Edgar Filing: POPULAR INC

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2013

Commission File Number: 001-34084

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico

66-0667416

(State or other jurisdiction of

Incorporation or 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 changed 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:

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, 103,251,872 shares outstanding as of May 2, 2013.

POPULAR, INC.

INDEX


	Page
Part I – Financial Information

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at March 31, 2013 and December 31, 2012		4

Unaudited Consolidated Statements of Operations for the quarters ended March 31, 2013 and 2012		5

Unaudited Consolidated Statements of Comprehensive (Loss) Income for the quarters ended March 31, 2013 and 2012		6

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended March 31, 2013 and 2012		7

Unaudited Consolidated Statements of Cash Flows for the quarters ended March 31, 2013 and 2012		8

Notes to Unaudited Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		112

Item 3. Quantitative and Qualitative Disclosures about Market Risk		174

Item 4. Controls and Procedures		174

Part II – Other Information

Item 1. Legal Proceedings		174

Item 1A. Risk Factors		174

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		175

Item 6. Exhibits		176

Signatures		177

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 and the impact of proposed capital standards on our capital ratios;

•

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, 2012 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.

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	March 31,			December 31,
(In thousands, except share information)	2013			2012
Assets:
Cash and due from banks	$	242,290		$	439,363

Money market investments:
Federal funds sold		56,955			33,515
Securities purchased under agreements to resell		226,139			213,462
Time deposits with other banks		1,061,150			838,603

Total money market investments		1,344,244			1,085,580

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		258,677			271,624
Other trading securities		41,096			42,901
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,865,840			1,603,693
Other investment securities available-for-sale		3,455,391			3,480,508
Investment securities held-to-maturity, at amortized cost (fair value 2013 - $141,877; 2012 - $144,233)		141,518			142,817
Other investment securities, at lower of cost or realizable value (realizable value 2013 - $200,710; 2012 - $187,501)		198,577			185,443
Loans held-for-sale, at lower of cost or fair value		201,495			354,468

Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		21,729,882			21,080,005
Loans covered under loss sharing agreements with the FDIC		3,362,446			3,755,972
Less – Unearned income		96,137			96,813
Allowance for loan losses		683,368			730,607

Total loans held-in-portfolio, net		24,312,823			24,008,557

FDIC loss share asset		1,380,592			1,399,098
Premises and equipment, net		532,785			535,793
Other real estate not covered under loss sharing agreements with the FDIC		154,699			266,844
Other real estate covered under loss sharing agreements with the FDIC		172,378			139,058
Accrued income receivable		135,542			125,728
Mortgage servicing assets, at fair value		153,949			154,430
Other assets		1,651,234			1,569,578
Goodwill		647,757			647,757
Other intangible assets		51,827			54,295

Total assets	$	36,942,714		$	36,507,535

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	5,613,701		$	5,794,629
Interest bearing		21,399,516			21,205,984

Total deposits		27,013,217			27,000,613

Assets sold under agreements to repurchase		2,265,675			2,016,752
Other short-term borrowings		951,200			636,200
Notes payable		1,752,469			1,777,721
Other liabilities		989,010			966,249

Total liabilities		32,971,571			32,397,535

Commitments and contingencies (See Note 20)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding		50,160			50,160
Common stock, $0.01 par value; 170,000,000 shares authorized; 103,253,018 shares issued (2012 – 103,193,303) and 103,228,615 shares outstanding (2012 – 103,169,806)		1,033			1,032
Surplus		4,151,838			4,150,294
(Accumulated deficit) retained earnings		(109,411	)		11,826
Treasury stock – at cost, 24,403 shares (2012 – 23,497)		(469	)		(444	)
Accumulated other comprehensive loss, net of tax		(122,008	)		(102,868	)

Total stockholders’ equity		3,971,143			4,110,000

Total liabilities and stockholders’ equity	$	36,942,714		$	36,507,535

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended March 31,
(In thousands, except per share information)	2013			2012
Interest income:
Loans	$	385,414		$	387,942
Money market investments		955			948
Investment securities		37,356			45,070
Trading account securities		5,514			5,891

Total interest income		429,239			439,851

Interest expense:
Deposits		38,343			51,679
Short-term borrowings		9,782			13,583
Long-term debt		35,767			37,007

Total interest expense		83,892			102,269

Net interest income		345,347			337,582
Provision for loan losses - non-covered loans		206,300			82,514
Provision for loan losses - covered loans		17,556			18,209

Net interest income after provision for loan losses		121,491			236,859

Service charges on deposit accounts		43,722			46,589
Other service fees (Refer to Note 26)		58,803			66,039
Trading account loss		(75	)		(2,143	)
Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale		(48,959	)		15,471
Adjustments (expense) to indemnity reserves on loans sold		(16,143	)		(3,875	)
FDIC loss share expense (Refer to Note 27)		(26,266	)		(15,255	)
Other operating income		6,493			17,082

Total non-interest income		17,575			123,908

Operating expenses:
Personnel costs		115,989			121,491
Net occupancy expenses		24,288			24,162
Equipment expenses		11,950			11,341
Other taxes		11,586			13,438
Professional fees		52,135			48,105
Communications		6,832			7,131
Business promotion		12,917			12,850
FDIC deposit insurance		9,280			24,926
Loss on early extinguishment of debt		—			69
Other real estate owned (OREO) expenses		46,741			14,165
Other operating expenses		22,064			15,896
Amortization of intangibles		2,468			2,593

Total operating expenses		316,250			296,167

(Loss) income before income tax		(177,184	)		64,600
Income tax (benefit) expense		(56,877	)		16,192

Net (Loss) Income	$	(120,307	)	$	48,408

Net (Loss) Income Applicable to Common Stock	$	(121,237	)	$	47,477

Net (Loss) Income per Common Share – Basic	$	(1.18	)	$	0.46

Net (Loss) Income per Common Share – Diluted	$	(1.18	)	$	0.46

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Quarters ended March 31,
(In thousands)	2013			2012
Net (loss) income	$	(120,307	)	$	48,408

Other comprehensive loss before tax:
Foreign currency translation adjustment		724			(86	)
Amortization of net losses on pension and postretirement benefit plans		6,169			6,289
Amortization of prior service cost of pension and postretirement benefit plans		—			(50	)
Unrealized holding losses on investments arising during the period		(28,955	)		(7,882	)
Unrealized net losses on cash flow hedges		(99	)		(1,549	)
Reclassification adjustment for net (gains) losses included in net income		(152	)		2,316

Other comprehensive loss before tax		(22,313	)		(962	)
Income tax benefit (expense)		3,173			(275	)

Total other comprehensive loss, net of tax		(19,140	)		(1,237	)

Comprehensive (loss) income, net of tax	$	(139,447	)	$	47,171


Tax effect allocated to each component of other comprehensive loss:

	Quarters ended March 31,
(In thousands)	2013			2012
Amortization of net losses on pension and postretirement benefit plans		(1,851	)		(1,740	)
Amortization of prior service cost of pension and postretirement benefit plans		—			15
Unrealized holding losses on investments arising during the period		4,949			1,681
Unrealized net losses on cash flow hedges		30			465
Reclassification adjustment for net gains (losses) included in net income		45			(696	)

Income tax (expense) benefit	$	3,173		$	(275	)

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


													Accumulated
													other
	Common		Preferred				Accumulated			Treasury			comprehensive
(In thousands)	stock^[1]		stock		Surplus^[1]		deficit			stock			loss			Total
Balance at December 31, 2011	$	1,026	$	50,160	$	4,123,898	$	(212,726	)	$	(1,057	)	$	(42,548	)	$	3,918,753
Net income								48,408									48,408
Issuance of stock		2				2,060											2,062
Dividends declared:
Preferred stock								(931	)								(931	)
Common stock purchases											(6	)					(6	)
Common stock reissuance											22						22
Other comprehensive loss, net of tax														(1,237	)		(1,237	)

Balance at March 31, 2012	$	1,028	$	50,160	$	4,125,958	$	(165,249	)	$	(1,041	)	$	(43,785	)	$	3,967,071

Balance at December 31, 2012	$	1,032	$	50,160	$	4,150,294	$	11,826		$	(444	)	$	(102,868	)	$	4,110,000
Net loss								(120,307	)								(120,307	)
Issuance of stock		1				1,544											1,545
Dividends declared:
Preferred stock								(930	)								(930	)
Common stock purchases											(25	)					(25	)
Other comprehensive loss, net of tax														(19,140	)		(19,140	)

Balance at March 31, 2013	$	1,033	$	50,160	$	4,151,838	$	(109,411	)	$	(469	)	$	(122,008	)	$	3,971,143


[1] The balances and activity for 2012 have been adjusted to retroactively reflect the 1-for-10 reverse stock split effected on May 29, 2012.

													March 31, 2013			March 31, 2012^[1]
Disclosure of changes in number of shares:
Preferred Stock:
Balance at beginning and end of period														2,006,391			2,006,391

Common Stock – Issued:
Balance at beginning of period														103,193,303			102,634,640
Issuance of stock														59,715			120,954

Balance at end of the period														103,253,018			102,755,594
Treasury stock														(24,403	)		(43,887	)

Common Stock – Outstanding														103,228,615			102,711,707

[1]	Share data has been adjusted to retroactively reflect the 1-for-10 reverse stock split effected on May 29, 2012.

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Quarter ended March 31,
(In thousands)	2013			2012
Cash flows from operating activities:
Net (loss) income	$	(120,307	)	$	48,408

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for loan losses		223,856			100,723
Amortization of intangibles		2,468			2,593
Depreciation and amortization of premises and equipment		12,254			11,756
Net accretion of discounts and amortization of premiums and deferred fees		(14,257	)		(4,077	)
Fair value adjustments on mortgage servicing rights		5,615			(784	)
FDIC loss share expense		26,266			15,255
Amortization of prepaid FDIC assessment		—			24,926
Adjustments (expense) to indemnity reserves on loans sold		16,143			3,875
Earnings from investments under the equity method		(9,594	)		(15,402	)
Deferred income tax (benefit) expense		(60,528	)		4,418
(Gain) loss on:
Disposition of premises and equipment		(1,468	)		(6,284	)
Sale of loans, including valuation adjustments on loans held-for-sale		48,959			(15,471	)
Sale of foreclosed assets, including write-downs		38,363			10,163
Acquisitions of loans held-for-sale		(15,335	)		(76,118	)
Proceeds from sale of loans held-for-sale		51,000			63,460
Net disbursements on loans held-for-sale		(382,810	)		(223,500	)
Net (increase) decrease in:
Trading securities		423,236			270,691
Accrued income receivable		(9,815	)		(1,357	)
Other assets		28,181			26,012
Net increase (decrease) in:
Interest payable		(255	)		(2,249	)
Pension and other postretirement benefit obligation		1,470			4,720
Other liabilities		(28,586	)		(2,421	)

Total adjustments		355,163			190,929

Net cash provided by operating activities		234,856			239,337

Cash flows from investing activities:
Net (increase) decrease in money market investments		(258,664	)		71,911
Purchases of investment securities:
Available-for-sale		(736,069	)		(529,445	)
Held-to-maturity		(250	)		(250	)
Other		(49,018	)		(47,629	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		497,175			388,472
Held-to-maturity		2,078			1,539
Other		35,884			31,800
Net repayments on loans		468,309			191,073
Proceeds from sale of loans		43,044			21,304
Acquisition of loan portfolios		(1,026,485	)		(140,005	)
Net payments (to) from FDIC under loss sharing agreements		(107	)		20,896
Return of capital from equity method investments		438			—
Mortgage servicing rights purchased		(45	)		(474	)
Acquisition of premises and equipment		(11,983	)		(12,298	)
Proceeds from sale of:
Premises and equipment		4,205			11,946
Foreclosed assets		71,930			25,923

Net cash (used in) provided by investing activities		(959,558	)		34,763

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		(3,795	)		(745,906	)
Assets sold under agreements to repurchase		248,923			(27,541	)
Other short-term borrowings		315,000			455,000
Payments of notes payable		(48,281	)		(22,284	)
Proceeds from issuance of notes payable		14,882			2,719
Proceeds from issuance of common stock		1,545			2,062
Dividends paid		(620	)		(620	)
Treasury stock acquired		(25	)		(6	)

Net cash provided by (used in) financing activities		527,629			(336,576	)

Net decrease in cash and due from banks		(197,073	)		(62,476	)
Cash and due from banks at beginning of period		439,363			535,282

Cash and due from banks at end of period	$	242,290		$	472,806

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

Notes to Consolidated Financial

Statements (Unaudited)


Note 1 -	Organization, consolidation and basis of presentation	10
Note 2 -	New accounting pronouncements	11
Note 3 -	Restrictions on cash and due from banks and certain securities	14
Note 4 -	Pledged assets	15
Note 5 -	Investment securities available-for-sale	16
Note 6 -	Investment securities held-to-maturity	20
Note 7 -	Loans	22
Note 8 -	Allowance for loan losses	30
Note 9 -	FDIC loss share asset and true-up payment obligation	48
Note 10 -	Transfers of financial assets and mortgage servicing rights	50
Note 11 -	Other assets	53
Note 12 -	Goodwill and other intangible assets	54
Note 13 -	Deposits	56
Note 14 -	Borrowings	57
Note 15 -	Offsetting of financial assets and liabilities	59
Note 16 -	Trust preferred securities	61
Note 17 -	Stockholders’ equity	63
Note 18 -	Other comprehensive loss	64
Note 19 -	Guarantees	65
Note 20 -	Commitments and contingencies	68
Note 21 -	Non-consolidated variable interest entities	71
Note 22 -	Related party transactions with affiliated company / joint venture	75
Note 23 -	Fair value measurement	78
Note 24 -	Fair value of financial instruments	84
Note 25 -	Net income per common share	89
Note 26 -	Other service fees	90
Note 27 -	FDIC loss share (expense) income	90
Note 28 -	Pension and postretirement benefits	91
Note 29 -	Stock-based compensation	92
Note 30 -	Income taxes	95
Note 31 -	Supplemental disclosure on the consolidated statements of cash flows	98
Note 32 -	Segment reporting	99
Note 33 -	Subsequent events	104
Note 34 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	105

Note 1 – Organization, consolidation and basis of presentation

Nature of Operations

Popular, Inc. (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, the Caribbean and Latin America. In Puerto Rico, the Corporation provides mortgage, retail 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 operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary 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. The BPNA branches operate under the name of Popular Community Bank. Note 32 to the consolidated financial statements presents information about the Corporation’s business segments.

Effective December 31, 2012, Popular Mortgage, which was a wholly-owned subsidiary of BPPR prior to that date, was merged with and into BPPR as part of an internal reorganization. Popular Mortgage currently operates as a division of BPPR.

Principles of Consolidation and Basis of Presentation

The consolidated interim financial statements have been prepared without audit. The consolidated statement of financial condition data at December 31, 2012 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 2012 consolidated financial statements and notes to the financial statements to conform with the 2013 presentation.

On May 29, 2012, the Corporation effected a 1-for-10 reverse split of its common stock. The reverse split is described further in Note 17 to these consolidated financial statements. All share and per share information in the consolidated financial statements and accompanying notes have been adjusted to retroactively reflect the 1-for-10 reverse stock split.

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, 2012, included in the Corporation’s 2012 Annual Report (the “2012 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.

Note 2 – New accounting pronouncements

FASB Accounting Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”)

The FASB issued ASU 2013-05 in March 2013 which clarifies the applicable guidance for the release of the cumulative translation adjustment. When a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in ASC 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets has resided.

For an equity method investment that is a foreign entity, the partial sale guidance in ASC 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

Additionally, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.

ASU 2013-05 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments of this ASU it should apply them as of the beginning of the entity’s fiscal year of adoption

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of condition or results of operations.

FASB Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”)

The FASB issued ASU 2013-02 in February 2013. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments of ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements.

ASU 2013-02 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted.

The Corporation adopted the provisions of this guidance in the first quarter of 2013 and elected to present these disclosures on the notes to the financial statements. Refer to note 18 to the consolidated financial statements for the related disclosures. The adoption of this ASU did not have a material impact on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”)

The FASB issued ASU 2013-01 in January 2013. ASU 2013-01 clarifies that the scope of FASB Accounting Standard Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), applies only to derivatives accounted for under ASC 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to an enforceable master netting arrangement or similar agreement.

ASU 2013-01 is effective for fiscal years and interim periods within those years, beginning on or after January 1, 2013. Entities should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of ASU 2011-11.

The Corporation adopted this guidance which impacts presentation disclosures only on the first quarter of 2013, and did not have an impact on the Corporation’s consolidated financial statements. Refer to note 15 to the consolidated financial statements for the related disclosures.

FASB Accounting Standards Update 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (“ASU 2012-06”)

The FASB issued ASU 2012-06 in October 2012. ASU 2012-06 addresses the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). When a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently the cash flows expected to be collected on the indemnification asset changes, as a result of a change in cash flows expected to be collected on the assets subject to indemnification, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement, that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets.

ASU 2012-06 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted.

The Corporation adopted the provisions of this guidance on the first quarter of 2013, and did not have a material effect on the Corporation’s consolidated financial statements as of March 31, 2013.

FASB Accounting Standards Update 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”)

The FASB issued ASU 2012-02 in July 2012. ASU 2012-02 is intended to simplify how entities test indefinite-lived intangible assets, other than goodwill, for impairment. ASU 2012-02 permits an entity the option to first assess qualitative factors to determine whether it is “more likely than not” that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with ASC Subtopic 350-30, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. This guidance results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. The previous guidance under ASC Subtopic 350-30 required an entity to test indefinite-lived intangible assets for impairment on at least an annual basis by comparing an asset’s fair value with its carrying amount and recording an impairment loss for an amount equal to the excess of the asset’s carrying amount over its fair value. Under the amendments in this ASU, an entity is not required to calculate the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. In addition the new qualitative indicators replace those currently used to determine whether indefinite-lived intangible assets should be tested for impairment on an interim basis.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual or interim impairment tests performed as of a date before July 27, 2012, as long as the financial statements 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 indefinite-lived assets impairment and have not had an impact on the Corporation’s consolidated financial statements as of March 31, 2013.

FASB Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”)

The FASB issued ASU 2011-11 in December 2011. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. To meet this objective, entities with financial instruments and derivatives that are either offset on the balance sheet or subject to a master netting arrangement or similar arrangement shall disclose the following quantitative information

separately for assets and liabilities in tabular format: a) gross amounts of recognized assets and liabilities; b) amounts offset to determine the net amount presented in the balance sheet; c) net amounts presented in the balance sheet; d) amounts subject to an enforceable master netting agreement or similar arrangement not otherwise included in (b), including: amounts related to recognized financial instruments and other derivatives instruments if either management makes an accounting election not to offset or the amounts do not meet the guidance in ASC Section 210-20-45 or ASC Section 815-10-45, and also amounts related to financial collateral (including cash collateral); and e) the net amount after deducting the amounts in (d) from the amounts in (c).

In addition to these tabular disclosures, entities are required to provide a description of the setoff rights associated with assets and liabilities subject to an enforceable master netting arrangement.

An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

The provisions of this guidance which impacts presentation disclosure only was adopted in the first quarter of 2013 and did not have an impact on the Corporation’s financial condition or results of operations. Refer to note 15 to the consolidated financial statements for the related disclosures.

Note 3 - Restrictions on cash and due from banks and certain securities

The Corporation’s banking subsidiaries, BPPR and BPNA, 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 amounted to $962 million at March 31, 2013 (December 31, 2012 - $952 million). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

At March 31, 2013 and December 31, 2012, the Corporation held $41 million in restricted assets in the form of funds deposited in money market accounts, trading account securities and investment securities available for sale. The amounts held in trading account securities and investment securities available for sale consist primarily of restricted assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

Note 4 – Pledged assets

Certain securities and loans 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)	March 31, 2013		December 31, 2012
Investment securities available-for-sale, at fair value	$	1,562,627	$	1,606,683
Investment securities held-to-maturity, at amortized cost		35,000		25,000
Loans held-for-sale measured at lower of cost or fair value		3,921		132
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		425,937		452,631
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,326,251		8,358,456

Total pledged assets	$	10,353,736	$	10,442,902

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

At March 31, 2013, the Corporation had $ 1.1 billion in investment securities available-for-sale and $ 0.3 billion in loans that served as collateral to secure public funds (December 31, 2012 - $ 1.2 billion and $ 0.3 billion, respectively).

At March 31, 2013, the Corporation’s banking subsidiaries had short-term and long-term credit facilities authorized with the Federal Home Loan Bank system (the “FHLB”) aggregating to $2.7 billion (December 31, 2012 - $2.8 billion). Refer to Note 14 to the consolidated financial statements for borrowings outstanding under these credit facilities. At March 31, 2013 and December 31, 2012, the credit facilities authorized with the FHLB were collateralized by $ 3.8 billion in loans held-in-portfolio. Also, at March 31, 2013 and December 31, 2012, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $3.1 billion, which remained unused as of such date. The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At March 31, 2013 and December 31, 2012, the credit facilities with the Fed discount window were collateralized by $ 4.7 billion in loans held-in-portfolio. These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statements of financial condition.

In addition, at March 31, 2013 trades receivables from brokers and counterparties amounting to $139 million were pledged to secure repurchase agreements (December 31, 2012 - $133 million).

Note 5 – Investment securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale.


	At March 31, 2013
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	27,051	$	2,769	$	—	$	29,820		3.83	%

Total U.S. Treasury securities		27,051		2,769		—		29,820		3.83

Obligations of U.S. Government sponsored entities
Within 1 year		480,407		3,873		—		484,280		3.70
After 1 to 5 years		167,407		1,522		7		168,922		1.35
After 5 to 10 years		546,982		2,554		1,058		548,478		1.61
After 10 years		22,990		68		—		23,058		3.09

Total obligations of U.S. Government sponsored entities		1,217,786		8,017		1,065		1,224,738		2.43

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		5,115		2		2		5,115		3.01
After 1 to 5 years		6,248		95		33		6,310		4.66
After 5 to 10 years		5,566		—		87		5,479		3.75
After 10 years		37,265		12		1,241		36,036		5.38

Total obligations of Puerto Rico, States and political subdivisions		54,194		109		1,363		52,940		4.91

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		4,800		88		—		4,888		1.69
After 5 to 10 years		33,294		1,517		—		34,811		2.88
After 10 years		2,528,866		44,108		3,410		2,569,564		2.10

Total collateralized mortgage obligations - federal agencies		2,566,960		45,713		3,410		2,609,263		2.11

Collateralized mortgage obligations - private label
After 10 years		1,898		36		—		1,934		4.42

Total collateralized mortgage obligations - private label		1,898		36		—		1,934		4.42

Mortgage-backed securities
Within 1 year		67		2		—		69		4.48
After 1 to 5 years		7,944		499		—		8,443		4.57
After 5 to 10 years		89,358		5,608		11		94,955		4.24
After 10 years		1,174,176		81,099		523		1,254,752		4.13

Total mortgage-backed securities		1,271,545		87,208		534		1,358,219		4.14

Equity securities (without contractual maturity)		6,506		1,715		26		8,195		3.10

Other
After 1 to 5 years		9,904		—		160		9,744		1.68
After 5 to 10 years		18,032		4,725		—		22,757		11.00
After 10 years		3,501		120		—		3,621		3.63

Total other		31,437		4,845		160		36,122		7.25

Total investment securities available-for-sale	$	5,177,377	$	150,412	$	6,558	$	5,321,231		2.75	%


	At December 31, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	7,018	$	20	$	—	$	7,038		1.67	%
After 1 to 5 years		27,236		2,964		—		30,200		3.83

Total U.S. Treasury securities		34,254		2,984		—		37,238		3.39

Obligations of U.S. Government sponsored entities
Within 1 year		460,319		7,614		—		467,933		3.82
After 1 to 5 years		167,177		2,057		—		169,234		1.59
After 5 to 10 years		456,480		3,263		592		459,151		1.74

Total obligations of U.S. Government sponsored entities		1,083,976		12,934		592		1,096,318		2.60

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		5,220		26		—		5,246		3.08
After 1 to 5 years		6,254		130		39		6,345		4.65
After 5 to 10 years		5,513		—		36		5,477		3.79
After 10 years		37,265		648		—		37,913		5.38

Total obligations of Puerto Rico, States and political subdivisions		54,252		804		75		54,981		4.91

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		4,927		35		—		4,962		1.48
After 5 to 10 years		39,897		1,794		—		41,691		2.94
After 10 years		2,270,184		50,740		512		2,320,412		2.21

Total collateralized mortgage obligations - federal agencies		2,315,008		52,569		512		2,367,065		2.22

Collateralized mortgage obligations - private label
After 10 years		2,414		59		—		2,473		4.59

Total collateralized mortgage obligations - private label		2,414		59		—		2,473		4.59

Mortgage-backed securities
Within 1 year		288		13		—		301		3.47
After 1 to 5 years		3,838		191		—		4,029		4.12
After 5 to 10 years		81,645		6,207		—		87,852		4.71
After 10 years		1,297,585		93,509		129		1,390,965		4.18

Total mortgage-backed securities		1,383,356		99,920		129		1,483,147		4.21

Equity securities (without contractual maturity)		6,507		909		10		7,406		3.46

Other
After 1 to 5 years		9,992		—		207		9,785		1.67
After 5 to 10 years		18,032		3,675		—		21,707		11.00
After 10 years		3,945		136		—		4,081		3.62

Total other		31,969		3,811		207		35,573		7.17

Total investment securities available-for-sale	$	4,911,736	$	173,990	$	1,525	$	5,084,201		2.94	%

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.

There were no securities sold during the quarters ended March 31, 2013 and 2012.

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 March 31, 2013
	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 U.S. Government sponsored entities	$	261,066	$	775	$	6,102	$	290	$	267,168	$	1,065
Obligations of Puerto Rico, States and political subdivisions		44,987		1,337		2,029		26		47,016		1,363
Collateralized mortgage obligations - federal agencies		531,117		3,410		—		—		531,117		3,410
Mortgage-backed securities		36,344		496		974		38		37,318		534
Equity securities		1,806		22		7		4		1,813		26
Other		9,744		160		—		—		9,744		160

Total investment securities available-for-sale in an unrealized loss position	$	885,064	$	6,200	$	9,112	$	358	$	894,176	$	6,558


	At December 31, 2012
	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 U.S. Government sponsored entities	$	139,278	$	592	$	—	$	—	$	139,278	$	592
Obligations of Puerto Rico, States and political subdivisions		6,229		44		2,031		31		8,260		75
Collateralized mortgage obligations - federal agencies		170,136		512		—		—		170,136		512
Mortgage-backed securities		7,411		90		983		39		8,394		129
Equity securities		—		—		51		10		51		10
Other		9,785		207		—		—		9,785		207

Total investment securities available-for-sale in an unrealized loss position	$	332,839	$	1,445	$	3,065	$	80	$	335,904	$	1,525

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 March 31, 2013, 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 March 31, 2013, 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 March 31, 2013. No other-than-temporary impairment

losses on equity securities were recorded during the quarters ended March 31, 2013 and March 31, 2012. Management has the intent and ability to hold the investments in equity securities that are at a loss position at March 31, 2013, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

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.


	March 31, 2013				December 31, 2012
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	1,841,366	$	1,874,855	$	1,594,933	$	1,634,927
FHLB		632,090		636,406		520,127		528,287
Freddie Mac		1,246,159		1,265,197		1,198,969		1,221,863

Note 6 – Investment securities held-to-maturity


	At March 31, 2013
			Gross		Gross				Weighted
	Amortized		unrealized		unrealized		Fair		average
(In thousands)	cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	2,525	$	28	$	—	$	2,553		5.74	%
After 1 to 5 years		21,835		554		—		22,389		3.70
After 5 to 10 years		19,640		359		73		19,926		6.05
After 10 years		70,892		57		574		70,375		2.49

Total obligations of Puerto Rico, States and political subdivisions		114,892		998		647		115,243		3.40

Collateralized mortgage obligations - federal agencies
After 10 years		126		7		—		133		5.30

Total collateralized mortgage obligations - federal agencies		126		7		—		133		5.30

Other
Within 1 year		250		—		—		250		0.86
After 1 to 5 years		26,250		1		—		26,251		3.40

Total other		26,500		1		—		26,501		3.38

Total investment securities held-to-maturity	$	141,518	$	1,006	$	647	$	141,877		3.40	%


	At December 31, 2012
			Gross		Gross				Weighted
	Amortized		unrealized		unrealized		Fair		average
(In thousands)	cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	2,420	$	8	$	—	$	2,428		5.74	%
After 1 to 5 years		21,335		520		19		21,836		3.63
After 5 to 10 years		18,780		866		5		19,641		6.03
After 10 years		73,642		449		438		73,653		5.35

Total obligations of Puerto Rico, States and political subdivisions		116,177		1,843		462		117,558		5.15

Collateralized mortgage obligations - federal agencies
After 10 years		140		4		—		144		5.00

Total collateralized mortgage obligations - federal agencies		140		4		—		144		5.00

Other
Within 1 year		250		—		—		250		0.86
After 1 to 5 years		26,250		31		—		26,281		3.40

Total other		26,500		31		—		26,531		3.38

Total investment securities held-to-maturity	$	142,817	$	1,878	$	462	$	144,233		4.82	%

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 March 31, 2013 and December 31, 2012.


	At March 31, 2013
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political subdivisions	$	11,159	$	141	$	19,039	$	506	$	30,198	$	647

Total investment securities held-to-maturity in an unrealized loss position	$	11,159	$	141	$	19,039	$	506	$	30,198	$	647


	At December 31, 2012
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political subdivisions	$	2,365	$	35	$	19,118	$	427	$	21,483	$	462

Total investment securities held-to-maturity in an unrealized loss position	$	2,365	$	35	$	19,118	$	427	$	21,483	$	462

As indicated in Note 5 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 March 31, 2013 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 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 7 – Loans

Covered loans acquired in the Westernbank FDIC-assisted transaction, except for lines of credit with revolving privileges, are accounted for by the Corporation in accordance with ASC Subtopic 310-30. Under ASC Subtopic 310-30, the acquired loans were aggregated into pools based on similar characteristics. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The covered loans which are accounted for under ASC Subtopic 310-30 by the Corporation are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation measures additional losses for this portfolio when it is probable the Corporation will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Lines of credit with revolving privileges that were acquired as part of the Westernbank FDIC-assisted transaction are accounted for under the guidance of ASC Subtopic 310-20, which requires that any differences between the contractually required loan payment receivable in excess of the Corporation’s initial investment in the loans be accreted into interest income. Loans accounted for under ASC Subtopic 310-20 are placed in non-accrual status when past due in accordance with the Corporation’s non-accruing policy and any accretion of discount is discontinued.

The risks on loans acquired in the FDIC-assisted transaction are significantly different from the risks on 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 2012 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at March 31, 2013 and December 31, 2012.


(In thousands)	March 31, 2013		December 31, 2012
Commercial multi-family	$	1,034,289	$	1,021,780
Commercial real estate non-owner occupied		2,946,541		2,634,432
Commercial real estate owner occupied		2,285,328		2,608,450
Commercial and industrial		3,484,270		3,593,540
Construction		271,498		252,857
Mortgage		6,873,910		6,078,507
Leasing		543,572		540,523
Legacy^[2]		352,512		384,217
Consumer:
Credit cards		1,169,572		1,198,213
Home equity lines of credit		478,788		491,035
Personal		1,369,666		1,388,911
Auto		593,125		561,084
Other		230,674		229,643

Total loans held-in-portfolio^[1]	$	21,633,745	$	20,983,192

[1]	Non-covered loans held-in-portfolio at March 31, 2013 are net of $96 million in unearned income and exclude $201 million in loans held-for-sale (December 31, 2012 - $97 million in unearned income and $354 million in loans held-for-sale).

[2]	The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the BPNA reportable segment.

The following table presents the composition of covered loans at March 31, 2013 and December 31, 2012.


(In thousands)	March 31, 2013		December 31, 2012
Commercial real estate	$	1,828,620	$	2,077,411
Commercial and industrial		116,189		167,236
Construction		306,550		361,396
Mortgage		1,045,564		1,076,730
Consumer		65,523		73,199

Total loans held-in-portfolio	$	3,362,446	$	3,755,972

The following table provides a breakdown of loans held-for-sale (“LHFS”) at March 31, 2013 and December 31, 2012 by main categories.


(In thousands)	March 31, 2013		December 31, 2012
Commercial	$	—	$	16,047
Construction		—		78,140
Legacy		1,681		2,080
Mortgage		199,814		258,201

Total loans held-for-sale	$	201,495	$	354,468

During the quarter ended March 31, 2013, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $1.0 billion (March 31, 2012 - $215 million). The purchases of mortgage loans during the quarter ended March 31, 2013, included $133 million of impaired loans accounted pursuant to ASC subtopic 310-30. In addition, during the quarter ended March 31, 2013, there were no purchases of construction loans (March 31, 2012 - $1 million). There were no purchases of commercial and consumer loans during the quarters ended March 31, 2013 and 2012.

The Corporation performed whole-loan sales involving approximately $50 million of residential mortgage loans during the quarter ended March 31, 2013 (March 31, 2012 - $62 million). Also, the Corporation securitized approximately $ 285 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter ended March 31, 2013 (March 31, 2012 - $ 190 million). Furthermore, the Corporation securitized approximately $ 128 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter ended March 31, 2013 (March 31, 2012 - $ 60 million). There were no securitizations into FHLMC for the quarters ended March 31, 2013 and 2012. The Corporation sold commercial and construction loans with a book value of approximately $401 million during the quarter ended March 31, 2013 (March 31, 2012 - $20 million).

Non-covered loans

The following tables present non-covered loans held-in-portfolio by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at March 31, 2013 and December 31, 2012. Accruing loans past due 90 days or more consist primarily of credit cards, FHA / VA and other insured mortgage loans, and delinquent mortgage loans which are 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 another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At March 31, 2013
	Puerto Rico				U.S. mainland				Popular, Inc.
			Accruing				Accruing				Accruing
	Non-accrual		loans past-due		Non-accrual		loans past-due		Non-accrual		loans past-due
(In thousands)	loans		90 days or more		loans		90 days or more		loans		90 days or more
Commercial multi-family	$	8,386	$	—	$	18,850	$	—	$	27,236	$	—
Commercial real estate non-owner occupied		29,742		—		74,471		—		104,213		—
Commercial real estate owner occupied		88,386		—		31,170		—		119,556		—
Commercial and industrial		60,294		451		9,488		—		69,782		451
Construction		45,036		—		5,884		—		50,920		—
Mortgage^[2]		572,731		386,656		27,993		—		600,724		386,656
Leasing		4,005		—		—		—		4,005		—
Legacy		—		—		35,830		—		35,830		—
Consumer:
Credit cards		—		21,969		526		—		526		21,969
Home equity lines of credit		—		405		7,562		—		7,562		405
Personal		17,797		27		860		—		18,657		27
Auto		8,404		—		4		—		8,408		—
Other		3,162		557		27		—		3,189		557

Total^[1]	$	837,943	$	410,065	$	212,665	$	—	$	1,050,608	$	410,065

[1]	For purposes of this table non-performing loans exclude $ 17 million in non-performing loans held-for-sale.

[2]

Non-covered loans accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.


At December 31, 2012
	Puerto Rico				U.S. mainland				Popular, Inc.
			Accruing				Accruing				Accruing
	Non-accrual		loans past-due		Non-accrual		loans past-due		Non-accrual		loans past-due
(In thousands)	loans		90 days or more		loans		90 days or more		loans		90 days or more
Commercial multi-family	$	15,816	$	—	$	18,435	$	—	$	34,251	$	—
Commercial real estate non-owner occupied		66,665		—		78,140		—		144,805		—
Commercial real estate owner occupied		315,534		—		31,931		—		347,465		—
Commercial and industrial		124,717		529		14,051		—		138,768		529
Construction		37,390		—		5,960		—		43,350		—
Mortgage		596,105		364,387		34,025		—		630,130		364,387
Leasing		4,865		—		—		—		4,865		—
Legacy		—		—		40,741		—		40,741		—
Consumer:
Credit cards		—		22,184		505		—		505		22,184
Home equity lines of credit		—		312		7,454		—		7,454		312
Personal		19,300		23		1,905		—		21,205		23
Auto		8,551		—		4		—		8,555		—
Other		3,036		469		3		—		3,039		469

Total^[1]	$	1,191,979	$	387,904	$	233,154	$	—	$	1,425,133	$	387,904

[1]	For purposes of this table non-performing loans exclude $ 96 million in non-performing loans held-for-sale.

The following tables present loans by past due status at March 31, 2013 and December 31, 2012 for non-covered loans held-in-portfolio (net of unearned income).


March 31, 2013
Puerto Rico
	Past due										Non - covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	127	$	348	$	8,386	$	8,861	$	105,736	$	114,597
Commercial real estate non-owner occupied		4,585		7,487		29,742		41,814		1,624,876		1,666,690
Commercial real estate owner occupied		25,884		2,327		88,386		116,597		1,611,474		1,728,071
Commercial and industrial		37,504		3,032		60,745		101,281		2,589,951		2,691,232
Construction		68		—		45,036		45,104		196,183		241,287
Mortgage		318,537		146,054		992,016		1,456,607		4,279,986		5,736,593
Leasing		7,180		1,600		4,005		12,785		530,787		543,572
Consumer:
Credit cards		13,289		8,081		21,969		43,339		1,111,666		1,155,005
Home equity lines of credit		75		—		405		480		15,735		16,215
Personal		12,471		6,697		17,824		36,992		1,193,506		1,230,498
Auto		26,483		7,444		8,404		42,331		550,160		592,491
Other		1,918		1,121		3,719		6,758		222,567		229,325

Total	$	448,121	$	184,191	$	1,280,637	$	1,912,949	$	14,032,627	$	15,945,576


March 31, 2013
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	17,302	$	—	$	18,850	$	36,152	$	883,540	$	919,692
Commercial real estate non-owner occupied		12,206		274		74,471		86,951		1,192,900		1,279,851
Commercial real estate owner occupied		22,596		—		31,170		53,766		503,491		557,257
Commercial and industrial		12,488		1,650		9,488		23,626		769,412		793,038
Construction		—		—		5,884		5,884		24,327		30,211
Mortgage		33,838		3,226		27,993		65,057		1,072,260		1,137,317
Legacy		29,209		1,998		35,830		67,037		285,475		352,512
Consumer:
Credit cards		255		127		526		908		13,659		14,567
Home equity lines of credit		4,580		3,195		7,562		15,337		447,236		462,573
Personal		2,990		843		860		4,693		134,475		139,168
Auto		18		—		4		22		612		634
Other		5		—		27		32		1,317		1,349

Total	$	135,487	$	11,313	$	212,665	$	359,465	$	5,328,704	$	5,688,169


March 31, 2013
Popular, Inc.
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Popular, Inc.
Commercial multi-family	$	17,429	$	348	$	27,236	$	45,013	$	989,276	$	1,034,289
Commercial real estate non-owner occupied		16,791		7,761		104,213		128,765		2,817,776		2,946,541
Commercial real estate owner occupied		48,480		2,327		119,556		170,363		2,114,965		2,285,328
Commercial and industrial		49,992		4,682		70,233		124,907		3,359,363		3,484,270
Construction		68		—		50,920		50,988		220,510		271,498
Mortgage		352,375		149,280		1,020,009		1,521,664		5,352,246		6,873,910
Leasing		7,180		1,600		4,005		12,785		530,787		543,572
Legacy		29,209		1,998		35,830		67,037		285,475		352,512
Consumer:
Credit cards		13,544		8,208		22,495		44,247		1,125,325		1,169,572
Home equity lines of credit		4,655		3,195		7,967		15,817		462,971		478,788
Personal		15,461		7,540		18,684		41,685		1,327,981		1,369,666
Auto		26,501		7,444		8,408		42,353		550,772		593,125
Other		1,923		1,121		3,746		6,790		223,884		230,674

Total	$	583,608	$	195,504	$	1,493,302	$	2,272,414	$	19,361,331	$	21,633,745


December 31, 2012
Puerto Rico
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	1,005	$	—	$	15,816	$	16,821	$	98,272	$	115,093
Commercial real estate non-owner occupied		10,580		4,454		66,665		81,699		1,268,734		1,350,433
Commercial real estate owner occupied		28,240		13,319		315,534		357,093		1,685,393		2,042,486
Commercial and industrial		27,977		5,922		125,246		159,145		2,629,127		2,788,272
Construction		1,243		—		37,390		38,633		173,634		212,267
Mortgage		241,930		121,175		960,492		1,323,597		3,625,327		4,948,924
Leasing		6,493		1,555		4,865		12,913		527,610		540,523
Consumer:
Credit cards		14,521		10,614		22,184		47,319		1,135,753		1,183,072
Home equity lines of credit		124		—		312		436		16,370		16,806
Personal		13,208		7,392		19,323		39,923		1,205,859		1,245,782
Auto		24,128		6,518		8,551		39,197		521,119		560,316
Other		2,120		536		3,505		6,161		222,192		228,353

Total	$	371,569	$	171,485	$	1,579,883	$	2,122,937	$	13,109,390	$	15,232,327


December 31, 2012
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	6,828	$	5,067	$	18,435	$	30,330	$	876,357	$	906,687
Commercial real estate non-owner occupied		19,032		1,309		78,140		98,481		1,185,518		1,283,999
Commercial real estate owner occupied		9,979		100		31,931		42,010		523,954		565,964
Commercial and industrial		12,885		1,975		14,051		28,911		776,357		805,268
Construction		5,268		—		5,960		11,228		29,362		40,590
Mortgage		29,909		10,267		34,025		74,201		1,055,382		1,129,583
Legacy		15,765		20,112		40,741		76,618		307,599		384,217
Consumer:
Credit cards		305		210		505		1,020		14,121		15,141
Home equity lines of credit		3,937		2,506		7,454		13,897		460,332		474,229
Personal		2,757		1,585		1,905		6,247		136,882		143,129
Auto		38		3		4		45		723		768
Other		41		9		3		53		1,237		1,290

Total	$	106,744	$	43,143	$	233,154	$	383,041	$	5,367,824	$	5,750,865


December 31, 2012
Popular, Inc.
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Popular, Inc.
Commercial multi-family	$	7,833	$	5,067	$	34,251	$	47,151	$	974,629	$	1,021,780
Commercial real estate non-owner occupied		29,612		5,763		144,805		180,180		2,454,252		2,634,432
Commercial real estate owner occupied		38,219		13,419		347,465		399,103		2,209,347		2,608,450
Commercial and industrial		40,862		7,897		139,297		188,056		3,405,484		3,593,540
Construction		6,511		—		43,350		49,861		202,996		252,857
Mortgage		271,839		131,442		994,517		1,397,798		4,680,709		6,078,507
Leasing		6,493		1,555		4,865		12,913		527,610		540,523
Legacy		15,765		20,112		40,741		76,618		307,599		384,217
Consumer:
Credit cards		14,826		10,824		22,689		48,339		1,149,874		1,198,213
Home equity lines of credit		4,061		2,506		7,766		14,333		476,702		491,035
Personal		15,965		8,977		21,228		46,170		1,342,741		1,388,911
Auto		24,166		6,521		8,555		39,242		521,842		561,084
Other		2,161		545		3,508		6,214		223,429		229,643

Total	$	478,313	$	214,628	$	1,813,037	$	2,505,978	$	18,477,214	$	20,983,192

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at March 31, 2013 and December 31, 2012 by main categories.


(In thousands)	March 31, 2013		December 31, 2012
Commercial	$	—	$	16,047
Construction		—		78,140
Legacy		1,680		2,080
Mortgage		15,783		53

Total	$	17,463	$	96,320

The outstanding principal balance of non-covered loans accounted pursuant to ASC Subtopic 310-30, including amounts charged off by the Corporation, amounted to $148 million at March 31, 2013. At March 31, 2013, none of the acquired non-covered loans accounted under ASC Subtopic 310-30 were considered non-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.

Changes in the carrying amount and the accretable yield for the non-covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarter ended March 31, 2013 were as follows:


Activity in the accretable discount - Non-covered loans ASC 310-30
	For the quarter ended
(In thousands)	March 31, 2013
Beginning balance	$	—
Additions		37,235
Accretion		(608	)

Ending balance	$	36,627


Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
	For the quarter ended
(In thousands)	March 31, 2013
Beginning balance	$	—
Additions		133,412
Accretion		608
Collections and charge-offs		(979	)

Ending balance	$	133,041
Allowance for loan losses ASC 310-30 non-covered loans		—

	$	133,041

Covered loans

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at March 31, 2013 and December 31, 2012.


	March 31, 2013				December 31, 2012
	Non-accrual		Accruing loans past		Non-accrual		Accruing loans past
(In thousands)	loans		due 90 days or more		loans		due 90 days or more
Commercial real estate	$	7,372	$	—	$	14,628	$	—

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