefit from faster changes in asset yields relative to deposit
costs. However, in the case of Popular, its sensitivity profile is impacted by a
large proportion of Puerto Rico public sector deposits which are indexed to
market rates. As short-term rates have risen the cost of these deposits is now
expected to increase in sync with market rates and therefore reduce the benefit
in rising rate environments. As of June 30, 2022, Popular has an asymmetric
sensitivity profile meaning that the rate of change in NII in declining rate
scenarios is larger than it is in the rising rate scenarios. The sensitivity to
rising rates is near neutral this quarter compared to a substantially asset
sensitive position as of December 31, 2021. The primary reasons for the
reduction in sensitivity are i) the realization of much of the expected benefit
in net interest income given the higher interest rates observed during the first
half of 2022 ii) a decrease in cash balances (which reprice instantaneously) via
the deployment into longer term investments and loans and iii) the market
indexed nature of Puerto Rico public sector deposits which represented $17.1
billion or 26% of deposits as of June 30, 2022.

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

Trading


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

At June 30, 2022, the Corporation held trading securities with a fair value of
$32 million, representing approximately 0.05% of the Corporation's total assets,
compared with $30 million and 0.04%, respectively, at December 31, 2021. As
shown in Table 11, the trading portfolio consists principally of mortgage-backed
securities and U.S. Treasuries, which at June 30, 2022 were investment grade
securities. As of June 30, 2022 and December 31, 2021, the trading portfolio
also included $0.1 million in Puerto Rico government obligations. Trading
instruments are recognized at fair value, with changes resulting from
fluctuations in market prices, interest rates or exchange rates reported in
current period earnings. The Corporation recognized net trading account gain of
$51 thousand and a net trading account loss of $47 thousand, respectively, for
the quarters ended June 30, 2022 and June 30, 2021.

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Table 11 - Trading Portfolio
                                              June 30, 2022       December 31, 2021
                                                     Weighted              Weighted
                                                      Average               Average
(Dollars in thousands)                      Amount   Yield[1]     Amount   Yield[1]
Mortgage-backed securities                $ 14,904       5.80 % $ 22,559       5.12 %
U.S. Treasury securities                    16,873       1.20      6,530       0.03
Collateralized mortgage obligations            203       5.57        257    

5.61

Puerto Rico government obligations              73       0.47         85       0.47
Interest-only strips                           264      12.00        280      12.00
Total                                     $ 32,317       3.44 % $ 29,711       4.06 %
[1] Not on a taxable equivalent basis.


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

The Corporation's trading portfolio had a 5-day VAR of approximately $0.3 million for the last week in June 2022. 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.

Liquidity

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

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

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

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 91% of the Corporation's total assets at June 30, 2022 and 89% at December 31, 2021. The


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ratio of total ending loans to deposits was 47% at June 30, 2022, compared to
44% at December 31, 2021. In addition to traditional deposits, the Corporation
maintains borrowing arrangements, which amounted to approximately $1.0 billion
in outstanding balances at June 30, 2022 (December 31, 2021 - $1.2 billion). A
detailed description of the Corporation's borrowings, including their terms, is
included in Note 15 to the Consolidated Financial Statements. Also, the
Consolidated Statements of Cash Flows in the accompanying Consolidated Financial
Statements provide information on the Corporation's cash inflows and outflows.

On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $400 million of Popular's common stock, refer to Note 17 to the Consolidated Financial Statements for additional information.

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

Banking Subsidiaries


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

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


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

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

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

Deposits are a key source of funding as they tend to be less volatile than
institutional borrowings and their cost is less sensitive to changes in market
rates. Refer to Table 7 for a breakdown of deposits by major types. Core
deposits are generated from a large base of consumer, corporate and public
sector customers. Core deposits include all non-interest bearing deposits,
savings deposits and certificates of deposit under $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 $61.4 billion, or 94% of total deposits, at June
30, 2022, compared with $63.6 billion, or 95% of total deposits, at December 31,
2021. Core deposits financed 90% of the Corporation's earning assets at June 30,
2022, compared with 88% at December 31, 2021.

The distribution by maturity of certificates of deposits with denominations of $250,000 and over at June 30, 2022 is presented in the table that follows:

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Table 12 - Distribution by Maturity of Certificate of Deposits
of $250,000 and Over
(In thousands)
3 months or less                                                         $ 2,349,710
Over 3 to 12 months                                                          230,766
Over 1 year to 3 years                                                       231,066
Over 3 years                                                                 140,369
Total                                                                    $ 2,951,911




The Corporation had $1.0 billion in brokered deposits at June 30, 2022, which
financed approximately 1% of its total assets (December 31, 2021 - $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 June 30, 2022, total public sector deposits were $17.1
billion, compared to $20.3 billion at December 31, 2021. 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 June 30, 2022, management believes that the banking subsidiaries had
sufficient current and projected liquidity sources to meet their anticipated
cash flow obligations, as well as special needs and off-balance sheet
commitments, in the ordinary course of business and have sufficient liquidity
resources to address a stress event. Although the banking subsidiaries have
historically been able to replace maturing deposits and advances, no assurance
can be given that they would be able to replace those funds in the future if the
Corporation's financial condition or general market conditions were to
deteriorate. The Corporation's financial flexibility will be severely
constrained if the banking subsidiaries are unable to maintain access to funding
or if adequate financing is not available to accommodate future financing needs
at acceptable interest rates. The banking subsidiaries also are required to
deposit cash or qualifying securities to meet margin requirements. To the extent
that the value of securities previously pledged as collateral declines because
of market changes, the Corporation will be required to deposit additional cash
or securities to meet its margin requirements, thereby adversely affecting its
liquidity. Finally, if management is required to rely more heavily on more
expensive funding sources to meet its future growth, revenues may not increase
proportionately to cover costs. In this case, profitability would be adversely
affected.

Bank Holding Companies

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

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

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

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The outstanding balance of notes payable at the BHCs amounted to $497 million at June 30, 2022 and $496 million at December 31, 2021.

The contractual maturities of the BHCs notes payable at June 30, 2022 are presented in Table 13.


Table 13 - Distribution of BHC's Notes Payable by Contractual Maturity
Year                                                                       (In thousands)
2023                                                                     $        298,475
Later years                                                                       198,306
Total                                                                    $        496,781




Annual debt service at the BHCs is approximately $32 million, and the
Corporation's latest quarterly dividend was $0.55 per share. The BHCs liquidity
position continues to be adequate with sufficient cash on hand, investments and
other sources of liquidity which are expected to be enough to meet all BHCs
obligations during the foreseeable future. As of June 30, 2022, the BHCs had
cash and money markets investments totaling $264 million, borrowing potential of
$193 million from its secured facility with BPPR. In addition to these liquidity
sources, the stake in Evertec had a market value of $430 million as of June 30,
2022 and it represents an additional source of contingent liquidity. On July 1,
2022, the Corporation exchanged a portion of these shares as part of a
transaction in which it acquired certain critical channels from Evertec and
renegotiated several service agreements with Evertec, as discussed in Note 33 to
the Consolidated Financial Statements.

Non-Banking Subsidiaries


The principal sources of funding for the non-banking subsidiaries include
internally generated cash flows from operations, loan sales, repurchase
agreements, capital injections and borrowed funds from their direct parent
companies or the holding companies. The principal uses of funds for the
non-banking subsidiaries include repayment of maturing debt, operational
expenses and payment of dividends to the BHCs. The liquidity needs of the
non-banking subsidiaries are minimal since most of them are funded internally
from operating cash flows or from intercompany borrowings or capital
contributions from their holding companies. During the period ended June 30,
2022, Popular, Inc. made capital contributions to its wholly owned subsidiaries
of $25 million to Popular Re, Inc. and $10 million to Popular Securities.

Dividends


During the six months ended June 30, 2022, the Corporation declared cash
dividends of $1.10 per common share outstanding ($84.2 million in the
aggregate). The dividends for the Corporation's Series A preferred stock
amounted to $0.7 million. During the six months ended June 30, 2022, the BHC's
received dividends amounting to $450 million from BPPR, $54 million from PNA $4
million in dividends from its non-banking subsidiaries and $1 million in
dividends from Evertec. In addition, during the six months ended June 30, 2022,
Popular International Bank Inc., wholly owned subsidiary of Popular, Inc.,
received $16 million in dividends from its investment in BHD. Dividends from
BPPR constitute Popular, Inc.'s primary source of liquidity.

Other Funding Sources and Capital


The debt securities portfolio provides an additional source of liquidity, which
may be realized through either securities sales or repurchase agreements. The
Corporation's debt securities portfolio consists primarily of liquid U.S.
government debt securities, U.S. government sponsored agency debt securities,
U.S. government sponsored agency mortgage-backed securities, and U.S. government
sponsored agency collateralized mortgage obligations that can be used to raise
funds in the repo markets. The availability of the repurchase agreement would be
subject to having sufficient unpledged collateral available at the time the
transactions are to be consummated, in addition to overall liquidity and risk
appetite of the various counterparties. The Corporation's unpledged debt
securities amounted to $7.2 billion at June 30, 2022 and $3.0 billion at
December 31, 2021. 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.

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Off-Balance Sheet arrangements and other commitments


In the ordinary course of business, the Corporation engages in financial
transactions that are not recorded on the balance sheet or may be recorded on
the balance sheet in amounts that are different than the full contract or
notional amount of the transaction. As a provider of financial services, the
Corporation routinely enters into commitments with off-balance sheet risk to
meet the financial needs of its customers. These commitments may include loan
commitments and standby letters of credit. These commitments are subject to the
same credit policies and approval process used for on-balance sheet instruments.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
position. Refer to Note 20 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 27 to the Consolidated Financial Statements for information on operating
leases and to Note 19 to the Consolidated Financial Statements for a detailed
discussion related to 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 is managed by
the Corporation in order to meet its short- and long-term cash obligations. Note
15 to the Consolidated Financial Statements has information on the Corporation's
borrowings by maturity, which amounted to $1.0 billion at June 30, 2022
(December 31, 2021 - $1.2 billion).



Financial information of guarantor and issuers of registered guaranteed securities


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

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

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

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

The following summarized financial information presents the financial position
of the obligor group, on a combined basis at June 30, 2022 and December 31,
2021, and the results of their operations for the period ended June 30, 2022 and
June 30, 2021. Investments in and equity in the earnings from the other
subsidiaries and affiliates that are not members of the obligor group have been
excluded.

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

Table 14 - Summarized Statement of
Condition

(In thousands)                                     June 30, 2022     December 31, 2021
Assets
Cash and money market investments           $            264,234  $         

291,540

Investment securities                                     24,967            

25,691

Accounts receivables from non-obligor
subsidiaries                                              21,471            

17,634

Other loans (net of allowance for credit
losses of $260 (2021 - $96))                              28,532            

29,349

Investment in equity method investees                    129,986               114,955
Other assets                                              46,284                42,251
Total assets                                $            515,474  $            521,420
Liabilities and Stockholders' deficit
Accounts payable to non-obligor
subsidiaries                                $              4,140  $         

6,481

Accounts payable to affiliates and related
parties                                                    1,209                 1,254
Notes payable                                            496,781               496,134
Other liabilities                                         95,329                97,172
Stockholders' deficit                                   (81,985)              (79,621)
Total liabilities and stockholders'
deficit                                     $            515,474  $         

521,420


Table 15 - Summarized Statement of
Operations

                                                      For the six months ended
(In thousands)                                     June 30, 2022         June 30, 2021
Income:
Dividends from non-obligor subsidiaries     $            454,000  $         

579,000

Interest income from non-obligor
subsidiaries and affiliates                                  399            

442

Earnings from investments in equity method
investees                                                 14,995            

14,669

Other operating (expense) income                         (2,669)            

2,578

Total income                                $            466,725  $         

596,689

Expenses:

Services provided by non-obligor
subsidiaries and affiliates (net of
reimbursement by subsidiaries for services
provided by parent of $98,651 (2021 -
$81,940))                                   $              8,003  $              6,514
Other operating expenses                                   7,738                14,529
Total expenses                              $             15,741  $             21,043
Net income (loss)                           $            450,984  $            575,646

During the six months ended June 30, 2022, the Obligor group recorded $1.2 million of
dividend distributions from its direct equity method investees. During the six months
ended June 30, 2021, the Obligor group recorded $1.7 million of distributions from its
direct equity method investees, of which $1.2 million were related to dividend
distributions.




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Risks to Liquidity


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

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

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

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

Furthermore, various statutory provisions limit the amount of dividends an
insured depository institution may pay to its holding company without regulatory
approval. A member bank must obtain the approval of the Federal Reserve Board
for any dividend, if the total of all dividends declared by the member bank
during the calendar year would exceed the total of its net income for that year,
combined with its retained net income for the preceding two years, 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 six
months ended June 30, 2022, BPPR declared cash dividends of $450 million. At
June 30, 2022, 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 latest three years. In addition, a
member bank may not declare or pay a dividend in an amount greater than its
undivided profits as reported in its Report of Condition and Income, unless the
member bank has received the approval of the Federal Reserve Board. A member
bank also may not permit any portion of its permanent capital to be withdrawn
unless the withdrawal has been approved by the Federal Reserve Board. Pursuant
to these requirements, PB may not declare or pay a dividend without the prior
approval of the Federal Reserve Board and the NYSDFS. The ability of a bank
subsidiary to up-stream dividends to its BHC could thus be impacted by its
financial performance, thus potentially limiting the amount of cash moving up to
the BHCs from the banking subsidiaries. This could, in turn, affect the BHCs
ability to declare dividends on its outstanding common and preferred stock, for
example.

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

Obligations Subject to Rating Triggers or Collateral Requirements


The Corporation's banking subsidiaries currently do not use borrowings that are
rated by the major rating agencies, as these banking subsidiaries are funded
primarily with deposits and secured borrowings. The banking subsidiaries had $9
million in deposits at June 30, 2022 that are subject to rating triggers.

In addition, certain mortgage servicing and custodial agreements that BPPR has
with third parties include rating covenants. In the event of a credit rating
downgrade, the third parties have the right to require the institution to engage
a substitute cash custodian for escrow deposits and/or increase collateral
levels securing the recourse obligations. Also, as discussed in Note 19 to the
Consolidated Financial Statements, the Corporation services residential mortgage
loans subject to credit recourse provisions. Certain contractual agreements
require the Corporation to post collateral to secure such recourse obligations
if the institution's required credit ratings are not maintained. Collateral
pledged by the Corporation to secure recourse obligations amounted to
approximately $34 million at June 30, 2022. The Corporation could be required to
post additional collateral under the agreements. Management expects that it
would be able to meet additional collateral requirements if and when needed. The
requirements to post

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collateral under certain agreements or the loss of 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 32 to the Consolidated Financial Statements.

Commonwealth of Puerto Rico

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

COVID-19 Pandemic


On December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan,
China and has since spread globally to other countries and jurisdictions,
including the mainland United States and Puerto Rico. In March 2020, the World
Health Organization declared COVID-19 a pandemic. The pandemic 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.

The COVID-19 pandemic and the restrictions imposed to curb the spread of the
disease have had and may continue to have a material adverse effect on economic
activity worldwide, including in Puerto Rico. The extent to which the COVID-19
pandemic will continue to adversely affect economic activity will depend on
future developments, which are highly uncertain and difficult to predict,
including the scope and duration of the pandemic (including the appearance of
new strains of the virus), the restrictions imposed by governmental authorities
and other third parties in response to the same, the pace of global vaccination
efforts, and the amount of federal and local assistance offered to offset the
impact of the pandemic. Pursuant to the 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% and 1.7% GNP growth in fiscal years 2022
and 2023, respectively.

Certain information regarding current economic activity is available in the form
of the Economic Development Bank for Puerto Rico ("EDB") Economic Activity Index
(the "EDB Economic Activity Index"), a coincident indicator of ongoing economic
activity. The latest EDB Economic Activity Index, which is an indicator of
general economic activity and not a direct measurement of real GNP, reflected a
3.3% increase in May 2022, compared to May 2021. From July 2021 to May 2022, the
EDB Economic Activity Index reflected a 4.7% increase compared to the same
period in fiscal year 2021. The Puerto Rico Consumer Price Index, published by
the Department of Labor and Human Resources of Puerto Rico, increased to 130.2
in June 2022, a 7.2% increase to the corresponding figure in June 2021. Over the
same period, the United States Consumer Price Index, published by the U.S.
Bureau

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of Labor Statistics, increased by 9.1%, the largest year-over-year increase since 1981. Increasing inflation or prolonged periods of high inflation may adversely affect our business and results of operations.

Fiscal Challenges


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 defaulted on their debt
obligations. 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 recently emerged from a bankruptcy-like process
under PROMESA.

PROMESA

PROMESA, among other things, created a seven-member federally-appointed
oversight board (the "Oversight Board") with ample powers over the fiscal and
economic affairs of the Commonwealth, its public corporations, instrumentalities
and municipalities and established two mechanisms for the restructuring of the
obligations of such entities. Pursuant to PROMESA, the Oversight Board will
remain in place until market access is restored and balanced budgets, in
accordance with modified accrual accounting, are produced for at least four
consecutive years.

In October 2016, the Oversight Board designated the Commonwealth and all of its
public corporations and instrumentalities (except its municipalities) as
"covered entities" under PROMESA. In May 2019, the Oversight Board also
designated all of the Commonwealth's municipalities as covered entities. At the
Oversight Board's request, covered entities are required to submit fiscal plans
and annual budgets to the Oversight Board for its review and approval. They are
also required to seek Oversight Board approval to issue, guarantee or modify
their debts and to enter into contracts with an aggregate value of $10 million
or more. Finally, covered entities are potentially eligible to avail themselves
of the debt restructuring processes provided by PROMESA. For additional
discussion of risk factors related to the Puerto Rico fiscal challenges, see
"Part I - Item 1A - Risk Factors" in the Corporation's Form 10-K.

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 an
unprecedented increase in unemployment in Puerto Rico, pandemic-related federal
and local stimulus funding have more than offset the estimated income loss due
to reduced economic activity and are estimated to have caused a temporary
increase in personal income on a net basis. The 2022 Fiscal Plan's economic
projections incorporate adjustments for these short-term income effects for
purposes of 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 pursuant to the Plan of Adjustment (as defined and further
explained below), and projects an unrestricted surplus after debt service
averaging $1 billion annually between fiscal years 2022 to 2031. This surplus is
projected to decline 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 of Commonwealth budgetary subsidies to municipalities, which
constitute a material portion of the operating revenues of some municipalities.
From fiscal year 2017 to fiscal year 2020, Commonwealth appropriations to
municipalities have decreased by approximately 64% (from approximately $370
million in fiscal year 2017 to approximately $132 million in fiscal year 2020).
In response to the COVID-19 crisis, reductions in appropriations to
municipalities were paused in fiscal year 2021. Municipalities also received
extraordinary appropriations and other

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funds from federally-funded programs during fiscal year 2022, which has helped
temporarily offset the impact of the reduced Commonwealth support. However, the
2022 Fiscal Plan contemplates additional reductions in appropriations to
municipalities each fiscal year, 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 of Puerto Rico's electric system through, among other things, the
establishment of a public-private partnership with respect to PREPA's
transmission and distribution system (the "T&D System"), and calls for
significant structural reforms at PREPA. The procurement process for the
establishment of a public-private partnership with respect to the T&D System was
completed in June 2020. The selected proponent, LUMA Energy LLC ("LUMA"), and
PREPA entered into a 15-year agreement whereby, since June 1, 2021, LUMA is
responsible for operating, maintaining and modernizing the T&D System.

On May 20, 2022, the Oversight Board certified the latest version of the fiscal
plan (the "CRIM Fiscal Plan") for the Municipal Revenue Collection Center
("CRIM"), the government entity responsible for collecting property taxes and
distributing them among the municipalities. The CRIM Fiscal Plan outlines a
series of measures centered around improving the competitiveness of Puerto
Rico's property tax regime and the enhancement of property tax collections,
including identifying and appraising new properties as well as improvements to
existing properties, and implementing operational and technological initiatives.

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 of the Government of the
Commonwealth of Puerto Rico ("ERS"), the Puerto Rico Highways and Transportation
Authority ("HTA"), 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, ERS and PBA (the "Plan of
Adjustment"). On March 15, 2022 (the "Effective Date"), the Plan of Adjustment
became effective. As of the Effective Date, the Plan of Adjustment reduced the
Commonwealth's debt obligations from approximately $34.3 billion of prepetition
debt to approximately $7.4 billion in new general obligation bonds and
approximately $8.7 billion in new contingent value instruments. This also
resulted in a reduction of the Commonwealth's maximum annual debt service by
approximately 73%.

There are still ongoing debt restructuring processes under Title III of PROMESA for the Commonwealth's highways and electric power authorities (HTA and PREPA).

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. While PROMESA provided a process
to address the Commonwealth's fiscal challenges, the complexity and uncertainty
of the PROMESA 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. Furthermore, if global or local economic
conditions worsen or the Government of Puerto Rico and the Oversight Board are
unable to adequately manage the Commonwealth's fiscal and economic challenges,
including by controlling the COVID-19 pandemic and consummating an orderly
restructuring of the Commonwealth's debt obligations while continuing to provide
essential services, these adverse effects could continue or worsen in ways that
we are not able to predict.

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At June 30, 2022, the Corporation's direct exposure to the Puerto Rico
government's instrumentalities and municipalities totaled $396 million of which
$353 million were outstanding, compared to $367 million at December 31, 2021, of
which $349 million were outstanding. A deterioration in 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, $326 million consists of loans and $27million are securities ($319
million and $30 million, respectively, at December 31, 2021). All of the
Corporation's direct exposure outstanding at June 30, 2022 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 June 30, 2022, 73% of the Corporation's exposure to municipal loans and
securities was concentrated in the municipalities of San Juan, Guaynabo,
Carolina and Bayamón. For additional discussion of the Corporation's direct
exposure to the Puerto Rico government and its instrumentalities and
municipalities, refer to Note 20 - Commitments and Contingencies.

In addition, at June 30, 2022, the Corporation had $262 million in loans insured
or securities issued by Puerto Rico governmental entities, but for which the
principal source of repayment is non-governmental ($275 million at December 31,
2021). These included $220 million in residential mortgage loans insured by the
Puerto Rico Housing Finance Authority ("HFA"), a governmental instrumentality
that has been designated as a covered entity under PROMESA (December 31, 2021 -
$232 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 June 30, 2022, $42 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,
2021 - $43 million). In the event that the mortgage loans insured by HFA and
held by the Corporation directly or those serving as collateral for the HFA
bonds default and the collateral is insufficient to satisfy the outstanding
balance of these loans, HFA's ability to honor its insurance will depend, among
other factors, on the financial condition of HFA at the time such obligations
become due and payable. The Corporation does not consider the government
guarantee when estimating the credit losses associated with this portfolio.
Although the Governor is currently authorized by local legislation to impose a
temporary moratorium on the financial obligations of the HFA, a moratorium on
such obligations has not been imposed as of the date hereof.

BPPR's commercial loan portfolio also includes loans to private borrowers who
are service providers, lessors, suppliers or have other relationships with the
government. These borrowers could be negatively affected by the fiscal and
economic measures taken by the Commonwealth government. 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.

As of June 30, 2022, BPPR had $17.1 billion in deposits from the Commonwealth,
its instrumentalities, and municipalities. The rate at which public deposit
balances may decline is uncertain and difficult to predict. The amount and
timing of any such reduction is likely to be impacted by, for example, the speed
at which COVID-19 pandemic and hurricane recovery federal assistance is
distributed and the financial condition, liquidity and cash management practices
of such entities, as well as on the ability of BPPR to maintain these customer
relationships.

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

United States Virgin Islands

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


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

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

At June 30, 2022, the Corporation had approximately $29 million in direct
exposure to USVI government entities (December 31, 2021 - $70 million). The USVI
has been experiencing a number of fiscal and economic challenges that could
adversely affect the ability of its public corporations and instrumentalities to
service their outstanding debt obligations.

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 June 30, 2022 it has a loan portfolio amounting to approximately $217
million comprised of various retail and commercial clients, compared to a loan
portfolio of $221 million at December 31, 2021.

U.S. Government


As further detailed in Notes 5 and 6 to the Consolidated Financial Statements, a
substantial portion of the Corporation's investment securities represented
exposure to the U.S. Government in the form of U.S. Government sponsored
entities, as well as agency mortgage-backed and U.S. Treasury securities. In
addition, $1.5 billion of residential mortgages, $89 million of SBA loans under
the Paycheck Protection Program ("PPP") and $69 million commercial loans were
insured or guaranteed by the U.S. Government or its agencies at June 30, 2022
(compared to $1.6 billion, $353 million and $67 million, respectively, at
December 31, 2021).



Non-Performing Assets

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

During the second quarter of 2022, the Corporation continued to exhibit strong
credit quality trends and low credit costs with low level of NCOs and decreasing
NPLs. We continue to closely monitor changes in the macroeconomic environment
and on borrower performance, given potential economic headwinds, rising interest
rates and geopolitical uncertainty. However, management believes that the
improvement over the last few years in the risk profile of the Corporation's
loan portfolios positions Popular to operate successfully under the current
challenging environment.

Total NPAs decreased by $63 million at June 30, 2022 when compared with December
31, 2021. Total non-performing loans held-in-portfolio ("NPLs") decreased by $70
million at June 30, 2022 from December 31, 2021. BPPR's NPLs decreased by $69
million at June 30, 2022, mainly driven by lower mortgage NPLs by $49 million,
due to the combined effects of collection efforts, increased foreclosure
activity and the on-going low levels of early delinquency compared with
pre-pandemic trends, coupled with a $24 million decrease in the commercial NPLs.
Popular U.S. NPLs remained essentially flat at $33 million from December 31,
2021. At June 30, 2022, the ratio of NPLs to total loans held-in-portfolio was
1.6% compared to 1.9% in the December 31, 2021. Other real estate owned loans
("OREOs") increased by $7 million at June 30, 2022, mainly due to the end of the
COVID-19 related foreclosure moratorium period.

At June 30, 2022, NPLs secured by real estate amounted to $353 million in the
Puerto Rico operations and $28 million in Popular U.S. These figures were $428
million and $31 million, respectively, at December 31, 2021.

The Corporation's commercial loan portfolio secured by real estate ("CRE")
amounted to $9.1 billion at June 31, 2022, of which $2.9 billion was secured
with owner occupied properties, compared with $8.4 billion and $1.8 billion,
respectively, at December 31, 2021. During the first quarter of 2022, the
Corporation reclassified $0.9 billion of loans from the Commercial Real Estate
("CRE") Non-Owner-Occupied category to the CRE Owner-Occupied category. The
selected loans are primarily to skilled and assisted living nursing homes where
the majority of the revenues, which are the basis for the repayment of the
loans, are generated from medical and related operational activities. These
loans meet the type of business and source requirements as defined in the
regulatory guidance allowing this classification. CRE NPLs amounted to $55
million at June 30, 2022, compared with $77 million at December

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31, 2021. The CRE NPL ratios for the BPPR and Popular U.S. segments were 1.23% and 0.04%, respectively, at June 30, 2022, compared with 1.95% and 0.04%, respectively, at December 31, 2021.

In addition to the NPLs included in Table 16, at June 30, 2022, there were $382 million of performing loans, mainly commercial loans, which in management's opinion, were currently subject to potential future classification as non-performing (December 31, 2021 - $214 million).


For the quarter ended June 30, 2022, total inflows of NPLs held-in-portfolio,
excluding consumer loans, decreased by approximately $46 million, when compared
to the inflows for the same period in 2021. Inflows of NPLs held-in-portfolio at
the BPPR segment decreased by $45 million compared to the same period in 2021,
driven by lower commercial and mortgage inflows by $38 million and $7 million,
respectively. Inflows of NPLs held-in-portfolio at the Popular U.S. segment
remained essentially flat from the same period in 2021.


Table 16 - Non-Performing Assets

                                                June 30, 2022                                       December 31, 2021
                                                                              As a %                                      As a %
                                                                            of loans                                    of loans
                                                 Popular         Popular,     HIP by               Popular   Popular,     HIP by
(Dollars in thousands)              BPPR            U.S.             Inc.   

category BPPR U.S. Inc. category Commercial

                     $  96,493       $   7,446       $  103,939        0.7 % $ 120,047 $   5,532 $  125,579        0.9 %
Construction                           -               -                -          -         485         -        485        0.1
Leasing                            4,665               -            4,665        0.3       3,102         -      3,102        0.2
Mortgage                         284,670          20,192          304,862        4.2     333,887    21,969    355,856        4.8
Auto                              28,045               -           28,045        0.8      23,085         -     23,085        0.7
Consumer                          30,958           5,455           36,413  

1.3 33,683 6,087 39,770 1.5 Total non-performing loans held-in-portfolio 444,831 33,093 477,924

1.6 % 514,289 33,588 547,877 1.9 % Other real estate owned ("OREO")

                          90,593           1,544           92,137                 83,618     1,459     85,077
Total non-performing
assets[1]                      $ 535,424       $  34,637       $  570,061              $ 597,907 $  35,047 $  632,954
Accruing loans past due
90 days or more[2]             $ 406,722       $     576       $  407,298              $ 480,649 $     118 $  480,767
Ratios:
Non-performing assets to
total assets                        0.89 %          0.30 %           0.80 %                 0.93 %    0.32 %     0.84 %
Non-performing loans
held-in-portfolio to
loans held-in-portfolio             2.07            0.37             1.57                   2.46      0.40       1.87
Allowance for credit
losses to loans
held-in-portfolio                   2.70            1.14             2.24                   2.85      1.21       2.38
Allowance for credit
losses to non-performing
loans, excluding
held-for-sale                     130.52          305.72           142.65                 115.53    301.31     126.92
HIP = "held-in-portfolio"
[1] There were no non-performing loans held-for-sale as of June 30, 2022 and December 31, 2021.
[2] It is the Corporation's policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as
accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of
these loans includes $11 million at June 30, 2022, related to the rebooking of loans previously pooled into GNMA securities, in
which the Corporation had a buy-back option as further described below (December 31, 2021 - $13 million). Under the GNMA program,
issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting
purposes, these loans subject to repurchases option are required to be reflected (rebooked) on the financial statements of BPPR
with an offsetting liability. These balances include $237 million of residential mortgage loans insured by FHA or guaranteed by
the VA that are no longer accruing interest as of June 30, 2022 (December 31, 2021 - $304 million). Furthermore, the Corporation
has approximately $43 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing
interest. Due to the guaranteed nature of the loans, it is the Corporation's policy to exclude these balances from non-performing
assets (December 31, 2021 - $50 million).


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


                                    For the quarter ended June 30, 2022     

For the six months ended June 30, 2022

                                                                                              Popular
(Dollars in thousands)               BPPR       Popular U.S.   Popular, Inc.      BPPR          U.S.     Popular, Inc.
Beginning balance               $    424,342  $       27,229  $      451,571 $     454,419  $   27,501  $      481,920
Plus:
  New non-performing loans            38,331          11,118          49,449        82,651      18,917         101,568
  Advances on existing
  non-performing loans                     -             111             111             -       2,750           2,750
Less:
  Non-performing loans
  transferred to OREO               (11,541)               -        (11,541)      (24,937)        (85)        (25,022)
  Non-performing loans
  charged-off                        (1,246)           (216)         (1,462)       (1,969)       (289)         (2,258)

Loans returned to accrual

status / loan collections (68,723) (10,604) (79,327) (129,001) (21,156) (150,157) Ending balance NPLs

             $    381,163  $       27,638  $      

408,801 $ 381,163 $ 27,638 $ 408,801

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


                                    For the quarter ended June 30, 2021     

For the six months ended June 30, 2021

                                                                                              Popular
(Dollars in thousands)               BPPR       Popular U.S.   Popular, Inc.      BPPR          U.S.     Popular, Inc.
Beginning balance               $    606,521  $       24,223  $      630,744 $     639,932  $   28,412  $      668,344
Plus:
  New non-performing loans            83,089          12,344          95,433       149,210      30,501         179,711
  Advances on existing
  non-performing loans                     -              12              12             -          23              23
Less:
  Non-performing loans
  transferred to OREO               (10,603)               -        (10,603)      (15,254)           -        (15,254)
  Non-performing loans
  charged-off                        (5,812)         (1,147)         (6,959)      (23,545)     (1,500)        (25,045)

Loans returned to accrual

  status / loan collections         (69,962)         (7,247)        (77,209)     (147,110)    (27,478)       (174,588)
  Loans transferred to
  held-for-sale                            -         (7,000)         (7,000)             -     (8,773)         (8,773)
Ending balance NPLs             $    603,233  $       21,185  $      624,418 $     603,233  $   21,185  $      624,418


Table 19 - Activity in Non-Performing Commercial Loans Held-in-Portfolio


                              For the quarter ended June 30, 2022        For the six months ended June 30, 2022
(Dollars in thousands)         BPPR     Popular U.S.   Popular, Inc.        BPPR      Popular U.S.   Popular, Inc.
Beginning balance          $  117,782 $        5,403 $       123,185    $   120,047 $        5,532 $       125,579
Plus:
  New non-performing loans      1,666          7,325           8,991          7,793         10,324          18,117
  Advances on existing
  non-performing loans              -              1               1              -          2,506           2,506
Less:
  Non-performing loans
  transferred to OREO           (914)              -           (914)        (3,966)              -         (3,966)
  Non-performing loans
  charged-off                   (951)           (89)         (1,040)        (1,207)          (162)         (1,369)
  Loans returned to
  accrual status / loan
  collections                (21,090)        (5,194)        (26,284)       (26,174)       (10,754)        (36,928)
Ending balance NPLs        $   96,493 $        7,446 $       103,939    $    96,493 $        7,446 $       103,939


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Table 20 - Activity in Non-Performing Commercial Loans Held-in-Portfolio


                                For the quarter ended June 30, 2021        For the six months ended June 30, 2021
(Dollars in thousands)           BPPR     Popular U.S.   Popular, Inc.        BPPR      Popular U.S.   Popular, Inc.
Beginning balance            $  200,863 $        1,907 $       202,770    $   204,092 $        5,988 $       210,080
Plus:
  New non-performing loans       39,657          7,570          47,227         47,381          9,263          56,644
  Advances on existing
  non-performing loans                -              1               1              -              7               7
Less:
  Non-performing loans
  transferred to OREO           (2,346)              -         (2,346)        (6,196)              -         (6,196)
  Non-performing loans
  charged-off                   (1,515)          (624)         (2,139)        (3,906)          (976)         (4,882)
  Loans returned to accrual
  status / loan collections    (18,956)          (992)        (19,948)       (23,668)        (4,647)        (28,315)
  Loans transferred to
  held-for-sale                       -              -               -              -        (1,773)         (1,773)
Ending balance NPLs          $  217,703 $        7,862 $       225,565    $   217,703 $        7,862 $       225,565


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

For the six months ended June 30,

                                 For the quarter ended June 30, 2022                      2022
                                                                                       Popular
(Dollars in thousands)            BPPR     Popular U.S.   Popular, Inc.       BPPR       U.S.     Popular, Inc.
Beginning balance              $      -  $            - $             -    $    485  $        - $           485
Less:
  Loans returned to accrual
  status / loan collections           -               -               -       (485)           -           (485)
Ending balance NPLs            $      -  $            - $             -    $      -  $        - $             -


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


                                For the quarter ended June 30, 2021        For the six months ended June 30, 2021
(Dollars in thousands)           BPPR     Popular U.S.   Popular, Inc.        BPPR      Popular U.S.   Popular, Inc.
Beginning balance             $  14,877 $        7,523 $        22,400    $   21,497  $        7,560 $        29,057
Plus:
  New non-performing loans            -              -               -             -          12,141          12,141
Less:
  Non-performing loans
  charged-off                         -          (523)           (523)       (6,620)           (523)         (7,143)
  Loans returned to accrual
  status / loan collections           -              -               -             -        (12,178)        (12,178)
  Loans transferred to
  held-for-sale                       -        (7,000)         (7,000)             -         (7,000)         (7,000)
Ending balance NPLs           $  14,877 $            - $        14,877    $   14,877  $            - $        14,877


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Table 23 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio


                                 For the quarter ended June 30, 2022        For the six months ended June 30, 2022
(Dollars in thousands)            BPPR     Popular U.S.   Popular, Inc.        BPPR      Popular U.S.   Popular, Inc.
Beginning balance             $  306,560 $       21,826 $       328,386    $   333,887 $       21,969 $       355,856
Plus:
   New non-performing loans       36,665          3,793          40,458         74,858          8,593          83,451
   Advances on existing
   non-performing loans                -            110             110              -            244             244
Less:
   Non-performing loans
   transferred to OREO          (10,627)              -        (10,627)       (20,971)           (85)        (21,056)
   Non-performing loans
   charged-off                     (295)          (127)           (422)          (762)          (127)           (889)
   Loans returned to accrual
   status / loan collections    (47,633)        (5,410)        (53,043)      (102,342)       (10,402)       (112,744)
Ending balance NPLs           $  284,670 $       20,192 $       304,862    $   284,670 $       20,192 $       304,862


Table 24 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio


                                 For the quarter ended June 30, 2021        For the six months ended June 30, 2021
(Dollars in thousands)            BPPR     Popular U.S.   Popular, Inc.        BPPR      Popular U.S.   Popular, Inc.
Beginning balance             $  390,781 $       14,793 $       405,574    $   414,343 $       14,864 $       429,207
Plus:
   New non-performing loans       43,432          4,774          48,206        101,829          9,097         110,926
   Advances on existing
   non-performing loans                -             11              11              -             16              16
Less:
   Non-performing loans
   transferred to OREO           (8,257)              -         (8,257)        (9,058)              -         (9,058)
   Non-performing loans
   charged-off                   (4,297)              -         (4,297)       (13,019)            (1)        (13,020)
   Loans returned to accrual
   status / loan collections    (51,006)        (6,255)        (57,261)      (123,442)       (10,653)       (134,095)
Ending balance NPLs           $  370,653 $       13,323 $       383,976    $   370,653 $       13,323 $       383,976


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Loan Delinquencies


Another key measure used to evaluate and monitor the Corporation's asset quality
is loan delinquencies. Loans delinquent 30 days or more, as a percentage of
their related portfolio category at June 30, 2022 and December 31, 2021, are
presented below.


Table 25 - Loan Delinquencies


(Dollars in thousands)                        June 30, 2022                                      December 31, 2021
                                                                       Total                                              Total
                                                            delinquencies as                                      delinquencies
                        Loans delinquent                     a percentage of Loans delinquent                   as a percentage
                         30 days or more       Total loans       total

loans 30 days or more Total loans of total loans Commercial

                   $   132,271  $     14,545,301            0.91 

% $ 161,251 $ 13,732,701 1.17 % Construction

                       7,498           790,920            0.95                485           716,220          0.07
Leasing                           16,799         1,480,222            1.13             14,379         1,381,319          1.04
Mortgage [1]                   1,001,478         7,261,955           13.79          1,141,082         7,427,196         15.36
Consumer                         173,074         6,292,538            2.75            173,896         5,983,121          2.91
Loans held-for-sale                    -            28,546               -                  -            59,168             -
Total                        $ 1,331,120  $     30,399,482            4.38 

% $ 1,491,093 $ 29,299,725 5.09 % [1] Loans delinquent 30 days or more includes $0.6 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of June 30, 2022 (December 31, 2021 - $0.6 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans.

Allowance for Credit Losses Loans Held-in-Portfolio


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

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

At June 30, 2022, the allowance for credit losses amounted to $682 million, a
decrease of $14 million, when compared with December 31, 2021. The ACL
incorporated updated macroeconomic scenarios for Puerto Rico and the United
States. Given that any one economic outlook is inherently uncertain, the
Corporation uses multiple scenarios to estimate its ACL. The baseline scenario
continues to be assigned the highest probability, followed by the pessimistic
scenario.

The current baseline forecast continues to show a favorable economic scenario.
2022 annualized GDP growth of 2.8% is expected for both Puerto Rico and the
United States, compared to 3.5% and 3.7%, respectively, in the previous quarter.
Changes in assumptions related to fiscal stimulus, higher energy prices and
tighter financial market conditions contributed to the reduction. The 2022
average unemployment rate is forecasted at 6.9% and 3.5% for Puerto Rico and the
United States, respectively, improving from 7.3% and 3.6%, respectively, in the
previous forecast. Puerto Rico's unemployment rate forecast benefits from the
Bureau of Labor Statistics ("BLS") revisions that show a stronger than expected
labor market.

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The ACL for BPPR decreased by $14 million to $581 million at June 30, 2022, when
compared to December 31, 2021. The ACL for Popular U.S. remained flat at $101
million at June 30, 2022, when compared to December 31, 2021. The decrease in
BPPR's ACL was mainly driven by reductions in qualitative reserves due to
substantial improvements in employment levels in Puerto Rico. This contributed
to a lower commercial, mortgage and consumer loans ACL. The decrease in
qualitative reserves was partially offset by the impact of higher loan volumes
and changes in the macroeconomic scenario.

The provision for credit losses for the quarter ended June 30, 2022, amounted to
$9.9 million, compared to a net benefit of $17.5 million in the same period in
the prior year. The increase was prompted by higher NCOs, as the prior period
was a recovery of $1.3 million, compared to $6.1 million in the second quarter
of 2022, coupled with the ACL releases explained above. Refer to Note 8 -
Allowance for credit losses - loans held-in-portfolio, and to the Provision for
Credit Losses section of this MD&A for additional information.


Table 26 - Allowance for Credit Losses - Loan Portfolios

                                                       June 30, 2022
(Dollars in thousands)              Commercial     Construction      Mortgage       Leasing      Consumer       Total
Total ACL                         $    209,630    $        6,913   $  

148,305 $ 19,037 $ 297,865 $ 681,750 Total loans held-in-portfolio 14,545,301

           790,920     

7,261,955 1,480,222 6,292,538 30,370,936 ACL to loans held-in-portfolio

            1.44 %            0.87 %        2.04 %        1.29 %        4.73 %         2.24 %
Total non-performing loans
held-in-portfolio                 $    103,939    $            -   $   

304,862 $ 4,665 $ 64,458 $ 477,924 ACL to non-performing loans held-in-portfolio

                       201.69 %            N.M.         

48.65 % 408.08 % 462.11 % 142.65 % N.M. - Not meaningful.

Table 27 - Allowance for Credit Losses - Loan Portfolios

                                                     December 31, 2021
(Dollars in thousands)              Commercial     Construction      Mortgage       Leasing      Consumer       Total
Total ACL                         $    215,805    $        6,363   $  

154,478 $ 17,578 $ 301,142 $ 695,366 Total loans held-in-portfolio 13,732,701

           716,220     

7,427,196 1,381,319 5,983,121 29,240,557 ACL to loans held-in-portfolio

            1.57 %            0.89 %        2.08 %        1.27 %        5.03 %         2.38 %
Total non-performing loans
held-in-portfolio                 $    125,579    $          485   $   355,856   $     3,102   $    62,855   $    547,877
ACL to non-performing loans
held-in-portfolio                       171.85 %            N.M.         43.41 %      566.67 %      479.11 %       126.92 %
N.M. - Not meaningful.


                                      160
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Annualized net charge-offs (recoveries)


The following tables present annualized net charge-offs (recoveries) to average
loans held-in-portfolio ("HIP") by loan category for the quarters and six months
ended June 30, 2022 and 2021.


Table 28 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio

                                                            Quarters ended
                                       June 30, 2022                             June 30, 2021
                               BPPR   Popular U.S.   Popular Inc.       BPPR   Popular U.S.   Popular Inc.
Commercial                   (0.18) %         0.01 %       (0.09) %   (0.51) %       (0.03) %       (0.30) %
Construction                 (1.06)              -         (0.20)     (1.41)           0.05         (0.18)
Mortgage                     (0.29)           0.02         (0.24)       0.06         (0.15)           0.03
Leasing                        0.18              -           0.18       0.12              -           0.12
Consumer                       0.88           0.72           0.88       0.55           1.57           0.59
Total annualized net
charge-offs (recoveries)
to average loans
held-in-portfolio              0.10 %         0.03 %         0.08 %   (0.03) %         0.01 %       (0.02) %

                                                           Six Months ended
                                       June 30, 2022                             June 30, 2021
                               BPPR   Popular U.S.   Popular Inc.       BPPR   Popular U.S.   Popular Inc.
Commercial                   (0.20) %       (0.02) %       (0.12) %   (0.29) %       (0.01) %       (0.17) %
Construction                 (1.29)         (0.36)         (0.52)       7.32           0.03           1.25
Mortgage                     (0.24)           0.01         (0.20)       0.28         (0.09)           0.23
Leasing                        0.03              -           0.03       0.08              -           0.08
Consumer                       0.91           0.43           0.89       0.52           1.99           0.58
Total annualized net
charge-offs (recoveries)
to average loans
held-in-portfolio              0.10 %       (0.02) %         0.07 %     0.17 %         0.04 %         0.14 %




NCOs for the quarter ended June 30, 2022 amounted to $6.1 million, an
unfavorable variance by $7.4 million when compared to the same period in 2021.
The BPPR segment increased by $6.8 million mainly driven by higher commercial
and consumer NCOs by $6.5 million and $5.4 million, respectively, in part offset
by a decrease of $5.4 million in the mortgage NCOs. The commercial NCOs reflects
an unfavorable variance of $6.5 million, as the prior period was a net recovery
of $9.9 million. The consumer NCOs increase was mainly related to post-pandemic
normalization, as NCOs continue at historical low levels. The PB segment NCOs
remained essentially flat. The low level of NCOs was due to the effect of a
favorable economic environment and continued borrower performance, as reflected
in the ongoing low level of delinquencies and NPLs when compared to pre-pandemic
trends.


Troubled Debt Restructurings

The Corporation's troubled debt restructurings ("TDRs") loans amounted to $1.6
billion at June 30, 2022, decreasing by $8 million, from December 31, 2021. A
total of $724 million of these TDRs are related to guaranteed loans, which are
in accruing status. TDRs in the BPPR segment amounted to $1.6 billion, a
decrease of $8 million, mainly related to decreases of $7 million and $3 million
in the consumer and mortgage TDRs, respectively. The Popular U.S. segment TDRs
remained flat at $15 million from December 31, 2021. TDRs in accruing status
increased by $17 million from December 31, 2021, while non-accruing TDRs
decreased by $25 million, mostly related to mortgage TDRs.

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



                                      161

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

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

© Edgar Online, source Glimpses

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