Edgar Filing: POPULAR INC

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2016

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. 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). 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 ☐ 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, 103,779,136 shares outstanding as of November 4, 2016.

POPULAR, INC.

INDEX


	Page
Part I – Financial Information

Item 1. Financial Statements

Unaudited Consolidated Statements of Financial Condition at September 30, 2016 and December 31, 2015		5

Unaudited Consolidated Statements of Operations for the quarters and nine months ended September 30, 2016 and 2015		6

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2016 and 2015		8

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2016 and 2015		9

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015		10

Notes to Unaudited Consolidated Financial Statements		12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		141

Item 3. Quantitative and Qualitative Disclosures about Market Risk		197

Item 4. Controls and Procedures		197

Part II – Other Information

Item 1. Legal Proceedings		198

Item 1A. Risk Factors		198

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		198

Item 3. Defaults Upon Senior Securities		199

Item 4. Mine Safety Disclosures		199

Item 5. Other information		199

Item 6. Exhibits		199

Signatures		200

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 in the geographic areas we serve;

•

changes in interest rates, as well as the magnitude of such changes;

•

the fiscal and monetary policies of the federal government and its agencies;

•

changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;

•

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“The Dodd-Frank Act”) on our businesses, business practices and cost of operations;

•

regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;

•

the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;

•

the impact of the Commonwealth of Puerto Rico’s fiscal crisis, and the measures taken and to be taken by the Puerto Rico Government, on the economy and our business, and the ability of the Government to manage this crisis in an orderly manner;

•

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 and (b) risks associated with the limited amount of diligence able to be conducted by a buyer in an FDIC transaction.

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;

•

risks associated with maintaining customer relationships from our acquisition of certain assets and deposits (other than certain brokered deposits) of Doral Bank from the FDIC as receiver;

•

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, 2015 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 Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, 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, 2016			December 31, 2015
Assets:
Cash and due from banks	$	350,545		$	363,674

Money market investments:
Securities purchased under agreements to resell		22,380			96,338
Time deposits with other banks		3,941,115			2,083,754

Total money market investments		3,963,495			2,180,092

Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		22,848			19,506
Other trading securities		49,736			52,153
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		785,124			739,045
Other investment securities available-for-sale		6,843,532			5,323,947
Investment securities held-to-maturity, at amortized cost (fair value 2016 - $79,410; 2015 - $82,889)		97,973			100,903
Other investment securities, at lower of cost or realizable value (realizable value 2016 - $172,077; 2015 - $175,291)		168,791			172,248
Loans held-for-sale, at lower of cost or fair value		72,076			137,000

Loans held-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		22,714,358			22,453,813
Loans covered under loss-sharing agreements with the FDIC		588,211			646,115
Less – Unearned income		118,386			107,698
Allowance for loan losses		555,855			537,111

Total loans held-in-portfolio, net		22,628,328			22,455,119

FDIC loss-share asset		152,467			310,221
Premises and equipment, net		537,975			502,611
Other real estate not covered under loss-sharing agreements with the FDIC		184,828			155,231
Other real estate covered under loss-sharing agreements with the FDIC		37,414			36,685
Accrued income receivable		119,691			124,234
Mortgage servicing assets, at fair value		200,354			211,405
Other assets		2,163,939			2,193,162
Goodwill		627,294			626,388
Other intangible assets		47,886			58,109

Total assets	$	39,054,296		$	35,761,733

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	6,950,287		$	6,401,515
Interest bearing		23,376,758			20,808,208

Total deposits		30,327,045			27,209,723

Federal funds purchased and assets sold under agreements to repurchase		765,251			762,145
Other short-term borrowings		1,200			1,200
Notes payable		1,598,533			1,662,508
Other liabilities		980,057			1,019,018
Liabilities from discontinued operations (Refer to Note 4)		1,815			1,815

Total liabilities		33,673,901			30,656,409

Commitments and contingencies (Refer to Note 23)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391shares issued and outstanding		50,160			50,160
Common stock, $0.01 par value; 170,000,000 shares authorized; 104,014,381 shares issued (2015 - 103,816,185) and 103,762,596 shares outstanding (2015 - 103,618,976)		1,040			1,038
Surplus		4,234,842			4,229,156
Retained earnings		1,259,295			1,087,957
Treasury stock - at cost, 251,785 shares (2015 - 197,209)		(7,647	)		(6,101	)
Accumulated other comprehensive loss, net of tax		(157,295	)		(256,886	)

Total stockholders’ equity		5,380,395			5,105,324

Total liabilities and stockholders’ equity	$	39,054,296		$	35,761,733

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)	2016			2015			2016			2015
Interest income:
Loans	$	363,550		$	364,458		$	1,096,468		$	1,094,222
Money market investments		4,568			2,003			11,320			5,294
Investment securities		37,732			31,671			110,728			93,269
Trading account securities		1,449			3,150			5,013			8,872

Total interest income		407,299			401,282			1,223,529			1,201,657

Interest expense:
Deposits		32,362			28,357			92,835			80,479
Short-term borrowings		2,132			2,222			6,051			5,819
Long-term debt		19,118			19,968			57,993			58,876

Total interest expense		53,612			50,547			156,879			145,174

Net interest income		353,687			350,735			1,066,650			1,056,483
Provision for loan losses - non-covered loans		42,594			69,568			130,202			159,747
Provision (reversal) for loan losses - covered loans		750			(2,890	)		(1,551	)		23,200

Net interest income after provision for loan losses		310,343			284,057			937,999			873,536

Service charges on deposit accounts		40,776			40,960			120,934			120,115
Other service fees (Refer to Note 29)		59,169			56,115			169,496			169,162
Mortgage banking activities (Refer to Note 12)		15,272			24,195			42,050			58,372
Net gain on sale of investment securities		349			136			1,932			141
Other-than-temporary impairment losses on investment securities		—			—			(209	)		(14,445	)
Trading account (loss) profit		(113	)		(398	)		842			(3,092	)
Net gain on sale of loans, including valuation adjustments on loans held-for-sale		8,549			—			8,245			602
Adjustments (expense) to indemnity reserves on loans sold		(4,390	)		(5,874	)		(14,234	)		(9,981	)
FDIC loss-share (expense) income (Refer to Note 30)		(61,723	)		1,207			(77,445	)		24,421
Other operating income		18,089			14,768			46,500			41,808

Total non-interest income		75,978			131,109			298,111			387,103

Operating expenses:
Personnel costs		121,224			120,863			365,023			358,298
Net occupancy expenses		21,626			21,277			63,770			66,272
Equipment expenses		15,922			14,739			45,731			44,075
Other taxes		11,324			9,951			31,689			29,638
Professional fees		81,266			77,154			237,350			231,131
Communications		5,785			6,058			18,117			18,387
Business promotion		12,726			12,325			37,541			36,914
FDIC deposit insurance		5,854			7,300			18,586			22,240
Other real estate owned (OREO) expenses		11,295			7,686			33,416			75,571
Other operating expenses		29,752			25,551			70,432			73,981
Amortization of intangibles		3,097			3,512			9,308			8,497
Goodwill impairment charge		3,801			—			3,801			—
Restructuring costs (Refer to Note 4)		—			481			—			17,408

Total operating expenses		323,672			306,897			934,764			982,412

Income from continuing operations before income tax		62,649			108,269			301,346			278,227
Income tax expense (benefit)		15,839			22,620			80,550			(478,344	)

Income from continuing operations		46,810			85,649			220,796			756,571
(Loss) income from discontinued operations, net of tax (Refer to Note 4)		—			(9	)		—			1,347

Net Income	$	46,810		$	85,640		$	220,796		$	757,918



Net Income Applicable to Common Stock	$	45,880	$	84,709	$	218,004	$	755,126

Net Income per Common Share – Basic
Net income from continuing operations	$	0.44	$	0.82	$	2.11	$	7.33
Net income from discontinued operations		—		—		—		0.01

Net Income per Common Share – Basic	$	0.44	$	0.82	$	2.11	$	7.34

Net Income per Common Share – Diluted
Net income from continuing operations	$	0.44	$	0.82	$	2.11	$	7.31
Net income from discontinued operations		—		—		—		0.01

Net Income per Common Share – Diluted	$	0.44	$	0.82	$	2.11	$	7.32

Dividends Declared per Common Share	$	0.15	$	0.15	$	0.45	$	0.15


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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Quarters ended,						Nine months ended,
	September 30,						September 30,
(In thousands)	2016			2015			2016			2015
Net income	$	46,810		$	85,640		$	220,796		$	757,918

Other comprehensive (loss) income before tax:
Foreign currency translation adjustment		(325	)		(31	)		(2,465	)		(1,704	)
Amortization of net losses of pension and postretirement benefit plans		5,488			5,025			16,461			15,075
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		(950	)		(2,850	)		(2,850	)
Unrealized holding (losses) gains on investments arising during the period		(15,428	)		28,669			98,900			22,820
Other-than-temporary impairment included in net income		—			—			209			14,445
Reclassification adjustment for gains included in net income		(349	)		(136	)		(349	)		(141	)
Unrealized net losses on cash flow hedges		(1,123	)		(2,575	)		(4,662	)		(4,106	)
Reclassification adjustment for net losses included in net income		1,650			1,664			4,466			3,973

Other comprehensive (loss) income before tax		(11,037	)		31,666			109,710			47,512
Income tax expense		(646	)		(2,441	)		(10,119	)		(7,446	)

Total other comprehensive (loss) income, net of tax		(11,683	)		29,225			99,591			40,066

Comprehensive income, net of tax	$	35,127		$	114,865		$	320,387		$	797,984


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

	Quarters ended						Nine months ended,
	September 30,						September 30,
(In thousands)	2016			2015			2016			2015
Amortization of net losses of pension and postretirement benefit plans	$	(2,140	)	$	(1,961	)	$	(6,420	)	$	(5,880	)
Amortization of prior service cost of pension and postretirement benefit plans		370			371			1,110			1,112
Unrealized holding (losses) gains on investments arising during the period		1,297			(1,234	)		(4,877	)		(272	)
Other-than-temporary impairment included in net income		—			—			(42	)		(2,486	)
Reclassification adjustment for gains included in net income		33			27			33			28
Unrealized net losses on cash flow hedges		438			1,004			1,819			1,601
Reclassification adjustment for net losses included in net income		(644	)		(648	)		(1,742	)		(1,549	)

Income tax expense	$	(646	)	$	(2,441	)	$	(10,119	)	$	(7,446	)


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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)


														Accumulated
														other
	Common		Preferred					Retained			Treasury			comprehensive
(In thousands)	stock		stock		Surplus			earnings			stock			loss			Total
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

Balance at December 31, 2015	$	1,038	$	50,160	$	4,229,156		$	1,087,957		$	(6,101	)	$	(256,886	)	$	5,105,324
Net income									220,796									220,796
Issuance of stock		2				5,716												5,718
Tax windfall shortfall on vesting of restricted stock						(30	)											(30	)
Dividends declared:
Common stock									(46,666	)								(46,666	)
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(1,563	)					(1,563	)
Common stock reissuance												17						17
Other comprehensive income, net of tax															99,591			99,591

Balance at September 30, 2016	$	1,040	$	50,160	$	4,234,842		$	1,259,295		$	(7,647	)	$	(157,295	)	$	5,380,395


														September 30,			September 30,
Disclosure of changes in number of shares:														2016			2015
Preferred Stock:
Balance at beginning and end of period															2,006,391			2,006,391

Common Stock – Issued:
Balance at beginning of period															103,816,185			103,614,553
Issuance of stock															198,196			131,403

Balance at end of the period															104,014,381			103,745,956
Treasury stock															(251,785	)		(189,671	)

Common Stock – Outstanding															103,762,596			103,556,285


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)	2016			2015
Cash flows from operating activities:
Net income	$	220,796		$	757,918

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		128,651			182,947
Goodwill impairment losses		3,801			—
Amortization of intangibles		9,308			8,497
Depreciation and amortization of premises and equipment		34,725			35,459
Net accretion of discounts and amortization of premiums and deferred fees		(36,753	)		(58,637	)
Other-than-temporary impairment on investment securities		209			14,445
Fair value adjustments on mortgage servicing rights		18,879			5,808
FDIC loss share expense (income)		77,445			(24,421	)
Adjustments (expense) to indemnity reserves on loans sold		14,234			9,981
Earnings from investments under the equity method		(23,812	)		(17,085	)
Deferred income tax expense (benefit)		61,918			(496,279	)
Loss (gain) on:
Disposition of premises and equipment and other productive assets		3,603			(2,939	)
Sale and valuation adjustments of investment securities		(1,932	)		(141	)
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(32,982	)		(24,657	)
Sale of foreclosed assets, including write-downs		13,160			56,391
Acquisitions of loans held-for-sale		(223,189	)		(331,860	)
Proceeds from sale of loans held-for-sale		58,003			71,296
Net originations on loans held-for-sale		(365,353	)		(574,942	)
Net decrease (increase) in:
Trading securities		578,133			783,304
Accrued income receivable		4,543			11,582
Other assets		(28,201	)		61,179
Net (decrease) increase in:
Interest payable		(11,553	)		(10,612	)
Pension and other postretirement benefits obligation		(56,537	)		2,567
Other liabilities		(5,292	)		(39,053	)

Total adjustments		221,008			(337,170	)

Net cash provided by operating activities		441,804			420,748

Cash flows from investing activities:
Net increase in money market investments		(1,783,402	)		(586,185	)
Purchases of investment securities:
Available-for-sale		(2,408,514	)		(1,239,962	)
Held-to-maturity		—			(250	)
Other		(14,017	)		(39,391	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		951,447			1,152,074
Held-to-maturity		4,182			4,428
Other		11,051			45,497
Proceeds from sale of investment securities:
Available-for-sale		1,556			96,760
Other		8,006			12,928
Net (disbursements) repayments on loans		(93,354	)		318,919
Proceeds from sale of loans		134,114			27,780
Acquisition of loan portfolios		(355,507	)		(173,505	)
Acquisition of trademark		—			(50	)
Net payments from FDIC under loss sharing agreements		95,407			245,416
Net cash received and acquired from business combination		—			731,279
Acquisition of servicing advances		—			(61,304	)
Cash paid related to business acquisition		—			(17,250	)
Return of capital from equity method investments		324			—
Mortgage servicing rights purchased		—			(2,400	)
Acquisition of premises and equipment		(78,297	)		(41,109	)
Proceeds from sale of:
Premises and equipment and other productive assets		5,519			10,166
Foreclosed assets		54,600			115,078

Net cash (used in) provided by investing activities		(3,466,885	)		598,919


Cash flows from financing activities:
Net increase (decrease) in:
Deposits		3,119,674			(289,444	)
Federal funds purchased and assets sold under agreements to repurchase		3,106			(185,892	)
Other short-term borrowings		—			(148,215	)
Payments of notes payable		(230,608	)		(719,575	)
Proceeds from issuance of notes payable		165,047			263,286
Proceeds from issuance of common stock		5,718			4,177
Dividends paid		(49,438	)		(2,792	)
Net payments for repurchase of common stock		(1,547	)		(1,752	)

Net cash provided by (used in) financing activities		3,011,952			(1,080,207	)

Net decrease in cash and due from banks		(13,129	)		(60,540	)
Cash and due from banks at beginning of period		363,674			381,095

Cash and due from banks at the end of the period	$	350,545		$	320,555


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

During the nine months ended September 30, 2016 there have not been any cash flows associated with discontinued operations. The Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 includes 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 and restructuring plan	19
Note 5	-	Business combination	20
Note 6	-	Restrictions on cash and due from banks and certain securities	22
Note 7	-	Investment securities available-for-sale	23
Note 8	-	Investment securities held-to-maturity	27
Note 9	-	Loans	29
Note 10	-	Allowance for loan losses	39
Note 11	-	FDIC loss share asset and true-up payment obligation	63
Note 12	-	Mortgage banking activities	65
Note 13	-	Transfers of financial assets and mortgage servicing assets	66
Note 14	-	Other real estate owned	70
Note 15	-	Other assets	71
Note 16	-	Goodwill and other intangible assets	72
Note 17	-	Deposits	76
Note 18	-	Borrowings	77
Note 19	-	Offsetting of financial assets and liabilities	79
Note 20	-	Stockholders’ equity	81
Note 21	-	Other comprehensive loss	82
Note 22	-	Guarantees	84
Note 23	-	Commitments and contingencies	86
Note 24	-	Non-consolidated variable interest entities	92
Note 25	-	Related party transactions	95
Note 26	-	Fair value measurement	99
Note 27	-	Fair value of financial instruments	106
Note 28	-	Net income per common share	110
Note 29	-	Other service fees	111
Note 30	-	FDIC loss share (expense) income	112
Note 31	-	Pension and postretirement benefits	113
Note 32	-	Stock-based compensation	114
Note 33	-	Income taxes	117
Note 34	-	Supplemental disclosure on the consolidated statements of cash flows	120
Note 35	-	Segment reporting	121
Note 36	-	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	126

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, mortgage, 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”). BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, New Jersey and South Florida under the name of Popular Community Bank. Refer to Note 4 for discussion of the sales of the California, Illinois and Central Florida regional operations during 2014. Note 35 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. 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, 2015 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 2015 consolidated financial statements and notes to the financial statements to conform with the 2016 presentation.

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, 2015, included in the Corporation’s 2015 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 3 – New accounting pronouncements

Recently Issued Accounting Standards Updates

FASB Accounting Standards Update (“ASU”) 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control

The FASB issued ASU 2016-17 in October 2016, which changes how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control. Under the new guidance, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted, including adoption in an interim period.

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

FASB Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

The FASB issued ASU 2016-16 in October 2016, which eliminates the exception for all intra-entity sales of assets other than inventory that requires deferral of the tax effects until the transferred asset is sold to a third party or otherwise recovered through use. The new guidance requires a reporting entity to recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, but the guidance can only be adopted in the first interim period of a fiscal year. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption.

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

FASB Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

The FASB issued ASU 2016-15 in August 2016, which addresses specific cash flow issues with the objective of reducing existing diversity in practice, which may lead to a difference in the classification of transactions between operating, financing or investing activities. Among other things, the guidance provides an accounting policy election for classifying distributions received from equity method investees and clarifies the application of the predominance principle.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Entities will be required to apply the guidance retrospectively to all periods presented, unless it is impracticable to do so.

The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of cash flows.

FASB Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The FASB issued ASU 2016-13 in June 2016, which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet exposures. Under current U.S. GAAP, an entity reflects credit losses on financial assets measured on an amortized cost basis

only when losses are probable or have been incurred, generally considering only past events and current conditions in making these determinations. ASU 2016-13 prospectively replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired. Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets. ASU 2016-13 also revises the approach to recognizing credit losses for available-for-sale securities by replacing the direct write-down approach with the allowance approach and limiting the allowance to the amount at which the security’s fair value is less than the amortized cost. In addition, ASU 2016-13 provides that the initial allowance for credit losses on purchased credit impaired financial assets will be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense.

ASU 2016-13 also expands disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019.

FASB Accounting Standards Update (“ASU”) 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients

The FASB issued ASU 2016-12 in May 2016. The amendments in this update, among other things, clarify the objective of the collectability criterion, provide guidance on noncash and variable consideration, provide a practical expedient for contract modifications at transition, and clarify the meaning of a completed contract for purposes of transition.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

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

FASB Accounting Standards Update (“ASU”) 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing

The FASB issued ASU 2016-10 in April 2016 which clarifies two aspects of Topic 606, in particular, the identification of performance obligations. Among other things, an entity is not required to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. In addition, in determining whether promises to transfer goods or services are separately identifiable, an entity should determine whether the nature of its promise in the contract is to transfer each of the goods or services or whether the promise is to transfer a combined item (or items) to which the promised goods and/or services are inputs.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

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

FASB Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

The FASB issued ASU 2016-09 in March 2016 which simplifies multiple aspects of the accounting for share-based payment transactions, including the recognition of excess tax benefits and deficiencies as an income tax benefit or expense in the income statement and classification in the statement of cash flows as an operating activity, allowing entities to elect as an accounting policy to account for forfeitures when they occur, permitting entities to withhold up to the maximum individual statutory rate without classifying the awards as a liability, and requiring that the cash paid to satisfy the statutory income tax withholding obligation be classified as a financing activity.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.

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, cash flows or presentation and disclosures.

FASB Accounting Standards Update (“ASU”) 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)

The FASB issued ASU 2016-08 in March 2016, which amends the implementation guidance in ASU 2014-09 by clarifying, among other things, that an entity should determine the nature of the goods or services provided to the customer and whether it controls each specified good or service before it is transferred to the customer, that an entity can be a principal for some goods or services and an agent for others with the same contract, and that an entity is a principal if it controls the goods or services before transferring them to the customer.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

The Corporation is currently evaluating the impact that the adoption of this guidance will have on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update (“ASU”) 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

The FASB issued ASU 2016-07 in March 2016, which eliminates the requirement to retroactively adopt the equity method of accounting. Therefore, as of the date the investment becomes qualified for equity method accounting, an entity should add the cost of acquiring the additional interest in the investee to the current basis of its previously held interest. For available-for-sale securities, an entity should recognize through earnings the unrealized holding gains/losses in accumulated other comprehensive income/loss as of that date.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.

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 (“ASU”) 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments

The FASB issued ASU 2016-06 in March 2016, which clarifies that in assessing whether an embedded contingent put or call option is not clearly and closely related to the debt instrument, which is part of the assessment made to determine whether an embedded derivative must be bifurcated from the host contract, an entity is required to perform only the four step decision sequence. The four-step decision sequence requires an entity to consider whether (1) the payoff is adjusted based on changes in an index, (2) the payoff is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount and (4) the put or call option is contingently exercisable. It does not have to separately assess whether the event that triggers its ability to exercise the contingent option itself is indexed only to interest rates and credit risk.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.

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 (“ASU”) 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

The FASB issued ASU 2016-05 in March 2016, which clarifies that a novation, or a change in the counterparty to the derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship, and therefore discontinuance of the application of hedge accounting, provided that all other hedge accounting criteria continue to be met.

The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted.

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.

For recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the consolidated financial statements included in the 2015 Form 10-K.

Note 4 – Discontinued operations and restructuring plan

During the year ended December 31, 2014, the Corporation completed the sale of its California, Illinois and Central Florida regional operations and relocated certain back office operations to Puerto Rico and New York.

As defined in ASC 805-10-55, the regional operations sold constituted a business, and 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 of September 30, 2016 and December 31, 2015, there were no assets held within the discontinued operations and liabilities within discontinued operations amounted to approximately $1.8 million, mainly comprised of the indemnity reserve related to the California regional sale.

There were no activities from the discontinued operations during the nine month period ended September 30, 2016. Net income from the discontinued operations amounted to $1.3 million for the nine months ended September 30, 2015.

Also, in connection with the sale, the Corporation has undertaken a restructuring plan (the “PCB Restructuring Plan”) which has been completed by December 31, 2015, for which the Corporation incurred restructuring charges of $45.1 million. During the nine month period ended September 30, 2015, the Corporation incurred $17.4 million in restructuring costs, mostly comprised of $12.7 million in personnel costs.

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


	Nine months ended September 30,
(In thousands)	2016			2015
Beginning balance	$	620		$	13,536
Charges expensed during the period		—			7,725
Payments made during the period		(430	)		(20,469	)

Ending balance	$	190		$	792

Note 5 – Business combination

On February 27, 2015, BPPR, in an alliance with co-bidders, including BPNA, acquired certain assets and all deposits (other than certain brokered deposits) of former Doral Bank from the FDIC, as receiver. Under the FDIC’s bidding format, BPPR was the lead bidder and party to the purchase and assumption agreement with the FDIC covering all assets and deposits acquired by it and its alliance co-bidders. BPPR entered into back to back purchase and assumption agreements with the alliance co-bidders for the transfer of certain assets and deposits. BPPR entered into transition service agreements with each of the alliance co-bidders. There is no loss-sharing arrangement with the FDIC on the acquired assets.

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


(In thousands)	Book value prior to purchase accounting adjustments		Fair value adjustments			Additional consideration^[1]		As recorded by Popular, Inc.
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		1,679,792		(165,925	)		—		1,513,867
Accrued income receivable		7,808		—			—		7,808
Receivable from the FDIC		—		—			480,137		480,137
Core deposit intangible		23,572		(10,762	)		—		12,810
Other assets		67,676		7,569			—		75,245

Total assets	$	2,321,972	$	(169,118	)	$	480,137	$	2,632,991

Liabilities:
Deposits	$	2,193,404	$	9,987		$	—	$	2,203,391
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	$	14,663		$	—	$	2,800,795

Excess of liabilities assumed over assets acquired	$	464,160
Aggregate fair value adjustments			$	(183,781	)

Additional consideration						$	480,137

Goodwill on acquisition								$	167,804


[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.

In accordance with ASC Topic 805, the fair values assigned to the assets acquired and liabilities assumed are subject to refinement up to one year after the closing date of the acquisition as new information relative to closing date fair values become available, and thus the recognized goodwill may increase or decrease. During the second and third quarters of 2015, retrospective adjustments were made to the estimated fair values of certain assets acquired and liabilities assumed as part of the Doral Bank Transaction to reflect new information obtained about facts and circumstances that existed as of the acquisition date. 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.

During the fourth quarter of 2015 the Corporation early adopted ASU 2015-16 “Business Combination”. Accordingly, adjustments to the initial fair value estimates identified during the measurement period were recognized in the reporting period in which the adjustment amounts were determined. Pursuant to ASU 2015-16, adjustments were made effective in the fourth quarter of 2015 to the estimated fair values of assets and liabilities assumed with the Doral Bank Transaction to reflect new information obtained during the measurement period about facts and circumstances that existed as of the acquisition date that, if known, would have affected the acquisition-date fair value measurements.

During the quarter ended March 31, 2016, the Corporation recorded adjustments to its initial fair value estimates in connection with the Doral Bank Transaction. As a result, the discount on the loans increased by $4.7 million with a corresponding increase to goodwill.

The following table presents the principal changes in fair value and the revised amounts recorded during the measurement period.


(In thousands)	February 27, 2015 As recasted^[a]		February 27, 2015 As previously reported^[b]		Change
Assets:
Loans	$	1,513,867	$	1,665,756	$	(151,889	)
Goodwill		167,804		41,633		126,171
Core deposit intangible		12,810		23,572		(10,762	)
Receivable from the FDIC		480,137		441,721		38,416
Other assets		626,177		626,177		—

Total assets	$	2,800,795	$	2,798,859	$	1,936

Liabilities:
Deposits	$	2,203,391	$	2,201,455	$	1,936
Advances from the Federal Home Loan Bank		547,187		547,187		—
Other liabilities		50,217		50,217		—

Total liabilities	$	2,800,795	$	2,798,859	$	1,936

[a]	Amounts reported include retrospective adjustments during the measurement period, in accordance with U.S. GAAP, related to the Doral Bank Transaction.

[b]	Amounts are presented as previously reported as of September 30, 2015.

The impact in the results of operations for the quarter and the nine months ended September 30, 2015 as a result of the recasting was an increase in net income of approximately $0.1 million and $3.4 million, respectively, as detailed in the following table:


	Quarter ended September 30, 2015							Nine months ended September 30, 2015
(In thousands)	As recasted		As reported		Difference			As recasted		As reported		Difference
Net Interest Income	$	23,927	$	24,978	$	(1,051	)	$	63,863	$	61,910	$	1,953
Non-Interest Income		6,745		5,912		833			18,217		17,384		833
Operating Expenses		18,809		19,078		(269	)		59,714		60,341		(627	)

Income Before Taxes	$	11,863	$	11,812	$	51		$	22,366	$	18,953	$	3,413

Note 6 - 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 $ 1.2 billion at September 30, 2016 (December 31, 2015 - $ 1.1 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At September 30, 2016, the Corporation held $24 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, 2015 - $44 million). The amounts held in trading account securities and investment securities available for sale consist primarily of restricted assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

Note 7 – Investment securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at September 30, 2016 and December 31, 2015.


	At September 30, 2016
			Gross		Gross				Weighted
	Amortized		unrealized		unrealized		Fair		average
(In thousands)	cost		gains		losses		value		yield
U.S. Treasury securities
Within 1 year	$	689,259	$	2,033	$	—	$	691,292		0.99	%
After 1 to 5 years		913,013		4,782		—		917,795		1.09
After 5 to 10 years		9,944		385		—		10,329		1.99

Total U.S. Treasury securities		1,612,216		7,200		—		1,619,416		1.05

Obligations of U.S. Government sponsored entities
Within 1 year		100,062		298		—		100,360		0.98
After 1 to 5 years		593,257		4,616		125		597,748		1.39
After 5 to 10 years		200		1		—		201		5.64

Total obligations of U.S. Government sponsored entities		693,519		4,915		125		698,309		1.33

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		7,210		—		34		7,176		4.19
After 5 to 10 years		5,915		6		1,287		4,634		4.02
After 10 years		18,634		8		3,476		15,166		6.99

Total obligations of Puerto Rico, States and political subdivisions		31,759		14		4,797		26,976		5.80

Collateralized mortgage obligations - federal agencies
Within 1 year		69		—		—		69		1.03
After 1 to 5 years		19,151		754		—		19,905		2.88
After 5 to 10 years		33,067		642		—		33,709		2.86
After 10 years		1,279,354		13,663		7,449		1,285,568		1.97

Total collateralized mortgage obligations - federal agencies		1,331,641		15,059		7,449		1,339,251		2.01

Mortgage-backed securities
Within 1 year		11		—		—		11		4.18
After 1 to 5 years		21,926		816		7		22,735		3.92
After 5 to 10 years		261,441		6,876		25		268,292		2.39
After 10 years		3,576,704		66,941		1,954		3,641,691		2.53

Total mortgage-backed securities		3,860,082		74,633		1,986		3,932,729		2.53

Equity securities (without contractual maturity)		1,245		960		—		2,205		8.21

Other
Within 1 year		8,633		20		—		8,653		1.75
After 5 to 10 years		1,080		37		—		1,117		3.62

Total other		9,713		57		—		9,770		1.96

Total investment securities available-for-sale^[1]	$	7,540,175	$	102,838	$	14,357	$	7,628,656		2.03	%


[1] Includes $4.2 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $3.3 billion serve as collateral for public funds.


	At December 31, 2015
			Gross		Gross				Weighted
	Amortized		unrealized		unrealized		Fair		average
(In thousands)	cost		gains		losses		value		yield
U.S. Treasury securities
Within 1 year	$	24,861	$	335	$	—	$	25,196		4.31	%
After 1 to 5 years		1,149,807		365		1,999		1,148,173		1.03
After 5 to 10 years		9,937		22		—		9,959		1.99

Total U.S. Treasury securities		1,184,605		722		1,999		1,183,328		1.11

Obligations of U.S. Government sponsored entities
After 1 to 5 years		919,819		1,337		4,808		916,348		1.33
After 5 to 10 years		250		1		—		251		5.64
After 10 years		23,000		42		—		23,042		3.22

Total obligations of U.S. Government sponsored entities		943,069		1,380		4,808		939,641		1.38

Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		7,227		—		199		7,028		3.94
After 5 to 10 years		5,925		—		2,200		3,725		4.02
After 10 years		18,585		—		6,979		11,606		6.99

Total obligations of Puerto Rico, States and political subdivisions		31,737		—		9,378		22,359		5.74

Collateralized mortgage obligations - federal agencies
After 1 to 5 years		21,446		594		37		22,003		2.81
After 5 to 10 years		44,585		733		—		45,318		2.85
After 10 years		1,518,662		8,137		33,283		1,493,516		1.99

Total collateralized mortgage obligations - federal agencies		1,584,693		9,464		33,320		1,560,837		2.02

Mortgage-backed securities
After 1 to 5 years		22,015		987		8		22,994		4.65
After 5 to 10 years		256,097		4,866		1,197		259,766		2.51
After 10 years		2,039,217		34,839		12,620		2,061,436		2.83

Total mortgage-backed securities		2,317,329		40,692		13,825		2,344,196		2.81

Equity securities (without contractual maturity)		1,350		1,053		5		2,398		7.92

Other
After 1 to 5 years		8,911		—		28		8,883		1.71
After 5 to 10 years		1,311		39		—		1,350		3.62

Total other		10,222		39		28		10,233		1.95

Total investment securities available-for-sale^[1]	$	6,073,005	$	53,350	$	63,363	$	6,062,992		2.07	%


[1] Includes $2.4 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $1.5 billion serve as collateral for public funds.

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, 2016, the Corporation sold mortgage backed securities and equity securities available for sale. The proceeds from these sales were $ 1.6 million. 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 following table present the Corporation’s gross realized gains and losses on the sale of investment securities available-for-sale for the quarters and nine months ended September 30, 2016 and 2015.


	For the quarter ended September 30,					Nine months ended September 30,
(In thousands)	2016		2015			2016		2015
Gross realized gains	$	348	$	221		$	348	$	226
Gross realized losses		—		(85	)		—		(85	)

Net realized gains on sale of investment securities available-for-sale	$	348	$	136		$	348	$	141

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, 2016 and December 31, 2015.


	At September 30, 2016
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
Obligations of U.S. Government sponsored entities	$	24,011	$	107	$	1,180	$	18	$	25,191	$	125
Obligations of Puerto Rico, States and political subdivisions		7,176		34		17,821		4,763		24,997		4,797
Collateralized mortgage obligations - federal agencies		112,432		241		367,488		7,208		479,920		7,449
Mortgage-backed securities		478,854		1,977		589		9		479,443		1,986

Total investment securities available-for-sale in an unrealized loss position	$	622,473	$	2,359	$	387,078	$	11,998	$	1,009,551	$	14,357


	At December 31, 2015
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)	value		losses		value		losses		value		losses
U.S. Treasury securities	$	589,689	$	1,999	$	—	$	—	$	589,689	$	1,999
Obligations of U.S. Government sponsored entities		390,319		2,128		181,744		2,680		572,063		4,808
Obligations of Puerto Rico, States and political subdivisions		884		164		19,490		9,214		20,374		9,378
Collateralized mortgage obligations - federal agencies		331,501		4,446		814,195		28,874		1,145,696		33,320
Mortgage-backed securities		1,641,663		12,992		22,362		833		1,664,025		13,825
Equity securities		45		5		—		—		45		5
Other		8,883		28		—		—		8,883		28

Total investment securities available-for-sale in an unrealized loss position	$	2,962,984	$	21,762	$	1,037,791	$	41,601	$	4,000,775	$	63,363

As of September 30, 2016, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $14 million, driven by U.S. Agency collateralized mortgage obligations and Obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all U.S. 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, 2016, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. During the quarter ended June 30, 2016 the Corporation recognized an other-than-temporary impairment charge of $209 thousand on an investment security available-for-sale classified as obligations from the Puerto Rico government and its political subdivisions, which at June 30, 2016 was rated Caa2 and CC by Moody’s and S&P, respectively. Puerto Rico’s fiscal and economic situation, together with, among other factors, the recent moratorium declared on the payment of principal and interest on obligations for certain Puerto Rico government securities, including those issued or guaranteed by the Commonwealth, led management to conclude that the unrealized losses on this security was other-than-temporary. The Corporation determined that the entire balance of the unrealized loss carried by this security was attributed to estimated credit losses. Accordingly, during the quarter ended June 30, 2016 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 this specific security.

In 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.

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, 2016				December 31, 2015
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	3,080,757	$	3,118,968	$	2,649,860	$	2,633,899
Freddie Mac		1,324,336		1,335,953		1,088,691		1,079,956

Note 8 – Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity at September 30, 2016 and December 31, 2015.


	At September 30, 2016
(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	$	3,105	$	—	$	1,218	$	1,887		5.92	%
After 1 to 5 years		14,540		—		5,865		8,675		6.02
After 5 to 10 years		18,635		—		7,642		10,993		6.20
After 10 years		59,615		3,723		7,527		55,811		1.92

Total obligations of Puerto Rico, States and political subdivisions		95,895		3,723		22,252		77,366		3.50

Collateralized mortgage obligations - federal agencies After 5 to 10 years		78		5		—		83		5.45

Total collateralized mortgage obligations - federal agencies		78		5		—		83		5.45

Other
Within 1 year		1,000		—		4		996		1.34
After 1 to 5 years		1,000		—		35		965		2.28

Total other		2,000		—		39		1,961		3.62

Total investment securities held-to-maturity^[1]	$	97,973	$	3,728	$	22,291	$	79,410		3.47	%

[1]	Includes $96.2 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.


	At December 31, 2015
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	2,920	$	—	$	291	$	2,629		5.90	%
After 1 to 5 years		13,655		—		5,015		8,640		5.98
After 5 to 10 years		20,020		—		8,020		12,000		6.14
After 10 years		62,222		3,604		8,280		57,546		2.08

Total obligations of Puerto Rico, States and political subdivisions		98,817		3,604		21,606		80,815		3.55

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		2,000		—		17		1,983		1.81

Total other		2,000		—		17		1,983		1.81

Total investment securities held-to-maturity^[1]	$	100,903	$	3,609	$	21,623	$	82,889		3.52	%

[1]	Includes $57.2 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

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, 2016 and December 31, 2015.


	At September 30, 2016
	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	$	—	$	—	$	30,848	$	22,252	$	30,848	$	22,252
Other		—		—		1,211		39		1,211		39

Total investment securities held-to-maturity in an unrealized loss position	$	—	$	—	$	32,059	$	22,291	$	32,059	$	22,291


	At December 31, 2015
	Less than 12 months				12 months or more				Total
(In thousands)	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Obligations of Puerto Rico, States and political subdivisions	$	—	$	—	$	33,334	$	21,606	$	33,334	$	21,606
Other		1,483		17		—		—		1,483		17

Total investment securities held-to-maturity in an unrealized
loss position	$	1,483	$	17	$	33,334	$	21,606	$	34,817	$	21,623

As indicated in Note 7 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at September 30, 2016 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $53 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 $43 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. Based on the quarterly analysis performed, management concluded that no individual debt security was other-than-temporarily impaired at September 30, 2016. Further deterioration of the fiscal crisis of the Government of Puerto Rico could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell securities held-to-maturity and it is more likely than not that the Corporation will not have to sell these investment securities prior to recovery of their amortized cost basis.

Note 9 – 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 11.

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2—Summary of significant accounting policies, of the 2015 Form 10-K.

During the quarter and nine months ended September 30, 2016, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $118 million and $358 million, respectively; consumer loans of $164 million and commercial loans amounting to $51 million during the nine months ended September 30, 2016. 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.

Excluding the bulk sale of Westernbank loans with a carrying value of approximately $100 million, the Corporation sold commercial and construction loans with a carrying value of approximately $38 million and $39 million during the quarter and nine months ended September 30, 2016, respectively, (during the quarter and nine months ended September 30, 2015 - $9 million). The Corporation sold approximately $13 million and $53 million of residential mortgage loans (on a whole loan basis) during the quarter and nine months ended September 30, 2016, respectively (September 30, 2015 - $19 million and $82 million, respectively). Also, the Corporation securitized approximately $ 161 million and $ 465 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2016, respectively (September 30, 2015—$ 251 million and $ 651 million, respectively). Furthermore, the Corporation securitized approximately $ 50 million and $ 129 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2016, respectively (September 30, 2015 - $ 57 million and $ 174 million, respectively).

Non-covered loans

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, by past due status at September 30, 2016 and December 31, 2015, including loans previously covered by the commercial FDIC loss sharing agreements.


September 30, 2016
Puerto Rico
	Past due										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	$	229	$	—	$	932	$	1,161	$	175,340	$	176,501
Commercial real estate non-owner occupied		6,544		81,988		53,722		142,254		2,456,197		2,598,451
Commercial real estate owner occupied		10,643		5,896		126,449		142,988		1,699,209		1,842,197
Commercial and industrial		18,841		2,809		33,778		55,428		2,581,592		2,637,020
Construction		—		—		1,720		1,720		79,334		81,054
Mortgage		286,097		154,588		813,015		1,253,700		4,711,138		5,964,838
Leasing		6,257		2,017		2,878		11,152		671,658		682,810
Consumer:
Credit cards		11,806		8,379		18,186		38,371		1,067,386		1,105,757
Home equity lines of credit		238		102		102		442		8,178		8,620
Personal		12,997		7,799		21,034		41,830		1,130,726		1,172,556
Auto		33,586		7,450		12,209		53,245		775,579		828,824
Other		554		281		17,453		18,288		159,785		178,073

Total	$	387,792	$	271,309	$	1,101,478	$	1,760,579	$	15,516,122	$	17,276,701


September 30, 2016
U.S. mainland
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	—	$	—	$	207	$	207	$	945,991	$	946,198
Commercial real estate non-owner occupied		—		—		807		807		1,225,191		1,225,998
Commercial real estate owner occupied		—		1,676		1,081		2,757		234,724		237,481
Commercial and industrial		167		1,117		87,860		89,144		784,201		873,345
Construction		—		22,275		—		22,275		628,023		650,298
Mortgage		1,475		4,890		14,430		20,795		788,864		809,659
Legacy		96		509		3,450		4,055		43,859		47,914
Consumer:
Credit cards		28		14		82		124		149		273
Home equity lines of credit		3,016		962		4,629		8,607		254,606		263,213
Personal		2,004		1,668		1,972		5,644		258,970		264,614
Auto		—		—		—		—		12		12
Other		8		—		—		8		258		266

Total	$	6,794	$	33,111	$	114,518	$	154,423	$	5,164,848	$	5,319,271


September 30, 2016
Popular, Inc.
	Past due										Non-covered loans HIP Popular, Inc.^[1] [2]
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered loans HIP Popular, Inc.^[1] [2]
Commercial multi-family	$	229	$	—	$	1,139	$	1,368	$	1,121,331	$	1,122,699
Commercial real estate non-owner occupied		6,544		81,988		54,529		143,061		3,681,388		3,824,449
Commercial real estate owner occupied		10,643		7,572		127,530		145,745		1,933,933		2,079,678
Commercial and industrial		19,008		3,926		121,638		144,572		3,365,793		3,510,365
Construction		—		22,275		1,720		23,995		707,357		731,352
Mortgage		287,572		159,478		827,445		1,274,495		5,500,002		6,774,497
Leasing		6,257		2,017		2,878		11,152		671,658		682,810
Legacy^[3]		96		509		3,450		4,055		43,859		47,914
Consumer:
Credit cards		11,834		8,393		18,268		38,495		1,067,535		1,106,030
Home equity lines of credit		3,254		1,064		4,731		9,049		262,784		271,833
Personal		15,001		9,467		23,006		47,474		1,389,696		1,437,170
Auto		33,586		7,450		12,209		53,245		775,591		828,836
Other		562		281		17,453		18,296		160,043		178,339

Total	$	394,586	$	304,420	$	1,215,996	$	1,915,002	$	20,680,970	$	22,595,972

[1]	Non-covered loans held-in-portfolio are net of $118 million in unearned income and exclude $72 million in loans held-for-sale.

[2]

Includes $7.4 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.6 billion were pledged at the FHLB as collateral for borrowings, $2.3 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds.

[3]	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.


December 31, 2015
Puerto Rico
	Past due										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	$	459	$	217	$	1,316	$	1,992	$	130,154	$	132,146
Commercial real estate non-owner occupied		166,732		12,520		84,982		264,234		2,404,858		2,669,092
Commercial real estate owner occupied		14,245		5,624		138,778		158,647		1,750,597		1,909,244
Commercial and industrial		6,010		6,059		38,464		50,533		2,607,204		2,657,737
Construction		238		253		13,738		14,229		86,719		100,948
Mortgage		344,858		162,341		863,869		1,371,068		4,756,423		6,127,491
Leasing		7,844		1,630		3,009		12,483		615,167		627,650
Consumer:
Credit cards		11,078		9,414		19,098		39,590		1,088,755		1,128,345
Home equity lines of credit		186		292		394		872		9,816		10,688
Personal		13,756		7,889		22,625		44,270		1,158,565		1,202,835
Auto		33,554		7,500		11,640		52,694		763,256		815,950
Other		1,069		298		19,232		20,599		167,885		188,484

Total	$	600,029	$	214,037	$	1,217,145	$	2,031,211	$	15,539,399	$	17,570,610


December 31, 2015
U.S. mainland
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	33	$	253	$	—	$	286	$	693,647	$	693,933
Commercial real estate non-owner occupied		160		—		253		413		962,610		963,023
Commercial real estate owner occupied		1,490		429		221		2,140		200,204		202,344
Commercial and industrial		13,647		1,526		75,575		90,748		780,896		871,644
Construction		—		—		—		—		580,158		580,158
Mortgage		18,957		3,424		13,538		35,919		872,671		908,590
Legacy		1,160		662		3,649		5,471		58,965		64,436
Consumer:
Credit cards		327		134		437		898		13,037		13,935
Home equity lines of credit		3,149		1,114		4,176		8,439		296,045		304,484
Personal		1,836		690		1,240		3,766		168,860		172,626
Auto		—		—		6		6		22		28
Other		—		10		5		15		289		304

Total	$	40,759	$	8,242	$	99,100	$	148,101	$	4,627,404	$	4,775,505


December 31, 2015
Popular, Inc.
	Past due										Non-covered loans HIP Popular, Inc.^[1] [2]
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Non-covered loans HIP Popular, Inc.^[1] [2]
Commercial multi-family	$	492	$	470	$	1,316	$	2,278	$	823,801	$	826,079
Commercial real estate non-owner occupied		166,892		12,520		85,235		264,647		3,367,468		3,632,115
Commercial real estate owner occupied		15,735		6,053		138,999		160,787		1,950,801		2,111,588
Commercial and industrial		19,657		7,585		114,039		141,281		3,388,100		3,529,381
Construction		238		253		13,738		14,229		666,877		681,106
Mortgage		363,815		165,765		877,407		1,406,987		5,629,094		7,036,081
Leasing		7,844		1,630		3,009		12,483		615,167		627,650
Legacy^[3]		1,160		662		3,649		5,471		58,965		64,436
Consumer:
Credit cards		11,405		9,548		19,535		40,488		1,101,792		1,142,280
Home equity lines of credit		3,335		1,406		4,570		9,311		305,861		315,172
Personal		15,592		8,579		23,865		48,036		1,327,425		1,375,461
Auto		33,554		7,500		11,646		52,700		763,278		815,978
Other		1,069		308		19,237		20,614		168,174		188,788

Total	$	640,788	$	222,279	$	1,316,245	$	2,179,312	$	20,166,803	$	22,346,115

[1]	Non-covered loans held-in-portfolio are net of $108 million in unearned income and exclude $137 million in loans held-for-sale.

[2]

Includes $7.3 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.3 billion were pledged at the FHLB as collateral for borrowings, $2.5 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds.

[3]	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 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, 2016 and December 31, 2015. 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.


At September 30, 2016
	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 [1]		Non-accrual loans		Accruing loans past-due 90 days or more [1]
Commercial multi-family	$	932	$	—	$	207	$	—	$	1,139	$	—
Commercial real estate non-owner occupied		24,684		—		807		—		25,491		—
Commercial real estate owner occupied		108,132		—		1,081		—		109,213		—
Commercial and industrial		33,299		479		1,429		—		34,728		479
Mortgage^[3]		331,346		399,218		14,430		—		345,776		399,218
Leasing		2,878		—		—		—		2,878		—
Legacy		—		—		3,450		—		3,450		—
Consumer:
Credit cards		—		18,186		82		—		82		18,186
Home equity lines of credit		—		102		4,629		—		4,629		102
Personal		20,947		25		1,972		—		22,919		25
Auto		12,209		—		—		—		12,209		—
Other		16,811		642		—		—		16,811		642

Total^[2]	$	551,238	$	418,652	$	28,087	$	—	$	579,325	$	418,652

[1]

Non-covered loans of $218 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 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 $174 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, 2016. Furthermore, the Corporation has approximately $72 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.


At December 31, 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 [1]		Non-accrual loans		Accruing loans past-due 90 days or more [1]
Commercial multi-family	$	1,062	$	—	$	—	$	—	$	1,062	$	—
Commercial real estate non-owner occupied		33,720		—		253		—		33,973		—
Commercial real estate owner occupied		106,449		—		221		—		106,670		—
Commercial and industrial		36,671		555		3,440		—		40,111		555
Construction		3,550		—		—		—		3,550		—
Mortgage^[3]		337,933		426,094		13,538		—		351,471		426,094
Leasing		3,009		—		—		—		3,009		—
Legacy		—		—		3,649		—		3,649		—
Consumer:
Credit cards		—		19,098		437		—		437		19,098
Home equity lines of credit		—		394		4,176		—		4,176		394
Personal		22,102		523		1,240		—		23,342		523
Auto		11,640		—		6		—		11,646		—
Other		18,698		61		5		—		18,703		61

Total^[2]	$	574,834	$	446,725	$	26,965	$	—	$	601,799	$	446,725

[1]

Non-covered loans by $268 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 $ 45 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 $164 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, 2015. Furthermore, the Corporation has approximately $70 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 table provides a breakdown of loans held-for-sale (“LHFS”) at September 30, 2016 and December 31, 2015 by main categories.


(In thousands)	September 30, 2016		December 31, 2015
Commercial	$	—	$	45,074
Construction		—		95
Mortgage		72,076		91,831

Total loans held-for-sale	$	72,076	$	137,000

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at September 30, 2016 and December 31, 2015 by main categories.


(In thousands)	September 30, 2016		December 31, 2015
Commercial	$	—	$	45,074
Construction		—		95

Total	$	—	$	45,169

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	$	1,178,543

Gross contractual amounts receivable (principal and interest)	$	1,666,695

Estimate of contractual cash flows not expected to be collected	$	34,646

Covered loans

The following tables present the composition of loans by past due status at September 30, 2016 and December 31, 2015 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, 2016
	Past due										Covered loans HIP [1]
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP [1]
Mortgage	$	29,769	$	13,433	$	73,193	$	116,395	$	454,954	$	571,349
Consumer		958		372		1,126		2,456		14,406		16,862

Total covered loans	$	30,727	$	13,805	$	74,319	$	118,851	$	469,360	$	588,211

[1]	Includes $349 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.


December 31, 2015
	Past due										Covered loans HIP [1]
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP [1]
Mortgage	$	31,413	$	16,593	$	83,132	$	131,138	$	495,964	$	627,102
Consumer		1,246		444		1,283		2,973		16,040		19,013

Total covered loans	$	32,659	$	17,037	$	84,415	$	134,111	$	512,004	$	646,115

[1]	Includes $386 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

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, 2016 and December 31, 2015.


	September 30, 2016				December 31, 2015
(In thousands)	Non-accrual loans		Accruing loans past due 90 days or more		Non-accrual loans		Accruing loans past due 90 days or more
Mortgage	$	3,659	$	—	$	3,790	$	—
Consumer		138		—		97		—

Total^[1]	$	3,797	$	—	$	3,887	$	—

[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 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, 2016 (December 31, 2015—$10 million).

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, 2016									December 31, 2015
	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	$	1,023,047		$	14,587		$	1,037,634		$	1,114,368		$	35,393		$	1,149,761
Commercial and industrial		78,983			—			78,983			84,765			519			85,284
Construction		—			1,720			1,720			8,943			6,027			14,970
Mortgage		602,697			25,953			628,650			667,023			33,090			700,113
Consumer		19,453			1,099			20,552			23,047			1,326			24,373

Carrying amount [1]		1,724,180			43,359			1,767,539			1,898,146			76,355			1,974,501
Allowance for loan losses		(62,114	)		(7,457	)		(69,571	)		(59,753	)		(3,810	)		(63,563	)

Carrying amount, net of allowance	$	1,662,066		$	35,902		$	1,697,968		$	1,838,393		$	72,545		$	1,910,938

[1]	The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remains subject to the loss sharing agreement with the FDIC amounted to approximately $578 million as of September 30, 2016 and $636 million as of December 31, 2015.

The outstanding principal balance of Westernbank loans accounted pursuant to ASC Subtopic 310-30, amounted to $2.2 billion at September 30, 2016 (December 31, 2015—$2.4 billion). At September 30, 2016, 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 and nine months ended September 30, 2016 and 2015, were as follows:


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the quarters ended
	September 30, 2016									September 30, 2015
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,061,971		$	9,709		$	1,071,680		$	1,239,776		$	6,148		$	1,245,924
Accretion		(38,597	)		(993	)		(39,590	)		(44,568	)		(2,125	)		(46,693	)
Change in expected cash flows		6,992			(390	)		6,602			(56,526	)		2,744			(53,782	)

Ending balance	$	1,030,366		$	8,326		$	1,038,692		$	1,138,682		$	6,767		$	1,145,449


	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the nine months ended
	September 30, 2016									September 30, 2015
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,105,732		$	6,726		$	1,112,458		$	1,265,752		$	5,585		$	1,271,337
Accretion		(125,734	)		(5,865	)		(131,599	)		(148,572	)		(7,812	)		(156,384	)
Change in expected cash flows		50,368			7,465			57,833			21,502			8,994			30,496

Ending balance	$	1,030,366		$	8,326		$	1,038,692		$	1,138,682		$	6,767		$	1,145,449


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the quarters ended
	September 30, 2016									September 30, 2015
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,754,613		$	45,330		$	1,799,943		$	2,022,493		$	114,585		$	2,137,078
Accretion		38,597			993			39,590			44,568			2,125			46,693
Collections / loan sales / charge-offs		(69,030	)		(2,964	)		(71,994	)		(94,320	)		(13,439	)		(107,759	)

Ending balance^[1]	$	1,724,180		$	43,359		$	1,767,539		$	1,972,741		$	103,271		$	2,076,012
Allowance for loan losses ASC 310-30 Westernbank loans		(62,114	)		(7,457	)		(69,571	)		(54,027	)		(10,556	)		(64,583	)

Ending balance, net of ALLL	$	1,662,066		$	35,902		$	1,697,968		$	1,918,714		$	92,715		$	2,011,429

[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 $ 578 million as of September 30, 2016 (September 30, 2015- $655 million).


	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the nine months ended
	September 30, 2016									September 30, 2015
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,898,146		$	76,355		$	1,974,501		$	2,272,142		$	172,030		$	2,444,172
Accretion		125,734			5,865			131,599			148,572			7,812			156,384
Collections / loan sales / charge-offs^[1]		(299,700	)		(38,861	)		(338,561	)		(447,973	)		(76,571	)		(524,544	)

Ending balance^[2]	$	1,724,180		$	43,359		$	1,767,539		$	1,972,741		$	103,271		$	2,076,012
Allowance for loan losses ASC 310-30 Westernbank loans		(62,114	)		(7,457	)		(69,571	)		(54,027	)		(10,556	)		(64,583	)

Ending balance, net of ALLL	$	1,662,066		$	35,902		$	1,697,968		$	1,918,714		$	92,715		$	2,011,429

[1]	For the nine months ended September 30, 2016, includes the impact of the bulk sale of loans with a carrying value of approximately $99 million.

[2]	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 $578 million as of September 30, 2016 (September 30, 2015- $655 million).

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, 2016 (December 31, 2015—$710 million). At September 30, 2016, 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 and nine months ended September 30, 2016 and 2015 were as follows:


Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the quarter ended September 30, 2016			For the quarter ended September 30, 2015
Beginning balance	$	272,609		$	162,159
Additions		3,809			25,978
Accretion		(8,689	)		(4,543	)
Change in expected cash flows		8,672			1,402

Ending balance	$	276,401		$	184,996


Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the nine months ended September 30, 2016			For the nine months ended September 30, 2015
Beginning balance	$	221,128		$	116,304
Additions		12,320			82,046
Accretion		(25,974	)		(12,399	)
Change in expected cash flows		68,927			(955	)

Ending balance	$	276,401		$	184,996


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the quarter ended September 30, 2016			For the quarter ended September 30, 2015
Beginning balance	$	562,745			368,287
Additions		8,349			281,911
Accretion		8,689			4,543
Collections and charge-offs		(17,861	)		(13,655	)

Ending balance	$	561,922		$	641,086
Allowance for loan losses ASC 310-30 other acquired loans		(18,550	)		(18,561	)

Ending balance, net of ALLL	$	543,372		$	622,525


Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the nine months ended September 30, 2016			For the nine months ended September 30, 2015
Beginning balance	$	564,050		$	212,763
Purchase accounting adjustments related to the Doral Bank Transaction (Refer to Note 5)		(4,707	)		—
Additions		26,754			456,091
Accretion		25,974			12,399
Collections and charge-offs		(50,149	)		(40,167	)

Ending balance	$	561,922		$	641,086
Allowance for loan losses ASC 310-30 other acquired loans		(18,550	)		(18,561	)

Ending balance, net of ALLL	$	543,372		$	622,525

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	$	560,833
Non-accretable difference		112,153

Cash flows expected to be collected		448,680
Accretable yield		113,977

Fair value of loans accounted for under ASC Subtopic 310-30	$	334,703

Note 10 – Allowance for loan losses

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

The Corporation’s assessment of the allowance for loan losses is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the allowance for loan losses on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30, by 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, 2016, 49% (September 30, 2015—18%) of the ALLL for non-covered BPPR segment 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 leasing, auto, revolving and mortgage loan portfolios for 2016, and in the commercial multi-family, commercial and industrial, personal and auto loan portfolios for 2015.

For the period ended September 30, 2016, 4% (September 30, 2015—17%) of the ALLL for BPNA segment 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 2016 and in the commercial and industrial loan portfolios for 2015.

•

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 third quarter of 2016, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These updates to the ALLL models, which are described in the paragraph below, were implemented as of September 30, 2016 and resulted in a net increase to the allowance for loan losses of $ 9.4 million for the non-covered portfolio. The effect of the aforementioned updates was immaterial for the covered loans portfolio.

Management made the following revisions to the ALLL models during the third quarter of 2016:

•

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 third quarter of 2016, 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 effect of the recalibration to the environmental factors adjustment resulted in an increase to the allowance for loan losses of $9.4 million at September 30, 2016, related to the non-covered BPPR segment. The effect of the recalibration was immaterial for the BPNA segment.

The following tables present the changes in the allowance for loan losses, loan ending balances and whether such loans and the allowance pertain to loans individually or collectively evaluated for impairment for the quarters and nine months ended September 30, 2016 and 2015.


For the quarter ended September 30, 2016
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	199,827		$	3,605		$	136,724		$	10,094		$	130,471		$	480,721
Provision (reversal of provision)		13,746			(605	)		13,841			(1,363	)		10,662			36,281
Charge-offs		(13,799	)		(951	)		(16,002	)		(1,429	)		(25,470	)		(57,651	)
Recoveries		10,600			65			765			613			12,649			24,692

Ending balance	$	210,374		$	2,114		$	135,328		$	7,915		$	128,312		$	484,043

Specific ALLL	$	58,527		$	—		$	43,567		$	540		$	23,708		$	126,342

General ALLL	$	151,847		$	2,114		$	91,761		$	7,375		$	104,604		$	357,701

Loans held-in-portfolio:
Impaired non-covered loans	$	328,868		$	—		$	487,972		$	1,899		$	108,341		$	927,080
Non-covered loans held-in-portfolio excluding impaired loans		6,925,290			81,054			5,476,876			680,911			3,185,490			16,349,621

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Smaller reporting company