Note 9 – Loans

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

For a summary of the accounting policy related to loans and allowance for loan losses refer to the summary of significant accounting policies included in Note 2 to the consolidated financial statements included in the Corporation’s 2010 Annual Report.

The following tables present the composition of loans held-in-portfolio (“HIP”), net of unearned income at June 30, 2011 and December 31, 2010.


(In thousands)	Non-covered loans at June 30, 2011		Covered loans at June 30, 2011		Total loans HIP at June 30, 2011
Commercial real estate	$	6,840,778	$	2,337,389	$	9,178,167
Commercial and industrial		3,895,555		258,376		4,153,931
Construction		393,759		645,160		1,038,919
Mortgage		5,347,512		1,238,228		6,585,740
Lease financing		586,056		—		586,056
Consumer:
Credit cards		1,114,147		—		1,114,147
Home equity lines of credit		595,027		—		595,027
Personal		1,137,983		—		1,137,983
Auto		507,839		—		507,839
Other		239,038		137,422		376,460

Total loans held-in-portfolio^[a]	$	20,657,694	$	4,616,575	$	25,274,269

[a]	Loans held-in-portfolio at June 30, 2011 are net of $ 104 million in unearned income and exclude $ 509 million in loans held-for-sale.


(In thousands)	Non-covered loans at December 31, 2010		Covered loans at December 31, 2010		Total loans HIP at December 31, 2010
Commercial real estate	$	7,006,676	$	2,463,549	$	9,470,225
Commercial and industrial		4,386,809		303,632		4,690,441
Construction		500,851		640,492		1,141,343
Mortgage		4,524,722		1,259,459		5,784,181
Lease financing		602,993		—		602,993
Consumer:
Credit cards		1,132,308		—		1,132,308
Home equity lines of credit		568,353		—		568,353
Personal		1,236,067		—		1,236,067
Auto		503,757		—		503,757
Other		265,499		169,750		435,249

Total loans held-in-portfolio^[a]	$	20,728,035	$	4,836,882	$	25,564,917

[a]	Loans held-in-portfolio at December 31, 2010 are net of $106 million in unearned income and exclude $894 million in loans held-for-sale.

The following table provides a breakdown of loans held-for-sale (“LHFS”) at June 30, 2011 and December 31, 2010 by main categories.


(In thousands)	June 30, 2011		December 31, 2010
Commercial	$	57,998	$	60,528
Construction		340,687		412,744
Mortgage		110,361		420,666

Total	$	509,046	$	893,938

Non-covered loans

The following tables present non-covered loans held-in-portfolio that are in non-performing status and accruing loans past due 90 days or more by loan class at June 30, 2011 and December 31, 2010. Accruing loans past due 90 days or more consist primarily of credit cards, FHA / VA and other insured mortgage loans, and delinquent mortgage loans included in the Corporation’s financial statements pursuant to GNMA’s buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option. Also, accruing loans past due 90 days or more include residential conventional loans purchased from other financial institutions that, although delinquent, the Corporation has received timely payment from the sellers / servicers, and, in some instances, have partial guarantees under recourse agreements. However, residential conventional loans purchased from other financial institutions, which are in the process of foreclosure, are classified as non-performing mortgage loans.


At June 30, 2011
	Puerto Rico				U.S. Mainland				Popular, Inc.
(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more
Commercial real estate	$	411,478	$	—	$	175,711	$	—	$	587,189	$	—
Commercial and industrial		145,943		—		51,455		—		197,398		—
Construction		58,691		—		139,544		—		198,235		—
Mortgage		583,231		286,588		32,531		—		615,762		286,588
Leasing		4,206		—		251		—		4,457		—
Consumer:
Credit cards		—		25,041		—		—		—		25,041
Home equity lines of credit		123		—		13,428		—		13,551		—
Personal		20,573		—		1,155		—		21,728		—
Auto		5,086		—		70		—		5,156		—
Other		8,369		636		620		—		8,989		636

Total^[a]	$	1,237,700	$	312,265	$	414,765	$	—	$	1,652,465	$	312,265

[a]	For purposes of this table non-performing loans exclude $400 million in non-performing loans held-for-sale.


At December 31, 2010
	Puerto Rico				U.S. Mainland				Popular, Inc.
(In thousands)	Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more		Non-accrual loans		Accruing loans past-due 90 days or more
Commercial real estate	$	370,677	$	—	$	182,456	$	—	$	553,133	$	—
Commercial and industrial		114,792		—		57,102		—		171,894		—
Construction		64,678		—		173,876		—		238,554		—
Mortgage		518,446		292,387		23,587		—		542,033		292,387
Leasing		5,674		—		263		—		5,937		—
Consumer:
Credit cards		—		33,514		—		—		—		33,514
Home equity lines of credit		—		—		17,562		—		17,562		—
Personal		22,816		—		5,369		—		28,185		—
Auto		7,528		—		135		—		7,663		—
Other		6,892		1,442		—		—		6,892		1,442

Total^[a]	$	1,111,503	$	327,343	$	460,350	$	—	$	1,571,853	$	327,343

[a]	For purposes of this table non-performing loans exclude $672 million in non-performing loans held-for-sale.

At June 30, 2011 non-covered loans held-in-portfolio on which the accrual of interest income had been discontinued amounted to $1.7 billion (December 31, 2010—$1.6 billion). Non-accruing loans at June 30, 2011 include $49 million in consumer loans (December 31, 2010—$60 million).

The following tables present loans by past due status at June 30, 2011 and December 31, 2010 for non-covered loans held-in-portfolio (net of unearned income).


June 30, 2011
Puerto Rico
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio Puerto Rico
Commercial real estate	$	66,458	$	37,660	$	411,478	$	515,596	$	3,083,574	$	3,599,170
Commercial and industrial		75,963		15,262		145,943		237,168		2,566,603		2,803,771
Construction		7,725		2,587		58,691		69,003		93,038		162,041
Mortgage		198,933		99,302		869,819		1,168,054		3,332,884		4,500,938
Leasing		10,974		1,976		4,206		17,156		547,133		564,289
Consumer:
Credit cards		15,358		10,961		25,041		51,360		1,048,926		1,100,286
Home equity lines of credit		283		196		123		602		21,959		22,561
Personal		18,796		10,926		20,573		50,295		932,661		982,956
Auto		20,667		5,901		5,086		31,654		471,885		503,539
Other		3,831		1,160		9,005		13,996		223,090		237,086

Total	$	418,988	$	185,931	$	1,549,965	$	2,154,884	$	12,321,753	$	14,476,637


June 30, 2011
U.S. Mainland
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio U.S. Mainland
Commercial real estate	$	21,736	$	17,377	$	175,711	$	214,824	$	3,026,784	$	3,241,608
Commercial and industrial		5,693		16,137		51,455		73,285		1,018,499		1,091,784
Construction		3,099		—		139,544		142,643		89,075		231,718
Mortgage		23,756		13,395		32,531		69,682		776,892		846,574
Leasing		503		77		251		831		20,936		21,767
Consumer:
Credit cards		292		233		—		525		13,336		13,861
Home equity lines of credit		6,358		5,915		13,428		25,701		546,765		572,466
Personal		341		1,641		1,155		3,137		151,890		155,027
Auto		153		42		70		265		4,035		4,300
Other		79		34		620		733		1,219		1,952

Total	$	62,010	$	54,851	$	414,765	$	531,626	$	5,649,431	$	6,181,057


June 30, 2011
Popular, Inc.
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio Popular, Inc.
Commercial real estate	$	88,194	$	55,037	$	587,189	$	730,420	$	6,110,358	$	6,840,778
Commercial and industrial		81,656		31,399		197,398		310,453		3,585,102		3,895,555
Construction		10,824		2,587		198,235		211,646		182,113		393,759
Mortgage		222,689		112,697		902,350		1,237,736		4,109,776		5,347,512
Leasing		11,477		2,053		4,457		17,987		568,069		586,056
Consumer:
Credit cards		15,650		11,194		25,041		51,885		1,062,262		1,114,147
Home equity lines of credit		6,641		6,111		13,551		26,303		568,724		595,027
Personal		19,137		12,567		21,728		53,432		1,084,551		1,137,983
Auto		20,820		5,943		5,156		31,919		475,920		507,839
Other		3,910		1,194		9,625		14,729		224,309		239,038

Total	$	480,998	$	240,782	$	1,964,730	$	2,686,510	$	17,971,184	$	20,657,694


December 31, 2010
Puerto Rico
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio Puerto Rico
Commercial real estate	$	47,064	$	25,547	$	370,677	$	443,288	$	3,412,310	$	3,855,598
Commercial and industrial		34,703		23,695		114,792		173,190		2,688,228		2,861,418
Construction		6,356		3,000		64,678		74,034		94,322		168,356
Mortgage		188,468		83,789		810,833		1,083,090		2,566,610		3,649,700
Leasing		10,737		2,274		5,674		18,685		554,102		572,787
Consumer:
Credit cards		16,073		12,758		33,514		62,345		1,054,081		1,116,426
Personal		21,004		11,830		22,816		55,650		965,610		1,021,260
Auto		22,076		5,301		7,528		34,905		459,745		494,650
Other		3,799		1,318		8,334		13,451		252,048		265,499

Total	$	350,280	$	169,512	$	1,438,846	$	1,958,638	$	12,047,056	$	14,005,694


December 31, 2010
U.S. Mainland
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio U.S. Mainland
Commercial real estate	$	68,903	$	10,322	$	182,456	$	261,681	$	2,889,397	$	3,151,078
Commercial and industrial		30,372		15,079		57,102		102,553		1,422,838		1,525,391
Construction		30,105		292		173,876		204,273		128,222		332,495
Mortgage		38,550		12,751		23,587		74,888		800,134		875,022
Leasing		1,008		224		263		1,495		28,711		30,206
Consumer:
Credit cards		343		357		—		700		15,182		15,882
Home equity lines of credit		6,116		6,873		17,562		30,551		537,802		568,353
Personal		5,559		2,689		5,369		13,617		201,190		214,807
Auto		375		98		135		608		8,499		9,107

Total	$	181,331	$	48,685	$	460,350	$	690,366	$	6,031,975	$	6,722,341


December 31, 2010
Popular, Inc.
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Loans held- in-portfolio Popular, Inc.
Commercial real estate	$	115,967	$	35,869	$	553,133	$	704,969	$	6,301,707	$	7,006,676
Commercial and industrial		65,075		38,774		171,894		275,743		4,111,066		4,386,809
Construction		36,461		3,292		238,554		278,307		222,544		500,851
Mortgage		227,018		96,540		834,420		1,157,978		3,366,744		4,524,722
Leasing		11,745		2,498		5,937		20,180		582,813		602,993
Consumer:
Credit cards		16,416		13,115		33,514		63,045		1,069,263		1,132,308
Home equity lines of credit		6,116		6,873		17,562		30,551		537,802		568,353
Personal		26,563		14,519		28,185		69,267		1,166,800		1,236,067
Auto		22,451		5,399		7,663		35,513		468,244		503,757
Other		3,799		1,318		8,334		13,451		252,048		265,499

Total	$	531,611	$	218,197	$	1,899,196	$	2,649,004	$	18,079,031	$	20,728,035

Covered loans

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

The following table presents covered loans in non-performing status and accruing loans past-due 90 days or more by loan class at June 30, 2011 and December 31, 2010.


	June 30, 2011				December 31, 2010
(In thousands)	Non- accrual loans		Accruing loans past due 90 days or more		Non- accrual loans		Accruing loans past due 90 days or more
Commercial real estate	$	7,374	$	562	$	14,172	$	—
Commercial and industrial		5,476		263		10,635		60
Construction		739		4,154		1,168		—
Mortgage		563		6,783		—		8,648
Consumer		827		3,268		—		2,308

Total^[a]	$	14,979	$	15,030	$	25,975	$	11,016

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

The following tables present loans by past due status at June 30, 2011 and December 31, 2010 for covered loans held-in-portfolio. The information considers covered loans accounted for under ASC Subtopic 310-20 and ASC Subtopic 310-30.


June 30, 2011
Covered Loans
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Covered loans held-in- portfolio
Commercial real estate	$	48,627	$	33,921	$	471,955	$	554,503	$	1,782,886	$	2,337,389
Commercial and industrial		7,529		6,719		23,928		38,176		220,200		258,376
Construction		14,068		12,180		459,613		485,861		159,299		645,160
Mortgage		63,582		31,156		204,098		298,836		939,392		1,238,228
Consumer		7,942		3,793		17,302		29,037		108,385		137,422

Total covered loans	$	141,748	$	87,769	$	1,176,896	$	1,406,413	$	3,210,162	$	4,616,575


December 31, 2010
Covered Loans
	Past Due
(In thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Current		Covered loans held-in- portfolio
Commercial real estate	$	108,244	$	89,403	$	434,956	$	632,603	$	1,830,946	$	2,463,549
Commercial and industrial		12,091		5,491		32,585		50,167		253,465		303,632
Construction		23,445		11,906		351,386		386,737		253,755		640,492
Mortgage		80,978		34,897		119,745		235,620		1,023,839		1,259,459
Consumer		8,917		4,483		14,612		28,012		141,738		169,750

Total covered loans	$	233,675	$	146,180	$	953,284	$	1,333,139	$	3,503,743	$	4,836,882

Acquired loans in an FDIC-assisted transaction

The following table presents loans acquired as part of the Westernbank FDIC-assisted transaction accounted for pursuant to ASC Subtopic 310-30 at the April 30, 2010 acquisition date. The information presented includes loans determined to be impaired at the time of acquisition (“credit impaired loans”), and loans that were considered to be performing at the acquisition date and are accounted for by analogy to ASC Subtopic 310-30 (“non-credit impaired loans”). Refer to Note 1 to the consolidated financial statements and the Critical Accounting Policies / Estimated section of the 2010 Annual Report for a description of the Corporation’s significant accounting policies related to acquired loans and criteria considered by management to apply ASC 310-30 by analogy to non-credit impaired loans.


	April 30, 2010
(In thousands)	Non-credit Impaired Loans		Credit Impaired Loans		Total
Contractually-required principal and interest	$	7,855,033	$	1,995,580	$	9,850,613
Non-accretable difference		2,154,542		1,248,365		3,402,907

Cash flows expected to be collected		5,700,491		747,215		6,447,706
Accretable yield		1,487,634		50,425		1,538,059

Fair value of loans accounted for under
ASC Subtopic 310-30	$	4,212,857	$	696,790	$	4,909,647

The cash flows expected to be collected consider the estimated remaining life of the underlying loans and include the effects of estimated prepayments. The unpaid principal balance of the acquired loans from the Westernbank FDIC-assisted transaction that are accounted under ASC Subtopic 310-30 amounted to $8.1 billion at the April 30, 2010 transaction date.

The carrying amount of the loans acquired as part of the Westernbank FDIC-assisted transaction at June 30, 2011 and December 31, 2010 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 tables.


	June 30, 2011						December 31, 2010
	Carrying amount						Carrying amount
(In thousands)	Non-credit Impaired Loans		Credit Impaired Loans		Total		Non-credit Impaired Loans		Credit Impaired Loans		Total
Commercial real estate	$	1,973,389	$	223,946	$	2,197,335	$	2,133,600	$	247,654	$	2,381,254
Commercial and industrial		86,444		3,860		90,304		117,869		8,257		126,126
Construction		320,443		313,339		633,782		341,866		292,341		634,207
Mortgage		1,132,690		88,051		1,220,741		1,156,879		87,062		1,243,941
Consumer		113,669		9,234		122,903		144,165		10,235		154,400

Carrying amount		3,626,635		638,430		4,265,065		3,894,379		645,549		4,539,928
Less: Allowance for loan losses		38,633		9,624		48,257		—		—		—

Carrying amount, net of allowance	$	3,588,002	$	628,806	$	4,216,808	$	3,894,379	$	645,549	$	4,539,928

The outstanding principal balance of covered loans accounted pursuant to ASC Subtopic 310-30, including amounts charged off by the Corporation, amounted to $6.8 billion at June 30, 2011 (December 31, 2010 - $7.7 billion). At June 30, 2011, 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 acquired loans in the Westernbank FDIC-assisted transaction at and for the year ended December 31, 2010 and at and for the six months ended June 30, 2011, and which are accounted pursuant to the ASC Subtopic 310-30, were as follows:


	Non-credit Impaired loans						Credit impaired loans						Total
(In thousands)	Accretable yield			Carrying amount of loans			Accretable yield			Carrying amount of loans			Accretable yield			Carrying amount of loans
Balance at January 1, 2010	$		—	$	—		$	—		$	—		$	—		$	—
Additions^[1]		1,487,634			4,212,857			50,425			696,790			1,538,059			4,909,647
Accretion		(179,707	)		179,707			(27,244	)		27,244			(206,951	)		206,951
Collections		—			(498,185	)		—			(78,485	)		—			(576,670	)

Balance at December 31, 2010	$	1,307,927		$	3,894,379		$	23,181		$	645,549		$	1,331,108		$	4,539,928
Accretion		(136,875	)		136,875			(36,242	)		36,242			(173,117	)		173,117
Decrease in cash flow estimates		—			(38,633	)		—			(14,049	)		—			(52,682	)
Reclassifications from nonaccretable balance		375,181						83,747						458,928
Collections		—			(404,619	)		—			(38,936	)		—			(443,555	)

Balance at June 30, 2011, net of allowance for loan losses	$	1,546,233		$	3,588,002		$	70,686		$	628,806		$	1,616,919		$	4,216,808

[1]	Amount presented in the “Carrying amount of loans” column represents the estimated fair value of the loans at the date of acquisition.

During the quarter and six months ended June 30, 2011, the Corporation recorded an allowance for loan losses related to the acquired covered loans that are accounted for under ASC Subtopic 310-30 as certain pools reflected lower expected cash flows. The following table provides the activity in the allowance for loan losses related to these acquired loans for the quarter and six months ended June 30, 2011.


	ASC 310-30 loans
(In thousands)	For the quarter ended June 30, 2011		For the six months ended June 30, 2011
Balance at beginning of period	$	5,297	$	—
Provision for loan losses		43,555		52,682
Charge-offs		595		4,425

Balance at end of period	$	48,257	$	48,257

There was no need to record an allowance for loan losses related to the covered loans at December 31, 2010 and June 30, 2010.

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 loan payment receivable in excess of the initial investment in the loans be accreted into interest income over the life of the loan, if the loan is accruing interest. The following table presents acquired loans accounted for under ASC Subtopic 310-20 at the April 30, 2010 acquisition date (as recasted):


(In thousands)
Fair value of loans accounted under ASC Subtopic 310-20	$	290,810

Gross contractual amounts receivable (principal and interest)	$	457,201

Estimate of contractual cash flows not expected to be collected	$	164,427

The cash flows expected to be collected consider the estimated remaining life of the underlying loans and include the effects of estimated prepayments.

Covered loans accounted for under ASC Subtopic 310-20 amounted to $0.4 billion at June 30, 2011 (December 31, 2010 and June 30, 2010 - $0.3 billion).