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

For the quarterly period ended September 30, 2005

POPULAR, INC.

Puerto Rico		66-0416582
(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

NOT APPLICABLE

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     þ Yes           o No

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 $6.00 par value, 267,427,048 Shares Outstanding as of October 28, 2005.

 

 

POPULAR, INC.
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition as of September 30, 2005, December 31, 2004 and September 30, 2004			4
Unaudited Consolidated Statements of Income for the quarters and nine months ended September 30, 2005 and 2004			5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2005 and 2004			6
Unaudited Consolidated Statements of Comprehensive (Loss) Income for the quarters and nine months ended September 30, 2005 and 2004			7
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004			8
Notes to Unaudited Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
Item 3. Quantitative and Qualitative Disclosures about Market Risk			70
Item 4. Controls and Procedures			74
Part II — Other Information
Item 1. Legal Proceedings			74
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			74
Item 6. Exhibits			74
Signatures			75
EX-12.1 COMPUTATION OF RATIOS OF EARNINGS
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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 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. Factors that might cause such a difference include, but are not limited to: the rate of growth in the economy, 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; the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets; 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.

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 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.

		September 30,				December 31,				September 30,
(In thousands, except share information)		2005				2004				2004
ASSETS
Cash and due from banks		$	889,145			$	716,459			$	758,057
Money market investments:
Federal funds sold and securities purchased under agreements to resell			631,641				879,321				845,280
Time deposits with other banks			6,580				319				319
Bankers’ acceptances			—				—				69
			638,221				879,640				845,668
Investment securities available-for-sale, at market value:
Pledged securities with creditors’ right to repledge			5,607,849				4,828,716				4,864,037
Other investment securities available-for-sale			5,885,359				6,333,429				6,375,582
Investment securities held-to-maturity, at amortized cost			359,228				340,850				137,317
Other investment securities, at lower of cost or realizable value			331,141				302,440				276,521
Trading account securities, at market value:
Pledged securities with creditors’ right to repledge			361,411				257,857				235,884
Other trading securities			180,578				127,282				85,479
Loans held-for-sale, at lower of cost or market			867,059				750,728				265,753
Loans held-in-portfolio:
Loans held-in-portfolio pledged with creditors’ right to repledge			259,779				318,409				801,744
Other loans held-in-portfolio			29,717,001				27,935,514				26,722,900
Less – Unearned income			293,756				262,390				273,099
Allowance for loan losses			459,425				437,081				445,845
			29,223,599				27,554,452				26,805,700
Premises and equipment			592,250				545,681				535,388
Other real estate			77,993				59,717				58,814
Accrued income receivable			261,097				207,542				227,259
Other assets			1,276,576				1,046,374				946,208
Goodwill			525,036				411,308				394,316
Other intangible assets			43,566				39,101				43,611
		$	47,120,108			$	44,401,576			$	42,855,594
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing		$	3,733,226			$	4,173,268			$	4,076,535
Interest bearing			18,845,483				16,419,892				16,406,683
			22,578,709				20,593,160				20,483,218
Federal funds purchased and assets sold under agreements to repurchase			8,017,783				6,436,853				7,306,235
Other short-term borrowings			2,908,523				3,139,639				2,454,872
Notes payable			9,564,425				10,180,710				8,774,868
Subordinated notes			125,000				125,000				125,000
Other liabilities			704,171				821,491				700,802
			43,898,611				41,296,853				39,844,995
Commitments and contingencies (See Note 8)
Minority interest in consolidated subsidiaries			101				102				104
Stockholders’ equity:
Preferred stock, $25 liquidation value; 30,000,000 shares authorized; 7,475,000 shares issued and outstanding in all periods presented			186,875				186,875				186,875
Common stock, $6 par value; 470,000,000 shares authorized in all periods presented; 280,604,768 shares issued (December 31, 2004 – 280,016,007; September 30, 2004 – 279,779,228) and 267,152,969 shares outstanding (December 31, 2004 – 266,582,103; September 30, 2004 – 266,345,324)			1,683,629				1,680,096				1,678,675
Surplus			292,418				278,840				327,366
Retained earnings			1,403,133				1,129,793				994,206
Accumulated other comprehensive (loss) income, net of tax of ($40,310) (December 31, 2004 - $6,780; September 30, 2004 - $8,662)			(137,578	)			35,454				29,810
Treasury stock – at cost, 13,451,799 shares (December 31, 2004 – 13,433,904; September 30, 2004 – 13,433,904)			(207,081	)			(206,437	)			(206,437	)
			3,221,396				3,104,621				3,010,495
		$	47,120,108			$	44,401,576			$	42,855,594

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

POPULAR, INC.

		Quarter ended								Nine months ended
		September 30,								September 30,
(In thousands, except per share information)		2005				2004				2005				2004
INTEREST INCOME:
Loans		$	527,134			$	445,204			$	1,542,639			$	1,271,541
Money market investments			7,502				6,512				22,942				18,674
Investment securities			123,701				106,322				358,757				303,798
Trading account securities			7,751				5,729				22,126				20,766
			666,088				563,767				1,946,464				1,614,779
INTEREST EXPENSE:
Deposits			113,799				83,467				310,543				240,852
Short-term borrowings			89,213				44,830				232,392				112,440
Long-term debt			114,966				87,278				340,703				241,878
			317,978				215,575				883,638				595,170
Net interest income			348,110				348,192				1,062,826				1,019,609
Provision for loan losses			49,960				46,614				144,232				132,641
Net interest income after provision for loan losses			298,150				301,578				918,594				886,968
Service charges on deposit accounts			46,836				41,455				135,660				123,077
Other service fees			85,004				71,063				247,860				218,476
Net (loss) gain on sale and valuation adjustment of investment securities			(920	)			—				50,891				13,435
Trading account profit (loss)			4,707				803				28,138				(748	)
Gain on sale of loans			17,585				11,855				42,675				30,170
Other operating income			21,836				19,380				65,871				64,351
			473,198				446,134				1,489,689				1,335,729
OPERATING EXPENSES:
Personnel costs:
Salaries			120,012				108,807				351,361				315,785
Profit sharing			4,890				5,083				16,805				16,404
Pension and other benefits			29,780				28,762				96,684				92,587
			154,682				142,652				464,850				424,776
Net occupancy expenses			27,719				23,572				78,414				67,437
Equipment expenses			31,185				28,601				90,029				83,899
Other taxes			10,368				9,269				29,088				28,490
Professional fees			27,888				26,121				82,787				68,755
Communications			15,640				15,706				46,579				46,589
Business promotion			23,940				20,492				69,860				54,418
Printing and supplies			4,845				4,069				13,971				13,458
Other operating expenses			30,759				25,407				88,098				75,863
Amortization of intangibles			2,387				1,984				6,770				5,586
			329,413				297,873				970,446				869,271
Income before income tax and cumulative effect of accounting change			143,785				148,261				519,243				466,458
Income tax			28,569				32,880				112,395				104,774
Income before cumulative effect of accounting change			115,216				115,381				406,848				361,684
Cumulative effect of accounting change, net of tax			—				—				3,607				—
NET INCOME		$	115,216			$	115,381			$	410,455			$	361,684
NET INCOME APPLICABLE TO COMMON STOCK		$	112,237			$	112,402			$	401,520			$	352,749
BASIC AND DILUTED EARNINGS PER COMMON SHARE (EPS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		$	0.42			$	0.42			$	1.49			$	1.32
BASIC AND DILUTED EPS AFTER CUMULATIVE EFFECT OF ACCOUNTING CHANGE		$	0.42			$	0.42			$	1.50			$	1.32
DIVIDENDS DECLARED PER COMMON SHARE		$	0.16			$	0.16			$	0.48			$	0.46

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

POPULAR, INC.

		Nine months ended
		September 30,
(In thousands)		2005				2004
Preferred stock:
Balance at beginning and end of year		$	186,875			$	186,875
Common stock:
Balance at beginning of year			1,680,096				837,566
Common stock issued under the Dividend Reinvestment Plan			3,307				1,618
Transfer from retained earnings resulting from stock split			—				839,266
Options exercised			226				225
Balance at end of period			1,683,629				1,678,675
Surplus:
Balance at beginning of year			278,840				314,638
Common stock issued under the Dividend Reinvestment Plan			10,211				9,507
Options granted			2,791				2,371
Options exercised			576				850
Balance at end of period			292,418				327,366
Retained earnings:
Balance at beginning of year			1,129,793				1,601,851
Net income			410,455				361,684
Cash dividends declared on common stock			(128,180	)			(121,128	)
Cash dividends declared on preferred stock			(8,935	)			(8,935	)
Transfer to common stock resulting from stock split			—				(839,266	)
Balance at end of period			1,403,133				994,206
Accumulated other comprehensive (loss) income:
Balance at beginning of year			35,454				19,014
Other comprehensive (loss) income, net of tax			(173,032	)			10,796
Balance at end of period			(137,578	)			29,810
Treasury stock — at cost:
Balance at beginning of year			(206,437	)			(205,527	)
Purchase of common stock			(1,467	)			(1,259	)
Reissuance of common stock			823				349
Balance at end of period			(207,081	)			(206,437	)
Total stockholders’ equity		$	3,221,396			$	3,010,495

Disclosure of changes in number of shares:
		September 30,				December 31,				September 30,
		2005				2004				2004
Preferred Stock:
Balance at beginning and end of period			7,475,000				7,475,000				7,475,000
Common Stock — Issued:
Balance at beginning of year			280,016,007				139,594,296				139,594,296
Issued under the Dividend Reinvestment Plan			551,175				447,138				269,596
Stock split			—				139,877,770				139,877,770
Options exercised			37,586				96,803				37,566
Balance at end of period			280,604,768				280,016,007				279,779,228
Treasury stock			(13,451,799	)			(13,433,904	)			(13,433,904	)
Common Stock — Outstanding			267,152,969				266,582,103				266,345,324

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

POPULAR, INC.

		Quarter ended								Nine months ended
		September 30,								September 30,
(In thousands)		2005				2004				2005				2004
Net income		$	115,216			$	115,381			$	410,455			$	361,684
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustment			(183	)			424				(611	)			(10,832	)
Unrealized (losses) gains on securities arising during the period			(166,553	)			205,837				(170,856	)			40,793
Reclassification adjustment for losses (gains) included in net income			920				—				(50,368	)			(11,998	)
Net losses on cash flow hedges			(1,717	)			(8,949	)			(3,496	)			(7,597	)
Reclassification adjustment for losses included in net income			2,210				6,151				5,209				6,178
			(165,323	)			203,463				(220,122	)			16,544
Income tax benefit (expense)			40,646				(51,319	)			47,090				(5,748	)
Total other comprehensive (loss) income, net of tax			(124,677	)			152,144				(173,032	)			10,796
Comprehensive (loss) income		($	9,461	)		$	267,525			$	237,423			$	372,480

Disclosure of accumulated other comprehensive (loss) income:

		September 30,				December 31,				September 30,
(In thousands)		2005				2004				2004
Foreign currency translation adjustment		($	36,141	)		($	35,530	)		($	35,329	)
Unrealized (losses) gains on securities			(142,719	)			78,505				79,053
Tax effect			40,512				(7,198	)			(10,752	)
Net of tax amount			(102,207	)			71,307				68,301
Unrealized gains (losses) on cash flows hedges			606				(1,107	)			(5,618	)
Tax effect			(202	)			418				2,090
Net of tax amount			404				(689	)			(3,528	)
Cumulative effect of accounting change			366				366				366
Accumulated other comprehensive (loss) income, net of tax		($	137,578	)		$	35,454			$	29,810

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

POPULAR, INC.

		Nine months ended
		September 30,
(In thousands)		2005				2004
Cash flows from operating activities:
Net income		$	410,455			$	361,684
Less: Cumulative effect of accounting change, net of tax			3,607				—
Net income before cumulative effect of accounting change			406,848				361,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment			60,767				55,086
Provision for loan losses			144,232				132,641
Amortization of intangibles			6,770				5,586
Net gain on sale and valuation adjustment of investment securities			(50,891	)			(13,435	)
Net gain on disposition of premises and equipment			(11,165	)			(13,977	)
Net gain on sale of loans, excluding loans held-for-sale			(6,732	)			(11,268	)
Net amortization of premiums and accretion of discounts on investments			30,709				30,226
Net amortization of premiums and deferred loan origination fees and costs			92,586				88,974
Earnings from investments under the equity method			(8,917	)			(5,191	)
Stock options expense			2,970				2,617
Net decrease (increase) in loans held-for-sale			1,860,216				(34,643	)
Net decrease (increase) in trading securities			392,894				(105,050	)
Net increase in accrued income receivable			(46,259	)			(43,930	)
Net increase in other assets			(43,653	)			(46,535	)
Net increase in interest payable			35,737				33,400
Net (decrease) increase in deferred and current taxes			(47,316	)			5,012
Net increase in postretirement benefit obligation			3,631				3,000
Net decrease in other liabilities			(57,248	)			(11,740	)
Total adjustments			2,358,331				70,773
Net cash provided by operating activities			2,765,179				432,457
Cash flows from investing activities:
Net decrease (increase) in money market investments			271,264				(72,576	)
Purchases of investment securities:
Available-for-sale			(3,321,802	)			(4,256,151	)
Held-to-maturity			(49,193,426	)			(597,447	)
Other			(63,394	)			(44,907	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale			2,716,663				3,351,629
Held-to-maturity			49,194,005				538,427
Other			34,693				1,530
Proceeds from sale of investment securities available-for-sale			272,609				374,627
Net disbursements on loans			(1,735,102	)			(1,222,463	)
Proceeds from sale of loans			109,244				274,928
Acquisition of loan portfolios			(2,301,771	)			(2,633,723	)
Assets acquired, net of cash			(180,744	)			(166,740	)
Acquisition of premises and equipment			(118,382	)			(109,410	)
Proceeds from sale of premises and equipment			30,631				25,433
Net cash used in investing activities			(4,285,512	)			(4,536,843	)
Cash flows from financing activities:
Net increase in deposits			1,313,013				1,226,373
Net increase in federal funds purchased and assets sold under agreements to repurchase			1,543,210				1,503,593
Net (decrease) increase in other short-term borrowings			(234,365	)			418,748
Net (payments of) proceeds from notes payable and capital securities			(802,927	)			1,138,266
Dividends paid			(137,014	)			(123,322	)
Proceeds from issuance of common stock			14,141				11,954
Treasury stock acquired			(1,467	)			(1,259	)
Net cash provided by financing activities			1,694,591				4,174,353
Cash effect of change in accounting principle			(1,572	)			—
Net increase in cash and due from banks			172,686				69,967
Cash and due from banks at beginning of period			716,459				688,090
Cash and due from banks at end of period		$	889,145			$	758,057

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

Notes to Unaudited Consolidated Financial Statements

Note 1 – Nature of operations and basis of presentation

Popular, Inc. (the “Corporation”, “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 is a full service financial services provider with operations in Puerto Rico, the United States, the Caribbean and Latin America. As the leading financial institution in Puerto Rico, the Corporation offers retail and commercial banking services through its banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, auto and equipment leasing and financing, mortgage loans, consumer lending and insurance services through specialized subsidiaries. In the United States, the Corporation provides complete financial solutions to all the communities it serves through branches of Banco Popular North America (“BPNA”) in California, Texas, Illinois, New York, New Jersey and Florida, and financial services stores under the name of Popular Cash Express. The Corporation’s consumer finance subsidiary in the United States, Popular Financial Holdings, Inc. (“PFH”), offers mortgage and personal loans, and also maintains a substantial wholesale loan brokerage network, a warehouse lending division and loan servicing and assets acquisition units. The Corporation strives to use its expertise in technology and electronic banking as a competitive advantage in its Caribbean and Latin America expansion, as well as internally servicing many of its subsidiaries’ system infrastructures and transactional processing businesses. EVERTEC, Inc. (“EVERTEC”), the Corporation’s main subsidiary in this business segment, is the leading provider of financial transaction processing and information technology solutions in Puerto Rico and the Caribbean. With offices in San Juan, Caracas, Santo Domingo, and Miami, EVERTEC has a solid record of success in 11 Latin American countries. Note 16 to the unaudited consolidated financial statements presents information about each of 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, of a normal recurring nature, for a fair statement of such results. Certain reclassifications have been made to the prior period unaudited consolidated financial statements to conform to the 2005 presentation.

In the normal course of business, except for the Corporation’s banks and the parent holding company, the Corporation utilized a one-month lag in the consolidation of the financial results of its other subsidiaries (the “non-banking subsidiaries”), mainly to facilitate timely reporting. In 2005, the Corporation commenced a two-year plan to change the reporting period of its non-banking subsidiaries to a calendar period. The impact of this change in net income was included as a cumulative effect of accounting change in the Corporation’s consolidated financial results for the quarter ended March 31, 2005, and corresponds to the financial results for the month of December 2004 of the non-banking subsidiaries which implemented the change in the first reporting period of 2005. Refer to Note 17 for further information on the subsidiaries which continue to have a fiscal year-end in November 2005.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to the rules and regulations of the Securities and Exchange Commission and, accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2004, included in the Corporation’s Annual Report on Form 10-K.

Principal acquisition during 2005

In January 2005, the Corporation completed the acquisition of Kislak Financial Corporation (“Kislak”), the holding company of Kislak National Bank, based in South Florida. Immediately prior to the acquisition, Kislak had assets of approximately $965 million, a loan portfolio of approximately $590 million and deposits of approximately $659 million.

Expected Acquisitions announced in the third quarter of 2005

Popular, Inc. completed the acquisition of 100% of the issued and outstanding shares of common stock and common stock equivalents of E-LOAN, Inc. (“E-LOAN”), a California-based online consumer direct lender, for $4.25 per share in cash, or approximately $300 million. E-LOAN, which becomes a wholly-owned subsidiary of PFH, originated over $5 billion in mortgage, home equity, and auto loans in 2004. Through this merger, Popular, Inc. further expands its presence in the mainland U.S. market, complements its existing non-prime and warehouse lending businesses, and significantly enhances its technology platform to support its growth strategy in which the internet plays an important role. This transaction became effective on November 1, 2005.

Also, in September 2005, Popular, Inc. announced a definitive merger agreement to acquire the assets of Infinity Mortgage Corporation, based in New Jersey. The operations of Infinity Mortgage will become part of the mortgage business of Equity One, Inc., a subsidiary of PFH. The transaction, which is expected to be completed during the fourth quarter of 2005, will help increase Popular, Inc.’s market share in the U.S. as well as strengthen its existing mortgage and loan servicing businesses. Infinity Mortgage Corporation originated over $220 million in mortgage loans during 2004 and operates in New Jersey, New York, Connecticut, Maryland, Massachusetts and Pennsylvania.

Operations to be disposed of by sale

On September 21, 2005, Popular, Inc. announced that ACE Cash Express, Inc. (“ACE”) will acquire substantially all of the assets of Popular Cash Express, Inc. (“PCE”), our wholly-owned check cashing business in the U.S., for $36 million. The Corporation has been constrained in its ability to compete against non-bank owned check cashing operations, which are less regulated than banking institutions, but is committed to remain an active participant in the industry as a lender and servicer to other retail check cashing institutions, and will continue to collaborate with regulators and lawmakers to accelerate the integration of unbanked and underbanked individuals into mainstream financial services. The agreements signed by Popular and ACE do not require regulatory approval and are subject to customary closing terms and conditions. PCE had approximately $62 million in total assets as of September 30, 2005, consisting principally of cash, premises and equipment, and goodwill. Total revenues for the nine months ended September 30, 2005 were approximately $19 million and pre-tax losses approximated $4.3 million. The financial results of PCE are part of the “United States Financial Services” reportable segment in Note 16 – Segment Reporting, included in the accompanying notes to the unaudited consolidated financial statements in this Form 10-Q. The transaction is expected to be completed during the fourth quarter of 2005. No significant gain or loss is expected on this sale transaction.

Subsequent event

On January 18, 2005, the Corporation announced that it had been informed by the Antitrust Division of the U.S. Department of Justice that the Department of Justice was conducting an investigation concerning the participation by its subsidiary, GM Group, Inc. (which after a reorganization in 2004 became part of EVERTEC), in the E-rate program, which is administered by the Federal Communications Commission (FCC) and pays for telecommunications services and related equipment for schools and libraries.

On October 13, 2005, the Corporation entered into a Settlement Agreement with the Department of Justice and the Federal Communications Commission in connection with this matter. Pursuant to the Settlement Agreement, EVERTEC, without admitting liability and denying any allegations of misconduct, agreed to make a $4.8 million payment to the United States and agreed to voluntarily disqualify itself from bidding on or performing any work related to contracts funded by the Federal Communications Commission for a three year period. EVERTEC also agreed to cooperate with U.S. governmental authorities in any investigation or

litigation related to its participation in the E-rate program. The Settlement Agreement did not have and is not expected to have an impact on the Corporation’s third or fourth quarter results of operations or the Corporation’s financial condition because the full amount of the settlement payment has been previously accrued and because EVERTEC is not engaged in work related to Federal Communications Commission contracts.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using prevailing rates of exchange at the end of the period. Revenues, expenses, gains and losses are translated using weighted average rates for the period. The resulting foreign currency translation adjustment from operations for which the functional currency is other than the U.S. dollar is reported in accumulated other comprehensive (loss) income, except for highly inflationary environments in which the effects are included in other operating income, as described below.

The Corporation conducts business in certain Latin American markets through several of its processing and information technology services and products subsidiaries. Also, it holds interests in Consorcio de Tarjetas Dominicanas, S.A. (“CONTADO”) and Centro Financiero BHD, S.A. in the Dominican Republic. Although not significant, some of these businesses are conducted in the country’s foreign currency. At September 30, 2005, the Corporation had approximately $36 million in an unfavorable foreign currency translation adjustment as part of accumulated other comprehensive (loss) income (December 31, 2004 — $36 million; September 30, 2004 — $35 million).

The Corporation has been monitoring the inflation levels in the Dominican Republic to evaluate whether it still meets the “highly inflationary economy” test prescribed by SFAS No. 52, “Foreign Currency Translation.” Such statement defines highly inflationary as a “cumulative inflation of approximately 100 percent or more over a 3-year period.” The cumulative inflation in the Dominican Republic for the 36 months ended September 30, 2005 exceeded the 100 percent threshold. In accordance with the provisions of SFAS No. 52, the financial statements of a foreign entity in a highly inflationary economy are remeasured as if the functional currency were the reporting currency. Accordingly, the Corporation’s interests in the Dominican Republic were remeasured into the U.S. dollar. During the quarter ended September 30, 2005, approximately $1.0 million in remeasurement gains on the investments held by the Corporation in the Dominican Republic were reflected in other operating income instead of accumulated other comprehensive (loss) income. For the nine months ended September 30, 2005, net remeasurement gains totaled $1.3 million. These net gains relate to improvement in the Dominican peso’s exchange rate to the U.S. dollar from $45.50 at June 30, 2004, when the economy reached the “highly inflationary” threshold, to $30.85 at December 31, 2004 and $29.05 at September 30, 2005. These remeasurement gains / losses will continue to be reflected in earnings until the economy is no longer considered highly inflationary. The unfavorable cumulative translation adjustment associated with these interests at the reporting date in which the economy became highly inflationary approximated $32 million. The cumulative inflation rate in the Dominican Republic over a 3-year period approximated 101.5 percent at September 30, 2005.

Note 2 – Recent Accounting Developments

Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”

In December 2003, the Accounting Standards Executive Committee issued Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). This statement addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to loans originated by the entity. SOP 03-3 limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. SOP 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. SOP 03-3 prohibits investors from displaying accretable securities, yield and nonaccretable difference in the balance sheet. Subsequent substantial increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairments.

SOP 03-3 prohibits “carrying over” or the creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this statement. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination, subject to certain exceptions stipulated in the statement. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004.

Issue 03-1, “Meaning of Other Than Temporary Impairment”

In March 2004, the Emerging Issues Task Force reached a consensus on EITF Issue 03-1, “Meaning of Other Than Temporary Impairment and Its Application to Certain Investments” (“Issue 03-1”). Issue 03-1 provides recognition and measurement guidance regarding when impairments of equity and debt securities are considered other-than-temporary requiring a charge to earnings, and also requires additional annual disclosures for investments in unrealized loss positions. The additional annual disclosure requirements were implemented by the Corporation for the year ended December 31, 2003. In September 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) EITF Issue 03-1-a, to address the application of Issue 03-1 to debt securities that are impaired solely because of interest rates and / or sector spread increases and that are analyzed for impairment under paragraph 16 of Issue 03-1. EITF Issue 03-1-1 expanded the scope of the deferral to include all securities covered by Issue 03-1. Both delayed the recognition and measurement provisions of Issue 03-1 pending the issuance of further implementation guidance.

In June 2005, the FASB decided to not provide additional guidance on the meaning of other-than-temporary impairment, but directed the staff to issue proposed FSP EITF 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final. The final FSP will supersede EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” and EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” The final FSP (retitled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”) will replace the guidance set forth in paragraphs 10-18 of Issue 03-1 with references to existing other than temporary impairment guidance, such as SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin 59, Accounting for Noncurrent Marketable Equity Securities, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. FSP FAS 115-1 will codify the guidance set forth in EITF Topic D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. The FASB directed the staff to proceed to a draft of a final FSP for vote by written ballot. The FASB decided that FSP FAS 115-1 would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005.

The Corporation is waiting for the issuance of the final guidance to evaluate the effects of the recognition and measurement provisions that the proposed statement, as amended, may have on its financial condition and results of operations.

SFAS No. 123-R, “Share-Based Payment”

In December 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” SFAS No. 123-R, “Share-Based Payment.” SFAS No. 123-R focuses primarily on transactions in which an entity exchanges its equity instruments for employee services and generally establishes standards for the accounting for transactions in which an entity obtains goods or services in share-based payment transactions. SFAS No. 123-R requires companies to (1) use fair value to measure stock-based compensation awards and (2) cease using the “intrinsic value” method of accounting, which APB 25 allowed and resulted in no expense for many awards of stock options for which the exercise price of the option did not exceed the price of the underlying stock at the grant date. In addition, SFAS No. 123-R retains the modified grant date model from SFAS No. 123. Under that model, compensation cost is measured at the grant date fair value of the award and is adjusted to reflect actual forfeitures and the outcome of certain conditions. The fair value of an award is not remeasured after its initial estimation on the grant date, except in the case of a liability award or if the award is modified, based on specific criteria included in SFAS No. 123-R. Also, SFAS 123-R clarifies the financial impact of vesting and/or acceleration clauses due at retirement. Under the revised SFAS, the expense should be fully accrued for any employee that is eligible to retire regardless of the actual retirement experience of the employer. In April 2005, the Securities and Exchange Commission approved a rule that delays the effective date of SFAS No. 123-R to annual, rather than interim, periods that begin after September 15, 2005. Management is currently evaluating the effect of the adoption of SFAS No. 123-R, but does not expect the adoption to have a material effect on the Corporation’s financial condition, results of operations or cash flows due to the fact that in 2002, the Corporation voluntarily adopted the fair value recognition method under SFAS No. 123. The Corporation will prospectively apply SFAS No. 123-R to its financial statements as of January 1, 2006.

SFAS No. 153, “Exchanges of Nonmonetary Assets”

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” This statement amends the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The entity’s future cash flows are expected to significantly change if either of the following criteria is met: a) the configuration (risk, timing, and amount) of the future cash flows of the asset(s) received differs significantly from the configuration of the future cash flows of the asset(s) transferred; b) the entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged. A qualitative assessment will, in some cases, be conclusive in determining that the estimated cash flows of the entity are expected to significantly change as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement is not expected to have a material impact on the Corporation’s financial condition, results of operations, or cash flows.

SFAS No. 154, “Accounting Changes and Error Corrections”

In May 2005, the FASB has issued SFAS No. 154, “Accounting Changes and Error Corrections”, a replacement of APB Opinion No. 20 and FASB Statement No. 3. The Statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle.

SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. Statement 154 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board toward development of a single set of high-quality accounting standards. SFAS No. 154 requires

that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. APB Opinion No. 20 previously required that such a change be reported as a change in accounting principle.

SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors occurring in fiscal years beginning after June 1, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of this Statement. The Corporation is currently evaluating the impact that this new accounting pronouncement may have on its financial condition and results of operations.

FIN No. 47, Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143

In March 2005, the FASB issued financial interpretation (“FIN”) No. 47, Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143. This Interpretation clarifies the term conditional asset retirement obligation as used in SFAS No. 143 and requires a liability to be recorded if the fair value of the obligation can be reasonably estimated. The types of asset retirement obligations that are covered by this Interpretation are those for which an entity has a legal obligation to perform an asset retirement activity, however the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of this statement is not expected to have a material impact on the Corporation’s financial condition, results of operations, or cash flows.

FASB Staff Position No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004

In December 2004, the FASB issued FASB Staff Position No. FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (“FSP 109-2”). The American Jobs Creation Act of 2004 (the “Act”) provides for a special one-time deduction of 85 percent of certain foreign earnings repatriated into the U.S. from non-U.S. subsidiaries through September 30, 2006. To date, the Corporation has not provided for income taxes on unremitted earnings generated by the non-U.S. subsidiary given the Corporation’s intent to permanently reinvest those earnings.

Note 3 — 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 September 30, 2005, December 31, 2004 and September 30, 2004 were as follows:

		AS OF SEPTEMBER 30, 2005
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	551,152				—			$	22,803			$	528,349
Obligations of other U.S. Government agencies and corporations			7,640,659			$	1,158				121,114				7,520,703
Obligations of Puerto Rico, States and political subdivisions			165,872				4,402				931				169,343
Collateralized mortgage obligations			1,694,299				5,639				12,914				1,687,024
Mortgage-backed securities			1,441,383				10,161				18,540				1,433,004
Equity securities			61,453				12,102				304				73,251
Others			80,743				1,048				257				81,534
		$	11,635,561			$	34,510			$	176,863			$	11,493,208

		AS OF DECEMBER 31, 2004
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	547,581				—			$	23,596			$	523,985
Obligations of other U.S. Government agencies and corporations			6,882,662			$	28,196				31,995				6,878,863
Obligations of Puerto Rico, States and political subdivisions			128,900				4,616				1,558				131,958
Collateralized mortgage obligations			1,606,721				6,598				7,365				1,605,954
Mortgage-backed securities			1,828,919				25,476				6,626				1,847,769
Equity securities			22,796				84,425				298				106,923
Others			65,695				1,243				245				66,693
		$	11,083,274			$	150,554			$	71,683			$	11,162,145

		AS OF SEPTEMBER 30, 2004
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	549,696				—			$	22,919			$	526,777
Obligations of other U.S. Government agencies and corporations			6,942,634			$	33,279				30,520				6,945,393
Obligations of Puerto Rico, States and political subdivisions			132,317				5,078				1,514				135,881
Collateralized mortgage obligations			1,645,654				5,264				6,124				1,644,794
Mortgage-backed securities			1,799,413				28,784				4,556				1,823,641
Equity securities			23,035				72,427				299				95,163
Others			67,451				1,179				660				67,970
		$	11,160,200			$	146,011			$	66,592			$	11,239,619

During the quarter ended September 30, 2005, the Corporation reassessed the appropriateness of the classification of certain earning assets and reclassified $42 million from investment securities available-for-sale to commercial loans based on the underlying characteristics of the instrument and the source of its cash flows. The assets were transferred at cost and evaluated for any credit risk exposure.

The following table shows the Corporation’s gross unrealized losses and market value of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2005, December 31, 2004 and September 30, 2004:

		AS OF SEPTEMBER 30, 2005
		Less than 12 Months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	24,814			$	271			$	24,543
Obligations of other U.S. Government agencies and corporations			6,276,514				89,341				6,187,173
Obligations of Puerto Rico, States and political subdivisions			13,240				41				13,199
Collateralized mortgage obligations			673,542				6,256				667,286
Mortgage-backed securities			520,241				7,628				512,613
Equity securities			29				5				24
Others			11,180				257				10,923
		$	7,519,560			$	103,799			$	7,415,761

		12 months or more
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	526,238			$	22,532			$	503,706
Obligations of other U.S. Government agencies and corporations			1,163,926				31,773				1,132,153
Obligations of Puerto Rico, States and political subdivisions			52,370				890				51,480
Collateralized mortgage obligations			225,321				6,658				218,663
Mortgage-backed securities			482,962				10,912				472,050
Equity securities			300				299				1
		$	2,451,117			$	73,064			$	2,378,053

		Total
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	551,052			$	22,803			$	528,249
Obligations of other U.S. Government agencies and corporations			7,440,440				121,114				7,319,326
Obligations of Puerto Rico, States and political subdivisions			65,610				931				64,679
Collateralized mortgage obligations			898,863				12,914				885,949
Mortgage-backed securities			1,003,203				18,540				984,663
Equity securities			329				304				25
Others			11,180				257				10,923
		$	9,970,677			$	176,863			$	9,793,814

		AS OF DECEMBER 31, 2004
		Less than 12 Months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	54,889			$	292			$	54,597
Obligations of other U.S. Government agencies and corporations			3,371,503				19,038				3,352,465
Obligations of Puerto Rico, States and political subdivisions			10,957				129				10,828
Collateralized mortgage obligations			434,001				4,690				429,311
Mortgage-backed securities			921,534				6,581				914,953
Equity securities			300				298				2
Others			6,553				245				6,308
		$	4,799,737			$	31,273			$	4,768,464

		12 months or more
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	492,692			$	23,304			$	469,388
Obligations of other U.S. Government agencies and corporations			492,816				12,957				479,859
Obligations of Puerto Rico, States and political subdivisions			43,700				1,429				42,271
Collateralized mortgage obligations			136,923				2,675				134,248
Mortgage-backed securities			1,217				45				1,172
		$	1,167,348			$	40,410			$	1,126,938

		Total
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	547,581			$	23,596			$	523,985
Obligations of other U.S. Government agencies and corporations			3,864,319				31,995				3,832,324
Obligations of Puerto Rico, States and political subdivisions			54,657				1,558				53,099
Collateralized mortgage obligations			570,924				7,365				563,559
Mortgage-backed securities			922,751				6,626				916,125
Equity securities			300				298				2
Others			6,553				245				6,308
		$	5,967,085			$	71,683			$	5,895,402

		AS OF SEPTEMBER 30, 2004
		Less than 12 Months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	54,910			$	164			$	54,746
Obligations of other U.S. Government agencies and corporations			2,808,521				17,182				2,791,339
Obligations of Puerto Rico, States and political subdivisions			7,810				26				7,784
Collateralized mortgage obligations			503,785				5,179				498,606
Mortgage-backed securities			470,165				2,767				467,398
Equity securities			300				299				1
Others			12,541				660				11,881
		$	3,858,032			$	26,277			$	3,831,755

		12 months or more
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	494,786			$	22,755			$	472,031
Obligations of other U.S. Government agencies and corporations			435,513				13,338				422,175
Obligations of Puerto Rico, States and political subdivisions			43,700				1,488				42,212
Collateralized mortgage obligations			88,409				945				87,464
Mortgage-backed securities			318,474				1,789				316,685
		$	1,380,882			$	40,315			$	1,340,567

		Total
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	549,696			$	22,919			$	526,777
Obligations of other U.S. Government agencies and corporations			3,244,034				30,520				3,213,514
Obligations of Puerto Rico, States and political subdivisions			51,510				1,514				49,996
Collateralized mortgage obligations			592,194				6,124				586,070
Mortgage-backed securities			788,639				4,556				784,083
Equity securities			300				299				1
Others			12,541				660				11,881
		$	5,238,914			$	66,592			$	5,172,322

The unrealized loss positions of available-for-sale securities at September 30, 2005 are primarily associated with U.S. Agency and Treasury obligations, and to a lesser extent, U.S. Agency-issued collateralized mortgage obligations, and mortgage-backed securities. The vast majority of these securities are rated the equivalent of AAA by the major rating agencies. The investment portfolio is structured primarily with highly liquid securities which possess a large and efficient secondary market. Valuations are performed at least on a quarterly basis using third party providers and dealer quotes. Management believes that the unrealized losses in the available-for-sale portfolio at September 30, 2005 are substantially related to market interest rate fluctuations and not to deterioration in the creditworthiness of the issuers.

During the nine months ended September 30, 2005, the Corporation recognized through earnings approximately $12.6 million in losses in the available-for-sale portfolio that management considered to be other than temporarily

impaired. These realized losses were associated with interest only strips and equity securities.

The following table states the name of issuers, and the aggregate amortized cost and market value of the securities of such issuer (includes available-for-sale and held-to-maturity securities), when the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes securities of the U.S. Government agencies and corporations. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

		September 30, 2005								December 31, 2004								September 30, 2004
(In thousands)		Amortized Cost				Market Value				Amortized Cost				Market Value				Amortized Cost				Market Value
FNMA		$	1,694,826			$	1,688,626			$	1,915,392			$	1,931,026			$	1,954,660			$	1,971,204
FHLB			7,422,223				7,304,602				6,669,002				6,671,910				6,478,314				6,480,478
Freddie Mac			1,189,090				1,177,706				1,322,095				1,318,525				1,298,896				1,297,099

Note 4 — Investment Securities Held-to-Maturity

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 held-to-maturity as of September 30, 2005, December 31, 2004 and September 30, 2004 were as follows:

		AS OF SEPTEMBER 30, 2005
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	246,861				—			$	96			$	246,765
Obligations of Puerto Rico, States and political subdivisions			79,550			$	2,879				129				82,300
Collateralized mortgage obligations			527				—				26				501
Others			32,290				357				10				32,637
		$	359,228			$	3,236			$	261			$	362,203

		AS OF DECEMBER 31, 2004
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	176,954			$	9			$	1			$	176,962
Obligations of Puerto Rico, States and political subdivisions			116,878				2,904				119				119,663
Collateralized mortgage obligations			623				—				65				558
Others			46,395				1,325				4				47,716
		$	340,850			$	4,238			$	189			$	344,899

		AS OF SEPTEMBER 30, 2004
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	8,053				—				—			$	8,053
Obligations of Puerto Rico, States and political subdivisions			82,100				2,745			$	125				84,720
Collateralized mortgage obligations			684				—				88				596
Others			46,480				1,431				3				47,908
		$	137,317			$	4,176			$	216			$	141,277

The following table shows the Corporation’s gross unrealized losses and fair value of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2005, December 31, 2004 and September 30, 2004:

		AS OF SEPTEMBER 30, 2005
		Less than 12 months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	237,818			$	96			$	237,722
Obligations of Puerto Rico, States and political subdivisions			4,205				21				4,184
Others			750				10				740
		$	242,773			$	127			$	242,646

		12 months or more
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	21,580			$	108			$	21,472
Collateralized mortgage obligations			527				26				501
Others			250				—				250
		$	22,357			$	134			$	22,223

		Total
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	237,818			$	96			$	237,722
Obligations of Puerto Rico, States and political subdivisions			25,785				129				25,656
Collateralized mortgage obligations			527				26				501
Others			1,000				10				990
		$	265,130			$	261			$	264,869

		AS OF DECEMBER 31, 2004
		Less than 12 months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	21,983			$	1			$	21,982
Obligations of Puerto Rico, States and political subdivisions			1,078				9				1,069
Others			750				4				746
		$	23,811			$	14			$	23,797

		12 months or more
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	22,080			$	110			$	21,970
Collateralized mortgage obligations			623				65				558
Others			250				—				250
		$	22,953			$	175			$	22,778

		Total
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of other U.S. Government agencies and corporations		$	21,983			$	1			$	21,982
Obligations of Puerto Rico, States and political subdivisions			23,158				119				23,039
Collateralized mortgage obligations			623				65				558
Others			1,000				4				996
		$	46,764			$	189			$	46,575

		AS OF SEPTEMBER 30, 2004
		Less than 12 months
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	2,085			$	15			$	2,070
Others			1,000				3				997
		$	3,085			$	18			$	3,067