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 September 30, 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, 103,460,785 shares outstanding as of November 3, 2014.

POPULAR, INC.

INDEX

Part I – Financial Information	Page
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition at September 30, 2014 and December 31, 2013		4
Unaudited Consolidated Statements of Operations for the quarters and nine months ended September  30, 2014 and 2013		5
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2014 and 2013		6
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2014 and 2013		7
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013		8
Notes to Unaudited Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		144
Item 3. Quantitative and Qualitative Disclosures about Market Risk		217
Item 4. Controls and Procedures		217
Part II – Other Information
Item 1. Legal Proceedings		217
Item 1A. Risk Factors		217
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		219
Item 6. Exhibits		220
Signatures		221

2

Forward-Looking Information

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

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

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

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

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

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

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

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

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

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

• the performance of the stock and bond markets;

• competition in the financial services industry;

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

• possible legislative, tax or regulatory changes.

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect 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; 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; 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.

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

3

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

(In thousands, except share information)	September 30, 2014			December 31, 2013
Assets:
Cash and due from banks	$	321,914		$	423,211
Money market investments:
Federal funds sold		—			5,055
Securities purchased under agreements to resell		146,634			175,965
Time deposits with other banks		906,487			677,433
Total money market investments		1,053,121			858,453
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		122,483			308,978
Other trading securities		22,860			30,765
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		1,515,639			1,286,839
Other investment securities available-for-sale		4,212,127			4,007,961
Investment securities held-to-maturity, at amortized cost (fair value 2014 - $103,120; 2013 - $120,688)		112,893			140,496
Other investment securities, at lower of cost or realizable value (realizable value 2014 - $163,775; 2013 - $184,526)		161,168			181,752
Loans held-for-sale, at lower of cost or fair value		178,008			110,426
Loans held-in-portfolio:
Loans not covered under loss sharing agreements with the FDIC		19,450,677			21,704,010
Loans covered under loss sharing agreements with the FDIC		2,654,263			2,984,427
Less – Unearned income		91,461			92,144
Allowance for loan losses		611,375			640,555
Total loans held-in-portfolio, net		21,402,104			23,955,738
FDIC loss share asset		681,106			948,608
Premises and equipment, net		497,111			519,516
Other real estate not covered under loss sharing agreements with the FDIC		135,256			135,501
Other real estate covered under loss sharing agreements with the FDIC		151,382			168,007
Accrued income receivable		116,746			131,536
Mortgage servicing assets, at fair value		152,282			161,099
Other assets		1,634,819			1,687,558
Goodwill		461,246			647,757
Other intangible assets		37,777			45,132
Assets from discontinued operations (Refer to Note 3)		1,129,053			—
Total assets	$	34,099,095		$	35,749,333
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	5,521,415		$	5,922,682
Interest bearing		18,944,690			20,788,463
Total deposits		24,466,105			26,711,145
Federal funds purchased and assets sold under agreements to repurchase		1,650,712			1,659,292
Other short-term borrowings		1,200			401,200
Notes payable		1,723,573			1,584,754
Other liabilities		852,351			766,792
Liabilities from discontinued operations (Refer to Note 3)		1,106,762			—
Total liabilities		29,800,703			31,123,183
Commitments and contingencies (Refer to Note 24)
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;
103,579,912 shares issued (2013 – 103,435,967) and 103,448,206 shares outstanding (2013 – 103,397,699)		1,036			1,034
Surplus		4,171,890			4,170,152
Retained earnings		229,306			594,430
Treasury stock – at cost, 131,706 shares (2013 – 38,268)		(3,933	)		(881	)
Accumulated other comprehensive loss, net of tax		(150,067	)		(188,745	)
Total stockholders’ equity		4,298,392			4,626,150
Total liabilities and stockholders’ equity	$	34,099,095		$	35,749,333

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

4

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2014			2013			2014			2013
Interest income:
Loans	$	362,592		$	366,267		$	1,121,180		$	1,097,081
Money market investments		1,007			848			3,111			2,632
Investment securities		33,154			33,561			102,270			107,490
Trading account securities		4,446			5,242			15,047			16,212
Total interest income		401,199			405,918			1,241,608			1,223,415
Interest expense:
Deposits		26,533			29,115			79,614			96,176
Short-term borrowings		28,955			9,563			46,887			29,111
Long-term debt		19,290			36,228			496,896			108,061
Total interest expense		74,778			74,906			623,397			233,348
Net interest income		326,421			331,012			618,211			990,067
Provision for loan losses - non-covered loans		68,166			48,715			172,362			486,783
Provision for loan losses - covered loans		12,463			17,433			49,781			60,489
Net interest income after provision for loan losses		245,792			264,864			396,068			442,795
Service charges on deposit accounts		40,585			40,517			119,181			123,056
Other service fees (Refer to Note 30)		54,839			57,041			164,125			169,264
Mortgage banking activities (Refer to Note 12)		14,402			18,892			21,868			57,270
Net gain and valuation adjustments on investment securities		(1,763	)		—			(1,763	)		5,856
Trading account profit (loss)		740			(6,607	)		3,772			(11,936	)
Net gain (loss) on sale of loans, including valuation adjustments on loans held-for-sale		15,593			2,374			29,645			(56,054	)
Adjustments (expense) to indemnity reserves on loans sold		(9,480	)		(2,387	)		(27,281	)		(30,162	)
FDIC loss share expense (Refer to Note 31)		(4,864	)		(14,866	)		(84,331	)		(44,887	)
Other operating income		14,278			191,745			57,935			393,330
Total non-interest income		124,330			286,709			283,151			605,737
Operating expenses:
Personnel costs		104,542			108,352			307,943			322,292
Net occupancy expenses		21,203			21,386			62,830			62,937
Equipment expenses		12,370			11,387			35,826			34,492
Other taxes		15,369			17,680			42,575			44,433
Professional fees		67,649			69,237			201,672			203,989
Communications		6,455			6,290			19,565			19,236
Business promotion		13,062			14,809			40,486			42,751
FDIC deposit insurance		9,511			15,143			30,969			42,056
Loss on early extinguishment of debt		—			3,388			—			3,388
Other real estate owned (OREO) expenses		19,745			16,632			29,595			70,156
Other operating expenses		30,418			21,998			73,276			65,682
Amortization of intangibles		2,026			1,990			6,077			5,969
Restructuring costs (Refer to Note 4)		8,290			—			12,864			—
Total operating expenses		310,640			308,292			863,678			917,381
Income (loss) from continuing operations before income tax		59,482			243,281			(184,459	)		131,151
Income tax expense (benefit)		26,667			17,768			45,807			(276,489	)
Income (loss) from continuing operations		32,815			225,513			(230,266	)		407,640
Income (loss) from discontinued operations, net of tax (Refer to Note 3)		29,758			3,622			(132,066	)		28,656
Net Income (Loss)	$	62,573		$	229,135		$	(362,332	)	$	436,296
Net Income (Loss) Applicable to Common Stock	$	61,643		$	228,204		$	(365,124	)	$	433,504
Net Income (Loss) per Common Share – Basic
Net income (loss) from continuing operations	$	0.31			2.18			(2.27	)		3.94
Net income (loss) from discontinued operations		0.29			0.04			(1.28	)		0.28
Net Income (Loss) per Common Share – Basic	$	0.60		$	2.22		$	(3.55	)	$	4.22
Net Income (Loss) per Common Share – Diluted
Net income (loss) from continuing operations	$	0.31			2.18			(2.27	)		3.93
Net income (loss) from discontinued operations		0.29			0.04			(1.28	)		0.28
Net Income (Loss) per Common Share – Diluted	$	0.60		$	2.22		$	(3.55	)	$	4.21

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

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Quarters ended, September 30,						Nine months ended, September 30,
(In thousands)	2014			2013			2014			2013
Net income (loss)	$	62,573		$	229,135		$	(362,332	)	$	436,296
Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		98			(2,013	)		(2,620	)		(3,942	)
Reclassification adjustment for losses included in net income		—			—			7,718			—
Amortization of net losses of pension and postretirement benefit plans		2,127			6,168			6,379			18,506
Amortization of prior service cost of pension and postretirement benefit plans		(950	)		—			(2,850	)		—
Unrealized holding (losses) gains on investments arising during the period		(20,081	)		(33,091	)		34,585			(177,560	)
Reclassification adjustment for losses included in net income		(1,763	)		—			(1,763	)		—
Unrealized net (losses) gains on cash flow hedges		(684	)		(3,496	)		(4,957	)		2,286
Reclassification adjustment for net losses (gains) included in net income		1,120			(1,456	)		4,745			(4,652	)
Other comprehensive (loss) income before tax		(20,133	)		(33,888	)		41,237			(165,362	)
Income tax benefit (expense)		357			2,921			(2,559	)		11,224
Total other comprehensive (loss) income , net of tax		(19,776	)		(30,967	)		38,678			(154,138	)
Comprehensive income (loss) , net of tax	$	42,797		$	198,168		$	(323,654	)	$	282,158

Tax effect allocated to each component of other comprehensive loss:

	Quarters ended September 30,						Nine months ended, September 30,
(In thousands)	2014			2013			2014			2013
Amortization of net losses of pension and postretirement benefit plans	$	(829	)	$	(2,406	)	$	(2,488	)	$	(7,219	)
Amortization of prior service cost of pension and postretirement benefit plans		370			—			1,112			—
Unrealized holding (losses) gains on investments arising during the period		986			3,588			(1,265	)		17,479
Unrealized net (losses) gains on cash flow hedges		267			1,171			1,933			(850	)
Reclassification adjustment for net losses (gains) included in net income		(437	)		568			(1,851	)		1,814
Income tax benefit (expense)	$	357		$	2,921		$	(2,559	)	$	11,224

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

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)	Common stock		Preferred stock		Surplus			Retained earnings			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 income									436,296									436,296
Issuance of stock		2				4,950												4,952
Dividends declared:
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(466	)					(466	)
Common stock reissuance												33						33
Other comprehensive loss, net of tax															(154,138	)		(154,138	)
Balance at September 30, 2013	$	1,034	$	50,160	$	4,155,244		$	445,330		$	(877	)	$	(257,006	)	$	4,393,885
Balance at December 31, 2013	$	1,034	$	50,160	$	4,170,152		$	594,430		$	(881	)	$	(188,745	)	$	4,626,150
Net loss									(362,332	)								(362,332	)
Issuance of stock		2				4,321												4,323
Tax windfall benefit on vesting of restricted stock						417												417
Repurchase of TARP-related warrants						(3,000	)											(3,000	)
Dividends declared:
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(3,063	)					(3,063	)
Common stock reissuance												11						11
Other comprehensive income, net of tax															38,678			38,678
Balance at September 30, 2014	$	1,036	$	50,160	$	4,171,890		$	229,306		$	(3,933	)	$	(150,067	)	$	4,298,392

Disclosure of changes in number of shares:	September 30, 2014			September 30, 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		143,945			117,849
Balance at end of the period		103,579,912			103,311,152
Treasury stock		(131,706	)		(35,021	)
Common Stock – Outstanding		103,448,206			103,276,131

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

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30,
(In thousands)	2014			2013
Cash flows from operating activities:
Net (loss) income	$	(362,332	)	$	436,296
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for loan losses		215,378			545,927
Goodwill impairment losses		186,511			—
Amortization of intangibles		7,351			7,403
Depreciation and amortization of premises and equipment		35,407			37,056
Net accretion of discounts and amortization of premiums and deferred fees		298,318			(48,195	)
Fair value adjustments on mortgage servicing rights		18,424			6,862
FDIC loss share expense		84,331			44,887
Adjustments (expense) to indemnity reserves on loans sold		27,281			30,162
Earnings from investments under the equity method		(31,930	)		(42,740	)
Deferred income tax expense (benefit)		34,175			(303,038	)
Loss (gain) on:
Disposition of premises and equipment		(2,578	)		(3,060	)
Sale and valuation adjustments of investment securities		1,763			—
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(69,391	)		37,564
Sale of stock in equity method investee		—			(312,589	)
Sale of foreclosed assets, including write-downs		13,147			45,045
Disposal of discontinued business		(28,025	)		—
Acquisitions of loans held-for-sale		(232,430	)		(15,335	)
Proceeds from sale of loans held-for-sale		97,638			168,046
Net originations on loans held-for-sale		(512,521	)		(1,169,094	)
Net (increase) decrease in:
Trading securities		883,035			1,193,265
Accrued income receivable		11,437			2,847
Other assets		124,669			(610	)
Net increase (decrease) in:
Interest payable		(11,747	)		(9,480	)
Pension and other postretirement benefit obligation		(4,478	)		6,459
Other liabilities		33,821			(22,590	)
Total adjustments		1,179,586			198,792
Net cash provided by operating activities		817,254			635,088
Cash flows from investing activities:
Net (increase) decrease in money market investments		(194,668	)		123,792
Purchases of investment securities:
Available-for-sale		(1,825,654	)		(1,661,080	)
Held-to-maturity		(1,000	)		(250	)
Other		(97,301	)		(145,691	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:		—			—
Available-for-sale		1,327,672			1,576,112
Held-to-maturity		29,834			4,278
Other		90,530			132,270
Available-for-sale		91,298			—
Other		27,356			—
Net repayments on loans		628,571			1,014,907
Proceeds from sale of loans		233,527			310,767
Acquisition of loan portfolios		(356,710	)		(1,727,454	)
Net payments from FDIC under loss sharing agreements		179,250			52,758
Return of capital from equity method investments		—			438
Proceeds from sale of stock in equity method investee		—			363,492
Net cash disbursed from disposal of discontinued business		(233,967	)		—
Mortgage servicing rights purchased		—			(45	)
Acquisition of premises and equipment		(39,604	)		(27,214	)
Premises and equipment		12,144			9,438
Foreclosed assets		110,677			200,546
Net cash (used in) provided by investing activities		(18,045	)		227,064
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		(212,264	)		(642,427	)
Federal funds purchased and assets sold under agreements to repurchase		(8,580	)		(223,544	)
Other short-term borrowings		(400,000	)		190,000
Payments of notes payable		(1,047,546	)		(331,835	)
Proceeds from issuance of notes payable		781,905			73,154
Proceeds from issuance of common stock		4,323			4,952
Dividends paid		(2,792	)		(2,792	)
Repurchase of TARP-related warrants		(3,000	)		—
Net payments for repurchase of common stock		(3,052	)		(433	)
Net cash used in financing activities		(891,006	)		(932,925	)
Net decrease in cash and due from banks		(91,797	)		(70,773	)
Cash and due from banks at beginning of period		423,211			439,363
Cash and due from banks at end of period, including discontinued operations		331,414			368,590
Less: cash from discontinued operations		9,500			—
Cash and due from banks at end of period	$	321,914		$	368,590

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

The Consolidated Statements of Cash Flows for the periods ended September 30, 2014 and 2013 include the cash flows from operating, investing and financing activities associated with discontinued operations.

8

Notes to Consolidated Financial

Statements (Unaudited)

Note 1 - Organization, consolidation and basis of presentation	10
Note 2 - New accounting pronouncements	11
Note 3 - Discontinued operations	15
Note 4 - Restructuring plan	17
Note 5 - Restrictions on cash and due from banks and certain securities	18
Note 6 - Pledged assets	19
Note 7 - Investment securities available-for-sale	20
Note 8 - Investment securities held-to-maturity	24
Note 9 - Loans	26
Note 10 - Allowance for loan losses	36
Note 11 - FDIC loss share asset and true-up payment obligation	63
Note 12 - Mortgage banking activities	65
Note 13 - Transfers of financial assets and mortgage servicing assets	66
Note 14 - Other real estate owned	70
Note 15 - Other assets	71
Note 16 - Goodwill and other intangible assets	72
Note 17 - Deposits	76
Note 18 - Borrowings	77
Note 19 - Offsetting of financial assets and liabilities	79
Note 20 - Trust preferred securities	81
Note 21 - Stockholders’ equity	83
Note 22 - Other comprehensive loss	84
Note 23 - Guarantees	86
Note 24 - Commitments and contingencies	89
Note 25 - Non-consolidated variable interest entities	94
Note 26 - Related party transactions with affiliated company / joint venture	98
Note 27 - Fair value measurement	102
Note 28 - Fair value of financial instruments	109
Note 29 - Net income (loss) per common share	116
Note 30 - Other service fees	117
Note 31 - FDIC loss share (expense) income	118
Note 32 - Pension and postretirement benefits	119
Note 33 - Stock-based compensation	120
Note 34 - Income taxes	123
Note 35 - Supplemental disclosure on the consolidated statements of cash flows	127
Note 36 - Segment reporting	128
Note 37 - Subsequent events	134
Note 38 - Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	135

9

Note 1 – Organization, consolidation and basis of presentation

Nature of Operations

Popular, Inc. (the “Corporation”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States and the Caribbean. In Puerto Rico, the Corporation provides retail, including mortgage loan originations, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. 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, New Jersey and South Florida. E-LOAN markets deposit accounts under its name for the benefit of BPNA. Refer to Note 3, for discussion of the sales of the Illinois and Central Florida regional operations during the third quarter of 2014. The BPNA branches operate under the name of Popular Community Bank. Note 36 to the consolidated financial statements presents information about the Corporation’s business segments. Refer to Note 37 for a discussion of the sale by BPNA of its regional operations in California, which closed on November 8, 2014.

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. As discussed in Note 3, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of BPNA’s assets and liabilities to discontinued operations.

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.

During the third quarter of 2014, the Corporation recorded an out-of-period adjustment to correct an error in the amortization expense of the FDIC indemnification asset recorded during the years 2012, 2013 and the six months period ended June 30, 2014. The FDIC indemnity asset amortization for the third quarter of 2014 included a benefit of approximately $15.0 million to reverse the impact of accelerated amortization expense recorded during prior periods. This amount will be recognized as expense over the remaining portion of the Loss Sharing Agreement that expires in the quarter ending June 30, 2015. After evaluating the quantitative and qualitative aspects of the error and the out-of-period adjustment to the Corporation’s financial results, management has determined that the misstatement and the out-of-period adjustment are not material to the 2012, 2013 and 2014 financial statements, respectively.

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.

10

Note 2 – New accounting pronouncements

FASB Accounting Standards Update 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (“ASU 2014-14”)

The FASB issued ASU 2014-14 in August 2014, which intends to resolve the diversity in practice related to how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. Some creditors reclassify those loans to real estate consistent with other foreclosed loans that do not have guarantees; others reclassify the loans to receivables. This ASU address the classification of certain foreclosed mortgage loans held by creditors that are either fully or partially guaranteed under government programs.

The amendments of the ASU require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:

1- The loan has a government guarantee that is not separable from the loan before foreclosure.

2- At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.

3- At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.

Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor.

The amendments in the ASU are effective for annual periods, and interim periods within those annual periods, beginning in the first quarter of 2015. The amendments of this ASU can be applied using either a prospective transition method or a modified retrospective transition method. For prospective transition, an entity should apply the amendments in this Update to foreclosures that occur after the date of adoption. For modified retrospective transition, an entity should apply the amendments in this Update by means of a cumulative-effect adjustment as of the beginning of the annual period of adoption. Prior periods should not be adjusted. However, a reporting entity must apply the same method of transition as elected under ASU 2014-04.

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 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financial Entity (“ASU 2014-13”)

The FASB issued ASU 2014-13 in August 2014, which intends to clarify that when a reporting entity that consolidates a collateralized financing entity may elect to measure the financial assets and the financial liabilities of that collateralized financing entity using either the measurement alternative included in this Update or Topic 820 on fair value measurement. When the measurement alternative is not elected, the amendments of this Update clarify that the fair value of the financial assets and the fair value of the financial liabilities of the consolidated collateralized financing entity should be measured using the requirements of Topic 820 and any differences in the fair value of the financial assets and the fair value of the financial liabilities of that entity should be reflected in earnings and attributed to the reporting entity in the consolidated statement of income.

When a reporting entity elects the measurement alternative included in this Update for a collateralized financing entity, the reporting entity should measure both the financial assets and the financial liabilities of that entity in its consolidated financial statements using the more observable of the fair value of the financial assets and the fair value of the financial liabilities.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted as of the beginning of an annual period. The amendments of this ASU can be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the annual period of adoption. A reporting entity also may apply the amendments retrospectively to all relevant prior periods beginning with the annual period in which the amendments of ASU 2009-17 were initially adopted.

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 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”)

11

The FASB issued ASU 2014-12 in June 2014, which intends to resolve the diverse accounting treatment of awards with a performance target that could be achieved after an employee completes the requisite service period. That is, the employee would be eligible to vest in the award regardless of whether the employee is rendering service on the date the performance target is achieved.

The amendments of the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award.

Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.

The amendments in the ASU are effective in the first quarter of 2016. Early adoption is permitted. The amendments of this ASU can be applied (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets outstanding at the beginning of the period of adoption and to all new or modified awards thereafter.

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 2014-11, Transfers and Servicing (Topic 860) Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (“ASU 2014-11”)

The FASB issued ASU 2014-11 in June 2014, which requires two accounting changes. First, the amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement.

The amendments in this Update require disclosures for certain transactions comprising (1) a transfer of a financial asset accounted for as a sale and (2) an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction.

The accounting changes in this ASU are effective in the first quarter of 2015. Early application is prohibited. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

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

FASB Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606); (“ASU 2014-09”)

The FASB issued ASU 2014-09 in May 2014, which clarifies the principles for recognizing revenue and develop a common revenue standard that would (1) remove inconsistencies and weaknesses in revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (4) provide more useful information to users of financial statement through improved disclosure requirements and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. ASU 2014-09 amends the ASC Codification and creates a new Topic 606, Revenue from Contracts with Customers.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In addition, the new guidance requires disclosures to enable users of financial statements to understand the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contract with customers, significant judgments and changes in judgments, and assets recognized from the cost to obtain or fulfill a contract.

The amendments in this ASU are effective in the first quarter of 2017. Early adoption is not permitted.

12

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 2014-08, 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.

13

ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

The Corporation adopted this guidance in the first quarter of 2014 and it 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 loss into earnings of the cumulative foreign translation adjustment related to the dilution on its equity investment in BHD. Refer to note 15 for additional information.

14

Note 3 – Discontinued operations

On April 22, 2014, BPNA, the Corporation’s U.S. mainland banking subsidiary, entered into definitive agreements to sell its California, Illinois and Central Florida regional operations to three different buyers.

On August 8, 2014, BPNA completed the sale of its Illinois regional operations. As part of the transaction, BPNA sold its 12 branches in the Chicago metropolitan area, including $562 million in loans, and $726 million in deposits, each as of July 31, 2014. The transaction resulted in a net gain of $24.6 million.

On September 15, 2014, BPNA completed the sale of its Central Florida regional operations. As part of the transaction, BPNA sold its 9 branches in the Central Florida area, including $104 million in loans and $217 million in deposits, each as of August 31, 2014. The transaction resulted in a net gain of $1.2 million.

On November 8, 2014, the Corporation completed the sale of the California regional operations. The Corporation sold 20 branches and transferred $1.1 billion in loans and $1.1 billion in deposits to Banc of California National Association, a wholly owned subsidiary of Banc of California, Inc. The transaction is expected to result in a net premium estimated at approximately $4 million, before customary transaction costs. The Corporation agreed to provide, subject to certain limitations, customary indemnification to the purchaser, including with respect to certain pre-closing liabilities and violations of representations and warranties. The Corporation also agreed to indemnify the purchaser for up to 1.5% of credit losses on transferred loans for a period of two years after the closing. Pursuant to this indemnification provision, the Corporation’s maximum exposure is approximately $16 million.

The regional operations sold constituted a business, as defined in ASC 805-10-55. Accordingly, the decision to sell these businesses resulted in the discontinuance of each of these respective operations and classification as held-for-sale. For financial reporting purposes, the results of the discontinued operations are presented as “Assets / Liabilities from discontinued operations” in the consolidated statement of condition and “(Loss) income from discontinued operations, net of tax” in the consolidated statement of operations. As required by ASC 205-20, current and prior periods presented in the consolidated statement of operations as well as the related note disclosures covering income and expense amounts have been retrospectively adjusted for the impact of the discontinued operations for comparative purposes. The consolidated statement of financial condition and related note disclosure for prior periods do not reflect the reclassification of these assets and liabilities to discontinued operations.

During the quarter ended June 30, 2014, the Corporation recorded non-cash goodwill impairment charge of $186.5 million, related to the goodwill allocated, on a relative fair value basis, to these operations. However, this non-cash charge had no impact on the Corporation’s tangible capital or regulatory capital ratios. Refer to Note 16, for additional information on the goodwill impairment charge.

In connection with these transactions, the Corporation is centralizing certain back office operations in Puerto Rico and New York. The Corporation incurred $8.3 million in restructuring charges during the third quarter of 2014. Over the course of the fourth quarter of 2014 and early 2015, an additional $41 million in restructuring charges are expected to be incurred, comprised of $22 million in severance and retention payments and $19 million in operational set-up costs and lease cancelations. Refer to Note 4, for restructuring charges incurred during the second and third quarter of 2014.

Assets and liabilities of discontinued operations are detailed below:

(In thousands)	September 30, 2014
Cash	$	9,500
Loans held-for-sale		1,099,673
Premises and equipment, net		8,596
Other assets		11,284
Total assets	$	1,129,053
Deposits	$	1,089,046
Other liabilities		17,716
Total liabilities	$	1,106,762
Net assets	$	22,291

15

The following table provides the components of net income (loss) from the discontinued operations for the quarters and nine months ended September 30, 2014 and 2013.

	Quarters ended September 30,					Nine months ended September 30,
(In thousands)	2014			2013		2014			2013
Net interest income	$	16,022		$	23,195	$	56,911		$	66,172
Provision (reversal) for loan losses		—			6,515		(6,764	)		(1,345	)
Net gain on sale of regions		25,775			—		25,775			—
Other non-interest income		6,567			5,250		26,488			13,642
Total non-interest income		32,342			5,250		52,263			13,642
Operating expenses:
Personnel costs		11,941			8,487		32,910			25,215
Net occupancy expenses		(1,305	)		3,325		5,871			9,355
Professional fees		4,916			2,802		13,612			8,511
Goodwill impairment charge		—			—		186,511			—
Other operating expenses		3,054			3,694		9,100			9,422
Total operating expenses		18,606			18,308		248,004			52,503
Net income (loss) from discontinued operations	$	29,758		$	3,622	$	(132,066	)	$	28,656

16

Note 4 – Restructuring plan

As discussed in Note 3, in connection with the sale of the operations of the California, Illinois and Central Florida regions, the Corporation is centralizing certain back office operations, previously conducted in these regions, to Puerto Rico and New York. The Corporation has undertaken a restructuring plan (the “PCB Restructuring Plan”) to eliminate and re-locate employment positions, terminate contracts and incur other costs associated with moving the operations to Puerto Rico and New York. The Corporation estimates that it will incur restructuring charges of approximately $54 million, comprised of $32 million in severance and retention payments and $22 million in operational set-up costs and lease cancelations, of which approximately $13 million were incurred during the second and third quarters of 2014. The remaining costs will be recognized during the fourth quarter of 2014 and early 2015.

Full-time equivalent employees at the California, Illinois and Central Florida regions were 218 as of September 30, 2014, compared with 365 as of December 31, 2013. Some of the employees at these regions will be transferred to the acquiring entities. The remaining employees at these regions are expected to be transferred to other of the Corporation’s U.S. mainland or Puerto Rico operations or depart by mid-2015.

The following table details the expenses recorded by the Corporation that were associated with the PCB Restructuring Plan:

	Quarter ended		Nine months ended
(In thousands)	30-Sep-14		30-Sep-14
Personnel costs	$	6,194	$	9,824
Net occupancy expenses		152		423
Equipment expenses		141		331
Professional fees		1,431		1,879
Other operating expenses		372		407
Total restructuring costs	$	8,290	$	12,864

The following table presents the activity in the reserve for the restructuring costs associated with the PCB Restructuring Plan:

(In thousands)
Balance at July 1, 2014	$	3,481
Charges expensed during the period		5,964
Payments made during the period		(20	)
Balance as of September 30, 2014	$	9,425

17

Note 5 - 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 $ 970 million at September 30, 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 September 30, 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.

18

Note 6 – 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)	September 30, 2014		December 31, 2013
Investment securities available-for-sale, at fair value	$	1,985,427	$	1,638,558
Investment securities held-to-maturity, at amortized cost		10,000		35,000
Loans held-for-sale measured at lower of cost or fair value		884		363
Loans held-in-portfolio covered under loss sharing agreements with the FDIC		514,578		407,257
Loans held-in-portfolio not covered under loss sharing agreements with the FDIC		8,516,488		9,108,984
Total pledged assets	$	11,027,377	$	11,190,162

Pledged assets from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

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 September 30, 2014, the Corporation had $ 1.1 billion in investment securities available-for-sale and $ 0.6 billion in loans that served as collateral to secure public funds (December 31, 2013 - $ 1.0 billion and $ 0.5 billion, respectively).

At September 30, 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 $3.3 billion (December 31, 2013 - $3.0 billion). Refer to Note 18 to the consolidated financial statements for borrowings outstanding under these credit facilities. At September 30, 2014, the credit facilities authorized with the FHLB were collateralized by $ 4.0 billion in loans held-in-portfolio (December 31, 2013 - $ 4.5 billion). Also, at September 30, 2014, the Corporation’s banking subsidiaries had a borrowing capacity at the Federal Reserve (“Fed”) discount window of $2.1 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 September 30, 2014, the credit facilities with the Fed discount window were collateralized by $ 4.4 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 September 30, 2014, trade receivables from brokers and counterparties amounting to $19 million were pledged to secure repurchase agreements (December 31, 2013 - $69 million).

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Note 7 – 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 September 30, 2014 and December 31, 2013.

	At September 30, 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	$	591,928	$	1,567	$	685	$	592,810		1.15	%
Total U.S. Treasury securities		591,928		1,567		685		592,810		1.15
Obligations of U.S. Government sponsored entities
Within 1 year		32,119		417		—		32,536		1.61
After 1 to 5 years		1,785,955		1,125		12,997		1,774,083		1.22
After 5 to 10 years		150,621		80		6,124		144,577		1.53
After 10 years		23,000		—		791		22,209		3.16
Total obligations of U.S. Government sponsored entities		1,991,695		1,622		19,912		1,973,405		1.27
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		1,755		6		—		1,761		5.41
After 1 to 5 years		3,790		41		16		3,815		4.96
After 5 to 10 years		22,452		1		1,728		20,725		5.83
After 10 years		48,830		55		9,068		39,817		6.23
Total obligations of Puerto Rico, States and political subdivisions		76,827		103		10,812		66,118		6.03
Collateralized mortgage obligations - federal agencies
After 1 to 5 years		4,235		114		—		4,349		2.62
After 5 to 10 years		26,540		1,020		7		27,553		2.90
After 10 years		2,148,305		14,198		59,331		2,103,172		2.06
Total collateralized mortgage obligations - federal agencies		2,179,080		15,332		59,338		2,135,074		2.07
Collateralized mortgage obligations - private label
After 10 years		6		—		—		6		0.05
Total collateralized mortgage obligations - private label		6		—		—		6		0.05
Mortgage-backed securities
After 1 to 5 years		30,049		1,674		—		31,723		4.69
After 5 to 10 years		180,944		8,262		377		188,829		3.41
After 10 years		680,211		45,664		1,858		724,017		4.06
Total mortgage-backed securities		891,204		55,600		2,235		944,569		3.95
Equity securities (without contractual maturity)		3,178		1,220		157		4,241		6.01
Other
After 1 to 5 years		9,368		—		51		9,317		1.69
After 5 to 10 years		2,151		75		—		2,226		3.63
Total other		11,519		75		51		11,543		2.05
Total investment securities available-for-sale	$	5,745,437	$	75,519	$	93,190	$	5,727,766		2.04	%

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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.

During the quarter ended September 30, 2014, the Corporation sold approximately $94.2 million in mortgage backed securities and collateralized mortgage obligations investment securities available-for-sale at the BPNA segment. The proceeds from this sale were $ 91.3 million. The Corporation realized a loss of $1.8 million on this transaction. There were no sales of investment securities available-for-sale during the nine months ended September 30, 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 September 30, 2014 and December 31, 2013.

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	At September 30, 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
U.S. Treasury securities	$	315,946	$	685	$	—	$	—	$	315,946	$	685
Obligations of U.S. Government sponsored entities		1,103,884		10,762		466,218		9,150		1,570,102		19,912
Obligations of Puerto Rico, States and political subdivisions		25,773		2,254		35,107		8,558		60,880		10,812
Collateralized mortgage obligations - federal agencies		767,902		24,824		748,428		34,514		1,516,330		59,338
Mortgage-backed securities		10,230		42		49,805		2,193		60,035		2,235
Equity securities		—		—		1,671		157		1,671		157
Other		—		—		9,317		51		9,317		51
Total investment securities available-for-sale in an unrealized loss position	$	2,223,735	$	38,567	$	1,310,546	$	54,623	$	3,534,281	$	93,190

	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 September 30, 2014, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $93 million, driven by U.S. 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 U.S. Agency guarantee.

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. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain Puerto Rico public corporations to restructure their debt. 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,

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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 September 30, 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. At September 30, 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.

	September 30, 2014				December 31, 2013
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	1,883,634	$	1,853,487	$	2,318,171	$	2,266,610
FHLB		887,135		880,513		336,933		326,220
Freddie Mac		1,292,586		1,282,920		1,434,346		1,418,216

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Note 8 – 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 September 30, 2014 and December 31, 2013.

	At September 30, 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	$	12,740	$	—	$	5	$	12,735		2.11	%
After 1 to 5 years		12,830		—		412		12,418		5.95
After 5 to 10 years		21,325		—		5,240		16,085		6.09
After 10 years		64,397		1,376		5,498		60,275		2.22
Total obligations of Puerto Rico, States and political subdivisions		111,292		1,376		11,155		101,513		3.38
Collateralized mortgage obligations - federal agencies
After 5 to 10 years		101		6		—		107		5.45
Total collateralized mortgage obligations - federal agencies		101		6		—		107		5.45
Other
Within 1 year		250		—		—		250		1.20
After 1 to 5 years		1,250		—		—		1,250		1.12
Total other		1,500		—		—		1,500		1.13
Total investment securities held-to-maturity	$	112,893	$	1,382	$	11,155	$	103,120		3.35	%

	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 September 30, 2014 and December 31, 2013.

	At September 30, 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	$	—	$	—	$	71,397	$	11,155	$	71,397	$	11,155
Total investment securities held-to-maturity in an unrealized loss position	$	—	$	—	$	71,397	$	11,155	$	71,397	$	11,155

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	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 7 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 September 30, 2014 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $61 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 $41 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. In July 2014, the Puerto Rico general obligations were further downgraded by the rating agencies, after the Commonwealth enacted a law that allowed certain Puerto Rico public corporations to restructure their debt. 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 9 – 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”. The FDIC loss sharing agreements expires at the end of the quarter ending June 30, 2015 for commercial (including construction) and consumer loans, and at the end of the quarter ending June 30, 2020 for single-family residential mortgage loans, as explained in Note 11.

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 September 30, 2014 and December 31, 2013.

(In thousands)	September 30, 2014		December 31, 2013
Commercial multi-family	$	477,986	$	1,175,937
Commercial real estate non-owner occupied		2,447,457		2,970,505
Commercial real estate owner occupied		1,726,134		2,166,545
Commercial and industrial		3,407,137		3,724,197
Construction		211,850		206,084
Mortgage		6,555,337		6,681,476
Leasing		550,514		543,761
Legacy[2]		91,015		211,135
Consumer:
Credit cards		1,155,949		1,185,272
Home equity lines of credit		371,807		478,211
Personal		1,398,557		1,349,119
Auto		755,971		699,980
Other		209,502		219,644
Total loans held-in-portfolio[1]	$	19,359,216	$	21,611,866

[1] Non-covered loans held-in-portfolio at September 30, 2014 are net of $91 million in unearned income and exclude $178 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.

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The following table presents the composition of covered loans at September 30, 2014 and December 31, 2013.

(In thousands)	September 30, 2014		December 31, 2013
Commercial real estate	$	1,591,718	$	1,710,229
Commercial and industrial		104,933		102,575
Construction		74,468		190,127
Mortgage		846,472		934,373
Consumer		36,672		47,123
Total loans held-in-portfolio	$	2,654,263	$	2,984,427

The following table provides a breakdown of loans held-for-sale (“LHFS”) at September 30, 2014 and December 31, 2013 by main categories.

(In thousands)	September 30, 2014 [1]		December 31, 2013
Commercial	$	38,072	$	603
Legacy		27,409		—
Mortgage		106,832		109,823
Consumer		5,695		—
Total loans held-for-sale	$	178,008	$	110,426

[1] Loans held-for-sale from discontinued operations are presented as part of “Assets from Discontinued Operations” in the Consolidated Statement of Condition. Refer to Note 3 to the consolidated financial statements for further information on the discontinued operations.

During the quarter and nine months ended September 30, 2014, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $139 million and $470 million, respectively (September 30, 2013 - $199 million and $1.7 billion, respectively). Also, the Corporation recorded purchases of $92 million in consumer loans during the nine months ended September 30, 2014 (September 30, 2013 - $42 million). In addition, during the nine months ended September 30, 2014, the Corporation recorded purchases of commercial loans amounting $21 million (during the quarter and nine months ended September 30, 2013 - $5 million and $8 million, respectively).

The Corporation sold approximately $56 million and $126 million of residential mortgage loans (on a whole loan basis) during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $60 million and $614 million, respectively). During the third quarter of 2014, BPNA sold approximately $115.7 million and reclassified to held-for-sale approximately $105.0 million in classified and legacy residential mortgage and commercial loans. These sales included $435 million from the bulk sale of non-performing mortgage loans, completed during the quarter ended June 30, 2013. Also, the Corporation securitized approximately $172 million and $522 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $200 million and $767 million, respectively). Furthermore, the Corporation securitized approximately $51 million and $174 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $102 million and $354 million, respectively). The Corporation did not securitize mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and nine months ended September 30, 2014 (September 30, 2013 - $1 million and $28 million, respectively). The Corporation sold commercial and construction loans with a book value of approximately $96 million and $157 million during the quarter and nine months ended September 30, 2014, respectively (September 30, 2013 - $6 million and $413 million, respectively). These sales for 2013 included $401 million from the bulk sale of non-performing commercial and construction loans during the quarter ended March 31, 2013.

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 September 30, 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

27

GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option. Also, accruing loans past due 90 days or more include residential conventional loans purchased from another financial institution that, although delinquent, the Corporation has received timely payment from the seller / servicer, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from another financial institution, which are in the process of foreclosure, are classified as non-performing mortgage loans.

At September 30, 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	$	2,529	$	—	$	2,101	$	—	$	4,630	$	—
Commercial real estate non-owner occupied		49,421		—		1,167		—		50,588		—
Commercial real estate owner occupied		125,656		—		2,155		—		127,811		—
Commercial and industrial		66,819		370		2,483		—		69,302		370
Construction		19,148		—		—		—		19,148		—
Mortgage[2][3]		283,433		406,673		11,692		—		295,125		406,673
Leasing		3,168		—		—		—		3,168		—
Legacy		—		—		5,648		—		5,648		—
Consumer:
Credit cards		—		18,772		490		—		490		18,772
Home equity lines of credit		—		—		3,069		—		3,069		—
Personal		26,207		—		911		—		27,118		—
Auto		12,179		—		—		—		12,179		—
Other		3,669		614		—		—		3,669		614
Total[1]	$	592,229	$	426,429	$	29,716	$	—	$	621,945	$	426,429

[1] For purposes of this table non-performing loans exclude $ 20 million in non-performing loans held-for-sale.

[2] Non-covered loans of $57 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 $125 million of residential mortgage loans in Puerto Rico insured by FHA or guaranteed by the VA that are no longer accruing interest as of September 30, 2014. Furthermore, the Corporation has approximately $64 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.

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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.

The following tables present loans by past due status at September 30, 2014 and December 31, 2013 for non-covered loans held-in-portfolio (net of unearned income).

September 30, 2014
Puerto Rico
	Past due								Current		Non-covered loans HIP Puerto Rico
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	100	$	82	$	2,529	$	2,711	$	57,207	$	59,918
Commercial real estate non-owner occupied		3,977		1,710		49,421		55,108		1,898,793		1,953,901
Commercial real estate owner occupied		8,204		1,583		125,656		135,443		1,391,453		1,526,896
Commercial and industrial		6,871		2,452		67,189		76,512		2,652,495		2,729,007
Construction		251		—		19,148		19,399		129,384		148,783
Mortgage		317,835		168,750		746,882		1,233,467		4,219,655		5,453,122
Leasing		7,134		781		3,168		11,083		539,431		550,514
Consumer:
Credit cards		13,375		8,914		18,772		41,061		1,099,769		1,140,830
Home equity lines of credit		199		—		—		199		13,948		14,147
Personal		14,304		7,192		26,207		47,703		1,233,859		1,281,562
Auto		37,092		8,393		12,179		57,664		698,030		755,694
Other		1,222		241		4,283		5,746		203,363		209,109
Total	$	410,564	$	200,098	$	1,075,434	$	1,686,096	$	14,137,387	$	15,823,483

29

September 30, 2014
U.S. mainland
	Past due								Current		Loans HIP U.S. mainland
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	4,728	$	—	$	2,101	$	6,829	$	411,239	$	418,068
Commercial real estate non-owner occupied		—		—		1,167		1,167		492,389		493,556
Commercial real estate owner occupied		—		473		2,155		2,628		196,610		199,238
Commercial and industrial		2,863		280		2,483		5,626		672,504		678,130
Construction		—		—		—		—		63,067		63,067
Mortgage		1,317		6,808		11,692		19,817		1,082,398		1,102,215
Legacy		373		893		5,648		6,914		84,101		91,015
Consumer:
Credit cards		270		173		490		933		14,186		15,119
Home equity lines of credit		3,315		1,292		3,069		7,676		349,984		357,660
Personal		656		1,269		911		2,836		114,159		116,995
Auto		3		—		—		3		274		277
Other		—		—		—		—		393		393
Total	$	13,525	$	11,188	$	29,716	$	54,429	$	3,481,304	$	3,535,733

September 30, 2014
Popular, Inc.
	Past due								Current		Non-covered loans HIP Popular, Inc.
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	4,828	$	82	$	4,630	$	9,540	$	468,446	$	477,986
Commercial real estate non-owner occupied		3,977		1,710		50,588		56,275		2,391,182		2,447,457
Commercial real estate owner occupied		8,204		2,056		127,811		138,071		1,588,063		1,726,134
Commercial and industrial		9,734		2,732		69,672		82,138		3,324,999		3,407,137
Construction		251		—		19,148		19,399		192,451		211,850
Mortgage		319,152		175,558		758,574		1,253,284		5,302,053		6,555,337
Leasing		7,134		781		3,168		11,083		539,431		550,514
Legacy		373		893		5,648		6,914		84,101		91,015
Consumer:
Credit cards		13,645		9,087		19,262		41,994		1,113,955		1,155,949
Home equity lines of credit		3,514		1,292		3,069		7,875		363,932		371,807
Personal		14,960		8,461		27,118		50,539		1,348,018		1,398,557
Auto		37,095		8,393		12,179		57,667		698,304		755,971
Other		1,222		241		4,283		5,746		203,756		209,502
Total	$	424,089	$	211,286	$	1,105,150	$	1,740,525	$	17,618,691	$	19,359,216

December 31, 2013
Puerto Rico
	Past due								Current		Non-covered loans HIP Puerto Rico
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	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

30

December 31, 2013
U.S. mainland
	Past due								Current		Loans HIP U.S. mainland
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	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								Current		Non-covered loans HIP Popular, Inc.
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial multi-family	$	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 September 30, 2014 and December 31, 2013 by main categories.

(In thousands)	September 30, 2014		December 31, 2013
Commercial	$	427	$	603
Legacy		10		—
Mortgage		14,669		489
Consumer		4,623		—
Total	$	19,729	$	1,092

31

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 $236 million at September 30, 2014 (December 31, 2013 - $197 million). At September 30, 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.

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 and nine months ended September 30, 2014 and 2013 were as follows:

Activity in the accretable discount - Non-covered loans ASC 310-30
(In thousands)	For the quarter ended September 30, 2014			For the quarter ended September 30, 2013
Beginning balance	$	76,827		$	49,213
Additions		3,761			6,732
Accretion		(2,594	)		(2,417	)
Change in expected cash flows		23,191			(6,247	)
Ending balance	$	101,185		$	47,281

Activity in the accretable discount - Non-covered loans ASC 310-30
(In thousands)	For the nine months ended September 30, 2014			For the nine months ended September 30, 2013
Beginning balance	$	49,398		$	—
Additions		14,904			54,074
Accretion		(7,520	)		(5,029	)
Change in expected cash flows		44,403			(1,764	)
Ending balance	$	101,185		$	47,281

Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
(In thousands)	For the quarter ended September 30, 2014			For the quarter ended September 30, 2013
Beginning balance	$	199,041			138,632
Additions		12,985			18,789
Accretion		2,595			2,417
Collections and charge-offs		(7,151	)		(4,213	)
Ending balance	$	207,470		$	155,625
Allowance for loan losses ASC 310-30 non-covered loans		(16,256	)		(3,511	)
Ending balance, net of ALLL	$	191,214		$	152,114

Carrying amount of non-covered loans accounted for pursuant to ASC 310-30
(In thousands)	For the nine months ended September 30, 2014			For the nine months ended September 30, 2013
Beginning balance	$	173,659		$	—
Additions		46,165			175,100
Accretion		7,520			5,029
Collections and charge-offs		(19,874	)		(24,504	)
Ending balance	$	207,470		$	155,625
Allowance for loan losses ASC 310-30 non-covered loans		(16,256	)		(3,511	)
Ending balance, net of ALLL	$	191,214		$	152,114

32

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 September 30, 2014 and December 31, 2013.

	September 30, 2014				December 31, 2013
(In thousands)	Non-accrual loans		Accruing loans past due 90 days or more		Non-accrual loans		Accruing loans past due 90 days or more
Commercial real estate	$	6,658	$	—	$	8,345	$	—
Commercial and industrial		565		—		7,335		456
Construction		2,784		—		11,872		—
Mortgage		4,671		30		1,739		69
Consumer		473		—		90		112
Total[1]	$	15,151	$	30	$	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.

The following tables present loans by past due status at September 30, 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.

September 30, 2014
	Past due								Current		Covered loans HIP
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
Commercial real estate	$	25,957	$	17,189	$	308,179	$	351,325	$	1,240,393	$	1,591,718
Commercial and industrial		596		441		7,528		8,565		96,368		104,933
Construction		2,461		—		62,731		65,192		9,276		74,468
Mortgage		45,980		26,465		146,335		218,780		627,692		846,472
Consumer		2,144		783		2,859		5,786		30,886		36,672
Total covered loans	$	77,138	$	44,878	$	527,632	$	649,648	$	2,004,615	$	2,654,263

December 31, 2013
	Past due								Current		Covered loans HIP
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due
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.

33

	September 30, 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	$	1,425,288		$	115,327		$	1,540,615		$	1,483,331		$	149,341		$	1,632,672
Commercial and industrial		54,325			2,260			56,585			55,192			3,069			58,261
Construction		35,020			34,384			69,404			71,864			104,356			176,220
Mortgage		784,898			48,319			833,217			862,878			59,483			922,361
Consumer		27,073			1,539			28,612			35,810			2,623			38,433
Carrying amount		2,326,604			201,829			2,528,433			2,509,075			318,872			2,827,947
Allowance for loan losses		(52,812	)		(32,828	)		(85,640	)		(57,594	)		(36,321	)		(93,915	)
Carrying amount, net of allowance	$	2,273,792		$	169,001		$	2,442,793		$	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 $3.2 billion at September 30, 2014 (December 31, 2013 - $3.8 billion). At September 30, 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.

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 September 30, 2014 and 2013, were as follows:

	Activity in the accretable yield
	Covered loans ASC 310-30
	For the quarters ended
	September 30, 2014									September 30, 2013
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,271,202		$	9,556		$	1,280,758		$	1,365,670		$	13,942		$	1,379,612
Accretion		(62,958	)		(3,059	)		(66,017	)		(69,146	)		617			(68,529	)
Change in expected cash flows		95,920			1,860			97,780			4,879			(6,344	)		(1,465	)
Ending balance	$	1,304,164		$	8,357		$	1,312,521		$	1,301,403		$	8,215		$	1,309,618

	Activity in the accretable yield
	Covered loans ASC 310-30
	For the nine months ended
	September 30, 2014									September 30, 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		(212,826	)		(12,172	)		(224,998	)		(190,607	)		(5,448	)		(196,055	)
Change in expected cash flows		219,265			9,049			228,314			45,629			8,375			54,004
Ending balance	$	1,304,164		$	8,357		$	1,312,521		$	1,301,403		$	8,215		$	1,309,618

34

	Carrying amount of covered loans accounted for pursuant to ASC 310-30
	For the quarters ended
	September 30, 2014									September 30, 2013
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	2,387,911		$	222,753		$	2,610,664		$	2,653,071		$	359,795		$	3,012,866
Accretion		62,958			3,059			66,017			69,146			(617	)		68,529
Collections and charge-offs		(124,265	)		(23,983	)		(148,248	)		(166,611	)		(23,735	)		(190,346	)
Ending balance	$	2,326,604		$	201,829		$	2,528,433		$	2,555,606		$	335,443		$	2,891,049
Allowance for loan losses
ASC 310-30 covered loans		(52,812	)		(32,828	)		(85,640	)		(49,744	)		(59,130	)		(108,874	)
Ending balance, net of ALLL	$	2,273,792		$	169,001		$	2,442,793		$	2,505,862		$	276,313		$	2,782,175

	Carrying amount of loans accounted for pursuant to ASC 310-30
	For the nine months ended
	September 30, 2014									September 30, 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		212,826			12,172			224,998			190,607			5,448			196,055
Collections and charge offs		(395,297	)		(129,215	)		(524,512	)		(686,965	)		(109,800	)		(796,765	)
Ending balance	$	2,326,604		$	201,829		$	2,528,433		$	2,555,606		$	335,443		$	2,891,049
Allowance for loan losses
ASC 310-30 covered loans		(52,812	)		(32,828	)		(85,640	)		(49,744	)		(59,130	)		(108,874	)
Ending balance, net of ALLL	$	2,273,792		$	169,001		$	2,442,793		$	2,505,862		$	276,313		$	2,782,175

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 September 30, 2014 (December 31, 2013 - $0.2 billion).

35

Note 10 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience and results of periodic credit reviews of individual loans. The provision for loan losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the allowance for loan losses.

The Corporation’s assessment of the allowance for loan losses is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the allowance for loan losses on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30 by analogy, by evaluating decreases in expected cash flows after the acquisition date.

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, when these trends are higher than the respective base loss rates. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process. As part of the annual review of the components of the ALLL models, as discussed in the following paragraphs and implemented as of June 30, 2014, the Corporation eliminated the use of caps in the recent loss trend adjustment for the consumer and mortgage portfolios, among other enhancements. For the period ended December 31, 2013, 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 September 30, 2014, 33% (September 30, 2013 - 12%) 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, commercial and industrial, personal and auto loan portfolios for 2014, and in the commercial multi-family, mortgage, and leasing portfolios for 2013.

For the period ended September 30, 2014, 12% (September 30, 2013 - 23%) 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 and legacy loan portfolios for 2014 and in the commercial multi-family, commercial real estate non-owner occupied and commercial and industrial portfolios for 2013.

For the period ended December 31, 2013, 27% (December 31, 2012 - 32%) 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, leasing, and auto loan portfolios for 2013.

For the period ended December 31, 2013, 29% (December 31, 2012 – 8%) 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 real estate non-owner occupied, commercial and industrial and legacy loan portfolios for 2013.

• Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, 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 the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis is used to select these indicators and quantify the effect on the general reserve of the allowance for loan losses.

36

During the second quarter of 2014, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics and revised certain components related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These enhancements to the ALLL methodology, which are described in the paragraphs below, were implemented as of June 30, 2014 and resulted in a net decrease to the allowance for loan losses of $18.7 million for the non-covered portfolio and a net increase to the allowance for loan losses of $0.8 million for the covered portfolio.

Management made the following principal enhancements to the methodology during the second quarter of 2014:

• Annual review and recalibration of the environmental factors adjustment. The environmental factor adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the second quarter of 2014, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends. Management also revised the application of environmental factors to the historical loss rates to consider last 12 month trends of the applicable credit and macroeconomic indicators applied as an incremental adjustment to account for emerging risks not necessarily considered in the historical loss rates.

The combined effect of the aforementioned recalibration and enhancements to the environmental factors adjustment resulted in a decrease to the allowance for loan losses of $17 million at June 30, 2014, of which $14.1 million related to the non-covered BPPR segment and $3.7 million related to the BPNA segment, offset in part by a $0.8 million increase in the BPPR covered segment.

• Increased the historical look-back period for determining the recent loss trend adjustment for consumer and mortgage loans. The Corporation increased the look-back period for assessing recent trends applicable to the determination of consumer and mortgage loan net charge-offs from 6 months to 12 months and eliminated the use of caps. Previously, the Corporation used a recent loss trend adjustment based on 6 months of net charge-offs up to a determined cap. Given the current overall consumer and mortgage credit quality improvements, management concluded that a 12-month look-back period for the recent loss trend adjustment aligns the Corporation’s allowance for loan losses methodology to current credit quality trends while limiting excessive pro-cyclicality given the longer look-back period analysis, thus, eliminating the aforementioned caps.

The combined effect of the aforementioned enhancements to the recent loss trend adjustment resulted in a decrease to the allowance for loan losses of $1 million at June 30, 2014, of which $0.9 million related to the non-covered BPPR segment and $0.1 million related to the BPNA segment.

The following tables present the changes in the allowance for loan losses for the quarters ended September 30, 2014 and 2013.

For the quarter ended September 30, 2014
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	184,235		$	5,191		$	120,399		$	5,959		$	150,482		$	466,266
Provision (reversal of provision)		22,432			(761	)		12,150			2,822			25,225			61,868
Charge-offs		(12,050	)		(985	)		(13,701	)		(1,876	)		(30,896	)		(59,508	)
Recoveries		11,039			2,222			371			466			6,728			20,826
Ending balance	$	205,656		$	5,667		$	119,219		$	7,371		$	151,539		$	489,452

37

For the quarter ended September 30, 2014
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	46,693		$	8,996		$	38,941		$	—		$	4,035		$	98,665
Provision (reversal of provision)		6,312			2,263			5,392			(1	)		(1,503	)		12,463
Charge-offs		(16,290	)		(5,075	)		(2,163	)		—			943			(22,585	)
Recoveries		(300	)		1,009			354			1			81			1,145
Ending balance	$	36,415		$	7,193		$	42,524		$	—		$	3,556		$	89,688

For the quarter ended September 30, 2014
U.S. Mainland - Continuing Operations
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	18,274		$	151	$	17,529		$	9,343		$	14,683		$	59,980
Provision (reversal of provision)		6,992			631		(6,901	)		3,340			2,236			6,298
Charge-offs		(3,715	)		—		(853	)		(2,570	)		(3,630	)		(10,768	)
Recoveries		4,608			59		827			2,349			1,138			8,981
Net (write-down) recovery related to loans transferred to LHFS		(15,384	)		—		(8,300	)		(8,461	)		(111	)		(32,256	)
Ending balance	$	10,775		$	841	$	2,302		$	4,001		$	14,316		$	32,235

For the quarter ended September 30, 2014

U.S. Mainland - Discontinued Operations

(In thousands)

Commercial

Construction

Mortgage

Legacy

Consumer

Total

Allowance for credit losses:

Beginning balance

$

—

$

—

$

—

$

—

$

—

$

—

Net write-downs related to loans transferred to discontinued operations

—

—

—

—

—

—

Ending balance

$

—

$

—

$

—

$

—

$

—

$

—

For the quarter ended September 30, 2014
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	249,202		$	14,338		$	176,869		$	9,343		$	5,959		$	169,200		$	624,911
Provision (reversal of provision)		35,736			2,133			10,641			3,340			2,821			25,958			80,629
Charge-offs		(32,055	)		(6,060	)		(16,717	)		(2,570	)		(1,876	)		(33,583	)		(92,861	)
Recoveries		15,347			3,290			1,552			2,349			467			7,947			30,952
Net write-down related to loans sold		(15,384	)		—			(8,300	)		(8,461	)		—			(111	)		(32,256	)
Net write-downs related to loans transferred to discontinued operations		—			—			—			—			—			—			—
Ending balance	$	252,846		$	13,701		$	164,045		$	4,001		$	7,371		$	169,411		$	611,375

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For the nine months ended September 30, 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)		102,998			(2,658	)		20,661			(41	)		69,683			190,643
Charge-offs		(50,384	)		(1,443	)		(32,510	)		(4,597	)		(90,033	)		(178,967	)
Recoveries		24,892			4,673			738			1,387			19,311			51,001
Ending balance	$	205,656		$	5,667		$	119,219		$	7,371		$	151,539		$	489,452

For the nine months ended September 30, 2014
Puerto Rico - Covered loans
(In thousands)	Commercial	Construction	Mortgage	Leasing	Consumer	Total
Allowance for credit losses: