UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

Commission File Number: 000-13818

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
San Juan, 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.

     þ Yes o 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).

     o Yes o 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:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     o Yes þ 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 282,031,548 shares outstanding as of August 5, 2009.

 

 

POPULAR, INC.
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition as of June 30, 2009, December 31, 2008 and June 30, 2008			4
Unaudited Consolidated Statements of Operations for the quarters and six months ended June 30, 2009 and 2008			5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2009 and 2008			6
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and six months ended June 30, 2009 and 2008			7
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008			8
Notes to Unaudited Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			88
Item 3. Quantitative and Qualitative Disclosures about Market Risk			131
Item 4. Controls and Procedures			136
Part II — Other Information
Item 1. Legal Proceedings			137
Item 1A. Risk Factors			137
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			144
Item 4. Submission of Matters to a Vote of Security Holders			144
Item 6. Exhibits			145
Signatures			146
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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 the Corporation’s 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, 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 the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.

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 declining growth in the economy and employment levels, as well as general business and economic conditions;
	•		changes in interest rates, as well as the magnitude of such changes;
	•		the fiscal and monetary policies of the federal government and its agencies;
	•		changes in federal bank regulatory and supervisory policies, including required levels of capital;
	•		the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;
	•		the performance of the stock and bond markets;
	•		competition in the financial services industry;
	•		possible legislative, tax or regulatory changes; and
	•		difficulties in combining the operations of acquired entities.

Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2008 as well as “Part II, Item 1A” of this Form 10Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

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.

All forward-looking statements included in this document are based upon information available to the Corporation as of the date of this document, and 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.

ITEM 1. FINANCIAL STATEMENTS
POPULAR, INC.

CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)

(In thousands, except share information)		June 30, 2009				December 31, 2008				June 30, 2008
ASSETS
Cash and due from banks		$	661,852			$	784,987			$	887,619
Money market investments:
Federal funds sold			106,092				214,990				710,000
Securities purchased under agreements to resell			306,974				304,228				170,497
Time deposits with other banks			538,581				275,436				17,299
			951,647				794,654				897,796
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge			2,599,558				3,031,137				3,418,708
Other investment securities available-for-sale			4,646,901				4,893,350				4,283,619
Investment securities held-to-maturity, at amortized cost (fair value as of June 30, 2009 — $313,462; December 31, 2008 — $290,134; June 30, 2008 — $231,210)			320,061				294,747				232,483
Other investment securities, at lower of cost or realizable value (realizable value as of June 30, 2009 — $216,551; December 31, 2008 — $255,830; June 30, 2008 - $299,827)			214,923				217,667				240,731
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge			400,128				562,795				417,437
Other trading securities			87,054				83,108				82,051
Loans held-for-sale measured at lower of cost or fair value			242,847				536,058				337,552
Loans measured at fair value pursuant to SFAS No. 159:
Loans measured at fair value with creditors’ right to repledge			—				—				45,758
Other loans measured at fair value			—				—				799,134
Loans held-in-portfolio			24,717,321				25,857,237				26,636,004
Less — Unearned income			111,259				124,364				186,770
Allowance for loan losses			1,146,239				882,807				652,730
			23,459,823				24,850,066				25,796,504
Premises and equipment, net			614,366				620,807				633,450
Other real estate			105,553				89,721				102,809
Accrued income receivable			135,978				156,227				163,274
Servicing assets (at fair value on June 30, 2009 — $180,808; December 31, 2008 - $176,034; June 30, 2008 — $186,155)			184,189				180,306				190,778
Other assets (See Note 9)			1,214,849				1,115,597				2,455,842
Goodwill			607,164				605,792				628,826
Other intangible assets			48,447				53,163				64,223
Assets from discontinued operations (See Note 3)			3,452				12,587				—
		$	36,498,792			$	38,882,769			$	41,678,594
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing		$	4,408,865			$	4,293,553			$	4,482,287
Interest bearing			22,504,620				23,256,652				22,633,441
			26,913,485				27,550,205				27,115,728
Federal funds purchased and assets sold under agreements to repurchase			2,941,678				3,551,608				4,738,677
Other short-term borrowings			1,825				4,934				1,337,210
Notes payable at cost			2,643,722				3,386,763				3,750,647
Notes payable at fair value pursuant to SFAS No. 159			—				—				173,725
Other liabilities			1,084,455				1,096,338				856,613
Liabilities from discontinued operations (See Note 3)			13,926				24,557				—
			33,599,091				35,614,405				37,972,600
Commitments and contingencies (See Note 17)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 24,410,000 issued and outstanding as of June 30, 2009 and December 31, 2008 (June 30, 2008 — 23,475,000) (aggregate liquidation preference value of $1,521,875 as of June 30, 2009 and December 31, 2008; $586,875 as of June 30, 2008)			1,487,000				1,483,525				586,875
Common stock, $0.01 par value as of June 30, 2009 ($6.00 as of December 31, 2008 and June 30, 2008); 700,000,000 shares authorized as of June 30, 2009 (470,000,000 as of December 31, 2008 and June 30, 2008); 282,034,819 shares issued (December 31, 2008 — 295,632,080; June 30, 2008 — 294,620,193) and 282,031,548 outstanding (December 31, 2008 — 282,004,713; June 30, 2008 — 280,983,132)			2,820				1,773,792				1,767,721
Surplus			2,185,757				621,879				563,100
(Accumulated deficit) retained earnings			(659,165	)			(374,488	)			1,086,373
Accumulated other comprehensive loss, net of tax of ($67,257) (December 31, 2008 — ($24,771); June 30, 2008 — ($22,392))			(116,700	)			(28,829	)			(90,448	)
Treasury stock — at cost, 3,271 shares as of June 30, 2009 (December 31, 2008 — 13,627,367 shares; June 30, 2008 — 13,637,061 shares)			(11	)			(207,515	)			(207,627	)
			2,899,701				3,268,364				3,705,994
		$	36,498,792			$	38,882,769			$	41,678,594

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands, except per share information)		2009				2008				2009				2008
INTEREST INCOME:
Loans		$	382,244			$	466,576			$	784,012			$	964,032
Money market investments			2,381				3,476				5,514				10,204
Investment securities			75,818				82,755				149,301				176,859
Trading account securities			10,603				12,451				21,411				26,005
			471,046				565,258				960,238				1,117,100
INTEREST EXPENSE:
Deposits			128,452				168,045				276,491				362,985
Short-term borrowings			16,631				40,312				37,334				100,591
Long-term debt			42,903				26,604				90,867				47,468
			187,986				234,961				404,692				511,044
Net interest income			283,060				330,297				555,546				666,056
Provision for loan losses			349,444				189,165				721,973				350,401
Net interest income after provision for loan losses			(66,384	)			141,132				(166,427	)			315,655
Service charges on deposit accounts			53,463				51,799				107,204				102,886
Other service fees (See Note 18)			102,437				108,117				200,970				211,347
Net gain on sale and valuation adjustments of investment securities			53,705				28,334				229,851				78,562
Trading account profit			16,839				18,541				23,662				31,878
(Loss) gain on sale of loans and valuation adjustments on loans held-for-sale			(13,453	)			4,907				(27,266	)			19,174
Other operating income			12,848				24,100				26,149				56,702
			159,455				376,930				394,143				816,204
OPERATING EXPENSES:
Personnel costs:
Salaries			107,079				120,598				212,402				242,015
Pension and other benefits			29,127				34,719				69,095				69,270
			136,206				155,317				281,497				311,285
Net occupancy expenses			26,024				26,840				52,465				54,708
Equipment expenses			25,202				28,854				51,306				58,007
Other taxes			13,084				13,719				26,260				26,604
Professional fees			27,048				27,825				51,949				57,184
Communications			12,386				12,088				24,213				25,563
Business promotion			9,946				18,104				17,856				34,848
Printing and supplies			3,017				3,663				5,807				7,494
FDIC deposit insurance			36,331				2,270				45,448				4,612
Other operating expenses			38,968				39,168				73,202				68,346
Amortization of intangibles			2,433				2,490				4,839				4,982
			330,645				330,338				634,842				653,633
(Loss) income from continuing operations before income tax			(171,190	)			46,592				(240,699	)			162,571
Income tax expense (benefit)			5,393				(12,581	)			(21,540	)			4,159
(Loss) income from continuing operations			(176,583	)			59,173				(219,159	)			158,412
Loss from discontinued operations, net of income tax			(6,599	)			(34,923	)			(16,545	)			(30,872	)
NET (LOSS) INCOME		$	(183,182	)		$	24,250			$	(235,704	)		$	127,540
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK		$	(207,810	)		$	18,247			$	(285,010	)		$	118,559
(LOSSES) EARNINGS PER COMMON SHARE — BASIC AND DILUTED:
(Losses) earnings from continuing operations		$	(0.71	)		$	0.19			$	(0.95	)		$	0.52
Losses from discontinued operations			(0.03	)			(0.13	)			(0.06	)			(0.10	)
Net (losses) earnings per common share		$	(0.74	)		$	0.06			$	(1.01	)		$	0.42
DIVIDENDS DECLARED PER COMMON SHARE			—			$	0.16			$	0.02			$	0.32

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

POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

		Six months ended June 30,
(In thousands)		2009				2008
Preferred stock:
Balance at beginning of year		$	1,483,525			$	186,875
Issuance of preferred stock			—				400,000
Accretion of preferred stock discount — 2008 Series C			3,475				—
Balance at end of period			1,487,000				586,875
Common stock:
Balance at beginning of year			1,773,792				1,761,908
Common stock issued under the Dividend Reinvestment Plan			—				5,813
Treasury stock retired			(81,583	)			—
Change in par value (from $6.00 to $0.01)			(1,689,389	)			—
Balance at end of period			2,820				1,767,721
Surplus:
Balance at beginning of year			621,879				568,184
Common stock issued under the Dividend Reinvestment Plan			—				4,307
Issuance cost of preferred stock			—				(9,950	)
Stock options expense on unexercised options, net of forfeitures			45				559
Treasury stock retired			(125,556	)			—
Change in par value (from $6.00 to $0.01)			1,689,389				—
Balance at end of period			2,185,757				563,100
(Accumulated deficit) retained earnings:
Balance at beginning of year			(374,488	)			1,319,467
Net (loss) income			(235,704	)			127,540
Cumulative effect of accounting change — adoption of SFAS No. 159			—				(261,831	)
Cash dividends declared on common stock			(5,641	)			(89,822	)
Cash dividends declared on preferred stock			(39,857	)			(8,981	)
Accretion of preferred stock discount — 2008 Series C			(3,475	)			—
Balance at end of period			(659,165	)			1,086,373
Accumulated other comprehensive loss:
Balance at beginning of year			(28,829	)			(46,812	)
Other comprehensive loss, net of tax			(87,871	)			(43,636	)
Balance at end of period			(116,700	)			(90,448	)
Treasury stock — at cost:
Balance at beginning of year			(207,515	)			(207,740	)
Purchase of common stock			(12	)			(358	)
Reissuance of common stock			377				471
Treasury stock retired			207,139				—
Balance at end of period			(11	)			(207,627	)
Total stockholders’ equity		$	2,899,701			$	3,705,994

Disclosure of changes in number of shares:

		June 30,				December 31,				June 30,
		2009				2008				2008
Preferred Stock:
Balance at beginning of year			24,410,000				7,475,000				7,475,000
Shared issued — (2008 Series B)			—				16,000,000				16,000,000
Shared issued — (2008 Series C)			—				935,000				—
Balance at end of period			24,410,000				24,410,000				23,475,000
Common Stock — Issued:
Balance at beginning of year			295,632,080				293,651,398				293,651,398
Issued under the Dividend Reinvestment Plan			—				1,980,682				968,795
Treasury stock retired			(13,597,261	)			—				—
Balance at end of period			282,034,819				295,632,080				294,620,193
Treasury stock			(3,271	)			(13,627,367	)			(13,637,061	)
Common Stock — outstanding			282,031,548				282,004,713				280,983,132

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands)		2009				2008				2009				2008
Net (loss) income		$	(183,182	)		$	24,250			$	(235,704	)		$	127,540
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment			(877	)			(1,411	)			(757	)			(1,192	)
Adjustment of pension and postretirement benefit plans			1,855				(37	)			63,095				(74	)
Unrealized holding losses on securities available-for-sale arising during the period			(34,712	)			(149,927	)			(19,399	)			(22,437	)
Reclassification adjustment for gains included in net (loss) income			(1,410	)			(27,685	)			(177,556	)			(26,373	)
Unrealized net gains (losses) on cash flow hedges			(37	)			2,963				(1,623	)			(2,107	)
Reclassification adjustment for losses included in net (loss) income			3,469				92				5,883				1,593
			(31,712	)			(176,005	)			(130,357	)			(50,590	)
Income tax benefit			5,694				41,838				42,486				6,954
Total other comprehensive loss, net of tax			(26,018	)			(134,167	)			(87,871	)			(43,636	)
Comprehensive (loss) income, net of tax		$	(209,200	)		$	(109,917	)		$	(323,575	)		$	83,904

Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss):

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands)		2009				2008				2009				2008
Underfunding of pension and postretirement benefit plans			—				—			$	(22,783	)			—
Unrealized holding losses on securities available-for-sale arising during the period		$	6,050			$	38,943				3,293			$	3,680
Reclassification adjustment for gains included in net (loss) income			247				4,025				62,709				3,124
Unrealized net gains (losses) on cash flows hedges			15				(1,094	)			633				775
Reclassification adjustment for losses included in net (loss) income			(618	)			(36	)			(1,366	)			(625	)
Income tax benefit (expense)		$	5,694			$	41,838			$	42,486			$	6,954

Disclosure of accumulated other comprehensive loss:

		June 30,				December 31,				June 30,
(In thousands)		2009				2008				2008
Foreign currency translation adjustment		$	(39,825	)		$	(39,068	)		$	(35,780	)
Underfunding of pension and postretirement benefit plans			(197,114	)			(260,209	)			(51,213	)
Tax effect			76,858				99,641				20,108
Net of tax amount			(120,256	)			(160,568	)			(31,105	)
Unrealized gains (losses) on securities available-for-sale			53,019				249,974				(21,718	)
Tax effect			(9,616	)			(75,618	)			854
Net of tax amount			43,403				174,356				(20,864	)
Unrealized losses on cash flows hedges			(37	)			(4,297	)			(4,129	)
Tax effect			15				748				1,430
Net of tax amount			(22	)			(3,549	)			(2,699	)
Accumulated other comprehensive loss, net of tax		$	(116,700	)		$	(28,829	)		$	(90,448	)

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six months ended June 30,
(In thousands)		2009				2008
Cash flows from operating activities:
Net (loss) income		$	(235,704	)		$	127,540
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment			33,603				37,318
Provision for loan losses			721,973				358,862
Amortization of intangibles			4,839				4,982
Amortization and fair value adjustments of servicing assets			10,505				25,122
Net gain on sale and valuation adjustments of investment securities			(229,851	)			(75,703	)
(Gains) losses from changes in fair value related to instruments measured at fair value pursuant to SFAS No. 159			(1,141	)			38,942
Net loss (gain) on disposition of premises and equipment			1,771				(3,111	)
Net loss (gain) on sale of loans and valuation adjustments on loans held-for-sale			32,472				(67,292	)
Net amortization of premiums and accretion of discounts on investments			7,488				12,656
Net amortization of premiums and deferred loan origination fees and costs			22,831				28,951
Earnings from investments under the equity method			(6,380	)			(6,899	)
Stock options expense			45				559
Deferred income taxes, net of valuation			(73,983	)			(83,836	)
Net disbursements on loans held-for-sale			(685,500	)			(1,509,819	)
Acquisitions of loans held-for-sale			(209,814	)			(185,053	)
Proceeds from sale of loans held-for-sale			43,875				1,006,208
Net decrease in trading securities			911,066				732,067
Net decrease in accrued income receivable			19,553				42,301
Net decrease (increase) in other assets			36,984				(264,170	)
Net decrease in interest payable			(30,133	)			(53,440	)
Net increase in postretirement benefit obligation			2,404				203
Net increase (decrease) in other liabilities			61,055				(24,429	)
Total adjustments			673,662				14,419
Net cash provided by operating activities			437,958				141,959
Cash flows from investing activities:
Net (increase) decrease in money market investments			(156,993	)			108,916
Purchases of investment securities:
Available-for-sale			(3,962,978	)			(3,427,660	)
Held-to-maturity			(28,328	)			(3,631,141	)
Other			(22,243	)			(136,775	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale			846,944				1,851,899
Held-to-maturity			3,133				3,884,838
Other			24,988				112,628
Proceeds from sale of investment securities available-for-sale			3,747,567				2,406,504
Proceeds from sale of other investment securities			44,425				49,330
Net repayments (disbursements) on loans			670,771				(596,548	)
Proceeds from sale of loans			304,468				1,715,330
Acquisition of loan portfolios			(18,260	)			(6,669	)
Mortgage servicing rights purchased			(727	)			(2,986	)
Acquisition of premises and equipment			(37,741	)			(98,028	)
Proceeds from sale of premises and equipment			8,800				19,743
Proceeds from sale of foreclosed assets			76,334				51,684
Net cash provided by investing activities			1,500,160				2,301,065
Cash flows from financing activities:
Net decrease in deposits			(633,722	)			(1,198,512	)
Net decrease in federal funds purchased and assets sold under agreements to repurchase			(609,930	)			(698,588	)
Net decrease in other short-term borrowings			(3,109	)			(164,769	)
Payments of notes payable			(804,072	)			(1,243,674	)
Proceeds from issuance of notes payable			61,031				630,186
Dividends paid			(71,438	)			(98,685	)
Proceeds from issuance of common stock			—				10,120
Proceeds from issuance of preferred stock			—				390,050
Treasury stock acquired			(13	)			(358	)
Net cash used in financing activities			(2,061,253	)			(2,374,230	)
Net (decrease) increase in cash and due from banks			(123,135	)			68,794
Cash and due from banks at beginning of period			784,987				818,825
Cash and due from banks at end of period		$	661,852			$	887,619

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

Note: The Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 include the cash flows from operating, investing and financing activities associated with discontinued operations.

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Basis of Presentation

Note 2 — Adoption of New Accounting Standards and Issued But Not Yet Effective Accounting Standards

Note 3 — Discontinued Operations

Note 4 — Restrictions on Cash and Due from Banks and Certain Securities

Note 5 — Pledged Assets

Note 6 — Investment Securities Available-For-Sale

Note 7 — Investment Securities Held-to-Maturity

Note 8 — Mortgage Servicing Rights

Note 9 — Other Assets

Note 10 — Derivative Instruments and Hedging

Note 11 — Goodwill and Other Intangible Assets

Note 12 — Fair Value Measurement

Note 13 — Fair Value of Financial Instruments

Note 14 — Borrowings

Note 15 — Trust Preferred Securities

Note 16 — Stockholders’ Equity

Note 17 — Commitments, Contingencies and Guarantees

Note 18 — Other Service Fees

Note 19 — Pension and Postretirement Benefits

Note 20 — Restructuring Plans

Note 21 — Income Taxes

Note 22 — Stock-Based Compensation

Note 23 — (Loss) Earnings per Common Share

Note 24 — Supplemental Disclosure on the Consolidated Statements of Cash Flows

Note 25 — Segment Reporting

Note 26 — Condensed Consolidating Financial Information of Guarantor and Issuers of Registered Guaranteed Securities

Note 27 — Exchange Offer

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Basis of Presentation

Popular, Inc. (the “Corporation” or “Popular”) 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, the Caribbean and Latin America. In Puerto Rico, the Corporation offers retail and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as auto and equipment leasing and financing, mortgage loans, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the United States, the Corporation operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary E-LOAN. BPNA is a community bank providing a broad range of financial services and products to the communities it serves. BPNA operates branches in New York, California, Illinois, New Jersey and Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA and offers loan customers the option of being referred to a trusted consumer lending partner for loan products. The Corporation, through its subsidiary EVERTEC, provides transaction processing services throughout the Caribbean and Latin America, as well as internally servicing many of its subsidiaries’ system infrastructures and transactional processing businesses. Note 25 to the consolidated financial statements presents further information about the Corporation’s business segments.

The unaudited consolidated financial statements include the accounts of Popular, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These unaudited 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 prior period consolidated financial statements to conform to the 2009 presentation, including retrospectively adjusting certain information of the consolidated statement of operations to present in a separate line item the results of discontinued operations from prior periods presented.

The statement of condition data as of December 31, 2008 was derived from audited financial statements. 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 statements presented as of June 30, 2009, December 31, 2008 and June 30, 2008 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, 2008, included in the Corporation’s 2008 Annual Report. The Corporation’s Form 10-K filed on March 2, 2009 incorporates by reference the 2008 Annual Report.

Note 2 — Adoption of New Accounting Standards and Issued But Not Yet Effective Accounting Standards

SFAS No. 141-R “Statement of Financial Accounting Standards No. 141(R), Business Combinations (a revision of SFAS No. 141)” (“SFAS No. 141(R)”)

SFAS No. 141(R), issued in December 2007, establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. The Corporation is required to apply SFAS No. 141(R) to all business combinations completed on or after January 1, 2009. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS No. 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. SFAS No. 141(R) has not had a material effect on the consolidated financial statements of the Corporation as of June 30, 2009.

SFAS No. 160 “Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No. 160”)

In December 2007, the FASB issued SFAS No. 160, which amends ARB No. 51, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 requires entities to classify noncontrolling interests as a component of stockholders’ equity on the consolidated financial statements and requires subsequent changes in ownership interests in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS No. 160 requires entities to recognize a gain or loss upon the loss of control of a subsidiary and to remeasure any ownership interest retained at fair value on that date. This statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 was adopted by the Corporation on January 1, 2009. The adoption of this standard did not have a material impact on the Corporation’s consolidated financial statements.

SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”)

In March 2008, the FASB issued SFAS No. 161, an amendment of SFAS No. 133. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS No. 133 and related interpretations. The standard expands the disclosure requirements for derivatives and hedged items and has no impact on how the Corporation accounts for these instruments. The standard was adopted by the Corporation in the first quarter of 2009. Refer to Note 10 to the consolidated financial statements.

SFAS No. 165, “Subsequent Events” (“SFAS No. 165”)

In May 2009, the FASB issued SFAS. No. 165, which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Corporation evaluated subsequent events through August 10, 2009. Refer to Note 27 for related disclosures.

SFAS No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 166”)

In June 2009, the FASB issued SFAS No. 166, a revision of SFAS No. 140, which requires more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity” (“QSPEs”), changes the requirements for derecognizing financial assets, and requires additional disclosures. It also requires a transferor to evaluate all existing QSPEs to determine whether they must be consolidated in accordance with SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Corporation is currently evaluating the potential impact of the adoption to its consolidated financial statements; however, it is not expected that it will have a material impact on the Corporation’s consolidated financial statements.

SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”)

SFAS No. 167, issued in June 2009, amends the consolidating guidance applicable to variable interest entities and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The amendments to the consolidated guidance affect all entities currently within the scope of FIN 46(R), as well as qualifying special-purpose entities (“QSPEs”) that are currently excluded from the scope of FIN 46(R). SFAS No. 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. SFAS No. 167 will be effective as of the beginning of the first fiscal year that begins after November 15,

2009. The Corporation is currently evaluating the potential impact of the adoption to its consolidated financial statements; however, it is not expected that it will have a material impact on the Corporation’s consolidated financial statements.

SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — A Replacement of FASB Statement No. 162” (“SFAS No. 168”)

The FASB has issued SFAS No. 168 in June 2009. This statement establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009. When effective, the Codification will supersede all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. The Corporation will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. As the Codification was not intended to change or alter existing GAAP, it will not have any impact on the Corporation’s consolidated financial statements.

FASB Staff Position FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions”(“FSP FAS 140-3”)

FSP FAS 140-3, issued by the FASB in February 2008, provides implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions. FSP FAS 140-3 requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement’s price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another. The Corporation adopted FSP FAS 140-3 on January 1, 2009. The adoption of FSP FAS 140-3 did not have a material impact on the Corporation’s consolidated financial statements for 2009.

FASB Staff Position FAS 142-3, “Determination of the Useful Life of Intangible Assets”(“FSP FAS 142-3”)

FSP FAS 142-3, issued by the FASB in April 2008, amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142 “Goodwill and Other Intangible Assets”. In developing these assumptions, an entity should consider its own historical experience in renewing or extending similar arrangements adjusted for entity specific factors or, in the absence of that experience, the assumptions that market participants would use about renewals or extensions adjusted for the entity specific factors. FSP FAS 142-3 shall be applied prospectively to intangible assets acquired after the effective date of January 1, 2009. The adoption of this FSP did not have a material impact on the Corporation’s consolidated financial statements for the quarter and six months ended June 30, 2009.

EITF 08-6 “Equity Method Investment Accounting Considerations”(“EITF 08-6”)

EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. This EITF applies to all investments accounted for under the equity method. EITF 08-6 provides guidance on the following: (1) how the initial carrying value of an equity method investment should be determined; (2) how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed; (3) how an equity method investee’s issuance of shares should be accounted for, and (4) how to account for a change in an investment from the equity method to the cost method. The adoption of EITF 08-6 in January 2009 did not have a material impact on the Corporation’s consolidated financial statements.

FASB Staff Position FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”(“FSP FAS 132(R)-1”)

FSP FAS 132(R)-1 requires additional disclosures in the financial statements of employers who are subject to the disclosure requirements of FAS 132(R) as follows: (a) the investment allocation decision making process, including the factors that are pertinent to an understanding of investment policies and strategies; (b) the fair value of each major category of plan assets, disclosed separately for pension plans and other postretirement benefit plans; (c) the inputs and valuation techniques used to measure the fair value of plan assets, including the level within the fair value hierarchy in which the fair value measurements in their entirety fall; and (d) significant concentrations of risk within plan assets. Additional detailed information is required for each category above. Upon initial application, the provisions of this FSP are not required for earlier periods that are presented for comparative periods. The Corporation will apply the new disclosure requirements commencing with the December 31, 2009 annual financial statements. This FSP impacts disclosures only and will not have an effect on the Corporation’s consolidated statements of condition or results of operations.

FASB Staff Position FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments”(“FSP FAS 115-2 and FAS 124-2”)

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which is intended to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary impairment event. FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt securities. The new guidance improves the presentation and disclosure of other-than-temporary impairment on investment securities and changes the calculation of the other-than-temporary impairment recognized in earnings in the financial statements. FSP FAS 115-2 and FAS 124-2 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.

For debt securities, FSP FAS 115-2 and FAS 124-2 requires an entity to assess whether (a) it has the intent to sell the debt security, or (b) it is more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an other-than-temporary impairment on the security must be recognized.

In instances in which a determination is made that a credit loss (defined by FSP FAS 115-2 and FAS 124-2 as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), FSP FAS 115-2 and FAS 124-2 change the presentation and amount of the other-than-temporary impairment recognized in the statement of operations. In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in the statement of operations. The amount of the total impairment related to all other factors is recognized in other comprehensive loss. Previously, in all cases, if an impairment was determined to be other-than-temporary, an impairment loss was recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date of the reporting period for which the assessment was made.

FSP FAS 115-2 and FAS 124-2 is effective and is to be applied prospectively for financial statements issued for interim and annual reporting periods ending after June 15, 2009. When adopting FSP FAS 115-2 and FAS 124-2, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive loss if the entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before the anticipated recovery of its amortized cost basis.

The Corporation adopted FSP FAS 115-2 and FAS 124-2 for interim and annual reporting periods commencing with the quarter ended June 30, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 in the second quarter of 2009 did not have a cumulative-effect adjustment as of the beginning of the period of adoption (April 1, 2009) since there were no previously recognized other-than-temporary impairments related to outstanding debt securities. Also, the FSP did not have an impact on the Corporation’s results of operations for the quarter ended June 30, 2009 since the

unrealized losses in the Corporation’s investment securities available-for-sale and held-to-maturity were considered temporary based on management’s assessments. Refer to Notes 6 and 7 for additional disclosures.

FASB Staff Position FAS 107-1 and APB 28-1 “Interim Disclosures about Fair Value of Financial Instruments”(“FSP FAS 107-1 and APB 28-1”)

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 to require providing disclosures on a quarterly basis about the fair value of financial instruments that are not currently reflected on the statement of condition at fair value. Prior to issuing this FSP, fair value for these assets and liabilities was only required for year-end disclosures. The Corporation adopted FSP FAS 107-1 and APB 28-1 effective with the financial statement disclosures for the quarter ended June 30, 2009. This FSP only impacts disclosure requirements and therefore did not have an impact on the Corporation’s financial condition or results of operations. Refer to Note 13 to the consolidated financial statements for required disclosures.

FASB Staff Position FAS 157-4 “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly”(“FSP FAS 157-4”)

FSP FAS 157-4, issued in April 2009, provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate that a transaction is not orderly. It reaffirms the need to use judgment to ascertain if an active market has become inactive and in determining fair values when markets have become inactive. Additionally, it also emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 shall be applied prospectively and retrospective application is not permitted. The adoption of FSP FAS 157-4 did not have a material impact on the Corporation’s consolidated financial statements.

Note 3 — Discontinued Operations

As disclosed in the 2008 Annual Report, the Corporation discontinued the operations of Popular Financial Holdings in 2008 by selling substantially all assets and closing service branches and other units.

For financial reporting purposes, the results of the discontinued operations of PFH are presented as “Assets / Liabilities from discontinued operations” in the consolidated statements of condition as of June 30, 2009 and December 31, 2008 and as “Loss from discontinued operations, net of income tax” in the consolidated statements of operations for all periods presented. Prior periods presented in the consolidated statement of operations, as well as note disclosures covering income and expense amounts included in the accompanying notes to the consolidated financial statements, were retrospectively adjusted for comparative purposes. The consolidated statement of condition and related amounts in the notes to the consolidated financial statements as of June 30, 2008 do not reflect the reclassification of PFH’s assets / liabilities to discontinued operations.

Total assets of the PFH discontinued operations amounted to $3 million as of June 30, 2009, compared to $13 million as of December 31, 2008. PFH’s total assets amounted to $2.0 billion as of June 30, 2008, principally consisting of $1.2 billion in loans, of which $0.8 billion were accounted at fair value pursuant to SFAS No. 159, and $354 million in deferred tax assets, $300 million in servicing advances and related assets, and $56 million in mortgage servicing rights. As disclosed in the 2008 Annual Report, the Corporation substantially sold these loan portfolios and servicing related assets in late 2008. As of June 30, 2008, all loans and borrowings recognized at fair value pursuant to SFAS No. 159 pertained to the discontinued operations of PFH.

Assets held by the PFH discontinued operations as of June 30, 2009 included $1 million in loans measured at fair value with an unpaid principal balance of $10 million. Liabilities from discontinued operations as of June 30, 2009 amounted to approximately $14 million, which primarily consisted of indemnity and representation and warranty reserves associated to loans sold to third-parties under certain sales agreements.

The following table provides financial information for the discontinued operations for the quarter and six months ended June 30, 2009 and 2008.

		Quarter ended								Six months ended
($ in millions)		June 30, 2009				June 30, 2008				June 30, 2009				June 30, 2008
Net interest income			—			$	7.6			$	0.9			$	29.0
Provision for loan losses			—				1.5				—				8.5
Non-interest (loss) income		$	(5.5	)			(42.2	)			(3.7	)			1.0
Operating expenses			1.0				17.4				7.0				66.6
Pre-tax loss from discontinued operations			(6.5	)			(53.5	)			(9.8	)			(45.1	)
Income tax expense (benefit)			0.1				(18.6	)			6.7				(14.2	)
Loss from discontinued operations, net of tax		$	(6.6	)		$	(34.9	)		$	(16.5	)		$	(30.9	)

Management implemented a series of actions in 2008 to downsize and eventually discontinue the PFH operations. These actions included two major restructuring plans, which are described in the 2008 Annual Report. These are the “PFH Discontinuance Restructuring Plan” and the “PFH Branch Network Restructuring Plan”. The PFH Discontinuance Restructuring Plan commenced execution in the second half of 2008 and included the elimination of substantially all employment positions and termination of contracts with the objective of discontinuing PFH’s operations. The PFH Branch Network Restructuring Plan resulted in the sale of a substantial portion of PFH’s loan portfolio in the first quarter of 2008 and the closure of Equity One’s consumer service branches, which represented, at the time, the only significant channel for PFH to continue originating loans. The PFH Branch Network Restructuring Plan was completed.

The following section provides information on the PFH Discontinuance Restructuring. This plan is substantially complete as the company transferred the servicing of the loan portfolios of its affiliated company, E-LOAN, to a third-party in June 2009. PFH continues to employ 69 full-time equivalent employees (“FTEs”) that are primarily retained for a transition period. Additional costs could be incurred during 2009 associated to lease terminations, but these are not expected to be significant to the Corporation’s results of operations.

PFH Discontinuance Restructuring Plan

During the quarter and six months ended June 30, 2009, the PFH Discontinuance Restructuring Plan resulted in charges, on a pre-tax basis, broken down as follows:

		Quarter ended				Six months ended
(In thousands)		June 30, 2009				June 30, 2009
Personnel costs		$	86	(a)		$	981	(a)
Total restructuring costs		$	86			$	981

As of June 30, 2009, the PFH Discontinuance Restructuring Plan has resulted in combined charges for 2008 and 2009, broken down as follows:

		Impairments on				Restructuring
(In thousands)		long-lived assets				costs				Total
Year ended December 31, 2008		$	3,916			$	4,124			$	8,040
Quarter ended:
March 31, 2009			—				895				895
June 30, 2009			—				86				86
Total		$	3,916			$	5,105			$	9,021

The PFH Discontinuance Restructuring Plan charges are included in the line item “Loss from discontinued operations, net of tax” in the consolidated statements of operations for 2009 and 2008.

The following table presents the activity in the accrued balances for the PFH Discontinuance Plan during 2009.

(In thousands)		Restructuring Costs
Balance as of January 1, 2009		$	3,428
Charges in the quarter ended March 31, 2009			895
Cash payments			(1,711	)
Balance at March 31, 2009		$	2,612
Charges in the quarter ended June 30, 2009			86
Cash payments			(1,235	)
Balance as of June 30, 2009		$	1,463

Note 4 — Restrictions on Cash and Due from Banks and Certain Securities

The Corporation’s subsidiary banks are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank or other banks. Those required average reserve balances were $718 million as of June 30, 2009 (December 31, 2008 — $684 million; June 30, 2008 — $665 million). Cash and due from banks as well as other short-term, highly-liquid securities are used to cover the required average reserve balances.

In compliance with rules and regulations of the Securities and Exchange Commission, the Corporation may be required to establish a special reserve account for the benefit of brokerage customers of its broker-dealer subsidiary, which may consist of securities segregated in the special reserve account. There were no reserve requirements as of June 30, 2009. At June 30, 2008 and December 31, 2008 the Corporation had securities with a market value of $0.3 million. These securities were classified in the consolidated statement of condition within the other trading securities category.

As required by the Puerto Rico International Banking Center Regulatory Act, as of June 30, 2009, December 31, 2008, and June 30, 2008, the Corporation maintained separately for its two international banking entities (“IBEs”), $0.6 million in time deposits, equally divided for the two IBEs, which were considered restricted assets.

As part of a line of credit facility with a financial institution, as of June 30, 2009, December 31, 2008 and June 30, 2008, the Corporation maintained restricted cash of $2 million as collateral for the line of credit. The cash is being held in certificates of deposits which mature in less than 90 days. The line of credit is used to support letters of credit.

As of June 30, 2009, the Corporation maintained restricted cash of $3 million to support a letter of credit. The cash is being held in an interest-bearing money market account.

As of June 30, 2009, the Corporation had restricted cash of $2 million (December 31, 2008 — $3 million; June 30, 2008 — $3.5 million) to support a letter of credit related to a service settlement agreement.

As of June 30, 2009 and December 31, 2008, the Corporation had $10 million in cash equivalents restricted as to usage for the potential payment of obligations contained in a loan sales agreement until November 3, 2009.

Note 5 — Pledged Assets

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

		June 30,				December 31,				June 30,
(In thousands)		2009				2008				2008
Investment securities available-for-sale, at fair value		$	2,252,017			$	2,470,591			$	2,716,718
Investment securities held-to-maturity, at amortized cost			125,770				100,000				—
Loans held-for-sale measured at lower of cost or fair value			34,014				35,764				36,613
Loans measured at fair value pursuant to SFAS No. 159			—				—				167,646
Loans held-in-portfolio			7,629,613				8,101,999				7,727,951
		$	10,041,414			$	10,708,354			$	10,648,928

Pledged securities and loans in which the creditor has the right by custom or contract to repledge are presented separately in the consolidated statements of condition.

Note 6 — Investment Securities Available-For-Sale

The amortized cost, gross unrealized gains and losses and approximate market value (or fair value for certain investment securities where no market quotations are available) of investment securities available-for-sale as of June 30, 2009, December 31, 2008 and June 30, 2008 were as follows:

		AS OF JUNE 30, 2009
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Market				Average
(In thousands)		Cost				Gains				Losses				Value				Yield
U.S. Treasury securities
After 5 to 10 years		$	29,695			$	1,138				—			$	30,833				3.80	%
Obligations of U.S. Government sponsored entities
Within 1 year			154,896				2,990				—				157,886				4.33
After 1 to 5 years			1,476,345				65,241			$	174				1,541,412				3.77
After 5 to 10 years			27,811				1,060				—				28,871				4.96
After 10 years			26,880				579				—				27,459				5.68
			1,685,932				69,870				174				1,755,628				3.87
Obligations of Puerto Rico, States and political subdivisions
Within 1 year			4,500				10				—				4,510				6.10
After 1 to 5 years			2,150				5				8				2,147				4.95
After 5 to 10 years			68,476				264				4,906				63,834				4.79
After 10 years			28,690				4				277				28,417				5.23
			103,816				283				5,191				98,908				4.97
Collateralized mortgage obligations — federal agencies
Within 1 year			266				1				—				267				4.12
After 1 to 5 years			8,566				181				16				8,731				5.16
After 5 to 10 years			148,888				2,202				473				150,617				3.04
After 10 years			1,508,619				17,049				11,638				1,514,030				3.19
			1,666,339				19,433				12,127				1,673,645				3.18
Collateralized mortgage obligations — private label
Within 1 year			221				—				1				220				3.87
After 5 to 10 years			27,224				—				746				26,478				2.35
After 10 years			128,354				3				18,567				109,790				3.60
			155,799				3				19,314				136,488				3.38
Mortgage-backed securities
Within 1 year			5,143				52				—				5,195				3.04
After 1 to 5 years			78,841				1,502				1				80,342				3.80
After 5 to 10 years			149,901				4,812				4				154,709				4.82
After 10 years			3,304,858				17,212				19,559				3,302,511				4.50
			3,538,743				23,578				19,564				3,542,757				4.50
Equity securities			13,116				81				4,997				8,200				2.48
		$	7,193,440			$	114,386			$	61,367			$	7,246,459				4.02	%

		AS OF DECEMBER 31, 2008
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Market				Average
(In thousands)		Cost				Gains				Losses				Value				Yield
U.S. Treasury securities
After 5 to 10 years		$	456,551			$	45,567				—			$	502,118				3.83	%
Obligations of U.S. Government sponsored entities
Within 1 year			123,315				2,855				—				126,170				4.46
After 1 to 5 years			4,361,775				262,184				—				4,623,959				4.07
After 5 to 10 years			27,811				1,097				—				28,908				4.96
After 10 years			26,877				1,094				—				27,971				5.68
			4,539,778				267,230				—				4,807,008				4.09
Obligations of Puerto Rico, States and political subdivisions
Within 1 year			4,500				66				—				4,566				6.10
After 1 to 5 years			2,259				4			$	6				2,257				4.95
After 5 to 10 years			67,975				232				3,269				64,938				4.77
After 10 years			29,423				46				240				29,229				5.20
			104,157				348				3,515				100,990				4.95
Collateralized mortgage obligations — federal agencies
Within 1 year			179				—				—				179				5.36
After 1 to 5 years			6,837				52				12				6,877				5.20
After 5 to 10 years			156,240				784				994				156,030				3.38
After 10 years			1,363,705				9,090				28,913				1,343,882				3.11
			1,526,961				9,926				29,919				1,506,968				3.15
Collateralized mortgage obligations — private label
Within 1 year			443				—				3				440				4.96
After 5 to 10 years			30,914				—				2,909				28,005				2.30
After 10 years			158,667				—				38,364				120,303				3.52
			190,024				—				41,276				148,748				3.32
Mortgage-backed securities
Within 1 year			18,673				46				8				18,711				3.94
After 1 to 5 years			67,570				237				150				67,657				3.86
After 5 to 10 years			116,059				3,456				226				119,289				4.85
After 10 years			635,159				11,127				3,438				642,848				5.47
			837,461				14,866				3,822				848,505				5.22
Equity securities			19,581				61				9,492				10,150				5.01
		$	7,674,513			$	337,998			$	88,024			$	7,924,487				4.01	%

		AS OF JUNE 30, 2008
						Gross				Gross								Weighted
		Amortized				Unrealized				Unrealized				Market				Average
(In thousands)		Cost				Gains				Losses				Value				Yield
U.S. Treasury securities
After 5 to 10 years		$	461,404			$	542			$	1,195			$	460,751				3.83	%
Obligations of U.S. Government sponsored entities
Within 1 year			188,498				433				9				188,922				3.91
After 1 to 5 years			4,367,914				26,771				10,772				4,383,913				4.09
After 5 to 10 years			5,568				40				—				5,608				5.05
After 10 years			26,874				433				—				27,307				5.68
			4,588,854				27,677				10,781				4,605,750				4.09
Obligations of Puerto Rico, States and political subdivisions
Within 1 year			12,650				26				—				12,676				4.91
After 1 to 5 years			6,874				110				2				6,982				5.63
After 5 to 10 years			25,959				74				90				25,943				4.40
After 10 years			81,292				33				1,744				79,581				5.09
			126,775				243				1,836				125,182				4.96
Collateralized mortgage obligations — federal agencies
Within 1 year			1,067				4				—				1,071				5.09
After 1 to 5 years			5,079				16				4				5,091				5.52
After 5 to 10 years			138,134				422				1,016				137,540				3.92
After 10 years			1,263,250				3,008				11,093				1,255,165				3.77
			1,407,530				3,450				12,113				1,398,867				3.80
Collateralized mortgage obligations — private label
After 1 to 5 years			661				—				1				660				4.96
After 5 to 10 years			19,578				—				969				18,609				3.33
After 10 years			198,433				37				7,996				190,474				4.09
			218,672				37				8,966				209,743				4.02
Mortgage-backed securities
Within 1 year			6,589				1				—				6,590				3.10
After 1 to 5 years			96,007				500				292				96,215				3.95
After 5 to 10 years			70,357				149				1,108				69,398				4.74
After 10 years			716,660				5,093				9,918				711,835				5.40
			889,613				5,743				11,318				884,038				5.17
Equity securities			28,607				441				13,642				15,406				3.03
Others
After 1 to 5 years			15				—				—				15
After 5 to 10 years			37				—				—				37
After 10 years			2,538				—				—				2,538
			2,590				—				—				2,590				20.47
		$	7,724,045			$	38,133			$	59,851			$	7,702,327				4.16	%