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 June 30, 2008

Commission File Number: 000-13818

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico		66-0667416
(State or other jurisdiction of		(IRS Employer Identification Number)
incorporation or organization)
Popular Center Building
209 Muñoz Rivera Avenue, Hato Rey
San Juan, 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 changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark whether the registrant 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. (Check one):

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

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 par value 281,738,612 shares outstanding as of August 5, 2008.

 

 

POPULAR, INC.
INDEX

		Page
Part I — Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition as of June 30, 2008, December 31, 2007 and June 30, 2007			4
Unaudited Consolidated Statements of Operations for the quarters and six months ended June 30, 2008 and 2007			5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2008 and 2007			6
Unaudited Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30, 2008 and 2007			7
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			8
Notes to Unaudited Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			70
Item 3. Quantitative and Qualitative Disclosures about Market Risk			110
Item 4. Controls and Procedures			115
Part II — Other Information
Item 1. Legal Proceedings			115
Item 1A. Risk Factors			115
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			115
Item 4. Submission of Matters to a Vote of Security Holders			116
Item 6. Exhibits			116
Signatures			117
EX-12.1 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
EX-31.1 302 CERTIFICATION OF CEO
EX-31.2 302 CERTIFICATION OF CFO
EX-32.1 906 CERTIFICATION OF CEO
EX-32.2 906 CERTIFICATION OF 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 markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. 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

CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)

(In thousands, except share information)		June 30, 2008				December 31, 2007				June 30, 2007
ASSETS
Cash and due from banks		$	887,619			$	818,825			$	762,085
Money market investments:
Federal funds sold			710,000				737,815				345,400
Securities purchased under agreements to resell			170,497				145,871				212,138
Time deposits with other banks			17,299				123,026				17,449
			897,796				1,006,712				574,987
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge			3,418,708				4,249,295				3,421,716
Other investment securities available-for-sale			4,283,619				4,265,840				5,552,752
Investment securities held-to-maturity, at amortized cost (market value as of June 30, 2008 - $231,210; December 31, 2007 - $486,139; June 30, 2007 - $429,536)			232,483				484,466				429,479
Other investment securities, at lower of cost or realizable value (realizable value as of June 30, 2008 - $299,827; December 31, 2007 - $216,819; June 30, 2007 - $160,372)			240,731				216,584				160,150
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge			417,437				673,958				355,484
Other trading securities			82,051				93,997				321,374
Loans held-for-sale measured at lower of cost or market value			337,552				1,889,546				605,990
Loans measured at fair value pursuant to SFAS No. 159:
Loans measured at fair value pledged with creditors’ right to repledge			45,758				—				—
Other loans measured at fair value			799,134				—				—
Loans held-in-portfolio:
Loans held-in-portfolio pledged with creditors’ right to repledge			—				149,610				195,661
Other loans			26,636,004				28,053,956				32,274,058
Less — Unearned income			186,770				182,110				323,864
Allowance for loan losses			652,730				548,832				564,847
			25,796,504				27,472,624				31,581,008
Premises and equipment, net			633,450				588,163				587,505
Other real estate			102,809				81,410				112,858
Accrued income receivable			163,274				216,114				249,746
Servicing assets (at fair value on June 30, 2008 - $186,155; December 31, 2007 - $191,624; June 30, 2007 - $197,873)			190,778				196,645				201,861
Other assets (See Note 8)			2,455,842				1,456,994				1,297,600
Goodwill			628,826				630,761				668,469
Other intangible assets			64,223				69,503				102,299
		$	41,678,594			$	44,411,437			$	46,985,363
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing		$	4,482,287			$	4,510,789			$	4,280,195
Interest bearing			22,633,441				23,823,689				21,105,800
			27,115,728				28,334,478				25,385,995
Federal funds purchased and assets sold under agreements to repurchase			4,738,677				5,437,265				5,655,936
Other short-term borrowings			1,337,210				1,501,979				3,384,105
Notes payable at cost			3,750,647				4,621,352				8,068,638
Notes payable at fair value pursuant to SFAS No. 159			173,725				—				—
Other liabilities			856,504				934,372				793,500
			37,972,491				40,829,446				43,288,174
Commitments and contingencies (See Note 16)
Minority interest in consolidated subsidiaries			109				109				109
Stockholders’ equity:
Preferred stock, $25 liquidation value; 30,000,000 shares authorized; 7,475,000 Class A shares issued and outstanding in all periods presented; 16,000,000 Class B shares issued and outstanding at June 30, 2008			586,875				186,875				186,875
Common stock, $6 par value; 470,000,000 shares authorized in all periods presented; 294,620,193 shares issued (December 31, 2007 - 293,651,398; June 30, 2007 - 292,722,761) and 280,983,132 outstanding (December 31, 2007 - 280,029,215; June 30, 2007 - 279,326,816)			1,767,721				1,761,908				1,756,337
Surplus			563,100				568,184				533,152
Retained earnings			1,086,373				1,319,467				1,701,100
Accumulated other comprehensive loss, net of tax of ($22,392) (December 31, 2007 - ($15,438); June 30, 2007 - ($96,065))			(90,448	)			(46,812	)			(274,817	)
Treasury stock — at cost, 13,637,061 shares (December 31, 2007 - 13,622,183; June 30, 2007 - 13,395,945)			(207,627	)			(207,740	)			(205,567	)
			3,705,994				3,581,882				3,697,080
		$	41,678,594			$	44,411,437			$	46,985,363

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

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands, except per share information)		2008				2007				2008				2007
INTEREST INCOME:
Loans		$	497,418			$	656,485			$	1,058,535			$	1,300,599
Money market investments			3,476				5,752				10,204				10,361
Investment securities			83,128				113,063				177,533				228,554
Trading account securities			16,133				9,611				34,826				18,992
			600,155				784,911				1,281,098				1,558,506
INTEREST EXPENSE:
Deposits			168,045				182,730				362,985				355,832
Short-term borrowings			42,502				119,466				107,647				244,275
Long-term debt			51,723				111,298				115,392				232,000
			262,270				413,494				586,024				832,107
Net interest income			337,885				371,417				695,074				726,399
Provision for loan losses			190,640				115,167				358,862				211,513
Net interest income after provision for loan losses			147,245				256,250				336,212				514,886
Service charges on deposit accounts			51,799				48,392				102,886				96,863
Other service fees (See Note 17)			110,079				89,590				215,546				177,439
Net gain on sale and valuation adjustments of investment securities			27,763				1,175				75,703				82,946
Trading account profit (loss)			16,711				10,377				21,175				(3,787	)
Losses from changes in fair value related to instruments measured at fair value pursuant to SFAS No. 159			(35,922	)			—				(38,942	)			—
(Loss) gain on sale of loans and valuation adjustments on loans held-for- sale			(1,453	)			28,294				67,292				31,728
Other operating income			24,595				25,547				57,887				70,362
			340,817				459,625				837,759				970,437
OPERATING EXPENSES:
Personnel costs:
Salaries			125,423				126,950				262,132				263,429
Pension, profit sharing and other benefits			36,462				37,338				74,932				79,234
			161,885				164,288				337,064				342,663
Net occupancy expenses			26,362				26,501				61,354				58,515
Equipment expenses			30,724				32,245				62,722				64,641
Other taxes			13,879				11,835				27,022				23,682
Professional fees			31,627				38,642				68,252				74,629
Communications			13,145				16,973				28,448				34,035
Business promotion			18,251				30,369				35,467				58,741
Printing and supplies			3,899				4,549				8,174				8,825
Other operating expenses			45,471				32,838				86,763				64,854
Amortization of intangibles			2,490				2,813				4,982				5,796
			347,733				361,053				720,248				736,381
(Loss) income before income tax			(6,916	)			98,572				117,511				234,056
Income tax (benefit) expense			(31,166	)			23,622				(10,029	)			40,459
NET INCOME		$	24,250			$	74,950			$	127,540			$	193,597
NET INCOME APPLICABLE TO COMMON STOCK		$	18,247			$	71,972			$	118,559			$	187,641
BASIC EARNINGS PER COMMON SHARE (“EPS”)		$	0.06			$	0.26			$	0.42			$	0.67
DILUTED EPS		$	0.06			$	0.26			$	0.42			$	0.67
DIVIDENDS DECLARED PER COMMON SHARE		$	0.16			$	0.16			$	0.32			$	0.32

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

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

		Six months ended June 30,
(In thousands)		2008				2007
Preferred stock:
Balance at beginning of year		$	186,875			$	186,875
Issuance of preferred stock			400,000				—
Balance at end of period			586,875				186,875
Common stock:
Balance at beginning of year			1,761,908				1,753,146
Common stock issued under the Dividend Reinvestment Plan			5,813				3,131
Stock options exercised			—				60
Balance at end of period			1,767,721				1,756,337
Surplus:
Balance at beginning of year			568,184				526,856
Common stock issued under the Dividend Reinvestment Plan			4,307				5,290
Issuance cost of preferred stock			(9,950	)			—
Stock options expense on unexercised options, net of forfeitures			559				857
Stock options exercised			—				149
Balance at end of period			563,100				533,152
Retained earnings:
Balance at beginning of year			1,319,467				1,594,144
Net income			127,540				193,597
Cumulative effect of accounting change-adoption of SFAS No. 159 in 2008 (2007-SFAS No. 156 and EITF 06-5)			(261,831	)			8,667
Cash dividends declared on common stock			(89,822	)			(89,352	)
Cash dividends declared on preferred stock			(8,981	)			(5,956	)
Balance at end of period			1,086,373				1,701,100
Accumulated other comprehensive loss:
Balance at beginning of year			(46,812	)			(233,728	)
Other comprehensive loss, net of tax			(43,636	)			(41,089	)
Balance at end of period			(90,448	)			(274,817	)
Treasury stock — at cost:
Balance at beginning of year			(207,740	)			(206,987	)
Purchase of common stock			(358	)			(352	)
Reissuance of common stock			471				1,772
Balance at end of period			(207,627	)			(205,567	)
Total stockholders’ equity		$	3,705,994			$	3,697,080

Disclosure of changes in number of shares:

		June 30,				December 31,				June 30,
		2008				2007				2007
Preferred Stock:
Balance at beginning of year			7,475,000				7,475,000				7,475,000
New shares issued			16,000,000				—				—
Balance at end of period			23,475,000				7,475,000				7,475,000
Common Stock — Issued:
Balance at beginning of year			293,651,398				292,190,924				292,190,924
Issued under the Dividend Reinvestment Plan			968,795				1,450,410				521,773
Stock options exercised			—				10,064				10,064
Balance at end of period			294,620,193				293,651,398				292,722,761
Treasury stock			(13,637,061	)			(13,622,183	)			(13,395,945	)
Common Stock — outstanding			280,983,132				280,029,215				279,326,816

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

POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands)		2008				2007				2008				2007
Net income		$	24,250			$	74,950			$	127,540			$	193,597
Other comprehensive loss before tax:
Foreign currency translation adjustment			(1,411	)			1,200				(1,192	)			2,980
Adjustment of pension and postretirement benefit plans			(37	)			—				(74	)			(519	)
Unrealized losses on securities available-for-sale arising during the period			(149,927	)			(95,452	)			(22,437	)			(55,969	)
Reclassification adjustment for gains included in net income			(27,685	)			(1	)			(26,373	)			(83	)
Unrealized net gains (losses) on cash flow hedges			2,963				1,840				(2,107	)			948
Reclassification adjustment for losses (gains) included in net income			92				(286	)			1,593				(125	)
Cumulative effect of accounting change			—				(243	)			—				(243	)
			(176,005	)			(92,942	)			(50,590	)			(53,011	)
Income tax benefit			41,838				22,060				6,954				11,922
Total other comprehensive loss, net of tax			(134,167	)			(70,882	)			(43,636	)			(41,089	)
Comprehensive (loss) income		($	109,917	)		$	4,068			$	83,904			$	152,508

Tax Effects Allocated to Each Component of Other Comprehensive Loss:

		Quarter ended								Six months ended
		June 30,								June 30,
(In thousands)		2008				2007				2008				2007
Underfunding of pension and postretirement benefit plans			—				—				—			$	180
Unrealized losses on securities available-for-sale arising during the period		$	38,943			$	22,615			$	3,680				12,022
Reclassification adjustment for gains included in net income			4,025				—				3,124				14
Unrealized net gains (losses) on cash flows hedges			(1,094	)			(669	)			775				(352	)
Reclassification adjustment for (gains) losses included in net income			(36	)			114				(625	)			58
Income tax benefit		$	41,838			$	22,060			$	6,954			$	11,922

Disclosure of accumulated other comprehensive loss:

		June 30,				December 31,				June 30,
(In thousands)		2008				2007				2007
Foreign currency translation adjustment		($	35,780	)		($	34,588	)		($	33,721	)
Underfunding of pension and postretirement benefit plans			(51,213	)			(51,139	)			(69,779	)
Tax effect			20,108				20,108				27,214
Net of tax amount			(31,105	)			(31,031	)			(42,565	)
Unrealized (losses) gains on securities available-for-sale			(21,718	)			27,092				(268,295	)
Tax effect			854				(5,950	)			69,182
Net of tax amount			(20,864	)			21,142				(199,113	)
Unrealized (losses) gains on cash flows hedges			(4,129	)			(3,615	)			913
Tax effect			1,430				1,280				(331	)
Net of tax amount			(2,699	)			(2,335	)			582
Accumulated other comprehensive loss, net of tax		($	90,448	)		($	46,812	)		($	274,817	)

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

POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		Six months ended June 30,
(In thousands)		2008				2007
Cash flows from operating activities:
Net income		$	127,540			$	193,597
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment			37,318				39,973
Provision for loan losses			358,862				211,513
Amortization of intangibles			4,982				5,796
Amortization and fair value adjustments of servicing assets			25,122				22,606
Net gain on sale and valuation adjustments of investment securities			(75,703	)			(82,946	)
Losses from changes in fair value related to instruments measured at fair value pursuant to SFAS No. 159			38,942				—
Net gain on disposition of premises and equipment			(3,111	)			(4,851	)
Net gain on sale of loans and valuation adjustments on loans held-for-sale			(67,292	)			(31,728	)
Net amortization of premiums and accretion of discounts on investments			12,656				11,235
Net amortization of premiums and deferred loan origination fees and costs			28,951				47,938
Earnings from investments under the equity method			(6,899	)			(16,590	)
Stock options expense			559				907
Deferred income taxes			(83,836	)			(48,112	)
Net disbursements on loans held-for-sale			(1,509,819	)			(3,087,103	)
Acquisitions of loans held-for-sale			(185,053	)			(403,712	)
Proceeds from sale of loans held-for-sale			1,006,208				2,833,030
Net decrease in trading securities			732,067				645,680
Net decrease (increase) in accrued income receivable			42,301				(1,506	)
Net increase in other assets			(264,170	)			(16,261	)
Net decrease in interest payable			(53,440	)			(14,013	)
Net increase in postretirement benefit obligation			203				1,824
Net decrease in other liabilities			(24,429	)			(52,071	)
Total adjustments			14,419				61,609
Net cash provided by operating activities			141,959				255,206
Cash flows from investing activities:
Net decrease (increase) in money market investments			108,916				(206,843	)
Purchases of investment securities:
Available-for-sale			(3,427,660	)			(65,385	)
Held-to-maturity			(3,631,141	)			(12,293,611	)
Other			(136,775	)			(16,935	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale			1,851,899				810,710
Held-to-maturity			3,884,838				11,957,964
Other			112,628				5,445
Proceeds from sale of investment securities available-for-sale			2,406,504				28,981
Proceeds from sale of other investment securities			49,330				246,352
Net disbursements on loans			(596,548	)			(362,569	)
Proceeds from sale of loans			1,715,330				3,549
Acquisition of loan portfolios			(6,669	)			(784	)
Assets acquired, net of cash			—				(1,633	)
Mortgage servicing rights purchased			(2,986	)			(23,988	)
Acquisition of premises and equipment			(98,028	)			(49,652	)
Proceeds from sale of premises and equipment			19,743				21,951
Proceeds from sale of foreclosed assets			51,684				80,278
Net cash provided by investing activities			2,301,065				133,830
Cash flows from financing activities:
Net (decrease) increase in deposits			(1,198,512	)			936,810
Net decrease in federal funds purchased and assets sold under agreements to repurchase			(698,588	)			(106,509	)
Net decrease in other short-term borrowings			(164,769	)			(650,020	)
Payments of notes payable			(1,243,674	)			(773,731	)
Proceeds from issuance of notes payable			630,186				103,249
Dividends paid			(98,685	)			(95,223	)
Proceeds from issuance of common stock			10,120				8,667
Proceeds from issuance of preferred stock			390,050				—
Treasury stock acquired			(358	)			(352	)
Net cash used in financing activities			(2,374,230	)			(577,109	)
Net increase (decrease) in cash and due from banks			68,794				(188,073	)
Cash and due from banks at beginning of period			818,825				950,158
Cash and due from banks at end of period		$	887,619			$	762,085

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” or “Popular”) is a diversified, publicly owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation 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 principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as auto and equipment leasing and financing, mortgage loans, consumer lending, 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, and Popular Financial Holdings (“PFH”). BPNA is a community bank providing a broad range of financial services and products to the communities it serves. BPNA operates branches in New York, California, Illinois, New Jersey, Florida and Texas. E-LOAN offers online consumer direct lending and provides an online platform to raise deposits for BPNA. As described in Note 19 to the consolidated financial statements, E-LOAN restructured its business operations during the fourth quarter of 2007 and the beginning of 2008. PFH, after certain restructuring events discussed also in Note 19 to the consolidated financial statements, exited the branch network loan origination business during the first quarter of 2008, but continues to operate a mortgage loan servicing unit, a small scale origination / refinancing unit and to carry a maturing loan portfolio. The Corporation, through its transaction processing company, EVERTEC, continues to use its expertise in technology as a competitive advantage in its expansion throughout the United States, the Caribbean and Latin America, as well as internally servicing many of its subsidiaries’ system infrastructures and transactional processing businesses. Note 24 to the consolidated financial statements presents further information about the Corporation’s business segments.

The unaudited consolidated financial statements include the accounts of Popular, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These unaudited statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results. Certain reclassifications have been made to the prior period consolidated financial statements to conform to the 2008 presentation.

The statement of condition data as of December 31, 2007 was derived from audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the statements presented as of June 30, 2008, December 31, 2007 and June 30, 2007 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, 2007, included in the Corporation’s 2007 Annual Report. The Corporation’s Form 10-K filed on February 29, 2008 incorporates by reference the 2007 Annual Report.

Note 2 — Recent Accounting Developments

SFAS No. 157 “Fair Value Measurements”

SFAS No. 157, issued in September 2006, defines fair value, establishes a framework of measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requires companies to disclose the fair value of its financial instruments according to a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets carried at fair value will be classified and disclosed in one of the three categories in accordance with the hierarchy. The three levels of the fair value hierarchy are (1) quoted market prices for identical assets or liabilities in active markets, (2) observable market-based inputs or unobservable inputs that are corroborated by market data, and (3) unobservable inputs that are not corroborated by market data. SFAS No. 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the Financial Accounting Standards Board (“FASB”) issued financial staff position FSP FAS No. 157-2 which defers for one year the effective date for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis.

The staff position also amends SFAS No. 157 to exclude SFAS No. 13 “Accounting for Leases” and its related interpretive accounting pronouncements that address leasing transactions. The Corporation adopted the provisions of SFAS No. 157 that were not deferred by FSP FAS No. 157-2, commencing in the first quarter of 2008. The provisions of SFAS No. 157 are to be applied prospectively. Refer to Note 12 to these consolidated financial statements for the disclosures required for the quarter and six months ended June 30, 2008. The adoption of SFAS No. 157 in January 1, 2008 did not have an impact in beginning retained earnings.

SFAS No. 159 “The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115”

In February 2007, the FASB issued SFAS No. 159, which provided companies with an option to report selected financial assets and liabilities at fair value. The election to measure a financial asset or liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The difference between the carrying amount and the fair value at the election date is recorded as a transition adjustment to beginning retained earnings. Subsequent changes in fair value are recognized in earnings. The statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. The Corporation adopted the provisions of SFAS No. 159 in January 2008.

The Corporation elected the fair value option for approximately $1.2 billion of whole loans held-in-portfolio by PFH. Additionally, management adopted the fair value option for approximately $287 million of loans and $287 million of bond certificates associated with PFH’s on-balance sheet securitizations that were outstanding as of December 31, 2007. These loans serve as collateral for the bond certificates.

Refer to Note 11 to these consolidated financial statements for the impact of the initial adoption of SFAS No. 159 to beginning retained earnings as of January 1, 2008 and additional disclosures as of June 30, 2008.

FSP FIN No. 39-1 “Amendment of FASB Interpretation No. 39”

In April 2007, the FASB issued Staff Position FSP FIN No. 39-1, which defines “right of setoff” and specifies what conditions must be met for a derivative contract to qualify for this right of setoff. It also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the statement of condition. In addition, this FSP permits the offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. The adoption of FSP FIN No. 39-1 in January 2008 did not have a material impact on the Corporation’s consolidated financial statements and disclosures. The Corporation’s policy is not to offset the fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement nor to offset the fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments.

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

SFAS No. 141(R), issued in December 2007, will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Corporation will account for business combinations under this statement include the following: the acquisition date will be the date the acquirer obtains control; all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date; assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date at fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year; acquisition-related restructuring costs that do not meet the criteria in SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” will be expensed as incurred; transaction costs will be expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree will not be permitted to be recognized by

the acquirer. Additionally, SFAS No. 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward. The Corporation will be required to prospectively apply SFAS No. 141(R) to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS No. 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. Management will be evaluating the effects that SFAS No. 141(R) will have on the financial condition, results of operations, liquidity, and the disclosures that will be presented on the consolidated financial statements.

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

In December 2007, the FASB issued SFAS No. 160, which amends ARB No. 51, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will require entities to classify noncontrolling interests as a component of stockholders’ equity on the consolidated financial statements and will require subsequent changes in ownership interests in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS No. 160 will require entities to recognize a gain or loss upon the loss of control of a subsidiary and to remeasure any ownership interest retained at fair value on that date. This statement also requires expanded disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which are required to be applied retrospectively. Early adoption is not permitted. Management will be evaluating the effects, if any, that the adoption of this statement will have on its consolidated financial statements.

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

In March 2008, the FASB issued SFAS No. 161, an amendment of SFAS No. 133. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS No. 133 and related interpretations. The standard will be effective for all of the Corporation’s interim and annual financial statements for periods beginning after November 15, 2008, with early adoption permitted. The standard expands the disclosure requirements for derivatives and hedged items and has no impact on how the Corporation accounts for these instruments. Management will be evaluating the enhanced disclosure requirements.

SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles”

SFAS No. 162, issued by the FASB in May 2008, identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” Management does not expect SFAS No. 162 to have a material impact on the Corporation’s consolidated financial statements. The Board does not expect that this statement will result in a change in current accounting practice. However, transition provisions have been provided in the unusual circumstance that the application of the provisions of this statement results in a change in accounting practice.

Staff Accounting Bulletin No. 109 (“SAB 109”) “Written Loan Commitments Recorded at Fair Value through Earnings”

On November 5, 2007, the SEC issued Staff SAB 109, which requires that the fair value of a written loan commitment that is marked-to-market through earnings should include the future cash flows related to the loan’s servicing rights. However, the fair value measurement of a written loan commitment still must exclude the expected net cash flows related to internally developed intangible assets (such as customer relationship intangible assets). SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans that will be held-for-sale when funded that are marked-to-market as derivatives under SFAS No. 133 (derivative loan commitments); and (2) other written loan commitments that are accounted for at fair value through earnings under SFAS No. 159’s fair-value election.

SAB 109 supersedes SAB 105, which applied only to derivative loan commitments and allowed the expected future cash flows related to the associated servicing of the loan to be recognized only after the servicing asset had been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained. SAB 109 will be applied prospectively to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The implementation of SAB 109 did not have a material impact to the Corporation’s consolidated financial statements, including disclosures, for the six months ended June 30, 2008.

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

The objective of FSP FAS 140-3, issued by the FASB in February 2008, is to provide implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.

Current practice records the transfer as a sale and the repurchase agreement as a financing. The FSP FAS 140-3 requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement’s price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another.

FSP FAS 140-3 will be effective for the Corporation on January 1, 2009. Early adoption is prohibited. The Corporation will be evaluating the potential impact of adopting this FSP.

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

FSP FAS 142-3, issued by the FASB in April 2008, amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142 “Goodwill and Other Intangible Assets”. In developing these assumptions, an entity should consider its own historical experience in renewing or extending similar arrangements adjusted for entity specific factors or, in the absence of that experience, the assumptions that market participants would use about renewals or extensions adjusted for the entity specific factors.

FSP FAS 142-3 shall be applied prospectively to intangible assets acquired after the effective date. This FSP will be effective for the Corporation on January 1, 2009. Early adoption is prohibited. The Corporation will be evaluating the potential impact of adopting this FSP.

Note 3 — Restrictions on Cash and Due from Banks and Highly-Liquid Securities

The Corporation’s subsidiary banks are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank or other banks. Those required average reserve balances were $665 million as of June 30, 2008 (December 31, 2007 — $678 million; June 30, 2007 — $603 million). Cash and due from banks as well as other short-term, highly-liquid securities are used to cover the required average reserve balances.

In compliance with rules and regulations of the Securities and Exchange Commission, at June 30, 2008, the Corporation had securities with a market value of $274 thousand (December 31, 2007 - securities with a market value of $273 thousand; June 30, 2007 — securities with a market value of $445 thousand); segregated in a special reserve bank account for the benefit of brokerage customers of its broker-dealer subsidiary. These securities were classified in the consolidated statement of condition within the other trading securities category.

As required by the Puerto Rico International Banking Center Regulatory Act, as of June 30, 2008, December 31, 2007, and June 30, 2007, the Corporation maintained separately for its two international banking entities (“IBEs”), $600 thousand in time deposits, equally divided for the two IBEs, which were considered restricted assets.

As part of a line of credit facility with a financial institution, as of June 30, 2008, the Corporation maintained restricted cash of $1.9 million as collateral (December 31, 2007 — $1.9 million; June 30, 2007 — $1.9 million). The cash is being held in certificates of deposits which mature in less than 90 days. The line of credit is used to support letters of credit.

As of June 30, 2008, the Corporation had restricted cash of $3.5 million (December 31, 2007 — $3.5 million) to support a letter of credit related to a service settlement agreement.

Note 4 — Pledged Assets

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

		June 30,				December 31,				June 30,
(In thousands)		2008				2007				2007
Investment securities available-for-sale, at fair value		$	2,716,718			$	2,944,643			$	3,264,299
Investment securities held-to-maturity, at amortized cost			—				339				501
Loans held-for-sale measured at lower of cost or market value			36,613				42,428				—
Loans measured at fair value pursuant to SFAS No. 159			167,646				—				—
Loans held-in-portfolio			7,727,951				8,489,814				9,062,900
		$	10,648,928			$	11,477,224			$	12,327,700

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

Note 5 — Investment Securities Available-For-Sale

The amortized cost, gross unrealized gains and losses and approximate market value (or fair value for certain investment securities where no market quotations are available) of investment securities available-for-sale as of June 30, 2008, December 31, 2007 and June 30, 2007 were as follows:

		AS OF JUNE 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	461,404			$	542			$	1,195			$	460,751
Obligations of U.S. Government sponsored entities			4,588,854				27,677				10,781				4,605,750
Obligations of Puerto Rico, States and political subdivisions			126,775				243				1,836				125,182
Collateralized mortgage obligations			1,626,202				3,487				21,079				1,608,610
Mortgage-backed securities			889,613				5,743				11,318				884,038
Equity securities			28,607				441				13,642				15,406
Others			2,590				—				—				2,590
		$	7,724,045			$	38,133			$	59,851			$	7,702,327

		AS OF DECEMBER 31, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	476,104			$	3			$	5,011			$	471,096
Obligations of U.S. Government sponsored entities			5,450,028				52,971				5,885				5,497,114
Obligations of Puerto Rico, States and political subdivisions			103,206				470				2,184				101,492
Collateralized mortgage obligations			1,403,292				3,754				10,506				1,396,540
Mortgage-backed securities			1,017,302				4,690				11,864				1,010,128
Equity securities			33,299				690				36				33,953
Others			4,812				—				—				4,812
		$	8,488,043			$	62,578			$	35,486			$	8,515,135

		AS OF JUNE 30, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	500,193				—			$	37,616			$	462,577
Obligations of U.S. Government sponsored entities			6,016,206				—				174,448				5,841,758
Obligations of Puerto Rico, States and political subdivisions			117,372			$	170				3,754				113,788
Collateralized mortgage obligations			1,544,362				6,122				18,435				1,532,049
Mortgage-backed securities			991,440				1,529				32,771				960,198
Equity securities			55,250				1,173				11,074				45,349
Others			17,940				809				—				18,749
		$	9,242,763			$	9,803			$	278,098			$	8,974,468

The table below shows the Corporation’s amortized cost, 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 as of June 30, 2008, December 31, 2007 and June 30, 2007.

		AS OF JUNE 30, 2008
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	277,645			$	1,195			$	276,450
Obligations of U.S. Government sponsored entities			2,104,165				10,781				2,093,384
Obligations of Puerto Rico, States and political subdivisions			31,745				112				31,633
Collateralized mortgage obligations			923,625				10,626				912,999
Mortgage-backed securities			277,464				3,388				274,076
Equity securities			27,268				13,634				13,634
		$	3,641,912			$	39,736			$	3,602,176

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	49,012			$	1,724			$	47,288
Collateralized mortgage obligations			218,656				10,453				208,203
Mortgage-backed securities			276,775				7,930				268,845
Equity securities			29				8				21
		$	544,472			$	20,115			$	524,357

		Total
						Gross
		Amortized				Unrealized			Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	277,645			$	1,195			$	276,450
Obligations of U.S. Government sponsored entities			2,104,165				10,781				2,093,384
Obligations of Puerto Rico, States and political subdivisions			80,757				1,836				78,921
Collateralized mortgage obligations			1,142,281				21,079				1,121,202
Mortgage-backed securities			554,239				11,318				542,921
Equity securities			27,297				13,642				13,655
		$	4,186,384			$	59,851			$	4,126,533

		AS OF DECEMBER 31, 2007
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	67,107			$	185			$	66,922
Obligations of Puerto Rico, States and political subdivisions			2,600				2				2,598
Collateralized mortgage obligations			349,084				2,453				346,631
Mortgage-backed securities			99,328				667				98,661
Equity securities			28				10				18
		$	518,147			$	3,317			$	514,830

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	466,111			$	5,011			$	461,100
Obligations of U.S. Government sponsored entities			1,807,457				5,700				1,801,757
Obligations of Puerto Rico, States and political subdivisions			65,642				2,182				63,460
Collateralized mortgage obligations			430,034				8,053				421,981
Mortgage-backed securities			656,879				11,197				645,682
Equity securities			300				26				274
		$	3,426,423			$	32,169			$	3,394,254

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	466,111			$	5,011			$	461,100
Obligations of U.S. Government sponsored entities			1,874,564				5,885				1,868,679
Obligations of Puerto Rico, States and political subdivisions			68,242				2,184				66,058
Collateralized mortgage obligations			779,118				10,506				768,612
Mortgage-backed securities			756,207				11,864				744,343
Equity securities			328				36				292
		$	3,944,570			$	35,486			$	3,909,084

		AS OF JUNE 30, 2007
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	475,542			$	13,283			$	462,259
Obligations of Puerto Rico, States and political subdivisions			21,652				473				21,179
Collateralized mortgage obligations			189,570				2,077				187,493
Mortgage-backed securities			39,132				873				38,259
Equity securities			53,683				11,047				42,636
		$	779,579			$	27,753			$	751,826

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	500,193			$	37,616			$	462,577
Obligations of U.S. Government sponsored entities			5,540,664				161,165				5,379,499
Obligations of Puerto Rico, States and political subdivisions			69,136				3,281				65,855
Collateralized mortgage obligations			647,337				16,358				630,979
Mortgage-backed securities			869,343				31,898				837,445
Equity securities			310				27				283
		$	7,626,983			$	250,345			$	7,376,638

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	500,193			$	37,616			$	462,577
Obligations of U.S. Government sponsored entities			6,016,206				174,448				5,841,758
Obligations of Puerto Rico, States and political subdivisions			90,788				3,754				87,034
Collateralized mortgage obligations			836,907				18,435				818,472
Mortgage-backed securities			908,475				32,771				875,704
Equity securities			53,993				11,074				42,919
		$	8,406,562			$	278,098			$	8,128,464

As of June 30, 2008, “Obligations of Puerto Rico, States and political subdivisions” include approximately $55 million in Commonwealth of Puerto Rico Appropriation Bonds (“Appropriation Bonds”) in the Corporation’s available-for-sale and held-to-maturity securities portfolios. The rating on these bonds by Moody’s Investors Service (“Moody’s”) is Ba1, one notch below investment grade, while Standard & Poor’s (“S&P”) rates them as investment grade. As of June 30, 2008, these Appropriation Bonds represented approximately $1.6 million in net unrealized losses in the Corporation’s investment securities available-for-sale portfolio. The Corporation is closely monitoring the political and economic situation of the Island as part of its evaluation of its available-for-sale portfolio for any declines in value that management may consider being other-than-temporary. Management has the intent and ability to hold these investments for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

The unrealized loss positions of available-for-sale securities as of June 30, 2008, except for the obligations of the Puerto Rico government described above and certain equity securities which have recently declined in value during 2008, are primarily associated with U.S. Agency and government sponsored-issued mortgage-backed securities and

collateralized mortgage obligations. 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. Management believes that the unrealized losses in these available-for-sale securities as of June 30, 2008 are temporary and are substantially related to market interest rate fluctuations and not to the deterioration in the creditworthiness of the issuers. Also, management has the intent and ability to hold these investments for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

During the six months ended June 30, 2008, the Corporation recognized through earnings approximately $2.9 million in losses considered other-than-temporary on residual interests classified as available-for-sale. During the six months ended June 30, 2007, the Corporation recognized through earnings approximately $30.7 million in losses in residual interests classified as available-for-sale and $7.6 million in losses in equity securities that management considered to be other-than-temporarily impaired.

The following table states the names 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.

		June 30, 2008								December 31, 2007								June 30, 2007
(In thousands)		Amortized Cost				Market Value				Amortized Cost				Market Value				Amortized Cost				Market Value
FNMA		$	1,137,288			$	1,131,842			$	1,132,834			$	1,128,544			$	1,261,541			$	1,238,499
FHLB			4,506,509				4,521,314				5,649,729				5,693,170				6,069,496				5,897,748
Freddie Mac			816,570				810,182				918,976				913,609				1,011,125				996,046

Note 6 — 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 June 30, 2008, December 31, 2007 and June 30, 2007 were as follows:

		AS OF JUNE 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of U.S. Government sponsored entities		$	34,084				—			$	8			$	34,076
Obligations of Puerto Rico, States and political subdivisions			185,852			$	280				1,566				184,566
Collateralized mortgage obligations			267				—				15				252
Others			12,280				38				2				12,316
		$	232,483			$	318			$	1,591			$	231,210

		AS OF DECEMBER 31, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of U.S. Government sponsored entities		$	395,974			$	15				$1,497			$	394,492
Obligations of Puerto Rico, States and political subdivisions			76,464				3,108				26				79,546
Collateralized mortgage obligations			310				—				17				293
Others			11,718				94				4				11,808
		$	484,466			$	3,217			$	1,544			$	486,139

		AS OF JUNE 30, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of U.S. Government sponsored entities		$	340,323			$	13			$	36			$	340,300
Obligations of Puerto Rico, States and political subdivisions			72,406				441				374				72,473
Collateralized mortgage obligations			354				—				19				335
Others			16,396				39				7				16,428
		$	429,479			$	493			$	436			$	429,536

The following table shows the Corporation’s amortized cost, 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, as of June 30, 2008, December 31, 2007 and June 30, 2007:

		AS OF JUNE 30, 2008
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	34,085			$	8			$	34,077
Obligations of Puerto Rico, States and political subdivisions			41,694				1,566				40,128
		$	75,779			$	1,574			$	74,205

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Collateralized mortgage obligations		$	267			$	15			$	252
Others			1,000				2				998
		$	1,267			$	17			$	1,250

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	34,085			$	8			$	34,077
Obligations of Puerto Rico, States and political subdivisions			41,694				1,566				40,128
Collateralized mortgage obligations			267				15				252
Others			1,000				2				998
		$	77,046			$	1,591			$	75,455

		AS OF DECEMBER 31, 2007
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	196,129			$	1,497			$	194,632
Obligations of Puerto Rico, States and political subdivisions			1,883				26				1,857
Others			1,250				1				1,249
		$	199,262			$	1,524			$	197,738

		12 months or more
		Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Collateralized mortgage obligations		$	310			$	17			$	293
Others			1,250				3				1,247
		$	1,560			$	20			$	1,540

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	196,129			$	1,497			$	194,632
Obligations of Puerto Rico, States and political subdivisions			1,883				26				1,857
Collateralized mortgage obligations			310				17				293
Others			2,500				4				2,496
		$	200,822			$	1,544			$	199,278