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 September 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, 103,585,570 shares outstanding as of November 3, 2015.

POPULAR, INC.

INDEX


	Page
Part I – Financial Information

Item 1. Financial Statements

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

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

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2015 and 2014		8

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2015 and 2014		9

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014		10

Notes to Unaudited Consolidated Financial Statements		12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		160

Item 3. Quantitative and Qualitative Disclosures about Market Risk		233

Item 4. Controls and Procedures		233

Part II – Other Information

Item 1. Legal Proceedings		233

Item 1A. Risk Factors		233

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		238

Item 3. Defaults Upon Senior Securities		239

Item 4. Mine Safety Disclosures		239

Item 5. Other information		239

Item 6. Exhibits		240

Signatures		241

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)	September 30, 2015			December 31, 2014
Assets:
Cash and due from banks	$	320,555		$	381,095

Money market investments:
Securities purchased under agreements to resell		145,263			151,134
Time deposits with other banks		2,263,308			1,671,252

Total money market investments		2,408,571			1,822,386

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		37,825			80,945
Other trading securities		100,118			57,582
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		973,207			1,020,529
Other investment securities available-for-sale		4,527,724			4,294,630
Investment securities held-to-maturity, at amortized cost (fair value 2015 - $84,036; 2014 - $94,199)		100,295			103,170
Other investment securities, at lower of cost or realizable value (realizable value 2015 - $176,598; 2014 - $165,024)		173,657			161,906
Loans held-for-sale, at lower of cost or fair value		171,019			106,104

Loans held-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		22,601,271			19,498,286
Loans covered under loss-sharing agreements with the FDIC		665,428			2,542,662
Less – Unearned income		103,205			93,835
Allowance for loan losses		570,514			601,792

Total loans held-in-portfolio, net		22,592,980			21,345,321

FDIC loss share asset		311,946			542,454
Premises and equipment, net		495,103			494,581
Other real estate not covered under loss-sharing agreements with the FDIC		155,826			135,500
Other real estate covered under loss-sharing agreements with the FDIC		35,701			130,266
Accrued income receivable		118,044			121,818
Mortgage servicing assets, at fair value		210,851			148,694
Other assets		2,221,054			1,646,443
Goodwill		504,925			465,676
Other intangible assets		71,393			37,595

Total assets	$	35,530,794		$	33,096,695

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	6,070,719		$	5,783,748
Interest bearing		20,642,487			19,023,787

Total deposits		26,713,206			24,807,535

Federal funds purchased and assets sold under agreements to repurchase		1,085,765			1,271,657
Other short-term borrowings		1,200			21,200
Notes payable		1,674,511			1,711,828
Other liabilities		1,004,676			1,012,029
Liabilities from discontinued operations (Refer to Note 4)		1,800			5,064

Total liabilities		30,481,158			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; 103,745,956 shares issued (2014 – 103,614,553) and 103,556,285 shares outstanding (2014 – 103,476,847)		1,037			1,036
Surplus		4,200,805			4,196,458
Retained earnings		993,309			253,717
Treasury stock – at cost, 189,671 shares (2014 – 137,706)		(5,869	)		(4,117	)
Accumulated other comprehensive loss, net of tax		(189,806	)		(229,872	)

Total stockholders’ equity		5,049,636			4,267,382

Total liabilities and stockholders’ equity	$	35,530,794		$	33,096,695

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2015			2014			2015			2014
Interest income:
Loans	$	364,458		$	362,592		$	1,094,222		$	1,121,180
Money market investments		2,003			1,007			5,294			3,111
Investment securities		31,671			33,154			93,269			102,270
Trading account securities		3,150			4,446			8,872			15,047

Total interest income		401,282			401,199			1,201,657			1,241,608

Interest expense:
Deposits		28,357			26,533			80,479			79,614
Short-term borrowings		2,222			28,955			5,819			46,887
Long-term debt		19,968			19,290			58,876			496,896

Total interest expense		50,547			74,778			145,174			623,397

Net interest income		350,735			326,421			1,056,483			618,211
Provision for loan losses - non-covered loans		69,568			68,166			159,747			172,362
Provision (reversal) for loan losses - covered loans		(2,890	)		12,463			23,200			49,781

Net interest income after provision for loan losses		284,057			245,792			873,536			396,068

Service charges on deposit accounts		40,960			40,585			120,115			119,181
Other service fees (Refer to Note 32)		56,115			54,839			169,162			164,125
Mortgage banking activities (Refer to Note 14)		24,195			14,402			58,372			21,868
Net gain (loss) and valuation adjustments on investment securities		136			(1,763	)		141			(1,763	)
Other-than-temporary impairment losses on investment securities		—			—			(14,445	)		—
Trading account (loss) profit		(398	)		740			(3,092	)		3,772
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		—			15,593			602			29,645
Adjustments (expense) to indemnity reserves on loans sold		(5,874	)		(9,480	)		(9,981	)		(27,281	)
FDIC loss share-income (expense) (Refer to Note 33)		1,207			(4,864	)		24,421			(84,331	)
Other operating income		14,768			14,278			41,808			57,935

Total non-interest income		131,109			124,330			387,103			283,151

Operating expenses:
Personnel costs		120,863			104,542			358,298			307,943
Net occupancy expenses		21,277			21,203			66,272			62,830
Equipment expenses		14,739			12,370			44,075			35,826
Other taxes		9,951			15,369			29,638			42,575
Professional fees		77,154			67,649			231,131			201,672
Communications		6,058			6,455			18,387			19,565
Business promotion		12,325			13,062			36,914			40,486
FDIC deposit insurance		7,300			9,511			22,240			30,969
Other real estate owned (OREO) expenses		7,686			19,745			75,571			29,595
Other operating expenses		25,551			30,418			73,981			73,276
Amortization of intangibles		3,512			2,026			8,497			6,077
Restructuring costs (Refer to Note 6)		481			8,290			17,408			12,864

Total operating expenses		306,897			310,640			982,412			863,678

Income (loss) from continuing operations before income tax		108,269			59,482			278,227			(184,459	)
Income tax expense (benefit)		22,620			26,667			(478,344	)		45,807

Income (loss) from continuing operations		85,649			32,815			756,571			(230,266	)
(Loss) income from discontinued operations, net of tax (Refer to Note 4)		(9	)		29,758			1,347			(132,066	)

Net Income (Loss)	$	85,640		$	62,573		$	757,918		$	(362,332	)

Net Income (Loss) Applicable to Common Stock	$	84,709		$	61,643		$	755,126		$	(365,124	)


Net Income (Loss) per Common Share – Basic
Net income (loss) from continuing operations	$	0.82		0.31		7.33		(2.27	)
Net income (loss) from discontinued operations		—		0.29		0.01		(1.28	)

Net Income (Loss) per Common Share – Basic	$	0.82	$	0.60	$	7.34	$	(3.55	)

Net Income (Loss) per Common Share – Diluted
Net income (loss) from continuing operations	$	0.82		0.31		7.31		(2.27	)
Net income (loss) from discontinued operations		—		0.29		0.01		(1.28	)

Net Income (Loss) per Common Share – Diluted	$	0.82	$	0.60	$	7.32	$	(3.55	)

Dividends Declared per Common Share	$	0.15	$	—	$	0.15	$	—

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Quarters ended, September 30,						Nine months ended, September 30,
(In thousands)	2015			2014			2015			2014
Net income (loss)	$	85,640		$	62,573		$	757,918		$	(362,332	)

Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		(31	)		98			(1,704	)		(2,620	)
Reclassification adjustment for losses included in net income		—			—			—			7,718
Amortization of net losses of pension and postretirement benefit plans		5,025			2,127			15,075			6,379
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		(950	)		(2,850	)		(2,850	)
Unrealized holding gains (losses) on investments arising during the period		28,669			(20,081	)		22,820			34,585
Other-than-temporary impairment included in net income		—			—			14,445			—
Reclassification adjustment for gains included in net income		(136	)		(1,763	)		(141	)		(1,763	)
Unrealized net losses on cash flow hedges		(2,575	)		(684	)		(4,106	)		(4,957	)
Reclassification adjustment for net losses included in net income		1,664			1,120			3,973			4,745

Other comprehensive income (loss) before tax		31,666			(20,133	)		47,512			41,237
Income tax (expense) benefit		(2,441	)		357			(7,446	)		(2,559	)

Total other comprehensive income (loss) , net of tax		29,225			(19,776	)		40,066			38,678

Comprehensive income (loss), net of tax	$	114,865		$	42,797		$	797,984		$	(323,654	)

Tax effect allocated to each component of other comprehensive income (loss):


	Quarters ended September 30,						Nine months ended, September 30,
(In thousands)	2015			2014			2015			2014
Amortization of net losses of pension and postretirement benefit plans	$	(1,961	)	$	(829	)	$	(5,880	)	$	(2,488	)
Amortization of prior service cost of pension and postretirement benefit plans		371			370			1,112			1,112
Unrealized holding gains (losses) on investments arising during the period		(1,234	)		986			(272	)		(1,265	)
Other-than-temporary impairment included in net income		—			—			(2,486	)		—
Reclassification adjustment for gains included in net income		27			—			28			—
Unrealized net losses on cash flow hedges		1,004			267			1,601			1,933
Reclassification adjustment for net losses included in net income		(648	)		(437	)		(1,549	)		(1,851	)

Income tax (expense) benefit	$	(2,441	)	$	357		$	(7,446	)	$	(2,559	)

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									(362,332	)								(362,332	)
Issuance of stock		2				4,321												4,323
Tax windfall benefit on vesting of restricted stock						417												417
Repurchase of TARP-related warrants						(3,000	)											(3,000	)
Dividends declared:
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(3,063	)					(3,063	)
Common stock reissuance												11						11
Other comprehensive income, net of tax															38,678			38,678

Balance at September 30, 2014	$	1,036	$	50,160	$	4,171,890		$	229,306		$	(3,933	)	$	(150,067	)	$	4,298,392

Balance at December 31, 2014	$	1,036	$	50,160	$	4,196,458		$	253,717		$	(4,117	)	$	(229,872	)	$	4,267,382
Net income									757,918									757,918
Issuance of stock		1				4,176												4,177
Tax windfall benefit on vesting of restricted stock						171												171
Dividends declared:
Common stock									(15,534	)								(15,534	)
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(1,798	)					(1,798	)
Common stock reissuance												46						46
Other comprehensive income, net of tax															40,066			40,066

Balance at September 30, 2015	$	1,037	$	50,160	$	4,200,805		$	993,309		$	(5,869	)	$	(189,806	)	$	5,049,636


Disclosure of changes in number of shares:														September 30, 2015			September 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															131,403			143,945

Balance at end of the period															103,745,956			103,579,912
Treasury stock															(189,671	)		(131,706	)

Common Stock – Outstanding															103,556,285			103,448,206

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine months ended September 30,
(In thousands)	2015			2014
Cash flows from operating activities:
Net income (loss)	$	757,918		$	(362,332	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		182,947			215,378
Goodwill impairment losses		—			186,511
Amortization of intangibles		8,497			7,351
Depreciation and amortization of premises and equipment		35,459			35,407
Net accretion of discounts and amortization of premiums and deferred fees		(58,637	)		298,318
Other-than-temporary impairment on investment securities		14,445			—
Fair value adjustments on mortgage servicing rights		5,808			18,424
FDIC loss share (income) expense		(24,421	)		84,331
Adjustments (expense) to indemnity reserves on loans sold		9,981			27,281
Earnings from investments under the equity method		(17,085	)		(31,930	)
Deferred income tax (benefit) expense		(496,279	)		34,175
(Gain) loss on:
Disposition of premises and equipment		(2,939	)		(2,578	)
Sale and valuation adjustments of investment securities		(141	)		1,763
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(24,657	)		(69,391	)
Sale of foreclosed assets, including write-downs		56,391			13,147
Disposal of discontinued business		—			(28,025	)
Acquisitions of loans held-for-sale		(331,860	)		(232,430	)
Proceeds from sale of loans held-for-sale		71,296			97,638
Net originations on loans held-for-sale		(574,942	)		(512,521	)
Net (increase) decrease in:
Trading securities		783,304			883,035
Accrued income receivable		11,582			11,437
Other assets		61,179			124,669
Net increase (decrease) in:
Interest payable		(10,612	)		(11,747	)
Pension and other postretirement benefits obligation		2,567			(4,478	)
Other liabilities		(39,053	)		33,821

Total adjustments		(337,170	)		1,179,586

Net cash provided by operating activities		420,748			817,254

Cash flows from investing activities:
Net increase in money market investments		(586,185	)		(194,668	)
Purchases of investment securities:
Available-for-sale		(1,239,962	)		(1,825,654	)
Held-to-maturity		(250	)		(1,000	)
Other		(39,391	)		(97,301	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		1,152,074			1,327,672
Held-to-maturity		4,428			29,834
Other		45,497			90,530
Proceeds from sale of investment securities:
Available-for-sale		96,760			91,298
Other		12,928			27,356
Net repayments on loans		318,919			628,571
Proceeds from sale of loans		27,780			233,527
Acquisition of loan portfolios		(173,505	)		(356,710	)
Acquisition of trademark		(50	)		—
Net payments from FDIC under loss sharing agreements		245,416			179,250
Net cash received and acquired from business combination		731,279			—
Acquisition of servicing advances		(61,304	)		—
Cash paid related to business acquisition		(17,250	)		—
Net cash disbursed from disposal of discontinued business		—			(233,967	)
Mortgage servicing rights purchased		(2,400	)		—
Acquisition of premises and equipment		(41,109	)		(39,604	)
Proceeds from sale of:
Premises and equipment		10,166			12,144
Foreclosed assets		115,078			110,677

Net cash provided by (used in) used in investing activities		598,919			(18,045	)


Cash flows from financing activities:
Net increase (decrease) in:
Deposits		(289,444	)		(212,264	)
Federal funds purchased and assets sold under agreements to repurchase		(185,892	)		(8,580	)
Other short-term borrowings		(148,215	)		(400,000	)
Payments of notes payable		(719,575	)		(1,047,546	)
Proceeds from issuance of notes payable		263,286			781,905
Proceeds from issuance of common stock		4,177			4,323
Dividends paid		(2,792	)		(2,792	)
Repurchase of TARP - related warrants		—			(3,000	)
Net payments for repurchase of common stock		(1,752	)		(3,052	)

Net cash used in financing activities		(1,080,207	)		(891,006	)

Net decrease in cash and due from banks		(60,540	)		(91,797	)
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		320,555			331,414
Less: cash from discontinued operations		—			9,500

Cash and due from banks at the end of the period	$	320,555		$	321,914

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

The Consolidated Statements of Cash Flows for the nine months ended September 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	13
Note 2 -	Basis of presentation and summary of significant accounting policies	14
Note 3 -	New accounting pronouncements	15
Note 4 -	Discontinued operations	21
Note 5 -	Business combination	22
Note 6 -	Restructuring plan	25
Note 7 -	Restrictions on cash and due from banks and certain securities	26
Note 8 -	Pledged assets	27
Note 9 -	Investment securities available-for-sale	28
Note 10 -	Investment securities held-to-maturity	32
Note 11 -	Loans	34
Note 12 -	Allowance for loan losses	46
Note 13 -	FDIC loss share asset and true-up payment obligation	72
Note 14 -	Mortgage banking activities	74
Note 15 -	Transfers of financial assets and mortgage servicing assets	75
Note 16 -	Other real estate owned	79
Note 17 -	Other assets	80
Note 18 -	Goodwill and other intangible assets	81
Note 19 -	Deposits	86
Note 20 -	Borrowings	87
Note 21 -	Offsetting of financial assets and liabilities	89
Note 22 -	Trust preferred securities	91
Note 23 -	Stockholders’ equity	92
Note 24 -	Other comprehensive loss	93
Note 25 -	Guarantees	95
Note 26 -	Commitments and contingencies	98
Note 27 -	Non-consolidated variable interest entities	105
Note 28 -	Related party transactions with affiliated company / joint venture	109
Note 29 -	Fair value measurement	113
Note 30 -	Fair value of financial instruments	119
Note 31 -	Net income (loss) per common share	126
Note 32 -	Other service fees	127
Note 33 -	FDIC loss share income (expense)	128
Note 34 -	Pension and postretirement benefits	129
Note 35 -	Stock-based compensation	130
Note 36 -	Income taxes	133
Note 37 -	Supplemental disclosure on the consolidated statements of cash flows	137
Note 38 -	Segment reporting	138
Note 39 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	144

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.

Certain residential mortgage loans and commercial 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 a reduction in the allowance for loan losses, if any, and then as interest income prospectively. Decreases in expected cash flows after the acquisition date are recognized by recording an allowance for loan losses. Refer to Note 11 to the consolidated financial statements for additional information with respect to the loans acquired as part of the Doral Bank Transaction that were considered impaired.

Note 3 – New accounting pronouncements

FASB Accounting Standards Update (“ASU”) 2015-16, Business Combination - (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

The FASB issued ASU 2015-16 in September 2015, which eliminates the requirement to retrospectively adjust and revise prior period financial statements for measurement period adjustments related to a business combination. The new guidance requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The cumulative impact of measurement period adjustments on current and prior periods, including the prior period impact on depreciation, amortization, and other income statement items and their related tax effects, is now required to be recognized in the period the adjustment amount is determined and within the respective financial statement line items affected.

The new guidance requires an acquirer to disclose the nature and amount of measurement period adjustments. In addition, the amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.

The amendments of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued.

The Corporation expects to early adopt this accounting pronouncement during the fourth quarter of 2015, in connection with the Doral Bank Transaction.

FASB Accounting Standards Update 2015-15, Interest- Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

The FASB issued ASU 2015-15 in August 2015 since ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03, the SEC staff clarified that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

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

FASB Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

The FASB issued ASU 2015-14 in August 2015, which defers the effective date of ASU 2014-09 for all entities by one year. Therefore, ASU 2014-09 is now effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods, and interim periods within those fiscal years, beginning after December 15, 2016.

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, in August 2015, the FASB issued ASU 2015-14, which defers the effective date 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.

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.

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 September 30, 2015, there were no assets held within the discontinued operations. As of September 30, 2015, 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 nine months ended September 30, 2015 and 2014.


	Quarters ended September 30,						Nine month period ended September 30,
(In thousands)	2015			2014			2015			2014
Net interest income	$	—		$	16,022		$	—		$	56,911
Provision (reversal) for loan losses		—			—			—			(6,764	)
Net gain on sale of regions		—			25,775			—			25,775
Other non-interest income		—			6,567			—			26,488

Total non-interest income		—			32,342			—			52,263

Operating expenses:
Personnel costs		9			11,941			—			32,910
Net occupancy expenses		—			(1,305	)		—			5,871
Professional fees		—			4,916			(1,348	)		13,612
Goodwill impairment charge		—			—			—			186,511
Other operating expenses		—			3,054			1			9,100

Total operating expenses		9			18,606			(1,347	)		248,004

Net (loss) income from discontinued operations	$	(9	)	$	29,758		$	1,347		$	(132,066	)

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 (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 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 and third quarters 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 resulted in a decrease of $2.1 million to the initial fair value estimate of the mortgage servicing rights, a decrease in other liabilities assumed of $0.5 million and, an increase of $2.6 million in the receivable from the FDIC related to the acquisition cost of deposits, all 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		(511	)		—		50,217

Total liabilities	$	2,786,132	$	12,727		$	—	$	2,798,859

Excess of liabilities assumed over assets acquired	$	425,744
Aggregate fair value adjustments			$	(57,610	)

Additional consideration						$	441,721

Goodwill on acquisition								$	41,633

[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. 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 ten 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 nine months periods ended on September 30, 2015 include the operating results produced by the acquired assets and assumed liabilities. This includes approximately $30.9 million and $79.3 million in gross revenues and approximately $19.1 million and $60.3 million in operating expenses for the quarter and nine months periods ended on September 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 has relocated 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 has incurred restructuring charges of approximately $44.1 million, of which approximately $26.7 million were incurred during 2014 and $17.4 million during the nine months ended September 30, 2015. As of September 30, 2015, the restructuring related to the U.S. operations has been substantially completed. The Corporation does not anticipate any significant restructuring expenses to be incurred prospectively.

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


(In thousands)	Quarter ended September 30, 2015			Nine months ended September 30, 2015
Personnel costs	$	496		$	12,728
Net occupancy expenses		208			3,254
Equipment expenses		15			239
Professional fees		(406	)		375
Other operating expenses		168			812

Total restructuring costs	$	481		$	17,408

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		7,725
Payments made during the period		(20,469	)

Balance at September 30, 2015	$	792

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 September 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 September 30, 2015, the Corporation held $32 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)	September 30, 2015		December 31, 2014
Investment securities available-for-sale, at fair value	$	2,439,298	$	1,700,820
Investment securities held-to-maturity, at amortized cost		57,170		60,515
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		395,461		480,441
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		7,542,089		8,820,204

Total pledged assets	$	10,434,018	$	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 September 30, 2015, the Corporation had $ 1.5 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 September 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 $3.6 billion (December 31, 2014 - $3.7 billion). Refer to Note 20 to the consolidated financial statements for borrowings outstanding under these credit facilities. At September 30, 2015, the credit facilities authorized with the FHLB were collateralized by $ 4.8 billion in loans held-in-portfolio (December 31, 2014 - $ 4.5 billion). Also, at September 30, 2015, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $1.5 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 September 30, 2015, the credit facilities with the Fed discount window were collateralized by $ 2.7 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 September 30, 2015 and December 31, 2014.


	At September 30, 2015
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	25,070	$	591	$	—	$	25,661		4.09	%
After 1 to 5 years		1,013,895		6,617		—		1,020,512		1.01

Total U.S. Treasury securities		1,038,965		7,208		—		1,046,173		1.09

Obligations of U.S. Government sponsored entities
Within 1 year		10,000		17		—		10,017		1.61
After 1 to 5 years		964,801		4,172		815		968,158		1.34
After 5 to 10 years		250		3		—		253		5.64
After 10 years		23,000		67		—		23,067		3.21

Total obligations of U.S. Government sponsored entities		998,051		4,259		815		1,001,495		1.38

Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,744		3		—		2,747		3.94
After 1 to 5 years		7,162		—		214		6,948		4.00
After 5 to 10 years		5,940		—		1,962		3,978		4.02
After 10 years		18,580		—		5,820		12,760		6.99

Total obligations of Puerto Rico, States and political subdivisions		34,426		3		7,996		26,433		5.61

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		17,876		920		—		18,796		3.00
After 5 to 10 years		43,668		936		—		44,604		2.72
After 10 years		1,600,824		12,395		19,849		1,593,370		1.99

Total collateralized mortgage obligations - federal agencies		1,662,368		14,251		19,849		1,656,770		2.01

Mortgage-backed securities
After 1 to 5 years		24,436		1,211		7		25,640		4.65
After 5 to 10 years		268,439		6,337		27		274,749		2.52
After 10 years		1,417,444		41,317		1,957		1,456,804		3.00

Total mortgage-backed securities		1,710,319		48,865		1,991		1,757,193		2.95

Equity securities (without contractual maturity)		1,351		1,045		7		2,389		7.91

Other
After 1 to 5 years		9,004		11		—		9,015		1.70
After 5 to 10 years		1,416		47		—		1,463		3.62

Total other		10,420		58		—		10,478		1.96

Total investment securities available-for-sale	$	5,455,900	$	75,689	$	30,658	$	5,500,931		2.04	%


	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 nine months ended September 30, 2015 the Corporation sold U.S. agency securities and obligations from the Puerto Rico government and its political subdivisions. The proceeds from these sales were $ 96.8 million. The Corporation realized a gain of $ 141 thousand on these transactions. During the nine months ended September 30, 2014 the Corporation sold approximately $94.2 million in mortgage backed securities and collateralized mortgage obligations at the BPNA segment. The proceeds from this sale were $91.3 million. The Corporation realized a loss of $1.8 million on this transaction.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014.


	At September 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 U.S. Government sponsored entities	$	65,391	$	90	$	203,748	$	725	$	269,139	$	815
Obligations of Puerto Rico, States and political subdivisions		868		173		20,803		7,823		21,671		7,996
Collateralized mortgage obligations - federal agencies		184,932		970		871,984		18,879		1,056,916		19,849
Mortgage-backed securities		348,969		1,451		23,523		540		372,492		1,991
Equity securities		43		7		—		—		43		7

Total investment securities available-for-sale in an unrealized loss position	$	600,203	$	2,691	$	1,120,058	$	27,967	$	1,720,261	$	30,658


	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 September 30, 2015, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $31 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 September 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 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. These securities, for which an other-than-temporary impairment was recorded, were sold during the third quarter of 2015, resulting in a realized gain of $0.1 million. The proceeds from this sale were $26.8 million.

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 September 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.


	September 30, 2015				December 31, 2014
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,204,701	$	2,212,441	$	1,746,807	$	1,736,987
FHLB		360,171		361,276		737,149		732,894
Freddie Mac		1,015,526		1,017,525		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 September 30, 2015 and December 31, 2014.


	At September 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	$	2,920	$	—	$	440	$	2,480		5.90	%
After 1 to 5 years		13,655		—		4,714		8,941		5.98
After 5 to 10 years		20,020		—		7,637		12,383		6.14
After 10 years		62,114		4,548		7,999		58,663		2.09

Total obligations of Puerto Rico, States and political subdivisions		98,709		4,548		20,790		82,467		3.56

Collateralized mortgage obligations - federal agencies
After 5 to 10 years		86		5		—		91		5.45

Total collateralized mortgage obligations - federal agencies		86		5		—		91		5.45

Other
After 1 to 5 years		1,500		—		22		1,478		1.21

Total other		1,500		—		22		1,478		1.21

Total investment securities held-to-maturity	$	100,295	$	4,553	$	20,812	$	84,036		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 September 30, 2015 and December 31, 2014.


	At September 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	$	—	$	—	$	36,130	$	20,790	$	36,130	$	20,790
Other		1,478		22		—		—		1,478		22

Total investment securities held-to-maturity in an unrealized loss position	$	1,478	$	22	$	36,130	$	20,790	$	37,608	$	20,812


	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 September 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 $57 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 were reclassified as “non-covered” in the accompanying statement of financial condition during the quarter ended June 30, 2015, because they are no longer subject to the shared-loss payments by the FDIC. However, included in these balances were loans with carrying amount at June 30, 2015 of approximately $248.7 million 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.

Change in non-accrual accounting policy for guaranteed residential mortgage loans

During the quarter ended September 30, 2015, the Corporation changed its policy on interest income recognition for residential mortgage loans guaranteed by the Federal Housing Administration (“FHA”) or the Veterans Administration (“VA”). Previously, the Corporation discontinued the recognition of interest income on these loans when they were 18-months delinquent as to principal or interest. The Corporation modified its policy to discontinue the recognition of interest when 15-months delinquent as to principal or interest. This change in estimate was based on an analysis of historical collections from these agencies. This change in policy resulted in the reversal of previously accrued interest amounting to approximately $1.9 million during the quarter ended September 30, 2015.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at September 30, 2015 and December 31, 2014.


(In thousands)	September 30, 2015		December 31, 2014
Commercial multi-family	$	784,641	$	487,280
Commercial real estate non-owner occupied		3,629,669		2,526,146
Commercial real estate owner occupied		2,080,668		1,667,267
Commercial and industrial		3,635,446		3,453,574
Construction		692,492		251,820
Mortgage		7,165,479		6,502,886
Leasing		606,927		564,389
Legacy^[2]		67,974		80,818
Consumer:
Credit cards		1,135,510		1,155,229
Home equity lines of credit		326,559		366,162
Personal		1,377,131		1,375,452
Auto		805,063		767,369
Other		190,507		206,059

Total loans held-in-portfolio^[1]	$	22,498,066	$	19,404,451

[1]	Non-covered loans held-in-portfolio at September 30, 2015 are net of $103 million in unearned income and exclude $171 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 September 30, 2015 and December 31, 2014.


(In thousands)	September 30, 2015		December 31, 2014
Commercial real estate	$	—	$	1,511,472
Commercial and industrial		—		103,309
Construction		—		70,336
Mortgage		645,663		822,986
Consumer		19,765		34,559

Total covered loans held-in-portfolio	$	665,428	$	2,542,662

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


(In thousands)	September 30, 2015		December 31, 2014
Commercial	$	47,447	$	309
Construction		10		—
Legacy		—		319
Mortgage		123,562		100,166
Consumer		—		5,310

Total loans held-for-sale	$	171,019	$	106,104

Excluding the impact of the Doral Bank Transaction, during the quarter and nine months ended September 30, 2015, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $91 million and $495 million, respectively (September 30, 2014 - $139 million and $470 million, respectively). The Corporation did not record purchases of consumer loans during the quarter and nine months ended September 30, 2015 (September 30, 2014 - $92 million). In addition, during the nine months ended September 30, 2015, the Corporation did not record purchases of commercial loans (during the quarter and nine months ended September 30, 2014 - $21 million). The Corporation recorded purchases amounting to $762 thousand and $926 thousand of lease financing during the quarter and nine months ended September 30, 2015, respectively, and none during the nine months ended September 30, 2014.

The Corporation sold approximately $19 million and $82 million of residential mortgage loans (on a whole loan basis) during the quarter and nine months ended September 30, 2015, respectively (September 30, 2014 - $56 million and $126 million, respectively). Also, the Corporation securitized approximately $ 251 million and $ 651 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2015, respectively (September 30, 2014 - $ 172 million and $ 522 million, respectively). Furthermore, the Corporation securitized approximately $ 57 million and $ 174 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2015, respectively (September 30, 2014 - $ 51 million and $ 174 million, respectively). The Corporation sold commercial and construction loans with a book value of approximately $9 million during the nine months ended September 30, 2015 (during the quarter and nine months ended September 30, 2014 - $96 million and $157 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 September 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. Residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At September 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	$	1,287	$	—	$	46	$	—	$	1,333	$	—
Commercial real estate non-owner occupied		45,869		—		—		—		45,869		—
Commercial real estate owner occupied		113,654		—		722		—		114,376		—
Commercial and industrial		75,085		515		2,734		—		77,819		515
Construction		3,605		—		—		—		3,605		—
Mortgage^[3]		331,022		422,786		12,388		—		343,410		422,786
Leasing		3,091		—		—		—		3,091		—
Legacy		—		—		4,059		—		4,059		—
Consumer:
Credit cards		—		19,092		406		—		406		19,092
Home equity lines of credit		—		306		4,078		—		4,078		306
Personal		22,233		578		983		—		23,216		578
Auto		12,007		—		6		—		12,013		—
Other		1,616		111		11		—		1,627		111

Total^[2]	$	609,469	$	443,388	$	25,433	$	—	$	634,902	$	443,388

[1]

Non-covered loans of $351 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 $ 48 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 $159 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2015. Furthermore, the Corporation has approximately $71 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 September 30, 2015 and December 31, 2014 for non-covered loans held-in-portfolio (net of unearned income), including loans previously covered by the commercial FDIC loss sharing agreements.


September 30, 2015
Puerto Rico
	Past due								Current		Non-covered loans HIP Puerto Rico
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered loans HIP Puerto Rico
Commercial multi-family	$	767	$	119	$	1,732	$	2,618	$	130,949	$	133,567
Commercial real estate non-owner occupied		61,049		3,837		116,146		181,032		2,570,075		2,751,107
Commercial real estate owner occupied		27,884		8,803		163,507		200,194		1,733,278		1,933,472
Commercial and industrial		7,140		3,927		78,740		89,807		2,613,791		2,703,598
Construction		220		152		26,396		26,768		81,910		108,678
Mortgage		312,915		164,142		850,258		1,327,315		4,893,080		6,220,395
Leasing		7,048		1,683		3,091		11,822		595,105		606,927
Consumer:
Credit cards		12,755		8,749		19,092		40,596		1,080,881		1,121,477
Home equity lines of credit		173		393		306		872		10,577		11,449
Personal		14,726		9,001		22,811		46,538		1,186,307		1,232,845
Auto		34,965		7,763		12,007		54,735		750,255		804,990
Other		725		463		2,227		3,415		186,720		190,135

Total	$	480,367	$	209,032	$	1,296,313	$	1,985,712	$	15,832,928	$	17,818,640


September 30, 2015
U.S. mainland
	Past due								Current		Loans HIP U.S. mainland
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	—	$	118	$	46	$	164	$	650,910	$	651,074
Commercial real estate non-owner occupied		11,400		255		—		11,655		866,907		878,562
Commercial real estate owner occupied		1,711		—		722		2,433		144,763		147,196
Commercial and industrial		1,046		1,648		109,922		112,616		819,232		931,848
Construction		19,610		1,407		—		21,017		562,797		583,814
Mortgage		2,200		5,422		12,388		20,010		925,074		945,084
Legacy		266		598		4,059		4,923		63,051		67,974
Consumer:
Credit cards		242		130		406		778		13,255		14,033
Home equity lines of credit		2,698		758		4,078		7,534		307,576		315,110
Personal		736		736		983		2,455		141,831		144,286
Auto		—		—		6		6		67		73
Other		—		5		11		16		356		372

Total	$	39,909	$	11,077	$	132,621	$	183,607	$	4,495,819	$	4,679,426


September 30, 2015
Popular, Inc.
	Past due								Current		Non-covered loans HIP Popular, Inc.
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered loans HIP Popular, Inc.
Commercial multi-family	$	767	$	237	$	1,778	$	2,782	$	781,859	$	784,641
Commercial real estate non-owner occupied		72,449		4,092		116,146		192,687		3,436,982		3,629,669
Commercial real estate owner occupied		29,595		8,803		164,229		202,627		1,878,041		2,080,668
Commercial and industrial		8,186		5,575		188,662		202,423		3,433,023		3,635,446
Construction		19,830		1,559		26,396		47,785		644,707		692,492
Mortgage		315,115		169,564		862,646		1,347,325		5,818,154		7,165,479
Leasing		7,048		1,683		3,091		11,822		595,105		606,927
Legacy		266		598		4,059		4,923		63,051		67,974
Consumer:
Credit cards		12,997		8,879		19,498		41,374		1,094,136		1,135,510
Home equity lines of credit		2,871		1,151		4,384		8,406		318,153		326,559
Personal		15,462		9,737		23,794		48,993		1,328,138		1,377,131
Auto		34,965		7,763		12,013		54,741		750,322		805,063
Other		725		468		2,238		3,431		187,076		190,507

Total	$	520,276	$	220,109	$	1,428,934	$	2,169,319	$	20,328,747	$	22,498,066


December 31, 2014
Puerto Rico
	Past due								Current		Non-covered loans HIP Puerto Rico
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered 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								Current		Loans HIP U.S. mainland
(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								Current		Non-covered loans HIP Popular, Inc.
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered 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 September 30, 2015 and December 31, 2014 by main categories.


(In thousands)	September 30, 2015		December 31, 2014
Commercial	$	47,447	$	309
Construction		10		—
Mortgage		224		14,041
Consumer		—		4,549

Total	$	47,681	$	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	$	1,246,855

Gross contractual amounts receivable (principal and interest)	$	1,680,121

Estimate of contractual cash flows not expected to be collected	$	11,430

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 September 30, 2015 and December 31, 2014.


	September 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		4,077		109		4,376		28
Consumer		110		—		735		—

Total^[1]	$	4,187	$	109	$	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 September 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.


September 30, 2015
	Past due								Current		Covered loans HIP
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP
Mortgage	$	36,637	$	17,313	$	88,191	$	142,141	$	503,522	$	645,663
Consumer		1,291		542		1,419		3,252		16,513		19,765

Total covered loans	$	37,928	$	17,855	$	89,610	$	145,393	$	520,035	$	665,428


December 31, 2014
	Past due								Current		Covered loans HIP
(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 September 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.


	September 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	$	1,152,066		$	50,676		$	1,202,742		$	1,392,482		$	90,202		$	1,482,684
Commercial and industrial		91,702			1,004			92,706			57,059			2,197			59,256
Construction		14,795			14,126			28,921			32,836			32,409			65,245
Mortgage		690,251			36,081			726,332			764,148			45,829			809,977
Consumer		23,927			1,384			25,311			25,617			1,393			27,010

Carrying amount		1,972,741			103,271			2,076,012			2,272,142			172,030			2,444,172
Allowance for loan losses		(54,027	)		(10,556	)		(64,583	)		(52,798	)		(26,048	)		(78,846	)

Carrying amount, net of allowance	$	1,918,714		$	92,715		$	2,011,429		$	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 $655 million as of September 30,2015.

The outstanding principal balance of Westernbank loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.5 billion at September 30, 2015 (December 31, 2014 - $3.1 billion). At September 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 September 30, 2015 and 2014, were as follows:


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the quarters ended
	September 30, 2015									September 30, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,239,776		$	6,148		$	1,245,924		$	1,271,202		$	9,556		$	1,280,758
Accretion		(44,568	)		(2,125	)		(46,693	)		(62,958	)		(3,059	)		(66,017	)
Change in expected cash flows		(56,526	)		2,744			(53,782	)		95,920			1,860			97,780

Ending balance	$	1,138,682		$	6,767		$	1,145,449		$	1,304,164		$	8,357		$	1,312,521


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the nine months ended
	September 30, 2015									September 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		(148,572	)		(7,812	)		(156,384	)		(212,826	)		(12,172	)		(224,998	)
Change in expected cash flows		21,502			8,994			30,496			219,265			9,049			228,314

Ending balance	$	1,138,682		$	6,767		$	1,145,449		$	1,304,164		$	8,357		$	1,312,521


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the quarters ended
	September 30, 2015 [1]									September 30, 2014
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	2,022,493		$	114,585		$	2,137,078		$	2,387,911		$	222,753		$	2,610,664
Accretion		44,568			2,125			46,693			62,958			3,059			66,017
Collections and charge-offs		(94,320	)		(13,439	)		(107,759	)		(124,265	)		(23,983	)		(148,248	)

Ending balance	$	1,972,741		$	103,271		$	2,076,012		$	2,326,604		$	201,829		$	2,528,433
Allowance for loan losses
ASC 310-30 Westernbank loans		(54,027	)		(10,556	)		(64,583	)		(52,812	)		(32,828	)		(85,640	)

Ending balance, net of ALLL	$	1,918,714		$	92,715		$	2,011,429		$	2,273,792		$	169,001		$	2,442,793

[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 $ 655 million as of September 30, 2015.


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the nine months ended
	September 30, 2015 [1]									September 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		148,572			7,812			156,384			212,826			12,172			224,998
Collections and charge offs		(447,973	)		(76,571	)		(524,544	)		(395,297	)		(129,215	)		(524,512	)

Ending balance	$	1,972,741		$	103,271		$	2,076,012		$	2,326,604		$	201,829		$	2,528,433
Allowance for loan losses
ASC 310-30 Westernbank loans		(54,027	)		(10,556	)		(64,583	)		(52,812	)		(32,828	)		(85,640	)

Ending balance, net of ALLL	$	1,918,714		$	92,715		$	2,011,429		$	2,273,792		$	169,001		$	2,442,793

[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 $655 million as of September 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 $707 million at September 30, 2015 (December 31, 2014 - $243 million). At September 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 September 30, 2015 and 2014 were as follows:


Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the quarter ended September 30, 2015			For the quarter ended September 30, 2014
Beginning balance	$	162,159		$	76,827
Additions		25,978			3,761
Accretion		(4,543	)		(2,594	)
Change in expected cash flows		1,402			23,191

Ending balance	$	184,996		$	101,185


Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the nine months ended September 30, 2015			For the nine months ended September 30, 2014
Beginning balance	$	116,304		$	49,398
Additions		82,046			14,904
Accretion		(12,399	)		(7,520	)
Change in expected cash flows		(955	)		44,403

Ending balance	$	184,996		$	101,185


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the quarter ended September 30, 2015			For the quarter ended September 30, 2014
Beginning balance	$	368,287			199,041
Additions		281,911			12,985
Accretion		4,543			2,595
Collections and charge-offs		(13,655	)		(7,151	)

Ending balance	$	641,086		$	207,470
Allowance for loan losses ASC 310-30 other acquired loans		(18,561	)		(16,256	)

Ending balance, net of ALLL	$	622,525		$	191,214


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the nine months ended September 30, 2015			For the nine months ended September 30, 2014
Beginning balance	$	212,763		$	173,659
Additions		456,091			46,165
Accretion		12,399			7,520
Collections and charge-offs		(40,167	)		(19,874	)

Ending balance	$	641,086		$	207,470
Allowance for loan losses ASC 310-30 other acquired loans		(18,561	)		(16,256	)

Ending balance, net of ALLL	$	622,525		$	191,214

During the quarter ended September 30 2015, the Corporation reclassified loans with a carrying value as of the acquisition date of February 27, 2015, of approximately $269.5 million to be accounted for under ASC 310-30. Based on new information obtained about facts and circumstances that existed as of the acquisition date, in accordance with ASC 805, the Corporation determined that these loans had evidence of deteriorated credit quality as of the acquisition date. These balances are reflected as an addition of $270.9 million to the carrying value of loans and $21.8 million to the accretable discount of loans accounted for under ASC 310-30 in the tables above.

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	$	573,274
Non-accretable difference		74,342

Cash flows expected to be collected		498,932
Accretable yield		80,329

Fair value of loans accounted for under ASC Subtopic 310-30	$	418,603

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 September 30, 2015, 18% (September 30, 2014- 33%) 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 September 30, 2015, 17% (September 30, 2014 - 12%) 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 $21.5 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 September 30, 2015 and 2014.


For the quarter ended September 30, 2015
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	207,095		$	6,558		$	126,177		$	9,160		$	133,710		$	482,700
Provision (reversal of provision)		23,044			2,375			19,412			825			23,099			68,755
Charge-offs		(16,845	)		(451	)		(16,263	)		(1,485	)		(29,625	)		(64,669	)
Recoveries		7,673			3,099			739			591			5,322			17,424

Ending balance	$	220,967		$	11,581		$	130,065		$	9,091		$	132,506		$	504,210


For the quarter ended September 30, 2015
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	—		$	—		$	37,815		$	—		$	259		$	38,074
Provision (reversal of provision)		—			—			(2,880	)		—			(10	)		(2,890	)
Charge-offs		—			—			(790	)		—			(76	)		(866	)
Recoveries		—			—			189			—			2			191

Ending balance	$	—		$	—		$	34,334		$	—		$	175		$	34,509


For the quarter ended September 30, 2015
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	8,625		$	2,429		$	3,770		$	3,315		$	11,900		$	30,039
Provision (reversal of provision)		(1,090	)		741			1,452			(1,113	)		823			813
Charge-offs		(308	)		—			(768	)		(804	)		(1,826	)		(3,706	)
Recoveries		2,267			—			(19	)		1,407			994			4,649

Ending balance	$	9,494		$	3,170		$	4,435		$	2,805		$	11,891		$	31,795


For the quarter ended September 30, 2015
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	215,720		$	8,987		$	167,762		$	3,315		$	9,160		$	145,869		$	550,813
Provision (reversal of provision)		21,954			3,116			17,984			(1,113	)		825			23,912			66,678
Charge-offs		(17,153	)		(451	)		(17,821	)		(804	)		(1,485	)		(31,527	)		(69,241	)
Recoveries		9,940			3,099			909			1,407			591			6,318			22,264

Ending balance	$	230,461		$	14,751		$	168,834		$	2,805		$	9,091		$	144,572		$	570,514


For the nine months ended September 30, 2015
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	201,589		$	5,483		$	120,860		$	7,131		$	154,072		$	489,135
Provision (reversal of provision)		71,954			822			45,359			4,596			38,466			161,197
Charge-offs		(49,740	)		(2,645	)		(38,597	)		(4,415	)		(83,507	)		(178,904	)
Recoveries		18,707			6,497			1,861			1,779			20,897			49,741
Net write-downs 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	$	220,967		$	11,581		$	130,065		$	9,091		$	132,506		$	504,210


For the nine months ended September 30, 2015
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	30,871		$	7,202		$	40,948		$	—		$	3,052		$	82,073
Provision (reversal of provision)		10,115			15,150			(1,812	)		—			(253	)