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, 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)

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 the definitions of “large accelerated filer,” “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 (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes      þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock $6 par value 282,035,628 shares outstanding as of November 4, 2008.

 

 

POPULAR, INC.
INDEX

			Page
Part I — Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition as of September 30, 2008, December 31, 2007 and September 30, 2007			4
Unaudited Consolidated Statements of Operations for the quarters and nine months ended September 30, 2008 and 2007			5
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2008 and 2007			6
Unaudited Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2008 and 2007			7
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 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			77
Item 3. Quantitative and Qualitative Disclosures about Market Risk			118
Item 4. Controls and Procedures			123
Part II — Other Information
Item 1. Legal Proceedings			123
Item 1A. Risk Factors			124
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			129
Item 5. Other Information			129
Item 6. Exhibits			129
Signatures			130
EX-10.1
EX-10.2
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Forward-Looking Information

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

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

(In thousands, except share information)		September 30, 2008				December 31, 2007				September 30, 2007
ASSETS
Cash and due from banks		$	1,183,997			$	818,825			$	709,056
Money market investments:
Federal funds sold			173,330				737,815				430,000
Securities purchased under agreements to resell			121,613				145,871				180,394
Time deposits with other banks			14,554				123,026				24,703
			309,497				1,006,712				635,097
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge			3,256,348				4,249,295				4,742,127
Other investment securities available-for-sale			4,312,394				4,265,840				4,136,368
Investment securities held-to-maturity, at amortized cost (market value as of September 30, 2008 - $716,430; December 31, 2007 - $486,139; September 30, 2007 — $280,072)			719,832				484,466				279,267
Other investment securities, at lower of cost or realizable value (realizable value as of September 30, 2008 - $273,836; December 31, 2007 - $216,819; September 30, 2007 - $179,598)			229,158				216,584				179,376
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge			390,181				673,958				569,357
Other trading securities			54,217				93,997				92,801
Loans held-for-sale measured at lower of cost or market value			245,134				1,889,546				423,303
Loans held-in-portfolio:
Loans held-in-portfolio pledged with creditors’ right to repledge			—				149,610				160,923
Other loans			26,519,805				28,053,956				33,067,301
Less — Unearned income			183,770				182,110				330,723
Allowance for loan losses			726,480				548,832				600,273
			25,609,555				27,472,624				32,297,228
Premises and equipment, net			620,469				588,163				580,768
Other real estate			72,605				81,410				133,508
Accrued income receivable			197,549				216,114				290,916
Servicing assets (at fair value on September 30, 2008 - $127,827; December 31, 2007 - $191,624; September 30, 2007 - $193,255)			132,484				196,645				196,992
Other assets (See Note 9)			1,412,219				1,456,994				1,244,689
Goodwill			608,172				630,761				668,807
Other intangible assets			67,662				69,503				100,471
Assets from discontinued operations (See Note 3)			968,669				—				—
		$	40,390,142			$	44,411,437			$	47,280,131
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing		$	4,065,720			$	4,510,789			$	3,975,383
Interest bearing			23,845,677				23,823,689				22,626,132
			27,911,397				28,334,478				26,601,515
Federal funds purchased and assets sold under agreements to repurchase			3,730,039				5,437,265				6,287,303
Other short-term borrowings			507,011				1,501,979				1,414,897
Notes payable			4,242,487				4,621,352				8,314,791
Other liabilities			811,253				934,372				857,795
Liabilities from discontinued operations (See Note 3)			180,373				—				—
			37,382,560				40,829,446				43,476,301
Commitments and contingencies (See Note 17)
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 September 30, 2008			586,875				186,875				186,875
Common stock, $6 par value; 470,000,000 shares authorized in all periods presented; 295,335,063 shares issued (December 31, 2007 — 293,651,398; September 30, 2007 — 292,993,474) and 281,708,260 outstanding (December 31, 2007 — 280,029,215; September 30, 2007 — 279,597,529)			1,772,010				1,761,908				1,757,961
Surplus			564,021				568,184				536,129
Retained earnings			384,062				1,319,467				1,689,384
Accumulated other comprehensive loss, net of tax of ($22,374) (December 31, 2007 — ($15,438); September 30, 2007 — ($56,551))			(91,983	)			(46,812	)			(161,061	)
Treasury stock — at cost, 13,626,803 shares (December 31, 2007 — 13,622,183; September 30, 2007 — 13,395,945)			(207,512	)			(207,740	)			(205,567	)
			3,007,473				3,581,882				3,803,721
		$	40,390,142			$	44,411,437			$	47,280,131

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)		2008				2007				2008				2007
INTEREST INCOME:
Loans		$	457,905			$	523,794			$	1,421,937			$	1,521,424
Money market investments			3,447				6,807				13,651				17,168
Investment securities			84,790				109,019				261,649				334,992
Trading account securities			9,339				10,163				35,344				27,244
			555,481				649,783				1,732,581				1,900,828
INTEREST EXPENSE:
Deposits			165,611				196,825				528,596				552,657
Short-term borrowings			37,233				108,971				137,824				340,162
Long-term debt			28,355				12,341				75,823				39,667
			231,199				318,137				742,243				932,486
Net interest income			324,282				331,646				990,338				968,342
Provision for loan losses			252,160				86,340				602,561				219,477
Net interest income after provision for loan losses			72,122				245,306				387,777				748,865
Service charges on deposit accounts			52,433				49,704				155,319				146,567
Other service fees (See Note 18)			95,302				89,863				306,649				265,712
Net (loss) gain on sale and valuation adjustments of investment securities			(9,132	)			(776	)			69,430				112,842
Trading account profit			6,669				9,239				38,547				29,765
Gain on sale of loans and valuation adjustments on loans held-for-sale			6,522				6,975				25,696				40,224
Other operating income			36,134				21,920				92,836				87,968
			260,050				422,231				1,076,254				1,431,943
OPERATING EXPENSES:
Personnel costs:
Salaries			118,948				116,169				360,963				357,706
Pension, profit sharing and other benefits			29,282				29,104				98,552				100,068
			148,230				145,273				459,515				457,774
Net occupancy expenses			26,510				27,083				81,218				76,185
Equipment expenses			26,305				28,324				84,312				87,259
Other taxes			13,301				12,766				39,905				35,644
Professional fees			31,780				29,498				88,964				87,689
Communications			12,574				15,115				38,137				44,669
Business promotion			16,216				27,479				51,064				83,410
Printing and supplies			3,269				3,760				10,763				11,536
Other operating expenses			40,764				27,429				113,722				81,176
Amortization of intangibles			3,966				2,234				8,948				8,030
			322,915				318,961				976,548				973,372
(Loss) income from continuing operations before income tax			(62,865	)			103,270				99,706				458,571
Income tax expense			148,308				23,056				152,467				105,598
(Loss) income from continuing operations			(211,173	)			80,214				(52,761	)			352,973
Loss from discontinued operations, net of tax (See Note 3)			(457,370	)			(44,211	)			(488,242	)			(123,373	)
NET (LOSS) INCOME		$	(668,543	)		$	36,003			$	(541,003	)		$	229,600
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK		$	(679,772	)		$	33,024			$	(561,213	)		$	220,665
(LOSSES) EARNINGS PER COMMON SHARE — BASIC AND DILUTED:
(Losses) income from continuing operations		$	(0.79	)		$	0.28			$	(0.26	)		$	1.23
Losses from discontinued operations			(1.63	)			(0.16	)			(1.74	)			(0.44	)
Net (loss) income		$	(2.42	)		$	0.12			$	(2.00	)		$	0.79
DIVIDENDS DECLARED PER COMMON SHARE		$	0.08			$	0.16			$	0.40			$	0.48

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

		Nine months ended September 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			10,102				4,755
Stock options exercised			—				60
Balance at end of period			1,772,010				1,757,961
Surplus:
Balance at beginning of year			568,184				526,856
Common stock issued under the Dividend Reinvestment Plan			5,072				7,835
Issuance cost of preferred stock			(10,065	)			—
Stock options expense on unexercised options, net of forfeitures			830				1,289
Stock options exercised			—				149
Balance at end of period			564,021				536,129
Retained earnings:
Balance at beginning of year			1,319,467				1,594,144
Net (loss) income			(541,003	)			229,600
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			(112,361	)			(134,092	)
Cash dividends declared on preferred stock			(20,210	)			(8,935	)
Balance at end of period			384,062				1,689,384
Accumulated other comprehensive loss:
Balance at beginning of year			(46,812	)			(233,728	)
Other comprehensive (loss) income, net of tax			(45,171	)			72,667
Balance at end of period			(91,983	)			(161,061	)
Treasury stock — at cost:
Balance at beginning of year			(207,740	)			(206,987	)
Purchase of common stock			(358	)			(352	)
Reissuance of common stock			586				1,772
Balance at end of period			(207,512	)			(205,567	)
Total stockholders’ equity		$	3,007,473			$	3,803,721

Disclosure of changes in number of shares:

		September 30,				December 31,				September 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			1,683,665				1,450,410				792,486
Stock options exercised			—				10,064				10,064
Balance at end of period			295,335,063				293,651,398				292,993,474
Treasury stock			(13,626,803	)			(13,622,183	)			(13,395,945	)
Common Stock — outstanding			281,708,260				280,029,215				279,597,529

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

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)

		Quarter ended								Nine months ended
		September 30,								September 30,
(In thousands)		2008				2007				2008				2007
Net (loss) income		$	(668,543	)		$	36,003			$	(541,003	)		$	229,600
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment			(1,690	)			(966	)			(2,882	)			2,014
Adjustment of pension and postretirement benefit plans			(36	)			—				(110	)			(519	)
Unrealized (losses) gains on securities available-for-sale arising during the period			(13,611	)			156,462				(36,048	)			100,493
Reclassification adjustment for losses (gains) included in net income			11,704				3				(14,669	)			(80	)
Unrealized net gains (losses) on cash flow hedges			947				(2,065	)			(1,160	)			(1,117	)
Reclassification adjustment for losses (gains) included in net income			1,169				(164	)			2,762				(289	)
Cumulative effect of accounting change			—				—				—				(243	)
			(1,517	)			153,270				(52,107	)			100,259
Income tax (expense) benefit			(18	)			(39,514	)			6,936				(27,592	)
Total other comprehensive (loss) income, net of tax			(1,535	)			113,756				(45,171	)			72,667
Comprehensive (loss) income		$	(670,078	)		$	149,759			$	(586,174	)		$	302,267

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

		Quarter ended								Nine months ended
		September 30,								September 30,
(In thousands)		2008				2007				2008				2007
Underfunding of pension and postretirement benefit plans			—				—				—			$	180
Unrealized losses (gains) on securities available-for-sale arising during the period		$	1,694			$	(40,302	)		$	5,374				(28,280	)
Reclassification adjustment for losses (gains) included in net income			(959	)			(1	)			2,165				13
Unrealized net gains (losses) on cash flows hedges			(297	)			723				478				371
Reclassification adjustment for losses (gains) included in net income			(456	)			66				(1,081	)			124
Income tax (expense) benefit		$	(18	)		$	(39,514	)		$	6,936			$	(27,592	)

Disclosure of accumulated other comprehensive loss:

		September 30,				December 31,				September 30,
(In thousands)		2008				2007				2007
Foreign currency translation adjustment		$	(37,470	)		$	(34,588	)		$	(34,687	)
Underfunding of pension and postretirement benefit plans			(51,249	)			(51,139	)			(69,779	)
Tax effect			20,108				20,108				27,214
Net of tax amount			(31,141	)			(31,031	)			(42,565	)
Unrealized (losses) gains on securities available-for-sale			(23,625	)			27,092				(111,830	)
Tax effect			1,589				(5,950	)			28,879
Net of tax amount			(22,036	)			21,142				(82,951	)
Unrealized losses on cash flows hedges			(2,013	)			(3,615	)			(1,316	)
Tax effect			677				1,280				458
Net of tax amount			(1,336	)			(2,335	)			(858	)
Accumulated other comprehensive loss, net of tax		$	(91,983	)		$	(46,812	)		$	(161,061	)

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

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

		Nine months ended September 30,
(In thousands)		2008			2007
Cash flows from operating activities:
Net (loss) income		$	(541,003	)		$	229,600
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment			55,233				59,558
Provision for loan losses			621,552				359,606
Amortization of intangibles			8,948				8,030
Amortization and fair value adjustments of servicing assets			53,679				34,941
Net gain on sale and valuation adjustments of investment securities			(64,010	)			(79,857	)
Losses from changes in fair value related to instruments measured at fair value pursuant to SFAS No. 159			179,482				—
Net gain on disposition of premises and equipment			(23,643	)			(5,293	)
Net loss (gain) on sale of loans and valuation adjustments on loans held-for-sale			54,527				(37,719	)
Net amortization of premiums and accretion of discounts on investments			16,034				15,801
Net amortization of premiums and deferred loan origination fees and costs			40,650				70,645
Fair value adjustment of other assets held-for-sale			103,702				—
Earnings from investments under the equity method			(6,899	)			(19,514	)
Stock options expense			830				1,339
Deferred income taxes, net of valuation			72,261				(94,581	)
Net disbursements on loans held-for-sale			(2,000,449	)			(4,007,301	)
Acquisitions of loans held-for-sale			(268,718	)			(474,269	)
Proceeds from sale of loans held-for-sale			1,289,738				3,475,817
Net decrease in trading securities			1,604,345				1,003,078
Net decrease (increase) in accrued income receivable			8,194				(42,675	)
Net (increase) decrease in other assets			(245,990	)			30,507
Net (decrease) increase in interest payable			(49,180	)			4,586
Net increase in postretirement benefit obligation			1,810				2,407
Net (decrease) increase in other liabilities			(35,120	)			18,645
Total adjustments			1,416,976				323,751
Net cash provided by operating activities			875,973				553,351
Cash flows from investing activities:
Net decrease (increase) in money market investments			697,215				(266,954	)
Purchases of investment securities:
Available-for-sale			(3,875,390	)			(67,920	)
Held-to-maturity			(4,958,286	)			(17,026,831	)
Other			(166,641	)			(47,786	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale			2,377,740				1,066,304
Held-to-maturity			4,724,818				16,844,551
Other			154,067				17,071
Proceeds from sale of investment securities available-for-sale			2,444,509				37,352
Proceeds from sale of other investment securities			49,341				246,352
Net disbursements on loans			(976,109	)			(1,137,982	)
Proceeds from sale of loans			1,984,860				16,367
Acquisition of loan portfolios			(4,505	)			(22,312	)
Assets acquired, net of cash			—				(2,378	)
Mortgage servicing rights purchased			(3,628	)			(25,596	)
Acquisition of premises and equipment			(112,196	)			(69,607	)
Proceeds from sale of premises and equipment			49,366				29,501
Proceeds from sale of foreclosed assets			87,280				113,776
Net cash provided by (used in) investing activities			2,472,441				(296,092	)
Cash flows from financing activities:
Net (decrease) increase in deposits			(400,901	)			2,150,668
Net (decrease) increase in federal funds purchased and assets sold under agreements to repurchase			(1,707,225	)			524,858
Net decrease in other short-term borrowings			(994,969	)			(2,619,228	)
Payments of notes payable			(1,312,938	)			(1,245,332	)
Proceeds from issuance of notes payable			1,182,917				821,087
Dividends paid			(154,877	)			(142,898	)
Proceeds from issuance of common stock			15,174				12,836
Proceeds from issuance of preferred stock			389,935				—
Treasury stock acquired			(358	)			(352	)
Net cash used in financing activities			(2,983,242	)			(498,361	)
Net increase (decrease) in cash and due from banks			365,172				(241,102	)
Cash and due from banks at beginning of period			818,825				950,158
Cash and due from banks at end of period		$	1,183,997			$	709,056

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

Note:		The Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 include the cash flows from operating, investing and financing activities associated with discontinued operations.

Notes to Unaudited Consolidated Financial Statements

Note 1 — Nature of Operations and Basis of Presentation

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 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. BPNA operates branches in New York, California, Illinois, New Jersey and Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA and offers loan customers the option of being referred to a trusted consumer lending partner for loan products. PFH operations were discontinued in the third quarter of 2008. Disclosures on the discontinued operations as well as recent restructuring plans in the BPNA and E-LOAN subsidiaries are included in Notes 3 and 27 of these consolidated financial statements. 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 25 to the consolidated financial statements presents further information about the Corporation’s business segments.

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

The statement of condition data as of December 31, 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 September 30, 2008, December 31, 2007 and September 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 13 to these consolidated financial statements for the disclosures required for the quarter and nine months ended September 30, 2008. The adoption of SFAS No. 157 in January 1, 2008 did not have an impact in beginning retained earnings.

FSP No. 157-3 “Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active”

In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of FAS 157 in a market that is not active. The FSP is intended to address the following application issues: (a) how the reporting entity’s own assumptions (that is, expected cash flows and appropriately risk-adjusted discount rates) should be considered when measuring fair value when relevant observable inputs do not exist; (b) how available observable inputs in a market that is not active should be considered when measuring fair value; and (c) how the use of market quotes (for example, broker quotes or pricing services for the same or similar financial assets) should be considered when assessing the relevance of observable and unobservable inputs available to measure fair value. FSP 157-3 is effective on issuance, including prior periods for which financial statements have not been issued. The Corporation adopted FSP 157-3 for the quarter ended September 30, 2008 and the effect of adoption on the consolidated financial statements was not material.

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 at adoption date. 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 12 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 September 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.

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.

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’s 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.

FSP No. FAS 133-1 and FIN 45-4 “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161”

FSP FAS 133-1 and FIN 45-4 requires disclosures by sellers of credit derivatives and additional disclosures about the current status of the payment/performance risk of financial guarantees. FSP FAS 133-1 and FIN 45-4 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Accordingly, the Corporation will adopt the provisions of FSP FAS 133-1 and FIN 45-4 in the first quarter 2009. The Corporation does not expect the adoption of the provisions of FSP FAS 133-1 and FIN 45-4 to have any material impact on the Corporation’s financial condition and results of operations.

Note 3 — Discontinued Operations

On August 29, 2008, the Corporation announced that it had entered into an agreement to sell loans, residual interests and servicing related assets of PFH and Popular, FS to Goldman Sachs Mortgage Company, Goldman, Sachs & Co. and Litton Loan Servicing, LP. The transaction closed on November 3, 2008. This sale resulted in a reduction in assets, mostly accounted at fair value, of over $900 million, and provided over $700 million in additional liquidity. In addition, on September 18, 2008, the Corporation announced the consummation of the sale of manufactured housing loans of PFH to 21^st Mortgage Corp. and Vanderbilt Mortgage and Finance, Inc. The transaction provided approximately $198 million in cash and resulted in a reduction in unpaid principal balance of loans held at PFH of approximately $309 million.

The above actions and past sales and restructuring plans executed at PFH in the past two years have resulted in the discontinuance of the Corporation’s PFH operations, which were defined as a reportable segment for managerial reporting. This includes exiting all business activities, consisting of loan origination channels and loan servicing functions previously conducted at PFH. As of September 30, 2008, the Corporation reclassified $789 million of net assets of the PFH business to discontinued operations, substantially all of which were classified as held-for-sale as of September 30, 2008.

The proceeds from the PFH asset sales will be used for repayment of the Corporation’s medium-term notes due in 2009 as well as other debt maturities. The Corporation reported a net loss for the discontinued operations of $457.3 million for the third quarter of 2008. The loss included write-downs of assets held-for-sale to fair value, losses on the sale of loans, restructuring charges and the recording of a valuation allowance on deferred tax assets of $171.2 million.

Assets and liabilities of discontinued operations, substantially all of which are classified as held-for-sale, were estimated as follows as of September 30, 2008:

($ in millions)		September 30, 2008
Loans		$	626
Servicing rights			37
Servicing advances			280
Residual interests			4
Other			22
Total assets		$	969
Secured borrowings		$	166
Other liabilities			14
Total liabilities		$	180
Net assets		$	789

The following table provides financial information for the discontinued operations for the quarter and nine months ended September 30, 2008 and 2007.

		Quarter ended								Nine months ended
($ in millions)		September 30, 2008				September 30, 2007				September 30, 2008				September 30, 2007
Net interest income		$	1.6			$	28.5			$	30.7			$	118.1
Provision for loan losses			10.5				61.8				19.0				140.1
Non-interest (loss) income, including fair value adjustments on loans and MSRs			(256.4	)			(9.9	)			(255.4	)			(60.5	)
Operating expenses, including reductions in value of servicing advances and other real estate			126.3				28.0				193.0				110.0
Loss on disposition during the period(1)			(53.5	)			—				(53.5	)			—
Pre-tax loss from discontinued operations		$	(445.1	)		$	(71.2	)		$	(490.2	)		$	(192.5	)
Income tax expense (benefit)			12.2				(27.0	)			(2.0	)			(69.1	)
Loss from discontinued operations, net of tax		$	(457.3	)		$	(44.2	)		$	(488.2	)		$	(123.4	)

As part of these actions at PFH, the Corporation entered into a restructuring plan (the “PFH Discontinuance Restructuring Plan”) to eliminate employment positions, terminate contracts and incur other costs associated with the sale. Further information on the restructuring plan is provided in Note 20 to the consolidated financial statements.

Note 4 — 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 $630 million as of September 30, 2008 (December 31, 2007 — $678 million; September 30, 2007 — $588 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 September 30, 2008, the Corporation had securities with a market value of $275 thousand (December 31, 2007 - securities with a market value of $273 thousand; September 30, 2007 — securities with a market value of $397 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 September 30, 2008, December 31, 2007, and September 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 September 30, 2008, the Corporation maintained restricted cash of $1.9 million as collateral (December 31, 2007 — $1.9 million; September 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 September 30, 2008, the Corporation had restricted cash of $3.2 million (December 31, 2007 - $3.5 million) to support a letter of credit related to a service settlement agreement.

Note 5 — 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:

		September 30,				December 31,				September 30,
(In thousands)		2008				2007				2007
Investment securities available-for-sale, at fair value		$	2,647,930			$	2,944,643			$	3,222,644
Investment securities held-to-maturity, at amortized cost			—				339				340
Loans held-for-sale measured at lower of cost or market value			36,218				42,428				41,266
Loans held-in-portfolio			7,686,937				8,489,814				11,482,585
Total pledged assets from continuing operations		$	10,371,085			$	11,477,224			$	14,746,835
Pledged assets from discontinued operations (loans) (1)		$	160,115				—				—

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

Note 6 — Investment Securities Available-For-Sale

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

		AS OF SEPTEMBER 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	458,990			$	5,219				—			$	464,209
Obligations of U.S. Government sponsored entities			4,566,004				28,505			$	9,670				4,584,839
Obligations of Puerto Rico, States and political subdivisions			104,227				165				2,691				101,701
Collateralized mortgage obligations			1,588,249				2,281				37,687				1,552,843
Mortgage-backed securities			855,377				5,225				10,084				850,518
Equity securities			19,520				102				4,990				14,632
		$	7,592,367			$	41,497			$	65,122			$	7,568,742

						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 SEPTEMBER 30, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
U.S. Treasury securities		$	497,893			$	41			$	22,114			$	475,820
Obligations of U.S. Government sponsored entities			5,871,339				2,628				55,613				5,818,354
Obligations of Puerto Rico, States and political subdivisions			109,289				420				2,871				106,838
Collateralized mortgage obligations			1,479,951				3,216				13,798				1,469,369
Mortgage-backed securities			969,023				3,190				22,738				949,475
Equity securities			46,100				1,780				6,598				41,282
Others			16,730				627				—				17,357
		$	8,990,325			$	11,902			$	123,732			$	8,878,495

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 September 30, 2008, December 31, 2007 and September 30, 2007.

		AS OF SEPTEMBER 30, 2008
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	1,853,632			$	9,670			$	1,843,962
Obligations of Puerto Rico, States and political subdivisions			50,204				453				49,751
Collateralized mortgage obligations			896,593				14,019				882,574
Mortgage-backed securities			257,872				2,388				255,484
Equity securities			13,880				4,980				8,900
		$	3,072,181			$	31,510			$	3,040,671

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	44,011			$	2,238			$	41,773
Collateralized mortgage obligations			414,813				23,668				391,145
Mortgage-backed securities			270,609				7,696				262,913
Equity securities			29				10				19
		$	729,462			$	33,612			$	695,850

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	1,853,632			$	9,670			$	1,843,962
Obligations of Puerto Rico, States and political subdivisions			94,215				2,691				91,524
Collateralized mortgage obligations			1,311,406				37,687				1,273,719
Mortgage-backed securities			528,481				10,084				518,397
Equity securities			13,909				4,990				8,919
		$	3,801,643			$	65,122			$	3,736,521

		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 SEPTEMBER 30, 2007
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of U.S. Government sponsored entities		$	106,914			$	3,960			$	102,954
Obligations of Puerto Rico, States and political subdivisions			22,680				411				22,269
Collateralized mortgage obligations			283,814				1,869				281,945
Mortgage-backed securities			22,328				399				21,929
Equity securities			22,638				6,572				16,066
		$	458,374			$	13,211			$	445,163

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	478,436			$	22,114			$	456,322
Obligations of U.S. Government sponsored entities			5,212,523				51,653				5,160,870
Obligations of Puerto Rico, States and political subdivisions			50,235				2,460				47,775
Collateralized mortgage obligations			576,852				11,929				564,923
Mortgage-backed securities			818,782				22,339				796,443
Equity securities			300				26				274
		$	7,137,128			$	110,521			$	7,026,607

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
U.S. Treasury securities		$	478,436			$	22,114			$	456,322
Obligations of U.S. Government sponsored entities			5,319,437				55,613				5,263,824
Obligations of Puerto Rico, States and political subdivisions			72,915				2,871				70,044
Collateralized mortgage obligations			860,666				13,798				846,868
Mortgage-backed securities			841,110				22,738				818,372
Equity securities			22,938				6,598				16,340
		$	7,595,502			$	123,732			$	7,471,770

As of September 30, 2008, “Obligations of Puerto Rico, States and political subdivisions” include approximately $48 million in Commonwealth of Puerto Rico Appropriation Bonds (“Appropriation Bonds”) in the Corporation’s investment 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 September 30, 2008, these Appropriation Bonds represented approximately $2.2 million in net unrealized losses in the Corporation’s investment securities portfolios. 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 September 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 collateralized mortgage obligations and government sponsored-issued 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. Management believes that the unrealized losses in these available-for-sale securities as of September 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 nine months ended September 30, 2008 and September 30, 2007, the Corporation recognized through earnings approximately $9.1 million and $7.6 million, respectively, in losses in equity securities classified as available-for-sale 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), in which 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, 2008								December 31, 2007								September 30, 2007
(In thousands)		Amortized Cost				Market Value				Amortized Cost				Market Value				Amortized Cost				Market Value
FNMA		$	1,129,613			$	1,120,659			$	1,132,834			$	1,128,544			$	1,184,225			$	1,169,857
FHLB			4,936,497				4,953,787				5,649,729				5,693,170				5,841,614				5,788,544
Freddie Mac			828,800				815,104				918,976				913,609				954,598				944,533

Note 7 — 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, 2008, December 31, 2007 and September 30, 2007 were as follows:

		AS OF SEPTEMBER 30, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of U.S. Government sponsored entities		$	526,486			$	11				—			$	526,497
Obligations of Puerto Rico, States and political subdivisions			184,671				171			$	3,618				181,224
Collateralized mortgage obligations			251				—				14				237
Others			8,424				50				2				8,472
		$	719,832			$	232			$	3,634			$	716,430

		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 SEPTEMBER 30, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Market
(In thousands)		Cost				Gains				Losses				Value
Obligations of U.S. Government sponsored entities		$	196,190				—			$	71			$	196,119
Obligations of Puerto Rico, States and political subdivisions			71,465			$	1,400				148				72,717
Collateralized mortgage obligations			331				—				18				313
Others			11,281				—				358				10,923
		$	279,267			$	1,400			$	595			$	280,072

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 September 30, 2008, December 31, 2007 and September 30, 2007:

		AS OF SEPTEMBER 30, 2008
		Less than 12 months
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	48,644			$	3,618			$	45,026
		$	48,644			$	3,618			$	45,026

		12 months or more
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Collateralized mortgage obligations		$	251			$	14			$	237
Others			1,000				2				998
		$	1,251			$	16			$	1,235

		Total
						Gross
		Amortized				Unrealized				Market
(In thousands)		Cost				Losses				Value
Obligations of Puerto Rico, States and political subdivisions		$	48,644			$	3,618			$	45,026
Collateralized mortgage obligations			251				14				237
Others			1,000				2				998
		$	49,895			$	3,634			$	46,261