Edgar Filing: POPULAR INC

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Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2015

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, 103,499,210 shares outstanding as of May 5, 2015.

POPULAR, INC.

INDEX


	Page

Part I – Financial Information

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at March 31, 2015 and December 31, 2014		4

Unaudited Consolidated Statements of Operations for the quarters ended March 31, 2015 and 2014		5

Unaudited Consolidated Statements of Comprehensive Income for the quarters ended March 31, 2015 and 2014		6

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended March 31, 2015 and 2014		7

Unaudited Consolidated Statements of Cash Flows for the quarters ended March 31, 2015 and 2014		8

Notes to Unaudited Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		129

Item 3. Quantitative and Qualitative Disclosures about Market Risk		186

Item 4. Controls and Procedures		186

Part II – Other Information

Item 1. Legal Proceedings		186

Item 1A. Risk Factors		186

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		189

Item 6. Exhibits		189

Signatures		191

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 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;

•

possible legislative, tax or regulatory changes; and

•

risks related to the Doral Transaction, including (a) our ability to maintain customer relationships, including managing any potential customer confusion caused by the alliance structure, (b) risks associated with the limited amount of diligence able to be conducted by a buyer in an FDIC transaction and (c) difficulties in converting or integrating the Doral branches or difficulties in providing transition support to alliance co-bidders.

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 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; 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; 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, 2014 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	March 31,			December 31,
(In thousands, except share information)	2015			2014
Assets:
Cash and due from banks	$	495,776		$	381,095

Money market investments:
Securities purchased under agreements to resell		139,422			151,134
Time deposits with other banks		2,167,793			1,671,252

Total money market investments		2,307,215			1,822,386

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		62,923			80,945
Other trading securities		71,371			57,582
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,016,574			1,020,529
Other investment securities available-for-sale		4,532,129			4,294,630
Investment securities held-to-maturity, at amortized cost (fair value 2015 - $89,304; 2014 - $94,199)		101,595			103,170
Other investment securities, at lower of cost or realizable value (realizable value 2015 - $164,387; 2014 - $165,024)		163,038			161,906
Loans held-for-sale, at lower of cost or fair value		160,602			106,104

Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		21,110,147			19,498,286
Loans covered under loss sharing agreements with the FDIC		2,456,552			2,542,662
Less – Unearned income		97,217			93,835
Allowance for loan losses		588,697			601,792

Total loans held-in-portfolio, net		22,880,785			21,345,321

FDIC loss share asset		409,844			542,454
Premises and equipment, net		492,291			494,581
Other real estate not covered under loss sharing agreements with the FDIC		128,170			135,500
Other real estate covered under loss sharing agreements with the FDIC		113,557			130,266
Accrued income receivable		129,639			121,818
Mortgage servicing assets, at fair value		149,024			148,694
Other assets		1,842,934			1,646,443
Goodwill		508,310			465,676
Other intangible assets		59,063			37,595

Total assets	$	35,624,840		$	33,096,695

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	6,285,202		$	5,783,748
Interest bearing		20,988,487			19,023,787

Total deposits		27,273,689			24,807,535

Federal funds purchased and assets sold under agreements to repurchase		1,132,643			1,271,657
Other short-term borrowings		1,200			21,200
Notes payable		1,757,313			1,711,828
Other liabilities		1,080,945			1,012,029
Liabilities from discontinued operations (Refer to Note 5)		1,930			5,064

Total liabilities		31,247,720			28,829,313

Commitments and contingencies (Refer to Note 26)
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; 103,657,174 shares issued (2014 – 103,614,553) and 103,486,927 shares outstanding (2014 – 103,476,847)		1,037			1,036
Surplus		4,197,932			4,196,458
Retained earnings		327,613			253,717
Treasury stock – at cost, 170,247 shares (2014 – 137,706)		(5,222	)		(4,117	)
Accumulated other comprehensive loss, net of tax		(194,400	)		(229,872	)

Total stockholders’ equity		4,377,120			4,267,382

Total liabilities and stockholders’ equity	$	35,624,840		$	33,096,695

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended March 31,
(In thousands, except per share information)	2015			2014
Interest income:
Loans	$	355,631		$	377,602
Money market investments		1,446			973
Investment securities		30,301			35,127
Trading account securities		2,696			5,257

Total interest income		390,074			418,959

Interest expense:
Deposits		25,864			26,858
Short-term borrowings		1,734			9,040
Long-term debt		19,281			31,890

Total interest expense		46,879			67,788

Net interest income		343,195			351,171
Provision for loan losses - non-covered loans		29,711			54,122
Provision for loan losses - covered loans		10,324			25,714

Net interest income after provision for loan losses		303,160			271,335

Service charges on deposit accounts		39,017			39,359
Other service fees (Refer to Note 32)		53,626			52,818
Mortgage banking activities (Refer to Note 14)		12,852			3,678
Trading account profit		414			1,977
Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale		(79	)		4,393
Adjustments (expense) to indemnity reserves on loans sold		(4,526	)		(10,347	)
FDIC loss share income (expense) (Refer to Note 33)		4,139			(24,206	)
Other operating income		9,792			28,360

Total non-interest income		115,235			96,032

Operating expenses:
Personnel costs		116,458			104,301
Net occupancy expenses		21,709			21,360
Equipment expenses		13,411			11,412
Other taxes		8,574			13,663
Professional fees		75,528			66,999
Communications		6,176			6,685
Business promotion		10,813			11,386
FDIC deposit insurance		6,398			10,978
Other real estate owned (OREO) expenses		23,069			6,440
Other operating expenses		17,349			22,349
Amortization of intangibles		2,104			2,026
Restructuring costs		10,753			—

Total operating expenses		312,342			277,599

Income from continuing operations before income tax		106,053			89,768
Income tax expense		32,568			23,264

Income from continuing operations		73,485			66,504
Income from discontinued operations, net of tax		1,341			19,905

Net Income	$	74,826		$	86,409

Net Income Applicable to Common Stock	$	73,896		$	85,478

Net Income per Common Share – Basic
Net income from continuing operations		0.71			0.64
Net income from discontinued operations		0.01			0.19

Net Income per Common Share – Basic	$	0.72		$	0.83

Net Income per Common Share – Diluted
Net income from continuing operations		0.71			0.64
Net income from discontinued operations		0.01			0.19

Net Income per Common Share – Diluted	$	0.72		$	0.83

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Quarters ended March 31,
(In thousands)	2015			2014
Net income	$	74,826		$	86,409

Other comprehensive income before tax:
Foreign currency translation adjustment		(581	)		(2,115	)
Reclassification adjustment for losses included in net income		—			7,718
Amortization of net losses on pension and postretirement benefit plans		5,025			2,126
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		(950	)
Unrealized holding gains on investments arising during the period		35,342			27,582
Unrealized net losses on cash flow hedges		(2,535	)		(1,725	)
Reclassification adjustment for net losses included in net income		1,358			1,824

Other comprehensive income before tax		37,659			34,460
Income tax expense		(2,187	)		(1,990	)

Total other comprehensive income, net of tax		35,472			32,470

Comprehensive income, net of tax	$	110,298		$	118,879


Tax effect allocated to each component of other comprehensive income:	Quarters ended March 31,
(In thousands)	2015			2014
Amortization of net losses on pension and postretirement benefit plans		(1,960	)		(829	)
Amortization of prior service cost of pension and postretirement benefit plans		371			371
Unrealized holding gains on investments arising during the period		(1,057	)		(1,493	)
Unrealized net losses on cash flow hedges		989			672
Reclassification adjustment for net losses included in net income		(530	)		(711	)

Income tax expense	$	(2,187	)	$	(1,990	)

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


(In thousands)	Common stock		Preferred stock		Surplus		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total
Balance at December 31, 2013	$	1,034	$	50,160	$	4,170,152	$	594,430		$	(881	)	$	(188,745	)	$	4,626,150
Net income								86,409									86,409
Issuance of stock		1				1,665											1,666
Dividends declared:
Preferred stock								(931	)								(931	)
Common stock purchases											(17	)					(17	)
Other comprehensive income, net of tax														32,470			32,470

Balance at March 31, 2014	$	1,035	$	50,160	$	4,171,817	$	679,908		$	(898	)	$	(156,275	)	$	4,745,747

Balance at December 31, 2014	$	1,036	$	50,160	$	4,196,458	$	253,717		$	(4,117	)	$	(229,872	)	$	4,267,382
Net income								74,826									74,826
Issuance of stock		1				1,405											1,406
Tax windfall benefit on vesting of restricted stock						69											69
Common stock purchases																	—
Dividends declared:
Preferred stock								(930	)								(930	)
Common stock purchases											(1,123	)					(1,123	)
Common stock reissuance											18						18
Other comprehensive income, net of tax														35,472			35,472

Balance at March 31, 2015	$	1,037	$	50,160	$	4,197,932	$	327,613		$	(5,222	)	$	(194,400	)	$	4,377,120


Disclosure of changes in number of shares:	March 31, 2015			March 31, 2014
Preferred Stock:
Balance at beginning and end of period		2,006,391			2,006,391

Common Stock – Issued:
Balance at beginning of period		103,614,553			103,435,967
Issuance of stock		42,621			58,463

Balance at end of the period		103,657,174			103,494,430
Treasury stock		(170,247	)		(38,895	)

Common Stock – Outstanding		103,486,927			103,455,535

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Quarter ended March 31,
(In thousands)	2015			2014
Cash flows from operating activities:
Net income	$	74,826		$	86,409

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		40,035			73,072
Amortization of intangibles		2,104			2,504
Depreciation and amortization of premises and equipment		11,919			11,965
Net accretion of discounts and amortization of premiums and deferred fees		(19,100	)		(39,571	)
Fair value adjustments on mortgage servicing rights		4,929			8,096
FDIC loss share (income) expense		(4,139	)		24,206
Adjustments (expense) to indemnity reserves on loans sold		4,526			10,347
Earnings from investments under the equity method		(2,301	)		(16,930	)
Deferred income tax expense		23,380			13,898
(Gain) loss on:
Disposition of premises and equipment		(978	)		(1,671	)
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(7,222	)		(18,953	)
Sale of foreclosed assets, including write-downs		14,851			(1,199	)
Acquisitions of loans held-for-sale		(121,929	)		(76,125	)
Proceeds from sale of loans held-for-sale		27,547			45,115
Net originations on loans held-for-sale		(179,604	)		(179,057	)
Net (increase) decrease in:
Trading securities		177,942			218,997
Accrued income receivable		(13	)		5,641
Other assets		(28,027	)		(1,463	)
Net increase (decrease) in:
Interest payable		(10,216	)		(2,680	)
Pension and other postretirement benefits obligation		1,019			(1,562	)
Other liabilities		(19,377	)		(1,193	)

Total adjustments		(84,654	)		73,437

Net cash (used in) provided by operating activities		(9,828	)		159,846

Cash flows from investing activities:
Net increase in money market investments		(484,829	)		(763,980	)
Purchases of investment securities:
Available-for-sale		(411,189	)		(436,233	)
Held-to-maturity		(250	)		—
Other		(2,520	)		(34,768	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		385,672			194,949
Held-to-maturity		2,231			1,888
Other		30,785			49,964
Proceeds from sale of investment securities:
Other		1,388			—
Net repayments on loans		154,794			205,660
Proceeds from sale of loans		19,127			42,238
Acquisition of loan portfolios		(49,510	)		(201,385	)
Net payments from FDIC under loss sharing agreements		132,265			81,327
Net cash received and acquired from business combination		711,051			—
Mortgage servicing rights purchased		(2,400	)		—
Acquisition of premises and equipment		(10,231	)		(11,017	)
Proceeds from sale of:
Premises and equipment		3,093			6,385
Foreclosed assets		40,161			38,830

Net cash provided by (used in) investing activities		519,638			(826,142	)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		265,906			559,972
Federal funds purchased and assets sold under agreements to repurchase		(139,013	)		548,921
Other short-term borrowings		(148,215	)		(400,000	)
Payments of notes payable		(419,487	)		(110,514	)
Proceeds from issuance of notes payable		46,000			31,905
Proceeds from issuance of common stock		1,405			1,666
Dividends paid		(620	)		(931	)
Net payments for repurchase of common stock		(1,105	)		(17	)

Net cash (used in) provided by financing activities		(395,129	)		631,002

Net increase (decrease) in cash and due from banks		114,681			(35,294	)
Cash and due from banks at beginning of period		381,095			423,211

Cash and due from banks at the end of the period	$	495,776		$	387,917

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

The Consolidated Statements of Cash Flows for the quarters ended March 31, 2015 and 2014 include the cash flows from operating, investing and financing activities associated with discontinued operations.

Notes to Consolidated Financial

Statements (Unaudited)


Note 1 -	Nature of operations	10
Note 2 -	Basis of presentation and summary of significant accounting policies	11
Note 3 -	New accounting pronouncements	12
Note 4 -	Business combination	18
Note 5 -	Discontinued operations	21
Note 6 -	Restructuring plan	22
Note 7 -	Restrictions on cash and due from banks and certain securities	23
Note 8 -	Pledged assets	24
Note 9 -	Investment securities available-for-sale	25
Note 10 -	Investment securities held-to-maturity	29
Note 11 -	Loans	31
Note 12 -	Allowance for loan losses	41
Note 13 -	FDIC loss share asset and true-up payment obligation	60
Note 14 -	Mortgage banking activities	62
Note 15 -	Transfers of financial assets and mortgage servicing assets	63
Note 16 -	Other real estate owned	66
Note 17 -	Other assets	67
Note 18 -	Goodwill and other intangible assets	68
Note 19 -	Deposits	70
Note 20 -	Borrowings	71
Note 21 -	Offsetting of financial assets and liabilities	73
Note 22 -	Trust preferred securities	75
Note 23 -	Stockholders’ equity	76
Note 24 -	Other comprehensive loss	77
Note 25 -	Guarantees	79
Note 26 -	Commitments and contingencies	82
Note 27 -	Non-consolidated variable interest entities	88
Note 28 -	Related party transactions with affiliated company / joint venture	92
Note 29 -	Fair value measurement	95
Note 30 -	Fair value of financial instruments	100
Note 31 -	Net income per common share	107
Note 32 -	Other service fees	108
Note 33 -	FDIC loss share income (expense)	109
Note 34 -	Pension and postretirement benefits	110
Note 35 -	Stock-based compensation	111
Note 36 -	Income taxes	113
Note 37 -	Supplemental disclosure on the consolidated statements of cash flows	116
Note 38 -	Segment reporting	117
Note 39 -	Subsequent events	121
Note 40 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	122

Note 1 – 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. 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, New Jersey and South 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 (“PCB”). Refer to Note 5 for discussion of the sales of the California, Illinois and Central Florida regional operations during 2014. Note 38 to the consolidated financial statements presents information about the Corporation’s business segments.

On February 27, 2015, BPPR, in an alliance with co-bidders, including PCB, acquired certain assets and all deposits (other than certain brokered deposits) of Doral Bank (“Doral”) from the Federal Deposit Insurance Corporation (FDIC), as receiver (the “Doral Bank transaction”). Under the FDIC’s bidding format, BPPR was the lead bidder and party to the purchase and assumption agreement with the FDIC covering all assets and deposits acquired by it and its alliance co-bidders. BPPR entered into back to back purchase and assumption agreements with the alliance co-bidders for the transferred assets and deposits. The other co-bidders which formed part of the alliance led by BPPR were First Bank Puerto Rico, Centennial Bank, and a vehicle formed by J.C. Flowers III L.P. BPPR has entered into transition service agreements with each of the alliance co-bidders. Refer to Note 4 for further details on the Doral Bank transaction.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

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, 2014 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 2014 consolidated financial statements and notes to the financial statements to conform with the 2015 presentation. As discussed in Note 5, 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, 2014, included in the Corporation’s 2014 Annual Report (the “2014 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.

Business Combination

The Corporation determined that the acquisition of certain assets and assumption of certain liabilities in connection with the Doral Bank Transaction constitutes a business combination as defined by the Financial Accounting Standards Board (“FASB”) Codification (“ASC”) Topic 805 “Business Combinations”. The assets and liabilities, both tangible and intangible, were initially recorded at their estimated fair values. Fair values were determined based on the requirements of FASB Codification Topic 820 “Fair Value Measurements”. These fair value estimates are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair value becomes available. Acquisition-related costs are expensed as incurred. Refer to Note 4, Business Combination, for additional information of assets acquired and liabilities assumed in connection with this transaction.

Loans acquired as part of the Doral Bank Transaction

Loans acquired in a business acquisition are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.

Approximately $162 million of residential mortgage loans acquired as part of the Doral Bank Transaction were considered impaired. Accordingly, the Corporation applied the guidance of ASC Subtopic 310-30. Under this guidance, the loans acquired from the FDIC were aggregated into pools based on similar characteristics, including factors such as loan type, interest rate type, accruing status, and amortization type. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Under ASC Subtopic 310-30, the difference between the undiscounted cash flows expected at acquisition and the fair value in the loans, or the “accretable yield,” is recognized as interest income using the effective yield method over the estimated life of the loan if the timing and amount of the future cash flows of the pool is reasonably estimable. The non-accretable difference represents the difference between contractually required principal and interest and the cash flows expected to be collected. Subsequent to the acquisition date, increases in cash flows over those expected at the acquisition date are recognized as interest income prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses.

Note 3 – New accounting pronouncements

FASB Accounting Standards Update 2015-07, Fair Value Measurement – (Topic 820): Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”)

The FASB issued ASU 2015-07 in May 2015, which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Currently, investments valued using the practical expedient are categorized within the fair value hierarchy on the basis of whether the investment is redeemable with the investee at net asset value on the measurement date, never redeemable with the investee at net asset value, or redeemable with the investee at a future date. For investments that are redeemable with the investee at a future date, a reporting entity must take into account the length of time until those investments become redeemable to determine the classification within the fair value hierarchy. There is diversity in practice related to how certain investment measured at net asset value with redemption dates in the future are categorized within the fair value hierarchy.

The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient.

The amendments of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. Early adoption is permitted. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity’s financial statements.

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

FASB Accounting Standards Update 2015-05, Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”)

The FASB issued ASU 2015-05 in April 2015, which provides guidance about a customer’s accounting for fees paid in a cloud computing arrangement. The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance will not change the accounting for service contracts. All software licenses within the scope of ASC Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. Early adoption is permitted. An entity can adopt the amendments either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively.

The Corporation is currently evaluating the impact that the adoption of this accounting pronouncement will have on its consolidated financial statements.

FASB Accounting Standards Update 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets (“ASU 2015-04”)

The FASB issued ASU 2015-04 in April 2015, which simplifies the measurement of benefit plan assets and obligations. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this ASU provides a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan.

For an entity that has a significant event in an interim period that calls for a remeasurement of defined benefit plan assets and obligation, the amendments in this ASU also provide a practical expedient that permits the entity to remeasure define plan assets and obligations using the month-end that is closest to the date of the significant event.

An entity is required to disclose the accounting policy election and the date used to measure defined benefit plan assets and obligations in accordance with the amendments of this ASU. Employee benefit plans are not within the scope of these amendments.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. Early adoption is permitted. The amendments in this ASU should be applied prospectively.

The Corporation does not expect that the adoption of this accounting pronouncement will have a significant impact on its financial statements.

FASB Accounting Standards Update 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”)

The FASB issued ASU 2015-03 in April 2015, which simplifies the presentation of debt issuance costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts. Having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. The recognition and measurement guidance for debt issuance costs are not affected by the amendments of this Update.

The amendments of this Update are effective for financial statements issued for fiscal years beginning after December 31, 2015, and interim periods within fiscal years beginning after December 31, 2016. Early adoption is permitted for financial statements that have not been previously issued.

An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle.

The Corporation’s current policy is to record debt issuance costs as a deferred asset, and accordingly, it will need to reclassify this balance upon adoption. However, this balance sheet reclassification is not expected to have a material impact in the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2015-02, Consolidation (Topic 810): Amendment to the Consolidation Analysis (“ASU 2015-02”)

The FASB issued ASU 2015-02 in February 2015, which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments:

Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities

Eliminate the presumption that a general partner should consolidate a limited partnership

Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships

Provide a scope exception from consolidation guidance for reporting entities with interest in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustment should be reflected as of the beginning of the fiscal year of that includes that interim period.

The amendments may be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity may also apply the amendments of this ASU retrospectively.

The Corporation is currently evaluating the impact that the adoption of this accounting pronouncement will have on its consolidated financial statements.

FASB Accounting Standards Update 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items (“ASU 2015-01”)

The FASB issued ASU 2015-01 in January 2015, which eliminates from GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports the classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity is also required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.

Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary. This will alleviate uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately.

The presentation and disclosure guidance for items that are unusual in nature and occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. The amendments may be applied prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided is applied from the beginning of the fiscal year of adoption.

The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition, results of operations or presentation and disclosures.

FASB Accounting Standards Update 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is more Akin to Debt or to Equity (“ASU 2014-16”)

The FASB issued ASU 2014-16 in November 2014, which intends to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of a share. An entity should determine the nature of the host contract by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. In evaluating the stated and implied substantive terms and features, the existence or omission of any single term or feature does not necessarily determine the economic characteristics and risks of the host contract. Although an individual term or feature may weigh more heavily in the evaluation on the basis of facts and circumstances, an entity should use judgment based on an evaluation of all relevant terms and features.

The amendment in this ASU does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. An entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.

The amendments in the ASU are effective for annual periods, and interim periods within those annual periods, beginning in the first quarter of 2016. Early adoption is permitted. The effects of initially adopting the amendments of this ASU should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods.

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

FASB Accounting Standards Update 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability as a Going Concern (“ASU 2014-15”)

The FASB issued ASU 2014-15 in August 2014, which provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide the related footnote disclosures. These amendments should reduce diversity in the timing and content of footnote disclosures.

In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable).

When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application 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, results of operations or presentation and disclosures.

FASB Accounting Standards Update 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (“ASU 2014-14”)

The FASB issued ASU 2014-14 in August 2014, which intends to resolve the diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to receivables. This ASU address the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs.

The amendments of the ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

The loan has a government guarantee that is not separable from the loan before foreclosure.

At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

The amendments in the ASU are effective for annual periods, and interim periods within those annual periods, beginning in the first quarter of 2015. The amendments of this ASU can be applied using either a prospective transition method or a modified retrospective transition method. For prospective transition, an entity should apply the amendments in this Update to foreclosures that occur after the date of adoption. For modified retrospective transition, an entity should apply the amendments in this Update by means of a cumulative-effect adjustment as of the beginning of the annual period of adoption. Prior periods should not be adjusted. However, a reporting entity must apply the same method of transition as elected under ASU 2014-04.

The Corporation adopted this guidance in the first quarter of 2015 and it did not have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financial Entity (“ASU 2014-13”)

The FASB issued ASU 2014-13 in August 2014, which intends to clarify that when a reporting entity that consolidates a collateralized financing entity may elect to measure the financial assets and the financial liabilities of that collateralized financing entity using either the measurement alternative included in this Update or Topic 820 on fair value measurement. When the measurement alternative is not elected, the amendments of this Update clarify that the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and any differences in the fair value of the financial assets and the fair value of the financial liabilities of that entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income.

When a reporting entity elects the measurement alternative included in this Update for a collateralized financing entity, the reporting entity should measure both the financial assets and the financial liabilities of that entity in its consolidated financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted as of the beginning of an annual period. The amendments of this ASU can be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. A reporting entity also may apply the amendments retrospectively to all relevant prior periods beginning with the annual period in which the amendments of ASU 2009-17 were initially adopted.

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

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 adoption 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 adopted this guidance on the first quarter of 2015 and did not have a material effect on its consolidated statements of financial condition or results of operations. Refer to note 20, Borrowings, for additional disclosures provided upon the adoption of this accounting pronouncement.

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 were originally effective in the first quarter of 2017, however, on April 1, 2015, the FASB voted to propose a deferral of the effective date of this new revenue standard by one year until January 1, 2018, but to permit entities to adopt the standard as of the original effective date.

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 2014-08, 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.

The Corporation adopted the provisions of this guidance in the first quarter of 2015 and its adoption did not have a material effect on its consolidated statement of financial condition or result of operations.

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 adopted this guidance on the first quarter of 2015 and the adoption of this ASU did not have a material effect on its consolidated statements of financial condition or results of operations.

Note 4 – Business combination

On February 27, 2015, the Corporation’s Puerto Rico banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), in an alliance with co-bidders, including the Corporation’s U.S. mainland banking subsidiary, Banco Popular North America, doing business as Popular Community Bank (“PCB”), had acquired certain assets and all deposits (other than certain brokered deposits) of Doral Bank from the Federal Deposit Insurance Corporation (FDIC) as receiver.

Under the FDIC’s bidding format, BPPR was the lead bidder and party to the purchase and assumption agreement with the FDIC covering all assets and deposits to be acquired by it and its alliance co-bidders. BPPR entered into back to back purchase and assumption agreements with the alliance co-bidders for the transferred assets and deposits. The other co-bidders that formed part of the alliance led by BPPR are FirstBank Puerto Rico, Centennial Bank, and a vehicle formed by J.C. Flowers III LP. BPPR has entered into transition service agreements with each of the alliance co-bidders.

After taking into account the transfers to the unaffiliated alliance co-bidders, BPPR and PCB together assumed approximately $2.2 billion in deposits and acquired approximately $1.7 billion in commercial and residential loans.

BPPR assumed approximately $574 million in deposits associated with eight Puerto Rico branches of Doral Bank and approximately $425 million from its online deposit platform, and approximately $827 million in Puerto Rico residential and commercial loans.

PCB assumed approximately $1.2 billion in deposits in three New York branches of Doral Bank, and acquired approximately $891 million in commercial loans primarily in the New York metropolitan area.

On February 27, 2015, the FDIC, as receiver for Doral Bank, accepted BPPR’s bid for the purchase of the mortgage servicing rights on three pools of residential mortgage loans of approximately $5.0 billion in unpaid principal balance, for a purchase price currently estimated at $48.6 million. The transfers of the mortgage servicing rights are subject to a number of specified closing conditions, including the consent of each of Ginnie Mae, Fannie Mae and Freddie Mac in a form acceptable to BPPR, and other customary closing conditions.

There is no loss-sharing arrangement with the FDIC on the acquired assets.

The following table presents the fair values of major classes of identifiable assets acquired and liabilities assumed by the Corporation as of the February 27, 2015 acquisition date.


(In thousands)	Book value prior to purchase accounting adjustments		Fair value adjustments			Additional consideration^[1]		As recorded by Popular, Inc. on February 27, 2015
Assets:
Cash and due from banks	$	339,633	$	—		$	—	$	339,633
Investment in available-for-sale securities		172,706		—			—		172,706
Investments in FHLB stock		30,785		—			—		30,785
Loans		1,718,208		(52,452	)		—		1,665,756
Accrued income receivable		7,808		—			—		7,808
Receivable from the FDIC		—		—			439,112		439,112
Core deposit intangible		23,572		—			—		23,572
Other assets		67,676		9,688			—		77,364

Total assets	$	2,360,388	$	(42,764	)	$	439,112	$	2,756,736

Liabilities:
Deposits	$	2,193,404	$	8,051		$	—	$	2,201,455
Advances from the Federal Home Loan Bank		542,000		5,187			—		547,187
Other liabilities		50,728		—			—		50,728

Total liabilities	$	2,786,132	$	13,238		$	—	$	2,799,370

Excess of liabilities assumed over assets acquired	$	425,744
Aggregate fair value adjustments			$	(56,002	)

Additional consideration						$	439,112

Goodwill on acquisition								$	42,634

[1]	The additional consideration represents the cash to be received from the FDIC for the difference between the net liabilities assumed and the net premium paid on the transaction.

Other assets recorded as part of the Doral Bank Transaction include the fair value estimate of the contingent asset for the probable acquisition of approximately $57.6 million from the FDIC of mortgage servicing rights on three pools of residential mortgage loans of approximately $5.0 billion in unpaid principal balance. As discussed above, at March 31, 2015, these mortgage servicing rights were subject to a number of closing conditions. On April 23, 2015, BPPR closed the acquisition of Ginnie Mae mortgage servicing rights for a loan portfolio of approximately $2.7 billion in unpaid principal balance. BPPR is in negotiations for the transfers of the Fannie Mae and Freddie Mac mortgage servicing rights which are expected to be completed during the second quarter of 2015.

The fair values initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values becomes available. Because of the short time period between the February 27, 2015 closing of the transaction and the March 31, 2015 reporting date, the Corporation continues to analyze its estimates of fair value on loans and other assets acquired as well as the deposits and other liabilities assumed. As the Corporation finalizes its analyses of these assets and liabilities, there may be adjustments to the recorded carrying values, and thus the recognized goodwill may increase or decrease.

The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed on the Doral Bank Transaction:

Loans

Fair values for loans were based on a discounted cash flow methodology. Certain loans were valued individually, while other loans were valued as pools. Aggregation into pools considered characteristics such as loan type, payment term, rate type and accruing status. Principal and interest projections considered prepayment rates and credit loss expectations. The discount rates were developed based on the relative risk of the cash flows, taking into account principally the loan type, market rates as of the valuation date, liquidity expectations, and the expected life of the loans.

Goodwill

The amount of goodwill is the residual difference in the fair value of liabilities assumed and net consideration paid to the FDIC over the fair value of the assets acquired. The goodwill created by this transaction is driven by the deployment of capital with meaningful earnings accretion and significant cost savings opportunities. In addition to strengthening the Corporation’s Puerto Rico franchise, the transaction grows the U.S. business through the addition of an attractive commercial platform. The goodwill is deductible for income tax purposes. The goodwill from the Doral Bank Transaction was assigned to the BPPR and BPNA reportable segments based on the relative fair value of the assets acquired and liabilities assumed.

Core deposit intangible

This intangible asset represents the value of the relationships that Doral Bank had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the core deposit base, interest costs, and the net maintenance cost attributable to customer deposits, and the cost of alternative funds. The core deposit intangible asset will be amortized over a period of fifteen years.

Deposits

The fair values used for the demand deposits that comprise the transaction accounts acquired, which have no stated maturity and include non-interest bearing demand deposits, savings, NOW, and money market accounts, by definition equal the amount payable on demand at the reporting date. The fair values for time deposits were estimated using a discounted cash flow calculation that applies interest rates currently offered to comparable time deposits with similar maturities, and also accounts for the non-performance risk by using internally-developed models that consider, where applicable, the remaining term and the credit premium of the institution.

Deferred taxes

Deferred taxes relate to a difference between the financial statement and tax basis of the assets acquired and liabilities assumed in the transaction. Deferred taxes were reported based upon the principles in ASC Topic 740 “Income Taxes”, and were measured using the enacted statutory income tax rate to be in effect for BPPR and BPNA at the time the deferred tax is expected to reverse.

For income tax purposes, the Doral Bank Transaction was accounted for as an asset purchase and the tax bases of assets acquired were allocated based on fair values using a modified residual method. Under this method, the purchase price was allocated among the assets in order of liquidity (the most liquid first) up to its fair market value.

The operating results of the Corporation for the quarter March 31, 2015 include the operating results produced by the acquired assets and liabilities assumed for the period of February 28, 2015 to March 31, 2015. This includes approximately $14.0 million in gross revenues and approximately $14.5 million in operating expenses. The Corporation believes that given the amount of assets and liabilities assumed, the size of the operations acquired in relation to Popular’s operations and the significant amount of fair value adjustments, the historical results of Doral Bank are not meaningful to Popular’s results, and thus no pro forma information is presented.

Note 5 – Discontinued operations

During the year ended December 31, 2014, the Corporation completed the sale of its California, Illinois and Central Florida regional operations to three different buyers.

In connection with these transactions, the Corporation is relocating certain back office operations to Puerto Rico and New York. The Corporation incurred restructuring charges of $10.8 million during the quarter ended March 31, 2015. Additional restructuring charges amounting to approximately $12.6 million are expected to be incurred in the year 2015. Refer to Note 6, for restructuring charges incurred during the quarter ended March 31, 2015.

The regional operations sold 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 non-cash 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.

After the sale of these three regions, at March 31, 2015, there were no assets held within the discontinued operations. Liabilities within discontinued operations amounted to approximately $1.9 million, mainly comprised of the indemnity reserve related to the California regional sale.

The following table provides the components of net income from the discontinued operations for the quarters ended March 31, 2015 and 2014.


	Quarters ended March 31,
(In thousands)	2015			2014
Net interest income	$	—		$	21,797
Provision (reversal) for loan losses		—			(6,764	)
Other non-interest income		—			10,533

Total non-interest income		—			10,533

Operating expenses:
Personnel costs		—			8,852
Net occupancy expenses		—			4,331
Professional fees (reversal)		(1,341	)		2,793
Goodwill impairment charge		—			—
Other operating expenses		—			3,213

Total operating expenses		(1,341	)		19,189

Net income from discontinued operations	$	1,341		$	19,905

Note 6 – Restructuring plan

As discussed in Note 5, in connection with the sale of the operations of the California, Illinois and Central Florida regions, the Corporation is relocating certain back office operations, previously conducted in these regions, to 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 restructuring charges of approximately $50.1 million, of which approximately $26.7 million were incurred during 2014; $10.8 million during the first quarter of 2015 and the remaining $12.6 million are expected to be incurred during 2015. The remaining costs for 2015 are primarily related to $10.6 million in personnel related costs and $2.0 million in lease cancellations and other restructuring costs.

The following table details the expenses recorded by the Corporation that were associated with the PCB Restructuring Plan:


(In thousands)	Quarter ended March 31, 2015
Personnel costs	$	9,366
Net occupancy expenses		386
Equipment expenses		158
Professional fees		466
Other operating expenses		377

Total restructuring costs	$	10,753

The following table presents the activity in the reserve for the restructuring costs associated with the PCB Restructuring Plan:


(In thousands)
Balance at January 1, 2015	$	13,536
Charges expensed during the period		6,297
Payments made during the period		(9,030	)

Balance at March 31, 2015	$	10,803

Note 7 - 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 $ 1.1 billion at March 31, 2015 (December 31, 2014 - $ 1.0 billion). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

At March 31, 2015, the Corporation held $42 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, 2014 - $45 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 8 – Pledged assets

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


(In thousands)	March 31, 2015		December 31, 2014
Investment securities available-for-sale, at fair value	$	1,835,849	$	1,700,820
Investment securities held-to-maturity, at amortized cost		58,660		60,515
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		459,577		480,441
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,908,657		8,820,204

Total pledged assets	$	11,262,743	$	11,061,980

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

At March 31, 2015, the Corporation had $ 0.8 billion in investment securities available-for-sale and $ 0.7 billion in loans that served as collateral to secure public funds (December 31, 2014 - $ 0.7 billion and $ 0.7 billion, respectively).

At March 31, 2015, 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 $3.6 billion (December 31, 2014 - $3.7 billion). Refer to Note 20 to the consolidated financial statements for borrowings outstanding under these credit facilities. At March 31, 2015, the credit facilities authorized with the FHLB were collateralized by $ 4.5 billion in loans held-in-portfolio (December 31, 2014 - $ 4.5 billion). Also, at March 31, 2015, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $2.1 billion, which remained unused as of such date (December 31, 2014 - $2.1 billion). The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At March 31, 2015, the credit facilities with the Fed discount window were collateralized by $ 4.2 billion in loans held-in-portfolio (December 31, 2014 - $ 4.1 billion). These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statements of financial condition.

Note 9 – Investment securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at March 31, 2015 and December 31, 2014.


	At March 31, 2015
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	777,468	$	6,806	$	—	$	784,274		1.12	%

Total U.S. Treasury securities		777,468		6,806		—		784,274		1.12

Obligations of U.S. Government sponsored entities
Within 1 year		35,160		254		—		35,414		1.87
After 1 to 5 years		1,412,508		3,965		2,168		1,414,305		1.25
After 5 to 10 years		30,115		52		818		29,349		1.98
After 10 years		23,000		66		—		23,066		3.19

Total obligations of U.S. Government sponsored entities		1,500,783		4,337		2,986		1,502,134		1.31

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,758		—		1		2,757		3.83
After 1 to 5 years		7,036		—		189		6,847		4.10
After 5 to 10 years		16,662		—		3,075		13,587		6.68
After 10 years		48,843		2		14,672		34,173		6.22

Total obligations of Puerto Rico, States and political subdivisions		75,299		2		17,937		57,364		6.04

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		18,943		889		—		19,832		2.95
After 5 to 10 years		52,779		1,269		—		54,048		2.72
After 10 years		1,782,504		14,440		21,798		1,775,146		2.01

Total collateralized mortgage obligations - federal agencies		1,854,226		16,598		21,798		1,849,026		2.03

Mortgage-backed securities
After 1 to 5 years		24,869		1,318		—		26,187		4.68
After 5 to 10 years		140,493		7,319		3		147,809		3.51
After 10 years		1,120,062		49,715		1,400		1,168,377		3.37

Total mortgage-backed securities		1,285,424		58,352		1,403		1,342,373		3.41

Equity securities (without contractual maturity)		1,350		1,284		3		2,631		1.37

Other
After 1 to 5 years		9,187		12		—		9,199		1.69
After 5 to 10 years		1,658		44		—		1,702		3.62

Total other		10,845		56		—		10,901		1.99

Total investment securities available-for-sale	$	5,505,395	$	87,435	$	44,127	$	5,548,703		2.08	%


	At December 31, 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	$	698,003	$	2,226	$	75	$	700,154		1.14	%

Total U.S. Treasury securities		698,003		2,226		75		700,154		1.14

Obligations of U.S. Government sponsored entities
Within 1 year		42,140		380		—		42,520		1.61
After 1 to 5 years		1,603,245		1,168		9,936		1,594,477		1.26
After 5 to 10 years		67,373		58		2,271		65,160		1.72
After 10 years		23,000		—		184		22,816		3.18

Total obligations of U.S. Government sponsored entities		1,735,758		1,606		12,391		1,724,973		1.31

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,765		17		—		2,782		3.83
After 1 to 5 years		1,024		38		—		1,062		8.40
After 5 to 10 years		22,552		2		2,331		20,223		5.82
After 10 years		48,823		40		11,218		37,645		6.22

Total obligations of Puerto Rico, States and political subdivisions		75,164		97		13,549		61,712		6.04

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		3,687		87		—		3,774		2.66
After 5 to 10 years		25,202		985		—		26,187		2.93
After 10 years		1,905,763		13,109		38,803		1,880,069		2.03

Total collateralized mortgage obligations - federal agencies		1,934,652		14,181		38,803		1,910,030		2.04

Mortgage-backed securities
After 1 to 5 years		27,339		1,597		—		28,936		4.68
After 5 to 10 years		147,182		7,314		1		154,495		3.51
After 10 years		676,567		45,047		683		720,931		3.93

Total mortgage-backed securities		851,088		53,958		684		904,362		3.88

Equity securities (without contractual maturity)		1,351		1,271		—		2,622		5.03

Other
After 1 to 5 years		9,277		10		—		9,287		1.69
After 5 to 10 years		1,957		62		—		2,019		3.63

Total other		11,234		72		—		11,306		2.03

Total investment securities available-for-sale	$	5,307,250	$	73,411	$	65,502	$	5,315,159		2.04	%

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

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

There were no securities sold during the quarters ended March 31, 2015 and 2014.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2015 and December 31, 2014.


	At March 31, 2015
	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		195,562		706		272,535		2,280		468,097		2,986
Obligations of Puerto Rico, States and political subdivisions		16,408		4,104		37,885		13,833		54,293		17,937
Collateralized mortgage obligations - federal agencies		137,117		988		967,570		20,810		1,104,687		21,798
Mortgage-backed securities		238,052		1,016		24,720		387		262,772		1,403
Equity securities		47		3		—		—		47		3

Total investment securities available-for-sale in an unrealized loss position	$	587,186	$	6,817	$	1,302,710	$	37,310	$	1,889,896	$	44,127


	At December 31, 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
U.S. Treasury securities	$	49,465	$	75	$	—	$	—	$	49,465	$	75
Obligations of U.S. Government sponsored entities		888,325		6,866		429,835		5,525		1,318,160		12,391
Obligations of Puerto Rico, States and political subdivisions		14,419		3,031		41,084		10,518		55,503		13,549
Collateralized mortgage obligations - federal agencies		539,658		13,774		733,814		25,029		1,273,472		38,803
Mortgage-backed securities		457		4		25,486		680		25,943		684

Total investment securities available-for-sale in an unrealized loss position	$	1,492,324	$	23,750	$	1,230,219	$	41,752	$	2,722,543	$	65,502

As of March 31, 2015, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $44 million, driven by U.S. Agency Collateralized Mortgage Obligations and obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all US Agencies’ securities, management considers the U.S. 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. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain Puerto Rico public corporations to restructure their debt.

On February 12, 2015, S&P further downgraded the debt rating of the Commonwealth general obligation bonds and of various public instrumentalities. S&P stated that, in their view, Puerto Rico’s current economic and financial trajectory is now more susceptible to adverse financial, economic and market conditions that could ultimately impair the Commonwealth’s ability to fund services and its debt commitments. S&P also cited implementation risk with respect to the value-added tax and expressed concern that, while higher taxes could improve the budget balance, there could be potential negative economic implications. On February 19, 2015, Moody’s also downgraded its debt ratings for the Commonwealth general obligation bonds and of various public instrumentalities, citing similar concerns as S&P. On April 27, 2015, S&P cut General Obligation ratings to CCC+ from B with negative implications. The ratings firm attributed the downgrade to a reduced possibility of the Commonwealth accessing the bond markets and heightened budget pressures exacerbated by current weak economic trends and high debt levels. The portfolio of obligations of the Puerto Rico Government is mostly 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 March 31, 2015, 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. However, further negative evidence impacting the liquidity and sources of repayment of the “Obligations of Puerto Rico, States and political subdivisions”, could result in a charge to earnings to recognize estimated credit losses determined to be other-than-temporary. At March 31, 2015, 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.


	March 31, 2015				December 31, 2014
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,008,358	$	2,015,810	$	1,746,807	$	1,736,987
FHLB		538,493		538,874		737,149		732,894
Freddie Mac		1,161,089		1,163,815		1,117,865		1,112,485

Note 10 – 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 March 31, 2015 and December 31, 2014.


	At March 31, 2015
(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	$	2,865	$	—	$	106	$	2,759		5.88	%
After 1 to 5 years		13,400		—		2,296		11,104		5.97
After 5 to 10 years		20,310		—		6,400		13,910		6.12
After 10 years		63,429		3,906		7,400		59,935		2.14

Total obligations of Puerto Rico, States and political subdivisions		100,004		3,906		16,202		87,708		3.57

Collateralized mortgage obligations - federal agencies
After 5 to 10 years		91		5		—		96		5.45

Total collateralized mortgage obligations - federal agencies		91		5		—		96		5.45

Other
After 1 to 5 years		1,500		—		—		1,500		1.16

Total other		1,500		—		—		1,500		1.16

Total investment securities held-to-maturity	$	101,595	$	3,911	$	16,202	$	89,304		3.54	%


	At December 31, 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	$	2,740	$	—	$	8	$	2,732		5.84	%
After 1 to 5 years		12,830		—		764		12,066		5.95
After 5 to 10 years		21,325		—		6,003		15,322		6.09
After 10 years		64,678		3,342		5,543		62,477		2.22

Total obligations of Puerto Rico, States and political subdivisions		101,573		3,342		12,318		92,597		3.60

Collateralized mortgage obligations - federal agencies
After 5 to 10 years		97		5		—		102		5.45

Total collateralized mortgage obligations - federal agencies		97		5		—		102		5.45

Other
Within 1 year		250		—		—		250		1.33
After 1 to 5 years		1,250		—		—		1,250		1.10

Total other		1,500		—		—		1,500		1.14

Total investment securities held-to-maturity	$	103,170	$	3,347	$	12,318	$	94,199		3.57	%

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

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2015 and December 31, 2014.


	At March 31, 2015
	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	$	619	$	6	$	42,089	$	16,196	$	42,708	$	16,202

Total investment securities held-to-maturity in an unrealized loss position	$	619	$	6	$	42,089	$	16,196	$	42,708	$	16,202


	At December 31, 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	$	373	$	2	$	45,969	$	12,316	$	46,342	$	12,318

Total investment securities held-to-maturity in an unrealized loss position	$	373	$	2	$	45,969	$	12,316	$	46,342	$	12,318

As indicated in Note 9 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at March 31, 2015 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $59 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. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain 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 11 – 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 single-family residential mortgage loans, as explained in Note 13.

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 2014 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at March 31, 2015 and December 31, 2014.


(In thousands)	March 31, 2015		December 31, 2014
Commercial multi-family	$	565,736	$	487,280
Commercial real estate non-owner occupied		2,800,673		2,526,146
Commercial real estate owner occupied		1,643,186		1,667,267
Commercial and industrial		3,643,966		3,453,574
Construction		690,728		251,820
Mortgage		7,189,227		6,502,886
Leasing		581,119		564,389
Legacy^[2]		77,675		80,818
Consumer:
Credit cards		1,128,611		1,155,229
Home equity lines of credit		357,508		366,162
Personal		1,353,594		1,375,452
Auto		782,635		767,369
Other		198,272		206,059

Total loans held-in-portfolio^[1]	$	21,012,930	$	19,404,451

[1]	Non-covered loans held-in-portfolio at March 31, 2015 are net of $97 million in unearned income and exclude $161 million in loans held-for-sale (December 31, 2014 - $94 million in unearned income and $106 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 March 31, 2015 and December 31, 2014.


(In thousands)	March 31, 2015		December 31, 2014
Commercial real estate	$	1,470,575	$	1,511,472
Commercial and industrial		100,572		103,309
Construction		57,825		70,336
Mortgage		795,477		822,986
Consumer		32,103		34,559

Total covered loans held-in-portfolio	$	2,456,552	$	2,542,662

The following table provides a breakdown of loans held-for-sale (“LHFS”) at March 31, 2015 and December 31, 2014 by main categories.


(In thousands)	March 31, 2015		December 31, 2014
Commercial	$	8,240	$	309
Legacy		—		319
Mortgage		152,362		100,166
Consumer		—		5,310

Total loans held-for-sale	$	160,602	$	106,104

During the quarter ended March 31, 2015, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $169 million (2014 - $161 million) excluding the impact of the Doral Bank Transaction. Additionally, the Corporation did not purchase consumer and commercial loans during the quarter ended March 31, 2015 (March 31, 2014 - $92 million and $21 million, respectively). The Corporation recorded purchases amounting to $164 thousand of lease financing during the quarter ended March 31, 2015 (March 31, 2014 - $0 million).

The Corporation performed whole-loan sales involving approximately $39 million of residential mortgage loans during the quarter ended March 31, 2015 (March 31, 2014 - $43 million). Also, during the quarter ended March 31, 2015, the Corporation securitized approximately $156 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities and $47 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities, compared to $166 million and $63 million, respectively, during the quarter ended March 31, 2014. The Corporation sold commercial and construction loans with a book value of approximately $1 million during the quarter ended March 31, 2015 (March 31, 2014 - $30 million). In addition, the Corporation sold $5 million in consumer loans during the quarter ended March 31, 2015 (March 31, 2014 - $0 million).

Non-covered loans

The following tables present non-covered loans held-in-portfolio by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at March 31, 2015 and 2014. 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. Accruing loans past due 90 days or more also include 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. In addition, at December 31, 2014 accruing loans past due 90 days or more include residential conventional loans purchased from another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At March 31, 2015
	Puerto Rico				U.S. mainland				Popular, Inc.
(In thousands)	Non-accrual loans [1]		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	$	2,040	$	—	$	249	$	—	$	2,289	$	—
Commercial real estate non-owner occupied		38,888		—		—		—		38,888		—
Commercial real estate owner occupied		91,762		—		778		—		92,540		—
Commercial and industrial		131,941		466		8,780		—		140,721		466
Construction		13,214		—		—		—		13,214		—
Mortgage^[3]		320,154		428,827		8,461		—		328,615		428,827
Leasing		2,506		—		—		—		2,506		—
Legacy		—		—		2,288		—		2,288		—
Consumer:
Credit cards		—		20,570		477		—		477		20,570
Home equity lines of credit		—		195		4,653		—		4,653		195
Personal		23,843		—		1,246		—		25,089		—
Auto		11,108		—		—		—		11,108		—
Other		2,561		952		4		—		2,565		952

Total^[2]	$	638,017	$	451,010	$	26,936	$	—	$	664,953	$	451,010

[1]

Non-covered loans of $58 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.

[2]	For purposes of this table non-performing loans exclude $ 8 million in non-performing loans held-for-sale.

[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 $134 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of March 31, 2015. Furthermore, the Corporation has approximately $69 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.


At December 31, 2014
	Puerto Rico				U.S. mainland				Popular, Inc.
(In thousands)	Non-accrual loans [1]		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	$	2,199	$	—	$	—	$	—	$	2,199	$	—
Commercial real estate non-owner occupied		33,452		—		—		—		33,452		—
Commercial real estate owner occupied		92,648		—		805		—		93,453		—
Commercial and industrial		129,611		494		1,510		—		131,121		494
Construction		13,812		—		—		—		13,812		—
Mortgage^[3]		295,629		426,387		9,284		—		304,913		426,387
Leasing		3,102		—		—		—		3,102		—
Legacy		—		—		1,545		—		1,545		—
Consumer:
Credit cards		—		20,368		449		—		449		20,368
Home equity lines of credit		—		21		4,090		—		4,090		21
Personal		25,678		10		1,410		—		27,088		10
Auto		11,387		—		—		—		11,387		—
Other		3,865		682		7		—		3,872		682

Total^[2]	$	611,383	$	447,962	$	19,100	$	—	$	630,483	$	447,962

[1]

Non-covered loans by $59 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.

[2]	For purposes of this table non-performing loans exclude $ 19 million in non-performing loans held-for-sale.

[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 $125 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, 2014. Furthermore, the Corporation has approximately $66 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 March 31, 2015 and December 31, 2014 for non-covered loans held-in-portfolio (net of unearned income).


March 31, 2015
Puerto Rico
	Past due										Non-covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Puerto Rico
Commercial multi-family	$	—	$	—	$	2,040	$	2,040	$	87,493	$	89,533
Commercial real estate non-owner occupied		44,939		2,193		39,002		86,134		2,056,220		2,142,354
Commercial real estate owner occupied		11,716		2,765		91,762		106,243		1,323,446		1,429,689
Commercial and industrial		15,412		1,651		132,407		149,470		2,590,463		2,739,933
Construction		608		—		13,214		13,822		84,884		98,706
Mortgage		334,537		167,235		807,018		1,308,790		4,862,457		6,171,247
Leasing		7,570		1,518		2,506		11,594		569,525		581,119
Consumer:
Credit cards		12,504		9,359		20,570		42,433		1,072,071		1,114,504
Home equity lines of credit		—		—		195		195		11,968		12,163
Personal		13,132		6,974		24,083		44,189		1,200,892		1,245,081
Auto		31,933		7,325		11,108		50,366		732,182		782,548
Other		678		300		3,520		4,498		193,412		197,910

Total	$	473,029	$	199,320	$	1,147,425	$	1,819,774	$	14,785,013	$	16,604,787


March 31, 2015
U.S. mainland
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	204	$	—	$	249	$	453	$	475,750	$	476,203
Commercial real estate non-owner occupied		50		—		—		50		658,269		658,319
Commercial real estate owner occupied		3,599		—		778		4,377		209,120		213,497
Commercial and industrial		1,276		236		8,780		10,292		893,741		904,033
Construction		671		—		—		671		591,351		592,022
Mortgage		27,211		5,043		8,461		40,715		977,265		1,017,980
Legacy		3,713		594		2,288		6,595		71,080		77,675
Consumer:
Credit cards		267		119		477		863		13,244		14,107
Home equity lines of credit		3,858		1,081		4,653		9,592		335,753		345,345
Personal		2,008		659		1,246		3,913		104,600		108,513
Auto		—		—		—		—		87		87
Other		—		—		4		4		358		362

Total	$	42,857	$	7,732	$	26,936	$	77,525	$	4,330,618	$	4,408,143


March 31, 2015
Popular, Inc.
	Past due										Non-covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Popular, Inc.
Commercial multi-family	$	204	$	—	$	2,289	$	2,493	$	563,243	$	565,736
Commercial real estate non-owner occupied		44,989		2,193		39,002		86,184		2,714,489		2,800,673
Commercial real estate owner occupied		15,315		2,765		92,540		110,620		1,532,566		1,643,186
Commercial and industrial		16,688		1,887		141,187		159,762		3,484,204		3,643,966
Construction		1,279		—		13,214		14,493		676,235		690,728
Mortgage		361,748		172,278		815,479		1,349,505		5,839,722		7,189,227
Leasing		7,570		1,518		2,506		11,594		569,525		581,119
Legacy		3,713		594		2,288		6,595		71,080		77,675
Consumer:
Credit cards		12,771		9,478		21,047		43,296		1,085,315		1,128,611
Home equity lines of credit		3,858		1,081		4,848		9,787		347,721		357,508
Personal		15,140		7,633		25,329		48,102		1,305,492		1,353,594
Auto		31,933		7,325		11,108		50,366		732,269		782,635
Other		678		300		3,524		4,502		193,770		198,272

Total	$	515,886	$	207,052	$	1,174,361	$	1,897,299	$	19,115,631	$	21,012,930


December 31, 2014
Puerto Rico
	Past due										Non-covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Puerto Rico
Commercial multi-family	$	221	$	69	$	2,199	$	2,489	$	77,588	$	80,077
Commercial real estate non-owner occupied		9,828		121		33,452		43,401		1,970,178		2,013,579
Commercial real estate owner occupied		8,954		7,709		92,648		109,311		1,364,051		1,473,362
Commercial and industrial		18,498		5,269		130,105		153,872		2,653,913		2,807,785
Construction		2,497		—		13,812		16,309		143,075		159,384
Mortgage		304,319		167,219		780,678		1,252,216		4,198,285		5,450,501
Leasing		6,779		1,246		3,102		11,127		553,262		564,389
Consumer:
Credit cards		13,715		9,290		20,368		43,373		1,096,791		1,140,164
Home equity lines of credit		137		159		21		317		13,083		13,400
Personal		13,479		6,646		25,688		45,813		1,216,720		1,262,533
Auto		34,238		8,397		11,387		54,022		713,274		767,296
Other		1,009		209		4,547		5,765		199,879		205,644

Total	$	413,674	$	206,334	$	1,118,007	$	1,738,015	$	14,200,099	$	15,938,114


December 31, 2014
U.S. mainland
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	87	$	376	$	—	$	463	$	406,740	$	407,203
Commercial real estate non-owner occupied		1,478		—		—		1,478		511,089		512,567
Commercial real estate owner occupied		45		3,631		805		4,481		189,424		193,905
Commercial and industrial		1,133		123		1,510		2,766		643,023		645,789
Construction		810		—		—		810		91,626		92,436
Mortgage		29,582		8,646		9,284		47,512		1,004,873		1,052,385
Legacy		929		1,931		1,545		4,405		76,413		80,818
Consumer:
Credit cards		314		246		449		1,009		14,056		15,065
Home equity lines of credit		5,036		1,025		4,090		10,151		342,611		352,762
Personal		2,476		893		1,410		4,779		108,140		112,919
Auto		—		—		—		—		73		73
Other		10		4		7		21		394		415

Total	$	41,900	$	16,875	$	19,100	$	77,875	$	3,388,462	$	3,466,337


December 31, 2014
Popular, Inc.
	Past due										Non-covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Popular, Inc.
Commercial multi-family	$	308	$	445	$	2,199	$	2,952	$	484,328	$	487,280
Commercial real estate non-owner occupied		11,306		121		33,452		44,879		2,481,267		2,526,146
Commercial real estate owner occupied		8,999		11,340		93,453		113,792		1,553,475		1,667,267
Commercial and industrial		19,631		5,392		131,615		156,638		3,296,936		3,453,574
Construction		3,307		—		13,812		17,119		234,701		251,820
Mortgage		333,901		175,865		789,962		1,299,728		5,203,158		6,502,886
Leasing		6,779		1,246		3,102		11,127		553,262		564,389
Legacy		929		1,931		1,545		4,405		76,413		80,818
Consumer:
Credit cards		14,029		9,536		20,817		44,382		1,110,847		1,155,229
Home equity lines of credit		5,173		1,184		4,111		10,468		355,694		366,162
Personal		15,955		7,539		27,098		50,592		1,324,860		1,375,452
Auto		34,238		8,397		11,387		54,022		713,347		767,369
Other		1,019		213		4,554		5,786		200,273		206,059

Total	$	455,574	$	223,209	$	1,137,107	$	1,815,890	$	17,588,561	$	19,404,451

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at March 31, 2015 and December 31, 2014 by main categories.


(In thousands)	March 31, 2015		December 31, 2014
Commercial	$	8,179	$	309
Mortgage		225		14,041
Consumer		—		4,549

Total	$	8,404	$	18,899

The following table presents loans acquired as part of the Doral transaction accounted for pursuant to ASC Subtopic 310-30 at the February 27, 2015 acquisition date.


(In thousands)
Contractually-required principal and interest	$	233,987
Non-accretable difference		43,904

Cash flows expected to be collected		190,083
Accretable yield		46,150

Fair value of loans accounted for under ASC Subtopic 310-30	$	143,933

The following table presents acquired loans accounted for under ASC subtopic 310-20 as of the February 27, 2015 acquisition date:


(In thousands)
Fair value of loans accounted under ASC Subtopic 310-20	$	1,521,524

Gross contractual amounts receivable (principal and interest)	$	2,014,755

Estimate of contractual cash flows not expected to be collected	$	39,348

The outstanding principal balance of non-covered loans accounted pursuant to ASC Subtopic 310-30, amounted to $413 million at March 31, 2015 (December 31, 2014 - $243 million). At March 31, 2015, 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 ended March 31, 2015 and 2014 were as follows:


Activity in the accretable yield - Non-covered loans ASC 310-30
	For the quarters ended
(In thousands)	March 31, 2015 [1]			March 31, 2014
Beginning balance	$	116,304		$	49,398
Additions		50,662			7,084
Accretion		(3,223	)		(2,374	)
Change in expected cash flows		(5,319	)		13,177

Ending balance	$	158,424		$	67,285

[1]	Includes loans acquired in the Doral Bank transaction.


Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
(In thousands)	March 31, 2015 [1]			March 31, 2014
Beginning balance	$	212,763		$	173,659
Additions		157,091			20,042
Accretion		3,223			2,374
Collections and charge-offs		(9,980	)		(5,859	)

Ending balance	$	363,097		$	190,216
Allowance for loan losses ASC 310-30 non-covered loans		(16,092	)		(15,078	)

Ending balance, net of allowance for loan losses	$	347,005		$	175,138

[1]	Includes loans acquired in the Doral Bank transaction.

Covered loans

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at March 31, 2015 and December 31, 2014.


	March 31, 2015				December 31, 2014
(In thousands)	Non-accrual loans		Accruing loans past due 90 days or more		Non-accrual loans		Accruing loans past due 90 days or more
Commercial real estate	$	7,375	$	—	$	8,810	$	—
Commercial and industrial		4,179		—		1,142		—
Construction		2,627		—		2,770		—
Mortgage		5,075		25		4,376		28
Consumer		398		—		735		—

Total^[1]	$	19,654	$	25	$	17,833	$	28

[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 March 31, 2015 and December 31, 2014 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.


March 31, 2015
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP
Commercial real estate	$	48,825	$	3,666	$	255,571	$	308,062	$	1,162,513	$	1,470,575
Commercial and industrial		515		211		9,045		9,771		90,801		100,572
Construction		—		2,420		46,517		48,937		8,888		57,825
Mortgage		41,509		24,033		131,139		196,681		598,796		795,477
Consumer		1,720		1,058		2,039		4,817		27,286		32,103

Total covered loans	$	92,569	$	31,388	$	444,311	$	568,268	$	1,888,284	$	2,456,552


December 31, 2014
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP
Commercial real estate	$	98,559	$	12,597	$	291,010	$	402,166	$	1,109,306	$	1,511,472
Commercial and industrial		512		7		7,756		8,275		95,034		103,309
Construction		—		384		58,665		59,049		11,287		70,336
Mortgage		45,764		23,531		143,140		212,435		610,551		822,986
Consumer		1,884		747		2,532		5,163		29,396		34,559

Total covered loans	$	146,719	$	37,266	$	503,103	$	687,088	$	1,855,574	$	2,542,662

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.


	March 31, 2015									December 31, 2014
	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	$	1,367,926		$	80,924		$	1,448,850		$	1,392,482		$	90,202		$	1,482,684
Commercial and industrial		54,709			1,788			56,497			57,059			2,197			59,256
Construction		24,252			28,574			52,826			32,836			32,409			65,245
Mortgage		740,653			42,795			783,448			764,148			45,829			809,977
Consumer		24,241			1,234			25,475			25,617			1,393			27,010

Carrying amount		2,211,781			155,315			2,367,096			2,272,142			172,030			2,444,172
Allowance for loan losses		(49,750	)		(18,636	)		(68,386	)		(52,798	)		(26,048	)		(78,846	)

Carrying amount, net of allowance	$	2,162,031		$	136,679		$	2,298,710		$	2,219,344		$	145,982		$	2,365,326

The outstanding principal balance of covered loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.9 billion at March 31, 2015 (December 31, 2014 - $3.1 billion). At March 31, 2015, 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 March 31, 2015 and 2014, were as follows:


	Activity in the accretable yield
	Covered loans ASC 310-30
	For the quarters ended
	March 31, 2015									March 31, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,265,752		$	5,585		$	1,271,337		$	1,297,725		$	11,480		$	1,309,205
Accretion		(53,776	)		(1,921	)		(55,697	)		(72,552	)		(6,566	)		(79,118	)
Change in expected cash flows		42,273			1,035			43,308			(12,467	)		592			(11,875	)

Ending balance	$	1,254,249		$	4,699		$	1,258,948		$	1,212,706		$	5,506		$	1,218,212


	Carrying amount of covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
	March 31, 2015 [1]									March 31, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	2,272,142		$	172,030		$	2,444,172		$	2,509,075		$	318,872		$	2,827,947
Accretion		53,776			1,921			55,697			72,552			6,566			79,118
Collections and charge-offs		(114,137	)		(18,636	)		(132,773	)		(112,174	)		(61,769	)		(173,943	)

Ending balance	$	2,211,781		$	155,315		$	2,367,096		$	2,469,453		$	263,669		$	2,733,122
Allowance for loan losses ASC 310-30 covered loans		(49,750	)		(18,636	)		(68,386	)		(56,953	)		(33,418	)		(90,371	)

Ending balance, net of ALLL	$	2,162,031		$	136,679		$	2,298,710		$	2,412,500		$	230,251		$	2,642,751

[1]	Includes $64 million of non-covered loans accounted for pursuant to ASC 310-30.

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 March 31, 2015 (December 31, 2014 - $0.1 billion).

Note 12 – 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, 2014, the Corporation eliminated the use of caps in the recent loss trend adjustment for the consumer and mortgage portfolios, among other enhancements. 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 March 31, 2015, 59% (March 31, 2014 - 34%) 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 mortgage, leasing, credit cards, personal loans and revolving loan portfolio for 2015, and in the commercial multi-family, mortgage, personal and auto loan portfolios for 2014.

For the period ended March 31, 2015, 13% (March 31, 2014 - 23%) 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 consumer loan portfolios for 2015 and in the commercial multi-family, commercial and industrial, construction and legacy loan portfolios for 2014.

•

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.

The following tables present the changes in the allowance for loan losses for the quarters ended March 31, 2015 and 2014.


For the quarter ended March 31, 2015
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	201,589		$	5,483		$	120,860		$	7,131		$	154,072		$	489,135
Provision (reversal of provision)		(1,321	)		(6,813	)		16,192			846			23,009			31,913
Charge-offs		(9,572	)		—			(10,973	)		(1,237	)		(29,699	)		(51,481	)
Recoveries		4,770			2,925			500			468			6,046			14,709

Ending balance	$	195,466		$	1,595		$	126,579		$	7,208		$	153,428		$	484,276


For the quarter ended March 31, 2015
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing		Consumer			Total
Allowance for credit losses:
Beginning balance	$	30,871		$	7,202		$	40,948		$	—	$	3,052		$	82,073
Provision (reversal of provision)		1,995			6,276			2,802			—		(749	)		10,324
Charge-offs		(14,239	)		(9,046	)		(3,386	)		—		—			(26,671	)
Recoveries		2,640			3,275			105			—		727			6,747

Ending balance	$	21,267		$	7,707		$	40,469		$	—	$	3,030		$	72,473


For the quarter ended March 31, 2015
U.S. Mainland
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	9,648		$	1,187	$	2,462		$	2,944		$	14,343		$	30,584
Provision (reversal of provision)		299			662		(6,127	)		(1,810	)		4,774			(2,202	)
Charge-offs		(450	)		—		(221	)		(474	)		(2,518	)		(3,663	)
Recoveries		929			—		67			2,302			1,251			4,549
Net recoveries (write-down)		—			—		6,081			—			(3,401	)		2,680

Ending balance	$	10,426		$	1,849	$	2,262		$	2,962		$	14,449		$	31,948


For the quarter ended March 31, 2015
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	242,108		$	13,872		$	164,270		$	2,944		$	7,131		$	171,467		$	601,792
Provision (reversal of provision)		973			125			12,867			(1,810	)		846			27,034			40,035
Charge-offs		(24,261	)		(9,046	)		(14,580	)		(474	)		(1,237	)		(32,217	)		(81,815	)
Recoveries		8,339			6,200			672			2,302			468			8,024			26,005
Net recoveries (write-down)		—			—			6,081			—			—			(3,401	)		2,680

Ending balance	$	227,159		$	11,151		$	169,310		$	2,962		$	7,208		$	170,907		$	588,697


For the quarter ended March 31, 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)		11,157			(1,394	)		15,982			517			27,653			53,915
Charge-offs		(22,117	)		(416	)		(8,726	)		(967	)		(29,196	)		(61,422	)
Recoveries		6,944			1,794			210			311			6,213			15,472

Ending balance	$	124,134		$	5,079		$	137,796		$	10,483		$	157,248		$	434,740


For the quarter ended March 31, 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)		4,039			17,567			4,498			—		(390	)		25,714
Charge-offs		(7,968	)		(22,981	)		(1,656	)		—		295			(32,310	)
Recoveries		320			1,889			—			—		68			2,277

Ending balance	$	38,589		$	15,966		$	38,848		$	—	$	4,370		$	97,773


For the quarter ended March 31, 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
Provision (reversal of provision)		578			(194	)		(562	)		(3,672	)		4,057			207
Charge-offs		(4,991	)		—			(1,538	)		(2,984	)		(5,076	)		(14,589	)
Recoveries		3,004			176			668			7,193			707			11,748

Ending balance	$	31,505		$	196		$	25,167		$	11,872		$	18,893		$	87,633


For the quarter ended March 31, 2014
U.S. Mainland - Discontinued Operations
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	21,902		$	33		$	—		$	2,369		$	5,101		$	29,405
Allowance transferred to continuing operations		(7,984	)		—			—			—			—			(7,984	)
Provision (reversal of provision)		(2,831	)		(226	)		—			(1,812	)		(1,895	)		(6,764	)
Charge-offs		(2,995	)		—			—			(557	)		(900	)		(4,452	)
Recoveries		8,283			220			—			1,400			94			9,997

Ending balance	$	16,375		$	27		$	—		$	1,400		$	2,400		$	20,202


For the quarter ended March 31, 2014
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	217,180		$	24,833		$	192,935		$	13,704		$	10,622		$	181,281		$	640,555
Provision (reversal of provision)		12,943			15,753			19,918			(5,484	)		517			29,425			73,072
Charge-offs		(38,071	)		(23,397	)		(11,920	)		(3,541	)		(967	)		(34,877	)		(112,773	)
Recoveries		18,551			4,079			878			8,593			311			7,082			39,494

Ending balance	$	210,603		$	21,268		$	201,811		$	13,272		$	10,483		$	182,911		$	640,348

The following table provides the activity in the allowance for loan losses related to covered loans accounted for pursuant to ASC Subtopic 310-30.


	ASC 310-30 Covered loans
	For the quarters ended
(In thousands)	March 31, 2015			March 31, 2014
Balance at beginning of period	$	78,846		$	93,915
Provision for loan losses		8,601			24,555
Net charge-offs		(19,061	)		(28,099	)

Balance at end of period	$	68,386		$	90,371

The following tables present information at March 31, 2015 and December 31, 2014 regarding loan ending balances and the allowance for loan losses by portfolio segment and whether such loans and the allowance pertains to loans individually or collectively evaluated for impairment.


At March 31, 2015
Puerto Rico
(In thousands)	Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Specific ALLL non-covered loans	$	69,946	$	158	$	42,229	$	687	$	25,223	$	138,243
General ALLL non-covered loans		125,520		1,437		84,350		6,521		128,205		346,033

ALLL - non-covered loans		195,466		1,595		126,579		7,208		153,428		484,276

Specific ALLL covered loans		1,473		—		—		—		—		1,473
General ALLL covered loans		19,794		7,707		40,469		—		3,030		71,000

ALLL - covered loans		21,267		7,707		40,469		—		3,030		72,473

Total ALLL	$	216,733	$	9,302	$	167,048	$	7,208	$	156,458	$	556,749


Loans held-in-portfolio:
Impaired non-covered loans	$	417,377	$	9,838	$	445,506	$	2,924	$	114,416	$	990,061
Non-covered loans held-in-portfolio excluding impaired loans		5,984,132		88,868		5,725,741		578,195		3,237,790		15,614,726

Non-covered loans held-in-portfolio		6,401,509		98,706		6,171,247		581,119		3,352,206		16,604,787

Impaired covered loans		8,394		2,336		—		—		—		10,730
Covered loans held-in-portfolio excluding impaired loans		1,562,753		55,489		795,477		—		32,103		2,445,822

Covered loans held-in-portfolio		1,571,147		57,825		795,477		—		32,103		2,456,552

Total loans held-in-portfolio	$	7,972,656	$	156,531	$	6,966,724	$	581,119	$	3,384,309	$	19,061,339


At March 31, 2015
U.S. Mainland
(In thousands)	Commercial		Construction		Mortgage		Legacy		Consumer		Total
Allowance for credit losses:
Specific ALLL	$	—	$	—	$	341	$	—	$	381	$	722
General ALLL		10,426		1,849		1,921		2,962		14,068		31,226

Total ALLL	$	10,426	$	1,849	$	2,262	$	2,962	$	14,449	$	31,948


Loans held-in-portfolio:
Impaired loans	$	—	$	—	$	5,106	$	—	$	2,048	$	7,154
Loans held-in-portfolio, excluding impaired loans		2,252,052		592,022		1,012,874		77,675		466,366		4,400,989

Total loans held-in-portfolio	$	2,252,052	$	592,022	$	1,017,980	$	77,675	$	468,414	$	4,408,143


At March 31, 2015
Popular, Inc.
(In thousands)	Commercial		Construction		Mortgage		Legacy		Leasing		Consumer		Total
Allowance for credit losses:
Specific ALLL non-covered loans	$	69,946	$	158	$	42,570	$	—	$	687	$	25,604	$	138,965
General ALLL non-covered loans		135,946		3,286		86,271		2,962		6,521		142,273		377,259

ALLL - non-covered loans		205,892		3,444		128,841		2,962		7,208		167,877		516,224

Specific ALLL covered loans		1,473		—		—		—		—		—		1,473
General ALLL covered loans		19,794		7,707		40,469		—		—		3,030		71,000

ALLL - covered loans		21,267		7,707		40,469		—		—		3,030		72,473

Total ALLL	$	227,159	$	11,151	$