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, 2013

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, 103,298,516 shares outstanding as of August 2, 2013.

POPULAR, INC.

INDEX

		Page
Part I – Financial Information
Item 1.	Financial Statements
Unaudited Consolidated Statements of Financial Condition at June  30, 2013 and December 31, 2012			4
Unaudited Consolidated Statements of Operations for the quarters and six months ended June  30, 2013 and 2012			5
Unaudited Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30, 2013 and 2012			6
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2013 and 2012			7
Unaudited Consolidated Statements of Cash Flows for the six months ended June  30, 2013 and 2012			8
Notes to Unaudited Consolidated Financial Statements			9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		131
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		199
Item 4.	Controls and Procedures		199
Part II – Other Information
Item 1.	Legal Proceedings		200
Item 1A.	Risk Factors		200
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		202
Item 6.	Exhibits		203
Signatures

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, 2012 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, 2013			December 31, 2012
Assets:
Cash and due from banks	$	388,041		$	439,363
Money market investments:
Federal funds sold		2,195			33,515
Securities purchased under agreements to resell		245,758			213,462
Time deposits with other banks		823,986			838,603
Total money market investments		1,071,939			1,085,580
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		256,491			271,624
Other trading securities		37,591			42,901
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,206,636			1,603,693
Other investment securities available-for-sale		3,908,000			3,480,508
Investment securities held-to-maturity, at amortized cost (fair value 2013 – $144,026; 2012 – $144,233)		141,632			142,817
Other investment securities, at lower of cost or realizable value (realizable value 2013 – $221,239; 2012 - $187,501)		218,582			185,443
Loans held-for-sale, at lower of cost or fair value		190,852			354,468
Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		21,615,754			21,080,005
Loans covered under loss sharing agreements with the FDIC		3,199,998			3,755,972
Less – Unearned income		94,095			96,813
Allowance for loan losses		635,219			730,607
Total loans held-in-portfolio, net		24,086,438			24,008,557
FDIC loss share asset		1,379,342			1,399,098
Premises and equipment, net		527,014			535,793
Other real estate not covered under loss sharing agreements with the FDIC		158,920			266,844
Other real estate covered under loss sharing agreements with the FDIC		183,225			139,058
Accrued income receivable		143,905			125,728
Mortgage servicing assets, at fair value		153,444			154,430
Other assets		1,935,426			1,569,578
Goodwill		647,757			647,757
Other intangible assets		49,359			54,295
Total assets	$	36,684,594		$	36,507,535
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	5,856,066		$	5,794,629
Interest bearing		20,903,362			21,205,984
Total deposits		26,759,428			27,000,613
Assets sold under agreements to repurchase		1,672,705			2,016,752
Other short-term borrowings		1,226,200			636,200
Notes payable		1,795,766			1,777,721
Other liabilities		1,035,459			966,249
Total liabilities		32,489,558			32,397,535
Commitments and contingencies (See Note 21)
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; 103,311,152 shares issued (2012 – 103,193,303) and 103,276,131 shares outstanding (2012 – 103,169,806)		1,033			1,032
Surplus		4,153,525			4,150,294
Retained earnings		217,126			11,826
Treasury stock – at cost, 35,021 shares (2012 – 23,497)		(769	)		(444	)
Accumulated other comprehensive loss, net of tax		(226,039	)		(102,868	)
Total stockholders’ equity		4,195,036			4,110,000
Total liabilities and stockholders’ equity	$	36,684,594		$	36,507,535

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

4

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarters ended June 30,						Six months ended June 30,
(In thousands, except per share information)	2013			2012			2013			2012
Interest income:
Loans	$	394,925		$	389,904		$	780,851		$	778,444
Money market investments		829			964			1,784			1,912
Investment securities		36,106			44,258			73,929			89,800
Trading account securities		5,456			5,963			10,970			11,854
Total interest income		437,316			441,089			867,534			882,010
Interest expense:
Deposits		35,764			48,542			74,120			100,275
Short-term borrowings		9,767			13,044			19,549			26,627
Long-term debt		36,066			37,324			71,833			74,331
Total interest expense		81,597			98,910			165,502			201,233
Net interest income		355,719			342,179			702,032			680,777
Provision for loan losses – non-covered loans		223,908			81,743			430,208			164,257
Provision for loan losses – covered loans		25,500			37,456			43,056			55,665
Net interest income after provision for loan losses		106,311			222,980			228,768			460,855
Service charges on deposit accounts		43,937			46,130			87,659			92,719
Other service fees		65,073			64,987			126,797			133,894
Net gain (loss) and valuation adjustments on investment securities		5,856			(349	)		5,856			(349	)
Trading account profit (loss)		7,900			(7,283	)		7,825			(9,426	)
Net gain (loss) on sale of loans, including valuation adjustments on loans held-for-sale		4,382			(15,397	)		(44,577	)		74
Adjustments (expense) to indemnity reserves on loans sold		(11,632	)		(5,398	)		(27,775	)		(9,273	)
FDIC loss share (expense) income		(3,755	)		2,575			(30,021	)		(12,680	)
Other operating income		181,602			24,167			201,656			54,399
Total non-interest income		293,363			109,432			327,420			249,358
Operating expenses:
Personnel costs		114,679			116,336			230,668			237,827
Net occupancy expenses		24,108			24,190			47,581			47,528
Equipment expenses		11,843			10,900			23,793			22,241
Other taxes		15,288			12,074			26,874			25,512
Professional fees		69,964			69,672			140,461			135,740
Communications		6,644			6,645			13,476			13,776
Business promotion		15,562			16,980			28,479			29,830
FDIC deposit insurance		19,503			22,907			28,783			47,833
Loss on early extinguishment of debt		—			25,072			—			25,141
Other real estate owned (OREO) expenses		5,762			2,380			52,503			16,545
Other operating expenses		23,766			34,879			45,731			50,670
Amortization of intangibles		2,467			2,531			4,935			5,124
Total operating expenses		309,586			344,566			643,284			657,767
Income (loss) before income tax		90,088			(12,154	)		(87,096	)		52,446
Income tax benefit		(237,380	)		(77,893	)		(294,257	)		(61,701	)
Net Income	$	327,468		$	65,739		$	207,161		$	114,147
Net Income Applicable to Common Stock	$	326,537		$	64,809		$	205,300		$	112,286
Net Income per Common Share – Basic	$	3.18		$	0.63		$	2.00		$	1.10
Net Income per Common Share – Diluted	$	3.17		$	0.63		$	1.99		$	1.10

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

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Quarters ended, June 30,						Six months ended, June 30,
(In thousands)	2013			2012			2013			2012
Net income	$	327,468		$	65,739		$	207,161		$	114,147
Other comprehensive loss before tax:
Foreign currency translation adjustment		(2,653	)		(860	)		(1,929	)		(946	)
Amortization of net losses of pension and postretirement benefit plans		6,169			6,290			12,338			12,579
Amortization of prior service cost of pension and postretirement benefit plans		—			(50	)		—			(100	)
Unrealized holding losses on investments arising during the period		(115,514	)		(18,573	)		(144,469	)		(26,455	)
Reclassification adjustment for losses included in net income		—			349			—			349
Unrealized net gains (losses) on cash flow hedges		5,882			(4,778	)		5,782			(6,327	)
Reclassification adjustment for net (gains) losses included in net income		(3,045	)		3,660			(3,196	)		5,976
Other comprehensive loss before tax		(109,161	)		(13,962	)		(131,474	)		(14,924	)
Income tax benefit		5,130			1,164			8,303			889
Total other comprehensive loss, net of tax		(104,031	)		(12,798	)		(123,171	)		(14,035	)
Comprehensive income, net of tax	$	223,437		$	52,941		$	83,990		$	100,112

Tax effect allocated to each component of other comprehensive loss:

	Quarters ended June 30,						Six months ended, June 30,
(In thousands)	2013			2012			2013			2012
Amortization of net losses of pension and postretirement benefit plans	$	(2,962	)	$	(1,740	)	$	(4,813	)	$	(3,480	)
Amortization of prior service cost of pension and postretirement benefit plans		—			15			—			30
Unrealized holding losses on investments arising during the period		8,942			2,554			13,891			4,235
Unrealized net gains (losses) on cash flow hedges		(1,764	)		1,433			(1,734	)		1,897
Reclassification adjustment for net (gains) losses included in net income		914			(1,098	)		959			(1,793	)
Income tax benefit	$	5,130		$	1,164		$	8,303		$	889

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) retained earnings			Treasury stock			Accumulated other comprehensive loss			Total
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
Balance at December 31, 2012	$	1,032	$	50,160	$	4,150,294	$	11,826		$	(444	)	$	(102,868	)	$	4,110,000
Net income								207,161									207,161
Issuance of stock		1				3,231											3,232
Dividends declared:
Preferred stock								(1,861	)								(1,861	)
Common stock purchases											(325	)					(325	)
Other comprehensive loss, net of tax														(123,171	)		(123,171	)
Balance at June 30, 2013	$	1,033	$	50,160	$	4,153,525	$	217,126		$	(769	)	$	(226,039	)	$	4,195,036

Disclosure of changes in number of shares:	June 30, 2013			June 30, 2012
Preferred Stock:
Balance at beginning and end of period		2,006,391			2,006,391
Common Stock – Issued:
Balance at beginning of period		103,193,303			102,634,640
Issuance of stock		117,849			197,817
Balance at end of the period		103,311,152			102,832,457
Treasury stock		(35,021	)		(8,134	)
Common Stock – Outstanding		103,276,131			102,824,323

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)	2013			2012
Cash flows from operating activities:
Net income	$	207,161		$	114,147
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		473,264			219,922
Amortization of intangibles		4,935			5,124
Depreciation and amortization of premises and equipment		25,009			23,282
Net accretion of discounts and amortization of premiums and deferred fees		(29,525	)		(15,677	)
Fair value adjustments on mortgage servicing rights		10,741			4,791
FDIC loss share expense		30,021			12,680
Amortization of prepaid FDIC assessment		—			47,833
Adjustments (expense) to indemnity reserves on loans sold		27,775			9,273
Earnings from investments under the equity method		(34,214	)		(21,681	)
Deferred income tax benefit		(321,854	)		(154,686	)
(Gain) loss on:
Disposition of premises and equipment		(2,347	)		(6,864	)
Early extinguishment of debt		—			24,950
Sale and valuation adjustments of investment securities		—			349
Sale of loans, including valuation adjustments on loans held-for-sale		44,577			(74	)
Sale of stock in equity method investee		(136,722	)		—
Sale of other assets		—			(2,545	)
Sale of foreclosed assets, including write-downs		35,006			5,268
Acquisitions of loans held-for-sale		(15,335	)		(174,632	)
Proceeds from sale of loans held-for-sale		119,003			145,588
Net disbursements on loans held-for-sale		(867,917	)		(542,282	)
Net (increase) decrease in:
Trading securities		858,092			543,077
Accrued income receivable		(18,177	)		2,889
Other assets		2,103			(99,236	)
Net increase (decrease) in:
Interest payable		(2,570	)		(4,499	)
Pension and other postretirement benefit obligation		3,786			16,165
Other liabilities		4,055			11,364
Total adjustments		209,706			50,379
Net cash provided by operating activities		416,867			164,526
Cash flows from investing activities:
Net decrease in money market investments		13,641			426,346
Purchases of investment securities:
Available-for-sale		(1,490,647	)		(890,777	)
Held-to-maturity		—			(250	)
Other		(116,731	)		(76,033	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		1,378,311			780,832
Held-to-maturity		2,359			1,548
Other		83,592			81,626
Net repayments on loans		624,262			539,177
Proceeds from sale of loans		295,237			41,476
Acquisition of loan portfolios		(1,520,088	)		(705,819	)
Net payments (to) from FDIC under loss sharing agreements		(107	)		262,807
Return of capital from equity method investments		438			130,419
Proceeds from sale of sale of stock in equity method investee		166,332			—
Mortgage servicing rights purchased		(45	)		(1,018	)
Acquisition of premises and equipment		(19,774	)		(21,927	)
Proceeds from sale of:
Premises and equipment		5,891			15,610
Other productive assets		—			1,026
Foreclosed assets		120,365			93,480
Net cash (used in) provided by investing activities		(456,964	)		678,523
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		(259,950	)		(528,508	)
Assets sold under agreements to repurchase		(344,047	)		(363,354	)
Other short-term borrowings		590,000			20,000
Payments of notes payable		(48,458	)		(22,552	)
Proceeds from issuance of notes payable		49,874			29,802
Proceeds from issuance of common stock		3,232			3,320
Dividends paid		(1,551	)		(1,551	)
Treasury stock acquired		(325	)		(150	)
Net cash used in financing activities		(11,225	)		(862,993	)
Net decrease in cash and due from banks		(51,322	)		(19,944	)
Cash and due from banks at beginning of period		439,363			535,282
Cash and due from banks at end of period	$	388,041		$	515,338

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	11
Note 3 –	Restrictions on cash and due from banks and certain securities	14
Note 4 –	Pledged assets	15
Note 5 –	Investment securities available-for-sale	16
Note 6 –	Investment securities held-to-maturity	20
Note 7 –	Loans	22
Note 8 –	Allowance for loan losses	31
Note 9 –	FDIC loss share asset and true-up payment obligation	57
Note 10 –	Transfers of financial assets and mortgage servicing assets	59
Note 11 –	Other assets	63
Note 12 –	Investments in equity investees	63
Note 13 –	Goodwill and other intangible assets	64
Note 14 –	Deposits	66
Note 15 –	Borrowings	67
Note 16 –	Offsetting of financial assets and liabilities	69
Note 17 –	Trust preferred securities	71
Note 18 –	Stockholders’ equity	73
Note 19 –	Other comprehensive loss	74
Note 20 –	Guarantees	75
Note 21 –	Commitments and contingencies	78
Note 22 –	Non-consolidated variable interest entities	81
Note 23 –	Related party transactions with affiliated company / joint venture	85
Note 24 –	Fair value measurement	91
Note 25 –	Fair value of financial instruments	98
Note 26 –	Net income per common share	105
Note 27 –	Other service fees	106
Note 28 –	FDIC loss share (expense) income	106
Note 29 –	Pension and postretirement benefits	107
Note 30 –	Stock-based compensation	108
Note 31 –	Income taxes	111
Note 32 –	Supplemental disclosure on the consolidated statements of cash flows	114
Note 33 –	Segment reporting	115
Note 34 –	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	122

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 mortgage, retail and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as 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 33 to the consolidated financial statements presents information about the Corporation’s business segments.

Effective December 31, 2012, Popular Mortgage, which was a wholly-owned subsidiary of BPPR prior to that date, was merged with and into BPPR as part of an internal reorganization. Popular Mortgage currently operates as a division of BPPR.

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, 2012 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 2012 consolidated financial statements and notes to the financial statements to conform with the 2013 presentation. During the second quarter of 2013, the Corporation discontinued the elimination of its proportionate ownership share of intercompany transactions with EVERTEC from their respective revenue and expense categories to reflect them as an equity pick-up adjustment in other operating income. Refer to Note 23 “Related party transactions with affiliated company / joint venture” for additional information.

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, 2012, included in the Corporation’s 2012 Annual Report (the “2012 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.

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Note 2 – New accounting pronouncements

FASB Accounting Standards Update 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”)

The FASB issued ASU 2013-11 in July 2013 which requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. When a net operating loss, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purposes, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. Currently, there is no explicit guidance under U.S. GAAP on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment of this guidance does not require new recurring disclosures.

ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments of this ASU should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2013-10”)

The FASB issued ASU 2013-10 in July 2013 which permits the use of the Overnight Index Swap Rate (OIS), also referred to as the Fed Funds Effective Swap Rate as a U.S. GAAP benchmark interest rate for hedge accounting purposes under Topic 815. Currently, only the interest rates on direct Treasury obligations of the U.S. government (UST) and the London Interbank Offered Rate (LIBOR) swap rate are considered benchmark interest rates in the United States. This update also removes the restriction on using different benchmark rates for similar hedges. Including the Fed Funds Effective Swap Rate as an acceptable U.S. benchmark interest rate in addition to UST and LIBOR will provide risk managers with a more comprehensive spectrum of interest rate resets to utilize as the designated interest risk component under the hedge accounting guidance in Topic 815.

The amendments of this ASU are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”)

The FASB issued ASU 2013-05 in March 2013 which clarifies the applicable guidance for the release of the cumulative translation adjustment. When a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in ASC 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets has resided.

For an equity method investment that is a foreign entity, the partial sale guidance in ASC 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such equity method investment. However, this treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment.

Additionally, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events.

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ASU 2013-05 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity elects to early adopt the amendments of this ASU it should apply them as of the beginning of the entity’s fiscal year of adoption.

The Corporation does not anticipate that the adoption of this guidance will have a material effect on its consolidated statements of financial condition or results of operations.

FASB Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”)

The FASB issued ASU 2013-02 in February 2013. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments of ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements.

ASU 2013-02 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2012.

The Corporation adopted the provisions of this guidance in the first quarter of 2013 and elected to present these disclosures on the notes to the financial statements. Refer to note 19 to the consolidated financial statements for the related disclosures. The adoption of this ASU does not have an impact on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”)

The FASB issued ASU 2013-01 in January 2013. ASU 2013-01 clarifies that the scope of FASB Accounting Standard Update 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), applies only to derivatives accounted for under ASC 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to an enforceable master netting arrangement or similar agreement.

ASU 2013-01 is effective for fiscal years and interim periods within those years, beginning on or after January 1, 2013. Entities should provide the required disclosures retrospectively for all comparative periods presented. The effective date is the same as the effective date of ASU 2011-11.

The Corporation adopted this guidance on the first quarter of 2013 which impacts presentation disclosures only and does not have an impact on the Corporation’s consolidated financial statements. Refer to note 16 to the consolidated financial statements for the related disclosures.

FASB Accounting Standards Update 2012-06, Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (“ASU 2012-06”)

The FASB issued ASU 2012-06 in October 2012. ASU 2012-06 addresses the diversity in practice about how to interpret the terms “on the same basis” and “contractual limitations” when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation) acquisition of a financial institution that includes a loss-sharing agreement (indemnification agreement). When a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and subsequently the cash flows expected to be collected on the indemnification asset changes, as a result of a change in cash flows expected to be collected on the assets subject to indemnification, the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement, that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets.

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ASU 2012-06 is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2012.

The Corporation adopted the provisions of this guidance on the first quarter of 2013, and has not had a material effect on the Corporation’s consolidated financial statements as of June 30, 2013.

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, other than goodwill, 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.

ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.

The provisions of this guidance simplify how entities test for indefinite-lived assets impairment and have not had an impact on the Corporation’s consolidated financial statements as of June 30, 2013.

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 which impacts presentation disclosure only was adopted in the first quarter of 2013 and did not have an impact on the Corporation’s statements of financial condition or results of operations. Refer to note 16 to the consolidated financial statements for the related disclosures.

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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 $957 million at June 30, 2013 (December 31, 2012 – $952 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, 2013 the Corporation held $42 million in restricted assets in the form of funds deposited in money market accounts, trading account securities and investment securities available for sale (December 31, 2012 – $41 million). The amounts held in trading account securities and investment securities available for sale consist primarily of restricted assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

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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:

	June 30,		December 31,
(In thousands)	2013		2012
Investment securities available-for-sale, at fair value	$	1,836,714	$	1,606,683
Investment securities held-to-maturity, at amortized cost		35,000		25,000
Loans held-for-sale measured at lower of cost or fair value		8,556		132
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		407,334		452,631
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,787,654		8,358,456
Total pledged assets	$	11,075,258	$	10,442,902

Pledged securities 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, 2013, the Corporation had $ 1.4 billion in investment securities available-for-sale and $ 0.3 billion in loans that served as collateral to secure public funds (December 31, 2012 – $ 1.2 billion and $ 0.3 billion, respectively).

At June 30, 2013, the Corporation’s banking subsidiaries had short-term and long-term credit facilities authorized with the Federal Home Loan Bank system (the “FHLB”) aggregating to $2.8 billion (December 31, 2012 – $2.8 billion). Refer to Note 15 to the consolidated financial statements for borrowings outstanding under these credit facilities. At June 30, 2013, the credit facilities authorized with the FHLB were collateralized by $ 3.9 billion in loans held-in-portfolio (December 31, 2012 – $ 3.8 billion). Also, at June 30, 2013, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $3.5 billion, which remained unused as of such date ( December 31, 2012 – $3.1 billion). 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, 2013, the credit facilities with the Fed discount window were collateralized by $ 5.0 billion in loans held-in-portfolio (December 31, 2012 – $ 4.7 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, 2013 trades receivables from brokers and counterparties amounting to $142 million were pledged to secure repurchase agreements (December 31, 2012 – $133 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, 2013
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	14,996	$	1	$	—	$	14,997		0.07	%
After 1 to 5 years		26,862		2,374		—		29,236		3.84
Total U.S. Treasury securities		41,858		2,375		—		44,233		2.49
Obligations of U.S. Government sponsored entities
Within 1 year		43,256		317		—		43,573		1.46
After 1 to 5 years		234,827		1,063		3,099		232,791		1.37
After 5 to 10 years		861,329		1,142		25,363		837,108		1.57
After 10 years		23,000		—		1,354		21,646		3.09
Total obligations of U.S. Government sponsored entities		1,162,412		2,522		29,816		1,135,118		1.56
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		115		1		—		116		5.22
After 1 to 5 years		6,241		57		32		6,266		4.66
After 5 to 10 years		5,619		—		165		5,454		3.70
After 10 years		37,220		2		1,800		35,422		5.38
Total obligations of Puerto Rico, States and political subdivisions		49,195		60		1,997		47,258		5.10
Collateralized mortgage obligations – federal agencies
After 1 to 5 years		5,747		131		—		5,878		1.98
After 5 to 10 years		26,578		850		—		27,428		2.86
After 10 years		2,631,601		27,020		35,720		2,622,901		2.04
Total collateralized mortgage obligations – federal agencies		2,663,926		28,001		35,720		2,656,207		2.05
Collateralized mortgage obligations – private label
After 10 years		1,187		18		—		1,205		4.12
Total collateralized mortgage obligations – private label		1,187		18		—		1,205		4.12
Mortgage-backed securities
Within 1 year		15		1		—		16		1.75
After 1 to 5 years		7,253		386		—		7,639		4.63
After 5 to 10 years		84,122		4,314		950		87,486		4.25
After 10 years		1,058,386		58,658		2,768		1,114,276		4.11
Total mortgage-backed securities		1,149,776		63,359		3,718		1,209,417		4.12
Equity securities (without contractual maturity)		6,506		2,189		53		8,642		3.17
Other
After 1 to 5 years		9,816		—		416		9,400		1.68
After 10 years		3,089		67		—		3,156		3.63
Total other		12,905		67		416		12,556		2.14
Total investment securities available-for-sale	$	5,087,765	$	98,591	$	71,720	$	5,114,636		2.44	%

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	At December 31, 2012
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	7,018	$	20	$	—	$	7,038		1.67	%
After 1 to 5 years		27,236		2,964		—		30,200		3.83
Total U.S. Treasury securities		34,254		2,984		—		37,238		3.39
Obligations of U.S. Government sponsored entities
Within 1 year		460,319		7,614		—		467,933		3.82
After 1 to 5 years		167,177		2,057		—		169,234		1.59
After 5 to 10 years		456,480		3,263		592		459,151		1.74
Total obligations of U.S. Government sponsored entities		1,083,976		12,934		592		1,096,318		2.60
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		5,220		26		—		5,246		3.08
After 1 to 5 years		6,254		130		39		6,345		4.65
After 5 to 10 years		5,513		—		36		5,477		3.79
After 10 years		37,265		648		—		37,913		5.38
Total obligations of Puerto Rico, States and political subdivisions		54,252		804		75		54,981		4.91
Collateralized mortgage obligations – federal agencies
After 1 to 5 years		4,927		35		—		4,962		1.48
After 5 to 10 years		39,897		1,794		—		41,691		2.94
After 10 years		2,270,184		50,740		512		2,320,412		2.21
Total collateralized mortgage obligations – federal agencies		2,315,008		52,569		512		2,367,065		2.22
Collateralized mortgage obligations – private label
After 10 years		2,414		59		—		2,473		4.59
Total collateralized mortgage obligations – private label		2,414		59		—		2,473		4.59
Mortgage-backed securities
Within 1 year		288		13		—		301		3.47
After 1 to 5 years		3,838		191		—		4,029		4.12
After 5 to 10 years		81,645		6,207		—		87,852		4.71
After 10 years		1,297,585		93,509		129		1,390,965		4.18
Total mortgage-backed securities		1,383,356		99,920		129		1,483,147		4.21
Equity securities (without contractual maturity)		6,507		909		10		7,406		3.46
Other
After 1 to 5 years		9,992		—		207		9,785		1.67
After 5 to 10 years		18,032		3,675		—		21,707		11.00
After 10 years		3,945		136		—		4,081		3.62
Total other		31,969		3,811		207		35,573		7.17
Total investment securities available-for-sale	$	4,911,736	$	173,990	$	1,525	$	5,084,201		2.94	%

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.

The slight increase in investment securities available-for-sale is mainly due to purchases of CMO’s and agencies during this quarter, partially offset by portfolio declines in market value in line with underlying market conditions, US Agency maturities, mortgage backed securities prepayments and the prepayment of $22.8 million of EVERTEC’s debenture as part of their IPO and debt repayment of $5.8 million during the quarter.

There were no sales of investment securities available-for-sale during the six months ended June 30, 2013. At the end of the second quarter of 2012, the Corporation sold investment securities with settlement date in July 2012. The proceeds received in July 2012 from these transactions were $8.0 million.

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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)	2013		2012			2013		2012
Gross realized gains	$	—	$	—		$	—	$	—
Gross realized losses		—		(349	)		—		(349	)
Net realized gains (losses) on sale of investment securities available-for-sale	$	—	$	(349	)	$	—	$	(349	)

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, 2013
	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	$	978,478	$	29,462	$	6,024	$	354	$	984,502	$	29,816
Obligations of Puerto Rico, States and political subdivisions		40,588		1,972		2,025		25		42,613		1,997
Collateralized mortgage obligations – federal agencies		1,513,901		35,720		—		—		1,513,901		35,720
Mortgage-backed securities		60,331		3,682		908		36		61,239		3,718
Equity securities		1,779		49		46		4		1,825		53
Other		9,399		416		—		—		9,399		416
Total investment securities available-for-sale in an unrealized loss position	$	2,604,476	$	71,301	$	9,003	$	419	$	2,613,479	$	71,720

	At December 31, 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	$	139,278	$	592	$	—	$	—	$	139,278	$	592
Obligations of Puerto Rico, States and political subdivisions		6,229		44		2,031		31		8,260		75
Collateralized mortgage obligations – federal agencies		170,136		512		—		—		170,136		512
Mortgage-backed securities		7,411		90		983		39		8,394		129
Equity securities		—		—		51		10		51		10
Other		9,785		207		—		—		9,785		207
Total investment securities available-for-sale in an unrealized loss position	$	332,839	$	1,445	$	3,065	$	80	$	335,904	$	1,525

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 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.

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At June 30, 2013, 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, 2013, 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, 2013. No other-than-temporary impairment losses on equity securities were recorded during the quarters ended June 30, 2013 and June 30, 2012. Management has the intent and ability to hold the investments in equity securities that are at a loss position at June 30, 2013, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

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, 2013				December 31, 2012
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,147,390	$	2,133,556	$	1,594,933	$	1,634,927
FHLB		339,886		330,477		520,127		528,287
Freddie Mac		1,235,448		1,233,785		1,198,969		1,221,863

19

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, 2013
(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	$	2,525	$	16	$	—	$	2,541		5.74	%
After 1 to 5 years		21,835		384		—		22,219		3.70
After 5 to 10 years		19,640		29		520		19,149		6.05
After 10 years		71,009		3,829		1,348		73,490		2.48
Total obligations of Puerto Rico, States and political subdivisions		115,009		4,258		1,868		117,399		3.39
Collateralized mortgage obligations – federal agencies
After 10 years		123		5		—		128		5.43
Total collateralized mortgage obligations – federal agencies		123		5		—		128		5.43
Other
Within 1 year		25,250		—		1		25,249		3.47
After 1 to 5 years		1,250		—		—		1,250		1.24
Total other		26,500		—		1		26,499		3.36
Total investment securities held-to-maturity	$	141,632	$	4,263	$	1,869	$	144,026		3.39	%

	At December 31, 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	$	2,420	$	8	$	—	$	2,428		5.74	%
After 1 to 5 years		21,335		520		19		21,836		3.63
After 5 to 10 years		18,780		866		5		19,641		6.03
After 10 years		73,642		449		438		73,653		5.35
Total obligations of Puerto Rico, States and political subdivisions		116,177		1,843		462		117,558		5.15
Collateralized mortgage obligations – federal agencies
After 10 years		140		4		—		144		5.00
Total collateralized mortgage obligations – federal agencies		140		4		—		144		5.00
Other
Within 1 year		250		—		—		250		0.86
After 1 to 5 years		26,250		31		—		26,281		3.40
Total other		26,500		31		—		26,531		3.38
Total investment securities held-to-maturity	$	142,817	$	1,878	$	462	$	144,233		4.82	%

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, 2013 and December 31, 2012.

	At June 30, 2013
	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	$	27,855	$	1,155	$	18,832	$	713	$	46,687	$	1,868
Other		24,999		1		—		—		24,999		1
Total investment securities held-to-maturity in an unrealized loss position	$	52,854	$	1,156	$	18,832	$	713	$	71,686	$	1,869

20

	At December 31, 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	$	2,365	$	35	$	19,118	$	427	$	21,483	$	462
Total investment securities held-to-maturity in an unrealized loss position	$	2,365	$	35	$	19,118	$	427	$	21,483	$	462

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, 2013 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 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.

21

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 2012 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at June 30, 2013 and December 31, 2012.

(In thousands)	June 30, 2013		December 31, 2012
Commercial multi-family	$	1,133,597	$	1,021,780
Commercial real estate non-owner occupied		2,975,032		2,634,432
Commercial real estate owner occupied		2,252,280		2,608,450
Commercial and industrial		3,556,931		3,593,540
Construction		297,010		252,857
Mortgage		6,603,587		6,078,507
Leasing		538,348		540,523
Legacy[2]		262,228		384,217
Consumer:
Credit cards		1,182,724		1,198,213
Home equity lines of credit		500,873		491,035
Personal		1,368,772		1,388,911
Auto		619,643		561,084
Other		230,634		229,643
Total loans held-in-portfolio[1]	$	21,521,659	$	20,983,192

[1] Non-covered loans held-in-portfolio at June 30, 2013 are net of $94 million in unearned income and exclude $191 million in loans held-for-sale (December 31, 2012 – $97 million in unearned income and $354 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.

22

The following table presents the composition of covered loans at June 30, 2013 and December 31, 2012.

(In thousands)	June 30, 2013		December 31, 2012
Commercial real estate	$	1,786,091	$	2,077,411
Commercial and industrial		114,379		167,236
Construction		240,365		361,396
Mortgage		999,578		1,076,730
Consumer		59,585		73,199
Total loans held-in-portfolio	$	3,199,998	$	3,755,972

The following table provides a breakdown of loans held-for-sale (“LHFS”) at June 30, 2013 and December 31, 2012 by main categories.

(In thousands)	June 30, 2013		December 31, 2012
Commercial	$	2,594	$	16,047
Construction		—		78,140
Legacy		1,680		2,080
Mortgage		186,578		258,201
Total loans held-for-sale	$	190,852	$	354,468

During the quarter and six months ended June 30, 2013, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $0.4 billion and $1.5 billion, respectively (June 30, 2012 – $336 million and $551 million, respectively). Also, the Corporation recorded purchases of $42 million in consumer loans during the quarter and six months ended June 30, 2013 (June 30, 2012 – $230 million). In addition, during the quarter and six months ended June 30, 2013, the Corporation recorded purchases of commercial loans amounting to $3 million and there were no purchases during the quarter and six months ended June 30, 2012. There were no purchases of construction loans during the quarter and six months ended June 30, 2013 and 2012.

The Corporation performed whole-loan sales involving approximately $503 million and $553 million of residential mortgage loans during the quarter and six months ended June 30, 2013, respectively (June 30, 2012- $80 million and $130 million, respectively). These sales included $435 million from the bulk sale of non-performing mortgage loans, completed during the quarter ended June 30, 2013. Also, the Corporation securitized approximately $ 282 million and $ 568 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2013, respectively (June 30, 2012 – $ 205 million and $ 395 million, respectively). Furthermore, the Corporation securitized approximately $ 124 million and $ 252 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2013, respectively (June 30, 2012- $ 71 million and $ 131 million, respectively). Also, the Corporation securitized approximately $ 27 million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and six months ended June 30, 2013. There were no securitizations into FHLMC for the quarter and six months ended June 30, 2012. The Corporation sold commercial and construction loans with a book value of approximately $6 million and $407 million during the quarter and six months ended June 30, 2013, respectively (June 30, 2012- $19 million and $39 million, respectively). These sales included $401 million from the bulk sale of non-performing commercial and construction loans during the quarter ended March 31, 2013.

23

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, 2013 and December 31, 2012. 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, 2013
	Puerto Rico				U.S. mainland				Popular, Inc.
(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	$	9,660	$	—	$	20,796	$	—	$	30,456	$	—
Commercial real estate non-owner occupied		35,430		—		63,692		—		99,122		—
Commercial real estate owner occupied		97,439		—		30,472		—		127,911		—
Commercial and industrial		57,192		702		8,474		—		65,666		702
Construction		39,044		—		5,834		—		44,878		—
Mortgage[2]		144,717		392,389		27,105		—		171,822		392,389
Leasing		4,511		—		—		—		4,511		—
Legacy		—		—		28,434		—		28,434		—
Consumer:
Credit cards		—		19,988		362		—		362		19,988
Home equity lines of credit		—		38		7,989		—		7,989		38
Personal		17,473		—		1,253		—		18,726		—
Auto		8,690		—		3		—		8,693		—
Other		5,271		524		26		—		5,297		524
Total[1]	$	419,427	$	413,641	$	194,440	$	—	$	613,867	$	413,641

[1] For purposes of this table non-performing loans exclude $ 11 million in non-performing loans held-for-sale.

[2] Non-covered loans accounted for under ASC Subtopic 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

At December 31, 2012
	Puerto Rico				U.S. mainland				Popular, Inc.
(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	$	15,816	$	—	$	18,435	$	—	$	34,251	$	—
Commercial real estate non-owner occupied		66,665		—		78,140		—		144,805		—
Commercial real estate owner occupied		315,534		—		31,931		—		347,465		—
Commercial and industrial		124,717		529		14,051		—		138,768		529
Construction		37,390		—		5,960		—		43,350		—
Mortgage		596,105		364,387		34,025		—		630,130		364,387
Leasing		4,865		—		—		—		4,865		—
Legacy		—		—		40,741		—		40,741		—
Consumer:
Credit cards		—		22,184		505		—		505		22,184
Home equity lines of credit		—		312		7,454		—		7,454		312
Personal		19,300		23		1,905		—		21,205		23
Auto		8,551		—		4		—		8,555		—
Other		3,036		469		3		—		3,039		469
Total[1]	$	1,191,979	$	387,904	$	233,154	$	—	$	1,425,133	$	387,904

[1] For purposes of this table non-performing loans exclude $ 96 million in non-performing loans held-for-sale.

24

The following tables present loans by past due status at June 30, 2013 and December 31, 2012 for non-covered loans held-in-portfolio (net of unearned income).

June 30, 2013
Puerto Rico
	Past due										Non – covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	395	$	—	$	9,660	$	10,055	$	75,076	$	85,131
Commercial real estate non-owner occupied		37,265		—		35,430		72,695		1,709,725		1,782,420
Commercial real estate owner occupied		11,511		5,323		97,439		114,273		1,587,046		1,701,319
Commercial and industrial		14,002		7,155		57,894		79,051		2,675,862		2,754,913
Construction		1,813		—		39,044		40,857		215,645		256,502
Mortgage		291,244		144,090		563,783		999,117		4,314,353		5,313,470
Leasing		8,011		1,589		4,511		14,111		524,237		538,348
Consumer:
Credit cards		13,214		9,307		19,988		42,509		1,125,749		1,168,258
Home equity lines of credit		—		208		38		246		15,060		15,306
Personal		12,672		8,391		17,473		38,536		1,188,870		1,227,406
Auto		28,595		8,579		8,690		45,864		573,235		619,099
Other		2,193		500		5,795		8,488		220,820		229,308
Total	$	420,915	$	185,142	$	859,745	$	1,465,802	$	14,225,678	$	15,691,480

June 30, 2013
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	454	$	—	$	20,796	$	21,250	$	1,027,216	$	1,048,466
Commercial real estate non-owner occupied		903		—		63,692		64,595		1,128,017		1,192,612
Commercial real estate owner occupied		6,367		133		30,472		36,972		513,989		550,961
Commercial and industrial		8,409		273		8,474		17,156		784,862		802,018
Construction		13,707		—		5,834		19,541		20,967		40,508
Mortgage		12,035		12,503		27,105		51,643		1,238,474		1,290,117
Legacy		4,997		2,470		28,434		35,901		226,327		262,228
Consumer:
Credit cards		252		187		362		801		13,665		14,466
Home equity lines of credit		5,003		2,710		7,989		15,702		469,865		485,567
Personal		654		995		1,253		2,902		138,464		141,366
Auto		9		—		3		12		532		544
Other		4		—		26		30		1,296		1,326
Total	$	52,794	$	19,271	$	194,440	$	266,505	$	5,563,674	$	5,830,179

25

June 30, 2013
Popular, Inc.
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Popular, Inc.
Commercial multi-family	$	849	$	—	$	30,456	$	31,305	$	1,102,292	$	1,133,597
Commercial real estate non-owner occupied		38,168		—		99,122		137,290		2,837,742		2,975,032
Commercial real estate owner occupied		17,878		5,456		127,911		151,245		2,101,035		2,252,280
Commercial and industrial		22,411		7,428		66,368		96,207		3,460,724		3,556,931
Construction		15,520		—		44,878		60,398		236,612		297,010
Mortgage		303,279		156,593		590,888		1,050,760		5,552,827		6,603,587
Leasing		8,011		1,589		4,511		14,111		524,237		538,348
Legacy		4,997		2,470		28,434		35,901		226,327		262,228
Consumer:
Credit cards		13,466		9,494		20,350		43,310		1,139,414		1,182,724
Home equity lines of credit		5,003		2,918		8,027		15,948		484,925		500,873
Personal		13,326		9,386		18,726		41,438		1,327,334		1,368,772
Auto		28,604		8,579		8,693		45,876		573,767		619,643
Other		2,197		500		5,821		8,518		222,116		230,634
Total	$	473,709	$	204,413	$	1,054,185	$	1,732,307	$	19,789,352	$	21,521,659

December 31, 2012
Puerto Rico
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	1,005	$	—	$	15,816	$	16,821	$	98,272	$	115,093
Commercial real estate non-owner occupied		10,580		4,454		66,665		81,699		1,268,734		1,350,433
Commercial real estate owner occupied		28,240		13,319		315,534		357,093		1,685,393		2,042,486
Commercial and industrial		27,977		5,922		125,246		159,145		2,629,127		2,788,272
Construction		1,243		—		37,390		38,633		173,634		212,267
Mortgage		241,930		121,175		960,492		1,323,597		3,625,327		4,948,924
Leasing		6,493		1,555		4,865		12,913		527,610		540,523
Consumer:
Credit cards		14,521		10,614		22,184		47,319		1,135,753		1,183,072
Home equity lines of credit		124		—		312		436		16,370		16,806
Personal		13,208		7,392		19,323		39,923		1,205,859		1,245,782
Auto		24,128		6,518		8,551		39,197		521,119		560,316
Other		2,120		536		3,505		6,161		222,192		228,353
Total	$	371,569	$	171,485	$	1,579,883	$	2,122,937	$	13,109,390	$	15,232,327

26

December 31, 2012
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	6,828	$	5,067	$	18,435	$	30,330	$	876,357	$	906,687
Commercial real estate non-owner occupied		19,032		1,309		78,140		98,481		1,185,518		1,283,999
Commercial real estate owner occupied		9,979		100		31,931		42,010		523,954		565,964
Commercial and industrial		12,885		1,975		14,051		28,911		776,357		805,268
Construction		5,268		—		5,960		11,228		29,362		40,590
Mortgage		29,909		10,267		34,025		74,201		1,055,382		1,129,583
Legacy		15,765		20,112		40,741		76,618		307,599		384,217
Consumer:
Credit cards		305		210		505		1,020		14,121		15,141
Home equity lines of credit		3,937		2,506		7,454		13,897		460,332		474,229
Personal		2,757		1,585		1,905		6,247		136,882		143,129
Auto		38		3		4		45		723		768
Other		41		9		3		53		1,237		1,290
Total	$	106,744	$	43,143	$	233,154	$	383,041	$	5,367,824	$	5,750,865

December 31, 2012
Popular, Inc.
	Past due					Non-covered
	30-59	60-89	90 days	Total		loans HIP
(In thousands)	days	days	or more	past due	Current