Edgar Filing: POPULAR INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2011

Commission File Number: 001-34084

POPULAR, INC.
(Exact name of registrant as specifies in its charter)

Puerto Rico				66-0667416
(State or other jurisdiction of Incorporation or organization)				(IRS Employer Identification Number)

Popular Center Building
209 Muñoz Rivera Avenue
Hato Rey, Puerto Rico				00918
(Address of principal executive offices)				(Zip code)

(787) 765-9800
(Registrant’s telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if change since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 1,025,101,209 shares outstanding as of October 28, 2011.

POPULAR, INC.

INDEX


Part I – Financial Information	Page

Item 1. Financial Statements

Unaudited Consolidated Statements of Condition at September 30, 2011, December 31, 2010 and September 30, 2010		4

Unaudited Consolidated Statements of Operations for the quarters and nine months ended September 30, 2011 and 2010		5

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2011 and 2010		6

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2011 and 2010		7

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010		8

Notes to Unaudited Consolidated Financial Statements		10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		128

Item 3. Quantitative and Qualitative Disclosures about Market Risk		195

Item 4. Controls and Procedures		195

Part II – Other Information

Item 1. Legal Proceedings		195

Item 1A. Risk Factors		199

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		199

Item 6. Exhibits		199

Signatures		200

Forward-Looking Information

The information included in this Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to Popular, Inc.’s (the “Corporation”, “Popular”, “we, “us”, “our”) financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict.

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

•

the rate of growth in the economy and employment levels, as well as general business and economic conditions;

•

changes in interest rates, as well as the magnitude of such changes;

•

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

•

changes in federal bank regulatory and supervisory policies, including required levels of capital;

•

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on our businesses, business practices and cost of operations;

•

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

•

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

•

the performance of the stock and bond markets;

•

competition in the financial services industry;

•

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

•

possible legislative, tax or regulatory changes.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; our ability to grow our core businesses; decisions to downsize, sell or close units or otherwise change our business mix; and management’s ability to identify and manage these and other risks. Moreover, the outcome of legal proceedings, as discussed in “Part II, Item I. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

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

ITEM 1. FINANCIAL STATEMENTS

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)


(In thousands, except share information)	September 30, 2011		December 31, 2010		September 30, 2010

Assets
Cash and due from banks		$ 567,141		$ 452,373		$ 580,811

Money market investments:
Federal funds sold		16,179		16,110		-
Securities purchased under agreements to resell		216,939		165,851		290,456
Time deposits with other banks		1,036,021		797,334		1,733,493

Total money market investments		1,269,139		979,295		2,023,949

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		197,840		492,183		434,637
Other trading securities		75,099		54,530		48,555
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,696,581		2,031,123		2,048,258
Other investment securities available-for-sale		3,529,948		3,205,729		3,693,225
Investment securities held-to-maturity, at amortized cost (fair value at September 30, 2011 - $135,011; December 31, 2010 - $120,873; September 30, 2010 - $214,803)		128,546		122,354		214,152
Other investment securities, at lower of cost or realizable value (realizable value at September 30, 2011 - $175,102; December 31, 2010 - $165,233; September 30, 2010 – $159,622)		173,569		163,513		158,309
Loans held-for-sale, at lower of cost or fair value		368,777		893,938		115,088

Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		20,775,237		20,834,276		22,248,112
Loans covered under loss sharing agreements with the FDIC		4,512,423		4,836,882		4,953,195
Less – Unearned income		101,351		106,241		106,685
Allowance for loan losses		772,921		793,225		1,243,994

Total loans held-in-portfolio, net		24,413,388		24,771,692		25,850,628

FDIC loss share asset		1,798,339		2,318,183		2,324,978
Premises and equipment, net		536,529		545,453		531,849
Other real estate not covered under loss sharing agreements with the FDIC		175,785		161,496		168,823
Other real estate covered under loss sharing agreements with the FDIC		75,339		57,565		56,368
Accrued income receivable		134,263		150,658		160,167
Mortgage servicing assets, at fair value		157,226		166,907		165,947
Other assets		2,168,529		1,449,887		1,443,158
Goodwill		648,353		647,387		645,944
Other intangible assets		64,212		58,696		60,438


Total assets		$ 38,178,603		$ 38,722,962		$ 40,725,284

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing		$ 5,527,450		$ 4,939,321		$ 5,371,439
Interest bearing		22,425,890		21,822,879		22,368,605

Total deposits		27,953,340		26,762,200		27,740,044

Federal funds purchased and assets sold under agreements to repurchase		2,601,606		2,412,550		2,358,139
Other short-term borrowings		166,200		364,222		191,342
Notes payable		2,550,745		4,170,183		5,145,152
Other liabilities		894,111		1,213,276		1,170,476

Total liabilities		34,166,002		34,922,431		36,605,153

Commitments and contingencies (See note 19)

Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding in all periods presented (aggregated liquidation preference value of $50,160 )		50,160		50,160		50,160
Common stock, $0.01 par value; 1,700,000,000 shares authorized in all periods presented; 1,024,870,255 shares issued at September 30, 2011 (December 31, 2010 – 1,022,929,158 ; September 30, 2010 – 1,022,878,228 ) and 1,024,475,398 outstanding at September 30, 2011 (December 31, 2010 – 1,022,727,802 ; September 30, 2010 – 1,022,686,418 )		10,249		10,229		10,229
Surplus		4,099,379		4,094,005		4,094,302
Accumulated deficit		(201,770)		(347,328)		(119,877)
Treasury stock – at cost, 394,857 shares at September 30, 2011 (December 31, 2010 – 201,356 shares; September 30, 2010 – 191,810 shares)		(992)		(574)		(545)
Accumulated other comprehensive income (loss), net of tax of ($50,836) (December 31, 2010 – ($55,616); September 30, 2010 – ($16,856))		55,575		(5,961)		85,862

Total stockholders’ equity		4,012,601		3,800,531		4,120,131

Total liabilities and stockholders’ equity		$ 38,178,603		$ 38,722,962		$ 40,725,284

The accompanying notes are an integral part of these consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarter ended September 30,				Nine months ended September 30,
(In thousands, except per share information)	2011		2010		2011		2010


Interest income:

Loans	$	428,999	$	455,631	$	1,294,834	$	1,231,290

Money market investments		886		1,391		2,759		4,326

Investment securities		51,085		57,277		157,183		185,118

Trading account securities		10,788		7,136		29,332		20,313


Total interest income		491,758		521,435		1,484,108		1,441,047


Interest expense:

Deposits		65,868		86,330		213,419		269,919

Short-term borrowings		13,744		14,945		41,478		45,756

Long-term debt		42,835		63,382		141,999		185,082


Total interest expense		122,447		164,657		396,896		500,757


Net interest income		369,311		356,778		1,087,212		940,290

Provision for loan losses		176,276		215,013		395,912		657,471


Net interest income after provision for loan losses		193,035		141,765		691,300		282,819


Service charges on deposit accounts		46,346		48,608		138,778		149,865

Other service fees		62,664		100,822		179,623		305,867

Net gain on sale and valuation adjustments of investment securities		8,134		3,732		8,044		4,210

Trading account profit		2,912		5,860		3,287		8,101

Net gain on sale of loans, including valuation adjustments on loans held-for-sale		20,294		4,250		14,756		14,396

Adjustments (expense) to indemnity reserves on loans sold		(10,285)		(5,823)		(29,587)		(37,502)

FDIC loss share (expense) income		(5,361)		(7,668)		49,344		(22,705)

Fair value change in equity appreciation instrument		-		10,641		8,323		35,035

Gain on sale of processing and technology business		-		640,802		-		640,802

Other operating (loss) income		(2,314)		24,670		38,350		84,518


Total non-interest income		122,390		825,894		410,918		1,182,587


Operating expenses:

Personnel costs		111,724		141,205		328,823		400,169

Net occupancy expenses		25,885		28,425		76,428		86,359

Equipment expenses		10,517		25,432		33,314		74,231

Other taxes		12,391		13,872		38,986		38,635

Professional fees		48,756		48,224		144,923		109,498

Communications		6,800		9,514		21,198		31,628

Business promotion		14,650		11,260		35,842		29,759

FDIC deposit insurance		23,285		17,183		68,640		49,894

Loss on early extinguishment of debt		109		25,448		8,637		26,426

Other real estate owned (OREO) expenses		3,234		6,997		11,885		26,322

Other operating expenses		22,541		41,570		63,555		101,034

Amortization of intangibles		2,463		2,411		6,973		6,915


Total operating expenses		282,355		371,541		839,204		980,870


Income before income tax		33,070		596,118		263,014		484,536

Income tax expense		5,537		102,032		114,664		119,994


Net Income	$	27,533	$	494,086	$	148,350	$	364,542


Net Income Applicable to Common Stock	$	26,602	$	494,086	$	145,558	$	172,875


Net Income per Common Share – Basic	$	0.03	$	0.48	$	0.14	$	0.21


Net Income per Common Share – Diluted	$	0.03	$	0.48	$	0.14	$	0.21


Dividends Declared per Common Share		-		-		-		-

The accompanying notes are an integral part of these consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


(In thousands)	Common stock, including treasury stock		Preferred stock		Surplus	Accumulated deficit		Accumulated other comprehensive (loss) income		Total

Balance at December 31, 2009	$	6,380	$	50,160	$ 2,804,238		$ (292,752)	$	(29,209)	$	2,538,817
Net loss							364,542				364,542
Issuance of stock		-		1,150,000 ^[1]	-						1,150,000
Issuance of common stock upon conversion of preferred stock		3,834 ^[1]		(1,150,000)^[1]	1,337,833 ^[1]						191,667
Issuance costs					(47,769)^[2]						(47,769)
Deemed dividend on preferred stock							(191,667)				(191,667)
Common stock purchases		(530)									(530)
Other comprehensive income, net of tax									115,071		115,071


Balance at September 30, 2010	$	9,684	$	50,160	$ 4,094,302		$ (119,877)	$	85,862	$	4,120,131

Balance at December 31, 2010	$	9,655	$	50,160	$ 4,094,005		$ (347,328)	$	(5,961)	$	3,800,531
Net income							148,350				148,350
Issuance of stock		20			5,374						5,394
Dividends declared:
Preferred stock							(2,792)				(2,792)
Common stock purchases		(418)									(418)
Other comprehensive income, net of tax									61,536		61,536


Balance at September 30, 2011	$	9,257	$	50,160	$ 4,099,379		$ (201,770)	$	55,575	$	4,012,601

[1] Issuance and subsequent conversion of depositary shares representing interests in shares of contingent convertible non-cumulative preferred stock, Series D, into common stock. [2] Issuance costs related to issuance and conversion of depository shares (Preferred Stock - Series D).


Disclosure of changes in number of shares:						September 30, 2011		December 31, 2010		September 30, 2010

Preferred Stock:
Balance at beginning of year							2,006,391		2,006,391		2,006,391
Issuance of stock							-		1,150,000 ^[1]		1,150,000 ^[1]
Conversion of stock							-		(1,150,000)^[1]		(1,150,000)^[1]

Balance at end of the period							2,006,391		2,006,391		2,006,391

Common Stock – Issued:
Balance at beginning of year							1,022,929,158		639,544,895		639,544,895
Issuance of stock							1,941,097		50,930		-
Issuance of stock upon conversion of preferred stock							-		383,333,333 ^[1]		383,333,333 ^[1]

Balance at end of the period							1,024,870,255		1,022,929,158		1,022,878,228
Treasury stock							(394,857)		(201,356)		(191,810)


Common Stock – Outstanding							1,024,475,398		1,022,727,802		1,022,686,418

[1] Issuance of 46,000,000 in depositary shares; converted into 383,333,333 common shares (full conversion of depositary shares, each representing a 1/40th interest in shares of contingent convertible perpetual non-cumulative preferred stock).

The accompanying notes are an integral part of these consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



	Quarter ended,				Nine months ended,

	September 30,				September 30,

(In thousands)	2011		2010		2011		2010


Net income	$	27,533	$	494,086		$ 148,350	$	364,542


Other comprehensive income before tax:

Foreign currency translation adjustment		(222)		1,017		(1,950)		440

Reclassification adjustment for losses included in net income		-		4,967		10,084		4,967

Adjustment of pension and postretirement benefit plans		-		-		-		2,736

Amortization of net losses		3,243		1,971		9,730		5,994

Amortization of prior service cost		(240)		(262)		(720)		(785)

Unrealized holding gains on securities available-for-sale arising during the period		29,021		7,438		59,822		124,350

Reclassification adjustment for gains included in net income		(8,134)		(3,717)		(8,044)		(3,701)

Unrealized net losses on cash flow hedges		(1,671)		(623)		(1,237)		(2,163)

Reclassification adjustment for (gains) losses included in net income		(485)		1,509		(1,369)		341


Other comprehensive income before tax		21,512		12,300		66,316		132,179

Income tax expense		(708)		(888)		(4,780)		(17,108)


Total other comprehensive income, net of tax		20,804		11,412		61,536		115,071


Comprehensive income, net of tax	$	48,337	$	505,498		$ 209,886	$	479,613


Tax effect allocated to each component of other comprehensive income:

	Quarter ended				Nine months ended,

	September 30,				September 30,

(In thousands)	2011		2010		2011		2010


Underfunding of pension and postretirement benefit plans	$	-	$	-		$ -	$	-

Amortization of net losses		(821)		(803)		(2,464)		(2,411)

Amortization of prior service cost		(72)		(79)		(216)		(236)

Unrealized holding gains on securities available-for-sale arising during the period		(1,611)		(217)		(4,101)		(15,724)

Reclassification adjustment for gains included in net income		1,233		556		1,219		552

Unrealized net losses on cash flow hedges		417		244		286		844

Reclassification adjustment for (gains) losses included in net income		146		(589)		496		(133)


Income tax expense	$	(708)	$	(888)		$ (4,780)	$	(17,108)


Disclosure of accumulated other comprehensive income (loss):

(In thousands)			September 30, 2011		December 31, 2010		September 30, 2010


Foreign currency translation adjustment			$	(28,017)		$ (36,151)	$	(35,269)


Underfunding of pension and postretirement benefit plans				(201,925)		(210,935)		(119,841)

Tax effect				78,175		80,855		45,919


Net of tax amount				(123,750)		(130,080)		(73,922)


Unrealized holding gains on securities available-for-sale				236,352		184,574		224,739

Tax effect				(27,756)		(24,874)		(29,306)


Net of tax amount				208,596		159,700		195,433


Unrealized gains (losses) on cash flow hedges				(1,671)		935		(623)

Tax effect				417		(365)		243


Net of tax amount				(1,254)		570		(380)


Accumulated other comprehensive income (loss)			$	55,575		$ (5,961)	$	85,862

The accompanying notes are an integral part of the consolidated financial statements.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine months ended September 30,
	2011		2010
(In thousands)

Cash flows from operating activities:
Net income	$	148,350	$	364,542

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		395,912		657,471
Amortization of intangibles		6,973		6,915
Depreciation and amortization of premises and equipment		34,864		47,084
Net (accretion of discounts) amortization of premiums and deferred fees		(97,668)		(156,056)
Impairment losses on net assets to be disposed of		6,085		-
Fair value adjustments of mortgage servicing rights		26,373		19,959
Fair value change in equity appreciation instrument		(8,323)		(35,035)
FDIC loss share (income) expense		(49,344)		22,705
FDIC deposit insurance expense		68,640		49,894
Adjustments (expense) to indemnity reserves on loans sold		29,587		37,502
Losses (earnings) from investments under the equity method		11,250		(16,144)
Deferred income tax expense		44,608		9,351
(Gain) loss on:
Disposition of premises and equipment		(2,019)		(1,993)
Early extinguishment of debt		-		26,426
Sale and valuation adjustments of investment securities		(8,044)		(4,210)
Sale of loans, including valuation adjustments on loans held-for-sale		(14,756)		(14,396)
Sale of equity method investment		(16,907)		-
Sale of processing and technology business, net of transaction costs		-		(616,186)
Acquisitions of loans held-for-sale		(253,401)		(213,897)
Proceeds from sale of loans held-for-sale		101,549		57,831
Net disbursements on loans held-for-sale		(617,591)		(494,312)
Net (increase) decrease in:
Trading securities		492,882		565,611
Accrued income receivable		14,924		1,806
Other assets		(25,576)		(44,380)
Net increase (decrease) in:
Interest payable		(7,344)		(34,559)
Pension and other postretirement benefit obligation		(128,802)		1,825
Other liabilities		(109,155)		74,461

Total adjustments		(105,283)		(52,327)

Net cash provided by operating activities		43,067		312,215

Cash flows from investing activities:
Net increase in money market investments		(289,844)		(924,913)
Purchases of investment securities:
Available-for-sale		(1,198,613)		(688,678)
Held-to-maturity		(65,358)		(52,198)
Other		(116,582)		(44,021)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		979,868		1,329,390
Held-to-maturity		54,617		51,067
Other		104,231		108,470
Proceeds from sale of investment securities:
Available-for-sale		35,099		396,676
Other		2,294		-
Net repayments on loans		1,013,103		1,292,935
Proceeds from sale of loans		290,119		15,908
Acquisition of loan portfolios		(985,675)		(130,488)
Payments received from FDIC under loss sharing agreements		561,111		-
Cash (paid) acquired related to business acquisitions		(500)		261,311
Net proceeds from sale of equity method investment		31,503		-
Net proceeds from sale of processing and technology businesses		-		642,322
Mortgage servicing rights purchased		(1,251)		(598)
Acquisition of premises and equipment		(37,868)		(40,336)
Proceeds from sale of:
Premises and equipment		12,314		13,503
Foreclosed assets		133,017		120,412

Net cash provided by investing activities		521,585		2,350,762

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		1,192,652		(574,739)
Federal funds purchased and assets sold under agreements to repurchase		189,056		(274,651)
Other short-term borrowings		(198,022)		184,016
Prepayment penalties paid on cancellation of debt		-		(25,475)


Payments of notes payable		(2,055,254)		(3,281,449)
Proceeds from issuance of notes payable		419,500		111,101
Proceeds from issuance of common stock		5,394		-
Net proceeds from issuance of depositary shares		-		1,102,231
Dividends paid		(2,792)		-
Treasury stock acquired		(418)		(530)

Net cash used in financing activities		(449,884)		(2,759,496)

Net increase (decrease) in cash and due from banks		114,768		(96,519)
Cash and due from banks at beginning of period		452,373		677,330

Cash and due from banks at end of period	$	567,141	$	580,811

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial

Statements (Unaudited)



Note 1 -	Summary of Significant Accounting Policies	11

Note 2 -	New Accounting Pronouncements	12

Note 3 -	Related Party Transactions with Affiliated Company	15

Note 4 -	Restrictions on Cash and Due from Banks and Certain Securities	17

Note 5 -	Pledged Assets	17

Note 6 -	Investment Securities Available-For-Sale	19

Note 7 -	Investment Securities Held-to-Maturity	24

Note 8 -	Loans	26

Note 9 -	Allowance for Loan Losses	36

Note 10 -	FDIC Loss Share Asset	55

Note 11 -	Transfers of Financial Assets and Mortgage Servicing Rights	56

Note 12 -	Other Assets	59

Note 13 -	Goodwill and Other Intangible Assets	60

Note 14 -	Deposits	64

Note 15 -	Borrowings	65

Note 16 -	Trust Preferred Securities	67

Note 17 -	Stockholders’ Equity	69

Note 18 -	Guarantees	69

Note 19 -	Commitments and Contingencies	72

Note 20 -	Non-consolidated Variable Interest Entities	76

Note 21 -	Fair Value Measurement	79

Note 22 -	Fair Value of Financial Instruments	88

Note 23 -	Net Income (Loss) per Common Share	90

Note 24 -	Other Service Fees	91

Note 25 -	Pension and Postretirement Benefits	91

Note 26 -	Stock-Based Compensation	92

Note 27 -	Income Taxes	95

Note 28 -	Supplemental Disclosure on the Consolidated Statements of Cash Flows	99

Note 29 -	Segment Reporting	100

Note 30 -	Subsequent Events	108

Note 31 -	Condensed Consolidating Financial Information of Guarantor and Issuers of Registered Guaranteed Securities	109

Note 1 – Summary of significant accounting policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Popular, Inc. and its subsidiaries (the “Corporation”). All significant intercompany accounts and transactions have been eliminated in consolidation. In accordance with the consolidation guidance for variable interest entities, the Corporation would also consolidate any variable interest entities (“VIEs”) for which it has a controlling financial interest and therefore is the primary beneficiary. Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the consolidated statements of condition. The results of operations of companies or assets acquired are included only from the dates of acquisition.

Unconsolidated investments, in which there is at least 20% ownership, are generally accounted for by the equity method. These investments are included in other assets and the Corporation’s proportionate share of income or loss is included in other operating income. Investments, in which there is less than 20% ownership, are generally carried under the cost method of accounting, unless significant influence is exercised. Under the cost method, the Corporation recognizes income when dividends are received. Limited partnerships are accounted for by the equity method unless the Corporation’s interest is so “minor” that it may have virtually no influence over partnership operating and financial policies.

Statutory business trusts that are wholly-owned by the Corporation and are issuers of trust preferred securities are not consolidated in the Corporation’s consolidated financial statements.

The consolidated interim financial statements have been prepared without audit. The consolidated statement of condition data at December 31, 2010 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain reclassifications have been made to the 2010 consolidated financial statements and notes to the financial statements to conform with the 2011 presentation.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation for the year ended December 31, 2010, included in the Corporation’s 2010 Annual Report (the “2010 Annual Report”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

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

Nature of Operations

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 continental United States, and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as auto and equipment leasing and financing, mortgage loans, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the United States, the Corporation operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary E-LOAN, Inc. (“E-LOAN”). BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, California, Illinois, New Jersey and Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA. As part of the rebranding of the BPNA franchise, its branches in Illinois, Florida and California operate under a new assumed business name, Popular Community Bank. Note 29 to the consolidated financial statements presents information about the Corporation’s business segments. The Corporation has a 49% interest in EVERTEC, which provides transaction processing services throughout the Caribbean and Latin America, including servicing many of Popular’s system infrastructures and transaction processing businesses.

On April 30, 2010, BPPR acquired certain assets and assumed certain deposits and liabilities of Westernbank Puerto Rico (“Westernbank”) from the Federal Deposit Insurance Corporation (the “FDIC”). The transaction is referred to herein as the “Westernbank FDIC-assisted transaction”. Refer to the Corporation’s 2010 Annual Report for information on this business combination. Assets subject to loss sharing agreements with the FDIC, including loans and other real estate owned, are labeled “covered” on the consolidated statements of condition and applicable notes to the consolidated financial statements. Loans acquired in the Westernbank FDIC-assisted transaction, except for credit cards, and other real estate owned are considered “covered” because the Corporation will be reimbursed for 80% of any future losses on these assets subject to the terms of the FDIC loss sharing agreements.

Note 2 – New Accounting Pronouncements

FASB Accounting Standards Update 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”)

The FASB issued Accounting Standards Update (“ASU”) No. 2011-08 in September 2011. ASU 2011-08 is intended to simplify how entities test goodwill for impairment. ASU 2011-08 permits an entity the option to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The previous guidance under Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

This ASU also removes the guidance that permitted the entities to carry forward the calculation of the fair value of the reporting unit from one year to the next if certain conditions are met. In addition, the new qualitative indicators replace those currently used to determine whether an interim goodwill impairment test is required. These indicators are also applicable for assessing whether to perform step two for reporting units with zero or negative carrying amounts.

ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Corporation did not elect to adopt early the provisions of this ASU.

The provisions of this guidance simplify how entities test for goodwill impairment and will not have an impact on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”)

The FASB issued ASU 2011-05 in June 2011. The amendment of this ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Under either method, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The amendments to the Codification in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU also does not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items.

The amendments of this guidance are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2011. ASU 2011-05 should be applied retrospectively. Early adoption is permitted.

The provisions of this guidance impact presentation disclosure only and will not have an impact on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”)

The FASB issued ASU 2011-04 in May 2011. The amendment of this ASU provides a consistent definition of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The ASU modifies some fair value measurement principles and disclosure requirements including the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, measuring the fair value of financial instruments that are managed within a portfolio, application of premiums and discounts in a fair value measurement, disclosing quantitative information about unobservable inputs used in Level 3 fair value measurements, and other additional disclosures about fair value measurements.

The new guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively and early application is not permitted.

The Corporation will be evaluating the potential impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

FASB Accounting Standards Update 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (“ASU 2011-03”)

The FASB issued ASU 2011-03 in April 2011. The amendment of this ASU affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The ASU modifies the criteria for determining when these transactions would be accounted for as financings (secured borrowings/lending agreements) as opposed to sales (purchases) with commitments to repurchase (resell). This ASU does not affect other transfers of financial assets. ASC Topic 860 prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements. That determination is based, in part, on whether the entity has maintained effective control over transferred financial assets.

Specifically, the amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The new guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early application is not permitted.

The Corporation will be evaluating the potential impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

FASB Accounting Standards Update 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 2011-02”)

The FASB issued ASU 2011-02 in April 2011. This ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings.

The new guidance will require creditors to evaluate modifications and restructurings of receivables using a more principles-based approach. This update clarifies the existing guidance on whether (1) the creditor has granted a concession and (2) whether the debtor is experiencing financial difficulties. Specifically, ASU 2011-02 (1) provides additional guidance on determining whether a creditor has granted a concession, including guidance on collection of all amounts due, receipt of additional collateral or guarantees from the debtor, and restructuring the debt at a below-market rate; (2) includes examples for creditors to determine whether an insignificant delay in payment is considered a concession; (3) prohibits creditors from using the borrower’s effective rate test in ASC Subtopic 470-50 to evaluate whether a concession has been granted to the borrower; (4) adds factors for creditors to use to determine whether the debtor is experiencing financial difficulties; and (5) ends the deferral of the additional disclosures about TDR activities required by ASU 2010-20 and requires public companies to begin providing these disclosures in the period of adoption.

For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early application is permitted. For purposes of measuring impairment for receivables that are newly considered impaired under the new guidance, an entity should apply the amendments prospectively in the first period of adoption and disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption.

The Corporation adopted this guidance in the third quarter of 2011. Refer to note 9 to the consolidated financial statements for the impact of the adoption of this ASU and the new disclosure requirements.

FASB Accounting Standards Update 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”)

The FASB issued ASU 2010-29 in December 2010. The amendments in ASU 2010-29 affect any public entity that enters into business combinations that are material on an individual or aggregate basis. This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This guidance impacts disclosures only and has not had an impact on the Corporation’s consolidated statements of condition or results of operations at September 30, 2011.

FASB Accounting Standards Update 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”)

The amendments in ASU 2010-28, issued in December 2010, modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance did not have an impact on the Corporation’s consolidated financial statements as of and for the nine months ended September 30, 2011.

Note 3 – Related party transactions with affiliated company

On September 30, 2010, the Corporation completed the sale of a 51% majority interest in EVERTEC, Inc. (“EVERTEC”) to an unrelated third-party, including the Corporation’s merchant acquiring and processing and technology businesses (the “EVERTEC transaction”), and retained a 49% ownership interest in Carib Holdings, the holding company of EVERTEC. EVERTEC continues to provide various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. The investment in EVERTEC was initially recorded at a fair value of $177 million at September 30, 2010, which was determined based on the third-party buyer’s enterprise value of EVERTEC as determined in an orderly transaction between market participants, reduced by the debt incurred, net of debt issue costs, utilized as part of the sale transaction. Prospectively, the investment in EVERTEC is accounted for under the equity method and evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary. Refer to the Corporation’s 2010 Annual Report for details on this sale to an unrelated third-party.

The Corporation’s investment in EVERTEC, including the impact of intra-entity eliminations, amounted to $ 197 million at September 30, 2011 (December 31, 2010 - $ 197 million; September 30, 2010 - $ 193 million), and is included as part of “other assets” in the consolidated statements of condition. The Corporation did not receive any capital distributions from EVERTEC during the period from January 1, 2011 through September 30, 2011.

The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations since October 1, 2010. The following table presents the Corporation’s proportionate share of income (loss) from EVERTEC for the quarter and nine months ended September 30, 2011. The unfavorable impact of the elimination in non-interest income presented in the table is principally offset by the elimination of 49% of the professional fees (operating expenses) paid by the Corporation to EVERTEC during the same period.


(In thousands)	Quarter ended September 30, 2011		Nine months ended September 30, 2011


Share of income (loss) from the equity investment in EVERTEC	$	(1,426)	$	11,069
Intra-company eliminations considered in other operating income (detailed in next table)		(12,288)		(38,747)


Share of income (loss) from the equity investment in EVERTEC, net of eliminations	$	(13,714)	$	(27,678)

The following tables present the impact of transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarter and nine months ended September 30, 2011. Items that represent expenses to the Corporation are presented with parenthesis. For consolidation purposes, the Corporation eliminates 49% of the income (expense) between EVERTEC and the Corporation from the corresponding categories in the consolidated statements of operations and the net effect of all items at 49% is eliminated against other operating income, which is the category used to record the Corporation’s share of income (loss) as part of its equity method investment in EVERTEC. The 51% majority interest in the table that follows represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation’s results of operations.


	Quarter ended September 30, 2011						Nine months ended September 30, 2011

(In thousands)	100%		Popular’s 49% interest (eliminations)		51% majority interest		100%		Popular’s 49% interest (Eliminations)		51% majority interest		Category

Interest income on loan to EVERTEC	$	850	$	417	$	433	$	2,787	$	1,366	$	1,421		Interest income

Interest income on investment securities issued by EVERTEC		963		472		491		2,888		1,415		1,473		Interest income

Interest expense on deposits		(136)		(67)		(69)		(538)		(264)		(274)		Interest expense

ATH and credit cards interchange income from services to EVERTEC		7,294		3,574		3,720		21,366		10,469		10,897		Other service fees

Processing fees on services provided by EVERTEC		(36,185)		(17,731)		(18,454)		(111,985)		(54,872)		(57,113)		Professional fees

Rental income charged to EVERTEC		1,746		856		890		5,350		2,621		2,729		Net occupancy

Transition services provided to EVERTEC		390		191		199		1,056		518		538		Other operating expenses

Total	$	(25,078)	$	(12,288)	$	(12,790)	$	(79,076)	$	(38,747)	$	(40,329)

The Corporation had the following financial condition accounts outstanding with EVERTEC at September 30, 2011, December 31, 2010 and September 30, 2010. The 51% majority interest represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation’s statement of condition.


	At September 30, 2011				At December 31, 2010				At September 30, 2010

(In thousands)	100%		51% majority interest		100%		51% majority interest		100%		51% majority interest

Loans	$	53,123	$	27,093	$	58,126	$	29,644	$	58,200	$	29,682

Investment securities		35,000		17,850		35,000		17,850		35,000		17,850

Deposits		57,965		29,562		38,761		19,768		48,014		24,487

Accounts receivables (Other assets)		3,526		1,798		3,922		2,000		5,128		2,615

Accounts payable (Other liabilities)		16,037		8,179		17,416		8,882		16,095		8,208

Prior to the EVERTEC sale transaction on September 30, 2010, EVERTEC had certain performance bonds outstanding, which were guaranteed by the Corporation under a general indemnity agreement between the Corporation and the insurance companies issuing the bonds. The Corporation agreed to maintain, for a 5-year period following September 30, 2010, the guarantee of the performance bonds. The EVERTEC’s performance bonds guaranteed by the Corporation amounted to approximately $15.0 million at September 30, 2011. Also, EVERTEC had an existing letter of credit issued by BPPR, for an amount of $2.9 million. As part of the merger agreement, the Corporation also agreed to maintain outstanding this letter of credit for a 5-year period. EVERTEC and the Corporation entered into a Reimbursement Agreement, in which EVERTEC will reimburse the Corporation for any losses incurred by the Corporation in connection with the performance bonds and the letter of credit. Possible losses resulting from these agreements are considered insignificant.

Furthermore, under the terms of the sale of EVERTEC, the Corporation was required for a period of twelve months following September 30, 2010 to sell its equity interests in Serfinsa and Consorcio de Tarjetas Dominicanas, S.A (“CONTADO”) to EVERTEC, subject to complying with certain rights of first refusal in favor of the Serfinsa and CONTADO shareholders. During the nine months ended September 30, 2011, the Corporation sold its equity interest in CONTADO to CONTADO shareholders and EVERTEC and

recognized a gain of $16.7 million, net of tax, upon the sale. The Corporation’s investment in CONTADO, accounted for under the equity method, amounted to $16 million at December 31, 2010. During the nine months ended September 30, 2011, the Corporation sold its equity investment in Serfinsa and recognized a gain of approximately $212 thousand, net of tax. The Corporation’s investment in Serfinsa, accounted for under the equity method, amounted to $1.8 million at December 31, 2010.

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

The Corporation’s subsidiary banks are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances were approximately $832 million at September 30, 2011 (December 31, 2010 - $835 million; September 30, 2010 - $828 million). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

As required by the Puerto Rico International Banking Center Law, at September 30, 2011, December 31, 2010 and September 30, 2010, the Corporation maintained separately for its two international banking entities (“IBEs”), $0.6 million in time deposits, equally split for the two IBEs, which were considered restricted assets.

At September 30, 2011, the Corporation maintained restricted cash of $2 million to support a letter of credit. The cash is being held in an interest-bearing money market account (December 31, 2010 - $5 million; September 30, 2010 - $6 million).

At September 30, 2011 and December 31, 2010, the Corporation maintained restricted cash of $1 million that represents funds deposited in an escrow account which are guaranteeing possible liens or encumbrances over the title of insured properties (September 30, 2010 - $2 million).

At September 30, 2011, the Corporation maintained restricted cash of $48 million in money market account related to the note issued to the FDIC (December 31, 2010 - $33 million; September 30, 2010 - $36 million).

At September 30, 2011, the Corporation maintained restricted cash of $14 million to comply with the requirements of the credit card networks (December 31, 2010 and September 30, 2010 - $12 million).

At September 30, 2011, the Corporation maintained restricted cash of $6 million in money market account as a guarantee required by a Puerto Rico municipality.

Note 5 – Pledged assets

Certain securities, loans and other real estate owned were pledged to secure public and trust deposits, assets sold under agreements to repurchase, other borrowings and credit facilities available, derivative positions, and loan servicing agreements. The classification and carrying amount of the Corporation’s pledged assets, in which the secured parties are not permitted to sell or repledge the collateral, were as follows:


(In thousands)	September 30, 2011		December 31, 2010		September 30, 2010


Investment securities available-for-sale, at fair value	$	2,166,488	$	1,867,249	$	2,102,699

Investment securities held-to-maturity, at amortized cost		37,312		25,770		125,770

Loans held-for-sale measured at lower of cost or fair value		1,330		2,862		2,291

Loans held-in-portfolio covered under loss sharing agreements with the FDIC		4,455,894		4,787,002		4,883,935

Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		10,150,838		9,695,200		8,728,674

Other real estate covered under loss sharing agreements with the FDIC		75,339		57,565		56,368


Total pledged assets	$	16,887,201	$	16,435,648	$	15,899,737

Pledged securities and loans that the creditor has the right by custom or contract to repledge are presented separately on the consolidated statements of condition.

At September 30, 2011, investment securities available-for-sale and held-to-maturity totaling $ 1.6 billion, and loans of $ 0.4 billion, served as collateral to secure public funds (December 31, 2010 - $ 1.3 billion and $ 0.5 million, respectively; September 30, 2010 - $ 1.7 billion and $ 0.2 billion, respectively).

At September 30, 2011, the Corporation’s banking subsidiaries had short-term and long-term credit facilities authorized with the Federal Home Loan Bank system (the “FHLB”) aggregating $2.1 billion (December 31, 2010 - $1.6 billion; September 30, 2010- $1.7 billion). Refer to Note 15 to the consolidated financial statements for borrowings outstanding under these credit facilities. At September 30, 2011, the credit facilities authorized with the FHLB were collateralized by $ 4.7 billion in loans held-in-portfolio (December 31, 2010 - $ 3.8 billion; September 30, 2010 - $ 3.7 billion). Also, BPPR had a borrowing capacity at the Fed discount window of $2.5 billion (December 31, 2010 - $2.7 billion; September 30, 2010 - $2.7 billion), which remained unused as of such date. The amount available under this credit facility is dependent upon the balance of loans and securities pledged as collateral. At September 30, 2011, the credit facilities with the Fed discount window were collateralized by $ 3.9 billion in loans held-in-portfolio (December 31, 2010-$ 4.2 billion; September 30, 2010 -$ 4.3 billion). These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statement of condition.

In addition, at September 30, 2011, securities sold but not yet delivered amounting to $294 million were pledged to secure repurchase agreements.

Loans held-in-portfolio and other real estate owned that are covered by loss sharing agreements with the FDIC amounting to $ 4.5 billion at September 30, 2011 (December 31, 2010 - $ 4.8 billion; September 30, 2010- $ 4.9 billion), serve as collateral to secure the note issued to the FDIC. Refer to Note 15 to the consolidated financial statements for descriptive information on the note issued to the FDIC.

Note 6 – Investment securities available for sale

The following table presents the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at September 30, 2011, December 31, 2010 and September 30, 2010.


	At September 30, 2011

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield

U.S. Treasury securities

After 1 to 5 years	$	35,157	$	3,741	$	-	$	38,898		3.35 %

Total U.S. Treasury securities		35,157		3,741		-		38,898		3.35

Obligations of U.S. Government sponsored entities
Within 1 year		35,002		46		-		35,048		4.72
After 1 to 5 years		814,760		33,273		-		848,033		3.30
After 5 to 10 years		76,020		596		-		76,616		2.59
After 10 years		25,000		-		12		24,988		2.50

Total obligations of U.S. Government sponsored entities		950,782		33,915		12		984,685		3.27

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		845		9		-		854		4.73
After 1 to 5 years		17,438		300		7		17,731		4.40
After 5 to 10 years		2,055		27		-		2,082		5.30
After 10 years		35,431		338		-		35,769		5.59

Total obligations of Puerto Rico, States and political subdivisions		55,769		674		7		56,436		5.19

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		1,924		67		-		1,991		4.71
After 5 to 10 years		68,395		1,383		-		69,778		2.54
After 10 years		1,626,945		58,372		439		1,684,878		2.88

Total collateralized mortgage obligations - federal agencies		1,697,264		59,822		439		1,756,647		2.87

Collateralized mortgage obligations - private label
After 5 to 10 years		6,588		1		341		6,248		0.76
After 10 years		64,910		-		5,908		59,002		2.33

Total collateralized mortgage obligations - private label		71,498		1		6,249		65,250		2.19

Mortgage-backed securities
Within 1 year		646		41		-		687		6.05
After 1 to 5 years		9,739		339		-		10,078		3.99
After 5 to 10 years		146,075		11,018		1		157,092		4.73
After 10 years		1,991,862		132,582		60		2,124,384		4.25

Total mortgage -backed securities		2,148,322		143,980		61		2,292,241		4.28

Equity securities (without contractual maturity)		6,594		312		835		6,071		2.96

Other
After 5 to 10 years		17,850		1,400		-		19,250		10.99
After 10 years		6,941		110		-		7,051		3.62

Total other		24,791		1,510		-		26,301		8.93

Total investment securities available-for-sale	$	4,990,177	$	243,955	$	7,603	$	5,226,529		3.60 %


	At December 31, 2010

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield

U.S. Treasury securities
After 1 to 5 years	$	7,001	$	122	$	-	$	7,123		1.50 %
After 5 to 10 years		28,676		2,337		-		31,013		3.81

Total U.S. Treasury securities		35,677		2,459		-		38,136		3.36

Obligations of U.S. Government sponsored entities
Within 1 year		153,738		2,043		-		155,781		3.39
After 1 to 5 years		1,000,955		53,681		661		1,053,975		3.72
After 5 to 10 years		1,512		36		-		1,548		6.30

Total obligations of U.S. Government sponsored entities		1,156,205		55,760		661		1,211,304		3.68

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		10,404		19		-		10,423		3.92
After 1 to 5 years		15,853		279		5		16,127		4.52
After 5 to 10 years		20,765		43		194		20,614		5.07
After 10 years		5,505		52		19		5,538		5.28

Total obligations of Puerto Rico, States and political subdivisions		52,527		393		218		52,702		4.70

Collateralized mortgage obligations - federal agencies
Within 1 year		77		1		-		78		3.88
After 1 to 5 years		1,846		105		-		1,951		4.77
After 5 to 10 years		107,186		1,507		936		107,757		2.50
After 10 years		1,096,271		32,248		11		1,128,508		2.87

Total collateralized mortgage obligations - federal agencies		1,205,380		33,861		947		1,238,294		2.84

Collateralized mortgage obligations - private label
After 5 to 10 years		10,208		31		158		10,081		1.20
After 10 years		79,311		78		4,532		74,857		2.29

Total collateralized mortgage obligations - private label		89,519		109		4,690		84,938		2.17

Mortgage-backed securities
Within 1 year		2,983		101		-		3,084		3.62
After 1 to 5 years		15,738		649		3		16,384		3.98
After 5 to 10 years		170,662		10,580		3		181,239		4.71
After 10 years		2,289,210		86,870		632		2,375,448		4.26

Total mortgage-backed securities		2,478,593		98,200		638		2,576,155		4.29

Equity securities (without contractual maturity)		8,722		855		102		9,475		3.43

Other
After 5 to 10 years		17,850		262		-		18,112		10.98
After 10 years		7,805		-		69		7,736		3.62

Total other		25,655		262		69		25,848		8.74

Total investment securities available-for-sale	$	5,052,278	$	191,899	$	7,325	$	5,236,852		3.78 %


	At September 30, 2010

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield

U.S. Treasury securities
After 1 to 5 years	$	6,998	$	166	$	-	$	7,164		1.50 %
After 5 to 10 years		28,850		3,409		-		32,259		3.81

Total U.S. Treasury securities		35,848		3,575		-		39,423		3.36

Obligations of U.S. Government sponsored entities
Within 1 year		288,588		2,980		-		291,568		3.45
After 1 to 5 years		1,011,751		65,003		-		1,076,754		3.77
After 5 to 10 years		1,518		51		-		1,569		6.26
After 10 years		26,890		179		-		27,069		5.68

Total obligations of U.S. Government sponsored entities		1,328,747		68,213		-		1,396,960		3.74

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		10,140		18		-		10,158		3.90
After 1 to 5 years		15,858		375		6		16,227		4.52
After 5 to 10 years		21,225		70		71		21,224		5.07
After 10 years		5,560		155		-		5,715		5.29

Total obligations of Puerto Rico, States and political subdivisions		52,783		618		77		53,324		4.70

Collateralized mortgage obligations - federal agencies
Within 1 year		118		2		-		120		4.24
After 1 to 5 years		3,020		105		-		3,125		5.56
After 5 to 10 years		87,668		1,643		-		89,311		2.56
After 10 years		1,215,779		38,744		38		1,254,485		2.89

Total collateralized mortgage obligations - federal agencies		1,306,585		40,494		38		1,347,041		2.87

Collateralized mortgage obligations - private label
After 5 to 10 years		13,612		86		444		13,254		1.71
After 10 years		85,796		202		3,862		82,136		2.32

Total collateralized mortgage obligations - private label		99,408		288		4,306		95,390		2.24

Mortgage-backed securities
Within 1 year		3,494		75		-		3,569		3.78
After 1 to 5 years		18,557		719		-		19,276		4.02
After 5 to 10 years		182,930		12,349		2		195,277		4.71
After 10 years		2,461,567		103,118		156		2,564,529		4.29

Total mortgage-backed securities		2,666,548		116,261		158		2,782,651		4.32

Equity securities (without contractual maturity)		8,975		379		510		8,844		3.47

Other
After 5 to 10 years		17,850		-		-		17,850		11.00

Total other		17,850		-		-		17,850		11.00

Total investment securities available-for-sale	$	5,516,744	$	229,828	$	5,089	$	5,741,483		3.82 %

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

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

Proceeds from the sale of investment securities available-for-sale for the nine months ended September 30, 2011 amounted to $ 35.1 million, with net realized gains of $8.4 million. This compares with proceeds of $ 396.7 million for the nine months ended September 30, 2010, with net realized gains of $3.7 million.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011, December 31, 2010 and September 30, 2010.

		00000000		00000000		00000000		00000000		00000000		00000000
	Less than 12 months				At September 30, 2011 12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses


Obligations of U.S. Government sponsored entities	$	24,988	$	12	$	-	$	-	$	24,988	$	12

Obligations of Puerto Rico, States and political subdivisions		2,081		3		190		4		2,271		7

Collateralized mortgage obligations - federal agencies		225,941		430		3,427		9		229,368		439

Collateralized mortgage obligations - private label		22,076		852		43,122		5,397		65,198		6,249

Mortgage-backed securities		5,315		24		1,473		37		6,788		61

Equity securities		2,551		827		3		8		2,554		835


Total investment securities available-for-sale in an unrealized loss position	$	282,952	$	2,148	$	48,215	$	5,455	$	331,167	$	7,603


	Less than 12 months				At December 31, 2010 12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses


Obligations of U.S. Government sponsored entities	$	24,284	$	661	$	-	$	-	$	24,284	$	661

Obligations of Puerto Rico, States and political subdivisions		19,357		213		303		5		19,660		218

Collateralized mortgage obligations - federal agencies		40,212		945		2,505		2		42,717		947

Collateralized mortgage obligations - private label		21,231		292		52,302		4,398		73,533		4,690

Mortgage-backed securities		33,261		406		9,257		232		42,518		638

Equity securities		3		8		43		94		46		102

Other		7,736		69		-		-		7,736		69


Total investment securities available-for-sale in an unrealized loss position	$	146,084	$	2,594	$	64,410	$	4,731	$	210,494	$	7,325


	Less than 12 months				At September 30, 2010 12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses


Obligations of Puerto Rico, States and political subdivisions	$	18,234	$	71	$	302	$	6	$	18,536	$	77

Collateralized mortgage obligations - federal agencies		13,880		35		6,402		3		20,282		38

Collateralized mortgage obligations - private label		1,551		94		68,032		4,212		69,583		4,306

Mortgage-backed securities		8,915		123		1,240		35		10,155		158

Equity securities		3		8		3,846		502		3,849		510


Total investment securities available-for-sale in an unrealized loss position	$	42,583	$	331	$	79,822	$	4,758	$	122,405	$	5,089

Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length

of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

At September 30, 2011, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At September 30, 2011, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis. Also, management evaluated the Corporation’s portfolio of equity securities at September 30, 2011. During the quarter ended September 30, 2011, the Corporation recorded $340 thousand in losses on certain equity securities considered other-than-temporary impairment. Management has the intent and ability to hold the investments in equity securities that are at a loss position at September 30, 2011, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

The unrealized losses associated with “Collateralized mortgage obligations – private label” (“private-label CMO”) are primarily related to securities backed by residential mortgages. In addition to verifying the credit ratings for the private-label CMOs, management analyzed the underlying mortgage loan collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO, including among others, the weighted average loan-to-value, FICO score, and delinquency and foreclosure rates of the underlying assets in the securities. At September 30, 2011, there were no “sub-prime” securities in the Corporation’s private-label CMOs portfolios. For private-label CMOs with unrealized losses at September 30, 2011, credit impairment was assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows through the current period and then projects the expected cash flows using a number of assumptions, including default rates, loss severity and prepayment rates. Management’s assessment also considered tests using more stressful parameters. Based on the assessments, management concluded that the tranches of the private-label CMOs held by the Corporation were not other-than-temporarily impaired at September 30, 2011, thus management expects to recover the amortized cost basis of the securities.

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


	September 30, 2011				December 31, 2010				September 30, 2010


(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value


FNMA	$	1,083,086	$	1,123,813	$	757,812	$	789,838	$	792,291	$	826,042

FHLB		588,987		617,701		1,003,395		1,056,549		1,173,877		1,238,487

Freddie Mac		996,940		1,029,346		637,644		654,495		602,440		620,384

Note 7 – Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity at September 30, 2011, December 31, 2010 and September 30, 2010.


	At September 30, 2011

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield


U.S. Treasury securities

Within 1 year	$	12,365	$	2	$	-	$	12,367		0.09%


Total U.S. Treasury securities		12,365		2		-		12,367		0.09

Obligations of Puerto Rico, States and political subdivisions

Within 1 year		2,275		15		-		2,290		5.59

After 1 to 5 years		16,174		436		-		16,610		4.22

After 5 to 10 years		18,511		189		140		18,560		5.99

After 10 years		52,559		6,507		1,165		57,901		4.11


Total obligations of Puerto Rico, States and political subdivisions		89,519		7,147		1,305		95,361		4.56


Collateralized mortgage obligations - private label

After 10 years		162		-		9		153		5.45


Total collateralized mortgage obligations - private label		162		-		9		153		5.45


Other

Within 1 year		1,250		-		-		1,250		1.28

After 1 to 5 years		25,250		630		-		25,880		3.47


Total other		26,500		630		-		27,130		3.37


Total investment securities held-to-maturity	$	128,546	$	7,779	$	1,314	$	135,011		3.89%


	At December 31, 2010

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield


U.S. Treasury securities

Within 1 year	$	25,873	$	-	$	1	$	25,872		0.11%


Total U.S. Treasury securities		25,873		-		1		25,872		0.11


Obligations of Puerto Rico, States and political subdivisions

Within 1 year		2,150		6		-		2,156		5.33

After 1 to 5 years		15,529		333		-		15,862		4.10

After 5 to 10 years		17,594		115		268		17,441		5.96

After 10 years		56,702		-		1,649		55,053		4.25


Total obligations of Puerto Rico, States and political subdivisions		91,975		454		1,917		90,512		4.58


Collateralized mortgage obligations - private label

After 10 years		176		-		10		166		5.45


Total collateralized mortgage obligations - private label		176		-		10		166		5.45


Other

Within 1 year		4,080		-		-		4,080		1.15

After 1 to 5 years		250		-		7		243		1.20


Total other		4,330		-		7		4,323		1.15


Total investment securities held-to-maturity	$	122,354	$	454	$	1,935	$	120,873		3.51%


	At September 30, 2010

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Weighted Average Yield

U.S. Treasury securities
Within 1 year	$	25,812	$	2	$	-	$	25,814		0.21 %

Total U.S. Treasury securities		25,812		2		-		25,814		0.21

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		7,150		14		-		7,164		2.15
After 1 to 5 years		110,528		620		-		111,148		5.52
After 5 to 10 years		17,595		506		52		18,049		5.96
After 10 years		49,300		231		652		48,879		4.20

Total obligations of Puerto Rico, States and political subdivisions		184,573		1,371		704		185,240		5.08

Collateralized mortgage obligations - private label
After 10 years		192		-		11		181		5.21

Total collateralized mortgage obligations - private label		192		-		11		181		5.21

Other
Within 1 year		3,075		-		-		3,075		1.33
After 1 to 5 years		500		-		7		493		1.00

Total other		3,575		-		7		3,568		1.28

Total investment securities held-to-maturity	$	214,152	$	1,373	$	722	$	214,803		4.43 %

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

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011, December 31, 2010 and September 30, 2010:


	At September 30, 2011
	Less than 12 months				12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

Obligations of Puerto Rico, States and political subdivisions	$	18,078	$	399	$	30,234	$	906	$	48,312	$	1,305
Collateralized mortgage obligations - private label		-		-		153		9		153		9

Total investment securities held-to-maturity in an unrealized loss position	$	18,078	$	399	$	30,387	$	915	$	48,465	$	1,314


	At December 31, 2010
	Less than 12 months				12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

U.S. Treasury securities	$	25,872	$	1	$	-	$	-	$	25,872	$	1
Obligations of Puerto Rico, States and political subdivisions		51,995		1,915		773		2		52,768		1,917
Collateralized mortgage obligations- private label		-		-		166		10		166		10
Other		243		7		-		-		243		7

Total investment securities held-to-maturity in an unrealized loss position	$	78,110	$	1,923	$	939	$	12	$	79,049	$	1,935


	At September 30, 2010

	Less than 12 months				12 months or more				Total

(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses

Obligations of Puerto Rico, States and political subdivisions	$	-	$	-	$	31,126	$	704	$	31,126	$	704
Collateralized mortgage obligations - private label		-		-		181		11		181		11
Other		243		7		-		-		243		7

Total investment securities held-to-maturity in an unrealized loss position	$	243	$	7	$	31,307	$	715	$	31,550	$	722

As indicated in Note 6 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at September 30, 2011 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. The Corporation performs periodic credit quality reviews on these issuers. The decline in fair value at September 30, 2011 was attributable to changes in interest rates and not credit quality, thus no other-than-temporary decline in value was necessary to be recorded in these held-to-maturity securities at September 30, 2011. At September 30, 2011, the Corporation does not have the intent to sell securities held-to-maturity and it is not more likely than not that the Corporation will have to sell these investment securities prior to recovery of their amortized cost basis.

Note 8 – Loans

The risks of the Westernbank FDIC-assisted transaction acquired loans are significantly different from those loans not covered under the FDIC loss sharing agreements because of the loss protection provided by the FDIC. Accordingly, the Corporation presents loans subject to the loss sharing agreements as “covered loans” in the information below and loans that are not subject to the FDIC loss sharing agreements as “non-covered loans”.

For a summary of the accounting policy related to loans, interest recognition and allowance for loan losses refer to the summary of significant accounting policies included in Note 2 to the consolidated financial statements included in the Corporation’s 2010 Annual Report. As indicated in Note 2 to these consolidated financial statements, during the third quarter of 2011, the Corporation adopted ASU 2011-02, which clarifies which loan modifications constitute troubled debt restructurings. The impact of this adoption is included in Note 9 – Allowance for Loan Losses.

The following tables present the composition of loans held-in-portfolio (“HIP”), net of unearned income, at September 30, 2011 and December 31, 2010.


(In thousands)	Non-covered loans at September 30, 2011		Covered loans at September 30, 2011		Total loans HIP at September 30, 2011

Commercial real estate	$	6,737,547	$	2,338,298	$	9,075,845
Commercial and industrial		3,851,372		235,778		4,087,150
Construction		358,060		599,990		958,050
Mortgage		5,466,503		1,217,434		6,683,937
Lease financing		571,068		-		571,068
Consumer:
Credit cards		1,230,171		-		1,230,171
Home equity lines of credit		577,109		-		577,109
Personal		1,135,110		-		1,135,110
Auto		505,423		-		505,423
Other		241,523		120,923		362,446

Total loans held-in-portfolio^[a]	$	20,673,886	$	4,512,423	$	25,186,309

[a] Loans held-in-portfolio at September 30, 2011 are net of $101 million in unearned income and exclude $369 million in loans held-for-sale.


	Non-covered loans at December 31, 2010		Covered loans at December 31, 2010		Total loans HIP at December 31, 2010
(In thousands)

Commercial real estate		$ 7,006,676		$ 2,463,549		$ 9,470,225
Commercial and industrial		4,386,809		303,632		4,690,441
Construction		500,851		640,492		1,141,343
Mortgage		4,524,722		1,259,459		5,784,181
Lease financing		602,993		-		602,993
Consumer:
Credit cards		1,132,308		-		1,132,308
Home equity lines of credit		568,353		-		568,353
Personal		1,236,067		-		1,236,067
Auto		503,757		-		503,757
Other		265,499		169,750		435,249

Total loans held-in-portfolio^[a]		$ 20,728,035		$ 4,836,882		$ 25,564,917

[a] Loans held-in-portfolio at December 31, 2010 are net of $106 million in unearned income and exclude $894 million in loans held-for-sale.

The following table provides a breakdown of loans held-for-sale (“LHFS”) at September 30, 2011 and December 31, 2010 by main categories.


(In thousands)	September 30, 2011		December 31, 2010


Commercial		$ 24,191		$ 60,528

Construction		234,336		412,744

Mortgage		110,250		420,666


Total		$ 368,777		$ 893,938

During the quarter and nine months ended September 30, 2011, the Corporation recorded purchases of mortgage loans amounting to $177 million and $1.1 billion, respectively. In addition, during the quarter and nine months ended September 30, 2011, the Corporation recorded purchases of credit cards relationships with balances of approximately $130 million. There were no significant purchases of commercial and construction loans during 2011.

The Corporation sold approximately $34 million and $295 million of residential mortgage loans during the quarter and nine months ended September 30, 2011, respectively. Also, the Corporation securitized approximately $194 million and $667 million of mortgage loans to Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2011, respectively. Furthermore, the Corporation securitized approximately $42 million and $163 million of mortgage loans in Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2011, respectively.

During the third quarter of 2011, the Corporation transferred $27 million of commercial and construction loans held-in-portfolio to loans to held-for-sale at a value of $14 million. This resulted in a write-down at the time of transfer of $12.7 million. Also, during the quarter ended September 30, 2011, these loans as well as other construction and commercial loans held-for sale with a combined book value of $128 million were sold to a newly created joint venture in which the Corporation holds a minority interest. Refer to Note 20 to the consolidated financial statements for details of this transaction. Besides this sale, the Corporation sold commercial and construction loans with a book value of approximately $13 million during the quarter and $27 million during the nine months ended September 30, 2011.

Non-covered loans

The following tables present non-covered loans held-in-portfolio that are in non-performing status and accruing loans past due 90 days or more by loan class at September 30, 2011 and December 31, 2010. Accruing loans past due 90 days or more consist primarily of credit cards, FHA / VA and other insured mortgage loans, and delinquent mortgage loans included in the Corporation’s financial statements pursuant to GNMA’s buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even

when they elect not to exercise that option. Also, accruing loans past due 90 days or more include residential conventional loans purchased from other financial institutions that, although delinquent, the Corporation has received timely payment from the sellers / servicers, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from other financial institutions, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At September 30, 2011

	Puerto Rico				U.S. Mainland				Popular, Inc.

(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more


Commercial real estate	$	464,669	$	-	$	172,189	$	-	$	636,858	$	-

Commercial and industrial		188,268		504		47,455		-		235,723		504

Construction		64,971		-		122,943		-		187,914		-

Mortgage		580,563		290,904		37,160		-		617,723		290,904

Leasing		3,966		-		228		-		4,194		-

Consumer:

Credit cards		-		25,461		-		-		-		25,461

Home equity lines of credit		-		121		12,464		-		12,464		121

Personal		20,123		-		1,641		-		21,764		-

Auto		6,487		-		61		-		6,548		-

Other		7,871		652		612		-		8,483		652


Total^[a]	$	1,336,918	$	317,642	$	394,753	$	-	$	1,731,671	$	317,642

[a] For purposes of this table non-performing loans exclude $ 260 million in non-performing loans held-for-sale.

At December 31, 2010

	Puerto Rico				U.S. Mainland				Popular, Inc.

(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more


Commercial real estate	$	370,677	$	-	$	182,456	$	-	$	553,133	$	-

Commercial and industrial		114,792		-		57,102		-		171,894		-

Construction		64,678		-		173,876		-		238,554		-

Mortgage		518,446		292,387		23,587		-		542,033		292,387

Leasing		5,674		-		263		-		5,937		-

Consumer:

Credit cards		-		33,514		-		-		-		33,514

Home equity lines of credit		-		-		17,562		-

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