The following tables present the changes in the allowance for loan losses for the years ended December 31, 2011, 2010, and 2009.

			2011					2010		2009
		Non-covered		Covered
(In thousands)		loans		loans		Total		Total		Total
Balance at beginning of period		$	793,225	$	-	$	793,225	$	1,261,204	$	882,807
Provision for loan losses			430,085		145,635		575,720		1,011,880		1,405,807
Charge-offs			(671,505)		(22,206)		(693,711)		(1,249,356)		(1,095,947)
Recoveries			137,457		1,516		138,973		96,704		68,537
Net recovery (write-down) related
	to loans transferred to LHFS		1,101		-		1,101		(327,207)		-
Balance at end of period		$	690,363	$	124,945	$	815,308	$	793,225	$	1,261,204

The Corporation's allowance for loan losses at December 31, 2011 includes $125 million related to the covered loan portfolio acquired in the Westernbank FDIC-assisted transaction. This allowance covers the estimated credit loss exposure related to: (i) acquired loans accounted for under ASC Subtopic 310-30, which required an allowance for loan losses of $83 million at year end; and (ii) acquired loans accounted for under ASC Subtopic 310-20, which required an allowance for loan losses of $42 million. Decreases in expected cash flows after the acquisition date for loans (pools) accounted for under ASC Subtopic 310-30 are recognized by recording an allowance for loan losses in the current period. For purposes of loans accounted for under ASC Subtopic 310-20 and new loans originated as a result of loan commitments assumed, the Corporation's assessment of the allowance for loan losses is determined in accordance with the accounting guidance of loss contingencies in ASC Subtopic 450-20 (general reserve for inherent losses) and loan impairment guidance in ASC Section 310-10-35 for loans individually evaluated for impairment. Concurrently, the Corporation records an increase in the FDIC loss share asset for the expected reimbursement from the FDIC under the loss sharing agreements.

The following tables present the changes in the allowance for loan losses (“ALLL”) by portfolio segment for the years ended December 31, 2011 and 2010. Also, the tables present information at December 31, 2011 and 2010 regarding loan ending balances and the ALLL by portfolio segment and whether such loans and the ALLL pertain to loans individually or collectively evaluated for impairment.

For the year ended December 31, 2011
Puerto Rico


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance		$	256,643	$	16,074	$	42,029	$	7,154	$	133,531	$	455,431
	Provision		315,150		18,880		64,038		941		88,222		487,231
	Charge-offs		(238,789)		(19,914)		(30,040)		(6,527)		(135,804)		(431,074)
	Recoveries		29,627		11,245		1,605		3,083		33,905		79,465
	Write-down related to loans
	transferred to LHFS		(12,706)		-		-		-		-		(12,706)
Ending balance		$	349,925	$	26,285	$	77,632	$	4,651	$	119,854	$	578,347

Allowance for credit losses:
Specific ALLL non-covered loans		$	10,407	$	289	$	14,944	$	793	$	16,915	$	43,348
General ALLL non-covered loans			245,046		5,561		57,378		3,858		98,211		410,054
ALLL - non-covered loans			255,453		5,850		72,322		4,651		115,126		453,402
Specific ALLL covered loans			27,086		-		-		-		-		27,086
General ALLL covered loans			67,386		20,435		5,310		-		4,728		97,859
ALLL - covered loans			94,472		20,435		5,310		-		4,728		124,945
Total ALLL		$	349,925	$	26,285	$	77,632	$	4,651	$	119,854	$	578,347

Loans held-in-portfolio:
Impaired non-covered loans		$	403,089	$	49,747	$	333,346	$	6,104	$	137,582	$	929,868
Non-covered loans held-in-portfolio
	excluding impaired loans		6,067,493		111,194		4,356,137		542,602		2,832,845		13,910,271
Non-covered loans held-in-portfolio			6,470,582		160,941		4,689,483		548,706		2,970,427		14,840,139
Impaired covered loans			76,798		-		-		-		-		76,798
Covered loans held-in-portfolio
	excluding impaired loans		2,435,944		546,826		1,172,954		-		116,181		4,271,905
Covered loans held-in-portfolio			2,512,742		546,826		1,172,954		-		116,181		4,348,703
Total loans held-in-portfolio		$	8,983,324	$	707,767	$	5,862,437	$	548,706	$	3,086,608	$	19,188,842

For the year ended December 31, 2011
U.S. mainland


(In thousands)			Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance			$	205,748	$	31,650	$	28,839	$	5,999	$	65,558	$	337,794
	Provision (reversal of provision)			63,301		(6,444)		1,480		(5,592)		35,744		88,489
	Charge-offs			(153,555)		(27,780)		(16,571)		(849)		(63,882)		(262,637)
	Recoveries			39,341		10,337		2,384		682		6,764		59,508
	Net recovery related to loans
		transferred to LHFS		-		-		13,807		-		-		13,807
Ending balance			$	154,835	$	7,763	$	29,939	$	240	$	44,184	$	236,961

Allowance for credit losses:
Specific ALLL			$	1,388	$	-	$	14,119	$	-	$	131	$	15,638
General ALLL				153,447		7,763		15,820		240		44,053		221,323
Total ALLL			$	154,835	$	7,763	$	29,939	$	240	$	44,184	$	236,961

Loans held-in-portfolio:
Impaired loans			$	171,588	$	72,505	$	49,534	$	-	$	2,526	$	296,153
Loans held-in-portfolio,
	excluding impaired loans			3,892,716		78,182		779,443		15,161		700,802		5,466,304
Total loans held-in-portfolio			$	4,064,304	$	150,687	$	828,977	$	15,161	$	703,328	$	5,762,457

For the year ended December 31, 2011
Popular, Inc.


(In thousands)			Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance			$	462,391	$	47,724	$	70,868	$	13,153	$	199,089	$	793,225
	Provision (reversal of provision)			378,451		12,436		65,518		(4,651)		123,966		575,720
	Charge-offs			(392,344)		(47,694)		(46,611)		(7,376)		(199,686)		(693,711)
	Recoveries			68,968		21,582		3,989		3,765		40,669		138,973
	Net (write-down) recovery related to loans
		transferred to loans held-for-sale		(12,706)		-		13,807		-		-		1,101
Ending balance			$	504,760	$	34,048	$	107,571	$	4,891	$	164,038	$	815,308

Allowance for credit losses:
Specific ALLL non-covered loans			$	11,795	$	289	$	29,063	$	793	$	17,046	$	58,986
General ALLL non-covered loans				398,493		13,324		73,198		4,098		142,264		631,377
ALLL - non-covered loans				410,288		13,613		102,261		4,891		159,310		690,363
Specific ALLL covered loans				27,086		-		-		-		-		27,086
General ALLL covered loans				67,386		20,435		5,310		-		4,728		97,859
ALLL - covered loans				94,472		20,435		5,310		-		4,728		124,945
Total ALLL			$	504,760	$	34,048	$	107,571	$	4,891	$	164,038	$	815,308

Loans held-in-portfolio:
Impaired non-covered loans			$	574,677	$	122,252	$	382,880	$	6,104	$	140,108	$	1,226,021
Non-covered loans held-in-portfolio
	excluding impaired loans			9,960,209		189,376		5,135,580		557,763		3,533,647		19,376,575
Non-covered loans held-in-portfolio				10,534,886		311,628		5,518,460		563,867		3,673,755		20,602,596
Impaired covered loans				76,798		-		-		-		-		76,798
Covered loans held-in-portfolio
	excluding impaired loans			2,435,944		546,826		1,172,954		-		116,181		4,271,905
Covered loans held-in-portfolio				2,512,742		546,826		1,172,954		-		116,181		4,348,703
Total loans held-in-portfolio			$	13,047,628	$	858,454	$	6,691,414	$	563,867	$	3,789,936	$	24,951,299

December 31, 2010
Puerto Rico


(In thousands)		Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance		$	231,844	$	214,998	$	24,911	$	12,204	$	171,901	$	655,858
	Provision (reversal of provision)		294,069		181,912		38,830		1,409		93,413		609,633
	Charge-offs		(251,845)		(290,065)		(22,579)		(10,517)		(162,516)		(737,522)
	Recoveries		20,712		915		867		4,058		30,733		57,285
	Net (write-down) recovery related to loans
	transferred to LHFS		(38,137)		(91,686)		-		-		-		(129,823)
Ending balance		$	256,643	$	16,074	$	42,029	$	7,154	$	133,531	$	455,431

Allowance for credit losses:
Specific ALLL non-covered loans		$	8,550	$	216	$	5,004	$	-	$	-	$	13,770
General ALLL non-covered loans			248,093		15,858		37,025		7,154		133,531		441,661
Total ALLL^[1]		$	256,643	$	16,074	$	42,029	$	7,154	$	133,531	$	455,431

Loans held-in-portfolio:
Impaired non-covered loans		$	310,582	$	65,698	$	121,209	$	-	$	-	$	497,489
Non-covered loans held-in-portfolio
	excluding impaired loans		6,406,434		102,658		3,528,491		572,787		2,897,835		13,508,205
Non-covered loans held-in-portfolio			6,717,016		168,356		3,649,700		572,787		2,897,835		14,005,694
Impaired covered loans			-		-		-		-		-		-
Covered loans held-in-portfolio
	excluding impaired loans		2,767,181		640,492		1,259,459		-		169,750		4,836,882
Covered loans held-in-portfolio			2,767,181		640,492		1,259,459		-		169,750		4,836,882
Total loans held-in-portfolio		$	9,484,197	$	808,848	$	4,909,159	$	572,787	$	3,067,585	$	18,842,576

[1] At December 31, 2010, there was no allowance for loan losses on the covered loan portfolio.

December 31, 2010
U.S. mainland


(In thousands)			Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance			$	212,221	$	126,321	$	129,700	$	-	$	137,104	$	605,346
	Provision (reversal of provision)			200,690		11,166		169,590		9,967		10,834		402,247
	Charge-offs			(224,654)		(115,353)		(77,256)		(4,860)		(89,711)		(511,834)
	Recoveries			17,491		9,516		4,189		892		7,331		39,419
	Net (write-down) recovery related to loans
		transferred to LHFS		-		-		(197,384)		-		-		(197,384)
Ending balance			$	205,748	$	31,650	$	28,839	$	5,999	$	65,558	$	337,794

Allowance for credit losses:
Specific ALLL			$	-	$	-	$	-	$	-	$	-	$	-
General ALLL				205,748		31,650		28,839		5,999		65,558		337,794
Total ALLL			$	205,748	$	31,650	$	28,839	$	5,999	$	65,558	$	337,794

Loans held-in-portfolio:
Impaired loans			$	135,386	$	165,624	$	-	$	-	$	-	$	301,010
Loans held-in-portfolio,
	excluding impaired loans			4,541,083		166,871		875,022		30,206		808,149		6,421,331
Total loans held-in-portfolio			$	4,676,469	$	332,495	$	875,022	$	30,206	$	808,149	$	6,722,341

December 31, 2010
Popular, Inc.


(In thousands)			Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Beginning balance			$	444,065	$	341,319	$	154,611	$	12,204	$	309,005	$	1,261,204
	Provision (reversal of provision)			494,759		193,078		208,420		11,376		104,247		1,011,880
	Charge-offs			(476,499)		(405,418)		(99,835)		(15,377)		(252,227)		(1,249,356)
	Recoveries			38,203		10,431		5,056		4,950		38,064		96,704
	Net (write-down) recovery related to loans
		transferred to loans held-for-sale		(38,137)		(91,686)		(197,384)		-		-		(327,207)
Ending balance			$	462,391	$	47,724	$	70,868	$	13,153	$	199,089	$	793,225

Allowance for credit losses:
Specific ALLL non-covered loans			$	8,550	$	216	$	5,004	$	-	$	-	$	13,770
General ALLL non-covered loans				453,841		47,508		65,864		13,153		199,089		779,455
Total ALLL^[1]			$	462,391	$	47,724	$	70,868	$	13,153	$	199,089	$	793,225

Loans held-in-portfolio:
Impaired non-covered loans			$	445,968	$	231,322	$	121,209	$	-	$	-	$	798,499
Non-covered loans held-in-portfolio
	excluding impaired loans			10,947,517		269,529		4,403,513		602,993		3,705,984		19,929,536
Non-covered loans held-in-portfolio				11,393,485		500,851		4,524,722		602,993		3,705,984		20,728,035
Impaired covered loans				-		-		-		-		-		-
Covered loans held-in-portfolio
	excluding impaired loans			2,767,181		640,492		1,259,459		-		169,750		4,836,882
Covered loans held-in-portfolio				2,767,181		640,492		1,259,459		-		169,750		4,836,882
Total loans held-in-portfolio			$	14,160,666	$	1,141,343	$	5,784,181	$	602,993	$	3,875,734	$	25,564,917

[1] At December 31, 2010, there was no allowance for loan losses on the covered loan portfolio.

The following tables present loans individually evaluated for impairment at December 31, 2011 and 2010.

December 31, 2011
Puerto Rico
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal			Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance			allowance
Commercial real estate	$	53,906	$	64,275	$	4,152	$	223,468	$	284,039	$	277,374	$	348,314	$	4,152
Commercial and industrial		42,294		55,180		6,255		83,421		115,245		125,715		170,425		6,255
Construction		1,672		2,369		289		48,075		101,042		49,747		103,411		289
Mortgage		333,346		336,682		14,944		-		-		333,346		336,682		14,944
Leasing		6,104		6,104		793		-		-		6,104		6,104		793
Consumer		137,582		137,582		16,915		-		-		137,582		137,582		16,915
Covered loans		75,798		75,798		27,086		1,000		1,000		76,798		76,798		27,086
Total Puerto Rico	$	650,702	$	677,990	$	70,434	$	355,964	$	501,326	$	1,006,666	$	1,179,316	$	70,434

December 31, 2011
U.S. mainland
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial real estate	$	3,443	$	3,443	$	868	$	127,504	$	166,087	$	130,947	$	169,530	$	868
Commercial and industrial		12,505		12,505		520		28,136		31,117		40,641		43,622		520
Construction		-		-		-		72,505		99,208		72,505		99,208		-
Mortgage		39,570		39,899		14,119		9,964		9,964		49,534		49,863		14,119
Consumer		2,526		2,526		131		-		-		2,526		2,526		131
Total U.S. mainland	$	58,044	$	58,373	$	15,638	$	238,109	$	306,376	$	296,153	$	364,749	$	15,638

December 31, 2011
Popular, Inc.
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial real estate	$	57,349	$	67,718	$	5,020	$	350,972	$	450,126	$	408,321	$	517,844	$	5,020
Commercial and industrial		54,799		67,685		6,775		111,557		146,362		166,356		214,047		6,775
Construction		1,672		2,369		289		120,580		200,250		122,252		202,619		289
Mortgage		372,916		376,581		29,063		9,964		9,964		382,880		386,545		29,063
Leasing		6,104		6,104		793		-		-		6,104		6,104		793
Consumer		140,108		140,108		17,046		-		-		140,108		140,108		17,046
Covered loans		75,798		75,798		27,086		1,000		1,000		76,798		76,798		27,086
Total Popular, Inc.	$	708,746	$	736,363	$	86,072	$	594,073	$	807,702	$	1,302,819	$	1,544,065	$	86,072

December 31, 2010
Puerto Rico
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial real estate	$	11,403	$	13,613	$	3,590	$	208,891	$	256,858	$	220,294	$	270,471	$	3,590
Commercial and industrial		23,699		28,307		4,960		66,589		79,917		90,288		108,224		4,960
Construction		4,514		10,515		216		61,184		99,016		65,698		109,531		216
Mortgage		114,733		115,595		5,004		6,476		6,476		121,209		122,071		5,004
Total Puerto Rico	$	154,349	$	168,030	$	13,770	$	343,140	$	442,267	$	497,489	$	610,297	$	13,770
There were no leases, consumer, or covered loans individually evaluated for impairment in the Puerto Rico portfolio at December 31, 2010.

December 31, 2010
U.S. mainland
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial real estate	$	-	$	-	$	-	$	101,856	$	152,876	$	101,856	$	152,876	$	-
Commercial and industrial		-		-		-		33,530		44,443		33,530		44,443		-
Construction		-		-		-		165,624		248,955		165,624		248,955		-
Total U.S. mainland	$	-	$	-	$	-	$	301,010	$	446,274	$	301,010	$	446,274	$	-
There were no leases, consumer or mortgage loans individually evaluated for impairment in the U.S. mainland portfolio at December 31, 2010.

December 31, 2010
Popular, Inc.
	Impaired Loans – With an						Impaired Loans
	Allowance						With No Allowance				Impaired Loans - Total
			Unpaid						Unpaid				Unpaid
	Recorded		principal		Related		Recorded		principal		Recorded		principal		Related
(In thousands)	investment		balance		allowance		investment		balance		investment		balance		allowance
Commercial real estate	$	11,403	$	13,613	$	3,590	$	310,747	$	409,734	$	322,150	$	423,347	$	3,590
Commercial and industrial		23,699		28,307		4,960		100,119		124,360		123,818		152,667		4,960
Construction		4,514		10,515		216		226,808		347,971		231,322		358,486		216
Mortgage		114,733		115,595		5,004		6,476		6,476		121,209		122,071		5,004
Total Popular, Inc.	$	154,349	$	168,030	$	13,770	$	644,150	$	888,541	$	798,499	$	1,056,571	$	13,770

The following table presents the average recorded investment and interest income recognized on non-covered impaired loans for the years ended December 31, 2011 and 2010.

December 31, 2011
	Puerto Rico				U.S. mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial real estate	$	248,834	$	2,931	$	116,402	$	1,020	$	365,236	$	3,951
Commercial and industrial		108,002		1,468		37,086		720		145,088		2,188
Construction		57,723		49		119,065		158		176,788		207
Mortgage		227,278		11,587		24,767		1,038		252,045		12,625
Leasing		3,052		-		-		-		3,052		-
Consumer		68,791		-		1,263		-		70,054		-
Covered loans		38,399		1,013		-		-		38,399		1,013
Total Popular, Inc.	$	752,079	$	17,048	$	298,583	$	2,936	$	1,050,662	$	19,984

December 31, 2010
	Puerto Rico				U.S. mainland				Popular, Inc.
	Average		Interest		Average		Interest		Average		Interest
	recorded		income		recorded		income		recorded		income
(In thousands)	investment		recognized		investment		recognized		investment		recognized
Commercial real estate	$	255,283	$	5,753	$	130,437	$	1,261	$	385,720	$	7,014
Commercial and industrial		158,376		2,601		55,895		189		214,271		2,790
Construction		507,166		1,626		195,358		1,000		702,524		2,626
Mortgage		78,496		3,739		158,152		5,678		236,648		9,417
Total Popular, Inc.	$	999,321	$	13,719	$	539,842	$	8,128	$	1,539,163	$	21,847

Troubled debt restructurings related to non-covered loan portfolios amounted to $881 million at December 31, 2011 (December 31, 2010 - $561 million). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings amounted to $152 thousand related to the construction loan portfolio and $3 million related to the commercial loan portfolio at December 31, 2011 (December 31, 2010 - $3 million and $1 million, respectively).

As a result of adopting the amendments in Accounting Standards Update No. 2011-02, the Corporation reassessed all restructurings that occurred on or after January 1, 2011 for identification as troubled debt restructurings. Upon identifying those receivables as troubled debt restructurings, the Corporation identified them as impaired under the guidance in ASC 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those receivables newly identified as impaired. At December 31, 2011, the recorded investment in receivables for which the modified loans were newly considered troubled debt restructurings under the provisions of ASU No. 2011-02 amounted to $27 million. The allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss, was $1.6 million as of December 31, 2011, compared with $1.7 million under the previous evaluation of loss when the loans were not considered troubled debt restructurings.

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting evergreen revolving credit lines to long term loans. Commercial real estate and construction loans modified in a TDR often involve reducing the interest rate for a limited period of time or the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or reductions in the payment plan. Construction loans modified in a TDR may also involve extending the interest-only payment period. Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, normally five years. After the lowered monthly payment period ends, the borrower reverts back to paying principal and interest per the original terms with the maturity date adjusted accordingly. Home equity modifications are made infrequently and are not offered if the Corporation also holds the first mortgage. Home equity modifications are uniquely designed to meet the specific needs of each borrower. Automobile loans modified in a TDR are primarily comprised of loans where the Corporation has lowered monthly payments by extending the term. Credit cards modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, normally up to 24 months.

Loans modified in a TDR that are not accounted pursuant to ASC 310-30 are typically already in non-accrual status at the time of the modification and partial charge-offs have in some cases already been taken against the outstanding loan balance. The TDR loan continues in non-accrual status until the borrower has demonstrated a willingness and ability to make the restructured loan payments (generally at least six months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and management has concluded that it is probable that the borrower would not be in payment default in the foreseeable future.

Loans modified in a TDR may have the financial effect to the Corporation of increasing the specific allowance for loan losses associated with the loan. Consumer and residential mortgage loans modified under the Corporation's loss mitigation programs that are determined to be TDRs are individually evaluated for impairment based on an analysis of discounted cash flows. For the residential mortgage TDRs, the Corporation performs the impairment analysis of discounted cash flows giving consideration to probability of default and loss-given-foreclosure on those estimated cash flows, and records impairment by charging the provision for loan losses with a corresponding credit to the allowance for loan losses. Consumer loans modified under the Corporation's loss mitigation programs that are determined to be TDRs are also individually reviewed under an impairment analysis of discounted cash flows and do not give consideration to default pre- or post-modification. Commercial and construction loans that have been modified as part of loss mitigation efforts are evaluated individually for impairment. The vast majority of the Corporation's modified commercial loans are measured for impairment using the estimated fair value of the collateral, as these are normally considered as collateral dependent loans. In very few instances, the Corporation measures modified commercial loans at their estimated realizable values determined by discounting the expected future cash flows. Construction loans that have been modified are also accounted for as collateral dependent loans. The Corporation determines the fair value measurement dependent upon its exit strategy of the particular asset(s) acquired in foreclosure. The discounted cash flows analyses for the commercial and construction TDRs, currently, do not consider a default component. As indicated above, the vast majority of the Corporation's modified commercial and construction loans are measured for impairment using the estimated fair value of the collateral, thus the consideration of the default rates in the evaluation of TDRs in these portfolios is not deemed material.

The following tables present the loan count by type of modification for those loans modified in a TDR during the year ended December 31, 2011.

The following tables present by class, quantitative information related to loans modified as TDRs during the year ended December 31, 2011.

Puerto Rico
For the year ended December 31, 2011
(Dollars in thousands)	Loan count	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate	78	$	78,344	$	78,344	$	(60)
Commercial and industrial	142		28,617		28,617		795
Construction	4		3,194		3,194		(292)
Mortgage	2,064		291,006		320,781		9,653
Leasing	165		3,702		3,553		34
Consumer:
Credit cards	2,651		23,563		26,444		113
Personal	2,224		27,688		27,671		645
Auto	8		93		95		-
Other	46		192		188		-
Total	7,382	$	456,399	$	488,887	$	10,888

U.S. mainland
For the year ended December 31, 2011
(Dollars in thousands)	Loan count	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate	2	$	12,633	$	9,355	$	(420)
Commercial and industrial	2		11,878		9,742		(420)
Construction	5		16,189		16,432		(313)
Mortgage	374		37,722		39,184		12,419
Consumer:
Other consumer	3		1,559		1,683		-
Total	386	$	79,981	$	76,396	$	11,266

Popular, Inc.
For the year ended December 31, 2011
(Dollars in thousands)	Loan count	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Increase (decrease) in the allowance for loan losses as a result of modification
Commercial real estate	80	$	90,977	$	87,699	$	(480)
Commercial and industrial	144		40,495		38,359		375
Construction	9		19,383		19,626		(605)
Mortgage	2,438		328,728		359,965		22,072
Leasing	165		3,702		3,553		34
Consumer:
Credit cards	2,651		23,563		26,444		113
Personal	2,224		27,688		27,671		645
Auto	8		93		95		-
Other	49		1,751		1,871		-
Total	7,768	$	536,380	$	565,283	$	22,154

Two loans comprising a recorded investment at loan splitting of approximately $6.5 million were restructured into multiple notes during 2011, of which $3.4 million were recorded as charged-offs. The renegotiations of these loans were made after analyzing the borrowers' capacity to repay the debt, collateral and ability to perform under the modified terms. The recorded investment on these commercial TDRs amounted to $3.5 million at December 31, 2011 with a related allowance for loan losses amounting to approximately $57 thousand. The loans were in non-accruing status at December 31, 2011.

The following tables present by class, TDRs that were subject to payment default from January 1, 2011 through December 31, 2011 and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment at December 31, 2011 is inclusive of all partial paydowns and charge-offs since modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment. The allowance for loan losses may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.

The Corporation has defined a dual risk rating system to assign a rating to all credit exposures, particularly for the commercial and construction loan portfolios. Risk ratings in the aggregate provide the Corporation's management the asset quality profile for the loan portfolio. The dual risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower, and at the credit facility level based on the collateral supporting the transaction. The Corporation's consumer and mortgage loans are not subject to the dual risk rating system. Consumer and mortgage loans are classified substandard or loss based on their delinquency status. All other consumer and mortgage loans that are not classified as substandard or loss would be considered “unrated”.

The Corporation's obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk of payment default of a borrower in the ordinary course of business.

Pass (Scales 1 through 8) – Loans classified as pass have a well defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.

Watch (Scale 9) – Loans classified as watch have acceptable business credit, but borrowers operations, cash flow or financial condition evidence more than average risk, requires above average levels of supervision and attention from Loan Officers.

Special Mention (Scale 10) - Loans classified as special mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation's credit position at some future date.

Substandard (Scales 11 and 12) - Loans classified as substandard are deemed to be inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as such have well-defined weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful (Scale 13) - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the additional characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss (Scale 14) - Uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be effected in the future.

Risk ratings scales 10 through 14 conform to regulatory ratings. The assignment of the obligor risk rating is based on relevant information about the ability of borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation periodically reviews loans classified as watch list or worse, to evaluate if they are properly classified, and to determine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal process of applicable credit facilities, the Corporation evaluates the corresponding loan grades.

Loans classified as pass credits are excluded from the scope of the review process described above until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Corporation for a modification. In these circumstances, the credit facilities are specifically evaluated to assign the appropriate risk rating classification.

The Corporation has a Credit Process Review Group within the Corporate Credit Risk Management Division (“CCRMD”), which performs annual comprehensive credit process reviews of several middle markets, construction, asset-based and corporate banking lending groups in BPPR. This group evaluates the credit risk profile of each originating unit along with each unit's credit administration effectiveness, including the assessment of the risk rating representative of the current credit quality of the loans, and the evaluation of collateral documentation. The monitoring performed by this group contributes to assess compliance with credit policies and underwriting standards, determine the current level of credit risk, evaluate the effectiveness of the credit management process and identify control deficiencies that may arise in the credit-granting process. Based on its findings, the Credit Process Review Group recommends corrective actions, if necessary, that help in maintaining a sound credit process. CCRMD has contracted an outside loan review firm to perform the credit process reviews for the portfolios of commercial and construction loans in the U.S. mainland operations. The CCRMD participates in defining the review plan with the outside loan review firm and actively participates in the discussions of the results of the loan reviews with the business units. The CCRMD may periodically review the work performed by the outside loan review firm. CCRMD reports the results of the credit process reviews to the Risk Management Committee of the Corporation's Board of Directors.

The following table presents the outstanding balance, net of unearned income, of non-covered loans held-in-portfolio based on the Corporation's assignment of obligor risk ratings as defined at December 31, 2011 and 2010.

December 31, 2011
				Special
(In thousands)		Watch		Mention		Substandard		Doubtful		Loss		Sub-total		Pass/ Unrated		Total
Puerto Rico^[1]
Commercial real estate		$	379,318	$	327,555	$	910,198	$	7,517	$	-	$	1,624,588	$	1,982,564	$	3,607,152
Commercial and industrial			248,188		282,935		433,756		3,326		1,458		969,663		1,893,767		2,863,430
	Total Commercial		627,506		610,490		1,343,954		10,843		1,458		2,594,251		3,876,331		6,470,582
Construction			2,245		27,820		68,816		1,586		-		100,467		60,474		160,941
Mortgage			-		-		626,771		-		-		626,771		4,062,712		4,689,483
Leasing			-		-		1,365		-		4,277		5,642		543,064		548,706
Consumer			-		-		53,649		-		4,015		57,664		2,912,763		2,970,427
Total Puerto Rico		$	629,751	$	638,310	$	2,094,555	$	12,429	$	9,750	$	3,384,795	$	11,455,344	$	14,840,139
U.S. mainland
Commercial real estate		$	315,877	$	91,511	$	511,595	$	-	$	-	$	918,983	$	2,163,551	$	3,082,534
Commercial and industrial			32,900		34,834		132,526		-		-		200,260		781,510		981,770
	Total Commercial		348,777		126,345		644,121		-		-		1,119,243		2,945,061		4,064,304
Construction			3,202		26,293		108,079		-		-		137,574		13,113		150,687
Mortgage			-		-		37,236		-		-		37,236		791,741		828,977
Leasing			-		-		166		-		-		166		14,995		15,161
Consumer			-		-		5,666		-		6,712		12,378		690,950		703,328
Total U.S. mainland		$	351,979	$	152,638	$	795,268	$	-	$	6,712	$	1,306,597	$	4,455,860	$	5,762,457
Popular, Inc.
Commercial real estate		$	695,195	$	419,066	$	1,421,793	$	7,517	$	-	$	2,543,571	$	4,146,115	$	6,689,686
Commercial and industrial			281,088		317,769		566,282		3,326		1,458		1,169,923		2,675,277		3,845,200
	Total Commercial		976,283		736,835		1,988,075		10,843		1,458		3,713,494		6,821,392		10,534,886
Construction			5,447		54,113		176,895		1,586		-		238,041		73,587		311,628
Mortgage			-		-		664,007		-		-		664,007		4,854,453		5,518,460
Leasing			-		-		1,531		-		4,277		5,808		558,059		563,867
Consumer			-		-		59,315		-		10,727		70,042		3,603,713		3,673,755
Total Popular, Inc.		$	981,730	$	790,948	$	2,889,823	$	12,429	$	16,462	$	4,691,392	$	15,911,204	$	20,602,596

The following table presents the weighted average obligor risk rating at December 31, 2011 for those classifications that consider a range of rating scales.

Weighted average obligor risk rating					(Scales 11 and 12)								(Scales 1 through 8)
Puerto Rico:^[1]						Substandard									Pass
Commercial real estate							11.49								6.95
Commercial and industrial							11.39								6.62
	Total Commercial						11.46								6.79
Construction							11.76								7.84

U.S. mainland:						Substandard									Pass
Commercial real estate							11.34								7.09
Commercial and industrial							11.41								6.89
	Total Commercial						11.35								7.04
Construction							11.70								7.00

December 31, 2010
				Special
(In thousands)		Watch		Mention		Substandard		Doubtful		Loss		Sub-total		Pass/Unrated		Total
Puerto Rico^[1]
Commercial real estate		$	439,004	$	346,985	$	622,675	$	6,302	$	-	$	1,414,966	$	2,440,632	$	3,855,598
Commercial and industrial			608,250		245,250		345,266		3,112		1,436		1,203,314		1,658,104		2,861,418
	Total Commercial		1,047,254		592,235		967,941		9,414		1,436		2,618,280		4,098,736		6,717,016
Construction			38,921		12,941		67,271		15,939		-		135,072		33,284		168,356
Mortgage			-		-		550,933		-		-		550,933		3,098,767		3,649,700
Leasing			-		-		5,539		-		5,969		11,508		561,279		572,787
Consumer			-		-		47,907		-		4,227		52,134		2,845,701		2,897,835
Total Puerto Rico		$	1,086,175	$	605,176	$	1,639,591	$	25,353	$	11,632	$	3,367,927	$	10,637,767	$	14,005,694
U.S. mainland
Commercial real estate		$	302,347	$	93,564	$	650,118	$	-	$	-	$	1,046,029	$	2,105,049	$	3,151,078
Commercial and industrial			62,552		81,224		250,843		-		-		394,619		1,130,772		1,525,391
	Total Commercial		364,899		174,788		900,961		-		-		1,440,648		3,235,821		4,676,469
Construction			30,021		40,022		257,651		-		-		327,694		4,801		332,495
Mortgage			-		-		23,587		-		-		23,587		851,435		875,022
Leasing			-		-		-		-		-		-		30,206		30,206
Consumer			-		-		14,240		-		8,825		23,065		785,084		808,149
Total U.S. mainland		$	394,920	$	214,810	$	1,196,439	$	-	$	8,825	$	1,814,994	$	4,907,347	$	6,722,341
Popular, Inc.
Commercial real estate		$	741,351	$	440,549	$	1,272,793	$	6,302	$	-	$	2,460,995	$	4,545,681	$	7,006,676
Commercial and industrial			670,802		326,474		596,109		3,112		1,436		1,597,933		2,788,876		4,386,809
	Total Commercial		1,412,153		767,023		1,868,902		9,414		1,436		4,058,928		7,334,557		11,393,485
Construction			68,942		52,963		324,922		15,939		-		462,766		38,085		500,851
Mortgage			-		-		574,520		-		-		574,520		3,950,202		4,524,722
Leasing			-		-		5,539		-		5,969		11,508		591,485		602,993
Consumer			-		-		62,147		-		13,052		75,199		3,630,785		3,705,984
Total Popular, Inc.		$	1,481,095	$	819,986	$	2,836,030	$	25,353	$	20,457	$	5,182,921	$	15,545,114	$	20,728,035

The following table presents the weighted average obligor risk rating at December 31, 2010 for those classifications that consider a range of rating scales.

Weighted average obligor risk rating					(Scales 11 and 12)								(Scales 1 through 8)
Puerto Rico:^[1]						Substandard									Pass
Commercial real estate							11.64								6.68
Commercial and industrial							11.24								6.76
	Total Commercial						11.49								6.71
Construction							11.77								7.49

U.S. mainland:						Substandard									Pass
Commercial real estate							11.29								7.11
Commercial and industrial							11.17								6.98
	Total Commercial						11.25								7.07
Construction							11.66								8.00