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 June 30, 2014

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, 103,481,803 shares outstanding as of August 4, 2014.

POPULAR, INC.

INDEX


	Page

Part I – Financial Information

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at June 30, 2014 and December 31, 2013		5

Unaudited Consolidated Statements of Operations for the quarters and six months ended June 30, 2014 and 2013		6

Unaudited Consolidated Statements of Comprehensive (Loss) Income for the quarters and six months ended June 30, 2014 and 2013		7

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014 and 2013		8

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		9

Notes to Unaudited Consolidated Financial Statements		10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		147

Item 3. Quantitative and Qualitative Disclosures about Market Risk		221

Item 4. Controls and Procedures		222

Part II – Other Information

Item 1. Legal Proceedings		222

Item 1A. Risk Factors		222

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		224

Item 6. Exhibits		225

Signatures		226

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;

•

the resolution of our dispute with the FDIC under our loss share agreement entered into in connection with the Westernbank-FDIC assisted transaction; 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, 2013 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)


	June 30,			December 31,
(In thousands, except share information)	2014			2013
Assets:
Cash and due from banks	$	362,572		$	423,211

Money market investments:
Federal funds sold		—			5,055
Securities purchased under agreements to resell		192,490			175,965
Time deposits with other banks		1,474,454			677,433

Total money market investments		1,666,944			858,453

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		255,990			308,978
Other trading securities		89,833			30,765
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,483,479			1,286,839
Other investment securities available-for-sale		4,170,513			4,007,961
Investment securities held-to-maturity, at amortized cost (fair value 2014 - $103,501; 2013 - $120,688)		114,280			140,496
Other investment securities, at lower of cost or realizable value (realizable value 2014 - $170,700; 2013 - $184,526)		168,125			181,752
Loans held-for-sale, at lower of cost or fair value		97,010			110,426

Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		19,726,234			21,704,010
Loans covered under loss sharing agreements with the FDIC		2,736,102			2,984,427
Less – Unearned income		91,010			92,144
Allowance for loan losses		624,911			640,555

Total loans held-in-portfolio, net		21,746,415			23,955,738

FDIC loss share asset		751,553			948,608
Premises and equipment, net		492,382			519,516
Other real estate not covered under loss sharing agreements with the FDIC		139,420			135,501
Other real estate covered under loss sharing agreements with the FDIC		155,805			168,007
Accrued income receivable		119,520			131,536
Mortgage servicing assets, at fair value		151,951			161,099
Other assets		2,292,360			1,687,558
Goodwill		461,246			647,757
Other intangible assets		40,122			45,132
Assets from discontinued operations (Refer to Note 3)		1,828,382			—

Total assets	$	36,587,902		$	35,749,333

Liabilities and Stockholders’ Equity
Liabilities:
Non-interest bearing	$	5,666,685		$	5,922,682
Interest bearing		19,234,467			20,788,463

Total deposits		24,901,152			26,711,145

Federal funds purchased and assets sold under agreements to repurchase		2,074,676			1,659,292
Other short-term borrowings		31,200			401,200
Notes payable		2,360,089			1,584,754
Other liabilities		880,602			766,792
Liabilities from discontinued operations (Refer to Note 3)		2,079,742			—

Total liabilities		32,327,461			31,123,183

Commitments and contingencies (Refer to Note 24)
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; 103,539,383 shares issued (2013 – 103,435,967) and 103,472,979 shares outstanding (2013 – 103,397,699)		1,035			1,034
Surplus		4,173,616			4,170,152
Retained earnings		167,663			594,430
Treasury stock – at cost, 66,404 shares (2013 – 38,268)		(1,742	)		(881	)
Accumulated other comprehensive loss, net of tax		(130,291	)		(188,745	)

Total stockholders’ equity		4,260,441			4,626,150

Total liabilities and stockholders’ equity	$	36,587,902		$	35,749,333

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended June 30,						Six months ended June 30,
(In thousands, except per share information)	2014			2013			2014			2013
Interest income:
Loans	$	380,986		$	370,298		$	758,588		$	730,814
Money market investments		1,131			829			2,104			1,784
Investment securities		33,989			36,106			69,116			73,929
Trading account securities		5,344			5,456			10,601			10,970

Total interest income		421,450			412,689			840,409			817,497

Interest expense:
Deposits		26,223			32,445			53,081			67,061
Short-term borrowings		8,892			9,767			17,932			19,548
Long-term debt		445,716			36,066			477,606			71,833

Total interest expense		480,831			78,278			548,619			158,442

Net interest (expense) income		(59,381	)		334,411			291,790			659,055
Provision for loan losses—non-covered loans		50,074			228,975			104,196			438,068
Provision for loan losses—covered loans		11,604			25,500			37,318			43,056

Net interest (expense) income after provision for loan losses		(121,059	)		79,936			150,276			177,931

Service charges on deposit accounts		39,237			41,378			78,596			82,539
Other service fees (Refer to Note 30)		56,468			57,279			109,286			112,223
Mortgage banking activities (Refer to Note 12)		3,788			18,081			7,466			38,378
Net gain and valuation adjustments on investment securities		—			5,856			—			5,856
Trading account profit (loss)		1,055			(4,345	)		3,032			(5,329	)
Net gain (loss) on sale of loans, including valuation adjustments on loans held-for-sale		9,659			4,291			14,052			(58,428	)
Adjustments (expense) to indemnity reserves on loans sold		(7,454	)		(11,632	)		(17,801	)		(27,775	)
FDIC loss share expense (Refer to Note 31)		(55,261	)		(3,755	)		(79,467	)		(30,021	)
Other operating income		15,297			181,565			43,657			201,585

Total non-interest income		62,789			288,718			158,821			319,028

Operating expenses:
Personnel costs		99,100			106,359			203,401			213,940
Net occupancy expenses		20,267			21,059			41,627			41,551
Equipment expenses		12,044			11,485			23,456			23,105
Other taxes		13,543			15,225			27,206			26,753
Professional fees		67,024			67,015			134,023			134,752
Communications		6,425			6,395			13,110			12,946
Business promotion		16,038			15,357			27,424			27,942
FDIC deposit insurance		10,480			18,557			21,458			26,913
Other real estate owned (OREO) expenses		3,410			7,657			9,850			53,524
Other operating expenses		20,509			22,766			42,858			43,684
Amortization of intangibles		2,025			1,989			4,051			3,979
Restructuring costs (Refer to Note 4)		4,574			—			4,574			—

Total operating expenses		275,439			293,864			553,038			609,089

(Loss) income from continuing operations before income tax		(333,709	)		74,790			(243,941	)		(112,130	)
Income tax (benefit) expense		(4,124	)		(237,380	)		19,140			(294,257	)

(Loss) income from continuing operations		(329,585	)		312,170			(263,081	)		182,127
(Loss) income from discontinued operations, net of tax (Refer to Note 3)		(181,729	)		15,298			(161,824	)		25,034

Net (Loss) Income	$	(511,314	)	$	327,468		$	(424,905	)	$	207,161

Net (Loss) Income Applicable to Common Stock	$	(512,245	)	$	326,537		$	(426,767	)	$	205,300

Net (Loss) Income per Common Share – Basic
Net (loss) income from continuing operations	$	(3.21	)		3.03			(2.58	)		1.76
Net (loss) income from discontinued operations		(1.77	)		0.15			(1.57	)		0.24

Net (Loss) Income per Common Share – Basic	$	(4.98	)	$	3.18		$	(4.15	)	$	2.00

Net (Loss) Income per Common Share – Diluted
Net (loss) income from continuing operations	$	(3.21	)		3.02			(2.58	)		1.75
Net (loss) income from discontinued operations		(1.77	)		0.15			(1.57	)		0.24

Net (Loss) Income per Common Share – Diluted	$	(4.98	)	$	3.17		$	(4.15	)	$	1.99

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)


	Quarters ended,						Six months ended,
	June 30,						June 30,
(In thousands)	2014			2013			2014			2013
Net (loss) income	$	(511,314	)	$	327,468		$	(424,905	)	$	207,161

Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		(603	)		(2,653	)		(2,718	)		(1,929	)
Reclassification adjustment for losses included in net income		—			—			7,718			—
Amortization of net losses of pension and postretirement benefit plans		2,126			6,169			4,252			12,338
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		—			(1,900	)		—
Unrealized holding gains (losses) on investments arising during the period		27,084			(115,514	)		54,666			(144,469	)
Unrealized net (losses) gains on cash flow hedges		(2,548	)		5,882			(4,273	)		5,782
Reclassification adjustment for net (gains) losses included in net income		1,800			(3,045	)		3,624			(3,196	)

Other comprehensive income (loss) before tax		26,909			(109,161	)		61,369			(131,474	)
Income tax (expense) benefit		(925	)		5,130			(2,915	)		8,303

Total other comprehensive income (loss), net of tax		25,984			(104,031	)		58,454			(123,171	)

Comprehensive (loss) income, net of tax	$	(485,330	)	$	223,437		$	(366,451	)	$	83,990


Tax effect allocated to each component of other comprehensive loss:
	Quarters ended						Six months ended,
	June 30,						June 30,
(In thousands)	2014			2013			2014			2013
Amortization of net losses of pension and postretirement benefit plans	$	(829	)	$	(2,962	)	$	(1,658	)	$	(4,813	)
Amortization of prior service cost of pension and postretirement benefit plans		370			—			741			—
Unrealized holding gains (losses) on investments arising during the period		(758	)		8,942			(2,251	)		13,891
Unrealized net (losses) gains on cash flow hedges		994			(1,764	)		1,666			(1,734	)
Reclassification adjustment for net (gains) losses included in net income		(702	)		914			(1,413	)		959

Income tax (expense) benefit	$	(925	)	$	5,130		$	(2,915	)	$	8,303

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


(In thousands)	Common stock		Preferred stock		Surplus		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total
Balance at December 31, 2012	$	1,032	$	50,160	$	4,150,294	$	11,826		$	(444	)	$	(102,868	)	$	4,110,000
Net income								207,161									207,161
Issuance of stock		1				3,231											3,232
Dividends declared:
Preferred stock								(1,861	)								(1,861	)
Common stock purchases											(325	)					(325	)
Other comprehensive loss, net of tax														(123,171	)		(123,171	)

Balance at June 30, 2013	$	1,033	$	50,160	$	4,153,525	$	217,126		$	(769	)	$	(226,039	)	$	4,195,036

Balance at December 31, 2013	$	1,034	$	50,160	$	4,170,152	$	594,430		$	(881	)	$	(188,745	)	$	4,626,150
Net loss								(424,905	)								(424,905	)
Issuance of stock		1				3,047											3,048
Tax windfall benefit on vesting of restricted stock						417											417
Dividends declared:
Preferred stock								(1,862	)								(1,862	)
Common stock purchases											(872	)					(872	)
Common stock reissuance											11						11
Other comprehensive income, net of tax														58,454			58,454

Balance at June 30, 2014	$	1,035	$	50,160	$	4,173,616	$	167,663		$	(1,742	)	$	(130,291	)	$	4,260,441


Disclosure of changes in number of shares:													June 30, 2014			June 30, 2013
Preferred Stock:
Balance at beginning and end of period														2,006,391			2,006,391

Common Stock – Issued:
Balance at beginning of period														103,435,967			103,193,303
Issuance of stock														103,416			117,849

Balance at end of the period														103,539,383			103,311,152
Treasury stock														(66,404	)		(35,021	)

Common Stock – Outstanding														103,472,979			103,276,131

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six months ended June 30,
(In thousands)	2014			2013
Cash flows from operating activities:
Net (loss) income	$	(424,905	)	$	207,161

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		134,750			473,264
Goodwill impairment losses		186,511			—
Amortization of intangibles		5,007			4,935
Depreciation and amortization of premises and equipment		23,832			25,009
Net accretion of discounts and amortization of premiums and deferred fees		324,779			(29,525	)
Fair value adjustments on mortgage servicing rights		15,836			10,741
FDIC loss share expense		79,467			30,021
Adjustments (expense) to indemnity reserves on loans sold		17,801			27,775
Earnings from investments under the equity method		(24,355	)		(34,214	)
Deferred income tax expense (benefit)		2,689			(321,854	)
Loss (gain) on:
Disposition of premises and equipment		(2,551	)		(2,347	)
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(42,413	)		44,577
Sale of stock in equity method investee		—			(136,722	)
Sale of foreclosed assets, including write-downs		(2,035	)		35,006
Acquisitions of loans held-for-sale		(159,727	)		(15,335	)
Proceeds from sale of loans held-for-sale		72,757			119,003
Net originations on loans held-for-sale		(338,672	)		(867,917	)
Net (increase) decrease in:
Trading securities		459,792			858,092
Accrued income receivable		6,721			(18,177	)
Other assets		(48,455	)		2,103
Net increase (decrease) in:
Interest payable		633			(2,570	)
Pension and other postretirement benefit obligation		(3,096	)		3,786
Other liabilities		30,260			4,055

Total adjustments		739,531			209,706

Net cash provided by operating activities		314,626			416,867

Cash flows from investing activities:
Net (increase) decrease in money market investments		(808,491	)		13,641
Purchases of investment securities:
Available-for-sale		(1,079,586	)		(1,490,647	)
Other		(51,097	)		(116,731	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		816,830			1,378,311
Held-to-maturity		27,029			2,359
Other		64,724			83,592
Net repayments on loans		473,336			624,262
Proceeds from sale of loans		87,983			295,237
Acquisition of loan portfolios		(289,292	)		(1,520,088	)
Net payments from (to) FDIC under loss sharing agreements		110,618			(107	)
Return of capital from equity method investments		—			438
Proceeds from sale of stock in equity method investee		—			166,332
Mortgage servicing rights purchased		—			(45	)
Acquisition of premises and equipment		(20,333	)		(19,774	)
Proceeds from sale of:
Premises and equipment		8,631			5,891
Foreclosed assets		81,010			120,365

Net cash used in investing activities		(578,638	)		(456,964	)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		252,715			(259,950	)
Federal funds purchased and assets sold under agreements to repurchase		418,381			(344,047	)
Other short-term borrowings		(370,000	)		590,000
Payments of notes payable		(111,030	)		(48,458	)
Proceeds from issuance of notes payable		31,905			49,874
Proceeds from issuance of common stock		3,048			3,232
Dividends paid		(1,862	)		(1,551	)
Net payments for repurchase of common stock		(861	)		(325	)

Net cash provided by (used in) financing activities		222,296			(11,225	)

Net decrease in cash and due from banks		(41,716	)		(51,322	)
Cash and due from banks at beginning of period		423,211			439,363

Cash and due from banks at end of period, including discontinued operations		381,495			388,041
Less: cash from discontinued operations		18,923			—

Cash and due from banks at end of period	$	362,572		$	388,041

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

The Consolidated Statements of Cash Flows for the periods ended June 30, 2014 and 2013 include the cash flows from operating, investing and financing activities associated with discontinued operations.

Notes to Consolidated Financial Statements (Unaudited)


Note 1 -	Organization, consolidation and basis of presentation	11
Note 2 -	New accounting pronouncements	12
Note 3 -	Discontinued operations	15
Note 4 -	Restructuring plan	17
Note 5 -	Restrictions on cash and due from banks and certain securities	18
Note 6 -	Pledged assets	19
Note 7 -	Investment securities available-for-sale	20
Note 8 -	Investment securities held-to-maturity	24
Note 9 -	Loans	26
Note 10 -	Allowance for loan losses	37
Note 11 -	FDIC loss share asset and true-up payment obligation	62
Note 12 -	Mortgage banking activities	64
Note 13 -	Transfers of financial assets and mortgage servicing assets	65
Note 14 -	Other real estate owned	69
Note 15 -	Other assets	70
Note 16 -	Goodwill and other intangible assets	71
Note 17 -	Deposits	74
Note 18 -	Borrowings	75
Note 19 -	Offsetting of financial assets and liabilities	78
Note 20 -	Trust preferred securities	80
Note 21 -	Stockholders’ equity	82
Note 22 -	Other comprehensive loss	83
Note 23 -	Guarantees	85
Note 24 -	Commitments and contingencies	88
Note 25 -	Non-consolidated variable interest entities	92
Note 26 -	Related party transactions with affiliated company / joint venture	96
Note 27 -	Fair value measurement	100
Note 28 -	Fair value of financial instruments	106
Note 29 -	Net (loss) income per common share	112
Note 30 -	Other service fees	113
Note 31 -	FDIC loss share (expense) income	114
Note 32 -	Pension and postretirement benefits	115
Note 33 -	Stock-based compensation	116
Note 34 -	Income taxes	119
Note 35 -	Supplemental disclosure on the consolidated statements of cash flows	123
Note 36 -	Segment reporting	124
Note 37 -	Subsequent events	130
Note 38 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	131

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 and the Caribbean. In Puerto Rico, the Corporation provides retail, including mortgage loan originations, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation 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 36 to the consolidated financial statements presents information about the Corporation’s business segments. Note 37 presents information regarding definitive agreements entered into by BPNA sell its regional operations in California, Illinois and Central Florida.

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, 2013 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 2013 consolidated financial statements and notes to the financial statements to conform with the 2014 presentation. As discussed in Note 3, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of BPNA’s assets and liabilities to discontinued operations.

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, 2013, included in the Corporation’s 2013 Annual Report (the “2013 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 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”)

The FASB issued ASU 2014-12 in June 2014, which intends to resolve the diverse accounting treatment of awards with a performance target that could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved.

The amendments of the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award.

Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted. The amendments of this ASU can be applied (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets outstanding at the beginning of the period of adoption and to all new or modified awards thereafter.

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

FASB Accounting Standards Update 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (“ASU 2014-11”)

The FASB issued ASU 2014-11 in June 2014, which requires two accounting changes. First, the amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.

The amendments in this Update require disclosures for certain transactions comprising (1) a transfer of a financial asset accounted for as a sale and (2) an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction.

The accounting changes in this ASU are effective in the first quarter of 2015. Early application is prohibited. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

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

FASB Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606); (“ASU 2014-09”)

The FASB issued ASU 2014-09 in May 2014, which clarifies the principles for recognizing revenue and develop a common revenue standard that would (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statement through improved disclosure requirements and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 amends the ASC Codification and creates a new Topic 606, Revenue from Contracts with Customers.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In addition, the new guidance requires disclosures to enable users of financial statements to understand the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contract with customers, significant judgments and changes in judgments, and assets recognized from the cost to obtain or fulfill a contract.

The amendments in this ASU are effective in the first quarter of 2017. Early adoption is not permitted.

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

FASB Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposal of Components of an Entity (“ASU 2014-08”)

The FASB issued ASU 2014-08 in April 2014, which changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity investment.

In addition, the new guidance requires expanded disclosures about discontinued operations that will include more information about the assets, liabilities, income, and expenses of discontinued operations.

The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide information about the ongoing trends in the reporting organization’s results from continuing operations.

The amendments in the ASU are effective in the first quarter of 2015. Early adoption is permitted.

The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its consolidated financial statements.

FASB Accounting Standards Update 2014-04, Receivables-Troubled Debt Restructuring by Creditors (SubTopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (“ASU 2014-04”)

The FASB issued ASU 2014-04 in January 2014 which clarifies when a creditor should be considered to have received physical possession of a residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

The amendments of this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

The amendment of this guidance requires interim and annual disclosures of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

ASU 2014-04 is effective for annual periods, and interim periods within those years, beginning after December 15, 2014. The amendments in this ASU can be elected using either a modified retrospective transition method or a prospective transition method. Early adoption is permitted.

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

FASB Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”)

The FASB issued ASU 2013-11 in July 2013 which requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. When a net operating loss, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. Currently, there is no explicit guidance under U.S. GAAP on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment of this guidance does not require new recurring disclosures.

ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

The Corporation adopted this guidance in the first quarter of 2014 and it did not have a material effect on the Corporation’s consolidated financial statements.

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 subtopic 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 Section 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.

The Corporation adopted this guidance on the first quarter of 2014 and recognized a loss of approximately $7.7 million resulting from the reclassification from other comprehensive loss into earnings of the cumulative foreign translation adjustment related to the dilution on its equity investment in BHD. Refer to note 15 for additional information.

Note 3 – Discontinued operations

On April 22, 2014, BPNA, the Corporation’s U.S. mainland banking subsidiary, entered into definitive agreements to sell California, Illinois and Central Florida regional operations to three different buyers. BPNA completed the sale of its Illinois regional operations on August 8, 2014. The remaining transactions are expected to be completed by the end of the fourth quarter of 2014. In connection with these transactions, the Corporation intends to centralize certain back office operations in Puerto Rico and New York. The operations subject to these three definitive agreements each constituted a business, as defined in ASC 805-10-55. Accordingly, the decision to sell these businesses resulted in the discontinuance of each of these respective operations and classification as held-for-sale. For financial reporting purposes, the results of the discontinued operations are presented as “Assets / Liabilities from discontinued operations” in the consolidated statement of condition and “(Loss) income from discontinued operations, net of tax” in the consolidated statement of operations. As required by ASC 205-20, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of these assets and liabilities to discontinued operations.

During the quarter ended June 30, 2014, the Corporation recorded a non-cash goodwill impairment charge of $187 million, related to the goodwill allocated, on a relative fair value basis, to these operations. However, this non-cash charge had no impact on the Corporation’s tangible capital or regulatory capital ratios. Refer to Note 16, for additional information on the goodwill impairment charge. The Corporation expects to realize a net premium estimated at approximately $24 million, before customary transaction costs, upon the closing of these transactions.

The Corporation estimates that it will incur in restructuring charges of approximately $54 million, comprised of $32 million in severance, retention and employee related costs and $22 million in operational set-up costs and lease cancelations, of which approximately $5 million where incurred during the second quarter of 2014. Refer to Note 4, for restructuring charges incurred during the quarter ended June 30, 2014.

Assets and liabilities of discontinued operations, which are mostly classified as held-for-sale, are detailed below:


(In thousands)	June 30, 2014
Cash	$	18,923
Loans held-for-sale		1,783,998
Premises and equipment, net		17,553
Other assets		7,908

Total assets	$	1,828,382

Deposits	$	2,058,309
Short-term borrowings		2,998
Other liabilities		18,435

Total liabilities	$	2,079,742

Net liabilities	$	(251,360	)

The following table provides the components of net (loss) income from the discontinued operations for the quarter and six months ended June 30, 2014 and 2013.


	Quarter ended						Six months ended
(In thousands)	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Net interest income	$	19,092		$	21,308		$	40,889		$	42,977
Provision (reversal) for loan losses		—			(5,067	)		(6,764	)		(7,860	)
Non-interest income		9,388			4,645			19,921			8,392
Personnel costs		12,117			8,320			20,969			16,728
Net occupancy expenses		2,845			3,049			7,176			6,030
Professional fees		5,903			2,949			8,696			5,709
Goodwill impairment charge		186,511			—			186,511			—
Other operating expenses		2,833			1,404			6,046			5,728

Net (loss) income from discontinued operations	$	(181,729	)	$	15,298		$	(161,824	)	$	25,034

Note 4 – Restructuring plan

As discussed in Note 3, in connection with the sale of the operations of the California, Illinois and Central Florida regions, the Corporation intends to centralize certain back office operations, previously conducted on these regions, in Puerto Rico and New York. The Corporation has undertaken a restructuring plan (the “PCB Restructuring Plan”) to eliminate and re-locate employment positions, terminate contracts and incur other costs associated with moving the operations to Puerto Rico and New York. The Corporation estimates that it will incur in restructuring charges of approximately $54 million, comprised of $32 million in severance and retention payments and $22 million in operational set-up costs and lease cancelations, of which approximately $5 million where incurred during the second quarter of 2014. The remaining costs will be recognized during the third and fourth quarter of 2014 and early 2015.

Full-time equivalent employees at the California, Illinois and Central Florida regions were 363 as of June 30, 2014, compared with 365 as of December 31, 2013. Some of the employees at these regions will be transferred to the acquiring entities. The remaining employees at these regions are expected to be transferred to other of the Corporation’s U.S. mainland or Puerto Rico operations or depart by mid- 2015.

The following table details the expenses recorded by the Corporation that were associated with the PCB restructuring plan:


(In thousands)	Quarter ended June 30, 2014
Personnel costs	$	3,630
Net occupancy expenses		271
Equipment expenses		190
Professional fees		448
Other operating expenses		35

Total restructuring costs	$	4,574

At June 30, 2014, the accrual for the PCB restructuring costs amounted to $3 million.

Note 5 – 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 $ 1.0 billion at June 30, 2014 (December 31, 2013 - $992 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 June 30, 2014, the Corporation held $43 million in restricted assets in the form of funds deposited in money market accounts, trading account securities and investment securities available for sale (December 31, 2013 - $44 million). 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 6 – 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:


	June 30,		December 31,
(In thousands)	2014		2013
Investment securities available-for-sale, at fair value	$	2,264,948	$	1,638,558
Investment securities held-to-maturity, at amortized cost		10,000		35,000
Loans held-for-sale measured at lower of cost or fair value		216		363
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		365,432		407,257
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,447,919		9,108,984

Total pledged assets	$	11,088,515	$	11,190,162

Pledged assets from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

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 June 30, 2014, the Corporation had $ 1.2 billion in investment securities available-for-sale and $ 0.6 billion in loans that served as collateral to secure public funds (December 31, 2013 - $ 1.0 billion and $ 0.5 billion, respectively).

At June 30, 2014, 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 $3.3 billion (December 31, 2013 - $3.0 billion). Refer to Note 18 to the consolidated financial statements for borrowings outstanding under these credit facilities. At June 30, 2014, the credit facilities authorized with the FHLB were collateralized by $ 3.4 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). Also, at June 30, 2014, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $2.6 billion, which remained unused as of such date ( December 31, 2013 - $3.4 billion). The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At June 30, 2014, the credit facilities with the Fed discount window were collateralized by $ 4.8 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). 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 June 30, 2014, trade receivables from brokers and counterparties amounting to $76 million were pledged to secure repurchase agreements (December 31, 2013 - $69 million).

Note 7 – 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 June 30, 2014 and December 31, 2013.


	At June 30, 2014
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	26,085	$	1,644	$	—	$	27,729		3.87	%

Total U.S. Treasury securities		26,085		1,644		—		27,729		3.87

Obligations of U.S. Government sponsored entities
Within 1 year		6,998		7		—		7,005		0.14
After 1 to 5 years		1,948,833		2,424		9,053		1,942,204		1.20
After 5 to 10 years		252,520		581		7,198		245,903		1.63
After 10 years		23,000		—		882		22,118		3.15

Total obligations of U.S. Government sponsored entities		2,231,351		3,012		17,133		2,217,230		1.27

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		5,384		19		22		5,381		2.86
After 5 to 10 years		23,352		7		1,398		21,961		5.46
After 10 years		48,812		422		7,405		41,829		5.85

Total obligations of Puerto Rico, States and political subdivisions		77,548		448		8,825		69,171		5.52

Collateralized mortgage obligations—federal agencies
After 1 to 5 years		4,876		124		—		5,000		2.56
After 5 to 10 years		27,924		1,219		2		29,141		2.82
After 10 years		2,305,054		17,819		53,542		2,269,331		2.06

Total collateralized mortgage obligations—federal agencies		2,337,854		19,162		53,544		2,303,472		2.07

Collateralized mortgage obligations—private label
After 10 years		130		—		—		130		3.90

Total collateralized mortgage obligations—private label		130		—		—		130		3.90

Mortgage-backed securities
Within 1 year		1		—		—		1		3.66
After 1 to 5 years		26,420		1,458		—		27,878		4.56
After 5 to 10 years		200,182		8,743		486		208,439		3.47
After 10 years		735,125		50,779		2,174		783,730		4.08

Total mortgage-backed securities		961,728		60,980		2,660		1,020,048		3.97

Equity securities (without contractual maturity)		3,177		1,284		118		4,343		6.39

Other
After 1 to 5 years		9,458		—		15		9,443		1.68
After 10 years		2,341		85		—		2,426		3.63

Total other		11,799		85		15		11,869		2.06

Total investment securities available-for-sale	$	5,649,672	$	86,615	$	82,295	$	5,653,992		2.14	%


	At December 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	$	26,474	$	2,008	$	—	$	28,482		3.85	%

Total U.S. Treasury securities		26,474		2,008		—		28,482		3.85

Obligations of U.S. Government sponsored entities
Within 1 year		25,021		39		—		25,060		1.85
After 1 to 5 years		1,087,453		1,678		12,715		1,076,416		1.26
After 5 to 10 years		528,611		100		21,742		506,969		1.52
After 10 years		23,000		—		2,240		20,760		3.12

Total obligations of U.S. Government sponsored entities		1,664,085		1,817		36,697		1,629,205		1.38

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,228		45		85		6,188		4.64
After 5 to 10 years		23,147		—		1,978		21,169		6.33
After 10 years		48,803		29		9,812		39,020		5.84

Total obligations of Puerto Rico, States and political subdivisions		78,178		74		11,875		66,377		5.89

Collateralized mortgage obligations—federal agencies
After 1 to 5 years		5,131		101		—		5,232		1.79
After 5 to 10 years		31,613		921		—		32,534		2.98
After 10 years		2,438,021		18,532		76,023		2,380,530		2.05

Total collateralized mortgage obligations—federal agencies		2,474,765		19,554		76,023		2,418,296		2.06

Collateralized mortgage obligations—private label
After 10 years		509		4		—		513		3.78

Total collateralized mortgage obligations—private label		509		4		—		513		3.78

Mortgage-backed securities
Within 1 year		419		24		—		443		3.14
After 1 to 5 years		15,921		833		—		16,754		4.50
After 5 to 10 years		62,373		3,058		1,214		64,217		4.12
After 10 years		1,007,733		50,807		4,313		1,054,227		3.93

Total mortgage-backed securities		1,086,446		54,722		5,527		1,135,641		3.95

Equity securities (without contractual maturity)		3,178		1,109		171		4,116		4.06

Other
After 1 to 5 years		9,638		—		141		9,497		1.68
After 10 years		2,604		69		—		2,673		3.61

Total other		12,242		69		141		12,170		2.09

Total investment securities available-for-sale	$	5,345,877	$	79,357	$	130,434	$	5,294,800		2.30	%

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 sales of investment securities available-for-sale during the six months ended June 30, 2014 or June 30, 2013.

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 June 30, 2014 and December 31, 2013.


	At June 30, 2014
	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	$	594,695	$	8,886	$	462,222	$	8,247	$	1,056,917	$	17,133
Obligations of Puerto Rico, States and political subdivisions		20,733		2,584		24,596		6,241		45,329		8,825
Collateralized mortgage obligations—federal agencies		713,604		24,114		758,570		29,430		1,472,174		53,544
Mortgage-backed securities		15,875		446		46,384		2,214		62,259		2,660
Equity securities		—		—		1,707		118		1,707		118
Other		—		—		9,443		15		9,443		15

Total investment securities available-for-sale in an unrealized loss position	$	1,344,907	$	36,030	$	1,302,922	$	46,265	$	2,647,829	$	82,295


	At December 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	$	1,326,866	$	32,457	$	69,257	$	4,240	$	1,396,123	$	36,697
Obligations of Puerto Rico, States and political subdivisions		54,256		11,685		8,330		190		62,586		11,875
Collateralized mortgage obligations—federal agencies		1,567,654		70,378		96,676		5,645		1,664,330		76,023
Mortgage-backed securities		105,455		4,762		7,225		765		112,680		5,527
Equity securities		1,657		171		—		—		1,657		171
Other		—		—		9,497		141		9,497		141

Total investment securities available-for-sale in an unrealized loss position	$	3,055,888	$	119,453	$	190,985	$	10,981	$	3,246,873	$	130,434

As of June 30, 2014, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $82 million, driven by US Agency Collateralized Mortgage Obligations, obligations from the U.S. Government sponsored entities, and obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all US Agencies’ securities, management considers the US Agency guarantee.

In February 2014, the three principal nationally recognized rating agencies (Moody’s Investor Services, Standard and Poor’s and Fitch Ratings) downgraded the general-obligation bonds of the Commonwealth and other obligations of Puerto Rico instrumentalities to non-investment grade categories, citing concerns about financial flexibility and a reduced capacity to borrow in the financial markets. On June 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed the Puerto Rico public corporations to restructure their debt. The portfolio of obligations of the Puerto Rico Government is comprised of securities with specific sources of income or revenues identified for repayments. The Corporation performs periodic credit quality reviews on these issuers.

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 June 30, 2014, 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 June 30, 2014, 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.

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.


	June 30, 2014				December 31, 2013
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,013,092	$	1,988,874	$	2,318,171	$	2,266,610
FHLB		1,144,118		1,139,269		336,933		326,220
Freddie Mac		1,361,507		1,356,819		1,434,346		1,418,216

Note 8 – 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 June 30, 2014 and December 31, 2013.


	At June 30, 2014
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	12,685	$	—	$	2	$	12,683		2.10	%
After 1 to 5 years		12,595		1		383		12,213		5.93
After 5 to 10 years		20,925		—		5,209		15,716		6.08
After 10 years		66,471		1,368		6,545		61,294		2.28

Total obligations of Puerto Rico, States and political subdivisions		112,676		1,369		12,139		101,906		3.37

Collateralized mortgage obligations—federal agencies
After 5 to 10 years		104		—		8		96		5.45

Total collateralized mortgage obligations—federal agencies		104		—		8		96		5.45

Other
Within 1 year		1,250		—		—		1,250		1.39
After 1 to 5 years		250		—		1		249		1.38

Total other		1,500		—		1		1,499		1.39

Total investment securities held-to-maturity	$	114,280	$	1,369	$	12,148	$	103,501		3.35	%


	At December 31, 2013
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	12,570	$	—	$	12	$	12,558		2.06	%
After 1 to 5 years		12,060		—		984		11,076		5.91
After 5 to 10 years		20,015		—		5,251		14,764		6.06
After 10 years		69,236		257		13,179		56,314		2.43

Total obligations of Puerto Rico, States and political subdivisions		113,881		257		19,426		94,712		3.40

Collateralized mortgage obligations—federal agencies
After 10 years		115		7		—		122		5.45

Total collateralized mortgage obligations—federal agencies		115		7		—		122		5.45

Other
Within 1 year		26,000		—		645		25,355		3.41
After 1 to 5 years		500		—		1		499		1.33

Total other		26,500		—		646		25,854		3.37

Total investment securities held-to-maturity	$	140,496	$	264	$	20,072	$	120,688		3.40	%

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 June 30, 2014 and December 31, 2013.


	At June 30, 2014
	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	$	48,601	$	5,012	$	22,948	$	7,127	$	71,549	$	12,139
Collateralized mortgage obligations—federal agencies		96		8		—		—		96		8
Other		249		1		—		—		249		1

Total investment securities held-to-maturity in an unrealized loss position	$	48,946	$	5,021	$	22,948	$	7,127	$	71,894	$	12,148


	At December 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 Puerto Rico, States and political subdivisions	$	60,028	$	12,180	$	13,044	$	7,246	$	73,072	$	19,426
Other		24,604		646		—		—		24,604		646

Total investment securities held-to-maturity in an unrealized loss position	$	84,632	$	12,826	$	13,044	$	7,246	$	97,676	$	20,072

As indicated in Note 7 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 June 30, 2014 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $62 million of securities issued by three municipalities of Puerto Rico that are payable from the real and personal property taxes collected within such municipalities. These bonds have seniority to the payment of operating cost and expenses of the municipality. The portfolio also includes approximately $41 million in securities for which the underlying source of payment is not the central government, but in which it provides a guarantee in the event of default. In February 2014, the three principal nationally recognized rating agencies (Moody’s Investor Services, Standard and Poor’s and Fitch Ratings) downgraded the general-obligation bonds of the Commonwealth and other obligations of Puerto Rico instrumentalities to non-investment grade categories, citing concerns about financial flexibility and a reduced capacity to borrow in the financial markets. On June 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed the Puerto Rico public corporations to restructure their debt. 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 9 – 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”. The FDIC loss sharing agreements expires at the end of the quarter ending June 30, 2015 for commercial (including construction) and consumer loans, and at the end of the quarter ending June 30, 2020 for to single-family residential mortgage loans, as explained in Note 11.

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 2013 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at June 30, 2014 and December 31, 2013.


(In thousands)	June 30, 2014		December 31, 2013
Commercial multi-family	$	475,826	$	1,175,937
Commercial real estate non-owner occupied		2,501,036		2,970,505
Commercial real estate owner occupied		1,758,535		2,166,545
Commercial and industrial		3,420,150		3,724,197
Construction		179,059		206,084
Mortgage		6,664,448		6,681,476
Leasing		546,868		543,761
Legacy^[2]		162,941		211,135
Consumer:
Credit cards		1,171,182		1,185,272
Home equity lines of credit		388,667		478,211
Personal		1,406,920		1,349,119
Auto		745,579		699,980
Other		214,013		219,644

Total loans held-in-portfolio^[1]	$	19,635,224	$	21,611,866

[1]	Non-covered loans held-in-portfolio at June 30, 2014 are net of $91 million in unearned income and exclude $97 million in loans held-for-sale (December 31, 2013 - $92 million in unearned income and $110 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 segment.

The following table presents the composition of covered loans at June 30, 2014 and December 31, 2013.


(In thousands)	June 30, 2014		December 31, 2013
Commercial real estate	$	1,638,634	$	1,710,229
Commercial and industrial		107,333		102,575
Construction		82,763		190,127
Mortgage		867,075		934,373
Consumer		40,297		47,123

Total loans held-in-portfolio	$	2,736,102	$	2,984,427

The following table provides a breakdown of loans held-for-sale (“LHFS”) at June 30, 2014 and December 31, 2013 by main categories.


(In thousands)	June 30, 2014 [1]		December 31, 2013
Commercial	$	2,895	$	603
Construction		949		—
Mortgage		93,166		109,823

Total loans held-for-sale	$	97,010	$	110,426

[1]	Loans held-for-sale from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

During the quarter and six months ended June 30, 2014, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $169 million and $331 million, respectively (June 30, 2013 - $0.4 billion and $1.5 billion, respectively). Also, the Corporation recorded purchases of $92 million in consumer loans during the six months ended June 30, 2014 (June 30, 2013 - $42 million). In addition, during the six months ended June 30, 2014, the Corporation recorded purchases of commercial loans amounting to $21 million (during the quarter and six months ended June 30, 2013 - $3 million).

The Corporation performed whole-loan sales involving approximately $27 million and $70 million of residential mortgage loans during the quarter and six months ended June 30, 2014, respectively (June 30, 2013 - $503 million and $553 million, respectively). These sales included $435 million from the bulk sale of non-performing mortgage loans, completed during the quarter ended June 30, 2013. Also, the Corporation securitized approximately $ 184 million and $ 350 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2014, respectively (June 30, 2013 - $ 282 million and $ 568 million, respectively). Furthermore, the Corporation securitized approximately $ 60 million and $ 123 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2014, respectively (June 30, 2013 - $ 124 million and $ 252 million, respectively). Also, the Corporation did not securitize mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and six months ended June 30, 2014 (during the quarter and six months ended June 30, 2013 - $ 27 million). The Corporation sold commercial and construction loans with a book value of approximately $30 million and $61 million during the quarter and six months ended June 30, 2014, respectively (June 30, 2013 - $6 million and $407 million, respectively). These sales included $401 million from the bulk sale of non-performing commercial and construction loans during the quarter ended March 31, 2013.

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 June 30, 2014 and December 31, 2013. 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 June 30, 2014
	Puerto Rico				U.S. mainland [4]				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 multi-family	$	2,851	$	—	$	4,105	$	—	$	6,956	$	—
Commercial real estate non-owner occupied		56,406		—		11,857		—		68,263		—
Commercial real estate owner occupied		108,286		—		4,199		—		112,485		—
Commercial and industrial		86,009		417		4,420		—		90,429		417
Construction		21,456		—		—		—		21,456		—
Mortgage^[2][3]		262,356		399,300		23,964		—		286,320		399,300
Leasing		2,873		—		—		—		2,873		—
Legacy		—		—		8,323		—		8,323		—
Consumer:
Credit cards		—		19,595		378		—		378		19,595
Home equity lines of credit		—		467		7,221		—		7,221		467
Personal		17,968		—		1,459		—		19,427		—
Auto		11,703		—		—		—		11,703		—
Other		3,898		454		3		—		3,901		454

Total^[1]	$	573,806	$	420,233	$	65,929	$	—	$	639,735	$	420,233

[1]	For purposes of this table non-performing loans exclude $ 4 million in non-performing loans held-for-sale.

[2]

Non-covered loans by $55 million 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.

[3]

It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $124 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2014. Furthermore, the Corporation has approximately $60 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

[4]	Excludes $9.5 million in non-performing loans from discontinued operations.


At December 31, 2013
	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 multi-family	$	4,944	$	—	$	20,894	$	—	$	25,838	$	—
Commercial real estate non-owner occupied		41,959		—		42,413		—		84,372		—
Commercial real estate owner occupied		83,441		—		23,507		—		106,948		—
Commercial and industrial		55,753		556		6,142		—		61,895		556
Construction		18,108		—		5,663		—		23,771		—
Mortgage^[2][3]		206,389		395,645		26,292		—		232,681		395,645
Leasing		3,495		—		—		—		3,495		—
Legacy		—		—		15,050		—		15,050		—
Consumer:
Credit cards		—		20,313		486		—		486		20,313
Home equity lines of credit		—		147		8,632		—		8,632		147
Personal		17,054		54		1,591		—		18,645		54
Auto		10,562		—		2		—		10,564		—
Other		5,550		585		21		—		5,571		585

Total^[1]	$	447,255	$	417,300	$	150,693	$	—	$	597,948	$	417,300

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

[2]

Non-covered loans by $43 million 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.

[3]

It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $115 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2013. Furthermore, the Corporation has approximately $50 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

The following tables present loans by past due status at June 30, 2014 and December 31, 2013 for non-covered loans held-in-portfolio (net of unearned income).


June 30, 2014
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	$	—	$	189	$	2,851	$	3,040	$	58,466	$	61,506
Commercial real estate non-owner occupied		2,836		2,453		56,406		61,695		1,888,187		1,949,882
Commercial real estate owner occupied		9,351		4,015		108,286		121,652		1,423,932		1,545,584
Commercial and industrial		18,564		3,905		86,426		108,895		2,633,113		2,742,008
Construction		—		583		21,456		22,039		113,644		135,683
Mortgage		293,037		157,245		716,632		1,166,914		4,291,658		5,458,572
Leasing		7,083		1,857		2,873		11,813		535,055		546,868
Consumer:
Credit cards		12,977		8,533		19,595		41,105		1,114,780		1,155,885
Home equity lines of credit		—		—		467		467		13,814		14,281
Personal		14,465		7,132		17,968		39,565		1,247,340		1,286,905
Auto		35,057		8,837		11,703		55,597		689,712		745,309
Other		1,462		522		4,352		6,336		207,133		213,469

Total	$	394,832	$	195,271	$	1,049,015	$	1,639,118	$	14,216,834	$	15,855,952


June 30, 2014
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	$	—	$	—	$	4,105	$	4,105	$	410,215	$	414,320
Commercial real estate non-owner occupied		—		—		11,857		11,857		539,297		551,154
Commercial real estate owner occupied		1,553		8,500		4,199		14,252		198,699		212,951
Commercial and industrial		2,411		4,022		4,420		10,853		667,289		678,142
Construction		—		—		—		—		43,376		43,376
Mortgage		1,892		7,241		23,964		33,097		1,172,779		1,205,876
Legacy		1,871		2,770		8,323		12,964		149,977		162,941
Consumer:
Credit cards		295		176		378		849		14,448		15,297
Home equity lines of credit		2,052		2,077		7,221		11,350		363,036		374,386
Personal		790		1,034		1,459		3,283		116,732		120,015
Auto		6		—		—		6		264		270
Other		20		—		3		23		521		544

Total	$	10,890	$	25,820	$	65,929	$	102,639	$	3,676,633	$	3,779,272


June 30, 2014
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	$	—	$	189	$	6,956	$	7,145	$	468,681	$	475,826
Commercial real estate non-owner occupied		2,836		2,453		68,263		73,552		2,427,484		2,501,036
Commercial real estate owner occupied		10,904		12,515		112,485		135,904		1,622,631		1,758,535
Commercial and industrial		20,975		7,927		90,846		119,748		3,300,402		3,420,150
Construction		—		583		21,456		22,039		157,020		179,059
Mortgage		294,929		164,486		740,596		1,200,011		5,464,437		6,664,448
Leasing		7,083		1,857		2,873		11,813		535,055		546,868
Legacy		1,871		2,770		8,323		12,964		149,977		162,941
Consumer:
Credit cards		13,272		8,709		19,973		41,954		1,129,228		1,171,182
Home equity lines of credit		2,052		2,077		7,688		11,817		376,850		388,667
Personal		15,255		8,166		19,427		42,848		1,364,072		1,406,920
Auto		35,063		8,837		11,703		55,603		689,976		745,579
Other		1,482		522		4,355		6,359		207,654		214,013

Total	$	405,722	$	221,091	$	1,114,944	$	1,741,757	$	17,893,467	$	19,635,224


December 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	$	446	$	—	$	4,944	$	5,390	$	77,013	$	82,403
Commercial real estate non-owner occupied		13,889		349		41,959		56,197		1,808,021		1,864,218
Commercial real estate owner occupied		13,725		8,318		83,441		105,484		1,501,019		1,606,503
Commercial and industrial		9,960		4,463		56,309		70,732		2,841,734		2,912,466
Construction		2,329		—		18,108		20,437		140,734		161,171
Mortgage		316,663		154,882		645,444		1,116,989		4,283,690		5,400,679
Leasing		7,457		1,607		3,495		12,559		531,202		543,761
Consumer:
Credit cards		13,797		9,991		20,313		44,101		1,125,520		1,169,621
Home equity lines of credit		133		53		147		333		14,845		15,178
Personal		12,897		6,794		17,108		36,799		1,177,085		1,213,884
Auto		31,340		9,361		10,562		51,263		648,228		699,491
Other		1,834		859		6,135		8,828		209,636		218,464

Total	$	424,470	$	196,677	$	907,965	$	1,529,112	$	14,358,727	$	15,887,839


December 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	$	3,621	$	1,675	$	20,894	$	26,190	$	1,067,344	$	1,093,534
Commercial real estate non-owner occupied		4,255		—		42,413		46,668		1,059,619		1,106,287
Commercial real estate owner occupied		657		8,452		23,507		32,616		527,426		560,042
Commercial and industrial		2,331		2,019		6,142		10,492		801,239		811,731
Construction		—		—		5,663		5,663		39,250		44,913
Mortgage		30,713		9,630		26,292		66,635		1,214,162		1,280,797
Legacy		9,079		2,098		15,050		26,227		184,908		211,135
Consumer:
Credit cards		285		200		486		971		14,680		15,651
Home equity lines of credit		2,794		2,198		8,632		13,624		449,409		463,033
Personal		3,196		826		1,591		5,613		129,622		135,235
Auto		11		—		2		13		476		489
Other		43		50		21		114		1,066		1,180

Total	$	56,985	$	27,148	$	150,693	$	234,826	$	5,489,201	$	5,724,027


December 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	$	4,067	$	1,675	$	25,838	$	31,580	$	1,144,357	$	1,175,937
Commercial real estate non-owner occupied		18,144		349		84,372		102,865		2,867,640		2,970,505
Commercial real estate owner occupied		14,382		16,770		106,948		138,100		2,028,445		2,166,545
Commercial and industrial		12,291		6,482		62,451		81,224		3,642,973		3,724,197
Construction		2,329		—		23,771		26,100		179,984		206,084
Mortgage		347,376		164,512		671,736		1,183,624		5,497,852		6,681,476
Leasing		7,457		1,607		3,495		12,559		531,202		543,761
Legacy		9,079		2,098		15,050		26,227		184,908		211,135
Consumer:
Credit cards		14,082		10,191		20,799		45,072		1,140,200		1,185,272
Home equity lines of credit		2,927		2,251		8,779		13,957		464,254		478,211
Personal		16,093		7,620		18,699		42,412		1,306,707		1,349,119
Auto		31,351		9,361		10,564		51,276		648,704		699,980
Other		1,877		909		6,156		8,942		210,702		219,644

Total	$	481,455	$	223,825	$	1,058,658	$	1,763,938	$	19,847,928	$	21,611,866

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at June 30, 2014 and December 31, 2013 by main categories.


(In thousands)	June 30, 2014		December 31, 2013
Commercial	$	2,895	$	603
Construction		949		—
Mortgage		582		489

Total	$	4,426	$	1,092

The outstanding principal balance of non-covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $226 million at June 30, 2014 (December 31, 2013—$197 million). At June 30, 2014, 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 quarters and six months ended June 30, 2014 and 2013 were as follows:


Activity in the accretable discount - Non-covered loans ASC 310-30
	For the quarter ended			For the quarter ended
(In thousands)	June 30, 2014			June 30, 2013
Beginning balance	$	67,285		$	36,627
Additions		4,060			10,107
Accretion		(2,552	)		(2,004	)
Change in expected cash flows		8,034			4,483

Ending balance	$	76,827		$	49,213


Activity in the accretable discount—Non-covered loans ASC 310-30
	For the six months ended			For the six months ended
(In thousands)	June 30, 2014			June 30, 2013
Beginning balance	$	49,398		$	—
Additions		11,144			47,342
Accretion		(4,926	)		(2,612	)
Change in expected cash flows		21,211			4,483

Ending balance	$	76,827		$	49,213


Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
	For the quarter ended			For the quarter ended
(In thousands)	June 30, 2014			June 30, 2013
Beginning balance	$	190,216			133,041
Additions		13,139			22,899
Accretion		2,552			2,004
Collections and charge-offs		(6,866	)		(19,312	)

Ending balance	$	199,041		$	138,632
Allowance for loan losses ASC 310-30 non-covered loans		(15,751	)		—

Ending balance, net of ALLL	$	183,290		$	138,632


Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
	For the six months ended			For the six months ended
(In thousands)	June 30, 2014			June 30, 2013
Beginning balance	$	173,659		$	—
Additions		33,181			156,311
Accretion		4,926			2,612
Collections and charge-offs		(12,725	)		(20,291	)

Ending balance	$	199,041		$	138,632
Allowance for loan losses ASC 310-30 non-covered loans		(15,751	)		—

Ending balance, net of ALLL	$	183,290		$	138,632

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 June 30, 2014 and December 31, 2013.


	June 30, 2014				December 31, 2013
	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	$	7,775	$	—	$	8,345	$	—
Commercial and industrial		888		—		7,335		456
Construction		4,112		—		11,872		—
Mortgage		3,044		18		1,739		69
Consumer		331		—		90		112

Total^[1]	$	16,150	$	18	$	29,381	$	637

[1]	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 analyses.

The following tables present loans by past due status at June 30, 2014 and December 31, 2013 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.


June 30, 2014
	Past due
	30-59		60-89		90 days		Total				Covered
(In thousands)	days		days		or more		past due		Current		loans HIP
Commercial real estate	$	18,747	$	7,829	$	340,117	$	366,693	$	1,271,941	$	1,638,634
Commercial and industrial		870		684		7,686		9,240		98,093		107,333
Construction		—		—		71,197		71,197		11,566		82,763
Mortgage		46,826		25,447		149,311		221,584		645,491		867,075
Consumer		2,139		830		3,762		6,731		33,566		40,297

Total covered loans	$	68,582	$	34,790	$	572,073	$	675,445	$	2,060,657	$	2,736,102


December 31, 2013
	Past due
	30-59		60-89		90 days		Total				Covered
(In thousands)	days		days		or more		past due		Current		loans HIP
Commercial real estate	$	42,898	$	8,745	$	374,301	$	425,944	$	1,284,285	$	1,710,229
Commercial and industrial		1,584		349		16,318		18,251		84,324		102,575
Construction		399		—		178,007		178,406		11,721		190,127
Mortgage		50,222		23,384		165,030		238,636		695,737		934,373
Consumer		2,588		1,328		4,200		8,116		39,007		47,123

Total covered loans	$	97,691	$	33,806	$	737,856	$	869,353	$	2,115,074	$	2,984,427

The carrying amount of the covered loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic 310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic 310-30 (“non-credit impaired loans”), as detailed in the following table.


	June 30, 2014									December 31, 2013
	Carrying amount									Carrying amount
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Commercial real estate	$	1,450,099		$	126,474		$	1,576,573		$	1,483,331		$	149,341		$	1,632,672
Commercial and industrial		65,372			4,496			69,868			55,192			3,069			58,261
Construction		37,925			40,283			78,208			71,864			104,356			176,220
Mortgage		804,169			49,481			853,650			862,878			59,483			922,361
Consumer		30,346			2,019			32,365			35,810			2,623			38,433

Carrying amount		2,387,911			222,753			2,610,664			2,509,075			318,872			2,827,947
Allowance for loan losses		(50,609	)		(40,283	)		(90,892	)		(57,594	)		(36,321	)		(93,915	)

Carrying amount, net of allowance	$	2,337,302		$	182,470		$	2,519,772		$	2,451,481		$	282,551		$	2,734,032

The outstanding principal balance of covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $3.4 billion at June 30, 2014 (December 31, 2013—$3.8 billion). At June 30, 2014, none of the acquired loans from the Westernbank FDIC-assisted transaction accounted for 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 covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended June 30, 2014 and 2013, were as follows:


	Activity in the accretable yield
	Covered loans ASC 310-30
	For the quarters ended
	June 30, 2014									June 30, 2013
	Non-credit			Credit						Non-credit			Credit
(In thousands)	impaired loans			impaired loans			Total			impaired loans			impaired loans			Total
Beginning balance	$	1,212,706		$	5,506		$	1,218,212		$	1,372,375		$	(240	)	$	1,372,135
Accretion		(77,316	)		(2,547	)		(79,863	)		(60,284	)		(2,252	)		(62,536	)
Change in expected cash flows		135,812			6,597			142,409			53,579			16,434			70,013

Ending balance	$	1,271,202		$	9,556		$	1,280,758		$	1,365,670		$	13,942		$	1,379,612


	Activity in the accretable discount
	Covered loans ASC 310-30
	For the six months ended
	June 30, 2014									June 30, 2013
	Non-credit			Credit						Non-credit			Credit
	impaired			impaired						impaired			impaired
(In thousands)	loans			loans			Total			loans			loans			Total
Beginning balance	$	1,297,725		$	11,480		$	1,309,205		$	1,446,381		$	5,288		$	1,451,669
Accretion		(149,868	)		(9,113	)		(158,981	)		(121,461	)		(6,065	)		(127,526	)
Change in expected cash flows		123,345			7,189			130,534			40,750			14,719			55,469

Ending balance	$	1,271,202		$	9,556		$	1,280,758		$	1,365,670		$	13,942		$	1,379,612


	Carrying amount of covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
	June 30, 2014									June 30, 2013
	Non-credit			Credit						Non-credit			Credit
(In thousands)	impaired loans			impaired loans			Total			impaired loans			impaired loans			Total
Beginning balance	$	2,469,453		$	263,669		$	2,733,122		$	2,758,944		$	398,719		$	3,157,663
Accretion		77,316			2,547			79,863			60,284			2,252			62,536
Collections and charge-offs		(158,858	)		(43,463	)		(202,321	)		(166,157	)		(41,176	)		(207,333	)

Ending balance	$	2,387,911		$	222,753		$	2,610,664		$	2,653,071		$	359,795		$	3,012,866
Allowance for loan losses ASC 310-30 covered loans		(50,609	)		(40,283	)		(90,892	)		(47,017	)		(44,178	)		(91,195	)

Ending balance, net of ALLL	$	2,337,302		$	182,470		$	2,519,772		$	2,606,054		$	315,617		$	2,921,671


	Carrying amount of loans accounted for pursuant to ASC 310-30
	For the six months ended
	June 30, 2014									June 30, 2013
	Non-credit			Credit						Non-credit			Credit
(In thousands)	impaired loans			impaired loans			Total			impaired loans			impaired loans			Total
Beginning balance	$	2,509,075		$	318,872		$	2,827,947		$	3,051,964		$	439,795		$	3,491,759
Accretion		149,868			9,113			158,981			121,461			6,065			127,526
Collections and charge offs		(271,032	)		(105,232	)		(376,264	)		(520,354	)		(86,065	)		(606,419	)

Ending balance	$	2,387,911		$	222,753		$	2,610,664		$	2,653,071		$	359,795		$	3,012,866
Allowance for loan losses ASC 310-30 covered loans		(50,609	)		(40,283	)		(90,892	)		(47,017	)		(44,178	)		(91,195	)

Ending balance, net of ALLL	$	2,337,302		$	182,470		$	2,519,772		$	2,606,054		$	315,617		$	2,921,671

The Corporation accounts for lines of credit with revolving privileges under the accounting guidance of ASC Subtopic 310-20, which requires that any differences between the contractually required loans payment receivable in excess of the initial investment in the loans be accreted into interest income over the life of the loans, if the loan is accruing interest. Covered loans accounted for under ASC Subtopic 310-20 amounted to $0.1 billion at June 30, 2014 (December 31, 2013—$0.2 billion).

Note 10 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience and results of periodic credit reviews of individual loans. The provision for loan losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the allowance for loan losses.

The Corporation’s assessment of the allowance for loan losses is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the allowance for loan losses on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30 by analogy, by evaluating decreases in expected cash flows after the acquisition date.

The accounting guidance provides for the recognition of a loss allowance for groups of homogeneous loans. The determination for general reserves of the allowance for loan losses includes the following principal factors:

•

Base net loss rates, which are based on the moving average of annualized net loss rates computed over a 3-year historical loss period for the commercial and construction loan portfolios, and an 18-month period for the consumer and mortgage loan portfolios. The base net loss rates are applied by loan type and by legal entity.

•

Recent loss trend adjustment, which replaces the base loss rate with a 12-month average loss rate, when these trends are higher than the respective base loss rates. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process. As part of the annual review of the components of the ALLL models, as discussed in the following paragraphs and implemented as of June 30^th 2014, the Corporation eliminated the use of caps in the recent loss trend adjustment for the consumer and mortgage portfolios, among other revisions. For the period ended December 31, 2013, the recent loss trend adjustment caps for the consumer and mortgage portfolios were triggered in only one portfolio segment within the Puerto Rico consumer portfolio. Management assessed the impact of the applicable cap through a review of qualitative factors that specifically considered the drivers of recent loss trends and changes to the portfolio composition. The related effect of the aforementioned cap was immaterial for the overall level of the Allowance for Loan and Lease Losses for the Puerto Rico Consumer portfolio.

For the period ended June 30, 2014, 28% (June 30, 2013 - 37%) of the ALLL for BPPR non-covered loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, commercial and industrial, personal and auto loan portfolios for 2014, and in the commercial multi-family, mortgage, and leasing portfolios for 2013.

For the period ended June 30, 2014, 23% (June 30, 2013 - 24%) of the ALLL for BPNA loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, commercial and industrial and legacy loan portfolios for 2014 and in the commercial multi-family, commercial real estate non-owner occupied and commercial and industrial portfolios for 2013.

For the period ended December 31, 2013, 27% (2012 - 32%) of the ALLL for BPPR non-covered loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, leasing, and auto loan portfolios for 2013, and in the commercial multi-family, commercial and industrial, construction, credit cards, and personal loan portfolios for 2012.

For the period ended December 31, 2013, 29% (2012 – 8%) of the ALLL for BPNA loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, commercial real estate non-owner occupied, commercial and industrial and legacy loan portfolios for 2013 and in the construction and legacy loan portfolios for 2012.

•

Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, adopted to account for current market conditions that are likely to cause estimated credit losses to differ from historical losses. The Corporation reflects the effect of these environmental factors on each loan group as an adjustment that, as appropriate, increases the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis is used to select these indicators and quantify the effect on the general reserve of the allowance for loan losses.

During the second quarter of 2014, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics and revised certain components related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These enhancements to the ALLL methodology, which are described in the paragraphs below, were implemented as of June 30, 2014 and resulted in a net decrease to the allowance for loan losses of $18.7 million for the non-covered portfolio and a net increase to the allowance for loan losses of $0.8 million for the covered portfolio.

Management made the following principal revisions to the methodology during the second quarter of 2014:

•

Annual review and recalibration of the environmental factors adjustment. The environmental factor adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the second quarter of 2014, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends. Management also revised the application of environmental factors to the historical loss rates to consider last 12 month trends of the applicable credit and macroeconomic indicators applied as an incremental adjustment to account for emerging risks not necessarily considered in the historical loss rates.

The combined effect of the aforementioned recalibration and enhancements to the environmental factors adjustment resulted in a decrease to the allowance for loan losses of $17 million at June 30, 2014, of which $14.1 million related to the non-covered BPPR segment and $3.7 million related to the BPNA segment, offset in part by a $0.8 million increase in the BPPR covered segment.

•

Increased the historical look-back period for determining the recent loss trend adjustment for consumer and mortgage loans. The Corporation increased the look-back period for assessing recent trends applicable to the determination of consumer and mortgage loan net charge-offs from 6 months to 12 months and eliminated the use of caps. Previously, the Corporation used a recent loss trend adjustment based on 6 months of net charge-offs up to a determined cap. Given the current overall consumer and mortgage credit quality improvements, management concluded that a 12-month look-back period for the recent loss trend adjustment aligns the Corporation’s allowance for loan losses methodology to current credit quality trends while limiting excessive pro-cyclicality given the longer look-back period analysis, thus, eliminating the aforementioned caps.

The combined effect of the aforementioned enhancements to the recent loss trend adjustment resulted in a decrease to the allowance for loan losses of $1 million at June 30, 2014, of which $0.9 million related to the non-covered BPPR segment and $0.1 million related to the BPNA segment.

The following tables present the changes in the allowance for loan losses for the quarters ended June 30, 2014 and 2013.


For the quarter ended June 30, 2014
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	124,134		$	5,079		$	137,796		$	10,483		$	157,248		$	434,740
Provision (reversal of provision)		69,410			(503	)		(7,471	)		(3,380	)		16,805			74,861
Charge-offs		(16,218	)		(42	)		(10,083	)		(1,754	)		(29,941	)		(58,038	)
Recoveries		6,909			657			157			610			6,370			14,703

Ending balance	$	184,235		$	5,191		$	120,399		$	5,959		$	150,482		$	466,266


For the quarter ended June 30, 2014
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	38,589		$	15,966		$	38,848		$	—		$	4,370		$	97,773
Provision (reversal of provision)		13,542			(3,270	)		2,344			1			(1,013	)		11,604
Charge-offs		(5,993	)		(6,427	)		(2,262	)		(2	)		677			(14,007	)
Recoveries		555			2,727			11			1			1			3,295

Ending balance	$	46,693		$	8,996		$	38,941		$	—		$	4,035		$	98,665


For the quarter ended June 30, 2014
U.S. Mainland - Continuing Operations
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	31,505		$	196		$	25,167		$	11,872		$	18,893		$	87,633
Provision (reversal of provision)		(12,321	)		(45	)		(7,245	)		(3,734	)		(1,442	)		(24,787	)
Charge-offs		(5,672	)		—			(914	)		(1,347	)		(3,997	)		(11,930	)
Recoveries		4,762			—			521			2,552			1,229			9,064

Ending balance	$	18,274		$	151		$	17,529		$	9,343		$	14,683		$	59,980


For the quarter ended June 30, 2014
U.S. Mainland - Discontinued Operations
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	16,375		$	27		$	—		$	1,400		$	2,400		$	20,202
Net write-downs related to loans transferred to discontinued operations		(16,375	)		(27	)		—			(1,400	)		(2,400	)		(20,202	)

Ending balance	$	—		$	—		$	—		$	—		$	—		$	—


For the quarter ended June 30, 2014
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	210,603		$	21,268		$	201,811		$	13,272		$	10,483		$	182,911		$	640,348
Provision (reversal of provision)		70,631			(3,818	)		(12,372	)		(3,734	)		(3,379	)		14,350			61,678
Charge-offs		(27,883	)		(6,469	)		(13,259	)		(1,347	)		(1,756	)		(33,261	)		(83,975	)
Recoveries		12,226			3,384			689			2,552			611			7,600			27,062
Net write-downs related to loans transferred to discontinued operations		(16,375	)		(27	)		—			(1,400	)		—			(2,400	)		(20,202	)

Ending balance	$	249,202		$	14,338		$	176,869		$	9,343		$	5,959		$	169,200		$	624,911


For the six months ended June 30, 2014
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	128,150		$	5,095		$	130,330		$	10,622		$	152,578		$	426,775
Provision (reversal of provision)		80,566			(1,897	)		8,511			(2,863	)		44,458			128,775
Charge-offs		(38,334	)		(458	)		(18,809	)		(2,721	)		(59,137	)		(119,459	)
Recoveries		13,853			2,451			367			921			12,583			30,175

Ending balance	$	184,235		$	5,191		$	120,399		$	5,959		$	150,482		$	466,266


For the six months ended June 30, 2014
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	42,198		$	19,491		$	36,006		$	—		$	4,397		$	102,092
Provision (reversal of provision)		17,581			14,297			6,842			1			(1,403	)		37,318
Charge-offs		(13,961	)		(29,408	)		(3,918	)		(2	)		972			(46,317	)
Recoveries		875			4,616			11			1			69			5,572

Ending balance	$	46,693		$	8,996		$	38,941		$	—		$	4,035		$	98,665


For the six months ended June 30, 2014
U.S. Mainland - Continuing Operations
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	24,930		$	214		$	26,599		$	11,335		$	19,205		$	82,283
Allowance transferred from discontinued operations		7,984			—			—			—			—			7,984

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