UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2017

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	(IRS Employer
Incorporation or organization)	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.     ☒  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).     ☒  Yes    ☐  No

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 102,059,726 shares outstanding as of November 6, 2017.

POPULAR, INC.

INDEX

	Page
Part I – Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition at September 30, 2017 and December 31, 2016		5
Unaudited Consolidated Statements of Operations for the quarters and nine months ended September 30, 2017 and 2016		6
Unaudited Consolidated Statements of Comprehensive Income for the quarters and nine months ended September 30, 2017 and 2016		7
Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2017 and 2016		8
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016		9
Notes to Unaudited Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		129
Item 3. Quantitative and Qualitative Disclosures about Market Risk		190
Item 4. Controls and Procedures		190
Part II – Other Information
Item 1. Legal Proceedings		190
Item 1A. Risk Factors		190
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		193
Item 3. Defaults Upon Senior		193
Item 4. Mine Safety Disclosures		193
Item 5. Other information		193
Item 6. Exhibits		194
Signatures		195

2

Forward-Looking Information

This Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 about Popular, Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”), including without limitation statements about Popular’s business, financial condition, results of operations, plans, objectives and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, 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, the effect of legal proceedings and new accounting standards on the Corporation’s financial condition and results of operations, and the impact of Hurricanes Irma and María on the Corporation. 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.

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 in the geographic areas we serve;

• the impact of the current fiscal and economic crisis of the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”) and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business;

• the impact of the pending debt restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal crisis on the value of our portfolio of Puerto Rico government securities and loans to governmental entities, and the possibility that these actions may result in credit losses that are higher than currently expected;

• the impact of Hurricanes Irma and Maria, and the measures taken to recover from these hurricanes (including the availability of relief funds and insurance proceeds), on the economy of Puerto Rico, the U.S. Virgin Islands and the British Virgin Islands, and on our customers and our business;

• 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;

• 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;

• possible legislative, tax or regulatory changes; and

• a failure in or breach of our operational or security systems or infrastructure or those of EVERTEC, Inc., our provider of core financial transaction processing and information technology services, as a result of cyberattacks, including e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.

3

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, including as a result of Hurricanes Irma and Maria, 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 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/or juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016 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 Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q 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 or information which speak as of their respective dates.

.

4

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

(In thousands, except share information)	September 30, 2017			December 31, 2016
Assets:
Cash and due from banks	$	517,437		$	362,394
Money market investments:
Securities purchased under agreements to resell		—			23,637
Time deposits with other banks		5,488,212			2,866,580
Total money market investments		5,488,212			2,890,217
Trading account securities, at fair value:
Pledged securities with creditors’ right to repledge		636			11,486
Other trading securities		45,315			48,319
Investment securities available-for-sale, at fair value:
Pledged securities with creditors’ right to repledge		378,227			491,843
Other investment securities available-for-sale		8,682,774			7,717,963
Investment securities held-to-maturity, at amortized cost (fair value 2017 - $74,512; 2016 - $75,576)		93,438			98,101
Other investment securities, at lower of cost or realizable value (realizable value 2017 - $177,141; 2016 - $170,890)		173,965			167,818
Loans held-for-sale, at lower of cost or fair value		68,864			88,821
Loans held-in-portfolio:
Loans not covered under loss-sharing agreements with the FDIC		23,302,047			22,895,172
Loans covered under loss-sharing agreements with the FDIC		524,854			572,878
Less – Unearned income		128,597			121,425
Allowance for loan losses		646,913			540,651
Total loans held-in-portfolio, net		23,051,391			22,805,974
FDIC loss-share asset		48,470			69,334
Premises and equipment, net		532,532			543,981
Other real estate not covered under loss-sharing agreements with the FDIC		176,728			180,445
Other real estate covered under loss-sharing agreements with the FDIC		21,545			32,128
Accrued income receivable		146,339			138,042
Mortgage servicing assets, at fair value		180,157			196,889
Other assets		2,329,927			2,145,510
Goodwill		627,294			627,294
Other intangible assets		38,016			45,050
Total assets	$	42,601,267		$	38,661,609
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing	$	7,449,857		$	6,980,443
Interest bearing		26,799,079			23,515,781
Total deposits		34,248,936			30,496,224
Assets sold under agreements to repurchase		374,405			479,425
Other short-term borrowings		240,598			1,200
Notes payable		1,532,061			1,574,852
Other liabilities		919,836			911,951
Total liabilities		37,315,836			33,463,652
Commitments and contingencies (Refer to Note 22)
Stockholders’ equity:
Preferred stock, 30,000,000 shares authorized; 2,006,391shares issued and outstanding		50,160			50,160
Common stock, $0.01 par value; 170,000,000 shares authorized; 104,197,524 shares issued (2016 - 104,058,684) and 102,026,417 shares outstanding (2016 - 103,790,932)		1,042			1,040
Surplus		4,265,053			4,255,022
Retained earnings		1,350,730			1,220,307
Treasury stock - at cost, 2,171,107 shares (2016 - 267,752)		(90,222	)		(8,286	)
Accumulated other comprehensive loss, net of tax		(291,332	)		(320,286	)
Total stockholders’ equity		5,285,431			5,197,957
Total liabilities and stockholders’ equity	$	42,601,267		$	38,661,609

The accompanying notes are an integral part of these Consolidated Financial Statements.

5

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Quarters ended September 30,						Nine months ended September 30,
(In thousands, except per share information)	2017			2016			2017			2016
Interest income:
Loans	$	371,979		$	363,550		$	1,102,784		$	1,096,468
Money market investments		15,529			4,568			33,233			11,320
Investment securities		47,276			37,732			140,699			110,728
Trading account securities		1,099			1,449			3,895			5,013
Total interest income		435,883			407,299			1,280,611			1,223,529
Interest expense:
Deposits		37,058			32,362			104,907			92,835
Short-term borrowings		1,524			2,132			3,734			6,051
Long-term debt		19,130			19,118			57,222			57,993
Total interest expense		57,712			53,612			165,863			156,879
Net interest income		378,171			353,687			1,114,748			1,066,650
Provision for loan losses - non-covered loans		157,659			42,594			249,681			130,202
Provision (reversal) for loan losses - covered loans		3,100			750			4,255			(1,551	)
Net interest income after provision for loan losses		217,412			310,343			860,812			937,999
Service charges on deposit accounts		39,273			40,776			119,882			120,934
Other service fees (Refer to Note 28)		53,481			59,169			168,824			169,496
Mortgage banking activities (Refer to Note 11)		5,239			15,272			27,349			42,050
Net gain on sale of investment securities		103			349			284			1,932
Other-than-temporary impairment losses on investment securities		—			—			(8,299	)		(209	)
Trading account profit (loss)		253			(113	)		(680	)		842
Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale		(420	)		8,549			(420	)		8,245
Adjustments (expense) to indemnity reserves on loans sold		(6,406	)		(4,390	)		(11,302	)		(14,234	)
FDIC loss-share expense (Refer to Note 29)		(3,948	)		(61,723	)		(12,680	)		(77,445	)
Other operating income		12,799			18,089			50,078			46,500
Total non-interest income		100,374			75,978			333,036			298,111
Operating expenses:
Personnel costs		119,636			121,224			364,058			365,023
Net occupancy expenses		22,254			21,626			65,295			63,770
Equipment expenses		16,457			15,922			48,677			45,731
Other taxes		10,858			11,324			32,567			31,689
Professional fees		70,772			81,266			212,956			237,350
Communications		5,394			5,785			17,242			18,117
Business promotion		15,216			12,726			40,158			37,541
FDIC deposit insurance		6,271			5,854			18,936			18,586
Other real estate owned (OREO) expenses		11,724			11,295			41,212			33,416
Other operating expenses		36,161			29,752			87,106			70,432
Amortization of intangibles		2,345			3,097			7,034			9,308
Goodwill impairment charge		—			3,801			—			3,801
Total operating expenses		317,088			323,672			935,241			934,764
Income before income tax		698			62,649			258,607			301,346
Income tax (benefit) expense		(19,966	)		15,839			48,772			80,550
Net Income	$	20,664		$	46,810		$	209,835		$	220,796
Net Income Applicable to Common Stock	$	19,734		$	45,880		$	207,043		$	218,004
Net Income per Common Share – Basic	$	0.19		$	0.44		$	2.03		$	2.11
Net Income per Common Share – Diluted	$	0.19		$	0.44		$	2.03		$	2.11
Dividends Declared per Common Share	$	0.25		$	0.15		$	0.75		$	0.45

The accompanying notes are an integral part of these Consolidated Financial Statements.

6

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Quarters ended,						Nine months ended,
	September 30,						September 30,
(In thousands)	2017			2016			2017			2016
Net income	$	20,664		$	46,810		$	209,835		$	220,796
Other comprehensive income (loss) before tax:
Foreign currency translation adjustment		(390	)		(325	)		(1,839	)		(2,465	)
Amortization of net losses of pension and postretirement benefit plans		5,606			5,488			16,819			16,461
Amortization of prior service credit of pension and postretirement benefit plans		(950	)		(950	)		(2,850	)		(2,850	)
Unrealized holding gains (losses) on investments arising during the period		9,240			(15,428	)		15,137			98,900
Other-than-temporary impairment included in net income		—			—			8,299			209
Reclassification adjustment for gains included in net income		(103	)		(349	)		(284	)		(349	)
Unrealized net losses on cash flow hedges		(410	)		(1,123	)		(1,424	)		(4,662	)
Reclassification adjustment for net losses included in net income		232			1,650			2,122			4,466
Other comprehensive income (loss) before tax		13,225			(11,037	)		35,980			109,710
Income tax expense		(1,614	)		(646	)		(7,026	)		(10,119	)
Total other comprehensive income (loss), net of tax		11,611			(11,683	)		28,954			99,591
Comprehensive income, net of tax	$	32,275		$	35,127		$	238,789		$	320,387
Tax effect allocated to each component of other comprehensive income (loss):
	Quarters ended						Nine months ended,
	September 30,						September 30,
(In thousands)	2017			2016			2017			2016
Amortization of net losses of pension and postretirement benefit plans	$	(2,185	)	$	(2,140	)	$	(6,556	)	$	(6,420	)
Amortization of prior service credit of pension and postretirement benefit plans		370			370			1,110			1,110
Unrealized holding gains (losses) on investments arising during the period		110			1,297			194			(4,877	)
Other-than-temporary impairment included in net income		—			—			(1,559	)		(42	)
Reclassification adjustment for gains included in net income		21			33			57			33
Unrealized net losses on cash flow hedges		160			438			555			1,819
Reclassification adjustment for net losses included in net income		(90	)		(644	)		(827	)		(1,742	)
Income tax expense	$	(1,614	)	$	(646	)	$	(7,026	)	$	(10,119	)

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

7

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

														Accumulated
														other
	Common		Preferred					Retained			Treasury			comprehensive
(In thousands)	stock		stock		Surplus			earnings			stock			loss			Total
Balance at December 31, 2015	$	1,038	$	50,160	$	4,229,156		$	1,087,957		$	(6,101	)	$	(256,886	)	$	5,105,324
Net income									220,796									220,796
Issuance of stock		2				5,716												5,718
Tax shortfall expense on vesting of restricted stock						(30	)											(30	)
Dividends declared:
Common stock									(46,666	)								(46,666	)
Preferred stock									(2,792	)								(2,792	)
Common stock purchases												(1,563	)					(1,563	)
Common stock reissuance												17						17
Other comprehensive income, net of tax															99,591			99,591
Balance at September 30, 2016	$	1,040	$	50,160	$	4,234,842		$	1,259,295		$	(7,647	)	$	(157,295	)	$	5,380,395
Balance at December 31, 2016	$	1,040	$	50,160	$	4,255,022		$	1,220,307		$	(8,286	)	$	(320,286	)	$	5,197,957
Net income									209,835									209,835
Issuance of stock		2				5,513												5,515
Dividends declared:
Common stock									(76,620	)								(76,620	)
Preferred stock									(2,792	)								(2,792	)
Common stock purchases						4,518						(81,936	)					(77,418	)
Other comprehensive income, net of tax															28,954			28,954
Balance at September 30, 2017	$	1,042	$	50,160	$	4,265,053		$	1,350,730		$	(90,222	)	$	(291,332	)	$	5,285,431
														September 30,			September 30,
Disclosure of changes in number of shares:														2017			2016
Preferred Stock:
Balance at beginning and end of period															2,006,391			2,006,391
Common Stock – Issued:
Balance at beginning of period															104,058,684			103,816,185
Issuance of stock															138,840			198,196
Balance at end of period															104,197,524			104,014,381
Treasury stock															(2,171,107	)		(251,785	)
Common Stock – Outstanding															102,026,417			103,762,596

The accompanying notes are an integral part of these Consolidated Financial Statements.

8

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30,
(In thousands)	2017			2016
Cash flows from operating activities:
Net income	$	209,835		$	220,796
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		253,936			128,651
Goodwill impairment losses		—			3,801
Amortization of intangibles		7,034			9,308
Depreciation and amortization of premises and equipment		35,966			34,725
Net accretion of discounts and amortization of premiums and deferred fees		(17,371	)		(36,753	)
Impairment losses on long-lived assets		11,286			—
Other-than-temporary impairment on investment securities		8,299			209
Fair value adjustments on mortgage servicing rights		24,262			18,879
FDIC loss share expense		12,680			77,445
Adjustments (expense) to indemnity reserves on loans sold		11,302			14,234
Earnings from investments under the equity method		(27,350	)		(23,812	)
Deferred income tax expense		30,471			61,918
Loss (gain) on:
Disposition of premises and equipment and other productive assets		5,018			3,603
Sale and valuation adjustments of investment securities		(284	)		(1,932	)
Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities		(16,455	)		(32,982	)
Sale of foreclosed assets, including write-downs		19,228			13,160
Acquisitions of loans held-for-sale		(204,813	)		(223,189	)
Proceeds from sale of loans held-for-sale		68,326			58,003
Net originations on loans held-for-sale		(283,709	)		(365,353	)
Net decrease (increase) in:
Trading securities		498,840			578,133
Accrued income receivable		(8,297	)		4,543
Other assets		13,454			(28,201	)
Net (decrease) increase in:
Interest payable		(9,299	)		(11,553	)
Pension and other postretirement benefits obligation		(13,760	)		(56,537	)
Other liabilities		15,178			(5,292	)
Total adjustments		433,942			221,008
Net cash provided by operating activities		643,777			441,804
Cash flows from investing activities:
Net increase in money market investments		(2,597,994	)		(1,783,402	)
Purchases of investment securities:
Available-for-sale		(2,356,389	)		(2,408,514	)
Other		(23,822	)		(14,017	)
Proceeds from calls, paydowns, maturities and redemptions of investment securities:
Available-for-sale		1,225,915			951,447
Held-to-maturity		6,229			4,182
Other		—			11,051
Proceeds from sale of investment securities:
Available-for-sale		14,888			1,556
Other		17,675			8,006
Net disbursements on loans		(77,400	)		(93,354	)
Proceeds from sale of loans		415			134,114
Acquisition of loan portfolios		(448,121	)		(355,507	)
Net payments (to) from FDIC under loss sharing agreements		(11,520	)		95,407
Return of capital from equity method investments		8,556			324
Acquisition of premises and equipment		(40,158	)		(78,297	)
Proceeds from sale of:
Premises and equipment and other productive assets		6,982			5,519
Foreclosed assets		85,705			54,600
Net cash used in investing activities		(4,189,039	)		(3,466,885	)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits		3,751,367			3,119,674
Federal funds purchased and assets sold under agreements to repurchase		(105,020	)		3,106
Other short-term borrowings		239,398			—
Payments of notes payable		(89,375	)		(230,608	)
Proceeds from issuance of notes payable		45,000			165,047
Proceeds from issuance of common stock		5,515			5,718
Dividends paid		(69,162	)		(49,438	)
Net payments for repurchase of common stock		(75,662	)		(1,547	)
Payments related to tax withholding for share-based compensation		(1,756	)		—
Net cash provided by financing activities		3,700,305			3,011,952
Net increase (decrease) in cash and due from banks		155,043			(13,129	)
Cash and due from banks at beginning of period		362,394			363,674
Cash and due from banks at the end of the period	$	517,437		$	350,545

The accompanying notes are an integral part of these Consolidated Financial Statements.

9

Notes to Consolidated Financial Statements (Unaudited)

Note 1 -	Nature of operations	11
Note 2 -	Hurricanes impact	12
Note 3 -	Basis of presentation and summary of significant accounting policies	15
Note 4 -	New accounting pronouncements	16
Note 5 -	Restrictions on cash and due from banks and certain securities	18
Note 6 -	Investment securities available-for-sale	19
Note 7 -	Investment securities held-to-maturity	23
Note 8 -	Loans	25
Note 9 -	Allowance for loan losses	34
Note 10 -	FDIC loss share asset and true-up payment obligation	52
Note 11 -	Mortgage banking activities	54
Note 12 -	Transfers of financial assets and mortgage servicing assets	55
Note 13 -	Other real estate owned	59
Note 14 -	Other assets	60
Note 15 -	Goodwill and other intangible assets	61
Note 16 -	Deposits	65
Note 17 -	Borrowings	66
Note 18 -	Offsetting of financial assets and liabilities	68
Note 19 -	Stockholders’ equity	70
Note 20 -	Other comprehensive loss	71
Note 21 -	Guarantees	73
Note 22 -	Commitments and contingencies	75
Note 23 -	Non-consolidated variable interest entities	83
Note 24 -	Related party transactions	86
Note 25 -	Fair value measurement	91
Note 26 -	Fair value of financial instruments	98
Note 27 -	Net income per common share	102
Note 28 -	Other service fees	103
Note 29 -	FDIC loss share expense	104
Note 30 -	Pension and postretirement benefits	105
Note 31 -	Stock-based compensation	106
Note 32 -	Income taxes	108
Note 33 -	Supplemental disclosure on the consolidated statements of cash flows	112
Note 34 -	Segment reporting	113
Note 35 -	Condensed consolidating financial information of guarantor and issuers of registered guaranteed securities	119

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Note 1 – 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, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the U.S. mainland, the Corporation operates Banco Popular North America (“BPNA”). BPNA focuses efforts and resources on the core community banking business. BPNA operates branches in New York, New Jersey and South Florida under the name of Popular Community Bank.

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Note 2 – Hurricanes impact

During September 2017, Hurricanes Irma and Maria (the “hurricanes”), impacted Puerto Rico, the U.S. and British Virgin Islands, causing extensive damage and disrupting the markets in which Banco Popular de Puerto Rico (“BPPR”) does business.

On September 6, 2017, Hurricane Irma made landfall in the USVI and the BVI as a Category 5 hurricane on the Saffir-Simpson scale, causing catastrophic wind and water damage to the islands’ infrastructure, homes and businesses. Hurricane Irma’s winds and resulting flooding also impacted certain municipalities of Puerto Rico, causing the failure of electricity infrastructure in a significant portion of the island. While hurricane Irma also struck Popular’s operations in Florida, neither our operations nor those of our clients in the region were materially impacted.

Two weeks later, on September 20, 2017, Hurricane Maria, made landfall in Puerto Rico as a Category 4 hurricane, causing extensive destruction and flooding throughout Puerto Rico. Following the passage of Hurricane Maria, all Puerto Rico was left without electrical power, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed and the government imposed a mandatory curfew. The hurricanes caused a significant disruption to the island’s economic activity. Most business establishments, including retailers and wholesalers, financial institutions, manufacturing facilities and hotels, were closed for several days.

Puerto Rico and the USVI were declared disaster zones by President Trump due to the impact of the hurricanes, thus making them eligible for Federal assistance. Notwithstanding the significant recovery operation that is underway by the Federal, state and local governments, as of the date of this report, most businesses and homes in Puerto Rico and the USVI remain without power, other basic utility and infrastructure remains significantly impacted, and many businesses are partially operating or remain closed. Electronic transactions, a significant source of revenue for the bank, have also declined significantly as a result of the lack of power and telecommunication services. Several reports indicate that the hurricanes have also accelerated the outmigration trends that Puerto Rico was experiencing, with many residents moving to the mainland United States, either on a temporary or permanent basis.

While it is too early to assess and quantify the full extent of the damage caused by the hurricanes, as well as their long-term impact on economic activity, the damages are substantial and have, at least in the short-term, had a material adverse impact on economic activity, as reflected by, among other things, the slowdown in production and sales activity and the reduction in the government’s tax revenues. Employment levels are also expected to decrease at least in the short-term. The speed at which the government is able to restore power and other basic services throughout Puerto Rico, which we are not able to predict, will be a critical variable in determining the extent of the impact on economic activity. Furthermore, the hurricanes severely damaged or destroyed buildings, homes and other structures, impacting the value of such properties, some of which may serve as collateral to our loans. While our collateral is generally insured, the value of such insured structures, as well as other structures unaffected by the hurricanes, may be significantly impacted. Although some of the impact of the hurricanes, including its short-term impact on economic activity, may be offset by recovery and reconstruction activity and the influx of Federal emergency funds and private insurance proceeds, it is too early to know the amount of Federal and private insurance money to be received and whether such transfers will significantly offset the negative economic, fiscal and demographic impact of the hurricanes.

Prior to the hurricanes, the Corporation had implemented its business continuity action program. Although the Corporation’s business critical systems experienced minimal outages as a result of the storms, the Corporation’s physical operations in Puerto Rico, the USVI and the BVI, including its branch and ATM networks, were materially disrupted by the storms mostly due to lack of electricity and communication as well as limited accessibility. Reconstruction of the island’s electric infrastructure and restoration of the telecommunications network remain the most critical challenges for Puerto Rico’s recovery from the hurricanes.

The following summarizes the estimated impact on the Corporation’s earnings for the quarter ended September 30, 2017 as a result of the impact caused by Hurricanes Irma and Maria, net of estimated insurance receivables of $7.5 million. We expect the hurricanes to continue to impact the Corporation’s earnings for the quarter ending December 31, 2017 and future periods.

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(In thousands)	Quarter ended September 30, 2017
Provision for loan losses[1]	$	69,887
Operating expenses:
Personnel costs		58
Net occupancy expenses		468
Business promotion
Donations		1,123
Other sponsorship and promotions expenses		203
Total business promotion		1,326
OREO expenses		2,685
Other expenses
Write-down of premises and equipment		3,932
Other operating expense		1,033
Total other expenses		4,965
Total operating expenses		9,502
Total pre-tax hurricane expenses	$	79,389

[1] Includes $3.5 million in provision for covered loans.

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Provision for Loan Losses

Damages associated with Hurricanes Irma and Maria impacted certain of the Corporation’s asset quality measures, including higher delinquencies and non-performing loans. Payment channels, collection efforts and loss mitigation operations were interrupted during the last month of the quarter as a result of the hurricanes. An incremental provision expense of $69.9 million was made to the allowance for loan losses based on management’s best estimate of the impact of the hurricanes as of September 30, 2017 on the Corporation’s loan portfolios and the ability of borrowers to repay their loans, taking into consideration currently available information and the already challenging economic environment in Puerto Rico prior to the hurricanes.

Management has initially estimated that the effects of the hurricanes could result in loan losses in the range of $70 to $160 million. However, since the Corporation’s base allowance for loan losses already incorporated reserves for environmental factors such as unemployment and deterioration in economic activity of approximately $57.9 million, management increased the environmental factors reserve by $64.3 million to $122.2 million using the near mid-range as the best estimate. The $69.9 million provision also includes $5.6 million for the portfolio of purchased credit impaired loans, accounted for under ASC 310-30, for which the estimated cash flows were adjusted to reflect a three-month payment moratorium offered to certain eligible borrowers. Since there is significant uncertainty with respect to the full extent of the impact due to the unprecedented nature of Hurricane María, the estimate is judgmental and subject to change as conditions evolve. Management will continue to carefully assess and review the exposure of the portfolios to hurricane-related factors, economic trends and their effect on credit quality and that assessment and review could result in further loan loss provisions in future periods.

Operating Expenses

The results for the quarter include $6.6 million in expenses, net of $7.5 million in insurance receivables, from structural damages caused by the hurricanes to branches, buildings and repossessed properties as a result of the hurricanes. An additional $2.9 million in other operating expenses are reflected for costs such as donations, debris removal, fuel for backup generators and other ancillary costs associated with hurricane recovery efforts.

The Corporation has over 200 branches and office buildings and over 2,000 repossessed properties in the areas affected by the hurricanes. While the Corporation has completed a preliminary estimate of the physical damages to these properties, it has been unable to individually examine each of these properties. As the Corporation continues to evaluate the extent of the damage, additional adjustments may be necessary. However, the Corporation believes that given its level of insurance coverage, the estimated impact of damages to these properties should not vary materially.

Revenue Reduction

In addition to the previously mentioned incremental provision and direct operating expenses, results for the three months ended September 30, 2017 were impacted by the hurricanes in the form of a reduction in revenue resulting from reduced merchant transaction activity, the waiver of certain late fees and service charges, including ATM transaction fees, to businesses and consumers in hurricane-affected areas, as well as the economic and operational disruption in the Corporation’s mortgage origination, servicing and loss mitigation activities due to the hurricanes’ operational and economic impact. The impact on transactional and collection based revenues has continued into the fourth quarter and the amount will depend on the speed at which electricity, telecommunications and general merchant services can be restored across the region.

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Note 3 – Basis of Presentation and Summary of Significant Accounting Policies

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, 2016 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 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, 2016, included in the Corporation’s 2016 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates in the Preparation of Financial Statements

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

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Note 4 – New accounting pronouncements

Recently Issued Accounting Standards Updates

FASB Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

The FASB issued ASU 2017-12 in August 2017, which makes more financial and nonfinancial hedging strategies eligible for hedge accounting and changes how companies assess effectiveness by, among other things, eliminating the requirement for entities to recognize hedge ineffectiveness each reporting period for cash flow hedges and requiring presentation of the changes in fair value of cash flow hedges in the same income statement line item(s) as the earnings effect of the hedged items when the hedged item affects earnings.

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments in this Update should be applied using a modified retrospective approach as of the adoption date.

The Corporation will be impacted by the simplified application of hedge accounting. The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since hedge ineffectiveness has been immaterial to the Corporation and the earnings effect of the hedges and the hedged items are already presented in the same income statement line item.

FASB Accounting Standards Update (“ASU”) 2017-11, Earnings per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part I: Accounting for Certain Financial Instruments with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception

The FASB issued ASU 2017-11 in July 2017, which changes the classification analysis of certain equity-linked financial instruments with down round features. When determining whether these instruments should be classified as liabilities or equity, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. For EPS purposes, the effect of the down round feature should be recognized as a dividend when triggered.

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments in this Update may be applied using either a modified retrospective approach or a full retrospective approach.

The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since it does not have any outstanding equity-linked financial instruments with a down round feature.

FASB Accounting Standards Update (“ASU”) 2017-09, Compensation– Stock Compensation (Topic 718): Scope of Modification Accounting

The FASB issued ASU 2017-09 in May 2017, which clarifies that modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.

The Corporation does not anticipate that the adoption of this accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since it is not customary for the Corporation to modify the terms or conditions of its share-based payment awards.

FASB Accounting Standards Update (“ASU”) 2017-08, Receivables– Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

16

The FASB issued ASU 2017-08 in March 2017, which amends the amortization period for certain callable debt securities held at a premium by shortening such period to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The amendments in this Update should be applied on a modified retrospective basis with 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 accounting pronouncement will have a material effect on its consolidated statements of financial condition and results of operations since the premium of purchased callable debt securities is not significant.

FASB Accounting Standards Update (“ASU”) 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The FASB issued ASU 2017-07 in March 2017, which requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization.

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The amendments in this Update should be applied retrospectively for the presentation of the service cost component and other components of net benefit cost and prospectively for the capitalization of the service cost component.

The Corporation does not expect that the limitation to capitalize only the service cost component of the net periodic benefit cost will have a material impact on its consolidated statement of operations. Upon adoption, the Corporation will segregate the presentation of the service cost from the other components of net periodic benefit costs, all which are currently reported within personnel costs in its accompanying consolidated statement of operations.

FASB Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The Corporation has continued its evaluation and implementation efforts for ASU 2016-13, Financial Instruments – Credit Losses, and has established a cross-discipline governance structure. A Current Expected Credit Losses (“CECL”) Working Group, with members from different areas within the organization, has been created and assigned the responsibility of assessing the impact of the standard, evaluating interpretative issues, evaluating the current credit loss models against the new guidance to determine any changes necessary and other related implementation activities. The Working Group provides periodic updates to the CECL Steering Committee, which has oversight responsibilities for the implementation efforts.

The Corporation plans to adopt ASU 2016-13 on January 1, 2020 using a modified retrospective approach. Although early adoption is permitted beginning in the first quarter of 2019, the Corporation does not expect to make that election. The Corporation expects an increase in its allowance for loan and lease losses due to the consideration of lifetime credit losses as part of the calculation. For additional information on ASU 2016-13 and other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2016 Form 10-K.

FASB Accounting Standards Updates (“ASUs”), Revenue from Contracts with Customers (Topic 606)

The Corporation’s implementation efforts regarding ASU 2014-09, Revenue from Contracts with Customers, have included a scoping analysis of revenue streams and related costs, reviewing the associated contracts, evaluating the timing of when revenues are currently being recognized in light of when the performance obligations are fulfilled and assessing principal vs. agent considerations. The Corporation does not expect material changes in the timing of when revenues are recognized upon the adoption of this standard. Nonetheless, the Corporation continues to evaluate certain costs, including card interchange transactions, to determine if these should be presented on a gross basis or as an offset to the corresponding revenues. Although the Corporation expects changes on the presentation of certain costs related to its brokerage, underwriting and valuation services in its broker-dealer subsidiary, it does not anticipate these changes in presentation to be material to the Corporation’s financial statements. The Corporation will adopt this guidance on January 1, 2018 using the modified retrospective approach.

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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 $ 1.2 billion at September 30, 2017 (December 31, 2016 - $ 1.2 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

At September 30, 2017, the Corporation held $38 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, 2016 - $31 million). The amounts held in trading account securities and investment securities available for sale consist primarily of restricted assets held for the Corporation’s non-qualified retirement plans and fund deposits guaranteeing possible liens or encumbrances over the title of insured properties.

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Note 6 – 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, 2017 and December 31, 2016.

	At September 30, 2017
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	594,340	$	3	$	863	$	593,480		1.01	%
After 1 to 5 years		2,179,553		1,276		9,446		2,171,383		1.41
Total U.S. Treasury securities		2,773,893		1,279		10,309		2,764,863		1.32
Obligations of U.S. Government sponsored entities
Within 1 year		204,201		97		282		204,016		1.22
After 1 to 5 years		408,988		254		1,612		407,630		1.46
Total obligations of U.S. Government sponsored entities		613,189		351		1,894		611,646		1.38
Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,605		10		—		6,615		2.49
Total obligations of Puerto Rico, States and political subdivisions		6,605		10		—		6,615		2.49
Collateralized mortgage obligations—federal agencies
Within 1 year		80		—		—		80		2.74
After 1 to 5 years		17,330		273		44		17,559		2.89
After 5 to 10 years		39,546		149		320		39,375		2.33
After 10 years		974,289		4,276		19,982		958,583		2.00
Total collateralized mortgage obligations—federal agencies		1,031,245		4,698		20,346		1,015,597		2.03
Mortgage-backed securities
Within 1 year		740		16		—		756		4.39
After 1 to 5 years		14,721		295		189		14,827		3.70
After 5 to 10 years		329,955		3,117		2,079		330,993		2.26
After 10 years		4,335,400		27,249		49,699		4,312,950		2.46
Total mortgage-backed securities		4,680,816		30,677		51,967		4,659,526		2.45
Equity securities (without contractual maturity)		985		900		—		1,885		8.22
Other
After 5 to 10 years		848		21		—		869		3.62
Total other		848		21		—		869		3.62
Total investment securities available-for-sale[1]	$	9,107,581	$	37,936	$	84,516	$	9,061,001		1.99	%

[1] Includes $6.7 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $5.7 billion serve as collateral for public funds.

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	At December 31, 2016
(In thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		Weighted average yield
U.S. Treasury securities
Within 1 year	$	844,002	$	1,254	$	28	$	845,228		1.00	%
After 1 to 5 years		1,300,729		214		9,551		1,291,392		1.11
Total U.S. Treasury securities		2,144,731		1,468		9,579		2,136,620		1.06
Obligations of U.S. Government sponsored entities
Within 1 year		100,050		102		—		100,152		0.98
After 1 to 5 years		613,293		710		2,505		611,498		1.38
After 5 to 10 years		200		—		—		200		5.64
Total obligations of U.S. Government sponsored entities		713,543		812		2,505		711,850		1.32
Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		6,419		—		161		6,258		2.89
After 5 to 10 years		5,000		—		1,550		3,450		3.80
After 10 years		17,605		—		4,542		13,063		7.09
Total obligations of Puerto Rico, States and political subdivisions		29,024		—		6,253		22,771		5.60
Collateralized mortgage obligations—federal agencies
Within 1 year		13		—		—		13		1.23
After 1 to 5 years		18,524		429		28		18,925		2.89
After 5 to 10 years		39,178		428		61		39,545		2.68
After 10 years		1,180,686		6,313		23,956		1,163,043		1.99
Total collateralized mortgage obligations—federal agencies		1,238,401		7,170		24,045		1,221,526		2.02
Mortgage-backed securities
Within 1 year		55		1		—		56		4.76
After 1 to 5 years		19,960		537		43		20,454		3.86
After 5 to 10 years		317,185		3,701		1,721		319,165		2.29
After 10 years		3,805,675		28,772		68,790		3,765,657		2.47
Total mortgage-backed securities		4,142,875		33,011		70,554		4,105,332		2.46
Equity securities (without contractual maturity)		1,246		876		—		2,122		7.94
Other
Within 1 year		8,539		11		—		8,550		1.78
After 5 to 10 years		1,004		31		—		1,035		3.62
Total other		9,543		42		—		9,585		1.97
Total investment securities available-for-sale[1]	$	8,279,363	$	43,379	$	112,936	$	8,209,806		1.94	%

[1] Includes $4.1 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $3.4 billion serve as collateral for public funds.

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 based on 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 nine months ended September 30, 2017, the Corporation sold equity securities and obligations from Puerto Rico government and its political subdivisions with a realized gain of $284 thousand. The proceeds from these sales were $14.9 million. There were no securities sold during the nine months ended September 30, 2016.

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, 2017 and December 31, 2016.

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	At September 30, 2017
	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	$	2,195,874	$	10,309	$	—	$	—	$	2,195,874	$	10,309
Obligations of U.S. Government sponsored entities		496,345		1,797		24,139		97		520,484		1,894
Collateralized mortgage obligations—federal agencies		364,098		5,401		387,284		14,945		751,382		20,346
Mortgage-backed securities		3,042,806		44,187		352,342		7,780		3,395,148		51,967
Total investment securities available-for-sale in an unrealized loss position	$	6,099,123	$	61,694	$	763,765	$	22,822	$	6,862,888	$	84,516
	At December 31, 2016
	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	$	1,162,110	$	9,579	$	—	$	—	$	1,162,110	$	9,579
Obligations of U.S. Government sponsored entities		430,273		2,426		3,126		79		433,399		2,505
Obligations of Puerto Rico, States and political subdivisions		6,258		161		16,512		6,092		22,770		6,253
Collateralized mortgage obligations—federal agencies		505,503		8,112		339,236		15,933		844,739		24,045
Mortgage-backed securities		3,537,606		70,173		15,113		381		3,552,719		70,554
Total investment securities available-for-sale in an unrealized loss position	$	5,641,750	$	90,451	$	373,987	$	22,485	$	6,015,737	$	112,936

As of September 30, 2017, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $85 million, driven by U.S. Treasury Securities, Collateralized Mortgage Obligations, and Mortgage Backed Securities.

Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

During the third quarter of 2017, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analysis performed, management concluded that no individual debt security was other-than-temporarily-impaired as such date. During the quarter ended on June 30, 2017, the Corporation recognized an other-than-temporary impairment charge of $8.3 million on Puerto Rico Sales Tax Financing Corporation (“COFINA”) bonds classified as available-for-sale. These were subsequently sold by the Corporation during the third quarter of 2017, at a gain of approximately $0.1 million.

At September 30, 2017, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it was not more likely than not that the Corporation would have to sell the investments securities prior to recovery of their amortized cost basis.

During the third quarter of 2016, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analysis performed, management concluded that no individual debt security was other-than-temporarily-impaired as such date. During the quarter ended on June 30, 2016 the Corporation recognized an other-temporary-impairment charge of $209 thousand on an investment security available-for-sale classified as obligations from Puerto Rico government and its political subdivisions. The security was sold during the fourth quarter of 2016.

21

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, 2017				December 31, 2016
(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	3,531,694	$	3,502,711	$	3,255,844	$	3,211,443
Freddie Mac		1,397,117		1,383,523		1,381,197		1,361,933

22

Note 7 – 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, 2017 and December 31, 2016.

	At September 30, 2017
(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	$	3,295	$	—	$	1,835	$	1,460		5.97	%
After 1 to 5 years		15,485		—		7,142		8,343		6.05
After 5 to 10 years		29,240		—		13,145		16,095		3.89
After 10 years		44,349		3,660		447		47,562		1.94
Total obligations of Puerto Rico, States and political subdivisions		92,369		3,660		22,569		73,460		3.39
Collateralized mortgage obligations - federal agencies
After 5 to 10 years		69		4		—		73		5.45
Total collateralized mortgage obligations - federal agencies		69		4		—		73		5.45
Other
Within 1 year		500		—		13		487		1.96
After 1 to 5 years		500		—		8		492		2.97
Total other		1,000		—		21		979		2.47
Total investment securities held-to-maturity[1]	$	93,438	$	3,664	$	22,590	$	74,512		3.38	%

[1] Includes $92.4 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

	At December 31, 2016
(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	$	3,105	$	—	$	1,240	$	1,865		5.90	%
After 1 to 5 years		14,540		—		5,957		8,583		6.02
After 5 to 10 years		18,635		—		7,766		10,869		6.20
After 10 years		59,747		1,368		8,892		52,223		1.91
Total obligations of Puerto Rico, States and political subdivisions		96,027		1,368		23,855		73,540		3.49
Collateralized mortgage obligations - federal agencies
After 5 to 10 years		74		4		—		78		5.45
Total collateralized mortgage obligations - federal agencies		74		4		—		78		5.45
Other
Within 1 year		1,000		—		3		997		1.65
After 1 to 5 years		1,000		—		39		961		2.44
Total other		2,000		—		42		1,958		2.05
Total investment securities held-to-maturity[1]	$	98,101	$	1,372	$	23,897	$	75,576		3.46	%

[1] Includes $53.1 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

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, 2017 and December 31, 2016.

23

	At September 30, 2017
	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	$	6,981	$	77	$	26,553	$	22,492	$	33,534	$	22,569
Other		492		8		237		13		729		21
Total investment securities held-to-maturity in an unrealized loss position	$	7,473	$	85	$	26,790	$	22,505	$	34,263	$	22,590
	At December 31, 2016
	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	$	31,294	$	1,702	$	30,947	$	22,153	$	62,241	$	23,855
Other		491		9		1,217		33		1,708		42
Total investment securities held-to-maturity in an unrealized loss position	$	31,785	$	1,711	$	32,164	$	22,186	$	63,949	$	23,897

As indicated in Note 6 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, 2017 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $49 million of general and special obligation bonds issued by three municipalities of Puerto Rico, which are payable primarily from, and have a lien on, certain property taxes imposed by the issuing municipality. In the case of general obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality and issuing municipalities are required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligations bonds.

The portfolio also includes approximately $43 million in securities for which the underlying source of payment is not the central government, but in which a government instrumentality provides a guarantee in the event of default. The Corporation performs periodic credit quality reviews on these issuers. Based on the quarterly analysis performed, management concluded that no individual debt security held-to-maturity was other-than-temporarily impaired at September 30, 2017. Further deterioration of the fiscal crisis of the Government of Puerto Rico or of Puerto Rico’s economy could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell securities held-to-maturity and it is more likely than not that the Corporation will not have to sell these investment securities prior to recovery of their amortized cost basis.

Refer to Note 22 for additional information on the Corporation’s exposure to the Puerto Rico Government.

24

Note 8 – Loans

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 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 expired on June 30, 2015 for commercial (including construction) and consumer loans, and expires on June 30, 2020 for single-family residential mortgage loans, as explained in Note 10.

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2—Summary of significant accounting policies of the 2016 Form 10-K.

During the quarter and nine months ended September 30, 2017, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $104 million and $364 million, respectively; consumer loans of $133 million and $283 million, respectively; and leases of $2 million, for the nine months ended September 30, 2017. During the quarter and nine months ended September 30, 2016, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $118 million and $358 million, respectively; consumer loans of $164 million and commercial loans amounting to $51 million during the nine months ended September 30, 2016.

The Corporation performed whole-loan sales involving approximately $9 million and $63 million of residential mortgage loans during the quarter and nine months ended September 30, 2017, respectively (September 30, 2016—$13 million and $53 million, respectively). Excluding the bulk sale of Westernbank loans with a carrying value of approximately $100 million, the Corporation sold commercial and construction loans with a carrying value of approximately $38 million and $39 million during the quarter and nine months ended September 30, 2016, respectively. Also, the Corporation securitized approximately $ 86 million and $ 369 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2017, respectively (September 30, 2016—$ 161 million and $ 465 million, respectively). Furthermore, the Corporation securitized approximately $ 21 million and $ 86 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and nine months ended September 30, 2017, respectively (September 30, 2016 - $ 50 million and $ 129 million, respectively). The disruption in our operations over the last 10 days of the quarter impacted the volume of loan sales and securitizations.

Non-covered loans

The following table presents the composition of non-covered loans held-in-portfolio (“HIP”), net of unearned income, by past due status at September 30, 2017 and December 31, 2016, including loans previously covered by the commercial FDIC loss sharing agreements.

25

September 30, 2017
Puerto Rico
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	108	$	157	$	1,060	$	1,325	$	145,226	$	146,551
Commercial real estate non-owner occupied		39,076		10,571		34,234		83,881		2,440,914		2,524,795
Commercial real estate owner occupied		24,283		8,107		103,379		135,769		1,536,504		1,672,273
Commercial and industrial		5,708		1,806		45,993		53,507		2,772,485		2,825,992
Construction		—		—		269		269		87,436		87,705
Mortgage		583,383		221,646		856,307		1,661,336		4,154,169		5,815,505
Leasing		12,990		4,543		2,684		20,217		734,664		754,881
Consumer:
Credit cards		17,523		9,863		20,626		48,012		1,035,234		1,083,246
Home equity lines of credit		117		243		48		408		5,716		6,124
Personal		24,363		10,640		20,247		55,250		1,159,081		1,214,331
Auto		44,331		18,933		12,259		75,523		746,481		822,004
Other		575		357		16,491		17,423		147,242		164,665
Total	$	752,457	$	286,866	$	1,113,597	$	2,152,920	$	14,965,152	$	17,118,072
September 30, 2017
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	1,414	$	—	$	—	$	1,414	$	1,179,773	$	1,181,187
Commercial real estate non-owner occupied		—		800		3,074		3,874		1,565,321		1,569,195
Commercial real estate owner occupied		4,350		—		486		4,836		283,948		288,784
Commercial and industrial		960		1,766		94,407		97,133		921,185		1,018,318
Construction		5,243		—		—		5,243		730,377		735,620
Mortgage		2,253		6,193		14,348		22,794		690,936		713,730
Legacy		111		275		3,268		3,654		33,854		37,508
Consumer:
Credit cards		10		6		13		29		51		80
Home equity lines of credit		5,993		2,446		11,960		20,399		176,419		196,818
Personal		2,321		1,750		2,342		6,413		307,430		313,843
Auto		—		—		—		—		3		3
Other		—		25		22		47		245		292
Total	$	22,655	$	13,261	$	129,920	$	165,836	$	5,889,542	$	6,055,378

26

September 30, 2017
Popular, Inc.
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Popular, Inc.[1] [2]
Commercial multi-family	$	1,522	$	157	$	1,060	$	2,739	$	1,324,999	$	1,327,738
Commercial real estate non-owner occupied		39,076		11,371		37,308		87,755		4,006,235		4,093,990
Commercial real estate owner occupied		28,633		8,107		103,865		140,605		1,820,452		1,961,057
Commercial and industrial		6,668		3,572		140,400		150,640		3,693,670		3,844,310
Construction		5,243		—		269		5,512		817,813		823,325
Mortgage		585,636		227,839		870,655		1,684,130		4,845,105		6,529,235
Leasing		12,990		4,543		2,684		20,217		734,664		754,881
Legacy[3]		111		275		3,268		3,654		33,854		37,508
Consumer:
Credit cards		17,533		9,869		20,639		48,041		1,035,285		1,083,326
Home equity lines of credit		6,110		2,689		12,008		20,807		182,135		202,942
Personal		26,684		12,390		22,589		61,663		1,466,511		1,528,174
Auto		44,331		18,933		12,259		75,523		746,484		822,007
Other		575		382		16,513		17,470		147,487		164,957
Total	$	775,112	$	300,127	$	1,243,517	$	2,318,756	$	20,854,694	$	23,173,450

[1] Non-covered loans held-in-portfolio are net of $129 million in unearned income and exclude $69 million in loans held-for-sale.

[2] Includes $7.3 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.7 billion were pledged at the Federal Home Loan Bank (“FHLB”) as collateral for borrowings, $2.2 billion at the Federal Reserve Bank (“FRB”) for discount window borrowings and $0.5 billion serve as collateral for public funds.

[3] 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.

December 31, 2016
Puerto Rico
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Puerto Rico
Commercial multi-family	$	232	$	—	$	664	$	896	$	173,644	$	174,540
Commercial real estate non-owner occupied		98,604		4,785		51,435		154,824		2,409,461		2,564,285
Commercial real estate owner occupied		12,967		5,014		112,997		130,978		1,660,497		1,791,475
Commercial and industrial		19,156		2,638		32,147		53,941		2,617,976		2,671,917
Construction		—		—		1,668		1,668		83,890		85,558
Mortgage		289,635		136,558		801,251		1,227,444		4,689,056		5,916,500
Leasing		6,619		1,356		3,062		11,037		691,856		702,893
Consumer:
Credit cards		11,646		8,752		18,725		39,123		1,061,484		1,100,607
Home equity lines of credit		—		65		185		250		8,101		8,351
Personal		12,148		7,918		20,686		40,752		1,109,425		1,150,177
Auto		32,441		7,217		12,320		51,978		774,614		826,592
Other		1,259		294		19,311		20,864		154,665		175,529
Total	$	484,707	$	174,597	$	1,074,451	$	1,733,755	$	15,434,669	$	17,168,424

27

December 31, 2016
U.S. mainland
	Past due
	30-59		60-89		90 days		Total				Loans HIP
(In thousands)	days		days		or more		past due		Current		U.S. mainland
Commercial multi-family	$	5,952	$	—	$	206	$	6,158	$	1,058,138	$	1,064,296
Commercial real estate non-owner occupied		1,992		379		1,195		3,566		1,353,750		1,357,316
Commercial real estate owner occupied		2,116		540		472		3,128		240,617		243,745
Commercial and industrial		960		610		101,257		102,827		828,106		930,933
Construction		—		—		—		—		690,742		690,742
Mortgage		15,974		5,272		11,713		32,959		746,902		779,861
Legacy		833		346		3,337		4,516		40,777		45,293
Consumer:
Credit cards		8		28		30		66		92		158
Home equity lines of credit		2,908		1,055		4,762		8,725		243,450		252,175
Personal		2,547		1,675		1,864		6,086		234,521		240,607
Auto		—		—		—		—		9		9
Other		—		—		8		8		180		188
Total	$	33,290	$	9,905	$	124,844	$	168,039	$	5,437,284	$	5,605,323
December 31, 2016
Popular, Inc.
	Past due										Non-covered
	30-59		60-89		90 days		Total				loans HIP
(In thousands)	days		days		or more		past due		Current		Popular, Inc.[1] [2]
Commercial multi-family	$	6,184	$	—	$	870	$	7,054	$	1,231,782	$	1,238,836
Commercial real estate non-owner occupied		100,596		5,164		52,630		158,390		3,763,211		3,921,601
Commercial real estate owner occupied		15,083		5,554		113,469		134,106		1,901,114		2,035,220
Commercial and industrial		20,116		3,248		133,404		156,768		3,446,082		3,602,850
Construction		—		—		1,668		1,668		774,632		776,300
Mortgage		305,609		141,830		812,964		1,260,403		5,435,958		6,696,361
Leasing		6,619		1,356		3,062		11,037		691,856		702,893
Legacy[3]		833		346		3,337		4,516		40,777		45,293
Consumer:
Credit cards		11,654		8,780		18,755		39,189		1,061,576		1,100,765
Home equity lines of credit		2,908		1,120		4,947		8,975		251,551		260,526
Personal		14,695		9,593		22,550		46,838		1,343,946		1,390,784
Auto		32,441		7,217		12,320		51,978		774,623		826,601
Other		1,259		294		19,319		20,872		154,845		175,717
Total	$	517,997	$	184,502	$	1,199,295	$	1,901,794	$	20,871,953	$	22,773,747

[1] Non-covered loans held-in-portfolio are net of $121 million in unearned income and exclude $89 million in loans held-for-sale.

[2] Includes $7.3 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.5 billion were pledged at the FHLB as collateral for borrowings, $2.3 billion at the FRB for discount window borrowings and $0.5 billion serve as collateral for public funds.

[3] 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.

The level of delinquencies as of September 30, 2017 was impacted by the disruptions caused by Hurricanes Irma and Maria. The Corporation’s payment channels, collection efforts and loss mitigation operations were interrupted and mostly unavailable for the last 10 days of the quarter.

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, 2017 and December 31, 2016. Accruing loans past due 90 days or more consist primarily of credit cards, Federal Housing Administration (“FHA”) / U.S. Department of Veterans Affairs (“VA”) and other insured mortgage loans, and delinquent mortgage loans which are included in the Corporation’s financial statements pursuant to GNMA’s buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

28

At September 30, 2017
	Puerto Rico				U.S. mainland				Popular, Inc.
			Accruing loans				Accruing loans				Accruing loans
	Non-accrual		past-due 90		Non-accrual		past-due 90		Non-accrual		past-due 90
(In thousands)	loans		days or more [1]		loans		days or more [1]		loans		days or more [1]
Commercial multi-family	$	1,060	$	—	$	—	$	—	$	1,060	$	—
Commercial real estate non-owner occupied		23,028		—		3,074		—		26,102		—
Commercial real estate owner occupied		90,346		—		486		—		90,832		—
Commercial and industrial		45,609		384		1,749		—		47,358		384
Construction		99		—		—		—		99		—
Mortgage[3]		337,967		443,377		14,348		—		352,315		443,377
Leasing		2,684		—		—		—		2,684		—
Legacy		—		—		3,268		—		3,268		—
Consumer:
Credit cards		—		20,626		13		—		13		20,626
Home equity lines of credit		—		48		11,960		—		11,960		48
Personal		19,738		77		2,342		—		22,080		77
Auto		12,259		—		—		—		12,259		—
Other		15,876		615		22		—		15,898		615
Total[2]	$	548,666	$	465,127	$	37,262	$	—	$	585,928	$	465,127

[1] Non-covered loans of $192 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.

[2] For purposes of this table non-performing loans exclude non-performing loans held-for-sale.

[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 $157 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, 2017. Furthermore, the Corporation has approximately $57 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

At December 31, 2016
	Puerto Rico				U.S. mainland				Popular, Inc.
			Accruing loans				Accruing loans				Accruing loans
	Non-accrual		past-due 90		Non-accrual		past-due 90		Non-accrual		past-due 90
(In thousands)	loans		days or more [1]		loans		days or more [1]		loans		days or more [1]
Commercial multi-family	$	664	$	—	$	206	$	—	$	870	$	—
Commercial real estate non-owner occupied		24,611		—		1,195		—		25,806		—
Commercial real estate owner occupied		102,771		—		472		—		103,243		—
Commercial and industrial		31,609		538		1,820		—		33,429		538
Mortgage[3]		318,194		406,583		11,713		—		329,907		406,583
Leasing		3,062		—		—		—		3,062		—
Legacy		—		—		3,337		—		3,337		—
Consumer:
Credit cards		—		18,725		30		—		30		18,725
Home equity lines of credit		—		185		4,762		—		4,762		185
Personal		20,553		34		1,864		—		22,417		34
Auto		12,320		—		—		—		12,320		—
Other		18,724		587		8		—		18,732		587
Total[2]	$	532,508	$	426,652	$	25,407	$	—	$	557,915	$	426,652

[1] Non-covered loans by $215 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.

[2] For purposes of this table non-performing loans exclude non-performing loans held-for-sale.

[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 $181 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, 2016. Furthermore, the Corporation has approximately $68 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.

29

Covered loans

The following tables present the composition of loans by past due status at September 30, 2017 and December 31, 2016 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, 2017
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP [1]
Mortgage	$	47,726	$	16,104	$	60,973	$	124,803	$	385,408	$	510,211
Consumer		1,503		442		1,004		2,949		11,694		14,643
Total covered loans	$	49,229	$	16,546	$	61,977	$	127,752	$	397,102	$	524,854

[1] Includes $ 296 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

December 31, 2016
	Past due
(In thousands)	30-59 days		60-89 days		90 days or more		Total past due		Current		Covered loans HIP [1]
Mortgage	$	25,506	$	12,904	$	69,856	$	108,266	$	448,304	$	556,570
Consumer		751		245		1,074		2,070		14,238		16,308
Total covered loans	$	26,257	$	13,149	$	70,930	$	110,336	$	462,542	$	572,878

[1] Includes $ 337 million pledged to secure credit facilities at the FHLB which are not permitted to sell or repledge the collateral.

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, 2017 and December 31, 2016.

	September 30, 2017				December 31, 2016
(In thousands)	Non-accrual loans		Accruing loans past due 90 days or more		Non-accrual loans		Accruing loans past due 90 days or more
Mortgage	$	3,210	$	—	$	3,794	$	—
Consumer		196		—		121		—
Total[1]	$	3,406	$	—	$	3,915	$	—

[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 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 $10 million at September 30, 2017 (December 31, 2016—$10 million).

Loans acquired with deteriorated credit quality accounted for under ASC 310-30

The following provides information of loans acquired with evidence of credit deterioration as of the acquisition date, accounted for under the guidance of ASC 310-30.

Loans acquired from Westernbank as part of an FDIC-assisted transaction

30

The carrying amount of the Westernbank 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.

	September 30, 2017									December 31, 2016
	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	$	902,908		$	14,491		$	917,399		$	985,181		$	14,440		$	999,621
Commercial and industrial		86,795			—			86,795			103,476			—			103,476
Construction		—			170			170			—			1,668			1,668
Mortgage		544,745			21,592			566,337			587,949			25,781			613,730
Consumer		17,075			771			17,846			18,775			1,059			19,834
Carrying amount [1]		1,551,523			37,024			1,588,547			1,695,381			42,948			1,738,329
Allowance for loan losses		(61,034	)		(6,066	)		(67,100	)		(61,855	)		(7,022	)		(68,877	)
Carrying amount, net of allowance	$	1,490,489		$	30,958		$	1,521,447		$	1,633,526		$	35,926		$	1,669,452

[1] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remains subject to the loss sharing agreement with the FDIC amounted to approximately $515 million as of September 30, 2017 and $563 million as of December 31, 2016.

The outstanding principal balance of Westernbank loans accounted pursuant to ASC Subtopic 310-30, amounted to $1.9 billion at September 30, 2017 (December 31, 2016 - $2.1 billion). At September 30, 2017, 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 Westernbank loans accounted pursuant to the ASC Subtopic 310-30, for the quarters and nine months ended September 30, 2017 and 2016, were as follows:

	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the quarters ended
	September 30, 2017									September 30, 2016
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	936,204		$	6,464		$	942,668		$	1,061,971		$	9,709		$	1,071,680
Accretion		(34,064	)		(726	)		(34,790	)		(38,597	)		(993	)		(39,590	)
Change in expected cash flows		1,842			(391	)		1,451			6,992			(390	)		6,602
Ending balance	$	903,982		$	5,347		$	909,329		$	1,030,366		$	8,326		$	1,038,692

31

	Activity in the accretable yield
	Westernbank loans ASC 310-30
	For the nine months ended
	September 30, 2017									September 30, 2016
	Non-credit impaired loans			Credit impaired loans						Non-credit impaired loans			Credit impaired loans
(In thousands)							Total									Total
Beginning balance	$	1,001,908		$	8,179		$	1,010,087		$	1,105,732		$	6,726		$	1,112,458
Accretion		(105,759	)		(2,411	)		(108,170	)		(125,734	)		(5,865	)		(131,599	)
Change in expected cash flows		7,833			(421	)		7,412			50,368			7,465			57,833
Ending balance	$	903,982		$	5,347		$	909,329		$	1,030,366		$	8,326		$	1,038,692
	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the quarters ended
	September 30, 2017									September 30, 2016
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,579,196		$	38,591		$	1,617,787		$	1,754,613		$	45,330		$	1,799,943
Accretion		34,064			726			34,790			38,597			993			39,590
Collections / loan sales / charge-offs		(61,737	)		(2,293	)		(64,030	)		(69,030	)		(2,964	)		(71,994	)
Ending balance[1]	$	1,551,523		$	37,024		$	1,588,547		$	1,724,180		$	43,359		$	1,767,539
Allowance for loan losses ASC 310-30 Westernbank loans		(61,034	)		(6,066	)		(67,100	)		(62,114	)		(7,457	)		(69,571	)
Ending balance, net of ALLL	$	1,490,489		$	30,958		$	1,521,447		$	1,662,066		$	35,902		$	1,697,968

[1] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $ 515 million as of September 30, 2017 (September 30, 2016- $578 million).

	Carrying amount of Westernbank loans accounted for pursuant to ASC 310-30
	For the nine months ended
	September 30, 2017									September 30, 2016
(In thousands)	Non-credit impaired loans			Credit impaired loans			Total			Non-credit impaired loans			Credit impaired loans			Total
Beginning balance	$	1,695,381		$	42,948		$	1,738,329		$	1,898,146		$	76,355		$	1,974,501
Accretion		105,759			2,411			108,170			125,734			5,865			131,599
Collections / loan sales / charge-offs[1]		(249,617	)		(8,335	)		(257,952	)		(299,700	)		(38,861	)		(338,561	)
Ending balance[2]	$	1,551,523		$	37,024		$	1,588,547		$	1,724,180		$	43,359		$	1,767,539
Allowance for loan losses ASC 310-30 Westernbank loans		(61,034	)		(6,066	)		(67,100	)		(62,114	)		(7,457	)		(69,571	)
Ending balance, net of ALLL	$	1,490,489		$	30,958		$	1,521,447		$	1,662,066		$	35,902		$	1,697,968

[1] For the nine months ended September 30, 2016, includes the impact of the bulk sale of loans with a carrying value of approximately $99 million.

[2] The carrying amount of loans acquired from Westernbank and accounted for under ASC 310-30 which remain subject to the loss sharing agreement with the FDIC amounted to approximately $515 million as of September 30, 2017 (September 30, 2016- $578 million).

Other loans acquired with deteriorated credit quality

The outstanding principal balance of other acquired loans accounted pursuant to ASC Subtopic 310-30, amounted to $598 million at September 30, 2017 (December 31, 2016 - $700 million). At September 30, 2017, none of the other acquired 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.

32

Changes in the carrying amount and the accretable yield for the other acquired loans accounted pursuant to the ASC Subtopic 310-30, for the quarters and nine months ended September 30, 2017 and 2016 were as follows:

Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the quarter ended September 30, 2017			For the quarter ended September 30, 2016
Beginning balance	$	303,004		$	272,609
Additions		2,882			3,809
Accretion		(7,945	)		(8,689	)
Change in expected cash flows		(7,926	)		8,672
Ending balance	$	290,015		$	276,401
Activity in the accretable yield - other acquired loans ASC 310-30
(In thousands)	For the nine months ended September 30, 2017			For the nine months ended September 30, 2016
Beginning balance	$	278,896		$	221,128
Additions		8,737			12,320
Accretion		(25,203	)		(25,974	)
Change in expected cash flows		27,585			68,927
Ending balance	$	290,015		$	276,401

Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the quarter ended September 30, 2017			For the quarter ended September 30, 2016
Beginning balance	$	550,877			562,745
Additions		4,792			8,349
Accretion		7,945			8,689
Collections and charge-offs		(18,215	)		(17,861	)
Ending balance	$	545,399		$	561,922
Allowance for loan losses ASC 310-30 other acquired loans		(70,930	)		(18,550	)
Ending balance, net of ALLL	$	474,469		$	543,372
Carrying amount of other acquired loans accounted for pursuant to ASC 310-30
(In thousands)	For the nine months ended September 30, 2017			For the nine months ended September 30, 2016
Beginning balance	$	562,695		$	564,050
Purchase accounting adjustments related to the Doral Bank Transaction (Refer to Note 15)		—			(4,707	)
Additions		14,671			26,754
Accretion		25,203			25,974
Collections and charge-offs		(57,170	)		(50,149	)
Ending balance	$	545,399		$	561,922
Allowance for loan losses ASC 310-30 other acquired loans		(70,930	)		(18,550	)
Ending balance, net of ALLL	$	474,469		$	543,372

33

Note 9 – 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 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 5-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.

For the period ended September 30, 2017, 45% (September 30, 2016 - 49%) of the ALLL for non-covered BPPR segment 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 leasing, credit cards, personal, auto and other consumer loan portfolios for 2017 and in the leasing, auto, other consumer loan and mortgage loan portfolios for 2016.

For the period ended September 30, 2017, 5% (September 30, 2016 - 4 %) of our BPNA segment 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 concentrated in the consumer portfolios for 2017 and 2016.

• 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.

As discussed in Note 2, Hurricanes impact, during the quarter ended September 30, 2017, an incremental provision expense of $69.9 million was made to the allowance for loan losses based on management’s best estimate of the impact of the hurricanes on the Corporation’s loan portfolios and the ability of borrowers to repay their loans, taking into consideration currently available information and the already challenging economic environment in Puerto Rico prior to the hurricanes. Refer to Note 2 for additional information.

The following tables present the changes in the allowance for loan losses, loan ending balances and whether such loans and the allowance pertain to loans individually or collectively evaluated for impairment for the quarters and nine months ended September 30, 2017 and 2016.

34

For the quarter ended September 30, 2017
Puerto Rico - Non-covered loans
(In thousands)	Commercial			Construction		Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	174,189		$	1,473	$	147,866		$	8,003		$	122,904		$	454,435
Provision (reversal of provision)		31,059			176		38,838			3,924			41,118			115,115
Charge-offs		(5,573	)		9		(17,460	)		(1,733	)		(31,793	)		(56,550	)
Recoveries		6,011			41		389			238			4,570			11,249
Ending balance	$	205,686		$	1,699	$	169,633		$	10,432		$	136,799		$	524,249
Specific ALLL	$	40,863		$	—	$	49,129		$	450		$	21,730		$	112,172
General ALLL	$	164,823		$	1,699	$	120,504		$	9,982		$	115,069		$	412,077
Loans held-in-portfolio:
Impaired non-covered loans	$	328,704		$	—	$	510,134		$	1,468		$	101,948		$	942,254
Non-covered loans held-in-portfolio excluding impaired loans		6,840,907			87,705		5,305,371			753,413			3,188,422			16,175,818
Total non-covered loans held-in-portfolio	$	7,169,611		$	87,705	$	5,815,505		$	754,881		$	3,290,370		$	17,118,072
For the quarter ended September 30, 2017
Puerto Rico - Covered loans
(In thousands)	Commercial			Construction		Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	—		$	—	$	30,284		$	—		$	524		$	30,808
Provision (reversal of provision)		—			—		2,538			—			562			3,100
Charge-offs		—			—		(863	)		—			(24	)		(887	)
Recoveries		—			—		32			—			4			36
Ending balance	$	—		$	—	$	31,991		$	—		$	1,066		$	33,057
Specific ALLL	$	—		$	—	$	—		$	—		$	—		$	—
General ALLL	$	—		$	—	$	31,991		$	—		$	1,066		$	33,057
Loans held-in-portfolio:
Impaired covered loans	$	—		$	—	$	—		$	—		$	—		$	—
Covered loans held-in-portfolio excluding impaired loans		—			—		510,211			—			14,643			524,854
Total covered loans held-in-portfolio	$	—		$	—	$	510,211		$	—		$	14,643		$	524,854
For the quarter ended September 30, 2017
U.S. Mainland
(In thousands)	Commercial			Construction		Mortgage			Legacy			Consumer			Total
Allowance for credit losses:
Beginning balance	$	28,319		$	6,528	$	4,122		$	993		$	14,809		$	54,771
Provision (reversal of provision)		39,246			595		(39	)		(418	)		3,160			42,544
Charge-offs		(4,553	)		—		(113	)		(86	)		(4,957	)		(9,709	)
Recoveries		271			—		287			383			1,060			2,001
Ending balance	$	63,283		$	7,123	$	4,257		$	872		$	14,072		$	89,607
Specific ALLL	$	—		$	—	$	2,292		$	—		$	727		$	3,019
General ALLL	$	63,283		$	7,123	$	1,965		$	872		$	13,345		$	86,588
Loans held-in-portfolio:
Impaired loans	$	—		$	—	$	9,094		$	—		$	3,439		$	12,533
Loans held-in-portfolio excluding impaired loans		4,057,484			735,620		704,636			37,508			507,597			6,042,845
Total loans held-in-portfolio	$	4,057,484		$	735,620	$	713,730		$	37,508		$	511,036		$	6,055,378

35

For the quarter ended September 30, 2017
Popular, Inc.
(In thousands)	Commercial			Construction		Mortgage			Legacy			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	202,508		$	8,001	$	182,272		$	993		$	8,003		$	138,237		$	540,014
Provision (reversal of provision)		70,305			771		41,337			(418	)		3,924			44,840			160,759
Charge-offs		(10,126	)		9		(18,436	)		(86	)		(1,733	)		(36,774	)		(67,146	)
Recoveries		6,282			41		708			383			238			5,634			13,286
Ending balance	$	268,969		$	8,822	$	205,881		$	872		$	10,432		$	151,937		$	646,913
Specific ALLL	$	40,863		$	—	$	51,421		$	—		$	450		$	22,457		$	115,191
General ALLL	$	228,106		$	8,822	$	154,460		$	872		$	9,982		$	129,480		$	531,722
Loans held-in-portfolio:
Impaired loans	$	328,704		$	—	$	519,228		$	—		$	1,468		$	105,387		$	954,787
Loans held-in-portfolio excluding impaired loans		10,898,391			823,325		6,520,218			37,508			753,413			3,710,662			22,743,517
Total loans held-in-portfolio	$	11,227,095		$	823,325	$	7,039,446		$	37,508		$	754,881		$	3,816,049		$	23,698,304