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 March 31, 2014

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, 103,476,117 shares outstanding as of May 5, 2014.

POPULAR, INC.

INDEX

	Page
Part I – Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition at March 31, 2014 and December 31, 2013		5
Unaudited Consolidated Statements of Operations for the quarters ended March 31, 2014 and 2013		6
Unaudited Consolidated Statements of Comprehensive Income for the quarters ended March 31, 2014 and 2013		7
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the quarters ended March  31, 2014 and 2013		8
Unaudited Consolidated Statements of Cash Flows for the quarters ended March 31, 2014 and 2013		9
Notes to Unaudited Consolidated Financial Statements		11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		124
Item 3. Quantitative and Qualitative Disclosures about Market Risk		181
Item 4. Controls and Procedures		181
Part II – Other Information
Item 1. Legal Proceedings		181
Item 1A. Risk Factors		181
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		183
Item 6. Exhibits		184
Signatures		185

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;

• the resolution of our dispute with the FDIC under our loss share agreement entered into in connection with the Westernbank-FDIC assisted transaction; 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, 2013 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.

3

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.

4

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

(In thousands, except share information)	March 31, 2014			December 31, 2013
Assets:
Cash and due from banks	$	387,917		$	423,211
Money market investments:
Federal funds sold		7,490			5,055
Securities purchased under agreements to resell		178,142			175,965
Time deposits with other banks		1,436,801			677,433
Total money market investments		1,622,433			858,453
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		330,680			308,978
Other trading securities		28,567			30,765
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,757,178			1,286,839
Other investment securities available-for-sale		4,011,712			4,007,961
Investment securities held-to-maturity, at amortized cost (fair value 2014 - $127,799; 2013 - $120,688)		139,019			140,496
Other investment securities, at lower of cost or realizable value (realizable value 2014 - $170,244; 2013 - $184,526)		166,556			181,752
Loans held-for-sale, at lower of cost or fair value		94,877			110,426
Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		21,703,050			21,704,010
Loans covered under loss sharing agreements with the FDIC		2,870,054			2,984,427
Less – Unearned income		91,273			92,144
Allowance for loan losses		640,348			640,555
Total loans held-in-portfolio, net		23,841,483			23,955,738
FDIC loss share asset		833,721			948,608
Premises and equipment, net		513,855			519,516
Other real estate not covered under loss sharing agreements with the FDIC		136,965			135,501
Other real estate covered under loss sharing agreements with the FDIC		158,747			168,007
Accrued income receivable		125,895			131,536
Mortgage servicing assets, at fair value		156,529			161,099
Other assets		1,747,646			1,687,558
Goodwill		647,757			647,757
Other intangible assets		42,625			45,132
Total assets	$	36,744,162		$	35,749,333
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	6,326,596		$	5,922,682
Interest bearing		20,939,055			20,788,463
Total deposits		27,265,651			26,711,145
Federal funds purchased and assets sold under agreements to repurchase		2,208,213			1,659,292
Other short-term borrowings		1,200			401,200
Notes payable		1,506,408			1,584,754
Other liabilities		1,016,943			766,792
Total liabilities		31,998,415			31,123,183
Commitments and contingencies (See Note 22)
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; 103,494,430 shares issued (2013 – 103,435,967) and 103,455,535 shares outstanding (2013 – 103,397,699)		1,035			1,034
Surplus		4,171,817			4,170,152
Retained earnings		679,908			594,430
Treasury stock – at cost, 38,895 shares (2013 – 38,268)		(898	)		(881	)
Accumulated other comprehensive loss, net of tax		(156,275	)		(188,745	)
Total stockholders’ equity		4,745,747			4,626,150
Total liabilities and stockholders’ equity	$	36,744,162		$	35,749,333

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

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarters ended March 31,
(In thousands, except per share information)	2014			2013
Interest income:
Loans	$	401,933		$	385,926
Money market investments		973			955
Investment securities		35,127			37,823
Trading account securities		5,257			5,514
Total interest income		443,290			430,218
Interest expense:
Deposits		29,392			38,356
Short-term borrowings		9,041			9,782
Long-term debt		31,890			35,767
Total interest expense		70,323			83,905
Net interest income		372,967			346,313
Provision for loan losses - non-covered loans		47,358			206,300
Provision for loan losses - covered loans		25,714			17,556
Net interest income after provision for loan losses		299,895			122,457
Service charges on deposit accounts		41,250			43,722
Other service fees (Refer to Note 28)		54,043			56,093
Mortgage banking activities (Refer to Note 10)		3,681			20,300
Trading account profit (loss)		1,977			(984	)
Net gain (loss) on sale of loans, including valuation adjustments on loans held-for-sale		11,776			(62,719	)
Adjustments (expense) to indemnity reserves on loans sold		(10,347	)		(16,143	)
FDIC loss share (expense) income (Refer to Note 29)		(24,206	)		(26,266	)
Other operating income		28,391			20,054
Total non-interest income		106,565			34,057
Operating expenses:
Personnel costs		113,154			115,989
Net occupancy expenses		25,691			23,473
Equipment expenses		11,782			11,950
Other taxes		13,724			11,586
Professional fees		69,792			70,497
Communications		6,934			6,832
Business promotion		11,682			12,917
FDIC deposit insurance		11,973			9,280
Other real estate owned (OREO) expenses		6,187			46,741
Other operating expenses		23,364			21,965
Amortization of intangibles		2,504			2,468
Total operating expenses		296,787			333,698
Income (loss) before income tax		109,673			(177,184	)
Income tax expense (benefit)		23,264			(56,877	)
Net Income (Loss)	$	86,409		$	(120,307	)
Net Income (Loss) Applicable to Common Stock	$	85,478		$	(121,237	)
Net Income (Loss) per Common Share – Basic	$	0.83		$	(1.18	)
Net Income (Loss) per Common Share – Diluted	$	0.83		$	(1.18	)

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

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Quarters ended March 31,
(In thousands)	2014			2013
Net income (loss)	$	86,409		$	(120,307	)
Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		(2,115	)		724
Reclassification adjustment for losses included in net income		7,718			—
Amortization of net losses on pension and postretirement benefit plans		2,126			6,169
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		—
Unrealized holding gains (losses) on investments arising during the period		27,582			(28,955	)
Unrealized net losses on cash flow hedges		(1,725	)		(99	)
Reclassification adjustment for net losses (gains) included in net income		1,824			(152	)
Other comprehensive income (loss) before tax		34,460			(22,313	)
Income tax (expense) benefit		(1,990	)		3,173
Total other comprehensive income (loss), net of tax		32,470			(19,140	)
Comprehensive income (loss), net of tax	$	118,879		$	(139,447	)
Tax effect allocated to each component of other comprehensive income (loss):
	Quarters ended March 31,
(In thousands)	2014			2013
Amortization of net losses on pension and postretirement benefit plans		(829	)		(1,851	)
Amortization of prior service cost of pension and postretirement benefit plans		371			—
Unrealized holding gains (losses) on investments arising during the period		(1,493	)		4,949
Unrealized net losses on cash flow hedges		672			30
Reclassification adjustment for net losses (gains) included in net income		(711	)		45
Income tax (expense) benefit	$	(1,990	)	$	3,173

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

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)	Common stock		Preferred stock		Surplus		Retained earnings (accumulated deficit)			Treasury stock			Accumulated other comprehensive loss			Total
Balance at December 31, 2012	$	1,032	$	50,160	$	4,150,294	$	11,826		$	(444	)	$	(102,868	)	$	4,110,000
Net loss								(120,307	)								(120,307	)
Issuance of stock		1				1,544											1,545
Dividends declared:
Preferred stock								(930	)								(930	)
Common stock purchases											(25	)					(25	)
Other comprehensive loss, net of tax														(19,140	)		(19,140	)
Balance at March 31, 2013	$	1,033	$	50,160	$	4,151,838	$	(109,411	)	$	(469	)	$	(122,008	)	$	3,971,143
Balance at December 31, 2013	$	1,034	$	50,160	$	4,170,152	$	594,430		$	(881	)	$	(188,745	)	$	4,626,150
Net income								86,409									86,409
Issuance of stock		1				1,665											1,666
Dividends declared:
Preferred stock								(931	)								(931	)
Common stock purchases											(17	)					(17	)
Other comprehensive income, net of tax														32,470			32,470
Balance at March 31, 2014	$	1,035	$	50,160	$	4,171,817	$	679,908		$	(898	)	$	(156,275	)	$	4,745,747

Disclosure of changes in number of shares:	March 31, 2014			March 31, 2013
Preferred Stock:
Balance at beginning and end of period		2,006,391			2,006,391
Common Stock – Issued:
Balance at beginning of period		103,435,967			103,193,303
Issuance of stock		58,463			59,715
Balance at end of the period		103,494,430			103,253,018
Treasury stock		(38,895	)		(24,403	)
Common Stock – Outstanding		103,455,535			103,228,615

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

8

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Quarter ended March 31,
(In thousands)	2014			2013
Cash flows from operating activities:
Net income (loss)	$	86,409		$	(120,307	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		73,072			223,856
Amortization of intangibles		2,504			2,468
Depreciation and amortization of premises and equipment		11,965			12,254
Net accretion of discounts and amortization of premiums and deferred fees		(39,571	)		(14,257	)
Fair value adjustments on mortgage servicing rights		8,096			5,615
FDIC loss share expense		24,206			26,266
Adjustments (expense) to indemnity reserves on loans sold		10,347			16,143
Earnings from investments under the equity method		(16,930	)		(9,594	)
Deferred income tax expense (benefit)		13,898			(60,528	)
Loss (gain) on:
Disposition of premises and equipment		(1,671	)		(1,468	)
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(18,953	)		48,959
Sale of foreclosed assets, including write-downs		(1,199	)		38,363
Acquisitions of loans held-for-sale		(76,125	)		(15,335	)
Proceeds from sale of loans held-for-sale		45,115			51,000
Net originations on loans held-for-sale		(179,057	)		(382,810	)
Net (increase) decrease in:
Trading securities		218,997			423,236
Accrued income receivable		5,641			(9,815	)
Other assets		(1,463	)		28,181
Net increase (decrease) in:
Interest payable		(2,680	)		(255	)
Pension and other postretirement benefit obligation		(1,562	)		1,470
Other liabilities		(1,193	)		(28,586	)
Total adjustments		73,437			355,163
Net cash provided by operating activities		159,846			234,856
Cash flows from investing activities:
Net increase in money market investments		(763,980	)		(258,664	)
Purchases of investment securities:
Available-for-sale		(436,233	)		(736,069	)
Held-to-maturity		—			(250	)
Other		(34,768	)		(49,018	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		194,949			497,175
Held-to-maturity		1,888			2,078
Other		49,964			35,884
Net repayments on loans		205,660			468,309
Proceeds from sale of loans		42,238			43,044
Acquisition of loan portfolios		(201,385	)		(1,026,485	)
Net payments from (to) FDIC under loss sharing agreements		81,327			(107	)
Return of capital from equity method investments		—			438
Mortgage servicing rights purchased		—			(45	)
Acquisition of premises and equipment		(11,017	)		(11,983	)
Proceeds from sale of:
Premises and equipment		6,385			4,205
Foreclosed assets		38,830			71,930
Net cash used in by investing activities		(826,142	)		(959,558	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		559,972			(3,795	)
Federal funds purchased and assets sold under agreements to repurchase		548,921			248,923
Other short-term borrowings		(400,000	)		315,000
Payments of notes payable		(110,514	)		(48,281	)
Proceeds from issuance of notes payable		31,905			14,882
Proceeds from issuance of common stock		1,666			1,545
Dividends paid		(931	)		(620	)
Net payments for repurchase of common stock		(17	)		(25	)
Net cash provided by financing activities		631,002			527,629

9

Net decrease in cash and due from banks		(35,294	)		(197,073	)
Cash and due from banks at beginning of period		423,211			439,363
Cash and due from banks at end of period	$	387,917		$	242,290

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

10

Notes to Consolidated Financial

Statements (Unaudited)

Note 1 -	Organization, consolidation and basis of presentation	12
Note 2 -	New accounting pronouncements	13
Note 3 -	Restrictions on cash and due from banks and certain securities	15
Note 4 -	Pledged assets	16
Note 5 -	Investment securities available-for-sale	17
Note 6 -	Investment securities held-to-maturity	21
Note 7 -	Loans	23
Note 8 -	Allowance for loan losses	32
Note 9 -	FDIC loss share asset and true-up payment obligation	51
Note 10 -	Mortgage banking activities	53
Note 11 -	Transfers of financial assets and mortgage servicing assets	54
Note 12 -	Other real estate owned	57
Note 13 -	Other assets	58
Note 14 -	Goodwill and other intangible assets	59
Note 15 -	Deposits	61
Note 16 -	Borrowings	62
Note 17 -	Offsetting of financial assets and liabilities	64
Note 18 -	Trust preferred securities	66
Note 19 -	Stockholders’ equity	68
Note 20 -	Other comprehensive loss	69
Note 21 -	Guarantees	71
Note 22 -	Commitments and contingencies	74
Note 23 -	Non-consolidated variable interest entities	78
Note 24 -	Related party transactions with affiliated company / joint venture	82
Note 25 -	Fair value measurement	86
Note 26 -	Fair value of financial instruments	91
Note 27 -	Net income per common share	98
Note 28 -	Other service fees	99
Note 29 -	FDIC loss share (expense) income	100
Note 30 -	Pension and postretirement benefits	101
Note 31 -	Stock-based compensation	102
Note 32 -	Income taxes	104
Note 33 -	Supplemental disclosure on the consolidated statements of cash flows	107
Note 34 -	Segment reporting	108
Note 35 -	Subsequent events	112
Note 36 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	113

11

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 and the Caribbean. In Puerto Rico, the Corporation provides commercial and retail banking services, including mortgage loan originations, 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 34 to the consolidated financial statements present information about the Corporation’s business segments. Note 35 presents information regarding definitive agreements entered into by Popular Community Bank to sell its regional operations in California, Illinois and Central Florida.

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, 2013 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 2013 consolidated financial statements and notes to the financial statements to conform with the 2014 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 24 “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, 2013, included in the Corporation’s 2013 Annual Report (the “2013 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.

12

Note 2 – New accounting pronouncements

FASB Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposal of Components of an Entity (“ASU 2014-08”)

The FASB issued ASU 2014-08 in April 2014, which changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity investment.

In addition, the new guidance requires expanded disclosures about discontinued operations that will include more information about the assets, liabilities, income, and expenses of discontinued operations.

The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide information about the ongoing trends in the reporting organization’s results from continuing operations.

The amendments in the ASU are effective in the first quarter of 2015. Early adoption is permitted.

The Corporation is currently evaluating the impact that the adoption of this guidance will have on the presentation and disclosures in its consolidated financial statements.

FASB Accounting Standards Update 2014-04, Receivables-Troubled Debt Restructuring by Creditors (SubTopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (“ASU 2014-04”)

The FASB issued ASU 2014-04 in January 2014 which clarifies when a creditor should be considered to have received physical possession of a residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.

The amendments of this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

The amendment of this guidance requires interim and annual disclosures of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

ASU 2014-04 is effective for annual periods, and interim periods within those years, beginning after December 15, 2014. The amendments in this ASU can be elected using either a modified retrospective transition method or a prospective transition method. Early adoption 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 2013-11, 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.

13

The Corporation adopted this guidance on the first quarter of 2014 and did not have a material effect on the Corporation’s consolidated financial statements.

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 subtopic 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 Section 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.

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.

The Corporation adopted this guidance on the first quarter of 2014 and recognized a loss of approximately $7.7 million resulting from the reclassification from other comprehensive income into earnings of the cumulative foreign translation adjustment related to the dilution on its equity investment in BHD. Refer to note 13 for additional information.

14

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 $ 1.0 billion at March 31, 2014 (December 31, 2013 - $992 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 March 31, 2014 the Corporation held $43 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, 2013 - $44 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:

(In thousands)	March 31, 2014		December 31, 2013
Investment securities available-for-sale, at fair value	$	2,270,951	$	1,638,558
Investment securities held-to-maturity, at amortized cost		35,000		35,000
Loans held-for-sale measured at lower of cost or fair value		217		363
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		399,688		407,257
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,963,825		9,108,984
Total pledged assets	$	11,669,681	$	11,190,162

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 March 31, 2014, the Corporation had $ 1.0 billion in investment securities available-for-sale and $ 0.5 billion in loans that served as collateral to secure public funds (December 31, 2013 - $ 1.0 billion and $ 0.5 billion, respectively).

At March 31, 2014, 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 $3.0 billion (December 31, 2013 - $3.0 billion). Refer to Notes 16 to the consolidated financial statements for borrowings outstanding under these credit facilities. At March 31, 2014, the credit facilities authorized with the FHLB were collateralized by $ 3.8 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). Also, at March 31, 2014, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $3.4 billion, which remained unused as of such date ( December 31, 2013 - $3.4 billion). The amount available under these credit facilities with the Fed is dependent upon the balance of loans and securities pledged as collateral. At March 31, 2014, the credit facilities with the Fed discount window were collateralized by $ 5.1 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 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 March 31, 2014 trades receivables from brokers and counterparties amounting to $59 million were pledged to secure repurchase agreements (December 31, 2013 - $69 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 March 31, 2014 and December 31, 2013.

	At March 31, 2014
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	26,281	$	1,809	$	—	$	28,090		3.86	%
Total U.S. Treasury securities		26,281		1,809		—		28,090		3.86
Obligations of U.S. Government sponsored entities
Within 1 year		6,998		8		—		7,006		0.14
After 1 to 5 years		1,803,615		1,415		12,537		1,792,493		1.20
After 5 to 10 years		377,500		163		13,396		364,267		1.52
After 10 years		23,000		—		1,627		21,373		3.13
Total obligations of U.S. Government sponsored entities		2,211,113		1,586		27,560		2,185,139		1.27
Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		5,391		35		47		5,379		2.86
After 5 to 10 years		23,261		—		1,248		22,013		5.46
After 10 years		48,823		53		7,640		41,236		5.85
Total obligations of Puerto Rico, States and political subdivisions		77,475		88		8,935		68,628		5.52
Collateralized mortgage obligations - federal agencies
After 1 to 5 years		4,510		84		—		4,594		1.84
After 5 to 10 years		30,681		1,036		13		31,704		2.90
After 10 years		2,398,213		17,209		63,113		2,352,309		2.06
Total collateralized mortgage obligations - federal agencies		2,433,404		18,329		63,126		2,388,607		2.07
Collateralized mortgage obligations - private label
After 10 years		311		2		—		313		3.91
Total collateralized mortgage obligations - private label		311		2		—		313		3.91
Mortgage-backed securities
Within 1 year		166		10		—		176		2.65
After 1 to 5 years		19,809		1,018		—		20,827		4.41
After 5 to 10 years		104,025		3,589		1,525		106,089		3.36
After 10 years		904,177		53,101		2,440		954,838		3.97
Total mortgage-backed securities		1,028,177		57,718		3,965		1,081,930		3.92
Equity securities (without contractual maturity)		3,178		1,166		135		4,209		4.12
Other
After 1 to 5 years		9,547		—		75		9,472		1.68
After 10 years		2,439		63		—		2,502		3.61
Total other		11,986		63		75		11,974		2.07
Total investment securities available-for-sale	$	5,791,925	$	80,761	$	103,796	$	5,768,890		2.15	%

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	At December 31, 2013
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
After 1 to 5 years	$	26,474	$	2,008	$	—	$	28,482		3.85	%
Total U.S. Treasury securities		26,474		2,008		—		28,482		3.85
Obligations of U.S. Government sponsored entities
Within 1 year		25,021		39		—		25,060		1.85
After 1 to 5 years		1,087,453		1,678		12,715		1,076,416		1.26
After 5 to 10 years		528,611		100		21,742		506,969		1.52
After 10 years		23,000		—		2,240		20,760		3.12
Total obligations of U.S. Government sponsored entities		1,664,085		1,817		36,697		1,629,205		1.38
Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,228		45		85		6,188		4.64
After 5 to 10 years		23,147		—		1,978		21,169		6.33
After 10 years		48,803		29		9,812		39,020		5.84
Total obligations of Puerto Rico, States and political subdivisions		78,178		74		11,875		66,377		5.89
Collateralized mortgage obligations - federal agencies
After 1 to 5 years		5,131		101		—		5,232		1.79
After 5 to 10 years		31,613		921		—		32,534		2.98
After 10 years		2,438,021		18,532		76,023		2,380,530		2.05
Total collateralized mortgage obligations - federal agencies		2,474,765		19,554		76,023		2,418,296		2.06
Collateralized mortgage obligations - private label
After 10 years		509		4		—		513		3.78
Total collateralized mortgage obligations - private label		509		4		—		513		3.78
Mortgage-backed securities
Within 1 year		419		24		—		443		3.14
After 1 to 5 years		15,921		833		—		16,754		4.50
After 5 to 10 years		62,373		3,058		1,214		64,217		4.12
After 10 years		1,007,733		50,807		4,313		1,054,227		3.93
Total mortgage-backed securities		1,086,446		54,722		5,527		1,135,641		3.95
Equity securities (without contractual maturity)		3,178		1,109		171		4,116		4.06
Other
After 1 to 5 years		9,638		—		141		9,497		1.68
After 10 years		2,604		69		—		2,673		3.61
Total other		12,242		69		141		12,170		2.09
Total investment securities available-for-sale	$	5,345,877	$	79,357	$	130,434	$	5,294,800		2.30	%

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.

There were no securities sold during the quarters ended March 31, 2014 and 2013.

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 March 31, 2014 and December 31, 2013.

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	At March 31, 2014
	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	$	1,766,585	$	26,910	$	22,815	$	650	$	1,789,400	$	27,560
Obligations of Puerto Rico, States and political subdivisions		29,571		456		35,089		8,479		64,660		8,935
Collateralized mortgage obligations - federal agencies		1,387,656		49,496		220,582		13,630		1,608,238		63,126
Mortgage-backed securities		75,600		2,895		11,817		1,070		87,417		3,965
Equity securities		—		—		1,692		135		1,692		135
Other		—		—		9,472		75		9,472		75
Total investment securities available-for-sale in an unrealized loss position	$	3,259,412	$	79,757	$	301,467	$	24,039	$	3,560,879	$	103,796
	At December 31, 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	$	1,326,866	$	32,457	$	69,257	$	4,240	$	1,396,123	$	36,697
Obligations of Puerto Rico, States and political subdivisions		54,256		11,685		8,330		190		62,586		11,875
Collateralized mortgage obligations - federal agencies		1,567,654		70,378		96,676		5,645		1,664,330		76,023
Mortgage-backed securities		105,455		4,762		7,225		765		112,680		5,527
Equity securities		1,657		171		—		—		1,657		171
Other		—		—		9,497		141		9,497		141
Total investment securities available-for-sale in an unrealized loss position	$	3,055,888	$	119,453	$	190,985	$	10,981	$	3,246,873	$	130,434

As of March 31, 2014, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $104 million, driven by US Agency Collateralized Mortgage Obligations, obligations from the U.S. Government sponsored entities, and obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all US Agencies’ securities, management considers the US Agency guarantee. The portfolio of obligations of the Puerto Rico Government is comprised of securities with specific sources of income or revenues identified for repayments. The Corporation performs periodic credit quality reviews on these issuers.

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.

At March 31, 2014, 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.

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At March 31, 2014, 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.

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.

	March 31, 2014				December 31, 2013
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,257,350	$	2,219,711	$	2,318,171	$	2,266,610
FHLB		813,953		804,431		336,933		326,220
Freddie Mac		1,522,882		1,513,135		1,434,346		1,418,216

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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 March 31, 2014 and December 31, 2013.

	At March 31, 2014
(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	$	12,685	$	—	$	23	$	12,662		2.10	%
After 1 to 5 years		12,595		—		1,034		11,561		5.93
After 5 to 10 years		20,925		—		5,610		15,315		6.08
After 10 years		66,200		888		5,431		61,657		2.29
Total obligations of Puerto Rico, States and political subdivisions		112,405		888		12,098		101,195		3.38
Collateralized mortgage obligations - federal agencies
After 10 years		114		—		9		105		5.45
Total collateralized mortgage obligations - federal agencies		114		—		9		105		5.45
Other
Within 1 year		26,250		—		—		26,250		3.39
After 1 to 5 years		250		—		1		249		1.37
Total other		26,500		—		1		26,499		3.37
Total investment securities held-to-maturity	$	139,019	$	888	$	12,108	$	127,799		3.38	%
	At December 31, 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	$	12,570	$	—	$	12	$	12,558		2.06	%
After 1 to 5 years		12,060		—		984		11,076		5.91
After 5 to 10 years		20,015		—		5,251		14,764		6.06
After 10 years		69,236		257		13,179		56,314		2.43
Total obligations of Puerto Rico, States and political subdivisions		113,881		257		19,426		94,712		3.40
Collateralized mortgage obligations - federal agencies
After 10 years		115		7		—		122		5.45
Total collateralized mortgage obligations - federal agencies		115		7		—		122		5.45
Other
Within 1 year		26,000		—		645		25,355		3.41
After 1 to 5 years		500		—		1		499		1.33
Total other		26,500		—		646		25,854		3.37
Total investment securities held-to-maturity	$	140,496	$	264	$	20,072	$	120,688		3.40	%

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 March 31, 2014 and December 31, 2013.

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	At March 31, 2014
	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	$	55,600	$	6,718	$	24,695	$	5,380	$	80,295	$	12,098
Collateralized mortgage obligations - federal agencies		105		9		—		—		105		9
Other		249		1		—		—		249		1
Total investment securities held-to-maturity in an unrealized loss position	$	55,954	$	6,728	$	24,695	$	5,380	$	80,649	$	12,108
	At December 31, 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	$	60,028	$	12,180	$	13,044	$	7,246	$	73,072	$	19,426
Other		24,604		646		—		—		24,604		646
Total investment securities held-to-maturity in an unrealized loss position	$	84,632	$	12,826	$	13,044	$	7,246	$	97,676	$	20,072

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 March 31, 2014 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $62 million of securities issued by three municipalities of Puerto Rico that are payable from the real and personal property taxes collected within such municipalities. These bonds have seniority to the payment of operating cost and expenses of the municipality. The portfolio also includes approximately $40 million in securities for which the underlying source of payment is not the central government, but in which it provides a guarantee in the event of default. In February 2014, the three principal nationally recognized rating agencies (Moody’s Investor Services, Standard and Poor’s and Fitch Ratings) downgraded the general-obligation bonds of the Commonwealth and other obligations of Puerto Rico instrumentalities to non-investment grade categories, citing concerns about financial flexibility and a reduced capacity to borrow in the financial markets. 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.

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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 2013 Annual Report.

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, at March 31, 2014 and December 31, 2013.

(In thousands)	March 31, 2014		December 31, 2013
Commercial multi-family	$	1,174,906	$	1,175,937
Commercial real estate non-owner occupied		3,013,789		2,970,505
Commercial real estate owner occupied		2,109,840		2,166,545
Commercial and industrial		3,716,186		3,724,197
Construction		176,766		206,084
Mortgage		6,669,376		6,681,476
Leasing		546,880		543,761
Legacy[2]		197,164		211,135
Consumer:
Credit cards		1,163,617		1,185,272
Home equity lines of credit		466,783		478,211
Personal		1,424,161		1,349,119
Auto		735,976		699,980
Other		216,333		219,644
Total loans held-in-portfolio[1]	$	21,611,777	$	21,611,866

[1] Non-covered loans held-in-portfolio at March 31, 2014 are net of $91 million in unearned income and exclude $95 million in loans held-for-sale (December 31, 2013 - $92 million in unearned income and $110 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 segment.

23

The following table presents the composition of covered loans at March 31, 2014 and December 31, 2013.

(In thousands)	March 31, 2014		December 31, 2013
Commercial real estate	$	1,684,134	$	1,710,229
Commercial and industrial		107,551		102,575
Construction		127,444		190,127
Mortgage		907,069		934,373
Consumer		43,856		47,123
Total loans held-in-portfolio	$	2,870,054	$	2,984,427

The following table provides a breakdown of loans held-for-sale (“LHFS”) at March 31, 2014 and December 31, 2013 by main categories.

(In thousands)	March 31, 2014		December 31, 2013
Commercial	$	—	$	603
Mortgage		94,877		109,823
Total loans held-for-sale	$	94,877	$	110,426

During the quarter ended March 31, 2014, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $161 million (March 31, 2013 - $1.0 billion). Additionally, the Corporation recorded purchases of $92 million in consumer loans during the quarter ended March 31, 2014 (March 31, 2013 - $0) and purchases of $21 million in commercial loans during the quarter ended March 31, 2014 (March 31, 2013 - $0).

The Corporation performed whole-loan sales involving approximately $43 million of residential mortgage loans during the quarter ended March 31, 2014 (March 31, 2013 - $50 million). Also, during the quarter ended March 31, 2014, the Corporation securitized approximately $166 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities and $63 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities, compared to $285 million and $128 million, respectively, during the quarter ended March 31, 2013. The Corporation sold commercial and construction loans with a book value of approximately $30 million during the quarter ended March 31, 2014 (March 31, 2013 - $401 million, sold as part of the bulk sale of non-performing asset completed during such quarter).

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 March 31, 2014 and December 31, 2013. 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.

24

At March 31, 2014
	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	$	4,351	$	—	$	9,655	$	—	$	14,006	$	—
Commercial real estate non-owner occupied		46,879		—		26,344		—		73,223		—
Commercial real estate owner occupied		107,617		—		18,456		—		126,073		—
Commercial and industrial		87,084		691		6,543		—		93,627		691
Construction		22,464		—		—		—		22,464		—
Mortgage[2][3]		229,801		386,765		22,220		—		252,021		386,765
Leasing		3,050		—		—		—		3,050		—
Legacy		—		—		11,608		—		11,608		—
Consumer:
Credit cards		—		21,333		474		—		474		21,333
Home equity lines of credit		—		71		6,976		—		6,976		71
Personal		16,467		—		833		—		17,300		—
Auto		10,887		—		2		—		10,889		—
Other		3,623		550		—		—		3,623		550
Total[1]	$	532,223	$	409,410	$	103,111	$	—	$	635,334	$	409,410

[1] For purposes of this table non-performing loans exclude $ 789 thousand in non-performing loans held-for-sale.

[2] Non-covered loans by $49 million 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.

[3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $117 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of March 31, 2014. Furthermore, the Corporation has approximately $52 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

At December 31, 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	$	4,944	$	—	$	20,894	$	—	$	25,838	$	—
Commercial real estate non-owner occupied		41,959		—		42,413		—		84,372		—
Commercial real estate owner occupied		83,441		—		23,507		—		106,948		—
Commercial and industrial		55,753		556		6,142		—		61,895		556
Construction		18,108		—		5,663		—		23,771		—
Mortgage[2][3]		206,389		395,645		26,292		—		232,681		395,645
Leasing		3,495		—		—		—		3,495		—
Legacy		—		—		15,050		—		15,050		—
Consumer:
Credit cards		—		20,313		486		—		486		20,313
Home equity lines of credit		—		147		8,632		—		8,632		147
Personal		17,054		54		1,591		—		18,645		54
Auto		10,562		—		2		—		10,564		—
Other		5,550		585		21		—		5,571		585
Total[1]	$	447,255	$	417,300	$	150,693	$	—	$	597,948	$	417,300

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

[2] Non-covered loans by $43 million 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.

[3] It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. These balances include $115 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2013. Furthermore, the Corporation has approximately $50 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

25

The following tables present loans by past due status at March 31, 2014 and December 31, 2013 for non-covered loans held-in-portfolio (net of unearned income).

March 31, 2014
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	$	438	$	—	$	4,351	$	4,789	$	68,503	$	73,292
Commercial real estate non-owner occupied		19,114		1,597		46,879		67,590		1,862,095		1,929,685
Commercial real estate owner occupied		44,994		4,315		107,617		156,926		1,411,179		1,568,105
Commercial and industrial		46,108		2,056		87,775		135,939		2,735,977		2,871,916
Construction		14,441		—		22,464		36,905		104,698		141,603
Mortgage		293,866		159,568		666,065		1,119,499		4,305,362		5,424,861
Leasing		6,230		2,519		3,050		11,799		535,081		546,880
Consumer:
Credit cards		13,358		9,092		21,333		43,783		1,104,767		1,148,550
Home equity lines of credit		266		—		71		337		14,193		14,530
Personal		13,715		6,733		16,467		36,915		1,255,697		1,292,612
Auto		33,886		8,202		10,887		52,975		682,585		735,560
Other		806		148		4,173		5,127		210,198		215,325
Total	$	487,222	$	194,230	$	991,132	$	1,672,584	$	14,290,335	$	15,962,919

March 31, 2014
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	$	3,757	$	—	$	9,655	$	13,412	$	1,088,202	$	1,101,614
Commercial real estate non-owner occupied		4,364		626		26,344		31,334		1,052,770		1,084,104
Commercial real estate owner occupied		5,002		380		18,456		23,838		517,897		541,735
Commercial and industrial		10,611		1,511		6,543		18,665		825,605		844,270
Construction		—		—		—		—		35,163		35,163
Mortgage		36,914		2,181		22,220		61,315		1,183,200		1,244,515
Legacy		10,218		1,001		11,608		22,827		174,337		197,164
Consumer:
Credit cards		218		186		474		878		14,189		15,067
Home equity lines of credit		3,350		1,387		6,976		11,713		440,540		452,253
Personal		2,897		737		833		4,467		127,082		131,549
Auto		21		—		2		23		393		416
Other		—		—		—		—		1,008		1,008
Total	$	77,352	$	8,009	$	103,111	$	188,472	$	5,460,386	$	5,648,858

26

March 31, 2014
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	$	4,195	$	—	$	14,006	$	18,201	$	1,156,705	$	1,174,906
Commercial real estate non-owner occupied		23,478		2,223		73,223		98,924		2,914,865		3,013,789
Commercial real estate owner occupied		49,996		4,695		126,073		180,764		1,929,076		2,109,840
Commercial and industrial		56,719		3,567		94,318		154,604		3,561,582		3,716,186
Construction		14,441		—		22,464		36,905		139,861		176,766
Mortgage		330,780		161,749		688,285		1,180,814		5,488,562		6,669,376
Leasing		6,230		2,519		3,050		11,799		535,081		546,880
Legacy		10,218		1,001		11,608		22,827		174,337		197,164
Consumer:
Credit cards		13,576		9,278		21,807		44,661		1,118,956		1,163,617
Home equity lines of credit		3,616		1,387		7,047		12,050		454,733		466,783
Personal		16,612		7,470		17,300		41,382		1,382,779		1,424,161
Auto		33,907		8,202		10,889		52,998		682,978		735,976
Other		806		148		4,173		5,127		211,206		216,333
Total	$	564,574	$	202,239	$	1,094,243	$	1,861,056	$	19,750,721	$	21,611,777

December 31, 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	$	446	$	—	$	4,944	$	5,390	$	77,013	$	82,403
Commercial real estate non-owner occupied		13,889		349		41,959		56,197		1,808,021		1,864,218
Commercial real estate owner occupied		13,725		8,318		83,441		105,484		1,501,019		1,606,503
Commercial and industrial		9,960		4,463		56,309		70,732		2,841,734		2,912,466
Construction		2,329		—		18,108		20,437		140,734		161,171
Mortgage		316,663		154,882		645,444		1,116,989		4,283,690		5,400,679
Leasing		7,457		1,607		3,495		12,559		531,202		543,761
Consumer:
Credit cards		13,797		9,991		20,313		44,101		1,125,520		1,169,621
Home equity lines of credit		133		53		147		333		14,845		15,178
Personal		12,897		6,794		17,108		36,799		1,177,085		1,213,884
Auto		31,340		9,361		10,562		51,263		648,228		699,491
Other		1,834		859		6,135		8,828		209,636		218,464
Total	$	424,470	$	196,677	$	907,965	$	1,529,112	$	14,358,727	$	15,887,839

27

December 31, 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	$	3,621	$	1,675	$	20,894	$	26,190	$	1,067,344	$	1,093,534
Commercial real estate non-owner occupied		4,255		—		42,413		46,668		1,059,619		1,106,287
Commercial real estate owner occupied		657		8,452		23,507		32,616		527,426		560,042
Commercial and industrial		2,331		2,019		6,142		10,492		801,239		811,731
Construction		—		—		5,663		5,663		39,250		44,913
Mortgage		30,713		9,630		26,292		66,635		1,214,162		1,280,797
Legacy		9,079		2,098		15,050		26,227		184,908		211,135
Consumer:
Credit cards		285		200		486		971		14,680		15,651
Home equity lines of credit		2,794		2,198		8,632		13,624		449,409		463,033
Personal		3,196		826		1,591		5,613		129,622		135,235
Auto		11		—		2		13		476		489
Other		43		50		21		114		1,066		1,180
Total	$	56,985	$	27,148	$	150,693	$	234,826	$	5,489,201	$	5,724,027

December 31, 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	$	4,067	$	1,675	$	25,838	$	31,580	$	1,144,357	$	1,175,937
Commercial real estate non-owner occupied		18,144		349		84,372		102,865		2,867,640		2,970,505
Commercial real estate owner occupied		14,382		16,770		106,948		138,100		2,028,445		2,166,545
Commercial and industrial		12,291		6,482		62,451		81,224		3,642,973		3,724,197
Construction		2,329		—		23,771		26,100		179,984		206,084
Mortgage		347,376		164,512		671,736		1,183,624		5,497,852		6,681,476
Leasing		7,457		1,607		3,495		12,559		531,202		543,761
Legacy		9,079		2,098		15,050		26,227		184,908		211,135
Consumer:
Credit cards		14,082		10,191		20,799		45,072		1,140,200		1,185,272
Home equity lines of credit		2,927		2,251		8,779		13,957		464,254		478,211
Personal		16,093		7,620		18,699		42,412		1,306,707		1,349,119
Auto		31,351		9,361		10,564		51,276		648,704		699,980
Other		1,877		909		6,156		8,942		210,702		219,644
Total	$	481,455	$	223,825	$	1,058,658	$	1,763,938	$	19,847,928	$	21,611,866

The following table provides a breakdown of loans held-for-sale (“LHFS”) in non-performing status at March 31, 2014 and December 31, 2013 by main categories.

(In thousands)	March 31, 2014		December 31, 2013
Commercial	$	—	$	603
Mortgage		789		489
Total	$	789	$	1,092

The outstanding principal balance of non-covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $216 million at March 31, 2014 (March 31, 2013 - $148 million). At March 31, 2014, none of the acquired non-covered loans accounted under ASC Subtopic 310-30 were considered non-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.

28

Changes in the carrying amount and the accretable yield for the non-covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended March 31, 2014 and 2013 were as follows:

Activity in the accretable yield - Non-covered loans ASC 310-30
	For the quarters ended
(In thousands)	March 31, 2014			March 31, 2013
Beginning balance	$	49,398		$	—
Additions		7,084			37,235
Accretion		(2,374	)		(608	)
Change in expected cash flows		13,177			—
Ending balance	$	67,285		$	36,627

Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
(In thousands)	March 31, 2014			March 31, 2013
Beginning balance	$	173,659		$	—
Additions		20,042			133,412
Accretion		2,374			608
Collections and charge-offs		(5,859	)		(979	)
Ending balance	$	190,216		$	133,041
Allowance for loan losses ASC 310-30 non-covered loans		(15,078	)		—
Ending balance, net of allowance for loan losses	$	175,138		$	133,041

Covered loans

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at March 31, 2014 and December 31, 2013.

	March 31, 2014				December 31, 2013
	Non-accrual		Accruing loans past		Non-accrual		Accruing loans past
(In thousands)	loans		due 90 days or more		loans		due 90 days or more
Commercial real estate	$	8,570	$	—	$	8,345	$	—
Commercial and industrial		1,003		—		7,335		456
Construction		11,580		—		11,872		—
Mortgage		2,537		—		1,739		69
Consumer		222		—		90		112
Total[1]	$	23,912	$	—	$	29,381	$	637

[1] 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 analyses.

29

The following tables present loans by past due status at March 31, 2014 and December 31, 2013 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.

March 31, 2014
	Past due
	30-59		60-89		90 days		Total				Covered
(In thousands)	days		days		or more		past due		Current		loans HIP
Commercial real estate	$	32,837	$	4,819	$	368,923	$	406,579	$	1,277,555	$	1,684,134
Commercial and industrial		1,160		862		8,378		10,400		97,151		107,551
Construction		—		—		115,978		115,978		11,466		127,444
Mortgage		60,074		14,979		156,194		231,247		675,822		907,069
Consumer		2,346		1,025		4,014		7,385		36,471		43,856
Total covered loans	$	96,417	$	21,685	$	653,487	$	771,589	$	2,098,465	$	2,870,054

December 31, 2013
	Past due
	30-59		60-89		90 days		Total				Covered
(In thousands)	days		days		or more		past due		Current		loans HIP
Commercial real estate	$	42,898	$	8,745	$	374,301	$	425,944	$	1,284,285	$	1,710,229
Commercial and industrial		1,584		349		16,318		18,251		84,324		102,575
Construction		399		—		178,007		178,406		11,721		190,127
Mortgage		50,222		23,384		165,030		238,636		695,737		934,373
Consumer		2,588		1,328		4,200		8,116		39,007		47,123
Total covered loans	$	97,691	$	33,806	$	737,856	$	869,353	$	2,115,074	$	2,984,427

The carrying amount of the covered loans consisted of loans determined to be impaired at the time of acquisition, which are accounted for in accordance with ASC Subtopic 310-30 (“credit impaired loans”), and loans that were considered to be performing at the acquisition date, accounted for by analogy to ASC Subtopic 310-30 (“non-credit impaired loans”), as detailed in the following table.

	March 31, 2014									December 31, 2013
	Carrying amount									Carrying amount
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Commercial real estate	$	1,481,476		$	150,681		$	1,632,157		$	1,483,331		$	149,341		$	1,632,672
Commercial and industrial		55,268			2,223			57,491			55,192			3,069			58,261
Construction		58,975			54,556			113,531			71,864			104,356			176,220
Mortgage		840,490			53,774			894,264			862,878			59,483			922,361
Consumer		33,244			2,435			35,679			35,810			2,623			38,433
Carrying amount		2,469,453			263,669			2,733,122			2,509,075			318,872			2,827,947
Allowance for loan losses		(56,953	)		(33,418	)		(90,371	)		(57,594	)		(36,321	)		(93,915	)
Carrying amount, net of allowance	$	2,412,500		$	230,251		$	2,642,751		$	2,451,481		$	282,551		$	2,734,032

The outstanding principal balance of covered loans accounted pursuant to ASC Subtopic 310-30, net of amounts charged off by the Corporation, amounted to $3.6 billion at March 31, 2014 (December 31, 2013 - $3.8 billion). At March 31, 2014, none of the acquired loans from the Westernbank FDIC-assisted transaction accounted for under ASC Subtopic 310-30 were considered non-performing loans. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, was recognized on all acquired loans.

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Changes in the carrying amount and the accretable yield for the covered loans accounted pursuant to the ASC Subtopic 310-30, for the quarters ended March 31, 2014 and 2013, were as follows:

	Activity in the accretable yield
	Covered loans ASC 310-30
	For the quarters ended
	March 31, 2014									March 31, 2013
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,297,725		$	11,480		$	1,309,205		$	1,446,381		$	5,288		$	1,451,669
Accretion		(72,552	)		(6,566	)		(79,118	)		(61,177	)		(3,813	)		(64,990	)
Change in expected cash flows		(12,467	)		592			(11,875	)		(12,829	)		(1,715	)		(14,544	)
Ending balance	$	1,212,706		$	5,506		$	1,218,212		$	1,372,375		$	(240	)	$	1,372,135
	Carrying amount of covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
	March 31, 2014									March 31, 2013
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	2,509,075		$	318,872		$	2,827,947		$	3,051,964		$	439,795		$	3,491,759
Accretion		72,552			6,566			79,118			61,177			3,813			64,990
Collections and charge-offs		(112,174	)		(61,769	)		(173,943	)		(354,197	)		(44,889	)		(399,086	)
Ending balance	$	2,469,453		$	263,669		$	2,733,122		$	2,758,944		$	398,719		$	3,157,663
Allowance for loan losses
ASC 310-30 covered loans		(56,953	)		(33,418	)		(90,371	)		(52,542	)		(39,031	)		(91,573	)
Ending balance, net of ALLL	$	2,412,500		$	230,251		$	2,642,751		$	2,706,402		$	359,688		$	3,066,090

The Corporation accounts for lines of credit with revolving privileges under the accounting guidance of ASC Subtopic 310-20, which requires that any differences between the contractually required loans payment receivable in excess of the initial investment in the loans be accreted into interest income over the life of the loans, if the loan is accruing interest. Covered loans accounted for under ASC Subtopic 310-20 amounted to $0.1 billion at March 31, 2014 (December 31, 2013 - $0.2 billion).

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Note 8 – Allowance for loan losses

The Corporation’s assessment of the allowance for loan losses is determined in accordance with accounting guidance, specifically loss contingencies guidance in ASC Subtopic 450-20 (general reserve) and loan impairment guidance in ASC Section 310-10-35 (specific reserve).

The accounting guidance provides for the recognition of a loss allowance for groups of homogeneous loans. The determination for general reserves of the allowance for loan losses includes the following principal factors:

• Base net loss rates, which are based on the moving average of annualized net loss rates computed over a 3-year historical loss period for the commercial and construction loan portfolios, and an 18-month period for the consumer and mortgage loan portfolios. The base net loss rates are applied by loan type and by legal entity.

• Recent loss trend adjustment, which replaces the base loss rate with a 12-month average loss rate for the commercial, construction and legacy loan portfolios and 6-month average loss rate for the consumer and mortgage loan portfolios, when these trends are higher than the respective base loss rates, up to a determined cap in the case of consumer and mortgage loan portfolios. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process, while limiting excessive pro-cyclicality on changing economic periods using caps for the consumer and mortgage portfolios given the shorter six month look back window. These caps are calibrated annually at the end of each year and consistently applied until the next annual review. As part of the periodic review of the adequacy of the ALLL models and related assumptions, management monitors and reviews the loan segments for which the caps are being triggered in order to assess the reasonability of the cap in light of the risk profile of the portfolio and current credit and loss trends. Upon the completion of these qualitative reviews, management may make reserve adjustments that may partially or fully override the effect of the caps, if warranted. The caps are determined by measuring historic periods in which the recent loss trend adjustment rates were higher than the base loss rates and setting the cap at a percentile of the historic trend loss rates.

For the period ended March 31, 2014, the recent loss trend adjustment caps for the consumer and mortgage portfolios were triggered in only one portfolio segment within the Puerto Rico consumer portfolio. Management assessed the impact of the applicable cap through a review of qualitative factors that specifically considered the drivers of recent loss trends and changes to the portfolio composition. The related effect of the aforementioned cap was immaterial for the overall level of the Allowance for Loan and Lease Losses for the Puerto Rico consumer portfolio.

For the period ended March 31, 2013, the recent loss trend adjustment caps for the consumer and mortgage portfolios were triggered in one consumer portfolio segment and one mortgage portfolio segment in the Puerto Rico region. Management assessed the adequacy of the applicable caps through a review of qualitative factors and recorded a $1.9 million qualitative offsetting adjustment that reversed the effect of the cap on the overall level of the Allowance for Loan and Lease Losses for the Puerto Rico consumer and mortgage portfolios. This offsetting adjustment considered the aforementioned review of qualitative factors, specifically, recent loss trends and changes to the portfolio composition.

At March 31, 2013, the impact of the use of recent loss trend adjustment caps on the overall level of Allowance for Loan and Lease Losses for the commercial portfolio was immaterial. The use of recent loss trend adjustment caps in the commercial portfolio was eliminated in the second quarter of 2013.

For the period ended March 31, 2014, 34% (March 31, 2013 - 51%) of the ALLL for BPPR non-covered loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, mortgage, personal and auto loan portfolios for 2014, and in the commercial multi-family, commercial real estate non-owner occupied, commercial real estate owner occupied, mortgage, leasing and auto loan portfolios for 2013.

For the period ended March 31, 2014, 23% (March 31, 2013 - 13 %) of the ALLL for BPNA loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the commercial multi-family, commercial and industrial, construction and legacy loan portfolios for 2014 and in the commercial multi-family and consumer loan portfolios for 2013.

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• Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, were adopted to account for current market conditions that are likely to cause estimated credit losses to differ from historical losses. The Corporation reflects the effect of these environmental factors on each loan group as an adjustment that, as appropriate, increases or decreases the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis was used to select these indicators and quantify the effect on the general reserve of the allowance for loan losses.

The following tables present the changes in the allowance for loan losses for the quarters ended March 31, 2014 and 2013.

For the quarter ended March 31, 2014
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	128,150		$	5,095		$	130,330		$	10,622		$	152,578		$	426,775
Provision (reversal of provision)		11,157			(1,394	)		15,982			517			27,653			53,915
Charge-offs		(22,117	)		(416	)		(8,726	)		(967	)		(29,196	)		(61,422	)
Recoveries		6,944			1,794			210			311			6,213			15,472
Ending balance	$	124,134		$	5,079		$	137,796		$	10,483		$	157,248		$	434,740
For the quarter ended March 31, 2014
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	42,198		$	19,491		$	36,006		$	—		$	4,397		$	102,092
Provision (reversal of provision)		4,039			17,567			4,498			—			(390	)		25,714
Charge-offs		(7,968	)		(22,981	)		(1,656	)		—			295			(32,310	)
Recoveries		320			1,889			—			—			68			2,277
Ending balance	$	38,589		$	15,966		$	38,848		$	—		$	4,370		$	97,773
For the quarter ended March 31, 2014
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	46,832		$	247		$	26,599		$	13,704		$	24,306		$	111,688
Provision (reversal of provision)		(2,643	)		(200	)		(562	)		(5,314	)		2,162			(6,557	)
Charge-offs		(8,082	)		—			(1,538	)		(3,445	)		(5,976	)		(19,041	)
Recoveries		11,773			176			668			8,327			801			21,745
Ending balance	$	47,880		$	223		$	25,167		$	13,272		$	21,293		$	107,835

For the quarter ended March 31, 2014
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	217,180		$	24,833		$	192,935		$	13,704		$	10,622		$	181,281		$	640,555
Provision (reversal of provision)		12,553			15,973			19,918			(5,314	)		517			29,425			73,072
Charge-offs		(38,167	)		(23,397	)		(11,920	)		(3,445	)		(967	)		(34,877	)		(112,773	)
Recoveries		19,037			3,859			878			8,327			311			7,082			39,494
Ending balance	$	210,603		$	21,268		$	201,811		$	13,272		$	10,483		$	182,911		$	640,348

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For the quarter ended March 31, 2013
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	217,615		$	5,862		$	119,027		$	2,894		$	99,899		$	445,297
Provision		128,877			2,742			28,212			1,985			42,476			204,292
Charge-offs		(32,446	)		(1,629	)		(17,759	)		(1,543	)		(27,360	)		(80,737	)
Recoveries		8,134			1,274			986			559			7,359			18,312
Net write-down related to loans sold		(161,297	)		(1,846	)		—			—			—			(163,143	)
Ending balance	$	160,883		$	6,403		$	130,466		$	3,895		$	122,374		$	424,021
For the quarter ended March 31, 2013
Puerto Rico - Covered Loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	72,060		$	9,946		$	20,914		$	—		$	5,986		$	108,906
Provision		6,156			5,792			1,810			—			3,798			17,556
Charge-offs		(10,565	)		(9,759	)		(2,062	)		—			(4,567	)		(26,953	)
Recoveries		30			314			11			—			3			358
Ending balance	$	67,681		$	6,293		$	20,673		$	—		$	5,220		$	99,867
For the quarter ended March 31, 2013
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	80,067		$	1,567		$	30,348		$	33,102		$	31,320		$	176,404
Provision (reversal of provision)		(3,219	)		(531	)		3,921			(1,197	)		3,034			2,008
Charge-offs		(13,140	)		—			(4,017	)		(6,341	)		(7,197	)		(30,695	)
Recoveries		4,279			—			1,227			5,213			1,044			11,763
Ending balance	$	67,987		$	1,036		$	31,479		$	30,777		$	28,201		$	159,480

For the quarter ended March 31, 2013
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	369,742		$	17,375		$	170,289		$	33,102		$	2,894		$	137,205		$	730,607
Provision (reversal of provision)		131,814			8,003			33,943			(1,197	)		1,985			49,308			223,856
Charge-offs		(56,151	)		(11,388	)		(23,838	)		(6,341	)		(1,543	)		(39,124	)		(138,385	)
Recoveries		12,443			1,588			2,224			5,213			559			8,406			30,433
Net write-down related to loans sold		(161,297	)		(1,846	)		—			—			—			—			(163,143	)
Ending balance	$	296,551		$	13,732		$	182,618		$	30,777		$	3,895		$	155,795		$	683,368

The following table provides the activity in the allowance for loan losses related to covered loans accounted for pursuant to ASC Subtopic 310-30.

	ASC 310-30 Covered loans
	For the quarters ended
(In thousands)	March 31, 2014			March 31, 2013
Balance at beginning of period	$	93,915		$	95,407
Provision for loan losses		24,555			14,041
Net charge-offs		(28,099	)		(17,875	)
Balance at end of period	$	90,371		$	91,573

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The following tables present information at March 31, 2014 and December 31, 2013 regarding loan ending balances and the allowance for loan losses by portfolio segment and whether such loans and the allowance pertains to loans individually or collectively evaluated for impairment.

At March 31, 2014
Puerto Rico
(In thousands)	Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Specific ALLL non-covered loans	$	30,892	$	243	$	36,322	$	672	$	29,170	$	97,299
General ALLL non-covered loans		93,242		4,836		101,474		9,811		128,078		337,441
ALLL - non-covered loans		124,134		5,079		137,796		10,483		157,248		434,740
Specific ALLL covered loans		—		—		—		—		—		—
General ALLL covered loans		38,589		15,966		38,848		—		4,370		97,773
ALLL - covered loans		38,589		15,966		38,848		—		4,370		97,773
Total ALLL	$	162,723	$	21,045	$	176,644	$	10,483	$	161,618	$	532,513
Loans held-in-portfolio:
Impaired non-covered loans	$	304,531	$	22,011	$	406,053	$	2,455	$	122,291	$	857,341
Non-covered loans held-in-portfolio excluding impaired loans		6,138,467		119,592		5,018,808		544,425		3,284,286		15,105,578
Non-covered loans held-in-portfolio		6,442,998		141,603		5,424,861		546,880		3,406,577		15,962,919
Impaired covered loans		5,540		—		—		—		—		5,540
Covered loans held-in-portfolio excluding impaired loans		1,786,145		127,444		907,069		—		43,856		2,864,514
Covered loans held-in-portfolio		1,791,685		127,444		907,069		—		43,856		2,870,054
Total loans held-in-portfolio	$	8,234,683	$	269,047	$	6,331,930	$	546,880	$	3,450,433	$	18,832,973
At March 31, 2014
U.S. Mainland
(In thousands)	Commercial		Construction		Mortgage		Legacy		Consumer		Total
Allowance for credit losses:
Specific ALLL	$	—	$	—	$	17,594	$	—	$	243	$	17,837
General ALLL		47,880		223		7,573		13,272		21,050		89,998
Total ALLL	$	47,880	$	223	$	25,167	$	13,272	$	21,293	$	107,835
Loans held-in-portfolio:
Impaired loans	$	30,444	$	—	$	52,460	$	3,710	$	2,545	$	89,159
Loans held-in-portfolio, excluding impaired loans		3,541,279		35,163		1,192,055		193,454		597,748		5,559,699
Total loans held-in-portfolio	$	3,571,723	$	35,163	$	1,244,515	$	197,164	$	600,293	$	5,648,858

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At March 31, 2014
Popular, Inc.
(In thousands)	Commercial		Construction		Mortgage		Legacy		Leasing		Consumer		Total
Allowance for credit losses:
Specific ALLL non-covered loans	$	30,892	$	243	$	53,916	$	—	$	672	$	29,413	$	115,136
General ALLL non-covered loans		141,122		5,059		109,047		13,272		9,811		149,128		427,439
ALLL - non-covered loans		172,014		5,302		162,963		13,272		10,483		178,541		542,575
Specific ALLL covered loans		—		—		—		—		—		—		—
General ALLL covered loans		38,589		15,966		38,848		—		—		4,370		97,773
ALLL - covered loans		38,589		15,966		38,848		—		—		4,370		97,773
Total ALLL	$	210,603	$	21,268	$	201,811	$	13,272	$	10,483	$	182,911	$	640,348
Loans held-in-portfolio:
Impaired non-covered loans	$	334,975	$	22,011	$	458,513	$	3,710	$	2,455	$	124,836	$	946,500
Non-covered loans held-in-portfolio excluding impaired loans		9,679,746		154,755		6,210,863		193,454		544,425		3,882,034		20,665,277
Non-covered loans held-in-portfolio		10,014,721		176,766		6,669,376		197,164		546,880		4,006,870		21,611,777
Impaired covered loans		5,540		—		—		—		—		—		5,540
Covered loans held-in-portfolio excluding impaired loans		1,786,145		127,444		907,069		—		—		43,856		2,864,514
Covered loans held-in-portfolio		1,791,685		127,444		907,069		—		—		43,856		2,870,054
Total loans held-in-portfolio	$	11,806,406	$	304,210	$	7,576,445	$	197,164	$	546,880	$	4,050,726	$	24,481,831

At December 31, 2013
Puerto Rico
(In thousands)	Commercial		Construction		Mortgage		Leasing		Consumer		Total
Allowance for credit losses:
Specific ALLL non-covered loans	$	16,409	$	177	$	38,034	$	1,053	$	29,920	$	85,593
General ALLL non-covered loans		111,741		4,918		92,296		9,569		122,658		341,182
ALLL - non-covered loans		128,150		5,095		130,330		10,622		152,578		426,775
Specific ALLL covered loans		153		140		—		—		—		293
General ALLL covered loans		42,045		19,351		36,006		—		4,397		101,799
ALLL - covered loans		42,198		19,491		36,006		—		4,397		102,092
Total ALLL	$	170,348	$	24,586	$	166,336	$	10,622	$	156,975	$	528,867
Loans held-in-portfolio:
Impaired non-covered loans	$	245,380	$	16,823	$	399,347	$	2,893	$	125,342	$	789,785
Non-covered loans held-in-portfolio excluding impaired loans		6,220,210		144,348		5,001,332		540,868		3,191,296		15,098,054
Non-covered loans held-in-portfolio		6,465,590		161,171		5,400,679		543,761		3,316,638		15,887,839
Impaired covered loans		20,945		—		—		—		—		20,945
Covered loans held-in-portfolio excluding impaired loans		1,791,859		190,127		934,373		—		47,123		2,963,482
Covered loans held-in-portfolio		1,812,804		190,127		934,373		—		47,123		2,984,427
Total loans held-in-portfolio	$	8,278,394	$	351,298	$	6,335,052	$	543,761	$	3,363,761	$	18,872,266

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