Note 10 – Allowance for loan losses

The following tables present the changes in the allowance for loan losses for the quarters and six months ended June 30, 2011 and 2010.


	For the quarters ended
	June 30, 2011									June 30, 2010
(In thousands)	Non-covered loans			Covered loans			Total			Total
Balance at beginning of period	$	727,346		$	9,159		$	736,505		$	1,277,036
Provision for loan losses		95,712			48,605			144,317			202,258
Recoveries		37,874			—			37,874			31,839
Charge-offs		(171,254	)		(595	)		(171,849	)		(234,117	)

Balance at end of period	$	689,678		$	57,169		$	746,847		$	1,277,016


	For the six months ended
	June 30, 2011									June 30, 2010
(In thousands)	Non-covered loans			Covered loans			Total			Total
Balance at beginning of period	$	793,225		$	—		$	793,225		$	1,261,204
Provision for loan losses		155,474			64,162			219,636			442,458
Recoveries		63,129			—			63,129			51,312
Charge-offs		(335,957	)		(6,993	)		(342,950	)		(477,958	)
Recoveries related to loans transferred to loans held-for-sale		13,807			—			13,807			—

Balance at end of period	$	689,678		$	57,169		$	746,847		$	1,277,016

The Corporation’s allowance for loan losses at June 30, 2011 includes $57 million related to the covered loan portfolio acquired in the Westernbank FDIC-assisted transaction. This allowance covers the estimated credit loss exposure related to: (i) acquired loans accounted for under ASC Subtopic 310-30, which required an allowance for loan losses of $48 million at quarter end, as nine pools reflected a higher than expected credit deterioration; and (ii) acquired loans accounted for under ASC Subtopic 310-20, which required an allowance for loan losses of $9 million. Decreases in expected cash flows after the acquisition date for loans (pools) accounted for under ASC Subtopic 310-30 are recognized by recording an allowance for loan losses in the current period. For purposes of loans accounted for under ASC 310-20 and new loans originated as a result of loan commitments assumed, the Corporation’s assessment of the allowance for loan losses is determined in accordance with the accounting guidance of loss contingencies in ASC Subtopic 450-20 (general reserve for inherent losses) and loan impairment guidance in ASC Section 310-10-35 for individually impaired loans. Concurrently, the Corporation recorded an increase in the FDIC loss share asset for the expected reimbursement from the FDIC under the loss sharing agreements.

The following tables present the changes in the allowance for loan losses and the loan balance by portfolio segments for the quarter and six months ended June 30, 2011.


For the quarter ended June 30, 2011
Puerto Rico
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	221,149		$	18,372		$	55,926		$	6,608		$	130,415		$	432,470
Charge-offs		(57,290	)		(283	)		(7,166	)		(1,510	)		(34,475	)		(100,724	)
Recoveries		7,104			6,227			15			878			6,780			21,004
Provision		103,999			(7,952	)		6,400			(931	)		17,806			119,322

Ending balance	$	274,962		$	16,364		$	55,175		$	5,045		$	120,526		$	472,072

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	7,704		$	116		$	8,226		$	—		$	—		$	16,046

Ending balance: non-covered loans collectively evaluated for impairment	$	219,429		$	6,957		$	46,914		$	5,045		$	120,512		$	398,857

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	1,000		$	—		$	—		$	—		$	—		$	1,000

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	46,829		$	9,291		$	35		$	—		$	14		$	56,169

Loans held-in-portfolio:
Ending balance - Total	$	8,998,706		$	807,201		$	5,739,166		$	564,289		$	2,983,850		$	19,093,212

Ending balance: non-covered loans individually evaluated for impairment	$	346,893		$	65,885		$	195,650		$	—		$	—		$	608,428

Ending balance: non-covered loans collectively evaluated for impairment	$	6,056,048		$	96,156		$	4,305,288		$	564,289		$	2,846,428		$	13,868,209

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	3,626		$	—		$	—		$	—		$	—		$	3,626

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	2,592,139		$	645,160		$	1,238,228		$	—		$	137,422		$	4,612,949


For the quarter ended June 30, 2011
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	188,626		$	27,766		$	24,243		$	3,735		$	59,665		$	304,035
Charge-offs		(43,755	)		(6,822	)		(4,996	)		(291	)		(15,261	)		(71,125	)
Recoveries		11,750			2,234			966			166			1,754			16,870
Provision		28,011			(10,466	)		2,619			(2,885	)		7,716			24,995

Ending balance	$	184,632		$	12,712		$	22,832		$	725		$	53,874		$	274,775

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	51		$	270		$	3,439		$	—		$	—		$	3,760

Ending balance: non-covered loans collectively evaluated for impairment	$	184,581		$	12,442		$	19,393		$	725		$	53,874		$	271,015

Loans held-in-portfolio:
Ending balance - Total	$	4,333,392		$	231,718		$	846,574		$	21,767		$	747,606		$	6,181,057

Ending balance: non-covered loans individually evaluated for impairment	$	139,114		$	134,034		$	10,103		$	—		$	—		$	283,251

Ending balance: non-covered loans collectively evaluated for impairment	$	4,194,278		$	97,684		$	836,471		$	21,767		$	747,606		$	5,897,806


For the quarter ended June 30, 2011
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	409,775		$	46,138		$	80,169		$	10,343		$	190,080		$	736,505
Charge-offs		(101,045	)		(7,105	)		(12,162	)		(1,801	)		(49,736	)		(171,849	)
Recoveries		18,854			8,461			981			1,044			8,534			37,874
Provision		132,010			(18,418	)		9,019			(3,816	)		25,522			144,317

Ending balance	$	459,594		$	29,076		$	78,007		$	5,770		$	174,400		$	746,847

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	7,755		$	386		$	11,665		$	—		$	—		$	19,806

Ending balance: non-covered loans collectively evaluated for impairment	$	404,010		$	19,399		$	66,307		$	5,770		$	174,386		$	669,872

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	1,000		$	—		$	—		$	—		$	—		$	1,000

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	46,829		$	9,291		$	35		$	—		$	14		$	56,169

Loans held-in-portfolio:
Ending balance - Total	$	13,332,098		$	1,038,919		$	6,585,740		$	586,056		$	3,731,456		$	25,274,269

Ending balance: non-covered loans individually evaluated for impairment	$	486,007		$	199,919		$	205,753		$	—		$	—		$	891,679

Ending balance: non-covered loans collectively evaluated for impairment	$	10,250,326		$	193,840		$	5,141,759		$	586,056		$	3,594,034		$	19,766,015

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	3,626		$	—		$	—		$	—		$	—		$	3,626

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	2,592,139		$	645,160		$	1,238,228		$	—		$	137,422		$	4,612,949


For the six months ended June 30, 2011
Puerto Rico
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	256,643		$	16,074		$	42,029		$	7,154		$	133,531		$	455,431
Charge-offs		(105,029	)		(14,382	)		(15,370	)		(3,456	)		(70,298	)		(208,535	)
Recoveries		14,608			7,960			542			1,645			13,843			38,598
Provision		108,740			6,712			27,974			(298	)		43,450			186,578

Ending balance	$	274,962		$	16,364		$	55,175		$	5,045		$	120,526		$	472,072

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	7,704		$	116		$	8,226		$	—		$	—		$	16,046

Ending balance: non-covered loans collectively evaluated for impairment	$	219,429		$	6,957		$	46,914		$	5,045		$	120,512		$	398,857

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	1,000		$	—		$	—		$	—		$	—		$	1,000

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	46,829		$	9,291		$	35		$	—		$	14		$	56,169

Loans held-in-portfolio:
Ending balance - Total	$	8,998,706		$	807,201		$	5,739,166		$	564,289		$	2,983,850		$	19,093,212

Ending balance: non-covered loans individually evaluated for impairment	$	346,893		$	65,885		$	195,650		$	—		$	—		$	608,428

Ending balance: non-covered loans collectively evaluated for impairment	$	6,056,048		$	96,156		$	4,305,288		$	564,289		$	2,846,428		$	13,868,209

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	3,626		$	—		$	—		$	—		$	—		$	3,626

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	2,592,139		$	645,160		$	1,238,228		$	—		$	137,422		$	4,612,949


For the six months ended June 30, 2011
U.S. Mainland
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	205,748		$	31,650		$	28,839		$	5,999		$	65,558		$	337,794
Charge-offs		(82,012	)		(12,255	)		(6,354	)		(619	)		(33,175	)		(134,415	)
Recoveries		16,709			2,520			1,754			442			3,106			24,531
Recoveries related to loans transferred to LHFS		—			—			13,807			—			—			13,807
Provision		44,187			(9,203	)		(15,214	)		(5,097	)		18,385			33,058

Ending balance	$	184,632		$	12,712		$	22,832		$	725		$	53,874		$	274,775

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	51		$	270		$	3,439		$	—		$	—		$	3,760

Ending balance: non-covered loans collectively evaluated for impairment	$	184,581		$	12,442		$	19,393		$	725		$	53,874		$	271,015

Loans held-in-portfolio:
Ending balance - Total	$	4,333,392		$	231,718		$	846,574		$	21,767		$	747,606		$	6,181,057

Ending balance: non-covered loans individually evaluated for impairment	$	139,114		$	134,034		$	10,103		$	—		$	—		$	283,251

Ending balance: non-covered loans collectively evaluated for impairment	$	4,194,278		$	97,684		$	836,471		$	21,767		$	747,606		$	5,897,806


For the six months ended June 30, 2011
Popular, Inc.
(In thousands)	Commercial			Construction			Mortgage			Leasing			Consumer			Total
Allowance for credit losses:
Beginning balance	$	462,391		$	47,724		$	70,868		$	13,153		$	199,089		$	793,225
Charge-offs		(187,041	)		(26,637	)		(21,724	)		(4,075	)		(103,473	)		(342,950	)
Recoveries		31,317			10,480			2,296			2,087			16,949			63,129
Recoveries related to loans transferred to LHFS		—			—			13,807			—			—			13,807
Provision		152,927			(2,491	)		12,760			(5,395	)		61,835			219,636

Ending balance	$	459,594		$	29,076		$	78,007		$	5,770		$	174,400		$	746,847

Allowance for credit losses:
Ending balance: non-covered loans individually evaluated for impairment	$	7,755		$	386		$	11,665		$	—		$	—		$	19,806

Ending balance: non-covered loans collectively evaluated for impairment	$	404,010		$	19,399		$	66,307		$	5,770		$	174,386		$	669,872

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	1,000		$	—		$	—		$	—		$	—		$	1,000

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	46,829		$	9,291		$	35		$	—		$	14		$	56,169

Loans held-in-portfolio:
Ending balance - Total	$	13,332,098		$	1,038,919		$	6,585,740		$	586,056		$	3,731,456		$	25,274,269

Ending balance: non-covered loans individually evaluated for impairment	$	486,007		$	199,919		$	205,753		$	—		$	—		$	891,679

Ending balance: non-covered loans collectively evaluated for impairment	$	10,250,326		$	193,840		$	5,141,759		$	586,056		$	3,594,034		$	19,766,015

Ending balance: covered loans individually evaluated for impairment accounted for under ASC 310-20	$	3,626		$	—		$	—		$	—		$	—		$	3,626

Ending balance: covered loans collectively evaluated for impairment accounted for under ASC 310-30 and ASC 310-20	$	2,592,139		$	645,160		$	1,238,228		$	—		$	137,422		$	4,612,949

Impaired loans

Disclosures related to loans that were considered impaired based on ASC Section 310-10-35 are included in the table below.


(In thousands)	June 30, 2011		December 31, 2010		June 30, 2010
Impaired loans with related allowance	$	226,681	$	154,349	$	1,349,536
Impaired loans that do not require an allowance		668,624		644,150		389,536

Total impaired loans	$	895,305	$	798,499	$	1,739,072

Allowance for impaired loans	$	20,806	$	13,770	$	383,439

Average balance of impaired loans during the quarter	$	860,127			$	1,747,025

Interest income recognized on impaired loans during the quarter	$	3,708			$	4,769

Average balance of impaired loans during the six months ended June 30,	$	839,584			$	1,236,004

Interest income recognized on impaired loans during the six months ended June 30,	$	7,056			$	9,232

The following tables present commercial, construction, mortgage and covered loans individually evaluated for impairment at June 30, 2011 and December 31, 2010.


June 30, 2011
Puerto Rico
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	9,568	$	11,509	$	2,039	$	247,711	$	299,397	$	257,279	$	310,906	$	2,039
Commercial and industrial		9,888		9,888		5,665		79,726		101,109		89,614		110,997		5,665
Construction		1,777		2,120		116		64,108		117,016		65,885		119,136		116
Mortgage		190,906		193,062		8,226		4,744		4,744		195,650		197,806		8,226
Covered Loans		—		1,000		1,000		3,626		3,642		3,626		4,642		1,000

Total Puerto Rico	$	212,139	$	217,579	$	17,046	$	399,915	$	525,908	$	612,054	$	743,487	$	17,046


June 30, 2011
U.S. Mainland
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	—	$	—	$	—	$	115,539	$	145,998	$	115,539	$	145,998	$	—
Commercial and industrial		1,319		1,319		51		22,256		31,648		23,575		32,967		51
Construction		3,120		4,340		270		130,914		185,244		134,034		189,584		270
Mortgage		10,103		10,103		3,439		—		—		10,103		10,103		3,439

Total U.S. Mainland	$	14,542	$	15,762	$	3,760	$	268,709	$	362,890	$	283,251	$	378,652	$	3,760


June 30, 2011
Popular, Inc.
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	9,568	$	11,509	$	2,039	$	363,250	$	445,395	$	372,818	$	456,904	$	2,039
Commercial and industrial		11,207		11,207		5,716		101,982		132,757		113,189		143,964		5,716
Construction		4,897		6,460		386		195,022		302,260		199,919		308,720		386
Mortgage		201,009		203,165		11,665		4,744		4,744		205,753		207,909		11,665
Covered Loans		—		1,000		1,000		3,626		3,642		3,626		4,642		1,000

Total Popular, Inc.	$	226,681	$	233,341	$	20,806	$	668,624	$	888,798	$	895,305	$	1,122,139	$	20,806


December 31, 2010
Puerto Rico
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	11,403	$	13,613	$	3,590	$	208,891	$	256,858	$	220,294	$	270,471	$	3,590
Commercial and industrial		23,699		28,307		4,960		66,589		79,917		90,288		108,224		4,960
Construction		4,514		10,515		216		61,184		99,016		65,698		109,531		216
Mortgage		114,733		115,595		5,004		6,476		6,476		121,209		122,071		5,004

Total Puerto Rico	$	154,349	$	168,030	$	13,770	$	343,140	$	442,267	$	497,489	$	610,297	$	13,770


December 31, 2010
U.S. Mainland
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	—	$	—	$	—	$	101,856	$	152,876	$	101,856	$	152,876	$	—
Commercial and industrial		—		—		—		33,530		44,443		33,530		44,443		—
Construction		—		—		—		165,624		248,955		165,624		248,955		—

Total U.S. Mainland	$	—	$	—	$	—	$	301,010	$	446,274	$	301,010	$	446,274	$	—

There were no mortgage loans individually evaluated for impairment in the U.S. Mainland portfolio at December 31, 2010.


December 31, 2010
Popular, Inc.
	Impaired Loans – With an Allowance						Impaired Loans With No Allowance				Impaired Loans - Total
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Commercial real estate	$	11,403	$	13,613	$	3,590	$	310,747	$	409,734	$	322,150	$	423,347	$	3,590
Commercial and industrial		23,699		28,307		4,960		100,119		124,360		123,818		152,667		4,960
Construction		4,514		10,515		216		226,808		347,971		231,322		358,486		216
Mortgage		114,733		115,595		5,004		6,476		6,476		121,209		122,071		5,004

Total Popular, Inc.	$	154,349	$	168,030	$	13,770	$	644,150	$	888,541	$	798,499	$	1,056,571	$	13,770

The following table presents the average recorded investment and interest income recognized on impaired loans for the quarter and six months ended June 30, 2011.


For the quarter ended June 30, 2011
	Puerto Rico				U.S. Mainland				Popular, Inc.
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate	$	244,152	$	625	$	102,012	$	354	$	346,164	$	979
Commercial and industrial		91,832		326		35,022		180		126,854		506
Construction		61,246		—		147,660		—		208,906		—
Mortgage		168,735		2,092		7,655		131		176,390		2,223
Covered Loans		1,813		—		—		—		1,813		—

Total Popular, Inc.	$	567,778	$	3,043	$	292,349	$	665	$	860,127	$	3,708


For the six months ended June 30, 2011
	Puerto Rico				U.S. Mainland				Popular, Inc.
(In thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate	$	236,199	$	1,294	$	101,960	$	449	$	338,159	$	1,743
Commercial and industrial		91,317		578		34,525		397		125,842		975
Construction		62,730		49		153,648		152		216,378		201
Mortgage		152,893		4,006		5,103		131		157,996		4,137
Covered Loans		1,209		—		—		—		1,209		—

Total Popular, Inc.	$	544,348	$	5,927	$	295,236	$	1,129	$	839,584	$	7,056

Troubled debt restructurings related to non-covered loans portfolio amounted to $673 million at June 30, 2011 (December 31, 2010 - $561 million). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings amounted to $486 thousand related to the construction loan portfolio and $1 million related to the commercial loan portfolio at June 30, 2011 (December 31, 2010 - $3 million and $1 million, respectively).

Credit Quality

The Corporation has defined a dual risk rating system to assign a rating to all credit exposures, particularly for the commercial and construction loan portfolios. Risk ratings in the aggregate provide the Corporation’s management the asset quality profile for the loan portfolio. The dual risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower, and at the credit facility level based on the collateral supporting the transaction. The Corporation’s consumer and mortgage loans are not subject to the dual risk rating system. Consumer and mortgage loans are classified substandard or loss based on their delinquency status. All other consumer and mortgage loans that are not classified as substandard or loss would be considered “unrated”.

The Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk of payment default of a borrower in the ordinary course of business.

Pass Credit Classifications:

Pass (Scales 1 through 8) - Loans classified as pass have a well defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.

Watch (Scale 9) - Loans classified as watch have acceptable business credit, but borrowers operations, cash flow or financial condition evidence more than average risk, requires above average levels of supervision and attention from Loan Officers.

Special Mention (Scale 10) - Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.

Adversely Classified Classifications:

Substandard (Scales 11 and 12) - Loans classified as substandard are deemed to be inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans classified as such have well-defined weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful (Scale 13) - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the additional characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss (Scale 14) - Uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future.

Risk ratings scales 10 through 14 conform to regulatory ratings. The assignment of the obligor risk rating is based on relevant information about the ability of borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

The Corporation periodically reviews loans classified as watch list or worse, to evaluate if they are properly classified, and to determine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal process of applicable credit facilities, the Corporation evaluates the corresponding loan grades.

Loans classified as pass credits are excluded from the scope of the review process described above until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Corporation for a modification. In these circumstances, the credit facilities are specifically evaluated to assign the appropriate risk rating classification.

The following table presents the outstanding balance, net of unearned, of non-covered loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at June 30, 2011 and December 31, 2010.


June 30, 2011
(In thousands)	Watch		Special Mention		Substandard		Doubtful		Loss		Total		Pass/ Unrated		Total
*Puerto Rico*^[1]
Commercial real estate	$	376,010	$	359,809	$	630,376	$	6,911	$	—	$	1,373,106	$	2,226,064	$	3,599,170
Commercial and industrial		368,955		211,961		366,149		2,655		1,438		951,158		1,852,613		2,803,771

Total Commercial		744,965		571,770		996,525		9,566		1,438		2,324,264		4,078,677		6,402,941
Construction		4,310		33,108		65,708		13,013		—		116,139		45,902		162,041
Mortgage		—		—		619,147		—		—		619,147		3,881,791		4,500,938
Leasing		—		—		19,323		—		5,832		25,155		539,134		564,289
Consumer		—		—		38,063		—		4,650		42,713		2,803,715		2,846,428

Total Puerto Rico	$	749,275	$	604,878	$	1,738,766	$	22,579	$	11,920	$	3,127,418	$	11,349,219	$	14,476,637

*U.S. Mainland*
Commercial real estate	$	345,346	$	83,835	$	588,306	$	—	$	—	$	1,017,487	$	2,224,121	$	3,241,608
Commercial and industrial		54,387		31,912		154,991		—		—		241,290		850,494		1,091,784

Total Commercial		399,733		115,747		743,297		—		—		1,258,777		3,074,615		4,333,392
Construction		13,893		26,188		184,742		—		—		224,823		6,895		231,718
Mortgage		—		—		32,584		—		—		32,584		813,990		846,574
Leasing		—		—		—		—		—		—		21,767		21,767
Consumer		—		—		6,525		—		22,383		28,908		718,698		747,606

Total U.S. Mainland	$	413,626	$	141,935	$	967,148	$	—	$	22,383	$	1,545,092	$	4,635,965	$	6,181,057

*Popular, Inc.*
Commercial real estate	$	721,356	$	443,644	$	1,218,682	$	6,911	$	—	$	2,390,593	$	4,450,185	$	6,840,778
Commercial and industrial		423,342		243,873		521,140		2,655		1,438		1,192,448		2,703,107		3,895,555

Total Commercial		1,144,698		687,517		1,739,822		9,566		1,438		3,583,041		7,153,292		10,736,333
Construction		18,203		59,296		250,450		13,013		—		340,962		52,797		393,759
Mortgage		—		—		651,731		—		—		651,731		4,695,781		5,347,512
Leasing		—		—		19,323		—		5,832		25,155		560,901		586,056
Consumer		—		—		44,588		—		27,033		71,621		3,522,413		3,594,034

Total Popular, Inc.	$	1,162,901	$	746,813	$	2,705,914	$	22,579	$	34,303	$	4,672,510	$	15,985,184	$	20,657,694

The following table presents the weighted average obligor risk rating for those classifications that consider a range of rating scales.


Weighted average obligor risk rating	(Scales 11 and 12) Substandard		(Scales 1 through 8) Pass
Puerto Rico:^[1]
Commercial real estate		11.63		6.71
Commercial and industrial		11.34		6.61

Total Commercial		11.52		6.67

Construction		11.83		7.71


	Substandard		Pass
U.S. Mainland:
Commercial real estate		11.29		7.11
Commercial and industrial		11.26		6.95

Total Commercial		11.28		7.07

Construction		11.75		8.00

[1]	Excludes covered loans acquired on the Westernbank FDIC-assisted transaction.


December 31, 2010
(In thousands)	Watch		Special Mention		Substandard		Doubtful		Loss		Total		Pass/ Unrated		Total
*Puerto Rico*^[1]
Commercial real estate	$	439,004	$	346,985	$	622,675	$	6,302	$	—	$	1,414,966	$	2,440,632	$	3,855,598
Commercial and industrial		608,250		245,250		345,266		3,112		1,436		1,203,314		1,658,104		2,861,418

Total Commercial		1,047,254		592,235		967,941		9,414		1,436		2,618,280		4,098,736		6,717,016
Construction		38,921		12,941		67,271		15,939		—		135,072		33,284		168,356
Mortgage		—		—		550,933		—		—		550,933		3,098,767		3,649,700
Leasing		—		—		5,539		—		5,969		11,508		561,279		572,787
Consumer		—		—		47,907		—		4,227		52,134		2,845,701		2,897,835

Total Puerto Rico	$	1,086,175	$	605,176	$	1,639,591	$	25,353	$	11,632	$	3,367,927	$	10,637,767	$	14,005,694

*U.S. Mainland*
Commercial real estate	$	302,347	$	93,564	$	650,118	$	—	$	—	$	1,046,029	$	2,105,049	$	3,151,078
Commercial and industrial		62,552		81,224		250,843		—		—		394,619		1,130,772		1,525,391

Total Commercial		364,899		174,788		900,961		—		—		1,440,648		3,235,821		4,676,469
Construction		30,021		40,022		257,651		—		—		327,694		4,801		332,495
Mortgage		—		—		23,587		—		—		23,587		851,435		875,022
Leasing		—		—		—		—		—		—		30,206		30,206
Consumer		—		—		14,240		—		8,825		23,065		785,084		808,149

Total U.S. Mainland	$	394,920	$	214,810	$	1,196,439	$	—	$	8,825	$	1,814,994	$	4,907,347	$	6,722,341

*Popular, Inc.*
Commercial real estate	$	741,351	$	440,549	$	1,272,793	$	6,302	$	—	$	2,460,995	$	4,545,681	$	7,006,676
Commercial and industrial		670,802		326,474		596,109		3,112		1,436		1,597,933		2,788,876		4,386,809

Total Commercial		1,412,153		767,023		1,868,902		9,414		1,436		4,058,928		7,334,557		11,393,485
Construction		68,942		52,963		324,922		15,939		—		462,766		38,085		500,851
Mortgage		—		—		574,520		—		—		574,520		3,950,202		4,524,722
Leasing		—		—		5,539		—		5,969		11,508		591,485		602,993
Consumer		—		—		62,147		—		13,052		75,199		3,630,785		3,705,984

Total Popular, Inc.	$	1,481,095	$	819,986	$	2,836,030	$	25,353	$	20,457	$	5,182,921	$	15,545,114	$	20,728,035

The following table presents the weighted average obligor risk rating for those classifications that consider a range of rating scales.


Weighted average obligor risk rating	(Scales 11 and 12) Substandard		(Scales 1 through 8) Pass
Puerto Rico:^[1]
Commercial real estate		11.64		6.68
Commercial and industrial		11.24		6.76

Total Commercial		11.49		6.71

Construction		11.77		7.49


	Substandard		Pass
United States:
Commercial real estate		11.29		7.11
Commercial and industrial		11.17		6.98

Total Commercial		11.25		7.07

Construction		11.66		8.00

[1]	Excludes covered loans acquired on the Westernbank FDIC-assisted transaction.