UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

Commission File Number: 001-34084

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico	66-0667416
(State or other jurisdiction of Incorporation or organization)	(IRS Employer Identification Number)
Popular Center Building 209 Muñoz Rivera Avenue Hato Rey, Puerto Rico	00918
(Address of principal executive offices)	(Zip code)

(787) 765-9800

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act:

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 102,856,169 shares outstanding as of July 31, 2012.

POPULAR, INC .

INDEX

	Page
Part I—Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition at June 30, 2012 and December 31, 2011		4
Unaudited Consolidated Statements of Operations for the quarters and six months ended June  30, 2012 and 2011		5
Unaudited Consolidated Statements of Comprehensive Income for the quarters and six months ended June  30, 2012 and 2011		6
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2012 and 2011		7
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011		8
Notes to Unaudited Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		126
Item 3. Quantitative and Qualitative Disclosures about Market Risk		194
Item 4. Controls and Procedures		194
Part II—Other Information
Item 1. Legal Proceedings		194
Item 1A. Risk Factors		194
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		195
Item 6. Exhibits
Signatures		196

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

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

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

• the rate of growth in the economy and employment levels, as well as general business and economic conditions;

• changes in interest rates, as well as the magnitude of such changes;

• the fiscal and monetary policies of the federal government and its agencies;

• changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;

• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on our businesses, business practices and cost of operations;

• regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;

• the relative strength or weakness of the consumer and commercial credit sectors and of the real estate markets in Puerto Rico and the other markets in which borrowers are located;

• the performance of the stock and bond markets;

• competition in the financial services industry;

• additional Federal Deposit Insurance Corporation (“FDIC”) assessments; and

• possible legislative, tax or regulatory changes.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; our ability to grow our core businesses; decisions to downsize, sell or close units or otherwise change our business mix; and management’s ability to identify and manage these and other risks. Moreover, the outcome of legal proceedings, as discussed in “Part II, Item I. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011 as well as “Part II, Item 1A” of this Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

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

3

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

(In thousands, except share information)	June 30, 2012			December 31, 2011
Assets:
Cash and due from banks	$	515,338		$	535,282
Money market investments:
Federal funds sold		5,455			75,000
Securities purchased under agreements to resell		234,738			252,668
Time deposits with other banks		709,635			1,048,506
Total money market investments		949,828			1,376,174
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		356,624			402,591
Other trading securities		60,845			33,740
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		939,286			1,737,868
Other investment securities available-for-sale		4,137,511			3,271,955
Investment securities held-to-maturity, at amortized cost (fair value at June 30, 2012— $126,523; December 31, 2011—$125,254)		124,646			125,383
Other investment securities, at lower of cost or realizable value (realizable value at June 30, 2012 - $175,948; December 31, 2011—$181,583)		174,287			179,880
Loans held-for-sale, at lower of cost or fair value		364,537			363,093
Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		20,763,610			20,703,192
Loans covered under loss sharing agreements with the FDIC		4,016,330			4,348,703
Less—Unearned income		97,801			100,596
Allowance for loan losses		766,030			815,308
Total loans held-in-portfolio, net		23,916,109			24,135,991
FDIC loss share asset		1,631,594			1,915,128
Premises and equipment, net		527,027			538,486
Other real estate not covered under loss sharing agreements with the FDIC		226,629			172,497
Other real estate covered under loss sharing agreements with the FDIC		125,093			109,135
Accrued income receivable		122,320			125,209
Mortgage servicing assets, at fair value		155,711			151,323
Other assets		1,577,794			1,462,393
Goodwill		647,757			648,350
Other intangible assets		59,243			63,954
Total assets	$	36,612,179		$	37,348,432
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	5,578,487		$	5,655,474
Interest bearing		21,836,293			22,286,653
Total deposits		27,414,780			27,942,127
Assets sold under agreements to repurchase		1,426,636			2,141,097
Other short-term borrowings		316,200			296,200
Notes payable		1,877,583			1,856,372
Other liabilities		1,555,743			1,193,883
Total liabilities		32,590,942			33,429,679
Commitments and contingencies (See Note 19)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391 shares issued and outstanding		50,160			50,160
Common stock, $0.01 par value; 170,000,000 shares authorized; 102,832,457 shares issued at June 30, 2012 (December 31, 2011—102,634,640) and 102,824,323 shares outstanding (December 31, 2011—102,590,457)		1,028			1,026
Surplus		4,127,216			4,123,898
Accumulated deficit		(100,440	)		(212,726	)
Treasury stock—at cost, 8,134 shares at June 30, 2012 (December 31, 2011—44,183)		(144	)		(1,057	)
Accumulated other comprehensive loss, net of tax		(56,583	)		(42,548	)
Total stockholders’ equity		4,021,237			3,918,753
Total liabilities and stockholders’ equity	$	36,612,179		$	37,348,432

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

4

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarter ended June 30,						Six months ended June 30,
(In thousands, except per share information)	2012			2011			2012			2011
Interest income:
Loans	$	389,342		$	442,460		$	777,284		$	865,835
Money market investments		964			926			1,912			1,873
Investment securities		43,813			53,723			88,883			106,098
Trading account securities		5,963			9,790			11,854			18,544
Total interest income		440,082			506,899			879,933			992,350
Interest expense:
Deposits		48,514			70,672			100,193			147,551
Short-term borrowings		13,044			13,719			26,627			27,734
Long-term debt		37,324			47,966			74,331			99,164
Total interest expense		98,882			132,357			201,151			274,449
Net interest income		341,200			374,542			678,782			717,901
Provision for loan losses—non-covered loans		81,743			95,712			164,257			155,474
Provision for loan losses—covered loans		37,456			48,605			55,665			64,162
Net interest income after provision for loan losses		222,001			230,225			458,860			498,265
Service charges on deposit accounts		46,130			46,802			92,719			92,432
Other service fees		62,027			58,307			128,066			116,959
Net loss on sale and valuation adjustments of investment securities		(349	)		(90	)		(349	)		(90	)
Trading account (loss) profit		(7,283	)		874			(9,426	)		375
Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale		(15,397	)		(12,782	)		74			(5,538	)
Adjustments (expense) to indemnity reserves on loans sold		(5,398	)		(9,454	)		(9,273	)		(19,302	)
FDIC loss share income (expense)		2,575			38,670			(12,680	)		54,705
Fair value change in equity appreciation instrument		—			578			—			8,323
Other operating income		11,419			1,255			28,501			40,664
Total non-interest income		93,724			124,160			217,632			288,528
Operating expenses:
Personnel costs		116,336			110,959			237,827			217,099
Net occupancy expenses		24,963			25,957			49,125			50,543
Equipment expenses		10,900			10,761			22,241			22,797
Other taxes		12,074			14,623			25,512			26,595
Professional fees		52,127			49,479			100,232			96,167
Communications		6,645			7,188			13,776			14,398
Business promotion		16,980			11,332			29,830			21,192
FDIC deposit insurance		22,907			27,682			47,833			45,355
Loss on early extinguishment of debt		25,072			289			25,141			8,528
Other real estate owned (OREO) expenses		2,380			6,440			16,545			8,651
Other operating expenses		34,964			14,835			50,860			41,014
Amortization of intangibles		2,531			2,255			5,124			4,510
Total operating expenses		327,879			281,800			624,046			556,849
(Loss) income before income tax		(12,154	)		72,585			52,446			229,944
Income tax (benefit) expense		(77,893	)		(38,100	)		(61,701	)		109,127
Net Income	$	65,739		$	110,685		$	114,147		$	120,817
Net Income Applicable to Common Stock	$	64,809		$	109,754		$	112,286		$	118,956
Net Income per Common Share—Basic	$	0.63		$	1.07		$	1.10		$	1.16
Net Income per Common Share—Diluted	$	0.63		$	1.07		$	1.10		$	1.16
Dividends Declared per Common Share		—			—			—			—

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

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Quarter ended, June 30,						Six months ended, June 30,
(In thousands)	2012			2011			2012			2011
Net income	$	65,739		$	110,685		$	114,147		$	120,817
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment		(860	)		(1,137	)		(946	)		(1,728	)
Reclassification adjustment for losses included in net income		—			—			—			10,084
Adjustment of pension and postretirement benefit plans		—			—			—			—
Amortization of net losses		6,290			3,245			12,579			6,487
Amortization of prior service cost		(50	)		(240	)		(100	)		(480	)
Unrealized holding (losses) gains on securities available-for-sale arising during the period		(18,573	)		50,779			(26,455	)		30,801
Reclassification adjustment for losses included in net income		349			90			349			90
Unrealized net (losses) gains on cash flow hedges		(1,408	)		485			(1,698	)		434
Reclassification adjustment for net losses (gains) included in net income		290			51			1,347			(884	)
Other comprehensive (loss) income before tax		(13,962	)		53,273			(14,924	)		44,804
Income tax benefit (expense)		1,164			(5,500	)		889			(4,072	)
Total other comprehensive (loss) income, net of tax		(12,798	)		47,773			(14,035	)		40,732
Comprehensive income, net of tax	$	52,941		$	158,458		$	100,112		$	161,549

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

	Quarter ended June 30,						Six months ended, June 30,
(In thousands)	2012			2011			2012			2011
Underfunding of pension and postretirement benefit plans	$	—		$	—		$	—		$	—
Amortization of net losses		(1,710	)		(822	)		(3,420	)		(1,643	)
Amortization of prior service cost		(15	)		(72	)		(30	)		(144	)
Unrealized holding (losses) gains on securities available-for-sale arising during the period		2,554			(4,431	)		4,235			(2,490	)
Reclassification adjustment for losses included in net income		—			(14	)		—			(14	)
Unrealized net (losses) gains on cash flow hedges		422			(146	)		509			(131	)
Reclassification adjustment for net losses (gains) included in net income		(87	)		(15	)		(405	)		350
Income tax benefit (expense)	$	1,164		$	(5,500	)	$	889		$	(4,072	)

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

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)	Common stock		Preferred stock		Surplus		Accumulated deficit			Treasury stock			Accumulated other comprehensive income (loss)			Total
Balance at December 31, 2010	$	1,023	$	50,160	$	4,103,211	$	(347,328	)	$	(574	)	$	(5,961	)	$	3,800,531
Net income								120,817									120,817
Issuance of stock		1				3,916											3,917
Dividends declared:
Preferred stock								(1,861	)								(1,861	)
Common stock purchases											(68	)					(68	)
Other comprehensive income, net of tax														40,732			40,732
Balance at June 30, 2011	$	1,024	$	50,160	$	4,107,127	$	(228,372	)	$	(642	)	$	34,771		$	3,964,068
Balance at December 31, 2011	$	1,026	$	50,160	$	4,123,898	$	(212,726	)	$	(1,057	)	$	(42,548	)	$	3,918,753
Net income								114,147									114,147
Issuance of stock		2				3,318											3,320
Dividends declared:
Preferred stock								(1,861	)								(1,861	)
Common stock purchases											(150	)					(150	)
Common stock reissuance											1,063						1,063
Other comprehensive loss, net of tax														(14,035	)		(14,035	)
Balance at June 30, 2012	$	1,028	$	50,160	$	4,127,216	$	(100,440	)	$	(144	)	$	(56,583	)	$	4,021,237
Disclosure of changes in number of shares:										June 30, 2012			December 31, 2011			June 30, 2011
Preferred Stock:
Balance at beginning and end of period											2,006,391			2,006,391			2,006,391
Common Stock—Issued:
Balance at beginning of year											102,634,640			102,292,916			102,292,916
Issuance of stock											197,817			341,724			127,227
Balance at end of the period											102,832,457			102,634,640			102,420,143
Treasury stock											(8,134	)		(44,183	)		(22,353	)
Common Stock—Outstanding											102,824,323			102,590,457			102,397,790

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

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
(In thousands)	2012			2011
Cash flows from operating activities:
Net income	$	114,147		$	120,817
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		219,922			219,636
Amortization of intangibles		5,124			4,510
Depreciation and amortization of premises and equipment		23,282			23,450
Net accretion of discounts and amortization of premiums and deferred fees		(15,677	)		(64,498	)
Impairment losses on net assets to be disposed of		—			8,743
Fair value adjustments on mortgage servicing rights		4,791			16,249
Fair value change in equity appreciation instrument		—			(8,323	)
FDIC loss share expense (income)		12,680			(54,705	)
FDIC deposit insurance expense		47,833			45,355
Adjustments (expense) to indemnity reserves on loans sold		9,273			19,302
Losses from investments under the equity method		4,217			218
Deferred income tax (benefit) expense		(154,686	)		21,755
(Gain) loss on:
Disposition of premises and equipment		(6,864	)		(1,992	)
Early extinguishment of debt		24,950			—
Sale and valuation adjustments of investment securities		349			90
Sale of loans, including valuation adjustments on loans held-for-sale		(74	)		5,538
Sale of equity method investment		—			(16,907	)
Sale of other assets		(2,545	)		—
Acquisitions of loans held-for-sale		(174,632	)		(173,549	)
Proceeds from sale of loans held-for-sale		145,588			65,667
Net disbursements on loans held-for-sale		(542,282	)		(417,220	)
Net (increase) decrease in:
Trading securities		543,077			319,024
Accrued income receivable		2,889			8,676
Other assets		10,553			(32,659	)
Net increase (decrease) in:
Interest payable		(4,499	)		(949	)
Pension and other postretirement benefit obligation		16,165			(123,084	)
Other liabilities		11,364			(65,383	)
Total adjustments		180,798			(201,056	)
Net cash provided by (used in) operating activities		294,945			(80,239	)
Cash flows from investing activities:
Net decrease (increase) in money market investments		426,346			(404,598	)
Purchases of investment securities:
Available-for-sale		(890,777	)		(856,543	)
Held-to-maturity		(250	)		(64,358	)
Other		(76,033	)		(69,504	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		780,832			707,567
Held-to-maturity		1,548			52,073
Other		81,626			56,162
Proceeds from sale of investment securities:
Available-for-sale		—			19,143
Other		—			2,294
Net repayments on loans		539,177			779,606
Proceeds from sale of loans		41,476			225,698
Acquisition of loan portfolios		(705,819	)		(744,390	)
Payments received from FDIC under loss sharing agreements		262,807			15,694
Net proceeds from sale of equity method investment		—			31,503
Mortgage servicing rights purchased		(1,018	)		(860	)
Acquisition of premises and equipment		(21,927	)		(25,548	)
Proceeds from sale of:
Premises and equipment		15,610			9,847
Other productive assets		1,026			—
Foreclosed assets		93,480			94,759
Net cash provided by (used in) investing activities		548,104			(171,455	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		(528,508	)		1,198,252
Federal funds purchased and assets sold under agreements to repurchase		(363,354	)		157,772
Other short-term borrowings		20,000			(212,920	)
Payments of notes payable		(22,552	)		(1,177,306	)
Proceeds from issuance of notes payable		29,802			419,500
Proceeds from issuance of common stock		3,320			3,917
Dividends paid		(1,551	)		(1,861	)
Treasury stock acquired		(150	)		(68	)
Net cash (used in) provided by financing activities		(862,993	)		387,286
Net (decrease) increase in cash and due from banks		(19,944	)		135,592
Cash and due from banks at beginning of period		535,282			452,373
Cash and due from banks at end of period	$	515,338		$	587,965

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

8

Notes to Consolidated Financial

Statements (Unaudited)

Note 1 -	Organization, consolidation and basis of presentation	10
Note 2 -	New accounting pronouncements	10
Note 3 -	Restrictions on cash and due from banks and certain securities	13
Note 4 -	Pledged assets	14
Note 5 -	Investment securities available-for-sale	15
Note 6 -	Investment securities held-to-maturity	19
Note 7 -	Loans	20
Note 8 -	Allowance for loan losses	30
Note 9 -	FDIC loss share asset and true-up payment obligation	51
Note 10 -	Transfers of financial assets and mortgage servicing assets	53
Note 11 -	Other assets	56
Note 12 -	Goodwill and other intangible assets	57
Note 13 -	Deposits	59
Note 14 -	Borrowings	60
Note 15 -	Trust preferred securities	62
Note 16 -	Stockholders’ equity	63
Note 17 -	Accumulated other comprehensive income (loss)	64
Note 18 -	Guarantees	64
Note 19 -	Commitments and contingencies	67
Note 20 -	Non-consolidated variable interest entities	72
Note 21 -	Related party transactions with affiliated company / joint venture	75
Note 22 -	Fair value measurement	78
Note 23 -	Fair value of financial instruments	88
Note 24 -	Net income per common share	93
Note 25 -	Other service fees	94
Note 26 -	FDIC loss share income (expense)	94
Note 27 -	Pension and postretirement benefits	95
Note 28 -	Stock-based compensation	96
Note 29 -	Income taxes	98
Note 30 -	Supplemental disclosure on the consolidated statements of cash flows	102
Note 31 -	Segment reporting	102
Note 32 -	Subsequent events	109
Note 33 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	109

9

Note 1—Organization, consolidation and basis of presentation

Nature of Operations

Popular, Inc. (the “Corporation”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States, the Caribbean and Latin America. In Puerto Rico, the Corporation provides retail and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as mortgage banking, investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the U.S. mainland, the Corporation operates Banco Popular North America (“BPNA”), including its wholly-owned subsidiary E-LOAN. BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, California, Illinois, New Jersey and Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA. The BPNA branches operate under the name of Popular Community Bank. Note 31 to the consolidated financial statements presents information about the Corporation’s business segments.

Principles of Consolidation and Basis of Presentation

The consolidated interim financial statements have been prepared without audit. The consolidated statement of financial condition data at December 31, 2011 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain reclassifications have been made to the 2011 consolidated financial statements and notes to the financial statements to conform with the 2012 presentation.

On May 29, 2012, the Corporation effected a 1-for-10 reverse split of its common stock. The reverse split is described further in Note 16 to these consolidated financial statements. All share and per share information in the consolidated financial statements and accompanying notes have been adjusted to retroactively reflect the 1-for-10 reverse stock split.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Corporation for the year ended December 31, 2011, included in the Corporation’s 2011 Annual Report (the “2011 Annual Report”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

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

Note 2—New accounting pronouncements

FASB Accounting Standards Update 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”)

The FASB issued ASU 2012-02 in July 2012. ASU 2012-02 is intended to simplify how entities test indefinite-lived intangible assets for impairment. ASU 2012-02 permits an entity the option to first assess qualitative factors to determine whether it is “more likely than not” that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with ASC Subtopic 350-30, Intangibles-Goodwill and Other-General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. This guidance results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. The previous guidance under ASC Subtopic 350-30 required an entity to test indefinite-lived intangible assets for impairment on at least an annual basis by comparing an asset’s fair value with its carrying amount and recording an impairment loss for an amount equal to the excess of the asset’s carrying amount over its fair value. Under the amendments in this ASU, an entity is not required to calculate the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. In addition the new qualitative indicators replace those currently used to determine whether indefinite-lived intangible assets should be tested for impairment on an interim basis.

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ASU 2012-12 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual or interim goodwill impairment tests performed as of a date before July 27, 2012, as long as the financial statements have not yet been issued. The Corporation did not elect to adopt early the provisions of this ASU.

The provisions of this guidance simplify how entities test for indefinite-lived assets impairment and will not have an impact on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”) and FASB Accounting Standards Update 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”)

The FASB issued ASU 2011-05 in June 2011. The amendment of this ASU allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU also does not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items.

In December 2011, the FASB issued ASU 2011-12, which defers indefinitely the new requirement in ASU 2011-05 to present components of reclassification adjustments out of accumulated other comprehensive income on the face of the income statement by income statement line item.

The Corporation adopted the provisions of these two guidance in the first quarter of 2012. The guidance impacts presentation disclosure only and did not have an impact on the Corporation’s financial condition or results of operations.

FASB Accounting Standards Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”)

The FASB issued ASU 2011-11 in December 2011. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. To meet this objective, entities with financial instruments and derivatives that are either offset on the balance sheet or subject to a master netting arrangement or similar arrangement shall disclose the following quantitative information separately for assets and liabilities in tabular format: a) gross amounts of recognized assets and liabilities; b) amounts offset to determine the net amount presented in the balance sheet; c) net amounts presented in the balance sheet; d) amounts subject to an enforceable master netting agreement or similar arrangement not otherwise included in (b), including: amounts related to recognized financial instruments and other derivatives instruments if either management makes an accounting election not to offset or the amounts do not meet the guidance in ASC Section 210-20-45 or ASC Section 815-10-45, and also amounts related to financial collateral (including cash collateral); and e) the net amount after deducting the amounts in (d) from the amounts in (c).

In addition to these tabular disclosures, entities are required to provide a description of the setoff rights associated with assets and liabilities subject to an enforceable master netting arrangement.

An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

The provisions of this guidance impact presentation disclosure only and will not have an impact on the Corporation’s financial condition or results of operations.

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FASB Accounting Standards Update 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification (“ASU 2011-10”)

The FASB issued ASU 2011-10 in December 2011. The objective of this ASU is to resolve the diversity in practice about whether the guidance in ASC Subtopic 360-20, “Property, Plant, and Equipment Real Estate Sales” applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. ASU 2011-10 provides that when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in ASC Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under ASC Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt.

ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date; with prior periods not adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted; however, the Corporation is not early adopting this ASU.

The adoption of this guidance is not expected to have a material effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”)

The FASB issued Accounting Standards Update (“ASU”) No. 2011-08 in September 2011. ASU 2011-08 is intended to simplify how entities test goodwill for impairment. ASU 2011-08 permits an entity the option to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The previous guidance under ASC Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

This ASU also removes the guidance that permitted the entities to carry forward the calculation of the fair value of the reporting unit from one year to the next if certain conditions are met. In addition, the new qualitative indicators replace those currently used to determine whether an interim goodwill impairment test is required. These indicators are also applicable for assessing whether to perform step two for reporting units with zero or negative carrying amounts.

ASU 2011-08 was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period had not yet been issued. The Corporation did not elect to adopt early the provisions of this ASU.

The Corporation adopted this guidance on January 1, 2012. The provisions of this guidance simplify how entities test for goodwill impairment and it has not impacted the Corporation’s consolidated financial statements as of June 30, 2012.

FASB Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”)

The FASB issued ASU 2011-04 in May 2011. The amendment of this ASU provides a consistent definition of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The ASU modifies some fair value measurement principles and disclosure requirements including the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, measuring the fair value of financial instruments that are managed within a portfolio, application of premiums and discounts in a fair value measurement, disclosing quantitative information about unobservable inputs used in Level 3 fair value measurements, and other additional disclosures about fair value measurements.

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The new guidance was effective for interim or annual periods beginning on or after December 15, 2011. The guidance should be applied prospectively and early application was not permitted.

The Corporation adopted this guidance on the first quarter of 2012. It has not had a material impact on the Corporation’s consolidated financial statements as of June 30, 2012. Refer to Notes 22 and 23 for additional fair value disclosures included for the quarter and six months ended June 30, 2012.

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

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

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

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

The Corporation adopted this guidance on January 1, 2012. It has not had an impact on the Corporation’s consolidated financial statements as of June 30, 2012.

Note 3—Restrictions on cash and due from banks and certain securities

The Corporation’s banking subsidiaries, BPPR and BPNA, are required by federal and state regulatory agencies to maintain average reserve balances with the Federal Reserve Bank of New York (the “Fed”) or other banks. Those required average reserve balances amounted to $888 million at June 30, 2012 (December 31, 2011—$838 million). Cash and due from banks, as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

At June 30, 2012 and December 31, 2011, the Corporation held $36 million in restricted assets in the form of cash and funds deposited in money market accounts.

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Note 4—Pledged assets

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

(In thousands)	June 30, 2012		December 31, 2011
Investment securities available-for-sale, at fair value	$	2,006,552	$	1,894,651
Investment securities held-to-maturity, at amortized cost		25,000		25,000
Loans held-for-sale measured at lower of cost or fair value		—		5,286
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		501,640		—
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,643,391		8,571,268
Total pledged assets	$	11,176,583	$	10,496,205

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

At June 30, 2012, the Corporation had $1.5 billion in investment securities available-for-sale and $0.3 billion in loans that served as collateral to secure public funds (December 31, 2011—$1.4 billion and $0.4 billion, respectively).

At June 30, 2012, the Corporation’s banking subsidiaries had short-term and long-term credit facilities authorized with the Federal Home Loan Bank system (the “FHLB”) aggregating $2.8 billion (December 31, 2011—$2.0 billion). Refer to Note 14 to the consolidated financial statements for borrowings outstanding under these credit facilities. At June 30, 2012, the credit facilities authorized with the FHLB were collateralized by $4.1 billion in loans held-in-portfolio (December 31, 2011—$3.2 billion). Also, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $4.4 billion (December 31, 2011—$2.6 billion), which remained unused as of such date. The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At June 30, 2012, the credit facilities with the Fed discount window were collateralized by $4.8 billion in loans held-in-portfolio (December 31, 2011—$4.0 billion). These pledged assets are included in the above table and were not reclassified and separately reported in the consolidated statements of financial condition.

In addition, at June 30, 2012 trades receivables from brokers and counterparties amounting to $73 million were pledged to secure repurchase agreements (December 31, 2011—$68 million).

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Note 5—Investment securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale.

	At June 30, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	7,014	$	64	$	—	$	7,078		1.50	%
After 1 to 5 years		27,609		3,241		—		30,850		3.82
Total U.S. Treasury securities		34,623		3,305		—		37,928		3.35
Obligations of U.S. Government sponsored entities
Within 1 year		539,045		16,168		—		555,213		3.84
After 1 to 5 years		190,538		2,646		7		193,177		1.81
After 5 to 10 years		280,596		3,206		166		283,636		1.98
After 10 years		7,083		289		—		7,372		5.41
Total obligations of U.S. Government sponsored entities		1,017,262		22,309		173		1,039,398		2.96
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		5,000		54		—		5,054		2.99
After 1 to 5 years		6,592		199		34		6,757		4.67
After 10 years		37,290		808		—		38,098		5.38
Total obligations of Puerto Rico, States and political subdivisions		48,882		1,061		34		49,909		5.04
Collateralized mortgage obligations—federal agencies
After 1 to 5 years		6,130		62		—		6,192		1.52
After 5 to 10 years		37,137		1,580		—		38,717		2.85
After 10 years		1,909,363		47,628		318		1,956,673		2.53
Total collateralized mortgage obligations—federal agencies		1,952,630		49,270		318		2,001,582		2.53
Collateralized mortgage obligations—private label
After 5 to 10 years		41		2		—		43		4.95
After 10 years		42,722		43		2,474		40,291		2.70
Total collateralized mortgage obligations—private label		42,763		45		2,474		40,334		2.70
Mortgage-backed securities
Within 1 year		689		26		—		715		3.79
After 1 to 5 years		4,880		228		—		5,108		3.93
After 5 to 10 years		95,331		7,272		—		102,603		4.68
After 10 years		1,645,570		121,764		34		1,767,300		4.24
Total mortgage-backed securities		1,746,470		129,290		34		1,875,726		4.26
Equity securities (without contractual maturity)		6,595		565		138		7,022		3.05
Other
After 5 to 10 years		18,025		1,838		—		19,863		10.99
After 10 years		4,907		128		—		5,035		3.62
Total other		22,932		1,966		—		24,898		9.41
Total investment securities available-for-sale	$	4,872,157	$	207,811	$	3,171	$	5,076,797		3.31	%

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	At December 31, 2011
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	34,980	$	3,688	$	—	$	38,668		3.35	%
Total U.S. Treasury securities		34,980		3,688		—		38,668		3.35
Obligations of U.S. Government sponsored entities
Within 1 year		94,492		2,382		—		96,874		3.45
After 1 to 5 years		655,625		25,860		—		681,485		3.38
After 5 to 10 years		171,633		2,969		—		174,602		2.94
After 10 years		32,086		499		—		32,585		3.20
Total obligations of U.S. Government sponsored entities		953,836		31,710		—		985,546		3.30
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		765		9		—		774		4.97
After 1 to 5 years		14,824		283		31		15,076		4.07
After 5 to 10 years		4,595		54		—		4,649		5.33
After 10 years		37,320		909		—		38,229		5.38
Total obligations of Puerto Rico, States and political subdivisions		57,504		1,255		31		58,728		5.03
Collateralized mortgage obligations—federal agencies
After 1 to 5 years		2,424		49		—		2,473		3.28
After 5 to 10 years		55,096		1,446		—		56,542		2.64
After 10 years		1,589,373		49,462		208		1,638,627		2.84
Total collateralized mortgage obligations—federal agencies		1,646,893		50,957		208		1,697,642		2.83
Collateralized mortgage obligations—private label
After 5 to 10 years		5,653		1		181		5,473		0.81
After 10 years		59,460		—		7,141		52,319		2.44
Total collateralized mortgage obligations—private label		65,113		1		7,322		57,792		2.30
Mortgage-backed securities
Within 1 year		57		1		—		58		3.91
After 1 to 5 years		7,564		328		—		7,892		3.86
After 5 to 10 years		111,639		8,020		1		119,658		4.66
After 10 years		1,870,736		141,274		49		2,011,961		4.25
Total mortgage-backed securities		1,989,996		149,623		50		2,139,569		4.27
Equity securities (without contractual maturity)		6,594		426		104		6,916		2.96
Other
After 5 to 10 years		17,850		700		—		18,550		10.99
After 10 years		6,311		101		—		6,412		3.61
Total other		24,161		801		—		24,962		9.06
Total investment securities available-for-sale	$	4,779,077	$	238,461	$	7,715	$	5,009,823		3.58	%

The weighted average yield on investment securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

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There were no proceeds from the sale of investment securities available-for-sale for the six months ended June 30, 2012 since the transactions traded in June 2012, but settled in July 2012 (June 30, 2011—$19.1 million). Proceeds received in July 2012 related to these sale transactions amounted to $8.0 million. Gross realized gains and losses on the sale of investment securities available-for-sale were as follows:

	For the quarter ended June 30,						Six months ended June 30,
(In thousands)	2012			2011			2012			2011
Gross realized gains	$	—		$	6		$	—		$	6
Gross realized losses		(349	)		(96	)		(349	)		(96	)
Net realized gains (losses) on sale of investment securities available-for-sale	$	(349	)	$	(90	)	$	(349	)	$	(90	)

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	At June 30, 2012
	Less than 12 months				12 months or more				Total
(In thousands)	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Obligations of U.S. Government sponsored entities	$	31,912	$	173	$	—	$	—	$	31,912	$	173
Obligations of Puerto Rico, States and political subdivisions		2,798		34		—		—		2,798		34
Collateralized mortgage obligations—federal agencies		88,198		314		2,762		4		90,960		318
Collateralized mortgage obligations—private label		—		—		35,826		2,474		35,826		2,474
Mortgage-backed securities		205		4		801		30		1,006		34
Equity securities		5,164		130		3		8		5,167		138
Total investment securities available-for-sale in an unrealized loss position	$	128,277	$	655	$	39,392	$	2,516	$	167,669	$	3,171

	At December 31, 2011
	Less than 12 months				12 months or more				Total
(In thousands)	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Obligations of Puerto Rico, States and political subdivisions	$	7,817	$	28	$	191	$	3	$	8,008	$	31
Collateralized mortgage obligations—federal agencies		90,543		208		—		—		90,543		208
Collateralized mortgage obligations—private label		13,595		539		44,148		6,783		57,743		7,322
Mortgage-backed securities		5,577		14		1,466		36		7,043		50
Equity securities		5,199		95		2		9		5,201		104
Total investment securities available-for-sale in an unrealized loss position	$	122,731	$	884	$	45,807	$	6,831	$	168,538	$	7,715

Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or

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issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

At June 30, 2012, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At June 30, 2012, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis. Also, management evaluated the Corporation’s portfolio of equity securities at June 30, 2012. No other-than-temporary impairment losses on equity securities were recorded during the quarters and six months ended June 30, 2012 and 2011. Management has the intent and ability to hold the investments in equity securities that are at a loss position at June 30, 2012, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

The unrealized losses associated with “Collateralized mortgage obligations – private label” (“private-label CMO”) are primarily related to securities backed by residential mortgages. In addition to verifying the credit ratings for the private-label CMOs, management analyzed the underlying mortgage loan collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO, including among others, the weighted average loan-to-value, FICO score, and delinquency and foreclosure rates of the underlying assets in the securities. At June 30, 2012, there were no “sub-prime” securities in the Corporation’s private-label CMOs portfolios. For private-label CMOs with unrealized losses at June 30, 2012, credit impairment was assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows through the current period and then projects the expected cash flows using a number of assumptions, including default rates, loss severity and prepayment rates. Management’s assessment also considered tests using more stressful parameters. Based on the assessments, management concluded that the tranches of the private-label CMOs held by the Corporation were not other-than-temporarily impaired at June 30, 2012, thus management expects to recover the amortized cost basis of the securities.

The following table states the name of issuers, and the aggregate amortized cost and fair 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 backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

	June 30, 2012				December 31, 2011
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	1,234,776	$	1,273,616	$	1,049,315	$	1,089,069
FHLB		538,854		555,078		553,940		578,617
Freddie Mac		1,123,166		1,147,089		984,270		1,010,669

18

Note 6—Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity.

	At June 30, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	7,375	$	18	$	—	$	7,393		2.31	%
After 1 to 5 years		11,649		579		—		12,228		5.83
After 5 to 10 years		19,301		960		13		20,248		6.00
After 10 years		59,674		704		405		59,973		4.00
Total obligations of Puerto Rico, States and political subdivisions		97,999		2,261		418		99,842		4.48
Collateralized mortgage obligations—federal agencies
After 10 years		147		5		—		152		5.45
Total collateralized mortgage obligations—federal agencies		147		5		—		152		5.45
Other
After 1 to 5 years		26,500		29		—		26,529		3.38
Total other		26,500		29		—		26,529		3.38
Total investment securities held-to-maturity	$	124,646	$	2,295	$	418	$	126,523		4.25	%

	At December 31, 2011
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
Obligations of Puerto Rico, States and political subdivisions
Within 1 year	$	7,275	$	6	$	—	$	7,281		2.24	%
After 1 to 5 years		11,174		430		—		11,604		5.80
After 5 to 10 years		18,512		266		90		18,688		5.99
After 10 years		62,012		40		855		61,197		4.11
Total obligations of Puerto Rico, States and political subdivisions		98,973		742		945		98,770		4.51
Collateralized mortgage obligations—private label
After 10 years		160		—		9		151		5.45
Total collateralized mortgage obligations—private label		160		—		9		151		5.45
Other
After 1 to 5 years		26,250		83		—		26,333		3.41
Total other		26,250		83		—		26,333		3.41
Total investment securities held-to-maturity	$	125,383	$	825	$	954	$	125,254		4.28	%

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011.

	At June 30, 2012
	Less than 12 months				12 months or more				Total
(In thousands)	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Obligations of Puerto Rico, States and political subdivisions	$	91	$	1	$	22,147	$	417	$	22,238	$	418
Total investment securities held-to-maturity in an unrealized loss position	$	91	$	1	$	22,147	$	417	$	22,238	$	418

19

	At December 31, 2011
	Less than 12 months				12 months or more				Total
(In thousands)	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
Obligations of Puerto Rico, States and political subdivisions	$	10,323	$	92	$	31,062	$	853	$	41,385	$	945
Collateralized mortgage obligations—private label		—		—		151		9		151		9
Total investment securities held-to-maturity in an unrealized loss position	$	10,323	$	92	$	31,213	$	862	$	41,536	$	954

As indicated in Note 5 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at June 30, 2012 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. The Corporation performs periodic credit quality reviews on these issuers. The decline in fair value at June 30, 2012 was attributable to changes in interest rates and not credit quality, thus no other-than-temporary decline in value was necessary to be recorded in these held-to-maturity securities at June 30, 2012. At June 30, 2012, the Corporation does not have the intent to sell securities held-to-maturity and it is not more likely than not that the Corporation will have to sell these investment securities prior to recovery of their amortized cost basis.

Note 7—Loans

Covered loans acquired in the Westernbank FDIC-assisted transaction, except for lines of credit with revolving privileges, are accounted for by the Corporation in accordance with ASC Subtopic 310-30. Under ASC Subtopic 310-30, the acquired loans were aggregated into pools based on similar characteristics. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. The covered loans which are accounted for under ASC Subtopic 310-30 by the Corporation are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation measures additional losses for this portfolio when it is probable the Corporation will be unable to collect all cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimates after acquisition. Lines of credit with revolving privileges that were acquired as part of the Westernbank FDIC-assisted transaction are accounted for under the guidance of ASC Subtopic 310-20, which requires that any differences between the contractually required loan payment receivable in excess of the Corporation’s initial investment in the loans be accreted into interest income. Loans accounted for under ASC Subtopic 310-20 are placed in non-accrual status when past due in accordance with the Corporation’s non-accruing policy and any accretion of discount is discontinued.

The risks on loans acquired in the FDIC-assisted transaction are significantly different from the risks on loans not covered under the FDIC loss sharing agreements because of the loss protection provided by the FDIC. Accordingly, the Corporation presents loans subject to the loss sharing agreements as “covered loans” in the information below and loans that are not subject to the FDIC loss sharing agreements as “non-covered loans”.

For a summary of the accounting policy related to loans, interest recognition and allowance for loan losses refer to the summary of significant accounting policies included in Note 2 to the consolidated financial statements included in the 2011 Annual Report. Also, refer to Note 8 for a description of enhancements to the Corporation’s methodology for determining the allowance for loan losses which were effective on March 31, 2012.

20

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at June 30, 2012 and December 31, 2011.

	Non-covered loans		Non-covered loans
(In thousands)	HIP at June 30, 2012		HIP at December 31, 2011
Commercial multi-family	$	871,924	$	808,933
Commercial real estate non-owner occupied		2,625,014		2,665,499
Commercial real estate owner occupied		2,636,039		2,817,266
Commercial and industrial		3,469,838		3,681,629
Construction		249,743		239,939
Mortgage		5,899,973		5,518,460
Leasing		537,917		548,706
Legacy[2]		509,829		648,409
Consumer:
Credit cards		1,209,868		1,230,029
Home equity lines of credit		525,093		557,894
Personal		1,352,993		1,130,593
Auto		539,899		518,476
Other		237,679		236,763
Total loans held-in-portfolio[1]	$	20,665,809	$	20,602,596

[1] Non-covered loans held-in-portfolio at June 30, 2012 are net of $98 million in unearned income and exclude $365 million in loans held-for-sale. (December 31, 2011—$101 million in unearned income and $363 million in loans held-for-sale.)

[2] The legacy portfolio is comprised of commercial loans, construction loans and lease financings related to certain lending products exited by the Corporation as part of restructuring efforts carried out in prior years at the BPNA reportable segment.

The following table presents the composition of covered loans at June 30, 2012 and December 31, 2011.

	Covered loans at		Covered loans at
(In thousands)	June 30, 2012		December 31, 2011
Commercial real estate	$	2,145,055	$	2,271,295
Commercial and industrial		186,121		241,447
Construction		469,765		546,826
Mortgage		1,116,476		1,172,954
Consumer		98,913		116,181
Total loans held-in-portfolio	$	4,016,330	$	4,348,703

The following table provides a breakdown of loans held-for-sale (“LHFS”) at June 30, 2012 and December 31, 2011 by main categories.

	Non-covered loans
(In thousands)	June 30, 2012		December 31, 2011
Commercial	$	18,072	$	25,730
Construction		160,102		236,045
Legacy		425		468
Mortgage		185,938		100,850
Total	$	364,537	$	363,093

During the quarter and six months ended June 30, 2012, the Corporation recorded purchases of mortgage loans amounting to $336 million and $551 million, respectively (June 30, 2011—$479 million and $918 million, respectively). Also, the Corporation recorded purchases of $230 in consumer loans during the quarter and six months ended June 30, 2012. In addition, during the six months ended June 30, 2012, the Corporation recorded purchases of construction loans amounting to $1 million. There were no purchases of construction loans during the second quarter of 2012 and six months ended June 30, 2011. There were no purchases of commercial loans during the quarters and six months ended June 30, 2012 and 2011.

21

The Corporation performed whole-loan sales involving approximately $80 million and $130 million of residential mortgage loans during the quarter and six months ended June 30, 2012, respectively (June 30, 2011- $67 million and $302 million, respectively). Also, the Corporation securitized approximately $205 million and $395 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2012, respectively (June 30, 2011—$217 million and $473 million, respectively). Furthermore, the Corporation securitized approximately $71 million and $131 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2012, respectively (June 30, 2011- $48 million and $121 million, respectively). The Corporation sold commercial and construction loans with a book value of approximately $19 million and $39 million during the quarter and six months ended June 30, 2012, respectively (June 30, 2011- $12 million and $14 million, respectively).

Non-covered loans

The following tables present non-covered loans held-in-portfolio by loan class that are in non-performing status or are accruing interest but are past due 90 days or more at June 30, 2012 and December 31, 2011. Accruing loans past due 90 days or more consist primarily of credit cards, FHA / VA and other insured mortgage loans, and delinquent mortgage loans which are included in the Corporation’s financial statements pursuant to GNMA’s buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option. Also, accruing loans past due 90 days or more include residential conventional loans purchased from another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.

At June 30, 2012
	Puerto Rico				U.S. mainland				Popular, Inc.
	Non-covered loans
(In thousands)	Non-accrual loans		Accruing loans past-due 90 days  or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more
Commercial multi-family	$	14,268	$	—	$	22,488	$	—	$	36,756	$	—
Commercial real estate non-owner occupied		62,163		—		90,958		—		153,121		—
Commercial real estate owner occupied		358,498		—		40,270		—		398,768		—
Commercial and industrial		156,863		585		22,431		—		179,294		585
Construction		55,534		—		12,004		—		67,538		—
Mortgage		600,082		296,264		32,818		—		632,900		296,264
Leasing		5,045		—		—		—		5,045		—
Legacy		—		—		54,730		—		54,730		—
Consumer:
Credit cards		—		22,889		401		—		401		22,889
Home equity lines of credit		—		230		8,693		—		8,693		230
Personal		15,989		—		1,671		—		17,660		—
Auto		6,055		—		44		—		6,099		—
Other		1,796		520		15		—		1,811		520
Total[1]	$	1,276,293	$	320,488	$	286,523	$	—	$	1,562,816	$	320,488

[1] For purposes of this table non-performing loans exclude $179 million in non-performing loans held-for-sale.

22

At December 31, 2011
	Puerto Rico				U.S. mainland				Popular, Inc.
	Non-covered loans
(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more
Commercial multi-family	$	15,396	$	—	$	13,935	$	—	$	29,331	$	—
Commercial real estate non-owner occupied		51,013		—		80,820		—		131,833		—
Commercial real estate owner occupied		385,303		—		59,726		—		445,029		—
Commercial and industrial		179,459		675		44,440		—		223,899		675
Construction		53,859		—		42,427		—		96,286		—
Mortgage		649,279		280,912		37,223		—		686,502		280,912
Leasing		5,642		—		—		—		5,642		—
Legacy		—		—		75,660		—		75,660		—
Consumer:
Credit cards		—		25,748		735		—		735		25,748
Home equity lines of credit		—		157		10,065		—		10,065		157
Personal		19,317		—		1,516		—		20,833		—
Auto		6,830		—		34		—		6,864		—
Other		5,144		468		27		—		5,171		468
Total[1]	$	1,371,242	$	307,960	$	366,608	$	—	$	1,737,850	$	307,960

[1] For purposes of this table non-performing loans exclude $262 million in non-performing loans held-for-sale.

The following tables present loans by past due status at June 30, 2012 and December 31, 2011 for non-covered loans held-in-portfolio (net of unearned income).

June 30, 2012
Puerto Rico
Non- covered loans
	Past due										Non–covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Puerto Rico
Commercial multi-family	$	5,850	$	—	$	14,268	$	20,118	$	96,126	$	116,244
Commercial real estate non-owner occupied		3,983		717		62,163		66,863		1,212,645		1,279,508
Commercial real estate owner occupied		24,007		16,654		358,498		399,159		1,677,317		2,076,476
Commercial and industrial		35,694		23,465		157,448		216,607		2,474,445		2,691,052
Construction		73		2,495		55,534		58,102		143,662		201,764
Mortgage		233,466		108,754		896,346		1,238,566		3,575,655		4,814,221
Leasing		6,864		1,520		5,045		13,429		524,488		537,917
Consumer:
Credit cards		13,961		10,354		22,889		47,204		1,148,930		1,196,134
Home equity lines of credit		54		169		230		453		18,128		18,581
Personal		13,624		9,303		15,989		38,916		1,170,516		1,209,432
Auto		21,896		6,422		6,055		34,373		504,282		538,655
Other		1,391		466		2,316		4,173		232,074		236,247
Total	$	360,863	$	180,319	$	1,596,781	$	2,137,963	$	12,778,268	$	14,916,231

23

June 30, 2012
U.S. mainland
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Loans HIP U.S. mainland
Commercial multi-family	$	1,102	$	1,092	$	22,488	$	24,682	$	730,998	$	755,680
Commercial real estate non-owner occupied		19,316		994		90,958		111,268		1,234,238		1,345,506
Commercial real estate owner occupied		3,520		540		40,270		44,330		515,233		559,563
Commercial and industrial		9,313		1,906		22,431		33,650		745,136		778,786
Construction		—		—		12,004		12,004		35,975		47,979
Mortgage		15,572		11,208		32,818		59,598		1,026,154		1,085,752
Legacy		6,679		5,040		54,730		66,449		443,380		509,829
Consumer:
Credit cards		295		143		401		839		12,895		13,734
Home equity lines of credit		4,780		2,659		8,693		16,132		490,380		506,512
Personal		461		1,470		1,671		3,602		139,959		143,561
Auto		50		8		44		102		1,142		1,244
Other		—		9		15		24		1,408		1,432
Total	$	61,088	$	25,069	$	286,523	$	372,680	$	5,376,898	$	5,749,578

June 30, 2012
Popular, Inc.
Non-covered loans
	Past due										Non-covered
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		loans HIP Popular, Inc.
Commercial multi-family	$	6,952	$	1,092	$	36,756	$	44,800	$	827,124	$	871,924
Commercial real estate non-owner occupied		23,299		1,711		153,121		178,131		2,446,883		2,625,014
Commercial real estate owner occupied		27,527		17,194		398,768		443,489		2,192,550		2,636,039
Commercial and industrial		45,007		25,371		179,879		250,257		3,219,581		3,469,838
Construction		73		2,495		67,538		70,106		179,637		249,743
Mortgage		249,038		119,962		929,164		1,298,164		4,601,809		5,899,973
Leasing		6,864		1,520		5,045		13,429		524,488		537,917
Legacy		6,679		5,040		54,730		66,449		443,380		509,829
Consumer:
Credit cards		14,256		10,497		23,290		48,043		1,161,825		1,209,868
Home equity lines of credit		4,834		2,828		8,923		16,585		508,508		525,093
Personal		14,085		10,773		17,660		42,518		1,310,475		1,352,993
Auto		21,946		6,430		6,099		34,475		505,424		539,899
Other		1,391		475		2,331		4,197		233,482		237,679
Total	$	421,951	$	205,388	$	1,883,304	$	2,510,643	$	18,155,166	$	20,665,809

24

December 31, 2011
Puerto Rico
Non-covered loans
	Past due								Current		Non-covered loans HIP Puerto Rico
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	435	$	121	$	15,396	$	15,952	$	107,164	$	123,116
Commercial real estate non-owner occupied		16,584		462		51,013		68,059		1,193,447		1,261,506
Commercial real estate owner occupied		39,578		21,003		385,303		445,884		1,785,542		2,231,426
Commercial and industrial		46,013		17,233		180,134		243,380		2,611,154		2,854,534
Construction		608		21,055		53,859		75,522		85,419		160,941
Mortgage		202,072		98,565		930,191		1,230,828		3,458,655		4,689,483
Leasing		7,927		2,301		5,642		15,870		532,836		548,706
Consumer:
Credit cards		14,507		11,479		25,748		51,734		1,164,086		1,215,820
Home equity lines of credit		155		395		157		707		19,344		20,051
Personal		17,583		10,434		19,317		47,334		935,854		983,188
Auto		22,677		5,883		6,830		35,390		480,874		516,264
Other		1,740		1,442		5,612		8,794		226,310		235,104
Total	$	369,879	$	190,373	$	1,679,202	$	2,239,454	$	12,600,685	$	14,840,139

December 31, 2011
U.S. mainland
	Past due								Current		Loans HIP U.S. mainland
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	14,582	$	—	$	13,935	$	28,517	$	657,300	$	685,817
Commercial real estate non-owner occupied		15,794		3,168		80,820		99,782		1,304,211		1,403,993
Commercial real estate owner occupied		14,004		449		59,726		74,179		511,661		585,840
Commercial and industrial		22,545		3,791		44,440		70,776		756,319		827,095
Construction		—		—		42,427		42,427		36,571		78,998
Mortgage		30,594		13,190		37,223		81,007		747,970		828,977
Legacy		30,712		7,536		75,660		113,908		534,501		648,409
Consumer:
Credit cards		314		229		735		1,278		12,931		14,209
Home equity lines of credit		7,090		3,587		10,065		20,742		517,101		537,843
Personal		3,574		2,107		1,516		7,197		140,208		147,405
Auto		106		37		34		177		2,035		2,212
Other		29		10		27		66		1,593		1,659
Total	$	139,344	$	34,104	$	366,608	$	540,056	$	5,222,401	$	5,762,457

25

December 31, 2011
Popular, Inc.
Non-covered loans
	Past due				Current	Non-covered loans HIP Popular, Inc.
(In thousands)	30-59 days	60-89 days	90 days or more	Total past due
Commercial multi-family