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: 001-34084

POPULAR, INC.

(Exact name of registrant as specifies 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)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if change 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).

          þ 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 1,023,553,365 shares outstanding as of May 2, 2011.

 

 

POPULAR, INC.
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition at March 31, 2011, December 31, 2010 and March 31, 2010			4
Unaudited Consolidated Statements of Operations for the quarters ended March 31, 2011 and 2010			5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended March 31, 2011 and 2010			6
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters ended March 31, 2011 and 2010			7
Unaudited Consolidated Statements of Cash Flows for the quarters ended March 31, 2011 and 2010			8
Notes to Unaudited Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			86
Item 3. Quantitative and Qualitative Disclosures about Market Risk			125
Item 4. Controls and Procedures			133
Part II — Other Information
Item 1. Legal Proceedings			133
Item 1A. Risk Factors			135
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			136
Item 6. Exhibits			136
Signatures

Forward-Looking Information

The information included in this Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to Popular, Inc’s (the “Corporation”, “Popular”, “we, “us”, “our”) financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict.

Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

	•		the rate of growth in the economy and employment levels, as well as general business and economic conditions;
	•		changes in interest rates, as well as the magnitude of such changes;
	•		the fiscal and monetary policies of the federal government and its agencies;
	•		changes in federal bank regulatory and supervisory policies, including required levels of capital;
	•		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 performance of the stock and bond markets;
	•		competition in the financial services industry;
	•		additional Federal Deposit Insurance Corporation (“FDIC”) assessments; and
	•		possible legislative, tax or regulatory changes.

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 the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital 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; increased competition; our ability to grow its 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, 2010 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

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

ITEM 1. FINANCIAL STATEMENTS

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

(In thousands, except share information)		March 31, 2011				December 31, 2010				March 31, 2010
Assets
Cash and due from banks		$	464,555			$	452,373			$	592,175
Money market investments:
Federal funds sold			—				16,110				—
Securities purchased under agreements to resell			200,185				165,851				304,109
Time deposits with other banks			761,380				797,334				700,644
Total money market investments			961,565				979,295				1,004,753
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge			587,218				492,183				346,819
Other trading securities			47,581				54,530				33,330
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge			2,105,783				2,031,123				2,193,615
Other investment securities available-for-sale			3,580,558				3,205,729				4,342,131
Investment securities held-to-maturity, at amortized cost (fair value at March 31, 2011 - $147,816; December 31, 2010 - $120,873; March 31, 2010 - $207,850)			142,106				122,354				209,596
Other investment securities, at lower of cost or realizable value (realizable value at March 31, 2011 - $176,336; December 31, 2010 - $165,233; March 31, 2010 — $158,375)			174,930				163,513				156,864
Loans held-for-sale, at lower of cost or fair value			569,678				893,938				106,412
Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC			20,781,549				20,834,276				23,189,598
Loans covered under loss sharing agreements with the FDIC			4,729,550				4,836,882				—
Less — Unearned income			104,760				106,241				111,299
Allowance for loan losses			736,505				793,225				1,277,036
Total loans held-in-portfolio, net			24,669,834				24,771,692				21,801,263
FDIC loss share indemnification asset			2,325,618				2,311,997				—
Premises and equipment, net			543,577				545,453				579,451
Other real estate not covered under loss sharing agreements with the FDIC			156,888				161,496				134,887
Other real estate covered under loss sharing agreements with the FDIC			65,562				57,565				—
Accrued income receivable			147,670				150,658				131,243
Mortgage servicing assets, at fair value			167,416				166,907				173,359
Other assets			1,321,900				1,456,073				1,380,428
Goodwill			647,387				647,387				604,349
Other intangible assets			56,441				58,696				41,762
Total assets		$	38,736,267			$	38,722,962			$	33,832,437
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing		$	4,913,009			$	4,939,321			$	4,476,255
Interest bearing			22,283,665				21,822,879				20,884,057
Total deposits			27,196,674				26,762,200				25,360,312
Federal funds purchased and assets sold under agreements to repurchase			2,642,800				2,412,550				2,491,506
Other short-term borrowings			290,302				364,222				23,263
Notes payable			3,794,655				4,170,183				2,529,092
Other liabilities			1,006,930				1,213,276				941,063
Total liabilities			34,931,361				34,922,431				31,345,236
Commitments and contingencies (See note 20)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding in all periods presented (aggregated liquidation preference value of $50,160)			50,160				50,160				50,160
Common stock, $0.01 par value; 1,700,000,000 shares authorized (December 31, 2010 — 1,700,000,000; March 31, 2010 — 700,000,000) ; 1,023,628,492 shares issued at March 31, 2011 (December 31, 2010 — 1,022,929,158; March 31, 2010 — 639,544,895) and 1,023,416,118 outstanding at March 31, 2011 (December 31, 2010 — 1,022,727,802; March 31, 2010 — 639,539,900)			10,236				10,229				6,395
Surplus			4,096,245				4,094,005				2,804,238
Accumulated deficit			(338,126	)			(347,328	)			(377,807	)
Treasury stock — at cost, 212,374 shares at March 31, 2011 (December 31, 2010 — 201,356 shares; March 31, 2010 — 4,995 shares)			(607	)			(574	)			(16	)
Accumulated other comprehensive (loss) income net of tax of ($57,044)(December 31, 2010 — ($55,616); March 31, 2010 — ($29,809))			(13,002	)			(5,961	)			4,231
Total stockholders’ equity			3,804,906				3,800,531				2,487,201
Total liabilities and stockholders’ equity		$	38,736,267			$	38,722,962			$	33,832,437

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		Quarter ended March 31,
(In thousands, except per share information)		2011				2010
Interest income:
Loans		$	423,375			$	354,649
Money market investments			947				1,042
Investment securities			52,375				64,926
Trading account securities			8,754				6,578
Total interest income			485,451				427,195
Interest expense:
Deposits			76,879				92,974
Short-term borrowings			14,015				15,259
Long-term debt			51,198				50,045
Total interest expense			142,092				158,278
Net interest income			343,359				268,917
Provision for loan losses			75,319				240,200
Net interest income after provision for loan losses			268,040				28,717
Service charges on deposit accounts			45,630				50,578
Other service fees			58,652				101,320
Net gain on sale and valuation adjustments of investment securities			—				81
Trading account loss			(499	)			(223	)
Net gain on sale of loans, including valuation adjustments on loans held-for-sale			7,244				5,068
Adjustments (expense) to indemnity reserves on loans sold			(9,848	)			(17,290	)
FDIC loss share income			16,035				—
Fair value change in equity appreciation instrument			7,745				—
Other operating income			39,409				18,332
Total non-interest income			164,368				157,866
Operating expenses:
Personnel costs:
Salaries			84,611				95,873
Pension and other benefits			21,529				25,059
Total personnel costs			106,140				120,932
Net occupancy expenses			24,586				28,876
Equipment expenses			12,036				23,453
Other taxes			11,972				12,304
Professional fees			46,688				27,049
Communications			7,210				10,772
Business promotion			9,860				8,295
Printing and supplies			1,223				2,369
FDIC deposit insurance			17,673				15,318
Loss on early extinguishment of debt			8,239				548
Other real estate owned (OREO) expenses			2,211				4,703
Other operating expenses			24,956				24,245
Amortization of intangibles			2,255				2,049
Total operating expenses			275,049				280,913
Income (loss) before income tax			157,359				(94,330	)
Income tax expense (benefit)			147,227				(9,275	)
Net Income (Loss)		$	10,132				($85,055	)
Net Income (Loss) Applicable to Common Stock		$	9,202				($85,055	)
Net Income (Loss) per Common Share — Basic		$	0.01				($0.13	)
Net Income (Loss) per Common Share — Diluted		$	0.01				($0.13	)
Dividends Declared per Common Share			—				—

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

		Common stock,
		including																Accumulated other
(In thousands)		treasury stock				Preferred stock				Surplus				Accumulated deficit				comprehensive income (loss)				Total
Balance at December 31, 2009		$	6,380			$	50,160			$	2,804,238				($292,752	)			($29,209	)		$	2,538,817
Net loss															(85,055	)							(85,055	)
Common stock purchases			(1	)																			(1	)
Other comprehensive income, net of tax																			33,440				33,440
Balance at March 31, 2010		$	6,379			$	50,160			$	2,804,238				($377,807	)		$	4,231			$	2,487,201
Balance at December 31, 2010		$	9,655			$	50,160			$	4,094,005				($347,328	)			($5,961	)		$	3,800,531
Net income															10,132								10,132
Issuance of stock			7								2,240												2,247
Dividends declared:
Preferred stock															(930	)							(930	)
Common stock purchases			(33	)																			(33	)
Other comprehensive loss, net of tax																			(7,041	)			(7,041	)
Balance at March 31, 2011		$	9,629			$	50,160			$	4,096,245				($338,126	)			($13,002	)		$	3,804,906

Disclosure of changes in number of shares:

Preferred Stock:		March 31, 2011				December 31, 2010				March 31, 2010
Balance at beginning of year			2,006,391				2,006,391				2,006,391
Issuance of stocks			—				1,150,000	[1]			—
Conversion of stocks							(1,150,000)	[1]			—
Balance at end of the period			2,006,391				2,006,391				2,006,391
Common Stock — Issued:
Balance at beginning of year			1,022,929,158				639,544,895				639,544,895
Issuance of stocks			699,334				50,930				—
Issuance of stock upon conversion of preferred stock			—				383,333,333	[1]			—
Balance at end of the period			1,023,628,492				1,022,929,158				639,544,895
Treasury stock			(212,374	)			(201,356	)			(4,995	)
Common Stock — Outstanding			1,023,416,118				1,022,727,802				639,539,900

 

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

		Quarter ended March 31,
(In thousands)		2011				2010
Net income (loss)		$	10,132				($85,055	)
Other comprehensive (loss) income  before tax:
Foreign currency translation adjustment			(591	)			954
Reclassification adjustment for losses included in net income (loss)			10,084				—
Adjustment of pension and postretirement benefit plans			3,002				1,750
Unrealized holding (losses) gains on securities available-for-sale arising during the period			(19,978	)			36,111
Reclassification adjustment for losses included in net income (loss)			—				10
Unrealized net losses on cash flow hedges			(51	)			(31	)
Reclassification adjustment for gains included in net income (loss)			(935	)			(1,199	)
Other comprehensive (loss) income before tax:			(8,469	)			37,595
Income tax benefit (expense)			1,428				(4,155	)
Total other comprehensive (loss) income, net of tax			(7,041	)			33,440
Comprehensive income (loss), net of tax		$	3,091				($51,615	)

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

		Quarter ended March 31,
(In thousands)		2011				2010
Underfunding of pension and postretirement benefit plans			($893	)			($883	)
Unrealized holding (losses) gains on securities available-for-sale arising during the period			1,941				(3,748	)
Reclassification adjustment for losses included in net income (loss)			—				(4	)
Unrealized net losses on cash flow hedges			15				12
Reclassification adjustment for gains included in net income (loss)			365				468
Income tax benefit (expense)		$	1,428				($4,155	)

Disclosure of accumulated other comprehensive (loss) income:

(In thousands)		March 31, 2011				December 31, 2010				March 31, 2010
Foreign currency translation adjustment			($26,658	)			($36,151	)			($39,722	)
Underfunding of pension and postretirement benefit plans			(207,933	)			(210,935	)			(126,036	)
Tax effect			79,962				80,855				47,683
Net of tax amount			(127,971	)			(130,080	)			(78,353	)
Unrealized holding gains on securities available-for-sale			164,596				184,574				140,211
Tax effect			(22,933	)			(24,874	)			(17,886	)
Net of tax amount			141,663				159,700				122,325
Unrealized (losses) gains on cash flow hedges			(51	)			935				(31	)
Tax effect			15				(365	)			12
Net of tax amount			(36	)			570				(19	)
Accumulated other comprehensive (loss) income			($13,002	)			($5,961	)		$	4,231

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		Quarter ended March 31,
(In thousands)		2011				2010
Cash flows from operating activities:
Net income (loss)		$	10,132				($85,055	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization of premises and equipment			12,060				15,391
Provision for loan losses			75,319				240,200
Amortization of intangibles			2,255				2,049
Impairment losses on net assets to be disposed of			8,564				—
Fair value adjustments of mortgage servicing rights			6,171				470
Net (accretion of discounts) amortization of premiums and deferred fees			(88,327	)			12,966
Net gain on sale and valuation adjustments of investment securities			—				(81	)
Fair value change in equity appreciation instrument			(7,745	)			—
FDIC loss share income			(13,621	)			—
FDIC deposit insurance expense			17,673				15,318
Net gain on disposition of premises and equipment			(1,412	)			(1,645	)
Net loss on sale of loans, including adjustments to indemnity reserves, and valuation adjustments on loans held-for-sale			2,604				12,222
Earnings from investments under the equity method			(6,826	)			(7,716	)
Gain on sale of equity method investment			(16,666	)			—
Net disbursements on loans held-for-sale			(184,641	)			(166,868	)
Acquisitions of loans held-for-sale			(90,780	)			(59,436	)
Proceeds from sale of loans held-for-sale			45,448				21,654
Net decrease in trading securities			206,222				221,975
Net decrease (increase) in accrued income receivable			2,988				(5,163	)
Net increase in other assets			(4,019	)			(9,726	)
Net decrease in interest payable			(4,410	)			(16,357	)
Deferred income taxes			140,915				(20,168	)
Net (decrease) increase in pension and other postretirement benefit obligation			(123,957	)			1,097
Net decrease in other liabilities			(38,203	)			(5,983	)
Total adjustments			(60,388	)			250,199
Net cash (used in) provided by operating activities			(50,256	)			165,144
Cash flows from investing activities:
Net decrease (increase) in money market investments			17,730				(1,979	)
Purchases of investment securities:
Available-for-sale			(752,479	)			(208,004	)
Held-to-maturity			(51,998	)			(31,844	)
Other			(38,305	)			(8,191	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale			278,274				373,676
Held-to-maturity			27,335				35,229
Other			27,050				15,476
Net repayments on loans			427,622				398,734
Proceeds from sale of loans			200,387				6,398
Acquisition of loan portfolios			(348,226	)			(39,611	)
Net proceeds from sale of equity method investment			31,068				—
Mortgage servicing rights purchased			(383	)			(182	)
Acquisition of premises and equipment			(18,599	)			(15,049	)
Proceeds from sale of premises and equipment			7,763				6,707
Proceeds from sale of foreclosed assets			44,648				32,905
Net cash (used in) provided by investing activities			(148,113	)			564,265

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Quarter ended March 31,
(In thousands)		2011				2010
Cash flows from financing activities:
Net increase (decrease) in deposits			433,505				(564,592	)
Net increase (decrease) in federal funds purchased and assets sold under agreements to repurchase			230,250				(141,284	)
Net (decrease) increase in other short-term borrowings			(73,920	)			15,937
Payments of notes payable			(622,568	)			(124,624	)
Proceeds from issuance of notes payable			242,000				—
Dividends paid			(930	)			—
Proceeds from issuance of common stock			2,247				—
Treasury stock acquired			(33	)			(1	)
Net cash provided by (used in) financing activities			210,551				(814,564	)
Net increase (decrease) in cash and due from banks			12,182				(85,155	)
Cash and due from banks at beginning of period			452,373				677,330
Cash and due from banks at end of period		$	464,555			$	592,175

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

Notes to Consolidated Financial Statements (Unaudited)

Note 1 - Summary of Significant Accounting Policies			11
Note 2 - New Accounting Pronouncements			12
Note 3 - Business Combination			14
Note 4 - Related Party Transactions with Affiliated Company			16
Note 5 - Restrictions on Cash and Due from Banks and Certain Securities			17
Note 6 - Pledged Assets			18
Note 7 - Investment Securities Available-For-Sale			19
Note 8 - Investment Securities Held-to-Maturity			24
Note 9 - Loans			26
Note 10 - Allowance for Loan Losses			34
Note 11 - FDIC Loss Share Indemnification Asset			40
Note 12 - Transfers of Financial Assets and Mortgage Servicing Rights			41
Note 13 - Other Assets			44
Note 14 - Goodwill and Other Intangible Assets			44
Note 15 - Deposits			46
Note 16 - Borrowings			46
Note 17 - Trust Preferred Securities			48
Note 18 - Stockholders’ Equity			50
Note 19 - Guarantees			50
Note 20 - Commitments and Contingencies			52
Note 21 - Non-consolidated Variable Interest Entities			56
Note 22 - Fair Value Measurement			57
Note 23 - Fair Value of Financial Instruments			65
Note 24 - Net Income (Loss) per Common Share			67
Note 25 - Other Service Fees			68
Note 26 - Pension and Postretirement Benefits			68
Note 27 - Stock-Based Compensation			69
Note 28 - Income Taxes			71
Note 29 - Supplemental Disclosure on the Consolidated Statements of Cash Flows			73
Note 30 - Segment Reporting			74
Note 31 - Subsequent Events			78
Note 32 - Condensed Consolidating Financial Information of Guarantor and Issuers of Registered Guaranteed Securities			78
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EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Note 1 — Summary of Significant Accounting Policies:

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Popular, Inc. and its majority-owned subsidiaries (the “Corporation”). All significant intercompany accounts and transactions have been eliminated in consolidation. In accordance with the consolidation guidance for variable interest entities, the Corporation would also consolidate any variable interest entities (“VIEs”) for which it has a controlling financial interest and therefore is the primary beneficiary. Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the consolidated statements of condition. The results of operations of companies or assets acquired are included only from the dates of acquisition.

Unconsolidated investments, in which there is at least 20% ownership, are generally accounted for by the equity method. These investments are included in other assets and the Corporation’s proportionate share of income or loss is included in other operating income. Investments, in which there is less than 20% ownership, are generally carried under the cost method of accounting, unless significant influence is exercised. Under the cost method, the Corporation recognizes income when dividends are received. Limited partnerships are accounted for by the equity method unless the Corporation’s interest is so “minor” that it may have virtually no influence over partnership operating and financial policies.

Statutory business trusts that are wholly-owned by the Corporation and are issuers of trust preferred securities are not consolidated in the Corporation’s consolidated financial statements.

During the quarter ended March 31, 2011, the Corporation sold certain residential mortgage loans of Banco Popular North America that were reclassified from held-in-portfolio to held-for-sale in December 2010. The loans were sold at a better price than the price used to determine their fair value at the time of reclassification to the held-for-sale category. At the time of sale, the Corporation classified $13.8 million of the impact of the better price as a recovery of the original write-down which was booked as part of the activity in the allowance for loan losses. This included an out of period adjustment of $10.7 million since a portion of the sale was completed just prior to the release of the Corporation’s Form 10-K for the year ended December 31, 2010. After evaluating the quantitative and qualitative aspects of the misstatement and the out of period adjustment, management has determined that they are not material to the prior year financial statements and the current period, respectively. As part of the evaluation, management considered the fact that the quarter’s net income was impacted by a one-time adjustment of $103.3 million in income tax expense that resulted from a reduction in the Corporation’s net deferred tax asset due to a change in the marginal corporate income tax rate for Puerto Rico subsidiaries as described in Note 28 to the consolidated financial statements.

The consolidated interim financial statements have been prepared without audit. The consolidated statement of condition data at December 31, 2010 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 2010 consolidated financial statements and notes to the financial statements to conform with the 2011 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, 2010, included in the Corporation’s Form 10-K filed on March 1, 2011 (the “2010 Annual Report”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

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

Nature of Operations

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 continental United States, and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides 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 focuses efforts and resources on the core community banking business. 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. As part of the rebranding of the BPNA franchise,

some of its branches operate under a new name, Popular Community Bank. Note 30 to the consolidated financial statements presents information about the Corporation’s business segments. The Corporation has a 49% interest in EVERTEC, which provides transaction processing services throughout the Caribbean and Latin America.

Two major transactions effected in 2010 contribute to various significant changes in the Corporation’s financial results for the periods presented in these financial statements. First, on April 30, 2010, BPPR acquired certain assets and assumed certain deposits and liabilities of Westernbank Puerto Rico (“Westernbank”) from the Federal Deposit Insurance Corporation (the “FDIC”). The transaction is referred to herein as the “Westernbank FDIC-assisted transaction”. Refer to Note 3 to the consolidated financial statements and to the Corporation’s 2010 Annual Report for information on this business combination. Assets subject to loss sharing agreements with the FDIC, including loans and other real estate owned, are labeled “covered” on the consolidated statements of condition and applicable notes to the consolidated financial statements. Loans acquired in the Westernbank FDIC-assisted transaction, except for credit cards, and other real estate owned are considered “covered” because the Corporation will be reimbursed for 80% of any future losses on these assets subject to the terms of the FDIC loss sharing agreements. Second, on September 30, 2010, the Corporation completed the sale of a 51% interest in EVERTEC, including the Corporation’s merchant acquiring and processing and technology businesses (the “EVERTEC transaction”). The Corporation continues to hold the remaining 49% ownership interest in Carib Holdings (referred to as “EVERTEC”). Refer to the Corporation’s 2010 Annual Report for a description of the transaction. EVERTEC continues to service many of the Corporation’s subsidiaries’ system infrastructures and transactional processing businesses. Refer to Note 4 to these consolidated financial statements for information on the Corporation’s investment in EVERTEC, including related party transactions.

Note 2 — New Accounting Pronouncements:

FASB Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820) - Improving Disclosures about Fair Value Measurements (“ASU 2010-06”)

ASU 2010-06, issued in January 2010, revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. Effective this quarter, it also requires the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. ASU 2010-06 has been effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for interim and annual reporting periods beginning after December 15, 2010. This guidance impacts disclosures only and has not had an effect on the Corporation’s consolidated statements of condition or results of operations. The Corporation’s disclosures about fair value measurements are presented in Note 22 to the consolidated financial statements.

FASB Accounting Standards Update 2010-28, Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”)

The amendments in ASU 2010-28, issued in December 2010, modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of this guidance did not have an impact on the Corporation’s consolidated statement of condition or results of operations for the quarter ended March 31, 2011.

FASB Accounting Standards Update 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”)

The FASB issued ASU 2010-29 in December 2010. The amendments in ASU 2010-29 affect any public entity that enters into business combinations that are material on an individual or aggregate basis. This ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro

forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. This guidance impacts disclosures only and did not have an impact on the Corporation’s consolidated statements of condition or results of operations for the quarter ended March 31, 2011.

FASB Accounting Standards Update 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 2011-02”)

The FASB issued ASU 2011-02 in April 2011. This ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings.

The new guidance will require creditors to evaluate modifications and restructurings of receivables using a more principles-based approach. This Update clarifies the existing guidance on whether (1) the creditor has granted a concession and (2) whether the debtor is experiencing financial difficulties. Specifically this Update (1) provides additional guidance on determining whether a creditor has granted a concession, including guidance on collection of all amounts due, receipt of additional collateral or guarantees from the debtor, and restructuring the debt at a below-market rate; (2) includes examples for creditors to determine whether an insignificant delay in payment is considered a concession; (3) prohibits creditors from using the borrower’s effective rate test in ASC Subtopic 470-50 to evaluate whether a concession has been granted to the borrower; (4) adds factors for creditors to use to determine whether the debtor is experiencing financial difficulties; and (5) ends the deferral of the additional disclosures about TDR activities required by ASU 2010-20 and requires public companies to begin providing these disclosures in the period of adoption.

For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early application is permitted. For purposes of measuring impairment for receivables that are newly considered impaired under the new guidance, an entity should apply the amendments prospectively in the first period of adoption and disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption.

The Corporation is evaluating the potential impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

FASB Accounting Standards Update 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements (“ASU 2011-03”)

The FASB issued ASU 2011-03 in April 2011. The amendment of this ASU affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The ASU modifies the criteria for determining when these transactions would be accounted for as financings (secured borrowings/lending agreements) as opposed to sales (purchases) with commitments to repurchase (resell). This ASU does not affect other transfers of financial assets. ASC Topic 860 prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements. That determination is based, in part, on whether the entity has maintained effective control over transferred financial assets.

Specifically, the amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) eliminates the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The new guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early application is not permitted.

The Corporation will be evaluating the potential impact, if any, that the adoption of this guidance will have on its consolidated financial statements.

Note 3 — Business Combination:

Westernbank FDIC-assisted transaction

As indicated in Note 1 to these consolidated financial statements, on April 30, 2010, the Corporation’s Puerto Rico banking subsidiary, BPPR, acquired certain assets and assumed certain deposits and liabilities of Westernbank Puerto Rico from the FDIC, as receiver for Westernbank.

The following table presents the fair values of major classes of identifiable assets acquired and liabilities assumed by the Corporation at the acquisition date. The Corporation recorded goodwill of $87 million at acquisition.

		Book value prior to												As recorded by
		purchase accounting				Fair value				Additional				Popular, Inc. on
(In thousands)		adjustments				adjustments				consideration				April 30, 2010
Assets:
Cash and money market investments		$	358,132				—				—			$	358,132
Investment in Federal Home Loan Bank stock			58,610				—				—				58,610
Loans			8,554,744				($3,354,287	)			—				5,200,457
FDIC loss share indemnification asset			—				2,337,748				—				2,337,748
Covered other real estate owned			125,947				(73,867	)			—				52,080
Core deposit intangible			—				24,415				—				24,415
Receivable from FDIC (associated to the note issued to the FDIC)			—				—			$	111,101				111,101
Other assets			44,926				—				—				44,926
Goodwill			—				86,841				—				86,841
Total assets		$	9,142,359				($979,150	)		$	111,101			$	8,274,310
Liabilities:
Deposits		$	2,380,170			$	11,465				—			$	2,391,635
Note issued to the FDIC (including a premium of $12,411 resulting from the fair value adjustment)			—				—			$	5,770,495				5,770,495
Equity appreciation instrument			—				—				52,500				52,500
Contingent liability on unfunded loan commitments			—				45,755				—				45,755
Accrued expenses and other liabilities			13,925				—				—				13,925
Total liabilities		$	2,394,095			$	57,220			$	5,822,995			$	8,274,310

During the fourth quarter of 2010, retrospective adjustments were made to the estimated fair values of assets acquired and liabilities assumed associated with the Westernbank FDIC-assisted transaction to reflect new information obtained during the measurement period (as defined by ASC Topic 805), about facts and circumstances that existed as of the acquisition date that, if known, would have affected the acquisition-date fair value measurements. The retrospective adjustments were mostly driven by refinements in credit loss assumptions because of new information that became available. The revisions principally resulted in a decrease in the estimated credit losses, thus increasing the fair value of acquired loans and reducing the FDIC loss share indemnification asset.

The fair values assigned to the assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values becomes available, and thus, the recognized goodwill may increase or decrease.

The following table presents the principal changes in fair value as previously reported in Form 10-Qs filed during 2010 and the revised amounts recorded during the measurement period with general explanations of the major changes.

						April 30, 2010
		April 30, 2010				As previously
(In thousands)		As recasted [a]				reported [b]				Change
Assets:
Loans		$	8,554,744			$	8,554,744				—
Less: Discount			(3,354,287	)			(4,293,756	)		$	939,469				[c]
Net loans			5,200,457				4,260,988				939,469
FDIC loss share indemnification asset			2,337,748				3,322,561				(984,813	)			[d]
Goodwill			86,841				106,230				(19,389	)
Other assets			649,264				670,419				(21,155	)			[e]
Total assets		$	8,274,310			$	8,360,198				($85,888	)
Liabilities:
Deposits		$	2,391,635			$	2,391,635				—
Note issued to the FDIC			5,770,495				5,769,696			$	799				[f]
Equity appreciation instrument			52,500				52,500				—
Contingent liability on unfunded loan commitments			45,755				132,442				(86,687	)			[g]
Other liabilities			13,925				13,925				—
Total liabilities		$	8,274,310			$	8,360,198				($85,888	)

[a] Amounts reported include retrospective adjustments during the measurement period (ASC Topic 805) related to the Westernbank FDIC-assisted transaction.

[b] Amounts are presented as previously reported.

[c] Represents the increase in management’s best estimate of fair value mainly driven by lower expected future credit losses on the acquired loan portfolio based on facts and circumstances existent as of the acquisition date but known to management during the measurement period. The main factors that influenced the revised estimated credit losses included review of collateral, revised appraised values, and review of borrower’s payment capacity in more thorough due diligence procedures.

[d] This reduction is directly influenced by the reduction in estimated future credit losses as they are substantially covered by the FDIC under the 80% FDIC loss sharing agreements. The FDIC loss share indemnification asset decreased in a greater proportion than the reduction in the loan portfolio estimated future credit losses because of the true-up provision of the loss sharing agreement. As part of the agreement with the FDIC, the Corporation has agreed to make a true-up payment to the FDIC in the event losses on the loss sharing agreements fail to reach expected levels as determined under the criteria stipulated in the agreements. The true-up payment represents an estimated liability of $169 million for the recasted estimates, compared to an estimated liability of $50 million in the original reported estimates. This estimated liability is accounted for as part of the indemnification asset.

[e] Represents revisions to acquisition date estimated fair values of other real estate properties based on new appraisals obtained.

[f] Represents an increase in the premium on the note issued to the FDIC, also influenced by the cash flow streams impacted by the revised loan payment estimates.

[g] Reduction due to revised credit loss estimates and commitments.

 

The recasting did not impact financial results for the previously reported quarter ended March 31, 2010 as the acquisition was effected on April 30, 2010.

The following table depicts the principal changes in the consolidated statement of operations as a result of the recasting for retrospective adjustments for the quarters ended June 30, 2010 and September 30, 2010.

		As recasted				As reported								As recasted				As reported
		Quarter				Quarter								Quarter				Quarter
		ended				ended								ended				ended
		June 30,				June 30,								September 30,				September 30,
(In thousands)		2010				2010				Difference				2010				2010				Difference
Net interest income		$	314,595			$	278,976			$	35,619			$	356,778			$	386,918				($30,140	)
Provision for loan losses			202,258				202,258				—				215,013				215,013				—
Net interest income after provision for loan losses			112,337				76,718				35,619				141,765				171,905				(30,140	)
Non-interest income			198,827				215,858				(17,031	)			825,894				796,524				29,370
Operating expenses			328,416				328,416				—				371,541				371,547				(6	)
(Loss) income before income tax			(17,252	)			(35,840	)			18,588				596,118				596,882				(764	)
Income tax expense			27,237				19,988				7,249				102,032				102,388				(356	)
Net (loss) income			($44,489	)			($55,828	)		$	11,339			$	494,086			$	494,494				($408	)

Note 4 — Related Party Transactions with Affiliated Company:

On September 30, 2010, the Corporation completed the sale of a 51% majority interest in EVERTEC and retained a 49% ownership interest. Refer to the Corporation’s 2010 Annual Report for details on this sale to an unrelated third-party.

The Corporation’s investment in EVERTEC, which is accounted for under the equity method, amounted to $203 million at March 31, 2011 (December 31, 2010 — $197 million), and is included as part of “other assets” in the consolidated statement of condition. The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations since October 1, 2010. The Corporation recognized a $1.9 million loss in other operating income for the period from January 1, 2011 through March 31, 2011 as part of its equity method investment in EVERTEC, which consisted of $11.8 million of the Corporation’s share in EVERTEC’s net income, partially offset by $13.7 million of intercompany income eliminations (investor-investee transactions at 49%). The unfavorable impact of the elimination in other operating income was offset by the elimination of 49% of the professional fees (expense) paid by the Corporation to EVERTEC during the same period. The Corporation did not receive any distributions from EVERTEC during the period from January 1, 2011 through March 31, 2011.

The following table presents the impact on the Corporation’s results of operations of transactions between the Corporation and EVERTEC (as an affiliate) for the period from January 1, 2011 through March 31, 2011. Items that represent expenses to the Corporation are presented with parenthesis. For consolidation purposes, the Corporation eliminates 49% of the income (expense) between EVERTEC and the Corporation from the corresponding categories in the consolidated statement of operations and the net effect of all items at 49% is eliminated against other operating income, which is the category used to record the Corporation’s share of income (loss) as part of its equity method investment in EVERTEC. The 51% majority interest in the table that follows represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation’s results of operations.

(In thousands)		100%				51% majority interest				Category
Interest income on loan to EVERTEC		$	1,056			$	538			Interest income
Interest income on investment securities issued by EVERTEC			963				491			Interest income
Interest expense on deposits			(295	)			(150	)		Interest expense
ATH and credit cards interchange income from services to EVERTEC			6,793				3,465			Other service fees
Processing fees on services provided by EVERTEC			(38,678	)			(19,726	)		Professional fees
Rental income charged to EVERTEC			1,807				921			Net occupancy
Transition services provided to EVERTEC			369				188			Other operating expenses

The Corporation had the following financial condition accounts outstanding with EVERTEC at March 31, 2011. The 51% majority interest in the tables that follow represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation’s statement of condition.

		At March 31, 2011
(In thousands)		100%				51% majority interest				Category
Loans		$	57,459			$	29,304			Loans
Investment securities			35,000				17,850			Investment securities
Deposits			50,846				25,932			Deposits
Accounts receivables			3,709				1,891			Other assets
Accounts payable			17,078				8,710			Other liabilities

		At December 31, 2010
(In thousands)		100%				51% majority interest				Category
Loans		$	58,126			$	29,644			Loans
Investment securities			35,000				17,850			Investment securities
Deposits			38,761				19,768			Deposits
Accounts receivables			3,922				2,000			Other assets
Accounts payable			17,416				8,882			Other liabilities

Prior to the EVERTEC sale transaction on September 30, 2010, EVERTEC had certain performance bonds outstanding, which were guaranteed by the Corporation under a general indemnity agreement between the Corporation and the insurance companies issuing the bonds. The Corporation agreed to maintain, for a 5-year period following September 30, 2010, the guarantee of the performance bonds. The EVERTEC’s performance bonds guaranteed by the Corporation amounted to approximately $10.4 million at March 31, 2011. Also, EVERTEC had an existing letter of credit issued by BPPR, for an amount of $2.9 million. As part of the merger agreement, the Corporation also agreed to maintain outstanding this letter of credit for a 5-year period. EVERTEC and the Corporation entered into a Reimbursement Agreement, in which EVERTEC will reimburse the Corporation for any losses incurred by the Corporation in connection with the performance bonds and the letter of credit. Possible losses resulting from these agreements are considered insignificant.

Furthermore, under the terms of the sale of EVERTEC, the Corporation was required for a period of twelve months following September 30, 2010 to sell its equity interests in Serfinsa and Consorcio de Tarjetas Dominicanas, S.A (“CONTADO”) to EVERTEC, subject to complying with certain rights of first refusal in favor of the Serfinsa and CONTADO shareholders. During the quarter ended March 31, 2011, the Corporation sold its equity interest in CONTADO to CONTADO shareholders and EVERTEC and recognized a gain of $16.7 million, net of tax, upon the sale. The Corporation’s investment in CONTADO, accounted for under the equity method, amounted to $16 million at December 31, 2010. The Corporation continues to hold the equity investment in Serfinsa, which book value approximated $340 thousand at March 31, 2011 (December 31, 2010 — $1.8 million).

Note 5 — 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 of New York or other banks. Those required average reserve balances were approximately $843 million at March 31, 2011 (December 31, 2010 — $835 million; March 31, 2010 — $753 million). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

As required by the Puerto Rico International Banking Center Law, at March 31, 2011, December 31, 2010 and March 31, 2010, the Corporation maintained separately for its two international banking entities (“IBEs”), $0.6 million in time deposits, equally split for the two IBEs, which were considered restricted assets.

At March 31, 2010, as part of a line of credit facility with a financial institution, the Corporation was required to have restricted cash of $1 million as collateral for the line of credit. This restriction expired in July 2010.

At March 31, 2011, December 31, 2010 and March 31, 2010, the Corporation maintained restricted cash of $5 million to support a letter of credit. The cash is being held in an interest-bearing money market account.

At March 31, 2011 and December 31, 2010, the Corporation maintained restricted cash of $1 million that represents funds deposited in an escrow account which are guaranteeing possible liens or encumbrances over the title and insured properties.

At March 31, 2011, the Corporation maintained restricted cash of $14 million to comply with the requirements of the credit card networks (December 31, 2010 — $12 million).

Note 6 — Pledged Assets:

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

(In thousands)		March 31, 2011				December 31, 2010				March 31, 2010
Investment securities available-for-sale, at fair value		$	1,529,464			$	1,867,249			$	1,873,545
Investment securities held-to-maturity, at amortized cost			49,734				25,770				125,770
Loans held-for-sale measured at lower of cost or fair value			2,638				2,862				2,507
Loans held-in-portfolio covered under loss sharing agreement with the FDIC			4,634,499				4,787,002				—
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC			9,897,243				9,695,200				8,374,460
Other real estate covered under loss sharing agreements with the FDIC			65,562				57,565				—
Total pledged assets		$	16,179,140			$	16,435,648			$	10,376,282

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

At March 31, 2011, investment securities available-for-sale and held-to-maturity totaling $1.0 billion, and loans of $0.7 billion, served as collateral to secure public funds (December 31, 2010 — $1.3 billion and $0.5 million, respectively; March 31, 2010 — $1.5 billion of investment securities available-for-sale and held-to-maturity).

The Corporation’s banking subsidiaries have the ability to borrow funds from the Federal Home Loan Bank of New York (“FHLB”) and from the Federal Reserve Bank of New York (“Fed”). At March 31, 2011, the banking subsidiaries had short-term and long-term credit facilities authorized with the FHLB aggregating $1.7 billion (December 31, 2010 — $1.6 billion; March 31, 2010 — $1.9 billion). Refer to Note 16 to the consolidated financial statements for borrowings outstanding under these credit facilities. At March 31, 2011, the credit facilities authorized with the FHLB were collateralized by $3.7 billion in loans held-in-portfolio (December 31, 2010 — $3.8 billion; March 31, 2010 — $3.2 billion in loans-held-in portfolio and investment securities available-for-sale). Also, the Corporation’s banking subsidiaries had a borrowing capacity at the Fed discount window of $2.8 billion (December 31, 2010 — $2.7 billion; March 31, 2010 — $3.4 billion), which remained unused as of such date. The amount available under this credit facility is dependent upon the balance of loans and securities pledged as collateral. At March 31, 2011, the credit facilities with the Fed discount window were collateralized by $5.5 billion in loans held-in-portfolio (December 31, 2010 — $5.4 billion; March 31, 2010 — $5.2 billion). These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statement of condition at March 31, 2011.

Loans held-in-portfolio and other real estate owned that are covered by loss sharing agreements with the FDIC amounting to $4.7 billion at March 31, 2011 (December 31, 2010 — $4.8 billion), serve as collateral to secure the note issued to the FDIC. Refer to Note 16 to the consolidated financial statements for descriptive information on the note issued to the FDIC.

Note 7 — Investment Securities Available-For-Sale:

The following table presents the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at March 31, 2011, December 31, 2010 and March 31, 2010.

	At March 31, 2011
		Amortized				Gross Unrealized				Gross Unrealized				Fair				Weighted Average
(In thousands)		Cost				Gains				Losses				Value				Yield
U.S. Treasury securities
After 1 to 5 years		$	7,003			$	98				—			$	7,101				1.50	%
After 5 to 10 years			28,505				2,076				—				30,581				3.81
Total U.S. Treasury securities			35,508				2,174				—				37,682				3.35
Obligations of U.S. Government sponsored entities
Within 1 year			230,290				906			$	921				230,275				2.95
After 1 to 5 years			1,005,737				45,685				92				1,051,330				3.73
After 5 to 10 years			180,000				—				518				179,482				2.66
Total obligations of U.S. Government sponsored entities			1,416,027				46,591				1,531				1,461,087				3.47
Obligations of Puerto Rico, States and political subdivisions
Within 1 year			10,357				10				—				10,367				3.92
After 1 to 5 years			15,753				255				6				16,002				4.52
After 5 to 10 years			20,765				35				167				20,633				5.07
After 10 years			5,505				62				—				5,567				5.28
Total obligations of Puerto Rico, States and political subdivisions			52,380				362				173				52,569				4.70
Collateralized mortgage obligations — federal agencies
Within 1 year			35				—				—				35				3.36
After 1 to 5 years			1,737				88				—				1,825				4.76
After 5 to 10 years			91,067				1,019				865				91,221				2.47
After 10 years			1,487,274				28,001				1,011				1,514,264				2.94
Total collateralized mortgage obligations — federal agencies			1,580,113				29,108				1,876				1,607,345				2.91
Collateralized mortgage obligations — private label
After 5 to 10 years			8,109				13				90				8,032				0.86
After 10 years			73,612				51				4,547				69,116				2.30
Total collateralized mortgage obligations — private label			81,721				64				4,637				77,148				2.16
Mortgage — backed securities
Within 1 year			633				51				—				684				5.35
After 1 to 5 years			13,444				519				4				13,959				3.98
After 5 to 10 years			164,579				10,230				8				174,801				4.71
After 10 years			2,143,295				81,696				967				2,224,024				4.25
Total mortgage — backed securities			2,321,951				92,496				979				2,413,468				4.28
Equity securities (without contractual maturity)			8,722				968				256				9,434				3.43
Other
After 5 to 10 years			17,850				2,363				—				20,213				11.00
After 10 years			7,473				—				78				7,395				3.62
Total other			25,323				2,363				78				27,608				8.82
Total investment securities available-for-sale		$	5,521,745			$	174,126			$	9,530			$	5,686,341				3.67	%

	At December 31, 2010
		Amortized				Gross Unrealized				Gross Unrealized				Fair				Weighted Average
(In thousands)		Cost				Gains				Losses				Value				Yield
U.S. Treasury securities
After 1 to 5 years		$	7,001			$	122				—			$	7,123				1.50	%
After 5 to 10 years			28,676				2,337				—				31,013				3.81
Total U.S. Treasury securities			35,677				2,459				—				38,136				3.36
Obligations of U.S. Government sponsored entities
Within 1 year			153,738				2,043				—				155,781				3.39
After 1 to 5 years			1,000,955				53,681			$	661				1,053,975				3.72
After 5 to 10 years			1,512				36				—				1,548				6.30
Total obligations of U.S. Government sponsored entities			1,156,205				55,760				661				1,211,304				3.68
Obligations of Puerto Rico, States and political subdivisions
Within 1 year			10,404				19				—				10,423				3.92
After 1 to 5 years			15,853				279				5				16,127				4.52
After 5 to 10 years			20,765				43				194				20,614				5.07
After 10 years			5,505				52				19				5,538				5.28
Total obligations of Puerto Rico, States and political subdivisions			52,527				393				218				52,702				4.70
Collateralized mortgage obligations — federal agencies
Within 1 year			77				1				—				78				3.88
After 1 to 5 years			1,846				105				—				1,951				4.77
After 5 to 10 years			107,186				1,507				936				107,757				2.50
After 10 years			1,096,271				32,248				11				1,128,508				2.87
Total collateralized mortgage obligations — federal agencies			1,205,380				33,861				947				1,238,294				2.84
Collateralized mortgage obligations — private label
After 5 to 10 years			10,208				31				158				10,081				1.20
After 10 years			79,311				78				4,532				74,857				2.29
Total collateralized mortgage obligations — private label			89,519				109				4,690				84,938				2.17
Mortgage — backed securities
Within 1 year			2,983				101				—				3,084				3.62
After 1 to 5 years			15,738				649				3				16,384				3.98
After 5 to 10 years			170,662				10,580				3				181,239				4.71
After 10 years			2,289,210				86,870				632				2,375,448				4.26
Total mortgage — backed securities			2,478,593				98,200				638				2,576,155				4.29
Equity securities (without contractual maturity)			8,722				855				102				9,475				3.43
Other
After 5 to 10 years			17,850				262				—				18,112				10.98
After 10 years			7,805				—				69				7,736				3.62
Total other			25,655				262				69				25,848				8.74
Total investment securities available-for-sale		$	5,052,278			$	191,899			$	7,325			$	5,236,852				3.78	%