Edgar Filing: POPULAR INC

Large accelerated filer

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 June 30, 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, 103,533,636 shares outstanding as of August 4, 2015.

POPULAR, INC.

INDEX


		Page
Part I – Financial Information

Item 1.	Financial Statements

Unaudited Consolidated Statements of Financial Condition at June 30, 2015 and December 31, 2014			5

Unaudited Consolidated Statements of Operations for the quarters and six months ended June 30, 2015 and 2014			6

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and six months ended June 30, 2015 and 2014			7

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and 2014			8

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014			9

Notes to Unaudited Consolidated Financial Statements			10

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		223

Item 4.	Controls and Procedures		223

Part II – Other Information

Item 1.	Legal Proceedings		223

Item 1A.	Risk Factors		224

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		228

Item 3.	Defaults Upon Senior Securities		229

Item 4.	Mine Safety Disclosures		229

Item 5.	Other information		229

Item 6.	Exhibits		230

Signatures			231

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 ability of the Government of Puerto Rico to manage its fiscal situation;

•

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)


(In thousands, except share information)	June 30, 2015			December 31, 2014
Assets:
Cash and due from banks	$	557,248		$	381,095

Money market investments:
Securities purchased under agreements to resell		138,067			151,134
Time deposits with other banks		3,116,872			1,671,252

Total money market investments		3,254,939			1,822,386

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		54,413			80,945
Other trading securities		87,182			57,582
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		997,324			1,020,529
Other investment securities available-for-sale		4,587,754			4,294,630
Investment securities held-to-maturity, at amortized cost (fair value 2015 - $83,941; 2014 - $94,199)		101,861			103,170
Other investment securities, at lower of cost or realizable value (realizable value 2015 - $168,592; 2014 - $165,024)		165,505			161,906
Loans held-for-sale, at lower of cost or fair value		202,287			106,104

Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		22,535,008			19,498,286
Loans covered under loss sharing agreements with the FDIC		689,650			2,542,662
Less – Unearned income		99,863			93,835
Allowance for loan losses		550,813			601,792

Total loans held-in-portfolio, net		22,573,982			21,345,321

FDIC loss share asset		392,947			542,454
Premises and equipment, net		497,078			494,581
Other real estate not covered under loss sharing agreements with the FDIC		142,255			135,500
Other real estate covered under loss sharing agreements with the FDIC		33,504			130,266
Accrued income receivable		130,281			121,818
Mortgage servicing assets, at fair value		206,357			148,694
Other assets		2,184,907			1,646,443
Goodwill		505,435			465,676
Other intangible assets		74,854			37,595

Total assets	$	36,750,113		$	33,096,695

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	6,305,986		$	5,783,748
Interest bearing		21,444,708			19,023,787

Total deposits		27,750,694			24,807,535

Federal funds purchased and assets sold under agreements to repurchase		1,121,244			1,271,657
Other short-term borrowings		101,200			21,200
Notes payable		1,804,028			1,711,828
Other liabilities		1,021,540			1,012,029
Liabilities from discontinued operations (Refer to Note 4)		1,754			5,064

Total liabilities		31,800,460			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;
103,690,759 shares issued (2014 – 103,614,553) and 103,503,014 shares outstanding (2014 – 103,476,847)		1,037			1,036
Surplus		4,199,165			4,196,458
Retained earnings		924,134			253,717
Treasury stock – at cost, 187,745 shares (2014 – 137,706)		(5,812	)		(4,117	)
Accumulated other comprehensive loss, net of tax		(219,031	)		(229,872	)

Total stockholders’ equity		4,949,653			4,267,382

Total liabilities and stockholders’ equity	$	36,750,113		$	33,096,695

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended June 30,						Six months ended June 30,
(In thousands, except per share information)	2015			2014			2015			2014
Interest income:
Loans	$	374,133		$	380,986		$	729,764		$	758,588
Money market investments		1,845			1,131			3,291			2,104
Investment securities		31,297			33,989			61,598			69,116
Trading account securities		3,026			5,344			5,722			10,601

Total interest income		410,301			421,450			800,375			840,409

Interest expense:
Deposits		26,258			26,223			52,122			53,081
Short-term borrowings		1,863			8,892			3,597			17,932
Long-term debt		19,627			445,716			38,908			477,606

Total interest expense		47,748			480,831			94,627			548,619

Net interest income (expense)		362,553			(59,381	)		705,748			291,790
Provision for loan losses - non-covered loans		60,468			50,074			90,179			104,196
Provision for loan losses - covered loans		15,766			11,604			26,090			37,318

Net interest income (expense) after provision for loan losses		286,319			(121,059	)		589,479			150,276

Service charges on deposit accounts		40,138			39,237			79,155			78,596
Other service fees (Refer to Note 32)		59,421			56,468			113,047			109,286
Mortgage banking activities (Refer to Note 14)		21,325			3,788			34,177			7,466
Net gain and valuation adjustments on investment securities		5			—			5			—
Other-than-temporary impairment losses on investment securities		(14,445	)		—			(14,445	)		—
Trading account (loss) profit		(3,108	)		1,055			(2,694	)		3,032
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		681			9,659			602			14,052
Adjustments (expense) to indemnity reserves on loans sold		419			(7,454	)		(4,107	)		(17,801	)
FDIC loss share income (expense) (Refer to Note 33)		19,075			(55,261	)		23,214			(79,467	)
Other operating income		17,248			15,297			27,040			43,657

Total non-interest income		140,759			62,789			255,994			158,821

Operating expenses:
Personnel costs		120,977			99,100			237,435			203,401
Net occupancy expenses		23,286			20,267			44,995			41,627
Equipment expenses		15,925			12,044			29,336			23,456
Other taxes		11,113			13,543			19,687			27,206
Professional fees		78,449			67,024			153,977			134,023
Communications		6,153			6,425			12,329			13,110
Business promotion		13,776			16,038			24,589			27,424
FDIC deposit insurance		8,542			10,480			14,940			21,458
Other real estate owned (OREO) expenses		44,816			3,410			67,885			9,850
Other operating expenses		31,082			20,509			48,430			42,858
Amortization of intangibles		2,881			2,025			4,985			4,051
Restructuring costs (Refer to Note 6)		6,174			4,574			16,927			4,574

Total operating expenses		363,174			275,439			675,515			553,038

Income (loss) from continuing operations before income tax		63,904			(333,709	)		169,958			(243,941	)
Income tax (benefit) expense		(533,533	)		(4,124	)		(500,964	)		19,140

Income (loss) from continuing operations		597,437			(329,585	)		670,922			(263,081	)
Income (loss) from discontinued operations, net of tax (Refer to Note 4)		15			(181,729	)		1,356			(161,824	)

Net Income (Loss)	$	597,452		$	(511,314	)	$	672,278		$	(424,905	)

Net Income (Loss) Applicable to Common Stock	$	596,521		$	(512,245	)	$	670,417		$	(426,767	)

Net Income (Loss) per Common Share – Basic
Net income (loss) from continuing operations	$	5.80			(3.21	)		6.51			(2.58	)
Net income (loss) from discontinued operations		-			(1.77	)		0.01			(1.57	)

Net Income (Loss) per Common Share – Basic	$	5.80		$	(4.98	)	$	6.52		$	(4.15	)

Net Income (Loss) per Common Share – Diluted
Net income (loss) from continuing operations	$	5.79			(3.21	)		6.49			(2.58	)
Net income (loss) from discontinued operations		—			(1.77	)		0.01			(1.57	)

Net Income (Loss) per Common Share – Diluted	$	5.79		$	(4.98	)	$	6.50		$	(4.15	)

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Quarters ended, June 30,						Six months ended, June 30,
(In thousands)	2015			2014			2015			2014
Net income (loss)	$	597,452		$	(511,314	)	$	672,278		$	(424,905	)

Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		(1,092	)		(603	)		(1,673	)		(2,718	)
Reclassification adjustment for losses included in net income		—			—			—			7,718
Amortization of net losses of pension and postretirement benefit plans		5,025			2,126			10,050			4,252
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		(950	)		(1,900	)		(1,900	)
Unrealized holding (losses) gains on investments arising during the period		(41,191	)		27,084			(5,849	)		54,666
Other-than-temporary impairment included in net income		14,445			—			14,445			—
Reclassification adjustment for gains included in net income		(5	)		—			(5	)		—
Unrealized net gains (losses) on cash flow hedges		1,004			(2,548	)		(1,530	)		(4,273	)
Reclassification adjustment for net losses included in net income		951			1,800			2,309			3,624

Other comprehensive (loss) income before tax		(21,813	)		26,909			15,847			61,369
Income tax expense		(2,818	)		(925	)		(5,006	)		(2,915	)

Total other comprehensive (loss) income, net of tax		(24,631	)		25,984			10,841			58,454

Comprehensive income (loss), net of tax	$	572,821		$	(485,330	)	$	683,119		$	(366,451	)


Tax effect allocated to each component of other comprehensive loss:

	Quarters ended June 30,						Six months ended, June 30,
(In thousands)	2015			2014			2015			2014
Amortization of net losses of pension and postretirement benefit plans	$	(1,960	)	$	(829	)	$	(3,920	)	$	(1,658	)
Amortization of prior service cost of pension and postretirement benefit plans		371			370			742			741
Unrealized holding (losses) gains on investments arising during the period		2,019			(758	)		962			(2,251	)
Other-than-temporary impairment included in net income		(2,486	)		—			(2,486	)		—
Reclassification adjustment for gains included in net income		1			—			1			—
Unrealized net gains (losses) on cash flow hedges		(392	)		994			597			1,666
Reclassification adjustment for net losses included in net income		(371	)		(702	)		(902	)		(1,413	)

Income tax expense	$	(2,818	)	$	(925	)	$	(5,006	)	$	(2,915	)

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


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

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

Balance at December 31, 2014	$	1,036	$	50,160	$	4,196,458	$	253,717		$	(4,117	)	$	(229,872	)	$	4,267,382
Net income								672,278									672,278
Issuance of stock		1				2,536											2,537
Tax windfall benefit on vesting of restricted stock						171											171
Dividends declared:
Preferred stock								(1,861	)								(1,861	)
Common stock purchases											(1,741	)					(1,741	)
Common stock reissuance											46						46
Other comprehensive income, net of tax														10,841			10,841

Balance at June 30, 2015	$	1,037	$	50,160	$	4,199,165	$	924,134		$	(5,812	)	$	(219,031	)	$	4,949,653



Disclosure of changes in number of shares:	June 30, 2015			June 30, 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		76,206			103,416

Balance at end of the period		103,690,759			103,539,383
Treasury stock		(187,745	)		(66,404	)

Common Stock – Outstanding		103,503,014			103,472,979

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six months ended June 30,
(In thousands)	2015			2014
Cash flows from operating activities:
Net income (loss)	$	672,278		$	(424,905	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		116,269			134,750
Goodwill impairment losses		—			186,511
Amortization of intangibles		4,985			5,007
Depreciation and amortization of premises and equipment		23,949			23,832
Net accretion of discounts and amortization of premiums and deferred fees		(42,167	)		324,779
Other-than-temporary impairment on investment securities		14,445			—
Fair value adjustments on mortgage servicing rights		6,846			15,836
FDIC loss share (income) expense		(23,214	)		79,467
Adjustments (expense) to indemnity reserves on loans sold		4,107			17,801
Earnings from investments under the equity method		(9,806	)		(24,355	)
Deferred income tax (benefit) expense		(511,128	)		2,689
(Gain) loss on:
Disposition of premises and equipment		(1,429	)		(2,551	)
Sale and valuation adjustments of investment securities		(5	)		—
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(15,034	)		(42,413	)
Sale of foreclosed assets, including write-downs		54,711			(2,035	)
Acquisitions of loans held-for-sale		(249,059	)		(159,727	)
Proceeds from sale of loans held-for-sale		51,062			72,757
Net originations on loans held-for-sale		(379,264	)		(338,672	)
Net (increase) decrease in:
Trading securities		481,271			459,792
Accrued income receivable		(656	)		6,721
Other assets		33,552			(48,455	)
Net increase (decrease) in:
Interest payable		475			633
Pension and other postretirement benefits obligation		1,641			(3,096	)
Other liabilities		(41,438	)		30,260

Total adjustments		(479,887	)		739,531

Net cash provided by operating activities		192,391			314,626

Cash flows from investing activities:
Net increase in money market investments		(1,432,552	)		(808,491	)
Purchases of investment securities:
Available-for-sale		(985,427	)		(1,079,586	)
Held-to-maturity		(250	)		—
Other		(12,805	)		(51,097	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		867,168			816,830
Held-to-maturity		2,389			27,029
Other		31,592			64,724
Proceeds from sale of investment securities:
Available-for-sale		70,005			—
Other		8,399			—
Net repayments on loans		374,224			473,336
Proceeds from sale of loans		27,780			87,983
Acquisition of loan portfolios		(140,671	)		(289,292	)
Net payments from FDIC under loss sharing agreements		164,423			110,618
Net cash received and acquired from business combination		738,296			—
Acquisition of servicing advances		(3,897	)		—
Cash paid related to business acquisition		(17,250	)		—
Mortgage servicing rights purchased		(2,400	)		—
Acquisition of premises and equipment		(30,817	)		(20,333	)
Proceeds from sale of:
Premises and equipment		7,901			8,631
Foreclosed assets		98,287			81,010

Net cash used in investing activities		(235,605	)		(578,638	)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		745,787			252,715
Federal funds purchased and assets sold under agreements to repurchase		(150,413	)		418,381
Other short-term borrowings		(48,215	)		(370,000	)
Payments of notes payable		(430,003	)		(111,030	)
Proceeds from issuance of notes payable		103,231			31,905
Proceeds from issuance of common stock		2,536			3,048
Dividends paid		(1,861	)		(1,862	)
Net payments for repurchase of common stock		(1,695	)		(861	)

Net cash provided by financing activities		219,367			222,296

Net increase (decrease) in cash and due from banks		176,153			(41,716	)
Cash and due from banks at beginning of period		381,095			423,211

Cash and due from banks at the end of period, including discontinued operations		557,248			381,495
Less: cash from discontinued operations		—			18,923

Cash and due from banks at the end of the period	$	557,248		$	362,572

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

The Consolidated Statements of Cash Flows for the six months ended June 30, 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	11
Note 2 -	Basis of presentation and summary of significant accounting policies	12
Note 3 -	New accounting pronouncements	13
Note 4 -	Discontinued operations	18
Note 5 -	Business combination	19
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	43
Note 13 -	FDIC loss share asset and true-up payment obligation	68
Note 14 -	Mortgage banking activities	70
Note 15 -	Transfers of financial assets and mortgage servicing assets	71
Note 16 -	Other real estate owned	76
Note 17 -	Other assets	77
Note 18 -	Goodwill and other intangible assets	78
Note 19 -	Deposits	80
Note 20 -	Borrowings	81
Note 21 -	Offsetting of financial assets and liabilities	83
Note 22 -	Trust preferred securities	85
Note 23 -	Stockholders’ equity	86
Note 24 -	Other comprehensive loss	87
Note 25 -	Guarantees	89
Note 26 -	Commitments and contingencies	92
Note 27 -	Non-consolidated variable interest entities	98
Note 28 -	Related party transactions with affiliated company / joint venture	102
Note 29 -	Fair value measurement	106
Note 30 -	Fair value of financial instruments	112
Note 31 -	Net income per common share	118
Note 32 -	Other service fees	119
Note 33 -	FDIC loss share income (expense)	120
Note 34 -	Pension and postretirement benefits	121
Note 35 -	Stock-based compensation	122
Note 36 -	Income taxes	125
Note 37 -	Supplemental disclosure on the consolidated statements of cash flows	128
Note 38 -	Segment reporting	129
Note 39 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	136

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. Refer to Note 4 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 other bidders, including BPNA, acquired certain assets and all deposits (other than certain brokered deposits) of former 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 transfer of certain assets and deposits. The other co-bidders that 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 entered into transition service agreements with each of the alliance co-bidders. Refer to Note 5 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 4, 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 5, 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 2015-09, Insurance - (Topic 944): Disclosures about Short-Duration Contracts

In June 2015, the FASB issued Accounting Standards Update 2015-09, Disclosure about Short-Duration Contracts, which applies to all insurance entities that issue short-duration contracts. The amendment requires, among other things, additional disclosures about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.

The amendments in this update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016.

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

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 statement of financial condition or results of operations.

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 2014-13, 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 2014-09, 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 July 9, 2015, the FASB voted to approve a deferral of the effective date of this new revenue standard by one year until January 1, 2018.

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.

Note 4 – 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 $16.9 million during the six months period ended June 30, 2015. Additional restructuring charges amounting to approximately $3.2 million are expected to be incurred in the year 2015. Refer to Note 6, for restructuring charges incurred during the quarter and six months ended June 30, 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 their 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 June 30, 2015, there were no assets held within the discontinued operations. Liabilities within discontinued operations amounted to approximately $1.8 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 and six months ended June 30, 2015 and 2014.


	Quarters ended June 30,						Six month period ended June 30,
(In thousands)	2015			2014			2015			2014

Net interest income	$	—		$	19,092		$	—		$	40,889
Provision (reversal) for loan losses		—			—			—			(6,764	)
Other non-interest income		—			9,388			—			19,921

Total non-interest income		—			9,388			—			19,921

Operating expenses:
Personnel costs		(9	)		12,117			(9	)		20,969
Net occupancy expenses		—			2,845			—			7,176
Professional fees		(7	)		5,903			(1,348	)		8,696
Goodwill impairment charge		—			186,511			—			186,511
Other operating expenses		1			2,833			1			6,046

Total operating expenses		(15	)		210,209			(1,356	)		229,398

Net income (loss) from discontinued operations	$	15		$	(181,729	)	$	1,356		$	(161,824	)

Note 5 – Business combination

On February 27, 2015, BPPR, the Corporation’s Puerto Rico banking subsidiary, in an alliance with co-bidders, including BPNA, the Corporation’s U.S. mainland banking subsidiary, acquired certain assets and all deposits (other than certain brokered deposits) of former 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 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 transfer of certain assets and deposits. The other co-bidders that formed part of the alliance led by BPPR were FirstBank Puerto Rico, Centennial Bank, and a vehicle formed by J.C. Flowers III LP. BPPR 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 BPNA assumed an aggregate of approximately $2.2 billion in deposits and acquired an aggregate of 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.

BPNA 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.

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

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 initially estimated at $48.6 million. As of February 27, 2015, the transfers of the mortgage servicing rights were 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. Therefore, the fair value as of March 31, 2015 was recorded as a contingent asset as part of other assets in the Consolidated Statement of Condition. During the second quarter of 2015, BPPR completed the acquisition of the mortgage servicing rights pools on the three pools for an aggregate purchase price of $56.2 million, including certain servicing advances purchased. As a result of the completion of these transactions, during the second quarter of 2015 BPPR reclassified the contingent asset from other assets to mortgage servicing rights.

During the second quarter of 2015, retrospective adjustments were made to the estimated fair values of certain assets and liabilities assumed with the Doral Bank Transaction to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the acquisition-date fair value measurements. The retrospective adjustments were for the mortgage servicing rights, which resulted in a decrease in the initial fair value estimate by $2.1 million, and for the acquisition costs on deposits which resulted in an increase of $2.6 million in the receivable from the FDIC, both of which were adjusted against goodwill.

The following table presents the fair values of major classes of identifiable assets acquired and liabilities assumed by the Corporation as of February 27, 2015, which includes updated fair value adjustments of the mortgage servicing rights initially recorded as a contingent asset and of the deposits.


(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		—		—			441,721		441,721
Core deposit intangible		23,572		—			—		23,572
Other assets		67,676		7,569			—		75,245

Total assets	$	2,360,388	$	(44,883	)	$	441,721	$	2,757,226


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			$	(58,121	)
Additional consideration						$	441,721
Goodwill on acquisition								$	42,144

[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.

The fair values assigned to the assets acquired and liabilities assumed are 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 June 30, 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 additional 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 of 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.

Mortgage Servicing Rights (recorded as Contingent Asset at February 27, 2015)

The Corporation uses a discounted cash flow model to estimate the fair value of mortgage servicing rights. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including

estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. The mortgage servicing rights from the Doral Bank Transaction were recorded at the BPPR reportable segment.

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 assumed 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 and six months periods ended on June 30, 2015 include the operating results produced by the acquired assets and assumed liabilities. This includes approximately $34.4 million and $48.4 million in gross revenues and approximately $26.8 million and $41.3 million in operating expenses for the quarter and six months periods ended on June 30, 2015, respectively. 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 6 – Restructuring plan

As discussed in Note 4, 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 $46.8 million, of which approximately $26.7 million were incurred during 2014; $16.9 million during the six months ended June 30, 2015 and the remaining $3.2 million are expected to be incurred during 2015. The remaining costs for 2015 are primarily related to personnel and occupancy related expenses.

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


(In thousands)	Quarter ended June 30, 2015		Six months ended June 30, 2015

Personnel costs	$	2,866	$	12,232
Net occupancy expenses		2,660		3,046
Equipment expenses		66		224
Professional fees		315		781
Other operating expenses		267		644

Total restructuring costs	$	6,174	$	16,927

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		8,312
Payments made during the period		(18,759	)

Balance at June 30, 2015	$	3,089

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 June 30, 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 June 30, 2015, the Corporation held $27 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)	June 30,2015		December 31,2014
Investment securities available-for-sale, at fair value	$	2,286,368	$	1,700,820
Investment securities held-to-maturity, at amortized cost		58,910		60,515
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		411,597		480,441
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,488,262		8,820,204

Total pledged assets	$	11,245,137	$	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 June 30, 2015, the Corporation had $ 1.4 billion in investment securities available-for-sale and $ 0.5 billion in loans that served as collateral to secure public funds (December 31, 2014 - $ 0.7 billion and $ 0.7 billion, respectively).

At June 30, 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 $3.7 billion (December 31, 2014 - $3.7 billion). Refer to Note 20 to the consolidated financial statements for borrowings outstanding under these credit facilities. At June 30, 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 June 30, 2015, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $1.3 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 June 30, 2015, the credit facilities with the Fed discount window were collateralized by $ 3.9 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 June 30, 2015 and December 31, 2014.


	At June 30, 2015
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	25,279	$	795	$	—	$	26,074		3.99	%
After 1 to 5 years		942,596		5,111		58		947,649		1.00

Total U.S. Treasury securities		967,875		5,906		58		973,723		1.08

Obligations of U.S. Government sponsored entities
Within 1 year		35,180		116		—		35,296		1.85
After 1 to 5 years		1,049,241		2,390		4,450		1,047,181		1.36
After 5 to 10 years		5,110		26		17		5,119		5.04
After 10 years		23,000		—		224		22,776		3.20

Total obligations of U.S. Government sponsored entities		1,112,531		2,532		4,691		1,110,372		1.43

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,751		—		11		2,740		3.85
After 1 to 5 years		7,099		—		234		6,865		4.05
After 5 to 10 years		14,363		—		2,123		12,240		6.48
After 10 years		36,757		—		6,488		30,269		6.24

Total obligations of Puerto Rico, States and political subdivisions		60,970		—		8,856		52,114		5.94

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		18,353		752		—		19,105		2.98
After 5 to 10 years		48,183		1,172		—		49,355		2.72
After 10 years		1,689,483		11,405		32,519		1,668,369		1.99

Total collateralized mortgage obligations - federal agencies		1,756,019		13,329		32,519		1,736,829		2.02

Mortgage-backed securities
After 1 to 5 years		22,848		1,069		7		23,910		3.58
After 5 to 10 years		225,725		6,723		280		232,168		3.29
After 10 years		1,410,769		40,954		8,957		1,442,766		3.07

Total mortgage-backed securities		1,659,342		48,746		9,244		1,698,844		3.11

Equity securities (without contractual maturity)		1,350		1,247		3		2,594		0.98

Other
After 1 to 5 years		9,095		—		14		9,081		1.69
After 5 to 10 years		1,485		36		—		1,521		3.62

Total other		10,580		36		14		10,602		1.96

Total investment securities available-for-sale	$	5,568,667	$	71,796	$	55,385	$	5,585,078		2.11	%


	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.

During the quarter ended June 30, 2015, the Corporation sold U.S. agency securities with an approximate amortized cost of $70 million at the BPPR segment. The proceeds from this sale were $ 70.0 million. The Corporation realized a gain of $5 thousand on this transaction. There were no sales of investment securities available-for-sale during the six months ended June 30, 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 June 30, 2015 and December 31, 2014.


	At June 30, 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
U.S. Treasury securities	$	39,918	$	58	$	—	$	—	$	39,918	$	58
Obligations of U.S. Government sponsored entities		372,506		1,723		271,839		2,968		644,345		4,691
Obligations of Puerto Rico, States and political subdivisions		15,820		6,528		8,735		2,328		24,555		8,856
Collateralized mortgage obligations - federal agencies		303,544		3,252		907,897		29,267		1,211,441		32,519
Mortgage-backed securities		862,115		8,323		23,780		921		885,895		9,244
Equity securities		47		3		—		—		47		3
Other		9,081		14		—		—		9,081		14

Total investment securities available-for-sale in an unrealized loss position	$	1,603,031	$	19,901	$	1,212,251	$	35,484	$	2,815,282	$	55,385


	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 June 30, 2015, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $55 million, driven by U.S. Agency Collateralized Mortgage Obligations, Mortgage-backed securities 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. 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 June 30, 2015, management performed its quarterly analysis of all debt securities in an unrealized loss position.

During the second quarter of 2015, the Corporation recognized an other-than-temporary impairment charge of $14.4 million on its portfolio of investment securities available-for-sale classified as obligations from the Puerto Rico government and its political subdivisions. At June 30, 2015 these securities were rated Caa2 and CCC- by Moody’s and S&P, respectively. Notwithstanding the payment priorities established by the Puerto Rico Constitution for these securities, Puerto Rico’s fiscal and economic situation, together with the Government’s recent announcements regarding its ability to pay its debt and its intention to pursue a comprehensive debt restructuring, led management to conclude that the unrealized losses on these government securities were other-than-temporary. The Corporation determined that the entire balance of the unrealized loss carried by these securities was attributed to estimated credit losses. Accordingly, the other-than-temporary impairment was recognized in its entirety in the accompanying consolidated statement of operations and no amount remained recognized in the accompanying statement of other comprehensive income related to these specific securities.

Prospectively, for debt securities for which other-than-temporary impairments were recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected shall be accreted as interest income. If upon subsequent evaluation, there is a significant increase in the cash flows expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, such changes shall be accounted for as a prospective adjustment to the accretable yield. Subsequent increases and decreases (if not an other-than-temporary impairment) in the fair value of available-for-sale securities shall be included in other comprehensive income.

Further negative evidence impacting the liquidity and sources of repayment of the obligations of Puerto Rico and its political subdivisions, could result in a further charge to earnings to recognize estimated credit losses determined to be other-than-temporary. At June 30, 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.


	June 30, 2015				December 31, 2014
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,274,845	$	2,264,445	$	1,746,807	$	1,736,987
FHLB		445,169		444,409		737,149		732,894
Freddie Mac		962,147		959,054		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 June 30, 2015 and December 31, 2014.


	At June 30, 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	$	—	$	85	$	2,780		5.88	%
After 1 to 5 years		13,400		—		3,758		9,642		5.97
After 5 to 10 years		20,310		—		8,561		11,749		6.12
After 10 years		63,695		3,200		8,720		58,175		2.13

Total obligations of Puerto Rico, States and political subdivisions		100,270		3,200		21,124		82,346		3.56

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		1,499		1.21

Total other		1,500		—		1		1,499		1.21

Total investment securities held-to-maturity	$	101,861	$	3,205	$	21,125	$	83,941		3.53	%


	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 June 30, 2015 and December 31, 2014.


	At June 30, 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	$	—	$	—	$	37,161	$	21,124	$	37,161	$	21,124
Other		1,249		1		—		—		1,249		1

Total investment securities held-to-maturity in an unrealized loss position	$	1,249	$	1	$	37,161	$	21,124	$	38,410	$	21,125


	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 June 30, 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 $42 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.

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

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 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 expired on June 30, 2015 for commercial (including construction) and consumer loans, and expires on June 30, 2020 for single-family residential mortgage loans, as explained in Note 13.

As a result of the expiration of the shared-loss arrangement under the commercial loss share agreement on June 30, 2015, approximately $1.5 billion in loans and $18 million in OREOs have been reclassified as “non-covered” in the accompanying statement of financial condition as of June 30, 2015, because they are no longer subject to the shared-loss payments by the FDIC. However, included in these balances are approximately $248.7 million of loans that are subject to the resolution of several arbitration proceedings currently ongoing with the FDIC related primarily to (i) the FDIC’s denial of reimbursements for certain charge-offs claimed by BPPR with respect to certain loans and the treatment of those loans as “shared-loss assets” under the commercial loss share agreement; and (ii) the denial by the FDIC of portfolio sale proposals submitted by BPPR pursuant to the applicable commercial shared loss agreement provision governing portfolio sales. Until the disputes described above are finally resolved, the terms of the commercial loss share agreement will remain in effect with respect to any such items under dispute. Refer to additional information of these disputes on Note 26, Commitment and Contingencies.

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 June 30, 2015 and December 31, 2014.


(In thousands)	June 30, 2015		December 31, 2014
Commercial multi-family	$	663,100	$	487,280
Commercial real estate non-owner occupied		3,445,267		2,526,146
Commercial real estate owner occupied		2,177,604		1,667,267
Commercial and industrial		3,718,745		3,453,574
Construction		696,010		251,820
Mortgage		7,225,823		6,502,886
Leasing		592,816		564,389
Legacy^[2]		72,502		80,818
Consumer:
Credit cards		1,152,367		1,155,229
Home equity lines of credit		340,785		366,162
Personal		1,352,343		1,375,452
Auto		799,843		767,369
Other		197,940		206,059

Total loans held-in-portfolio^[1]	$	22,435,145	$	19,404,451

[1]	Non-covered loans held-in-portfolio at June 30, 2015 are net of $100 million in unearned income and exclude $202 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 June 30, 2015 and December 31, 2014.


(In thousands)	June 30, 2015		December 31, 2014
Commercial real estate	$	3	$	1,511,472
Commercial and industrial		—		103,309
Construction		—		70,336
Mortgage		671,074		822,986
Consumer		18,573		34,559

Total covered loans held-in-portfolio	$	689,650	$	2,542,662

The following table provides a breakdown of loans held-for-sale (“LHFS”) at June 30, 2015 and December 31, 2014 by main categories.


(In thousands)	June 30, 2015		December 31, 2014
Commercial	$	48,969	$	309
Construction		1,681		—
Legacy		—		319
Mortgage		151,637		100,166
Consumer		—		5,310

Total loans held-for-sale	$	202,287	$	106,104

During the quarter and six months ended June 30, 2015, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $213 million and $382 million, respectively (June 30, 2014 - $169 million and $331 million, respectively), excluding the impact of the Doral Bank Transaction. The Corporation did not record purchases of consumer loans during the six months ended June 30, 2015 (June 30, 2014 - $92 million). In addition, during the six months ended June 30, 2015, the Corporation did not record purchases of commercial loans (during the quarter and six months ended June 30, 2014 - $21 million). The Corporation recorded purchases amounting to $164 thousand of lease financing during the six months ended June 30, 2015 and none during the six months ended June 30, 2014.

The Corporation sold approximately $25 million and $65 million of residential mortgage loans (on a whole loan basis) during the quarter and six months ended June 30, 2015, respectively (June 30, 2014 - $27 million and $70 million, respectively). Also, the Corporation securitized approximately $ 243 million and $ 400 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2015, respectively (June 30, 2014 - $ 184 million and $ 350 million, respectively). Furthermore, the Corporation securitized approximately $ 70 million and $ 117 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2015, respectively (June 30, 2014 - $ 60 million and $ 123 million, respectively). The Corporation sold commercial and construction loans with a book value of approximately $8 million and $9 million during the quarter and six months ended June 30, 2015, respectively (June 30, 2014 - $30 million and $61 million, respectively).

Non-covered loans

The following tables present non-covered loans held-in-portfolio by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at June 30, 2015 and December 31, 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. Also, accruing loans past due 90 days or more include residential conventional loans purchased from another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At June 30, 2015
	Puerto Rico				U.S. mainland				Popular, Inc.
(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more [1]		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	$	1,071	$	—	$	171	$	—	$	1,242	$	—
Commercial real estate non-owner occupied		43,436		—		—		—		43,436		—
Commercial real estate owner occupied		85,065		—		750		—		85,815		—
Commercial and industrial		49,827		330		9,974		—		59,801		330
Construction		4,756		—		671		—		5,427		—
Mortgage^[3]		318,773		416,175		12,048		—		330,821		416,175
Leasing		2,328		—		—		—		2,328		—
Legacy		—		—		4,686		—		4,686		—
Consumer:
Credit cards		—		18,545		343		—		343		18,545
Home equity lines of credit		4		61		4,247		—		4,251		61
Personal		22,949		—		1,334		—		24,283		—
Auto		11,158		—		—		—		11,158		—
Other		2,400		664		6		—		2,406		664

Total^[2]	$	541,767	$	435,775	$	34,230	$	—	$	575,997	$	435,775

[1]

Non-covered loans of $269 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 $ 51 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 $133 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2015. Furthermore, the Corporation has approximately $72 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		Accruing loans past-due 90 days or more [1]		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 June 30, 2015 and December 31, 2014 for non-covered loans held-in-portfolio (net of unearned income).


June 30, 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	$	80	$	—	$	1,847	$	1,927	$	90,560	$	92,487
Commercial real estate non-owner occupied		4,131		7,940		141,389		153,460		2,589,719		2,743,179
Commercial real estate owner occupied		10,409		11,478		133,950		155,837		1,801,259		1,957,096
Commercial and industrial		6,222		4,747		53,586		64,555		2,711,693		2,776,248
Construction		875		467		32,229		33,571		79,875		113,446
Mortgage		327,662		172,133		825,127		1,324,922		4,919,461		6,244,383
Leasing		6,653		1,899		2,328		10,880		581,936		592,816
Consumer:
Credit cards		11,391		8,954		18,545		38,890		1,099,550		1,138,440
Home equity lines of credit		397		200		65		662		12,034		12,696
Personal		13,892		8,197		23,358		45,447		1,201,072		1,246,519
Auto		33,813		7,745		11,158		52,716		747,047		799,763
Other		963		300		3,064		4,327		193,280		197,607

Total	$	416,488	$	224,060	$	1,246,646	$	1,887,194	$	16,027,486	$	17,914,680


June 30, 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	$	—	$	—	$	171	$	171	$	570,442	$	570,613
Commercial real estate non-owner occupied		—		360		—		360		701,728		702,088
Commercial real estate owner occupied		5,302		—		750		6,052		214,456		220,508
Commercial and industrial		998		1,022		9,974		11,994		930,503		942,497
Construction		—		—		671		671		581,893		582,564
Mortgage		2,234		5,749		12,048		20,031		961,409		981,440
Legacy		68		698		4,686		5,452		67,050		72,502
Consumer:
Credit cards		225		153		343		721		13,206		13,927
Home equity lines of credit		2,907		758		4,247		7,912		320,177		328,089
Personal		589		716		1,334		2,639		103,185		105,824
Auto		—		7		—		7		73		80
Other		—		—		6		6		327		333

Total	$	12,323	$	9,463	$	34,230	$	56,016	$	4,464,449	$	4,520,465


June 30, 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	$	80	$	—	$	2,018	$	2,098	$	661,002	$	663,100
Commercial real estate non-owner occupied		4,131		8,300		141,389		153,820		3,291,447		3,445,267
Commercial real estate owner occupied		15,711		11,478		134,700		161,889		2,015,715		2,177,604
Commercial and industrial		7,220		5,769		63,560		76,549		3,642,196		3,718,745
Construction		875		467		32,900		34,242		661,768		696,010
Mortgage		329,896		177,882		837,175		1,344,953		5,880,870		7,225,823
Leasing		6,653		1,899		2,328		10,880		581,936		592,816
Legacy		68		698		4,686		5,452		67,050		72,502
Consumer:
Credit cards		11,616		9,107		18,888		39,611		1,112,756		1,152,367
Home equity lines of credit		3,304		958		4,312		8,574		332,211		340,785
Personal		14,481		8,913		24,692		48,086		1,304,257		1,352,343
Auto		33,813		7,752		11,158		52,723		747,120		799,843
Other		963		300		3,070		4,333		193,607		197,940

Total	$	428,811	$	233,523	$	1,280,876	$	1,943,210	$	20,491,935	$	22,435,145


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 June 30, 2015 and December 31, 2014 by main categories.


(In thousands)	June 30, 2015		December 31, 2014
Commercial	$	48,969	$	309
Construction		1,681		—
Mortgage		225		14,041
Consumer		—		4,549

Total	$	50,875	$	18,899

The following table presents loans acquired as part of the Doral Bank Transaction 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

Covered loans

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at June 30, 2015 and December 31, 2014.


	June 30, 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	$	—	$	—	$	8,810	$	—
Commercial and industrial		—		—		1,142		—
Construction		—		—		2,770		—
Mortgage		3,794		—		4,376		28
Consumer		69		—		735		—

Total^[1]	$	3,863	$	—	$	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 June 30, 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.


June 30, 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	$	—	$	—	$	3	$	3	$	—	$	3
Mortgage		6,223		16,771		96,097		119,091		551,983		671,074
Consumer		10		482		1,231		1,723		16,850		18,573

Total covered loans	$	6,233	$	17,253	$	97,331	$	120,817	$	568,833	$	689,650


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 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 $10 million at June 30, 2015 (December 31, 2014 - $0.1 billion).

Loans acquired with deteriorated credit quality accounted for under ASC 310-30

The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC 310-30.

Loans acquired from Westernbank as part of an FDIC-assisted transaction

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


	June 30, 2015 [1]									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	$	1,130,829		$	56,764		$	1,187,593		$	1,392,482		$	90,202		$	1,482,684
Commercial and industrial		135,539			1,275			136,814			57,059			2,197			59,256
Construction		17,075			16,966			34,041			32,836			32,409			65,245
Mortgage		715,756			38,417			754,173			764,148			45,829			809,977
Consumer		23,294			1,163			24,457			25,617			1,393			27,010

Carrying amount		2,022,493			114,585			2,137,078			2,272,142			172,030			2,444,172
Allowance for loan losses		(42,503	)		(4,546	)		(47,049	)		(52,798	)		(26,048	)		(78,846	)

Carrying amount, net of allowance	$	1,979,990		$	110,039		$	2,090,029		$	2,219,344		$	145,982		$	2,365,326

[1]	The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $680 million as of June 30, 2015.

The outstanding principal balance of Westernbank loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.6 billion at June 30, 2015 (December 31, 2014 - $3.1 billion). At June 30, 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 Westernbank loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended June 30, 2015 and 2014, were as follows:


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the quarters ended
	June 30, 2015									June 30, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,254,249		$	4,699		$	1,258,948		$	1,212,706		$	5,506		$	1,218,212
Accretion		(50,228	)		(3,766	)		(53,994	)		(77,316	)		(2,547	)		(79,863	)
Change in expected cash flows		35,755			5,215			40,970			135,812			6,597			142,409

Ending balance	$	1,239,776		$	6,148		$	1,245,924		$	1,271,202		$	9,556		$	1,280,758


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the six months ended
	June 30, 2015									June 30, 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		(104,004	)		(5,687	)		(109,691	)		(149,868	)		(9,113	)		(158,981	)
Change in expected cash flows		78,028			6,250			84,278			123,345			7,189			130,534

Ending balance	$	1,239,776		$	6,148		$	1,245,924		$	1,271,202		$	9,556		$	1,280,758


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the quarters ended
	June 30, 2015 [1]									June 30, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	2,211,781		$	155,315		$	2,367,096		$	2,469,453		$	263,669		$	2,733,122
Accretion		50,228			3,766			53,994			77,316			2,547			79,863
Collections and charge-offs		(239,516	)		(44,496	)		(284,012	)		(158,858	)		(43,463	)		(202,321	)

Ending balance	$	2,022,493		$	114,585		$	2,137,078		$	2,387,911		$	222,753		$	2,610,664
Allowance for loan losses ASC 310-30 Westernbank loans		(42,503	)		(4,546	)		(47,049	)		(50,609	)		(40,283	)		(90,892	)

Ending balance, net of ALLL	$	1,979,990		$	110,039		$	2,090,029		$	2,337,302		$	182,470		$	2,519,772

[1]	The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $680 million as of June 30, 2015.


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the six months ended
	June 30, 2015 [1]									June 30, 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		104,004			5,687			109,691			149,868			9,113			158,981
Collections and charge offs		(353,653	)		(63,132	)		(416,785	)		(271,032	)		(105,232	)		(376,264	)

Ending balance	$	2,022,493		$	114,585		$	2,137,078		$	2,387,911		$	222,753		$	2,610,664
Allowance for loan losses ASC 310-30 Westernbank loans		(42,503	)		(4,546	)		(47,049	)		(50,609	)		(40,283	)		(90,892	)

Ending balance, net of ALLL	$	1,979,990		$	110,039		$	2,090,029		$	2,337,302		$	182,470		$	2,519,772

[1]	The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $680 million as of June 30, 2015.

Other loans acquired with deteriorated credit quality

The outstanding principal balance of other acquired loans accounted pursuant to ASC Subtopic 310-30, amounted to $421 million at June 30, 2015 (December 31, 2014 - $243 million). At June 30, 2015, none of the other acquired 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 other acquired loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended June 30, 2015 and 2014 were as follows:


Activity in the accretable discount - other acquired loans ASC 310-30
(In thousands)	For the quarter ended June 30, 2015			For the quarter ended June 30, 2014
Beginning balance	$	158,424		$	67,285
Additions		5,406			4,060
Accretion		(4,633	)		(2,552	)
Change in expected cash flows		2,962			8,034

Ending balance	$	162,159		$	76,827


Activity in the accretable discount - other acquired loans ASC 310-30
(In thousands)	For the six months ended June 30, 2015			For the six months ended June 30, 2014
Beginning balance	$	116,304		$	49,398
Additions		56,068			11,144
Accretion		(7,856	)		(4,926	)
Change in expected cash flows		(2,357	)		21,211

Ending balance	$	162,159		$	76,827


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the quarter ended June 30, 2015			For the quarter ended June 30, 2014
Beginning balance	$	363,097			190,216
Additions		17,089			13,139
Accretion		4,633			2,552
Collections and charge-offs		(16,532	)		(6,866	)

Ending balance	$	368,287		$	199,041
Allowance for loan losses ASC 310-30 other acquired loans		(16,842	)		(15,751	)

Ending balance, net of ALLL	$	351,445		$	183,290


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the six months ended June 30, 2015			For the six months ended June 30, 2014
Beginning balance	$	212,763		$	173,659
Additions		174,180			33,181
Accretion		7,856			4,926
Collections and charge-offs		(26,512	)		(12,725	)

Ending balance	$	368,287		$	199,041
Allowance for loan losses ASC 310-30 other acquired loans		(16,842	)		(15,751	)

Ending balance, net of ALLL	$	351,445		$	183,290

The following table presents loans acquired as part of the Doral Bank 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

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 5-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.

For the period ended June 30, 2015, 32% (June 30, 2014 - 28%) 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 and commercial multi-family loan portfolios for 2015, and in the commercial multi-family, commercial and industrial, personal and auto loan portfolios for 2014.

For the period ended June 30, 2015, 19% (June 30, 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 concentrated in the consumer loan portfolio for 2015 and in the commercial multi-family, commercial and industrial 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.

During the second quarter of 2015, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics and revised certain components related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These enhancements to the ALLL methodology, which are described in the paragraphs below, were implemented as of June 30, 2015 and resulted in a net decrease to the allowance for loan losses of $ 1.9 million for the non-covered portfolio. The effect of the aforementioned enhancements was immaterial for the covered loans portfolio.

Management made the following principal enhancements to the methodology during the second quarter of 2015:

•

Increased the historical look-back period for determining the base loss rates for commercial and construction loans. The Corporation increased the look-back period for assessing historical loss trends applicable to the determination of commercial and construction loan net charge-offs from 36 months to 60 months. Given the current overall commercial and construction credit quality improvements, including lower loss trends, management concluded that a 60-month look-back period for the base loss rates aligns the Corporation’s allowance for loan losses methodology to maintain adequate loss observations in its main general reserve component.

The combined effect of the aforementioned enhancements to the base loss rates resulted in an increase to the allowance for loan losses of $19.6 million at June 30, 2015, of which $17.9 million related to the non-covered BPPR segment and $1.7 million related to the BPNA segment.

•

Annual review and recalibration of the environmental factors adjustment. The environmental factor adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the second quarter of 2015, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends.

The combined effect of the aforementioned recalibration and enhancements to the environmental factors adjustment resulted in a decrease to the allowance for loan losses of $21.4 million at June 30, 2015, of which $20.5 million related to the non-covered BPPR segment and $1 million related to the BPNA segment.

The following tables present the changes in the allowance for loan losses for the quarters ended June 30, 2015 and 2014.


For the quarter ended June 30, 2015
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	195,466		$	1,595		$	126,579		$	7,208		$	153,428		$	484,276
Provision (reversal of provision)		50,231			5,260			9,755			2,925			(7,642	)		60,529
Charge-offs		(23,323	)		(2,194	)		(11,361	)		(1,693	)		(24,182	)		(62,753	)
Recoveries		6,264			473			622			720			9,528			17,607
Net write-down related to loans transferred to held-for-sale		(29,996	)		—			—			—			—			(29,996	)
Allowance transferred from covered loans		8,453			1,424			582			—			2,578			13,037

Ending balance	$	207,095		$	6,558		$	126,177		$	9,160		$	133,710		$	482,700


For the quarter ended June 30, 2015
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing		Consumer			Total
Allowance for credit losses:
Beginning balance	$	21,267		$	7,707		$	40,469		$	—	$	3,030		$	72,473
Provision (reversal of provision)		8,120			8,874			(1,734	)		—		506			15,766
Charge-offs		(23,697	)		(16,040	)		(520	)		—		(767	)		(41,024	)
Recoveries		3,864			1,425			342			—		88			5,719
Net recoveries (write-down)		(1,101	)		(542	)		(160	)		—		(20	)		(1,823	)
Allowance transferred to non-covered loans		(8,453	)		(1,424	)		(582	)		—		(2,578	)		(13,037	)

Ending balance	$	—		$	—		$	37,815		$	—	$	259		$	38,074


For the quarter ended June 30, 2015
U.S. Mainland
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	10,426		$	1,849	$	2,262		$	2,962		$	14,449		$	31,948
Provision (reversal of provision)		(2,680	)		580		2,236			383			(580	)		(61	)
Charge-offs		(432	)		—		(340	)		(480	)		(2,974	)		(4,226	)
Recoveries		1,311			—		164			450			1,005			2,930
Net recoveries (write-down)		—			—		(552	)		—			—			(552	)

Ending balance	$	8,625		$	2,429	$	3,770		$	3,315		$	11,900		$	30,039


For the quarter ended June 30, 2015
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	227,159		$	11,151		$	169,310		$	2,962		$	7,208		$	170,907		$	588,697
Provision (reversal of provision)		55,671			14,714			10,257			383			2,925			(7,716	)		76,234
Charge-offs		(47,452	)		(18,234	)		(12,221	)		(480	)		(1,693	)		(27,923	)		(108,003	)
Recoveries		11,439			1,898			1,128			450			720			10,621			26,256
Net recoveries (write-down)		(31,097	)		(542